Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – March 18th, 2008

Chase Buys Bear Stearns

$200 Billion Line of Credit

Wow!  It’s harder than ever to keep up with what’s happening on a day-to-day, or even minute-to-minute basis.  The Fed has come up with some unique managing tools to help spur economic stability and facilitate assistance with the liquidity crisis.  Initially, we’ve discussed Term Auction Facilities (TAF) and now we have Term Securities Lending Facilities (TSLF), which were introduced to funnel banks with an additional $200 Billion to draw on.  Let’s get into the grease of what happened this past week…

Carlyle Group, which manages mortgage backed securities, couldn’t meet their margin calls that we talked about last week.  So, just like people can buy a home on a short sale right now, and pay less than what the previous owner owed, savvy investors are capitalizing on Carlyle Group’s hardship. 

Did YOU Buy Gold?

Gold reached $1,000 an ounce and oil just keeps going up.  My uncle has been telling me to buy gold for about three years now.  Telling me this would happen.  Shoulda listened…

Retail sales were down, indicating that people just aren’t spending what they used to.  Interestingly enough, Jobless Claims moved down to 353,000.  So, the four week average of these claims moved slightly down to 358,500.  We’ll have to continue to keep a close eye on this weekly report. 

Bear Stearns announced on Friday morning that their liquidity position has worsened to the New York Fed and JP Morgan Chase having to step in and rescue them from going out of business.  Bear Stearns!  They’ve been around for over eighty-five years!  So, coupled with some tame inflation readings from the Core Consumer Price Index (CPI) at 2.3%, this gave the Fed the room for a .75% adjustment to their overnight rate.  But the surprise was the Fed’s weekend lowering of the Discount Rate by .25%.  This hasn’t occurred in over thirty years and is quite interesting since they were meeting just one day after the surprise move. 

Learn from History…Overnight Cuts HURT Long Term Rates

The Bear Stearns announcement had JP Morgan Chase buying their stock at $2 per share when they were trading this last year at $160 per share.  Stock markets worldwide were stunned by the move and they plummeted, giving interest rates a huge bonus opportunity for many.  5.5% with an APR of 5.718% were locked in all day long…but as soon as we went into Tuesday, and the Fed did in fact lower the overnight rate by the .75%, rates moved up rapidly.  History has shown us that after a fed cut, rates might get better initially, but very quickly move in the opposite direction.  So, with this cut, the markets are learning in a “pavlovian” way that rates are going to go up.  It’s what this article has preached for months.  So, enjoy the ride.  There’s more to come next week…until then…

Chico, CA Interest Rates Market Report – Economic Influences – March 11th, 2008

Finally Good News on Inflation

New Median Priced Home Values

March 6, Housing and Urban Development announced their new median priced home numbers and for Butte County.  We moved from $304,000 to $320,000.  So, 125% of $320,000 moves FHA loan limits to $400,000 until December 31, 2008!  Interesting that California is in a declining market, but HUD increases our median priced home from $304,000 to $320,000.  Media frenzy?  Or is nice Butte County protected a little bit?  Either way, it’s a huge opportunity for a lot of people in our area.

Last week finally saw some good news on the inflation front.  Unit Labor Costs in the 4th quarter were reported at 0.9%.  This indicated that labor-based inflation might be easing a bit.  And as you’ve read in this article many times, interest rates hate inflation more than you know who hates Harry Potter. 

The 200-Day moving average, again, has been our friend.  Prices just keep hanging right around this important level of support.  The last time we broke through the 200-Day moving average trend-line was in May of 2007, and when it did, it took over five months to claw its way back above it. 

Jobless Claims Down

Interestingly, initial jobless claims moved down to 351,000.  The lowest reading since January, but the four-week average was still holding at 360,000.  Remember that the last time it hit 362,000 we hit a recession, twice. 

I keep mentioning volatility.  Three days in a row, this past week, we saw mortgage backed securities move up and down over 100 basis points…talk about trying to keep up and lock at the right time.  It’s important to note, also, that two times this past week mortgage backed securities and the 10-Year Treasury Note moved in opposite directions.  So, many of my fellow competitors out there that follow that Note instead of Mortgage-backed securities could have ended up costing you a lot of money!  As a matter of fact, if you study Mortgage Bonds and the 10-year Note you will see evidence that they move exactly the same only 1 out of 100 trading days. 

Mortgage Holders Forced To Sell Securities…Watch This CLOSELY…

Another interesting thing happened this past week.  The Carlyle Capital Group and Thornburg Mortgage had to sell many of their mortgage loans to make a margin call to some of their cash backers.  What’s that mean?  Well, the cash backers wanted to receive a payment on their investment with these firms…problem was…these groups didn’t have the money to pay them, so they were forced to sell loans to make their margin calls.  This pushed mortgage backed securities way down…causing their yields and interest rates to rise.  But just as soon as this occurs that the Fed announces another two $50 Billion TAF or Term Auction Facilities to raise more capital for the secondary market.  This help rates ease a bit and come down, however, on Monday; there was a rumor that the Fed was going to have another surprise decrease of the overnight rate.  This caused rates to spike up again.  It’s just so hard to keep an eye on what’s going on that if you don’t watch closely; you’re bound to make a costly mistake.  So, know that you’re working with a professional that knows this stuff thoroughly!  Until next week…