Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – July 24th, 2007

Bernanke’s Statement

Well, Federal Reserve Chair Ben Bernanke’s statements did have an influence on the market.  Wednesday and Thursday of last week he spoke to Congress and The Senate and his question-answer session went fairly well for Bonds.  Even though he mentioned that inflation is still a concern, he said that recent numbers have been showing moderation of inflation.  So, we should thank ‘Ole Ben for watching his comments appropriately and helping interest rates.  “Core inflation should edge a bit lower, on net, over the remainder of this year and next year.  If energy prices level off as currently anticipated, overall inflation should slow to a pace close to that of core inflation in coming quarters.”  Also of particular interest were his comments on “the ongoing housing correction…”  The media is just so dang powerful…they report what they want.  Here’s what transpired:  …”might prove larger than anticipated,” was the complete sentence that the media was so quick to print.  But here’s the big picture…he goes on to say that …”larger than anticipated and impacting consumer spending,” but that consumers are spending at a very wholesome stride. 

Dow Tops 14,000

Not too much information to report on this last week, so interest rates and bonds have been battling it out with the Stock market to see which investment would be more beneficial.  Rates have been moving up and down, almost on a daily basis, with one day stocks doing well…then the next day bonds doing well.  As you probably heard, the stock market broke a record 14,000 mark on the Dow…then Google came out and reported disappointing earnings which sent shockwaves through the market, and investors immediately got spooked and moved money from stocks, to bonds. 

Remember that when Bond prices go up (their yields move down), home loan rates improve, and when Bond prices go down (their yields move up), home loan rates worsen.  A good mortgage broker will follow these movements and know when a good time to lock in an interest rate is.  There are also “trends” that bonds (mortgage backed securities) follow.  For example bonds will make a 25 day, 50 day, or 100 day moving average that they like to stay close to.  By watching and measuring these “averages” or “trends” you can generally tell where bonds (and therefore interest rates) will move. 

Bonds vs. Stocks – Who Will Win?

We have been battling-it-out with the 25-day moving average for quite some time.  Friday, we finally ended the day above that hard trend-line of resistance.  We have remained just above this for a few days.  Thursday, we had initial Jobless Claims lower than the last two months still suggesting a strong labor market.  This Monday, foreign investment six-month T-Bills was strong.  More bond sales are occurring Tuesday, so foreign investment is huge regarding where interest rates will go.  Let’s keep our fingers crossed.  If we can continue to show strong foreign investment in our bonds, we should be able to break above that stubborn 25-day moving average and see better rates.  If stock earnings are reported strongly; then it would weaken any gains.  How quickly markets can change…Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – May 8th, 2007

Halleluiah!  For interest rates, that is! 

The biggest report for last week was that only 88,000 new jobs were created for the month of March and unemployment moved back up to 4.5%.  Now, I don’t want to sound greedy or selfish, but honestly, this is what I do…so…Yeah for unemployment!  Another important fact that you didn’t see in the papers was that revisions to previous months’ jobs numbers was a subtraction of 26,000 more jobs.  Currently, it look like we may be in a change of environment.  The strong labor market that I have been alluding to in other articles, seems to be softening.  Wage based inflation pressure is also moderating…all good news for interest rates! 

Recently, I met with my financial advisor as to where to allocate some of my funds.  It was really interesting to get a feel for where investment strategists felt the market was going.  Basically, their take on interest rates was that the fed was going to start cutting the overnight rate…by as much as 0.5% in June!  While, personally, I think that it will be a little later than that, I think that the second half of the year should see some easing on the Fed Funds Rate…which in turn will have an effect on home loan rates.  

So all of you home purchasers our there that have been sittin’ on the fence, get ready for this summer.  It’s going to by HOT!  The housing market, I predict. 

The media loves to report bad news. 

They’ve been on our housing market for years now, telling us that it’s going to crash.  While there are a lot of opportunities out there for picking up or rescuing sellers out of foreclosures, with interest rates remaining low over this next year, we should see a little pick up in our market.  

Yesterday will be another HUGE day for interest rates.  While that sentence doesn’t seem to make much sense…keep in mind I’m writing this a few days ahead of you reading this.  Ben Bernanke and the Fed will have discussed their Interest Rate Decision and Policy Statement, but you won’t get to ready about that until next week (unless you’re lucky enough to be a Realtor that subscribes to my daily market updates).  Don’t expect them to change the overnight rate, however, I believe that we will hear a hint of possibilities for a change in the next few months, and this could really move the market.  Keep in mind, that interest rates often moving significantly with speculation in the market, as opposed to when changes actually occur.  The tough levels of resistance that we have been experiencing just might be able to be broken through if the Fed’s comments are strong enough to push bonds upwardly.  However, if they indicate more concern about inflation, it might be a while forward we’re able to make that break.  

So, my unemployment comments earlier…take them with a grain of salt.  But we really should be pleased.  We’re experiencing moderate, stable economic growth and inflation looks as though it’s staying in check…you can’t really ask for a much better environment for homebuyers.  Isn’t the market fun! 

Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – April 9th, 2007

O.K.

…all you well wishers out there, hoping for a good economy and low unemployment figures from this past Friday, you were heard…”loud and clear.”

The Labor Department Reported a Very Strong Jobs Report. 

180,000 new jobs!  Completely beating the 135,000 expected number and even blowing away whispers of a hot 150,000 number.  To make thing even worse (for interest rates, remember), the two previous months jobs reports had revisions that added an additional 32,000 jobs.  The unemployment rate dropped to a six year low of 4.4%.  

Hourly earnings are up to $17.22 per hour, which is where they were expected to be, however, over the year, hourly earnings are up approximately 4.0%.  This has us concerned about wage-based inflation.  And, as mentioned in an earlier article, inflation is interest rate’s main enemy.  

If this sounds like a pretty darn strong labor market to you, than you’re paying attention.  Congratulations!  But be aware that the Fed is paying attention to all of these hot numbers as well.  So, while just one month ago we were looking at a possible cooling down of the market and old Fed Chair Alan Greenspan was upsetting current Fed Chair Ben Bernanke by statements like we’re headed into a recession…how quickly markets can change.  

This week will be very interesting. 

First of all, the jobs report numbers only had a few hours to trade because of Good Friday.  So, we may see the market move further just to “catch up” with last week.  On Wednesday, the Federal Reserve Board’s “Meeting Minutes” from the March 21^st meeting will be released to the public.  These comments can really stir the market and have a huge impact on interest rates.  This is simply because all of the little whispers, snickering, arguments, disagreements, etc. that may occur are in these actual document’s minutes of the Fed members.  So, the Fed Policy Statement may have been somewhat vague about why Fed President Jeffrey Lacker did not vote on what to do with the overnight rate, however, the minutes might divulge exactly how Lacker was feeling, or why he may have felt it might be better to raise the overnight rate.  

So, with the hot labor market adding more jobs and adjusting the last two months numbers, the concern that the Fed has regarding inflation, a Fed President not voting with the other Fed members to keep short-term interest rates at 5.25%, a six year low of 4.4% on the unemployment rate…I think rates are going to have a tough time moving downwardly, compared with staying at current levels are even moving upwardly a bit.  But keep in mind, please…how quickly markets can change…how quickly markets can change. 

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