By www.ProfitableInvestingTips.com

In the early 2000’s interest rates were
low and everyone bought more
home than they could afford.

When rates when up all of those
balloons on mortgages came due
with higher rates and the housing
market collapsed.

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Today we are seeing a stock bubble
based on low interest rates.

What will happen to stocks when
interest rates go up?

Forbes interviewed the richest man in
the world, Bill Gates.

The co-founder of Microsoft
says stocks are expensive but what
bothers him is that interest rates are
so low.

On Tuesday, Microsoft co-founder, Bill
Gates, said “stocks are expensive” on
CNBC.

The bigger issue he raised was interest
rates.

Mr. Gates is amazed that interest rates
have “stayed so low, for so long.”

Mr. Gates said, “When do we go back to
normal in terms of interest rates [and]
multiples, there would be a lot of
adjustment there.”

Adjustment is a nice way of saying,
stocks may sell-off.

He also said, “Stocks are higher because
of the interest rate environment.”

That basically means that valuations
have taken a back seat as Central Banks
continue to their easy money policies.

The point is that low rates have
driven an 8 year bull market in
stocks and that is due to come to an
end.

Will the market calmly slow down or
will it collapse?

Increasing Interest Rates

The U.S. Federal Reserve is due to
raise rates, perhaps this month.

And as economic conditions warrant
they will keep raising rates.

Many believe that their concern
about extinguishing economic
growth may be setting us up for a
bigger fall when rates do go up.

The Wall Street Journal says that
the Fed is expected to raise interest
rates.

Federal Reserve officials are likely to
raise short-term interest rates when their
two-day meeting concludes Wednesday,
the only increase this year and just the
second since June 2006.

But what will they signal for the path of
rates in 2017 and beyond?

This will be the Fed’s first policy
meeting since the election of Donald
Trump, who has pledged tax cuts and
new government spending-policies that
could affect the Fed’s outlook for
inflation and interest rates over time.

If the policies of the new Trump
administration drive inflation higher
the Fed will raise rates.

The could be quite a bit if Mr.
Trump’s version of supply side
economics leads to a substantial
short term boost.

What Does the Future of
Trump and Higher Interest
Rates Hold?

Forbes predicts that Trump’s plan
will send the U.S. economy into
the most severe recession since the
1980’s.

Long-term interest rate will continue to
increase.

Already, at the 2.5% vicinity it is a blow
to a financial system long accustomed
and addicted to much lower rates.

A strong and further strengthening
dollar has severely unfavorable
implications on exports and imports.

In dollar terms, the U.S. is the world’s
largest exporter reaching $2 trillion.

The exposure and vulnerability the U.S.
thus has is monumental.

Corporate tax cuts: It is inconceivable
that a weakening economy will invest
more just because corporations enjoy tax
cuts and breaks.

It is much more reasonable to assume
that the corporate bond bubble of the last
few years, used primarily for stock buy-
backs and mergers& acquisitions
activity, will be used to improve cash
flow and debt repayment.

A combination of higher interest
rates and poorly thought out
economic policy by Trump may well
send the market into a nose dive.