Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – October 26, 2009

3rd Quarter Earnings Still Helping Stocks

Record Treasury Auction

Starting today at 10:00 a.m., Pacific Standard Time, the initial rolling out of this week’s record Treasury Auction, will pour into the market.  $123 Billion worth of Treasury Notes will be auctioned throughout this week.  Today, $7 Billion worth of 5-Year Treasury Inflation Protected Securities (TIPS).  The rest of the week shows 2, 5, & 7-Year Treasury Notes that have generally fared well for interest rates.  Particularly due to the fact that they are short term notes, compared to 10 and 30 Year Treasury Notes.

3rd Quarter Earnings

They are still helping Stocks by reporting better-than-expected numbers.  Verizon reported better earnings, however, I’m still not convinced that cutting the bottom line is true economic growth.  We’ll have to see how this plays out, in the future.

Wall Street Journal Prepares For Higher Interest Rates

On November 4-5, 2009, The Federal Open Market Committee (FOMC) will have their next meeting.  On the 5th, it is expected that they will report on how, and when, they will start to increase the overnight rate.  With their Mortgage-Backed Securities Purchase Program scheduled to end on March 30, 2010, you can bet on higher interest rates…period.  Are your buyer’s prepared?

Economic Activity

This week is full of economic activity, however, today is dead.  So, Stocks will play a large roll regarding where interest rates will head.  With 3rd Quarter Earnings continuing to surprise, and not much support left for rates, we’ll be watching the lock button closely, after Friday’s losses.
Related Must Reads

Why Be Leery Paragraph. Why short term bonds are less risky than longer term bonds
To Put It Simply, Stocks Are Overbought…Will This Trickle to 4th Quarter?

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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!

Related Must Reads

HVCC-What’s It All About?
Hello, Is This Thing On?

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Chico, CA Interest Rates Market Report – Economic Influences – October 16, 2009

Interest Rates Benefiting At The Expense Of Stocks

We Have Support

The 50-Day Moving average has acted as a huge layer of support, since August.  True to form, today, Mortgage-Backed Securities Bounced right off of that trend line and is patiently sitting right above it.

Stocks Now Down

With Bank of America reporting its 1st loss of the year, Stocks are taking the hit.  General Electric and IBM also reported less than attractive earnings.  With money pouring out of Stocks, generally, those investors find a safe haven in bonds, and therefore, Mortgage-Backed Securities.  The higher the bond value, the lower the yield.  The lower the yield, the lower the interest rate.

Conflicting Growth Figures

Industrial Production and Capacity Utilization were reported somewhat higher than expectations.  This pressure on the economy is good, however, bad for interest rates.  But don’t panic.  We’re still well below inflationary readings on these reports.

Consumer Sentiment is lower than expectations.  This is showing that consumers are more interested in saving and paying down debt, than spending.  Not so good for the economy, but good for interest rates.  The consumer thinks that unemployment has hit its bottom.  I’m not so sure.  I don’t think our struggle is over yet.  We’ll have to wait and see…

Locking In…

Well, I’d float today.  We have the support of the 50-Day Moving Average and Stocks aren’t liking the 3rd Quarter Earnings Reports that keep coming out…so we’ll watch these levels, carefully!

You Say It’s Your Birthday…

Tomorrow’s my birthday.  I will have lived forty-two years on this planet, and I must say, they’ve been good to me.  I am spending the weekend with my family and some close friends.  I hope your weekend is as enjoyable as I expect mine to be.  As Brian Phelps says (Mark & Brian), “Be good humans!”  Until next week…

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Chico, CA Interest Rates Market Report – Economic Influences – October 14, 2009

JP Morgan Chase Earnings Up

Today’s movement, in the markets, is the opposite of yesterday’s.  Stocks are enjoying the fact that Chase reported higher earnings than expected, as well as Intel.  So the Dow Jones Industrial Average is pushing 10,000.  A significant level, both psychologically and financially.  But even a push over 10,000 might cause the markets to reverse when investors cash in on their recent earnings. 

Hot Retail Sales…OR Not So Hot

Now that the “Cash for Clunkers” Program is over, Retail Sales for September fell by 1.5%.  However, the government expected a -2.1% adjustment.  Taking out auto sales, the report showed a 0.5% increase.  Better than the 0.2% increase expected.  So, why “Not So Hot?”  Even though these numbers are, “better than expected,” they’re still ugly figures.  Pre-holiday sales are showing that retailers are unable to promote any price increases, or have comfortable and sustainable growth.  These figures will show, later in the year, in the year-over-year Retail Sales numbers.  It’s one of those particulars that changes interest rates, somewhat unfairly.  Because the market interprets these numbers positively, and therefore interest rates suffer.  However, once the information has time to really seep into the market, an opportunity for rates to recover, could be lost. 

Cash For Clunkers Accounting

Looks like the government is going to use the “Cash for Clunkers” Program to take advantage how inflation is reported.  What I mean is that they are accounting for the $4,500 tax break as a discount in vehicle sales prices.  Who cares, you might ask…Seniors might!  Here’s why.  Accounting for a lower price, in vehicles, will translate into lower inflation.  If vehicles’ values are going down, that doesn’t translate to economic growth.  So, it’s kind of a brilliant way to look at things.  Lower inflation translates to lower interest rates!  However, lower inflation also saves our government money when paying social security benefits; as social security benefits are adjusted with inflation. 

Locking…

We do have some support, below us, with the 200-Day Moving Average, so, it’s risky.  But, if you have a strong stomach, you can float.  If you don’t…I’d lock.

Related Must Reads

Hello, Is This Thing On? How Trend Lines Work
How Did We Get Here? A 2008 Review
Read About When The Government Took Over Fannie & Freddie…Why It Had To Happen

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