More inflation news will follow

“THOSE WHO CAN SOAR TO THE HIGHEST HEIGHTS CAN ALSO PLUNGE TO THE DEEPEST DEPTHS.” Lucy Maud Montgomery. Despite all of the government’s efforts, markets here and around the world plunged this week as the financial crisis continues to grow.

On Tuesday, the Fed and Treasury Department announced plans to purchase short-term commercial paper that many companies rely on to finance their day-to-day operations, to help businesses with their short-term credit and funding needs. The government hoped this announcement would help ease uncertainty, restore confidence, and give Stocks a boost. They hoped for a similar result on Wednesday when the Federal Reserve cut the Fed Funds Rate by 50 basis points, and coordinated an emergency global interest rate cut with the European Central Bank, Canada, the UK, Switzerland and Sweden. The Central Banks in Asia followed suit and cut their benchmark interest rates overnight as well.

However, on Thursday, Stocks plummeted nearly 700 points to a five-year low, and on Friday Stocks ended the day another 126 points lower (after plunging 500 points three times throughout the day). Bonds and home loan rates also worsened sharply in the second part of the week, as Bonds dropped below several important floors of support, and home loan rates ended the week .50% higher than where they began.

From a historical perspective, we are in the midst of a brutal bear market that began on October 9th 2007. Remember that a decline of 20% constitutes a bear market…and a 10% decline is a “correction.” The last bear market occurred between March 24th of 2000 and October 9th 2002 saw a 49% drop. Overall, the average bear market lasts for 12.3 months, with the average decline being 32%. The current bear market is right in line with the average historical time frames, and the extent of the decline is worse than previous bear market averages, but still slightly better than the bottom made in 2002. So the historical data might suggest that we could be nearing a bottom. I will continue to monitor this situation closely, and let you know how this will impact home loan rates in the weeks and months ahead. One bright spot is that oil prices are also plunging, falling from a high of $147 per barrel last July to around $80 per barrel Friday morning…which at least makes a tr ip to fill up at the gas station slightly less painful.

PLUNGING PORTFOLIOS ARE SOMETHING WE NEVER WANT TO SEE HAPPEN, AND NEITHER ARE PLUNGING SAVINGS ACCOUNTS. CHECK OUT THIS WEEK’S MORTGAGE MARKET VIEW FOR SOME GREAT TIPS ON STAYING WITHIN YOUR BUDGET!

Forecast for the Week

Last week was a volatile one despite the lack of scheduled economic reports, and this week several big pending reports could add to the volatility…even with the markets being closed on Monday in observance of Columbus Day. Wednesday will bring the wholesale inflation measuring Producer Price Index and the Retail Sales report for September. The Retail Sales report is a measure of the total receipts of retail stores, and changes in these numbers are closely followed as a timely indicator of broad consumer spending patterns. It will be especially important to see what kind of impact the financial crisis has had on recent spending trends.

More inflation news will follow on Thursday, as September’s Consumer Price Index (CPI) report, which gives a read on inflation at the consumer level, will be released. CPI tells us how much more expensive goods and services are this month over last month, and this widely watched inflation indicator will definitely make headlines. And given what’s been happening in the markets, it will be important to note what’s happening in the housing sector, which Friday’s Housing Starts and Building Permits Report for September will reveal.

Remember when Bond prices move higher, home loan rates move lower…and vice versa. As you can see in the chart below, Bonds and home loan rates worsened this week, due to a variety of factors. I will be watching closely to see if Bonds and home loan rates can change direction.

Last weeks rates improved slightly

Last weeks rates improved slightly as bonds tried to rebound off the previous weeks losses. Philly Fed President is continuing to warn about inflation and it’s possible that fed rate hikes will be coming shortly. This is a good thing for the bond market because mortgage rates should come down. Following that your wallets at the pump should hopefully stay full. See the newsletter below to get some helpful gas saving tips that you can pass along to your clients.

Make it a great week!

Inflation, inflation, inflation.

Clients & Friends,

Market Update

Rates closed the week up by about .250% across the board on all products.

Inflation, inflation, inflation. As I have said before, inflation is the arch enemy of bonds, and can cause rates to jump instantly on even a whisper of the word. Inflation erodes the fixed rate of return by bond holders enforcing bonds to raise their rates to attract investors. Stay tuned until next week, and keep your fingers crossed for a reversal and rally in rates back down.

