“ALWAYS BE PREPARED”…and just like good Boy Scouts following their motto, Traders were certainly prepared last Monday for a blazing Consumer Price Index (CPI) Report to arrive on Tuesday. Since a super-hot CPI Report would indicate inflation and be bad news for Bonds, Traders got ready and positioned by selling off in advance of the report. But when the smoke cleared and the CPI came in basically as expected on Tuesday, Mortgage Bonds experienced a huge “relief rally”, one of the largest on record.

But the week was far from over, as continued reports of growing US economic strength caused Bonds to continue to move and groove all over the boards. Why all the volatility? The strong economic news tends to be bad for Bonds and therefore home loan rates, but Traders know that the Federal Reserve “inflation fighters” are also watching this news as they ponder the pending Fed Funds Rate hike expected at the end of this month. A rate hike by the Fed will actually be “good medicine” for Bonds, as it will reduce the fears of inflation, which erodes the value of Bonds. Bottom line: the positive economic news is “bittersweet” for Bonds, and results in this type of volatile trading in advance of the June 30th Fed rate decision.

While interest rates on home loans popped slightly higher early in the week, Tuesday’s “relief rally” and the mixed trading that followed brought them basically back to where they started.

ONLY TWO OUT OF FIVE AMERICAN ADULTS HAVE ONE, BUT EVERYONE SHOULD. MOST IMPORTANTLY, DO YOU? DON’T MISS THIS WEEKS MORTGAGE MARKET VIEW, DISCUSSING AN IMPORTANT WAY THAT YOU CAN “BE PREPARED” FOR THE FUTURE.

So after last week’s whirlwind tour, what’s in store for the week ahead? With a quiet economic calendar for the early part of the week, Mortgage Bonds and home loan rates will likely move in response to Stocks, geopolitical events and technical factors. Remember that money usually flows back and forth between Stocks and Bonds, and when one is higher, the other is usually pushed lower and vice versa. Geopolitical events of terror will generally push Bonds higher, due to what is called a “flight to quality”, as money is pushed into the safe haven of stable Bonds. In recent weeks, geopolitical and terrorist activity has not been as influential on market trading as has been seen in the past, as Traders are becoming toughened to the continuing news. Technical factors will be interesting to watch this week. The chart below shows Bonds continue to trade sideways, as they are squeezed between the 25 and 50-day Moving Averages.

Looking ahead, Traders now have their minds focused on the Fed's next meeting on June 30, coincidentally the same date as the official hand-over of sovereignty to the new Iraqi government – this will be a very big day. Because inflation is bad for Stocks and Bonds, the whole market really wants to “take their medicine”, see the Fed raise interest rates, and get it over with. This Fed action will send a clear and strong signal to the markets that they are on top of inflation-related concerns. But will they stick to an expected .25% increase, or make a more aggressive .50% increase? A smaller increase is much more likely, but as we have seen in the past, anything can happen. Prices will likely continue their sideways move until the end of the month when the Fed releases it’s decision on interest rates.

Bottom Line: In the absence of surprising news, home loan rates should remain relatively stable in advance of the June 30th Fed decision.

Is your financial house in order? Don’t be one of a surprising number of adults who do not even have a will.

Increasingly fewer adults have arranged for wills these days, a development some experts believe is coupled with an overall decline in estate planning. In fact, according to legal resource Martindale-Hubbell, only 42 percent of adults presently have a will, down at least five percent from the year 2000. Why the low numbers, and why the decline? Several factors are in play.

Plain old procrastination is one of the most common reasons. Further, some people have delayed creating wills because they now have fewer assets to pass along to their heirs, thanks to the recent burst in the “equity bubble.” Others have deferred all aspects of estate planning, including wills, until the present uncertainty over estate taxes clears. The federal estate tax is presently set to phase out by 2010 only to resurface in 2011 unless congress enacts a permanent repeal.

While one of the purposes of a will is to address estate-tax consequences, wills are typically created as one component of a comprehensive estate plan, which may include a power of attorney, a health-care proxy, and when appropriate, a trust. However, it seems most adults have a declining interest in estate planning because of the new tax laws. By some industry estimates, less than one percent of Americans are currently subject to estate taxes that affect only the wealthiest Americans. Yet without a will, you risk putting your entire estate in the “Twilight Zone”…forcing it to go through probate and creating unnecessary expense and delay in the transfer of assets to your heirs. Additionally, the lack of a will means that the court will decide where your assets and personal belongings should be distributed – usually not a good idea.

The bottom line -- most people do not have any excuse for not creating a will. The cost of creating a will shouldn't be a concern, as a simple will can be very inexpensive. You can learn more about wills by hitting this link: Information on Wills. While there are many online legal resources for information, consult a professional attorney when drawing up your will. It’s such a small investment of time and money, but the return is knowing that your assets will be transferred as you desire, and that your family and loved ones won’t be in the position of having to make those choices for you.

In fact, why wait? Take a minute right now to get the ball rolling and have your own will taken care of. Not sure where to start? To find a great estate attorney, it’s always best to obtain a referral from a trusted financial professional.

This week brings some calm after the storm of last week’s super loaded Economic Calendar. No reports are due out until Thursday, when Durable Orders and Initial Jobless Claims will attract some bond market attention at 8:30 a.m. ET. On Friday, the final revisions of 1st quarter Gross Domestic Product (GDP) and Chain Deflator are due. Along with the ever-popular University of Michigan’s Consumer Sentiment Index for June, these reports will generate some early morning interest among bond traders.

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 June 21 – June 25, 2004