Obama Unveils Mortgage Plan, But Is That Good For The Market?

Equity markets rallied in the U.S. and Europe and many are hailing President Obama’s mortgage plan as the reason for this bounce. But this may be quite a fallacy. European markets rallied overnight before the plan was unveiled. Much of this may have been due to new expectations that Chinese Premier Wen Jiabao is scheduled to add to the 4 trillion Yuan ($585 billion) stimulus package that had been announced last October.

President Obama released his long-awaited mortgage plan only to see banking stocks plummet by -6.59%. This could have been because of the details the laid within the text of the document itself. It was revealed that only those whose home-loans are owned by either Fannie Mae or Freddie Mac would be eligible to receive help. However, there are many other banks that own substantial a substantial portion of the mortgage market that will not benefit from the bailout. Indeed, Wells Fargo led the slide with its 16% market share of mortgages outstanding.

As such, today’s rally may only be temporary. Equities might continue seeing volatility. Currencies that are vehicles for risk-aversion may continue rallying.

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