MMG Weekly: Showdown Between Bulls and Bears

 

Edward F. W. Deanes Home Mortgage Consultant Wells Fargo Home Mortgage Phone: (757) 418-2064 Fax:: (866) 935-0661   edward.deanes@wellsfargo.com www.deanesgroup.com

In This Issue               Last Week in Review: Stock market teeters on the verge of becoming either a correction...or an "official" Bear market. Forecast for the Week: A fully loaded plate of economic news is in store, including reads on housing and consumer attitudes. View: How you can "insure" a smart and safe vacation this summer.             Last Week In Review               IT'S A SHOWDOWN...THE BULLS VS. THE BEARS. But we're not talking about the Chicago Bulls who were recently knocked out of the NBA playoffs. We're talking about the Bull Market that Stocks have enjoyed over the past months...that is now slipping back lower. So why are these animal terms used to describe action in the Stock market anyways? The terms "Bull" and "Bear" are used because of the way those animals attack. Bulls attack using an upward thrusting motion with their horns, and Bears attack by moving their powerful claws in a downward motion. So an upward market is termed a Bull market, while a downward market is called a Bear market. Last week, Stocks saw a sharp thrust downward, with prices down more than 10% from their peak. But that doesn't mean it's a Bear market just yet. Instead, the drop can be seen as a "correction", if prices recover and resume their uptrend. A correction can be quite healthy, and help a Bull market sustain its strength. But here's the trick: if the market drops 20% from its peak, it's officially considered a Bear market. That means every Bear market was once potentially just a correction. And so the debate rages on. Is this a good time to buy - because you believe it's a correction and prices will move much higher? Or is this a time to sell, before the correction turns into a Bear market? The answer should become clearer over the next few days, as the market's direction takes hold. Waiting in the wings are Bond prices and home loan rates... A Bear market could help Bond prices and home loan rates improve a bit more, as some of the money from Stock sales finds its way into the Bond market, including Mortgage Bonds. On the other hand, a correction back to a Bull market will be at the expense of some of the recent improvements that Bonds and home loan rates have enjoyed. The reality is, Mortgage Bonds have looked a lot like a lottery winner recently, since Bond prices really should be much lower, and home loan rates much higher. But Mortgage Bonds are catching every lucky break - from the situation in Greece...to the declining Euro...to the correction in the Stock market. It's all going in the favor of Mortgage Bonds...for now. But the Bond market's good fortune may not last very long - so be sure to give me a call if I can help explain the current rate situation, and how it might benefit you. ----------------------- BULL MARKETS THRUST UPWARD...WHILE BEAR MARKETS SWIPE DOWNWARD Despite the sharp sell-off in Stocks, the markets did receive some good news last week on the inflation front. The Producer Price Index (PPI) was reported lower than expectations for the month of April, and the more closely followed Consumer Price Index (CPI) fell to report the first month-over-month decline since March of 2009. And when volatile food and energy prices were removed from the equation, the annual Core index came in at its lowest level since January 1966. Those numbers appear to show that inflation is subdued - and with oil prices significantly lower from where they were a few weeks ago, there will even be more downward pressure on headline inflation in the next report. But the reality is that inflation will eventually begin to rear its ugly head - and once that happens, inflation can accelerate rather quickly. China recently reported a spike in inflation - and last week, the UK saw surprisingly higher inflation numbers being reported as well. So the Fed - and the markets - will have to continue to keep close tabs on inflation in the US. WHILE YOU CAN'T CONTROL IF THE BULLS OR BEARS WILL WIN THE NEXT ROUND IN THE MARKETS...THERE ARE SOME THINGS YOU CAN CONTROL. FOR EXAMPLE, CHECK OUT THE MORTGAGE MARKET GUIDE VIEW BELOW FOR TIPS ON "INSURING" A SMART AND SAFE VACATION THIS COMING SUMMER.             Forecast for the Week               There's a very full load of economic reports on tap this week, including fresh news on the health of the housing industry. After last week's reports on Housing Starts and Building Permits in April, we'll see reports on Existing Home Sales right away Monday morning and New Home Sales on Wednesday. We'll also discover how consumers feel about the economy with a report on Consumer Confidence on Tuesday, followed by the Consumer Sentiment Index on Friday. Both reports have risen lately, indicating that consumers feel better about the present and future economic conditions. The markets will be watching to see if that trend continues in this week's reports. The manufacturing sector of the economy will also be in the spotlight this week. Wednesday brings the Durable Goods Orders report, which measures new orders placed and is considered a leading indicator of manufacturing activity. That report will be followed by the Chicago PMI on Friday. This report surveys more than 200 Chicago purchasing managers about the manufacturing industry and is a good indicator of overall economic activity. And if that wasn't enough, we'll also see more inflation news this week. First, the Gross Domestic Product (GDP) and GDP Chain Deflator for the first quarter will be released on Thursday. The Chain Deflator is a key inflation measure included in the GDP Report. And since inflation is