Closing Credit Cards?

Having a good credit score is good for so many things: getting a lower rate
mortgage, getting good deals on credit cards and also for your hunting a
job.

Some people tend to cancel their old unused credit card accounts under
a wrong impression that getting rid of fat in your wallet might improve
your credit score.

Instead of closing out old accounts, leave them be. The FICO calculator
looks at your credit utilization which is measured by the ratio between
your credit limit and the amount of balance on your cards. This should be
a fraction less than 1. As it approaches 1, you max out your cards.

So, closing a old credit card reduces the amount of your available credit
without paying down the amount of debt you have. This makes it appear
that you are getting closer to maxxing out your cards and hurts your
FICO score. For example, if you have $10,000 of available credit on
several credit cards and owe a total of $1,000, you have used 10 percent
of your available credit. However, if you close accounts with $9,000 of
available credit, you now have used 100 percent of your available credit,
and that isn't good for your credit score.

Sometimes, consumers seek to close out old unused cards with high
interest rates just to avoid the possibility of using them. This is called 'a
smart consumer point of view' but not a 'smart credit point of view'. Even
if you want to cancel (may be just to have a lighter wallet or less number
of things to worry about), you might be better off to close the newer cards
which is not carrying your long-time credit history and thus are less
important from the point of view of the FICO scoring system.

Purchases Overseas

Day by Day it's getting pricier to charge
purchases overseas on your credit card. For
years some credit card companies have
charged a 1 to 2 percent fee for converting
purchases into dollars. Now the weak greenback
makes those fees even more painful.

Currency exchange fees are also becoming
more widespread. MBNA just initiated a 2
percent conversation fee for the first time; MasterCard and visa are
expanding their fees to include foreign purchases made in U.S. dollars.

What can you do? There are still companies that don't charge the added
fee, including Capital One and HSBC. Just keep an eye on the fine print.

In related news on dollar value ...
In currency trading, the dollar bought 110.62 yen on the Tokyo foreign
exchange market Tuesday morning, up 0.34 yen from late Monday and
above the 110.61 yen it bought later that day in New York. The euro fell
to $1.2224 from $1.2326 late Monday.

40-year mortgage

The 40-year mortgages, for years a niche product, is finally set to have a
strong presence in the mainstream mortgage market.

Forty-year mortgages have lower monthy payments than the well-known
30-year version, altough they cost more over the life of the loan because
the borrower pays interest for 10 years longer. With the lower monthly
payments, they are seen as a tool to allow people to buy homes that are
unaffordable with 30-year mortgages

Fannie Mae stuck its toe in the 40-year mortgage pool a year and half
ago when it started a pilot program to buy the long loans from 22 credit
unions. Now Fannie Mae has really taken the plunge, and will buy
conforming 40-year mortgages from any qualified lender.

It's not a sure bet that 40-year loans will catch on. First, the interest rates
are slightly higher--usually an eighth to a quarter of a percentage point.
Second, tacking 10 years onto the payment schedule doesn't save all that
much money every month. Third, interest-only mortgages have exploded
in popularity in the last two years, and they offer even lower innitial
monthly payments than 40-year loans.

Still, there are a plenty of ome buyers who might barely stray outside of
those guidlines when applying for a 30-year mortgage--for example, if
the house payment would be 29% of monthly income, a 40-year loan
might allow a borrower to qualify by sliding under the 28% threshold.

The real difference is quite small, though: On a $200,000 loan, the
reduction in monthly mortgage would amount to less than 64$ a month
on a 40-year, fixed-rate mortgage at 6.25% compared to a 30-year fixed
at 6%. Over the lifetime of the loan you'll end up paying much more in
total interest, though.

Mortgage Commentary

According to latest data from Mortgage Bankers Association:
Total mortgage application volume reduced by 0.7% last week.
Applications for mortgages to buy homes fell 2.2%, but refinancing rose
1.2%. Refinancing accounted for 43.7% of total applications last week,
up from the prior week's 42.4%.

The yield on a 10-year Treasury note, the primary reference for longer
-term mortgage rates, stood near 4.17% on Thursday, down from a
4-month high of 4.4% hit in early August.

According to Freddie Mac, the average rate paid on a 30-year fixed loan
was 5.77% this week, down from last week's 5.8% and last year's 5.82%.
The average rate on a 15-year fixed-rate loan was 5.35% this week,
down from last week's 5.4%. The loan averaged 5.21% exactly a year ago.

