Mortgage Rate Down 6th Week

Evidences and data pointing to cooling of housing market and sliding consumer confidence led to lower mortgage rates this week. The rate is down for the 6th week in a row. The financial markets are speculating that economic growth will moderate and inflation will remain in check and the Fed will not hike the short time rate in its next meeting on September 20th.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.44% in the week that ended today -- down from its 6.48% average last week. At this time last year, the loan averaged 5.71%. The 15-year fixed rate averaged at 6.14% this week, again a fall from last week's 6.18%. At this time last year this rate was 5.32%.

Rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged at 6.11% decreasing from last week's 6.14%. This rate averaged 5.30% a year ago. The 1-year Treasury-indexed ARMs have an average rate of 5.59%, slightly down from last week's rate of 5.60%. At this time in 2005, the 1-year ARM averaged only 4.48%.

Beware of Fed Meetings

Last few days have been so kind to traders. A number of good news came out to support the uptrend of the market. The U.S. economy was stronger than originally thought in the first half of the year, with growth in wages and salaries one-third higher than previously estimated. Real gross domestic product for the second quarter was revised to 2.9% annualized, from the earlier estimate of 2.5%, the government said. The core inflation measure, closely watched by the Federal Reserve, has been revised. It rose 2.8% in the second quarter, down from 2.9% reported earlier. And finally the crude price is going down. Some are hoping they would be able to buy gas at close to $2 a gallon by the end of 2006.

In the midst of all these there are still causes of concern. Any bad news may hit this upward journey of stock market. Traders may start collecting the profit soon. So, you must make sure you do not get caught up at the peak. In particular, one must keep in mind the following dates when you may expect severe downturns in stock prices: September 20, October 24, December 12. These are the meeting dates of the Federal Reserve when the committee would decide the fate of the short term interest rate. If traders anticipate a hike in the rate, they would sell off in fear of lower level of consumer spending and less corporate earning. If Fed does not hike the rate, that would be read as an indication of downturn in our econonomy and traders may sell off in that case too.

So, just keep those dates in mind. If you see too many positive news in between, don't just get carried away. Although we all know the basic motto of investing, that is 'buying low and selling high', most of us trade out of emotion. We sell when the world looks grim and we purchase when the world is singing songs. Just be reasonable in coming months. Select stocks or funds carefully and, if possible, take those opportune moments before or after FOMC meeting dates to purchase some of those stocks in your selected list at a lower price.

Foreign Investment & ADR

It is a good practice to own some foreign stocks thus lowering your risk with diversification and increasing your return. Investors still need to do their homework well on any country and company in which they wish to invest. However, ready access to such research is sometimes very hard to get. Recent downturn in emerging markets also sent a feeling of nervousness among investors.

American Depository Receipts (ADR) have been a popular investment tool in recent months. The bulk of these listings are from Europe, though emerging markets are increasing in representation. ADRs from China and India have been very popular and successful investments. We can tell you so many names which have consistently produced good return, but, as you know, we always hesitate several times before investing in any individual stock.

Like all wise investors if you take the issue of diversification seriously and wish to put some money in ADRs to receive a chunk of the global rise of economy, we think there is something better than ADRs - That is an Exchange Traded Fund (ETF) for ADRs. In fact, there are four of those.

Nasdaq Financial Products Services and The Bank of New York offers BLDRS, a family of exchange-traded funds ("ETFs") based on The Bank of New York ADR IndexSM, a real-time index tracking U.S. traded depositary receipts (For details visit the ADR IndexSM section of adrbny.com). The BLDRS Fund Family is currently made up of four ETFs, including two market index funds and two regional index funds:

1. BLDRS Emerging Markets 50 ADR Index Fund (ADRE),
2. BLDRS Developed Markets 100 ADR Index Fund(ADRD),
3. BLDRS Europe 100 ADR Index Fund(ADRU) ,
4. BLDRS Asia 50 ADR Index Fund (ADRA).

All of them have very low expense ratio of only 0.30. We think all of these are good long time investments especially for retirement accounts.

Mortgage Rate Down 5th week

Mortgage rates fell for the 5th week in a row. The Federal Reserve's acknowledgment that it is closely monitoring the housing market as it slows from last year's record pace could possible be a factor behind this fall-back. Lenders are speculating that the Fed might stop raising short-term interest rates over the near term.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.48% in the week that ended today -- down from its 6.52% average last week. At this time last year, the loan averaged 5.77%. The 15-year fixed rate averaged at 6.18% this week, again a fall from last week's 6.20%. At this time last year this rate was 5.35%.

Rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged at 6.14% decreasing from last week's 6.18%. This rate averaged 5.30% a year ago. The 1-year Treasury-indexed ARMs have an average rate of 5.60%, down from last week's rate of 5.65%. At this time in 2005, the 1-year ARM averaged only 4.56%.

