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 – September 15, 2009

Cash for Clunkers”

Retail Sales jumped 2.7% last month, primarily due to the $4,000 gift to consumers to purchase a new vehicle, as opposed to continuing to drive their gas guzzling hunk ‘o junks.  More help was given to Sales numbers when retailers discounted their “back-to-school” items.  This information was, obviously, pretty hot, keep in mind…we’d have to see a few months of reports like this.  Not just one, to really impact the economy, and let’s face it…the jobs numbers are more important than this information.

Producer Price Index

August also show us an “on fire” Producer Price Index.  This was primarily sparked by the biggest surge in gas prices in TEN YEARS!  We’re hoping to see this cool down a bit, and perhaps we’ll see more information in tomorrow’s Consumer Price Index.  The Producer Price Index shows inflation at the wholesale level, like manufacturing.  Something to consider, here, is that during the recession, many manufacturers were slow, because the consumer wasn’t buying.  So, stores left items on their shelves, for longer periods of time.  Now that those items need to be replaced, it looks like manufacturing is way up…but is the consumer really buying?  Tomorrow will help point us in the right direction.

Locking?

Over the short term, it would make sense to lock.  Our earlier talk of lower interest rates, due to third quarter earnings from corporations, has been somewhat swept under the rug by the Chinese Tariff on Tires.  There’s always something in the mix, that can shake up markets.  But if you’re happy in the low 5 percentage rates…I might take advantage of what’s available today.

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

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 19th, 2008

Oil Keeps Comin’ Down

Retail Sales dropped 0.1% in July.  This included automobile sales that were, not surprisingly, low.  With the price of oil, in July, no wonder auto sales were sluggish.  Import Prices skyrocketed, as well.  They have climbed 21.6% year-over-year to maintain a 12-month gain that we’ve never seen since recording the Import Price Index.  The, obviously, is a concern to the Federal Reserve as they watch inflation closely.  However, as oil continues to decline in value, numbers should tame, somewhat.

Hello…Is This Thing On?

A little reminder:  interest rates follow the yields from mortgaged-backed securities.  These yields move upwardly and downwardly just as the stock market does.  And when they move from value to value, and from day to day, they create trend lines.  For example, let’s say that yields on Monday read 1.0% and they increased steadily for the entire week.  At the end of the week, the yield read 1.5%.  If you drew a line from 1.0% to 1.5% the trend would be slightly upward.  Conversely, if the next week you ended at 1.3%, the curve would move down slightly.  Rates work in this manner and they like to stay close to the trend lines.  Any move, drastically in one direction or another, is uncomfortable to the trend line.  It happens, occasionally, with economic information that the market is not expecting, but all in the same, interest rates like to stay close to these trend lines.  So, this past week we have remained above a tough layer of support and the 25-day moving average (or trend line).  However, it has been awfully difficult to pass through a very tough level of resistance at the 50-day moving average (or trend line).  So, interest rates have been bouncing back and forth, trying to stay in between these two trend lines with not much economic information coming out to break rates through either of these lines.

Higher Inflation…Who Cares With Lower Oil Costs…

The Consumer Price Index (CPI) for July came in at 0.8%.  Twice as high as they were expecting; and the biggest year-over-year increase since January.  What kept rates calm was the fact that oil prices keep coming down from July’s highs.  So it looks like the market is willing to forgive these hot inflation numbers, with the understanding that next month, prices will be lower, having an effect on these numbers.  Crazy, huh?  What also helped rates was that Initial Jobless Claims, for the week, stay at 450,000.

What’s In Store For Oil?

Just as mortgage-backed securites like trend lines, so do all markets.  Including Oil!  We’re moving up to the 200-day moving average on the price of oil.  $110.18 is that price and it will be very difficult to move below that stubborn line of resistance.  Also, reported this week, was the Producer Price Index.  It was double what they expected, however, again, since oil was coming down, the market felt as though next month’s oil prices would tame the inflationary numbers that we’ve seen this week.

Frankly, I’m a little skeptical.  We may see a softening, however, we cannot seem to break through the 50-day moving average.  Also, the 40-day moving average (or trend line) is adding additional problems to interest rates breaking lower for us.  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.  Until next week…