Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – March 31, 2010

The Market Is One Nervous Nelly!

This Is The End

My Only Friend…The End, of purchasing Mortgage-Backed Securities (MBS) by the Federal Reserve.  The Doors have been closed, on the $1.25 Trillion that the government set aside to buy these securities.  It was “my only friend”, due to keeping mortgage interest rates low for an unprecedented amount of time.  Now, the Fed is going to have to start selling those MBS to the private sector.  They’re not quite ready to do that, however, doing so, they will have to increase the yields, of these Bonds, to be profitable for those investors.  Therefore, higher yields equates to higher interest rates.

A.D.P Is O.F.F.?

American Data Processing (ADP) is the nations largest payroll company.  The have a tendency to report inaccurate figures, and today, the market interpreted what ADP said as bad news for the job market.  Twenty-three thousand jobs were lost, in March, in the private arena.  The government expects 40,000 private sector jobs created in March.  So, the discrepancy is wide.  Also, the ADP numbers do NOT take into consideration government jobs and the temporary census jobs created.  So, total numbers are expected to be an additional 190,000 jobs reported tomorrow.  So, when ADP reports a loss, Stocks suffer on the news, and Bonds and interest rates benefit.  However, once the market absorbed the fact that ADP is often incorrect, coupled with the fact that the ADP numbers do not account for government jobs or census jobs, interest rates suffered.

Take Advantage And Lock While Ya Can!

Locking Advice

Mortgage-Backed Securities have managed to wriggle their way down below all trend line levels of support.  The only support, they current have, is a trading level that the market hasn’t been at for quite some time.  So, we’ve been squeezed into a very small area of trading back and forth, between support and resistance.  With tomorrow’s jobs numbers, truly not expecting to be a huge surprise, I would take advantage of the opportunity to lock.

Related Must Reads

The First Extension of The $1.25 Trillion MBS Government Purchase Program
2007 Example of A.D.P being O.F.F.
Trend Lines: How They Support or Resist Interest Rates

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Chico, CA Interest Rates Market Report – Economic Influences – September 30, 2009

Rates Are Still Low

I’m Down With ADP…Yeah, You Know Me…

Yeah, well I’m NOT so down with American Data Processing (ADP).  ADP is an American payroll company that releases its own unemployment statistics, separate from the government’s statistics.  Sometimes they’re right on…and other times…well let’s just say that other times…they’re just plain rediculous.  So, you have to be careful with the information that they report. 

254,000 Jobs Cut

ADP reported that the private sector of business cut 254,000 jobs.  They only expected that 200,000 jobs would be cut.  So, you’d think that the market would consider that horrible information and interest rates would plunge downwardly.  Part of the problem is the media.  Remember when we were losing 380,000 jobs, or more, a month?  The media’s take on this is that a loss of 254,000 is almost like Christmas!  Well, my take is that there is almost nobody left to lose their job.  So, where’s the good news in that?

The Real Jobs Numbers

So, let’s take a look at where we really are.  The population of the work force of the United States grows, at 1.5 Million people per year.  So, that’s 125 thousand new jobs a month.  So, if we’re losing 254,000 and the work force is growing at 125 thousand…that puts us at 379,000.  That number close to any other number mentioned in this article?  Now think about this…ten percent of that work force is unemployed.  So, fifteen million people are out of work.  But think about the people whose unemployment compensation has run out.  Also, if you don’t physically look for work in a four week period, you’re not included in those numbers, either.  That bring unemployment to more like, eleven percent.  Now, many of the Americans that lost their jobs over the past couple of years, had to settle for part-time jobs.  That’s another six percent.  So, realistically, The United States of America is seventeen percent (17%) unemployed.  UGLY!

What’s Your Point, Danny?

We’ve got a long way to go.  To put it mildly, we would have to have the best employment period, ever on record over a ten year course, to get back to normal six percent (6%) unemployment.  I know, “Danny Doom & Gloom.”  But, don’t let the media tell you that things are golly and rosy out there.  They’re not.  So, this information should keeps low, however, when the government stops buying Mortgage-Backed Securities, rates will move up.  And when inflation moves up, that’s when things could get ugly.  SO BUY NOW!  When I say that employment figures should keep rates down, I’m looking at the 7.0% range, in a couple years. 

Float Like A Butterfly

So, we’ll be ready to “sting like a bee,” with a quick finger on the lock button, but let’s see how the day pans out, before locking.  If you have time…

Related Must Reads

Why You Can’t Close A Loan In Six Days, Anymore
Read PAST ADP Mistakes
ADP Getting Better?

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Chico, CA Interest Rates Market Report – Economic Influences – September 2, 2009

Rates in the Mid-4's???

