Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – October 15, 2009

Inflation Rearing Its Ugly Head?

Rates On The Move?

We’ve broken through the 200-Day Moving Average and the 25-Day Moving average.  Not good!  We, actually, broke through the 50-Day Moving average, early this morning, but have managed to bounce off of that, and settle just above it…for the time being.  The 50-Day is significant, because we have bounced off of that trend line three times, since mid-August, saving interest rates.  If we break through today, we are risking another 60 basis points (about .625% Points in Cost) to the next layer of support.  Remember, when Bond Values move down, interest rates move up.

Interest Rates Nemesis

The Core Consumer Price Index (CPI) rose 0.2% in September, while only expecting to move 0.1%.  This is a little concerning, as mentioned in the article yesterday, that the creative accounting, established by our government to stave off inflation in the Cash for Clunkers Program, was supposed to keep inflation down.  Well, a higher than expected reading in the CPI has inflationary fears hovering all around it.  Particularly when this creative accounting structure should have lowered inflation fears.  Remember, inflation is interest rates’ nemesis. 

 Jobless Claims Lower

Initial Jobless Claims came in 10,000 lower than the week before, at a 514,000 new claim level.  Lower than the 520,000 expected, but still as ugly as Phyliss Diller’s less attractive younger sister.  Continuing claims fell to 5.99 Million, but not due to people getting new jobs, just people running out of time to claim their unemployment benefits. 

Manufacturing’s Hot

Another inflationary number was the New York State Manufacturing Index.  It completely surpassed expected reading of 17.25 and roared in at 34.57.  This is the highest improvement in five years.  Was it due to economic growth, or re-stalking of shelves that had finally run dry for the worst economic recession since the Great Depression?  It will be interesting to see…

You Know What Really Chaps My Hide?

Freddie Mac reported interest rates were 4.92%, yesterday, at a cost of .7% Points.  Well, it takes time for Freddie’s comments to circulate to the media.  That was, actually, last week’s pricing.  We’re very close to those rates, however, it’s tough when the media gets its spin on things and reports on interest rates, when it takes time to relay the information, AND normally, the pricing on a loan like that is passed on from Freddie, to the banks, at a cost.  Generally, it translates into more like an ad that would read 4.92% with zero points.  Which is a legal ad, but when broken down on the final closing statement in escrow would read like this:  1.25% Origination Fee (or discount fee…it’s the same thing) for 4.92% with an APR of 5.021%.  The ad makes the phone ring, but is it fair to the client when true rates are quoted from an honest banker! 

Related Must Reads

Remember Pong? A Little Paragraph About Bonds and Rates
March of ’08’s Take On Jobless Numbers

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Chico, CA Interest Rates Market Report – Economic Influences – May 20th, 2008

Stock & Bonds Like This Week

Auto Sales Slumping Now

The Retail Sales Report came in at 0.2%, which is where they expected it to come in, however, it was due to lower automobile sales.  So, when removing the auto sales figures, Retail Sales actually rose 0.5%.  This told us that even though we have higher energy costs, the consumer is still spending.  So rates spiked a bit on this news.  This was supported by Wal-Mart’s announcement of better than expected first-quarter earnings.  They did, however, indicate that second-quarter earnings would probably be lower due to increasing food and energy costs.  Good ‘Ole Ben Bernanke spoke this past week and said, “while markets have improved, they remain far from normal and we stand ready to increase the size of the auctions if further warranted by financial developments.”  He as talking about the Term Auction Facilities to increase cash to banks that I have been reporting on in the past.  That’s a good sign that the Fed is interested in keeping inflation down by news ways of doing business, so to speak.

Stocks & Bonds Win This Week

Wednesday showing good news to the inflation watching jittery market analyzers.  The Consumer Price Index (CPI) increased by a minimal 0.2%.  After taking out food and energy costs, the Core CPI rose only 0.1%.  Energy prices were tame, but food prices jumped 0.9%.  This is the largest gain since 1990.  Core Inflation readings were at 2.3%.  This is less than last month’s 2.4% reading, however still over the Fed’s desire to be between 1-2%.  This was interesting because the tame read on inflation was both good for stocks and good for bonds, so there was a little fight for whom would get the money…stocks or bonds.  Both won this past week.

Twist In Jobless #’s

Initial Jobless Claims were reported at 371,000 for the week.  The four-week average actually fell a little, to 365,750.  Interestingly, the number of people collecting unemployment benefits gained 28,000 to 3.06 million.  This is the highest level since March of 2004. 

Foreign Investment KEY to US Economy

Now, I’ve discussed the importance of foreign investment in our country in the past.  The March Net Foreign Purchases of US securities was $80.4Billion.  This is significantly better than anyone had expected.  Remember, I had written that foreign investment was largely why our interest rates were so low for so long.  So this is truly wonderful news. 

This past week provided better than expected Housing Starts and Building Permits.  This is good news, however, the cost to build is increasing so rapidly, that I must pessimistically remind you of this. 

The nationwide average price for a gallon of gas was up 22% from a year ago.  The people at Goldman Sachs have declared that the average cost of a barrel of oil will surpass $148 this next year.  Camry Hybrid, here I come! 

The Core Producer Price Index (PPI) was twice as high and what analysts thought it would be.  These higher costs for production are not always handed down to the consumer, but come on…if enough pressure is put on business to keep their costs down do you think they’re going to ask their stock holders to pay for it?  It’s just a matter of time.   Next week I’ll be reporting on the FOMC minutes, Existing and new homes sales, and depending on when I finish the article, I may have something on Consumer Confidence.  So, keep your hats on and buy, buy, buy…it’s such a good time to buy…Until next week…