Who Wants To Be A Trillionaire?

 

Who wants to be a trillionaire?

Remember when a million dollars seemed like a lot of money?  Then someone would say “Billion” with extra emphasis on the “B” and we couldn’t even imagine that amount of money?  Well, now a million is nothing, a billion is pretty good money, but the new term is “Trillion”!  How long will it be before we have our first “trillionaire”?

Big news hit the wires last Wednesday afternoon, as the Fed made a blockbuster announcement that sent Mortgage rates falling.  The Federal Reserve announced that over the course of 2009, they will invest over a trillion more dollars into the financial markets specifically to purchase an additional $750B of Mortgage Backed Securities in an effort to help shore up the housing market and keep home loan rates low.  On the announcement, Mortgage rates fell, leaving rates within whiskers of the best levels ever. 

However, because many lenders are already working at max capacity we aren’t seeing as much of an interest rate decrease as we would have thought from this announcement.  In fact, if you’re hearing of rates in the “low 4’s” you’re probably being baited before the switch.  Bottom line – although the media is already spinning it differently, this is still not a time to stay on the fence, hoping and waiting for lower rates.  Home loan rates remain within inches of all-time historic lows, but may not necessarily move significantly lower based on this purchasing plan – waiting is a very risky move.

The Fed also said they will purchase $300B in long term Treasuries…so why Treasuries?  The Fed wants to keep the spread between Treasuries and Mortgage Bonds from widening, because as Mortgage Bond prices move higher, the yield or return on them may not be as attractive as those available in Treasuries.  So if the Fed buys Treasuries, the yield on those instruments will also be driven lower, thereby keeping a normal spread between Treasuries and Mortgage Bonds.  And the Fed only has to buy $300B in Treasuries to have the desired impact, as the Treasury market is much smaller in size when compared to the enormous Mortgage Bond market.  The Fed also said that the buying of 2-year and 10-year Notes will help push down rates on business and consumer loans – good news there to help incent business and consumer purchasing.  Both Stocks and Bonds sure liked what they heard from the Fed, and financial stocks have continued their recent tear higher. 

Now…something else worth paying attention to – since last week’s Fed Meeting, the US Dollar has gotten clocked, as the aggressive Fed moves appear quite inflationary.  In turn, this has pushed Oil up to near $54 per barrel, nearly $8 higher than a week ago.  Gold, which is purchased as a hedge against inflation, was up near $950 an ounce – moving up $60 on the day!  While we know there is no inflation at the present time, the chatter of future inflation could have a negative effect on Mortgage Bond prices ahead; or at least stifle their moves higher – yet another reason to act now to take advantage of present historically low rates.

In other related news, the Federal Housing Finance Agency reported monthly home prices rose for the first time in a year with a 1.7% gain in January!  Combine the amazing low rates, and a possible turnaround in the housing market as may be indicated by this gain, and now really is a great time to buy a home!!

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