PEACE, LOVE AND...INFLATION? Last week’s lack of economic data was replaced by “Fedstock”, a week full of Fed-speak and commentary, including a few numbers by the Big Kahuna himself, Chairman Alan Greenspan. All the talk got Bonds on their feet and moving…but overall, home loan rates were mostly unchanged for the week. Here are the highlights...

Greenspan and Treasury Secretary John Snow discussed the Government Sponsored Enterprises (GSE’s) Freddie Mac and Fannie Mae, the major entities governing home financing. Greenspan raised the "possibility of insolvency and crisis" for the GSE’s, and called for clarification on the Government's role in making sure the operations of Fannie Mae and Freddie Mac remain solid.

A follow-up set included comments by Fed Presidents William Poole and Anthony Santomero. Poole said it is unclear if recent inflationary signals are temporary and mentioned that the Fed may need to be "more vigorous" with interest rate hikes. In addition, Poole said the Fed should respond "vigorously" if labor costs rise in order to keep inflation at bay, while Philadelphia Fed President Anthony Santomero said policymakers could not afford to get "behind the curve". This tells us that the Fed is ready to move if there is any hint of increased inflation in the economic reports ahead.

Greenspan closed out the show on Friday, saying that the steady movement of US jobs offshore should help the economy in the long run, but that American workers needed to be better prepared through education to target higher skilled jobs.

SPEAKING OF JOBS – TAX TIME IS HERE, AND WITH OVER 50,000 PAGES OF TAX CODE, DOING IT RIGHT CAN BE A BEAR. BUT BE CAREFUL WITH THOSE WRITEOFFS...THE IRS HAS AN EXTRA $500 MILLION UP THEIR SLEEVE TO AUDIT WITH THIS YEAR. WHY? READ THIS WEEK’S MORTGAGE MARKET VIEW FOR THE WHOLE SCOOP.

After last week’s super lean economic calendar, this week plumps up nicely...with the juiciest bites likely to come from Tuesday’s release of the “minutes” or commentary from the last Fed Meeting on March 22nd, and Wednesday’s Retail Sales Report. The release of the Fed minutes on Tuesday can be a market mover. The policy statement released on the day of the meeting included concerns over short-term inflation. This rocked the financial markets, caused stock prices to dive and home loan rates to jump higher. It will be interesting to see if those fears are expanded on in the minutes, causing a similar market reaction.

So...think you couldn’t ever look at a Bond chart and make any sense of it? Here’s a quick lesson. And interestingly enough, you’ll be able to see that Mortgage Bonds are at a pivotal point, which could cause a move in home loan rates. Take a look at the chart below. The red and green “candles” show each day’s pricing on Mortgage Bonds – higher pricing means lower home loan rates, and lower pricing means higher home loan rates. The horizontal lines are the Moving Averages of Bond pricing for the previous 10 and 25 days. These averages can act as “floors” of support helping Bond prices stay higher, or “ceilings” of resistance, keeping Bond prices lower.

Now here’s the lesson. Notice how when the two Moving Average (MA) lines cross each other, it can cause a change in trend. When the “faster” 10-day MA crosses above the “slower” 25-day MA, it is known technically as a “Positive Crossover” and is considered a bullish sign – good for home loan rates! When the opposite occurs and the 10-day MA crosses back below the 25-day MA, it is known as a “Negative Crossover” and is considered a bearish sign – bad news for home loan rates.

Notice how Bonds now appear close to a Positive Crossover...but of course, close only counts in horseshoes and hand grenades. Bottom line: the news of the week will dictate the possibility of a crossover and upcoming trend for home loan rates.

NO MORE MR NICE GUY... the initiative to create a “kinder, gentler” IRS is over. So if you’re still wrapping up your write-offs, putting those finishing touches on the tax return – keep good records and be careful which way you round. The IRS recently conducted a major compliance exam, and determined that the difference between what taxpayers SHOULD pay in tax and what they DO pay is about $325 billion. That’s a whole lot of business lunches...so who are the biggest offenders?

• Self-employed individuals inflating their write offs;
  
  
• Partnerships or S-corporation owners who fail to report all income;



• Tipped employees underreporting actual earnings;



• Gamblers who do not report all of their lucky winnings.

So what does the IRS have in mind? Lucky us, the IRS is going to increase the number of audits being done, and has just received a $500 million dollar hike in its audit budget. Although Congress normally doesn’t like IRS audit initiatives – high budget deficits have helped change their minds about working harder to recover some of the “missing money”.

Want to make sure you’re following all the rules? They change frequently, and there are presently well over 50,000 pages of tax code! The best defense is a good offense. Always work with a professional CPA to prepare your returns. In fact, your mortgage professional may even be able to provide a great CPA recommendation...just give a call!

After a quiet week past, the economic calendar now kicks back into high gear. The minutes from the last Federal Reserve Open Market Committee Meeting (FOMC) will garner attention on Tuesday, along with the Retail Sales Report on Wednesday.

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 April 11 – April 15