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A Visual Presentation Of What Happens To The Market During Rising Interest Rate Cycles

Tyler Durden's picture


While it is no surprise that there is nothing in this world that can derail the optimism of Goldman's David Kostin (GS S&P 2011 target 1,500 until Jan Hatzius and his double Bill Dudley say otherwise), in his latest Weekly Kickstart he does provide a useful visual analysis of what happens in a period of rising interest rate cycles. Of course, this is only to create the illusion that rates are indeed set to rise: as we indicated said illusion was roughly two times stronger this time last year when the market once again didn't remember what a downtick looked like, and yet it all turned out to be a function of QE1, which upon ending on March 31 caused a correction, and QE2 a few months later. We wonder how many professional investors actually are naive enough to equate constant pumping of billions of dollars into the market by the Fed with economic improvement. But while we will get our answer in the next several weeks, here are the key signs to look for in the latter part of the interest rate cycle.

The first chart looks at what happens when rates are rising. What is stunning is that the last time we had the commencement of a real interest rate rise was back in 2004. And even that ended up to be far too late to make an impact. Not to mention that all such hikes were in a period of lower lows. Too bad we can't go much below zero (thank you ZIRP).

The next table looks at sector and general market returns X months into a tightening period. For those who buy that much can be gleaned from IR analysis during the great 30 year moderation, the best sector to buy would be IT and Materials.

Then again, since the IT sector return is massively skewed due to the 32% performance from the 1998 dot com bubble, perhaps it is best to avoid it...

The most useless chart of all is the expectation for the Fed Funds rate by Goldman and consensus. In a year we will all be laughing about this one.

Next, for those who care, here is Kostin's traditionally permabullish commentary:

The news flow during 1Q 2011 was anything but market-friendly. But a devastating and tragic earthquake and tsunami in Japan, political upheaval across the Middle East and North Africa (MENA), and absence of agreement on fiscal issues in Europe and the US could not shake the bull market.

S&P 500 rose 5.4% during 1Q and ended at 1326, in-line with our forecast. Our year-end 2011 target remains 1500 reflecting a potential prospective nine-month price gain of 13%. If achieved, the 2011 price return would be 19% and rank 0.6 standard deviations above the average annual return since 1928. Despite the resilient market, investors remain uneasy and list various macro and micro headwinds to further index advances.

Foremost among the concerns expressed by equity fund managers during our recent meetings is the risk of higher interest rates. Bears argue that $600 billion of planned Fed bond purchases under QE2, if they end as scheduled in June, will cause long-term interest rates to rise and spark a sell-off in US equities. Investors also fear rising US inflation data and forward-looking inflation expectations will prompt the Fed to raise shortterm interest rates before year-end. Our Global ECS Commodities research colleagues note the risk of substantially higher energy prices, upside risk to gold prices, and a tight inventory situation across the major grains, with soybeans and corn particularly susceptible to upside spikes. During the past week several regional Federal Reserve bank presidents publicly discussed policy tightening, stoking investor concern about how stocks will perform when the Fed eventually begins removing liquidity (see US Daily: Fedspeak – Sharpening the differences, March 29, 2011). Finally, the ECB is widely expected to hike interest rates on April 7th, which will also draw investors’ focus to the timing of the Fed’s exit.

However, Goldman Sachs US Economics forecasts Fed Funds will remain unchanged at 0%-25bp through 2011 (and likely 2012 as well) and ten-year interest rates will drift slightly higher from 3.5% currently to 3.75% by year-end 2011 and 4.25% by year-end 2012.

From a US portfolio strategy perspective we are interested in how domestic stocks might trade when interest rates begin to rise. We analyzed seven episodes of rising US interest rates since 1975 (see Exhibit 1). The timing of the interest rate increases was consistent across the maturity spectrum (Fed Funds, 2-year, and 10-year notes). The median return of the S&P 500 was positive during the 1-, 3-, 6-, and 12-month periods  after interest rates began to rise (see Exhibit 2).

Early stages of interest rate cycles typically favor cyclical equities. Since 1975 the first several months of a rising interest cycle have witnessed cyclical sectors outperforming defensives. In fact, the cyclical sectors of Information Technology, Materials, Consumer Discretionary, Industrials and Energy all outpaced the S&P 500 during the first three months of at least four and as many as six of the seven periods of rising interest rates since 1975. In contrast, Telecom, Utilities, Financials and Health Care beat the market on only a few occasions as rates began to rise. Note that Consumer Staples lagged the S&P 500 during the first three months of all  seven episodes (see Exhibit 3).

Information Technology has the best track record of outperforming the S&P 500 during the first one and three-month periods when interest rates begin to rise. Intuitively, the market interprets higher rates as evidence of stronger growth and rewards sectors such as Information technology that are most exposed to business expansion. Conversely, Utilities and Telecom consistently underperform the market during these periods. The yield-oriented aspects of these sectors make them less appealing to investors during a rising interest rate environment.

Energy has consistently underperformed immediately following a rise in interest rates. Energy lagged the market in the first month of the rate cycle in the last six episodes. Our previous ISM business cycle analysis showed Energy to be a late cycle outperformer vs. the S&P 500. Since our sample of rate increases typically occurred during the early and middle stages of the ISM cycle it is not surprising to see a back-test show the sector lags when interest rates begin to rise. Simple historical precedent suggests risk exists to our current Overweight recommendation in Energy. However, the potential for much higher oil prices highlighted by our colleagues in commodities research supports our overweight posture.

Financials are of particular interest in the current cycle. Our analysts believe higher interest rates and a steeper yield curve represent positives for the sector assuming economic growth is not derailed.

The longer-term pattern of sector performance during rising interest rate environments is less consistent and appears to depend on the source of higher interest rates (inflation vs. growth). The S&P 500 index rose over the course of the entire tightening cycles but sector performance was differentiated based on core inflation. Defensive sectors led the market when both interest rates and inflation rose while cyclical equities outperformed when rates rose without an inflation impulse.

