Are Treasuries or MBS Better Investment?, Bank Stocks Hammered, Oil Down $4, Rates Up

Bank Stocks Getting Crushed, Oil Down $4
Let’s hope that potential home buyers aren’t keeping their down payment monies in the stock market! This morning stock futures are down their limit. At some point it seems that money managers enjoy pushing a certain market one way or the other, and this time it is stocks to the downside. Asian markets were mauled overnight – with the stock markets in most countries losing about 10% on fears of a global recession. Hong Kong, Australia, Singapore and Taiwan markets dropped to their lowest levels in at least three years. Japan’s Nikkei was down 9.6% to end at 7,649, the lowest its been in 5 ½ years. Their stock market is at one fifth (as in 1/5) of its all-time high of 38,915, which it hit in December 1989.

The stock prices of banks are being hit hard so far. Bank of America’s are -9% to $20.90, Citi -10% to $11.85, Goldman Sachs -12% to $95.65, JPMorgan Chase -8% to $34.90, Merrill Lynch -12% to $15.35, Morgan Stanley -14% to $15.53, Wachovia -9% to $5.26, and Wells Fargo -8% to $28.90.

But hey, it costs you less money to fill up every week, so all is not bleak. Oil is down another $4 to $63. The Organization of Petroleum Exporting Countries (made up of 11 countries) cut oil production targets by 1.5 million barrels per day for the first time in almost two years to stem a collapse in prices, down from their current 28.8 million barrels a day. Thankfully for Hummer owners, oil has dropped 57% since mid-July when we were seeing $147 a barrel.

Rates Up After Drop Early This Week
What is all this doing to interest rates? 10-yr notes from the Treasury were up earlier 1.25 in price, with the yield down to 3.49%, and the 2-yr was down to 1.36%. Things are not that good now, however, with the 10-yr back “up” to 3.54%. But mortgage prices are not along for the ride. Yesterday mortgage prices held in during the morning, but then faded during the day, and several investors changed prices for the worse as our stock market rallied. This morning mortgage prices are actually worse by .375 to .5 in price from yesterday afternoon. The only scheduled economic news is September’s Existing Home Sales, expected +.8%, but really, is anyone going to be waiting for that number?

Are Treasuries or Mortgage Bonds Better Investment?
Is one better off buying Treasury securities or mortgage-backed securities? One can do pretty well with MBS’s.

Can you loan the US government some money? The Treasury announced auctions totaling $58 billion in two- and five- year notes next week. The Treasury said it plans to sell $34 billion of two-year notes on Oct. 28 and $24 billion of five-year notes on Oct. 30. It will also auction $6 billion of 4 1/2 year Treasury Inflation Protected Securities on Oct. 27.

What is the cost of money? For US Bank, it has gone up. After today their Wholesale Division will increase their extension fee to 2 basis points (0.02%) per day from its current 1 basis point (0.01%) per day cost. Their maximum extension period is 30 days (if the original lock period is 15 days, the max extension period will be 15 days), and after that the loan must go to worse case of current lock or market. Two basis points per day equates to .60 in price per month, of course, whereas the current security markets charge about .250 in price, or about 1 basis point.

Mortgage Guideline Updates
Chase, for their broker clients, weighed in on the provisions of the Home Valuation Protection Code, which establishes requirements governing appraiser selection. It appears that Freddie & Fannie have pushed out the actual details of the plan, expected to impact the way appraisals are done, but Chase wholesale has announced a policy whereby effective Monday, November 3, brokers have the option of ordering their appraisals from a website that allows access to three appraisal servicing firms selected, approved and endorsed by Chase – Equifax®, LSI and Quantrix.

US Bank’s Correspondent Division has discontinued the 40 year product term for their mortgage line-up.

Countrywide has come out with a plan aimed at borrowers with subprime mortgages, or pay-option adjustable-rate home loans, which would temporarily cut interest rates on some loans to as low as 2.5%. Some borrowers who owe more than their homes are worth could even see their loan balances reduced, giving them equity once again in their properties. The idea is to modify a loan’s terms just enough to create a new monthly payment, including principal, interest, taxes and property insurance, equal to 34% of a borrower’s verified monthly income. Bank of America, who will be slowly taking the name “Countrywide” out of circulation, says they have obtained permission for the modifications from the vast majority of the big banks, investment funds and institutions to which Countrywide sold most of its loans while continuing to service them. 10 other major mortgage-servicing companies have been given an ultimatum by the Senate to adopt programs similar to the Countrywide plan.

Economic News For Week of October 27
What’s ahead next week for economic news? On Monday we have New Home Sales, Tuesday Consumer Confidence, Wednesday Durable Orders and the FOMC meeting statement, Thursday (as parents scramble for last minute Halloween ideas) the 3rd quarter Chain Deflator number, GDP, and Jobless Claims, and then on Halloween we have the Employment Cost Index and Personal Income & Spending numbers, along with the Chicago PMI.

Putting A Billion In Perspective
The next time you hear a politician (Republican or Democrat) use the word ‘billion’ in a casual manner, think about this. A billion is a difficult number to comprehend, but one advertising agency did a good job of putting that figure into some perspective in one of it’s releases.

A. A billion seconds ago it was 1959.

B. A billion minutes ago Jesus was alive.

C. A billion hours ago our ancestors were living in the Stone Age.

D. A billion days ago no-one walked on the earth on two feet.

E. A billion dollars ago was only 8 hours and 20 minutes, at the rate our government is spending it.