Current Price of FNMA 6.0% Bond: $98.75, -9bp

Bonds are still trading just a hair above the 25-day Moving Average, but this level has proven exceptionally tough for Bonds to beat in recent months, so we’ll be watching to see if Bonds can hold their hard-fought ground.

There are no economic reports scheduled for release, but there is some additional Bond supply coming to the market as the US Treasury auctions off a whopping $33 Billion in 3 and 6-month T-Bills. As always, the level of foreign buying and strength of the auction could have an impact on the overall Bond Market later today.

Additionally, Stocks have been a big factor in driving the action in Bonds lately, especially on days with little to no scheduled economic news. With more earnings reports coming out this week, Stocks will likely continue their directing role for Bonds. The Dow dropped 150 points on Friday, and is currently struggling to rebound higher. Should stocks improve, with the Dow climbing back over 14,000, it may be at the expense of Bonds as investors move money out of Bonds and into Stocks. But if earnings are reported weaker, Stocks will come under selling pressure, and Bond prices could benefit as a result.

We want to be patient and give the Bond a chance to improve and hold its position above the 25-day Moving Average – so we advise Cautiously Floating for now. But should the Bond fall back below the 25-day MA, we’ll likely change our bias towards Locking.

With more ups-and-downs than an elevator, the mortgage market has not been for the faint of heart since March.

Last week provided more good news than bad, though, and mortgages rates closed out the week slightly improved overall.

The good news for mortgage markets came in three distinct parts:

1. Federal Reserve Chairman Ben Bernanke did not cite a fear of inflation in his congressional testimony
2. The Cost of Living (as measured by CPI) and the Cost of Doing Business (as measured by PPI) increases in July were squarely within the markets expectations
3. Oil prices remain at high levels putting strain on the American Consumer

The bad news in mortgage markets is that sub-prime loans continue to lose their luster as default rates rise.

Last week, Bear Stearns acknowledged that sub-prime losses wiped out $1.5 billion of investor capital.

This major loss could scare investors away from buying any mortgage-backed securities in the future and if the demand for MBS is lower, the price of the urderlying bonds will be lower, too.

Because mortgage rates move in the opposite direction of mortgage bond prices, this would cause mortgage rates to rise.

There are two housing reports this week — Existing Home Sales (Wednesday) and New Homes Sales (Thursday)– but neither figure to move mortgage rates too much; traders have lately turned a blind eye to news from the beaten-up sector.

Expect rates to continue bouncing this week.

Current Price of FNMA 6.0% Bond: $98.69, +6bp

One man’s trash is another man’s treasure – and after disappointing earnings reports from Google and Caterpillar, Stocks are getting a bit trashed this morning, which is helping Bonds move higher. But once again, the strong ceiling at the 25-day Moving Average is making it difficult for the Bond market to extend its gains.

In Federal Reserve news, St. Louis Fed President William Poole, a Fed voting member, is scheduled to speak about the subprime mortgage market to the National Association of Real Estate Brokers at 11:00am ET. Poole’ s speech will be followed by a question and answer session, and the Bond market could react to Poole's comments depending on what is stated.

Technically, it has been tough sledding lately for Bonds, as they have been primarily trading sideways to lower underneath the 25-day Moving Average for months. With no news scheduled until next Wednesday’s Existing Home Sales, and in light of softening Stock prices, a Cautiously Floating bias appears prudent.

If you own a home and somebody else depends on your income, consider that the leading cause of home foreclosures is not “adjustable rate mortgages”.

As cited many times over (including by a Harvard law professor), the answer is medical bills.

Even for the insured, medical expenses can dramatically impact a family’s finances and push it into bankruptcy.

Over one million families discovered that sad fact in 2004 and medical bills have not gotten any cheaper, says the Bureau of Labor Statistics.

Death is another major cause of foreclosure.

When a family’s primary wage-earner dies, the secondary wage-earner is now obligated to pay the family’s monthly obligations and that may include a mortgage payment. Sadly, that income may not be enough to cover the bills.

A strong life insurance policy can offset bills, ease transition periods, and even pay off the home’s remaining mortgage obligation.

Whether you’re a first-time buyer or a seasoned investor, consider protecting yourself and your family with adequate medical and life insurance coverage, as well as taking preventative health care steps.

There are resources online to help you determine what coverage is necessary, but the best place to start for this highly personal discussion is with your personal financial planner.

Life is a series of surprises and it’s never too soon to be prepared.

