What a Market!

Stock earnings reported last night and so far this morning were mostly positive, but it failed to give the overall Stock Market a big boost.




President Obama is scheduled to sign the Financial Regulation Bill into law at 11:30am ET this morning. As we have been discussing with you, the impact of the 2300 pages of legislation are very far-reaching, and could be devastating. Many are already incurring significant expenses to pay teams of attorney’s huge sums of money, just to try and understand what the impact on their business and sector will be. No doubt that the signing of this Financial Regulation will come with much fanfare and applause – but most business leaders and economists, including Alan Greenspan himself, are very concerned.

That said – the pending legislation is already driving unintended consequences. And this morning, Bond rating agencies Moody’s, Fitch, and Standard and Poor’s all announced they would not allow their Bond ratings to be used in new Bond offerings out of concern for potential legal liability resulting from Financial Reform. The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately – and the agencies are saying that until they have a better understanding of what their exposure may be, they will refuse to let Bond insurers use their ratings. It remains to be seen how this will impact Bond pricing and salability.

At 2pm ET this afternoon, Federal Reserve Chairman Ben Bernanke will begin his testimony on monetary policy in front of the Senate Banking Committee. This testimony has been pushed back from its normal 10am start because President Obama wants center stage for his signing of the Financial Reform Law. We expect Mr. Bernanke to say that the economy has indeed slowed but will not slip into another recession. And if Mr. Bernanke does not comment on what additional measures the Fed might take to prevent a double dip, it is likely to come up during the Q & A session with members of the Senate. One question that will likely come up is whether the Fed will continue to pay interest on excess reserves. By eliminating interest paid on these reserves, it is thought that the funds may find their way back into the economy.



Another question that may come up for Bernanke, is whether the Fed would consider more quantitative easing. The Fed already purchased $1.25T of Mortgage Bonds, as well as several hundred Billion in Treasuries. These purchases have helped drive rates down towards historic low levels - and yet, the housing market is not responding. This begs the question, would more of the same tactic cause a different result? The Fed's balance sheet is already bloated. And we feel that the Fed, like most in Washington, is missing the target. The problem, as we see it, is not that rates need to be lower. Many individuals would either purchase or refinance but are unable to do so because of tighter underwriting guidelines, as well as low valuations. One example - no income verification loans, which have been called "liar loans", have been placed in a negative spotlight and virtually eliminated. But there has been a good track record for those loans in the past when underwritten with LTVs at 75 or less and excellent credit scores. If the government were to direct some resources towards reestablishing some of these more reasonable lending tools, the results might be better.



And as if that wasn’t enough from DC – the Unemployment Extension Bill cleared a procedural hurdle in Washington yesterday, and will go to a final vote in the Senate today. It must still clear the House of Representatives as well – but is expected to do so. This legislation will provide extended benefits for up to 2.5M people whose benefits expired before the 99 week cut off.



And here's an important developing story. China's reserves, which are held mostly in US Treasuries, as well as Mortgage Backed Securities, stand at $2.5T. But last quarter marked the first time in a long time that these holdings did not increase. Does this mean that China is slowing its US debt purchases? We will have to keep tabs on this because a slowdown in US debt purchases from China could adversely affect the Bond Market, as their purchases have contributed to the low interest rate environment in the US.

Markets Update

Market Update


INFO THAT HITS US WHERE WE LIVE Some analysts feel the homebuyer tax credits artificially boosted the housing market by pushing forward home sales that would have happened later. Others feel most buyers would have bought anyway. In any case, there's now concern about a coming drop in sales. Well, June sales figures should still benefit from activity spurred on by the tax credits. And tax credit sales should even help monthly reports through September, now that buyers in contract on April 30 have been given until September 30 to close.



Nonetheless, we ought to keep an eye on monthly Pending Home Sales, which track signed contracts that turn into sales a few months out. Even though we may have a sales dip after the tax credit, the fact remains that near historic low mortgage interest rates are getting people back into the market. These rates, combined with today's prices, have made homes more affordable than they've been in years, letting many buyers move up to better neighborhoods with more choices.



But buyers shouldn't wait. The National Association of Realtors chief economist sees the median home price rising nationally 2% to 3% this year. The NAR's CEO feels sales will pick up in the fall and that the down-cycle has run its course. The chief economist at Moody's Economy.com also believes the housing crash is nearly over. And we all know mortgage rates won't stay at their current levels indefinitely. In other words, this could be one of the best times to buy a home in decades.

Home and Wealth

Update your home insurance and save money too!


Once a year it's a good idea to update your homeowners insurance. You want to make sure you have adequate coverage if you experience a loss. And you want to check on all the options insurance companies offer to reduce annual premiums. Here are the steps to take.

Calculate the coverage you need on the house itself. Homeowners insurance pays what it will cost to rebuild your house. You can arrive at this amount by multiplying your home's square footage by the building cost per square foot for homes in your local area. Get this number from realtors, local homebuilders' associations, and insurance agents. Be sure to check on the building cost number each year, as it can change, leaving you with inadequate coverage.

Make sure your home's contents are adequately covered. Check your policy to see if you have "full replacement value" coverage for your home's contents. If you don't, the insurance company can give you a pro-rated value for these items -- a reduced amount that accounts for age and wear. In any case, valuable items such as jewelry, art, and antiques should be insured for their actual replacement value on a separate rider. You pay more for this coverage, but you will get full value for the item in case of a loss.



Take photos and videos of your home and contents. Cover every nook and cranny and put the pictures and videos in a safe deposit box. You might also save them online. Then if you have a loss, you have proof of the quality and condition of your home and its contents before the disaster.



Ask about premium discounts. There are many ways insurers discount their annual premiums. Higher deductibles or a good credit rating can earn you discounts. Purchasing your auto insurance from the same company may reduce premiums. Discounts can also come from: smoke detectors, sprinkler systems, fire extinguishers, being over 55 or a longtime policy holder, security alarms connected to an outside service, or hurricane shutters. But don't let price be your only concern. First and foremost, make sure you're dealing with one of the reputable, reliable insurers operating in your area.

BREAKING NEWS!

• Mortgage rates hit historic lows. Mortgage rates are back where they were in the 1960s when cars had tailfins. So if you or someone you know may be in a higher interest rate mortgage, call or email us today to see if there's money to be saved!

• Low rates and today's home prices also make homes more affordable than they've been in years. So anyone thinking of buying might want to make a move now.

Inf0 That Hits Us Where We Live

Last Thursday pending home sales, a measure of contracts signed for existing homes, were reported off 30% in May compared to the prior month. This of course was simply the result of the end of the homebuyer tax credit, which required a signed contract by April 30. Common sense tells us many of those April contracts would have happened in May or even later if it weren't for the pressure to qualify for the tax credit.




More good news on the price front, as the Case-Shiller home price index was UP 0.4% in April, seasonally-adjusted, and up a comfortable 3.8% versus a year ago. Case-Shiller tracks home prices in the 20 largest metro areas. This follows the prior week's FHFA home price index, which was UP 0.8% for April for homes financed with conforming mortgages. Buyers take note.



Friday, the President signed into law a bill that extends the closing deadline for claiming the federal homebuyer tax credit to September 30. The National Association of Realtors estimated that up to 180,000 homebuyers in contract by April 30 could have missed the June 30 closing because of processing delays due to the huge volume of buyers seeking the tax credit.