Mortgage Rate Inch Up...

It has not been a nice opening this October for mortgage rates, investors (some at least) have apparently decided enough is enough, the volatility is too much, and sidelined their capital. This wait and see attitude at this point in time comes with one advantage; the dollar is running well against other currencies. How our dollar became a safe haven play is beyond me and I think long term this could turn sour, however the point is investors are comfortable in cash right now, and that cash along with some positive gains in the stock market has not been kind to interest rates.

Even so, this is not the end of the world, and I fully believe interest rates are going to slide back down in the weeks ahead. We have the Fed and operation twist, selling short term debt and buying long term debt. This should help keep yields low despite some selling off (there is after all a buyer), and we cannot forget about the powder kegs set up throughout Europe, and best calculations on my part suggest it is about to get very interesting across the pond. BOOM! There goes Greece, powder keg one as they default and Europe scrambles in the chaos surely to ensue... Downgrades to follow (they would have to) from the rating agencies, forcing capital into safer markets... and then and there we should see an immediate snap in price up bringing yields and interest rates back down to super low levels... I honestly think we will see the 10 year treasury yield break below 1.5% this year, and will flirt potentially with 1.25% possibly even 1.00% into 2012. After all we still have four powder kegs left: Portugal, Italy, Ireland, and Spain.

If this doesn't happen it's because Europe and the U.S. will try and inflate (Quantitative Easing, Jobs Bills, Bailouts, Grants and Loans to Private Companies, Creative Accounting, etc... ) their way out of this mess declaring "it's too dangerous to do nothing... the world is ending... and in their typical rant and fashion. If this happens we'll see a surge in gold and silver prices, while other markets waffle under inflationary pressure. So go our low rates....

Inflation will ultimately be the death of these low rates, the question is when will the beast wake up.

To digress, I think when all is said and done, worldly events like the collapse of a currency or what have you don't play out as fast as one would expect them to... those in charge of the sinking ship are doing and will do everything possible to keep the status quo afloat. So time will pass, as it does, but eventually the ballasts will fill with water, and that will be that, no more pretending... at which time the beast of inflation will awaken and the world will be very different than the one we currently enjoy.

For now the charade continues and we'll press through the volatility securing lower and lower fixed rates, the best possible saber against that evil enemy know to be inflation. After all with a low fixed rate, your payment never changes, and in an economy ripe with inflation you should be able to easily meet you payment obligations with the dollar now worth nil.

So it is a ride to the bottom, wherever that bottom may be. Since we don't know the final stop, we have to secure lower rates as the market shifts down, simply waiting for what you think will be the basement floor rate may never come and there goes your opportunity... hence the step ladder down.

With rates at all time lows, this small hike up is not something we need be concerned with... the market will swing back down, the question is will you be in a position to take advantage of it when it does?