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Secondary Market Overview: From Bonds to Production ... The Markets Do the Egyptian

Dave Hershman
May 24, 2011

I could not resist this pun. Obviously, the situation in Egypt is no laughing matter. It brings to mind two important points. First, it is a prime example why predictions don't work. On Thursday, Jan. 27, things were looking up. The Dow and the S&P were testing 12,000 and 1,200, respectively. Oil prices were down significantly from their highs above $90 per barrel. Then, the unrest in Egypt exploded. You never want to have a crisis on a Friday when the traders are about to leave town for the weekend. The stock market dropped, oil prices rose and rates came down significantly. Come Monday, the markets opened their eyes and did not see the world collapsing. By Tuesday, CNN was running a story that the crisis should not affect the price of oil. By the end of the day on Tuesday, the markets had recovered all lost ground. So much for the dire predictions on that Friday, but tomorrow's crisis, whatever it may be, may tell a different story. Add political instability to the wild cards that may impact our markets this coming year. The second point? The recession has been very hard on the average American … foreclosures, unemployment and more. Think about how hard it has been on poorer countries. No wonder there is major unrest. The head of the International Monetary Fund (IMF) recently warned that the lack of a recovery in many areas of the world could fuel the next crisis. We might say that inflation is not a problem because of slow economic growth, but when food and energy prices rise, it is a major problem for those who are struggling … including those in our own country. Maybe you can separate food and energy in statistics, but you cannot separate them from our budgets. Try cutting back on food. Speaking of predictions, who would have through that this winter would subject much of the country to massive storm after storm just at a time when everyone was getting so confident about the recovery? We barely get through the holiday shopping season unscathed, despite early storms and then January turned out to be a white out from the deep south to the northeast. No one knows at this point how badly these storms will hurt our economy in the first quarter. Certainly, the employment report for January was definitively skewed. It’s tough to reach good numbers when people cannot get to their offices. We have had jobless claims fluctuate from 25,000 to 50,000 per week. These numbers are normally volatile, but not that volatile. Do you think snow can impact national numbers? How can we have a report come in with 100,000 less jobs created, yet unemployment goes down sharply? It just does not add up. Just file the weather under another category in which predictions are so difficult. Everybody thinks rates are rising this year. However, if we have more shocks overseas and natural disasters, nothing is etched in stone. Not that we are predicting these events. Our advice is to always be prepared for the unexpected. If the weather gets nicer (isn't spring right around the corner?) and the world quiets down, the economy could continue marching along with its recovery. Outside of the employment report, the vast majority of the economic releases have actually been positive in the past few weeks. We believe that is why the stock market has been strong and bond market has been weak despite the interruptions—at least through the first few weeks of 2011. Now if we could only get the real estate markets showing some spring-like strength. As we continue to emphasize, we cannot experience a real recovery without real estate. A jobless and a real estate “less” recovery do not add up. We will need both to feed upon each other positively to make the recovery strong and longer lasting. Dave Hershman is a leading author for the mortgage industry, with eight books and several hundred articles to his credit. He is also a top industry speaker. If you would like to stay ahead of what is happening in the markets, visit www.ratelink.originationpro.com for a free trial. Dave’s NewsletterPro Marketing System can be found at www.webinars.originationpro.com and he may be contacted by e-mail at dave@hershmangroup.com.  
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