State of the Market

Retail Sales lower than expectations at -0.3%.  Stripping out car sales, the number only fell by -0.1%.  That’s the only domestic report out today; the Producer Price Index and the Fed’s Beige Book come out tomorrow.

Greece made a $95M debt payment to Japan today.  Banks in Greece are scheduled to reopen this Thursday after being closed for a two weeks now.  It’s probably pretty easy to find $95,000,000 when the banks are empty and you have complete access.

Our mortgage bond pricing enjoyed a run up for the first week of the Greece debt crisis and has now slid back down to pre-crisis levels from the last week in June.  We have hit a triple bottom and hope that we can continue to hold here.  Looking at the chart for the last two years, this area holds a lot of support, but if pricing falls from here, rates will most likely climb another 1/4% rather quickly.  Stay quick on your feet.

Pigs is Pigs

Money is flowing out of Bonds and into Stocks this morning after news that the latest $59,000,000,000 Greek bailout proposals mays appease creditors and keep the country in the European Union.  Greece will most assuredly need to usher in tax increases and spending cuts to make payments this time around.

China’s whipsaw stock market is also making headlines again today as it closed this time on the upside.  Regarding the economies of both countries, the question is whether there is real sustainable growth based on sound fundamentals or just fabricated headlines to appease big brother.  No matter how you doll it up, a pig is still a pig I say.  Disclaimer: I am in no way asserting that these countries, their citizens, or anyone descending from–or with ties to–these nations are anything less than the best of human kind.  My assertion is simply that a healthy economy requires more than lipstick and rose-colored glasses.

Speaking of pigs, I had a delicious Brown Sugar Bacon and Pit Smoked Ham Sandwich on a King’s Hawaiian Bun at a reputable dining establishment down the street from my office (okay you got me, it was Arby’s) this week.  What made the experience even more sweet is that when I got to the drive thru window to pick up my food, the gal handed me my bag and informed me that the car ahead had picked up the tab.  It was the most gratifying lunch that I had all week and has caused me to look for more opportunities to be kinder than I need to be.

Trouble in Paradise

I welcome your witty caption about these pigs swimming in a the Mediterranean Sea off the coast of Greece, where their banks and stock market have just shut down for a week.  Grecians can’t pull more than 60 Euro out of ATMs per day, the supermarkets are running out of food, and the gas stations are running out of fuel.

Jumping on the “trouble in paradise” band wagon, Puerto Pico’s governor announced this morning that his Commonwealth cannot repay their $72 Billion in debt.

For the time being, the uncertainty has caused the DOW to drop 245 while the equity markets bleed into the bond markets.  Our mortgage bonds are taking their share of the proceeds, driving prices up 59bps this morning.

Pending Home Sales rose 0.9% last month, below the 1.4% increase expected.  At the same time, my favorite-named financial services company, Black Knight, reported that home prices rose 1% last month and are up 5% from 12 months ago.

Get To Work

Well, this is the almost the last day that I get to look at my June parody of a motivational calendar, pictured above.

Now to the boring stuff.  Rates are near the yearly high even though Greece has been given until Monday to strike a deal and avoid defaulting on their billion dollar payment due by Tuesday.

Rumors are also swirling that if no agreement is reached, a form of bridge financing may be struck in an effort to kick the can down the road a few more months.  There is also talk of a multi agency bailout plan, which will be reviewed at tomorrow’s meeting.  You know it’s bad if you have a meeting on a Saturday.

Global Bond yields continue to edge higher as investors move (though nervously) into riskier assets like Stocks.  Nervously because China’s Shanghai Composite just suffered its biggest 1-day loss in 5 months.  Chinese Stocks are seen as extremely over-valued as a large portion of the run up has been heavily financed by margin trading.


Seven years after the peak of the housing crisis, CoreLogic reports that 10.2% of American homes still have mortgage balances above the property’s fair market value.  Crazy.

Speaking of crazy, Greek officials today confirm that their country has no way to make their lump sum debt payments that are due June 30th without some sort of “loan modification” plan, or by taking on additional debt.  Just last week their President assured the world that they could get caught up on their payments by the end of June.  The latest excuse seems to be that because the citizens of Greece don’t work during the summer months, there are no tax revenues to pay the bills.  EU officials are threatening to kick them out of the Union.  The conversation was something like “if you are going to live in our house you need to live by our rules”.  And then Greece was like “what are you talking about, all of Europe vacations during the summer”.  Since I don’t speak German, or Greek, the translation could be a little rough.

As for the FOMC meeting that concludes today: with the most recent reading of our U.S. GDP at -0.7%, the likelihood of the Fed raising rates today is pretty slim…pretty slim indeed.


In effect, Mortgage Bond pricing was bucked off yesterday and then barreled down through the 200 day average price–a floor of sorts.  The sell-off continues in earnest this morning.  The stimulus seems to be a stabilization in the European economy, particularly in Greece, which actually reported a modest gain in inflation yesterday.  The instability in Greece of late was one of the reasons interest rates have been under 4.0% for the last six months as investors the world over seek a safe haven for their money.  So a turn around abroad will siphon money from our funding pools in the U.S., putting upward pressure on yields to keep the cash in circulation.  Additionally, a hint of inflation anywhere decreases the value of a given bond, and calls for the issuance of higher yielding assets. READ: interest rates are higher this morning.