Hope on the Titanic – Why You Should Care
Weekly Update: November 11, 2011
Most of the data this week was positive with lower initial jobless claims and a narrowing trade deficit. What this means is that companies are firing less and exporting more. But the main story is still Europe. Remember, Europe is as much a political problem as it is a banking one and while the change of leadership in Greece and Italy is positive, one wonders if it’s just changing the captain on the Titanic. There is some hope though in that Italy is not Greece. Italy has a larger and more diversified economy. They do a little better at collecting taxes and they export things. Regardless, the Eurozone has a huge impact on our markets here in the states and we can’t just say, as some of the Republican candidates did this week on CNBC, “Let them solve their own problem” because Europe represents 1/5th of our total trade with the world. Just think what a 20% cut in your paycheck would do to your budget.
That is why the issues in Europe caused a 400 point drop in the Dow Jones this week. But oddly enough, mortgage rates didn’t fall as has been the case in the past. WHY? Because their may be a limit to how low rates can go. Risk requires return and we keep bouncing against a floor that we can’t seem break through. This indicates that investors are unwilling to part with their money below a certain rate of return. Maybe it’s a signal that waiting won’t result in lower rates, but COULD result in higher ones if we get even a glimmer of good news from Europe.
This week Freddie Mac’s 30 yr. fixed rate survey dropped to 3.99% with points and assuming good credit.
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