Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – Nov 24th, 2008

PIMCO & Paulson Buying Up Bonds

Toying with the 200-Day Moving Average

The 200-Day moving average has been a force to recon with for two straight weeks.  We’ve actually touched it thirteen out of fourteen days.  The Consumer Price Index (CPI) fell to a monthly record low.  Particularly due to an 8.6% decline in energy prices, it left the year-over-year Core CPI at 2.2%.  Remember, the Fed wants to see inflation figures between 1.0% and 2.0%, so we’re getting to comfortable, or tolerable levels.

Bonds Poised For Being Purchased

Some interesting and exciting news on the bond front!  Giant hedge fund Paulson & Company indicated that their Advantage Plus fund has started purchasing beaten up Mortgage Bonds.  Also, PIMCO, the nation’s largest purchaser of Bonds is starting to jump in the action.  This is exciting because it shows signs of potential better pricing around the corner.  This also helps with the optimism of how the credit markets may be feeling a little healthier in the near future.  Their rumor that the Central Banks from around the world are poised to have another rate cut throughout the globe.  This could help stabilize the US Dollar a little more and continue to help with the cost of Oil (as oil is traded in dollars).

Deflation:  What Happened to Inflation?

Last week I indicated I would touch base on the Minutes from the Federal Reserve’s October Meeting.  There was some concern over how the economy is performing and they lowered their future targets for employment figures and economic growth.  The real news from the minutes was the mentioning of the big “D” word.  You may remember me talking about deflation when Alan Greenspan was still at the helm.  Deflation is when prices drop, mainly due to decreases in money supply and credit.  You’ve certainly been reading about problems with credit, recently!  With the economy coming to a halt, some are saying we’re headed toward a deflationary recession.  In a deflationary market, investors hustle to purchase safer, fixed instrument, like Bonds and Mortgage Backed Securities.  When Greenspan was mentioning the “D” word, mortgage backed securities gain 400 basis points.  IF this all pans out, we may be seeing much lower interest rates in the few months ahead.  But with all of the other major concerns, it may be short lived.  If you’re considering a potential refinance, be in close contact with your mortgage broker or banker in the next few months.

362,000 Jobless Claims Is Recessionary…

Initial jobless claims are out of control again.  542,000 filed for unemployment compensation this past week, bringing the four-week average to 506,500.  The highest since January of 1993.

Fed Reserve member Jeffrey Lacker spoke this past week and indicated that the economy should start turning around in 2009.  With low interest rates, low energy prices, less drag from the housing industry he noted, “Many analysts expect the US economy to regain positive momentum sometime in 2009.  That strikes me as a reasonable expectation.”  Finally, some good news!  Citigroup is stoked this week.  The government’s giving them a $306 Billion loan and $20 Billion cash for a $27 Billion share hold that pays 8%.  This is quite a deal, but the government should fair well, over time.

Hey, it’s a great time…get out their and buy.  Values and rates are down…Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – November 6th, 2007

Rates Are Cool, Cool, Cool

Prognostication “Enabelation”

Last week we talked about and prognosticated the Federal Open Market Committee’s (FOMC) monetary policy decision and statement regarding the overnight rate.  It was interesting right down to the wire, as well.  We had much hotter than expected Third Quarter Gross Domestic Product numbers. 

Keeping Our Money At Home

With a 3.9% annual growth rate, and estimates at 3.1%, it’s interesting to note that with the lower dollar value, compared to foreign currencies, the US consumer may be paying a little more attention to US made products.  Basically, we’re buying less foreign products and keeping the money at home.  We’ve talked about this in other articles and it will be an interesting fact to occasionally mention…so stay tuned…

ADP Is O-F-F

We’ve mentioned the ADP report on jobs numbers several times too.  In the past, their numbers have been WAY off, however, they seem to be doing better and better with each passing month.  Well, Wednesday morning, they reported that they expected 106,000 private jobs, added to 23,000 government jobs, the interest rate market reacted quite negatively to the fact that the government only expected a total of 80,000 new jobs. 

FED Finished Slashing?

With all of this hot information coming out the morning of the FOMC meeting, a lot of experts were still saying that the Fed would not lower the overnight rate. Well, I WAS RIGHT!  I LOVE when I’m right!  But hear what the Fed said in its statement, “Readings on core inflation have improved modestly this year, but recent increases in energy and commo0dity prices, among other factors, may put renewed upward pressure on inflation.  In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.”  This statement led investors to feel that there would be no further decreases in the overnight rate, when the Fed meets in December. 

The very next morning, Stocks got hit heavily when CitiGroup was rumored to have lost significant value from the mortgage crisis AND that their 5.25% savings account dividend was in trouble.  Helping rates was the Fed’s favorite guide to measure inflation, the Core Personal Consumption Expenditure Index (PCE).  The year-over-year reading is still at 1.8%.  The Fed wants to see inflationary readings between 1 and 2 percent.  Good for inflation and therefore good for interest rates.

Hot Jobs, But…

Then the bomb hit!  The best Jobs Report in six months reported 166,000 new jobs.  Higher than even ADP was estimating!  But interest rates remained cool!  Why?  Well, even with the strong jobs numbers, the hourly earnings numbers were cooler then expected.  Coupled with the fact that the strong jobs numbers points to the fact that the Fed will not lower the overnight rate in December, putting less future inflationary pressures on bonds…so rates remained tame. 

The CitiGroup rumors came into focus with the “laying off’ of CEO Chuck Prince.  Coupled with the retirement package to Merrill Lynch’s Stan O’Neal worth $160 Million, how are these poor souls going to make it in the real world?  I feel sorry for them!

In the meantime, rates are smokin’, values are down, it’s a wonderful time to buy!

Until next week…