Mortgage Rates Are Spiking – What You Need to Know NOW!

Hey folks, Dan Frayer here with your closing bell for October 21st, 2024. And I told you these things were going up and the problem behind the scenes right now is there's really no reason for it. So let me explain what's going on behind the scenes right now. When we look at usually a big move in the market, and this is a really big move in the market, when the interest rates go up an eighth of a percent in one day, there's something going on. So when you go to the economic calendar, we can usually see it here and today there's nothing. We do have some Fed officials talking and they didn't say anything really stupid today. So when you go over to the bond market right through here, you're seeing MBSs, they're just getting crushed and all these little orange dots, those are banks repricing at higher rates. So that's what's going on behind the scenes right now. So we're trying to figure out what in the world's going on. So part of this scene, what you're seeing on the screen right now, this is all where I get a lot of my data. Okay, it's MBS Live and it's a fantastic system I use. If you'd like to check it out, I think I have a description down below if you want to subscribe to this system. But it gives me everything that I'm looking for. It gives me content like this, interviews with economists and people all around the country and all around the world with their take on the markets. It's giving me what the MBS market's doing. The MBS market, this right here, this chart, this is a bond that trades on Wall Street. It's the biggest part of your mortgage rate because the yield on this bond right here is the biggest component of your mortgage rate. Okay, a lot of people don't know that. They think the Federal Reserve might control mortgage rates or banks control the mortgage rate. No, it's a bond and the banks add to it a little bit with their profit margins. But what I want to show you in a video today is, here's an interview right through here. And these are three smart, smart people when it comes to the economy and how all this stuff works. Look at the variance in how they explain what's going on in the background right now. So there's a chat. So behind the scenes, if you're part of the MBS Live, there's a chat screen on the side that we ask questions to other people about it, loan officers, mortgage companies, even the founder, Matt Graham, who created MBS Live. And one of the culprits that we're hearing about today is kind of just this. It's Monday, so what happens on Monday? Well. Get out of here, I think I'm gonna lose it. Uh-oh, sounds like somebody's got a case of the Mondays. So when we're talking, it's like, we just don't know. Nobody really can figure out why the bond market is crashing today. So let's get over to the interview so we can get their three takes on it. And then I'm gonna show you what's going on more with the bond market, and as we've already gotten crushed today so far. And you're seeing that even deplete as we're talking. And then there's some big changes on the CME FedWatch tool on what the Federal Reserve's gonna do at the next meeting. So let's check out this interview, and then when we come back, let's see at the CME FedWatch tool how that's going, and what projection that's telling us at the May, or I'm sorry, the September next meeting from the Fed, and what exactly they're gonna do. So let's take the interview away, then we come back, we're gonna see what the CME FedWatch tool's telling us. Next guests say that short-term rates are down now with FedEasing, but that long-term rates may continue to go up. For those who think inflation could be a little bit sticky, for more on how to position against that, let's bring in Kamal Shrikumar. He's president of Shrikumar Global Strategies, and Max Wasserman is senior portfolio manager at Miramar Capital. Shree, you've been warning about this for months now. Why is this taking place, and what does it mean? The Fed mismanaged the interest rate cut on September 18th, Kelly. You've heard me say that before. My suggestion then was there'd be no rate cut at all in September. Instead, there was a jumbo rate cut. So the Fed believes that when they cut the short-term rates, the long-term yields will also come down. But the basic truth in economic theory is that the Fed controls only the short-term rate, and the long-term rate is determined by the market, number one. Second, if you are in equities and inflation picks up again, you have protection in the form of your equity price going up and giving you some form of a safe haven. What he just said there, it got a little confusing. He's saying if you own equities and inflation goes up and sales go up and everything else, you'll be able to ride that stock price, which is our equities, is stocks. You'll be able to watch your stock portfolio rise in price because things are, you know, companies are making money and so forth. But on the other side, if you're in bonds, now this is where he's telling us, pay attention to this part here, if you're a bondholder, what affects these costs on you as inflation ticks back up possibly again? But if you are in bonds, you do not have