“OUR GREATEST GLORY IS NOT IN NEVER FALLING…BUT IN RISING EVERY TIME WE FALL.” (CONFUCIUS) And the people of London showed inspirational courage after a terrible bombing attack last Thursday. Although the financial markets around the world were rattled, they also showed resilience on Friday and recovered Thursday’s declines.

US Stocks rallied higher at the end of the week on strong economic data, including the unemployment rate dipping to 5%, its lowest level in almost four years! The tight labor market means that employers will have to pony up more money for their new hires, and also to keep their present employees from being wooed away. This of course leads to more money for consumers to spend, which helps the economy keep chugging along even in light of recent higher oil prices.

But the good economic news does raise concerns about inflation…the arch enemy of Bonds and interest rates. This concern caused home loan rates to edge a bit higher by the end of the week, about .125% across the board.

ARE YOU LOCKED IN A CELL? WE’RE TALKING CELL PHONE PLANS HERE. THERE’S A GOOD CHANCE YOUR MOBILE PHONE PROVIDER’S CONTRACT HAS A “LOCK UP” PERIOD ON YOUR ACCOUNT, WHICH CAN MAKE GETTING OUT EARLY VERY COSTLY. DON’T MISS THIS WEEK’S MORTGAGE MARKET VIEW ON HOW TO GET THE BEST MOBILE FOR YOUR MONEY.

After the excitement of last week, Traders will welcome the lack of economic news for the first part of this week. But as they digest all the recent market action, the current weakness in Mortgage Bonds that led to an increase in home loan rates can’t be ignored. Let’s take a closer look.

Remember that when Bond prices move higher, this means home loan rates improve, and when Bonds move lower, home loan rates worsen. In the chart below, notice how the green “candles” on the far right of the chart have very long “wicks”. This means that although Bond prices traded higher throughout each particular day, they were pushed back lower by the closing bell and closed near their worst levels of the day. It is also quite interesting to see how the Moving Averages were the exact points at which Bond prices reversed and moved lower, typically a sign of market weakness.

Later this week, Traders will get a read on the strength of the consumer by way of the Retail Sales Report. And as always, close attention will be paid to the latest news on inflation with the Consumer Price Index (CPI) and Producer Price Index (PPI) Reports. In the absence of major news in advance of these releases, home loan rates will likely remain stable.

EVER TRIED TO SWITCH YOUR MOBILE SERVICE MID-CONTRACT…AND WONDER WHAT HAPPENED TO ALL THE NICE “FRIENDS AND FAMILY” AT YOUR SERVICE PROVIDER?

They don’t want to lose you. But since your cell phone number is now portable, it should be easier than ever to simply switch carriers to take advantage of better coverage or lower prices. Yet many mobile phone plans have a contract period of two years, and getting out of a plan early can cost from $150 - $200, which may negate your savings gained from making a switch.

With so many phones and plans, how can you make a choice you will not regret before your contract is up? Ask yourself - “Do I just have to have the latest bells and whistles on my phone?” If the answer is yes, you will probably be better off paying a bit more up front for a shorter lock in on your contract. On the other hand, if you are not a super heavy cell phone user, or the longer you can live with the same phone, the more up-front savings you can gain from accepting a longer contract.

But even after you have decided on a contract period, there are so many different plans to choose from…is there an easy way to do this? Yes! Take a look at www.myrateplan.com for help on cell phones, providers and plans in your specific area. It’s fast and easy to use. Best of all, it can help save you some cash.

Additionally, if you’re looking for the newest equipment models on the market as well as reviews, go to www.phonescoop.com.

The focal point for Traders this week will center on the Retail Sales and Consumer Price Index reports on Thursday, but Friday will provide a bevy of economic data as well.

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

For the week of July 11 – July 15

A BUTTERFLY FLAPPING IT’S WINGS IN BRAZIL…COULD THEORETICALLY GENERATE A TORNADO IN TEXAS. Or at least so says a theory known as the “Butterfly Effect”, often used to show how seemingly unrelated items actually can impact one another. And would you have guessed that a policy decision in Sweden could have helped home loan rates improve by about .125% last week? That’s exactly what did happen…so let’s take a closer look and understand.

Last week had a distinct lack of US economic news, but ever-vigilant Bond Traders were on the watch for market moving action all over the world. On Wednesday, Sweden decided to lower its benchmark rate (much like our Fed Funds Rate) to an all time low of 1.5%. So what? Well, this move raised concerns that the European Central Bank might just follow suit…and ever declining rates in Europe are translating into very low yields on European Bonds of all types. Meanwhile, our Bond yields are very strong, presently about 2% higher than what can be found in Europe. So where are Europeans with an appetite for higher yields buying their Bonds? You guessed it – right here in the US. The stepped-up demand causes Bond prices to rise, and home loan rates to decline.

