Daily Commentary by Larry Baer: The threat of a major acceleration in the
trend trajectory of mortgage interest rates is not even a blip on most
investors' radar. There is an old adage that suggests it is unwise to
"fight-the-Fed" - and I think it is worth heeding that advice.
As part of their effort to prop up a sputtering economy by the flooding the
banking system with cash, the Fed has been buying $85 billion worth of Treasury
debt obligations and agency-eligible mortgage-backed securities every month
since September. The economy is still sputtering - and the Fed has made
it abundantly clear they intend to keep their check book open until there is
long-term evidence economic activity has reached sustainable levels.
Even the most wild-eyed analyst in the universe is not suggesting U.S.
economic growth will come anywhere close to reaching "escape
velocity" until the last quarter of this year - which means mortgage
interest rates are highly unlikely to begin moving progressively higher on a
sustained basis for several months yet to come.
Another factor supportive
of the prospects for steady to perhaps fractionally lower mortgage interest
rates is the fact Congress and the President now have another near-term fiscal
"cliff" to avoid.
The closer we get to
March 1st without meaningful Congressional action to reach a budget
accord - the stronger the profit taking motivation will become for stock
investors. Like a snowball rolling downhill this process can easily morph
from profit-taking to all out "flight-to-quality" buying of Treasury
debt obligations and agency eligible mortgage-backed securities.
It doesn't really
matter whether the coming sell-off in the equity markets proves to be nothing
more than a 5 to 10% correction created by profit-taking - or a full out fear
driven selling swoon -- the process will almost surely prove supportive
of the prospects for steady to perhaps fractionally lower mortgage rates.
Heads up.
