The market is watching to see how investors handle any market dislocations that arise as elected leaders look to reform the government-sponsored enterprises.

The final vote was 68-29 in favor of Senate the confirmation of the billionaire hedge fund manager.

The nation’s largest homeowners insurance providers imposed rate hikes in double-digit percentages last year, led by Farmers’ 53.5% increase in Maryland.

“Dr. Oz says rubbing coffee grounds on your naked body will get rid of cellulite. Apparently, you can’t do this in the downtown Austin Starbucks.” Here in Austin at the MBA’s IMB conference, some of the informal talk is about the reasons why U.S. home sales in 2024 fell to their lowest level in nearly 30 years. (No homes to buy? Are insurance and property taxes too high? Everyone who wants a house already has one?) Donald Trump has ordered “emergency relief” on housing affordability, and plans to attack regulatory costs: “Hardworking families today are overwhelmed by the cost of fuel, food, housing, automobiles, medical care, utilities, and insurance. Moreover, many Americans are unable to purchase homes due to historically high prices, in part due to regulatory requirements that alone account for 25 percent of the cost of constructing a new home according to recent analysis.” I am not sure how much of that 25% is addressable at the Federal level and how much is local building / environmental codes. That said, it is encouraging that the government is taking a look at the issue. (Today’s podcast can be found here and this week’s is sponsored by Figure. 50 percent of the top IMB’s use them, and if you haven’t examined your HELOC/HELOAN strategy recently, it’s time to get on it. Hear an interview with CoreLogic’s Greg Gallagher on the short and long-term implications of the Los Angeles fires in regard to affordability and insurance.) Broker and Lender Products, Programs, and Software

There are two distinct patterns of behavior when it comes to rates interacting with stocks.  The first could be called the “conventional wisdom” pattern, which holds that investors move money between stocks and bonds, thus creating a correlation between stock prices and rates (as investors buy more bonds, rates move lower). The second pattern is more commonly seen when there is some uncertainty about the near-term outlook for the Fed Funds Rate.  In this pattern, both stocks and bonds benefit from a friendlier Federal Reserve, thus creating an inverse relationship between stock prices and rates. Even though there is some uncertainty about the near-term Fed rate outlook and even though we have a Fed meeting coming up on Wednesday, today was all about conventional wisdom for interest rates.  Tech stocks plummeted on news of a cheap, competent, Chinese AI competitor. While many details are still likely to be revealed and understood, the market wasted no time in unwinding quite a bit of the bullishness previously baked in to NVDA, et. al.  Whether investors were simply looking for places to park the proceeds from that stock selling or legitimately betting on economic fallout, bond buying ramped up in a major way.  The average mortgage lender is now back in line with the lowest levels since late December, but just barely. Should you view this as a bigger picture turning point in the rate narrative? That would be premature. Today’s news was not economically negative, nor did it suggest a new rush of disinflationary momentum. Those are the sorts of things that would be needed to confirm a sea change for rates. As to whether this will result in another day or two of improvement regardless of big picture implications, that remains to be seen. History suggests there’s just as much of a chance of a rebound in the other direction tomorrow.

Bonds Seek Lower Yields, But not Too Deeply Yet

On Friday night, a vast majority of market watchers had never heard of the Chinese AI company DeepSeek. By mid morning today, it was all a vast majority of market watchers could talk about.  DeepSeek’s list of accomplishments includes: much lower cost than ChatGPT, similar competence to ChatGPT, and just in the past 24 hours, rising to the top of Apple’s free app download chart. All of the above added up to some sort of real or imagined wake up call for investors on the real or imagined overvaluation of NVDA and the like. NVDA saw the biggest daily decline in market cap in history (something it’s done several times due to the uncommon combination of its size and volatility). All of that money needed a home, and there was plenty of room in the bond market. Either that or investors were legitimately hedging against ongoing impacts. Either way, it’s far too soon to conclude that this is the moment in history where the bond market knew that rates had finally turned a corner to head much lower (something that still requires disinflation confirmed with data, preferably in conjunction with lower Treasury issuance and softer econ data).

Econ Data / Events

New Home Sales

698k vs 670k f’cast, 674k prev

Market Movement Recap

09:54 AM Sharply stronger overnight, but giving back some gains.  MBS up a quarter point and 10yr down 8.3bps at 4.546

02:01 PM Some volatility, but broadly sideways since the open.  MBS up 10 ticks (.31) and 10yr down 9.2bps at 4.537

03:25 PM MBS near best sustainably held levels, up almost 3/8ths.  10yr down 10.2bps at 4.528

NVDA has obviously been THE biggest driver of prevailing bull market in stocks. In 2024, its market cap increased by just over 2 trillion dollars. Following relatively viral overnight news regarding China’s DeepSeek AI, NVDA is currently on track to obliterate the record for the worst day of losses for any stock, ever.  NVDA already held the first 5 records on that list.  In other words, a big sell-off in NVDA is a big deal for markets.  Whether it’s money looking for a safe place to park or investors changing strategy in light of the news, bonds have been reaping the rewards.  At this point, this should not be viewed as a sustainable source of positive momentum for bonds. Today’s move already looks to have run its course.

The one-to-one consent rule is set to go into effect Jan. 27, despite some organizations filing emergency petitions asking for a 60-day stay.

If the GSEs are privatized with only their current capital levels, respondents indicated risk premiums on MBS would widen by as much as 45 basis points or more.

The acquisition adds mortgage warehouse lending to Minnesota’s Stearns Bank, the latest to offer the service during a multiyear period that has seen several new entrants and exits.