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…