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Tuesday, 06 February 2007 19:56 |
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I’m old enough to remember, as many of you are, what rising interest rates did in the late 1970s and early 1980s. Our economy ground to a halt. My discussions with local realtors resulted in an admission that we have more of a drop coming in real estate prices. Some people don’t want to admit that is even possible. However as construction slows many of those construction people will be out of work and out of money. More bankruptcies, foreclosures and further strain on the banking and the economy. See what Peter Schiff has to say.
Higher Interest Rates Mean Trouble Ahead
Peter Schiff
When I last commented on the bond market (December 5th's What's really going on with bonds), bond prices were inexplicably rallying, sending yields on ten year Treasury bonds to 4.4%. At the time, Wall Street was offering a variety of half-baked explanations as to why the market had moved beyond the cause and effect stimuli that had ruled for generations. My advice to investors was simply to sell into the rally and ask questions later. Since then, bonds have reversed course, with ten year treasury yields hitting 4.9% (a five-month high). Just as Wall Street's explanation for falling rates was way off base then, so too is their explanation for rising rates now.
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Tuesday, 23 January 2007 19:56 |
Last year I predicted a recession within the next 2 years. Now there are more economists agreeing. A mild to significant drop in the market is likely. When I meet with potential new clients I often ask, “Would a 50% drop in your portfolio affect your lifestyle?”. The answer is usually “YES!”. Maybe not this time but sometime in the next 5-10 years it is likely in my opinion. The problem for many retired people is that they may not have the time to recover and instead “eat” their principal! Our specialty is to find safer alternatives for our clients. Our clients aren’t looking to double their investments but instead want a reasonable rate of return with some safety. The stock market is usually a 6 month predictor of a recession. On that basis it is likely a drop in the market will occur at some point before the year is half over. I’ve included a recent article from John Mauldin.
The Goldilocks Recession
Economic forecasts this year tend to fall into three camps. The very large majority which sees a mild slowdown (not a recession!) with the Fed cutting rates in response and then renewed growth. They look back to the middle 90's where there was indeed a slowdown but not a recession, and the market continued to climb. Goldilocks, indeed.
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Tuesday, 07 November 2006 19:56 |
See my questions at the end of the article
Historically, September and October have been the worst performing months of the year. Frequently, during the month of October, investors have experienced considerable pain. Not the case this year . During September, the Dow Industrials gained 2.62%; October saw the Dow advance by 3.44%. The S&P 500 posted similar gains. Considering the consensus view that the economy is slowing, the market’s performance, while welcomed, is a bit confusing. The market’s recent performance prompted former Treasury Secretary Robert Rubin to comment:
“I think there’s been a curious phenomenon in the equity markets, at least in the last few months: When there is news that the U.S. economy is slowing, the market often gets stronger because investors figure the Fed will stop raising rates, or maybe lower rates….or maybe they think yields will decline. For some reason, they don’t seem to say to themselves that earnings may be lower. I think it’s very strange.”
After three trading days into November, the euphoria of September and October has dimmed a bit. As of the close Friday, the Dow Industrials have posted six straight down days. In fact all of the major stock averages were down for the week. The Russell 2000 (Small Stocks) declined by the widest margin, but the Dow Industrials was the only major average that lost ground every trading day this week. The sixty-four thousand dollar question is…… Are we seeing the beginning of a major market correction? |
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Monday, 30 October 2006 00:00 |
As investors expected, the Federal Reserve decided to leave interest rates unchanged during their Wednesday meeting. In its accompanying statement, the Fed said that the economy was likely to expand " at a moderate pace " in the coming months and that " inflation pressures seem likely to moderate over time". Market participants obviously welcomed the Fed's dovish tone , as they bid stocks significantly higher Thursday, the Nasdaq Composite closing the day at a fresh 5 1/2-year high and the S&P 500 at a new 6-year high , while the Dow Jones Industrial Average finished at its highest level ever . With the S&P 500 up seven days in a row , stocks were then due for a pause. It was therefore not surprising to see profit-taking hit Friday, with the major indexes giving back some of their recent gains on reduced volume, following the release of a weaker-than-expected GDP report . GDP growth for the third quarter came in at 1.6%, less than the 2.1% economists had anticipated . The shortfall was largely due to a significant slowdown in residential construction activity . The report provided better news on the inflation front, as the chain deflator, one of the Fed's favorite inflation gauges, only rose by 1.8%. The better-than-expected number confirms the Fed's view that inflation is likely to moderate going forward.
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