December Interest Rate Increase Still Up in Air

Doesn’t Matter in Long Term – Investment Expert

A strong bank earnings report today brought different responses from top officials of the United States Federal Reserve in regards to a long-awaited interest rate increase. Fed Chair Janet Yellen told a meeting of the Boston Fed that allowing inflation to run hot in a “high-pressure economy” is under consideration, a signal that market observers are interpreting as another possible stall on a rate hike. Just a few hours earlier in the day, Boston Fed President Eric Rosengren told CNBC that interest rates should rise in an environment of almost full employment (approximately 5%) and inflation near the Fed target of 2 percent (1.7%). The mixed signals reflect the mood of the Federal Open Market Committee which declined a rate increase last month, with three committee members dissenting.

Yellen said cutting rates in a low-interest world isn’t enough and that a broader approach is needed to mitigate the effects of financial crises on individuals, such as homeowners. Rosengren counters that interest rates should rise “slowly and gradually” instead of sharply, which runs the risk of stunting growth, as slow as it admittedly remains. Odds of the rate going up in December are said to be about 65 percent on the futures market, but only 8 percent when the Fed meets in November, just before the US election.

Banks Beat Expectations, Retail Sales Steady

Three big US banks posted third quarter earnings that exceeded forecasts, even scandal-ridden Wells Fargo (although its shares lost 0.7 – 0.4% on Wall Street, and observers whisper that the full effects of the revelations surrounding its sales practices have yet to be felt). Many see this earnings report as an encouraging sign for the health of the banking sector, merely because it didn’t post losses. But it cannot be seen as anything approaching strength, more as “a relief” as one portfolio manager put it. The American consumer managed to fall in line with the predicted spending increase of 0.6% in September. But one of the world’s leading asset managers dismisses these as all passing concerns in an inevitable future.

World Investment Expert Advises Firm Eye on Big Picture

Egon von Greyerz (founder of MAM and board member of Goldbroker.com) in an interview with King World News, warns of “black holes” in the financial system into which most assets will disappear. He said whether or not the interest rate rises “makes no difference whatsoever” because it will have only a short term effect. “In the long run, the market will prevail. They know that, if they hike the rate, the stock market will come down. Of course, the stock market in the US is extremely over-valued. In the long term, the laws of nature will apply. And the laws of nature say that you cannot have $250 trillion of debt with zero or negative interest rates. Rates will reflect all the debt outstanding and go up massively. Eventually debt will implode together with the assets that have been financed by that debt.”

Mr. von Greyerz says, when that happens, money will lose its value, and bonds, stocks and property are all already over-valued. As investors (especially in America, the most indebted country in the world) eventually turn to physical gold, it will be in such high demand that its price will rise precipitously, perhaps exponentially. At today’s price, he says people who wish to protect their wealth can’t afford to wait for the future.