Bonds have outperformed stocks over the last 30-year period, but things are changing and bonds are no longer the safe haven they once were. In fact, bonds already look overvalued, and if rock-bottom interest rates keep moving higher, bond funds could plunge.
By itself, the S&P downgrade doesn't mean much to the average citizen. The real risk to the public is devaluation, due to the printing of dollars to make servicing the debt easier. Such a course of action by the government could lead to higher interest rates and greater costs of imported goods.
The Mortgage Bankers Association said they tumbled 10.5% last week, the biggest fall-off in four months. While the foreclosure crisis may be playing a role in the decline, rising interest rates are also partly to blame.