Bonds & Interest Rates

Canada Just Warned That Negative Interest Rates Are Coming

Posted by ZeroHedge

on Wednesday, 9 December 2015 16:30

1208polozBank of Canada’s chief finally said what we had been patiently waiting for over the past several months: admission that Europe’s experiment with negative rates is about to cross the Atlantic. From Market News:

 

  • BOC POLOZ: NOW SEES EFFECTIVE LOWER BOUND FOR POLICY RATE AROUND -0.5%
  • BOC POLOZ: CANADN FIN MKTS COULD FUNCTION IN A NEG INT RATE ENVRIONMNT
  • BOC POLOZ: ‘SHOULD THE NEED ARISE’ FOR UNCONVENTIONAL MONETARY POLICY, ‘WE’LL BE READY’

 

That, as they say, is “forward guidance” of what is coming. 

And what is coming, is also precisely what Keith Dicker from IceCap Asset Management said in his latest monthly letter, would happen in Canada in the very near future. To wit:

Clive Maund: Oil Market Update

Posted by Clive Maund

on Wednesday, 9 December 2015 15:45

Going on price alone you may be tempted to think that oil is a buy here, after dropping for 6 days in a row, as we can see on the 6-month chart for Light Crude shown below. However, the volume pattern looks bearish. The drop so far this month has been on heavier than normal volume which has had the effect of driving volume indicators to new lows – way below where they were at the August trough. This persistent heavy downside volume implies that oil is on the verge of crashing this support and dropping much more steeply, and at the time of writing it appears to be, with the broad market dropping hard too.

wtic6month121115

Why You Shouldn’t Fear Rising Interest Rates …

Posted by Larry Edelson - Commodities, Stocks, Technical Analysis

on Wednesday, 9 December 2015 15:30

larryI’ve got to hand it to the majority of pundits out there. They just never learn or think for themselves. They keep dishing out the same nonsense, over and over again.

For instance, the notion that rising interest rates will kill off equity market gains, particularly in the United States … or choke off a real estate recovery … or kill the gold market for good — is a myth. Period.

It might be true if interest rates were at record highs and well above the rate of inflation. But they are not. Interest rates are at or coming off of historic record lows in many parts of the world, and there is no inflation to speak of. There is the opposite, deflation. 

That’s important to understand. As rates rise from historic low levels — many investors will run for cover. But the only market that rising interest rates will truly hurt is the value of sovereign bonds. 

Let’s consider real estate. Why would rising mortgage rates — at this point in the economic cycle and recovery — be bad for property prices?

They won’t be bad. For the simple reason that as mortgage rates rise, all the pent-up demand for property will come out of the woodwork and start buying — in anticipation of further increases in the cost of borrowed funds.

That’s just the property markets. Rising interest rates are also going to ultimately prove positive for equity markets. While equity markets in the U.S. and Europe remain vulnerable to a short-term pullback, over the long haul, rising rates will be a bullish factor.

Screen Shot 2015-12-09 at 7.27.23 AMIt means the velocity of money turnover is improving, and it means increasing demand for credit — all of which are bullish fundamental forces for equities. 

Ditto for commodities. The notion that gold will simply rollover and die and that a new bull-market leg higher is impossible with rising interest rates, is nonsense.

Just consider the last big bull market in gold, from 1973 to 1980, when interest rates were soaring, as was the price of gold and most commodities. 

Sure, inflation was roaring higher then, too. But that doesn’t negate the fact that gold soared with higher interest rates. Moreover, there have been numerous other times throughout history when gold rose along with rising interest rates. 

That said, right now, most commodities still have some work to do on the downside before they bottom. But bottom they will — and they will rise again — along with rising interest rates.

Indeed, as I pen this column, gold and silver remain on target for a potential major low soon to be made or confirmed. Ditto for mining shares and platinum and palladium.

Given that we may be so close to a major low in both time and price, it’s only natural to ask if one should start aggressively buying now. 

My answer: No. Wait until I give you the final major buy signal. That’s what I am personally waiting for before I load up for my family. 

Best wishes,

Larry

P.S. Supercycle Trader is about to release a NEW bundle of recommendations! Click here to activate your membership in the wealth-building service that led members to 13 winners in 14 completed trades last month.

Larry Edelson

Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader.

Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.

The investment strategy and opinions expressed in this article are those of the author and do not necessarily reflect those of any other editor at Weiss Research or the company as a whole.

Negative Interest Rate Policy (NIRP) and How to Shock Proof Your Business

Posted by Eamonn Percy - The Percy Group

on Wednesday, 9 December 2015 15:24

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“Life is 10% what happens to me and 90% of how I react to it.”
– Charles Swindoll
 
Earlier today, Mr Stephen Poloz, Governor of The Bank of Canada, announced a series of unconventional policy tools which may be deployed during an economic crisis.  Among these, was a policy decision to set a new benchmark low interest rate to minus 0.5 percent, below the previous floor of 0.25 percent.  Yes, you read that correctly, negative interest rates.  

