Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – November 19, 2009

Buyer’s WAKE UP!

Last week the borrowing costs on 30-year fixed rate mortgages, excluding fees, averaged, down 0.07% from the previous week and the lowest since mid-May. Mortgage interest rates are hovering within shouting distance of the all-time record low, set during the week ended March 27th — yet according to data provided by the Mortgage Bankers of America — the demand for home purchases dropped to a 12-year low last week!  Follow interest rates on my blog-site at www.accessloans.net .  Half-way down, on the left hand side you’ll see the national average of interest rates.

Jobless Claims

This morning’s Initial Jobless Claims came in at 505,000.  The media will think this is good news because that number has been dropping for weeks, however, let’s look at the bigger picture.  Continuing Claims numbers have dropped; from 6.82 Million to 5.81 Million.  However, why do you think that is?  You think people are being hired?  Or do you think that people have had to have Unemployment Claims for so long, that they are running out of benefits?  I think it’s the latter...as Obama had to sign a 20 week extension to benefits as Unemployment hit 10.2%.

Higher Rates…Period!

The Fed will announce the size of the Treasury Auctions scheduled for next week.  Keep in mind that the Fed’s $1.25 Trillion Mortgage-Backed Security Purchase Program is winding down.  Yet, applications, in the past few months, have been pretty high as rates have hovered around 5.0%.  So the supply of these loans will hit the market at a time when demand, or buying power of the Fed, will be going away.  You know the answer to that equation.  Higher Rates…period!

Stocks Taking A Hit

I’ve been mentioning that the Stock Market has been overbought, for some time now.  Well, it’s taking a hit today.  That’s helping bonds, momentarily, however, we should bounce right off the highs of 2009.  So, again, it’s an excellent time to lock!

Related Must Reads

Read, “Interesting Side Note On Unemployment”
Another Reason For Higher Rates
Stocks Overbought…A Look Into September 1, 2009

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Chico, CA Interest Rates Market Report – Economic Influences – October 29, 2009

GDP is HOT, BUT...

Technical Difficulties

I was, somewhat, out of commission since Saturday Night.  My laptop crashed out, and on Tuesday Night, my cell phone froze up on me.  Made for many more hours in the office, however, that’s why the Market UPdates were delayed until today.

What’s Going On?

In the words of Marvin Gaye, here’s what’s been happening.  Treasury Auctions have, so far, fared quite well.  Tuesday’s $44 Billion auction of 2-Year Notes, and yesterday’s auction of $41 Billion in 5-Year Notes were well received by foreign markets.  This pleasant surprise helped keep interest rates stable, however, keep in mind that there is nowhere for rates to go…but up!

Don’t Be Foolish

If you think that by waiting for the “bottom” of the real estate market, that you will somehow benefit from that, a heeded warning:  Don’t be foolish!  Higher interest rates will substantially influence your buying power more than declining values.  IF the government extends the tax credit for first-time home buyers, I recommend getting off of the fence and buying, as soon as you’re able.

Important Side Notes

Durable Goods Orders were reported exactly where the market expected them to be.  Consumer Confidence is down, particularly due to the labor situation.  The government is considering an expansion of unemployment benefits.  If this occurs, expect the number of claims to SKYROCKET, as unemployment numbers only report for a certain amount of time, before you’re ineligible for benefits, and drop off the statistics automatically.  Inventory Levels for New Home Sales were reported at 7.5 months.  This is a little higher than the 7.3 Months that we saw last month, however, it’s still promising, considering inventory was at 12.4 Months in January.

“Advanced” GDP is HOT, BUT…

Gross Domestic Product numbers (so far) for the 3rd Quarter were reported at a 3.5% increase.  Much hotter than the 3.2% expected, AND the first gain in a year, coupled with the greatest gain in two years.  Now, the media has gone hog wild with this news.  Bonds are reacting negatively, the stock market is going nuts, and everyone seems to be partying and celebrating that the recession is over.  Sorry to be the bearer of bad news but is everyone forgetting the “Cash for Clunkers” government refund program?  Is everyone forgetting the $8,000 First Time Home Buyer Tax Credit?  Without these subsidized government programs the real GDP is growth of 1.9%.  Nothing to get too excited about, I think.  The market will figure this out, but in the meantime, interest rates will suffer.

Jobless Claims Are Cool, BUT…

Again, we’re looking at Initial Jobless Claims of $531,000.  And claims that “only” 5.8 Million people are out of work.  The media is spinning this as good news.  Well, I don’t see the joy and happiness regarding these numbers, but I guess I’m in the minority.

Today, $31 Billion in 7-Year Treasury Notes will be auctioned off.  Will foreign appetite gobble up these notes, or will they shy from the longer termed risk?  We’ll see, but if foreign interest is bleak, prepare for rates to plummet this afternoon, coupled with these other media hyped “lies.”

Senate Approved Tax Credit Extension

Not only did the Senate approve an extension of this credit, however, they proposed a $6,500 tax credit for any primary home purchase, not just first time home buyers.  Also, increased, was the income limits for qualification for these credits.  $75,000 for a single person was raised to $125,000 a year in income.  Also, a married couple’s income was increased from $175,000 to $250,000 per year.  You have to have a contract dated by April 30, 2010 to qualify, and the transaction MUST close by June 30, 2010.  This still has to be negotiated between the House and Senate, so expect changes, but it is encouraging news, nonetheless.

Related Must Reads

How Foreign Interest in US Bonds Helps Interest Rates
Tax Credit “FAX”

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Chico, CA Interest Rates Market Report – Economic Influences – October 15, 2009

Rates On The Move?

