Will She or Won’t She and the Big Myth

Larry Edelson

Tomorrow afternoon the entire world will know whether or not Janet Yellen will raise the official Fed Reserve Federal Funds interest rate for the first time since June 29, 2006 — a very long nine years ago.

And the first time it’s made any kind of move on rates since it lowered its discount rate in February 2010.

I personally think Yellen should hold off. The U.S. economy is not strong enough, foreign economies, especially Europe, are in shambles, and the dollar is already soaring.

A rate rise now threatens to derail the U.S. economy, push Europe further underwater and send the dollar soaring, worsening global deflation.

Be that as it may, today I want to clarify something I believe is very important: The myth of higher interest rates. That rising interest rates are bad for the stock market, and that declining rates are good for stocks.

Most investors have heard this interest rate theory hundreds, if not thousands, of times.

If you’re like any average investor, you’ve heard that theory literally hundreds, if not thousands, of times. Tune into any media show today, and I’m sure you’ll hear it at least once, if not more.

Most stock brokers, and the majority of analysts and newsletter editors, espouse the same causal relationship between interest rates and stock prices.

But the fact of the matter, the plain truth, is that there is no “standard relationship” between interest rates and stock prices. Period.

Consider the period from March 2000 to October 2002, where the Federal Funds rate declined from 5.85% to 1.75%, and the Nasdaq plunged 78%.

Put simply, stocks and interest rates went down together! Exactly the opposite of what most would expect.

Or the period from March 2003 to October 2007, where the Federal Funds rate more than tripled and rose from 1.25% to 4.75% … And the Dow exploded higher, launching from 7,992 to 13,930 — a 74% gain. Stocks and interest rates went higher together!

The fact is that the relationship between interest rates and stock prices varies considerably depending upon a host of factors, including the value of the dollar, inflation and where the economy is in terms of the economic cycle.

The same myth applies to interest rates and gold: Higher interest rates, most pundits claim, is bad for gold.

But that is almost entirely wrong. Most strong bull markets in precious metals have occurred with rising interest rates, not declining rates.

There are numerous examples, the most vivid of which was the late 1970’s bull market in gold and silver which occurred simultaneously to a massive rise in interest rates. Once rates peaked, so did gold and silver.

Now, to a few other items on my list for today. No matter what the Fed decides tomorrow:

First, the long-term trends for precious metals remain down. Neither gold, silver, platinum nor palladium has bottomed. That said, don’t be surprised if you see a short-term rally.

Second, the long-term picture for the U.S. equity markets remains exceptionally bullish. That is, once the pullback that is still very much in progress is completed, probably in mid-October at much lower levels.

Third, the bull market in the U.S. dollar — and conversely, bear markets in most other currencies — remains intact.

Fourth, deflation in the commodity sector is not yet over. With the mere exception of natural gas, for every commodity I look at, my system models point still lower.

Fifth, is global unrest. Per my war models, global unrest is about to accelerate higher, yet again. Driven by the refugee crisis in Europe, by ISIS, by currency devaluations outside the U.S., by rising taxes and an increased hoarding of cash (dollar bullish by default).

Sixth, is the great sovereign-debt crisis that is about to explode onto the scene. The evidence is overwhelming now. From Trump’s popularity, in the sense that he’s an outsider vilifying career politicians, to Bernie Sanders proposing $18 trillion in new spending (where’s the money to come from?) …

To the refugee crisis, which will break the European Union’s back … to our own debt ceiling which will hit Oct. 1 …

To the patently unpayable debts and IOUs of Europe, Japan and the U.S.

So beware, the waters are going to get rough ahead, increasingly rough. But they’ll also be loaded with many opportunities.

Best wishes and stay safe,

Larry

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.

Comments 83

Manny September 16, 2015

The long term trend is metals remains down? Seriously? Is Larry attempting to rewrite his columns? Had he said short term trends it would have been consistent with past columns. But now all of a sudeen he's saying its a long term trend? Please! Seriously Larry you cant have it both ways. Make up your mind.

$1,000 gold September 16, 2015

so, then, accept the latter version. metals long-term trend is down. things change, dude.

we're September 16, 2015

no need to micromanage larry for us. we're all aware of his good and bad calls.

SEH September 16, 2015

...bottom line on precious metals: Mr. Edelson really doesn't know. From my perspective, current pricing of precious metals is currently extremely low and severely suppressed artificially by the U.S. Federal Reserve creating massive paper Gold and Silver futures contracts out of thin air, backed by nothing and regularly dumping them. This is both fraudulent and illegal, yet is American Business as Usual. In my view, this is the primary reason why it is not possible to use historic models to predict when the bottom will be and when precious metals will explode higher. I believe though it can be said that they will explode higher as soon as dumping fraudulent futures contracts no longer has the intended effect. When that will be is very hard to determine, but I expect that to happen in the very near future, i.e. this calendar year 2015.

we're September 16, 2015

the top is in for the year.

