Danny Salas

Archive for November 5th, 2009

Chico, CA Interest Rates Market Report – Economic Influences – November 5, 2009

The Media Is Painting A Rosy Picture

Fed Keeps Initial Investment

Many traders were hoping that the Fed would increase their buying power to new levels.  The Fed kept their stance, however, and remained diligient regarding the $1.25 Trillion Mortgage-Backed Security Purchase Program.  This will end in March of 2010.  When this program ends, money will be tight.  In order to lure investors, yields will have to be higher. And, as you may know, higher yields translates to higher interest rates.   But that’s in March.  What might happen before then?…

Stocks AND Bonds Up

The Labor Department reported 512,000 new Jobless Claims today.  They expected 522,000 Claims, so lower than expected.  Does that give us a hint into what tomorrow’s unemployment figures will be?  Perhaps…  It’s the lowest number since the first week of 2009.  Now, the market might like that statement.  “It’s the lowest number since the first week of 2009.”  But, again, over a half a million people filing for unemployment each week?  I don’t see how that’s good news.  3rd Quarter Productivity Rose by 9.5%.  So, as companies ask their employees to work less hours, or take furlough days three days a month, or take fewer breaks and work harder, productivity will rise.  So, on that note Stocks are rallying.  Generally, Bonds would suffer, however, in those same Labor Department figures, unit labor costs plunged 5.2%, bringing an interest to bonds.  So, it’s one of those rare instances that both the Stock Market and Bond Market (and therefore Mortgage-Backed Securities, and interest rates) are benefiting. Unit labor costs measure inflation at the production level.  Lower inflation means lower interest rates.  Remember, inflation is interest rates’ worst enemy.  When the Fed runs out of their $1.25 Trillion MBS Purchasing money, it will cause inflation.  Another reason rates will increase after March of 2010. 

Interesting Side Note on Unemployment

During the week of October 17^th (my birthday), enrollment in extended benefits programs increased by 24,600 while the Emergency Unemployment Compensation program enrollment rose by over 90,000.  So the 20,000 in Unemployment Claims, that were less than what was expected, have all had to move to emergency type state, or other government-type funding to make it by.   So, depending on how the market interprets that information, I don’t see tomorrow’s figures pointing to a surprise improvement  in the Labor Market.  So, floating into tomorrow’s numbers might be a prudent strategy, if you can stomach the anticipation!  So, don’t listen to the media, listen to me!  Of course, I’ve been wrong before, but I just don’t see the Labor Market improving.  We just may see unemployment at 10% or more.  Most economists are expecting a 9.9% number, but I’m not so sure. 

Locking Advice

As mentioned above, I’d float.  We have two lines of support at the 50-Day and 200-Day Moving Average.  However, the 25-Day Moving Average is not to far of a ceiling from where current Bond Values are.  So, in order to break through the 25-Day ceiling Labor Statistics would really have to be surprising, however, there is room to have a small interest rate decrease, first thing in the morning.  Some clients have chosen to lock…others are heeding my advice to, what I think will pan out to be, about a .25% Point savings on their loan costs.  Until tomorrow…it will be fun to see the results… 

Related Must Reads

How Bonds Change Interest Rates
A History of What Happened
$1.25 Trillion MBS Purchase Program

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