ARMs (Adjustable Rate Morgage) remain near their highest since 2002
and are likely to climb higher, with the Federal Reserve seen raising its
3.5% borrowing target at least twice more, and possibly three more times,
in 2005. One-year Treasury-indexed ARMs averaged 4.56%, down
slightly from last week when it averaged 4.58%. At this time last year, the
one-year ARM averaged 4.05 percent. Five-year Treasury-indexed
hybrid ARMs averaged 5.3%, down from last week when it averaged 5.34%.

The 30-year loan required the payment of an average 0.5 point [A point
equals 1% of the loan amount, charged as prepaid interest]. The 15-year
fixed and five-year hybrid required 0.6 point, and the one-year ARM
required 0.7 point.

Free AnnualCreditReport

Equifax, Experian and Transunion - All three credit reporting agencies
have joined forces to offer a one-stop free credit report center. This
initiative was taken under terms of a new law that, among other things,
guarantees every consumer a free yearly look at his/her credit record.

But if you live in the East part of our nation, alas, you need to wait for 7
more days to make use of this facility. You can access the reports starting
from September 1. Residents of Western states have had access since
December 1, 2004 and Mid-Western states joined the list on March 1 this
year. And Southern States were covered since June 1.

The site is AnnualCreditReport.com which allows you to request, view
and print one, two or all three of your credit reports via a secure internet
site. You can also request the report by phone or mail (these will be
processed within 15 days).

Their toll-free telephone number (877) 322-8228
Mailing Address: Annual Credit Report Request Service,
P.O. Box 105281, Atlanta, GA 30348-5281

Interest Free Mortgage

The advantage of Interest-only mortgages is that it offers lower payments
and more purchasing power. But depending on the mind-set of you and
your wife, that could be a trap. You may not avoid the temptation of
going for a more luxurious home with the ready availability of more
purchasing power and thus may land yourself among more liabilities under
some bad situations.

You need to judge what is good for you. Never forget the important fact
that you will eventually have to pay back the principal to the bank.

One of the main reasons people wish to own a home is to build equity, and
you do not do that with an "interest-only" mortgage. If you’re living in a
part of the country (like Los Angeles, Boston, NY ...) where real estate
prices are usually hot and go hotter, you’ll likely build some equity from
that rising value even if you have interest-only mortgage.

But what if the so-called housing bubble bursts? Instead of an equity, you'll
accumulate more and more liability if the market starts sliding.
Interest-only loan will throw you in a soup in that case especially if you
need to move or sell the house for some other reason.

In a normal situation, in most of the country, the home value increases
rather slowly. Even four or five years may not turn out to be a long time to
gain suifficient appreciation for your home. In such 'cold' real estate
markets where things do not move sharply up or down, your strategy may
be different. So, if you move quite often among such areas and so need to
sell home frequently, you may go for the 'interest-only' loan.

Debt & Home Equity

The U.S. personal savings rate fell to 0% in June. According to a report
from the Commerce Department this is only second time since the Great
Depression that Americans have spent as much as they earned in a month.

The US consumers accomplished this simply by tapping into their home
equity and by taking on more debt. According to a Freddie Mac report,
homeowners cashed out $59 billion in the 2nd quarter by refinancing to
a larger mortgage loan. In addition, homeowners have been borrowing
about $50 billion per quarter against their homes through home equity
loans over the past year, according to data from the Federal Reserve and
the Federal Deposit Insurance Corp.

By contrast, Americans got just $17 billion extra in their paychecks in the
2nd quarter. Other income sources grew by another $18.5 billion in the
quarter. According to the Harvard Joint Center on Housing Studies,
households reinvested some $21.6 billion back into their homes in the 2nd
quarter, about one quarter of the funds that were extracted from
refinancings and home equity loans.

Despite the steady decline in the personal savings rate from 11% two
decades ago, the net wealth of U.S. households has increased to $48.8
trillion, or 5.4 times annual income, primarily because of the increased
value of real estate and holdings of financial assets such as stocks and bonds.

The typical consumer is spending a record 13.4% of disposable income on
servicing their consumer debt, including mortgage debt. Broader financial
obligations including rent, car payments, insurance and taxes take 18.5%
of disposable incomes, down from a peak of 18.9% two years ago. Among
those who rent, financial obligations take 31 cents of every after-tax dollar.

