How North Korea's Missle Testing Can Lower Mortgage Rates

Geopolitics crack me up.  Not because the world is a funny place, but because of how geopolitics can make the most prescient economist look like a turd. 

Just when somebody thinks they've have mortgage rates figured out, something goofy happens half way around the world to bring the whole house of cards crumbling down.

Geopolitics is:

• The wild card in a hand of poker
• Terrell Owens on Game Day
• The Sixth Man off the bench 

You just never know what impact it will have until it's too late to adjust.

So, as a story coming out of North Korea gets less press than it should, I wonder if anybody's paying attention.  Maybe you missed it, too.  North Korea is expected to test launch a missile capable of reaching the mainland United States.

Said differently: The communist, dictator nation of North Korea is testing missiles capable of reaching Madison, Wisconsin.

North Korea is not currently producing nuclear weapons, but in 2003, satellite imagery revealed 8,000 plutonium rods moving out of storage.  Could these two stories may be related, but not as of today.

The last time North Korea tested a missile was in 1998.  The test went awry and the missile sailed over nearby neighbor Japan.  Some considered that an Act of War, but North Korea later self-imposed a moratorium on further test flights. 

And now here we are, eight years later, and allegations are that North Korea is not following it own rules. 

Meanwhile, events like this tend to help mortgage rate shoppers because global instability leads to safe haven buying and that tends to drops mortgage rates like Jerry Stackhouse dropped Shaq. 

Let's ask the "What if?" question: What if North Korea tests their missile against the wishes of the U.S., Japan, and the UN Security Council? 

The answer is that the global economy goes on notice that North Korea could really mess things up if it wanted to.  This panics traders and when traders get jittery, money moves from risky investments into safer ones.  This includes most bonds denominated in U.S. dollars, including mortgage bonds.

With more demand for bonds, the price increases and that forces mortgage rates lower.

This is why geopolitics are funny to me.  The world economy is always on shaky ground and as soon as you think it's predictable, some random event changes the course.  In January, it was Iran that had resumed nuclear research; this time, it's missile testing in North Korea.

So, if you haven't locked your mortgage rate, or are currently home shopping, the more coverage of the North Korea story, the better off you should be.  And, hey.  It's completely cool to cheer for it -- I won't think you're evil or anything. 

Just don't be rooting on Bird Flu, okay?  That's just wrong.

Source
Rice Warns North Korea on Missle Test
The Washington Post, Anne Gearan
Monday, June 19, 2006; 10:30 PM
http://www.washingtonpost.com/wp-dyn/content/article/2006/06/19/AR2006061901554.html

North Korea warns against 'act of war'
CNN.com, Andrea Koppel and Elise Labott
Wednesday, January 22, 2003 Posted: 11:32 PM EST
http://www.cnn.com/2003/WORLD/asiapcf/east/01/22/koreas.un/index.html

CIA -- The World Factbook -- Korea, North
CIA.gov
Last updated: June 13, 2006
http://www.cia.gov/cia/publications/factbook/geos/kn.html

(Image courtesy: New York Times)