Not So Lucky Number 16
Thursday, February 16th, 2006
By Michael Lombardi, MBA for Profit Confidential
The U.S. Commerce Department just reported a surge in U.S. retail sales for January, 2006. Retail sales, excluding autos, were up 2.2 percent last month, the best posting in six years. With autos included, retail sales were up 2.3 percent–the largest one month gain (including autos) since May, 2004.
With the retail sales numbers for January being double what economists had expected, bond prices were hammered on fears the Fed would continue raising interest rates. Now, according to the futures market, 98% of traders believe the Fed will raise rates on March 28 and 68%, up from 56%, believe the Fed will raise rates again at its May 10 meeting.
Yes, in an unbelievable string of interest rate hikes, it looks the Fed will raise interest rates 16 times in a row. Ask a 2004 buyer of a luxury condo or home if they ever thought interest rates would rise back up so fast and they’ll likely be astounded.
Bottom line: the Federal Funds Rate could be at 5 percent be this May, pushing interest rates up to their highest level in years. Is it any wonder the housing market is taking such a beating? After all, between one-third and half of all U.S. mortgages are variable rate.
If the positive numbers keep coming out, it looks like the first quarter of 2006 will be an economic “big” winner for the United States. Some economists are boosting their forecast for U.S. economic growth in the first quarter to between 4% and 5%. If this happens, you can count on interest rates continuing to rise as the Fed tries to cool the economy.
We could be pushed into a situation where it’s “forget the consumers drowning in debt. who told them to load up on so many loans anyway” as interest rates rise in the Fed’s effort to cool the economy. Remember, and as I’ve written many times before, the Fed always raises rates too high or too low in its effort to cool or stimulate the economy to the actual points where booms and busts occur. This time won’t be any different. Only deflation will stop interest rate hikes now.
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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
