Millions of investors are soon going to learn about the markets the hard way… through giant losses.
Why? Because they’re confusing normal times with abnormal times. Especially when it comes to interest rates. Let me explain.
In normal times, rising interest rates and Fed credit tightening would yes, be largely bearish for commodities and most times, bearish for stocks as well.
But these aren’t normal times. We’re coming out of the lowest interest rates in the history of the country. A period that was fraught with financial failures, even the near total collapse of the monetary system, and a period where the Fed deliberately kept interest rates at record lows.
Thing is, most investors are not making the appropriate distinction between normal times and what our country has been through … and is still going through.
Instead, they’re just knee-jerk reacting to old rules of thumb, claiming that as interest rates rise further, which they will, stocks and commodities will get killed. But based on all of my research and long-term indicators, that’s dead wrong.
Why? Because this new rise in interest rates, occurring during abnormal times, is going to be precisely the opposite. Instead of being bearish, it’s going to be resoundingly bullish for a lot of markets.
A little simple logic explains why.
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First, rates were at record lows because almost nobody wanted to borrow. The demand for credit simply wasn’t there.
So as rates and the cost of money and credit begins to finally rise, guess what happens? Demand goes up too.
All the potential homeowners out there and businesses looking to borrow will want to suddenly borrow again, before interest rates go any higher. And that in turn will stoke all sorts of demand, from housing and commodities, to corporate earnings and the stock market
Second, interest rates are way below the current rate of the ‘true’ rate of inflation, which some analysts measure as running as high as 8%.
In other words, we would need rates to move higher than the true rate of inflation — higher than 8% — to negatively impact any markets. Until that point comes, if at all, rising interest rates will actually become fuel for higher prices.
Third, there will come a time — in the not-too-distant future — when our foreign creditors start to sell U.S. sovereign debt as they lose confidence in the government’s ability to manage its affairs.
The resulting rise in interest rates will be very bullish for most markets, especially as money leaves the bond market in droves and seeks out alternative investments for appreciation and safety.
So you see, right now millions of investors are unnecessarily worried about rising interest rates.
But as I said at the outset, these are abnormal times. So you simply can’t apply the old rules.
You have to think out of the box, or you’ll get buried in the box with a whole lot of losses and missed opportunities. And that’s not what I want for you.
Bottom line: Do not fear a new round of rising interest rates. They could prove to be one of the most bullish forces every for stocks, commodities and real estate.
All the best,
Larry Edelson is the instructor of the “Ultimate Gold and Silver Trading Course” and editor of the Weiss “Real Wealth Report,” “Super Cycle Trader,” and “Gold & Silver Trader.” In addition to overseeing these three premium services he also contributes to the Weiss’ daily “Money and Markets.”