Ideal mortgage now is one-year arm as rates will go to zero between now and 2012 – Federal Reserve will wake up later this year to fight deflation
Marla Guthrie
May 12, 2007

The biggest blunder at this stage of the economic cycle is to trust the stock market. Remember that from 1993 to 2001 they pushed the tech sector up and left you in the middle of major losses. They did again, with real estate market and mortgage as well home equity lines between 2001 and 2006. Now they are back into the stocks. They want to make you believe the economy is growing and the inflation is under control. The stock market – this time the financial sector and the industrial sector will collapse and you will lose it all again.

More importantly, no matter what they say, be on guard against financial meltdowns. The deflation will push prices down and economy will tend towards sector specific depressions starting with auto and manufacturing. The Fed has a wake up call scheduled in the second half of the year. They will lower rates sharply. By 2012 the rates on one year Tbill will be less that half a percent.

In that scenario, it is the right time to opt for one-year arm. Remember, those who act first are rewarded much better. When short term rates collapse, banks will refuse to lend any further so easily. The points will be enormous or simply put the one-year arm will just disappear.

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