Signals the Trend... in Stocks and Interest Rates                  Backtested 100 Years !
How can I use this information?
If you have invested in bond funds that hold mortgage backed securities, you may have exposure to losses. If your
investments are in Ginnie Mae funds, your principal and interest are backed by the “full faith and credit” of the U. S.
Federal government, . There is a widely held, but mistaken belief, that Fannie Mae and Freddie Mac mortgages are
guaranteed by the U. S. government. They are not. They are both publicly held corporations. Their symbols are FNM
and FRE. Fannie Mae was created as a government agency in 1938, but in 1968 it was converted to a publicly held
corporation. Nevertheless, it has been mistakenly referred to as a government agency for many years.
Check with your broker to see if you own mortgage backed securities and if they are guaranteed by the
“full faith and credit of the U. S. government”.

Remember that a Dow above 12,463 on 12/31/07 appears reasonable. Pre-election year history argues that an
August – September plunge below that level will create a buying opportunity.

Let facts guide your investment decisions, not fear.

SignalTrend's unemotional computer timing system is currently bullish, but it may change its buy / sell signal in the
near future. If that happens, SignalTrend will notify you by email. Remember, SignalTrend's stock market timing
system was backtested 100 years with excellent results!

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The HPI is "designed to capture changes in the value of single-family homes in the U.S." and is published by the
Office of Federal Housing Enterprise Oversight (OFHEO). "
The HPI is a weighted repeat sales index, meaning
that it measures average price changes in repeat sales or refinancings on the same properties.
information is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages
have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975." OFHEO reports HPI for
each of the nine US divisions used by the Bureau of the Census.

OFHEO figures may conflict with the figures from local, state or national realtor associations as published in the
press. That's because the HPI isn't reporting the same information. When realtors publish that home values fell by
4%, for example, they mean that the
average sales price for all homes sold through and reported to their listing
services declined by 4%. If the volume of low priced home sales increased while the volume of medium and high
priced home sales were unchanged, then low priced home sales will represent a  larger portion of  total home
sales... resulting in a decline in the average sales price for all homes sold and reported through that realtor
association. That does not mean that home
values have fallen. It means that lower priced homes are selling at higher
volumes relative to medium and or high priced homes.

Since the HPI measures changes in value on the same homes, it is a better estimate of home appreciation or
Link to Previous Issue of Investment Tips
Are Declining Home Sales Bearish For Stocks?
Click the above link to see the 44 year record!
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U. S. Housing Market
1963         1968             1973           1978           1983           1988            1993           1998            2003
Sources: Office of Federal Housing Enterprise Oversight (OFHEO).  US Census Bureau: Manufacturing, Mining
and Construction Statistics. All indexes are plotted in Logarithmic scale. HPI is only available beginning in 1975.
Is it Time to Panic?
Proprietary Graphs, Tables and Analyses - All Rights Reserved
Interest Rate Forecast
Investment Tips
How To Invest
Stock Market Forecast
Stock Timing Signals
Lending Crisis
According to the media, the stock market has plummeted because of a credit crisis caused by subprime mortgage
loan defaults. Evidently, no one wants to make mortgage loans to people with poor credit (subprime borrowers). If it
is as simple as that, then the mortgage money should begin flowing again as long as purchasers of mortgage
backed securities know that subprimes are not included in the mortgage pools. However, the subprime crisis may
actually be a symptom of demographic weakness... possibly the subject for a future issue of Investment Tips.

In the event of foreclosure, lenders look to the value of the home to pay the principal balance of the mortgage and
unpaid interest as well as legal, management and marketing costs incurred during the foreclosure and subsequent
sales process. Many banks have a very large exposure to real estate loans. Depreciating real estate values, if they
exist,  are definitely a concern for banks.

Stock Market:
September has historically been more likely to produce declines than other months. Remember, May – October has
been a break-even period since 1950. Also, it has been a long time since the stock market has experienced a
correction greater than 15%. A 15% correction from 14,000 would take the Dow to 11,900. A 25% correction would
result in a Dow of 10,500.

Could this be the beginning of a deep and protracted bear market?
Look at the eerie correlation between the
current day NASDAQ and the DJIA of the Great Depression.
A 15% correction at this point in time would only
add to the gloomy correlation of these two time periods. Click
here to review SignalTrend’s 6/15/07 issue of
Investment Tips on that subject.

On Thursday, August 16th, the Dow closed at 12,845, up only 3.1% for the year. The 2006 close for the Dow was
12,463. 2007 is a pre-election year (the year prior to a presidential election year).
The Dow hasn’t lost money
during a pre-election year since 1939.
Therefore, a Dow above 12,463 on 12/31/07 seems reasonable. The
market may plunge well below 12,463 but recover to the 12,463 level after the traditionally strong November –
December period.
● 2007 is a pre-election year.
● The Dow hasn't posted a loss in a pre-election year since its 3% loss in 1939.
● Home prices in the U.S. are still rising.
● Published realtor home appreciation data is being misinterpreted in the financial press.
● Declining home sales have not typically caused stock market declines.
● There is a solution to the subprime mortgage crises.
Investors are receiving a steady diet of bad news: A declining and volatile stock market, declining home sales and
falling home values, defaults in subprime mortgages which have resulted in shrinking credit availability and central
bank intervention around the globe.

It's true that home sales are declining. However, the stock market has actually performed better after declines
in home sales
. Click the link near the bottom of the page in the section titled "Previous issue of Investment Tips" for
more information on that issue.  

As is often the case, some misconceptions need to be cleared up.
Home values across the nation actually rose
1.27 % during the last quarter of 2006,
according to the House Price Index (HPI). The appreciation rate
decelerated to
.45% during the first quarter of 2007. These are quarterly, not annual rates of appreciation. The
media continues to mistakenly represent "declines in the median price of homes sold by realtors" to be declines in
home values. They are not the same! If the public continues to be mistakenly convinced that home prices are falling,
home prices probably
will fall. For a full explanation, see the footnote section near the bottom of this page.

Many metropolitan areas are, however, experiencing home depreciation. OHHEO (Office of Federal Housing
Enterprise Oversight) tracks home values (HPI) in Metropolitan Statistical Areas (MSA) across the nation. Of the
285 cities on OFHEO’s list of “ranked” MSAs, 71 depreciated during the last quarter of 2006. 96 depreciated during
the first quarter of 2007. The worst quarterly depreciation of the 96 MSAs during the first quarter of 2007 was 3.81%
in Punta Gorda, Florida.  Seven states experienced depreciation in the first quarter: California (-
.84%), Nevada
.52%), Massachusetts (-.47%), Michigan (-.42%), Florida (-.34%), West Virginia (-.19%) and Maine (-.13%).

Shown below, is a graph from 1963 showing the Dow Jones Industrial Average, Home Appreciation (HPI), Home
Sales and Homes For Sale.

One might assume that declining home sales would bring about declining home values. However,
every major
decline in home sales was accompanied by appreciating home values.

One might also assume that an increasing number of homes on the market would bring about home depreciation.
every major rise in the number of homes on the market was also accompanied by rising home
U. S. Home Sales - 12 Month Moving Average
U. S. House Price Index (HPI)
U. S. Homes For Sale
(12 Month Moving Average)