An End to Rising Rates?
Thus far, 2006 has been a great year for stocks. With five straight days of gains, the Dow has topped 11,000 for the first time in four and a half years. All of this suggests that the market, or at least the market makers, believe that the Fed is done raising rates. So what does this mean for you? Well, the news might not be all good...
According to MSN Money's Jim Jubak, an end to increasing interest rates will likely result in:
1. A weaker dollar and higher prices at the store.
2. Higher gasoline prices.
3. Higher mortgage rates.
4. A continued rally in gold stocks and new life for financial stocks.
5. And an end-of-the-year surprise: interest-rate cuts from the Fed.
I don't know about you, but I've already gotten used to a weak dollar and high gas prices. While I know these things could always get worse, perhaps the scariest thing on this list (at least to me) is what will happen in this country when mortgage rates start to climb. It seems that there is a 'perfect storm' of sorts looming on the horizon... Rising mortgage rates right around the same time that an awful lot of ARMs starting to float. It could get ugly.
[Source: MSN/Money]
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"An End to Rising Rates?" was first published at fivecentnickel.com
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I saw his same list a week or so ago. My first reaction was what is he talking about? Of course he doesn't really know what is going to happen and economically speaking his scenerio is a bit of a head scratcher.
If the fed pauses soon and then starts to cut by the end of the year that presumes a weakening economy and a lack of inflation. That tends to make bonds attractive which makes their rates go down. Mortgages are tied very closely to the ten year bond.
So in that environment Mortgage rates are supposed to go up?
Anything can happen but I would be willing to enter into a pretty good sized bet that if the fed is cutting by the end of the year that mortgage rats will not be going drastically higher and any small bump in rates in the interim would be followed by lower mortgage rates in 2007.
I am not predicting anything. Just saying that the items on his list are logically contradictory.
D-man,
I scratched my head at this also... If money gets cheaper to borrow than rates should go down, logically.
I would seriously hold this list in contempt.
Chris.
