Bernanke faith in housing seen in mortgage bonds: Credit Markets Mortgage rates in the U.S., after increasing at the fastest pace in a decade, are poised to rise even further with Federal Reserve Chairman Ben S. Bernanke saying the central bank is ready to slow its purchases of Treasuries and bonds backed by housing loans.

Yields on Fannie Mae’s 3.5 percent, 30-year securities have soared 0.38 percentage point in the past two days to a 19-month high of 3.1 percent. The price tumbled 1.3 cents yesterday, the most since 2010, to 102 cents on the dollar, before falling to 101.6 cents as of 12 p.m. in New York. The average rate on new loans packaged into such bonds rose last week to 3.98 percent, the sixth straight increase, from 3.35 percent at the start of May, Freddie Mac surveys show.

Bernanke said at a news conference in Washington yesterday that the rise in mortgage rates hasn’t been “so dramatic” as he suggested the housing market may be strong enough to withstand higher borrowing costs. Investors sold bonds that guide home-loan rates as they focused on his expectation that the Fed’s $85 billion in monthly debt buying will slow later this year and end around the middle of 2014.

The tone of Bernanke’s comments was “very assuring and soothing, but that’s like a mother telling her baby that she will be leaving in a very gentle voice,” said Tae Park, a money manager in New York at Societe Generale SA who focuses on mortgage bonds. “The baby will still have a fit.”

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                                                                                                                      by Jody Shenn (www.bloomberg.com)

Market fear has given way to greed as risky loans have re-emerged, an investment advisor has said. Mark Starosciak, managing partner of Infinium Investment Advisors in Denver, Colorado, has said margin loans are seeing a resurgence as investors become more comfortable with the economy.

“A period of four to five years of fear began to transition to greed at the beginning of this year,” he said. “As this happens, you’ll see a lot of risky strategies come back into play.”   Margin loans, which hit an all-time high earlier this year according to FINRA, can be used to buy real estate, fund small business acquisitions or to provide gap financing, but it’s not worry free, Starosciak said.   In the same way that a bank will lend money against equity in your house, your brokerage firm can lend money against the value of certain stocks, bonds and mutual funds in your portfolio. But the similarity has some seeing flashbacks to the myriad of problems people can face when tapping into their home equity for consumer goods. The loans can magnify profits, but it can do the same for losses. If your securities decline to the point where they no longer meet the minimum equity requirements for your margin loan, you'll get a call to bring additional money to the table.   This risk, combined with higher interest rates mean margin is efficient if you have a short-term need and a diversified portfolio, but not advisable for those who don’t have the financial means to weather the storm if and when the next one comes, Starosciak said. At the onset of a recovery, greed is driving investor decisions, he said, and you don’t want to be the last one to the party because when it ends, it will cause a lot of financial pain.

                                                                                                                   by Kelli Rogers (www.mpamag.com)

"Like life in a bad Road Runner cartoon, the United States has survived the New Year's "fiscal cliff," double rounds of debt-ceiling roulette and various budget blow-ups over the past two years. Now the threat is $85 billion in indiscriminate spending cuts that would hit most federal programs and fall hardest on the military. Pentagon programs are slated for an 8 percent cut; other agencies would lose 5 percent for the current budget year.
By law, these cuts known as the "sequester" begin unfolding automatically at week's end unless President Barack Obama and Congress act to stop them. Even after they've begun, the cuts still could be halted or reversed through legislation.

Why did Congress and Obama agree to automatic cuts they don't like? To corner themselves into getting the nation's deficit under control."

                                                                                  - By Calvin Woodward and Connie Cass