Kostin's full presentation:


Charts That Matter 3.31


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Sat, 04/02/2011 - 12:00 | 1127885 Motorhead
Motorhead's picture

Silver, bitchez!

Sat, 04/02/2011 - 12:24 | 1127918 Spalding_Smailes
Spalding_Smailes's picture

Silver = Bubble 


1920 - $1.37

1947 - $0.60

1963 - $1.29

1968 - $2.56

1971 - $1.27

1974 - $6.70

January 21,1980 - $48.00

March 28, 1980 - $11.10

1982 - $4.88

1985 - $6.50

1989 - $6.00

1991 - $4.60

1995 - $6.10

2001 - $4.50

2005 - $7.50

2007 - $12.00

Sat, 04/02/2011 - 12:35 | 1127935 mberry8870
mberry8870's picture

If this is accurate how does one junk this?

Sat, 04/02/2011 - 12:38 | 1127940 blunderdog
blunderdog's picture

It's not uncommon for unpopular opinions to be junked in these here parts.  Even if the table is accurate, it might not support the opinion expressed above.

Silver in a bubble is a pretty silly idea, if you ask me, but I don't bother junking SS 'cause my bet is he's more troll than thinker.

Sat, 04/02/2011 - 15:41 | 1128314 Harlequin001
Harlequin001's picture

so how are these figures supposed to denote a bubble?

Sat, 04/02/2011 - 17:41 | 1128531 blunderdog
blunderdog's picture

A "technical" trader who looks solely at lines based on changes in nominal pricing can apparently divine bubbles with a straightedge and a pen. 

Things like supply, demand, market disruption, changes in monetary supply are not ever relevant considerations.  It's a question of augury and faith.

Sun, 04/03/2011 - 00:59 | 1129251 Harlequin001
Harlequin001's picture

faith, I like that. It's the ability to believe something despite the facts isn't it?

definite bubble then, long live silver, and long may it rise...

Sat, 04/02/2011 - 12:39 | 1127941 Spalding_Smailes
Spalding_Smailes's picture

Accurate down to the penny and dates ....


The junkers are mindless fools ..... They should turnoff mash re-runs and study up on things they invest in.

Sat, 04/02/2011 - 13:02 | 1127994 Rainman
Rainman's picture

The 1980 high was a result of Hunt Brothers cornering manipulations. Surely there could be no such manipulation in SLV today !! ;>)

Sat, 04/02/2011 - 14:28 | 1128084 asdasmos
asdasmos's picture

@Spalding, could you please put up a historic dollar chart since 1913 as well, so we can contrast the silver gains please.

edit: I found one, is this accurate to you?

Maybe silver's gain has been 'backlogged' or 'manipulated' during the US $ decline, but that would never happen, right?

Dollar history.

1913 - $1.00
1920 - $2.02
1925 - $1.77
1930 - $1.69
1935 - $1.38
1940 - $1.41
1945 - $1.82
1950 - $2.43
1955 - $2.71
1960 - $2.99
1965 - $3.18
1970 - $3.92
1975 - $5.43
1980 - $8.32
1985 - $10.87
1990 - $13.20
1995 - $15.39
2000 - $17.39
2001 - $17.89
2002 - $18.17
2003 - $18.59
2004 - $19.08
2005 - $19.73
2006 - $20.18
2007 - $20.94 2
2008 - $21.57


Sat, 04/02/2011 - 14:32 | 1128182 akak
akak's picture

And as bad and as damning as those figures are, they are lowballed by using the US government's politically-manipulated CPI figures, which understate the true extent of the ongoing depreciation of the US dollar.  A more realistic value for the multiple in the rise in prices from 1913 to today would probably be much closer to 30.

Sat, 04/02/2011 - 14:36 | 1128187 asdasmos
asdasmos's picture

Agreed, I was just about to edit in '(roughly)' next to 'Dollar history'. There are many estimates that are even higher that I agree with more, but even the conservative ones are damning.

Sat, 04/02/2011 - 16:34 | 1128368 hardcleareye
hardcleareye's picture

This is an interesting discussion, boils down to what is the "true inflation" number.  The MIT and shadow stat indicatethat the decoupling on the CPI to "real inflation" started to happen in 1983 and has progressively widened since that time. 

*edit, erased bone headed math error

Sat, 04/02/2011 - 16:43 | 1128417 akak
akak's picture

To be honest, I feel that John William's ShadowStats somewhat overstate the real rate of "inflation" --- which we really should call by its true name, currency depreciation --- but his rate is obviously closer to reality than the manipulated, and currently surreal, figures put out by the Bureau of Labor Bullshit Statistics.

Sun, 04/03/2011 - 00:24 | 1129207 LudwigVon
LudwigVon's picture

Love ya akak. I agree with what you say in theory, let me just make a few comments on semantics so others can learn to decipher the MSM and other spin... 

Inflation = Increase in the quantity of money...

which leads to what John Williams speaks about = Price Inflation

(or) currency depreciating, but against what?

Dollar might be rising against real estate...

The process of inflation creates currency depreciation versus many assets, unevenly.

What I find 100% accurate is that we are seeing Inflation (NY Fed POMO schedule is about as hard of proof as it gets) in a deflationary environment (scary idea).



Sat, 04/02/2011 - 15:48 | 1128313 hardcleareye
hardcleareye's picture



            Silver                                     Dollar

1920      1.37                                        2.02

1947      0.60                                        1.82

1963      1.29                                        2.99

1968      2.56                                        3.18

1971      1.27                                        3.92

1974      6.70                                        5.43

1980     48.00                                       8.32

1980     11.10

1985       6.50                                     10.87

1991       4.60

1995       6.10                                     15.39

2001       4.50                                     17.89

2005       7.50                                     19.73

2007      12.00                                    20.93

*didn't verify accuracy of numbers provided by others in blog

Sun, 04/03/2011 - 01:00 | 1129255 Harlequin001
Harlequin001's picture

now why go and spoil a good story for the sake of a few facts, and figures...

