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195 comments on DrumBeat: July 17, 2007

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Darwinian on July 17, 2007 - 3:02pm

dVincent, what you say is often true but it is the exception rather than the rule. That is, the market will often move up despite rising interest rates. When this happens there is usually something else, something very bullish moving stocks.

Traders watch interest rates like rabbits watching a hawk. Witness the market everytime the Fed raises or lowers interest rates. When the announcement is made, sudden spikes usually mark his decision.

The stock market just loves low interest rates. This means credit is very easy to get meaning people will be buying houses, cars and all kinds of stuff. But if money gets tight, the housing market drops off, profits drop off and the market will plunge.

But of course all these things take time. In the short run, anything might happen. But in the long run, stocks and interest rates move in opposite directions.

Again, the market can move up in the face of rising interest rates but it does this despite the rising rates and not because of them. And if interest rates continue to rise this will eventually have a devestating effect on the market.

Ron Patteson

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jbunt on July 17, 2007 - 3:11pm

jbunt

Well, for every 100 people there are 100 theories. Mine is: If there is no cost for money, i.e., a zero interest rate, you will eventually get deflation. This is because it costs a business zero to borrow and expand. So, overcapacity of all material things occurs. See, e.g., Japan for the last 15 years.

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dVincent on July 17, 2007 - 4:11pm

Ron-
I agree, and am afraid rates will continue to rise despite all MSM market gurus that expect rates to fall. We are in the early innings of a structural shift away from high investment flows into financial assets and little into hard assets (rig construction, mine expansion, etc.) The cycle historically continues for over a decade and is accompanied with higher interest rates. This time it is likely to be the end game.

Regarding your comment on the next OPEC meeting (Sept) ... the call has gone out for more crude (IEA) and the backwardation of the oil curve expecting more crude from OPEC, what a meeting that will be!

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