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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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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Volitility Leads To Lower Rates For the Week

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…

Israel Scares Iran

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…

Not Much Good News At All This Week

Inflation “Troublesome”

Last week the Federal Reserve Board Bank of Kansas City President mentioned that inflation pressures are “troublesome.”  He went on to say that if inflation gets too high, the economy could suffer greatly.  This guy isn’t even a voting member and he’s spouting out comments that are “troublesome” to hear.  As if we don’t know these things.  Sometimes, I guess, these guys just like to see their names in the papers.  Maybe it increases their opportunity to become a voting member.  I just don’t see the reason!  Why say that stuff and scare markets?  It’s kinda like little junior riling up big brother just to see what his reaction might be (I never did that). 

On Wednesday, May 7, the Treasury Department auctioned off $15 Billion in 10-Year Treasury Bonds.  Now even though we all are educated and know that interest rates follow Mortgage-Backed Security Yields, the interest in this auction determined how long term interest rates would be influenced.  It went well.

Watch the World Economy…Not Just USA’s

Initial Jobless Claims were reported at 365,000 this week.  The government expected 375,000 but, again, the more closely watched four-week average of claims edged to a slightly higher 367,500.  A sign that we are currently in a recession.  The European Central Bank (ECB) and the Bank of England kept their overnight rate unchanged, but their also concerned about inflation and their economies.  It will be interesting to watch what’s happening around the world, compared to the United States’ economy over the next few years.  Interest rates moved in the opposite direction of the stock market, mainly last week; as there was not a lot of economic information to move markets.  So, when the stock market ended the day below 13,000 (a significant level), mortgage-backed securities moved up nicely; causing rates to go down.

AIG Needing Capital

American International Group (AIG) indicated that they were looking to raise about $12 Billion in Capital to help with their enormous 1st Quarter Loss.  This was alarming to the markets because it showed new depth into how deeply the mortgage credit crisis is touching the world.  This fact, coupled with the announcement of $126 a barrel for oil, cause rates to spike again. 

Making things worse this week was retail sales.  Now, they were down 0.5%, however, excluding auto sales, we actually dropped 0.2%.  Coupled with another market moving statement from Bernanke and dropping below the 50 and 100-day moving averages rates worsened a bit more. 

The good news:  we’ll have to wait and see how next week busy schedule makes out.  This will include information on the Consumer Price Index, more weekly jobless numbers, and the Producer Price Index.  So, hang in there.  We’re still under 6.0% on 30 year fixed rates, so take advantage of that.  It’s still a great time to buy.  Until next week…

Unemployment & Jobless Numbers Are Scaring Me

ADP Numbers Have Been A Joke

Each week I mention something about the 50-day moving average.  Interest rates have remained at comfortable levels primarily due to this strong layer of support.  Last week we saw, of course, another extremely volatile market with rates moving upwardly and downwardly on an almost daily basis.  If you’ve read this article for quite some time, you may remember some of the old comments regarding ADP (American Data Processing) and their employment numbers being not too exact.  Here’s what happened.  ADP indicated that we should be seeing 8,000 new jobs for the month of March.  While that is a somewhat dismal number, it was better than the jobs LOST that the market was expecting.  So, on that news, stocks moved upwardly and bonds moved downwardly, causing interest rates to move higher. 

Some Investors Feel Recession Short Lived…I Don’t Think So

It’s interesting to feel the “gittyness” in the market recently.  As mentioned last week, many investors are feeling as though the credit crunch is over and that any recession will be very minimal as far as how long it will last.  This is pushing stocks higher, but last month, we were just reporting a much worse picture.  It is a wonder that the markets can change so quickly and be so temperamental.  So, because of this, don’t be surprised if the markets change again and stocks lower, putting more money into bonds benefiting interest rates…

On Wednesday afternoon, Fed Chairman Ben Bernanke testified before the Congressional Joint Economic Committee in Washington, D.C.  his comments were focused on the financial market turmoil, the present state of the housing market, the credit crisis and the Bear Stearns/JP Morgan bailout that the Fed is lending $29 Billion for. 

Jobless Claims…Concern For A Long-Term Recession

Initial Jobless Claims were reported at a horrible 407,000.  This is higher than we’ve seen on over five years.  Also, it puts the four-week moving average to an incredible 374,500.  This is worse than any previous recession numbers and helped point to the fact that the Jobs Report numbers would probably be much worse than the ADP numbers.  Suggesting that we float interest rates into Friday morning and lock on Friday…which is exactly what we did!  And what a plan!  The Labor Department reported a loss of 80,000 jobs in March.  The worst drop in five years.  Also, the unemployment rate moved to 5.1% from 4.8%.  We moved up over 50 basis points on this news, causing rates to cost about ½ point less than on Thursday.  A good strategy!  Also, there were large revisions to the previous two months Jobs Reports of an additional 67,000 jobs lost. 

