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Five Things You Need to Know: Shot by Both Sides

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How much more humiliation will Mr. Jones be willing to accept and what indignity will finally be the last straw?

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Kevin Depew's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

Shot by Both Sides, It's Tough Being Mr. Jones

After yesterday's 400 point move in the Dow Jones Industrial Average, Mr. Jones had every right to walk out of his favorite Main Street diner after having enjoyed his typical weekday lunch, feeling perhaps as if he was the only one left out of the secret understanding that had been reached earlier that morning by Wall Street and a handful of the world's most powerful central banks.

Walking back to his office, he caught his reflection in a pane of storefront glass and paused. Haven't I done everything right? he asked himself. It was a legitimate question. But the reflection in the glass looking back at him made him feel embarrassed, small and not a little dumb.

The answer seemed to be both yes and no. After all, Evansville was a long, long way from Wall Street. He stepped back from the storefront and leaned his elbow on a parking meter.

New York. What a joke, he thought. And we're the punchline. Who are those people? he wondered. Somebody somewhere must be making money on all of this, but who? How do you get to be one of "those" people?

He choked the thought off almost as soon as it entered his mind. He had chosen this, this small town, this life; choices just as legitimate as any made by bankers and salesmen wearing suits in Manhattan.

Sure, he knew the rules; the closer you are to the money, the higher up on the food chain, the easier the meals are. He also knew that for the rest of America the rules worked much the same, only on a smaller scale. He had chosen to live on a smaller scale, to carve out his own place, a humble place, he thought. But now, the rules seemed to be changing, the goal posts always shifting.

Shot by both sides. He laughed to himself at the concept. It's true, he thought. All this time I've been playing hard, like I'm really a part of the team, but I'm not. I'm just one of the balls.

Shot by Both Sides

What does it mean? Here are five clues. The writing is on the wall. All that's left is to figure out how much more humiliation will Mr. Jones be willing to accept and what indignity will finally be the last straw.

1. Mortgage Rates Largely Unchanged...

You know the drill, 225 basis points have been removed from the Federal Funds rate since the debt crisis began. Meanwhile, for Main Street the rate cuts have been meaningless on the demand side.

The MBA mortgage applications index fell 1.9% in the week ending March 7, driven by a 4.7% drop in refinancing applications. Why the decline? One reason might be the fact rates on 15-year and 30-year fixed mortgages actually moved higher. The 15-year fixed increased 46 basis points to 5.72%. The 30-year rose 39 basis points to 6.37%.

Put in perspective, the cost of a 15-year fixed rate mortgage has declined by less than 20 basis points and a 30-year fixed rate mortgage is basically the same since the Fed
began cutting rates back in September.

2. ...But Money Market Rates Aren't

Mortgage rates may be largely unaffected, but the Fed rate cuts have had an effect in at least one area, money market rates. According to USA Today, money market rates on two small broker-sold funds, the BB&T (BBT) US Treasury money market fund, and the Merrill Lynch (MER) WCMA Treasury Fund.

Both funds are now yielding below 1% and are currently collecting more in expenses than they pay investors. The average taxable money market fund yields 2.78%. The low water mark was 0.5% reached on April 27, 2004, the article said.

3. Meanwhile, Credit Continues to Tighten ...

A piece in the Wall Street Journal yesterday outlined the new and unique ways credit scorers are coming up with to judge worthy borrowers. "Lenders increasingly are looking at other factors, such as rent and utility payments, to determine whether potential borrowers will make good on their loans," the Journal reported.

While this kind of credit scoring was previously used to evaluate the credit potential of immigrants, young adults and those with little past credit histories, more lenders are now using them to evaluate the credit-worthiness of a broader population, the Journal said.

4. ... Forcing Borrowers to Track Down New Funding Sources

And so what are borrowers now facing tighter credit conditions do? They raid their 401ks. We're not talking about loans against 401ks, which have increased dramatically. We're talking hardship withdrawals, full cash outs.

According to a USA Today article yesterday, hardship withdrawals rose 23% year-over-year at plans that Merrill Lynch (MER) administers. "Great-West Retirement Services saw a 20% increase in hardship withdrawals to save a home. And Principal Financial (PFG) reports that in January it received 245 calls from participants who inquired about 401(k) withdrawals to prevent a foreclosure or eviction, up dramatically from 45 similar calls it received in January 2007," the article said.

5. Relevant Again, 30 Years Later

"Shot by Both Sides" - Magazine

This and that, they must be the same
what is legal is just what's real
what I'm given to understand
is exactly what I steal
I wormed my way into the heart of the crowd
I wormed my way into the heart of the crowd
I was shocked to find what was allowed
I didn't lose myself in the crowd

Shot by both sides
on the run to the outside of everything
shot by both sides
they must have come to a secret understanding

CLICK TO PLAY

New offences always in my nerves
they're taking my time by force
They all sound the same when they scream
they have to rewrite all the books again
as a matter of course

I wormed my way ...
Shot by both sides ...

'Why are you so edgy, Kid?'
asks the man with the voice
one thing follows another
you live and learn, you have no choice

I wormed my way ...
Shot by both sides
I don't ask who's doing the shooting
shot by both sides
we must have come to a secret understanding

we must have come to a secret understanding.

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No positions in stocks mentioned.

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