Posted 08/10/2006


Are Mortgage Rates Already Immune To Threats Of Terror?

Dan Green

The Mortgage Reports Contributor

In months past, terrorist threats and activity pushed mortgage rates lower as traders positioned for international instability.

Today, that trend appears to be breaking.  Mortgage rates are flat even as U.K.-U.S. flights are upgraded to "Red Alert" and U.S. domestic flights are upgraded to "Orange Alert".

In what many analysts are describing as "suggestive of an al-Qaida plot", authorities broke up the plan believed to have included at least 50 people, according to MSNBC.

If mortgage rates aren't moving today, it's because traders have already priced in the threat of terror to securities, or they no longer respond to threats -- just execution.

Even as the typical "safe-haven" play is not in effect, we may see reasons for rates to drop anyway.

As security levels step up at airports -- one friend told me that O'Hare security checkpoints are clocking four-hour wait times -- we can expect to hear stories on the news about the hoards of unhappy travelers.

Shame on me for not sourcing this next statement, but I remember reading that there are finally more airline passengers than prior to September 11, 2001.  Today's discovery may reverse that course and prove to be a huge setback for United, American, and Continental.  All three stocks are down so far today, in case you care.

If the number of passengers are down, that means that the airlines will be employing fewer people.  It also follows that U.S. citizens will not be flying to vacation spots so readily.  That directly impacts regional employment and economic growth in seasonal vacation spots including Florida, Arizona, California and Hawaii.  It also harms destination vacation locations all over the country.

Between the airlines, hotels and restaurants, our nation employs a lot of people and as employment goes, so goes our economy.  Unwieldy airport security may cause people to just stay at home.  You can't drive, after all -- gas costs $3.50 per gallon and that's more expensive than the plane ride.  It's a tough choice for a lot of Americans, right.

If the threat of terror keeps people from traveling, it will further slow our economy and give the Fed more reasons to ease off the brakes some in September.

Safe-haven or not, today's busted plot may cause mortgage rates to fall over the long-term.

The airlines will have to attack passengers' fear head-on to maintain their confidence in the industry, but right now, all that people are seeing are the news headlines and the television broadcasters talking about what "could have gone wrong".

That's a tough battle to fight for the airlines.

So, for now, security provisions are banning all liquids and gels from flights.  That means that airplane staples such as eye drops and water are disallowed.  If the common American decides that traveling by plane is not worth the risk (or the trouble), it may just crumble several industries at once, and may just force the economy into a terror-caused slowdown.

Dan Green

The Mortgage Reports Contributor

Dan Green is an expert on topics of money. He has been featured in The Washington Post, MarketWatch, Bloomberg, and others.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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