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Let me be clear...

Happy Market Update!

So yes, I’m going to start with college football. If you don’t follow, I’ll bring you up to speed on what’s happened, as that is what Jackson would want me to do for you. Texas is in the playoffs! You will hear from some people that Florida State was left out with an undefeated record. That would be correct. And they would be right to be upset. But at the same time, if you watched some of the last games played by the top 10 teams, you’d think there might be stronger teams that would make it. So it’s a debate that is irrelevant since it’s over. There are 4 teams in, and those 4 teams will play for it all (as they say). Texas got lucky…earned it to some degree, but some of their late season games were enough to give anyone a heart attack. Okay, enough to give me a heart attack. But I work out and burn a lot of calories to keep the heart attack away from me. For now.


But listen, this 4 team system ended. A very well-deserved new program arrives for next season, a 12 team playoff. And yes, some 13th or 14th seed who thinks they should be in will be left out. You can’t make everyone happy. But as a college football fan, I am really looking forward to the 12 team system. And yes, I have indoctrinated my 5 year old who thinks that having an off season is stupid. Amen, my son. Amen! Here is a defensive lineman catching a TD pass as an eligible receiver…doing the Heisman. He should have been invited to New York!

Well, it looks like this guy may find some work at the next level since he is graduating this year. But others might not be that lucky. Check out this chart.


This is the monthly JOLTS Job Openings chart. Each bar is a month…and we just received the Dec reading. Look at the large move down from last summer. 11.5m job openings to just under 9m now. It’s moving down. I know we talk a lot about jobs and the economy. This means that there is a reason that the continuing job claims are rising…there are less jobs to chase.

And don’t forget about that whole banking thing from earlier this year. Just because it’s quiet doesn’t mean it is not done being an issue. This chart shows unrealized losses growing dramatically. Now, even I will tell you that unrealized is just that…unrealized. It’s my understanding that the banks are using what is called repo money (borrowed money) and are using it to purchase these same securities to offset some of the unrealized losses before they become realized. Either way, this is a HUGE number. It’s probably all those pesky long term bonds they bought and didn’t get rid of while the Fed told them for a year they would be raising rates. Hedging is an interesting thing…done correctly.

Speaking of money. Be careful what you read…and what narrative is being pushed. This person is on CNBC…and while technically disinflation is the reduction in the rate of inflation, most people would read that to say things were deflating. Just be clear, this is true…the rate of inflation is dropping currently…but things are not getting cheaper. Why is this important to a narrative? Next slide please…

Because this was an actual post from Biden…even fact checkers tell us he is not correct. Prices are still rising! They just are not rising as bad as they were before. Plus…they are still rising faster than the Fed is comfortable with for the overall strategy they have for our economy. This is just DC pointing the finger at someone else for a failed policy. Yes, I’m picking on Biden here…because he clearly doesn’t understand how economics work. If I build something with higher costs, then I have to sell it for a higher price. Why? Because I like to eat like everyone else. There is no evidence of “gouging” at this point. It’s failed policy. As Elon Musk might say, “Is that clear?”

Speaking of the Fed, it sure seems like the markets are thinking not only is the Fed done raising rates (I tend to agree there), but they believe there is a strong possibility that the Fed will actually cut rates by May. There is a saying on Wall Street, never fight the Fed. It’s confusing because in some ways, this cutting of rates seems to be doing just that…fighting the Fed. Here’s an article from Yahoo Finance. You can read it for yourself…it feels that speculating on the easing of the rate policy is speculative. So are our 401ks doing well because of speculation? I sure hope it’s based on fundamentals and technical analysis. Not speculation. Or yikes…

What does all this mean for 2024? I don’t know. I just work here. But it’s best to stay a bit cautious. But here’s a plug for a guy like me just working here. If you are anyone you know closed a home loan in the past year, have them give me a call. If we can’t help them today already…that day might be right around the corner. And if you have someone shopping for a home…or even thinking about it, we can help. Rates are better than they have been all fall. Of course my charts below will tell you why I think that.


10yr: I tried to draw an even larger smiley face from last week. This is actually a photograph of my fake smile super imposed on this chart. I’m red from holding my breath. Anyway, you can see the sharp move down from the top. The circled area is key. That is, in my opinion, a significant area of support. If we can break that…we might be seeing rates heading towards the 3.80s and then maybe…just maybe towards that 3.40 level. I don’t want to get ahead of myself, but I need some optimism. How about you?!

MBS: Remember, up means lower rates. Again, a significant bounce up. And we have stayed above that 200 day moving average. That is huge in our opinion. This means rates are moving the right way, for now.

At the end of the day, a rate cut would not mean good things. The market seems to think so…because that should mean inflation cooled further. But it may also mean that the economy is not doing well. So we have to keep an eye out for this for the near future. All we can do is hope that we don’t get more involved in any war, that inflation really is done for good, and that Texas wins the National Championship. I’m already working on planning for the new year…2023 has been a struggle in our industry…as well as our partners in the real estate world. While you are shopping for gifts, take some time to squeeze a family member and think about goals for next year. You know I’ve got a newsletter coming about that before year end.


What doesn’t kill you makes you stronger.

Tim

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