By William Mills
Investors watching anxiously as share prices nose dive must wonder where it will all end?
With the market going back up again, of course!
During August many stockbrokers take their well earned and much needed annual break and head for Cowes and the yacht racing. However the markets are still open to trade.
The cause of the current panic in the the global stock markets has been largely caused by talk of interest rate hikes.
This is the major danger to the western economies.
In the UK 65% of households are owner occupied and when house prices rise there is a general feel good factor.
Indeed if one’s home has gone up £10,000 since one last looked it can prompt an additional spend on the credit card which in turn fuels economic growth.
Interest rates have been historically low for a number of years and the thought of a rise is terrifying many. Indeed when they finally go up there may well be a number of repossessions.
Yet we are a resilient people and as the rate rises will be gradual the majority of us will weather the storm by tightening our belts and working harder.
George Osborne-Santa Killer?
Indeed it would probably be better for the Bank of England to act sooner rather than later. If interest rates go up over the Christmas period the Chancellor will forever be known as the ‘Santa killer.’ Far better to get it over with now.
It is feared that money will flow out of the stock market and into high interest deposit accounts.
However many prudent investors hold money on deposit anyway and with companies yielding 5% or 6% interest rates would have to rise a long way to compete with dividend income.
So it may well be the case that as soon as we face our fears the better. If interest rates rise 0 .25% it won’t kill many of us. If it does kill the housing market the powers which be will have to put it back down again!