a safe haven because when inflation goes up, the interest rate doesn't increase on the bond you're holding. So bonds are much more sensitive to inflation and they are reacting to higher inflation expectations. One other warning, neither presidential candidate is talking about how to cut the fiscal deficit, how they are going to deal with the debt in the new year after January 20th. And unless the new president does something about it very quickly, I'm looking for the 10-year to head toward 5%. So in other words, the increase that you have had so far is not sufficient. More Fed mismanagement in the form of more rate cuts in November and December, as Steve referred to, will only hasten the increase in long-term yields, Kelly. Okay, I'm looking, you mentioned that inflation, and yes, politics may be a big part of that. We'll have more on that. He mentioned briefly about the 10-year treasury hitting 5% again. And I've posted an article in this morning's video, another analyst said the same thing. So let's break that down just a little bit on seeing where that might put mortgage rates. Okay, so historically what we usually see is we see the 10-year treasury. If you add about 1.75% to the 10-year treasury, usually puts you right around the range of where mortgage rates are. Okay, so if the 10-year treasury gets back to five, we're gonna have 6.75 or higher in rates. Where are we now? That's where we are. Okay, we're at 6.8 right now. So a lot of that data is coming to fruition. So let's see the rest of this comments. Steve Leisman counters a little bit, and then the other gentleman here is gonna put in his content. So let's see how the rest of them react. In a bit, but the inflation expectations are up if we show the five-year break-evens. That's the near term, not the forwards. They were at, and Steve, I'd like you to weigh on this. We were at under two, now we're at two and a quarter. That's a decent move in the past couple of weeks. I think it is. Does he look a little perplexed? If you watch, I watched him kind of during this interview and then when she was asking him questions. He just looks completely dumbfounded on what this gentleman just said. So I wanna see his intake or his input on that. It's for sure. I'm just not sure that further Fed rate cuts will bring down, will cause yields to rise. I really think it's the inflation outlook and the outlook from Fed officials that will ultimately tell us where we're gonna go. The market also has a belief, Kelly, that growth is inflationary. I don't believe that to be the case. I think what we've seen is we've seen strong growth and strong job growth without the inflation. So we'll see. I think that stubborn inflation report was part of the problem. I think also a bit of a hangover among Fed officials having done the 50 that they may wanna pause so the market's a little more circumspect of the outlook for rates. Shereen, normally we debate the theory of this, but can you be very pragmatic about this for a moment? I mean, we've heard high profile folks like Druckenmiller say they're shorting bonds. Today, Joe Lavornia was saying maybe the two year is gonna sell off quite a bit more and go up. What is the practical advice for investors, even if it just relates to, look, the stock market, other than the Russells and maybe other than, it's largely taken this in stride and shrugging it off. The way you're going to react to it is first, if you are, to the extent you are in fixed income, you want to reduce the duration of the holdings rather than hold 10 year, 30 year paper or long-term corporate paper come shorter term. They are going to lose less money when the yields go up. That is one thing you would do. Second, find yourself some alternatives to bonds and the current set up. In addition to equities, you are looking at gold and I've been looking for gold as the ultimate currency, Kelly, and you referred to it earlier on in the program that even though the dollar has strengthened against the euro, think about the gold price as if gold is a currency and dollar exchange rate is given by the gold price. And that is shooting up, which is essentially telling you that there is the flight from currency. The market is leaving the dollar, it is leaving the euro and seeking gold as a safe haven. It's going to be more of it. We are now at about 2730, 2750. I would see it hitting 3000 before year end and more policy mismanagement, we'll be looking for even higher yields. So you see gold going high. Let me just circle back in a second, bring Max in here as well. Max Treacy's gold going higher is warning to stay out of bonds. I would add to that, you could argue sometimes that nominal stock market gains are the flip side of dollar debasement, for lack of a better word. I want to go totally down that rabbit hole, but are these less exciting than if they were real? In other words, if they were happening against the context of a currency that was more stable. Well, thank you for having me on. It's good to see you again. But yes, we've been Fed watchers as well as everyone else in your panel. And we think the Fed is continuously making mistakes. I mean, the anticipation that they want to cut it, bring the