No Rush to Raise Interest Rates

by: Ian Cooper

Retailers are on the up and up, as many reported double-digit growth in same store sales and others raised earnings guidance, thanks to stronger results.

Target's (NYSE:TGT) same store sales were up 10.3%, bettering forecasts for 7.8%. They even said Q1 EPS would exceed consensus estimates of 74 cents by 10 cents or more.

Kohl's (NYSE:KSS) same store sales shot up nicely, coming in at 22.5% — well ahead of 12.4% estimates. They, too, boosted Q1 EPS guidance from a 48 to 52-cent range to a 55 to 57-cent range.

Even TJX Companies (NYSE:TJX) had great news, raising Q1 EPS guidance from a 60 to 65-cent range to a 76 to 79-cent range; the retailer posted a 12% jump in March same store sales.

And while there are many more retail success stories, will the trend continue? And will it extend to other markets, including real estate?

We'll just have to wait and see, because, as Bernanke pointed out,

We are far from being out of the woods... We have yet to see evidence of a sustained recovery in the housing market. Mortgage delinquencies for both subprime and prime loans continue to rise as do foreclosures. The commercial real estate sector remains troubled, which is a concern for communities and for banks holding commercial real estate loans.

Consumers must still contend with:

  • Mortgage rates jumping from about 5% to 5.3%, which could price would-be homeowners out of the market — a possible threat to this recovery. With some believing rates could go as high as 6%, it could slow our economic rebound.

  • Bernanke warning that we may have to accept higher taxes or changes in programs — such as Medicare and Social Security — if we are to deal with budget deficits that could choke economic growth.

  • Reports from the Irvine Housing blog: "Bank of America, which currently forecloses on 7,500 homes a month nationally, will increase that number to 45,000 per month by December of 2010." That's a 600% increase. While the numbers haven't been confirmed by us, if true, this is wishful thinking. (Even if they foreclose 45,000 homes a month, that's only 540,000 foreclosures. What about the other 660,000 people in default?)

  • CNBC saying that foreclosures are coming. "We won't get the [foreclosure] numbers until next week, but sources tell me they will likely be a new monthly record. Tens of thousands of loans have been hitting the 'notice of trustee sale' bin, and that means they are coming to foreclosure." The actual foreclosure numbers have been down recently because of all the modification efforts, but as we see more loans not qualifying for modifications and more loans defaulting on modifications, the foreclosure numbers rise.

There is some good news too, and opportunity to profit from the silver lining of the next coming bubble, foreclosures, and emerging growth markets in other countries around the globe,