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Dear Mr. Berko:

Dear R.W.:

I think interest rates are headed much higher. I’m not a Bible aficionado, but I acknowledge the timeless wisdom in some of those pages written centuries ago. Specifically, Sirach 18:33: “Be not made a beggar by feasting on borrowed money, when you have nothing in your purse.” Will Shakespeare could not have said it better. But that’s just what the administration of President Barack Obama seems to be doing.

Flooding the economy with trillions of borrowed dollars to spend ourselves back to prosperity makes no more sense than giving $1 million to a confirmed street bum so he can clean up and find a job. The awesome purchasing power of those thousands of millions of borrowed $100 bills may create an inflationary spiral worse than the 11 percent to 14 percent rates we had during the savings and loan crisis between 1979 and 1982, when money market accounts were paying 21 percent. And paying back those trillions of dollars of borrowed money will be a task more brutal than cleaning the Augean stables, the fifth labor of Hercules.

Timing has a lot to do with the outcome of a rain dance, and experience tells me that it’s not time to begin buying long-term bonds. Good judgment comes from experience, and a lot of that comes from bad judgment. So stay short-term, six to nine months, and be satisfied with the 2 percent to 3 percent short-term paper I’ve recommended. I think you can begin buying higher-yielding, bank-quality bonds in about 18 months.

Yep, the market looks like it’s headed back up. However, I think the recent bullish market activity could be a false positive. Some traders call it a “bear trap.” As I told an audience in March, I’m waiting for the other shoe to drop before I become a bull market enthusiast. That shoe is the commercial real estate market, which will shortly enter crisis mode.

Because I do a fair amount of speaking across the country, I’ve noticed that there is a huge amount of commercial real estate (office buildings, retail properties and hotels) begging for occupants. The delinquency rate on the approximate $810 billion of securitized commercial real estate loans backed by these properties is frightfully high. According to a well-connected Treasury Department insider, if the economy fails to turn around in the next four to seven months, the banking system could experience about “$300 billion in commercial real estate losses.”

General Growth Properties Inc. (GGP-$1.05), which traded in the high $60s and has a portfolio of more than 200 shopping malls, has filed for bankruptcy. Meanwhile, lenders recently foreclosed on Boston’s prestigious John Hancock Tower.

These are two very visible examples of our commercial real estate problem, where values have fallen 25 percent in the past 12 months. Look around your city. It doesn’t take a genius to spot a goat in a herd of cattle.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service