High Interest Rate Effects
Thursday, June 17th, 2004
By Michael Lombardi, MBA for Profit Confidential
Most of my mornings are spent reading voluminous research reports on the stock market and all aspects of the economy. As a “think tank,” our office has an insatiable appetite for good research that we can analyze and from which we can make our own judgments.
I was very surprised to see a research report from CIBC World Markets come across my desk the other day. I was surprised because I did not expect to see such strong words from such a large, conservative bank. As I read the report, I felt this was something I needed to share with my readers.
Many of the large banks today, like CIBC, have substantial research departments not only for the needs of its customers, but for the bank’s own strategic planning needs.
Here’s the zest of what the report, prepared by CIBC economists Benjamin Tal and Avery Shenfeld, said:
– Low interest rates have resulted in a U.S. consumer who is “leveraged to the hilt.”
– About 18% of an average U.S. family’s monthly income is now used to pay for that family’s accumulated debt.
– 50% of new mortgages are adjustable rate mortgages.
– Just a small increase in U.S. interest rates could result in “substantial vulnerability” for U.S. consumers.
– “The surprise will be how little it takes from the Fed in that context to achieve any desired cooling in the economy.”
Strong words from a conservative financial institution, but true words nonetheless.
Tal and Shenfeld are concluding what I have been saying for months now-U.S. consumers have taken on far too much debt.
Higher interest rates will reduce their appetite for high-ticket items, especially autos and real estate — I can see this openly in the stock price charts of the largest U.S. home builders and car makers. These charts don’t lie.
Next Post: Mortgaging the FuturePrevious Post: U.S. Dollar Predictions
Tags: consumer confidence, consumer spending, interest rates, stock market
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on TwitterTweet
No Comments »
No comments yet.
RSS feed for comments on this post.
