As we approach the end of the year the talk about an interest rate hike from the FED is growing louder and louder. That remains to be seen. All I know is - I wouldn't want to be one of the folks at the table that must make that call. Personally -- I don't get any sense that the economy in the US is good, great, or just plugging along. Generally you get a sense for how things are going from the earnings reports. What I've seen (and I watch this daily) is one guy is going great and the next one isn't. Amazon is killing it - Macy's is getting killed. Which one is the "meter"? I don't know.
Here's what I DO think... and this is just my thoughts. When the FED raises rates - while I don't expect much of a raise - that's basically a giant redistribution of wealth. What do I mean by that? It means that EVERYTHING that is interest rate sensitive will be raised - which means that everyone will pay more for everything. Housing - Autos - Communities that float a bond to fix streets or build a library - EVERYTHING. That means money flows out of peoples pockets and goes somewhere else.
The question is -- is that a deal breaker? If you weren't offered near zero rates on your car purchase - would it affect whether or not you did a deal and bought a car? Or a house? Or? Good question to ask yourself. How tight is your budget? If your house payment jumps $200 a month.... is that a shock?
I just bought a new snow blower for the new house. I have a HUGE driveway due to the Fire Department requirements... that's neither here nor there... except that I live in the mountains.... where it snows.. it can snow daily or it can snow deep. You wake up and there's 12" dumped overnight. I don't want to wait until mid-day to have a guy come plow me out... and I'm a do-it-yourselfer kind of guy. My best friend owns an excavation company and they switch from digging dirt to plowing in the winter. He talked me into buying a Bobcat with a 62" wide snow blower mounted on it. Why am I telling this story?? Because I was offered either 36 months at 0% -- or $1,000 off to pay cash. I'm a cash buyer and took the discount.... but many might take the 0% rate - essentially then - you'd be paying $1,000 worth of interest but people never do that calculation do they? LOL Now.... if you're like me - I've become quite used to seeing these zero rates offered on a variety of things. Will we balk at the purchase when these go away? Will we bargain harder for a larger discount as compensation? Will we not be simply "spurred on" to buy at all? Or will we not buy because suddenly everything we already own is costing us more out of pocket monthly?
In the end -- rising rates will mostly hurt those that can afford it the least - the middle class... They're also the ones that - because of the law of large numbers - buy the most "stuff". So what will that do to the economy?? So far they've (we all) have gotten a nice refund due to the low cost of energy.... (it's killing my energy investments)... but what happens when that cost starts creeping back to normal ($3 gas?) and your house payment takes a jump - and then your car needs replacement... and that is now 4% rate instead of zero....
I think our next debacle will be INFLATION. We'll need to really be keeping a keen eye on what - if any - affect that will have on the shares we own. I'm not saying you start selling - or buying or do anything. I'm just talking out loud and saying my ears are perked up - my radar is on.... I want to be proactive. If I'm looking to add to positions or buy new ones - should I be taking this into account going forward? In other words - would rising rates hurt housing - which hurts Home Depot (HD)?? I don't know - but I want to pay attention.
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