Rising Interest Rates Worry Investors

[Guaranteed]

http://story.news.yahoo.com/news?tmpl=story&u=/ap/20030809/ap_on_bi_st_ma_re/weekly_wall_street

By AMY BALDWIN, AP Business Writer

NEW YORK - Wall Street had to face another hard reality this past week: Interest rates are rising, and threatening to undermine an already uncertain economic recovery.
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"The reason the stock market is essentially stalled out is because not only did interest rates rise, but they have risen more sharply than they have at any time since May 1987, and in percentage terms they have risen more sharply since any time since 1962," said Hugh Johnson, chief investment officer at First Albany Corp.

Market analysts say the higher rates aren't warranted in an economy that remains far from robust, even fragile.
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Among the data that fail to support the need for higher rates, Valliere cited an unemployment rate of 6.2 percent. He also said there's no evidence to say that inflation is back.

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This is very bad news for the economy. What this means is that the loan market is getting tapped out...there just isn't enough money in the country to even be able to kick-start the economy through loans...
Reading the article it can seen how a lot of these investors are in denial...they're hoping that the rise in interest rates is actually a GOOD sign, a sign that the economy has already rebounded. But the fact is that unemployment is still going up, and it needs to have started going down by the time interest rates start rising, if the economy is to be rebounding.
Bushco isn't going to be able to fix this by election time. Things are already too messed up. Plus the war.
So, my guess is we're gonna have another one-term Bush. :smoke:

[mike_c]

1. further proof...

there just isn't enough money in the country to even be able to kick-start the economy through loans

...that "tax relief" for the rich doesn't stimulate economic growth-- the rich don't spend their windfalls like the poor and middle class do. Where's the money, George?

[Boom_cha]

2. you're right that it's bad news for the economy

but I disagree with your analysis of why interest rates are rising. I say it's not due to supply-demand factors. Rather, interest rates overshot to the downside as a result of Alan Greenspan's jawboning about deflation risks. He was trying to talk rates lower and he succeeded. Now the market has wisened up and rates have moved back up.

[jiacinto]

3. Watch the Housing Market

That should give us some idea.

[Merlin]

4. Investors need a lesson in the law of Supply and Demand.

When the government takes half a trillion dollars out of the supply of investment capital each year to finance its collosal deficits, the cost of that capital will increase. It's got nothing to do with unemployment rates. These increases are being driven by the market, not the Fed.

[Guaranteed]

5. Rising interest rates vs. employment

Unemployment needs to have been decreasing by the time interest rates started going back up (yes, driven by the market) because as interest rates rise it's going to be more and more difficult for companies to expand and create more jobs. So, as unemployment is still going up, the reversal in interest rates is a serious problem. In fact, interest rates should still be going down. And, Greenspan is going to cut them again, because he knows this. He's running out of room, though.

[Dan]

9. I think we should also look

at what Foreign investors are doing. The foreign market may have started to react to the fiscal policies of this administration - and realized that there is no sign that the U.S. has plans to get its fiscal house in order.

[iam]

14. Merlin is right on this one.

Once the federal Gov't becomes the worlds biggest borrower, we're up shit creek.

[mix68]

6. a bit off subject

what are the rates for student loans for 2003-2004
i think they're set in July according to a formula based on the 90 day T-bill

thanks !

[Guaranteed]

7. I'm paying around 3.5% right now

It's gone way down in the last two years. Gets cut every few months.

[On the Road]

8. Long-Term Rates Reflect Long-Term Expectations

The spike in long-term rates is a vote of no confidence by investors. A lot of that has to do with the expectation that government borrowing will soak up more available funds.

[Neutrino]

10. Contributing to Economic woes--the $32 bbl Oil price--that

looks like it should continue to stay firm-to-higher for the balance
of the year. Unleaded Gasoline (in the harbor) Futures, Heating Oil,
and Naural Gas are also strong.

