Morning Market Update
by Tom on March 18, 2009
in Market Report
So what’s on tap for today?
Consumer Price Index – came in a “little” higher than the markets had anticipated but not high enough to have a big impact on the market.
AIG – the word on everyone’s tongue….. What’s the big deal about AIG? Let me try to break it down very simply:
- AIG signed some really lucrative contracts with their employees back when times were good.
- AIG ran into some significant financial hurdles and is in the process of getting their third bailout by the US government. We’re now looking at the US Taxpayer owning 80% of AIG and AIG is still paying the “bonuses” that were originally signed in their contracts.
- AIG executives are saying that they have to pay the bonuses because the employees would quit otherwise (these are the employees that drove the company into bailout mode, right?). So, what would the loss of these employees really matter?
- AIG is also saying that they can’t renege on the contracts. But, if a company goes under, doesn’t that give them the right to rewrite contracts? If not, what about the mortgage cramdown issue? That’s when a bankruptcy judge can rewrite the terms of a mortgage (and a mortgage is a contract).
- People are angry about bailing out a company that is costing us so much money and then still rewarding the top level executives bonuses.
Did you notice how I tried to remain very “civil” about it? There’s a lot of emotion and ill will about it and I didn’t think that we needed any more.
So what’s up with mortgage rates?
So far, they have been very stable today. We’re at 5.25% on a 30 year 0 pts refi and 5.0% on a 30 year 0 pts purchase (under $417,000 and with credit scores over 720). Fifteen year is .125% less than that.
Recommendations: In light of the Fed’s meeting today and their announcement in a little over 2 hours, I’d recommend cautiously floating. I think there is a very real chance that the Fed will do or say something that will cause at least a temporary easing in mortgage rates.
I’ll be posting my “Fed Translated” interpretation of what they said as soon as possible later today.
Let me know if I can help,
