Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – February 25, 2010

Greece Could Cause Domino Effect

Greece III

I would imagine that a Greece III Movie might have this subtitle:  Worse than Greece II, Which Was Worse Than, Perhaps, Joe Dirt. Moody’s and Standard & Poor’s, is considering lowering Greece’s bond rating to kind of a Joe Dirt, status.  This is alarming because any financial institution that holds any Greek debt, will find their capital values plummet, causing their reserve requirements to be in jeopardy.  So, it effects the world, not just Greece.  Germany and France are the largest holder of Greek debt, however, remember the mortgage credit crisis? Remember how experts, sort of, shrugged off any concerns, before the hammer fell?

Sound Familiar?

Germany and France have their own financial troubles to worry about.  So, this problem is Greece exponential.  German Chancellor Angela Merkel stated that the Euro is…”in a difficult situation…for the first time since its introduction…but it will come through.”  Agreed, however, who will be effected?  Spain, Ireland, Portugal, and other European Nations are all in financial trouble.  Let’s hope they’re not heading down the same road, as Greece.

Initial Jobless Claims

500,000 people filed claims for unemployment benefits.  This is horrible!  It’s also closer to the reality that I’ve been talking about.  I hate being pessimistic, but I, also, appreciate truth.  And, the truth is…things are ugly!

Locking Advice

Back To Float Mode

With the Initial Jobless Claims and Greece’s finances throwing the Stock Market into a tailspin, it’s time to float, again.

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Chico, CA Interest Rates Market Report – Economic Influences – February 24, 2010

Yesterday's Gains Will Benefit Rates This Morning

Inflation Back In Check

Chicago was a blast!  But let’s get caught up on what you missed!  Last Post, I was discussing inflation, at the wholesale level.   The report for the consumer level was much tamer than anticipated.  The Consumer Price Index (CPI) came in at a comfortable 0.2%.  Lower than the 0.3% expected.  And the Core CPI came in at a cool 0.1%, when an actual increase of 0.1% was expected.  This helped cool the massive upward trend in rates that we observed on the 17th and 18th of February.

Discount Rate Increases

As anticipated in last weeks article, the Fed increased the discount rate from 0.5% to 0.75%. This should not hurt businesses and the consumer, but help financial institutions return to a somewhat state of normalcy, regarding the spread between the discount rate, and the Fed Funds Rate.

The National Association for Business Economics

The (NABE) reported that they anticipate approximately 103,000 new jobs created from April through the end of this year.  Now that’s just in line with The White Houses assessment of adding 95,000 per month.  However, keep in mind that with population growth and immigration, alone, we need to add more than this, to reach the 6.0% Unemployment Rate that The White House has predicted to reach in five years.  So, while the news is somewhat encouraging, particularly to the media, it’s not so encouraging to me.

Eenie-Meenie-Miney-Moe

Catch a Country’s Financial Woes…Okay, so let’s choose a country…any country…England!  No, how about Spain!  Okay, How about Greece…Japan or China?  Here’s my point.  Bank of England Governor Mervyn King indicated that England is ready to extend its asset purchase program, to enable banks to lend more money, to help their fragile economy.  Spain’s economy could potentially be worse.  There’s concern that their spending for their social programs is spiraling out of control.  If it doesn’t curb, substantially, than the effect on the entire Euro-community could be devastating.  De-valuing the Euro and creating an uncanny value of the Dollar.  Which could, actually, hurt the United States.  We’re not out of this mess, yet, my friends!

“Yellen” Up The Wrong Tree?

San Francisco Fed President Janet Yellen indicated that she’s not concerned with inflation and that the economy is moving too sluggishly for inflation to be a concern, at the moment.  Now, this is scary!  We’re walkin’ a fine line, here!  Inflation should always be a concern to a Fed President…but if we’re not adding jobs, what is one to do?  We’re not out of this mess, yet, my friends!

Consumer Confidence Bums

So the consumer, apparently, is not listening to the media.  All of the hype about jobs, and growth, and the economy on recovery did not have an effect on the consumer, as consumer confidence reported a weak showing at 46.0, when a 55.0 number was expected.

Good ‘Ole Ben Bernanke

He’s speaking before Congress’ House Financial Services Committee today.  Tomorrow he’ll talk before the US Senate’s Banking Committee!  He’s indicating that he feels as though inflation is in check!  And that it will continue to be so for quite some time.  He also reiterated that ‘ole “extended period” quote. Bringing some level of satisfaction to investors around the world.  Keep in mind, that he’s gotta sell some of our debt.  The best way to do that is to sell Bonds and Mortgage-Backed Securities, to the world.  Think he’s baitin’ the world?  It will be interesting to see.  His comments on inflation are quite interesting, however, keep in mind, if he indicated that inflation was a concern, investors would run!

Lock This Morning To Take Advantage Of The Last Three Days

Locking Advice

My guess is that late yesterday, and early this morning, will be the best times to lock. Although, hearing Bernanke’s testimony this morning may bring bidders to the auction table today.  That could change things, but not too drastically.  We locked in our clients this morning, on applications taken yesterday.