$1000 gold September 16, 2015

you said you wouldn't come here again. i must be irresistable

mephisto September 17, 2015

you must be a girl.

John T September 17, 2015

SEH - I agree with you, however, the fed and wall street will not stop creating massive paper and silver futures contracts until there is no market for them, and the bottom literally falls out because of some unseen event. Physical gold cannot be created out of thin air. When this event happens the price for physical gold will skyrocket. The problem in the market today is all the paper and derivative contracts against the very small supply of physical metal.

jrj90620 September 16, 2015

I wonder how long,central banks,can dump all their economies' problems onto their currencies,without some kind of loss of confidence and maybe the end of fiat currencies.Don't know why so many people think that Dollars and other junk currencies are some kind of safe haven.I'm seeing plenty of inflation,despite the supposed strong Dollar.What happens when the Dollar starts declining?I think recent strength in precious metals is anticipating that day.We will look back at today's 5-6% inflation as the good old days.

$1000 gold September 16, 2015

but I don't think you have any answers better than anyone else. why do you even comment?

BDF September 16, 2015

your comments are rude and abusive, $1000 gold. go away.

$1000 gold September 16, 2015

you first. take your grizly bear friends with you

uno September 16, 2015

...or we can get along and co-exist. i respond in the manner i'm treated. you won't have any trouble out of me, i only counter you're attacks on me.

John T September 17, 2015

If you tell a lie long enough, many people believe it as truth, But it is still a lie. That is why the FED constantly tells you gold is a relic of the past, and spread this myth. Some of us have realized the emperor has no clothes.

$666 gold September 17, 2015

gold is a hedge. you're betting on failure. so long as you think of gold as insurance and not the lousy investment that it is, you're ok.

Fred Noonan September 22, 2015

I have paid thousands of dollars for decades on my life insurance and had zero return yet. I guess I'm OK even though it's a lousy investment for me.

John T October 24, 2015

Gold is not an investment, but real money just like art of famous painters, it has value because it is rare.

Will September 16, 2015

If you look at the price of gold plotted in Euros you will see a different picture than the one when plotting gold in dollars. Gold still remains as money, no matter how much people will deny this. If gold is a mere commodity then why hasn't the price of gold totally collapsed like the commodity prices have? Over years the price of Platinum expressed in dollars was typically higher than for gold, but not not recently as commodities collapsed. Other countries beside the U.S. are either buying gold or bringing it home; but U.S. politicians continue to talk gold down as they could never accept a dollar tied to gold.

$1000 gold September 16, 2015

look out below for gold. Or maybe not. Sky's the limit for gold. Who knows. I sure don't.

hiede September 16, 2015

it's a race to the bottom for oil, gold, china, and commodities.

$1,000 gold September 16, 2015

lowering rates is stimulates the economy, just like press on the gas peddle of a car makes it go faster. but you must realize, if i'm towing a trailer up a mountain an i push the gas peddle all the way to the floor, it doesn't mean i'm going to go faster. same goes for the economy.

$1,000 gold September 16, 2015

the converse is true for raising rates. tightening always slows the economy, but an overheated economy and stock market can still rise in spite of this.

we're September 16, 2015

like putting the brakes on a speeding train can take a while to have an affect.

alejo September 16, 2015

I totally agree that we shouldn't see an increase in interest rates any time soon. Yes, US economy is growing and unemployment is going down. So what? The most importante factor, the inflation rate, remains stubbornly stuck under 2%, and it will stay there as long as the US budget deficit isn't big enough to cause a significant acceleration of inflation. Because the deficit is by far the most important inflationary force, and it is impossible to have a smaller deficit and higher inflation at the same time, as some people want. It would be better to admit that we need bigger deficits, simply because we're back in a keynesian world, where if people don't spend enough then governments should spend more, and that's all there is to it. Only too many people seem to have forgotten the lessons of the past, so there is a risk of getting stuck with deflation - and depression - indefinitely.

mephisto September 16, 2015

what will happen if the fed raises rates vs not raising them? either way, is there a difference to the stock market?

$1000 gold September 16, 2015

fed. schmed. all I care about is gold.

mephisto September 16, 2015

you're a smart guy, $1000 gold. don't let anyone tell you otherwise.

$1000 gold September 16, 2015

yes. kisses to you. scared away were. let's keep cleaning

uno September 16, 2015

the ball is in your hands. it's how you play it that i'll respond.

mephisto September 17, 2015

were is still around. you're probably him. are you a faker?

$666 gold September 16, 2015

long way to go to the bottom.

nanny September 16, 2015

so close i can taste it...

we're September 16, 2015

i can taste it too. wayyyyyyyyyyyy down here.

