| Story Views | |
| Now: | |
| Last Hour: | |
| Last 24 Hours: | |
| Total: | |
Bernanke’s Worst Nightmare: Rising Real Interest Rates
Minyanville.com
What seems to be lost in the monetary debate is that this persistent drop in inflation defies the primary purpose of quantitative easing, which is designed to lower real interest rates.
This past Monday, PIMCO’s Mohamed El-Erian wrote an article in the Financial Times titled, “We should listen to what gold is really telling us,” which not only breaks down one of the most important issues currently facing market participants but also carries much broader implications about a secular shift underway in the price of money. (Emphasis mine.)
Firm and repeated central-bank commitment to asset purchases has done more to push a growing number of investors to add portfolio risk at evermore elevated prices.
Essentially, today’s global economy is in the midst of its own stable disequilibrium; and markets have outpaced fundamentals on the expectation that western central banks, together with a more functional political system, will deliver higher growth. If this fails to materialize, investors will worry about a lot more than the intrinsic value of gold.
The price of gold can be seen as a proxy for this secular shift; because we are in the early innings, I believe many investors have failed to connect the dots. Two major themes I have written about in recent weeks are functions of this secular shift and were in play last week.
The Yield Curve Adjustment Process
Whether you believe the Fed has successfully manipulated the yield curve or not, just the fact that they are in the market means no one really knows where Treasuries should trade. For this reason, we don’t know where asset prices should trade. However, it seems we are about to find out, and I think it is going to be a very uncomfortable process.
Silver has totally decoupled from physical vs market. Ebay sells scrap 90% coin silver for 20 to 24x face. Scrap is only 16x. Total shortage of silver on the market, dealers.