Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – April 14, 2010

Technical Factors Will Determine Interest Rates

Stocks Poised For Rate Adjustments

Technical factors will provide the path for interest rates, this morning.  Earnings’ season is upon us, and as reports roll out, through the next few weeks, Stocks and Bonds will be all over the board.  The market has already priced itself for healthy reports, so anything different, like Alcoa’s shortfalls, will likely cause nervousness in the market.  I’m not sure, but I have a hunch that Stocks might suffer a bit, which will benefit interest rates, as investors move to the safe-haven of Bonds and Mortgage-Backed Securities.  It will be fun to watch.

Inflation In Check

Couple of things happening this morning.  The Consumer Price Index (CPI), and Core CPI came in at very low levels.  As a matter of fact, the year-over-year Core CPI is measuring at 1.1%.  It’s the Fed’s desire for inflationary measuring devices, is to stay within 1.0%-2.0%.  So this cool reading has led Fed Chairman Ben Bernanke to continue to state that interest rates will remain low, for “an extended period of time.”

Retail Sales Up

Consumer spending has increased, compared to last month’s dismal numbers.  Spending is up 1.6%, but it’s not certain as to whether this swing is due to a healthier economy, or better weather, as spring rolls in.

FOMC Meeting Scheduled

This month, April 27-28, The Federal Open Market Committee will gather together to discuss the economic status of the country.

With Good Interest Rates Available...

Locking Advice

Today’s a tough call.  I think we still take advantage of where rates are, however, if you’re still looking for a home and cannot lock into an interest rate, don’t be too alarmed.  Even though there is a lot of resistance to lower rates, the Stock Market has already priced in exceptional earnings predictions, and I’m just not so sure that, with Alcoa’s lead, other companies might show similar difficult times, as well.  It’s going to be a bumpy ride, but hang in there.

Related Must Reads

What “Extended Period” means for Interest Rates

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Chico, CA Interest Rates Market Report – Economic Influences – February 24, 2010

Inflation Back In Check

Chicago was a blast!  But let’s get caught up on what you missed!  Last Post, I was discussing inflation, at the wholesale level.   The report for the consumer level was much tamer than anticipated.  The Consumer Price Index (CPI) came in at a comfortable 0.2%.  Lower than the 0.3% expected.  And the Core CPI came in at a cool 0.1%, when an actual increase of 0.1% was expected.  This helped cool the massive upward trend in rates that we observed on the 17th and 18th of February.

Discount Rate Increases

As anticipated in last weeks article, the Fed increased the discount rate from 0.5% to 0.75%. This should not hurt businesses and the consumer, but help financial institutions return to a somewhat state of normalcy, regarding the spread between the discount rate, and the Fed Funds Rate.

The National Association for Business Economics

The (NABE) reported that they anticipate approximately 103,000 new jobs created from April through the end of this year.  Now that’s just in line with The White Houses assessment of adding 95,000 per month.  However, keep in mind that with population growth and immigration, alone, we need to add more than this, to reach the 6.0% Unemployment Rate that The White House has predicted to reach in five years.  So, while the news is somewhat encouraging, particularly to the media, it’s not so encouraging to me.

Eenie-Meenie-Miney-Moe

Catch a Country’s Financial Woes…Okay, so let’s choose a country…any country…England!  No, how about Spain!  Okay, How about Greece…Japan or China?  Here’s my point.  Bank of England Governor Mervyn King indicated that England is ready to extend its asset purchase program, to enable banks to lend more money, to help their fragile economy.  Spain’s economy could potentially be worse.  There’s concern that their spending for their social programs is spiraling out of control.  If it doesn’t curb, substantially, than the effect on the entire Euro-community could be devastating.  De-valuing the Euro and creating an uncanny value of the Dollar.  Which could, actually, hurt the United States.  We’re not out of this mess, yet, my friends!

“Yellen” Up The Wrong Tree?

San Francisco Fed President Janet Yellen indicated that she’s not concerned with inflation and that the economy is moving too sluggishly for inflation to be a concern, at the moment.  Now, this is scary!  We’re walkin’ a fine line, here!  Inflation should always be a concern to a Fed President…but if we’re not adding jobs, what is one to do?  We’re not out of this mess, yet, my friends!

Consumer Confidence Bums

So the consumer, apparently, is not listening to the media.  All of the hype about jobs, and growth, and the economy on recovery did not have an effect on the consumer, as consumer confidence reported a weak showing at 46.0, when a 55.0 number was expected.

Good ‘Ole Ben Bernanke

He’s speaking before Congress’ House Financial Services Committee today.  Tomorrow he’ll talk before the US Senate’s Banking Committee!  He’s indicating that he feels as though inflation is in check!  And that it will continue to be so for quite some time.  He also reiterated that ‘ole “extended period” quote. Bringing some level of satisfaction to investors around the world.  Keep in mind, that he’s gotta sell some of our debt.  The best way to do that is to sell Bonds and Mortgage-Backed Securities, to the world.  Think he’s baitin’ the world?  It will be interesting to see.  His comments on inflation are quite interesting, however, keep in mind, if he indicated that inflation was a concern, investors would run!

Locking Advice

My guess is that late yesterday, and early this morning, will be the best times to lock. Although, hearing Bernanke’s testimony this morning may bring bidders to the auction table today.  That could change things, but not too drastically.  We locked in our clients this morning, on applications taken yesterday.

Related Must Reads

Greece Two
Japan’s FICO And China’s Tightening Credit
Hints Into Higher Rates
Why The Spread Was Lowered Initially, And Why It’s Okay To Go Back

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Chico, CA Interest Rates Market Report – Economic Influences – February 10, 2010

All In All It's Just A...'Nother Writing On The Wall...