$1000 gold September 16, 2015

such an original name. you must be related to nanny, heide and we're. you all posted within a couple of minutes of each other. such a close group of friends. are you a faker?

uno September 16, 2015

are you?

uno September 16, 2015

it's spelled hiede, not heide. hiede is my friend and heide is one of your friends, just like bfd, manny, etal ... and you are were.

uno September 16, 2015

were, i come here to share knowledge and learn. you come here because you seem to have a grudge with larry.

$1000 gold September 16, 2015

i am so confused. first i am called rude. then i am called a grizly bear. then i am diarrhea. now i'm were. will the real me stand up. tell me please. i don't want to cause trouble. tell me what the markets will do uno. you seem to be the expert

$666 gold September 17, 2015

the markets will go up. in the end they always do. no matter how bad it gets, the markets always eventually return. you just saw a worst case scenario in 2009. what more proof do you need?

vomit September 17, 2015

were, heide, bfd, manny, and now $1,000 all seem to run in a pack. like i said said before, it reminds me of a bunch of dogs sniffing each others butt holes. someone please push the jettison button on their diarrhea.

$1000 gold September 17, 2015

welcome vomit to the family. Uno says hi too. Dogs and grizly bears can get along together

were September 17, 2015

smells good around here.

$666 September 16, 2015

when gold bulls like peter schiff, marc faber and harry dent finally capitulate and admit they were wrong that'll be the day the gold bull is over. the day these guys throw in the towel and sell their gold, the bottom is in and i’ll buy it from them.

JTMarlin September 17, 2015

Peter Schiff will never capitulate and Harry Dent has been calling for 700$ gold for a long time.

$666 gold September 17, 2015

harry dent has completely missed out on the bull market that started in 2009, telling his subscribers to wait for the "crash" and they'll clean up. what an idiot. his followers have missed out on 200% plus gains.

$666 gold September 17, 2015

peter schiff is another idiot who keeps telling investors get on the sinking gold ship and have watch their money go down the toilet.

$666 gold September 17, 2015

peter schiff will capitulate. he will even sell his gold at a bottom. that will be the time to buy it from him. it happens every time.

mephisto September 16, 2015

martin armstrong expects a collapse on even the first rate hike. what will that do for his career if he's wrong?

$666 gold September 16, 2015

all the weak miner will lock their gates and only the strong will survive, like is happening in the oil business right now. when the bottom is in, only small number of big names will remain.

BDF September 16, 2015

good point, $666. kind of like happened during the consolidation in the 1980s. makes sense.

nanny September 16, 2015

this must be why larry thinks there'll be another leg down.

BDF September 16, 2015

...and why we're thinks the top is in for the year.

$1000 gold September 16, 2015

i'd love to go to work for weiss and get in on all this good information firsthand.

mephisto September 16, 2015

no doubt about that. don't know how i'd survive with out this comment section. all the smartest financial people are right here share their knowledge daily. i'd be lost without it. i've been coming here a long time and it just keeps getting better every week.

$1000 gold September 16, 2015

don't worry, like the grizly bear I won't ever go away

uno September 16, 2015

bears just hibernate, like were.

Rose September 16, 2015

Does Larry ever make comments in this section? I'd like to ask him a question.

uno September 16, 2015

no

$666 gold September 17, 2015

one last time: it doesn't matter how bad it gets, the markets always eventually return at some point. this is the real secret to warren buffett's success. buffett says his hold term is forever. what he's really saying is he will not sell a stock at a loss. this is why he buys only name brand large cap stocks that will never go out of business. buffett's worse case scenario is he'll at least break even. he'll never lose money in the market with his game plan.

were September 18, 2015

that's more important than losing money.

$1000 gold September 17, 2015

i like your name. reminds me of my own.

were September 17, 2015

i like were better.

$666 gold September 17, 2015

mine is best one

faker September 17, 2015

glad to see we're friends now. i know who you are, you know who i am.

kc September 17, 2015

Fed stays the same on interest rates. Gold goes up. Makes no sense. Below $1000 gold by December for sure now.

Tom September 17, 2015

I was right about Gold going up at the fed meeting.......... That was my point That's how to make money..........

$666 gold September 18, 2015

now we see gold drop like a dead grizly bear

$666 gold September 18, 2015

i can't remember if i wrote this or you wrote this?