Sun, 04/03/2011 - 03:16 | 1129378 savagegoose
savagegoose's picture

so 2001 was the best time ot buy silver with greatest devalued dollar vs lowest silver price

Sat, 04/02/2011 - 13:44 | 1128085 malikai
malikai's picture

Its not entirely clear what was happening with the Hunt's "cornering". What is clear is that there is far more to the story than meets the eye.

The Hunts seem to have began by hedging inflation (wise move in the 70s). Later, they got ahead of themselves and they were crushed by the machine. They became vulnerable by using too much margin, and this is where they lost the plot. Their financier banks knew what they were doing and let them have their way for a while; until they didn't. When the CFTC being only slightly less captured then as they are today hiked margins, the Hunts got cut to pieces and the so-called bubble burst. These are just my observations.

The entire silver complex could be busted today as well, if there are too many large hands unhedged or improperly hedged on margin. But I don't think it would last very long because once the currency is fully debauched, there is nowhere else to go but hard stuff, including silver.

Sat, 04/02/2011 - 13:55 | 1128116 sun tzu
sun tzu's picture

average price of cars


1912 = $240

2012 = $27,000


car prices must be in a bubble and will soon come crashing down to $240 again

Sat, 04/02/2011 - 14:50 | 1128207 r101958
r101958's picture

Excellent. Great analogy!

Sat, 04/02/2011 - 16:28 | 1128400 Pegasus Muse
Pegasus Muse's picture

KingWorldNews has some outstanding guests this week. 


Listen to Rob Arnott

 (He is a mainstream financial guy – been a guest on all the MSM outlets.  Graham & Dodd award winner.  Advises some of the biggest funds in the world, PIMCO, etc.  He tells it the way it is.  Disgusted with what he's seeing.  Says what the Fed is doing is BS.)



Then listen to James Turk

 (Great insight into how the currencies and metals are behaving.  After a recent impressive 40% rise, silver is still strongly in backwardation.  This has never happened before in history.  Turk is watching gold carefully.  Says if gold goes into backwardation, which has never happened before, the US Dollar is toast.  Means people have completely lost a faith and confidence in the dollar.) 

The other KWN interviews are good but these two are superb.

Sat, 04/02/2011 - 18:14 | 1128609 Chuck Walla
Chuck Walla's picture

Thanks, that was worthwhile.

Sat, 04/02/2011 - 18:19 | 1128620 turfmac
turfmac's picture

well said, rite on right on!

Sat, 04/02/2011 - 20:08 | 1128814 SamuelMaverick
SamuelMaverick's picture

Two problems with the chart, one the prices are not adjusted for inflation, and two the cause of the recent ten year run up secular bull market in gold and silver are not taken into account. Silver is not in a bubble, and the forces driving it's rise are numerous.  Just looking at the St Louis Fed chart on M2 is enuf to make you run to a Precious metal dealer.    Yours, Maverick

Sat, 04/02/2011 - 12:39 | 1127942 atlee
atlee's picture

QE Bitches! Where ya been?

Sat, 04/02/2011 - 12:39 | 1127946 tmosley
tmosley's picture

Silver is not in a bubble.  The dollar is.

But our delivery/shoeshine boy here is totally ignorant of basically every factor driving the economy, so his worldview is just about 100% upside down.

This is why he thinks delivery driving is a growth industry, even with diesel prices breaching never before breached barriers this early in the season.

Sat, 04/02/2011 - 12:43 | 1127954 Spalding_Smailes
Spalding_Smailes's picture

Nice non-answer, just more personal attacks to distract from said historical facts on silver, just face the facts, pimp ... 90 years worth of silver prices.

Sat, 04/02/2011 - 13:26 | 1128043 Silversinner
Silversinner's picture

In the 14th century silver was valued at $800+,

soon this price target will be broken.


Sat, 04/02/2011 - 14:50 | 1128183 akak
akak's picture

Coincidentally, that was just before the goldsmiths and their bankster buddies started playing with paper money and fractional-reserve Ponzi schemes.

Sat, 04/02/2011 - 13:37 | 1128064 sun tzu
sun tzu's picture

hamburgers = bubble 


big mac 1967 = 45 cents

big mac today = $4.00


big mac prices will go crashing down to 45 cents soon

Sat, 04/02/2011 - 13:48 | 1128094 malikai
malikai's picture

Stop. Doctor says I'm not supposed to laugh like that.

Sat, 04/02/2011 - 16:28 | 1128406 Anonymouse
Anonymouse's picture

I distinctly remember an old McDonald's commercial from when I was young, probably from the early 70s.  It had a stereotypical rich man (mahogany paneling and all) being delivered a hamburger, fries, and soda on a silver tray.  Then the butler giving him the change remaining from the $1 he had paid.


Of course, back then, McDonald's food was delivered fast, the stores were clean, and the people were friendly.


And we had to walk to school in the snow. All year long. Uphill.  Both ways.



Sat, 04/02/2011 - 13:49 | 1128075 asdasmos
asdasmos's picture


Sat, 04/02/2011 - 13:44 | 1128079 agNau
agNau's picture

How about supply/demand figures to go along with those highly accurate numbers? Is there any difference through the historical progression, regards supply? Supply/demand issues are driving grains through the roof.(as well inflationary pressure from too many dollars supply) Until the Bernank waved his magic wand tulips were a dime a dozen. Remember their scarcity drove their price until the supply burst that bubble. We know how long new mines take. There is now increasing demand, for an asset in decreasing supply, that is seen increasingly as a store of value, and protector of wealth. Think I'll buy more.

