Friday, November 9, 2012 - Article by: Fred Bohman - Pacific One Lending -
The big event this week was the election on Tuesday. On Monday the market were quiet, but on Tuesday we saw a spike in interest rates on rumors that Romney was going to win the election. On Wednesday after it was confirmed that Obama won we saw a drop in rates that cancelled out Tuesday spike and then some. There are two factors that caused this drop. First, since Obama does not want to extend the Bush capital gains tax cuts that are set to expire at the end of the year, many investors in the stock market are selling off in order to take their gains now at a lower tax rate. Whenever money flows out of the stock market it usually flows into bonds thus driving rates down. Second, Obama is seen as more likely to support the continued quantitative easing which is also keeping interest rates low.
Europe is back in the headlines and once again Greece is in the fore front. Greece is running out of money and is getting closer to defaulting on its debt unless they get more bailout funds. Also financial reports from across Europe confirm that most of the region is slipping back into a recession. Bad news out of Europe is mostly considered good news for US interest rates as investors will move their money to safer US investments.
Looking forward, now that the election is over we have the approaching "financial Cliff. All of the Bush tax cuts are set to expire at the end of year unless Democrats and Republicans can come to an agreement on which ones to extend and which ones to let expire. The closer we get to the deadline the more anxiety investors will get and the more volatile the market will become. Hopefully our country's leaders can get their act together and get something done quickly.
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