It’s Damage Control for Consumers Now
Monday, July 10th, 2006
By Michael Lombardi, MBA for Profit Confidential
The head of the largest bond fund in the world, Pacific Investment Management Co., said on Friday that he believes the bear market in bonds is over. That’s Bill Gross’s way of saying interest rates won’t be going up any more.
Gross was probably looking at the numbers released by the U.S. Labor Department on Friday that revealed the U.S. added fewer jobs in June than most had expected. The U.S. economy added 121,000 jobs in June, below the 175,000 new jobs forecast by analysts.
Weak job growth is another indication that the U.S. economic machine is slowing. And people like Bill Gross assume that enough “poor” economic news has been issued of late to deter the Fed from announcing another interest rate hike at its next scheduled meeting.
No one has a crystal ball to determine how high interest rates will move in the world’s largest economy. There is one camp, however, with members like Bill Gross, that believe the Fed cannot move interest rates higher because the economy is already getting too soft.
There is a second camp that believes the Fed has no choice but to raise interest rates because inflation management is the Fed’s prime target. A third camp believes not only that rates won’t rise again, but also that rates will not be moving lower either because of the weak American currency. Move interest rates too low, and the U.S. greenback may just collapse.
Whether rates will move higher or not at the next Fed meeting, my opinion is that the damage has already been done to the U.S. economy. With a prime lending rate at 8.25%, there is no doubt businesses are incurring higher interest expenses at the cost of profits. With a 30-year fixed mortgage now at 6.37%, up from 5.18% only a year ago, there is no doubt U.S. consumers are feeling the pinch.
My simple message today: Interest rates in the U.S. have gone up too far already… the damage to businesses and consumers has been done. It’s not just a matter of how high rates will go, but a matter of how consumers, with a huge debt burden, will cope with higher rates. My bet is that it will be far from easy sailing in the years ahead for the U.S. consumer. U.S. consumers are already in damage control and that means a soft economy and soft stock prices for major American corporations.
Next Post: What Soccer Has to Do With It!
Previous Post: Canada is the New Hub for Global Policing of Money Laundering
Tags: bear market, interest rates, U.S. economy
Tweet
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 Twitter
