Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – Sept 30th, 2008

SafeHaven Investing Moving To ... Treasuries

Cheeseburger In Paradise…Uh…Wrong Buffett…

When Warren Buffett’s Berkshire Hathaway decides to invest $5 Billion in Goldman Sachs, you just know everything is honkey dorey, right?  Oh to be so lucky!  Just when you think that this might just be the vote of confidence that Wall Street might be looking for, we stumble…again.

“If I should stumble, catch my fall.”  Billy Idol had it right…but who’s going to catch this behemoth falter?  Taxpayers!  I have stated in previous articles that some of the practices that have been presented to the Treasury and Federal Reserve have been pretty impressive, however, Congress’ latest delay in the rescue plan is scary, but prudent.  Hopefully, we’re not experiencing political ridiculousness only to gain clout with voters at such an important time.  But we do need to be certain that the rescue plan is understood, and understood well.  I’ll come back to this…

WAMU, No, Chase, No, World, No, Wachovia, No…Who?

Initial Jobless Claims topped 493,000 for the week.  This is the worst levels in over seven years.  It’s getting pretty ugly for the labor market too.  Washington Mutual was actually seized by the Office of Thrift Supervision.  JPMorgan Chase will purchase it for $1.9 Billion.  Washington Mutual?  Did you say Washington Mutual?  Yes, I said Washington Mutual.  About a year and a half ago they were considered one of the strongest lending institutions in the country.  We are definitely in unprecedented and historic times.  So, remember when World was purchased by Wachovia?  Yeah…you can see who’s banking there and who’s losing a little hair on their scalp from the windows of Broadway Heights restaurant.  The Wachovia sign looked so out of place from the World Savings and Loan sign that was there forever.  Well don’t get used to the white, green, and light blue insignia from Wachovia either!  That’s right…they just got purchased by Citigroup.  The FDIC will get $12 Billion in preferred stock and warrants on this deal.

Oh yeah…back to market indicators.

The Fed’s favorite gauge on inflation, the Personal Consumption Expenditure Index was reported on a year-over-year level of 2.6%.  This is WAY out of the Fed’s desire to be in between 1.0% and 2.0%.  We haven’t seen inflationary signs this alarming in the PEC since 1995.

Then US stocks saw the worst decline of the Dow Jones Industrial Average in its 112 year history.  This:  due to the indecision of the House and Senate to agree on the $700 Billion rescue plan.  Now what happened here is very interesting.  Investors fled from stocks, but didn’t put their money in mortgage-back securities (which is often the case).  Instead, they moved money into Treasuries.  Again, if you didn’t follow the market closely, you could be misled insofar as where you think rates might go, if you base your decision on locking in an interest rate on the 10-Year Treasury Bill Yield, as opposed to mortgage-backed securities.

So coming back around to this rescue plan, you have to trust the our leaders see that we must do something to free up the lending system and keep the industry moving forward without a collapse.  Just like the FannieMae/FreddieMac takeover this isn’t a plan to bailout Wall Street altogether, just a bandaide to keep the markets moving forward until we can get through these unprecedented, historic times.  I know where I’d put my money…REAL ESTATE!  Until next week…

This entry was posted on Tuesday, September 30th, 2008 at 7:24 pm and is filed under Chico Home Loans, Home Buying, Interest Rates, Loan Qualification, Weekly Market Report. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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