the archenemy of Bonds and home loan rates, this report could be a market mover. Unlike the Consumer Price Index that was released last week, the Chain Deflator has the advantage of not being a fixed basket of goods and services, so changes in consumption patterns or the introduction of new goods and services will be reflected in the Chain Deflator. Then, one day after the Chain Deflator comes out, we'll see the Personal Consumption Expenditures report on Friday. This report measures price changes in consumer goods and services, and is considered the Fed's favorite gauge on inflation. After last week's better-than-expected inflation news, the markets will definitely be watching these reports. Rounding out the week, we'll also see reports on Personal Income and Personal Spending this Friday. But that's not all...in addition to all those reports, the government will auction off $42 Billion of 2-years on Tuesday, $40 Billion of 5-years on Wednesday, and $31 Billion of 7-years on Thursday. These auctions may move the markets depending on how they are received. Oh, not to mention that the news coming out of Europe may once again add to the market's volatility here at home. That's a very full helping of potentially market moving activity. But you can count on me to be here and watching very closely. And remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, Mortgage Bonds have improved over the last few weeks, as Stocks have undergone their move lower. I'll be watching closely to see if Bonds...and home loan rates...can continue to improve in the week ahead. ----------------------- Chart: Fannie Mae 4.5% Mortgage Bond (Friday, May 21, 2010)             The Mortgage Market View               "Insuring" a Smart and Safe Vacation Summer is right around the corner, and that means many people are starting to plan some kind of summer getaway. When planning your fun-filled itinerary, the last thing you want to do is worry about any financial loss that might occur as a result of a missed flight, an injury or illness, lost baggage, or any other unforeseen incident. To ensure your peace of mind while away from home, many companies provide several different types of traveler's protection plans to help ease the burden. Without insurance, a traveler can lose nonrefundable deposits and prepayments that can add up to hundreds, or even thousands, of dollars. A good, comprehensive travel insurance plan will often reimburse a traveler for all pre-paid, nonrefundable expenses for a covered loss. Here are some general types of coverage you may want to consider before heading out for this summer's vacation: Travel Arrangement Protection - This covers you in case of trip cancellation, interruption, or travel delays (these can include inclement weather, lost or stolen passports, quarantine, hijacking or natural disaster). Medical Protection - Just because you have health insurance at home, the moment you set foot on foreign soil or even set sail on a cruise, many health plans are considered null and void, so be sure you get travel medical protection to cover emergency medical expenses, such as illness and accident expenses, and emergency medical transportation to the nearest medical facility. Baggage Protection - Not only do you want coverage for lost, stolen or damaged baggage, but many plans offer reimbursement for the purchase of essential items if baggage is delayed. Worldwide Emergency Assistance - If traveling outside of the country, make sure you purchase a policy that covers international emergencies. This can include emergency cash transfer assistance, legal assistance, and lost travel documents assistance. The cost of travel insurance is based, in most cases, on the value of the trip and the age of the traveler. Typically, the cost is 5-7 percent of the trip cost. Like most every other type of insurance, be it automobile, medical, or homeowner's, you hope you never need to use it. But it can be a relief to have it when you do need it. The bottom line is: Before embarking on your next trip, do your homework! Talk to your insurance agent - or call me for a recommendation - and learn more about all the different insurance options available to you, so you can make the best choice for your peace of mind! Economic Calendar for the Week of May 24 - May 28 Date ET Economic Report For Estimate Actual Prior Impact Mon. May 24 10:00 Existing Home Sales Apr 5.6M   5.4M Moderate Tue. May 25 10:00 Consumer Confidence May 58.5   57.9 Moderate Wed. May 26 08:30 Durable Goods Orders Apr 0.9%   -0.3% Moderate Wed. May 26 10:00 New Home Sales Apr 420K   411K Moderate Wed. May 26 10:30 Crude Inventories 5/22 NA   0.162M Moderate Thu. May 27 08:30 Jobless Claims (Initial) 5/22 NA   NA Moderate Thu. May 27 08:30 Chain Deflator Q1 0.9%   0.9% Moderate Thu. May 27 08:30 Gross Domestic Product (GDP) Q1 3.3%   3.2% Moderate Fri. May 28 08:30 Personal Income Apr 0.5%   0.3% Moderate Fri. May 28 08:30 Personal Spending Apr 0.3%   0.6% Moderate Fri. May 28 08:30 Personal Consumption Expenditures and Core PCE Apr NA   0.1% HIGH Fri. May 28 08:30 Personal Consumption Expenditures and Core PCE YOY NA   1.3% HIGH Fri. May 28 09:45 Chicago PMI May 62.1   63.8 HIGH Fri. May 28 10:00 Consumer Sentiment Index (UoM) May 73.3   73.2 Moderate               [mmgwDisclosure]   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.   Mortgage Market Guide, LLC is the copyright owner or licensee of the content and/or information in this email, unless otherwise indicated.   Mortgage Market Guide, LLC does not grant to you a license to any content, features or materials in this email.   You may not distribute, download, or save a copy of any of the content or screens except as otherwise provided in our Terms and Conditions of Membership, for any purpose.

