Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – November 18, 2009

Rates Are Too Low NOT To Lock

Bernanke Says What Needed To Be Said

It seems as though everyone has been praising the economic recovery.  We’ve hit bottom, and everything will be turning around.  I haven’t felt quite so comfortable with that.  Monday morning, statements from Good ‘Ole Ben Bernanke echoed these concerns.  He admited a struggling labor market, a slow recovery, and unemployment concerns that will continue to drag on any economic recovery.

Confusion Regarding Jobless Claims

His comments were taken with relative ease, in the stock market, however, bonds reacted appropriately.  What I mean is that some investors felt as though Bernanke was stating these facts, just to curb the stock market downward a little.  Some feel there are concerns that the stock market is creating another bubble, based on media hype and a misunderstanding of the labor figures that I’ve been talking about.  Even though Jobless Claims are coming in lower and lower, there are still a half-a-million people filing each week!

Inflation Currently LOW

October’s Producer Price Index’s (PPI) was lower than we’ve seen since July of 2006.  This index measures inflation at the wholesale level, and it’s showing that inflation, so far, is currently not a concern….Then…the very next day…

Inflation Currently A CONCERN

October’s Consumer Price Index (CPI) was hotter than expectations.  This index rose 0.3% and was only expected to rise 0.2%.  The Core CPI which takes out energy and food prices, came in at a 0.2% increase, as opposed to the 0.1% expcted.  The Year-Over-Year Core CPI reading was 1.7%.  This is, actually, a pretty cool number, however, much higher than the 1.4% reading that we were receiving just two months ago.  The catch, here, is the Cash-For-Clunkers Program’s clever accounting priciples, enabing the industry to write off the tax rebates as a discount in car prices.  This truly artificially reduced the CPI numbers, however, the market sometimes doesn’t see things the way I’d like!

Housing Starts

529,000 permits were issued, yet 600,000 were expected.  I think, what might help with the current housing situation, is if we laid off a little, on the new construction, giving the current market time to buy up what inventory is currently available.  Keep in mind, however, that with the lower housing permits, builders may have wanted to wait and see how the tax credit extension would fare, before going out and investing in building new homes.  Food for though…

Locking Advice

I’d lock. Even though we’re sitting pretty, we have to ackknowledge that Rates are going up…and soon…mark my word!

Related Must Reads

The Media Just Doesn’t Get It
Cash For Clunkers Accounting Principles
Why Buy Now? And links to Tax Credit and Extension Answers

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Chico, CA Interest Rates Market Report – Economic Influences – May 21st, 2007

Interest Rates Going Up

Sometimes I can be wrong

Slapped in the face, is nothing compared to how I feel after last week. 

A good old fashioned kidney punch is a better metaphor to explain what happened with interest rates over the past seven days.  It’s hard to look like an expert all bellied over, gagging for breath.  First, let’s remember the Fed’s comments on inflationary concerns.  That was really the tip of the iceberg when things started moving in the wrong direction.  It certainly made the picture stronger for investing in stocks, as opposed to bonds.  And the stock market reacted fittingly.  Those comments basically stated that the Fed was still concerned with inflation, concerned that it would, “fail to moderate as expected.” 

Last week’s Consumer Price Index Report

was right in line with where one might hope.  0.2%, lowering the year-over-year core rate to 2.3%.  Better than expected!  However, with the initial concerns and tone of that Fed meeting, we broke below the 200-day moving average, which has worked as a tough buffer between higher and lower interest rates.  Remember that trend lines like the 25, 40, 50, 100, and 200 day moving averages are generally very difficult to move through.  And last week, we did so!  

Wednesday, Industrial Production and Capacity Utilization Reports were released.  Both were hotter than expected, causing us to see that companies may be producing goods and services at a maximum capacity.  This could cause them to increase prices, so another hint of inflation, perhaps not in control, caused bonds to move down slightly.  Thursday reported initial jobless claims at 293,000…the lowest level since January.  And the four-week jobless claim average was at their lowest level in a year.  These numbers are of concern to a tightening labor market.  A tightening labor market means higher paid employees, higher paid employees means higher consumer spending.  Higher consumer spending means higher inflationary concerns.  Higher inflationary concerns means higher interest rates…so if we do not start seeing a reversal of these reporting numbers, there is concern that the next level of support is 44 basis points below this weeks levels.  Which calculates to about a .375% to 0.5% cost in originations fees on a loan amount.  

Not much economic information to report for next week.  With stocks as hot as they are, and money moving out of bonds to get hitched up with the fast paced stock market, it would be difficult for bonds to make much of a move.  What could happen is a reversal of the stock market causing a “safe haven” for a move back into bonds.  However, it’s less likely to happen for a while.  If interest rates are going to start lowering significantly we’ll have to see these economic reports starting to show a calming of inflationary concerns.  Boy, how quickly the markets can change.  Until next week…