Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – December 4, 2009

Unemployment Down To 10.0%

Fewer Lossed Jobs and Lower Unemployment Rate =

Fewer jobs were cut last month than expected.  11,000 jobs were cut and the market expected 125,000 to 130,000.  Now that’s an important number!  Also, a very important Unemployment Rate dropped to 10.0% from last month’s 10.2%.  These numbers, coupled with the fact that the last two months’ numbers were overstated by 159,000 jobs, led interest rates to spike up quite aggressively.  “Temp-Jobs” numbers spiked up 40,000 in number.  This is important because we’ve learned from prior recessions that we see an increase in temporary positions before we see an increase in permanent positions.  Makes sense! 

Higher Rates…Who Cares…More Jobs…More Buyers

Is the worst of the recession behind us?  These numbers appear to support that we may be in a modest recovery.  What’s interesting about this is that even if rates move up, it’s better that we have people returning to the work force, than keeping rates in the 4’s and not having the labor statistics emerge confidently.  People working means people buying homes! 

$1.25 Trillion Well Is Drying

In an effort to try to help keep interest rates low, the Federal Reserve purchased $16 Billion in Mortgage-Backed Securities this past week.  So far, $1.054 Trillion has been spent on the program.  With only $1.25 Trillion for the total program funds…you can see that the reservoir is drying up.  When it does dry up, the effort to keep mortgage interest rates low, will dissipate. 

Locking In…

If you didn’t follow the afternoon advice we gave to lock, you’ve lost a lot of money, or you’ll have a higher interest rate than November 30th’s warning.  However, we are sitting above the 50-Day Moving Average.  If we can stay above that strong layer of support…it may be beneficial to float your rate into next week.  If we do, however, break that barrier, than locking, immediately, would be prudent.  Have an excellent weekend! 

Related Must Reads

Higher Rates…Period!

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Chico, CA Interest Rates Market Report – Economic Influences – October 2, 2009

Bonds Have Topped Off, So Rates Have Bottomed Out

America’s Jobs Numbers Look Dismal

All this talk of a recovery from the worst economic crisis since the Great Depression has been confounded by one ugly truth:  The Job Market is getting worse.  The United States lost 263,000 Jobs, when they only expect a 175,000 figure.  It’s worse than August’s 201,000 job loss number, but better than the 304,000 number, from July.  Revisions to the previous months’ numbers were a negative 13,000, to make things worse.  There are 15.1 Million Americans out of work.  That number alone will help keep a lid on higher rates, even in the face of inflationary pressure from an exhausted Mortgage-Backed Securities Government Purchase Program.

Unemployment Rate Rises

The unemployment rate also rose, last month, to 9.8% from a previous month reading of 9.7%.  1 out of every 10 Americans is unemployed.  And those are the numbers that are being tracked!  Breaking it down, categorically, we’re looking at 64,000 Construction Jobs, 39,000 Retail / Trade Jobs, 51,000 Manufacturing Jobs, and a whopping 53,000 Government Jobs Number…all negative. 

Business Roundtable Releases Cold Hard Facts

The Business Roundtable is a collection of CEO’s, around the country, that employ over 10 million people.  They released information this week elating to the fact that only 13% of them plan on doing any increased hiring in the next six months. 

Rates Bottomed Out?

I think we’ve reached a pinnacle, for the time being, anyway.  Mortgage-Backed Securities should have skyrocketed on this horrific employment news.  However, I think the market understands that the well is drying up.  And even though the economy can really only move forward when the labor market starts mending, if there’s nobody around to buy securities, than rates will increase.

Average Hourly Earnings

This is declining as well.  With almost 10% Unemployment, businesses are jumping at the opportunity to pay people more.  Makes perfect sense, and I think that we’ll have to see an increase in Hourly Earnings, before we start to see any recovery of employment statistics and therefore economically speaking.

Rates Movin’ On Up

So, The New York Fed purchased $20 Billion in Treasuries this past week.  We’re at $904 Billion of the $1.2 Trillion allotted for the program.  So, the Fed will now, only purchase every other week, instead of every week.  This should cause a little insecurity in Bonds, and therefore create much volatility and uncertainty, and I think, higher rates.

Beware, The “High’s” of May

We have hit the high’s of May.  Mortgage-Backed Securities moved up, on all of this negative unemployment information, and just bounced right off the high’s of May of this year.  We’ve Topped Out (and therefore, Interest Rates Have Bottomed Out).  Today is an excellent day to lock!

Related Must Reads

Paragraph: “The Real Jobs Numbers
Read Last Sentence Of This Update Regarding Rates In October
Read, The Economic Stimulus Package

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Chico, CA Interest Rates Market Report – Economic Influences – Nov 4th, 2008

Interest Rates “Come About”

Interest Rates made an abrupt U-Turn in positive territory on Voter Tuesday (probably because Obama was leading in the polls).  Actually, it looked as though the Monetary Policy Committee overseeing the Bank of England was poised to lower their overnight rate by 0.5% points to 4.5%.  They also have another meeting Thursday, where they are expected to lower it again by an additional 0.5% points.  This helps with the value of our dollar, particularly after we have continued to lower our overnight rate to record lows.  Also expected to join in on the rate slashing is the European Central Bank.  They’re meeting in Germany this coming week.

