Blog : State of the Market (Dec. 17th)

by Peter Leeds on December 17th, 2015

The big news was yesterday's interest rate hike by the Federal Reserve.  While the event has dominated headlines, it really is being blown out of proportion.  
 
Basically, you'll pay 1/4 of a percent more for any loans.  However, over a longer time frame, if the rates are increased further throughout 2016 (to 1% as expected), it may start to add up, as we mentioned in the 5th video down on this page.

So far, we've been riding the relief rally which we previously explained would happen.  In addition, with the decrease in uncertainty (will they raise?  won't they?), the markets now have their answer, and so are feeling a little better - as we explained here.


In addition, with just about every central bank worldwide pumping out fresh money, we may eventually get a major inflation increase.  The way to combat inflation is to raise rates above the inflation rate. 
 
So for example, if inflation is at 5%, it can be slowed by increasing the interest rate to 6% or 7%.  Imagine if inflation spikes to 15%.  You then would see a reaction from the FED which could lift rates to 18%.  
 
Picture paying 18% on your mortgage, car loan, and line of credit - most people would not be able to afford it.  It will be times like that where having low debt and some cash to invest can be very lucrative.  
 
Many people will be walking away from their mortgages, or forced to sell their car or assets for bargain prices.  That is when you can pick up a $60,000 car from a distressed seller for $20,000.
 
The time to position yourself for the next few years is now.  Get your fiscal house in order, and prepare to take advantage of any opportunities which may arise.

Keep in mind that the focus on American interest rate policy has pushed several other issues out of the spotlight.  Tensions between Turkey and Russia are getting worse, while many already-struggling emerging economies will be hit very hard by the rate hike.  Combined with the collapsing price of oil, and runaway inflation, nations such as Venezuela are bordering on humanitarian crises.

 

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