Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – Sept 16th, 2008

Mortgage Backed Securities Now Have a Safe Haven

The New Trend:  Lower Rates

Rates have significantly subsided with the Government take over of FannieMae and FreddieMac.  With the price of oil continuing to come down and the guarantee of Mortgage-backed securities in place, we may continue to see rates trading at lower levels for quite some time.

Initial Jobless Claims for the week were 445,000.  Remember when we were terribly concerned with 360,000?  Well the 445,000 new claims were in line with expectations, so it didn’t move markets.  Wow…445,000 in line with expectations so it didn’t move markets…funny!

Import prices dropped for the first time since December by 3.7%.  This is also from oil prices lowering so much which helps inflationary concerns and interest rates.

Lower Rates In The 5%-Range For About 9 Months

I keep talking about how you need to have a finger on the lock button.  Here’s a good reason why.  Even with great inflation news coming in from poor Retail Sales, lower stock values, Producer Price Index dropping 0.9% (a two year declining benchmark), oil prices moving well below their 200-Day moving average to near $100 a barrel; the market felt as though we had reached  a point where bonds were at their highest levels.  This created a sell-off of bonds and rates moved down about a quarter-point in cost.  Look at this type of trend to continue…more volatility with rates moving up and down but at better pricing than the 6.0% to 6.375% range of the past to 5.5% to 6.0% perhaps over the next nine months.

After 158 Years…Lehman Brothers is…History

So, Monday morning we awoke to Lehman Brothers closing their doors and confirming the Sunday hints that they would file for Chapter 11 bankruptcy.  After 158 years in the business, they closed their doors.  That’s how awful this Mortgage Credit Crises has been on not only the Untied States, but the world.  Also, Merrill Lynch was acquired by Bank of America.  AIG is on the ropes trying to raise capital so that their doors don’t close.  It hasn’t been easy for institutions to raise cash, so keep an eye out on this one, too.  They have $1 Trillion in assets…yes, that’s with a “T.”  If their claims can’t get paid, it will be scary to think of the repercussions of that.

A New Safe-Haven In Treasuries

So…I’m back to my old cries of, “it’s an excellent time to buy!”  Values are down, rates are down, sellers are willing to pay for costs to move their homes, and it should stay this way for quite some time.  Look at it this way.  Investors would put their money in stocks and bonds.  Treasury Bonds had a nice safe guarantee, but paid a lower yield to investors.  Mortgage-backed securities offered a higher yield, but at a much higher risk to investors.  However:  with the government guarantees, now, on mortgage-backed securities…where do you think investors will put their money?

We got a surprise that the Fed decided to leave the overnight rate unchanged.  This wasn’t good for interest rates.  The market expected at lease a .25% cut.  But, for the long run, we should see the market realize that not changing the rate is helpful to inflation, and rates should subside after the initial movement.  With my finger on the lock button, it’s an excellent time to buy!  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – August 26th, 2008

Where Are We Headed?

The Great Prognosticator

OK, OK, I love when this happens.  Here’s what I said last week, “My thought is to quite delicately float into the week due to the price of oil, however, again, a truly itchy finger on the lock button due to the 200-day moving average for oil, and the 50 and 40-day moving averages for interest rates.  We will have probably moved into a lock position before the next article is released.”  What happened?

After hitting close to the 200-day moving average, oil prices ricocheted off and moved toward $116 a barrel, as opposed to $111.  Higher Oil costs turn into higher inflation, which in turn, turns to higher interest rates; which turns my hide!  See…a lot of things are going on right now…who do you trust to watch this stuff and know when to lock in your interest rate?  You better be working with a knowledgeable professional!

2001 Recession Signs

As rates moved a little higher, investors thought they’d enjoy the ride and cash-in on the earlier rise in bonds (lower rates).  This is what is known as a reversal from an “overbought” bond position.  The next day, oil moved closer to $120 a barrel and the four-week average of new Initial Jobless Claims rose to 445,750.  These are numbers not seen since the recession of 2001.

Rates kept deteriorating until they rested on the support of the 50-day moving average.  So, the advice to float, late last week, with a finger on the lock button, truly worked out well for many borrowers.  Wednesday and Thursday saw interest rates lowering nicely, but Thursday afternoon, when oil bounced from the 200-day moving average, everything reversed!  Coupled with news that Korea Development Bank’s announcement that they may acquire Lehman Brothers money moved into stocks.

Rumors Spur Movement To Bonds

Then, the rumors hit regarding the uncertainty of where FannieMae and FreddieMac would be in a few months.  Indicators pointed to another government take-over of the entities and more uncertainty about Lehman Brothers caused investors to move their money again…this time from stocks, to bonds…helping interest rates.

Consumer Confidence moved up this past month, certainly due to a better feeling about oil prices.  “A better feeling about oil prices!”  Wasn’t it not too long ago that I wrote an article about oil reaching $100 a barrel and the markets were shocked?  Unbelievable.  What may continue to help the dollar is the fact that Europe’s German economy may also be slipping into a recession.  This strengthening of the dollar may help the Fed to refrain from a rate hike at their next meeting.  It will be interesting to see.

Next week we’ll be talking about the release of the Federal Open Market Committee’s minutes from their last meeting.  We’ll check out the Gross Domestic Product’s numbers and the Fed’s favorite gauge on inflation; the Personal Consumption Expenditure Index.  Also, we’ll tough base on record Treasury auctions.  So, we’re back to where we left off last week; floating, with a trigger on the lock button.  Until next week…