Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – May 13th, 2008

Not Much Good News At All This Week

Inflation “Troublesome”

Last week the Federal Reserve Board Bank of Kansas City President mentioned that inflation pressures are “troublesome.”  He went on to say that if inflation gets too high, the economy could suffer greatly.  This guy isn’t even a voting member and he’s spouting out comments that are “troublesome” to hear.  As if we don’t know these things.  Sometimes, I guess, these guys just like to see their names in the papers.  Maybe it increases their opportunity to become a voting member.  I just don’t see the reason!  Why say that stuff and scare markets?  It’s kinda like little junior riling up big brother just to see what his reaction might be (I never did that). 

On Wednesday, May 7, the Treasury Department auctioned off $15 Billion in 10-Year Treasury Bonds.  Now even though we all are educated and know that interest rates follow Mortgage-Backed Security Yields, the interest in this auction determined how long term interest rates would be influenced.  It went well.

Watch the World Economy…Not Just USA’s

Initial Jobless Claims were reported at 365,000 this week.  The government expected 375,000 but, again, the more closely watched four-week average of claims edged to a slightly higher 367,500.  A sign that we are currently in a recession.  The European Central Bank (ECB) and the Bank of England kept their overnight rate unchanged, but their also concerned about inflation and their economies.  It will be interesting to watch what’s happening around the world, compared to the United States’ economy over the next few years.  Interest rates moved in the opposite direction of the stock market, mainly last week; as there was not a lot of economic information to move markets.  So, when the stock market ended the day below 13,000 (a significant level), mortgage-backed securities moved up nicely; causing rates to go down.

AIG Needing Capital

American International Group (AIG) indicated that they were looking to raise about $12 Billion in Capital to help with their enormous 1st Quarter Loss.  This was alarming to the markets because it showed new depth into how deeply the mortgage credit crisis is touching the world.  This fact, coupled with the announcement of $126 a barrel for oil, cause rates to spike again. 

Making things worse this week was retail sales.  Now, they were down 0.5%, however, excluding auto sales, we actually dropped 0.2%.  Coupled with another market moving statement from Bernanke and dropping below the 50 and 100-day moving averages rates worsened a bit more. 

The good news:  we’ll have to wait and see how next week busy schedule makes out.  This will include information on the Consumer Price Index, more weekly jobless numbers, and the Producer Price Index.  So, hang in there.  We’re still under 6.0% on 30 year fixed rates, so take advantage of that.  It’s still a great time to buy.  Until next week…