Sat, 04/02/2011 - 22:35 | 1129078 Calmyourself
Calmyourself's picture

You face the facts pee-boy.. 6,000 years of PM's representing the labor and lives required to pull them from the ground and then valued as a rare and truely stand alone marker of wealth.  The dollar is toast, whoever pays yo u to post this crap knows it.

Sat, 04/02/2011 - 17:38 | 1128526 bothsidesnow
bothsidesnow's picture

Well what is a bubble? I believe it is when a large percentage of global capital is allocated to one asset class. However, if you do the research less than 1% of available global capital is invested in the PM asset class (PM and PM mining stocks). I don't believe that is a bubble based on my definition of a bubble. If global capital allocations to the PM increase by 1% theoretically the price of PM will double and in my opinion a bubble still would not exist. So the projections of gold at 5k-6k and silver at $200 are realistic if 5% of global capital is allocated to the PM asset class and at that point a bubble still does not exist IMO.

I believe that large institutional investors will begin to increase their asset allocation to PM and other commodities as the prospect for real resource shortages become more apparent i.e. oil, corn, soybeans, wheat, etc. The simple fact is that we have experienced rapid population growth that is pressuring the ability of supply to keep up with demand for goods that sustain humans.

IMO there are two ways to get yours. Print more money and buy them thereby driving up the price as we see happening right now or forcefully take them. The US is doing both because we have the printing press and the military. I don't see this strategy ending any time soon and in fact it will only intensify and create a positive feedback loop in the price of commodities.


Sat, 04/02/2011 - 12:52 | 1127969 Bay of Pigs
Bay of Pigs's picture

Actually I think 4.06 was the low in 2001.

And saying Spalding is total douchebag is very accurate as well.

Sat, 04/02/2011 - 12:58 | 1127982 Spalding_Smailes
Spalding_Smailes's picture

Get ready for that crow soup ....

Notice that price drop in the 80's, over 60% in a few months .... enjoy.

Notice that 90 year average.

Sat, 04/02/2011 - 13:30 | 1128050 Bay of Pigs
Bay of Pigs's picture

Maybe if you spent some time actually educating yourself on PM's you would be taken seriously around here. Denial is no way to live brother...

Sat, 04/02/2011 - 14:52 | 1128188 akak
akak's picture

You are assuming that Snails wants an honest education, and to participate in a sincere and honest discussion, instead of indulging in what is clearly his real mission here, which is to spread disinformation and outright lies regarding the value of holding precious metals during a time of fiat monetary collapse such as we are in today.

Sat, 04/02/2011 - 15:37 | 1128301 Harlequin001
Harlequin001's picture

Ah Spalding, we've answered this one last week. You ignored it if I remember correctly.

It appears you have nothing to say except the same thing over and over and over and over and over...

It's boring now...

You seem desperate to get people out of silver. What gives?

Sat, 04/02/2011 - 17:46 | 1128324 akak
akak's picture

It appears you have nothing to say except the same thing over and over and over and over and over...

It's boring now...

Such is the way of dishonest and disingenuous trolls --- it is their Tao.  We saw the exact same nonsensical repetition of half-truths and outright lies from the former troll JohnnyBravo/MasterBates regarding gold.

You implicitly assume that they are here to engage in open and sincere discussion, using logic and facts and history to make their case.  How naive!  Do you not see that they have an agenda to peddle --- or more to the point, that they willingly serve some power with an agenda to peddle?

Sun, 04/03/2011 - 01:06 | 1129261 Harlequin001
Harlequin001's picture

'You implicitly assume that they are here to engage in open and sincere discussion, using logic and facts and history to make their case'

not so, fact is every dog's allowed one bite, and he just had his.

You have to give someone the chance to fail before you can say that they failed. and Spalding failed.

Now he gets ignored...

Sat, 04/02/2011 - 13:44 | 1128086 sun tzu
sun tzu's picture

Maybe they're junking his opinion and not the data? Duh

worker pay = bubble

avg annual household income 1912 = $750

avg annual household income 2012 = $50,233


Therefore, the average pay of Americans will soon crash to $750 per year and we'll all starve to death. The numbers I posted were accurate, therefore, my conclusions must be accurate.

Sun, 04/03/2011 - 20:18 | 1130803 AndyR
AndyR's picture

**Therefore, the average pay of Americans will soon crash to $750 per year and we'll all starve to death. The numbers I posted were accurate, therefore, my conclusions must be accurate.**


Unfortunetly, your conclusions might be accurate...

Sat, 04/02/2011 - 12:43 | 1127952 Long-John-Silver
Long-John-Silver's picture

Bread in 1920 cost 3 cents. That same loaf of bread now costs $1.30. What is your point?

Sat, 04/02/2011 - 12:48 | 1127959 Spalding_Smailes
Spalding_Smailes's picture

What was bread in 2001 when silver was below $5.00 along its historic trend line.

Also I buy bread for $0.85 ....

Sat, 04/02/2011 - 13:06 | 1127999 emsolý
emsolý's picture

you know you can always just sell short silver if you think it's a bubble and want to put your money where your mouth is. I'm 100% confident you'll find a buyer in 15mins.

Sat, 04/02/2011 - 13:45 | 1128090 sun tzu
sun tzu's picture

I thought you were basing your conclusions on 90 years of data. Now you want to shorten it to 10 years of data? The old bait and switch. Try selling some snake oil next time.

Sat, 04/02/2011 - 15:15 | 1128259 hardcleareye
hardcleareye's picture

Bread for $0.85(maybe 2 years ago)!!!  Bullshit!  When is the last time you did the grocery shopping!! 

Sat, 04/02/2011 - 18:47 | 1128684 Chuck Walla
Chuck Walla's picture

J.P.'s boyz don't do no grocery shopping. Thats what delivery service is for - and staff.

Sat, 04/02/2011 - 15:37 | 1128306 Harlequin001
Harlequin001's picture

who gives a shit...

