Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – Aug 24, 2009

Nothing Today, But Week Of Info.

No real economic information to report today.  The big news will be the rest of the week.  Coupled with the $109 Billion in Treasury Auctions that we’ll be experiencing.  It would be a wonderful surprise if those auctions faired well, but it’s not expected.  So, Gross Domestic Projuct (GDP), Housing Information, Core Inflation numbers and Consumer Sentiment will all be released this week, and may have an influence on where rates will go.  But the auctions will be the stongest mover of the bond market. 

We’ve Broken Through Most Trend Lines

On Friday, we broke through the 25, 50, 100, & 200-Day Moving Averages.  For a report on Trend Lines, Read August 19, 2008’s Post, explaining how these lines form and influence interest rates.  So, it will be difficult to break back above these strong lines of resisence, however, again, once thrid quarter earnings numbers start to roll out, we expect lower rates.

Chico, CA Interest Rates Market Report – Economic Influences – Sept 2nd, 2008

More Volitility, But In The End…Lower Rates

The big news of the week was Hurricane Gustav.  Earlier in the week, the markets were quite concerned with where Gustav would hit, and would it interrupt or disrupt oil production.  The catch-22 of the week was a comment by Atlanta Fed President Dennis Lockhart, who said, “Inflation pressures should ease in coming months” and oil prices are likely to “prove transitory not persistent.”  Those comments should help the bond market and interest rates; however, the twist here is that it can help stock prices too.  So, money poured into stocks which coincidentally, hurt bonds and interest rates.  Go figure…

High GDP & Oil Meant Higher Rates

Gross Domestic Product readings for the 2nd Quarter were revised to 3.3%.  This is significantly higher than the 2.7% that was expected.  These numbers will be revised a final time next month, but certainly this was good news for Stocks and bad news for interest rates.  Initial Jobless Claims came in at 425,000, but this was expected.  Oil prices climbed over $120 a barrel, again, primarily due to Hurricane Gustav.  The good news was that the 50-day moving average caused rates to bounce off of that trend line, protecting further erosion in rates.

Last week I mentioned the record auction for 2-year and 5-year Treasury Notes.  The $32 Billion two year note auction, and the $22 Billion 5-year note auction, didn’t go over too well.  But not too badly either!  Some foreign interest in the sale, but not too much, so this record breaking auction that could have had some significant impact on the markets…just didn’t.

Even The PCE Rose

The Fed’s favorite gauge on inflation, the Personal Consumption Expenditure Index rose 4.5% year-over-year.  After taking out for energy and food the Core PCE rose 0.3% to 2.4%.  Way out of the Fed’s desire to keep inflationary measures between 1% and 2%.  Also, Personal Incomes dropped 0.7% for July and Personal Spending came in at 0.2%.  It looks as though the economic stimulus checks have started to lose their thunder.  Also putting pressure on inflation were the Chicago Purchasing Manager’s Index and the Michigan Sentiment reports.

Finally…Lower Oil Prices

So, last week’s advice to have that finger on the lock button really panned out well.  Then the big story hit…Gustav was not as powerful or damaging as originally expected.  Oil production was not slowed, and actually oil prices finally dipped down below the 200-day moving average to about $106.00 per barrel.  This is the first time in over a year that prices have moved below this tough layer of resistance and will be interesting to watch closely.  Lower oil prices mean lower inflation…which helps interest rates.  So this week’s inflationary news reports that caused rates to jump have been helped tremendously by the fact that Gustav was weaker than first thought.  This caused bonds to move above the 100-day moving average (rates moving down), but this is a very precarious area to be at.  So…again…we moved to a float position with a finger on the lock button.  The last three articles have advised this and it’s proven to be an excellent strategy, as rates have just momentarily gotten better a few times each week.  Then they seem to get worse relatively promptly.  Next week we’ll discuss a lot, including Non-Farm Payroll numbers.  So, until next week…

Chico, CA Interest Rates Market Report – Economic Influences – August 5th, 2008

Big Changes On The Horizon

This week I’m going to be extremely brief with my comments on the economic reports and educate you a little about major changes in the real estate lending market.  So, let’s rock and roll!

First, the government lifeline extended to FannieMae and FreddieMac was signed into law by President Bush.  I’ll be addressing that in forthcoming issues.  Second, 2nd Quarter GDP come in at 1.9% while expecting 2.3%.  Previous quarters’ numbers were also revised lower.  Third, initial jobless claims shot up to 448,000.  This is a huge number, however, is somewhat misleading, as the government has laid out a new federal benefits program that will manipulate this number for about a month…interesting…Fourth, a better than expected jobs report showed we only lost 51,000 jobs.  WooHoo!  Unemployment moved to 5.7% so the better than expected jobs numbers, that’s right a loss of 51,000 is better than expected!  Fifth, I told you I’d report on the Fed’s favorite inflation gauge, the Personal Consumption Expenditure Index.  Core PCE moved to 2.3%.  This is outside the governments comfort zone of 1.0 – 2.0%.  Last, the Fed left the overnight rate unchanged at 2.0%.  They did indicate that they felt like inflation pressures should start easing toward the end of this year, however.

