Stock Market Decline- What this means to you

[tallydude]

Guys,

For those of you who don't know, I am a mortgage planner and debt management specialist here in South Florida. I work with mostly higher net worth clients, although I also work with everyday type people as well. I am also the mortgage provider for many of the high end financial planners here in the Palm Beach/Fort Lauderdale/Miami area.

I know alot of you have seen what the DOW and NYSE have done over the past 24 hours and are wondering what to make of it. Here is basically what I see, and how it relates to you and me:

1) Expect the DOW to be down again tomorrow morning. In the simplest terms, what happened today was caused by the Chinese stock market taking a huge hit. As of 10:30pm est, the New Zealand market was down dramatically, and you can bet the rest of the PanAsian markets will be doing the same. Here is a link to a CNBC article that will explain it a bit better- http://www.cnbc.com/id/17369396

2) Expect mortgage interest rates to be down. Mortgage interest rates are based upon mortgage bonds and mortgage backed securities. With people taking their money out of stocks, bonds should be doing better. That in turn means that interest rates will be lower. Case in point, mortgage interest rates were down 1/8th of a point at 2pm Tuesday from 10am. For those of you purchasing a home, talk to your mortgage person about not locking the rate until tomorrow afternoon. For those of you currently with ARMs or MTA loans, this is actually a good thing. The bond market will, at the very least, allow your rate to "stall" for a short time and not go up.

3) We are NOT going into a recession. You're going to hear alot about what Greenspan said Monday. We have had a bull market for about 42 months. His point was that the further and further you get from a recession, the more likely it is to have one. Yes, eventually, the US will have another recession. That much is inevitable. What Greenspan did not say, though, was that a recession was imminent.

Anyway, these are my opinions on the market and conditions as of today. I couldn't sleep and at least wanted to put them forth. See your financial planner for more information and an investment strategy. However, if you have more questions, I am more than happy to see if I can answer them or at least point you in the right direction.

WPD

[lunchbox508]

Thanks for all the info WPD.

[Hawgin]

WPD-

 I will defer to your expertise on the mortgage end of this, but I think the market is going to continue to trend down for an extended period of time.  Definitely not to the extent that it declined today, but I think we are heading into a market correction period.  There are going to be a day, or stretch of days where the market trends back up, but over the next 2-3 months I think you will continue to see the market move itself back down, and with this prime rate should continue to trend down as well.  If you are riding a floating rate, looking to lock in why wouldn't you be willing to give it a few days or weeks to see what the future holds?

By the way, the smart money right now is on short term bonds.

[Guest avid]

what it means to me is that I am very happy I have all my retirement money invested in fixed return vehicles.  Have been for about 2 years.

Everyone told me I was crazy and was missing out on good returns. I said "your right untill the next crash"  sooner or later it always happens, just like sooner or later it always recovers.  But when you get to certain age you play conservative.  At least that's the way  I see it.

[Redlinerobert]

Worst day in the market since 9/11.  I own a finance company and agree with what WPD states.  

[tallydude]

WPD-

If you are riding a floating rate, looking to lock in why wouldn't you be willing to give it a few days or weeks to see what the future holds?

By the way, the smart money right now is on short term bonds.

Great question. The reason I said to wait a day to lock your rate is to see if yesterday's stock drop was a one time thing or, as you mentioned a 2-3 month correction. Mortgage rates are relative to the stock market, but I wouldn't bet on a radical plunge in interest rates over 2-3 months just because the market had a bad day. Mortgage rates tend to be a bit more judicious with their movement.

That being said, I would advocate watching the market (or, more preferably, having a trusted financial advisor communicate with on your investment strategy). If you are looking to close on the purchase of your home, I wouldn't suggest waiting a couple of months for the "rock bottom" interest rate. In my experience, people who do that usually miss the boat. Asie from that, any gains made by waiting "that extra minute" could potentially be offset by a depreciation in your home if the market takes a serious turn, and that sould affect your loan to values and ability to purchase or refinance. Look for a small leveling off and make your move then.

[Marty]

If I could predict markets, I'd be rich. Nobody likes a 400-point drop, but I'm not gonna read too much into a one-day performance.

[Tom Bass]

Not a whole lot of fuss about the markets being above 12000 recently..........

[Fishing Doug]

From an investment perspective-this is your standard issue market correction. If you have a financial plan in place (that is in fact invested in the market) and your Investment Advisor has educated you on this, you know this is coming sooner or later. Our clients are prepared for this, anyway.    Equities have already gained in 2007,therefore, you should hardly even notice this one day drop when you look at your 1st Q 2007 reports(assuming your portfolio is diversified beyond large caps).   IMO, of course.

FD

[Hawgin]

That being said, I would advocate watching the market (or, more preferably, having a trusted financial advisor communicate with on your investment strategy). If you are looking to close on the purchase of your home, I wouldn't suggest waiting a couple of months for the "rock bottom" interest rate. In my experience, people who do that usually miss the boat. Asie from that, any gains made by waiting "that extra minute" could potentially be offset by a depreciation in your home if the market takes a serious turn, and that sould affect your loan to values and ability to purchase or refinance. Look for a small leveling off and make your move then.

I wasn't suggesting that you wait long term to lock in on a closing, but if you are someone looking to refi, you may want to take a week or two.   Obviously if this is something that you are not trained to watch for, then give a call to your lender or your planner for their thoughts.  I work in the market every day and although no one can predict this thing 100%, it just seems that the natural trend is going to be for the market to continue to move in a downward direction for a while in sort of a "correction" pattern.  A one day, or a short term drop in the market will have a minimal effect on things such as long term prime rates, but an extended downward trend could have an effect on rates, etc.  WPD I fully trust you know what you are talking about, and I wasn't questioning your recommendations.  Just offering some further food for thought.

[tallydude]

Hawgin-

Great points. And don't worry about questioning my opinions or recommendations. I like feedback. It can only help to have people ask questions or offer different points of view.

[jb_from_texas]

what does it mean to me...?

it means we dump several planned stories for this week's pub and start over, writing new stories about Wednesday's market moves. ;D

I work for Barron's Magazine.