Sun, 04/03/2011 - 03:21 | 1129381 savagegoose
savagegoose's picture

you cant spend bread

Sat, 04/02/2011 - 12:59 | 1127992 Central Bankster
Central Bankster's picture

The biggest bubble is your confidence in government bullshit that everything is OK.


Backwardation audio:


More Americans work for the government than in manufacturing, farming, fishing, forestry, mining and utilities combined:



Sat, 04/02/2011 - 13:38 | 1128070 gorillaonyourback
gorillaonyourback's picture

short it stupid, you can make a killin spalding, you will be rich, ride the blythe coat tails

Sat, 04/02/2011 - 13:55 | 1128120 monkeys.pick.bottoms
monkeys.pick.bottoms's picture

Mr. Spalding_Smiles,

I junked your comment about silver=bubble because I do not think for myself. I am offering a sensible way out: just admit it was an intellectual provocation:D Or should one invest in things that have been consistently overpriced? What will happen to a spring that's been compressed for a hundred years? 

Sat, 04/02/2011 - 14:14 | 1128121 goldenrod
goldenrod's picture


Shouldn't you compare the price of gold and silver to the size of Fed's monetary base and the debt and obligations of the US government?  Oil was $10 per barrel in 1998 and now it is $119 per barrel.  Is oil a bubble?  No, because unlike in 1998 now global net exports are in decline and Chindia is a much bigger factor in oil consumption.


Sat, 04/02/2011 - 14:18 | 1128165 akak
akak's picture

Spalding_Snails = Historically Ignorant Dumbfuck

Sat, 04/02/2011 - 16:09 | 1128384 Al Gorerhythm
Al Gorerhythm's picture

In keeping with your repetition, junked you... again.

Sat, 04/02/2011 - 16:23 | 1128399 akak
akak's picture

I love the smell of troll junkings in the morning!

Sun, 04/03/2011 - 03:18 | 1129380 adamas
adamas's picture

The only bubble is the one that popped in 2008, the US dollar toilet paper bubble. Spalding_Smailes hasn't yet caught on that fiat paper the world over is deflating to zero worth. This sort of nonsense encourages people to "trade" their precious metals. pretty soon your gold , lightly coated with plutonium, will be your only salvation. Trade silver for toilet paper if you wish SS but don't come for a free bowl of soup at my house when the inferno begins in earnest.

Sun, 04/03/2011 - 18:59 | 1130594 dogbreath
dogbreath's picture


and your point is?

Sat, 04/02/2011 - 12:12 | 1127899 takeaction
takeaction's picture

When interest rates rise...does that do well for PM's?


Sat, 04/02/2011 - 13:11 | 1128018 eddiebe
eddiebe's picture

Generally no. However if the lack of confidence in fiat persists around the globe, minor rate hikes should have little effect on PM.'s.

Sat, 04/02/2011 - 13:39 | 1128072 iota
iota's picture

Go loo at recent Hawkish statements and thier effect on PMs. Definitely not negligible.

Sun, 04/03/2011 - 18:57 | 1130605 akak
akak's picture

The rise in the Fed Funds Rate from 1.0% to 5.25% from 2004 to 2006 did absolutely nothing to halt the ongoing bull markets in gold, silver and platinum.

Rising interest rates are no threat whatsoever to the prices of gold and silver at this point.  Any interest rate increase high enough to knock down their prices would first blow out the federal deficit via interest payments on the debt, and would destroy the dollar long before smashing gold and silver.

Sat, 04/02/2011 - 15:44 | 1128321 css1971
css1971's picture


Imagine you have the world and all the stuff in it, in your left hand. Ask the question "What is the world and all the stuff in it, worth?"

The answer is "all the money which exists". If there is only 1 dollar in existence in your right hand, then everything in the world can be worth at most 1 dollar. If there is 200  trillion dollars in existence then everything must be worth 200 trillion dollars. No matter the number, it can only represent, or be a claim on all the stuff in the world.

Gold and silver are "stuff", they're not really money at this point, despite what some may say, they are not used day to day as money.  If you cut the amount of money in existence in half, everything, including gold and silver will be cut in half. Approximately.

Our genius leaders and their best buddies, the bankers have decided that money, can be created from nothing. You go to a bank, take out a loan, they create new money for you and create an equivalent amount of debt at the same time. So, pretty much every dollar/pound/yen/euro in existence is backed by at least 1 dollar/pound/yen/euros worth of debt. Debt pays interest and when a dollar of credit meets a dollar of debt, they are both annihilated. The result is less money in existence. The higher the interest rates, the faster the money is destroyed the apparent value of all the stuff including gold and silver decreases. The answer is no, but it depends on the size of the rise dunnit.


Sat, 04/02/2011 - 19:32 | 1128767 ViewfromUnderth...
ViewfromUndertheBridge's picture

nominal yes, real no...when real interest rates (ie, after inflation) are negative gold runs. Volcker took them to 19% to get real.

Sat, 04/02/2011 - 12:13 | 1127902 tahoebumsmith
tahoebumsmith's picture

Here's my visual presentation of how Wall St. will take it once mama decides to breast feed them real milk instead of artificial formulas...


Sat, 04/02/2011 - 12:23 | 1127910 ebworthen
ebworthen's picture


I shudder to think of the two year impact on housing if rate increases start 1Q12E.

Not that the FED cares since they are letting the banks hold foreclosures, sweep debt under their skirt, and give them all the candy and hall passes needed.

The rate raises in 2004 were the beginning of the end to the collapse of 2008 as they squeezed anyone with a home equity loan or ARM.

I hear ARM's are all the rage with young couple's buying homes and being told that "your income will catch up with the payments - this is a good option for you - you can refinance to a low fixed rate in the future" and all the other B.S. lines.



Sun, 04/03/2011 - 22:17 | 1131079 DrunkenMonkey
DrunkenMonkey's picture

The quicker housing hits equilibrium the better.

Arguing for a continuation of low rates is like asking for cheaper heroin.

