This "Rocket Fuel" Will Send Stocks Higher Than Anyone Believes
Stock-Markets / Stock Markets 2013 Mar 05, 2013 - 06:07 PM GMTBy: DailyWealth
Dr. Steve Sjuggerud writes: As of this year, we've been handed the playbook...
We know the plays. We know what the other team is going to do. And we know how they're going to do it – almost exactly.
As I showed you yesterday, when interest rates are low, stocks tend to increase in value. Based on history, with interest rates this low, stocks have room to climb nearly 100% from today's levels.
And now we know how long interest rates will stay low... The Federal Reserve – the group that sets short-term interest rates – has actually told us what it will do.
Here's the playbook...
In December, the Federal Reserve established specific targets for when it will raise interest rates. It said it won't raise interest rates "as long as inflation isn't forecast to rise more than 2.5% in the future and as long as unemployment remains above 6.5%."
These two things won't happen before 2015, at least...
To show you why I say this, let me share the Fed's guesses (because this is what it will base its decisions on):
And let me also show you the consensus guesses of the world's top economists:
As you can see, we are not (yet) in danger of breaching the Fed's two targets that would trigger a rate increase.
Even if we reach those targets, the Fed may decide not to raise interest rates at all!
That's according to Janet Yellen, Vice Chair of the Federal Reserve. Just a few weeks ago, she announced that 2.5% inflation and 6.5% unemployment are just "thresholds for possible action, not triggers... When one of these thresholds is crossed, action is possible but not assured."
The Fed has made it clear many times that it will not raise interest rates until it's nearly too late. Federal Reserve Chairman Ben Bernanke is a student of the Great Depression. He knows the Fed raised rates too early back then, cutting off a potential recovery. He also knows of Japan's experience in 2000. It raised rates from zero too soon... again, cutting off the recovery.
Bernanke is not going to make the same mistakes. That much is clear.
If the professional economists are correct, inflation could stay low for a few more years. And this is extremely important... You see, low inflation is fantastic for stock prices. Take a look at these results since 1950:
In short, you make huge gains in stocks when inflation is low. And you don't make any money in stocks when inflation is above 5%.
Overall, stocks have returned about 7.4% a year since 1950. At 13.2%, stocks return nearly double that amount in periods of low inflation...
Low interest rates and low inflation are like rocket fuel for the stock market.
Of course, it won't be a straight shot higher. There will be corrections along the way. But you don't want to be on the sidelines.
The coast is clear for at least the next two years. Even better, we have plenty of rocket fuel... And it will help propel stocks to levels higher than anyone can imagine.
Good investing,
Steve
P.S. Tomorrow, I'll show you why, by the end of 2014, we could see another dot-com-style boom in stocks all over again.
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