Danny Salas

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 – December 18th, 2007

Twas the week before X-mas

when all through the banks

The Value of Bonds were falling, another closing bank joined the ranks

The Stock market plunged with the news of a quarter-point hit

Of the overnight rate cut down by lowering a bit

The Fed dreamed up a new plan that would bring $40 Billion to the table

An Auction Facility, to help the credit crisis, but would it really be able

It would be a 28 day window to ease preasure and increase liquidity

December 17 would be the first day, but would it put the crises at ease?

The Fed changed it statement that growth and inflation risks were in balance

To “act as needed,” said Bernanke…for the economy and inflation challenge

$57.8 Billion, our trade deficit did widen

The Senate passed an FHA reform bill, with only one decent, and it wasn’t Joseph Biden

The week showed the PPI move like 1973, higher than expectations

This really hurt Bonds, and not like the ball-players, perhaps awaiting incarcerations

When weekly initial Jobless Claims declined by 7,000

That news was kinda expected, so bonds lowered, but up was the Dow’s end

The CPI readings every month are more hot

2.1%, 2.2%, then, this month 2.3%, are bonds overbought?

Thank goodness for the 50-day moving Average, I will not lie

It acted as support, as it did back in early July

Now Bernanke, Donald Kohn, Kevin M. Warsh, and Frederick M. Mishkin

Lower interest rates for Christmas, is what we’re all wishin’

To the drop of the Dow, and the drop of bond yields

Now dash away, dash away high interest rates in our field

On Monday, Banks borrowed from the Fed’s auction Facility

Hoping that LIBOR loans adjustments and the ability

would lower ARM Rates when it come time for adjusting

So this credit crisis we’re in, doesn’t continue a-bustin’

And then from out of nowhere, Alan Greenspan, shouts, “recession”

High consumer prices, a receding economy, with whom does he think he’s messin’

Capacity Utilization was reported at 81.5 percent

a reading above 85 is inflationary, thank goodness this report didn’t relent

The ECB put $500 Billion in the banking system this weak

This calmed the credit pressures moved interest rates our way

Monday came and the Fed’s auction of $28 Billion went well

It appears as though our mortgage funding system may NOT be going to hell

 Bonds started to move higher as Housing Starts and Permits looked merry

But coming in at expectations, housing remains soft, like the fruit of a cherry!

New construction and single family permits hit 16 year lows

Lending people to wonder if I was their friend or foe

The Fed’s meeting real soon about a change in the lending practice

Stricter guidelines, no pre-pay’s, higher reserves, will become status

Friday will give us the Personal Consumption Expenditure Report

The Fed’s favorite gauge on inflation, it can move markets of the sort

The GDP will come out giving us a read on the third quarter

If that news is too bad, I’ll be drinkin’ a Sierra Nevada Porter

So, keep up your chins, markets change and us with ‘em

Go buy toys for your children that require some lithium

Just know that I told you when to lock and when to float

This market will change, so please, please, please don’t gloat

You heard me exclaim, rates again are below six

So, “thank you,” this Christmas, I’ll mention to Jolly ole’ St. Nick