Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – Dec 9th, 2008

Unemployment Numbers...35 Year Record

Talk Is Cheap!

Let’s take a look at what’s been rolling around the rumor mill, as of late.  First of all, the phone lit up last week with inquiries about interest rates moving to 4.5%.  First, let me assure you, there is talk about this from Federal Agencies FannieMae and FreddieMac.  Second, it’s only talk.  While it may happen, it also may not.   The risks involved with a scenario like this is that we would create, essentially, another real estate “bubble” of artificially set interest rates.

Will Inflation Be The Net Result (In The Future)?

The government would have to back up its guarantee to purchase these mortgage backed securities by printing up money.  Another inflationary procedure that, once this subsidized purchasing stops, would create such high interest rates that nobody would be able to buy.  This is just another short term fix to a long term problem that needs to be addressed appropriately, not just inadvertently.  Stay tuned…

The job market continues to suck!  But check this out!  The ADP Employment Report suggested that there would be a loss of 250,000 jobs.  Factor in the governments job gains the official number anticipated by this company was a net 205,000 job loss number.  This would be good news.  That’s the paradox here.  205,000 lost jobs is good news.  Why?  Because economists expect 325,000 losses!  Some good news:  Productivity rose 1.3% and labor costs rose 2.8%.  Productivity measures the output per hour for employees so the market expected a 0.9% reading, but employees were more productive than that.  Also labor costs were expected to rise 3.6%.  So, in a normal market, this would be great news for interest rates.  But…I can’t tell you the last time I wrote that we were in a normal market.  We’re definitely not in a typical market where weak economic reports result in lower interest rates.

Job Numbers And…1951?

4.09 million laid-off workers received unemployment compensation the week before Thanksgiving.  Boy, it’s sure fun being the barer of such bad news.  The Bank of England and European Central Bank cut their key benchmark interest rates to try and boost their economies.  This will help with the value of the dollar and have a part in staving off inflation.  The Bank of England’s overnight rate is 2%.  It hasn’t been this low since 1951.

And Then There Were…533,000

Then, the jobs report hit!  Much worse than anyone (except me) predicted!  533,000 lost jobs!  A 35 year high and the fourth time in 58 years that we’ve had a number like that one.  U-G-L-Y!  Not to mention the revised numbers for the previous two months erased an additional 199,000 jobs.  No worries…it’s only 199,000 jobs…we’ll just revised it!???

Generally rates would be better, but later this day, rates actually went up.  Kinda the opposite of what should happen.  We do see some correction in the future but the volatility is just unbelievable.

Now An Auto Industry Bailout?

What would this article be without the mentioning of the auto industry bailout.  A $15 Billion loan to help Ford, General Motors, and Chrysler.  I have mixed feelings about this.  Should I have the opinion that it will save an industry, like the Fannie/Freddie take over, or is it just prolonging the inevitable?  I don’t know, but will monitor this closely as the plan unfolds.  Also, I mentioned in a previous article the Security and Exchange Commission may be close to an announcement that could rally stocks.  Five members of the House Financial Services Committee are sponsoring a bill that could reinstate the “Up-Tick Rule.”  The uptick rule was removed in February of 2007 and that removal has caused a significant amount of volatility in stocks and bonds.  This rule required every short sale trade be entered at a price that is higher than the price of the former trade.  I’ll continue to monitor this closely.

Rates are amazing!  Get in while they’re still in the low to mid 5% rate and while values are down.  It’s time to buy your dream home!  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – November 13th, 2007

Foreign Investment Leaving?

Start Getting Ready To Buy!

If you haven’t figured out that now is a great time to buy, than you haven’t been paying much attention to where interest rates are, and where home values are.  Foreclosures are starting to rear their ugly head, and this will cause opportunity for low purchase prices.  I am currently in escrow on two investment properties (shortsales) because I believe that it doesn’t get much better than now, to buy and build.  Let’s look at what’s happening in the market today…and what the future may hold in store. 

Earlier in the week, the stock market took a nose dive.  General Motors reported a $39 Billion loss for the third quarter.  Keep in mind that GM formerly held GMAC which was their financing company who did a lot of loans these past few years. 

China Moving $$$ OUT of the US

Remember that I have mentioned numerous times in my article that foreign investment in our mortgage-backed securities is what has kept our long term (30 year fixed) interest rates so low the past decade or so?  Well, this last week China indicated that they would be moving their investments away from the US Dollar.  “We will favor stronger currencies over weaker ones, and will readjust accordingly.  The US Dollar is losing its status as the world currency.”  So, China will start to sell off their US holdings including Mortgage Bonds.  Also, their participation in purchasing new Mortgage Bonds will continue to hurt Bonds, pressuring their yield (and therefore interest rates) higher.  A good time to buy? 

Oil Is Just Too Expensive

Oil is touching on $100 per barrel.  This is inflationary and remember that inflation is interest rate’s worst enemy.  What really saved us last week was that we bounced off of the 50-day moving average.  Remember that these averages cause trends in bond values and therefore interest rates…so the 50-day moving average (or that trend) was a level of support for interest rates because markets don’t like to shy away from trends…they follow them!  

10-Year Treasury Yield Throws Off Unprepared Mortgage Professionals

Interesting to note this week that the yield on the 10-year Treasury Note and the yield on Mortgage-Backed Securities were moving in opposite directions…so if you were working with someone that really didn’t understand how interest rates worked, you could have ended up paying for it in your interest rate. 

Initial Jobless Claims were reported at 317,000, however, the market anticipated 325,000.  Of importance was the fact that the Bank of England (BOE) and the European Central Bank (ECB) announced their monetary policy this week.  They both decided to leave their overnight rates where they were.  This is important because foreign yields on bonds have a direct impact on investments in our bonds. 

Foreign Investors Shying from US

The first test of auctioning our Treasury Bonds didn’t fair so well this week.  This is something that we’ll continue to keep our eyes on. 

Wachovia Corp. announced a $1.1 Billion loss on CDO’s.  Collarteralized Debt Obligations are the fancy-shnancy critically calculated investment bundles that included included mortgage backed securities that are losing value with each passing mini-second.

Retail Sales numbers will be coming out soon, however, the markets are moving on speculation because WalMart reported strong earnings.  WalMart is always watched by the market, just because as the nation’s largest retail chain, it would make sense that if they had strong earnings, than the nation should follow suit.  Remember, also, that when Retail Sales come in strongly, than the stock market would do well, taking money out of bonds, or mortgage backed securities.  So, buy, buy, buy!  Values are down and rates are low…but with all of this information in your pocket, how long will rates remain low?  Until next week…