Something Doesn't Quite Fit

Something doesn’t quite fit. Can the economy really support higher rates when retailers like The Sharper Image and Lillian Vernon have declared bankruptcy? Or a city here in the San Francisco Bay Area (Vallejo) makes the headlines for being near bankruptcy? Thus the belief that although there will be blips up, the general trend in rates is lower – at least US Government-backed rates. As housing prices continue to decline, food and energy prices continue to rise, and as consumer confidence continues to wane, look for more retailers’ profits to decline after a mediocre Christmas season. The University of Michigan Consumer Sentiment Index fell to a 16-year low last week. And the ability of borrowers to qualify, use their HELOC’s, or borrow in general has declined, while at the same time investors are demanding more and more for their risk pushing long-term yields up. Calgon, take me away!

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