Danny Salas

Archive for November 6th, 2007

Chico, CA Interest Rates Market Report – Economic Influences – November 6th, 2007

Rates Are Cool, Cool, Cool

Prognostication “Enabelation”

Last week we talked about and prognosticated the Federal Open Market Committee’s (FOMC) monetary policy decision and statement regarding the overnight rate.  It was interesting right down to the wire, as well.  We had much hotter than expected Third Quarter Gross Domestic Product numbers. 

Keeping Our Money At Home

With a 3.9% annual growth rate, and estimates at 3.1%, it’s interesting to note that with the lower dollar value, compared to foreign currencies, the US consumer may be paying a little more attention to US made products.  Basically, we’re buying less foreign products and keeping the money at home.  We’ve talked about this in other articles and it will be an interesting fact to occasionally mention…so stay tuned…

ADP Is O-F-F

We’ve mentioned the ADP report on jobs numbers several times too.  In the past, their numbers have been WAY off, however, they seem to be doing better and better with each passing month.  Well, Wednesday morning, they reported that they expected 106,000 private jobs, added to 23,000 government jobs, the interest rate market reacted quite negatively to the fact that the government only expected a total of 80,000 new jobs. 

FED Finished Slashing?

With all of this hot information coming out the morning of the FOMC meeting, a lot of experts were still saying that the Fed would not lower the overnight rate. Well, I WAS RIGHT!  I LOVE when I’m right!  But hear what the Fed said in its statement, “Readings on core inflation have improved modestly this year, but recent increases in energy and commo0dity prices, among other factors, may put renewed upward pressure on inflation.  In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.”  This statement led investors to feel that there would be no further decreases in the overnight rate, when the Fed meets in December. 

The very next morning, Stocks got hit heavily when CitiGroup was rumored to have lost significant value from the mortgage crisis AND that their 5.25% savings account dividend was in trouble.  Helping rates was the Fed’s favorite guide to measure inflation, the Core Personal Consumption Expenditure Index (PCE).  The year-over-year reading is still at 1.8%.  The Fed wants to see inflationary readings between 1 and 2 percent.  Good for inflation and therefore good for interest rates.

Hot Jobs, But…

Then the bomb hit!  The best Jobs Report in six months reported 166,000 new jobs.  Higher than even ADP was estimating!  But interest rates remained cool!  Why?  Well, even with the strong jobs numbers, the hourly earnings numbers were cooler then expected.  Coupled with the fact that the strong jobs numbers points to the fact that the Fed will not lower the overnight rate in December, putting less future inflationary pressures on bonds…so rates remained tame. 

The CitiGroup rumors came into focus with the “laying off’ of CEO Chuck Prince.  Coupled with the retirement package to Merrill Lynch’s Stan O’Neal worth $160 Million, how are these poor souls going to make it in the real world?  I feel sorry for them!

In the meantime, rates are smokin’, values are down, it’s a wonderful time to buy!

Until next week…