Important week in the financial sector

This is going to be an important week in the financial sector. There is a Fed meeting on Wednesday where we expect the Fed to cut another 0.25% to the Fed Funds rate. We also have the PCE index coming out on Thursday. Remember the PCE is the best indicator of inflation. The most important news though is how the Fed is treating inflation and their words in the report regarding inflation.

Investors feel like this may be the end of the credit crunch, which is certainly good news, and several banks are getting large cash infusions from investors which shows market confidence.

Ready for Spring Cleaning? There are also tips this week on how to do your spring cleaning.

Make it a great week!

This week is ending on a high note …

Happy Friday,

This week is ending on a high note as some reports give way to good mortgage bond news this afternoon. This week Core Personal Consumption Expenditure Index (PCE), which is the number one report to gauge inflation, shows us that inflation is right in line with Fed target rates between 1-2%.

TAKE A LOOK AT THE RATES! Look at the conforming 3, 5, 7 year ARMs which have really low rates! In the low 5%!! These programs do have pre-pays.

St. Patrick’s Day

I’m sure you’re off to a very green St. Patrick’s Day! Last week the financial markets were pretty green for you too with mortgage rates dropping by as much as 0.25% for most programs. But be careful! With inflation numbers down reported last week the Fed could cut Fed rates by another 0.75% in tomorrows meeting. These rates are tied to the Prime rate, consumer loans, and credit cards, but the Fed rates are what the Fed lends to banks overnight! With a Fed cut, inflation could rise and when inflation rises mortgage rates are likely to go up. I recently sent out an article explaining this. If you’d like to look at it again please let me know. Make it a great week!

Oh by the way, I’m never too busy for any of your purchase or refinance mortgage referrals! Have a safe and fun St. Patrick’s Day!

MMG Weekly For the week of Mar 17, 2008 — Vol. 6, Issue 12
“JUST WHEN I THOUGHT I WAS OUT…THEY PULL ME BACK IN.” Al Pacino in the 1990 film, The Godfather III And if Bonds and home loan rates thought they were out of the days of volatility…they got pulled right back in, as last week brought daily price swings of almost historic proportions. For the week overall, fixed home loan rates improved by about .25%.

What led to the dramatic action this week? The bipolar emotional state of the markets began deeply depressed on Monday, but then were filled with joy Tuesday, when the Fed made an interesting move by announcing the creation of the new Term Securities Lending Facility (TSLF). The TSLF will provide borrowing banks with $200 Billion to draw on to help inject liquidity into the credit markets, and further, will accept some mortgage-backed securities as collateral, which effectively may help to “upgrade” the value and perception of battered Mortgage Bonds.

But in the meantime…struggles are still being played out related to the downgrade and losses experienced by companies holding massive amounts of mortgage-backed securities. Headlines hit on Thursday about The Carlyle Group, which manages a portfolio of mortgage-backed securities, not being able to meet a margin call and being forced to sell off large amounts of mortgage paper into the markets at great financial losses. Then on Friday, the news broke that financial brokerage and investment banking giant, Bear Stearns had suffered enormous losses, and their lack of liquidity endangered them from going out of business…or “sleeping with the fishes”. The new aforementioned TSLF is designed to help this type of liquidity problem, but it will not go into effect for a few weeks, and Bear Stearns would not last that long. Coming to the rescue with loans were both the NY Fed and JP Morgan Chase. These sure are exciting times.

One bright spot for the financial markets was a low consumer inflation reading. The Overall and Core Consumer Price Index (CPI) figures were reported unchanged, far cooler than the expected increases of 0.3% and 0.2% respectively. These tame inflation numbers give the Fed a green light to cut the Fed Funds Rate by another .75% at Tuesday’s meeting…but read on to understand exactly how this cut may impact YOU.

IF THE IDEA OF KEEPING BUSINESS IN THE “FAMILY” CONJURES UP IMAGES OF MICHAEL CORLEONE AND OFFERS THAT CAN’T BE REFUSED – YOU’LL WANT TO READ THIS WEEK’S MORTGAGE MARKET VIEW TO LEARN SOME TIPS ON RUNNING A SUCCESSFUL FAMILY BUSINESS, WHERE YOU LIKELY WON’T HAVE TO WORRY ABOUT EITHER GUNS OR CANNOLI’S.

