By Rick Glaze

A revered market pundit once said that it’s not the level of the interest rate that matters, it’s the direction.

He meant that it didn’t matter so much if rates were at 12 percent or 6 percent but whether they were rising or falling and where they would be next. Well, just between you and me, it does matter whether they are at 12 percent or 6 percent if you are getting a mortgage or financing a remodel or business inventory.

But there is some veracity to the expert’s idea about direction. As I have discussed in previous columns, the Federal Reserve is responsible for managing the country’s financial system.

The big question that market players have is, will the Fed keep raising rates and when will the direction change? It’s an important question for market professionals as well as individual stockholders, 401(k) participants and mutual-fund holders. Stocks have run up in the past after the Fed stopped a cycle of raising rates. For example, in 1995 the stock market had a significant move higher after a shift in direction from the Fed.

Rate hikes are used to slow the economy and curb inflation, as discussed here last week. But economic activity is mixed, so the Fed’s next move is widely discussed but unknown at this time. For example, employment figures have been very strong but retail sales were reported tepid last week.

As rates rise, some argue that bonds will pay interest high enough to siphon money from the stock market, but many others think bonds are not competitive with stocks for longer-term investments as long as they remain below 8-10 percent.

Rick Glaze is president of Glaze Capital Management of Los Altos and a registered representative of and offers securities through First Allied Securities Inc. For more information, call 934-0920.