And although this news didn’t cause a huge market reaction, last week also brought more good tidings for the housing front, as existing home sales posted expected gains and new home sales arrived with a nice fat increase. Next time you hear all the hype about “housing bubble trouble”…remember that national housing inventory – or the number of home presently available for sale – is at a 30 year low, per Frank Nothaft, Chief Economist of Freddie Mac. And although some real estate markets are more vibrant than others, the recent data indicates that demand is still exceeding supply, and the national housing market remains very strong overall.

EVER HIRE SOMEONE TO DO A LITTLE WORK AROUND YOUR HOUSE…AND BEEN LESS THAN SATISFIED? THIS WEEK’S MORTGAGE MARKET VIEW OFFERS SUGGESTIONS ON HOW YOU CAN AVOID HIRING SOMEONE WHO IS LOOKING FOR WORK IN ALL THE WRONG PLACES.

The economic calendar gets nice and meaty next week, offering a full slate of news and perhaps most importantly, the Fed meeting on Thursday. It is highly expected that the Fed will once again raise the Fed Funds Rate (FFR) by .25%, as the economic news of late has been solid, and the Fed wants to stay on track with their plan to bring the FFR up to 3.5 - 4%. This move is highly expected, but when Greenspan talks, Traders listen, and they’ll be hanging on his every word for any surprising comments.

But although the economy continues to clip along at a reasonable pace…there is one “fly in the ointment”; a buzzing concern about oil prices. Oil prices have been flirting with $60 a barrel, a very high level that raises some concern as to the impact on consumers and businesses alike. Will Chairman Greenspan get his hands greasy and address the topic? We’ll all have to wait and see.

The chart below shows the nice increase in Bond pricing of late…and in the absence of surprising comments from Greenspan or super hot economic news, Bonds may just keep their momentum and continue their upward trend, which would cause home loan rates to see some further improvement.

“WE JUST HAPPENED TO BE WORKING IN THE NEIGHBORHOOD…”

Don’t fall for this common ploy that shoddy contractors use to make a few easy bucks.

The scam: The doorbell rings on a Saturday afternoon, and a pleasant enough individual introduces himself as a contractor, who just happened to be doing some work in the neighborhood. And what a nice young man, he also happened to notice that you are missing a few shingles/boards on the deck/trim pieces, and sure enough, also happens to have some left over materials that look like an exact match.

The catch: the nice young man needs just a few hundred bucks to get started…but after pocketing the cash, the work is poorly done, or sometimes never completed at all.

Here are a few tips to protect yourself if you’re considering a fix-up project:

• Use common sense. Would a really terrific contractor actually be out trolling the neighborhood for spare odds and end jobs? Probably not.

• Ask your family, friends or coworkers for referrals of contractors who have done great work for them. Real Estate professionals may have terrific recommendations as well. Keep in mind that you should be the one seeking out the contractor, not the other way around.

• Ask other contractors that you’ve worked with in the past for recommendations on your specific project, even if it is not their area of expertise. Quite often, great plumbers may know great painters who know great roofers…and so on.

• Remember that a “licensed” contractor only means they were able to pass a written test, not necessarily that they are able to perform quality work. If the contractor is not referred, be sure to check some references.

The economic calendar heats up considerably this week, and many moderate to high impact releases are in store. The Fed policy statement on Thursday will likely garner strongest attention for week ahead.

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

For the week of June 27 – July 01

“MR. BIG STUFF…WHO DO YOU THINK YOU ARE? MR. BIG STUFF…YOU’RE NEVER GONNA GET MY LOVE...” (Jean Knight)  Bond Traders had this tune on their mind last week, as Mr. “Big Stuff” himself, Chairman Greenspan testified before Congress as to the state of the economy. Mortgage Bonds came under pressure on his words and positive economic news for the week, and home loan rates worsened by about .125%. Here’s the scoop.

Greenspan first affirmed that the economy looks healthy, and stated "policy accommodation can be removed at a pace that is likely to be measured.” Translation: the Fed will likely continue its series of rate hikes through the summer, taking the Fed Funds Rate between 3.5% and 4.00%.

He also confirmed that although the media continues to beat the drum, a nationwide housing bubble is not eminent. He did state that a few markets where prices have risen dramatically might see a little “froth”, but not a bubble.

