Gas prices, interest rates reduce market slowdownWritten by Dock Treece | | email@example.com
First the good news; gas prices have stabilized and the Federal Reserve has stopped raising interest rates (at least temporally). Believe me, those are not small issues. In fact, those may be the two biggest factors in the economy today. I have expressed many times that higher gas prices were eating into the consumer’s budget, reducing the money available for other purchases, and higher interest rates are putting pressure on real estate sales.
Consumer sales and real estate sales together have been the driving force behind the economy for several years. I don’t think we are going to avoid a recession but anything that reduces the severity of a recession would be welcome. Lower gas prices and lower interest rates would certainly help reduce any economic slow down.
In mid-August ,I was in South Florida (my two sons attend college there) and took some time to assess the real estate market in that area of the state. I was astounded at the number of homes for sale. Asking prices have not dropped much but sales have pretty much come to a halt. The situation seems to be that sellers are not willing to reduce prices to a point that will attract buyers. The question is, who will hold out longer — the buyers or the sellers? Interest rates will have a major impact on who wins the test of wills. If interest rates continue to rise, some sellers with adjustable rate mortgages will not be able to make the payments as the rates adjust up. However, if rates stabilize or move back down, the buyers will be encouraged to start paying sellers’ prices.
Someone describe the economy as being like the game we played as kids — “whack a mole” — where every time you push one down, another pops up. And to some extent that is true; the economy is influenced by many things. Some are more important than others and the ones that are important change from time to time. In my job, and for any investor, it is imperative to have an idea of where the economy is going if you are going to be successful.
Being able to predict the economy is not an exact science; the Federal Reserve has proven that. However, with time to study it, and experience from studying over a long period of time, we can improve our chances of being correct. Of those two, time is probably the one most investors lack, often because they have a “day job” where they put in 40 hours or more, leaving little time for economic analysis. My “day job” is analyzing the economy and I spend at least 40 hours a week at that endeavor — and even then I am still sometimes wrong. The average investor when successful should credit luck rather than skill not because they are not capable but because they don’t have the time necessary to do the research.
My current analysis leads me to believe the likelihood of a recession is very high; the severity remains to be seen. If gas prices don’t move higher and interest rates stabilize or move lower, it is possible we could escape with a mild recession and I believe that is the best we can hope for.
Remember the above is nothing more than my opinion and should not be used to determine your investments without your personal verification. In other words, the above was written for entertainment purposes only.
Dock Treece is a stockbroker licensed with the National Association of Securities Dealers. He owns Treece Financial Services Corp., www.treeceinvestments.com. The above information is the express opinion of Dock Treece and should not be used without outside verification.