With interest rates rising, spending will be increasingly dependent on
income in the 2nd half of the year. Freddie Mac expects the amount of
cash extracted from refinanced loans to shrink to $69 billion in 2006 from
$162 billion this year.

Health Savings Account

HSA or Health Savings Account is basically an IRA account for current and
future health-care expenses and supposed to help retirees pay for just a
fraction of future health-care expenses. HSAs were created by the
Medicare bill signed by President Bush on December 8, 2003.

To be eligible for a Health Savings Account, an individual must be covered
by a HSA-qualified High Deductible Health Plan (HDHP) and must not be
covered by other health insurance that is not an HDHP.

The money contributed is tax-deductible, grows tax-free and can be
withdrawn tax-free for medical expenses. A worker who can contribute
$1,000 per year for 40 years in an HSA could accumulate $133,400 to pay
for future health-care expenses. If the same worker contributes $2,650
per year, the HSA nest egg could grow to a whopping $474,200.

For 2005, the most you can put into an HSA is $2,650 if you have single
coverage and $5,250 for a family. Those amounts will be increased for
inflation in future years.

For more details consult HSA page of The US Department of Treasury.

What is HDHP? The HDHP (High Deductible Health Plan) features
higher annual deductibles (a minimum of $1,050 for Self and $2,100 for
Self and Family coverage) than other traditional health plans. The
maximum amount out-of-pocket limits for HDHPs in 2005 is $5000 for
self and $10,000 for Self and Family enrollment. You may have the choice
of using in-network and out-of-network providers. Using in-network
providers will save you money. With the exception of preventive care, you
must meet the annual deductible before the plan pays benefits. Preventive
care services are generally paid as first dollar coverage or after a small
deductible, or copayment. A maximum dollar amount (up to $300, for
instance) may apply.

Commentary On Mortgage

According to the Mortgage Bankers Association, volumes of mortgage
applications rose 2.2% in the week ended Aug. 12 from the prior week.
Refinancings accounted for 42.4% of total applications last week, up from
the prior week's 40.9%.

--The yield on a 10-year Treasury note is considered to be the primary
reference for longer-term mortgage rates. It stood near 4.25% today,
down from a 4-month high of 4.4% last week. Mixed inflation gauges and
the risk seen to consumer spending from record-high oil prices are still
applying a downward pressure on this rate, even though the short-term
rates are rising.

--The average interest rate on the benchmark 30-year fixed mortgage
this week was 5.8%, down from 5.89% a week earlier and almost same as
rates seen one year ago, according to Freddie Mac. The latest dip lowers
30-year rates from the nearly 4-month highs hit last week.

--The average rate on a 15-year fixed-rate loan was 5.4% this week,
down from last week's 5.47%. The loan averaged 5.19% exactly a year ago.

--One-year Treasury-indexed ARMs (Adjustable Rate Mortgage)
averaged 4.58% this week, up slightly from last week's 4.57%. At this
time last year, the 1-year ARM averaged 4.01%. Expectations of more
rate hikes from the Federal Reserve kept upward pressure on short-term
ARMs.

--Five-year ARMs (Treasury-indexed hybrid) averaged 5.34% this week,
down from 5.4% last week.

Inflation Coming?

The Inflation is a valid fear now. The Consumer Price Index (CPI) rose
0.5% in July, the biggest jump since October of last year. And while the
core CPI that excludes often volatile food and energy prices stayed in
check, the Producer Price Index (PPI), the measure of prices paid by
businesses rather than consumers, also showed the biggest jump (1%)
since October, with the core PPI also posting a 7-month high.

The core rate of inflation at the wholesale level rose 0.4%; core inflation
was expected to rise 0.1%. Inflation accelerated on a year-over-year
basis to 4.6% from 3.6% a month earlier.

With these results coming forward, the Federal Reserve might get more
aggressive with a half-percentage point rate hike any time before the end
of this year. The core CPI is now up 2.1% (on an annual basis). That's at
the upper end of the Fed's zone of tolerance.

If the gas price continues around $65 a barrel, sooner or later it is going to
affect all aspects of economy. The shop-to-shop delivery guys are already
feeling the price pressure and it is just a matter of time that this would be
transferred to average consumers. Companies have to increase their
travel budget and airlines are already in jeopardy over the steep hike in
gasoline prices.

