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01-10-2008, 03:56 PM | #1 | |
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Fed to the rescue. continuing to cut interest rates
What are they trying to do to the American dollar? Make it half the value of canadian?
http://money.cnn.com/2008/01/10/news...ion=2008011014 Quote:
I still don't get it. Its like Wall Street asks the government to lower rates, and they do. That seems to pump stocks for a couple days, then they fall again soon after.
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01-10-2008, 04:01 PM | #2 | |
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01-10-2008, 04:01 PM | #3 |
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I don't know a whole lot about this stuff. But it seems to me that, if big banking institutions like Merril-Lynch start saying "Hmmm...these numbers...looks like maybe we're going to go into a recession? maybe..." The market gets nervous.
They start saying "Yeah, it looks like there is pretty much a recession coming. Dunno when," the market gets really nervous. And if they say, like I read in CNN today, "Okay, we might actually BE in a recession NOW. The only possible way we can avert disaster is if the Fed cuts the rates!" Then the Fed realizes it had better cut rates to stop those guys from talking. |
01-10-2008, 04:02 PM | #4 |
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01-10-2008, 04:04 PM | #5 | |
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essentially, cutting rates seems to just devalue the constant paycheck even further. Doesn't that make things worse for joe consumer? |
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01-10-2008, 04:04 PM | #6 |
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Does this mean it would be a good time for me to look at a house for myself?
With home sales lagging, asking prices getting lower, and interest rates coming down, is it a good idea long term? Dont worry, i have no intention of getting myself into an adjustable rate nightmare. |
01-10-2008, 04:05 PM | #7 |
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Lets keep doing the same thing over and over. Its been working so well so far...
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01-10-2008, 04:07 PM | #8 |
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say in 2003, they signed up for an ARM at 4%. In 2005 the rate increases to 5%, 2006 increases to 6% 2007 7%. Oh wait, now the fed is dropping rates. Now it falls back to 6% (or lower, I'm not sure exactly how the ARMS work).
The way I understand it, this is kind of working to bail out those that signed up for those adjustable rates. |
01-10-2008, 04:07 PM | #9 |
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01-10-2008, 04:08 PM | #10 |
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depends. Last time the rates fell and the housing boom began. There are probably many others out there like you that are waiting for the right time to buy. Once rates hit rock bottom again, we'll have a housing boom all over again. More buyers will be on the market, and prices will start to rise again, due to affordability from low rates.
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01-10-2008, 04:09 PM | #11 |
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Not exactly. Cutting interest rates just makes it more desirable for companies that make transactions in dollars to borrow money for their operations/growth. The reason the value of the dollar often falls in sync with rate decreases is that foreign investors holding dollars don't get the same return that they would if rates were higher, so they sell their dollars and buy other currency. The selling off of dollars held in foreign reserve is what lowers the value of the dollar.
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01-10-2008, 04:13 PM | #12 | |
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01-10-2008, 04:16 PM | #13 | ||
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Agreed. |
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01-10-2008, 04:20 PM | #14 |
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we'll be trading 1:1 with the peso soon.
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01-10-2008, 04:23 PM | #15 |
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I've said before and will restate here.....
The gloom and doom will continue until the election in November. The uncertainty of an election always plays hell with the markets. I bet early 2009 sees an upswing. |
01-10-2008, 04:29 PM | #16 | |
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A nice read.
Fed Rate/Mortgage Rate relationship Quote:
CNs: Bolded above, and there is a ton more in this link, posted as an editorial at the bottom. |
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01-10-2008, 04:30 PM | #17 | |
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It all depends on the what index is being used (APR = index + spread). A lot of the more recent mortages use the London Interbank Overnight Rate (LIBOR) as the index. LIBOR has been going up, up, up - Europe has it's own liquidity problems - if banks are unwilling to lend each other money, then the interbank rate will rise, and so will the APRs on mortages tied to LIBOR. |
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01-10-2008, 04:30 PM | #18 |
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I agree with what you are saying and would like to subscribe to your news letter.
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01-10-2008, 04:36 PM | #19 | |
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01-10-2008, 04:47 PM | #20 | |
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There is an almost direct relationship between the funds rate and the Prime rate, but the only adjustable mortgages indexed to the Prime rate are home equity lines (HELOCs). Your traditional 1st mortgage ARMs are tied to longer term indexes, like the LIBOR or government bonds, and bonds reacted negatively to the Fed's announcement today because lower short-term rates mean increased money supply which increases the risk of inflation. Long bonds don't return much to begin with, being considered very secure investments, and any increase in inflation erodes into their yields. Long story short: mortgage rates worsened today because of the Fed. I'm not even going to get into how ARMs are more complicated than this even, with margins, initial discount rates, and adjustment caps, etc. that pretty much guarantee that they will never go below their initial rates and usually just go up, up, up regardless of what the market does. Fixed rate mortgages are not linked to either the Fed rates or bonds (unlike what the article from another poster said), but to mortgage-backed securities. However, MBS' compete against the yield on the 10 year bond for investors, and so they trend closely enough that watching the 10 year bond is a very good indicator for the direction that fixed mortgage rates are headed. |
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01-10-2008, 04:52 PM | #22 |
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hey, I don't mind. I'm closing on a house in the next month or so...so this could very well save me thousands.
but yeah, changing interest rates to affect the economy is like moving a table via a rope thats tied to it...it works great if you're pulling (raising interest rates will slow things down) but not so well if you're pushing on the rope, which is what they're doing. |
01-10-2008, 05:01 PM | #23 | |
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The index is the market indicator that all rate calculations are based on. Bond yield, LIBOR, Prime rate, whatever. While most mortgage shoppers concentrate the initial rate, the margin is the most important number, as the actual loan rate is calculated by adding the margin to the index. Except according to the rate caps, which will say that the rate cannot ever be lower than a particular amount (floor), higher ever than another amount (ceiling), will adjust a certain amount the first time (the so-called "reset" after 2, 3, 5, or 7 years), and then each periodic adjustment (usually every 6 months to a year) can only be by a certain amount (usually up or down). Most ARMs are written in such a fashion that they will go up 2-3% on their initial adjustment, regardless of the market. That's why fixed rates are higher. |
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01-10-2008, 05:03 PM | #24 | |
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01-10-2008, 06:56 PM | #25 | ||
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