February 25, 2010
A few weeks ago I mentioned the possibility of a debt default by the government of Greece. At that time it appeared that a bailout by Europe was in the cards. But Germany, Europe's largest economic engine, may be having second thoughts, bringing Greece back to the edge of insolvency.
If Greece does default it will roil world markets, at least briefly, and you will see evidence of continued interrelation of our world economy. Home mortgage rates in the US are hovering around 5% for 30-year mortgages for creditworthy borrowers. Rates are now at their lowest point in over 36 years, so should you refinance now? I would not; my expectation is that rates are headed lower. Fed Chairman Ben Bernanke's congressional testimony yesterday suggests you can expect rates to stay low. But here is another reason: a Greek default would scare bond investors. Bond investors want safety, and if they can't get safety from one place they will seek it in another. That means more buyers for US Treasury bonds, which means higher prices (and lower interest rates) for those bonds. Even without a Greek default the specter of one likely means lower rates on home loans - probably for the remainder of this year.
A side benefit in my view is a rise in the value of the Dollar. I'm planning a trip in May and hope to save a few bucks with a lower Euro.
GTC
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).