Dangerous Territory

We have passed through and, currently remain under, the 200, 100, 50, 40, and 25-Day Moving Averages.  Well, that pretty much tells me to lock.  Like water through a block of swiss cheese, rates have moved below all of these layers of support.  Now, we could bounce back over the 200-Day and 40-Day Trend Lines of support.  However, there doesn’t seem to be much information, in the markets, the can support movement over the other three Trend Lines, that have become Lines of Resistance.

More Writing On The Wall

I’ve mentioned the “writing on the wall,” regarding rates increasing.  Yesterday, St. Louis Fed President James Bullard said, inflation concerns “have crept up a little bit, over the past year.  I think the risks…are shifting, now, toward the upside in the medium term, where you might get more inflation, in the medium term if you don’t manage your affairs properly.”  Now, this statement is from a voting member of the Federal Open Market Committee (FOMC).  He’s more prone to believe that the “low rates for an extended period” language, should be removed from the comments of the FOMC meeting’s Policy Statement.

Good ‘Ole Ben Bernanke

Big Ben, as he’s otherwise known as, is speaking to the House Financial Service Committee.  It was delayed due to the weather, back east, however, the information and minutes from the Policy Statement are being absorbed by the market, as I write.  Ben, actually, continued to mention, “an extended period,” however has not presented a time-line or strategy regarding how we’re going to get away from our current accommodating policy.  The Fed tried to calm investors’ concerns by mentioning that that could always sell their Mortgage-Backed Security Holdings.  But, indicated that they’re not, presently, interested in doing that.  And, when they did, it would be gradual.

Spread Between Government Rates Increasing

Good ‘Ole Ben Bernanke mentioned that the Fed Funds Rate, and the Discount Rate, will probably see a widening of their values. Particularly, the Discount Rate, rising back to .75%  How does this effect rates?  Well, in our current environment, it shouldn’t.  Here’s why:  After the Mortgage Credit Crisis, the Fed announced that they were discounting the discount rate, from .75% to .25%, to enable banks to borrow money at lower levels, to keep the industry afloat.  The problem was that the industry (or banks) had to pay back the loans, in 28 days.  So, banks couldn’t borrow.  So, the next step was to increase the 28 day pay-back period, to 90 days.  This helped, but banks funding abilities, seem to have leveled off, and therefore, the increase in the discount rate, to .75% shouldn’t effect the industry negatively.

Interest Paid On Excess Reserves

The New Benchmark Rate, so to speak.  Now, this is huge.  No longer will the Fed be focusing so intently on the Fed Funds Rate.  They’re pullin’ the ‘ole switch-a-roo on us.  Here’s the deal:  Banks are required to keep a certain amount of funds, on reserve, with the Federal Reserve.  Occasionally, these reserves are higher than the requirements.  Currently, the Fed pays no interest on those extra reserves.  So, banks look to get their money out of the Fed, as soon as possible, so as to at least make something on their money.  So, if banks are constantly lending out their reserves, even just overnight, for something, the Fed needs to offer more of an incentive for banks to keep their money with the Fed, giving them more of an ability to determine and measure a benchmark interest rate.  So, the Fed would set a target interest rate, just below the Fed Funds Rate, so that the excess funds would make something, yet Banks would keep those funds with the Fed.  So any way you may interpret this, a “new” Benchmark Rate, or a new way to make certain that the Fed Funds Rate is more secure with banks, it’s simply preparing the market for higher interest rates…and the Fed will be ready.

Locking Advice

There’s nowhere to go, but up, from here.  It’s time to focus on reality.

Related Must Reads

Why Trend Lines Are Important
“How Can You Have Low Interest Rates, If You Don’t Absorb You Data?”
Another Reason Rates Are Going Up

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Chico, CA Interest Rates Market Report – Economic Influences – January 27, 2010

Auctions, Fed Meetings, Swearing In...Oh My!

Strange Things Are Afoot At The Circle K

Famous line from Bill and Ted’s Excellent Adventure.  What’s so strange?  A lot! First, we have a huge Treasury Auction.  Second, we have the Fed Speaking After their two-day meeting, and finally, we still have no confirmation of Ben Bernanke continuing into his second term as Federal Reserve Chairman.

Treasury Auction

$42 Billion of 5-Year Treasury Notes will be auctioned off today.  Again, if foreign interest is evident, rates should remain stable.  If not, expect higher rates.  There is a twist though.  The Fed releases its Policy Statement after the auction.  So, markets don’t appreciate unknowns, and without knowing if the Fed will change their stance on keeping rates low, “for an extended period,” things could get ugly.

Swearing Ben Bernanke

Relax!  Not as in expletives!  As in he’s not sworn it for a second term.  Now, what if Bernanke’s feeling the pressure of not being sworn in yet, and it blurs his vision regarding the right thing to do, for the economy and the United States?  Just a thought…and, again…markets don’t appreciate unknowns.  What will he comment on regarding the $1.25 Trillion Mortgage-Backed Security Government Purchase Program?  So there’s a lot to be nervous about this morning, and the day will play itself out, interestingly, for certain.

Locking Advice

We’re sitting just below  the 100-Day and 50-Day Moving Averages.  They’re acting as a heavy layer of resistance, that will be difficult to break through, however, we’re also sitting above the 200-Day Moving Average, directly on top of the 40-Day Moving Average.   So, it would be prudent to float into the Fed’s comments and watch the auction results, carefully!  Either way, it’s going to be interesting!

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