Rates are Falling!

There has been a lot of exciting events in the news. This week we continued to see mortgage rates fall as news of a pending bailout for the big three automobile companies has sputtered to a halt. It also seems as if the 4.5% mortgage rate Treasury program is gaining some momentum and Americans’ debt shrinks for the first time ever. President-elect Obama’s team has expressed interest in supporting the Treasury’s program to purchase Fannie and Freddie securities that are backed by the low rate loans. This is substantial because the outgoing Treasury leaders do not want to start this program just to see it die in January. The Treasury has now placed this program on the fast tract and hopefully we will see something soon. Mr. Obama’s support might make this program a reality and we all know this could have a great effect on the housing and real estate industry!

Last night, the Senate squashed any hopes for an immediate bailout for the auto industry. The fear is that allowing the big three to fail will have large implications for the entire economy due to the fact all the companies are already holding a large amount of debt. If they fail, then the debt will not be repaid and financial institutions will have to take another huge loss. In addition to all the jobs that would be lost directly and indirectly due to the auto failure, I imagine that the government will provide some sort of assistance to prevent this failure. Until this issue is resolved look for continued volatility in all financial markets.

Some positive news is that consumers for the first time ever reduced household debt by about $30 billion dollars. This is both good and bad. It is good because less debt creates more financial freedom for consumers in the long run. Consumers have also started to increase their savings rate largely due to the economic fear and homeowners can no longer rely on house appreciation to create wealth. It is bad because our economy has come to rely on consumers spending every penny they make to create growth.


Damian Cook

Interest Rate Trend Forecast
Long Term (20 days out and greater) – Fractionally lower interest rates


Sources:
Americans’ Debt Shrink-First Time Ever
http://money.cnn.com/2008/12/11/news/economy/flow_of_funds/index.htm?postversion=2008121118
Obama Team Boosts Paulson Proposal to Spur U.S. Home Purchases
http://www.bloomberg.com/apps/news?pid=20601068&sid=adXuRpUpScIo&refer=economy
Auto Bailout collapses in Senate
http://money.cnn.com/2008/12/11/news/companies/auto_bailout_senate/index.htm?postversion=2008121208
Market Alert by Larry Baer