Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – October 23, 2009

3rd Quarter Earnings Elude The Truth

The Psychological 10,000 Dow Mark

Generally, when Stocks move up, bonds move down.  When Bonds move down, their rates (or yields) move up.  So, stock market investors keep relying on the expectation that stocks will continue to “surprise” with corporations 3rd Quarter Earnings Reports.  79% of S&P 500 Companies (that have reported their earnings, so far) have reported better than Wall Street Expected, according to Thomson Reuters. So Mortgage-Backed Securities have been trading in a very narrow range supported by the 50-Day Moving Average, and being rejected by the 200-Day Moving Average.

Why The Surprise

It’s interesting to note that we still are reporting better than expected numbers by corporations, into the 3rd Quarter.  I’m still leery of these numbers, as I feel that corporate sales are still weak, and that corporations can only cut costs, lay off, close plants, and skimp for so long.  We expected to see this in the 3rd Quarter, but I’m not so sure we may, until  the 4th Quarter.  Scrimping and scraping by is not true economic growth, period!

Housing Starts & Building Permits

Housing Starts, which accounts for approximately 85% of the homebuilding industry, increased 3.9% last month.  Multi-family units, fell by about 15%.  Total permits, which obviously gives us insight into future housing starts, fell by 1.2%.  However, it’s getting better than what’s been reported in the past.  The big picture, here, is that homebuilding is slowly, but surely, healing itself.  On a side note, just be careful not to expect that this trend is certain.  Keep in mind that the $8,000 Tax Credit is ending in just five weeks.  If Congress doesn’t extend the program, how will that effect new building?

Producer Price Index

The PPI fell 0.6% in September, compared to August’s 1.7% increase.  This primarily fell due to lower energy prices, however, as you have felt at the pump, watch out for this figure in the future, as oil, natural gas, and therefore overall energy costs are expected to rise.  So, for now, it looks as though inflation is tame.  This generally helps interest rates, but I think the market’s knowledge that inflation is right around the corner, when the government stops borrowing money.  To state the facts:  Better than expected corporate earnings and the slowly scaled back plan of the Federal Reserve buying of Treasury debt, will lead to higher rates.

Applications for Loans Shrinking

Mortgage Bankers of America indicated that applications were down 13.7%, last week.  Applications to purchase homes dropped 7.6%.  This, also, is more than likely due to the $8,000 Tax Credit Ending in about five weeks.

China’s Own Problems

China has their own economic problems, however, they feel as though their $4 Trillion Yuan government stimulus program is helping them get out of their woes, as the United States feel similarly, that our government stimulus program is benefiting us.  So, similarly, they have warned their country’s leading banks to be ready for a money tightening policy that will influence lending standards, negatively.

Unemployment Benefits Ignored

The Labor Department reported that the number of people filing for unemployment benefits rose 11,000 last week.  The four-week moving average was down 750, so even though claims are back up, the average claims actually fell 750.  Again, somewhat misleading, as even though these numbers are coming in less than expected, the market is absorbing that as good news, while in reality, it’s still very ugly!  For example, the number of people collecting unemployment benefits dropped by 98,000.  Wall Street seems to be under the impression that things in the Labor Arena are looking brighter.  I don’t see it.  I think people are just running out of time, in their benefit period, and dropping off the charts.  This seems to be evidenced by the fact that the number of people collecting emergency benefits from states and federal programs rose 0.8%, just the week before.  Until we see a strong hiring position by empoyers, these numbers will continue to be misleading.

What’s Your Credit Rating?

OK, my rating has been about 720 for years.  I haven’t checked it in a while, however, I would hope it would be about the same, as that rating gets me better pricing on loans, gets me qualified for better rates on car loans, etc.  Steven Hess, lead analyst for ratings agency Moody’s, said that the United States needs to cut its deficit, or lose it’s “AAA” rating, that it’s had since 1917.  He stated that if the US doesn’t, “get the deficit down in the next 3-4 years to a sustainable level, then the rating will be in jeopardy.”  So, just like you and me, if the score is lower, so are the rates to borrower money for homes and cars.

$123 Billion Treasury Auction

That’s right.  A new record!  The Treasury will offer $7B in TIPS, on Monday, $44B in 2-year notes on Tuesday, $41B in 5-year notes on Wednesday, and $31B in 7-year notes on Thursday.  All of this $123 Billion Loan is for the country to carry on for just two weeks.  Unbelievable!  Coupled with the Treasury winding down its purchase program of Treasuries…I just cannot fathom the future of the country and the plan to pay this debt back.

HVCC Changes?

The National Association of Mortgage Brokers reported that an amendment was made, which would effectively kill HVCC, and it looks good that this will pass.  If passed, we’ll revert back to the ability to order our own appraisal through our own appraisers.  Keep watch of this on this blog!

Related Must Reads

HVCC-What’s It All About?
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Chico, CA Interest Rates Market Report – Economic Influences – September 17, 2009

Housing Starts Up

Housing Starts rose to 598,000 when they expected 583,000.  New Building Permits, however, came in at 579,000, just a bit lower than what was expected.  This is good news for the housing front.  And if things are starting to look up, now IS a good time to buy.

Initial Jobless Claims

New Claims moved to a lower 545,000.  Better than what we’ve been seeing, however, still pretty gloomy.

Interest Rates

Mortgage Backed Securities have managed to move above the 200-Day Moving Average.  This is a good sign.  Thursdays are generally good days, however, we’ll float into the weekend and see if tomorrow would be a good day to lock in.

