Tom Stieghorst
Tom Stieghorst

InsightLow interest rates are generally seen as a good thing for business, but one cruise executive isn't so sure.


Frank DelRio, chairman of Prestige Cruise Holdings, recently expressed some worry about the effect that a long stretch of super-low rates is having on the demand for luxury cruises.
Rates have been at historically low levels since the Wall Street meltdown four years ago. The Federal Reserve has kept interbank lending rates at nearly zero, and the yield on the 10-year Treasury note is about 1.63%.
For potential buyers of luxury cruises, that's a pretty paltry return. Fixed income investments aren't throwing off nearly as much disposable income as in the past, and that makes a difference.
For customers, it may be they take one cruise a year instead of two, or a shorter cruise instead of a longer one. For cruise lines, it is just another headwind making it hard to raise prices.
There isn't much hope on the horizon. The Federal Reserve has vowed to keep rates low at least through 2015, baking low rates into the economy as a semi-permanent condition.
One alternative is the stock market, but many financial advisors would be wary of the risk for clients in their 60s and 70s if they put too many assets in such a volatile investment category.
There's another reason to avoid fixed income assets like bonds. When interest rates finally do start to rise, the value of existing bonds is going to drop. Many advisers warn that despite a good total return on bonds for the past few years, the outlook for further price appreciation is poor.
All of which casts doubt on a time-honored truism: that the industry will go through a Golden Age as the baby-boom generation retires and turns to cruising for vacations.
If boomers invest in bonds, as older savers are generally encouraged to do, they face poor yields and potentially demoralizing capital losses. If they park their retirement money in stocks, it could be equally calamitous.
Either way, conservative planners are counseling boomers to save more and spend less. Advice like that is hardly going to ignite a boom in cruise demand anytime soon.

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