Going Up! Interest Rates Must Increase

Oct. 03, 2021 3:28 AM ETSPY, QQQ, DIA, SH, IWM, TZA, SSO, TNA, VOO, SDS, IVV, SPXU, TQQQ, UPRO, PSQ, SPXL, UWM, RSP, SPXS, SQQQ, QID, DOG, QLD, DXD, UDOW, SDOW, VFINX, URTY, EPS, TWM, SCHX, VV, RWM, DDM, SRTY, VTWO, QQEW, QQQE, FEX, SPLX, EEH, EQL, QQXT, SPUU, IWL, SYE, SPXE, UDPIX, JHML, OTPIX, RYARX, SPXN, HUSV, RYRSX, SPDN, SPXT, SPXV46 Comments14 Likes
Ronald Surz profile picture
Ronald Surz
1.94K Followers

Summary

  • US money supply has quintupled in the past year.
  • Because of this money printing, inflation is here for the long run.
  • Inflation forces increases in interest rates.

Inflation

JLGutierrez/E+ via Getty Images

Zero Interest Rate Policy (ZIRP) has propped up bond prices and inflated a stock market bubble, but at what cost and when will it end? How will it end?

The cost of ZIRP has been a quintupling of the money supply that is certain to cause inflation, and the Federal Reserve knows it. The Fed is trying to gaslight investors into thinking inflation will be transitory. But they can't control our minds or interest rates for long.

Inflation will cause increases in interest rates despite Fed efforts to maintain control. Here again we're being gaslighted into believing that tapering will be the cause. Interest rates are going up regardless of who is turning the interest rate dial - investors or the Fed. Absent Fed manipulation against them, investors require a return on investment that is above inflation - a real return.

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Insane money printing

The US government is poking the inflation bear, printing insane amounts of money testing to see its inflationary effects. We've even out-poked Japan. The M1 money supply has quintupled from $4 trillion at the beginning of 2020 to $20 trillion today and there is hot Congressional debate about printing another $4.5 trillion.

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Forget the printing press. Money is "printed" when the Treasury issues debt. In "normal" times, investors, including foreigners, invest in this debt, but most of the new debt has been bought by the Federal Reserve. This game reveals itself in the money supply.

The money supply has increased because of spending on Quantitative Easing (QE), ZIRP, COVID relief and new government programs. Most are noble purposes, but the price tag is imminent inflation. Inflation will increase interest rates, putting an end to ZIRP.

The end of ZIRP

Some call it "Taking the punchbowl away" because the party is over. ZIRP has artificially inflated stock and bond prices. The inflation we haven't seen in the CPI has all been in security prices. Inflation goes where the money goes.

Bond prices will plummet because that's what happens when interest rates increase.

Stock prices will fall because the present value of future earnings will plunge. Stocks will be worth less because the discount rate will be higher.

Conclusion

We are currently getting a glimpse of the inflation that lies ahead. There is still time to protect. Cybercurrencies are a reaction to the possibility that fiat money could become worth less or even worthless. Other defenses include TIPS (Treasury Inflation Protected Securities), real estate, precious metals, and a host of derivatives (like put options) that bet on decreases in stock and bond prices.

Do you see ZIRP in your future?

This article was written by

Ronald Surz profile picture
1.94K Followers
Please visit https://babyboomerinvesting.show o I'm author of 3 books: Baby Boomer investing in the Perilous Decade of the 2020s, & 2 books on target date funds I’m smart with 2 Masters degrees and 55 years in financial consulting. I’m semi-retired, and prefer helping my fellow baby boomers rather than playing golf. I’m worried that our country, & most others, is playing with fire in its money printing. I’m here to help – that’s my legacy. spaceI help investors deal with life’s investment challenges, with the objective of enjoying a comfortable long retirement. I’m passionate about questioning and improving upon entrenched stale practices like jamming everyone into cookie cutter model portfolios. That's why I produce the Baby Boomer Investing Show live on Youtube and Facebook every other Tuesday at 10:00 PST. Watch live or replay by searching for "Age Sage Robo" on Facebook or Youtube. Please watch and support our Boomer Investing Show on Patreon ( https://www.patreon.com/user?u=35204315&fan_landing=true ) and visit our SA Blog at https://seekingalpha.com/account/authorboard/instablog . As president of Age Sage Robo (please Google), and CEO of GlidePath Wealth Management, I’m responsible for model development using my patented process . I have more than 50 years of financial service experience and hold a U.S. Patent for a time-tested glide path investment process that helps investors navigate the complicated financial decisions they face as they accumulate and preserve assets for their retirement years. Age Sage & GlidePath use this process to build Target Date, Special Purpose, and Life Span Portfolios that are tailored to the specific requirements of clients. My extensive financial career began at A.G. Becker Pension Consultants where I advised on the investment policies of several trillion dollars of retirement plan assets. After Becker I started my own consulting firms that developed innovative services for investors and the financial advisors who serve them. I’ve earned a BS and MS in Applied Mathematics from the University of Illinois and an MBA in Finance from the University of Chicago. I am author of the book "The Remarkable Metamorphosis of Target Date Funds" and co-author of "The Fiduciary Handbook for Understanding and Selecting Target Date Funds"
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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