Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – November 5, 2009

The Media Is Painting A Rosy Picture

Fed Keeps Initial Investment

Many traders were hoping that the Fed would increase their buying power to new levels.  The Fed kept their stance, however, and remained diligient regarding the $1.25 Trillion Mortgage-Backed Security Purchase Program.  This will end in March of 2010.  When this program ends, money will be tight.  In order to lure investors, yields will have to be higher. And, as you may know, higher yields translates to higher interest rates.   But that’s in March.  What might happen before then?…

Stocks AND Bonds Up

The Labor Department reported 512,000 new Jobless Claims today.  They expected 522,000 Claims, so lower than expected.  Does that give us a hint into what tomorrow’s unemployment figures will be?  Perhaps…  It’s the lowest number since the first week of 2009.  Now, the market might like that statement.  “It’s the lowest number since the first week of 2009.”  But, again, over a half a million people filing for unemployment each week?  I don’t see how that’s good news.  3rd Quarter Productivity Rose by 9.5%.  So, as companies ask their employees to work less hours, or take furlough days three days a month, or take fewer breaks and work harder, productivity will rise.  So, on that note Stocks are rallying.  Generally, Bonds would suffer, however, in those same Labor Department figures, unit labor costs plunged 5.2%, bringing an interest to bonds.  So, it’s one of those rare instances that both the Stock Market and Bond Market (and therefore Mortgage-Backed Securities, and interest rates) are benefiting. Unit labor costs measure inflation at the production level.  Lower inflation means lower interest rates.  Remember, inflation is interest rates’ worst enemy.  When the Fed runs out of their $1.25 Trillion MBS Purchasing money, it will cause inflation.  Another reason rates will increase after March of 2010. 

Interesting Side Note on Unemployment

During the week of October 17^th (my birthday), enrollment in extended benefits programs increased by 24,600 while the Emergency Unemployment Compensation program enrollment rose by over 90,000.  So the 20,000 in Unemployment Claims, that were less than what was expected, have all had to move to emergency type state, or other government-type funding to make it by.   So, depending on how the market interprets that information, I don’t see tomorrow’s figures pointing to a surprise improvement  in the Labor Market.  So, floating into tomorrow’s numbers might be a prudent strategy, if you can stomach the anticipation!  So, don’t listen to the media, listen to me!  Of course, I’ve been wrong before, but I just don’t see the Labor Market improving.  We just may see unemployment at 10% or more.  Most economists are expecting a 9.9% number, but I’m not so sure. 

Locking Advice

As mentioned above, I’d float.  We have two lines of support at the 50-Day and 200-Day Moving Average.  However, the 25-Day Moving Average is not to far of a ceiling from where current Bond Values are.  So, in order to break through the 25-Day ceiling Labor Statistics would really have to be surprising, however, there is room to have a small interest rate decrease, first thing in the morning.  Some clients have chosen to lock…others are heeding my advice to, what I think will pan out to be, about a .25% Point savings on their loan costs.  Until tomorrow…it will be fun to see the results… 

 

Related Must Reads

How Bonds Change Interest Rates
A History of What Happened
$1.25 Trillion MBS Purchase Program

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

Friday Was A Good Lock Day

One Year Extension of Loan Limits

The House and Senate approved an extension of the Federally backed FHA, Fannie Mae & Freddie Mac Loan Limits.  This is huge, and helps the secondary market purchase more loans to help home buyers qualify for lower interest rates.  The only concern will be the market’s liquidity.  Also expected this week is a vote on the $8,000 Tax Credit, or a rendition of that credit.

FOMC Meeting

The Federal Open Market Committee meets this week.  Expect potential market moving statements to be provided on Wednesday, by the Monetary Policy Statement that Good ‘Ole Ben Bernanke will report.  What The Fed says regarding the economy and when they may need to increase overnight interest rates, to stave off inflation, will be watched quite closely by the markets.

