Patrick MontesDeOca: We have the great pleasure and honor to have with us today John Embry, Chief Investment Strategist of Sprott Asset Management. John joined Sprott as a chief strategist in March of 2003 where he plays an instrumental role in developing the corporate and investment policy of the firm. He is an industry expert in metals and has studied the gold sector for 30+ years, accumulating industry experience as a powerful portfolio management specialist since 1963.
PM: Moving right into our first interview of 2014, the ten year note is holding steady about a 3% yield so far, but has the tide changed for interest rates John, and where do you see them going in 2014?
JE: Well I do believe the tide has changed quite dramatically for interest rates. I mean they should be higher already, but because of some very arcane derivative strategies, various spreads and swaps and what have you, they have been able to hold the rates of the ten year @ 3%. If you look at the true fundamentals, there is the possibility of ultimate default or ultimate inflation rates and you not getting paid for the risk you are taking owning US 10 year, or any US paper for that matter. But if I concentrate on the ten year note, I think as time passes and more and more of the foreigners realize that this is not a good investment, the Fed is going to have to continue to buy more and more of this paper and at some point the rates are just going to go north because people will realize that there is no real intrinsic value in it.
PM: How could higher rates impact the debt and interest payments on the US economy, bonds, real estate, main street?
JE: That’s the real question and I think it is one of the reasons they have gone through such great pains to pursue this zero interest rate policy and hold the 10 year bond to the extent they can. You have to remember that the yield on the US 10 year virtually doubled from the lows last year, when it was down around 1.60 then up to 3.00, but you see at some point higher rates are going to have an unbelievable impact on the debt and importantly, the impact I think it will have on the derivatives and the loan books within the highly levered banking system. That’s what I think they are trying to protect against because if interest rates were to move up, let’s just say doubled or move up 2-3 hundred basis points, I think the banking system would be under enormous stress and the world would look a lot different than it does today.
PM: The government data points the Feds have won the war on inflation, your comments on that?
JE: When I look at the inflation numbers that the US reports, I think they are not the only ones that are cheating on their inflation numbers, but they are simply wrong. There is a chap that I’m sure you are familiar, John Williams at Shadowstats, that has gone back and recalculated all this stuff based on the original methodology before it was changed to make things look better. I suspect that the real interest rate is very much higher than the current one. This has a number of impacts because you have to remember when they report nominal GDP, it is made up of inflation and real GDP so if the inflation rate is in fact as higher, as I think it is, it is overstated so the growth of the economy is overstated.
Basically the nominal GDP in the US is made up of inflation and the real GDP growth and if inflation is being systematically understated by definition real growth is being overstated and I believe that to be the case. So, I don’t think the Feds have won any war on inflation if they continue to print the money and I think they’re going to have to or there will be an explosion in inflation at some point when the velocity of money accelerates.(...)Click here to continue reading the original ETFDailyNews.com article: Sprott’s John Embry: Feds Have Lost Control Over Monetary PolicyYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
Nasdaq quotes delayed at least 15 minutes, all others at least 20 minutes.
Markets are closed on certain holidays. Stock Market Holiday List
By accessing this page, you agree to the following
Press Release Service provided by PRConnect.
Stock quotes supplied by Telekurs USA
Postage Rates Bots go here