Sat, 04/02/2011 - 12:21 | 1127913 alexwest
alexwest's picture

all those tables, projections, forecasts is useless masturbation..

onby thing is important is US FEDERAL BUDGET DEFICIT..
heres hard core facts..

31-march 2010
us debt - 12,773 trln $
us fed gov recepits - 1,004 trln $

31march 2011
us debt - 14,270 trln $
us fed gov recepits - 1,039 trln $

so US gov receipts are flat, but debt increased
by 1.5 trln $, so here's all you need to know about US economy..


good luck

Sat, 04/02/2011 - 13:05 | 1128003 Squishi
Squishi's picture

nicely put alx

Sat, 04/02/2011 - 13:14 | 1128021 magpie
magpie's picture

Optimists see defaults, pessimists see tax hikes.

Sat, 04/02/2011 - 18:24 | 1128097 defender
defender's picture

Realists see that they are screwed either way.

Sat, 04/02/2011 - 13:55 | 1128122 sun tzu
sun tzu's picture

Tax hikes can't solve the problem. It will only drive the capital offshore or under the mattress

Sun, 04/03/2011 - 22:21 | 1131087 DrunkenMonkey
DrunkenMonkey's picture

No, but instead of invading countries that have oil why don't have a no-fly (or better still a no-banking zone) in or over the Caymans and the other tax havens rich fux hide their money in ?

Sat, 04/02/2011 - 12:38 | 1127919 Youri Carma
Youri Carma's picture

The FED only can keep rates low with QE pump cycles. They are now like Fukushima, not pumping guaranties imediate disaster and they will pump another trill. Yet again to kick the can down the well known road which unofficially is their actual strategy. There ain't sucha thing as an exit strategy as there ain't sucha thing as a dry spent fuel pool anymore at Fukushima Reactor Unit-3 cause it has been blown sky high with fuel rods all over the freakin' place!

One could say there are a lot of toxic debt created dollars around backed up by funny money making "hot money" trips as long as people buy into it. Not to mention the very popular carry trade. No doubt that even core inflation is taking a hike but the FED doesn't seem to be eager to emphasize it this time, their own crooked measurement leaking core inflation buoy. Or does the FED just wants to imply that the dollar is no longer backed by oil and food? So what's left? Nothing more than recycled toxics for crying out loud! Like they pump back the conteminated water but more is coming out. You see the picture unfolding now ....

Can anybody at the FED say "Silver & Gold"? DuH ...

Sat, 04/02/2011 - 12:27 | 1127921 Mr Pinnion
Mr Pinnion's picture

depends how high and fast they rise.if high and fast enough it would be bad for gold.also if high and fast enough to be bad for gold is would implode the economy and turn it to dust, so it would be good 4 gold.

just BTFD in gold



Sat, 04/02/2011 - 12:30 | 1127926 blunderdog
blunderdog's picture

I just don't follow the logic.  Clearly, the government objective is to spur malinvestment and inane misallocation of capital.

The best way in the world I can think of to do this would be negative interest rates. 

In for a dime, in for a trillion dollars, I always say.

Sat, 04/02/2011 - 12:28 | 1127927 Rusty Shorts
Rusty Shorts's picture

Picking up Robo's slack here.

Sat, 04/02/2011 - 12:37 | 1127944 Sudden Debt
Sudden Debt's picture

Every mayor change in rates has historicly caused PM's to spike. In the 70's gold went up 2500%, silver 3500%

So whatever silver or gold you buy now, will give you exponential returns. And add to that mayor shortsqueezes when that happens and you got yourself a fourth of july²



Sat, 04/02/2011 - 13:26 | 1128044 eddiebe
eddiebe's picture

The way I understand it, when Volker jacked up interest rates it dropped the price of the PM's substancially, as money rushed in to money markets etc to take advantage of high interest rates. Gold and silverhad their spikes in the late '70's after Nixon anounced he would float the dollar.

 So I would have to disagree with you, sudden.

 It makes more sense for people to go long bonds when interest rates are high, therefore shorting most everything else.

Sat, 04/02/2011 - 14:01 | 1128135 Pool Shark
Pool Shark's picture



However, the fed can't allow rates to rise even back to historical norms, or our national debt bcomes immediately unserviceable; game over.


Sat, 04/02/2011 - 16:49 | 1128436 css1971
css1971's picture


They just need to print a batch of  1,000,000,000,000 dollar notes.




You think it isn't going to happen... lol.

Sat, 04/02/2011 - 12:42 | 1127947 Milestones
Milestones's picture

When mama tells the old man, I can't feed the children cause we have no food and the electricity is being shut off tomorrow; only then will we hear the click-click of a 12 ga. across this country, but not until then. It may then be too late--for everyone. How sad.     Milestones

Sat, 04/02/2011 - 12:57 | 1127987 Mike2756
Sat, 04/02/2011 - 13:19 | 1128014 magpie
magpie's picture

Just arrest some managers again, best price controls available.
Worked for Australian iron i believe, but i guess the coal is clearly underwater anyway.

Then again, the Chinese might be disciplined enough to go on living with rolling brownouts.

Sat, 04/02/2011 - 12:40 | 1127948 Rainman
Rainman's picture

A 10-year rate at 4.25 by the end of '12 virtually assures the further deterioration of demand in the mortgage market until there is a far larger cram down on clearing prices for the massive mid and upper-tier shadow inventory. Yet this is positive for the financials ?? Only with extend/pretend to infinity and beyond is my guess.

Sat, 04/02/2011 - 12:40 | 1127949 Arch Duke Ferdinand
Arch Duke Ferdinand's picture

Youri Carma

Pump Cycles, Fukishima, Exit Strategy, toxic debt etc cover it all, except for.......

U.S. Protecionism

U.S. restricts free trade to only with will see a "Flight" back to the Dollar.