I've said it before about Housing--that the people who have Refinanced
3,4, and 5 times, have just about sucked the Equity out of their
properties, and since there is an Inverse relationship between
Interest Rates and Prices, selling them for anything near the Purchase
Price going forward is a pipe dream. On the basis of cost alone,
it is necessary to remain in a house for a minimum of 3 yrs, just
to cover Closing Costs. 4 Refis = 12 years. Few people stay in a
house for more than 3 to 5 years. Those who choose to do that will
watch the Market Value of Property go in the tank, which isn't going
to make the Bank happy either. If this Housing market bubbles, it
won't come back for at least 10 years. I feel sorry in the short term
for those with Adjustable Rate Mortgages.

[RainDog]

11. other factors

as noted on the another LBN thread, oil prices have gone up, and as the guerilla war continues, those prices will not come down, most likely.

of course, higher prices don't hurt Bush's cronies...just people trying to stay within a budget and drive to work...

if they have a job. If they do have a job, their productivity has gone up..no doubt all the job losses make it easy to wring greater labor from those who want to keep their jobs. this is great for corporate profits, but since job losses have continued, doesn't do much of anything for lots of people.

supposedly these profits will create more jobs, but since we already have a pattern of abuse and a pattern of Bush's unwillingness to ask CEOs to use any of the breaks he's given them to create jobs...remember the AmAirlines CEO who forced concessions from employees and gave himself a big fat bonus for having a shitty year?

prime rate and what banks charge people for interest don't always go hand in hand, btw. when Greenspan cut the prime rate (and it can't go much lower) that did not result in lower interest rates for your credit cards...or maybe you did get a break, but again, banks seem to wait to pass along the bennies to customers.

so now, with the deficits meaning that the govt is driving up interest rates, you better lock into a fixed rate if you have a mortage, if you haven't already. also for credit cards.

Krugman recommended this months ago, btw.

what I wonder is what is going to happen with the dollar? seems it will continue to devalue.

with people out of work or scared of losing their jobs, maybe it won't matter that exported goods are more expensive, unless you're a CEO.

but can we export our service jobs?? I mean, how much manufacturing is still done in the US? How much labor for things like clothes?

I don't know.

I got a really bad feeling about all this, that's all I know.

[sendero]

12. These rates....

.... unlike the "fed funds" rate set by Greenspan et al, are truly market controlled. The Fed can lower to funds rate to zero, it will not affect these longer term rates.

It will take only a couple more percent to drop the housing market in its tracks. If this happens, it is seriously bad news for the U.S. economy.

As to what it pushing these rates up I'm sure there are many factors. But one of them has to be the increased borrowing by the govt to finance the deficits. And that isn't going away soon.

[RainDog]

13. anyone know what all this means for the dollar?

if someone needs to travel to somewhere else, is it gonna cost more and more?

that's my guess, but so many different weirdnesses...

[Yavin4]

15. The Key To The Clinton Boom

was when he attacked the deficit, even though he wanted big government spending programs. With that brilliant move in the summer of 1993 on the budget, he showed the world that the U.S. was serious about paying off debt.

The result? Four years later in 1997, we had a booming economy. Why? It was the intersection between the discovery of new technologies, the internet and telecom, coupled with huge sums of money that had been freed up because the government WASN'T BORROWING $250 billion per year. That $250 billion went to these startups which hired people, etc. etc.

Now president monkey face is doing just the opposite. With his huge tax cuts for the rich, he has created a $500 billion per year investment opportunity, government debt, and when his tax cuts take full effect, the deficit will rise to a $1 trillion per year, which will be about 15% of our entire national debt right now.

Folks, it simple math. If you know that the government needs $1 trillion each year just to operate and you know that the government is the most reliable debtor on the planet, then you're going to charge a really high interest rate to everyone else.

[alfredo]

16. Stagflation was what we called a stalled economy

and inflation. A double whammy.