Comments: The Fannie Mae 3.5% chart hit 102.94, within a whisker of the 103 target we have previously mentioned over the past several week.
Moving into the realm of further speculation, I think equities are in the process of topping out in a counter-trend move going back to the lows in early October, and that we should see that process complete itself in the 10 trading days or so. There are two extraordinarily large items overhanging the market: the European banking and sovereign debt crisis, and the potential of legitimate conflict with Iran and the blockage of the Straits of Hormuz and it's impact on oil prices.
Both of these items create a massive "Risk Off" environment, which it would seem to me would indicate an initial move into US Treasuries and hence, higher prices on the Fannie Mae 3.5% coupon, i.e. lower mortgage rates. At this point, I'm looking for prices to exceed the September 22, 2011 intraday high of 103.91.
However, I do not believe that the breach of 103.91 is going to be long-lasting. One needs to be prepared to lock-in rates.
I bolded the words initial move above for a reason. The reason is I do not believe that the rates will be long lasting because the reaction to current events could be quite drastic: 1) QE3 by the Federal Reserve, probably leaked in early to mid February with an official announcement at the March meeting, the market is now trained to understand that any Quantitative Easing by the Fed means higher inflation and higher interest rates, and 2) the conflict with Iran brings along with it a conflict with China. Iran expots 22% of it's oil to China, and the US has just imposed an embargo on Central Banks dealing with Iran. Do we really expect China to go along with such an embargo for very long? Not. Going. To. Happen. There is deep conflict with China (and Russia) embedded in our embargo of Iran. Remember, China has been pursuing separate bi-lateral trade agreements with it's trading partners to back away from trading in dollars. This will only further accelerate this trend that's already in place. As this conflict with Iran progresses, we could see a hardening of positions on the part of China, and as a retaliatory measure towards the U.S. an overt selling of U.S. Treasuries as a part of a response mechanism by the Chinese.
No comments:
Post a Comment