Japan's Debt will be traded for allowing wealthy Japanese to emigrate to the US

China is now overbuilt itself, has nowhere to go but to War across Asia.

Oil, Silver and Gold will be sold for Food.



OT: OT: 2 min vid, starring yours truly...

Sat, 04/02/2011 - 20:22 | 1128838 Youri Carma
Youri Carma's picture

TnX for your reply.

Sat, 04/02/2011 - 12:46 | 1127956 Eireann go Brach
Eireann go Brach's picture

It's disgusting to think that those fucks at Goldman almost went under in 2008 (tapping discount window too etc) and then reaped billions just a short period after in record bonuses, and now they talk about a continused bull market strictly correlated on free money coming from their friends at the Fed. Some of those guys deserve to be kneecapped for their arrogance and narcissism.

Sat, 04/02/2011 - 12:50 | 1127966 Youri Carma
Youri Carma's picture

Kostin's Commentary Quote "... , upside risk to gold prices, ..." Frankly I don't see rising gold prices as a risk!?

Sat, 04/02/2011 - 13:19 | 1128033 ISEEIT
ISEEIT's picture

Merely kneecapping would be far to kind. I used to think 'drawn and quartered' was really sick. I don't think that anymore. Want a real 'financial reform act'?

Fuck progressive fiefdom politics, let's go old school. Horses, ropes, politicians and bankers.

That would lead to 'financial reform'

Change I would believe in.


Sat, 04/02/2011 - 13:24 | 1128042 ebworthen
ebworthen's picture

I second the motion.

Sat, 04/02/2011 - 14:08 | 1128145 Silversinner
Silversinner's picture

Silver and gold will recapitalize the wold in a few years.

With an extra bonus for silver,because it will also be

the main commodity necessary for the next techological


Sat, 04/02/2011 - 14:10 | 1128151 ivars
ivars's picture

The DJIA market will go like this ( feb 13th chart) . Current upswing is just a needle that will come down as fast as it went up. What are the reasons for DJIA double dip and recession in q1 2012- many, but most likely main reason will be oil prices due to supply disruptions (which are due to QEs by many countries and following inflation) . Libya 0 production, who is next? Saudi and Iran? Gulf states?

Here are oil prices 2011-2012 (chart from Feb 6th) :

Here are DJIA 2011-2012 (chart from Feb 6th):

Cumulative behaviour of aggregate worldwide indicators is much easier to predict then small individual events that build them up. They just happen in a way that aggregate follows forecasts. E.g. Japan quake was unpredictable, but definitely helped the DJIA chart to continue downward direction after March 11.

That is a well known principle in forecasting, called law of big numbers where relative mistake decreases with increase in scale of forecast.


Sat, 04/02/2011 - 14:13 | 1128156 ivars
ivars's picture

The DJIA market will go like this ( feb 13th chart) . Current upswing is just a needle that will come down as fast as it went up. What are the reasons for DJIA double dip and recession in q1 2012- many, but most likely main reason will be oil prices due to supply disruptions (which are due to QEs by many countries and following inflation) . Libya 0 production, who is next? Saudi and Iran? Gulf states?

Here are oil prices 2011-2012 (chart from Feb 6th) :

Here are DJIA 2011-2012 (chart from Feb 6th):

Cumulative behaviour of aggregate worldwide indicators is much easier to predict then small individual events that build them up. They just happen in a way that aggregate follows forecasts. E.g. Japan quake was unpredictable, but definitely helped the DJIA chart to continue downward direction after March 11. As will the USA q1 GDP numbers and q1 corporate profits.

That is a well known principle in forecasting, called law of big numbers where relative mistake decreases with increase in scale of forecast.


Sat, 04/02/2011 - 14:45 | 1128200 FranSix
FranSix's picture

A source of some interest should be the short end of the curve, namely the 3-month U.S. treasury bill rate set by the market:

Sat, 04/02/2011 - 14:56 | 1128219 Arch Duke Ferdinand
Arch Duke Ferdinand's picture

Ladies and Gentlemen....Need to look at the big pic....especially adding in the death of Japan.

...bernanke is out to bankrupt the world before the US ever does...

it is as simple as that.

...Asia will be selling their gold, oil, silver and US Foreign Debt for Food soon enough.

Sat, 04/02/2011 - 15:20 | 1128265 jkruffin
jkruffin's picture

It's not going to take $150 to cripple the system this time, because the thieves already have gas prices at almost $4 a gallon at $105.  Where I live, gas prices just were touching $4 a gallon when oil hit $140 in 2008. So I can rest assured, $6 a gallon will be coming to a store near me by the time oil hits $150 again.  The pinch this time is going to be stronger than last time. Retail is going to fall off the map again as the lead reporter of what is coming. Depression.

Sat, 04/02/2011 - 15:26 | 1128276 SuperRay
SuperRay's picture

No, Asia won't be buying food from anyone at any price, because every country will start hoarding its own food.  Asia will have to eat what it grows.  Japan will have a meltdown of all six reactors can they stop it - it's already too far gone.

MENAnopause will continue to disrupt supplies (gee, France and England as so concerned about thosepoor Libyans being killed by ghadafi... it's not about their oil supply being cut off, no, it's because they're so fucking humanitarian). 

the mideast pressures won't stop - Iran is considering some kind of action against SA because of Bahrain, and the US is just waiting for a reason..

Silver?  Silver is turning into a grassroots movement to topple the fed.  People buying physical silver aren't going to sell it for any reason - strong holders is an understatement.  the number of people (not just central banks) buying physical silver is growing every day.  Then the supply runs out?  That's when the audit demands will become so loud they won't be able to be ignored, and that will be a major monetary event.

In other words, this time it's different.  This time there is no more easy oil to find, no reserves to dip into, no willingness to sacrifice for the right reasons, no consensus about anything, just sides to stand with. 



