MMG Weekly

Last Week in Review

"I NEVER WORRY ABOUT ACTION, BUT ONLY ABOUT INACTION." ~ Winston Churchill. These words proved especially true last week, as the big story was the Fed's lack of action following their recent meeting, or decision to leave the Fed Funds Rate unchanged - but is the Fed's decision a cause for worry? The financial markets seem to think so. The Fed is in a tough spot with the economy performing sluggishly, the housing market still struggling to stabilize, consumer confidence being low, and food and energy costs going up seemingly every day. They made the decision to hold rates steady for now, but looking forward, what does all this mean for Bonds and home loan rates?

While the Fed made a smart move to cut its benchmark rate back in September to stimulate the economy, the continued string of cuts has considerably weakened the US Dollar against the Euro. And since oil is priced in Dollars, the decline of the Dollar has pushed oil prices to rise, even though consumption in the US is down. Prior to the Fed starting their recent string of cuts in mid-September, oil was trading at a then staggeringly high $73/barrel, and it took $1.35 to buy 1 Euro. And after nine months of Fed rate cuts, the Dollar has weakened to where it takes $1.57 to buy 1 Euro...which has greatly influenced oil prices to top $140/barrel. And because oil is involved in so much of what we purchase, prices have gone up on everything.

The bottom line: A stronger stance against inflation by the Fed - which would mean rate hikes ahead - could help strengthen the Dollar, combat high oil prices, and cause Bonds and home loan rates to improve in turn, as inflation is the arch enemy of both. It will be important to see what the Fed decides to do about the Fed Funds Rate at their next meeting in August, so stay tuned!

In other news, Bonds and home loan rates saw some improvement last week after several items...including a profit warning from UPS (a concern since less shipping indicates less sales and continued weakness in the economy), a price increase from Dow Chemical due to the rising cost of energy, weak Consumer Sentiment...caused money to flow from Stocks to Bonds and helped pressure Stocks to what could be their worst June performance since the Great Depression. After all the week's action - and inaction - Bonds and home loan rates ended the week slightly better than where they began, mostly due to weaker Stocks.

PREPARATION IS A CRUCIAL PART OF TAKING ACTION...AS THE SAYING GOES, "IF YOU FAIL TO PLAN, THEN YOU PLAN TO FAIL." CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW TO LEARN A GREAT STEP-BY-STEP PROCESS YOU CAN USE TO PREPARE SUCCESSFULLY FOR ALMOST ANYTHING, FROM ASKING FOR A RAISE TO TAKING A GREAT VACATION.

Forecast for the Week

There's a holiday shortened week ahead, as the financial markets will be closed on Friday in observance of Independence Day. But...there could still be lots of action this week, particularly with the Department of Labor's Jobs Report scheduled for Thursday, just ahead of the long weekend. A positive report could be good news for Stocks, but bad news for Bonds and home loan rates, so it will be especially important to watch all the fireworks that follow the headlines.

Remember when Bond prices move higher, home loan rates move lower...and vice versa. The chart below shows how the action in the Bond market improved last week, helping home loan rates to improve as well. So as always, I will be watching closely during the coming week.

If inflation continues to shake up the markets or if the news on employment is surprisingly good...the action for Bond prices and home loan rates could change direction and worsen.

Chart: Fannie Mae 6.0% Mortgage Bond (Friday Jun 27, 2008)

The Mortgage Market View...

The Importance of Preparation
Preparation is a crucial element to success in all your endeavors, be it preparing for an important meeting or an upcoming summer vacation. As Zig Ziglar once said, "You were born to win, but to be a winner, you must plan to win, prepare to win, and expect to win." Ronald Shapiro, author of the New York Times bestseller, Dare to Prepare: How to Win Before You Begin, suggests these great steps you can use to prepare for anything. Ask yourself:

What is the objective? Determine where you want to end up before you get started, and make sure you don't just pick the easiest or most obvious result. Make sure your objective ties into your short and long-term goals.

Are there precedents? Look for people who have both failed and succeeded in similar situations and see what and how you can learn from their experiences. If possible and if it makes sense, contact them and see if you can set up an informational interview or lunch to learn more details.

Are there any other scenarios? If you only prepare for your intended outcome, then you won't have a position to fall back on. Determine if there is more than one scenario that you should plan for, or if you should walk away if your intended outcome does not arise.

What's important to other people? Where possible, ask the other people who are involved about their concerns. This keeps you from assuming you know what matters most to everyone.

What's your time frame? Break down your overall project into small goals and set deadlines for each element so you stay on track while you go. For instance, if you are planning a trip, timeline everything from booking your airfare to making reservations for places to see while you're away.

Can anyone help? If you have people who can help you, ask them to do so! Not only will this make things more manageable, others can also help you see objections or problems that you might not have otherwise noticed.

What do you want to say? If you're preparing for an important meeting or have an important request like asking for a raise or a bargain deal from a salesman, practice first! Outline your main points, create a script, and practice until the words feel normal.

To download a preparation principles checklist, visit http://www.shapironegotiations.com/pdf/PREPARATION_PRINCIPLES_CHECKLIST.pdf.

