November 17, 2008

It's a Matter of Confidence

By Bruce Six, Senior Vice President - ALM

No matter what any of us does in life, we need to be confident that our ability is sufficient to have a chance to achieve a positive outcome. The economy is very much a slave to the amount of confidence consumers and businesses have in their ability to achieve their goals and service their debt levels.

At the bottom of this page is a chart with the historical consumer confidence in the United States for the past ten years. The obvious message is that consumers are now more negative than they have been for the entire prior periods. Our confidence is lower than it was after September 11, 2001 and much lower than it was after the technology stock bubble burst in 2000. Since confidence is a matter of perception, it is possible that the United States will see a swift recovery, which will be reflected in these numbers in the future, but as of now that would seem a remote possibility.

As the budget process is completed credit unions need to consider where interest rates will be in 2009. With confidence down and the yield curve anticipating lower rates in the intermediate term, this could be a good opportunity to lock in some stability in the investment portfolio by purchasing non-callable investments with maturity dates at least 9-months in the future. The strategy will be to lock in yield now and position the maturity to take advantage of rates as they begin to rise. Will rates be rising in 9 to 12 months? We don’t know where rates will go but the safe bet seems to be that rates will be lower over the next six months. With confidence down, locking in now will help the balance sheet remain strong until the economic recovery begins.