Danny Salas

Archive for December, 2007

Chico, CA Interest Rates Market Report – Economic Influences – December 18th, 2007

Twas the week before X-mas

when all through the banks

The Value of Bonds were falling, another closing bank joined the ranks

The Stock market plunged with the news of a quarter-point hit

Of the overnight rate cut down by lowering a bit

The Fed dreamed up a new plan that would bring $40 Billion to the table

An Auction Facility, to help the credit crisis, but would it really be able

It would be a 28 day window to ease preasure and increase liquidity

December 17 would be the first day, but would it put the crises at ease?

The Fed changed it statement that growth and inflation risks were in balance

To “act as needed,” said Bernanke…for the economy and inflation challenge

$57.8 Billion, our trade deficit did widen

The Senate passed an FHA reform bill, with only one decent, and it wasn’t Joseph Biden

The week showed the PPI move like 1973, higher than expectations

This really hurt Bonds, and not like the ball-players, perhaps awaiting incarcerations

When weekly initial Jobless Claims declined by 7,000

That news was kinda expected, so bonds lowered, but up was the Dow’s end

The CPI readings every month are more hot

2.1%, 2.2%, then, this month 2.3%, are bonds overbought?

Thank goodness for the 50-day moving Average, I will not lie

It acted as support, as it did back in early July

Now Bernanke, Donald Kohn, Kevin M. Warsh, and Frederick M. Mishkin

Lower interest rates for Christmas, is what we’re all wishin’

To the drop of the Dow, and the drop of bond yields

Now dash away, dash away high interest rates in our field

On Monday, Banks borrowed from the Fed’s auction Facility

Hoping that LIBOR loans adjustments and the ability

would lower ARM Rates when it come time for adjusting

So this credit crisis we’re in, doesn’t continue a-bustin’

And then from out of nowhere, Alan Greenspan, shouts, “recession”

High consumer prices, a receding economy, with whom does he think he’s messin’

Capacity Utilization was reported at 81.5 percent

a reading above 85 is inflationary, thank goodness this report didn’t relent

The ECB put $500 Billion in the banking system this weak

This calmed the credit pressures moved interest rates our way

Monday came and the Fed’s auction of $28 Billion went well

It appears as though our mortgage funding system may NOT be going to hell

 Bonds started to move higher as Housing Starts and Permits looked merry

But coming in at expectations, housing remains soft, like the fruit of a cherry!

New construction and single family permits hit 16 year lows

Lending people to wonder if I was their friend or foe

The Fed’s meeting real soon about a change in the lending practice

Stricter guidelines, no pre-pay’s, higher reserves, will become status

Friday will give us the Personal Consumption Expenditure Report

The Fed’s favorite gauge on inflation, it can move markets of the sort

The GDP will come out giving us a read on the third quarter

If that news is too bad, I’ll be drinkin’ a Sierra Nevada Porter

So, keep up your chins, markets change and us with ‘em

Go buy toys for your children that require some lithium

Just know that I told you when to lock and when to float

This market will change, so please, please, please don’t gloat

You heard me exclaim, rates again are below six

So, “thank you,” this Christmas, I’ll mention to Jolly ole’ St. Nick

Chico, CA Interest Rates Market Report – Economic Influences – December 11th, 2007

Jobs Report Figures Compared to ADP

Look to your right when you’re in Valencia and you’ll see the interest rate chart I’m staring at off on the horizon.  That’s right…you’d get whiplash if you read it too quickly.  The interest rate chart looks like The Colossal at Magic Mountain.  First, remember me mentioning Automatic Data Processing (ADP) in other articles?  Well, they came out and said that the US would report about 189,000 new jobs.  We were expecting 70,000.  Another report showed Productivity revised to the highest level in four years, at 6.3%. 

Wage Based Inflation Lower

Interestingly, however, was the fact that Annual Unit Labor Costs, a gauge of inflation and profit that is closely observed by the Fed, declined 2.0%.  It’s the steepest decline in four years.  So, even with the hot jobs estimates from ADP and high productivity, what helped interest rates was this lower read on the Annual Unit Labor Costs (keeping wage-based inflation lower).

Other Countries’ Lower Rates Will Lower Our Rates

‘This last week Great Britain’s central bank, The Bank of England, lowered their overnight rate to 5.5% from 5.75%.  This is good news for the US because it will ease some of the pressure on the lowering US Dollar.  The European Central Bank remained steady, however.