Fed funds rate down to a neutral rate, bring it down to let's see, whatever they call inflation under three, it's going to have a material effect. So we're not so positive on bonds either. We've shortened our duration. We like one to two years. Treasuries, we still think they're a good place to be, but we will not be going longer. But the Fed has said, based on their 50 basis points cut, that they want to bring it down to a neutral rate, which implies 180. So if they're going to do it, we think it's more of like 12 to 18 months out. We think it's a mistake to accelerate it. We think they should have done 25 and done it slower. But the data that's coming in is showing that the economy is a little bit stronger than anticipated. Retail sales were a little bit stronger. Employment's a little bit stronger. GDP is a little bit stronger. And they're talking about major interest rate cuts. And I just think it's a huge mistake. And I think it will be inflationary on the 10-year because neither candidate or anybody is talking about deficit reduction. In fact, everybody's talking about spending more money. So we see the 10-year going higher. So that's what, now you're starting to see where the deficit's starting to come into play. So I just wanted you guys to hear all that. Both these guys mentioned neither candidates saying how they're gonna deplete the deficit that we have. And that is going to be a major problem. Just out on Friday, the Biden administration, they're showing a $1.8 trillion deficit. And a huge piece of that is just the interest rate on the, or the interest paid on the deficit that we have right now. So as rates continue to stay high and we have a bigger deficit, more and more money's gonna be allocated to the deficit. Thus, it's taking money away from our country in general. So it's a big move that we're gonna see and we're gonna monitor this as the candidates get closer and closer to the election. So right now, the deficit is starting to come into focus. Now let's get over to the CME FedWatch tool. Now there's a 13% chance, folks, that the Fed might not cut rates. Okay, so where we're at right now is the CME FedWatch tool. This tells us what exactly, not exactly, what the expectations are of what the Federal Reserve's gonna do at the upcoming meetings. So here's the meeting dates. Okay, along the top is the federal funds rate. So right now, you can see from this piece of the equation, the federal funds rate right now is 4.75 to 5%. Okay, so we go over to this chart and it is right through here, 4.75 to 5%. Okay, right now, this earlier today was 3%. Okay, so this is how much this moved just today. Okay, so now there's an 87% chance that they're gonna cut rates, but now there's a 13% chance they might not. So I'm still the proponent of 25, 25, and maybe then just monitor that data. I wasn't a proponent of the 50 and you guys know it here on the channel, so we'll continue to see how this mess ends up. But I do have an announcement. I didn't have time over the weekend to work on my stock tips, so I'm just gonna do it live. We're gonna do a live event tomorrow and I'm gonna look to do that depending on how the turnout is, is to have a live event every Tuesday and you guys are just asking me questions about stocks and bonds and ETFs and things like that. Things I don't know, we're gonna work on together and learn how to invest our money, what to look for, what exactly is the stock market, what's ETFs, and a whole bunch of other things. So join me in this journey, folks. We have our first event tomorrow. It is live, so check that out right through here on our YouTube channel. But my name is Dan Frio and I'm actually a mortgage loan officer. So if you're out there looking to buy maybe your first house, first investment property, maybe looking to refinance as rates, well, they were coming down, but as they go up, there's probably not much need right now to refinance. But when that time comes, we hope to win your business. So my name is Dan Frio. How to find out more about me and my team, go to therateupdate.com. The good news is I'm licensed in all 50 states as well as Puerto Rico. We're a lender. We're also one of the country's largest mortgage brokers and we'd like to work with you when you make that next step to maybe purchasing that first house or first investment property. So check us out. If you're buying that first house, I need you to check out GrandFinders, folks. It's giving you basically access to almost virtually free money to help you with that down payment or maybe those closings costs. So check those out. We have ones that go through the nation and ones right in the Chicagoland area where here where we're located. But if you want to get your application in, just click the Apply Now tab or you can scroll to the bottom and you'll find our 800 number right down through there. It's 844-775-5626, or you can email me directly and yes, it's me at danatherateupdate.com. So thanks so much for watching, folks. Hope you subscribe and you can do that right over there if you don't mind. We just surpassed 32,000 last Friday. So thank y'all for your help out there. God bless, have a fantastic evening and I'll see you here tomorrow.