Interesting Articles

John Mauldin’s Thoughts from the Frontline

I have been reading John Mauldin’s articles for a few years now and he always provides some good insight into the Market.  His recent posts on the FED decision is to cut rates is very interesting.  Here are a few excerpts from his newsletter and a link to his site for the full article.

This week the Fed did something rather interesting. Quoting from the release after their two-day meeting:

“The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent…

…Normally they have a specific rate and not a range. But for the last few weeks the market has pushed the Fed’s fund rate close to zero, making the Fed look like they were behind the curve at the then-official rate of 1%.

Investors are going to have to start looking to other avenues to get yield. If you can’t get a return on your money market, why not put it in a bank certificate of deposit? You can get a federally insured CD for one year at over 3% at many institutions, and 4% if you want to tie your money up for three years. Making the competition – money market funds – less profitable is one way to recapitalize banks.

…The Fed expects inflation to fall well into next year. They have noted their concern. They have also said they will hold the Fed funds rate at these low levels for a long period of time. This is to encourage longer-term lending at low rates.”

Click here for the rest of the article.

The Difference Between 30 yr. Fixed Rates and the 10 yr. Treasury

There’s a common misconception that Mortgage rates are determined by the 10 Yr. T-bill.  You’ll hear financial reporters presume that mortgage rates changed bcause the 10 yr. t-bill changed.  This is not true.  Mortgage rates are determined by Mortgage Backed Securities (MBS).  MBS are traded just like bonds and other securities.  So the supply and demand of these securities determine the price or yield.

For a really good explanation (although pretty technical) of how this works, click here.

Fed Rate Cuts Do Not Always Equal Lower Mortgage Rates

For a really good explanation (although pretty technical) of how this works, click here.

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