January 30 2006

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For the week of Jan 30, 2006 --- Vol. 4, Issue 5

Last Week in Review

"I GUESS I SHOULD WARN YOU, IF I TURN OUT TO BE PARTICULARLY CLEAR, YOU’VE PROBABLY MISUNDERSTOOD WHAT I’VE SAID." Who said it? None other than the illustrious Alan Greenspan. This week, the world prepares to watch our Fed Chair turn over the reins to the new guy, Ben Bernanke. This is a very big event, considering that there have only been 13 Fed Chairs in US history and just 2 since 1979 – Paul Volcker and Alan Greenspan. But Bonds didn’t do well during Big Al’s last full week at the helm, taking a sharp nose dive and causing home loan rates to rise about .125%. Remember that weak or negative economic news tends to benefit Bonds and home loan rates, and strong or positive economic news tends to cause Bond pricing and home loan rates to worsen. And in the past week, Bond prices were pressured lower after the market was hit with better than anticipated economic news, a resurgent Stock market that competes with the Bond market for investor dollars, and disappointing foreign participation in two Treasury note auctions. The healthy appetite of foreign investors for our Bonds has helped to keep Bond prices high and home loan rates low in recent years, so a perceived pull-back is a bit of a concern. And still greater supply of long-term paper is on the verge of being reissued by the US Treasury in the way of 30-year Bonds beginning in early February. The added supply could pressure bond prices lower and rates higher, especially if foreign purchasing slows back from recent levels. "SO ALAN GREENSPAN AND BARBARA WALTERS SAT DOWN TOGETHER AT THE BAR"...SOUNDS LIKE THE BEGINNING OF A JOKE, BUT GUESS WHAT? IT’S TRUE. UNCLE AL AND BABA WAWA DATED IN THE 70’S. AS WE SAY FAREWELL TO OUR FED CHIEF, TAKE A MINUTE TO LEARN MORE FASCINATING FACTS ABOUT ALAN GREENSPAN IN THIS WEEK’S MORTGAGE MARKET VIEW.

Forecast for the Week

This week is a real juicy one for financial news…with the most important event being one of historical significance as well – the final Fed Meeting presided over by Chairman Alan Greenspan. After 18 ½ years as Chair, he will be passing the baton to Ben Bernanke on Tuesday, and deliver his last Fed Policy Statement. Will Big Al slip a mickey on his way out, leaving any nuggets of surprise? It’s not likely. The markets are highly expecting a .25% hike in the Fed Funds Rate, yet Traders will pay close attention to his comments as usual. And more big news will come with Friday’s Jobs Report, as Traders lean in to get a read on the employment markets. Last week’s Initial Jobless Claims came in below 300,000 for the second consecutive week…which spells good things for the job market. This could be a hint that the pending Jobs Report could be better than expected, which would give Bonds a knock lower and cause home loan rates to rise. The chart below clearly shows how Bond prices have recently stepped off the “Up Escalator”, and since Bonds and home loan rates go hand in hand…home loan rates have worsened slightly of late. Bottom Line: If next week’s news has an optimistic edge about the strength of the economy, it will be bad news for Bond pricing and home loan rates…and they may just continue to worsen. Chart: Fannie Mae 6.0% Mortgage Bond (Friday Jan 27, 2006)

The Mortgage Market View...

Farewell to the Chief…after more than eighteen years of service, Chairman Greenspan is turning over the reins of the Federal Reserve Board to his successor, Ben Bernanke. Let’s take a closer look at Greenspan and his legacy – the man, the myth, the legend. LONG TIME ON THE JOB - Alan Greenspan is the 13th chairman of the Federal Reserve, having taken over for Paul Volcker on 8/11/87. When Greenspan retires, he will have served as chairman for 222 months, the 2nd longest tenure of any chairman in the 93-year history of the Fed TIME TO SLOW DOWN - Greenspan will be 80 years old on 3/06/06, or just 6 weeks from today. On the day Greenspan becomes an octogenarian, basketball star Shaquille O'Neal turns 34 years old. Greenspan’s father was a stockbroker and his mother worked in retailing in NYC. INITIATION BY FIRE - Just 10 weeks after Greenspan became chairman on 8/11/87, the US stock market suffered its worst 1-day percentage loss in history. The 20% decline of the S&P 500 on 10/19/87 forced Greenspan to coordinate the flow of funds needed to maintain liquidity in the financial markets. CLASSY GUY - Greenspan studied at the Juilliard School of Music in NYC for 2 years in the 1940s. He played the jazz clarinet and traveled the country for 1 year with the Henry Jerome swing band. UNDERPAID - Alan Greenspan was paid $174,500 in salary over his last year on the job. LOVE THOSE MITCHELL GIRLS - Greenspan was married twice in his life and each of the 2 women had the same last name. He married artist Joan Mitchell in 1952 and then later married NBC news reporter Andrea Mitchell in 1997. He also dated Barbara Walters in the 70’s. HE SAID WHAT? - 4 famous phrases spoken by Alan Greenspan were 1) his 12/05/96 speech where he used the term “irrational exuberance” to describe the bullish performance of the US stock market; 2) his 2/16/05 description of the behavior of the world bond market as being a “conundrum”; 3) his 7/20/05 speech before a House committee when he acknowledged that there were “signs of froth” in certain real estate markets; and finally 4) an undated speech in which he is quoted as saying “I worry incessantly that I might be too clear” (source: Federal Reserve, Bloomberg News, Barron’s). ON HIS WATCH - During Alan Greenspan’s 18 ½ years as Fed Chairman, the S&P 500 has advanced +492% on a total return basis, equal to +10.1% compounded per year. The S&P 500 was up 15 of the 19 years (1987-2005) during his time in office. Additionally, the US economy has grown at an annual rate of +3.1% while inflation has gone up by a nearly equivalent +3.0% per year. HE RULES – 29 of the last 32 votes taken (2002-05) by the 12-member Federal Open Market Committee have been unanimous votes supporting the position taken by Greenspan (i.e., either to lower, raise or maintain short-term interest rates). The last dissenting vote was cast by Mark Olsen on 9/20/05. EVALUATING THE ECONOMY - The US suffered 2 recessions in Greenspan’s 18 ½ years as Fed Chairman. The country also flourished from 3/91 to 3/01, producing a 10-year period of economic expansion, the longest in our country’s history Information provided courtesy of Mick A. Higley, editor of “By The Numbers”, a weekly publication with great talking points about financial news from around the world. For more information, email Mick.Higley@mahbtn.com

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 30 – February 03 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.