It's all about inflation.

It’s all about inflation.

The markets have been moving in gargantuan steps over the past month starting on May 21, right before Memorial day with the first realization that all of the deficit spending needs to be funded with Treasury Debt offerings (duh!) More debt offerings mean two very bad things for mortgage backed security interest rates: 1) competition for fixed-income investor dollars and 2) more debt = more inflation. And recently, the competition has been fierce. This past week had some of the best and worst of the tug-of-war for investor dollars in play.

If you follow me on twitter, you saw that we continued a rocket ride up and on Wednesday hit a peak that put us up over 360 bps (basis points or 100ths of 1%) in pricing of MBS. We were glad to ride (float) that rocket Friday, Monday and Tuesday of last week right into lock mode Wednesday afternoon. The following day, Thursday, the Treasury announced a $105+ Billion supply of T-Bonds to be sold in this week and MBS fell off the map again. See the amazing first chart below and descriptions for the MBS activity over the past month relative to the announcements of treasury debt offerings. Then move on further down the page to the 2^nd chart and note that since its printing last week, we continue today in a green recovery mode. In fact, since the low on Thursday’s (red) pricing, we have risen over 130 bps again and today have already touched the 200-day moving average (blue line), recovering all of the loss that happened on Thursday. This has all been at the expense of the stock market, where the S+P at 944 appears to have become impenetrable.

This week, the Fed’s Open Market Committee (FOMC) will be meeting tomorrow and Wednesday and make a brief announcement at 11:15 am our time on Wednesday. While the Discount Rate is not expected to move, the description of Fed plans to buy Treasury and MBS will be interesting and their characterization of future inflation will likewise garner much attention. We’ll be watching that and the announcements of future Treasury Bond issuance.

Of significant interest in the long-run, but buried in the volatile short-term activity of the markets, is the heavy handed regulatory announcements from the Obama administration late last week. There is clearly a pendulum swing underway that has only begun to move into the “over-regulated” zone and is now beginning its upswing into even higher regulation. I experienced first-hand the effects of the pendulum swing into over regulation with the Sarbanes-Oxley act of 2002 and can tell you that the costs of such government intervention are easily double and triple the expectation. Watch for the unintended consequences of this to start becoming visible as early as the end of this year.

Signet Mortgage has lenders willing and anxious to help you close deals. Rates have crept up a bit, but we can work you, your clients, friend and family into the best available loan program and rates. Give us a call and let’s make it happen. Make it a great week! - Dave

PS – a quick shout out to Joanna Van Vleck and her successful startup of trunkclub.com, revolutionizing the way men buy clothes. Bend, OR is blessed to have many brilliant and creative people living in our area and Joanna’s global reach in a short time has been amazing. A welcome counterpoint to the NY Times article on the real estate retraction in Bend. There will come a time in the next 18 months where the migration in of those who recognize the great benefits of this area will be newsworthy again. In the meantime, rock-on Joanna and thanks for being part of what makes this place great. And if you were wondering, yes, Joanna is Paula’s daughter.