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Sterling Weekly for the Week of December 14th, 2009
A Look at When Interest Rates May Start to Rise.

Since the previous edition of the Sterling Weekly, the Dow Jones Industrial Average rose 82.60 points to finish the week at 10,471.50 In looking at this week's upcoming economic calendar I noticed that we have the Producer Price Index 'PPI' and the Fed Open Market Committee on Tuesday, and the Consumer Price Index 'CPI' on Wednesday. It brought up thoughts of interest rates and inflation, with the big question being when will the Fed begin raising interest rates?

In thinking about that question and reading the year over year numbers for the previous PPI report I felt it was important to remember that starting in the 4th quarter of 2008 and continuing through the 2nd quarter of 2009 the economy and market contracted severely. Right now the trailing 12 month numbers look rather subdued due to the market contractions that occurred during the last quarter of 2008 and the 1st two quarters of 2009. However once we move through the 2nd quarter of 2010 the trailing 12 month comparisons could very easily start to show rising inflation numbers, prompting the Fed to raise rates. So we could start to see rising interest rates in late 2010 under that scenario.

The next question is once interest rates begin to rise, what effect with that have on the economy? Well, I can think of three (3) obvious answers. The 1st being that rising interest rates will hurt the housing market by reducing the affordability of the average house. The 2nd being that rising interest rates will slow the economy. That is an Econ 101 given fact. The 3rd being that rising interest rates will increase the interest rate on the Federal Debt, that will further increase the Federal Deficit, further putting pressure on the US's credit rating.

Can the Fed resist increasing interest rates? While there is surely a lot of debate on that last question, in the longer term the market sets the rates. What about in the shorter term? My thoughts are that as the other industrialized nations see their economies recover their rates will rise and those competitive pressures in the international finance markets will ultimately cause our rates to rise. When will this happen?? I am not sure, but my guess would be in 24 months or less. How high could our interest rates rise? Well, I would not be surprised to see the Fed Funds Rate rise to the 3% level by the end of 2010, and that is assuming inflation remains tame. If inflation jumps to the 6-8% range then we could Fed Funds in the 7.25% to the 9.25% range.


Sterling Calendars for the Week of December 14th, 2009
Economic Calendar
Date Est. Time Release

For

Consensus Prior
12/15 8:30am Core PPI Nov. 0.2% (0.6%)
12/15 8:30am PPI Nov. 0.8% 0.3%
12/15 8:30am Empire Manufacturing Dec. 24.00 23.51
12/15 9:00am Net Long Term TIC Flows Oct. $42.3B $40.7B
12/15 9:15am Capacity Utilization Nov. 71.1% 70.7%
12/15 9:15am Industrial Production Nov. 0.5% 0.1%
12/16 8:30am Building Permits Nov. 570K 552K
12/16 8:30am Housing Starts Nov. 578K 523K
12/16 8:30am Core CPI Nov. 0.1% 0.3%
12/16 8:30am CPI Nov. 0.1% 0.3%
12/16 10:30am Crude Inventories 12/11 N/A (3.82M)
12/16 2:15pm FOMC Rate Decision 12/16 0.25% 0.25%
12/17 8:30am Initial Claims 12/12 465K 474K
12/17 8:30am Continuing Claims 12/05 5,170K 5,157K
12/17 10:00am Leading Indicators Nov. 0.7% 0.3%
12/17 10:00am Philadelphia Fed. Dec. 16.0 16.7

Prime Update:

The Prime Stock Newsletter is our daily newsletter that contains commentary on the overall market, and our single best trading idea for the day! (Both Long & Short Sale Recommendations) We select this stock through a combination of technical (charting) and fundamental (financial) analysis. The Prime Stock Newsletter provides select expanded quotation information, corporate description, select recent company news, our technical analysis of the shares and our expectations, and our options recommendation for the company.

Our most recent Performance Report is now available available (here). We are proud to report 16 of our last 20 recommendation resulted in profitable trades for an average profit of $0.67/share. This is an 80% success rate.

Archived copies of our Performance Reports can be found (here).

Highlights from Recent (20) Editions of the Prime Stock Newsletter
Recommendation Date Entry Point Recent Close or Exit Price Profit* Note
Ingersoll-Rand 'IR' Nov 13 $36.03 $37.60 $1.57 Sold on the 16th
Rockwell Auto 'ROK' Nov 17 $45.18 $46.72 $1.54 Sold on the 18th
Murphy Oil 'MUR' short Dec 8 $54.46 $52.55 $1.91 Covered on the 9th
Southwestern Energy 'SWN' short Dec 9 $41.77 $39.76 $2.01 Covered on the 9th

* Our September 29th recommendation of Direct TV 'DTV' @ $27.28/share, set a new yearly closing high of $33.00/share on Friday.

Our November 16th recommendation of Terra Industries 'TRA' @ $37.74/share, set a new yearly closing high of $43.12/share on December 10th.

* The per share PROFIT is a theoretical calculation based upon the opening price the day the recommendation is published and the intra day high (or low for short sales) on the exit day. The exit day is determined based upon the application of our "Rules for Trading", the implementation of "stops" within our stated policy, and may not reflect the complete or full movement of the underlying recommendation.

 

Disclaimer: The Sterling Investments series of newsletters is produced by Sterling Investment Services, Inc. All information used in the production has been obtained from sources believed to be reliable and accurate. Sterling Investment Services does not warrant or assume any liability for inaccuracy of the information used to produce our publications. To receive further information on these services please visit our web page at: www.sterlinginvestments.com If you would like to contact us our fax # is (404)-816-8830 Email address is: enelson@sterlinginvestments.com Sterling Investment Services may hold positions in the securities recommended or may be providing consulting services to the companies mentioned within this report.
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