January 2 2006

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For the week of Jan 02, 2006 --- Vol. 4, Issue 1

Last Week in Review

“AN OPTIMIST STAYS UP UNTIL MIDNIGHT TO SEE THE NEW YEAR IN…WHILE A PESSIMIST STAYS UP TO MAKE SURE THE OLD YEAR LEAVES.” Bill Vaughn And whether you found yourself ringing in the New Year as a Bull or a Bear…another New Year is here indeed, and it promises to be interesting. The 2005 financial markets held considerable up and down movement throughout the year, but little to show in the way of overall gains. Here’s a quick look at how mortgage bonds and the major stock indexes fared from open to close. Index / Bond 2005 Opening 2005 Closing Overall Change The big financial event last week was the appearance of an “Inverted Yield Curve”, when the shorter term 2-Year Treasury Note Yield moved higher than the longer term 10-Year Treasury Note Yield. Why do you care? Only because historically, this has tended to be a recessionary signal, implying that investors do not trust the long term strength of the economy…so while it had the markets a bit rattled initially, a closer inspection shows little cause for concern. But why? Let’s take a closer look and understand. The Fed Funds Rate has increased 3.25% since June 2004. The 2-Year Note Yield moved higher with the Fed rate hikes since it is also short-term paper. But the 10-year Note Yield actually moved sideways to lower during this timeframe because of the inflation-fighting mechanism behind the Fed rate hikes…and longer-term paper is more concerned with inflation rather than actual Fed moves. Bottom line, things are different this time because the Fed moves have pushed the 2-Year Note Yield higher, while contained inflation and foreign demand for longer term bonds have helped reduce the 10-year Note Yield. The economy is and will continue to be strong and a recession does not appear to be in the cards for 2006. IT HAPPENED AGAIN…AUNT RUBY SENT A “CLAPPER” FOR CHRISTMAS, YOUR SISTER SENT A FUR HAT THAT MAKES YOU LOOK LIKE A SASQUATCH, AND THE GUY NEXT DOOR DROPPED OFF A BEEF LOG THAT COULD BE CONSIDERED A DEADLY WEAPON. SO NOW WHAT TO DO WITH YOUR UNWANTED GIFTS? DO YOU GO TO THE TROUBLE OF EXCHANGE OR RETURN….OR HAVE YOU EVER CONSIDERED “RE-GIFTING”, BUT NOT SURE IF IT’S RIGHT? READ THIS WEEK’S MORTGAGE MARKET VIEW ON HOW TO HANDLE THIS TRICKY TOPIC.

Forecast for the Week

Mortgage Bonds have been drifting sideways, meaning not much change has taken place during the holidays for home loan rates. This action is very typical during the holiday season, when trading is light and the calendar is thin. But Traders will be back to the pits in full force this week, and the New Year is kicking off with a nice fat economic calendar…including this Friday’s big Jobs Report, which can set the trend for home loan rates for days and weeks to come. If the report comes in showing blockbuster numbers and higher than expected job growth, home loan rates will worsen…where a weak number would help home loan rates to improve. Chart: Fannie Mae 6.0% Mortgage Bond (Friday Dec 30, 2005)

The Mortgage Market View…

It’s been said that you could get what you want, but it’s more important to want what you get. But with the gift giving season wrapping up, there might be a gift or two that you would never use or be caught dead in. We’ve all been there…we open the gift, suppress the gag reflex, and say the obligatory “Oh wow, I love it!” But what do you do next? Returning or exchanging can be such a hassle…so it is very tempting to use it for a “re-gift”. But is re-gifting really the proper thing to do with an unwanted gift? You may have seen the 2003 comedy movie hit “Old School”, where Luke Wilson gives Will Ferrell a bread-maker for his wedding gift. Ferrell forgets that Wilson gave it to him and re-gifts the bread-maker back to Wilson for a housewarming gift. Wilson says “I gave that to you, didn’t you like it?” Ferrell replies, “I love it”. There are many gifts that are perfect for re-gifting, like a bottle of wine, but most gifts don’t qualify as easily. And while re-gifting may appear to be an efficient use of the gift as well as time, you still have to think about the fact that if you were less than thrilled with the gift, will someone else really love it? And worse, getting busted can be very embarrassing. Imagine that hot pink, crushed velvet shirt you re-gifted being sighted on the new recipient by the original donor…there are bound to be hurt feelings. So, before you potentially jeopardize a relationship and look like a cheapskate, let's take a look at a few options for returning versus re-gifting those unwanted gifts. Many gifts today have a gift receipt attached to the article or box. This is clearly your green light to return or exchange the item without offending the gift giver, which makes it a good idea to include on the gifts we give, when possible. Having a gift receipt will also make the return hassle-free and in most cases will allow you to receive a refund for the original purchase price. If you do not have a receipt, you can still return the item but could be subject to the lowest price at which the item sold in the last thirty days and a store credit. Don't like the store where you have a credit? Not to worry, someone else will. Re-gifting the credit in the way of a gift card is totally cool. Another idea is to sell your store credit on eBay and receive upwards of 90% for the credit. Selling the credit will allow you to purchase any item, with the cash you receive, wherever you choose. You can even sell or trade your gift card for someone else's for a nominal fee of $3.99 per gift card…visit www.swapagift.com for more information. So to re-gift, or not to re-gift? If it truly would be appreciated by the new recipient and isn’t going to offend the original gift-giver, it could work. But with all of the options available today, think twice before re-gifting.

The Week's Economic Indicator Calendar

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise. Economic Calendar for the Week of January 02 – January 06 Date ET Economic Report For Estimate Actual Prior Impact

The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.

As your trusted advisor, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.