Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – Sept 30th, 2008

SafeHaven Investing Moving To ... Treasuries

Cheeseburger In Paradise…Uh…Wrong Buffett…

When Warren Buffett’s Berkshire Hathaway decides to invest $5 Billion in Goldman Sachs, you just know everything is honkey dorey, right?  Oh to be so lucky!  Just when you think that this might just be the vote of confidence that Wall Street might be looking for, we stumble…again.

“If I should stumble, catch my fall.”  Billy Idol had it right…but who’s going to catch this behemoth falter?  Taxpayers!  I have stated in previous articles that some of the practices that have been presented to the Treasury and Federal Reserve have been pretty impressive, however, Congress’ latest delay in the rescue plan is scary, but prudent.  Hopefully, we’re not experiencing political ridiculousness only to gain clout with voters at such an important time.  But we do need to be certain that the rescue plan is understood, and understood well.  I’ll come back to this…

WAMU, No, Chase, No, World, No, Wachovia, No…Who?

Initial Jobless Claims topped 493,000 for the week.  This is the worst levels in over seven years.  It’s getting pretty ugly for the labor market too.  Washington Mutual was actually seized by the Office of Thrift Supervision.  JPMorgan Chase will purchase it for $1.9 Billion.  Washington Mutual?  Did you say Washington Mutual?  Yes, I said Washington Mutual.  About a year and a half ago they were considered one of the strongest lending institutions in the country.  We are definitely in unprecedented and historic times.  So, remember when World was purchased by Wachovia?  Yeah…you can see who’s banking there and who’s losing a little hair on their scalp from the windows of Broadway Heights restaurant.  The Wachovia sign looked so out of place from the World Savings and Loan sign that was there forever.  Well don’t get used to the white, green, and light blue insignia from Wachovia either!  That’s right…they just got purchased by Citigroup.  The FDIC will get $12 Billion in preferred stock and warrants on this deal.

Oh yeah…back to market indicators.

The Fed’s favorite gauge on inflation, the Personal Consumption Expenditure Index was reported on a year-over-year level of 2.6%.  This is WAY out of the Fed’s desire to be in between 1.0% and 2.0%.  We haven’t seen inflationary signs this alarming in the PEC since 1995.

Then US stocks saw the worst decline of the Dow Jones Industrial Average in its 112 year history.  This:  due to the indecision of the House and Senate to agree on the $700 Billion rescue plan.  Now what happened here is very interesting.  Investors fled from stocks, but didn’t put their money in mortgage-back securities (which is often the case).  Instead, they moved money into Treasuries.  Again, if you didn’t follow the market closely, you could be misled insofar as where you think rates might go, if you base your decision on locking in an interest rate on the 10-Year Treasury Bill Yield, as opposed to mortgage-backed securities.

So coming back around to this rescue plan, you have to trust the our leaders see that we must do something to free up the lending system and keep the industry moving forward without a collapse.  Just like the FannieMae/FreddieMac takeover this isn’t a plan to bailout Wall Street altogether, just a bandaide to keep the markets moving forward until we can get through these unprecedented, historic times.  I know where I’d put my money…REAL ESTATE!  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – July 15th, 2008

Higher Inflation Causing Higher Rates

Mortgage backed securities are about 71 basis points higher than last week.
That means that their yields went down and therefore interest rates.  So, last weeks advice to float was right on target.  You’d better have an itchy trigger finger on that lock button though…as this market is completely unpredictable and volatile. 

Iran shot off missiles this week capable of reaching Israel. 

This, not only is quite alarming and concerning, but creates a lot of uncertainty and instability to the market as well.  We’ll continue to watch this story closely and see how it affects oil prices, the market, and human beings in general. 

Right after I wrote this article, last week, mortgage backed securities moved upwardly above the 25-Day moving average.  Once it broke through that tough layer of resistance, the 25-Day trend line became a nice layer of support.  Then the very next day we broke through the 50-Day moving average.  Good news for rates.  The very next day, however, Initial Jobless Claims moved down by 58,000 to 346,000.  This is the lowest number since April and bonds reacted negatively with this labor market surprise. 

