Mortgage Rate Down After Federal Rate Cut

This was the first week after last Friday when the Federal Reserve had its first cut (since June, 2003) in its short term interest rate ... and it seems the mortgage market was quick to response to such a gesture of goodwill from the central bank. The 30-year fixed-rate mortgage rate sank this week to their lowest point since late May.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage went down to 6.52% from last week's average of 6.62%. The rate was 6.48% one year back. The current rate is the lowest rate since the week ending May 31, when rates stood at 6.42%. In mid-June, however, the rate had climbed to 6.74%, the highest for this year. The 15-year fixed rate averaged at 6.18% this week -- down slightly from last week's average of 6.30%. At this time last year this rate was 6.18%.

The 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) also changed to 6.34% -- only a little bit from last week's average of 6.35%. The hybrid averaged 6.14% a year ago. One-year Treasury-indexed ARMs averaged 5.60%, down from 5.67% of last week. This rate averaged 5.60% a year ago.

VMWare: Tomorrow's IPO

VMware Inc. is a wholly-owned subsidiary of the tech giant EMC Corporation and is the leading provider of virtualization solutions. The company supplies proprietary virtualization software for x86-compatible computers, including VMware Workstation and the freeware VMware Server and VMware Player products and has a overall bright prospect of making its mark in Tech world.

Tomorrow the Initial Public Offering of VMware Inc. will start trading in the floor of NY stock exchange with ticker symbol VMW and the company is hoping to raise $924 million. The company kept the size of the deal at 33 million shares and raised its estimated price range from the earlier level of $23 to $26.

For the 3 months ended on June 30, VMware reported preliminary 2nd-quarter net income of $34.2 million on revenue of $297 million, compared with net income of $15.2 million on revenue of $156 million in the year-ago period. Income surged on sales of its software that helps businesses boost the computing power of Web servers.

With high profile investments from Intel (estimated 1.6% stake) and Cisco (estimated 2.5% stake) under its belt, VMWare may turn out to be the hottest IPO of the summer of 2007. But individual investors must not emerge themselves in emotion that prevails on first few days of a predictably hot IPO and throw too much money in it tomorrow. Just like we saw recently in the case of Blackstone (BX), the initial euphoria may die down quickly leaving the individual investors in limbo at least for some time adding to their worry from the recent pullback in global stock market. Blackstone traded at as high as $38 on its debut date June 22 this year and last Monday it had its lowest point at $22.76 (today's closing price $25.71).

While long term prospect for both BX and VMW would remain to be good, such a pullback right after investment always throws the confidence of investors into disarray and thus badly affects their trading strategy leading them to take bad decisions on other stocks as well.

ROB the Riches

Last week, another new ETF started trading in New York Stock Exchange. This time it is designed to invest in companies that provide luxury goods and services. The name is Claymore/Robb Report Global Luxury ETF and the ticker symbol is ROB.

Claymore Securities Inc., the sponsor of the new fund launched the product by claiming that the fund would provide access to a growing area of the economy that seems to have different characteristics than mass-market. Indeed, such a fund can hopefully remain immune against fluctuating level of consumer sentiment or spending. Those fortunate people who do not always look at price tags probably won't hesitate to purchase a Hammer or BMW or high priced jeweleries or diamond rings, even if the economy weakens.

Even amidst the wide-spread criticism prevalent in Wall street nowadays that the ETF market is growing too quickly, with increasingly narrow offerings, we may give a serious look at this special ETF for the following reasons: In the U.S., there aren't mutual funds or ETFs that focus on luxury. The fund has three-quarters of the portfolio in international companies -- which provides a good diversification and also provides a currency play against weakening dollar.

Most of the stocks in the index are based in leading luxury and wealth markets such as the U.S., France and Switzerland, which recently accounted for nearly 75% of the portfolio's holdings. Companies in Germany, Italy, Japan and Brazil are also represented. Consumer discretionary stocks make up about 66% of the index including names like Christian Dior, Coach Inc., Porsche , Tiffany & Co. and Polo Ralph Lauren Corp. The ETF also has a 22% position in financial-services companies that cater to affluent customers such as UBS, Credit Suisse Group and Goldman Sachs Group Inc. The fund portfolio also has stakes of almost 7% in consumer staples, about 4% in industrials, and less than 1% in materials stocks. Its rules prevent any holding from going over 5% of assets to limit reliance on the performance of a single stock.

Globally, the number of affluent households with at least $1 million in liquid assets has doubled since 1996 to 9.5 million last year. Not all of us can become rich but, we feel, it's a good idea to ROB some part of the growth of those Riches by investing some of our money in this fund.