Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (5416)	5/3/2004 12:42:26 AM
From: Hawkmoon	Read Replies (1) \| Respond to of 116555

In California, a middle-class family with two earners each making $50,000 a year now owns, on average, an $830,000 home. In the late 80s, the last time these eight states saw price-to-income ratios this high, the real estate market collapsed. I know.. I've been warning friends about the bubble in the DC-N.VA housing market. I'm afraid of what's going to happen to valuations when rates begin to rise. Some friends of mine back in the early 90's actually suffered through several years of depreciation on the value of their townhome. Hawk

To: mishedlo who wrote (5416)	5/3/2004 8:15:14 AM
From: Pogeu Mahone	Read Replies (1) \| Respond to of 116555

SUSAN TOMPOR: Rates can't remain low much longer May 3, 2004 BY SUSAN TOMPOR FREE PRESS COLUMNIST Sure, it might snow one day in late April. But you shouldn't plan to wear a winter coat in July. Nobody's canceled summer. Ditto for the interest rate game. The Federal Reserve may be taking its sweet time raising rates. But you'd be a fool to bank on the notion that the low-rate game can play out much longer. "Higher rates are inevitable and we even have Alan Greenspan telling us that at this point," said Greg McBride, financial analyst for Bankrate.com. The Fed's policy committee meets Tuesday. Short-term rates should stay put at this meeting. But many economists say rates will move higher in six months. We've been hearing talk of higher rates for years. But this time all of that talk is probably right. A long ride Soothsayers thought the Fed would bump up rates in the spring, summer or fall of 2002. Didn't happen. Several months ago, a few economists predicted that we could see rate increases this month. Won't happen. The recovery hit plenty of bumps. Chief executives lacked confidence, kept cutting back and did everything they could to avoid hiring. Some of that is gradually changing. Job numbers, while not great, are picking up. "The missing ingredient has been found -- and that's business confidence," said Mark Zandi, chief economist for Economy.com in West Chester, Pa. Zandi says the Fed could start raising rates this August. David Littmann, chief economist for Comerica Bank, says the Fed will move after the presidential election. He predicts a quarter-point rate increase Nov. 10 and another quarter-point one Dec. 14. What to do So what strategies should a saver -- or spender -- take? Buckle down and pay down your credit card debt. It's boring. But it's smart when the cost of debt will go up. "There's no such thing as a fixed-rate card," McBride said. Credit card rates can change with as little as 15 days of notice. "If you're buying a house, don't use an adjustable-rate mortgage," said Diane Swonk, chief economist for Bank One in Chicago. "You definitely don't want to be in a 1-year adjustable at this point in the game." McBride warned consumers about interest-only mortgages. Rates on some of those products can adjust every month -- not good when rates head higher. Skip the 5-year CDs for now. Stick with money markets or 6-month CDs to tap into higher rates later this year and next. The 5-year certificate of deposit averaged 5.64 percent in December 2000. It fell as low as 2.45 percent last July and was at 3.13 percent last week, according to Bankrate.com. Consider so-called step-up CDs. Huntington Bank recently offered a CD that locks up money for 2 years but gives the option of higher rates in the third and fourth years. The annual percentage yield for the first 2 years was 2.07 percent. The promotion's real appeal is that you'd get a rate of 4 percent in the third year and 6 percent in the fourth year if you hold the CDs. When you average that out, the 4-year yield was 3.6 percent. A 2-year CD that currently yields 2.5 percent or more at some out-of-town banks can be a good compromise. Contact SUSAN TOMPOR at 313-222-8876 or tompor@freepress.com.