“AN OPTIMIST STAYS UP UNTIL MIDNIGHT TO SEE THE NEW YEAR IN. A PESSIMIST STAYS UP TO MAKE SURE THE OLD YEAR LEAVES.” Bill Vaughan.
2008 turned out to be a historic year on many counts, and optimists and pessimists alike were glad to close the books and say goodbye to the old year. In observance of the New Year’s holiday, the Bond market closed early last Wednesday and was closed all day Thursday, but there was still plenty of time for volatility due to several noteworthy news items. With a great deal of midweek activity, Bond pricing ended the week slightly worse with Pasadena home loan rates about .125% higher than where they began.
Early last week, a renewal of military conflict between Hamas in Palestinian Gaza and Israel sent crude oil jumping higher on concerns of supply disruption, causing volatile activity in both Stocks and Bonds. The strife in the region continues, and may cause more movement in the financial markets over the coming weeks.
GMAC received a $6 Billion lifeline from the Treasury to help stave off a bankruptcy protection filing or complete shutdown. This would have spelled big trouble for GM, as GMAC helps to finance purchases of most GM vehicles. This assistance is part of a larger effort to help aid the troubled auto industry, and GMAC announced that they will immediately resume financing to a wider range of car buyers. Stocks moved higher on the good news, which pulled a bit of money out of Bonds and caused home loan rates to rise.
NOTE: Stocks have made some nice moves higher of late, breaking above a key line in the sand at their own 50-day Moving Average. And with a great deal of cash on the sidelines waiting to be put back to work, as well as retirement money getting ready to be invested before tax time, this could spell better days ahead for Stocks. While money flowing into Stocks can sometimes pull money from Bonds and cause home loan rates to rise, the Fed has said they will be doing some buying of Mortgage Bonds, which could help home loan rates weather the storm much better than they have in the past.
In economic report news, the Chicago Purchasing Managers Index – which measures manufacturing activity – came in at 34.1, very close to estimates of 33.0. But Consumer Confidence somewhat unsurprisingly missed advance expectations of 45.5, arriving at a dismal, record low of 38.0. Just by way of perspective, last year at this time, Consumer Confidence was at 88.6…so there’s been quite a decline during 2008.
Also adding to the movement in the markets last week, the Securities and Exchange Commission recommended against suspending FASB 157, otherwise known as fair-value accounting rules or “mark to market”. These rules led to the failure of many financial institutions that really weren’t in bad shape, but simply made them appear to be overleveraged as they were forced to value their assets against distressed institutions selling at steep discounts.
READ MORE: Mark to Market Rule (FASB 157) explained in simple language
This announcement was not a surprise, as it wasn’t expected that they would completely eliminate the rule and go back to the days of Enron-style accounting and valuation systems which lacked transparency. For now, the SEC is instead suggesting “improvements” to deal with illiquid markets and reducing the number of models used to measure impaired assets…but the details of those “improvements” are yet unknown.
Forecast for the Week
As the first full trading week in the New Year begins, more important news is coming as we look forward to Friday’s Jobs Report, which will show the number of jobs lost or gained in December. Remember that the Department of Labor averages their numbers, and part of each month’s report includes “revisions” to the several prior months’ numbers.
The employment news last month was record-breaking: 533,000 jobs were lost during the month of November, which represented the most job losses the US has seen in 35 years. Additionally, November was only the fourth time in 58 years that our economy lost over 500,000 jobs. And adding more pain to last month’s Report were heavy downward revisions for September and October, which erased an additional 199,000 jobs.
READ MORE: Pasadena Real Estate Housing Analysis – Five Years in Review
San Marino Real Estate Housing Analysis – Five Years in Review
Remember, as a general rule, weaker than expected economic data is good for Pasadena mortgage rates, while positive data causes rates to rise.
Economic Calendar for the Week of January 05 – January 09:
| Date | ET | Economic Report | For | Estimate | Actual | Prior | Impact |
| Wed. January 07 | 10:30 | Crude Inventories | 2-Jan | NA | -465K | Moderate | |
| Thu. January 08 | 8:30 | Jobless Claims (Initial) | 3-Jan | NA | 492K | Moderate | |
| Fri. January 09 | 8:30 | Non-farm Payrolls | Dec | -475K | -533K | HIGH | |
| Fri. January 09 | 8:30 | Average Work Week | Dec | 33.5 | 33.5 | HIGH | |
| Fri. January 09 | 8:30 | Hourly Earnings | Dec | 0.20% | 0.40% | HIGH | |
| Fri. January 09 | 8:30 | Unemployment Rate | Dec | 7.00% | 6.70% | HIGH |
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