Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – Aug 21, 2009

Homes are a’sellin’!

What a nice surprise!  Existing Home Sales were at 5.25 Million, while only 5 Million were expected.  That’s great news, but bitter sweet, when you realize that statistics like that cause higher interest rates.  As I have been noting for three days, it would be prudent to lock. 

Bonds For Sale…Get Your Treasury Notes, Here!

I have also been talking about the Treasury Auction Announcement from the Federal Reserve, lately.  Well, yesterday was the day, and the Fed indicated that they were auctioning off $110 Billion in Treasury Notes next week.  We may be surprised, however, I don’t think those auctions will faire very well.  On Tuesday, the Fed will acution $43 Billion in Two-Year Notes.  Wednesday, we’ll see $39 Billion in Five-Year Notes.  And, finally, on Thursday, $28 Billion in Seven-Year Notes.  With no real foregin appetite for our Bonds, I expect that this will hurt interest rates and that effect may last about two to three weeks.  Maybe even longer. 

Feelin’ It At The Pump

Oil is trading higher than we’ve seen all year.  At $74 a barrel, it might be time to start taking the bus to work.  Or, after my knee surgery, a bike might be a smart move. 

Good ‘Ole Ben Bernanke

Ben Bernanke is speaking in Jackson Hole, Wyoming today.  He mentioned that our economy is “on the cusp” of a recovery.  On the cusp?  How big is a cusp, anyway?  I’m not so optomistic about being on a recovery.  You just wait and see…come October, Third-Quarter economic reports from corporations are going to paint an ugly picture!  Then we should see rates lowering…but who knows for sure!

Chico, CA Interest Rates Market Report – Economic Influences – Oct 21st, 2008

What Information Do We Rely On For Rates?

Last week’s doom and gloom article reported that we should have seen lowering interest rates but, unfortunately, did not.  This week’s article is going to be a little more uplifting.  But with good news, it seems even more apparent in recent days, there is bad news to accompany it.  It’s truly amazing how quickly things can change.  In years past there was more weight given to changes in interest rates due to speculation in the marketplace rather than from the actual economic reports that the government released.  Nowadays, not only does the speculation not have too much of an effect on the markets themselves, but the actual reports are being somewhat ignored due to the unprecedented change in the world of high finance and economic dynamics that we’ve never really seen before.  It’s all new and it’s difficult to interpret until markets have an opportunity to absorb the information being provided to them and then determine how that affects them.  One example is how, generally, stocks and bonds move in opposite directions.  Investors will take money out of one and put it into the other.  What’s been happening recently is that banks have been required to deleverage.  The ratio of capital compared to loan balances has gotten completely skewed, and forced banks to sell not only stock, but bonds too.  Anything to raise more funds, however, when you can’t raise enough capital by selling stocks and invest that money in bonds for a more favorable outlook, you’re stuck selling both with no way to invest in anything else.  Hedge Funds have been hurt by this too, as investors demand their principal investments back.  They’re selling holdings at enormous loses, just to raise some capital.  Stuff like this has never been seen in the market before, and it’s an example of interest rates ignoring economic data and relying on the next Federal Reserve announcement or bailout or stimulus package.

Lower Oil Prices

We are finally getting some cooler reading on inflation, as oil prices diminish.  The Consumer Price Index and Core Consumer Price Index were lower than expectations.  Weakness in the labor market continues and Capacity Utilization, which suggests where businesses are operating within a certain capacity, is far below the number that suggests full capacity.  Housing Sales were reported lower than we’ve seen since 1991.

Some investors feel as though we’re starting to see recent government activities and new policies have an influence on markets.  On Monday, Good ‘Ole Ben Bernanke spoke to the House Budget Committee and low and behold, mentioned a few things that really moved the market and set interest rates back at very desirable levels.  One was the feeling mentioned above regarding investors and the global market sensing that the maneuvers by the government are starting to have an effect on markets and another indication that he felt that another economic stimulus package would help boost the economy.  Last time President Bush signed the first package, many felt as though Bernanke was a key player in influencing the president.

PIMCO Continues To Buy

One of the biggest movers of rates was the news that PIMCO, the nation’s largest purchases or bonds, announced that they will be increasing their investment in Mortgage-Backed Securities to 79%.  This is their highest investment in Mortgage-Backed Securities in over seven years!  They also mentioned that they would take money out of Treasuries and move funds into MBS which tells the Global Market that they think it’s worth the risk.  That could continue to be huge for lower interest rates…and with lower home values…what a time to buy!!!  Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – Sept 2nd, 2008

More Volitility, But In The End…Lower Rates

The big news of the week was Hurricane Gustav.  Earlier in the week, the markets were quite concerned with where Gustav would hit, and would it interrupt or disrupt oil production.  The catch-22 of the week was a comment by Atlanta Fed President Dennis Lockhart, who said, “Inflation pressures should ease in coming months” and oil prices are likely to “prove transitory not persistent.”  Those comments should help the bond market and interest rates; however, the twist here is that it can help stock prices too.  So, money poured into stocks which coincidentally, hurt bonds and interest rates.  Go figure…

High GDP & Oil Meant Higher Rates

Gross Domestic Product readings for the 2nd Quarter were revised to 3.3%.  This is significantly higher than the 2.7% that was expected.  These numbers will be revised a final time next month, but certainly this was good news for Stocks and bad news for interest rates.  Initial Jobless Claims came in at 425,000, but this was expected.  Oil prices climbed over $120 a barrel, again, primarily due to Hurricane Gustav.  The good news was that the 50-day moving average caused rates to bounce off of that trend line, protecting further erosion in rates.

Last week I mentioned the record auction for 2-year and 5-year Treasury Notes.  The $32 Billion two year note auction, and the $22 Billion 5-year note auction, didn’t go over too well.  But not too badly either!  Some foreign interest in the sale, but not too much, so this record breaking auction that could have had some significant impact on the markets…just didn’t.

Even The PCE Rose

The Fed’s favorite gauge on inflation, the Personal Consumption Expenditure Index rose 4.5% year-over-year.  After taking out for energy and food the Core PCE rose 0.3% to 2.4%.  Way out of the Fed’s desire to keep inflationary measures between 1% and 2%.  Also, Personal Incomes dropped 0.7% for July and Personal Spending came in at 0.2%.  It looks as though the economic stimulus checks have started to lose their thunder.  Also putting pressure on inflation were the Chicago Purchasing Manager’s Index and the Michigan Sentiment reports.

Finally…Lower Oil Prices

So, last week’s advice to have that finger on the lock button really panned out well.  Then the big story hit…Gustav was not as powerful or damaging as originally expected.  Oil production was not slowed, and actually oil prices finally dipped down below the 200-day moving average to about $106.00 per barrel.  This is the first time in over a year that prices have moved below this tough layer of resistance and will be interesting to watch closely.  Lower oil prices mean lower inflation…which helps interest rates.  So this week’s inflationary news reports that caused rates to jump have been helped tremendously by the fact that Gustav was weaker than first thought.  This caused bonds to move above the 100-day moving average (rates moving down), but this is a very precarious area to be at.  So…again…we moved to a float position with a finger on the lock button.  The last three articles have advised this and it’s proven to be an excellent strategy, as rates have just momentarily gotten better a few times each week.  Then they seem to get worse relatively promptly.  Next week we’ll discuss a lot, including Non-Farm Payroll numbers.  So, until next week…

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

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…