What caused Mortgage Bonds and home loan rates to take a hit was his “warning shot over the bow” of hedge funds and those investors hoping to make a quick buck in real estate, saying that lower long-term rates don’t make much sense. He stated, “Among the biggest surprises of the past year has been the pronounced decline in long-term interest rates…despite a 2-percentage-point increase in the Federal Funds Rate. This is clearly without recent precedent.”

SO WHAT IS DRIVING THE BEAT OF THE “CONUNDRUM” OF PERSISTENTLY LOW LONG TERM RATES…AND WHAT MAY BE IN STORE? DON’T MISS THIS WEEK’S MORTGAGE MARKET VIEW.

A look at the economic calendar below shows that the week ahead is chock-full of economic reports for the market to move on, and it could be a volatile week for Bonds and home loan rates. Since we know that Bonds and home loan rates typically react well to disappointing or weak economic news, watch the headlines for any of these reports to come in soft…this means home loan rates could improve. And vice versa, if the economic news shows strong numbers, home loan rates could worsen in a hurry.

This week’s chart shows how Mortgage Bonds got kicked off the “up-escalator”, and it would take some mighty weak reports for them to step back on and help home loan rates continue to decline.

And Chairman Greenspan called attention to the Consumer Price Index report, saying he really “dislikes the figure” in terms of decision making…but his comment just draw more attention to the release. Ever heard the line “Don’t think of a cow”? Of course you can’t do anything but think of a cow when you hear it, and in much the same way, Greenspan has turned Traders attention towards this report. It remains to be seen if Traders agree with Mr. Greenspan on the significance of the CPI. Additionally, the Fed will continue the road show this week, as Board Governors take the stage all over the country. Their comments are always monitored, and often become wild cards in the market.

Forget about the secrecy, the mystery, the intrigue...since last summer, the Fed has been letting it all hang out. In fact, the Fed has told us exactly what they were going to do. Get to a neutral policy on rates before the Greenspan era ends in January of 2006.

So what's a neutral policy, you ask?

That is where the Fed Funds Rate equals the rate of inflation, plus 1.5%. With inflation presently around 2.5%, the Fed Funds Rate (FFR) should be around 4% for the Fed to get to neutral. Right now, the FFR is at 3%, a full 2% above where it was in June of 2004. So the Fed will continue to raise rates at a self-proclaimed "measured pace" until the FFR is around 4%. The term "measured pace" tells us to look for these hikes in ?% increments, and for them to happen at the Fed meetings, not as surprise moves.

Then what's the deal with home loan rates?

The Fed has hiked 8 times and tripled the FFR since June of 2004, but home loan rates have dropped by 3/4% during the same period. This clearly demonstrates that the Fed does not control long-term or home loan rates. The Fed controls overnight or very short-term rates that banks charge each other for funds. And the banks do use this FFR to determine their Prime Lending Rate, often used to base auto loans, credit lines and Home Equity loans upon.

On the other hand, longer-term investors that hold fixed return Bonds such as fixed rate home loans, are interested in how the value or buying power of the fixed payment return will hold up over time. So if inflation is moving higher, the Bonds fixed return erodes. Why? Simply because inflation means it will cost more down the road to buy the very same things they could today for less. This will cause the investor to require a higher rate on future transactions to compensate them for the erosion in buying power caused by inflation. If inflation moves higher, so will long-term rates.

And when the pace of inflation declines, long-term rates tend to decline as well. This is because the buying power of the fixed payment stays stronger longer. Now here's where it gets interesting...a Fed hike can slow inflation, which can actually help reduce long-term rates. This is exactly what has happened since June of '04.

So why is this being referred to as a "conundrum"...don't they know this stuff?

Sure, but because there is no historical precedent for what is currently taking place with interest rates, many are left scratching their heads. But the discussion above should clear things up. And as for the lack of historical precedent, the answer is also clear. In the past, the Fed raised rates to react to inflation, but this time the Fed is raising rates in anticipation of inflation.

But why? With no real inflation problem, why the rush to juice rates higher?

Yet another simple and logical explanation...the Fed is "reloading". The primary way the Fed can heat up or cool down the economy is with changes to the Fed Funds Rate. When the US economy went into a decline in 2001, the Fed cut the FFR 11 times in 11 months, from 6.5% to 1.75%, with 8 of the cuts by ?%. The swift move by the Fed made the recession one of the shortest in history. They were able to quickly repair the US economy because they had the ammunition to do it. If the US economy were to stumble when the FFR is already very low, the Fed would have a far more difficult time stimulating the economy, as there is nowhere to cut lower to.

