Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – Sept 23rd, 2008

Unprecedented Precedence

Unprecedented Times

I feel as though I have been writing about “unprecedented times” for years now.  It was about a year ago that the markets started to get scared and loans over $417,000 became very difficult to place.  Last week I also mentioned how frightening the outlook for insurance giant AIG was, as they tried to raise capital to avoid bankruptcy.  Well, they got a two year $85 Billion loan from the Federal Reserve for a 79.9% ownership in the company’s stock.  This will enable them to have some time to sell off some of their $1 Trillion in assets to pay the loan off.  Unprecedented!

Unprecedented Printing

Initial Jobless Claims rose to 455,000, but again, in line with expectations.  Another Fed move this past week was the expansion of funds that the Federal Reserve swaps between other countries by $180 Billion.  Some of these moves have just not been tested.  If we start running out of funds, and we just have to print more money, we could see inflation skyrocket.  Let’s hope we’re not headed in that direction.  Not only is this unprecedented, but the later would be unprecedented, as well.

Put Your Money Into…Well, Real Estate

Here’s something else to think about.  With IndyMac closing their doors, AIG’s bailout, Lehman Brothers and Bear Stearns, the Fannie-Freddie take over’s.  Washington Mutual running into trouble, etc.  Where’s a good place to put your money?  Under the mattress?  No tax benefits.  Real Estate keeps looking better and better.  With values so low and rates still nice, it’s truly a wonderful time to get out and look into buying.

Unprecedented Guaranties

So, we also had a virtual “run on the bank” this past week.  What happened was that the Net Asset Value (NAV) of some money market accounts dropped to below $1.  So…if you invested a dollar into the fund, you’d expect to get a dollar plus interest back.  Once we had an NAV below that, $180 Billion was taken out of the market by investors.  The Fed had to step in again, and rescue the industry indicating that they would guarantee some money market funds.  Unprecedented.  Some investors can be unbelievably greedy.  There’s a process known as “short selling.”  Basically, an investor can borrow a stock at a certain price, bet that that price will go down, and when it does, pocket the difference.  There’s an illegal process minus the initial borrowing the stock step.  It’s called “naked” short selling.  This hurts stock values exponentially, as you can imagine, and the SEC had to step in and put a holt to any short selling, to put a stop to this ridiculously hurtful criminal activity.

So, a lot of this unprecedented activity may have caused interest rates to move up this past week, however, at least we still have interest rates, the ability to buy real estate, and put our money into something that will eventually give us a nice gain…real estate.  More news this week was the fact that Mitsubishi UFJ Financial Bank (a Japanese Bank) is interested in purchasing up to a 20% ownership interest in Morgan Stanley.  With Oil now over $100 a barrel again we’ll have to watch and see how this all pans out.  Hopefully, we can keep a lid on inflation but with this volatile market, you’d better have a finger on the lock button.  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – Sept 16th, 2008

Mortgage Backed Securities Now Have a Safe Haven

The New Trend:  Lower Rates

Rates have significantly subsided with the Government take over of FannieMae and FreddieMac.  With the price of oil continuing to come down and the guarantee of Mortgage-backed securities in place, we may continue to see rates trading at lower levels for quite some time.

Initial Jobless Claims for the week were 445,000.  Remember when we were terribly concerned with 360,000?  Well the 445,000 new claims were in line with expectations, so it didn’t move markets.  Wow…445,000 in line with expectations so it didn’t move markets…funny!

Import prices dropped for the first time since December by 3.7%.  This is also from oil prices lowering so much which helps inflationary concerns and interest rates.

Lower Rates In The 5%-Range For About 9 Months

I keep talking about how you need to have a finger on the lock button.  Here’s a good reason why.  Even with great inflation news coming in from poor Retail Sales, lower stock values, Producer Price Index dropping 0.9% (a two year declining benchmark), oil prices moving well below their 200-Day moving average to near $100 a barrel; the market felt as though we had reached  a point where bonds were at their highest levels.  This created a sell-off of bonds and rates moved down about a quarter-point in cost.  Look at this type of trend to continue…more volatility with rates moving up and down but at better pricing than the 6.0% to 6.375% range of the past to 5.5% to 6.0% perhaps over the next nine months.

