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Originally posted by: MIKEY7777
INTEREST RATES......doesn't matter who wins, if the Obama loving fed reserve raises them, stocks will fall!
MIKEY7777 is precisely correct.
A major factor in the current "elevated" stock prices is the search for a reasonable return on investors' money in the face of the low interest rates set by the US Central Bank.
[Interest rates] “act on financial valuations the way gravity acts on matter: The higher the rate, the greater the downward pull. That's because the rates of return that investors need from any kind of investment are directly tied to the risk-free rate that they can earn from government securities. So if the government rate rises, the prices of all other investments must adjust downward, to a level that brings their expected rates of return into line. Conversely, if government interest rates fall, the move pushes the prices of all other investments upward.”
__Warren Buffett
Tap Dancing to Work by Carol J. Loomis
The markets are not responding to market forces, but to investors seeking a return determined by the Central Bank.
Worldwide the Central Banks are trying to stir their economies by stimulating "real" investment, like capital goods or starting a business, by setting interest rates low. But such investors are not sufficiently optimistic so they had been parking their cash in "safe" bonds, . . . until interest rates got so low that they switched to stocks. And stock valuations are now higher than the norm.
The Central Banks are in a pickle. Some Central Banks, e.g. Japan and Germany, are issuing negative interest rate bonds; i.e. investors would do better by placing cash in their mattresses.
What to do ? What to do ?
DonDiego supposes eventually markets will be restored and the investment world will regain sanity. But the transition could be volatile, . . . and painful, . . . and dangerous.
Think Major World Depression, . .. except, unlike the 1930's, with Islamic Terrorists and nuclear weapons.
Europe will almost certainly precede the US into any such unpleasantness, . . . but knowing what's coming might not make a difference. DonDiego suggests the prudent investor do what he can to protect himself.
