After the moderate downward slide in short term CD rates last week, the bond market starting the week by pushing rates lower.  Monday’s closing Treasury market saw further reductions in rates and an increase in bond prices across the yield curve.  The six month Treasury fell one basis point or 1/100 of a percent to a rate of 0.24%.  The one year Treasury rate was down one basis point as well to close at 0.43%.  The five year Treasury dropped seven basis points to close at 2.39% and the ten year lost six basis points ending the day at 3.40%.

The Treasury market closed out the month at it slow point.  All term categories, from the three month Treasury to the 30 year bond, closed August at their lowest yield. 

Bank rates are taking their cue from the Treasury market which is still trying to discern the direction of the U.S. economy.  Keeping tabs on CD interest rates and bank activity keeps me busy enough so commenting on the economy is not my forte, however some of last weeks economic statistics were puzzling. 

Everyone wants a recovery including me, but natural gas prices closed at a seven year low last week.  Oil, who knows what drives oil, but the US imports little to no natural gas.  Though it is impacted by other commodity prices and traders, it is a far better measure of domestic energy demand.  By the way, all the talk of China oil demand, why doesn’t some bright New York trading outfit send a kid to China and count the tankers coming into the ports.  Oil in China comes in through a limited number of eastern ports and it can’t be that hard to tell how much oil demand has changed in China by counting tanker activity. 

Unless of course, you want to rely on the communist news agency to tell us how much oil they are using.  Don’t get me wrong, China will continue to grow for ten years, this is a debate over their current need for oil.  I’ll guess the CNBC guesstimates on China demand is nonsense.  They are not having any significant year over year increase in oil demand.  And since the U.S. uses the most amount of oil by a long shot and the U.S. consumer is buying fewer cars and smaller cars combined with the lack of demand for natural gas…..the dollar and traders are the only explanation for increased oil prices.  Nat gas is at a seven year low!  We don’t import it and we don’t export it.  Should be a great statistic to measure energy demand.

We are looking at the second best year of corn production and exports are down 40% while the little moo moo cows, feeder cattle, that eat the vast majority of our corn are also down in numbers.  No demand for those products.  Steel production in the US for the last week of August was at 1.31 million tons which is almost 40% lower than last year at this time.  YTD steel production is 49% lower from the previous year.  Cash for clunkers was a nice shot in the arm, but we are not unwinding the debt we piled in over the past 15 years in one year.  Consumers are not going to be buying lots-o-cars in 2009.  When Chase Bank is cutting the dickens out of credit card limits and Jamie Diamond is uncomfortable with the level of credit card delinquencies, where are the consumers going to get the dough to buy more cars.  If Chase is having trouble with credit cards its hard to believe these same consumers are prime to buy a $20,000.00 automobile.  Sure there is some natural replacement level, but we are not going see any more than that.

The new normal is a phrase that annoys me.  It isn’t a new normal it is simply that the production of the past 10-15 years was inflated by easy credit.  Car sales, home sales, freaking lingerie all inflated sales figures.  Well, the consumers have to unwind that.  Car sales will never reach the average of the previous five years.  Never is harsh, but it can’t happen anytime soon.  We are a fully developed mature economy, we can not grow by 4% unless it is inflated or we colonize the moon.  CNBC right now is talking about August auto sales.  What kind of outlier, odd ball number can that be.  Cash for clunkers is over.  Look at October sales, that will be a great statistic and I am not hopeful it will look good.

Home sales glory days are dead and gone.  I ran a mortgage company for 15 years we could see the explosion coming and we were making estimates on how many homeowners had to throw their keys back to the lenders to bring figures into some form of equilibrium.  Homeownership hit a record level in ??? maybe 2007, at the highest prices ever.  Can’t happen.  There isn’t enough income in the U.S. to support those figures.  So now we have to figure what is an appropriate sales figure.  Give me three days and I’ll come up with a number.

We are going to chug along for sometime to make up for 15 years of excesses.

I have to drink less coffee in the morning.  This was a one paragraph report on the bond market.

Tags: , , , , ,

No user commented in " Daily CD Rate Report "

Follow-up comment rss or Leave a Trackback

Leave A Reply

 Username (*required)

 Email Address (*private)

 Website (*optional)