Morning Report: Looking ahead

Vital Statistics:

 LastChange
S&P futures375717.3
Oil (WTI)50.57-0.04
10 year government bond yield 1.07%
30 year fixed rate mortgage 2.81%

Stocks are higher this morning after Trump agreed to an orderly transfer of power. Bonds and MBS are down.

Now that the Democrats control 100% of government, the first order of business will be $2,000 stimulus checks. The other big item on the menu will be a bailout for the Big Broke Blue States of NY, CA and NJ. The left has been itching to raise taxes, however I see that as a long shot while the economy is still in a COVID weakened state. I don’t see a tax hike as something we need to worry about right off the bat. GSE reform will also go to the back burner. I wouldn’t be surprised to see the government re-instate the net profit sweep.

The bigger fear is that the bond market continues to sell off, which counteracts what the Fed is trying to do. The fact that TBA prices are lagging the move in Treasuries indicates that the Fed is still firmly in control of this market and that mortgage rates will stay low. The Fed realizes that the easiest way to get money into people’s pockets is to let them cut their mortgage payment or to get a cash-out refinance. I suspect the Fed will keep the refi boom going for the near term by supporting the TBA market.

The supply / demand imbalance in the housing market should guarantee that home prices keep appreciating. The one thing that worries me is an extended foreclosure and eviction moratorium. The left has zero sympathy for landlords, and they haven’t thought through the consequences of letting people live rent-free for an extended period of time. I wouldn’t touch a non-QM NOO mortgage with a barge pole right now.

The FOMC minutes were uneventful. Unsurprisingly, the Fed is worried about the economy, and low inflation. They didn’t say anything we didn’t already know.

Initial Jobless Claims came in at 787k last week, while the Challenger and Gray job cut report showed 77,000 announced job cuts in December.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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