Current Price of FNMA 6.0% Bond: $98.53, -9bp

Yesterday, Bond prices rose following Fed Chairman Ben Bernanke's testimony to the House of Representatives, largely because of encouraging talk on inflation, including this statement: “Core inflation should edge a bit lower, on net, over the remainder of this year and next year. If energy prices level off as currently anticipated, overall inflation should slow to a pace close to that of core inflation in coming quarters.” Bonds liked the talk of softer inflation, but gains were halted exactly at the very strong double ceiling of the 25-day Moving Average and Falling Resistance Line. A look at the Bond Page illustrates the strength of this double ceiling, and how it is pushing Bonds back lower this morning.

Bernanke is at bat again right now, this time testifying before the Senate. He will share the same prepared speech he gave yesterday, but you never know what new questions Mr. Bernanke will be asked to answer and how the markets will react, so stay tuned.

Initial Jobless Claims were reported at 301,000, below expectations of 310,000 and the fewest Claims in two months. The report suggests continued strength in the labor market and Bond prices ticked lower on the news. Later today at 12:00 Noon ET, the Philadelphia Fed will release its Manufacturing Index for the month of July. Economists are expecting the Index to ease to a reading of 14.0 from June's surprisingly strong level of 18.0. Readings above zero indicate expansion in manufacturing.

Then at 2:00pm ET, the Fed Meeting Minutes will be released – this is the text of the discussion between Fed members from the last Fed Meeting on June 28th. Fed watchers will undoubtedly compare what the Minutes state about the economy, housing, and inflation with what Fed Chairman Ben Bernanke presented on these topics to Congress the past two days. Even though the Minutes are old news and the markets are receiving fresh testimony from Mr. Bernanke today, you never know how this volatile market might react to the release.

Stocks are off to the races this morning, boosted by long-time bellwether and Dow component IBM, which reported their best quarter in five years. Other earnings reports are also painting an optimistic picture for Stocks. As we have seen, sharp moves higher in Stocks can often pressure selling in Bonds.

Just a quick peek at the Bond Page shows the 25-day Moving Average and Falling Resistance Line continuing to pressure Bonds lower. And with Stocks back on their high horse this morning, even Ben Bernanke’s favorable comments may not be able to help Bonds from being pressured lower. A bias towards Locking appears prudent until Bonds can step off this downward trend.

As homeowners insurance premiums rise across the nation, Bankrate.com writes a helpful story on ways to keep your premiums down. The tips may surprise you.

Some of the highlights include:

1. Don’t think a series of small claims is better than one big claim. The smaller clains are more expensive to process for an insurer and may result in higher premiums for your home.
2. Don’t lie about your history of claims — similar to CARFAX, homeowners have a “record” that track prior filings and getting busted is only a database search away.
3. Higher credit scores can lead to lower premiums because homeowners will higher scores tend to make fewer claims.
4. Your driving records impact your premium calculation.

The article also provides a fair amount of myth-busting so it’s worth a read. A few minutes could save you some good money on your home insurance.

Current Price of FNMA 6.0% Bond: $98.69, +16bp

Even tame consumer inflation hasn’t helped Mortgage Bonds too much this morning, as they continue to battle the ceiling at the 25-day Moving Average. But current testimony by Ben Bernanke is causing market movement in both stocks and bonds.

The Consumer Price Index (CPI) for June increased by just 0.2%, which represented the smallest monthly increase in the CPI since January, with the year-over-year CPI coming in at 2.7%. The more closely watched Core CPI, which factors out volatile food and energy costs, also increased by only 0.2%, meeting expectations. This read means that the year-over-year Core CPI held at a tame 2.2% – still just outside the Fed’s desired range of 1 – 2%, yet not too far away from their goal. But remember the recent Core Personal Consumption Expenditure Index (PCE) was reported at 1.9% on a year over year basis and it is the Core PCE that is the Fed’s favored measure of consumer inflation.

As Fed Chairman Bernanke’s speech to the House of Representatives is being delivered this morning, he stated that although the recent inflation numbers have been moderating, the Fed remains very concerned about inflation. He confirmed that the Core readings are the ones to watch (which remove food and energy prices), and specifically mentions the Core Personal Consumption Expenditure (PCE), which unlike the media, we have known was the Fed’s preferred measure. He underscores that they are staying very alert to economic changes and indicators, but based on their continuing concerns over inflation, it certainly appears that there will not be a cut to the Fed Funds Rate in the near future.

Very interesting note, speaking of the media: one line of the prepared speech that they focused on and headlined was “the ongoing housing correction might prove larger than anticipated”. While this was indeed pulled directly from the text, the full text reads very differently, as Bernanke is saying that while one risk to the outlook is that the housing correction might prove larger than anticipated and impact consumer spending, but goes on to say that consumers have been spending at a very healthy pace of late. Be very cautious about believing the scare tactics that the media uses, as they often take words out of context…and use this as an example today to help your clients and referral partners see the same thing.

