Thunderbolt Monday March 9 Alert – How rising oil prices will affect your mortgage and what we recommend you do about it today
For a decade or two, I worked in, and lived and breathed, financial markets. What I learnt was that history might look a bit different each cycle around, but the lessons essentially repeat themselves.
As a result, I spent some time this weekend getting out my trusty “History of Wall Street” book , as I wanted to remind myself what happened economically in the oil crises of the 1970s. I have attached a couple of paragraphs below if you are interested.
For example, over a period of 18 months in 1973, the oil price went up 4.5x. Imagine today the price of fuel going from $2 to around $9 a litre and this will give you the idea.
Now I am not saying thats going to happen, and this could all turn on a dime in a few weeks time and settle down, but I highlight this history to keep open minded to the possibility of a much larger move in these assets than you think probable today.
I will write a longer newsletter on this later in the week but for now:
If this oil crisis does not pass quickly, (personally and unfortunately I dont think it will, but I could be wrong), it is extremely likely we will get a spike in inflation, and we will get higher interest rates for a sustained period.
So what are you going to do about it?
1. Lock in a % of your mortgage now at a fixed rate.
Lets say variable home loans are around 5.64% now on average.
2 year fixed is around 5.84%, slightly higher. 3 years are also very similar. Some banks the rates are even the same.
I believe it prudent, even though it is slightly higher than your current variable rate, to lock in a percentage of your mortgage today at this fixed rate.
I also believe the current fixed rates are going to be going higher again soon as the banks generally take a bit of time (days and weeks) to catch up with higher fixed rates.
If we are wrong, and in the unlikely event interest rates do in fact go down, I dont believe over 2-3 years you will be too out of pocket, if any.
Its all about managing risk in the face of changing facts.
Isnt it amazing how the interest rate environment has changed in 4 months.
2. Buy some oil stocks
(I was a stockbroker and financial planner for many years, its hard to let go a lifetime of being a student of the markets).
Talk to me about this some more if you like and I will point you in the right direction. I might know a person or two in this space.
We also had a saying in financial markets “If you are going to panic, panic early”. We dont recommend you panic, but we do recommend you be a realist and manage your risk in the face of changing conditions.
As I heard on a podcast this week “A belief is a conviction that is open to revision based on evidence” (Highly recommend) : https://open.spotify.com/episode/73jrk6bu4ElnJP5OtKTuo0
Have a great week, try to get outside and dont watch too much of the news.
If you have received this newsletter and you dont have a mortgage with me, call me anyway, I will always try to help you regardless.
Look forward to your email at reggie@thunderboltlending.com.au or call me 0403397060
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