My Theory on Interest Rates and Why They Won’t Fall Much
Thursday, May 17th, 2007
By Michael Lombardi, MBA for Profit Confidential
You’d think that with the U.S. housing market in the doldrums, the U.S. economy slowing down, and the stock market rallying like it expects shrinking interest rates ahead, falling rates is exactly what we’d get. Unfortunately, I believe the Fed has its hands tied when it comes to interest rates.
I don’t believe interest rates in the U.S. will fall much, if at all, in the near term simply because the remainder of the world is booming and the U.S. isn’t. GDP in the 13 countries that make up the Euro zone rose 3.1% in the first quarter of this year, higher than analysts had expected, and likely resulting in an interest rate hike soon to cool the economy.
If interest rates are rising in Britain and in Europe, how can the U.S. cut its interest rates and risk a collapsing U.S. dollar? It won’t.
Every country wants a lower priced currency compared to the rest of the world. But, as I’ve written before, the decline in value of the U.S. dollar against other world currencies needs to be gradual so as to not scare foreign buyers of U.S. bonds. The Canadian dollar is now at a 29-year high against the U.S. greenback.
We will not see shrinking interest rates in the U.S. while interest rates in Europe keep rising.
NEWSFLASH — U.S. gasoline prices hit a record earlier this week, hitting $3.10 a gallon on Monday. Higher gas prices and a weaker U.S. dollar that doesn’t buy you much in Europe will keep American tourists close to home this year. This may be the year we get more foreigners visiting the U.S. than Americans visiting foreign countries.
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Tags: euro, GDP, U.S. bonds, U.S. dollar
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
