High-end fraud.

It’s the latest blow that has been dealt to the investment markets.  First, Bernie Madoff misappropri­ated $50 billion dollars of investors’ money in a gigantic pyramid scheme (and no, it was not called Amway).  Those affected include high-net worth individuals, hedge funds, pension funds, even charity funds.  This event undermined the already faltering confidence that John Q. Public has in our financial system.  Now, the owner of Satyam computers (one of India’s largest companies) has just come forth with information that 90+% of the cash on his company’s books was completely made up.

The reason these things are relevant is that these happenings allow the vicious cycle to continue.  Stuff like this causes investors to lose confidence so they stop investing or even pull money out of compa­nies and that causes the companies to start making layoffs to save money so then people get worried about losing their jobs and stop spending money which further decreases company revenues and wors­ens economic indicators which further decreases investor confidence and so on and so on and so on.

Run-on sentence.  I know.  Microsoft Word already alerted me.  But you get the point.

One piece of evidence we can look to is the mounting job losses in America.  December saw 524,000 jobs get cut, bringing our unemployment rate up to 7.2%, the highest we’ve seen in 16 years.  Presi­dent-Elect Obama is of the opinion that the government is the only power strong enough to re-direct us out of this downward spiral.  So, he is pushing Congress to pass a new stimulus package that could carry a price tag of about 800 billion dollars by some tallies.

As a quick side note, has anyone else noticed how ridiculously monstrous these numbers have gotten?  I remember when 10 billion dollars seemed like a lot of money.  I bet we’ll see someone eventually try to find a way to spend infinity-trillion-kajillion dollars on re-paving roads in Nebraska or something.

So what does all of this mean for mortgages?  Well, bad news for stocks tends to be good news for mortgage-backed securities, and that means low rates.  30 year fixed rates are still hovering around the low-5’s to high-4’s and Uncle Sam has reiterated the fact that he plans on buying up a ton of mortgage debt in an effort to keep the rates low. 

The only hidden problem is the mountain of debt our country is racking up.  If Big Brother spends money and issues bonds to cover that debt, then the flood of bonds into the market will force interest rates upwards over time.  So, if you still have a job then mortgage rates are still very attractive and it might be a good time to go house-hunting.  But for how long it will stay good is anybody’s guess.

www.GregWhiteside.com