Change Was Eminent

As you saw in last week’s article, we were enjoying low, low interest rates.  So low that we knew a correction was eminent.  It happened with the jobs numbers formally coming in at 94,000 new jobs (not ADP’s numbers, however, still quite high).  What was worse (for rates) was that the unemployment rate remained at 4.7%.  They expected those numbers to move to 4.8%.  Coupled with an Hourly Earnings number up 0.5% and above the 0.3% that was expected, this caused higher wage and tight job market fears.  Both inflationary – and interest rate’s nemesis.  So, the Fed’s task of determining which factor, weaker jobs growth compared to wage-based inflation, would have an impact on a .25% or .50% cut in rates on the 11th. 

It’s An Excellent Time To Buy

We’re back in the volatility craze right now, for sure.  And what happened on the 11th?…The Fed lowered the overnight rate (or Fed Funds Rate) only .25%  This was a little surprising to the stock market which was not doing very well late Tuesday.  It was down over 220 points.  So mortgage backed securities were up 74 basis points around noon time.  Remember, that’s approximately .75% better in points than a loan locked the day before.  The dollar responded to this move nicely.  This preserved the value of bonds, but obviously, the stock market did NOT like the move.   There is a level of resistance, just above where interest rates ended up on Tuesday the 11th, so we’ll have to watch those levels and lock in interest rates if they bounce off of those levels and cannot pierce through them.  Need I remind you that it’s an excellent time to buy?  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – December 4th, 2007

Rates Be Nimble, Rates Be Quick

So much to report on this week!  New York Fed Vice Chairman Donald Kohn indicated, “In my view, these (financial) uncertainties require flexible and pragmatic policymaking – nimble is the adjective I used a few weeks ago.  In the conduct of monetary policy, as Chairman Bernanke has emphasized, we will act as needed to foster both price stability and full employment.”   Nimble seems to be the operative word, here.  Lowering rates?

Durable Goods Orders for October saw the biggest monthly decline in this index since February of last year.  The National Association of Realtors reported that October existing homes sales fell 1.2%.  Interesting to note; the biggest drop was in multi-family and condominium sales. 

DON’T Watch the 10-Year Treasury!!!

Again…Mortgage Backed Securities were up 16 basis points on Wednesday of last week.  The 10-Year Treasury Note was down 34 basis points. 

Preliminary Gross Domestic Product showed the US economy growing at an expected 4.9%.  This is strongly due to a weaker US Dollar.  Initial Jobless Claims were reported at 352,000.  This is the highest level since February and some see this as our economy’s inability to continue to create more new jobs, than loosing old ones.

Rates Could Get Disappointing

The Fed’s favorite gauge on inflation came in on a year-over-year basis at 1.9%.  Remember, the Fed wants to see inflationary levels between 1 and 2 percent.  Bernanke said that resurgent financial strains have really made future economic growth in our economy quite pessimistic.  If you’re looking for additional interest rate improvements, after the monetary policy decision on December 11^th, you could be quite disappointed.

If you read this article and have been considering refinancing…now is definitely the time.  This Friday November’s nonfarm payroll reported is scheduled for release.  The hype is that less than 80,000 new jobs, coupled with unemployment moving to 4.8%, from 4.7% could create a 50 basis point lowering of the overnight rate on December 11.  If that number is more in line with over 110,000 and unemployment remains at 4.7% than just a 25 basis point move might be in line.  Most of you reading this may think that a 50 basis point drop would be great for interest rates.  

Home Values AND Rates Are Down

Here’s the problem.  Ten-Year Treasury yields are paying 3.88%.  The Consumer Price Index is reading 3.5% in October.  Should inflation readings like the CPI exceed what investors are getting paid to hold Treasuries, investors then throw their funds from bonds and into stocks.  This has occurred from August of 1973 through August of 1953 and from January 1979 to October of 1980.  So, again, I cannot stress enough…now is the time.  Home values and rates are down.  5.625% with an APR of 5.733% is what was being locked in on Monday.  Also, what’s interesting to note…Rate cuts are designed to help economic growth.  This pushes up demand for goods and services, but also the cost of capital.  This is not really a good formula for lower interest rates. 

Rate Freeze on SubPrime Loans

Last, a government sponsored plan to temporarily freeze interest rates on certain adjustable, subprime loans could be right around the corner.  Basically, the low, introductory rate on these loans could be extended for a certain amount of time to help home owners.  It’s still being worked on, but it’s another example of these uncharted waters we’re in around the mortgage industry.  Until next week…