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

Humbolt Fire

After missing last week due to the fires and getting caught up after being evacuated from my home for three days, I’d like to send out a heart felt notice to all of the victims of these fires.  My thoughts and prayers go out to all of the families that were either evacuated, lost their homes, or have loved ones fighting the flames.  I can honestly say that it was very comforting, for me, to just have my family together and out of harm’s way.

On to business!  The biggest news of the week will be the announcement of the Federal Open Market Committee’s meeting that occurred Tuesday, June 24, 2008 and Wednesday, June 25, 2008.  The speculation at the time of this article was that the Fed would leave the overnight rate untouched at 2.0%.  What’s on most people’s minds is the public statement that the Fed will announce after the meetings.  Again, inflation will be the buzz word of that policy statement.  Depending on how that statement is announced, will depend on where interest rates go.

PPI Up, But with Oil’s Influence?

The Producer Price Index rose 1.4%.  Core PPI increased 0.2%.  There are mixed feelings about these reports because Core PPI is within expectations, however, again, we must remain skeptical about the high energy and food costs that we keep seeing and how that will effect inflation.  The Commerce Department said that Housing Starts were at their lowest  levels since March of 1991.

Initial Jobless Claims fell again this week, however, we’re still not out of the woods, as we continue to see layoff’s like CitiGroup’s 6,000+ layoffs this last week.  Also, adding more inflationary fears was the Agriculture Department’s announcement that the price of cereals, baked goods, sweets, and poultry will continue to rise at uncomfortable levels due to the cost of grain and gas.

Quadruple Witching

This Friday we experienced what is known as “Quadruple Witching.”  Quadruple witching refers to when market index futures, market index options, stock options, and stock futures all expire on the same day.  Index futures and options share simultaneous expirations on the third Friday of every month, most of the time.  But quadruple witching days only occur on the third Friday of every March, June, September, and December. The last hour of these trading days, from 3:00 to 4:00 p.m. EST, is referred to as the quadruple witching hour.  This can translate into a very volatile trading day, as you can imagine.

Hey, at least oil prices are down.  For about fifteen minutes of one day last week…other than that they continue to climb.  To add to the problems was a Chevron plant in Nigeria had employees threatening a “strike” and Israel flew so far into Iran to show them their military power that they could “strike” if Iran threatens a nuclear attack, that it made stocks and bonds “strike” against the American People!

UPS Showing Recession Signs

UPS made an announcement that their profits will be down.  This is alarming because many businesses use shippers, if their profits are down, sales are down, and if sales are down, the economy slumps.  This is generally good for rates, but with oil prices taking away the glory…Even a very poor consumer confidence level might not help matters…Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – April 22th, 2008

Inflation Cool At Consumer Level

As mentioned last week, wholesale inflation doesn’t always get passed on to the consumer.  And the Consumer Price Index (CPI) for March indicated that consumer inflation is at acceptable levels.  The year-over-year Core CPI reports at 2.4%.  Still a little out of line with the desired Fed level of 1% – 2%, but not too shabby considering all of the overnight rate cuts we’ve seen. 

Housing starts and Building permits were, again, reported worse than we’ve seen in 17 years.  Also of interest is that construction costs are surpassing existing home prices.  Another scary thought!

Bad News is Good News…

JP Morgan Chase and Wells Fargo reported first-quarter losses, but nothing close to some of their competitors.  Investors are closely measuring corporate earnings reports.  Even though some of these reports aren’t pretty, they’re not as ugly as most think they’re going to be…and therefore, some feel as though economic growth may turn for the better.  In this interesting world of investors in capital markets, it’s interesting to note that bad news is really interpreted as good news…because the bad news really isn’t atrocious news. 

Jobless Claims Help Rates

Helping interest rates again was the good ‘ole Initial Jobless Claims report for the week.  372,000 new claims, bringing the closely watched four-week moving average to 376,000-which is historically recessionary. 

10-Year Treasury and Mortgage Backed Securities

We’ve touched on this before, but this week $25 Billion is Term Securities Lending Facilities (TSLF) will be auctioned off.  Another newly developed, by the Fed, way of providing banks with an easier way to sell their holdings to make more money.  Basically it gives banks an option to pledge their mortgage-backed securities as collateral in exchange for US Treasuries.  So, it’s another example of how yields on Mortgage-backed securities and Treasuries may not move in the same direction.  Causing confusing to some of my peers that don’t understand how interest rates move.  So sad for them!

Google reported a 30% profit increase for the first quarter.  Amazing!  Citigroup reported losses, but as mentioned above, not as bad as they were anticipating.  Other companies bowed well too, so money went into Stocks and out of bonds, causing a small increase in rates over the end of last week and beginning of this week. 

Another interesting note was that National City Corporation announced that Corsair Capital LLC was injecting $7 Billion into their company.  Another hint that companies are feeling that this credit crisis is over?  We’ll see…

50 and 100 Day Moving Averages Supporting Rates

What would this article be without a shout out about the 50-day and 100-day moving averages.  We spiraled below them; however, starting Monday things started to look better, and sure enough, on Tuesday we ended up above them again. So, hopefully they can remain strong enough to act as a level of support, rather than a layer of resistance. 

So, with the credit crises maybe coming to a close (some feel), significant government changes to the status quo (like TSLF’s coming to an end soon), and other economic information coming in a little stronger than expected…I think it’s a good time to lock.  5.875% with an APR of 6.103 is still out there…grab it while you can…Until next week…