Meanwhile, both existing- and new-home sales for July fell below market expectations -- confirming the slowdown in the housing market. However, Freddie Mac still expects 2006 to be the 3rd highest year on record for total sales.

WisdomTree Investment Funds

WisdomTree Trust has a family of 20 Exchange Traded Funds (ETFs) whose investment philosophy is based on a unique kind of indexing. Most traditional indexes are weighted based on market cap. The WisdomTree Trust represents the first global family of fundamentally weighted ETFs based on proprietary dividend-weighted indices, which means that the proportion – or "weighting" – of the securities in each index is based on either the amount of cash dividends that companies in each Index pay or the dividend yield of the companies in each index. This means that companies that pay higher amounts of cash dividends or that have higher dividend yields generally will be more heavily weighted in each index and fund.

Most traditional indexes and index funds weight their securities by looking simply at the market capitalization of such securities. WisdomTree included only regular dividends in the determination of total cash dividends and dividend yields (special dividend are excluded from calculation weights).

The ETFs have very low expense ratio ranging between 0.28-0.58%. The complete list is here:
Domestic Funds: WisdomTree Dividend Top 100 Fund (DTN), High-Yielding Equity Fund (DHS), LargeCap Dividend Fund (DLN), MidCap Dividend Fund (DON), SmallCap Dividend Fund (DES), Total Dividend Fund (DTD)
International Funds: DIEFA Fund (DWM), DIEFA High-Yielding Equity Fund (DTH), Europe High-Yielding Equity Fund (DEW), Europe SmallCap Dividend Fund (DFE), Europe Total Dividend Fund (DEB), International Dividend Top 100 Fund (DOO), International LargeCap Dividend Fund (DOL), International MidCap Dividend Fund (DIM), International SmallCap Dividend Fund (DLS), Japan High-Yielding Equity Fund (DNL), Japan SmallCap Dividend Fund (DFJ), Japan Total Dividend Fund (DXJ), Pacific ex-Japan High-Yielding Equity Fund (DNH), Pacific ex-Japan Total Dividend Fund (DND).

China Funds

Here are 3 good options for investing in China. The first two have more diversified portfolios and we prefer those keeping in long term gain and risk factors in mind

(i) Fidelity China Region Fund (FHKCX). It has expense ratio of 1.16%. Minimum investment amount is $2500.

(ii) The PowerShares Golden Dragon Halter USX China Portfolio (PGJ) Exchange Traded Fund (ETF) is composed of 51 U.S.-listed companies that derive most of their revenue from China. It has an expense ratio of 0.6%.

(iii) The iShares FTSE/Xinhua China 25 Index (FXI) ETF tracks the 25 largest and most liquid Chinese companies trading on the Hong Kong exchange. As a result its portfolio is less diversified than other two funds. It had a better gain than others but may also turn out to be more volatile. Its expense ratio is 0.74%.

[Disclaimer: We donot personally possess any of these funds]

Alternative Energy Investment

Unlike traditional energy companies which suffered a downturn in June but came up nicely thereafter, the alternative-energy shares could never get rid of that mid-year disillusionment of their investors.

For example, PowerShares WilderHill Clean Energy (PBW), an alternative-energy focused ETF (Exchange Traded Fund) or Winslow Green Growth Fund (WGGFX) , a small-cap portfolio that has investments in clean-energy stocks, are off by about 25-30% from their peak after a good run up there in the first half of 2006. A similarly focused midcap offering, New Alternatives Fund (NALFX) and another newer offering, Guinness Atkinson Alternative Energy Fund (GAAEX) also are off by about 11% and 16% respectively from their mid-year peaks.

The main difficulty in playing in this field comes from a limited understanding of the valuation of such stocks and their future. Everyone understands that Ethanol or solar energy would assume a great role in future but nobody is sure enough to tell when exactly these could play a significant role in the world dominated by conventional energy sources like oil and gas. For example, riding the hype generated by rising crude oil prices in mid-May, Pacific Ethanol Inc. (PEIX) , which claims Bill Gates as major investor, reached a 52-week high of $42, but was exchanging hands at $15.01 at closing bell today.

But many proponents of alternative power maintain that the good time for such stocks would arrive sooner than what the disillusioned investors predict. Their faith hinges on several broad factors: the ever-increasing thirst for energy from developed countries as well as China and India which are industrializing themselves at a rapid pace; the finite nature of fossil fuels; global warming, and the uncertain geopolitics of oil. In such a world, they say, it pays -- both economically and politically -- to find other power sources. And so, if you can put your trust on alternative energy and have time and patience on your side, it's probably right time to enter this sector.