Here are some reactions from the market:
-- The indication of accelerating wholesale inflation hurt the Treasury
market. The benchmark 10-year Treasury note closed down 18/32 at
99-24/32 with a yield of 4.281%.
-- The dollar benefited from investors' conviction that the Federal
Reserve is likely to keep lifting rates, following the latest inflation reports.
The dollar was up 0.4% at 109.95 yen, while the euro fell 0.09% to $1.2267.
-- December gold futures dropped to a four-session low, closing down
$6.30, or 1.4%, at $445.20 an ounce.

Danger on Home Front

Cashing out home equity, more borrowers with bad credit records,
proliferation of interest-only and other non-traditional mortgages, Banks
allowing people to purchase more than what they can afford -- All these
causes are no doubt leading to a very risky real estate market. A time
may soon come when some homeowners may owe much more on their
mortgage than their home is worth.

To elaborate on this point, here are some highlights of a report from SMR
Research on current market trends in the mortgage industry:

-- In the first 6 months of 2005, about 38.1% of home buyers who
financed their homes did so with a down payment of 5% or less of the
purchase price. This is up from 30.6% in 2000. So, first-time owners
are owning much less of their home value.
-- The percentage of buyers paying the traditional 20% downpayment
fell to 33.7% of borrowers. This is down from 39.1% in 2000.

Usually (and that was a trend long back), lenders require that buyers
putting down less than 20% purchase private mortgage insurance (PMI),
which adds a couple of percentage points to their interest rates. Also, since
the premium for the insurance is not tax-deductible, it adds an extra
burden to home buyers.

However, in actual practice, only few of these buyers actually go for PMI.
Instead, they use what is called "piggyback" mortgages. Piggybacks
consist of two loans: a regular mortgage covering the first 80% of the
home cost, and a home equity loan or home equity line of credit (HELOC),
which pays for the rest. According to this report, Piggybacks now account
for 48.2% of all home purchase mortgage dollars, a stunning rise from
only 19.9% in 2001.

The use of so much leverage makes real estate markets increasingly
risky. If housing prices flatten out or decline, some newer homeowners
who have built up little equity, could find themselves in real trouble. And,
if interest rates rise, homeowners with adjustable rate mortgages may not
be able to keep up higher payments or sell the house for what they paid.
Foreclosures could spike and the supply of homes for sale may increase
leading to trouble time for the real-estate run!

VTI: Vanguard's Oldest ETF

VTI, Vanguard's Total Stock Exchange Fund seeks to track the
performance of a benchmark index that measures the investment return
of the overall stock market. The Fund employs a "passive management"
approach designed to track the performance of the Wilshire 5000 Total
Market Index.

The top 5 holdings of this very much diversified ETF are:
General Electric (2.58%), Exxon-Mobil (2.25%), Microsoft (1.95%),
Citigroup (1.67%) and Walmart (1.51%).

Earlier in March, Vanguard cut fees for its Vipers ETFs to reflect asset
growth and economies of scale. As a result, the expense ratio on VTI was
reduced by more than half to 0.07 percent.

We feel it's a deal! VTI provides a wide diversification and with such a
small expense each year it would be an appropriate choice for your
retirement account. On Monday the ETF closed at $121.81.

401(k): Changes Coming

Over the next 6 months, some substantial changes may take place in your
401(k) or 403(b) retirement plan at your job.

Research has shown that workers who are eligible to participate in their
companies' 401(k) plans are sometimes slow to join the plan and feel
overwhelmed if faced with too many investment choices, and rarely take
time to rebalance their portfolios in accordance with changes in market
scenarios or in various aspects of their life. Few of them even contribute
the maximum allowed, or care to regularly increase contributions. So
employers are trying to initiate a streamlined 401(k) that will have a
number of default options designed to improve workers' chances of
building a solid nested egg. The changes include far fewer investment
choices, automatic enrollment, automatic rebalancing and automatic
deferral contribution increases.

Roth 401(k): Starting in 2006, the law will allow employers to offer a new
option in 401(k) plans: to contribute after-tax money that will grow
tax-free. Currently, your 401(k) contributions are pre-tax, meaning you
get a deduction the year you make the contribution, and you pay income
taxes on your contributions plus earnings when you retire. Since this new
option is similar to Roth IRA (but also differs in many ways) it is called a
Roth 401(k) -- or a Roth 403(b) if you work for a non-profit organization.
It's not a separate plan from your existing 401(k), but rather a new
element to it.