Rates Keep Sliding

ADP is a payroll company that monitors employment statistics, because they’re such a huge corporation.  They estimated that jobs numbers would be worse than expectations, when they come out on Friday.  Now, ADP has been wrong on numerous occasions, however, they still have an influence on the market. 

MCGE

No, this is not a new electric lightbulb from General Electric, it’s an introduction by The Mortgage Bankers Association called Mortgage Credit Guarantor Entities.  Essentially, these would be smaller corporations that would take over management of the GSE’s (Fannie Mae & Freddie Mac), trade Mortgage-Backed Securities, but with a government guarantee, of course.  Don’t know if this will go very far, but it’s an interesting proposal.

Oil Prices Dipping

Yes, the gooey stuff is down to $68 per barrel on fears that the world economic crisis is not as close to being finished, as some thought. 

To Lock Or Not To Lock

Tomorrow morning might be a good time to lock, on a short escrow.  Otherwise, if you have about three weeks or more, I’d float into the month.  September Stock Values generally plunge, putting more money into Mortgage Backed Securities (Bonds), and therefore lower interest rates.

Chico, CA Interest Rates Market Report – Economic Influences – Dec 9th, 2008

Talk Is Cheap!

Let’s take a look at what’s been rolling around the rumor mill, as of late.  First of all, the phone lit up last week with inquiries about interest rates moving to 4.5%.  First, let me assure you, there is talk about this from Federal Agencies FannieMae and FreddieMac.  Second, it’s only talk.  While it may happen, it also may not.   The risks involved with a scenario like this is that we would create, essentially, another real estate “bubble” of artificially set interest rates.

Will Inflation Be The Net Result (In The Future)?

The government would have to back up its guarantee to purchase these mortgage backed securities by printing up money.  Another inflationary procedure that, once this subsidized purchasing stops, would create such high interest rates that nobody would be able to buy.  This is just another short term fix to a long term problem that needs to be addressed appropriately, not just inadvertently.  Stay tuned…

The job market continues to suck!  But check this out!  The ADP Employment Report suggested that there would be a loss of 250,000 jobs.  Factor in the governments job gains the official number anticipated by this company was a net 205,000 job loss number.  This would be good news.  That’s the paradox here.  205,000 lost jobs is good news.  Why?  Because economists expect 325,000 losses!  Some good news:  Productivity rose 1.3% and labor costs rose 2.8%.  Productivity measures the output per hour for employees so the market expected a 0.9% reading, but employees were more productive than that.  Also labor costs were expected to rise 3.6%.  So, in a normal market, this would be great news for interest rates.  But…I can’t tell you the last time I wrote that we were in a normal market.  We’re definitely not in a typical market where weak economic reports result in lower interest rates.

Job Numbers And…1951?

4.09 million laid-off workers received unemployment compensation the week before Thanksgiving.  Boy, it’s sure fun being the barer of such bad news.  The Bank of England and European Central Bank cut their key benchmark interest rates to try and boost their economies.  This will help with the value of the dollar and have a part in staving off inflation.  The Bank of England’s overnight rate is 2%.  It hasn’t been this low since 1951.

And Then There Were…533,000

Then, the jobs report hit!  Much worse than anyone (except me) predicted!  533,000 lost jobs!  A 35 year high and the fourth time in 58 years that we’ve had a number like that one.  U-G-L-Y!  Not to mention the revised numbers for the previous two months erased an additional 199,000 jobs.  No worries…it’s only 199,000 jobs…we’ll just revised it!???

Generally rates would be better, but later this day, rates actually went up.  Kinda the opposite of what should happen.  We do see some correction in the future but the volatility is just unbelievable.

Now An Auto Industry Bailout?

What would this article be without the mentioning of the auto industry bailout.  A $15 Billion loan to help Ford, General Motors, and Chrysler.  I have mixed feelings about this.  Should I have the opinion that it will save an industry, like the Fannie/Freddie take over, or is it just prolonging the inevitable?  I don’t know, but will monitor this closely as the plan unfolds.  Also, I mentioned in a previous article the Security and Exchange Commission may be close to an announcement that could rally stocks.  Five members of the House Financial Services Committee are sponsoring a bill that could reinstate the “Up-Tick Rule.”  The uptick rule was removed in February of 2007 and that removal has caused a significant amount of volatility in stocks and bonds.  This rule required every short sale trade be entered at a price that is higher than the price of the former trade.  I’ll continue to monitor this closely.

Rates are amazing!  Get in while they’re still in the low to mid 5% rate and while values are down.  It’s time to buy your dream home!  Until next week…