Credit Crunch Ending?…HA!

On Monday, Stocks moved up with news that the credit crunch is ending due to financial institutions reporting that they’re raising capital. 

First quarter earnings for the stock market started to set a negative tone, helping bonds a bit, however, the minutes from the Federal Reserve’s March 18th Meeting were being released as this article was being written.  Next week, we’ll report on those minutes, and how they affected the market.  Inflation remarks could move markets and make them very jittery.  So, while rates are still low, and good buys are out there…it’s an excellent time to buy…Until next week…

Hitting a Recession?

Jobless Claims Continue To Show Signs of Recession

Last Wednesday the Wall Street Journal reported this headline:  Inflation could be a bigger problem than many think!  As Homer Simpson might say, “Doh!”

Last week I mentioned the nice layer of support that the 200-day moving average was giving us.  It has continued to be our best friend in this extremely volatile market. 

I keep commenting on the Initial Jobless Claims numbers for the week.  Remember that the last two recessions that the United States went through, the four-week average of these claims reached 362,000.  This last week we hit 373,000 and brought the average to 360,500.  We’re getting closer folks!

A recession is two Gross Domestic Product quarters in a negative number.  The Fourth Quarter 2007 GDP was 0.6%.  It shows the economy is significantly slowing.  Good ‘ole Ben Bernanke spoke to congress this past week.  His comments caused interest rates to lower a bit.  But the big news of this past week was OFHEO’s (The Office of Federal Housing Oversight Committee) announcement that they rescinded the Capital Requirment Penalties to GSE’s.  What does this mean?  Remember when FreddieMac and FannieMae’s accounting was off approximately $3 Billion each?  OFHEO (the government entity that governs conforming loan limits) penalized these Government Sponsored Entities (FannieMae and FreddieMac) by requiring that they have penalty reserves of 30% more than the usual reserve requirement for each loan funded.  Well, Wednesday, OFHEO removed this penalty reserve requirement, freeing up more money for Fannie/Freddie to purchase loans in the secondary market.  So, this announcement was completely separate from HR 5140 and the economic stimulus package that the president signed into effect on February 13th.  This may also have an effect on removing the limits on Jumbo loans.  We’ll learn more about this in the future, however, this could be huge for high priced areas like California, in general.  I’ll report more on this latter as I learn more. 

FHA Loan Limits Increasing?

So, the announcement of HUD’s new median priced home limits will be announced on March 7th.  Here’s what’s expected.  Conforming loan limits will remain at $417,000.  However, if our median prices stay the same as they are now, $304,000.  Than FHA loan limits should increase by 125% or $380,000.00.  FHA is very flexible, with 3% down, no termite report clearances are required, the seller doesn’t have to pay any of the buyer’s fees anymore (excluding a tax service fee which is about $77.00), the appraisals are just as flexible as FannieMae and FreddieMac appraisals, and with the Nehemiah Funding Program, a participating seller can fund 6% (3% for the down and 3% towards buyer’s closing costs) of the sales price through their non-profit and basically put nothing down in this market.  Believe me, there are a lot of sellers out there that wouldn’t mind crediting 6% just to sell their home right now. 

The Core PCE, by the way, was reduced to 2.2%.  Better than expected, but still outside of the Fed’s desire to have inflation readings between 1% and 2%!  Until next week…

Cut in Overnight Rate HURTS Long Term Rates

Another 50 Basis Point Lowering of the Overnight Rate

After having the terrible flu bug for two weeks, I’m back in action.  Hope you’re all well.  The biggest news has been the surprise lowering of 75 basis points, then another 50 basis point lowering on Wednesday, January 30.  It’s interesting to note that most clients trust our advice regarding when to lock.  Some people, however, listen to the media and believe that analysts’ predictions that the lowering of the overnight rate by 50 basis points will lower fixed rate loans by 50 basis points, as well.  Let me help you understand.

