Tuesday, December 27, 2005

Inverted Yield curve...

The Yield curve has just inverted!
An "Inverted Yield Curve" means the 2-Year Note Yield moves above the 10-Year Note Yield. But more importantly, history has shown this to be a recessionary signal. We don't see an Inverted Yield Curve signaling a recession this time. Why? Our Fed Funds rate has risen 325bp since June 2004. The 2-Year Note Yield moved higher with the Fed hikes since it is short-term paper. But, the 10-year Note Yield actually moved sideways to lower during this timeframe because of the inflation-fighting mechanism behind the hikes. Longer-term paper is more concerned with inflation rather than actual Fed moves. Bottom Line...Things are different this time because the Fed moves have pushed the 2-Year Note Yield higher, while foreign buying and contained inflation have helped reduce the 10-year Note Yield. The economy is and will continue to be strong and a recession is not in the cards.
Stocks may be set for a "Santa Claus Rally" and a run at the 11,000 mark this week. But first the Index has to break through the 10,940 barrier. This pesky level has been a solid ceiling of resistance for stocks many times during 2005. Each failed attempt to break this level has resulted in stocks dropping and bonds improving. It is no coincidence that mortgage bonds are near a ceiling in their range as well at this time. Bond traders will closely watch stocks to see how they react. If stocks bust above the ceiling, bond prices will drop. But if stocks again fail to break through, mortgage bonds should improve nicely. Remember, stocks and bonds often compete for the same investment dollar.

Monday, December 19, 2005

Tax Planning Thoughts...

Many people start seriously thinking about tax season after the start of the New Year…which is actually a bit too late. Ideally, taxes should be planned two years at a time to save the most tax money. So before the year is over, it’s wise to look at the acceleration or postponement of deductions and income between years. For example, many taxpayers want to minimize the current year’s tax bill, so making sure your state income tax is paid in December rather than January can help. Additionally, you can pay Real Estate taxes and even January’s home loan payment in December to beef up your deductions. In fact, you are eligible to take the deduction if the checks are mailed in December…even if they are not cleared until January.
But watch out for AMT, Alternative Minimum Tax, which can erase your deductions. Testing to see if you fall into this trap may cause you to do the opposite – pushing some deductions off until next year, paying them in January rather than December. The same holds true for income. It is sometimes possible to accelerate or delay commissions, bonuses, billings, etc…and that can help you maximize tax savings.
You should always consult your tax pro on the strategy that is best for your own situation, but you can start by visiting www.irs.gov/newsroom. This link contains a list of the new inflation adjusted dollar amounts for many important tax figures for 2006. Comparing the allowable deductions for 2006 versus 2005 will help you choose in which year to take advantage of certain deductions. And remember, the time to consult with a CPA is now, not after the New Year begins…so if you need a referral for a qualified tax planner, please contact me.

Thursday, December 01, 2005


More than 28,590 families in California will be able to benefit from Fannie Mae's and Freddie Mac's recent announcements that each will increase its single-family mortgage loan limit from $359,650 to $417,000 in 2006, according to an analysis by C.A.R.

"While this is good news for many homebuyers, Fannie Mae's and Freddie Mac's new loan limits do not go far enough to benefit most homebuyers in California," said C.A.R. President Vince Malta. "Conforming loan limits need to more accurately reflect the cost of housing in California, where the median price of a home is more than double that of the nation.

"The current median home price in California is $538,770, more than 29 percent higher than the national conforming loan limit of $417,000. In addition, California has 19 counties with a median home price above the national conforming loan limit.