Vail Daily column: Global events dampen probability of rate hikes
August 21, 2015
The Federal Reserve is anxious to raise interest rates, kind of. While many sectors of the U.S. economy have been growing, which would lend reason for the eds to tighten things up a bit, there are some very real stress factors hitting other parts of the world. This week, those stressors started showing up in U.S. markets, marking the biggest stock sell off in over a year.
China has played a leading role with its stock market tanking over 40 percent, and for a while a lot of investment capital sought out the U.S. stocks as a safe haven as the Chinese devalued their currency and unemployment threatened to increase, boosting the value of many companies here. But other factors, including the collapse of oil to under $50 per barrel have sown seeds of doubt about our own economic growth, and many are speculating on what's going to happen with the Middle East economies.
Case of Saudi Arabia
Saudi Arabia is an interesting case in point. The people there enjoy no income tax, subsidized gasoline, and many perks from cradle to grave courtesy of their government. Public spending projects create millions of jobs. The Saudi government has over $600 billion in liquid assets and no debt. But to continue this level of spending without depleting its reserves, oil needs to be about $100 per barrel or more. With oil at about $50 per barrel the Saudis have tapped about 10 percent of their reserves over the last year. While that keeps things humming nicely in Saudi Arabia that has pulled tens of billions out of circulation elsewhere. This scenario is playing itself out not only across the Arabian nations but in areas like Texas and North Dakota as low oil prices cut jobs in the oil industry. The Saudis could seek to force the price of oil up by cutting back production, but so far they seem to have no plans to do so.
When there is uncertainty in the air, investors have to park their money some place and it tends to be bonds. While that is not good news for your stock portfolio, it’s great news if you are planning to get a mortgage as capital to lend out for long-term mortgage loans is plentiful and rates are holding to their recent record lows.
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Support Higher Interest Rates?
On Wednesday, the Federal Reserve Board minutes show the U.S. Central Bank is still undecided if the economy is ready to support higher interest rates, and appears unlikely to do much of anything before the end of the year.
As such, when there is uncertainty in the air, investors have to park their money some place and it tends to be bonds. While that is not good news for your stock portfolio, it's great news if you are planning to get a mortgage as capital to lend out for long-term mortgage loans is plentiful and rates are holding to their recent record lows.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and can be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and web site is http://www.mtnmortgageguy.com
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