We’ve broken through the 200-Day Moving Average and the 25-Day Moving average.  Not good!  We, actually, broke through the 50-Day Moving average, early this morning, but have managed to bounce off of that, and settle just above it…for the time being.  The 50-Day is significant, because we have bounced off of that trend line three times, since mid-August, saving interest rates.  If we break through today, we are risking another 60 basis points (about .625% Points in Cost) to the next layer of support.  Remember, when Bond Values move down, interest rates move up.

Interest Rates Nemesis

The Core Consumer Price Index (CPI) rose 0.2% in September, while only expecting to move 0.1%.  This is a little concerning, as mentioned in the article yesterday, that the creative accounting, established by our government to stave off inflation in the Cash for Clunkers Program, was supposed to keep inflation down.  Well, a higher than expected reading in the CPI has inflationary fears hovering all around it.  Particularly when this creative accounting structure should have lowered inflation fears.  Remember, inflation is interest rates’ nemesis. 

 Jobless Claims Lower

Initial Jobless Claims came in 10,000 lower than the week before, at a 514,000 new claim level.  Lower than the 520,000 expected, but still as ugly as Phyliss Diller’s less attractive younger sister.  Continuing claims fell to 5.99 Million, but not due to people getting new jobs, just people running out of time to claim their unemployment benefits. 

Manufacturing’s Hot

Another inflationary number was the New York State Manufacturing Index.  It completely surpassed expected reading of 17.25 and roared in at 34.57.  This is the highest improvement in five years.  Was it due to economic growth, or re-stalking of shelves that had finally run dry for the worst economic recession since the Great Depression?  It will be interesting to see…

You Know What Really Chaps My Hide?

Freddie Mac reported interest rates were 4.92%, yesterday, at a cost of .7% Points.  Well, it takes time for Freddie’s comments to circulate to the media.  That was, actually, last week’s pricing.  We’re very close to those rates, however, it’s tough when the media gets its spin on things and reports on interest rates, when it takes time to relay the information, AND normally, the pricing on a loan like that is passed on from Freddie, to the banks, at a cost.  Generally, it translates into more like an ad that would read 4.92% with zero points.  Which is a legal ad, but when broken down on the final closing statement in escrow would read like this:  1.25% Origination Fee (or discount fee…it’s the same thing) for 4.92% with an APR of 5.021%.  The ad makes the phone ring, but is it fair to the client when true rates are quoted from an honest banker! 

 

Related Must Reads

Remember Pong? A Little Paragraph About Bonds and Rates
March of ’08’s Take On Jobless Numbers

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Chico, CA Interest Rates Market Report – Economic Influences – October 8, 2009

Good News Bad News Article

O.K.-Today I’m going to talk about good news, related to how the market is doing, and then I’m going to accompany that information with the bad news.  The bad news is a statement that somewhat negates the good news statement, and will attempt to explain why the good news…really isn’t very good news.  It’s just not depressing news…so it’s interpreted as good news…here goes…

Alcoa Shows Profit

Good News – Aluminum Giant, Alcoa, reported profits for the 3rd Quarter, unexpectedly.  I have been discussing how interest rates should be lower, in October, as earnings statistics show that companies are unable to show any profitability.  Well, Alcoa was able to show a profit, and Stocks reacted positively.

Bad News – Alcoa cut 34,000 jobs, this year, to reach that profitability.  One-third of its work force.  So, while we expected to see this hit their books in the 3rd Quarter Earnings Report, we were surprised that they were still able to show a profit.  So, they can only cut so many jobs, before productivity reaches a turning point.  So, I think the markets will start to understand this, however, currently Stocks are enjoying the news.

Initial Jobless Claims

Good News – Initial Jobless Claims were expected to chime in at 540,000 new claims.  Only 521,000 applications for unemployment benefits were submitted.  This is the lowest amount of claims since January.

Bad News – Initial Jobless Claims were expected to chime in at 540,000 new claims.  Only 521,000 applications for unemployment benefits were submitted.  Over 1/2 million people, claiming new unemployment benefits, isn’t exactly the cheeriest news I’ve heard in a while.  But, the market’s all gitty about it.  We’ll see for how long.

Now THIS Is Interesting

The 10-Year Treasury Auction fared quite well yesterday, and the 3-Year Treasury Auction didn’t do so well, the day before.  Surprised?  Somewhat.  Generally, a longer term investment is more difficult to auction off, however, things are a-changin’.  The 30-Year Treasury Auction is today.  It will be interesting to see how this auction fares, with the value of the dollar moving lower, as of late.

I’d Buy That For A Dollar

A line from the movie, “RoboCop.”  Wonder what it would have bought then, compared to what it can buy today!  With the value of the dollar plummeting into the toilet, our exports are cheaper to move, worldwide, which can help our economy.  A lower dollar can be inflationary, however, at these times, we’re trying to avoid deflation!  So, this makes our bonds desirable to foreign markets, because their currency is worth more than ours.  So, they can buy at a discount.  We have enormous debt to pay off, and with foreign interest in our Bonds, we could benefit earlier.

Overseas Rates

The Bank of England and The European Central Bank, both, left their overnight rates unchanged.  But, if they move their rates up before we move our rates up, then it could put more pressure on long term rates by higher oil prices.  With things changing so rapidly, it’s important to stay on top of the market for clients.

Float Into The Day

With the 30-Year Treasury Auction, and 3rd Quarter Earnings Reports trickling out, again, let’s keep a finger on the lock button, but hold off, unless things change.  See you tomorrow!

Related Must Reads

Read About 3rd Quarter Earnings
How Long Term Bond Investments Work
Where’s Interest?…In Bonds…June 3, 2008 Article About Foreign Appetite

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