At the beginning of this month, Janet Yellen announced there would be a rate hike sometime during the month of March. During inter-day trading, Gold went up over $12 while the Dow went from green to red as Yellen made her announcement. Previously it was only a one in five chance that rates would go up in March, then it moved immediately to 75% and now 82% according to the CME’s tracking tool of Fed funds futures. The rate hike will happen more than likely on March 14-15th of the Fed Market Open Meeting, less than 48 hours before our country will have reached the looming Debt Ceiling. The Fed confirmed last December that there would be three hikes in 2017, and that was also confirmed in her speech at the beginning of this month.
What is the Fed doing?
Yellen believes the Fed was not behind the inflation curve. She repeated her cautions, that her and her colleagues believe that it is appropriate to have gradual rate hikes over the months and years.
The Fed eluded that the years of an artificially low interest-rate environment will soon be a thing of the past. Easy money will also disappear as rates continue to increase. She said that the process of scaling back accommodation will likely not be as slow like it was in 2015 and 2016. The fed rates that have previously stalled at lift off now look like they will certainly be airborne. Now banks have to look into the near future at how to operate with a less accommodating, low-interest rate environment. This will be a new era, and rather challenging, as debt levels on a personal, corporate, and governmental level are all at historic highs.
Moving away from artificially low interest rates would keep the economy from overheating, thereby sustaining the expansion and maintaining price stability. However, history has proven the opposite can also happen where multiple rate increases can cause significant inflationary pressures which previously was uncontrollable for a period of time. In addition, this time we have $4.5 trillion of money creation on the Fed balance sheet because of QE1, QE2, and QE3. They have wanted to get this $4.5 Trillion off their balance sheet before rates go up to not cause velocity. This is the term that is used when money is created and gets distributed into the system. As rates move up, this significant amount of money can actually cause inflation. The era of a Fed manufactured, low-interest rate pendulum could easily swing the other direction, from one extreme to another, causing a catapult of inflation. The ramifications have been seen previously all too well, causing the Fed to have multiple rate hikes to control massive inflationary pressure. Many growing numbers of economists are seeing that the decade of the 70’s is once again upon us. Much higher rates to come. In that environment, stocks did poorly and metals shined moving 500% to 1300% in different metal markets. Metals were the number one asset class then for performance and safety. While a small few of economists believe the next environment will be much more severe, more like Germany from 1919-1923 experiencing hyperinflation due to our Debt. If that would become the case, then the numbers of the rise in metals would be astronomical! In the 70’s our Debt to GDP ratio was in the 50% range. Currently, we are now at 106% Debt to GDP and growing at record speed. Next month I will be sharing my thoughts on The Debt Ceiling in our country. This continues to be a heated debate yet still grows. Another one of those “things” that was created to “help” us, has become a drug of dependency in our country’s addiction that will only lead us to a spiral death.
What Can You do?
If you are in the unmistaken commonality group that says, “The Fed in its attempt to help and control the environment through their influence in the markets actually turns out they create bubbles that burst,” then get ready. The Fed is going to “influence” several markets repeating their pattern creating a bubble. The bubbles the Fed creates become more sizable each time. Keep in mind, there is a saying on Wall Street “We don’t care necessarily which way the markets move as long, as there is significant fluctuations”. If you believe these things happen, then it is time to buy gold. If you’re a first-time investor, then it’s time to take that first step. For those investors who have already seen this pattern, and have prepared some already, the time is now to add more metals to your portfolio. In my career spanning almost two and a half decades, I seldom communicate about much higher gold prices. Yet I have never seen multiples of historically proven fundamentals, causing higher prices in metals than I currently see. Call my company today and learn how you can rollover your 401k or transfer your IRA, buy physical metals and hold them without a tax liability. Don’t let the next bubble burst your portfolio. This time be on the other side. Take full advantage of how the Fed and our government will deal with our country’s debt.
If you have any financial questions or anything about the market please contact us! We are here to help and offer a wide variety of services to protect your finances.