Against Newton's Law!


The markets are shaped by perception and emotion much more than the facts and the truth. Actions and reactions are not always as Newton said, not equal and clearly not opposite!

We have a ton of information to try and process and stories to prove and disprove as to why things are happening. Let’s try and take this a little at a time and see if we can’t find a path to navigate. 

“The bond market will move opposite the stock market” is certainly a belief being tested. On Wednesday morning the UMBS 30 3% coupon was better by 20bps as the stock market was better by more than 650 points!

“The 10yr bond can’t go below 1.25%!” Well, we went below 1% and now what?

“The FED cutting rates means lower mortgage rates” is one we have always dealt with in the past and everyone should be clear on that one.

“Coronavirus will quarantine the entire country”. Well, while we are waiting for more specific information to formulate exactly what is the real threat, it appears right now that while it is a serious outbreak, the average flu impacts more people, causes more deaths, and is a larger threat every year in this country that what we are seeing now, and many doctors are saying unless you are an “at risk” person, you may not even know you have it at all!

“Issues in China will cause a recession in the United States” This looks like the most likely variable we have. When will full scale production in China resume as well as other countries that are part of the global supply chain will likely determine the degree of weakness in the US economy.

So what do we do? First and foremost, WASH YOUR HANDS!!! Every medical expert has said that one key to avoiding this virus is by simply keeping good basic practices. Handwashing is the #1 item on the list.

Second on our list is acknowledge we are in uncharted territory and that nobody can tell us exactly what, when, and why things are the way they are across the board. So find trusted sources of information and don’t spread rumors!

While rates are volatile, keep from prognosticating where the market is going by sharing the truth of the day! What we know the reality is today! Don’t speculate! People always want to know where the bottom is. The problem with that is that you only know where the bottom is long after you hit it and gone back the other way! 

So, talk about rates and understand for now we don’t have a huge risk of a sudden jump higher in rates on mortgages. So float! Just share the story that as we are in the process of the deal, we can take advantage of a declining rate market and lock when we have too. If there is some significant bounce, you can always lock at that point. If the client is really insistent or nervous, then lock the loan and forget it! With refinances, lock nothing until you are forced to do so. This limits your exposure and makes the client execute the things you need them to do to get their deal done. 

Every situation and company reaction to this market may be completely different. You need to know what YOUR position is and then execute and share those facts! In addition, tell the truth, don’t predict, and wash your hands!

Actions and reactions in this market and under these conditions are certainly NOT equal and opposite! It’s not simple physics, its complicated financial and emotional uncharted territory!

Questions or comments: [email protected]


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