April 10 2006

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For the week of Apr 10, 2006 --- Vol. 4, Issue 15

Last Week in Review

EVER WATCHED A SUPER SCARY MOVIE? You always know when to expect the big scare. You are primed and ready to jump, because the music is high and intense...the terrified looking actor is backing into a menacing hallway (who actually ever does this?)...the scene is dark and shadowed. But the biggest scares actually come when you least expect them - you've just let your breath out in relief as they switch the lights on and find all is well - when suddenly the crazed local cat screeches and jumps onto the actor's head. That drama is about what played out in the Bond market last Friday. All eyes were watching for the all-powerful Jobs Report, waiting for the latest read on the health of the US economy. At 8:30am ET, the numbers arrived essentially in-line and positive, with just a whiff of inflation, as the unemployment rate declined to 4.7% and 211,000 new jobs were added to the economy during March. But just when the market least expected it, the Bank of Japan suddenly dropped a "screeching cat" into the mix. A rumor began to circulate in the pits over the intentions of the Bank of Japan - the equivalent to our Fed - to raise interest rates in Japan. Why did this rumor have the startling impact that it did on Bonds, and cause home loan rates to pop up by .125% on Friday alone? Here's the scoop. Home loan rates are based on Bonds. Japanese investors have been very heavy buyers of our US Bonds, and their appetite in recent years has supported high Bond prices, and therefore low home loan rates. But if investment rates of return in Japan now begin moving higher, the Japanese investor would logically choose to stop buying our US Bonds and keep their money closer to home. So the rumor of higher rates in Japan had Traders jumping out of their skin and racing to sell, fearing what might be lurking just around the corner...the anticipated loss of Japan as a huge Bond buyer. TOO MANY SCARY MOVIES HAVE BEEN BASED AROUND A "SUMMER CAMP" THEME...BUT THE REAL LIFE SCARE WOULD BE REALIZING YOU WAITED TOO LONG AND MISSED YOUR CHANCE TO SEND YOUR CHILDREN TO A GREAT SUMMER CAMP. DON'T DELAY IN READING THIS WEEK'S MORTGAGE MARKET VIEW.

Forecast for the Week

So what now? Bonds took a cruel beating on Friday, but it's possible that the reaction may have been a bit overcooked. The market often tends to overreact to startling news...much like someone yelling "Fire" in a crowded theater will start a panicked stampede, even if there is no fire at all. Traders will now be looking ahead to the fresh economic news coming this week, but will be keeping one watchful eye out for inflation, and the other on what the Bank of Japan might be up to next. On a technical level, you can see the floors of support identified in the chart below, which help to hold Bond prices at their present levels. Traders will be watching and waiting, and if the news this week continues to reek of inflation...or if more disturbing news comes out of foreign markets, Bond pricing might just move lower still, causing home loan rates to rise. A break below technical support at $99.50 will carry Bonds down to new multi-year lows, meaning home loan rates will be approaching multi-year highs. We'll have to continue watching the headlines...and the bylines as well. Chart: Fannie Mae 6.0% Mortgage Bond (Friday Apr 07, 2006)

The Mortgage Market View...

Bonfires and s'mores, "Bug Juice", bunk beds, hiking in the woods, Capture the Flag, cold lake water swimming, and good old songs like "Boom Chicka Boom"... Bring back some nostalgic memories? Yep, it's that time of year again...time to think summer camp. But summertime is approaching fast, so if you'd rather have your kids enjoy a camp experience versus having them sitting on the couch getting square eyes from watching TV...you will want to start your research engines right now. Start by asking your children what type of camp they might like to attend. But brace yourself - there are a vast array of camps available these days, ranging from traditional camp experiences to "special interest" camps focusing on art, horses or karate. Whatever the preference, you are likely to find a perfect match - but do your research first. As you might expect, specialty camps are much more expensive than traditional camps, and day camps are substantially less expensive than "sleep-away" camps. Let’s take a look. The average cost for a day camp is $250 a week, versus $400 to $900 a week for a sleep-away experience. To find the right camp at the right price tag, start with the following links: www.kidscamps.com, www.summercamps.com, or www.campsearch.com. If cost is an issue and your child has their heart set on going to camp, look into these alternatives. Price your camp dates for August versus July, which is the most popular month to attend camp. In many cases, you will find lower fees for August dates. Additionally, nearly two-thirds of camps offer financial aid, "camperships" or payment plans. Of course, never sign on the dotted line until you look into the interest rate and terms associated with a payment plan...and in general, be on the lookout for hidden fees that could create a costly surprise. Many camps charge additional fees for computer usage and luggage transport. Additionally, check to see if the camp contract has a refund policy just in case your child gets homesick or becomes ill. Knowing you will not be out all of the funds invested if your child has to return home early will give you more peace of mind. And get started right away! Wait too long and space may not be available, as many popular camps sell out in May. Signing up early may save you a few bucks too. Many of the popular camps offer a 10% discount for early registration and if your child has siblings, you can often gain an additional 10% to 15% discount for signing up more than one child in the same program. Be sure to save your receipts to take advantage of potential tax breaks. Children under 13 years of age, enrolled in day camp (not sleep-away), may earn you a tax credit of $1,050 for one child and $2,100 for two or more. Alternatively, if you have a flexible spending account (FSA) through your employer, contact your payroll department and find out if you can use those pretax dollars to pay for summer camp. Most FSA's allow a contribution of $5,000 a year in pretax dollars for childcare expenses and summer camp may fall under that category. As always, be sure to confirm all tax breaks with your trusted CPA...and should you need a referral for a qualified CPA, please do not hesitate to phone or email me!

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 April 10 – April 14 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.