Highly advised: read the full text of Bernanke’s speech here, as he also discusses the subprime situation and proposed solutions at length as well. http://www.federalreserve.gov/boarddocs/hh/2007/july/testimony.htm

In housing news, Housing Starts and Building Permits for June were reported 'mixed' with Starts increasing in June but Permits falling. Housing Starts increased by 2.3% to an annual rate of 1.467 million, which was slightly higher than expectations of 1.45 million, while Permits fell by 7.5% to an annual rate of 1.406 million, matching a 10 year low and below expectations of 1.49 million.

Despite lower prices at the gas pump, the Consumer Price Index increased a little bit more than expected in June.

According to the Bureau of Labor Statistics, CPI rose 0.2% versus the 0.1% expected by economists

CPI tries to answer the question “How expensive is everyday life?”. Over the last 12 months, says the government, “life” is 2.7% more expensive.

Normally, this would cause mortgage rates to increase for rate shoppers but today the normal increase is being offset by two other factors:

1. If we exclude the typically-volatile prices of food and energy, CPI increased 0.2% and that met economist expectations
2. Federal Reserve Chief Ben Bernanke testified to Congress today that the economy is expanding “at a moderate pace”, making it less likely that the Fed will raise the Fed Funds Rate in 2007.

Big Ben’s words always carry a big stick in the markets and especially today as markets look ahead to tomorrow’s release of the FOMC meeting minutes from June 28. The minutes will highlight the debate and conversation that eventually led to the Fed’s press release.

If the minutes reveal that the Fed is fearful of inflation, mortgage rates will rise in response. This is because inflation devalues bond payments and mortgage rates are based on the value of mortgage bonds.

Current Price of FNMA 6.0% Bond: $98.53, -9bp

The Producer Price Index (PPI) for June – which provides a read on inflation at the wholesale level – was reported this morning, coming in at -0.2%, lower than expectations of 0.1%. However, when excluding volatile energy and food prices, the Core PPI rose 0.3%, which was higher than expectations, mainly due to large increases in auto and truck prices. Year over year PPI stands at 3.3% as food and energy prices have moderated slightly, and the Core PPI is up a modest 1.8% year over year. Bond prices fell slightly in reaction to the higher Core PPI inflation number, but Traders are looking ahead to tomorrow’s more closely watched read on consumer inflation by way of the Core Consumer Price Index (CPI).

The Net Foreign Purchases of US securities was reported at $126 Billion, which was far stronger than expectations of $72 Billion. This report tells us that foreign countries still have a strong buying demand for our Bonds, which helps keep our interest rates relatively low.

Industrial Production and Capacity Utilization were both reported in line with expectations and Bonds had little reaction.

Tomorrow beginning at 10:00am ET, Fed Chairman Ben Bernanke will present his semi-annual monetary policy report to the House of Representatives Financial Services Committee. Bernanke will then have a follow-up delivery on Thursday at 9:30am ET before the Senate Banking Committee. Bernanke's report to Congress will likely consist of current forecasts for economic growth, unemployment, and inflation. The Federal Reserve has a dual mandate to try and keep the economy humming along at full employment levels while keeping inflation low - a very tough line to walk. Fed watchers expect Bernanke will tell these Congressional committees that the Fed is more concerned about the risk of inflation than it is with the risk that the housing market slump will seriously hurt the economy. Although Bernanke's testimony will be carefully worded in an effort to not upset the financial markets, the markets sometimes react sharply to comments made during the question and answer periods of the presentations.

The 25-day Moving Average resistance level has been very difficult to break. During the past six trading sessions, the Bond has attempted to break above the 25-day MA, but has been turned back. For now, we’ll advise a bias towards Locking, as Bonds continue to be pressured lower by the 25-day MA overhead.

The Bureau of Labor Statistics says that the average American family spends $614 a month on automobiles. This includes finance payments, gasoline, repairs, and insurance.

Let’s relate that $614 per month to home buying.

Based on a 6.500 percent, fully-amortizing mortgage payment, that same $614 yields an equivalent of $97,000 in additional home purchasing power.

With an interest only home loan, it balloons to $113,000.

In other words, if your lifestyle does not require the full-time use of an automobile, you may want to consider trading in your car in for a larger and/or upgraded home.

For the temporary use of a car after a trade-in or sale, of course, you can phone a local car rental agency, or ask a friend to borrow (and be sure to fill up the tank as a courtesy).

You can also try priceline.com’s Name Your Own Price feature which makes cars available for a fraction of the “standard” rental cost — sometimes as low as $10 per day.