Market Wrap - Week Ending Friday 9th Nov 07

By Jason Fittler

Last week was interesting indeed, Telstra shareholders voted down any pay increase to the executives that said they went ahead with it anyway. Wesfarmers shares holders sold down the stock showing their disappointment over Wesfarmers retaining a number of managers from Coles and BHP put forward their bold plan to take over RIO. This will be a long running and hostile affair. This is a $350 Billion takeover and will have a number of ups and downs along the way. On Friday RIO closed up 15%, even though they have rejected the initial BHP bid, the first of many I expect.

The other news last week was interest rates; the official cash rate has been moved up .25% to 6.75%. This was done merely weeks before a election, since 1901 (which is far as the records go) we have never seen the RBA increase interest rates this close to an election. John Howard has been hounded by the media to apologise for the level of interest rates. But should he? Let's take a closer look below.

Interest%20Rates.gifThe chart is of the official cash rate over the last 30 years, the last 10 of which have been under John Howard. Are interest rates high? Clearly not as high as they have been in the past, overall you would have to say since 2001 we have had a great time living with low interest rates. Yes rates are raising now but historically they are still very low. So what is the problem?

In one word “Debt”, our spending patterns have changed and now the average house hold owes more money then ever before. This has to change; the only way to achieve this is to increase interest rates until people stop spending. Personally I think there will be a few more interest rate raises before people get the message.

If you want to be ahead of the curve, start reducing your debt levels now. Look at your spending habits and focus on using some of that surplus cash to pay down debts. By doing this you will in a strong financial position moving into this period of interest rate hikes and not one of the many who will go bankrupt.

Until next week.
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