Will Rising Interest Rates End the Bull Market?
When you hear people on CNBC talking about rising interest rates, this bond is really what they’re talking about.
In July of 2016, the 10-year’s interest rate was 1.36%, an all-time historic low. This week, the same 10-year note pays an interest rate of double that amount, or 2.85%.
So the cost of borrowing money — for the government, for consumers, for companies — is going up. If we’re spending more money paying higher interest rates, it means we can’t spend quite as much money on everything else, like new cars or houses.
I’ll show you one more example.
In recent years, the interest rate for carrying a credit card balance was around 14%. But in recent quarters it’s crept up to 15%, then 16%.
Each percentage point means it costs more and more to carry a balance, or finance yet another purchase. At some point, people cut back; they don’t splurge on financing a new TV, the cruise vacation or a fancy restaurant dinner.
That has an impact on the economy. If that’s the case, then the longer-term concern is that the broader stock market might be too overvalued.
What if the economy is burdened by too much debt to support real economic growth?
If that’s the case, then the Federal Reserve will soon have to at least talk about NOT raising interest rates — or not raising them as much as planned.
If we read anything like that, gold stocks are going to take off like a rocket.
I like to think of myself as a former financial journalist who not only interviewed many of the world’s top stock market experts, entrepreneurs and financiers, but also took their advice to heart in becoming a successful investor himself.