So you will be asked first how much of your gross income you'd like to
contribute to your retirement plan -- say, 20%. And then of that, you'll
indicate how much you'd like to put in the pre-tax portion of the plan and
the after-tax portion – say, 10% in each.

Financial Planning Resources

Today we post contact information and pointer to websites of some useful
organizations whom you may approach as individual or as a team to get
advice and guidance for financial planning:

For information on a variety of money-related topics
American Institute of Certified Public Accountants (800) 862-4272
The Financial Planning Association (800) 282-7526
International Association of Registered Financial Planners
(800) 749-7947

Especially for guidance needed to start an investment club, visit
National Association of Investors Corporation (810) 583-6242

For information from and about fee-only financial planners, contact
National Association of Personal Financial Advisors (NAPFA)
(800)366-2732

Emerging Market Bond

U.S. government bonds are safer in USA. Similarly, the safest thing one
can own in a country like Brazil is Brazilian government bonds.

More than $3 billion has poured into emerging-market bond funds
year-to-date. Upgrades from ratings agencies on emerging-market debt
and reform efforts by individual countries have proven a draw for the
interest of a large section of investors in recent times. Among those who
dared to take a risk with emerging-market debt funds have averaged
double-digit annualized returns over the past six years, according to
investment research firm Morningstar Inc.

Some of the most widely held emerging-market debt can be found in J.P.
Morgan's Emerging Market Bond Index Plus (EMBI+), which tracks total
returns for traded external debt instruments in 18 of the more-liquid
emerging markets. The biggest country debt weightings in the EMBI+
are: Brazil at 22.9%, Mexico, 19.6%, Russia, 17.8%, Turkey, 8.7%, and
Venezuela, 6.5%. Brazil figures prominently in many funds with exposure
to emerging market because it's one of the most liquid markets. The basic
Brazilian debt instrument is the Brady bond, a roughly 10-year note.

The Boston based EmergingPortfolio.com Fund Research (EPFR) is a
leading provider of fund data, research and consulting. EPFR tracks 8,000
international, emerging markets and US funds with more than $4 trillion
in assets, including offshore and US-registered funds.

Fed Raised The Rate ...

As usual and as predictably as it happens, the Federal Reserve raised its
target for the short-term federal funds rate by a quarter of a percentage
point, to 3.5%. Beginning June 30, 2004, the Fed's rate-setting Open
Market Committee has met 10 times; it has raised the federal funds rate
a quarter-point each time. The Fed meets three more times in 2005 :
Sept. 20, Nov. 1 and Dec. 13. And most people predict that the rate would
rise in all these three occasions.

What are the immediate or long-term consequences?

-- The rate hikes are used as a tool to fend off inflation which seems to be
well-controlled except for the steep hike in oil price. Rise in oil price may
eat away much of the good work that Greenspan & Co. has done.

-- Banks will increase their prime rates immediately to 6.5%. Rates that
consumers pay on their variable-rate credit cards and home equity lines
of credit will go up in immediate effect because most of those loans are
indexed to the prime rate.

-- Yields on certificates of deposit (CD) probably will continue to rise. As
we are advising over the last six months or so, do not lock your money for
a term longer than 6 months. It is better to put your money in a high yield
savings account like that from the New York based Emigrant-Direct Bank.
Their current yield is 3.5% and no minimum balance is necessary.

--Long-term debt like car loans, mortgages, fixed-rate home equity loans
are likely to rise, but the size and timing of the increases are rather hard
to predict. These types of loans respond more to broad market forces and
not that much on short term rate controled by the Fed.

-- Until a few weeks ago, long-term mortgage rates had been dropping
even as the Fed was raising short-term interest rates. But mortgage rates
have been rising since the Fed's June 30 meeting. That hasn't cooled down
the housing market yet. Be very careful whether you are buying first time
or making a new real estate investment.

Powershares' Microcap ETF

In our July 7 posting we reported about a recent interest among Financial
institutions to capitalize on the popularity and recent strong performance
of microcap stocks. Here we report about another Exchange Traded Fund
(ETF). The PowerShares Zacks Micro Cap Portfolio is set to debut on the
American Stock Exchange on Thursday Aug. 18, taking the firm's ETF
count to 20.

