“ACTION IS THE REAL MEASURE OF INTELLIGENCE.” Napoleon Hill.
Last week was definitely action packed, though only time will tell how intelligent each action was – here are the highlights.
On Wednesday, the Fed announced that it decided to keep the Fed Funds Rate steady at the current 0 – .25% range, the lowest ever. They also indicated that “economic conditions are likely to warrant exceptionally low levels of the Federal Funds Rate for some time” and that “inflation pressures will remain subdued in coming quarters”.
Also last week, the Federal Deposit Insurance Corp (FDIC) announced that it may set up a “bad bank” as a vehicle to buy toxic or illiquid assets from banks. What does a “bad bank” do? No, it doesn’t talk back to you, give you attitude and treat you with disrespect. Lenders and the entire financial sector are struggling with “mark-to-market” accounting issues, and in the absence of a repair of the mark-to-market system, lenders are forced to sell assets in a market where there are few buyers. Hence the bad bank plan, to create an entity that will purchase the assets that no one else will buy, which is yet another very creative way for the government to breathe life back into the financial sector. This action is not finalized, so we’ll keep watching closely to see how it plays out in the days ahead.
READ MORE: What is “Mark to Market” strong
In other news, the House of Representatives passed President Obama’s $819B stimulus package, by a vote of 244-188, being split fairly cleanly by party lines. Existing Home Sales did surprisingly come in a bit better than expected, but 4th Quarter Gross Domestic Product (GDP) numbers showed the economy contracted in the 4th quarter, as you can see in the chart below. While the numbers were better than estimates, the economy was still at its slowest pace in 26 years.
Last week was indeed action packed, and Bonds and Pasadena home loan rates felt the effect, with rates ending the week about .25% worse than where they began.
Forecast for the Week:
The week ahead looks to be loaded with action yet again, as two key reports bookend the week. On Monday, we will get the details on the Fed’s favorite gauge of inflation, the Core Personal Consumption Expenditure (PCE) index, found within the Personal Income report. As mentioned above, the Fed said they believe that “inflation pressures will remain subdued in coming quarters”, so it will be important to see what this report reveals.
On Friday, the Labor Department releases their Jobs Report for January. Last month, they reported 524,000 jobs lost during the month of December. The employment environment continues to be shaky, with many major companies such as Home Depot, Caterpillar, Sprint, and Texas Instruments announcing job cuts recently. While all those cuts won’t take place at once, Friday’s number probably won’t be a pretty one.
Remember: When Bonds prices move higher, Pasadena home loan rates move lower and vice versa. As you can see in the chart below, Bonds and home loan rates lost some ground since the Fed’s meeting last week.
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