By adopting a Negative Interest Rate Policy, the Bank of Canada is at least signaling its own preparedness for an economic crisis or a period of sustained deflation.  Given the sluggish Annual Growth Rates of advanced economies in 2015 (2.1 % versus 4.2% for Emerging Economies according to the IMF) and the continued decline in the Canadian Resource, Energy and Oil Sectors (WTI at $37.51 USD today), it is probably just prudent planning for a worst case scenario.

However, if preparedness is good enough for The Bank of Canada, isn’t good enough for you and your business? 

If so, here is what I recommended in a September, 2014 article in the Globe and Mail – Report on Business.  I believe the course of action outline below, combined with building a strong cash position, focusing on sales expansion and leveraging the relationships with your current customers, will separate the winners from the losers in the turbulent period ahead. 
 
When business cycles change, it may not be the end of the world as we know it, but it certainly feels like it for the unprepared business. According to the U.S. Bureau of Economic Research, since 1933 there have been 13 recessions, averaging 11 months in duration, and with a corresponding drop in GDP ranging from 18 to 2 per cent. In the same period we have experienced multiple currency crisis, stock market crashes, trade wars, stagflation, globalization, technological change, and many other types of apparent mayhem that can wreak havoc on your business, customers and market. The next downturn is only a matter of time.

Since no business owner is clairvoyant and can anticipate every conceivable calamity, hope lies in preparation. A good business leader can build in a safety margin or shock absorber, to help the company survive during periods of excessive turmoil, and then thrive while their less-prepared competitors are picking up the pieces. Great shock absorbers start with exceptional leadership, a strong financial position, a clear core competency and exceptional staff. That is not enough, since each of those factors are subordinate to human error.

However, since people are fallible, an unstructured business highly dependent on human intervention will quickly succumb to pressures outside of the status quo. In fact, maintaining the status quo can become the biggest risk, creating a pervasive sense of complacency.

The best shock absorber is a scalable business system that drives value to your customers, creates a culture of continuous improvement, supersedes behavioural flaws and constantly aligns the company with market need. To build this scalable system, do the following:

Identify: A business system is the integration of the key process steps in your business that create value for your customers by leveraging your core competency. As an example, business systems can focus on product or technology development, service delivery, design iteration or manufacturing excellence.

Select: Focus on systems that create value for the customer and drive cultural excellence. For instance, Toyota adopted the principles of Lean Manufacturing at the end of the Second World War, which propelled it to the position of largest automotive manufacturer in the world today.

Build: Start with your core process that delivers value to your customer base, and ensure it is clear, efficient and aligned with the customer need and maximizing what you do best. If you are in a highly competitive sector, start to build a new core competency focused on higher-margin business.

Iterate: Strive constantly to improve your system by measuring effectiveness, setting improvement targets and hiring external expertise that will be more critical and objective. Focus on improving the weakest link by testing and then improving.

Sustain: Put a system in place to manage the system. This could be as simple as internal audits or adding key metrics to your management review, or as comprehensive as adopting an external ISO (International Organization for Standardization) standard of practice, such as 9000 for Quality, 14000 for Environmental or 31000 for Risk Management. Be vigilant and don’t let your guard down when everything is going smoothly.

Embed: The end game is to embed this approach into the culture of your business, so it becomes something the organization is, rather than something the organization does. Link the systematic approach to compensation and recognition, and make its adoption a condition for advancement in the company. Lead by example.

Be prepared for significant push back in the short run for taking such a pedantic systems approach, but in the long run and with the benefit of hindsight, your leadership courage will be rewarded.

Putting rigorous and disciplined processes or systems in place is a thankless leadership job, but it is absolutely necessary in order to build a dominate market position and to protect you and your employees against inevitable and regular shocks.

