Last Week in Review: Fed maintains status quo while markets look for more direction. Forecast for the Week: Economic reports to watch, plus the future of housing finance. View: 5 financial lessons every college student should learn before heading to school.

Last Week in Review

"The great thing in the world is not so much where we stand as in what direction we are moving." Last week, the financial markets appeared to agree with Oliver Wendell Holmes' words by looking for some more direction from the Fed after its FOMC Meeting. While the Fed didn't say much, they did state that Mortgage Bond holding income and proceeds would be reinvested into Treasuries. This helps the Treasury continue to pump out debt at low rates. But this relationship is a concern to the Stock market, as there is no doubt that this will lead to further problems down the road. In addition to "kicking the can," the Fed did not provide a game plan on how it could handle deflation, a Japanese type economy, or longer-term inflation. This uncertainty is something that the Stock market hates. As a result, investors pushed Stock prices significantly lower in early trading Thursday - and the cash sale proceeds from Stocks found their way into Bonds. ----------------------- Markets Wanted More Direction from the Fed In other news last week, the Labor Department reported that preliminary Productivity for the 2nd Quarter came in at -0.9%, which was below the 0.1% rise expected...and quite a bit lower from the 3.9% reading for the 1st Quarter. The decline in Productivity was actually the first negative reading since the 4th quarter of 2008. The slowdown in productivity is interesting, as higher productivity does many things. It keeps operating costs lower, lessens the need for hiring, and works to keep prices down. So this unexpectedly weak number, should it become a trend, may work to ease some of the deflation fears and, ironically, could help the labor markets. Speaking of labor, last week’s Initial Jobless Claims report showed 484,000 people signing up for first-time unemployment benefits. That number was worse than expectations of 465,000 and the highest reading since February's 498,000. No matter how you slice it, this is a horrible number... and it highlights that the most important element of any real-life economic recovery is still struggling. According to the report, Continuing Jobless Claims did fall, but that number can be deceiving since the decrease has nothing to do with an improvement in the labor market. In actuality, the decrease in Continuing Claims, which lasts for the first 26 weeks of unemployment, is due to the benefit expiring - and those individuals rolling into the Emergency Unemployment Compensation benefit category. And in that category, due to the recently passed unemployment benefits extension, those collecting Emergency Unemployment Compensation, spiked a whopping, almost incomprehensible, staggering, shocking, (fill in your own favorite descriptor here) 1.2 Million from the prior week to 4.5 Million... and yet the majority of the media overlooked the real facts or were unwilling to report them. FUTURE EMPLOYMENT MAY BE ON THE MINDS OF TODAY’S COLLEGE STUDENTS, BUT THE MORE IMMEDIATE CONCERN SHOULD BE ON HOW TO BEST MANAGE THE FINANCIAL TESTS THEY’LL FACE WHEN THEY’RE ON THEIR OWN. CHECK OUT THE MORTGAGE MARKET GUIDE VIEW BELOW FOR 5 FINANCIAL LESSONS EVERY COLLEGE STUDENT SHOULD LEARN BEFORE HEADING TO SCHOOL.

Forecast for the Week

This week, we’ll see a number of reports that have the potential to move the markets. We’ll start off with a dose of manufacturing news right away Monday morning with the Empire State Index, which looks at New York State’s manufacturing sector, including how busy it is and where things are headed. On Thursday, we’ll also see the Philadelphia Fed Index, which is one of the most important regional manufacturing indices. These two reports will provide an early look at the manufacturing sector for the month of August. Things kick into full swing on Tuesday with a number of important reports, including the Producer Price Index (PPI), which measures inflation at the wholesale level. Remember, inflation is the archenemy of Bonds and home loan rates, so it will be important to see what this report reveals. The PPI report comes just after the Consumer Price Index was released last week showing the highest headline reading in a year, so the markets will definitely be paying attention to this report. We’ll also see reports on Industrial Production and on Capacity Utilization, which is considered a telling inflation indicator. Tuesday also brings another dose of news on the health of the housing industry with reports on the number of Housing Starts and Building Permits in July. Housing Starts for June came in below expectations and at the lowest level in 8 months. And even though Building Permits showed an uptick, it was primarily in the multi-family area rather than in the more important and widely watched single-family area, which showed the lowest permits since April 2009. I’ll be watching to see if those numbers improve for July. Finally, the week of reports caps off on Thursday with the weekly Initial Jobless Claims report. As discussed above, last week’s report was disappointing to say the least. In addition to those reports, the Treasury Department and White House will be hosting a "Conference on the Future of Housing Finance" next Tuesday where the future of Fannie Mae and Freddie Mac will be discussed. You may recall a couple weeks ago, rumors were swirling of a major bailout to help millions of homeowners who are upside down on their mortgages - and some pointed to this conference as the venue to release such a big announcement. So I’ll be keeping a close eye on this conference and how it impacts homeowners. 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 from the chart below, Mortgage Bonds have continued to climb a staircase higher. Overall, Bonds and home loan rates ended last week where they began - which is at historically good levels. If you or someone you know has been thinking about purchasing or refinancing a home, now is an ideal time. Even if you’re not sure what you want to do, a brief conversation can provide you with the information you need to make an informed decision. ----------------------- Chart: Fannie Mae 4.0% Mortgage Bond (Friday, August 13, 2010)

The Mortgage Market Guide View...

