Danny Salas

Archive for August 14th, 2007

Chico, CA Interest Rates Market Report – Economic Influences – August 14th, 2007

Lower Today, But Watch Out for Tomorrow

More Sub-Prime Concerns

As mentioned in last week’s article, investors are weary of purchasing loans that nobody wants.  This is causing the sub-prime market, and other portfolio (or riskier) types of loans to not have buyers.  Therefore, their interest rates have been unstable, difficult to place, with potentially significantly higher than normal interest rates.  It’s causing a lot of confusion in the marketplace and world-wide arena as well.  Stock markets, globally, are sharply lower over concerns regarding banking and investment fund exposure to US sub-prime mortgages. 

Fund Freezing Frenzy?

The French Bank BNP – France’s largest bank and the second largest bank in Europe, didn’t allow their investors to withdraw funds tied to US Sub-prime loans.  They wanted to let the situation settle, before everyone withdrew, and there were no funds left.  Just imagine if you couldn’t pull funds from one of your accounts.  To calm fears, Central Banks are responding by making liquidity available, to help calm investor fears and prevent massive withdrawals from accounts and holding around the globe.  As of Monday, August 13^th, the European Central Bank (ECB) had provided $278.9 Billion  of liquidity into their marketplace.  Unprecedented!  Some are even suggesting that the Federal Reserve might cut interest rates before their scheduled meeting in September.  If not before, than a cut by the September 18^th meeting seems inevitable.  Senators are getting involved, asking that there be a temporary raise in the conforming loan amounts (remember last week we mentioned that conforming loan limits are currently $417,000).  Hilary Clinton even chimed in and suggested that ALL pre-payment penalties be waived, by law.  I told you last week, we’re in un-charted waters! 

Will China Unload Their US Bonds?

To make things a little more uncertain, the US and China are in somewhat of a game of chicken.  The US has threatened to put trade sanctions on China.  And hence, China is threatening to unload $1.3 Trillion of US Bond Holdings (if you’ve read my previous articles you would understand that China holds more US Bonds than any other foreign entity).  I heard a statement on NPR this week.  Ted Koppel stated that the US and China are tied at the ankles.  Like an old potato sack style race.  If one makes the wrong move, it will definitely cause the other to stumble.  China probably won’t unload these shares, as it would hurt the value of their remaining shares…so let’s hope and watch what happens. 

Higher Unemployment Rearing Its Head?

Initial Jobless claims edged up another 7,000 to 316,000.  This is the second movement upwardly, and the highest move since June 30.  This could set a trend for higher unemployment, which would help interest rates.  Retail Sales for July were up 0.3% which was greater than expected.  This positive news helped stocks.  On Tuesday, the Producer Price Index (PPI) came in at 0.6%, much higher than the 0.1% that was expected.  Energy prices jumped 2.5% for the month, which probably helped the higher PPI.  The Core Rate of Inflation only jumped 0.1%.  Some ugly reports from WalMart and Home Depot may help lower the stock market and help interest rates.  These lower earning reports suggest concern over the possibility of the US slumping into a recession by early next year. 

With the Consumer Price Index, Core Consumer Price Index, Jobless Claims, Philadelphia Fed Index, Housing Starts, New Home Sales, and other data all coming out later this week, man I tell ya, your guess is as good as mine…Until next week…