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Market Insight
Have you metChad?

Interesting how things come around. I started my career in Great Falls, Montana where there is an air force base...and at that time a median income of 24k a year. I did MANY, MANY FHA, VA and Rural development loans. It has been interesting to see those loan programs accessible again and in use in our markets.

FNMA 4.5% recovered 19bps today so rates will hold or get a little better tomorrow... Still in that 4.75%-ish range. (Note that credit score, intent, loan program and loan-to-value all can alter a rate.)

Dow gained 174 points...

The last HUGE T-note auction of the week went well with 28% foreign participation.

Good news possible: There is renewed talk of removing the mark to market accounting requirement for the short term...and the "uptick rule" may be re-instated. (See "what is it?" below.)

Initial jobless claims report shows that 652,000 people made their first unemployment claim last week. Continued unemployment is naturally still at record levels.

What is it? The uptick rule: http://www.investopedia.com/terms/u/uptickrule.asp

The uptick rule helped to eliminate some of the volatility in the markets when it was active.

To understand why it is relevant, we need to understand short selling. Remember "short selling"? This is when an investor will sell stocks back to a company with a commitment to RE PURCHASE them at a later date. The "sale" usually doesn't involve an exchange of currency until the transaction is completed...so it is kind of like a "suspension".

So: if you have 10 shares in a company ABC worth 10 bucks...then "sell them" back to the company for 10 bucks with a commitment to "re-purchase them" next Thursday...the transaction is "complete" next Thursday. When next Thursday rolls around: the stock price has now jumped to $1.40 due to some unforeseen spectacular news pertaining to company ABC.

YOU ARE REQUIRED TO BUY THE STOCK BACK at the new price: $14 for 10 shares at $1.40 each.

If the opposite occurs: stock has tanked and is selling for 50 cents next Thursday: you GET TO BUY YOUR TEN SHARES AT 50 cents each...so 5 dollars. Company ABC: OWES YOU FIVE BUCKS. (10 shares...50 cents...and they were holding onto your "bet" of 10 shares worth 10 bucks at the start of the transaction.)

In a DOWN market like we have seen...this can be incredibly lucrative...and cause severe damage to company ABC if unchecked. People who participate in this type of activity have EVERY REASON to create rumors or events that will degrade the value of the stock they are betting on...so that they get paid out "next Thursday" vs. having to pay in when they re-purchase their holdings. Example: a rumor that one of the major airlines was going bankrupt was propagated this last year...the stock plummeted and short sellers laughed all the way to the bank. This is dangerous activity in this economy and can add to the "downward spiral" effect by altering social psychology pertaining to our markets...as well as the very measurable effect on the corporations who "lose" the bet.

The uptick rule provides a "balance system" protecting both sides of the transaction by putting limits in place that can limit profitability and loss of this activity. Read more about it at the link above.



P.S. I read a VERY in depth and INTERESTING "UNWINDING" of the fall and bailout of AIG...if anyone would care to read it. WOW. I was amazed at how interconnected everything was...and how sloppy (intentionally) the build up was. Have a good eve!


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Chad Schauers
Have you metChad?
MetLife Home Loans
406.522.0922
406.522.0924 (fax)
1924 W. Stevens, Ste. 202
Bozeman, MT 59718

Cell: 406 799 8613
ccschauers@metlifehomeloans.com