Fear and Greed - How they Impact Mortgage Rates
One of the oldest sayings on Wall Street is that fear and greed drive the markets. As the sequel to the movie "Wall Street", titled "Wall Street: Money Never Sleeps" is set for it's release, we may look back on Gordon Gekko's statement in the original movie that, "greed is good" and reflect on what that may have told us about the 1980's and ourselves. The new movie chronicles our current financial mess. There are some that think the title for the sequel should be, "Fear is Bad". If greed is one market mover, then fear must be the other . If greed is good, maybe fear really is bad. Fear is presently moving markets everywhere. There is fear about Greece, now fear about Hungary. Fear about Spanish banks. Fear about US banks and the ratio of capital to risk that they have. Fear the Euro currency. Fear about commercial loan defaults. Fear about a "second dip" in our own economy. Fear that stock markets everywhere have translated into much lower values for stocks. Fear about North Korea, Iran, Israel. And on and on. Fear presently has the upper hand over greed for sure. Money never sleeps, and predictably, two traditional safe havens are doing very well, as all of the money exiting markets has to go somewhere. That somewhere appears to be gold, whose price is pushing an all-time high; and US Treasury bonds, pushing rates on treasury bonds way down, and their corresponding prices way up. Would you lend the US Government money for 10 years and accept a 3.20 % return? Well that is exactly where things stand today. If you buy a 10-year treasury bond due in 10 years for $1000, you get $32 in interest each year for 10 years, and if the US Government is still in business in 10 years, you get the $1000 back at that time. It should not surprise anyone then, that mortgage backed bonds that currently provide a 4.5% - 5% return, are by comparison to gold that yields zero, and treasury bonds that yield 3.20%, drawing a lot of attention these past few weeks. As they draw more attention and more money, based on their attractive "relative" yield, this is in turn driving mortgage rates for borrowers to extremely low levels. If you'd like us to examine how these low mortgage rates can be procured for you, your family, friends, or clients, please let us know. Feel free to share this commentary with folks that you believe may benefit from it. We all know that emotion associated with fear will not last forever...and we certainly hope that the only alternative to replace it is not greed, but we do hope that clear-headed people everywhere will take advantage of the opportunities that the markets allow from time to time, and make the best of things as they are. Maybe fear is not so bad after all.
Kevin R. Kenyon Branch Manager Gateway Funding Diversified Mortgage Services, LP D/B/A Arlington Capital Mortgage 33 Witherspoon Street Princeton, NJ 08542 kkenyon@arlingtoncapital.com Office/Cell 609.945.7513 E-Fax 215.793.8201
