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Long Beach Mortgage Report: Bernanke endorses Obama's Stimulus Plan

Long Beach, Ca. An endorsement from the FED Chairman Ben Bernanke of the latest economic stimulus package as proposed by the Obama administration has left traders in a more positive mood this morning since we have had five red days in the stock market. Bernanke is quoted as saying that it could provide a "significant boost to economic activity." He added a caveat: "In my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system." Traders seemed to appear confident those measures were in the offing, too -- so much so that they looked beyond a weak start to 4th quarter earnings season.

However the FED Chairman went on to say that a fiscal stimulus won't be enough to spur an economic recovery and that the government may need to buy or guarantee banks' tainted assets to revive growth. "Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system," Bernanke said in a speech today at the London School of Economics. "More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets."

Last economic news today for your consumption is the U.S. trade deficit narrowed 29 percent in November, the most in 12 years, as tumbling oil prices and a slump in consumer spending slashed imports. The gap shrank more than forecast to $40.4 billion, the smallest since November 2003, from a revised $56.7 billion in October, the Commerce Department said today in Washington. Americans bought 12 percent fewer goods and services from overseas, sending imports to the lowest level in three years. World trade is likely to contract as commodity prices fall and the credit crunch causes consumers and businesses worldwide to pare spending, deepening the economic slump. Treasuries changed little before reports this week that economists forecast will show U.S. retail sales slid in December and consumer prices declined. Ten-year Treasuries advanced earlier today, sending yields to the lowest level in more than a week, as stock losses in Europe and Asia fueled demand for the safest assets. Economists cut forecasts for growth this year, saying the U.S. economy will shrink 1.5 percent, a half percentage point more than projected last month, according to a Bloomberg survey.

The market performed well yesterday, but by the end of the day mortgage spreads "widened out", meaning they worsened relative to Treasury prices. Not that they are directly linked, but Wall Street traders like to watch their spreads. Dealers estimate that originators sold somewhere between $1.5 to $3 in agency loans, and most of it was purchased by the Fed. Showing how fickle it can be, apparently "the market" is becoming a little concerned with the temporary nature of Fed buying, which has only been promised through the end of June. In addition, the market is still somewhat overbought, and that would weaken support for mortgages at these prices. With no scheduled news today, we awaken to find the 10-yr hovering around 2.32% and mortgages perhaps slightly better than Monday afternoon's levels.

Kirk Mulhearn, a mortgage planner and real estate broker, may be contacted at 866-961-8042 ext. 110, subscribe to this blog at: www.longbeachrealestateandloans.com