Wednesday, November 29, 2006
Bernake stays strong on interest rates
Bernake stays strong on interest rates
Bernake spoke today that interest rates will not be lowered from the current point. In my opinion this is overall bad news for the markets. The time period after a plateau of interest rates is usually a poor time for the markets.
We lie now in a period of stable interest rates in an attempt to keep inflation low. As we know, low rates boost financial markets and high rates slow them down.
I believe there will be no future hike in interest rates for at least a year. If your portfolio relies heavily on US money markets or other income producing investments I would start to invest as much cash as I could.
Tomorrow I will write about some high yielding stocks but that is tomorrow. 
For now we need to focus on the future of US interest rates. Below are my predictions:
1st Quarter, interest rates will stay the same. However starting in the beginning of the second quarter, the US FED will start to consider lowering rates to preserve market gains. I think the overall US market will be healthy from a strong 4Q but the numbers for 1Q will be unimpressive.
2nd Quarter, traditionally this is when oil prices move higher and cause an unhealthy strain on the markets. Energy prices generally do not peak until July but the wake is felt even in the early second quarter. The FED will be forced to lower rates to boost an otherwise falling market.
3rd Quarter, this is usually a slow time for the US Markets. I believe the FED will hold interest rates for the 3rd quarter as the housing market cools down for winter. Traditionally, the back to school and winter months are poor real estate times. Spring is always the big boost to the real estate markets.
4th Quarter, this is usually the time for huge sales numbers. This is the biggest time for retailers and manufacturers of goods. Its hard to predict what the FED will do in this time period without actual hard numbers.
The long and the short of the article is this, if you are relying on a fixed income investment I would recommend that you place investments now. Interest rates are as high as they will be all year, regardless of what was announced by the FED. Get in now or be stuck with 3%.