The PowerShares ETF will track a semiactive microcap index from Chicago
-based Zacks Investment Research, known for its models that focus on
earnings surprises and upward analyst revisions. While most indexes
attempt to provide market-style exposure, the Zacks Micro Cap
benchmark is designed to pick outperforming stocks based on value,
momentum and liquidity factors. In an interesting methodology twist, the
Zacks index will be evaluated weekly for possible stock deletions. The
frequent reviews should lead to higher turnover, but gives the index much
of its active-management flavor.

Through the end of June, the Zacks Micro Cap index has averaged annual
returns of 23.5% over the past five years, while the small-cap Russell
2000 index (RUT) has a 5-year annualized return of 5.7% over the same
period and the S&P 500 (SPX) lost 2.4% annually.

The new ETF may begin trading before a similar fund, still in the
registration process, from Barclays Global Investors, the industry's largest
player with more than $133 billion in assets at the end of June. Relative
newcomer PowerShares recently broached the $1 billion asset mark.

The ETFs are expected to be a hit with investors based on the strong
recent performance of microcap stocks and the tendency of microcaps to
reduce overall portfolio risk because they often don't move in lockstep
with the broad market.

Another Craze: Baidu

Remember 1999? Remember December of 1999? Remember that there
is a company called VA Linux Systems (LNUX)? In December 1999 VA
Linux IPO got into the market and surged an astonishing 627%. That is
still a record.

That was 1999 - the Golden year of Tech investors -- a year which allowed
every Tom, Dick and Harry to think that they were smart. This is 2004
and the same kind of hysteria is coming back to investors -- as far as
search engines are concerned.

On Friday, in an otherwise lackadaisical market, shares of the Chinese
Web search-engine operator Baidu.com vaulted 354% in the IPO market's
biggest splash in at least 5 years. Baidu.com (BIDU) opened at $66, more
than double its $27 price, climbed, stabilized and then rallied anew before
plateauing a 2nd time and ending its historic opening day at $122.54. With
about 32.3 million shares outstanding, a company with $8 million in
revenue in its most recent quarter is carrying a market cap of more than
$4 billion! With a rise of 354%, Baidu.com's first-day gain ranks 18th in
history and ranks as the best performance ever by an overseas deal.

At its offer price of $27, Baidu boasted a market capitalization of $898
million, about 42 times its trailing net revenue of $21.6 million. And that
was before the stock surged past $120. For comparison, Google (GOOG)
is valued at a trailing revenue multiple of 19 times and Yahoo (YHOO) is
valued at a multiple of 11 times.

Google owns about 2.6% of the company. As cited in Baidu's IPO
prospectus, the number of Internet search users in China is projected to
grow from 115 million in 2005 to 187 million in 2007. In the 3-months
ending June 30, Baidu said its estimated revenue was $8.4 million, up
53% from the prior quarter, with net income of $1.5 million, up 384%
from the prior quarter.

Is it Good to buy the stock? There is no doubt a long term risk in it. Some
people would surely profit at least in short term, but it is too much of risk,
if you are a small investor and money does not come too easily to you. If
you have too much of money, you may play the risk with some part of it.

Weekly Commentary

-- U.S. light crude oil for September delivery rose 52 cents to settle at
$61.38 a barrel on the New York Mercantile Exchange. This is not far
from the record closing high of $61.89 hit Tuesday.

-- The weekly jobless claims were lower than expected. Approximately
312,000 Americans filed new claims for unemployment last week, versus
an upwardly revised 313,000 the previous week.

-- The S&P Retail index-RLX slipped 2.2% on Thursday on dismal
earning report from retailers and chain stores.

-- Treasury prices inched lower, raising the yield on the 10-year note
to 4.31% from 4.29% late Wednesday. Treasury prices and yields move
in opposite directions.

-- COMEX Gold rose $1 to $443.70 an ounce. Gold futures rose for the
6th time in the last 7 sessions supported by the weaker U.S. dollar and
potential for a strike by mineworker unions in the South Africa.

-- In currency trading, the dollar fell versus the euro and was barely
higher versus the yen.