5 Financial Lessons for College Students: Follow These Tips So Your Kids will Score Well When it Comes to Managing Money While Away at School. By Janet Bodnar, Kiplinger.com Forget tuition. Once that bill is taken care of, the biggest financial challenge you face when sending kids off to college is making sure they don’t overdraw their checking account or run up a credit-card bill they can’t pay off. Here’s how to help boost their financial GPA (and save big bucks on

Last Week in Review: Fed maintains status quo while markets look for more direction.

Forecast for the Week: Economic reports to watch, plus the future of housing finance.

"The great thing in the world is not so much where we stand as in what direction we are moving." Last week, the financial markets appeared to agree with Oliver Wendell Holmes' words by looking for some more direction from the Fed after its FOMC Meeting.

While the Fed didn't say much, they did state that Mortgage Bond holding income and proceeds would be reinvested into Treasuries. This helps the Treasury continue to pump out debt at low rates. But this relationship is a concern to the Stock market, as there is no doubt that this will lead to further problems down the road. In addition to "kicking the can," the Fed did not provide a game plan on how it could handle deflation, a Japanese type economy, or longer-term inflation. This uncertainty is something that the Stock market hates. As a result, investors pushed Stock prices significantly lower in early trading Thursday - and the cash sale proceeds from Stocks found their way into Bonds.


-----------------------

Markets Wanted More Direction from the Fed


In other news last week, the Labor Department reported that preliminary Productivity for the 2nd Quarter came in at -0.9%, which was below the 0.1% rise expected...and quite a bit lower from the 3.9% reading for the 1st Quarter. The decline in Productivity was actually the first negative reading since the 4th quarter of 2008. The slowdown in productivity is interesting, as higher productivity does many things. It keeps operating costs lower, lessens the need for hiring, and works to keep prices down. So this unexpectedly weak number, should it become a trend, may work to ease some of the deflation fears and, ironically, could help the labor markets.

Speaking of labor, last week’s Initial Jobless Claims report showed 484,000 people signing up for first-time unemployment benefits. That number was worse than expectations of 465,000 and the highest reading since February's 498,000. No matter how you slice it, this is a horrible number... and it highlights that the most important element of any real-life economic recovery is still struggling.

According to the report, Continuing Jobless Claims did fall, but that number can be deceiving since the decrease has nothing to do with an improvement in the labor market. In actuality, the decrease in Continuing Claims, which lasts for the first 26 weeks of unemployment, is due to the benefit expiring - and those individuals rolling into the Emergency Unemployment Compensation benefit category. And in that category, due to the recently passed unemployment benefits extension, those collecting Emergency Unemployment Compensation, spiked a whopping, almost incomprehensible, staggering, shocking, (fill in your own favorite descriptor here) 1.2 Million from the prior week to 4.5 Million... and yet the majority of the media overlooked the real facts or were unwilling to report them.

Forecast for the Week

This week, we’ll see a number of reports that have the potential to move the markets. We’ll start off with a dose of manufacturing news right away Monday morning with the Empire State Index, which looks at New York State’s manufacturing sector, including how busy it is and where things are headed. On Thursday, we’ll also see the Philadelphia Fed Index, which is one of the most important regional manufacturing indices. These two reports will provide an early look at the manufacturing sector for the month of August.

Things kick into full swing on Tuesday with a number of important reports, including the Producer Price Index (PPI), which measures inflation at the wholesale level. Remember, inflation is the archenemy of Bonds and home loan rates, so it will be important to see what this report reveals. The PPI report comes just after the Consumer Price Index was released last week showing the highest headline reading in a year, so the markets will definitely be paying attention to this report. We’ll also see reports on Industrial Production and on Capacity Utilization, which is considered a telling inflation indicator.

Tuesday also brings another dose of news on the health of the housing industry with reports on the number of Housing Starts and Building Permits in July. Housing Starts for June came in below expectations and at the lowest level in 8 months. And even though Building Permits showed an uptick, it was primarily in the multi-family area rather than in the more important and widely watched single-family area, which showed the lowest permits since April 2009. I’ll be watching to see if those numbers improve for July.

Finally, the week of reports caps off on Thursday with the weekly Initial Jobless Claims report. As discussed above, last week’s report was disappointing to say the least.

In addition to those reports, the Treasury Department and White House will be hosting a "Conference on the Future of Housing Finance" next Tuesday where the future of Fannie Mae and Freddie Mac will be discussed. You may recall a couple weeks ago, rumors were swirling of a major bailout to help millions of homeowners who are upside down on their mortgages - and some pointed to this conference as the venue to release such a big announcement. So I’ll be keeping a close eye on this conference and how it impacts homeowners.

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 from the chart below, Mortgage Bonds have continued to climb a staircase higher. Overall, Bonds and home loan rates ended last week where they began - which is at historically good levels.


If you or someone you know has been thinking about purchasing or refinancing a home, now is an ideal time. Even if you’re not sure what you want to do, a brief conversation can provide you with the information you need to make an informed decision. Please Call Me. 314-993-6690