What we had all been whispering about and worried about has happened: Standard and Poor’s downgraded US debt.
And the world has not come to an end.
I had even written an earlier post, below, where I worried about the effect on interest rates and suggested they would rise, at least a little.
But now that it has actually happened and will likely be a drag on the stock market along with a wake-up call to our fearless leaders in Washington to perhaps actually DO something about out-of-control spending – when it comes to mortgage rates, they should remain low, for a long time.
The reason is not that our Treasuries and Mortgage Backed Securities are that stellar and risk-free investments. Like it or not, S&P is right, we owe way, way too much. But as investors look around for alternatives, well…there is nothing better.
Europe? Not so much, as it is struggling to keep the Euro from breaking into pieces. Asia? As a very smart guy, John Mauldin, oft repeats, “Japan is a bug in search of a windshield”, and even China is going to struggle at best to keep up the growth rates that it needs for the population.
So, the US is still the best place to invest; because we will not ever default – at least that is the perception, that has become reality.
The danger for rising interest rates, then, has been shifted to focus on the jobs market. When the jobs market begins to heat up, whenever that will happen, that is the point where inflation will kick in, and I believe when inflation does kick in it will rise rapidly.
What does that mean for you? Buy a home now, lock in long-term low interest financing, and start socking away all the extra cash that you can. You will be happy that you did as inflation takes hold and therefore home prices begin to rise again.
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