$666 gold September 18, 2015

i don't remember who i am anymore

Manny September 18, 2015

Guys, in June of 2013 Larry famously suggested we were so close to a bottom in the miners that he could almost tatse it. The in 2014 he abruptly chamged course and said he was wrong and that there was still a ways to go in the bottoming out process BUT that he was still long term bullish on gold and precious metals. In 2015 Larry has mostly been consistent in trumpeting the bottom is not yet in message. But on Wednesday of this week he has all of a sudden shifted his take and has now said that the long term outlook for metals is negative. Thats three years worth of analysis in a nutshell and three years worth of inconsistemcies. Im sure if we go back further we can punch holes Larry's supposed savant record in the metals induatry. The bottom line is the Weiss Group is selling subscriptions and not reason or sound financial advice. For all we know Larrry is throwing chicken bones on a table or reading tea leaves to reach his conclusions. Dont fall for it. Do your own work and your own analysis. As for me, I belive in the precious metals and will be looking to make oportunistic purchases. Right now though I am dollar cost averaging to recover from Larry's terrible advice.

$1,000 gold September 18, 2015

you should of listened to me. i said the gold bubble popped in the fall of 2011. when these bubbles pop, they usually go all the way to a bottom. strong s/r level at the old 1980 high of about $800 where gold will end up long term. the gold bull is over.

alejo September 19, 2015

Good comment, Manny, I already suspected that Mr. Edelson doesn't know a word of what he's talking about. Now he's making quite a fuss about a financial Armageddon on October 7th, and of course the only thing than will happen then is that he'll make a complete fool of himself. As usual.

Heidi September 19, 2015

$1000 I want YOU back here in 12 month from now, o.k. ? Remember when you see gold's low when you see it - $ 800 is possible but you said THE GOLD BULL IS OVER - see you Sept./Oct. 2016 !

$1,000 gold September 19, 2015

i think it could take a long time for gold to get below even $1.000, let alone all the way down to $800. i could make a guess, but why? if i got it right, it would only be a lucky guess. i don't try and time the market. gold will go below $1,000, but i'd rather not pick a time.

$1,000 gold September 19, 2015

very rough average, gold has been dropping about $100/yr. so, at the present rate of decline, gold won't establish and s/r level at $1,000 for about another year. $900 in another year. $800 in another year. so maybe 2 or 3 years for gold to reach the s/r level of $800. that's such a long ways off it's impossible to time. too many factors could change the current rate of decline. my best guess would be the bottom in gold is years down the road. you can hold me to that. i'm a big boy. i can handle anything anybody had got for me.

$1,000 gold September 19, 2015

expect a nice big bounce in gold off the bottom someday, the bottom in gold will most likely coincide with a recession, which is years down the road. i'll say it again: a bottom in gold is far off in the future, and a recession is also far off in the future. no point in trying to time that now.

$1,000 gold September 19, 2015

question: why obsess with gold. a recession is far off in the future. stocks should continue upward until that time. seem the focus should be on own high quality domestic stock. screw gold. it's just a barometer to watch.

$1000 gold September 20, 2015

gold is toast. silver is toast. all precious metals have no more value in this economy. they will confiscate it all anyway. it's just a big sucker's game. i don't like suckers

$1,000 gold September 18, 2015

gold is toast.

Bill September 19, 2015

Larry. Tend to agree with you related to interest rates and stock market has no direct relationship and more dependent on other variables. The economy and stock market is related. Our economy is slow because of fear and stupidity with people that can make changes. The economy and stock market do well when there is a lot of money and a lot of money is spent and taxed, but because of fear the middle class and rich are saving via stocks, bonds, treasuries, and other savings and tax sheltered means. The poor are the ones spending, but mainly for survival. This should be obvious by how we purchase new things versus used things today. Remember the payroll tax holiday, the poor spent it, while the middle and Rich classes invested it. The majority of middle class (baby boomers especially) investors are very conservative not willing to invest in risky stocks while the rich have more they can afford to invest. Investors are getting smarter everyday, but it is hurting the economy since they are also more practical and smart buyers. Lastly we have the black market all over the world where money is taken out of circulation and not taxed. Think of the problem with our penny costing more than nine cents to make one, and where are all the millions of dollars in penny's out of circulation in those piggy banks, and you can't even exchange large quantities at most banks without a lot of your time and effort. No, this economy is not going to pick up unless people start getting pay raises and the United States can get back in the manufacturing business and start more trade schools up create millions of blue collar jobs. Just my thoughts for the day. Bill

Bill September 19, 2015

I have 8 billion and have not spent a cent since 2009, I just keep reinvesting it. How does attitudes like that improve the economy. It does not, if everybody did that, the conveyor belt would come to a complete stop.

Heidi September 21, 2015

$1000 gold He finally lost his marbles . And now I'm asking will Larry join him ? Larry is expecting the DOW to fall to 13937 by Oct. 21 2015 . 16,450 today - 13,937 = 2513 pts. lower or about 15 % in 4 weeks . How did he get to 13,937 ? He found that number in his hat .

$1000 gold September 22, 2015

no heidi i didn't lose the marbles. i still have the 2 big brass ones that i use to trade gold with. are you not travelling with your dog pack bfg and were anymore