Alphabet Soup Week - SOTU, FOMC, MBS, & GDP and Impact on Rates

There were some monumental events this past week with an election outcome, the State of the Union address, the FOMC meeting statement, President Obama's meeting with the Republican Caucus, the stock market 5% movement, 4^th Q GDP announcement and more. From those, there were a few related points that very much stood out to me. Before we get to that, please note that the 30-yr fixed, conforming residential mortgage rates are still at 4.75% for the price of an origination. First, based on the tenor of the State of the Union, I think there must already be a sign on the back of a door somewhere in the Whitehouse that President Obama will probably see every day until the 2012 elections that says "It's the jobs, stupid." This is clearly a focus of theirs this week and let's hopes all year long. Effort needs to be there to enable credit flows and incent job creation. At the very least, as Bill Watkins of the Center for Economic Research and Forecasting told us Thursday, it is important that government "first do no harm" to job creation.

I heard an interesting interview with Senators Bayh and McCain this week regarding the efforts needed to address and roll back the huge projected deficits. One point they made was that we can't sacrifice long-term stability for a short-term gains. Unfortunately, the passage of Measures 66 & 67 in Oregon is exactly that - it is a short term fix enabling the government to continue spending for a number of months, but we'll be right back in this problem in 2011-2013 AND it does significant harm to future jobs. The takeaway here is that we need to have legislators who will show restraint in spending and first, do no harm.

I attended the Economic Forecast meeting on Thursday and some of the things that stood out to me included a chart of projected national foreclosures. I fully expected to see the 2010 numbers exceed 2009 and 2008, which it did, but the interesting thing to me was that while they were projecting 2011 foreclosures to be less than 2010, the number was still at a higher rate than 2009. This is consistent with the still looming ARM adjustment wave and the unemployment projection. Nationally the unemployment number was presented to bounce along above 10% through all of 2010 AND 2011. This corresponds to a Central OR number of >15%. Unfortunately, these numbers do NOT capture those who work part time while wishing to work full time nor do they include those discouraged enough to leave the job search altogether. Adding these in the "underemployment" number is currently 21.1% in CA and 20.7% in OR per Friday's US Dept of Labor report (click here.)

The FOMC statement released on Wednesday (see here) stood out for 3 things.

1. one word changed in their outlook on the pace of economic recovery from "weak" to "moderate". This is a door just starting to open towards their eventual raising of the fed funds rates;
2. they solidified the end of MBS purchases by March 31^st. This is VERY significant to the availability of sub 5.00% mortgage rates; and
3. there was one dissenting vote, an indication that this may be the last time we'll hear "exceptionally low levels" (read 0%) "for an extended period" (read 6 months.) We'll watch that at the next FOMC meeting, March 16, for the word "extended" to change. If you are interested in the line by line changes in the FOMC statement, click here.

The GDP number for Q4 growing at 5.7% will be analyzed all week. Many different opinions out there, but the report itself pointed to an impact of half of that growth coming from inventories (dwindling the past 4 quarters, now stabilizing.) At the very least this is a first step needed before true growth can begin. Also a step needed before employers can gain confidence to create jobs. Not even Whitehouse Economist, Christina Roemer is expecting this to hold in Q1 however.

And with all of this swirling it is important that we keep perspective. I got a call from a friend late last week who just accepted a job here in Bend and will be relocating from CA. His expertise was needed here and it is a dream for him and his family to live in Bend. If you haven't viewed the VisitBend.com video presentation lately, take a look again by clicking here. I hope you are finding good work, that you have time for your family and friends and that the people you work with are genuinely good, uplifting and friendly people. I am blessed to work with wonderful people at Signet and throughout the community. Thank you for your trust in referring friends and clients my way. Above all, thanks for your kind words and friendship. Make it a great week!