ANCHORS AWEIGH, CHAIRMAN GREENSPAN? During Fed Chairman Alan Greenspan’s testimony before Congress last week, he repeatedly said that inflation was “well anchored”…but the latest report on inflation suggests that the anchor may be losing its grip. Last week’s much hotter than expected Producer Price Index (PPI) Report – which measures inflation on a wholesale or producer level – might just be an early warning sign that higher inflation could be on the way. Bonds loathe inflation, as it erodes the fixed income return over time…and knowing that home loan rates are tied to Bonds, the hot PPI number led Bonds to their worst performing week in 2005, and an increase in home loan rates.

And perhaps knowing how everyone likes to slice and dice apart his every word, Chairman Greenspan whipped out his pocket Webster’s Dictionary and said that long term rates remaining low, even after the recent increases in short-term rates…was a “conundrum”. Very Nancy Drew.

But just as in a mystery novel – he has a theory. He believes that the persistence of low long-term interest rates is probably due to the massive foreign ownership of our long-term US debt, such as 10-year Treasury Notes. But if the foreign owners of those US debt instruments decide to sell a moderate amount of their holdings, our long-term rates will rise. Currently, there isn’t much incentive for foreigners to sell their US holdings, as rates are presently being held lower in Europe and elsewhere, in order to stimulate their own economies. But when those countries begin to raise their rates…watch out.

THEY SAY EVERYONE HAS AN EXACT TWIN SOMEWHERE IN THE WORLD…BUT DID YOU KNOW YOU MIGHT HAVE AN “EVIL TWIN” AS WELL? DON’T CALL IN NANCY TO SOLVE THE CASE…JUST READ THIS WEEK’S REVEALING MORTGAGE MARKET VIEW.

And speaking of twins…the Producer Price Index Report has a sibling coming to town, Wednesday’s Consumer Price Index Report, which measures inflation on the retail level. On the heels of the blazing PPI number, the CPI Report now promises to be the hot topic of the week. And what an interesting relationship it is between these “twin” reports.

If CPI further confirms that inflation is on the rise, expect Bond prices and home loans rates to hike up quickly in response.

But what if the CPI number is cooler than expected? It would mean that the increases in wholesale prices seen in the hot PPI number are not being passed on to the consumer. So – if American retail corporations are being faced with higher wholesale costs to produce, but an inability to pass those cost increases on to the customer, that would clearly hurt bottom line corporate earnings. This in turn would hurt Stocks and benefit Bonds, helping home loan rates to improve.

GOT WIFI? If you are a heavy laptop user, you probably know the benefits of wireless fidelity, commonly known as WiFi. If you have a wireless card installed on your laptop, WiFi allows you to access the Internet and email as long as you are within range of a wireless network, effectively cutting the cords that previously tied you to your desk. And for your further convenience, WiFi “hotspots” have begun to pop up all over the place. As long as you have a wireless card installed, you can check your email and favorite stocks while sipping your cappuccino at the coffee shop, waiting for a flight or at any of the other 20,000 WiFi networks in the US.

But beware - your love affair with WiFi hotspots can also lead to wireless “infidelity”…meet the Evil Twin.

And we’re not talking Mary Kate or Ashley here. Similar to “phishing” sites, Evil Twins are bogus web sites where scammers are waiting to snag your personal information. When you log in on an unprotected wireless system and visit a site that asks you to input personal information, passwords or credit card numbers, the thief is wirelessly waiting to pick up all your details…and could even be sitting right next to you at the airport. Like most scams, you may not even know you’ve been hit until it’s too late, but you don’t have to go unprotected. Here are a few tips to keep you safe:

Lock and Load – Get a firewall and install security patches as they become available. Those pesky updates are there to protect you from newly found “holes” that a scammer could sneak through.

Once is Enough – If you are using a hotspot and a password doesn’t work the first time, don’t try it again. Your password may have been swiped and you should report it to the provider.

Surfers Only – Use Hot Spots for surfing the web only. If you don’t have to enter passwords then there are none to steal.

Although this week’s economic calendar settles down compared to last weeks, there are several releases with measures of inflation that will capture the attention of Bond Traders, particularly Wednesday’s CPI. Any new signs of inflationary pressure could have a profound negative impact on Bonds, resulting in higher home loan rates.

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 February 21 – February 25