Danny Salas

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

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 – Oct 21st, 2008

What Information Do We Rely On For Rates?

Last week’s doom and gloom article reported that we should have seen lowering interest rates but, unfortunately, did not.  This week’s article is going to be a little more uplifting.  But with good news, it seems even more apparent in recent days, there is bad news to accompany it.  It’s truly amazing how quickly things can change.  In years past there was more weight given to changes in interest rates due to speculation in the marketplace rather than from the actual economic reports that the government released.  Nowadays, not only does the speculation not have too much of an effect on the markets themselves, but the actual reports are being somewhat ignored due to the unprecedented change in the world of high finance and economic dynamics that we’ve never really seen before.  It’s all new and it’s difficult to interpret until markets have an opportunity to absorb the information being provided to them and then determine how that affects them.  One example is how, generally, stocks and bonds move in opposite directions.  Investors will take money out of one and put it into the other.  What’s been happening recently is that banks have been required to deleverage.  The ratio of capital compared to loan balances has gotten completely skewed, and forced banks to sell not only stock, but bonds too.  Anything to raise more funds, however, when you can’t raise enough capital by selling stocks and invest that money in bonds for a more favorable outlook, you’re stuck selling both with no way to invest in anything else.  Hedge Funds have been hurt by this too, as investors demand their principal investments back.  They’re selling holdings at enormous loses, just to raise some capital.  Stuff like this has never been seen in the market before, and it’s an example of interest rates ignoring economic data and relying on the next Federal Reserve announcement or bailout or stimulus package.

Lower Oil Prices

We are finally getting some cooler reading on inflation, as oil prices diminish.  The Consumer Price Index and Core Consumer Price Index were lower than expectations.  Weakness in the labor market continues and Capacity Utilization, which suggests where businesses are operating within a certain capacity, is far below the number that suggests full capacity.  Housing Sales were reported lower than we’ve seen since 1991.

Some investors feel as though we’re starting to see recent government activities and new policies have an influence on markets.  On Monday, Good ‘Ole Ben Bernanke spoke to the House Budget Committee and low and behold, mentioned a few things that really moved the market and set interest rates back at very desirable levels.  One was the feeling mentioned above regarding investors and the global market sensing that the maneuvers by the government are starting to have an effect on markets and another indication that he felt that another economic stimulus package would help boost the economy.  Last time President Bush signed the first package, many felt as though Bernanke was a key player in influencing the president.

PIMCO Continues To Buy

One of the biggest movers of rates was the news that PIMCO, the nation’s largest purchases or bonds, announced that they will be increasing their investment in Mortgage-Backed Securities to 79%.  This is their highest investment in Mortgage-Backed Securities in over seven years!  They also mentioned that they would take money out of Treasuries and move funds into MBS which tells the Global Market that they think it’s worth the risk.  That could continue to be huge for lower interest rates…and with lower home values…what a time to buy!!!  Until next week…

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

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 – Sept 23rd, 2008

Unprecedented Times

I feel as though I have been writing about “unprecedented times” for years now.  It was about a year ago that the markets started to get scared and loans over $417,000 became very difficult to place.  Last week I also mentioned how frightening the outlook for insurance giant AIG was, as they tried to raise capital to avoid bankruptcy.  Well, they got a two year $85 Billion loan from the Federal Reserve for a 79.9% ownership in the company’s stock.  This will enable them to have some time to sell off some of their $1 Trillion in assets to pay the loan off.  Unprecedented!

Unprecedented Printing

Initial Jobless Claims rose to 455,000, but again, in line with expectations.  Another Fed move this past week was the expansion of funds that the Federal Reserve swaps between other countries by $180 Billion.  Some of these moves have just not been tested.  If we start running out of funds, and we just have to print more money, we could see inflation skyrocket.  Let’s hope we’re not headed in that direction.  Not only is this unprecedented, but the later would be unprecedented, as well.

Put Your Money Into…Well, Real Estate

Here’s something else to think about.  With IndyMac closing their doors, AIG’s bailout, Lehman Brothers and Bear Stearns, the Fannie-Freddie take over’s.  Washington Mutual running into trouble, etc.  Where’s a good place to put your money?  Under the mattress?  No tax benefits.  Real Estate keeps looking better and better.  With values so low and rates still nice, it’s truly a wonderful time to get out and look into buying.

Unprecedented Guaranties

So, we also had a virtual “run on the bank” this past week.  What happened was that the Net Asset Value (NAV) of some money market accounts dropped to below $1.  So…if you invested a dollar into the fund, you’d expect to get a dollar plus interest back.  Once we had an NAV below that, $180 Billion was taken out of the market by investors.  The Fed had to step in again, and rescue the industry indicating that they would guarantee some money market funds.  Unprecedented.  Some investors can be unbelievably greedy.  There’s a process known as “short selling.”  Basically, an investor can borrow a stock at a certain price, bet that that price will go down, and when it does, pocket the difference.  There’s an illegal process minus the initial borrowing the stock step.  It’s called “naked” short selling.  This hurts stock values exponentially, as you can imagine, and the SEC had to step in and put a holt to any short selling, to put a stop to this ridiculously hurtful criminal activity.

So, a lot of this unprecedented activity may have caused interest rates to move up this past week, however, at least we still have interest rates, the ability to buy real estate, and put our money into something that will eventually give us a nice gain…real estate.  More news this week was the fact that Mitsubishi UFJ Financial Bank (a Japanese Bank) is interested in purchasing up to a 20% ownership interest in Morgan Stanley.  With Oil now over $100 a barrel again we’ll have to watch and see how this all pans out.  Hopefully, we can keep a lid on inflation but with this volatile market, you’d better have a finger on the lock button.  Until next week…