Danny Salas

Archive for October 23rd, 2009

Chico, CA Interest Rates Market Report – Economic Influences – October 23, 2009

3rd Quarter Earnings Elude The Truth

The Psychological 10,000 Dow Mark

Generally, when Stocks move up, bonds move down.  When Bonds move down, their rates (or yields) move up.  So, stock market investors keep relying on the expectation that stocks will continue to “surprise” with corporations 3rd Quarter Earnings Reports.  79% of S&P 500 Companies (that have reported their earnings, so far) have reported better than Wall Street Expected, according to Thomson Reuters. So Mortgage-Backed Securities have been trading in a very narrow range supported by the 50-Day Moving Average, and being rejected by the 200-Day Moving Average.

Why The Surprise

It’s interesting to note that we still are reporting better than expected numbers by corporations, into the 3rd Quarter.  I’m still leery of these numbers, as I feel that corporate sales are still weak, and that corporations can only cut costs, lay off, close plants, and skimp for so long.  We expected to see this in the 3rd Quarter, but I’m not so sure we may, until  the 4th Quarter.  Scrimping and scraping by is not true economic growth, period!

Housing Starts & Building Permits

Housing Starts, which accounts for approximately 85% of the homebuilding industry, increased 3.9% last month.  Multi-family units, fell by about 15%.  Total permits, which obviously gives us insight into future housing starts, fell by 1.2%.  However, it’s getting better than what’s been reported in the past.  The big picture, here, is that homebuilding is slowly, but surely, healing itself.  On a side note, just be careful not to expect that this trend is certain.  Keep in mind that the $8,000 Tax Credit is ending in just five weeks.  If Congress doesn’t extend the program, how will that effect new building?

Producer Price Index

The PPI fell 0.6% in September, compared to August’s 1.7% increase.  This primarily fell due to lower energy prices, however, as you have felt at the pump, watch out for this figure in the future, as oil, natural gas, and therefore overall energy costs are expected to rise.  So, for now, it looks as though inflation is tame.  This generally helps interest rates, but I think the market’s knowledge that inflation is right around the corner, when the government stops borrowing money.  To state the facts:  Better than expected corporate earnings and the slowly scaled back plan of the Federal Reserve buying of Treasury debt, will lead to higher rates.

Applications for Loans Shrinking

Mortgage Bankers of America indicated that applications were down 13.7%, last week.  Applications to purchase homes dropped 7.6%.  This, also, is more than likely due to the $8,000 Tax Credit Ending in about five weeks.

China’s Own Problems

China has their own economic problems, however, they feel as though their $4 Trillion Yuan government stimulus program is helping them get out of their woes, as the United States feel similarly, that our government stimulus program is benefiting us.  So, similarly, they have warned their country’s leading banks to be ready for a money tightening policy that will influence lending standards, negatively.

Unemployment Benefits Ignored

The Labor Department reported that the number of people filing for unemployment benefits rose 11,000 last week.  The four-week moving average was down 750, so even though claims are back up, the average claims actually fell 750.  Again, somewhat misleading, as even though these numbers are coming in less than expected, the market is absorbing that as good news, while in reality, it’s still very ugly!  For example, the number of people collecting unemployment benefits dropped by 98,000.  Wall Street seems to be under the impression that things in the Labor Arena are looking brighter.  I don’t see it.  I think people are just running out of time, in their benefit period, and dropping off the charts.  This seems to be evidenced by the fact that the number of people collecting emergency benefits from states and federal programs rose 0.8%, just the week before.  Until we see a strong hiring position by empoyers, these numbers will continue to be misleading.

What’s Your Credit Rating?

OK, my rating has been about 720 for years.  I haven’t checked it in a while, however, I would hope it would be about the same, as that rating gets me better pricing on loans, gets me qualified for better rates on car loans, etc.  Steven Hess, lead analyst for ratings agency Moody’s, said that the United States needs to cut its deficit, or lose it’s “AAA” rating, that it’s had since 1917.  He stated that if the US doesn’t, “get the deficit down in the next 3-4 years to a sustainable level, then the rating will be in jeopardy.”  So, just like you and me, if the score is lower, so are the rates to borrower money for homes and cars.

$123 Billion Treasury Auction

That’s right.  A new record!  The Treasury will offer $7B in TIPS, on Monday, $44B in 2-year notes on Tuesday, $41B in 5-year notes on Wednesday, and $31B in 7-year notes on Thursday.  All of this $123 Billion Loan is for the country to carry on for just two weeks.  Unbelievable!  Coupled with the Treasury winding down its purchase program of Treasuries…I just cannot fathom the future of the country and the plan to pay this debt back.

HVCC Changes?

The National Association of Mortgage Brokers reported that an amendment was made, which would effectively kill HVCC, and it looks good that this will pass.  If passed, we’ll revert back to the ability to order our own appraisal through our own appraisers.  Keep watch of this on this blog!

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