On September 18th, the Fed surprised the world by a surprise lowering of the overnight rate by 50 basis points.  The next day, rates did lower, but once the market understood the implications of how that would effect the market, bonds tumbled lower (causing their yields and hence, interest rates to move upwardly).  On October 31, the Fed lowered 25 basis points.  Over the next five days we lost 78 basis points in pricing.  December 11th was another 25 point loss by the Fed, and over two days mortgage bonds lost 64 basis points.  This is what happened after the surprise 75 basis point lowering.  Bonds moved 38 basis point higher, but the very next day, when realizing what that means economically, bonds moved 94 basis points lower.  See the trend?

The surprise move was based on what the media reported as concern for a massive global decline in Stock markets.  Some are blaming “rogue trader” Jerome Kerviel of the French Bank Societe Generale.  Others feel as though me may be being used as a scapegoat for the Bank.  Reagardless, it moved markets! 

Fed Cut Rates 11 Times in 2001

Inflation directly affects fixed rate mortgages, period!  You see, investors receive a fixed rate of return for a long period of time.  If inflation increases, it costs more dollars to buy the same amount of goods and services, eroding the buying power of that fixed rate of return.  So, a higher return will be demanded to compensate for the cost of inflation, causing interest rates to increase.  Back in 2001 the Fed cut rates eleven times.  Mortgage rates moved higher because of inflation. 

Another scare was that Bond insurer MBIA Inc. reported a $2.3 Billion loss it’s fourth quarter.  This has the markets concerned that MBIA could have its credit downgraded causing further deterioration in the mortgage-related write-downs of large lending institutions.  It’s like filing an insurance claim on your car.  But your insurance company doesn’t have the funds to pay the other guy’s damage…you’re stuck with the bill.  Scary and risky!  We’ll have to watch this story closely! 

Unemployment Confuses Market

We had a net loss of 17,000 jobs reported this week.  70,000 new jobs were expected.  Unemployment, however, moved from 5.0% to 4.9% confusing the markets.  But keep in mind my article a few weeks ago about revisions.  I am a master “revisionary!” Also understand that just because employment costs are soft, it doesn’t mean that inflation pressure from material costs will balance things. 

Another “Hint” We’re Heading for a Recession

Another huge surprise was Tuesday’s release of January’s ISM Services Report.  They released the report early because of a scare that the information was “leaked.”  The reading was 55.6 and was expected to by 53.0.  This suggests that the service sector is contracting.  Something not seen for 58 months!  Another indicator that a recession is probable.  This moved Mortgage bonds and interest rates to their best levels since 2005.    Until next week…

Fed Trying to Prevent Recession

Can The Fed Prevent A Recession?

Last week I had mentioned the lowering of the Federal Reserve’s overnight rate by 0.5% and the effect that it would have on the markets.  I indicated that, “Our advice here would be to see how far the initial reaction will go…lock when traders realize that this is not really good for bonds…”  So when the Fed did this on Tuesday, interest rates reacted quite favorably with bonds moving upward forty-one basis points.  But how short-lived this was…as predicted, bonds started heading in the opposite direction as soon as the very next day!  First, here’s what the Fed had to say about their cuts; “Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally.  Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.” 

In Short…

In other words, the Fed will take whatever precautions necessary to try and prevent a recession, as long as inflation is kept at bay. 

The biggest concern, here, is this:  The dollar is at its weakest point against the Euro and current at the same value as the Canadian Dollar.  This puts inflationary pressure on the United States, because imports will now be more expensive to purchase.  Remember that inflation is interest rates worst enemy! 

I Predicted Correctly!

Interest rates reacted exactly as in last week’s prediction…our locking advice was strategically precise.  We have also moved, again, below that darn 200-day moving average.  For so long it acted as a level of resistance to better interest rates.  Then we finally moved above it for about a weak and half, and again…we’ve managed to plunge below it.  But keep in mind that conforming interest rates are still at excellent levels with APR’s below 6.5%.  And with Friday’s release of the Fed’s Favorite gauge on inflation, the Core Personal Consumption Expenditure Index, let’s hope that we see inflation in check. 

FHA Reform Bill

Remember when I was talking about the government getting involved with the credit crisis?  Well the House just passed the comprehensive FHA reform bill.  This will still has to go through the Senate, however, it would do a number of things, including enabling lower down payments and increasing the loan amount the FHA loans will insure.  Currently, the FHA loan limit in our area is $304,000.  That means that the Federal Government will insure a certain percentage of a loan to a lender.  Hence, the loan could be sold in the secondary market with some guarantees.  By raising the loan limit to $417,000 it would assist in this liquidity crisis by enabling more loans to be sold.

So, we’re watching the 200-day moving average closely, and most of the economic information will be release this week, after I write this article.  So, let’s see what happens throughout the week and I’ll report it to you then… Until next week…