Mortgage Rate Down 3rd Week

Mortgage rates fell for the 3rd week in a row as the Federal Reserve paused in its interest-hike campaign. We expect the rate to rise soon in anticipation of inflationary fear originating from higher oil price and unrest in middle east. The unveiling of the failed terrorist plot in Britain today may also contribute to price hike in travel expenditure originating from tighter security measures. Although crude price dropped today, we all can guess that this is just temporary. Even though the effect of higher oil price had been minimal, sooner or later we would painfully observe its effect in prices of all kinds of goods. After all those arrive in stores by trucks.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.55% in the week that ended today -- down from its 6.63% average last week. It is a quarter of a percentage point below its most recent high of 6.8% reached on July 20. At this time last year, the loan averaged 5.89%. The 15-year fixed rate averaged at 6.20% this week, again a fall from last week's 6.27%. At this time last year this rate was 5.47%.

Rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged at 6.21% decreasing from last week's 6.27%. This rate averaged 5.40% a year ago. The 1-year Treasury-indexed ARMs remained unchanged at last week's average of 5.69%. At this time in 2005, the 1-year ARM averaged only 4.57%.

No Rate Hike By Fed

The Federal Open Market Committee held interest rates steady after its meeting today, taking a pause from hiking rates for the first time in 25 months. FOMC members decided to keep overnight interest rates at 5.25%. According to FOMC, "some inflation risks remain" but those "seem likely to moderate over time."

Rest of the meetings are scheduled on September 20, October 24 and December 12. We feel it's not time yet to be too bullish. In short term the market may response positively but soon they have to pause and look forward to the outcome of next month's meeting. Rising energy cost and unrest in middle east should be the main concern at present. This is certainly not an opportune moment to rejoice over the pause in rate hike.

Target Retirement Funds

Target retirement funds are also known as life-cycle or target maturity funds. The rule is very simple to understand: As an investor approaches retirement, these funds take less risk with stocks and put more money into conservative bonds. In retirement, these funds put most of the money in income-producing bonds. U.S. fund companies like Fidelity Investments, T. Rowe Price Group, the Vanguard Group and Charles Schwab & Co., among others, have launched versions of the life-cycle strategy.

Nowadays the earliest retirement funds mature in 2010, with others offered in 5- or 10-year increments up to 2045. In general these funds have been well-received, even though most of these are not much more than a year old and performance records are short. Not all life-cycle funds are alike. Some funds take more risk than others. The trade-off is straightforward: Stocks can provide a larger retirement nest-egg but are more volatile -- especially smaller-capitalization shares. Bonds are relatively stable and safer but lack stocks' long-term punch.

Vanguard Target Retirement 2025 Fund (VTTVX), for example, emphasizes on growth and income, whereas T. Rowe Price Retirement 2020 Fund (TRRBX) allocates almost 80% in stocks - a more aggressive approach than the Vanguard fund's 60% allocation to stocks. Fidelity Freedom 2025 Fund (FFTWX) invest 64% in domestic and 11% in international equities.

Mortgage Rate Down 2nd Week

Mortgage rates fell for the second week in a row from indication of a cooler economy ahead and less concern for inflation. The second-quarter gross domestic product came in weaker than what the market had expected.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.63% in the week that ended today -- down from its 6.72% average last week. At this time last year, the loan averaged 5.82%. The 15-year fixed rate averaged at 6.27% this week, again a fall from last week's 6.34%. At this time last year this rate was 5.38%.

Rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged at 6.27% decreasing from last week's 6.35%. This rate averaged 5.30% a year ago. The 1-year Treasury-indexed ARMs also moved down this week to 5.69% from last week's rate of 5.78%. At this time in 2005, the 1-year ARM averaged only 4.47%.

Two Commodity ETFs

Back in January, Deutsche Bank launched (read out past posting) the first ETF (Exchange Traded Fund) tracking a diverse basket of commodities based on the PowerShares DB Commodity Index Tracking Fund under the ticker symbol DBC on the American Stock Exchange. Last week, Deutsche Bank rebranded the fund under ETF manager PowerShares Capital Management's umbrella for marketing leverage. The Index fund invests in futures contracts to track a Deutsche Bank index, which has base weights of 35% crude oil, 20% heating oil, 12.5% aluminum, 10% gold and 11.25% each in corn and wheat.

Barclays, the mighty behemoth of the ETF world, also decided to place itself into the commodity world with the introduction of iShares GSCI Commodity-Indexed Trust on the New York Stock Exchange on July 21. Its ticker symbol is GSG . This fund follows a Goldman Sachs index that holds 24 types of commodities: 6 energy products, 5 industrial metals, 8 agricultural products, 3 livestock products and 2 precious metals.

Both DBC and GSG carry a management fee of 0.75%.