The Federal Reserve Board has now raised interest rates three times, moving short term rates higher by 0.75% and predictions are that they will raise them another 0.50% by the end of this year. In theory, this means that all interest rates should be rising. The problem is that they are not, due to three reasons:
- U.S. interest rates are higher than any other developed country
- Federal Reserve Board
- High stock prices
Interest Rates Aren’t Rising
The 10 Year and 30 Year Bonds are at a lower rate now than they were at the end of 2016, despite two rate increases. Investors in other countries are buying U.S. debt because they can make more than in their own countries. The more demand there is for the bonds, the higher the price and lower the yield.
The Security of the Federal Reserve Board
The Federal Reserve Board has about $4.5 Trillion in bonds and mortgage backed securities, up from about $1.0 Trillion prior to The Great Recession. Their continued buying is artificially keeping bond prices high, thus resulting in lower rates. Sources believe that the Board will shrink their balance sheet later this year, but there has been no confirmation, yet.
Don’t Buy High
High stock prices and low but rising interest rates make for a challenging investing environment. I continue to avoid high priced stocks as I don’t like the philosophy of “buy high and hope you can sell higher”. Most often, I’m looking at companies whose stock price has fallen due to a short-term but fixable company issue, or good companies in an industry that is currently out of favor on Wall Street. I am holding more cash than usual in some accounts in order to be in position to take advantage of these situations when they occur.
Be Safe and Secure with Daniel Investments
The burden of finances can be be a game of chess at times, but Daniel Investments is here to guide your next move. Take the first step to financial safety and freedom, schedule a consultation with Daniel Investments and be on the right path to your financial goals.