Financial Update #2/ Week of August 17, 2009

Good Morning Everyone and Happy Tuesday! Many of you may be a little miffed at the fact that we had such a drastic move in credit markets yesterday with no improvement in rates yesterday afternoon. Today the stock market is recapturing about ½ of its losses from yesterday and credit markets are basically flat. Pricing is still about the same from yesterday morning – within a few bps.

You must keep in mind that credit markets are much more conservative than equity markets. The credit market traders and secondary marketing managers can get hurt very badly with a big move in the wrong direction in credit markets. Thus, traders on the credit instruments keep a safe distance from the campfire so as not to get burned. Today we see this playing out in rates. Fortunately, we’re basically flat from yesterday morning and didn’t lose the ground we gained from Friday a.m. to yesterday morning’s pricing.

There were a couple of economic reports this morning of note. First of all, the PPI for July came in with a drop of .9%, worse than the .3% anticipated, and way down from the 1.8% increase in June. Many experts talked about the June number being an aberration, and it proves to be the case now. There is basically no inflation in the market at this time. Take food and energy out of the mix, and your number is a paltry .1% decrease, not much of a market mover. Housing starts and building permits dropped for the month of July compared to the month previous. That is to be expected with home values dropping like they have. Home Depot helped put a spark in the equity markets this morning with a positive earnings report. This morning’s rally seems to be more of a reaction from yesterday’s loss, but further shows the resiliency of the equity market and how we just can’t seem to get some downward movement over several trading days.

Thursday, the Treasury Dept will announce their auctions for T-bills which will happen next week; these always compete for money in MBS’s…

I will be in the office all day today. If you want to lock a loan, be sure to email me first and let me know it’s coming. Otherwise, if I can help you with a loan scenario or pricing question, please email me or call me here. Have a terrific Tuesday!