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Last Week in Review

"If you are losing a tug-of-war with a tiger, give him the rope before he gets to your arm. You can always buy a new rope." Max Gunther.

Such a sweet sentiment...but definitely not one that the markets adopted this week, as both Stocks and Bonds battled back and forth near key technical levels.

The markets were closed on Monday in honor of the Martin Luther King, Jr. holiday, but then the Bulls and the Bears in the Bond market spent the first part of the week pushing and pulling Bond prices above and below their 200-Day Moving Average. This level is important because it can often set the stage for price direction for an extended period of time. Bonds were finally able to break above this important level, which was good news for home loan rates.

And the war wasn't just being waged in Bonds...the Stock market was fighting some technical battles of its own. The Dow and the S&P both tumbled lower, falling beneath their own 50-day Moving Averages. This is very significant, as neither index has closed beneath their 50-day Moving Average since July of 2009. If Stocks are unable to regain their footing and move above this important Moving Average, we may see a continued slide lower in Stocks, which could benefit Bonds and home loan rates.

However, a possible uptick in inflation later this year and an end to the Fed's Mortgage Backed Security purchase program in March are two important factors that will likely cause home loan rates to worsen in the months ahead. While this week's Producer Price Index Report (which measures inflation at the wholesale level) was relatively tame, higher than expected inflation was reported in both the UK and India. Reports out of both countries say that they expect levels of inflation to continue higher, but not just in their own countries...they see it around the world as well. Remember, Bonds and inflation are mortal enemies. If Bonds were Superman...inflation would be Kryptonite. And when inflation does begin to tick higher here, it will send home loan rates higher as well.

It's also important to note that the Fed bought $12B in MBS in the latest week, bringing their purchase total to $1.149T, leaving $101B left to purchase before the end of March. If we have not talked yet about your own home loan situation, let's be sure to connect very soon as the current low home loan rate environment may soon be a thing of the past.

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