AN OPTIMIST STAYS UP UNTIL MIDNIGHT TO SEE THE NEW YEAR IN…A PESSIMIST STAYS UP TO MAKE SURE THE OLD YEAR LEAVES. (Bill Vaughan) And the Bond market was feeling optimistic at the end of trading on December 31st, closing out the year higher than had been seen in over two weeks. Last Thursday’s Chicago PMI Report was the trigger for the late week improvement…and interestingly enough, the overall PMI Report came in with decent numbers suggesting economic expansion, only slightly lower than the forecast. Generally this would cause Bonds to worsen and home loan rates to increase…but what caused Bonds to pick up a lift was the employment component of PMI, which indicated a contraction in job growth. Combined with the tendency to see exaggerated swings during low volume holiday trading, Bonds managed to move higher and home loan rates improved very slightly at the end of the week.

And although it did not have an impact on Bonds or home loan rates…some good news for the real estate market – new home sales reached a record high, as October numbers were reported at 6.94 Million!

AS IF THAT WEREN’T ENOUGH GOOD NEWS TO KICK OFF THE NEW YEAR…DID YOU KNOW THAT YEARS ENDING IN A “5” TEND TO BE QUITE LUCKY FOR THE STOCK MARKET? STRANGE, BUT TRUE. CHECK OUT THIS WEEK’S MORTGAGE MARKET VIEW FOR THE WHOLE STORY.

The Dollar situation continues to be a concern, and last week saw the US Dollar hit fresh lows against the Euro. While US Treasury Secretary John Snow continues to confirm a strong Dollar policy, Traders are starting to feel that “talk is cheap”. They know that a weaker Dollar helps the US narrow its trade gap by increasing exports. The reason the weak Dollar is a concern for Bond Traders is that a continuing decline in the Dollar will eventually cause foreign investors to pull money out of US Dollar denominated assets like Bonds, to avoid further currency erosion. This could result in an increase in inflation…the “arch-enemy” of the Bond and home loan rates.

But for this week – it’s all about J-O-B-S, jobs, jobs, jobs!! With Friday bringing the next monthly Jobs Report, it is unlikely that home loan rates will move much in advance of the big report. With the trading pits returned to full capacity as Traders return from holiday vacation…it’s likely that they will take the early part of the week to feel out the market and then position in advance of the release.

Bottom Line: Home loan rates are unlikely to move dramatically in advance of Friday’s Jobs Report. The Report itself can influence rates for days and even weeks to come.

The expression “HIGH FIVE” may take on a whole new meaning during this New Year. While we all are wishing for health, happiness, and prosperity…did you know that if history repeats itself, the stock market would see a little extra prosperity during 2005 too? Check these amazing stats out. First – the Dow has never had a down year that ends in the number “5”. And let’s go deeper…when you look at the close of the last trading session of the years ending in “4”, take a look at the percentage of improvement on the high water trading marks during the following year, ending in a “5”.

So…what if history does indeed repeat itself during 2005? Since the Dow closed out 2004 at 10,783, an average “5” year would give a close around 14,900 at some point during the year.

Ready for another interesting stat? With very minor exception, all of the “5” years during the last 100 had a stock market low for the year during the month of January. Historically, the low for the “5” year typically happens around January 22nd, and from there on out, it’s up, up and away. Will 2005 be a repeat of the same? Stay tuned…it’s bound to be an interesting year.

The economic calendar will kick off the New Year with a bang, as Friday brings the always-exciting monthly Jobs Report, indicating job growth for the month of December.

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 January 03– January 07