Interest Rates are heading higher. Unless they move sideways.

Just kidding. They are probably going down (NOT really).

If I may speak seriously, I am pretty sure they are moving higher in the future, at least in fits and starts. So what causes interest rates to move up or down?

Without being too much of a smart alec, I must first say that interest rate changes are caused by the same thing that causes house prices, rental rates, bread and milk prices, the price of copper, the price of oil and the price of most things that are traded on markets or consumed almost anywhere to change. That is about everything.

Supply and demand rules. It really does. Before you object, read on.

Now the tricky part is what causes supply or demand to change. Well, that is an infinitely harder question to answer and it is different for one item than another item.

Oil has gone up for several reasons, including the fact that hundreds of millions of people in Asia, in countries (not yet including Myanmar of Burma Shave Fame) which have embraced something closer to free market capitalism than whatever they had before, are now in the game.

Remember the book, “The World is Flat” by New York Times columnist Thomas Friedman? If not, find a summary of it, and read it. Voila, economic life and opportunities improve. For many.

When that happens more people heat their house with some kind of energy extracted from the ground, and do so to a more comfortable level than before, more of them buy manufactured products which contain petro derivatives and more of them buy cars so they can drive to work instead of walk or ride the bicycle or hitch hike and more of them take the family for a drive or a vacation than before.

Not all do this mind you, many are “left behind” or benefit less than others, which seems bad even though it’s possibly better, as always happens in human endeavors. Many go to the store more often and buy more things, all of which stimulates demand and now that entrepreneurs can make money if they CHOOSE to meet the demand, shortages appear and eventually some one meets the demand hoping to make a living or get rich. And businesses need energy too. And when too many businesses supply more than the demand, well some go out of business.

Simple really. But complicated too. That’s why they pay me the big bucks. To figure it all out.

I have been predicting interest rates for more decades than I like to admit, but, and this is the important part to understand and remember: I have never been wrong when predicting the future direction of interest rates. I have often been early or late, but NEVER WRONG. They always go up or down eventually. So far at least.