Place your bets

Another drab day in paradise for those in debt, with the Reserve Bank pushing up the cash rate of interest by a quarter of a per cent to 6.25%. And it's only a matter of time before the pack of banks follow with the bad news for home loan borrowers who 'own' a mortgage.

The spin cycle
Of course we 'own' a house, but when its repayments become increasingly more expensive, a home's identity is consumed by the blasted mortgage!

And what makes it worse is when the jackals in the media start howling that another rise might be on the way! You have to hope they are wrong, and the best chance of relief for those in debt will be the next round of inflation figures for the December quarter.
These numbers will come in the New Year and, in the spirit of the Cup, I bet that there will be no more interest rate rises before Christmas.

Here come the facts
A lot of Reserve Bank experts tell us that central bankers are famous - or maybe infamous - for over-tightening when it comes to raising interest rates. I reckon we're now in the over-tightening stage and will see some economic grief to prove it around the festive period as higher interest charges effectively 'scrooge' Christmas retail sales.

To understand why, take a look at the following:
•nbsp;This is the third rise of 0.25% in seven months and it hurts the over-borrowed.
•nbsp;Renters will feel it next as landlords try to pass on the increasing interest rates. CommSec says rents are already rising at the fastest pace in 15 years and as the interest rate rise scares off new homebuyers, the stock of renters will increase relative to properties and that pushes rents up.
•nbsp;Repayments on the average home loan of $221,200 are likely to rise by $35.20 a month in response to the decision to lift the cash rate.
•nbsp;That means the average home borrower is $100 a month worse off. However, this is only an average figure and it means there are plenty of people with loans well over $221,200. This group are big spenders and they will now be spending a whole lot more on keeping their bankers happy.

The good news is that CommSec believes this is the last interest rate hike in the cycle. "The next move in interest rates could very well be a rate cut, but probably not until mid 2007," said economist Craig James.

So, what does this mean for us going forward?

A look into the crystal ball
I believe this is the last interest rate rise because the country's biggest state - New South Wales - is struggling close to recession and this latest rise will tip the state close to big slump.

For the moment, I think company profits can stand the pressure from rising interest rates, but it will slow down the upward rise on share prices. Overseas influences will still have a positive impact, but keeping a close eye on the US stock market and economy is even more important now.

The Yanks are skating close to their all-time stock market highs and history suggests that markets do head up after hitting through milepost highs that have not been seen in a long time.

However, wages are rising in the US and this could spark wage inflation, which eats into the profits of companies. And it is these profits that drive share prices - in both directions!

Are the good times over?
Two years ago when people asked me about the direction of the stock market, I was very confident that it was up and that good stocks would bring great results.

Where am I now? Cautiously positive is the best answer, but I am looking very carefully at the economic entrails to see a key sign that might make me pull out the warning bell.

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