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Everyone – from the suits on Wall Street and the pundits on television to individual retail investors – is talking about the U.S. Federal Reserve raising interest rates for the first time since 2006 – and what's going to happen to stocks, bonds, and commodities here in the United States.
There's a lot of noise out there, and it's difficult to separate the valuable, useful information from the nonsense.
Today, I'm going to tell you exactly what's going to happen with the Fed rate hike and what it's going to do to stocks, bonds, and commodities.
But there's a hidden impact to the Fed's impending interest rate hike that people aren't talking about. I'll tell you about that, too.
And, of course, I'll show you what you can do to protect yourself – and make money from what everyone else is so afraid of.
Here's what's happening…
The New "Normalization"
First of all, the Fed isn't going to raise rates by very much or for very long when they eventually lead us back to "normalization."
What does the Fed mean when it talks about normalization? They mean raising interest rates to where they might naturally be if we actually had a free market.
But we don't have a free market – not here in the United States and not globally.
That's because central banks have almost completely hijacked the free-functioning market that determines interest rate levels.
Left on their own, interest rates move up and down based on the supply and demand for money, credit, and loans.
It's that simple.
With a limited amount of money in a financial system and a high demand for money, lenders will charge borrowers more because they can, so interest rates will rise.
If there's not much demand for money, lenders will lower the interest they charge borrowers to entice them to borrow – otherwise they don't earn anything.
During the financial crisis and the subsequent Great Recession, the Fed pushed down interest rates to stimulate borrowing and consumption. But there still wasn't demand.
Then, under the guise of lowering rates more (which is hard to do when they're at zero) to stimulate the economy, the Fed began quantitative easing, buying bonds from banks to flush them with cash.
But here's the rub…
There still wasn't demand for money throughout the economy. However, well-off individuals, institutions, and corporations could borrow as much money as they wanted at rock-bottom rates, and they did.
But because the economy wasn't growing and there was no need for capital expenditures on plant and equipment, or any desire to start or expand businesses, massive amounts of cash got parked in financial assets like stocks and bonds.
Hence the country's great stock and bond market rallies in the face of stagnant economic growth.
Now the Fed's talking about normalizing rates.
But they can't normalize rates for several reasons…
Why a Fed Rate Hike Won't Fix This Mess
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About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.