MMG Weekly: Small World... Big Impact

 

Edward F. W. Deanes Home Mortgage Consultant Wells Fargo Home Mortgage Phone: (757) 418-2064 Fax:: (866) 935-0661   edward.deanes@wellsfargo.com www.deanesgroup.com

In This Issue               Last Week in Review: Events in Europe continue to dominate the economic headlines. Find out what it means for our economy and home loan rates. Forecast for the Week: A double dose of inflation data is on the way, and more news from the Eurozone is sure to be in store...plus updates on housing, manufacturing and jobless claims. View: Learn what great project could help you increase the value of your home...and will bring you enjoyment, too!             Last Week In Review               "IT'S A SMALL WORLD AFTER ALL..." That sentiment was definitely felt in the financial markets last week, as the problems in Europe continue to dominate the headlines and influence market direction around the globe. So what exactly is going on...and what does all of this mean for our economy and for home loan rates? Read on for details. Due to financial instability in several countries in Europe - including Portugal, Ireland, Spain, and most notably, Greece - the European Central Bank along with the International Monetary Fund unveiled a $955 Billion loan package. Additionally, in a plan similar to our TARP plan in the US, the European Central Bank will purchase Bonds and private debt from the countries facing instability. However, it seems that nearly a Trillion dollars doesn't go very far these days, as the announcement didn't lead to the confidence that was hoped for. There is concern about how these already financially strapped countries will pay for all this additional debt, along with skepticism over whether Greek austerity measures will take root...and many wonder if the European bailout plan is just a temporary band-aid rather than a solution. The result continues to be a weaker Euro, as you can see in the chart below. At $1.24 per each Euro, the price is well off where it was a few months ago, when it cost nearly $1.60 for each Euro. ----------------------- Chart: Euro versus the Dollar Why is this important? When the Dollar was weaker, it made our imports more costly and travel to Europe more expensive. But it also made our exports far more attractive to foreign purchasers, and that has helped many of the large multi-national US corporations. As this situation is now reversing, it will likely have an adverse effect on those same multi-national corporations - which has contributed to some of the decline in Stocks we have seen. And remember: When Stocks decline, Bonds and home loan rates are typically the beneficiary. As long as the global viewpoint that the US is a safe and stable place for Bond investments continues, Bonds and home loan rates could benefit. However, because it is a small world, with many factors influencing markets, a factor that could hinder this benefit is growing inflation in China. Inflation in China could spill into the US, as the increased cost of their goods could translate into higher import prices we will pay for their products. And inflation is the arch enemy of Bonds and home loan rates, so this will be important to watch as well. As if that weren't enough activity from around the world to keep up with, the massive added supply of debt coming into our markets from our own Treasury auctions...which can also adversely impact Bonds and home loan rates...can't be ignored, either. After all the news of the week and much volatility, Bond prices and home loan rates ended the week about the same as where they began. Remember that with the news coming in fast and furious from around the globe - you can always count on me to keep you informed, and I look forward to talking with you or hearing from you anytime. IT MAY BE A SMALL WORLD, BUT HAVING A SMALL BATHROOM CAN IMPACT THE VALUE OF YOUR HOME! CHECK OUT THE MORTGAGE MARKET GUIDE VIEW FOR GREAT TIPS ON REMODELING.             Forecast for the Week               We'll get a double dose of inflation news this week, with Tuesday's Producer Price Index, which measures inflation at the wholesale level, and Wednesday's Consumer Price Index. As mentioned above, inflation is the arch enemy of Bonds and home loan rates, and any hint of inflation in these reports could impact the markets. Housing, manufacturing, and job news are also in store this week, with Tuesday's Housing Starts and Building Permits Reports (which give us an update on the health of the new construction sector of the housing market) and Thursday's Philadelphia Fed Report (which gives us an update on the manufacturing sector) and the weekly Initial Jobless Claims Report. Initial Jobless Claims numbers have remained stubbornly high and somewhat contradict the recent positive tone of the past couple of Jobs Reports. The most troubling numbers in the report are the additional 5.13M people claiming EUC (Emergency Unemployment Compensation), which are benefits lasting longer than 26 weeks, up to 99 weeks in total. This is an enormous drain on the economy. