JUST LIKE THE OLD COMMERCIAL…when Fed Chairman Alan Greenspan speaks, the markets listen...and react. And for the seventh straight time, Greenspan announced a quarter-percent hike in short-term interest rates, pushing the Fed Funds rate to 2.75 percent. But unlike the previous six hikes when Mortgage Bonds improved on the news of the Fed moving to control inflation, Mortgage Bonds worsened on the news and caused home loan rates to increase by about .125%. Why?

Traders do listen when Greenspan speaks, and he stated that in recent months, there has been a real rise in inflationary pressure, leading to price increases. Traders listened and heard the message...that inflation is on the rise, and the Fed is a long way off from stopping their hikes in short-term interest rates. In fact, inflation was expected to be in the 2 – 2.5% range, but now it looks like it may be closer to 3%! And that’s bad news for Bonds and home loan rates.

But even in light of rising interest rates – New Home Sales came in at a red hot 9.4% increase…the best level in almost five years! The media has been beating the drum of a nationwide “housing bubble” for years...and although it makes for a juicy news story, the numbers don’t lie. Housing continues to be on a roll.

SPEAKING OF NUMBERS NOT LYING…THE SOCIAL SECURITY SYSTEM CLEARLY NEEDS TO BE FIXED. WHAT’S THE REAL STORY? DON’T MISS THIS WEEKS MORTGAGE MARKET VIEW WITH A QUICK PEEK AT THE ISSUES AND POTENTIAL SOLUTIONS.

DEAD CAT BOUNCING? Yes, there is a phenomenon in the financial markets called a "dead cat bounce". This phrase originates from the saying "Even a dead cat will bounce if dropped from high enough!" So OK, maybe this is not a saying you have used in party conversation lately, but here’s what it means. Basically, a "dead cat bounce" is a little rally occurring after a steep sell-off, as buyers come flocking back into a market thinking the worst is over and the trend has reversed for the better. But all too often, these buyers get trapped in a continuation of the primary trend, which is lower.

Take a look at the chart below, and make a note of the “dead cat bounces” that have already happened a few times of late with Bond prices. Remember that as Bond prices go down, home loan rates go up and vice versa. The first “bounce” higher happened between March 2nd and 7th, only to be followed by a continuation of the primary trend lower. Then between March 14th and 17th, another bounce or attempted rally was short lived, with another continuation lower. Could this pattern repeat itself for a third leg down?

Waiting in the wings next Friday is the all-important Jobs Report for March. Purely depending on the nature of the Jobs Report, Bond prices and home loan rates could make a strong move in either direction.

APRIL FOOLS…NO SOCIAL SECURITY FOR YOU!

It’s no joke. Many Americans are beginning to realize that the Social Security system – into which they could have paid countless thousands – may not have all the money promised to them when it’s their turn to retire. And although some of the specifics are disputed, it is agreed and understood across the board that the Social Security system has serious flaws that need resolution if the program can continue.

First, what’s the problem?

For starters, there are far more people collecting than had ever been anticipated. In fact, one out of every six Americans currently collects a monthly Social Security check either as a retiree, a disabled individual, or a survivor of a recipient.

Additionally, in 1960 there were 5 workers paying taxes into Social Security for every 1 recipient. Today, the ratio is 3.3 workers per recipient…and by the year 2040 the ratio will dwindle down to 2 to 1.

Historically, Social Security has generally collected more in taxes than it has paid out in benefits, and there is presently a surplus in the fund. But it is forecast that beginning in the year 2018, benefits paid will exceed taxes collected. It is debated how many years longer the surplus would be able to cover the payment of full benefits in the face of a shortfall in tax payments; some say until 2042, others say 2052. But when the surplus is gone, Social Security recipients will only receive a reduced part of their benefits, around 75% of the promised amount unless something is done.

So is there a solution?

There are many ideas being suggested; one from the AARP includes raising the Social Security wage base from $90,000 to $140,000 and increasing the age requirement to 70 for full benefits…but most current workers dislike this suggestion, as it means they will pay even more into the system and have to wait longer to receive their benefits.

Another plan, which is being suggested by the Bush Administration, is to have private accounts available as an alternative within the current Social Security system. An individual employee would have the option to invest a maximum 4% of wages (of the 12.4% currently being paid which includes the employer’s contribution) up to $1,000 annually into a private savings account.

Projections indicate that if an individual is able to achieve a 3.0% rate of return after inflation, then the combination of the private account plus Social Security beats the current Social Security arrangement. The Social Security Administration feels this rate of return should be very achievable.

One objection to this plan is the cost of a transition, which would require additional government borrowing and increase the deficit. How to fix the impending shortfall in Social Security promises to be an interesting debate. But one thing is certain – that the system will eventually need a fix. If you feel strongly as to how the Social Security issue should be addressed, write your Congressional representative. Because just like the old commercial…if enough people speak up, they will listen.

This week is packed full of economic reports that increase in significance as the week progresses. Traders could be in for an especially volatile session on Friday with the arrival of the high-profile March Jobs Report.

All times listed in the table below are Eastern.

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 March 28 – April 1