What Wall Street and the Media Don't Get About Interest Rates Could Make You a Fortune

Yesterday we got the chance to talk about some stocks that have an extra edge with prevailing interest rate conditions like we have right now.

And unless you've been on the far side of the moon all week, you know that those interest rates have been foremost on investors' minds; it's practically all you hear about in the mainstream financial media right now.

But for reasons I alluded to yesterday, the media's not necessarily telling you the whole truth about what's happening.

And they're certainly not telling you how this is a golden opportunity in disguise...[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]

This Fundamental Relationship Has Changed

The yield curve - meaning the difference between short-term rates and long-term rates - has historically been viewed as a barometer for gauging the relative strength or weakness of our economy.

Then last week, we saw the 10-year yield top the two-year rate by three basis points, which gives us a condition called an "inverted yield curve."

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It happens every so often, when short-term rates become higher than long-term rates, and it happens because investors and traders put a premium on safety over opportunity.

You'll hear that inverted yield curves are recessionary harbingers because they have preceded every recession over the past 40 years. And right now, that makes sense against the backdrop of slowing economic growth, geopolitical chaos, the U.S.-China trade conflict, and aggressive central bank action around the world.

However, I think there's a good case to be made that the relationship between interest rates and the economy - as far as Wall Street and the media understand it - is broken.

As I see it, the primary reason traders are seeking "safety" over growth is due to economic conditions outside U.S. markets:

  • Widespread protests and disruption in Hong Kong - a global financial and trade command center.
  • A shocking political upset, a 48%-plus stock market crash, and a default threat in the "800-lb. gorilla of emerging markets," Argentina.
  • And a third year of Brexit chaos and uncertainty between the United Kingdom and the European Union, which together account for more than $19 trillion of the global economy.

But these are simply incremental developments at a time when the underlying forces that have driven the rally are still there - technology, profits, and opportunity.

What's more, there are roughly $15 trillion of assets "offering" a negative yield in play around the world, which means that spillover from global investors is artificially compressing 10-year U.S. Treasury yields.

This isn't to say things will be different this time, but the practical impact is that this dampens the expected Fed rate cuts which, in turn, makes the possibility of a recession appear higher, at least according to conventional academic models. In other words, the Bank of Japan, the European Central Bank, and the U.S. Treasury all control so much money that they've essentially hammered rates.

The Fed futures model, incidentally, is pricing in a 32% probability of a recession. If you're a "glass is half full" person, like me, you can see that means more than two out of three possible futures don't include an economic downturn.

Investors tend to forget that the economy doesn't have an "on/off" switch. It can take anywhere from 11 to 36 months for a recession to surface - if there's going to be one.

So here's what I want you to do right now...

How to Beat the Markets, the Fed, and Everybody Else

Stock market bears will try to shame you into selling stocks, even though the Fed wants you to buy and the world's best companies are still growing. Asking a perma-bear what to do is like asking a guy with scissors if you need a haircut.

As we saw yesterday, lower rates have historically been good for stocks.

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I still believe we're going to end the year higher and that things will calm down a lot sooner than most investors expect. I know it's tempting to wait, but the risk there is getting left behind when the next leg up starts.

Especially when it comes to service-based big tech stocks like the ones I've recommended for my paid subscribers in the Money Map Report. These companies have lower foreign input costs - a fancy way of saying they're less likely to feel the impact of trade-related fears - and higher incremental profit margins.

Incidentally, Goldman Sachs Group Inc. (NYSE: GS) just seconded my opinion, noting that services stocks have outperformed goods providers by 530 basis points in 2019 - that's 5.38% in plain English.

We've been talking about Apple Inc. (NASDAQ: AAPL) for a while now and, to a point I made months ago, about how that stock would explode when tariffs come off the table. It jumped more than 4%, or $9 per share, when news broke that tariffs on cell phones and laptops will be delayed until December.

And I think defense stocks are going to get a real boost in the weeks ahead if things don't calm down in Hong Kong. My favorite, as I mentioned this weekend, is Raytheon Co. (NYSE: RTN) because of its commanding position in missile defense, but I've also mentioned defense firms like Leonardo SpA (OTCMKTS: FINMY) for their technological edge, as well. Another one of my defense recommendations for paid subscribers to the Money Map Report has just started to move.

Robert Herjavec: Indisputable Proof That Anybody Can Get Rich Through Angel Investing

When Neil Patel launched the Angels & Entrepreneurs Summit, he had only planned to invite a small group of guests to join him and guest "shark" Robert Herjavec... but then Neil revealed something truly shocking.

During this clip (about halfway through the event), he reveals indisputable proof that anybody can transform their life through angel investing.

We knew we had to show this event to everyone - the information is just too valuable to keep under wraps.

You owe it to yourself to watch this right now.

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About the Author

Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

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