Friday, May 31, 2013

Consumer sentiment

A note regarding interest rates and the stock market. \

The question, of course, is "can the stock market continue to rise if interest rates start to rise?".

Since I consider the stock market rise to be a form of inflation it would seem that the bond market declines would be the natural result of that inflation.

Will those bond declines kill the stock market? Not if those rises in interest rates LAG the inflation that is actually going on. It is possible, and maybe probable, that the economy and the stocks may continue to rise if the economic activity is active and the optimism causes an increase in the VELOCITY OF MONEY. It is the turnover in the money that causes increases in GDP and causes the expansion of credit. If rates start to rise there may be an urgency to borrow. In addition, rates are historically low. A rise from where we are now would still be low interest rates. It all depends on the rate of change, and bonds are a back and fill market, usually.

The recent consumer confidence numbers, and today the producer price index numbers, show a pickup going on in the U.S. economy.

There are still some macro rumblings regarding interest rates in Japan. And that depends on the velocity of those rate changes. As usual, in evolution as well as in markets it is how fast change occurs that is the determining factor in the outcome.......

In conclusion. If rises in interest rates lag the inflation that is building, and I believe it is the goal of Mr. Bernanke to stimulate inflation, then rising interest rates will not kill the economy or the stock market. And when the economy is actually trying to expand Mr. Bernanke will be able to "pull on the string" and not continue to have the dilemma of pushing on the string..... The reins will be back in his hands and the horses are pulling eagerly. (shudder the analogy)

Mr. Market has to digest things tho.....


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