Link to original article here

By Eamonn Percy

  1. When times change, champions change with the times. To survive in the West’s new era of long term slow growth, business owners have essentially had to reinvent themselves. Their mantra is adapt or die.
  2. The gold market is also changing, and so the champions known as the Western gold community need to change with it. To understand part of the change, please click here now: http://www.gracelandupdates.com/images/stories/15dec/2015dec8malabar1.png . Gold price discovery is moving, slowly and consistently, from the West to the East.
  3. In another two to three years, Chindian and mid-East demand will probably surpass global mine and scrap supply. It’s already adding stability to the gold price discovery process, and that will accelerate. Having said that, it’s important to remember that gold is money, and like fiat money, there is more to price discovery than just the demand/supply balance of physical gold.
  4. It’s true the amount of physical gold held in the COMEX and LBMA vaults that is eligible and registered for delivery is not that large, but most euros and dollars traded on the FOREX markets alongside gold are not delivered to the buyer by the seller either.
  5. Price discovery for an asset can be determined with a casino-like process, with legitimacy. The gold trading volume in London and New York, although stagnant, dwarfs that of the rest of the world.
  6. Because gold is a currency, price discovery for gold is not so much about “who has the fizz” (physical gold), but about who trades the most volume, betting on the price. 
  7. I’ve predicted that Shanghai will surpass New York in terms of trading volume, and thus in domination of price discovery. That process is in play now, but it will take another 2 – 5 years for the actual volume to rise above the levels of London and New York.
  8. I’ve also predicted that gold trading volume in Dubai will ultimately surpass Shanghai, making the “city of gold” the fitting master of global price discovery. The bottom line is that most of the world’s physical gold trades through the Dubai and Shanghai exchanges, but the bets on the price of that gold are far bigger, for now, in London and New York. 
  9. The good news for Western gold community investors is that the growth of trading volume in both Dubai and Shanghai is strong and consistent, and that is occurring while London and New York volumes are stagnating.
  10. Events and processes in the West will continue to have a big effect on gold price discovery, for many years to come, even after price discovery becomes dominated by Shanghai and Dubai. 
  11. On that note, the December 15 – 16 FOMC meeting is arguably the most important meeting of the past seven years. That’s because Janet Yellen can’t simply “flip a switch” to raise rates the way her predecessors could.  
  12. Because of the Fed’s QE program, the refusal of the US government to downsize itself has not resulted in a debt crisis. That may be about to change.  
  13. Most gold gurus think rate hikes are about supposed economic growth, while I’ve vehemently argued they are about putting pressure on the government to shrink itself, and about reversing money velocity. From a “PR” perspective, it’s very difficult for Janet to state publically that she’s planning to raise rates to essentially attack the US government’s ability to borrow, and to reverse the deflationary effects of Ben Bernanke’s QE program.
  14. MSM (mainstream media) and many pundits in the gold community talk endlessly about “rate hikes decisions”, but the new era reality of implementing those hikes is highly complex, and potentially dangerous. 
  15. Janet is experimenting with using non-bank entities to raise the Fed Funds rate, but her experiments have involved limited amounts of capital. As things stand now, the amount of bonds Janet would have to sell in the open market to hike rates, and keep them hiked, would probably collapse the bond market, creating a massive panic in stocks and real estate as well.
  16. To actually raise interest rates on the reserve currency of the world is much harder than it seems, when open market sales are ruled out. In my professional opinion, Janet is going to deliberately force some bank reserves out of the Fed and into the private sector. 
  17. She’ll attempt to replace those with non-bank assets. Non-banks can’t loan out their investor money, while banks can. So, even a small movement of loanable bank reserves into the private sector could produce a dramatic reversal in US money supply velocity, which is the main driver of inflation.
  18. Janet’s plan to raise rates appears to have significant inflationary implications, which is fabulous news for gold investors. It may be why gold stocks are staging what is arguably a historic bullish non-confirmation with bullion right now!
  19. Please click here now: http://www.gracelandupdates.com/images/stories/15dec/2015dec8gold1.png. That’s the hourly bars gold chart. I predicted a strong decline ahead of the US jobs report, and a big rally when it was released, and that’s exactly what happened. I sent a key intraday alert to my subscribers on Friday, to sell some gold, and short some, near the height of the upside action! 
  20. Now, the FOMC meeting comes into focus. Gold may pull back to the $1057 area, before moving towards $1097, but there is a nice little inverse H&S bottom pattern in play. That’s good news for rally enthusiasts!
  21. Please click here now: http://www.gracelandupdates.com/images/stories/15dec/2015dec8gold2.png. That’s a longer term gold chart, using daily bars. Gold may be entering what I refer to as “technical head and shouldering”, where one small inverse H&S bottom pattern morphs into a bigger one. This technical action also fits with what Janet appears to be trying to do with money velocity via her rate hikes experiment.
  22. Gold stocks and silver stocks had a fabulous day on Friday, and a horrific follow-up yesterday. Please click here now: http://www.gracelandupdates.com/images/stories/15dec/2015dec8gdx1.png. That’s the GDX daily chart. Volume has risen on the rally, and yesterday’s down day volume was a little softer than on Friday’s up day volume. GDX refuses to make new lows while bullion does. 
  23. Please click here now: http://www.gracelandupdates.com/images/stories/15dec/2015dec8aem1.png. That’s the daily chart for Agnico Eagle. It’s arguably a better proxy for the gold stock sector than Barrick. Yesterday, the “Eagle” only gave back a portion of Friday’s superb performance, and it’s soaring far above its recent lows, while bullion struggles.
  24. Gold stocks like Agnico Eagle are poised for a great year in 2016, partly because of policy changes from Janet Yellen, and partly because of growing Chindian demand, but the most important catalyst of all for gold stocks may now be institutional players who view any move lower in bullion from here, as a reason to buy gold stocks aggressively!

Dec 8, 2015  
Stewart Thomson  
Graceland Updates
website: www.gracelandupdates.com
email for questions: stewart@gracelandupdates.com 

 

 

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Risks, Disclaimers, Legal
Stewart Thomson is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative that you consult with multiple properly licensed, experienced and qualifed investment advisors and get numerous opinions before taking any action. Your minimum risk on any investment in the world is100% loss of all your money. You may be taking or preparing to take leveraged positions in investments and not know it, exposing yourself to unlimited risks. This is highly concerning if you are an invetor in any derivatives products. There is an approx $700 trillion OTC Derivatives Iceberg with a tiny portion written off officially. The bottom line:

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