The last time this occurred before then was in the 1960s. Since then the highest rate recorded was 5.1 per cent in April 2006. From 2000 the US economy has not been able to sustain rates above 4.0 per cent with any degree of success as the economy fell into the Great Recession on the back of a fairly moderate rise in rates by historic standards. In fact, all the stock market performance and economic growth that occurred in 2010 should be put into context where the 10-year rate at the beginning of the year was 3.8 per cent and from April to October rates have been on a sharp decline. Recognise that the US 10-year rate is the benchmark for US mortgage rates and given the continued sluggishness in the housing market any increases in rates coupled with a lack of job growth will create further downward pressures on home prices in the US. Higher oil prices and commodity price inflation may create further headwinds.
What lies ahead
This discussion will take us into 2011 so for the time being it is appropriate to pause and wish all my readers a Merry Christmas and happy and healthy investment returns in 2011. Finally a special thank you to the many readers who took time out to write during the few weeks that my column was absent. My absence was not part of a "cost cutting" exercise, I simply took a break. The year 2011 will pose numerous challenges for investors. There are a host of pitfalls that can cause investors to stumble. Don't let these challenges blind you to the opportunity to make real positive returns by investing in a structured manner. Despite all the anxiety the US and Emerging Markets have been up on average between 10 to 15 per cent for 2010. Those hiding out in the 0 to 2.0 per cent returns of short-term fixed income and bank accounts take note. Those who are prepared to take a managed risk will have a better chance of realising their financial dreams in 2011 and beyond.
Ian Narine is a broker registered
with the SEC.