The Final Nail In The Interest Rate Coffin?

Did China just put the last nail in the interest rate coffin? Did its move last week erase the idea that interest rates will ever return to “normal” in our lifetimes?
I have no doubt Janet Yellen’s head slammed the table in frustration last week. As China devalued the value of its , Yellen’s job got much, much harder.
In fact, we’d argue the global economic picture has never been quite so muddled and quite so dangerous. What has us worried is the growing gap between monetary policies across the world.
We’re convinced the traditional idea of interest rates, at least in our investing lifetimes, is dead. As much as Yellen and her troops want to nudge rates higher and reload their ammo belt, divergent forces from across the globe are forcing them to move cautiously.
The news out of China last week is a perfect example. As Beijing works to decouple its yuan from the rising , it puts an even brighter spotlight on the rising dollar. The greenback is an oasis in a monetary desert.
It’s not good news for Yellen. After all, if she pushes rates higher, it will be the equivalent of pouring gas on an already hot fire. While most other economies are working to slash the value of their currencies, the Fed is ready to overtly strengthen the value of ours. It’s dangerous.
Yes, 87% of our economy is domestic. But if you’ve paid attention to the recent earnings reports from the multinationals that have teased this bull market forward, you know a strong dollar is cutting into profits. Everywhere we look, companies are griping about a strong dollar.
For example, Apple (NASDAQ:) shareholders should absolutely be concerned over what happened in Beijing last week. With China acting as the company’s second-largest market (after the Americas), the falling value of the yuan could instantly shave several percentage points from Apple’s profits. It’s not good news for a market leader that’s already starting to sputter. And Apple’s not alone.
Beer giant Molson Coors Brewing Company (NYSE:) felt the pain of a strong dollar — its European sales dropped nearly 17% over the last three months. Its stock is now in a downtrend, too.
And shares of Fossil (NASDAQ:) sank by over 8% between Tuesday and Wednesday as the company warned about the effects of the strong dollar.
For the folks at the Fed who are already worried about an anemic recovery, the strong dollar is an itchy thorn in the side. If they raise rates and send the dollar even higher, they’ll very likely send the value of many multinational companies lower. They’ll kill the bull market. And they may strangle our recovery.
For that reason, we’re convinced the Fed won’t make any bold moves. We might see a token increase, but nothing more.
Even bigger, though, we’re convinced we’ve seen the death of interest rates as we know them. In our investing lifetimes, we’ll never see another period of “normal” interest rates. Central banks across the globe have simply gotten themselves in a trap — a trap they can’t escape from without gnawing their own leg off.
What’s an investor to do?
You’ve accomplished the first step. You’re aware of the situation and the dangers it poses. From here, you must invest according to the threat. With interest rates remaining low, you’ll need to find safe dividend income. That means largely focusing on domestic companies. Sectors that stand independent of the global economy will do well. Healthcare and technology are two standouts.
We’re not in panic mode. Far from it. After all, this situation has been building for over six years. But it is time to adjust. It’s time to realize we may never see “normal” again.

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