I read hundreds of financial articles every week and most are nothing more than “financial entertainment” – unfounded forecasts, fear mongering or cheer-leading. That being said, there are a number of articles that are absolutely MUST READS if you are to become an informed investor and be in position to understand what is evolving in the financial environment and act accordingly. Introductory paragraphs and links to a number of them are provided in this post.
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Investors commonly assume that rising interest rates adversely impact the gold price, and vice versa. They believe that a rising interest rate environment is indicative of a strong economy, which is supposed to drive investors out of gold and into the stock market. They further assume that investors will want to exchange their gold, which has no yield, for stocks and bonds, both of which have yields and generate income but this intuition is unfounded. Let me explain why that is the case ans why, as such, gold investors shouldn’t fear rising interest rates. Read More »
Though the stock, bond and currency markets, at the moment, are preoccupied with the question of when the first interest-rate increase will happen, the real story lies in where interest rates are ultimately headed because that answer defines where stock, bond and currency prices are ultimately headed and the reality, dear reader, is that the Fed simply cannot — and will not — allow interest rates to crawl very high. Why is that you ask? Read on! Read More »
Events and conditions do not make investors behave in any particular way that can be identified as shown in this analysis of the supposed relationship between interest rates and stock prices. So much for the popular claim that “Interest rates drive stock prices”! Read More »
To understand how the stock market behaves it is imperative to realize that the stock market is overwhelmingly influenced by interest rates. It’s difficult to overstate this key fact. Interest rates are the bone and marrow of the stock market. More specifically, the stock market is ruled by long-term and short-term interest rates creating an overriding framework for what drives the market in which different sectors do better or worse at different points in the economic cycle. This article explains the behavior more fully. Read More »
4 economic conditions need to be in place for interest rates to rise ahead of – and independent of – the Fed’s forward guidance. The economy met only one of those conditions to date but will likely meet all four by the end of the year…What follows is a status report on the four conditions. Read More »
Everyone and their mom is expecting long-term interest rates to rise now that the Fed is tapering its bond buying programs. I have a couple of problems with this line of thinking because, although it seems like reducing demand for a security (i.e. tapering QE) would result in a drop in price, when you really think about how quantitative easing works this makes no sense and, secondly, the market is telling us this makes no sense. Let me explain. Read More »
The belief is that rising interest rates (as is currently occurring) are a sign that the economy is improving as activity is pushing borrowing rates higher. In turn, as investors, this bodes well for corporate profitability which supports the current valuations of stocks in the market. While this seems completely logical the question is whether, or not, this is really the case? Read More »
History clearly shows that stocks don’t fall during periods of rising interest rates. Sure, they might fall a little when a rate hike is announced – maybe for a week or so – but they usually bounce back quickly – and then they go higher. Read More »
After a long period of very low interest rates following the global financial crisis the central banks of the U.S. and U.K. are planning to gradually tighten their easy monetary policies as their economies improve. When their benchmark interest rates go up, interest rates elsewhere will go up to so should we worry if and when global financial conditions tighten? Read More »
With all of the things in the world to worry about, how much should we worry about a sudden sharp increase in UST yields? The short answer is not much and here is why. Read More »
It is my contention that the price of gold rallies whenever the U.S. dollar’s real short-term interest rate is below 2%, falls whenever the real short rate is above 2%, and holds steady at the equilibrium rate of 2%. Let me explain. Read More »