Related Must Reads

Greece Two
Japan’s FICO And China’s Tightening Credit
Hints Into Higher Rates
Why The Spread Was Lowered Initially, And Why It’s Okay To Go Back

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Chico, CA Interest Rates Market Report – Economic Influences – February 18, 2010

Fiscal Policy Is On An Unsustainable Course

Inflation, Inflation, Inflation

Uh-Oh…Yesterday afternoon, we switched to a lock mode, after advising people to carefully float into the morning.  And lock, we did!  It’s a good thing, too, because the negative movement, for interest rates, continues to be alarming with reads on inflation poking its ugly head out and stirring the markets.  Remember, inflation is the nemesis of interest rates.

Read This Carefully

Yesterday, Kansas City Fed President Thomas Hoenig had some very interesting comments that the United States, quite frankly, better pay close attention to.  He said, “Fiscal policy is on an unsustainable course.  The US Government must make adjustments in its spending and tax programs.  It is that simple.  If pre-emptive corrective action is not taken, regarding the fiscal outlook, then the United States risks precipitating its own next crisis.”  He’s warning about hyperinflation.  That occurs when rates have to increase so quickly, as to stave off inflation, that currency become valueless.  Remember Post World War I Germany?  Well, I don’t.  But I’ve read about it!  So, when Hoenig became President of the Kansas City Fed, in 1991, he mentioned that his 85 year old neighbor gave him a 500,000 German mark note.  He told Tom that that note would have purchased a home, in 1921.  In 1923, that same note wouldn’t even buy a loaf of bread.  Mr. Hoenig took that to heart, and that’s one of the reasons he’s been so outspoken regarding these turbulent times.  He has that mark note framed in his office, as a cold reminder to himself, of what his responsibilities are, to the American People!

Housing Starts Up

591,000 starts compared to the 580,000 expected.  Great news for the housing market, however, bad news for rates.  Kind-of-a “Catch-22,” no?  This is primarily due to the Tax Credit.

Jobless Claims

Jobless Claims, for the week, were up to 473,000, compared to the 438,000 expected.  Here’s a scary figure:  An additional 5.8 million people are filing for Emergency Unemployment Compensation (EUC).  That’s up an astonishing 304,708 people, just from the prior week. Keep in mind that these figures are not included in the general unemployment data.  So, if we’re waiting for the jobs numbers to look better, we might be waiting a long time!

Producer Price Index

The PPI came in 1.4% hotter, in January, than in December.  This is a measurement of inflation at the wholesale level.  It’s hot, however, this is not always passed to the consumer, at the consumer level.  These readings will be reported tomorrow, with the Consumer Price Index (CPI).

As I Write:  Locking Advice

As soon as we touched beneath the 200-Day, things took off and plummeted down about 50 basis points.  That’s about 1/2 Point cost on a loan.  Now that we’ve broken beneath all levels of support, it would be prudent to lock.

Related Must Reads

An Interesting Contradiction: Jobs Growth?

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Chico, CA Interest Rates Market Report – Economic Influences – February 12, 2010

China Is Tightening Up

What Goes Up…

We’re back to float mode, this morning, as volatility has taken the helm to set the pace for the day.  But, you’d better keep your finger on the lock button, as volatility has been a recent theme, and should remain a huge part of the market, throughout 2010 and 2011.

Chinese Inflation

The People’s Bank of China is raising its bank reserve requirement by 50 basis points to 16.5% of their deposits.  This is to stave off rapid growth and inflation. By holding on to more of these reserves, they’re unable to lend as much money.  This has caused rates, in the U.S.,  to dip down, a bit, and move back above the 25, 40, 50, and 200-Day Moving Averages, but still below the 100-Day Moving Average.  It’s a nice break, from the negative territory we’ve been experiencing, but don’t expect it to last too long.  Rates are only about .25% Point in cost better than late yesterday.

Retail Sales

January Retail Sales were up 0.5%, and only expected to be 0.3%.  This is good news, however, generally, we like to see three consecutive months of growth in sales, before believing that the American Spender is back to their wasteful ways.

Turn Out The Lights

The party is almost over.  $11 Billion in Treasuries were auctioned, this week.  That only leaves $66 Billion left, in the Government Mortgage-Backed Securities Purchase Program.

What MIGHT Happen After The $1.25 Trillion

There is rumblings that Fannie Mae and Freddie Mac might purchase delinquent assets from investors.  Thereby, enabling these investors to re-enter the market unscathed, and buy more Mortgage-Backed Securities.  There is some concern, here, though.  If you’re able to sell a home, that you purchased three years ago, and be lucky enough to break even, would you buy another home?  Some say that human nature would be prevalent and would dictate that the investor had learned their lesson, got out unscathed, and would look for somewhere else to put their money.  Others might feel that if you bought three years ago, now you realize that now is the time to buy.

Related Must Reads

Why Moving Averages Are Important
Japan And China: What Credit Tightening Means

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