For the very first time in history, Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke spoke to the House Financial Services Committee regarding ways to amend the current financial regulatory system to avoid future crises.  Mortgage Backed Securities moved up to the 200-Day moving average, but quickly bounced off of it.  This is an extremely stubborn level of resistance and locking at that high level was the best opportunity to lock this past week.  It was only back in September that we were able to move above this line very briefly.  

Government Take-Over of Fannie Mae & Freddie Mac?

Two big deals happened this past week that need mentioning.  First, FannieMae and FreddieMac have been threatened with a government controlled take over.  So, their stock prices tumbled 40%.  Second, IndyMac Bank was taken over by the FDIC and closed their doors.  Their customers got wind of a senators comments that they might need to be rescued and they flocked to the bank, withdrawing over $100 Million a day until FDIC had to rescue their depositors.  IndyMac Bank was a bank that specialized in “lite doc,” “no doc” loans and they, obviously, were hit hard by the credit crises.  We’ll keep a close eye on the Fannie/Freddie issue in the coming weeks.  This caused rates to increase. 

The next Monday, Treasury Secretary Paulson asked Congress for the ability to buy unlimited stakes in FannieMae and FreddieMac.  The Federal Reserve indicated that it would lend directly from the Central Bank to Fannie/Freddie to alleviate a collapse in confidence.  The Fed is asking Congress to increase the $2.25 Billion line of credit that these companies currently have.  This caused bond yields to increase again and play with the 200-Day and 100-Day moving averages.   

Investors Getting Concerned?

Tuesday saw investors somewhat weary of the Treasury’s plan and stock prices started to falter.  Generally, you’d see money go into bonds and mortgage backed securities, however, with the Producer Price Index showing wholesale inflation at 1.8% and the year-over-year PPI ending at 9.2% rates started to deteriorate. 

Next week we’ll inspect the FOMC minutes from their latest meeting.  It’s a crazy market out there.  You should be working with a serious professional watching your interest, with interest!  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – July 8th, 2008

600 Starbucks Closing

Which Way Did (They) Go

Sometimes I feel as though I would enjoy taking my car on a long drive over an extremely curvy road, as opposed to prognosticate where interest rates are going to go.  While I love my job, the pin-point accuracy that is inevitably impossible to accomplish, can have a drag on my confidence, at times, but generally speaking, I accommodate borrowers’ financial goals quite well.  So, here’s what’s been up this past week.

The ADP Employment Report showed that about 60,000 jobs were lost in June.  Now remember, the ADP hasn’t been too focused in on exact numbers, in the past, but with all of the labor numbers that we’ve been seeing lately, we felt like they may be closer to the real numbers than they have been.  So our strategy was to float into the real Labor Department numbers to wait and see where they landed, before locking into a rate.

Starbucks to Close 600 Locations

An interesting side note was that last week I reported that Stocks might be due for a reversal into positive territory.   Well, the Dow was at 14,164 on October 9th, however, hit 11,382 on July 1st.  This was almost a 20% decline in the market, which would be considered a “Bear Market.”  Also of concern regarding where our economy is headed, was the announcement that Starbucks was going to close 600 of it’s locations.

The Labor Department’s release of the Job’s Report was even a little worse than expected.  62,000 lost jobs for June, and the unemployment rate staying at 5.5%.  Even worse were the revised numbers for April and May, showing an additional 52,000 lost jobs compared to what was reported.  Interest rates bounced all over the place, but eventually ended the day in a little more positive of a position.

ECB Raises Rates

Also, the ECB announced that they were increasing their lending rate by .25%, as mentioned in last week’s article.  The cool thing about the increase was European Central Bank President Jean-Claude Trichet’s remark, “Starting from here, I have no bias.”  What can be taken from that comment is that he’s not sure if this will be a one-time increase, or the start of a new increasing cycle.  The market’s, however, thought that it might be a one-time thing, so reacted positively, worldwide.

Good ‘ole Ben Bernanke indicated to the FDIC Mortgage Lending Forum, that the Fed is considering increasing the number of Term Auction Facilities to banks.  Remember that these helped raise money for the secondary market and kept interest rates lower by having more capital for purchasing mortgages in the secondary market.

Pending home sales for May lost 4.7%, but April’s numbers were revised higher to 7.1%.

With my finger on the lock button, due to the continued volatility in today’s market, comments from Ben Bernanke, and two other Fed President’s, we’ll float into the day as rates should move lower…but we’ll be watching rates closely…Until next week…