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, recent events overseas have helped Bonds and home loan rates improve. I'll be watching closely to see what happens this week - and always feel free to forward this newsletter along to any family members, friends, clients or colleagues who would like to stay informed and advised. ----------------------- Chart: Fannie Mae 4.5% Mortgage Bond (Friday, May 14, 2010)             The Mortgage Market View               Remodeling Your Bathroom: A Project Worth Investing In The economy is showing signs of recovery. In fact, just last week, Retail Sales were reported up for the seventh straight month - thanks in large part to the 6.9% gain at hardware stores and garden centers. If you've been thinking about spending some money of your own at a hardware store for a project around the house but aren't sure you can justify spending the money, we've got two words for you - bathroom remodel. The Beauty of a Bathroom - You can live without a theater room or a home office, but any house worth buying must have at least one bathroom. This may seem obvious, but take a minute to think about it. Aside from the kitchen, there is no other room that's more utilitarian. The bathroom actually has multiple uses, possibly making it the most necessary room in the house. Return on Investment - In terms of remodeling a home's bathroom, the returns can be staggering. While many home remodeling projects return only pennies on the dollar in terms of adding value to the home, some studies indicate a national average return of 90% or even more for mid-range bathroom remodels. While the amount of your return will certainly depend on many variables - it is one of the most desirable upgrades in a home, and brings amongst the highest returns. The Options are Endless - When it comes to the particular upgrades for your bathroom, the options for luxury and function are many. There are two main factors to consider: what specific upgrades will enhance your life, and how much money can you afford to spend? The following are just a few ideas of awesome upgrades that also function as sound investments: Make It Bigger. A major trend is to expand the size of the master bathroom. Adding space to this room is a wonderful luxury as well as a potentially huge selling point. An augmented master bath allows you, as well as any potential buyers, the ability to make other additions and upgrades. Build for Two. One of the major issues for homeowners with only one bathroom, or couples sharing a master bath, is the inability for two people to use one bathroom simultaneously. If size permits, this problem can be alleviated with upgrades, like a double sink, a separate shower and tub, and a short wall to enclose the toilet area. Add a Designer Touch. From tubs and toilets to fixtures and flooring, there is literally no end to the combinations of great looks. These types of improvements are relatively inexpensive in comparison to the dramatic upgrade they give to the look and feel of your bathroom. Walls can be repainted. Old counter tops can be replaced with granite or marble, and vinyl flooring can be upgraded to tile. Invest in a Spa Experience. If luxury is what you're looking for, you may want to think about an oversized tub, either sunken or raised, with Jacuzzi capability. State-of-the-art showerheads can also be installed, giving you options like receiving a water massage or bathing under a rainfall. Tile floors, towel racks, and toilet seats with built-in heating elements can bring added warmth during the colder months. And don't forget the fog-free mirrors. When it comes to updating the look and functionality of your bathroom, the sky is the limit. You could invest very little time and money by merely repainting the walls, changing out your fixtures, and doing a little decorating. You could also pull out all the stops and completely remodel an existing bathroom or even add one on. The bottom line is that a great bathroom is something you will enjoy for as long as you own your home. It may also add to the home's overall value if and when you decide to sell in the future. Economic Calendar for the Week of May 17 - May 21 Date ET Economic Report For Estimate Actual Prior Impact Tue. May 18 08:30 Building Permits Apr 680K   680K Moderate Tue. May 18 08:30 Housing Starts Apr 656K   626K Moderate Tue. May 18 08:30 Producer Price Index (PPI) Apr 0.1%   0.7% Moderate Tue. May 18 08:30 Core Producer Price Index (PPI) Apr 0.1%   0.1% Moderate Wed. May 19 01:00 Core Consumer Price Index (CPI) Apr 0.0%   0.0% HIGH Wed. May 19 08:30 Consumer Price Index (CPI) Apr 0.1%   0.1% HIGH Wed. May 19 10:30 Crude Inventories 5/15 NA   1.95M Moderate Thu. May 20 08:30 Jobless Claims (Initial) 5/15 440K   444K Moderate Thu. May 20 10:00 Index of Leading Econ Ind (LEI) Apr 0.2%   1.4% Low Thu. May 20 10:00 Philadelphia Fed Index May 21.3   20.2 HIGH               [mmgwDisclosure]   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.   Mortgage Market Guide, LLC is the copyright owner or licensee of the content and/or information in this email, unless otherwise indicated.   Mortgage Market Guide, LLC does not grant to you a license to any content, features or materials in this email.   You may not distribute, download, or save a copy of any of the content or screens except as otherwise provided in our Terms and Conditions of Membership, for any purpose.