Danny Salas

Archive for October 29th, 2009

Chico, CA Interest Rates Market Report – Economic Influences – October 29, 2009

GDP is HOT, BUT...

Technical Difficulties

I was, somewhat, out of commission since Saturday Night.  My laptop crashed out, and on Tuesday Night, my cell phone froze up on me.  Made for many more hours in the office, however, that’s why the Market UPdates were delayed until today.

What’s Going On?

In the words of Marvin Gaye, here’s what’s been happening.  Treasury Auctions have, so far, fared quite well.  Tuesday’s $44 Billion auction of 2-Year Notes, and yesterday’s auction of $41 Billion in 5-Year Notes were well received by foreign markets.  This pleasant surprise helped keep interest rates stable, however, keep in mind that there is nowhere for rates to go…but up!

Don’t Be Foolish

If you think that by waiting for the “bottom” of the real estate market, that you will somehow benefit from that, a heeded warning:  Don’t be foolish!  Higher interest rates will substantially influence your buying power more than declining values.  IF the government extends the tax credit for first-time home buyers, I recommend getting off of the fence and buying, as soon as you’re able.

Important Side Notes

Durable Goods Orders were reported exactly where the market expected them to be.  Consumer Confidence is down, particularly due to the labor situation.  The government is considering an expansion of unemployment benefits.  If this occurs, expect the number of claims to SKYROCKET, as unemployment numbers only report for a certain amount of time, before you’re ineligible for benefits, and drop off the statistics automatically.  Inventory Levels for New Home Sales were reported at 7.5 months.  This is a little higher than the 7.3 Months that we saw last month, however, it’s still promising, considering inventory was at 12.4 Months in January.

“Advanced” GDP is HOT, BUT…

Gross Domestic Product numbers (so far) for the 3rd Quarter were reported at a 3.5% increase.  Much hotter than the 3.2% expected, AND the first gain in a year, coupled with the greatest gain in two years.  Now, the media has gone hog wild with this news.  Bonds are reacting negatively, the stock market is going nuts, and everyone seems to be partying and celebrating that the recession is over.  Sorry to be the bearer of bad news but is everyone forgetting the “Cash for Clunkers” government refund program?  Is everyone forgetting the $8,000 First Time Home Buyer Tax Credit?  Without these subsidized government programs the real GDP is growth of 1.9%.  Nothing to get too excited about, I think.  The market will figure this out, but in the meantime, interest rates will suffer.

Jobless Claims Are Cool, BUT…

Again, we’re looking at Initial Jobless Claims of $531,000.  And claims that “only” 5.8 Million people are out of work.  The media is spinning this as good news.  Well, I don’t see the joy and happiness regarding these numbers, but I guess I’m in the minority.

Today, $31 Billion in 7-Year Treasury Notes will be auctioned off.  Will foreign appetite gobble up these notes, or will they shy from the longer termed risk?  We’ll see, but if foreign interest is bleak, prepare for rates to plummet this afternoon, coupled with these other media hyped “lies.”

Senate Approved Tax Credit Extension

Not only did the Senate approve an extension of this credit, however, they proposed a $6,500 tax credit for any primary home purchase, not just first time home buyers.  Also, increased, was the income limits for qualification for these credits.  $75,000 for a single person was raised to $125,000 a year in income.  Also, a married couple’s income was increased from $175,000 to $250,000 per year.  You have to have a contract dated by April 30, 2010 to qualify, and the transaction MUST close by June 30, 2010.  This still has to be negotiated between the House and Senate, so expect changes, but it is encouraging news, nonetheless.

Related Must Reads

How Foreign Interest in US Bonds Helps Interest Rates
Tax Credit “FAX”

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