US Credit Rating Downgraded

Filed under: Market Comentary

This is the headline we have all been reading this morning and from over the weekend.  My phone and email have been clogged this morning with many questions about what this will mean in the mortgage world.

A big part of what I have been reading today has to do with the rating agency that downgraded the US, S&P.  I have talked about this before and it’s worth repeating.  The rating agencies have almost no credibility at this point.  S&P, Moodys and the like are all the same agencies that rated the junk mortgage bonds from the mid-2000’s triple A.  The highest rating available.  Whether is complete incompetence or huge conflicts of interest, these agencies don’t appear to be able to come up with an accurate rating that will actually predict the outcome of a particular investment.  Make no mistake, the US has some serious budget fixing to do, but don’t put too much value in what the rating agencies have to say.

Now let’s look at the market reaction today.  The equities markets are clearly very nervous.  As of 10:30 PST this morning all major indices are off by at least 3%, which comes on the heels of huge losses from last week.  I’ll leave the analysis of these markets to someone that watches the much closer than me, but I do know it’s probably a good time to call your financial advisor.  If you don’t have one you can trust, call me and I’ll  ntroduce you to someone I trust.

The bond markets are what I watch very closely and the reaction to the news from over the weekend might surprise you.  I have to admit to being a little surprised myself.  The bond markets (US Treasuries and mortgage backed securities) are both in the midst of very strong rallies this morning.  This means investors are buying up US bonds in what can only be viewed as a “flight to safety” in the US.  Yes, investors look very convinced this morning  that the US will continue to pay its debt obligations as evidence by all the buying of US treasuries.  Investors from all over the world are also showing their confidence (or a least confidence relative to other investments around the world) in the US housing
market through purchasing US mortgage backed securities.

All the buying of bonds this morning is driving rates down again.  This is what has been happening for the last couple weeks and it’s continuing this morning despite the credit rating downgrade.  What does this mean for you?  In the short term, if you have a mortgage, we should be discussing whether refinancing is a good idea and/or if you are thinking about purchasing the timing has never been better.  Longer term we’ll have to wait and see, but with the economic unrest through much of the world right now, the US still looks relatively strong.

I expect very high volatility in the markets as investors around the world digest all the news, but the world is showing this morning that there is still a high level of confidence in the United States.  Where do you stand?  Give me a call to discuss.

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