WR Starkey Update

Market Comment - Week of November 3rd, 2008


Mortgage bond prices fell last week unfortunately pushing mortgage interest rates higher. Trading really focused on equities as stocks generally rallied. Most of the losses came as a result of an 889-point surge in the DOW on Tuesday. Traders sold bonds to buy stocks, which caused mortgage bond prices to fall, and mortgage interest rates to rise. Mortgage bonds recovered some of the earlier losses Wednesday morning but it wasn't enough to keep rates from rising considerably. For the week, interest rates on government and conventional loans rose by a full point and 5/8 of a discount point.The employment report Friday will be the most important event this week. The gross domestic product and employment cost index data will also be very important. Expect extreme market volatility again this week.


Economic Factors this week:

ISM Index
11/03/08
Consensus Estimate: 42
Analysis: Important. A measure of manufacturer sentiment. A large decline may lead to lower mortgage rates.

Factory Orders
11/04/08
Consensus Estimate: Down 1.5%
Anazlysis: Important. A measure of manufacturing sector strength. A larger decrease may lead to lower rates.

ADP Employment
11/05/08
Consensus Estimate: Down 80,000
Analysis: Important. A measure of employment. A larger decrease in payrolls may bring lower rates.

Preliminary Q3 Productivity
11/06/08
Consensus Estimate: Up 1.0%
Analysis: Important. A measure of output per hour. Improvement may lead to lower mortgage rates.

Employment
11/07/08
Consensus Estimate: 6.2% -115k jobs
Analysis: Very important. An increase in unemployment or weakness in payrolls may bring lower rates.

Oil Provides Reprieve
Fed officials have been given a huge reprieve from the inflation concerns tied to rising energy prices as oil prices have dropped relative to the record high level of $147 per barrel seen in July of this year.
The Fed is continually concerned with inflation as they lower rates amid the current credit crisis. Lower energy prices generally help to alleviate inflation fears. The Organization of the Petroleum Exporting Countries (OPEC) recently cut production as the price of oil fell precipitously. These production cuts have had little effect on falling oil prices so far. The markets seemed convinced that the demand for oil will continue to decrease as economies struggle across the globe. However, these predictions are not a given. OPEC is debating additional production cuts while many analysts are warning OPEC against such moves. OPEC's position is that the price of oil is undervalued and a production cut would increase prices. The counter argument is that the world economies are already struggling and a spike in energy prices would lead to more severe economic turmoil further decreasing demand which would eventually result in not only additional price decreases but a global economic catastrophe. Remember that the future is uncertain. Just a few months ago the majority of analysts were predicting continued high energy prices. Fortunately, they were wrong. But that doesn't mean conditions can't change quickly.

Keep in mind that rates remain historically very favorable. It is possible for rates to head lower with falling inflation fears. However, now is a great time to avoid the uncertainty surrounding continued market volatility.