Market Snapshot August 27, 2020


Good Thursday AM,


There is some important data out today but that is not the real culprit for the beating bonds are taking today. First the data: unemployment claims were mostly in line with expectations but still over 1mm for the week. We are becoming tone deaf to the enormity of this number. Each week there are more than 1mm fellow Americans filing for NEW unemployment. In stable times, that number is considered alarming when it reaches 200k. The GDP was -31.7 which is marginally better than expected but the economy in the second quarter shrunk (yes, that is what this means) by 31.7%. I don’t think that needs further explanation. Despite both reports being incredibly negative for the economy, bonds are taking a beating today. The 10-yr is at .75% (this is a very dangerous line, if we break any higher, it brings .90 into play and rate would jump another .25%). Mortgage bonds not doing much better, currently down 25bps. I have to say there has been a lot of whipsaw action early today and we are currently at the worst of it. We can always hope things settle down, as they sometime do between now and the afternoon.  The bond market that is. So what is driving markets today?  Stocks higher (of course) and I now think they will go even higher still (at least until the election).


Reason 1 for stocks jumping and rates taking a hit:


The Federal Reserve unanimously approved on Thursday a new strategy that will effectively set aside a practice it has followed for more than three decades to pre-emptively lift interest rates to head off higher inflation. Fed Chairman Jerome Powell unveiled the updates in a speech set for delivery at a virtual symposium on Thursday, the most ambitious revamp of the Fed policy-setting framework since it was first approved in 2012. The practical effect is that it may be a very long time before the Fed considers raising interest rates. Mr. Powell said the changes reflected lessons the central bank officials had learned in recent years about how inflation didn’t rise as anticipated when unemployment fell to historically low levels. Inflation is bad for bonds, Fed not focusing on it is bad for bonds. That there is no inflation is good for bonds but the Fed is not going to act even if inflation pops up. Hopefully markets settle down as this really should put too much pressure on bonds. It may take a few days, but it is unlikely it will not take weeks to regain these losses.


Reason 2 for sticks jumping and bonds taking a hit:


A proposal from the New York Stock Exchange to create a new type of direct listing, in which companies can issue new shares, was approved Wednesday by the Securities and Exchange Commission. The decision creates a cheaper alternative to the traditional initial public offering. In a separate action, the SEC also deemed more investors capable of navigating the opaque world of leveraged buyouts, hedge funds and startups, a decision likely to fuel further growth in loosely regulated private markets. It’s another free for all for investors who have no clue what they are buying but they can just buy. Stocks will surge on the new capital, the risk on trade will hurt bonds.. that is until the free for all becomes a freefall.


A couple of other bullet points for today:


  • FHA’s Foreclosure and Eviction Moratorium Extended Through December 31, 2020
  • Do you know who your target clients are:
    • Moving Up Millennials account for more than half of new mortgage loans


Last, I woke up this morning (early) thinking to myself how our world is changing in front of our eyes. I do not recall another time feeling our society having such growing pains. Is this our modern day revolution. This is not a partisan point and I am not advocating for anything other than we should all be better humans. Better for ourselves, our families, friends and for each other. In a show of solidarity yesterday, The Milwaukee Bucks boycotted a playoff game to protest the police shooting, stopping the sports world. The NBA postponed three playoff games. Three Major League Baseball games were postponed as Black players removed themselves from lineups. WNBA players took the court in T-shirts with seven red marks on the back—for the seven times the police shot Mr. Blake. Major League Soccer teams said they, too, would not play their matches. Naomi Osaka, a Black and Asian tennis player, pulled out of her Thursday match in a U.S. Open tune-up tournament.


Please remain safe and healthy. Make today great!