Very carefully float

Crude oil’s drop to a 12-year low is sending shock waves throughout financial markets around the world.  The slump in oil prices has added significant concern about a continued lack of inflation.  Although very good news for people in need of a home mortgage, this is a dangerous sign for US corporations who know consumers lack motivation to make purchases when prices are stable.  For many, it takes the fear of a price increase for delaying a purchase off the table.  That combined effect ripples throughout an economy like a wave of destruction.  As we have said many times; two of the most damaging weapons against economic health are inflation and deflation.  That’s why the Federal Reserve has invested billions of dollars to try to maintain a 2% healthy rate of inflation.  So far, the investments have not accomplished their anticipated results. 

Today has been a morning of significant economic news reports.  Overall, the reports are showing a continued slowdown in the US economy and also a slowdown in the rate of inflation.  This has sent the stock market plunging lower once again.  However, this gave mortgage bonds the strength to make a more decisive move above their 200 day moving average.  Although it’s still too early to call this a breakout, it is beginning to appear as if that will be the likely outcome.  This is big news for mortgage interest rates, as we are now seeing the low rates that we had back in late October. In addition, the 10 Year Treasury Note Yield briefly broke beneath the critical 2.0% level.  If weakness in the stock market continues, we could see mortgage rates improve even more.

Given this morning’s events, we will suggest a carefully floating bias.  However, it is common for sentiment to reverse as the day wears on.  Therefore, only float if you are able to watch the markets closely.  Otherwise, lock in this morning’s gains and be grateful for the improvements.