Christopher P Casey

Christopher P Casey

Monday, 19 February 2018 20:02

Interest Rates are on the Move

February, 2018

Interest rates have moved up significantly.  The yield on the 10-Year Treasury, as of February 15th, stood at 2.9% which is the highest level in four years.  This represents a dramatic upward move from the 1.4% low reached on July 8, 2016.

Many investors are pointing towards increased inflation fears fueled by recently published statistics of average hourly earnings and consumer price indices.1 If the Federal Reserve adheres to its mantra of “data dependence,” then it should continue raising interest rates.

But the impact of any rate hikes by the Federal Reserve may be relatively benign compared to the forces of supply and demand.  As we previously discussed in our last Insights commentary (Autumn 2017), the commitment to “unwind” its balance sheet may curtail Treasury demand while significantly adding to supply – a recipe for lower Treasury prices (and thus higher interest rates).

This action by the Federal Reserve is truly unprecedented.  In a recent roundtable hosted by WindRock, the noted financial expert John Mauldin described Federal Reserve policy as having moved from “quantitative easing” to “quantitative experimenting.”

Worse, at the same time this buyer of Treasuries becomes a marginal seller, other influences on supply and demand are afoot.  Namely:

1) Increased supply due to ballooning deficits.  Budget Director Mick Mulvaney himself stated the recently agreed-upon budget deal should increase government spending by almost $300 billion with the potential for the deficit to increase to $1.2 trillion in 2019;2 and

2) Decreased demand from traditional foreign buyers.  The financial markets were rightfully distressed when Bloomberg recently reported that: “senior government officials in Beijing . . . have recommended slowing or halting purchases of U.S. Treasuries.3  China is not the only other major foreign bondholder to potentially pull back from this market, for both Japan and Saudi Arabia have substantial fiscal issues which could be ameliorated by selling Treasury holdings.

For too many years, investors have assumed that either the stock and bond markets appreciate in tandem, or perhaps, at worst, they act as counterbalances; if one went down, the other would go up.  Financial yin and yang.  But a downturn in the face of rising interest rates may very well result in something like the financial carnage of the 1970s.

Yet, despite these risks, the Federal Reserve appears intent on continuing its “unwinding.”  If so, while it may very well be data dependent, it is also judgement deficient.

 

1) “The Ghost of Inflation Reappears” Up & Down Wall Street.  Forsyth, Randall.  19 February 2018.  Barron’s.

2) “U.S. Budget Director Warns Interest Rates May ‘Spike’ on Deficit”  John, Arit and Niquette, Mark.  11 February 2018.  Bloomberg.

3) “China Weighs Slowing or Halting Purchases of U.S. Treasuries” 10 January 2018.  Bloomberg.

 

Monday, 19 February 2018 19:58

WindRock Quoted in Citywire Article

Thursday, 18 January 2018 19:03

Cryptocurrency Roundtable

U.S. and North Korean relations worsen with each missile test and tweet to the point where military action is openly discussed by U.S. officials.  Meanwhile, bold moves by the Saudi Crown Prince have divided the Saudi royal family and agitated segments of the populace.
 
Open war with North Korea or internal turmoil for Saudi Arabia has profound social, economic, and financial implications worldwide.  WindRock interviews Eric Margolis, award-winning syndicated columnist and war correspondent.
 
Mr. Margolis discusses: how the U.S. miscalculated Chinese motives and influence over North Korea; what may trigger open war between the U.S. and North Korea; why a U.S. first strike is possible even without Congressional approval; and which missteps by the Saudi Crown Prince have dramatically increased the likelihood of a rebellion..  December 2017.





Wednesday, 29 November 2017 16:28

20 Minutes with Doug Casey

Few investment experts have the unique background, opinions, and uncanny timing possessed by Doug Casey.
 
In this podcast, Mr. Casey discusses: what the future holds for European bonds and the euro given excessive debt levels and active secessionist movements; why the Federal Reserve's planned "unwinding" of its bond hoard is not feasible; what other risks may increase U.S. interest rates dramatically and derail the stock market; and why the future bull market in commodities warrants investment consideration.  November 2017.

 




Tuesday, 08 August 2017 18:50

Are Gold Stocks Good Long Term Investments?

Today, many mainstream financial pundits fail to see gold and silver mining stocks as viable investments. Inappropriately, they blindly compare gold stock returns with various broad stock index returns since 2008 which leads to erroneous conclusions.


But others disagree.  WindRock recently moderated a panel discussion which featured Peter Schiff, Doug Casey, and Adrian Day on the appropriate role and opportunity gold and silver mining stocks represent.

The panel discussion addresses such questions as:
  • Why comparing gold and silver mining stock returns with broad stock market indices can be misleading;
  • Which investment criteria investors should utilize in selecting gold and silver mining stocks;
  • When physical gold and silver should be considered instead of gold and silver equities; and
  • Where the price of gold is eventually headed.
July 2017.





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