As I wrote this article, rates finally moved into positive territory, after eight straight days of ugliness.  Let’s go back to last week and see what was occurring.

Up, Down, Up, Down

First, Wednesday was Fed Day.  Everyone expected a 0.5% point cut but the stock market anticipated this on Tuesday and had a nice 900 point rally, so long-term rates actually benefited Wednesday, after being beaten on Tuesday.   This type of volatility is not only hard to prognosticate, it’s down right impossible. This month alone we’ve moved up or down in the stock market so ridiculously and mortgage backed securities have moved over 300 basis points in six days.  That’s 3.0% points on a mortgage loan.  But, we’ve now moved back about 350 basis points in four days.  If my computer screen were any closer, you could make a bobble-head out of me.

OK, It’s Official…

But in the end, the Fed did cut the rate by 0.5% and long term rates paid the price, but minimally.  With Hong Kong and Taiwan cutting their rates, it helped stabilize the dollar and therefore not too much weight was given to the cut.  Oh yeah…it’s official…we’re in a recession.  That’s right!  The textbook definition of a recession was met this past week with the documentation of two consecutive quarters of a negative Gross Domestic Product reading.

The Fed’s favorite gauge on inflation, The Personal Consumption Expenditure Index (PCE) brought some good news (uh, for rates that is).  Even though the Fed would like to see Core Inflation between 1.0  to 2.0%, the Core PCE dropped from 2.5% to 2.4%.  This was the weakest spending performance by consumers on a quarterly basis in over thirty years.  Also, the Bank of Japan ended up lowering their benchmark interest rate to 0.3% to help stave off any further inflation in their country.

Opportunity Knocks

So, when we see a U-turn in rates, as we saw on Voter Tuesday, it’s wise to take advantage of the opportunity and lock clients in.  Why?  Well, the foreign investors that I’ve been writing about for years, that loved to put money into our mortgage-backed securities, are kind of sitting on the sidelines and waiting to see the implications of the Treasury Departments’ guarantees.  Until there’s more comfort in that arena, don’t expect significant changes in interest rates.  The opportunity knocked on Voter Tuesday (let’s hope in more ways than one) and that was a good time to lock.  We do have some support, now, above the 25, 50, 100 and 200-day trend lines, but with all of the newness and volatility in the marketplace, who knows when we’ll have more opportunities like this one.

Values are down, rates are good…what are you waiting for?  NOW is an unbelievable time to buy…Until next week…

Chico, CA Interest Rates Market Report – Economic Influences – June 24th, 2008

Humbolt Fire

After missing last week due to the fires and getting caught up after being evacuated from my home for three days, I’d like to send out a heart felt notice to all of the victims of these fires.  My thoughts and prayers go out to all of the families that were either evacuated, lost their homes, or have loved ones fighting the flames.  I can honestly say that it was very comforting, for me, to just have my family together and out of harm’s way.

On to business!  The biggest news of the week will be the announcement of the Federal Open Market Committee’s meeting that occurred Tuesday, June 24, 2008 and Wednesday, June 25, 2008.  The speculation at the time of this article was that the Fed would leave the overnight rate untouched at 2.0%.  What’s on most people’s minds is the public statement that the Fed will announce after the meetings.  Again, inflation will be the buzz word of that policy statement.  Depending on how that statement is announced, will depend on where interest rates go.

PPI Up, But with Oil’s Influence?

The Producer Price Index rose 1.4%.  Core PPI increased 0.2%.  There are mixed feelings about these reports because Core PPI is within expectations, however, again, we must remain skeptical about the high energy and food costs that we keep seeing and how that will effect inflation.  The Commerce Department said that Housing Starts were at their lowest  levels since March of 1991.

Initial Jobless Claims fell again this week, however, we’re still not out of the woods, as we continue to see layoff’s like CitiGroup’s 6,000+ layoffs this last week.  Also, adding more inflationary fears was the Agriculture Department’s announcement that the price of cereals, baked goods, sweets, and poultry will continue to rise at uncomfortable levels due to the cost of grain and gas.

Quadruple Witching

This Friday we experienced what is known as “Quadruple Witching.”  Quadruple witching refers to when market index futures, market index options, stock options, and stock futures all expire on the same day.  Index futures and options share simultaneous expirations on the third Friday of every month, most of the time.  But quadruple witching days only occur on the third Friday of every March, June, September, and December. The last hour of these trading days, from 3:00 to 4:00 p.m. EST, is referred to as the quadruple witching hour.  This can translate into a very volatile trading day, as you can imagine.

Hey, at least oil prices are down.  For about fifteen minutes of one day last week…other than that they continue to climb.  To add to the problems was a Chevron plant in Nigeria had employees threatening a “strike” and Israel flew so far into Iran to show them their military power that they could “strike” if Iran threatens a nuclear attack, that it made stocks and bonds “strike” against the American People!

UPS Showing Recession Signs

UPS made an announcement that their profits will be down.  This is alarming because many businesses use shippers, if their profits are down, sales are down, and if sales are down, the economy slumps.  This is generally good for rates, but with oil prices taking away the glory…Even a very poor consumer confidence level might not help matters…Until next week…