THIS WEEK - A “THRILLER” AND A CHILLER… but the cold blast on the east coast sure didn’t keep the markets from enjoying some hot action this week, as Stocks continued their march onward and upward. The weak December Jobs Report had initially caused some concern in the markets, which was seen early last week as Stocks struggled to absorb the news. The Bond market, which loves bad news, took it in with a smile, and the improvements that Bonds enjoyed early in the week caused mortgage interest rates to improve very slightly.

But not so fast - then came Friday’s corporate earnings reports. Juniper Networks blew estimates out of the water, and GE’s strong fourth quarter profits brought some very good things to life for their shareholders. More good news came with the Michigan Consumer Sentiment Index, an indicator in how confident consumers appear to be about the economy based on their personal spending habits. The Index reported a whopping increase over last month, and the best reading since November 2000. Apparently, consumers are very confident that the growing economy will improve job prospects, which takes a bit more of the sting out of that weak December Jobs Report.

Bonds didn’t enjoy all the good news on Friday, and did a hard “moonwalk” right back to levels seen earlier in the week, causing mortgage interest rates to nudge back up very slightly at week end.

Another factor? Mortgage Bonds have been trading at lofty levels not seen since last summer, so Traders probably played it smart, cashed in some chips, and locked in some profits before the long holiday weekend. So aside from recognizing the Martin Luther King holiday on Monday, what does the week ahead have in store? Read on, let’s discuss the Dollar, and look at what will drive mortgage interest rates in the near term.

SPEAKING OF DOLLARS, WHY JUST HAND OVER A WEEKLY ALLOWANCE TO YOUR CHILD, WHEN YOU CAN INSTEAD PROVIDE VALUABLE FINANCIAL LESSONS THAT CAN LAST FOR A LIFETIME? BE SURE TO READ THIS WEEK’S SPECIAL MORTGAGE MARKET VIEW, WHERE NATIONALLY KNOWN SPEAKER, AUTHOR AND TELEVISION HOST SUZE ORMAN OFFERS HER INTRIGUING AND INSIGHTFUL THOUGHTS ON CHILDREN’S ALLOWANCES, EXCLUSIVELY FOR MORTGAGE MARKET GUIDE WEEKLY READERS.

What should we be watching for in the week ahead? Corporate earnings. The earnings reports of last week were just an appetizer – this week will see over 200 major companies reporting, including Microsoft, Motorola, Nokia, eBay and Qualcomm. With a very light week for other Economic Indicator Reports, much of the focus will be on corporate earnings. If last week was any indication, expectations are high for solid reports which would likely cause mortgage bonds to falter and interest rates to trend upwards.

But what’s all this talk about the Dollar with a capital “D”?

The Dollar realized some modest gains against other major currencies last week, but there is still reason for concern. Here’s an example to explain the issue. Recently, there has been talk of a rate cut by the European Central Bank (ECB), Europe’s equivalent of The Fed. Why is this important? Because if the ECB lowers rates, then their currency, The Euro, will likely decline versus the Dollar. If that happens then less “intervention” is needed. Intervention is when foreign nations buy Dollars through the purchase of Treasuries and Mortgage bonds. They do this to slow the decline of the Dollar because a weak Dollar is bad for their economy. A weak Dollar makes Foreign goods more expensive and less attractive to buy in the US. It also makes US goods a better buy abroad. That hurts the Foreign economies while helping the US economy. So we must keep an eye on this because if the ECB has less reason to buy Treasuries and Mortgage bonds, the prices of these instruments could decline and cause mortgage interest rates to rise.

Bearish technical signals, which can be seen in the chart below, developed late last week and suggest weakness ahead for mortgage bond prices in the near term. This translates to an expected up-tic in rates ahead. Although no drastic movement is anticipated, it would be very likely to see mortgage interest rates trend higher in the coming week.

THIS WEEKS SPECIAL MORTGAGE MARKET VIEW FEATURES SUZE ORMAN, WRITING TO MMG WEEKLY READERS ON HOW TO TURN YOUR CHILD'S ALLOWANCE INTO AN IMPORTANT LIFE LESSON ON USING MONEY WISELY.

Dear MMG Weekly Reader:

As parents, we have the opportunity to turn our child’s allowance into an important lesson in learning fiscal responsibility. One common mistake parents make is to simply hand out an allowance with no explanations and no expectations. That only teaches kids to be dependent on their parents for money. How will that help them once they are adults? And never, ever tie an allowance to basic behavior, such as getting along with a sibling. Your child should behave because you have taught them the basics of right and wrong, not because they are getting paid to be good.

I also have concerns about tying the amount of an allowance to age. Can someone explain to me why a five-year-old making his bed should be given less allowance than an eight-year-old who makes his bed? Where is the logic in that being older is more valuable?

And I think we need to be careful when we attach allowance directly to completing specific chores. Chores are something that we all must do for the privilege of living in our homes. You want your children to do chores so that they understand their responsibility in helping the family function – no matter how small the chore. Sure, the allowance can reflect their contribution to the family, but don’t make it so specific that they get X dollars for making the bed and Y dollars for taking out the garbage. Ask your kids to think about how they can contribute to keeping the house clean and enjoyable.

Here’s my suggestion: Each week, sit down with your kids and ask them to tell you what they believe their allowance should be for that week. It’s a good idea to ask them to justify what they receive. That’s going to involve a conversation about what they plan to contribute to the home’s upkeep, as well as a discussion of all the spending they want to do – for movies, milkshakes and the latest fashions. Having this conversation allows you to introduce the value of money. You can agree with them or not, but the point is to have a conversation of what they feel they deserve and why.

Rather than an allowance simply coming out of your wallet without being related to anything, your kids can begin to link the worth of money to their own accomplishments. That’s an important lesson. Of course I’ll leave it to you to know how involved a conversation you should have; logically a six-year-old is not expected to have the reasoning capabilities of a sixteen-year-old.

You can also use the allowance as an opportunity to teach your child about budgeting and cash flow management. You hand out the allowance for the week, with a clear understanding of what you expect your child to spend on that allowance. Over time – especially with teenagers – you want to increase the allowance period to two weeks, then three weeks, and then to once a month. There is no better way to introduce the basics of living within a budget. And a child who can head off to college already understanding how to manage their finances will have a huge advantage – thanks to their very responsible parents.

All the Best to you in the New Year–

Suze Orman

Compared with last week’s action packed economic news schedule, this week has much less to digest. Housing data is scheduled for release on Wednesday, but Thursday brings us the report highlight of the week – Initial Jobless Claims. Again remembering the weak December Jobs Report issued on January 9th, Traders will be watching this one closely for clues.

Remember, as a general rule, weaker than expected economic data would indicate the economy is not improving as quickly as expected, and could cause mortgage rates to improve. Positive data would indicate a strengthening economic climate, and could cause mortgage rates to gradually climb higher.

For the week of January 19 – January 23, 2004