The Fed is very smart. A 3.5 to 4% FFR gives the Fed some firepower to jump-start the economy if it slows or if an unfortunate event were to take place. This target rate is also a good level to keep inflation at bay if the economy were to pick up steam. The Fed is trying to find a "Goldilocks-approved" level for the FFR...and so far appear to be doing a good job.

After last week’s economic report “siesta,” Traders will be kept wide awake with this week’s extensive calendar. Among the most important will be Tuesday’s Retail Sales report and Producer Price Index – a measurement of inflation at the wholesale level – backed up by Wednesday’s Consumer Price Index, measuring inflation at the consumer level.

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

For the week of June 13 – June 17

“WELL, SHAKE IT UP, BABY, NOW…TWIST AND SHOUT…” (JOHN LENNON) And while Traders were braced for a “shake-up” with the big Jobs Report on Friday, they really weren’t prepared for the “twist”. Let’s take a closer look. The Jobs Report has the ability to influence trading for days and weeks to follow, so the market was on the edge of its seat Friday morning waiting for the number of new jobs created during May. About 180,000 new jobs were expected…but the number arrived at only 78,000, the lowest number since August 2003. Normally this downward miss would help propel Bonds higher and help home loan rates improve – but there was a twist.

First, the prior months huge number of job creations was confirmed with no downward revisions, showing that although the numbers may bounce around, the job market is very much alive and well – averaging a beefy 180,000 new job creations per month. Other components of the Report showed that the rate of unemployment is also at very low levels, and hourly wages are increasing, indicating potential for wage pressure inflation. And yet another twist – the team at the Fed made comments that were all over the board last week about the possibilities of inflation ahead…and the markets don’t like uncertainty. Overall, Bonds and home loan rates bounced around over the course of the week, but ended the week close to where they started.

AND SPEAKING OF THE “TWIST”…EVER FEEL LIKE YOUR CREDIT CARD COMPANY IS TWISTING YOUR ARM ON PAYMENTS? WELL GET READY TO SHOUT…YOUR PAYMENTS MAY DOUBLE SOON. DON’T MISS THIS WEEK’S MORTGAGE MARKET VIEW.

The coming week will be a quiet one news-wise, with only two economic releases on the docket, neither of which are likely to move the markets significantly. While Traders may take a “pause that refreshes” and reflect upon the happenings of last week, they will be watching technical signals for clues on trading. News and conditions that drive changes in the market such as inflation, the Jobs Report or geopolitical events are called “fundamentals”…and when there is a lack of fundamentals to drive market action, Traders rely on “technicals”, meaning they watch charts for patterns, past prices, moving averages, trading volume and the like to make their trading decisions.

The chart below shows a technical look at how Mortgage Bonds have been moving higher in recent months, meaning home loan rates have been going increasingly lower. But although the trend has been towards improvement, can the ride continue? The red “candles” indicate a day that Bonds closed lower than they opened – so notice the long red candle on the very right, showing Friday’s weak close. This may mean a reversal, which can happen fast…so it pays to be very cautious as home loan rates could pivot back higher in a hurry.

WHAT’S IN YOUR WALLET? If it’s a stack of charge cards and you are one of the 70% of Americans that are carrying credit card balances, get ready for some unpleasant surprises.

It’s not bad enough that credit card interest rates are typically high and always non-tax deductible…but now, minimum payments are going up.

What’s behind the move? Pressure from Washington and guidelines from the new Bankruptcy Abuse and Consumer Protection Act of 2005 are causing credit card issuers to increase the minimum payment required by 50 to 100%. Washington has seen many consumers get further and further into debt, enticed by minimal payment requirements with little thought as to how long it will actually take to pay the debt back. Soon to be seen on credit card statements, full disclosure of how long it will take to repay the debt based on making the minimum payment.

And like a parent giving a child medicine, the new changes may not taste very good going down, but the results may be beneficial in the long run for the individual. Total interest paid will be cut by nearly 80% and the time to repay will be slashed by nearly 70%. However, there may be some negative consequences to this change, as some consumers will find the payment adjustment hard to swallow. The retail sector of the economy may be affected as well, as consumers may be less likely to purchase due to the increased minimum payment required when charging it.

With long-term interest rates at very attractive levels, many consumers are choosing to clean the slate by consolidating all debt within a home refinance. Another solution could be to utilize a home equity line of credit, but as always, consult your mortgage and tax professionals for the best alternatives and solutions that meet your needs.

After last week’s power-packed economic calendar, Traders will get to relax with only two reports scheduled for release this week. On Thursday, the weekly Initial Jobless Claims report is set for release followed by Friday’s Balance of Trade report.

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

For the week of June 6 – June 10