Beginning of Fighting Triggers Sharp Rise in Mortgage Rates
WALL STREET WEST
Historically low interest rates appear to have pivoted with the onset of war.
The war in Iraq has caused mortgage rates to rise sharply, according to the California Association of Mortgage Brokers. Between March 12 and March 18, mortgage rates rose from between one-quarter and three-eighths of a percentage point, to around 6 percent. The war will cause national rates to continue to rise, with Los Angeles area rates included, said Ted Groves, president of the California Association of Mortgage Brokers.
“If rates go up, affordability will go down,” said Groves. “The tremendous volume of mortgage refinancing we’ve seen is going to end.”
Graves said he didn’t expect to see a real impact on housing demand until mortgage rates hit 7 percent. Refinancing activity will drop off once rates reach 6.5 percent, he said.
In the corporate bond market, the influential Newport Beach-based bond manager Bill Gross also sees interest rate increases.
Gross, who manages Pacific Investment Co.’s Total Return Fund the world’s largest bond fund said an extended war with Iraq could swell budget deficits, which would lead to higher interest rates and inflation, according to Gross’s March 2003 Investment Outlook.
Gross, a Vietnam veteran, also questioned the aggressiveness of the U.S. invasion of Iraq in his Investment Outlook. “I’m aware that Iraq is in noncompliance with U.N. resolutions and that its leader is a near madman. I’m also aware, however, of how absolute power corrupts and how we may be crossing a thin line,” he said.
Even before the first cruise missiles hit Baghdad, market professionals were predicting who the winners and potential losers would be under various wartime scenarios.
Digital Insight Corp., a provider of Internet banking services to banks and other financial institutions, was singled out in a March 17 note issued by Friedman Billings Ramsey Inc. as a suitable choice for offense-minded investors.
Digital Insight, based in Calabasas, is among a number of small-cap business services companies that Friedman Billings contends are relatively stable and have emerged from the economic downturn as market leaders. The firm cautioned that Digital Insight could be vulnerable to near-term disruptions in its business if spending decisions are delayed or canceled, but if stocks fall with the overall market as a result of war. Recently trading at $14.50, Digital Insight’s stock is up 66 percent since the beginning of the year.
Farmer Bros. Co. named Roy E. Farmer, 50, as its chief executive, taking over from his father, 86-year-old Roy F. Farmer, who will remain chairman.
The younger Farmer, who was president and chief operating officer, also inherits a fight with a group of dissident shareholders that has been prodding the company to loosen its grip on a large cash hoard.
The Torrance-based company won a December shareholder vote that would have re-classified it as an investment company under the Investment Company Act of 1940. In the latest skirmish, the dissidents have been citing a California state law in requesting the release of more detailed financial information than the company already places in its Securities and Exchange Commission filings. Farmers has shared some of the information with its largest institutional shareholder, Franklin Mutual Advisers Inc. of Short Hills, N.J., but required the firm to sign a confidentiality agreement.
The dissidents designated a shareholder to ask for the same information, with no restrictions and preferably in an SEC filing. Last week, the company indicated that it would accede, although it didn’t say to what degree.
“We are confident the financial reports we regularly release to the public, which far exceed SEC and (Financial Accounting Standards Board) requirements, are transparent and clearly refelect our relatively straightforward, 91-year-old business,” the company said in a prepared statement.
“Although the need for this information is unclear, we will provide information to this investor,” it said.