Summary of Market Information
May 9, 2008In assessing how stocks, bonds, and treasuries are moving, the conclusion has been drawn that U.S. markets are headed down a tough road.
Bonds had, since June of last year, been trending upwards. Now, however, they seem to have peaked and, indeed, are moving frighteningly close to nasty falls and downward spirals.
Costs of mortgaging and other kinds of financing are in a position to get driven up, by spiking yields on Treasury notes. And, considering that the federal funds rate is yielding below inflation, real interest rates stand at negative values.
So, should inflation roar in, bond yields have the potential to soar, and even the conservative Federal Reserve is beginning to pay attention to that possibility. Kansas City Fed President Thomas Hoenig admitted that he is seeing “inflation psychology to an extent that he hasn’t seen since the 1970’s and early 1980’s.
So those looking to invest are advised to stay away from long-term bonds, a losing investment in an inflationary environment like this.
And for heaven’s sake lock the rates on any mortgage or borrowing instrument. Get financing for your project early and hang on to the interest rate, so that trying times don’t try your wallet.
Mike Larson, www.moneyandmarkets.com, May 9, 2008