BIG Changes in Mortgage Insurance

The changes that have occurred, as of August 1 of this year, is in regard to mortgage insurance.  Years ago, you couldn’t buy a home unless you had twenty percent down.  Mortgage Insurance (MI) companies got involved and said if you let someone put five or ten percent down, they would insure a percentage of the loan amount.  This enabled more people to buy homes because they didn’t have to wait longer to save twenty percent.  This past week four of the seven major mortgage insurance companies changed their guidelines.  Basically, if you do not have a credit risk score of 620 or higher, you’re not getting a FannieMae or FreddieMac loan unless you put twenty percent down and avoid mortgage insurance all together.

FHA Will Return As “King Of The Loans”

Only one MI company left enables you to put five percent down.  All others are requiring ten percent down.  So, if you know of people that only have five percent down, make sure they continue to call other lenders if their lender is telling them that they HAVE to put ten percent down.  And there are a lot of major banks that are not approved or not contracted with this one, MI Company!   Refinances on investment properties will have to have twenty percent equity in the subject property.  Also, if more than 55% of your income is going toward all of your monthly obligations, than you can not qualify for a loan with mortgage insurance.

Monthly Guideline Changes

Now, these changes are changes to July’s changes.  We are seeing guideline changes on at least a monthly basis, sometime weekly.  Make sure you’re working with an expert in the field that follows these changes closely.  Also, make sure you have an option to work with an FHA expert!  FHA has new guidelines taking effect on January 1, whereby the buyer would have to put 3.5% down as opposed to the current 3%, but they have more flexibility regarding their qualifications than MI companies.  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – July 1st, 2008

Plan Accordingly…Expect High Oil, Energy, & Food Prices…

Let’s take a look at how oil prices are affecting us.  First, stroll back with me to September of 2007, when the overnight rate or Fed Funds Rate was at 5.25%.  The United States was heading for a recession and so, to help spur the economy, the Fed cut their rate and continued to do so until their meeting on April 30, 2008.  Oil was at $73 per barrel and the Euro was $1.35.  Cutting the overnight rate makes higher interest rates in Europe much more appealing to investors around the world.  So, with each cut the Euro gained more and more strength and appeal.  As mentioned in a previous article Oil is priced in Dollars.  So, it now takes $1.56 to match one Euro.  Since dollars are declining, the price per barrel will move up accordingly.  So, we’ve gone to $143 per barrel as of this morning.  To make matters a little worse, European Central Bank President, Jean – Claude Trichet announced that is toying with raising their overnight rate to stave off inflation.  This will have a negative effect on oil prices, as well.  Europe’s inflation rate was reported at 4% this week.  They also want their readings between 1 and 2%, so a hike in their overnight rate would be completely expected.  The ECB’s job is only to keep inflation levels low, not worry about the economy as well, like with our Fed.  With oil prices, energy prices, and food prices skyrocketing, it’s time to really look at your household budgets and plan for a tough road-a-hoe for a while.

Recessionary Jobless Numbers Continue

The final Gross Domestic Product (GDP) numbers were 1.0% higher for the first quarter and right in line with expectations.  Initial Jobless Claims were at 384,000 and the four-week average moved to 378,250.  As we have learned, anything greater than 362,000 is recessionary.  The Fed’s favorite gauge on inflation, the Personal Consumption Expenditure Index (PCE) came in at 0.1% higher, but the market expected a 0.2% higher reading.  This left the Core PCE at 2.1%…not too shabby!  The Fed wants to see inflation reading between 1.0% and 2.0%, so we’re close, but the paragraph above still has me scarred.

Stock Market Blues

The stock market has been plummeting lately.  The Dow Jones Industrial Average had its worst June since the Great Depression.  Now that’s just too alarming.

It looks like my report on Israel attacking Iran may be closer to a reality than some think.  ABC News reported that Israel is getting awfully nervous about Iran’s nuclear capabilities.  Another scary thought!

So, rates ended up dipping a little with the inflation numbers, primarily from the PCE, and the stock market continues to do poorly, however, have stocks bottomed?  They seem to be ready for a correction, and that could be bad for rates.  So while were’ hovering around 6.0% with an APR of 6.198%, I’d take advantage and do some locking in this week.  It’s going to take some time, but once the Fed starts increasing the overnight rate, that should help long term interest rates again.  Until next week…