The Bottom Line

Is it a Detour? Or is the Train off the Track?  

Volume III Issue III – Monday March 19, 2007

A monthly newsletter of financial commentary for our friends

 I really wish I could tell you that I was a prophet. I wish I could tell you that I saw the correction of the past two weeks coming just in time. But the truth is, I thought the correction would have taken place in November of last year. So although my last commentary made me look smarter than I really am, I must confess that we were hoping to get a correction sooner than it actually happened. Historical precident is usually pretty reliable. Paradigms do change, but not as often as we think. So this market is reacting as markets in the past have done – consolidation following a strong move upward. There’s an old saying that you buy eggs when they are on sale. Is the stock market on sale? You have to be the judge of that (partnering with a good financial advisor of course).  

 The word on the street is that Wal-Mart has withdrawn their application for a banking charter. There has long been a division between banking and commerce in our country. However, because of a loophole in the ILC banking charter process, this division has become a bit hazy as of late. Bankers all over the world are breathing a sigh of relief at this news.  

 A sub-prime lending collapse will be the buzz in the media this year. People that took out adjustable rate mortgages three to five years ago are seeing their rates jump significantly. Those that were just barely able to pay their mortgage payment before the jump are handing the keys to the lender and saying, ‘take it.’ But you may be interested to know that it is not banks that are going to be flush with foreclosed real estate. Let me explain. Banks often sell their mortgage loans in the secondary market to other lenders. These lenders package these mortgages into pools of loans called tranches. These are then sold as bonds to individual investors and are backed by the real estate.  So it is possible that the owners of these bonds, (also called Mortgage Backed Securities or Collateralized Mortgage Obligations) might be the ones to bear the brunt of the sub- prime house of cards falling down. The big question economists are grappling with is whether or not this fall out will have a widespread effect on the economy. They’re pretty divided on the subject. I will say this – if you are a real estate buyer, evidence is in your favor that you’ll have a plentiful supply of homes on the market.

 Despite the challenges that we have talked about above, the economy has been quite resilient. Unemployment continues to stay low, inflation remains negligible, and corporations are growing earnings at a steady pace. The Fed may loosen the noose just a bit this year, and begin lowering the Fed Funds rate just to give us a little breathing room.  We’ll keep you posted on Fed action as the year progresses.

 Lastly, a little friendly nudge to all you tax procrastinators. Don’t put your CPA throuh the misery of getting your info on April 14th. Give them a break and get your stuff in soon. We wish you all a plentiful refund this year! Give us a call and we’ll help you plan what to do with it.

Chad P. Wilson, CFP

Foundation Bank – a division of McKenzie Banking Company - 731-554-2423          

The above is strictly informational commentary and does not constitute any sort of recommendation. Consult the services of a confident professional for specific loan, investment, tax, or other financial advice