2023 Wrap-Up: How Did the Main Asset Classes Perform in 2023? ✍

🐺 Hi pack-mates,

This is Howling Markets, the tire chains needed to get some traction in the snowy financial markets!

Today we will be covering:

• Education: What Is Mortgage-Backed Security? 🏘️

• The US Commercial Real Estate Market Is in Serious Trouble 💥

• 2023 Wrap-Up: How Did the Main Asset Classes Perform in 2023? ✍

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What Is Mortgage-Backed Security?

A mortgage-backed security (MBS) is an asset created by pooling together different mortgages. MBSs are constructed through a process called securitization which collects various assets and repackages them into an interest-bearing security.

In the case of mortgage-backed securities, the securitization process is often performed by investment banks or other financial institutions that purchase loans at a lower price directly from the issuing bank with the intent of creating an MBS.

From the bank’s point of view, even if they sell the mortgage at a lower price, they will be able to reduce their operating costs of managing the loan and decrease the default risk while earning a return right away.

However, when considering mortgage-backed securities it is important to remember that these assets are only as safe as their underlying mortgages. Even if each MBS is a collection of various mortgages, implying a certain degree of diversification, if the quality of the underlying assets is low across the board, the default risk will remain significant.

If you are interested in this topic, I would really recommend watching “the Big Short” a great movie going over the 2007-2008 Great Financial Crisis discussing in great detail this interesting asset class.

The US Commercial Real Estate Market Is in Serious Trouble!

Recently, we have talked about how real estate giants are dumping cash in the Eurozone due to the difficulties of refinancing loans due to the high real estate enviroment.

On the other hand, during the last months it was believed that the US was facing a more stable financial situation thanks to the announced Fed pivot, promising lower interest rates in 2024.

It is undeniable that the latest FOMC meeting helped the cause, but many analysts have started to believe that it is not enough, especially for the United States commercial real estate market.

According to a Financial Times’ study, the debtors will have to face the dilemma of how to handle a $117 billion debt that will reach maturity during the first months of 2024.

More specifically, Moody’s analysts have forecasted that of the 605 US commercial buildings with mortgages expiring soon, at least 224 of them will have trouble refinancing the loan.

The study states that the main cause of the troubles is the fact that most of these loans were last refinanced 10 years ago during a very low interest rate period, so refinancing it at a cost 3 or 4 times higher might be just too much for many businesses.

How do you think the real estate market will perform in 2024?

Today’s Howling Question

And now, it is time for our howling question!

We have discussed mortgages and mortgage-backed securities; however, we haven’t talked about one of the most important terms that must be taken into consideration when analyzing these assets.

Do you know what does delinquent mortgage means?

a) A Mortgage becomes delinquent when the borrower fails to make payments as required in the loan contract.

b) A Mortgage becomes delinquent when the borrower defaults.

c) A Mortgage becomes delinquent when the borrower refinances the contract.

d) A Mortgage becomes delinquent when the property owner forecloses the property.

e) A Mortgage becomes delinquent if the borrower performs illegal activities on/with the loaned property.

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

2023 Wrap-Up: How Did the Main Asset Classes Perform in 2023?

It went by so fast, but yet another year has passed. Let’s try to understand how the biggest players moved throughout the year.

Let’s start with the classic: the S&P500. This year has been relatively smooth for the SPX index, as it climbed restlessly through 2023, incurring only in two relatively large retracements, respectively around -8.5% and -10.5%.

All in all, it was a great year for the stock market as it concluded 24.23% higher, extremely close to its all-time high set at the beginning of 2022.

The 10 year US government bold yield told a whole another story. For the first six months of 2023 the yields moved sideways because after the crazy +156.27% surge in 2022 the debt markets believed to have already priced in further central bank rate increases.

However, in July the yields broke out and proceeded to rally another 30% touching the 5% level, before dropping by 25% as soon as the Feds announced lower policy rates in 2024. In the end, US10Y concluded -0.36% with respect to the end of 2022.

Then, it would only be fair to talk about the father of all cryptocurrencies: Bitcoin. This amazing coin followed a relatively linear growth throughout the year characterized by a steady climb with some hiccups along the way, represented by three -20% retracements.

However, Bitcoin’s performance and optimism about the 2024’s spot ETFs were enough to carry the crypto to an annual gain of +155.68%.

Finally, it is worth mentioning one of the few assets that was able to achieve, and maintain, its all-time high in 2023: Gold. The ETF for this precious metal (ticker: GLD) gained +12.69% year on year and it was able to set its all-time high on the 27^th of December at $192.59.

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

Today, the first of January 2024, the markets are closed in observance of New Year’s Holiday!

I would like to wish you Happy Holidays on behalf of the Howling Markets team and wish you good luck for your future trades in the 2024 markets!

We will be back tomorrow with the first daily markets update of 2024!

Answer

The correct answer is a) A Mortgage becomes delinquent when the borrower fails to pay as required in the loan contract.

If this definition seems pretty similar to the definition of default, well, you wouldn’t be too far off. A default is simply a more severe delinquency, which is usually defined as such after 180 days from the first missed payment.

So, a mortgage is defined as delinquent as soon as the borrower misses a payment, and this statistic is often used as a forecasting tool for the number of defaults and foreclosures that will occur in the near future.

Howl-Worthy Memes 😂

🐺 See you next time!

Enjoy reading this newsletter? Forward it to a friend.

Was this newsletter forwarded to you? Sign up here.

Want to get your product or job listing for business-related readers? Please email us.