Read This Before You Refinance Your House
By Dr. Steve Sjuggerud
Tuesday, March 17, 2009
Realtors always warn you "You'd better act now before rates go up."
You might think they're right... After all, mortgage rates are the lowest they've been since the Fed started keeping records in 1971. But interest rates could go much lower.
America's problems came to a head in 2007. Since then, the Fed has cut interest rates from over 5% to near zero. As I've written before, it looks a lot like Japan...
In the 1980s, Japan had an overlending bubble similar to ours today... Its bubble peaked in 1990. Japan's version of the Fed cut rates from above 5% to below 1% – and it's held them there ever since!
Interest Rates Could Go Lower and Stay There
Japanese mortgage rates are extremely low – less than 3% – and have been for a very long time. The brutal reality is lower mortgage rates haven't enticed the Japanese people to borrow. They were burned so badly in the bust that started in 1991, they still haven't ventured back in.
So don't refinance today just because a realtor or a mortgage salesman convinces you rates are going up. Think about it... The last person you want to get your interest-rate forecast from is your real estate agent!
It's Ben Bernanke's goal to stimulate the economy at all costs... He's not going to raise rates until he's absolutely certain he's gotten the economy going again. And it's Obama's goal to get interest rates down, too... to make mortgages more affordable. So lower rates could be coming.
Here's a strategy for you: If it makes financial sense for you to refinance, get an adjustable-rate loan today... and let it ride as long as Bernanke is keeping rates this low.
Then, the day Bernanke hikes rates for the first time, switch it to a 30-year fixed-rate loan as quickly as you can. Bernanke's rate hike will be the signal that inflation is here. Lock in at a low 30-year mortgage rate at that time, before inflation hits.
That day could be years from now. Remember Japan's example: Interest rates can go lower than anyone can imagine and stay there longer than anyone can imagine.
The best strategy for refinancing today is getting an adjustable-rate mortgage now (if it makes financial sense) and then switching to a fixed-rate mortgage the day Bernanke raises rates.
If it works out right, in 10 years, you could end up with a mortgage rate that's lower than the rate of inflation!
Good investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
Sign up today to read more investment ideas from Steve Sjuggerud.
|
|
HERE'S ANOTHER CRITICAL INDICATOR TO FOLLOW
Another critical asset "holding the line" right now: corporate bonds.
Corporate bonds had a terrible 2008. Back in September, investors got scared to death of anything related to debt, so they dumped their holdings and set off a huge decline in bond values.
Our chart of exchange-traded fund LQD shows this decline. This ETF is a diversified basket of bonds issued by companies like Johnson & Johnson, Wal-Mart, and IBM. It fell from $99 a share to $80 a share in less than a month... a giant move for boring bonds.
Now here's the good news: As you can see, the LQD has rallied off its panic lows and held on to most of its gains. It's incredibly important for this fund to remain above 2008 levels. It tells us the most important companies in America are servicing their debts.
You can throw LQD in our bin of "real world" indicators. As we covered last week, several of these indicators (copper, oil, and Intel) are actually rising in the face of terrible economic reports. The strength here isn't cause to celebrate the end of job losses and home foreclosures. It's just an early glimmer of light. But if these indicators can remain above their 2008 levels, it's a sign things are getting "less bad."
 |
|
 |
 |
Most bank analysts say JP Morgan Chase is the strongest U.S. financial institution left standing.
Investment guru Jim Rogers disagrees completely.
"I'm short JP Morgan," he tells Bloomberg TV.
"They have a gigantic derivatives position. Their off-balance-sheet derivative positions are among the top three in the world," if not the largest, he said.
The bank's credit-card loans also are a disaster waiting to happen, Rogers says.
– Newsmax
China's premier Wen Jiabao just asked Washington to keep the money printing to a minimum. You see, Obama & gang are taking on America's debt problem by taking on more debt. This is going to cause inflation and a weaker dollar.
Inflation and a weaker dollar will erode the value of China's $1 trillion loan to the U.S.
As Jiabao puts it: "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried."
Sorry China... you married a girl that likes to spend lots of money. And her latest spending program is going blow out the value of your dollar holdings. Brings to mind the old debtors creed: "If I owe you $10,000, that's my problem. If I owe you $10 million, that's your problem."
|
 |
|
|
This is Your Imperative as a Red-Blooded Profit-Seeking Investor
Monday, March 16, 2009
It's Time to Buy into This Rally
Saturday, March 14, 2009
The Closest Thing to REAL Free Money You'll See This Year
Friday, March 13, 2009
The Madness of Barack Obama: Why Free Money Is Destroying America
Thursday, March 12, 2009
A Clear Sign This Market Is Set to Triple
Wednesday, March 11, 2009 |
|