Sat, 04/02/2011 - 15:46 | 1128333 dogismyth
dogismyth's picture

ahhh...the PM bugs.  They truly believe that life after a harsh and brutal collapse of an economy will save their souls and allow them to prosper.  A piece of metal will do that for them.  Even more eye candy is coming soon when deflation hits and people begin to sell it down further with their pittance of PMs.  Panic will set in and amazingly, it will not be a sell situation like pushing an "enter" button on your computer.  It'll be an exodus of folks heading into corner shops to unload their baggage.  Imagine the chaos.

And if we want to pretend that doesn't happen in the near future, lets believe that the USD goes to zero.  Whattya gonna do with all that silver and gold?  Do you really believe you're gonna be safe carrying it to whatever  "store" is open for business on a "for gold basis" only?  Oh'll have your derringer...i almost forgot.  That's gonna work well when you are picked off from 100 yards.  Will there actually be any stores around selling anything at that point?  Will they accept silver/gold?  Will they overcharge you because of unlimited supplies?  Will the government confiscate your gold?

You PM bugs gotta whole lot of worrying to do.  Of course, the PM bug mentality will be every man for himself.  No concern of building up community awareness and reliance programs...ya know....sticking together to those with like minds (survival?)  Naw....I got my gold.  LMFAO!!!

You ostriches have no idea what's heading our way, and it has nothing to do with financials, currencies, job #s, religion or gold.  I would be more than happy to inform you but I doubt there are any open minds left anymore.

So this ones for the PM bugs and their singlemindedness....

Sat, 04/02/2011 - 16:43 | 1128428 Auricle of Omaha
Auricle of Omaha's picture

Ultimately, PM's are a store of wealth.

It doesn't look like we are in for any good times in the near future. I suspect either hyperinflation or massive deflation with is basically taking a bit out of different ends of the same shit sandwich.

If the apolalypse doesn't occur, I guess I could always spend my free time keeping my PM's shiny as we all enjoy a new era of prosperity.

As I wait for the final answer, I'll continue to store my wealth in PM's while also imbibing in good stiff drinks.



Sat, 04/02/2011 - 16:54 | 1128442 akak
akak's picture

Dogismyth, your hatred towards those who refuse to buy the lies of the corrupt and tottering Establishment and its sociopathic power elite, and your acute discomfort in the face of a failing fiat currency paradigm which you clearly support and defend, are fully on display in your cute little "there's no currency depreciation and debt monster under the bed!" diatribe.

Sat, 04/02/2011 - 16:47 | 1128432 Buyemall
Buyemall's picture

I guess there is a mistake on the link.

That is not kostin's presentation

Sat, 04/02/2011 - 16:54 | 1128449 SuperRay
SuperRay's picture

hey, dog, did you actually watch that whole video. I wanted to shoot myself after 15 seconds!  (but i didn't because my silver might miss me....)

Sat, 04/02/2011 - 18:05 | 1128590 lbrecken
lbrecken's picture

This analysis is a joke.....we are in a bubble driven the the FED's liquidity unlike any other so called to sit there and pretent otherwise is stupidity......thus all historical cycles are irrelevant

Sat, 04/02/2011 - 18:19 | 1128623 cosmictrainwreck
cosmictrainwreck's picture

Ibrecken: totally correct. Can't believe all those otherwise knowledgeable posters wasted time arguing the point, although some of the O/T crap was just for fun I guess.


Frankly, I'm a little surprised Tyler even posted the article - seeing as how all the "rules" of the past 5, 10, 15, 20, 30, 50, 70 years DO NOT APPLY. Surely he & we all know that, right?

Sat, 04/02/2011 - 19:54 | 1128798 sabra1
sabra1's picture

suggested to my wife that we have more kids to use as a food source! if y'all use your heads, you'll never starve!

Sat, 04/02/2011 - 22:31 | 1129028 TwoShortPlanks
TwoShortPlanks's picture

Geezus, I read through so many posts by you guys and I feel like I'm in a bubble myself. Okay here's my ignorant lay opinion: in an environment which is open to limitless monetary expansion and manipulation of data (facts) reality must (can only) come down to a few simple [long term (only)] principles. The first is the simple fact that monetary basis are being expanded in the first place, and as such we MUST hold confidence in mathematical inevitability to [eventually] overpower any manipulation of data, media, popular opinion, currencies...everything! This means, print and you will eventually pay, so go long! The second is the simple understanding that because that data is corrupted, expect a divergence and conflict between what the market is doing and what it should be doing. It is critical to understand that even though short term diversions may occur, the inevitability of printing will always bring the absurd, the contradictory and counter-intuitive back into line...eventually math WILL win. This also means that short term investing is fraught with danger, but over a longer period the risk should diminish as anomalies are reigned-in. The last is equally simple, peaks and troughs mean little for PMs, you just need to focus only on the inevitable long term result and shrug-off the volatility; just buy the dips to reduce overall (mean average) price.
For me, the PM debate is simple, you're either long or you're are making counter-intuitive decision using trading fundamentals which may be ultimately partially or fully flawed. In this environment trading steers away from sound understanding, to a mix of understanding, luck, inside knowledge and LUCK! For me, I can all but guarentee my skeptical side that should the greed, lies, and print-a-thon continue, long PMs are the only safe bet in a market rigged to take- down investors and countries alike.

Sun, 04/03/2011 - 00:42 | 1129228 Grand Supercycle
Grand Supercycle's picture

COPPER has ignored the recent equity bounce. Daily and weekly charts are not bullish.

Oh and this too...

Sun, 04/03/2011 - 03:23 | 1129384 savagegoose
savagegoose's picture

you lose your job, its time to cancel the cable and go back to dialup.

lemme know when the US gov decides to do the same

Sun, 04/03/2011 - 22:00 | 1131033 DrunkenMonkey
DrunkenMonkey's picture

Good luck in the the market if you're trying to draw parallels from the 70's like the author ..

Do NOT follow this link or you will be banned from the site!