-- The 30year Fixed Mortgage averaged 5.82% in the week ended Aug.
4, up from last week's 5.77%. The average for the 15-year mortgage this
week was 5.38%, up from last week's 5.34%. One-year Treasury-indexed
ARMs averaged 4.47% this week, edging up from last week's 4.46%.
Five-year Treasury-indexed hybrid ARMs averaged 5.3%, up slightly
from last week's average 5.27%.

-- The prime interest rate stands at 6.25% and is expected by many
to rise to 6.5% next week, with the Fed seen nudging up its fed funds rate
to 3.5% from 3.25% in what will be its 10th rate hikes over the past 14
months.

Zero Savings!

A government report shows that the national savings rate is at zero! The
Commerce Department calculates the savings rate by taking the
difference between after-tax income and all expenditures, including
housing, food and clothing. June was only the 2nd month the rate was at
zero since the monthly figure started being calculated in 1959. The annual
rate for 2004 was 1.8%; the last time the annual rate was lower was 1934.

Probably, strong auto sales in June played a big part in the latest
statistics on the savings rate. The government counts the entire price
of the autos purchased during the month, even though most consumers
pay for vehicles over time. However, we must recall that in May, before
the current "employee pricing" offer from automakers, the savings rate
was only 0.4%, or 40 cents for every $100 of take-home pay. It is also
worthwhile reminding us that as recently as 1994, the savings rate was
nearly 5%. About 25 years back double-digit savings rates were the usual
practice of baby boom generation.

According to a separate report from the Federal Reserve, the average
U.S. household has a net worth of greater than $400,000. Household real
estate assets have risen by just over two-thirds since 1999, and the run
up has enabled consumers to spend more money than they are bringing
home in their paychecks. Consumers are using home equity loans and
refinancings to pull out cash and support a higher level of spending.

Also, one other factor driving down the savings rate is rising energy costs.
According to an estimate, the rate would still be in the neighborhood of 2
to 2.5% seen 2 years ago, before energy prices started moving higher.

It is time to think carefully before you start draining money out of your
home. The mortgage rates will surely increase -- it's just a matter of time.
Don't spend more than you really can if you wish to avoid difficult time
under high-interest rate situation.

Hike in Paycheck

According to the latest survey of employers' pay raise intentions by
WorldatWork, a nonprofit human-resources trade group, more U.S.
workers will soon get a hike in their paychecks. Employers said they
would give raises to 92% of their workers this year, up from 87% last
year, according to this survey of about 2,400 firms employing about
13.9 million workers.

Still, that's off from the 94% of workers granted raises in 2001. The
companies said they'll dole out raises averaging 3.7% of salary this year,
a slight increase from 3.6% last year. They expect the average to inch
up to 3.8% next year. Since those pay hikes just barely clear inflation,
which averaged 3.3% in 2004, it may just be barely minimal to keep
pace with inflation.

[However, there have been worse times in terms of pay hikes in the past.
In 1981, when inflation was running at 10.3%, salary raises averaged
10.6%. And in the early 1990s, pay hikes averaged about 5.6% while
inflation ran at about 5.4%, according to WorldatWork ]

Fewer companies said they're freezing wages. Last year, 2.6% of the
firms said they'd provide no increase at all for hourly workers. That's
dropped to 1.4% this year.

Million dollar homes

According to a recently released study from Harvard's Joint Center for
Housing Studies, Americans spent $133 billion on home remodeling in
2004. People are also looking for more space or are just increasing the
space in their existing home. New houses now average more than 2,300
square feet in size, up from 1,900 square feet in 1987, according to the
National Association of Home Builders. Homeowners have also upgraded
their existing home at a brisk pace. All those granite countertops,
hardwood kitchen cabinets, inground pools and finished basements have
helped send average values of homes skyward.

According to the Census Bureau, homes that go for more than $1 million
still make up a small slice of the total housing stock, but their percentage
has doubled to more than 1%, according to the Census Bureau.

California leads the nation in the number of single-family 7-digit homes.
The state had a total of 33,107 home sales of $1 million or more in 2004,
65% of the U.S. total and 73.5% more than in 2003. Million-dollar sales
accounted for 5% of all California home purchases in 2004. Other states
on the top 10 list for 7-figure, single-family home sales are (number of
sales for million dollar or above are shown in bracket): Florida (4,698),
New York (2,180), Illinois (1,336), Massachusetts (1,067), Arizona (995),
Maryland (915), Connecticut (795), Washington (696), and Nevada (659).