Good Morning on this terrific Tuesday,

Bonds had a rough go of it yesterday and the stock market was the culprit. It is tough for money to flow into bonds when the DOW climbs over 900 points. The best reasons I have read for the surge in stocks is 1) the good but early news on a vaccine, which will direct the immune system to attach the virus and 2) that Fed Chairman Powell spoke Sunday on ’60 Minutes’ confirming the Fed will do whatever, and has the ability to fund whatever it takes to get the economy back on track. The first part I am of course thrilled to hear and hoping it is true. The second part, well, I think markets are using fuzzy math to claim victory. Yes, the Fed will use any of its powers to stop the economy from free falling, but the kernel is that the recovery is years away. Apparently no one heard that part. The S&P is at a critical level as it bumps against the Fibonacci 62.5% retracement level. If we break above this current level, we will very likely see stocks rally another 8-10%. This in turn will further pressure bonds. Meanwhile bonds are finding their legs and have held support, but now are bumping against resistance, as the current trading range is narrow. The odds are that we will not break above 101.45ish and that this should be a locking opportunity when we test that level as we already have this morning. If stocks decided to give back a good percentage of the 900 points they jumped yesterday, bonds could catch a break. We will have to see. Right now the Dow is -80, Nasdaq is +50 and the S&P is flat. The 10-yr is .71% and mortgage bonds are +16bps. We will have to see how this ends up today.

There was great news from FHFA (guardian of all things with conventional loans) today. Up until now, Conventional guidelines have required that borrowers have a 12 month seasoning from any forbearance before being able to finance again (purchase or refi). That changed today. Borrowers are now eligible to refinance or buy a new home if they are current on their mortgage (i.e. in forbearance but continued to make their mortgage payments or reinstated their mortgage). Borrowers are eligible to refinance or buy a new home three months after their forbearance ends and they have made three consecutive payments under their repayment plan, or payment deferral option or loan modification. Such a great decision and will keep housing moving forward.

Last, just to make my point on how ridiculous stocks are acting… please see the below chart on S&P price to earnings ratio. We are in the middle of a recession and economic shutdown with almost no clear understanding on what earnings will look like in the future, and investors have pushed the P/E to 21x and higher than it has been in recent memory (which includes 10 years of growth…). If you could see me now, I am just shaking my head.

The S&P 500 12-month blended forward P/E ratio rose above 21x.

Please remain safe and stay healthy, make today great!