Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – February 18, 2010

Fiscal Policy Is On An Unsustainable Course

Inflation, Inflation, Inflation

Uh-Oh…Yesterday afternoon, we switched to a lock mode, after advising people to carefully float into the morning.  And lock, we did!  It’s a good thing, too, because the negative movement, for interest rates, continues to be alarming with reads on inflation poking its ugly head out and stirring the markets.  Remember, inflation is the nemesis of interest rates.

Read This Carefully

Yesterday, Kansas City Fed President Thomas Hoenig had some very interesting comments that the United States, quite frankly, better pay close attention to.  He said, “Fiscal policy is on an unsustainable course.  The US Government must make adjustments in its spending and tax programs.  It is that simple.  If pre-emptive corrective action is not taken, regarding the fiscal outlook, then the United States risks precipitating its own next crisis.”  He’s warning about hyperinflation.  That occurs when rates have to increase so quickly, as to stave off inflation, that currency become valueless.  Remember Post World War I Germany?  Well, I don’t.  But I’ve read about it!  So, when Hoenig became President of the Kansas City Fed, in 1991, he mentioned that his 85 year old neighbor gave him a 500,000 German mark note.  He told Tom that that note would have purchased a home, in 1921.  In 1923, that same note wouldn’t even buy a loaf of bread.  Mr. Hoenig took that to heart, and that’s one of the reasons he’s been so outspoken regarding these turbulent times.  He has that mark note framed in his office, as a cold reminder to himself, of what his responsibilities are, to the American People!

Housing Starts Up

591,000 starts compared to the 580,000 expected.  Great news for the housing market, however, bad news for rates.  Kind-of-a “Catch-22,” no?  This is primarily due to the Tax Credit.

Jobless Claims

Jobless Claims, for the week, were up to 473,000, compared to the 438,000 expected.  Here’s a scary figure:  An additional 5.8 million people are filing for Emergency Unemployment Compensation (EUC).  That’s up an astonishing 304,708 people, just from the prior week. Keep in mind that these figures are not included in the general unemployment data.  So, if we’re waiting for the jobs numbers to look better, we might be waiting a long time!

Producer Price Index

The PPI came in 1.4% hotter, in January, than in December.  This is a measurement of inflation at the wholesale level.  It’s hot, however, this is not always passed to the consumer, at the consumer level.  These readings will be reported tomorrow, with the Consumer Price Index (CPI).

As I Write:  Locking Advice

As soon as we touched beneath the 200-Day, things took off and plummeted down about 50 basis points.  That’s about 1/2 Point cost on a loan.  Now that we’ve broken beneath all levels of support, it would be prudent to lock.

Related Must Reads

An Interesting Contradiction: Jobs Growth?

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This entry was posted on Thursday, February 18th, 2010 at 10:07 am and is filed under Chico Home Loans, Home Buying, Interest Rates, 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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