Inside Lending Newsletter - For the week of October 31, 2011 – Vol. 9, Issue 44

> Market Update  QUOTE OF THE WEEK..."Success seems to be largely a matter of hanging on after others have let go."--William Feather, American author and publisher INFO THAT HITS US WHERE WE LIVE...Last week's housing news did give all of us in the industry a few more things to hang onto. First, we saw new single-family home sales go up 5.7% in September, to a 313,000 annual rate. Next, it was nice to see the supply of new homes drop to 6.2 months. The inventory is now at the lowest level on record. Then, Case-Shiller's 20-City Composite Home Price index was up for the fifth month in a row in August and 16 of the 20 metros tracked saw an improvement in their annual rates of change. Case-Shiller called this "a modest glimmer of hope" for the housing market. We'll take it. Finally, the Pending Home Sales Index dropped a bit in September but was UP 6.4% year over year. This gauges signed contracts on existing homes that are not yet closed. BUSINESS TIP OF THE WEEK...Be decisive in recognizing mistakes, even if they're your own. When you see something wrong, don't dwell on it--fix it!. That's the fastest way to success. >> Review of Last Week FOREIGN PROGRESS, DOMESTIC BLISS...Just the announcement of a plan to solve the debt crisis in Europe was more than enough to send investors into a state of ecstasy. Well, that may be a bit of an exaggeration, but the Wall Street faithful certainly felt upbeat enough to send all three market indexes solidly northward for the week. This makes four straight weekly gains for the broadly based S&P 500. But good news from foreign lands couldn't take all the credit. Over here, Q3 corporate earnings reports were mostly better than expected. Personal Income was up for September, as was Personal Spending, showing the consumer has the money to participate in the recovery and is willing to do so. Even the most strident recession evangelists were silenced by Thursday's Advance Q3 GDP which had the economy expanding at a 2.5% annual rate. This is nicely above Q2's 1.3% rate, although not yet high enough for the job growth we need. For the week, the Dow ended UP 3.6%, at 12231; the S&P 500 was UP 3.8%, to 1285; and the Nasdaq also gained 3.8%, to 2737. Europe's blueprint to ease its debt crisis got investors dumping bonds and moving into riskier equities. The selling sent bond prices down, although some of those losses were recovered on Friday. The FNMA 3.5% bond we watch ended the week down .05, at $100.26. But there was little change in mortgage rates, as national averages pretty much held steady, according to Freddie Mac's weekly survey. Of course, interest rates could rise if mortgage bonds lose their investor appeal. DID YOU KNOW?...The Employment Report, released by the Bureau of Labor Statistics on the first Friday of each month, contains data for the period ending on day 12 of the prior month. >> This Week’s Forecast LOOKING AT MANUFACTURING, THE FED, OCTOBER JOBS... The week begins with a couple of good readings on manufacturing, the Chicago PMI and the ISM Index both expected to continue showing expansion. The Federal Reserve stages another Federal Open Market Committee meeting this week. The Funds rate will stay where it is, but the policy statement on Wednesday will be scrutinized as usual. The key economic news for the week will be the October Employment Report on Friday. Unfortunately, the forecast is for just 88,000 new jobs, not enough to bring the Unemployment Rate down from 9.1%. >> The Week’s Economic Indicator Calendar Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates. Economic Calendar for the Week of Oct 31 – Nov 4  Date Time (ET) Release For Consensus Prior Impact M Oct 31 09:45 Chicago PMI Oct 58.9 60.4 HIGH Tu Nov 1 10:00 ISM Index Oct 52.1 51.6 HIGH W Nov 2 10:30 Crude Inventories 10/29 NA 4.735M Moderate W Nov 2 12:30 FOMC Rate Decision 11/2 0%-0.25% 0%-0.25% HIGH Th Nov 3 08:30 Initial Unemployment Claims 10/29 402K 402K Moderate Th Nov 3 08:30 Continuing Unemployment Claims 10/22 3.675M 3.645M Moderate Th Nov 3 08:30 Productivity-Prelim. Q3 2.8% -0.7% Moderate Th Nov 3 10:00 ISM Services Oct 53.7 53.0 Moderate F Nov 4 08:30 Average Workweek Oct 34.3 34.3 Moderate F Nov 4 08:30 Hourly Earnings Oct 0.2% 0.2% Moderate F Nov 4 08:30 Nonfarm Payrolls Oct 88K 103K HIGH F Nov 4 08:30 Unemployment Rate Oct 9.1% 9.1% HIGH >> Federal Reserve Watch    Forecasting Federal Reserve policy changes in coming months...This week's FOMC meeting is expected to leave the Funds rate at its super low level. The Fed said it wants to keep the rate there through mid-2013. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% After FOMC meeting on: Consensus Nov 2 0%–0.25% Dec 13 0%–0.25% Jan 25 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Nov 2      <1% Dec 13      <1% Jan 25      <1%

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