After 158 Years…Lehman Brothers is…History

So, Monday morning we awoke to Lehman Brothers closing their doors and confirming the Sunday hints that they would file for Chapter 11 bankruptcy.  After 158 years in the business, they closed their doors.  That’s how awful this Mortgage Credit Crises has been on not only the Untied States, but the world.  Also, Merrill Lynch was acquired by Bank of America.  AIG is on the ropes trying to raise capital so that their doors don’t close.  It hasn’t been easy for institutions to raise cash, so keep an eye out on this one, too.  They have $1 Trillion in assets…yes, that’s with a “T.”  If their claims can’t get paid, it will be scary to think of the repercussions of that.

A New Safe-Haven In Treasuries

So…I’m back to my old cries of, “it’s an excellent time to buy!”  Values are down, rates are down, sellers are willing to pay for costs to move their homes, and it should stay this way for quite some time.  Look at it this way.  Investors would put their money in stocks and bonds.  Treasury Bonds had a nice safe guarantee, but paid a lower yield to investors.  Mortgage-backed securities offered a higher yield, but at a much higher risk to investors.  However:  with the government guarantees, now, on mortgage-backed securities…where do you think investors will put their money?

We got a surprise that the Fed decided to leave the overnight rate unchanged.  This wasn’t good for interest rates.  The market expected at lease a .25% cut.  But, for the long run, we should see the market realize that not changing the rate is helpful to inflation, and rates should subside after the initial movement.  With my finger on the lock button, it’s an excellent time to buy!  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – May 13th, 2008

Not Much Good News At All This Week

Inflation “Troublesome”

Last week the Federal Reserve Board Bank of Kansas City President mentioned that inflation pressures are “troublesome.”  He went on to say that if inflation gets too high, the economy could suffer greatly.  This guy isn’t even a voting member and he’s spouting out comments that are “troublesome” to hear.  As if we don’t know these things.  Sometimes, I guess, these guys just like to see their names in the papers.  Maybe it increases their opportunity to become a voting member.  I just don’t see the reason!  Why say that stuff and scare markets?  It’s kinda like little junior riling up big brother just to see what his reaction might be (I never did that). 

On Wednesday, May 7, the Treasury Department auctioned off $15 Billion in 10-Year Treasury Bonds.  Now even though we all are educated and know that interest rates follow Mortgage-Backed Security Yields, the interest in this auction determined how long term interest rates would be influenced.  It went well.

Watch the World Economy…Not Just USA’s

Initial Jobless Claims were reported at 365,000 this week.  The government expected 375,000 but, again, the more closely watched four-week average of claims edged to a slightly higher 367,500.  A sign that we are currently in a recession.  The European Central Bank (ECB) and the Bank of England kept their overnight rate unchanged, but their also concerned about inflation and their economies.  It will be interesting to watch what’s happening around the world, compared to the United States’ economy over the next few years.  Interest rates moved in the opposite direction of the stock market, mainly last week; as there was not a lot of economic information to move markets.  So, when the stock market ended the day below 13,000 (a significant level), mortgage-backed securities moved up nicely; causing rates to go down.

AIG Needing Capital

American International Group (AIG) indicated that they were looking to raise about $12 Billion in Capital to help with their enormous 1st Quarter Loss.  This was alarming to the markets because it showed new depth into how deeply the mortgage credit crisis is touching the world.  This fact, coupled with the announcement of $126 a barrel for oil, cause rates to spike again. 

Making things worse this week was retail sales.  Now, they were down 0.5%, however, excluding auto sales, we actually dropped 0.2%.  Coupled with another market moving statement from Bernanke and dropping below the 50 and 100-day moving averages rates worsened a bit more. 

The good news:  we’ll have to wait and see how next week busy schedule makes out.  This will include information on the Consumer Price Index, more weekly jobless numbers, and the Producer Price Index.  So, hang in there.  We’re still under 6.0% on 30 year fixed rates, so take advantage of that.  It’s still a great time to buy.  Until next week…