My 1st Million At 33 – yes, you can do it too

Yes, I believe so. Fed almost always never surprised the stock market negatively since March of 2000. Since the Fed futures indicates a higher probability of rate pause, I believe Fed will oblige. If markets can use this opportunity to overcome the resistance of 1280 at S&P 500, that will be really good at least in the short term. Otherwise, the failure to take over that level may mean more churning and grinding down towards the 4-year cycle low in September of 2006.

What does this mean for the mortgage market? While I agree with Peter Schiff somewhat that mortgage rates may move higher instead, I don’t agree with his timeframe (by the way, he is always on the excessive bearish side). It has been fairly obvious that UK is “in bed” with US Fed by not only selling their gold reserves to push down gold (at the low points about $200ish of gold markets), but also raising their stakes of US treasury to help US fight the decline in $US. This article from financialsense showed that the major buyers who have taken the slack from China & Japan are UK, and accounts at Cayman islands. The author guessed that accounts at Cayman islands are not for hedge funds, but rather owned by US Fed Reserve. I concur. With a couple of trillion dollars in mortgage market coming up for adjustment in interest rates for their ARM terms, the last thing US Fed wants is to have a high mortgage rate. In fact, both 10-year and 30-year treasury bonds have recently (and finally) moved back to January level of this year. 10-year treasury actually broke the level of 5%, a very bullish sign for both stock and bond markets. I checked a couple of mortgage sites for mortgage interest rates, and this lower yields of treasury have already been reflected at the retail mortgage level.

So armed with these data, I believe that in the short term, Fed may engineer a lower yields in treasury market by buying their own issued bonds with newly printed money, even if it’s at the expense of exchange rate of $US. Remember that such actions have little to bullish effects on the bond market, while they are very detrimental to the bond market and $US in the long term. In fact, long term inflation is exactly what Fed needs to order for US economy. Without inflation, there is no chance for all levels of debt holders, consumers or governments, to repay all these debts. When a respected Federal Reserve governor (at St. Lious) calculates that US real fiscal gap is 65.9 trillion dollars, and questioning whether US is effectively bankrupt, you know that things are really bad, and I mean REALLY bad.