October 16 2006

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For the week of Oct 16, 2006 --- Vol. 4, Issue 42

Last Week in Review

DON'T JUDGE A BOOK BY ITS COVER...And on Friday, the markets learned not to judge all economic reports by their headlines. The Retail Sales Report arrived with a bang - and at first glance appeared to be much weaker than expected, with the headline numbers appearing as if consumers were pulling back on their spending. But upon taking a closer look, once gasoline and auto sales were removed, the Report actually showed that spending in the nation's shopping malls continues to steam onward and upward...the buying habits of the US consumer appear to be alive and well. And although the "cover of the book" after the last Fed meeting gave the indication that inflation was under control, as the official word following the meeting was that the Fed again elected to pause in the rate hike cycle...the inside story spun a bit of a different tale. Last Wednesday, the "Meeting Minutes" from the last Federal Open Market Committee policy-setting meeting were released, giving the details of the dialogue amongst the attending members, including those who did not vote in the last meeting. As it turns out, the comments reeked of continued concerns about inflation in the economy. And because inflation erodes the value of a fixed-return Bond, it's bad news for Bonds - and therefore home loan rates, which are based on Bonds. On all this news, home loan rates were unchanged to slightly worse, about .125% higher over the course of the week. DOES ALL THIS TALK OF HIGHER INFLATION MAKE YOU FEEL A LITTLE ILL? YOU MAY WANT TO REACH FOR THE PEPTO BEFORE VISITING YOUR DOCTOR, BECAUSE HEALTHCARE COSTS HAVE INFLATED THREE TIMES FASTER THAN EVERYTHING ELSE IN OUR WORLD. READ THIS WEEK'S MORTGAGE MARKET VIEW TO LEARN WHAT SOME ARE DOING TO SAVE MONEY ON THE EVER-INFLATING COSTS OF MEDICAL CARE.

Forecast for the Week

So last week's Fed Meeting Minutes pretty much said, "Take this pause and shove it". Why? Well, in addition to Richmond Fed Pres Jeffrey "The Dissenter" Lacker, there were several other members of the Fed who believe that more hikes should be in order, but it wasn't their turn on the ticket to actually vote. So it's not just Lacker who is seeing a threat of inflation. Recently, most Traders felt confident that the Fed was done with their string of hikes...but these comments now leave everyone unsure as to if and when the Fed will really be done. Additionally, the Minutes also revealed that the Fed sees continued US economic strength going into 2007, and they are uncertain whether the recent drop in energy prices can be counted on to remain in place much longer. Remember - good news for the economy is good news for Stocks...but because Stocks and Bonds are often competing for the same investment dollar, good economic news can be bad news for Bonds, and therefore home loan rates too. You can bet that with all this renewed talk on inflation, the Fed will be closely watching this coming week's Producer Price Index (PPI) and Consumer Price Index (CPI), which measure inflation on both the wholesale and consumer levels. If the news bears out continued economic strength and whiffs of inflation - home loan rates will worsen on the headlines. Chart: Fannie Mae 6.0% Mortgage Bond (Friday Oct 13, 2006)

The Mortgage Market View...

"IN THE FUTURE, WE'LL ALL HAVE 15 MINUTES OF FAME...AND 15 MINUTES OF HEALTHCARE." Nicole Hollander Many Americans aren't feeling very famous when it comes to the quality of healthcare service - and along with the lack of service has come the ever-escalating costs. According to the National Coalition on Health Care, medical expenses are increasing at three times the rate of inflation! So here comes the latest trend...the "outsourcing" of healthcare. Many Americans are fed up with the high cost of healthcare in the United States, and are actually outsourcing their medical needs to other countries, such as Costa Rica, India, Thailand and Mexico. In fact, some US healthcare plans even cover approved providers in Mexico. Sound crazy? Maybe...maybe not. Say a doctor in California performs a medical checkup and diagnoses that a patient is in need of bypass surgery within the next few months. After shopping around, the patient finds that the average price for the surgery in California is $60,000. But if the patient's health permits and the patient is able to fly to India, that same surgery will run about $6,500. Even with the added travel expenses, the price is still substantially lower. And it may be possible that the travel expenses could qualify for a tax deduction. There are many examples of these types of savings, especially when it comes to elective surgeries. If you are considering catching a flight to another country to take advantage of the money you can save on healthcare, remember - safety first. Be sure to ask for a referral of an overseas doctor from a physician, family member, or friend. And check with your current medical insurance provider to see if any of these expenses may be part of your existing coverage. When it comes to tax deductions, be sure to seek the advice of a tax professional to confirm that medical deductions apply to your own personal tax situation. If you do not have a great tax professional, please feel free to contact me and I would be happy to recommend one.

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 October 16 – October 20 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.