Chris Lau - Seeking Alpha

Monday, December 15, 2008

Will Mortgage Rates Reach 0% in the U.S.?

In short, no.

The Federal Reserve is poised to cut interest rates tomorrow, to almost 0% (0.5%). Why does that not mean consumers will get a mortgage of 0%, to have credit card rates cheap, or to borrow money in other ways like loans for free? The rate cut policy is for the most part a tool that will not be useful by any measure. The problems that we are all well aware of now won't simply go away by lowering interest rates. Banks are still de-leveraging (they need to raise cash by selling down assets), so lower rates will help them reduce borrowing costs.

There are a number of technical signals that need bearing note:
1) Gold is trading along a "channel" and is poised to break the upper channel

2) Oil has corrected substantially, and OPEC is planning to cut 2M bpd, a significant amount. Yet volumes don't support a call for higher oil prices. My call is $30 for a barrel of oil. This is due to the market being more likely to overshoot on the downside. In the meantime, enjoy lower prices at the pumps.

3) U.S. Markets have been trading up from lows, but on lower volume. Volatility has also declined, but it is still well above a more reasonable 35. Examples are DJIA and S&P500. The Toronto Stock Exchange has been trending, but does not have much upside.

Personal Notes:

Here is my virtual (for now) portfolio:

My participation in KaChing has been rewarding. By next year, the organization running the application will allow the community of real investors to choose from the participants. KaChing is effectively testing its participants, and the best traders might get a virtual office in California as a Portfolio Manager.

My standings are as follows. These are just statistical numbers. The more relevant performance measure will be known over time.
  • 6 month virtual return 26.7% vs -36.1% (S&P500)
  • Ranked 12 / 40 (Elite)
  • Ranked 377 / 32,200 (Premium, 3 month performance)
  • Ranked 1,331/323,240 (Basic)