Forecast for the Week

So if you love all the excitement, drama, intrigue and crazy volatility of late…you’ll love the week ahead, as it is loaded full with market movers. We’ll get the latest readings on the health of the manufacturing and housing sectors, but the main event will take place on Tuesday when the Federal Reserve announces its latest interest rate decision and Policy Statement.

The Fed is expected to cut the Fed Funds Rate by another .75%. However, as we’ve seen following every Fed rate cut in the recent cycle, chances are very good that Bond pricing will worsen following the cut…which results in higher home loan rates. This happens because Fed rate cuts help to stimulate the economy, by making it less expensive to finance personal and business purchases…and this in turn fuels inflation, the arch-enemy of fixed return assets like Bonds, which home loan rates are based on.

So a word to the wise – if you or someone you know has been ready to move forward on a purchase or refinance, there’s no time like the present. Be sure to get in touch with me, so I can explain your options and help plan a great strategy for your home loan.

Chart: Fannie Mae 5.5% Mortgage Bond (Friday Mar 14, 2008)

The Mortgage Market View…

BUT DON’T EVER TAKE SIDES WITH ANYONE AGAINST THE FAMILY AGAIN…EVER

These lines spoken by Michael Corleone to his brother Fredo could very well apply to small family businesses, which are critical to the nation’s economy. In fact, according to the National Federation of Independent Businesses, more than 1.2 Million businesses across the country are owned and operated by spouses. While these thriving ventures in capitalism are great for the economy, they can cause a lot of stress on your family relationships. That’s why experts recommend you follow a few simple suggestions to keep the business–and your family life–running smooth!

Only Fools Rush In. Starting a family business is a huge commitment. Although it sounds romantic, it’s a lot of work to…well…make it work. Before you jump in, consider what type of business is truly right for you; how the business will impact your financial plans; and how you’ll still make sure you have time in your schedule to enjoy non-business related family time. Because, as The Don says, “a man who doesn’t spend time with his family can never be a real man”.

Put It In Writing. The first step to making your dream a reality is putting together a business plan. The Small Business Administration has a great website that can help you write your business plan. You’ll also need to apply for a business license, tax identification number, and even business loans. Again, you can find the most requested business documents on The Small Business Administration website.

Clarify Roles and Responsibilities. To help avoid frustrations and arguments in the future, make sure everyone agrees on who will be responsible for what. Give yourselves titles and draft job responsibilities…then make sure everyone is happy with their role, and that all of the important everyday duties are covered. Make sure you determine who will pay the bills, who will negotiate contracts, who’s in charge of the marketing plan, who does the hiring, and so on. You don’t want to risk overlooking something or arguing about it later.

Protect Yourself. More important than having Luca Brasi as your bodyguard is making sure you plan your finances and stock away plenty of money to hold you over, especially during the start up phase. Most experts recommend having three to six months worth of living expenses in savings, depending on whether one or two people in the family will be relying on the business as their main income. You’ll also want to meet with a financial planner to make sure your retirement and other financial plans stay on track – and if you need a referral to a great financial pro, just let me know.

Set Boundaries… and Stick to Them! It’s easy to let the business take over your family life. Little by little the business successes and setbacks slip into family conversations… it’s only natural. But don’t let them take over completely. To alleviate this problem, make sure you set up regular “business meetings” where you can talk about key issues and exchange ideas about the business. In addition, establish some off-limit times where you’ll devote yourselves to each other and your family life. After all, even family businesses need some time “away from the office.”

Starting a business with your spouse or family is an exciting time. The key is to harness that excitement while staying cool-headed enough to make smart personal and financial decisions. If you or someone you know needs help with these important details, please don’t hesitate to call. I’ll be happy to discuss your needs and put you in touch with other professionals that can help.

Interest rates are still at a 4 year low!!

This week’s update talks about why mortgage rates are going up after the Fed cut interest rates. Inflation is definitely a concern as the Fed continues to lower interest rates. Take a look at the 4 month bond graph in the middle of the update. Remember that mortgage pricing takes direction from Bond pricing. As bonds go up mortgage pricing comes down.

Also, interest rates are still at a 4 year low!! If you need to refinance or are looking to purchase… Call me to get prequalified and see what options you have!

Let me know if you have any questions about the information provided.

Make it a great week.

-Sean

Sean La Rue’s Weekly Newsletter