Jobs Numbers

Friday will also be an interesting day, when the unemployment figures are released.  Many experts expect the unemployment rate to move below 10%.  It will be interesting to see, as the true unemployment numbers are higher than this.  Also, with the government extension of unemployment benefits these numbers could skyrocket.  Keep posted…

Pending Home Sales Increase

The $8,000 Tax Credit probably helped these numbers increase 6.1%.  Things to keep in mind, even if the extension of the Tax Credit occurs, the Mortgage Backed Security Purchase Program is ending soon.  This will push interest rates up, unquestionably.  Therefore, any buyers sitting on the fence, should move now.  It won’t get much better than this.

Related Must Reads

March of 2008, When Loan Limits Increased
The Senate Version of the Tax Credit Extension
Unemployment Benefits Ignored

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Chico, CA Interest Rates Market Report – Economic Influences – October 6, 2009

Rates Will Move Up On Australia's Rate Increase

Put Another Quarter Percent On The Overnight, Mate

That’s right…Australia’s Reserve Bank increased their overnight rate to 3.25% from 3.0%.  It was totally unexpected!  They indicated that they felt as though it was not only safe to do so, but that other hikes could be around the corner.  This signaled stock market frenzy throughout the world, as the markets are taking this as a hint, that globally, things are looking better.

There’s Gold In Them Thar Hills

And it reached its highest value ever!  $1,040 an ounce.  The Australian announcement is also pushing up oil costs, putting pressure on the U.S. dollar, and increasing metal costs all over the world.  This is concerning, as if other countries are more prepared for an economic recovery, before the United States, it could prove more difficult for the U.S. to get out of our financial woes.  With our unemployment rate near 10%, it’s difficult to see the Fed making a move to increase the overnight rate, any time soon.

Drum Roll Please

Stocks 3rd Quarter Earnings will start to pour out their financial status, starting tomorrow.  This is huge news, particularly due to the fact that things have been looking so rosy for the last few months.  I think that the information won’t be as bright a picture as the media has been portraying, as of late.  It’s one of the main reasons why I called rates to be in the fours, almost two months ago.

Why Not Lock?

With rates this good, an so much uncertainty in the market.  I’d take my chances and lock.  Today may see some volatility, then after the 3rd Quarter Earnings Reports start to hit the market, we may see some lowering back to where we were yesterday.

Related Must Reads

Read, “Unchartered Territory in this ‘08 Article
What Will Cause Rates To Be In The Fours?
Recession Around The Corner? From August of 2007

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

Breaking The Barrier

It will prove difficult to break through May’s Highs regarding Mortgage-Backed Securities.  We’re playing with those highs this morning, however, investor’s will be watching and may “cash in” on their opportunity. 

Treasury Auctions

Last week, we mentioned that the Fed was announcing their Auctions for this week.  These auctions can really move markets, particularly when the announcement of the Government Sponsored Purchase Program will be ending in the first quarter of 2010.  Today, $7 Billion of 10-Year Treasuries will be auctioned.  This is a pretty long term, in which to receive a return on your investment, so it will be interesting to see how this auction fares. 

Stock Market Ready For A Correction

A highly recognized and respected economist, known as, “Dr. Doom,” Nouriel Roubini, indicated, over the weekend, that The Stock Market has corrected itself too quickly and too much.  I agree with this.  That is why I have been stating for quite some time that I thought rates would move back into the fours.  However, keep in mind that with the announcement of the Government Sponsored Purchase Program coming to an end, rates will be fighting for which direction to take.  Eventually, higher rates will win, when the bond market has an empty coffer in which to choose investors from. 

Alan Greenspan Talks

Former Fed Chairman Alan Greenspan spoke this weekend.  He indicated that unemployment would top 10%, but warned against another government bailout program, as it would be detrimental to inflation and other economic problems, in the long run. 

Float Into The Day

But, once again, a trigger finger on the lock button, as we’re toying with May Highs and the 10-Year Treasury Auction, both of which could be major players in moving rates higher. 

Related Must Reads

End Of The Day Rates
Why Be Leary…An Explanation Of Longer Term vs. Higher Risk In MBS Investments
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