3 Min. Gold News – Jim Rickards – CBC – The Exchange – January 7, 2015

3 Minute Gold News

A Quick Read for Busy People

A 3 minute synopsis of an interview with Jim Rickards, New York Times bestselling author of The Death of Money and Currency Wars, by Amanda Lang from CBC The Exchange.

Topics:

Federal Reserve Won’t Raise Interest Rates in 2015
Deflation
US Dollar Getting Stronger
Stock Prices and Real Estate Prices

Rickards - Brisbane

Jim Rickards

January 6, 2015 interview link

The Exchange with Amanda Lang

 

THE FED WON’T RAISE INTEREST RATES IN 2015

Nominal interest rates are going down but real interest rates are going up.

That’s a very important distinction to bear in mind.

The nominal rate is the rate the note actually pays — the rate on the coupon you get. On a 10-year note that could drift from 2.17 at the end of the year to 1.50, and maybe even lower.

But look at Japanese 10-year notes. They’re at 40 basis points. Why are Spanish 10-year notes at 150 basis points? Is Spain a better creditor than the US? Of course it isn’t. So, something is out of whack.

Nominal rates are going down but real rates are going up.

The real rate is the nominal rates minus inflation, (you look at the change in purchasing power and not just the number on the coupon).

When inflation turns to deflation, which it is right now, you still minus the inflation, but the inflation is a negative so you’re subtracting a negative number (which means the “minus inflation” becomes a “plus deflation”) — you have to add it on. So the real rates are going up.

This is a conundrum for the Fed. They’ve painted themselves into a corner they can’t get out of.

They’ve said they want to raise interest rates. Okay.

They’ve also said they want inflation. Okay.

But it doesn’t add up. The whole thing doesn’t make sense.

If they raise interest rates then they strengthen the dollar. Strengthening the dollar is deflationary — pushing you further from your inflation target.

Jim expects that the Fed won’t raise interest rates in 2015.

Nominal rates will drift down but you’ll still have the deflation problem.

DEFLATION

Deflation is a very serious concern for the Fed — it’s their worst nightmare.

The government has to have inflation. They have to have it to manage their debt.

The gas prices are down at the pump and that puts money in people’s pockets, but they might not spend it. They might pay down debt or save it, so it doesn’t mean the money saved at the pump will help the economy.

The government has a problem.

People save money at the pump but it’s not money that can be taxed.  The government hates deflation because they can’t tax it — they can’t tax the real income gains that come from the lower gas price.

Deflation is the Fed’s nightmare so Jim believes they can’t raise interest rates in 2015 because it would cause more deflation.

US DOLLAR GETTING STRONGER

The reason the US dollar is getting stronger is in anticipation of an interest rate increase.

The Fed has signaled strongly that there’s no reason to think they’re not going to raise rates. So investors look around and think, “Okay, Europe’s going to ease (print money backed by nothing).” Everyone expects Draghi is going to do QE.

He won’t.

Everyone expects the Fed to raise rates.

They won’t.

So the market is set up for a rate increase in US dollars and more ease in the euro. But the opposite is going to happen.

Europe won’t ease and the Fed won’t raise.

So you can see this whole currency thing will flip upside down. That is the essence of currency wars, and the topic of Jim’s first book Currency Wars.

The problem with currency wars is that they can go on for 5 – 10 – 15 years and they don’t have a resolution. It just goes back and forth and back and forth.

We’re seeing that play out.

STOCK PRICES AND REAL ESTATE PRICES

One reason that stock prices and real estate prices have been going up in the US is because of capital inflows — again because of the strong dollar.

The expectation that the Fed will raise rates makes the US dollar relatively attractive so we’re seeing the carry trade come off. People are getting out of emerging markets and coming into the US.

Some are a flight to quality and a chase for yield, and some are a capital flight from places like China, which have their own problems.

All the capital coming in strengthens the stock market. But earnings per share are only going up because of the stock buybacks. Top-line earnings are not that strong.

Earnings per share are going up, but that’s just financial engineering, what the Japanese in the 80s called “ziatech”, but that all collapsed in 1990.

The growth figures in the US are grossly overstated. Their gains include the commerce department not taking seasonal adjustments into account with defense spending. Jim believes those numbers will be re-adjusted down for the 4th quarter of 2014.

When the market realizes that the Fed is not going to raise rates, then capitals flows will be reversed and the US dollar could be down middle to late 2015.

For right now it’s a lot stronger. But all we’re getting are asset bubbles.

It’s not real growth — it’s just asset bubbles.

 

 

………………………………………………..

Gold is $1,212.80 US per ounce via Kitco

I have my first Media Pass. I will be at the upcoming Cambridge House Vancouver Resources Investment Conference January 18-19, listening to a number of speakers, including Bill Murphy and Chris Powell from GATA, silver specialist David Morgan, and Greg Remsburg from the TV show Gold Rush.

The new album, Preparing for the Fall, is now available on iTunes at $9.99 for the album and $.99 for singles. The album includes the singles Wag the Dog, Black Swan Dive and Gods of the Copybook Headings.

…………………………………………………

Wag the Dog (Drums of War and Backroom Banker Passes)
words and music Elaine Diane Taylor
© 2014 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Preparing for the Fall available on iTunes

Another Week on Wall Street (Naked Short Selling and Fiat Currency)
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes

 

 

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