Interest Rates to Stay Low; Capital?

While I was at the Leedom Group 15th Annual BHPH National Convention, a question I heard in my workshop sessions as well as meeting one-on-one with dealers, was “What is going to happen to interest rates?’ That question was followed by, “When is money going to be available for dealers again?”

Well, truthfully, what I can give you is an educated opinion and it is just that, my opinion based on what I’ve read, people I have talked to and staring into an empty coffee cup in the wee hours of the morning.

Interest rates are going to stay down for a period of time, perhaps nothing substantial in a rate rise for as long as 18 to 24 months. A solid run of consumer confidence reflected in extended consumer spending will have to occur before you see an elevation on rates. Raising interest rates only discourages spending and right now the idea is to get people to start letting loose of their money. People, the folks on Main Street, continue to be worried, continue to be scared and continue to wonder when they are going to start catching a break.

Having said that, as you gear up for the upcoming tax season, you may want to consider a move away from your traditional advertising you have always put out there and tap into the “anti-bank sentiment” and the “can anyone give me a break” feeling. Something along the lines of

“when nobody else is willing to help, nobody else is willing to extend you a hand, extend you credit, we will” or some variation.

But, I digress. So interest rates are going to stay down for a while. The next question has to do with the availability of capital and that is the $64,000 question. As I said at the convention, the present situation is almost exactly the opposite of the meltdown of the ’80s. Back then, there wasn’t any capital available and interest rates were off the chart. Today, there is a mountain of capital available and low interest rates. The difference, beyond the opposite issues, lies in the mentality of the market. Back then, there wasn’t the inherent distrust of both the government and Wall Street. People wanted to buy, people wanted to grow their businesses,

they weren’t afraid, but wanted the

system to come back to some sense of normalcy.

Today, fear is the operative word. Both people and the capital markets are afraid. The capital markets are afraid because they are enormously concerned about what this present government is going to do in terms of regulation, oversight, taxes and what will be seen as a solid business decision as opposed to a greedy business decision. Look, Wall Street screwed up, no question about that, but they screwed up because capital at risk isn’t perfect. Hindsight is great, but at the end of the day they got this one wrong.

Now, the government response on this is not to reward investment, not to reward figuring out how to get it right and make profits, the government response is to accuse, throw the capital system under the bus and pound their shoe on the table and say we’re going to put a cap on what you can make, company-wise and personally. What a great response! It is the kind of response that will absolutely slow down the capital markets’ interest in wading back into the marketplace. It’s just easier and safer for them to sit on the sidelines.

People are scared because the markets did screw up. So, they voted to throw out the previous administration — couldn’t trust them. They now have a new administration whose approval rating is falling through the floor. They hate Congress, whose approval rating is just above that of cannibals, and they hate banks, Wall Street and anyone they think is connected to the economic mess, including most regulatory agencies. It is a very tough place to be.

Having said all of that, know that money will find a way, money always finds a way to step from the sidelines and back into the game. There is always more money to be made when it is put into play than sitting in a deposit account – always —that has been proven over hundreds of years of history and all kinds of economic systems from feudalism, communism, socialism and capitalism. You can begin to see signs of money peeking its head up. Not in any volume yet, but there is the beginning of a movement.

Understand that the capital that is available now and the capital that will become available will have nothing to do with low interest rates. Expect money to be expensive for an extended period. Call it the fear factor upward push. Money put at risk, put back out into the market is going to be careful, going to charge for being careful and that is just how it is going to play out. Now, please understand, this is just my opinion.

All of this leads to what your opportunities are at this time. People want and need to know they have some kind of financial haven available to them. You provide that and you need to advertise and get the word that out that that is exactly what you are doing. You can extend credit, you can help, you can be the business stepping forward with a hand of assistance. If there has ever been a time for you to show your stuff, for you to grow, this is that time.