NO NEWS IS GOOD NEWS...or at least it seemed that way for the Bond market last week. In the absence of heavy hitting economic news, Bonds took a pause in their brutal decline and improved on other factors, including lower oil prices – finally! Oil dropped below $60 per barrel, largely due to unseasonably warm weather in the Northeast – furnaces haven’t been turned on just yet, helping to slow the demand for oil.

The few economic reports arriving this week were slightly worse than expected, always good news for Bonds and home loan rates. The US Balance of Trade had a record deficit in September, well above market expectations, while Jobless Claims were slightly higher than economists were estimating. Also of interest was a Treasury Note auction that was very well received...with foreign bidders strongly participating and snatching up 56% of the issue. This indicates foreign buyers still have a healthy appetite for buying our Bonds, with their demand helping to support our Bond market and therefore home loan rates as well. Overall, home loan rates bounced around midweek but were basically unchanged on the whole.

"THE ONLY DIFFERENCE BETWEEN DEATH AND TAXES...IS THAT DEATH DOESN’T GET WORSE EVERY TIME CONGRESS MEETS" (Will Rogers)...BUT DID YOU KNOW THAT THE NEW TAX PROPOSAL IS NOT NEARLY AS BAD AS THE MEDIA WANTS YOU TO BELIEVE? GET THE STRAIGHT SCOOP IN THIS WEEK’S MORTGAGE MARKET VIEW.

So Bonds gained a small amount on the week...for the first time in quite awhile. But let’s not go grabbing the champagne and party hats quite yet, the ugly ride higher for home loan rates may not be over.

Imagine that you are on the fourth floor of a hotel, and you stomped your feet so hard that you actually crashed through your floor and landed on the level beneath. In addition to giving some guests on the third floor an unwelcome surprise, you would also find that what had been your floor was now your ceiling. This exact phenomenon works in market trading as well, and is known as the "Law of Polarity". Once a floor of technical support has been broken through, that floor will then become an overhead ceiling of resistance, holding that price lower where it once had supported it higher. A look at the chart below shows us how what used to be a floor of support for Bonds has now become a ceiling of resistance.

If Bonds are unable to break above this ceiling in the coming week, the outlook for home loan rates continues to be somewhat dismal...and Bonds will have a wealth of input to respond to in the coming week. The economic calendar steams up this week with Retail Sales, the latest inflation numbers at the wholesale (PPI) and consumer levels (CPI), fresh housing data, and if that weren’t enough, a look at manufacturing as well. Additionally, there will be news on the extent of foreign investment in US Bonds, along with a steady barrage of Federal Reserve speakers. Fed Speak this week includes Big Ben Bernanke’s confirmation hearings and an appearance from free-wheeling Dallas Fed President Richard "Loose Lips" Fisher.

If the news of the week is strong and positive for the economy, it is unlikely that Bonds will be able to break through the ceiling and bring home loan rates any improvement in the coming days.

It’s 17,000 pages long, and even though parts are called “EZ”...it keeps even the best experts guessing. What is it? The IRS Tax Code. President Bush's advisory panel is attempting to reform this hairy monster. And behind closed doors, the Treasury Department will filter through each and every proposed item and come up with a tax overhaul proposal that President Bush will announce in January.

The overall goal of the tax reform panel is to create a more simplified filing process than the current tax filing system, which everyone agrees is waaaay too complex. In fact, it’s so complex that over 60% of the American population has to consult with a paid preparer to compute their tax filings each year...even those filing an “EZ”! Let's take a closer look at some of the changes being discussed.

All the noise has been about the change to the current mortgage interest deduction. Presently, the interest paid on mortgages up to $1.1 million is fully deductible. But the panel has proposed that the tax deduction be converted to a tax credit, equal to 15% of the interest paid on first mortgages up to a loan amount of $312,000.

So is this a bad deal for homeowners? Worse yet, will it crash the prosperous real estate market and cause a “bursting bubble” effect? The answer is no. First and foremost, the chance of this passing as it presently stands is slim to zero. But even if it were to pass, it would be phased in over several years and is far from the horror show that the media has portrayed.

A closer examination of the proposal includes lower and wider tax brackets, lower capital gains, and the elimination of the marriage penalty. This would be a huge plus for the vast majority of tax payers. And the biggest benefit would include the elimination of the Alternative Minimum Tax or AMT. This tax trap is estimated to snag more than 50% of filers in the next few years. That means that taxpayers who think they are getting the larger interest deduction will wind up losing it to the AMT. But again, chance of passage is almost zero.

However, there is a good chance for the elimination of the marriage penalty to stick, as well as the tax brackets being reduced from six to four. Currently the tax brackets are 10%, 15%, 25%, 30%, 33%, and 35% -- the proposal recommends the top rate of 35% and the bottom rate of 10% to be eliminated.

If you would like additional information about The President's Advisory Panel on Federal Tax Reform visit www.taxreformpanel.gov. And as always, if you have specific questions about the proposed tax changes and how they will impact your own situation, contact your tax planner. If you need a referral for a tax planner, call me, as I may be able to provide you with one.

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of November 14 – November 18