The Era of High Interest Rate is Coming to An End

Sep '24 (edited) • Long term investing ideas

In the last few months, Bank of Canada has cut rates 3 times in a row. This signals that interest rate has peaked

In the most recent Fed minutes release, Fed is announcing that they are ready to "pivot"

Either way, the interest rate has peaked and we are expecting the interest rate to come down.

So what happens next? What's the environment we will be operating in? What will go up and what will go down?

1. Interest cost to run business, buy real estate, buy stocks will go down. This means demand for investing will go up. This means prices up.

2. Interest rate coming down means money will flood from the money markets to the stock market / real estate / businesses.

3. Interest rate coming down means it is easier for new companies to start and the valuation of startups will go up.

4. Interest rate coming down means the existing high-interest loan will be more valuable. A normal loan of $100,000 at 12% interest will be more valuable than before because you can't get these loans anymore.

5. Interest rate coming down also means the private lending cost will come down (which is usually a function of the bank rate + spread). This also means private lenders will have a harder time finding high interest rate loans.

Eric

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Eric Seto

Chartered Professional Accountant (CPA)

Chartered Investment Manager (CIM)

Founder of 5MinInvesting.com

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