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June 2008
Mortgage Rates to Explode?
Savings, savings, savings. Here is the mantra for the next decade. The sudden increase of credit costs have taken most off guards. So, how to defend ourselves, or perhaps take advantage of the credit crunch? Learning from the past could be really helpful, since mortgages appear to be set to explode over the long term.
A new long term cycle is just beginning
Credit standards have tightened in most of the sectors and the worst might not be over, if history repeats itself. In fact, the short/medium term scenario contemplates lower rates in the United States and eventually in Europe, but the long term picture supports much higher numbers across the globe. Why? Cycles repeating themselves. Like in nature, where the earth has its own rhythm around the sun. In economy, there is a tendency for prices to move from periods of inflation to periods of deflation and the turn of the new millennium has celebrated the beginning of new inflationary era. It could last for a decade or more. Let see how.
Since 1900, the long term interest rate bullish cycles have continued in the United States for about 30/35 years from lows to highs. The first cycle began around 1900 and moved up until 1932. The second cycle started around 1947 and ended near 1980 (see chart below). In addition, the full cycle of the long term interest rates from lows to lows has expanded for approximately 50/55 years (1900, 1947, 2002). Within those long term bullish cycles, interest rates have shown the tendency to bottom every 4/5 years before again targeting higher levels. As a result, current interest rate bullish cycle has still a long way to go before topping. In effect, we are currently at the beginning of a new round for interest rates. It began around the year 2002 and might continue for some time (2030/2035), if those past characteristics would be repeated in the future as well. How to respond to the credit threat? Wise credit card usage, fixed mortgage rates and lots of savings..
Angelo Airaghi Profits On The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed, neither the information presented nor any opinion expressed constitute a solicitation of the purchase or sale of any forex, futures or commodity product. Those individuals acting on this information are responsible for their own actions. There is a great risk in trading.
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