Holderman Case study

Week in Review

Last Week in Review

"INFLATION IS AS VIOLENT AS A MUGGER, AS FRIGHTENING AS AN ARMED ROBBER, AND AS DEADLY AS A HIT MAN." ~ Ronald Reagan. And although you might not describe the effects of inflation in such strong terms yourself...rest assured that the effects of inflation have crept into your home, your gas tank and your wallet. And inflation is also the nemesis of Bonds and therefore home loan rates, because just like inflation erodes the value of the dollars you spend, inflation erodes the value of the fixed return a Bond provides. And last week, Bond pricing worsened on news of inflation, causing home loan rates to move higher by about .25% across the board and reaching the highest levels seen in weeks.

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The week was shortened by the Memorial Day holiday, but right out of the gates, inflation concerns abounded. The Consumer Confidence Report indicated that consumer inflation expectations are at an all-time high...meaning that consumers are seeing inflation as a real threat to their own financial situation. Rising energy costs and worldwide inflation fears continued to pummel Bonds lower - in fact, so low that they moved below a tough technical floor of support at the 200-Day Moving Average. This is important because Bonds have made a decisive cross over the 200-day Moving Average on only three separate occasions within the past three years. This means that barring a timely reversal, we are likely seeing a shift in the market towards higher home loan rates.

Friday brought a little good news on inflation, as the Core Personal Consumption Expenditure (PCE) Index showed that inflation does remain within the Fed's comfort zone. While Bonds and home loan rates improved somewhat on the news, the trend for the week was definitely worse overall, as the big picture on inflation cost Bonds and home loan rates some hard earned ground.

LOOKING FORWARD TO YOUR STIMULUS CHECK...AND WISHING THE SIZE OF IT COULD BE "INFLATED?" RETAILERS HAVE COOKED UP SOME INTERESTING SPECIALS TO DO JUST THAT, SHOULD YOU DECIDE TO SPEND YOUR CHECK ON THEIR GOODS OR SERVICES. TAKE A LOOK AT THIS WEEK'S MORTGAGE MARKET VIEW FOR SOME EXAMPLES OF WHAT CREATIVE RETAILERS HAVE IN STORE FOR YOU.

Forecast for the Week

This coming week, one economic report in particular bears inflated significance...Friday's release of the infamous monthly Jobs Report. It will reveal, among many other things, the number of jobs lost or gained during the month of May. Last month's Jobs Report indicated that 20,000 jobs were lost in April, and while this was better than the expected job losses of 75,000, it is possible that the reported number understated the actual number of jobs lost, due to how the Department of Labor averages their count. And part of each month's report is "revisions" to the several prior months' numbers...which this could be quite a wild card for Bonds and home loan rates.

Last month's Jobs Report, which was indeed more positive than expected, caused Bonds to fall a whopping 134bp in a matter of minutes, and home loan rates worsened quickly. Why? Because even though the news wasn't great, it sure was better than anticipated...and this caused money to flow out of Bonds, and into Stocks...which caused Bond prices and home loan rates to worsen. This week's Jobs Report could sure be another mover, and if the report or revisions indicate positive news on the jobs front, home loan rates will likely worsen in response.

Remember when Bond prices move higher, home loan rates move lower...and vice versa. And as you can see in the chart below, Bonds moved lower for most of the week, and actually closed below an important technical level at the 200-day Moving Average. This is a very important level, as it can act as either a very strong floor of support helping Bond prices not to fall below it...or as an equally strong ceiling of resistance, preventing Bonds and home loan rates from improving above it. And with Bonds currently having fallen beneath it, I'll be watching closely this week to see if Bonds have indeed fallen and can't get up...or if they can break above that tough level later this week and help home loan rates improve.

The Mortgage Market View...

Retailers Looking For Some "Stimulus"...

According to a recent poll on how consumers intend to spend their stimulus checks, 19% of consumers plan on using their economic stimulus check for a special purchase, and 23% plan to use their check for everyday expenses. The rest...well, 36% say they will pay down debt and 22% say they will put it into savings. But will the check burn a hole through their pockets?

Maybe so, particularly with the "stimulus check" specials that many retailers have come up with, offering bonuses and incentives for people who spend their "stimulus" dollars with them. Here are some examples, in case you want to take advantage of any offers:

Sears. If you use your stimulus check to purchase a gift card, you receive an additional gift card worth 10% of your check's value. This offer is also good at Kmart and Lands' End.

Kroger. Between now and July 31, 2008, you can exchange your tax refund or economic stimulus check for a Kroger gift card with an extra $30.00 (for $300.00 checks), $60.00 (for $600.00 checks) or $120.00 (for $1,200.00 checks) added to it. The program is available throughout Kroger stores nationwide - including Kroger, Baker's, City Market, Dillons, Fred Meyer, Fry's, Gerbes, Hilander, Jay C, King Soopers, Owen's, Pay Less, Ralphs, Smith's and QFC stores.

Home Depot. To encourage consumers to invest their stimulus check in their homes through energy efficient products and services, the retailer is offering special values on energy-efficient products such as light bulbs and home appliances through the summer.

Radio Shack. The retailer will cash your check and give you 10% off on any purchase above $50, and then give you the difference as a prepaid MasterCard that can be used anywhere that takes MasterCard.

Domino's Pizza. Although you don't need to use your stimulus check for purchase, Domino's is getting into the spirit of economic stimulus, offering a "recession-busting" special of three pizzas for $12.00. According to the company's press release, "While you're feeding the economy with your special refund check, let it feed you back."

These are just some of the promotions that retailers are currently offering, and more deals are likely on the way. If there's something you want to use part of your stimulus check for, do your homework and take advantage of the specials that are out there. And if you do intend to pay down debt with the check, feel free to give me a call to discuss which debt would make most sense to reduce!