The Federal Reserve isn’t budging…
The Fed met last week to announce whether or not it would raise interest rates for the first time in more than nine years.
Regular readers knew this was a critical decision. In December 2008, the Fed cut its key rate to effectively zero to fight the financial crisis. It was a radical move…one unprecedented in modern history. The Fed has kept rates near zero ever since.
Many thought the Fed would finally raise rates last week. The mainstream media was preparing for “lift off.”
But on Thursday, the Fed said it wasn’t ready. It’s waiting for the U.S. economy to grow a little faster before it raises rates. It’s also concerned about the recent volatility in global stocks.
The Fed said it still plans to raise rates in 2015.
• Stocks fell after the Fed’s decision…
The S&P 500 closed down 1% on Friday. The Japanese Nikkei 225 dropped 1.96% that day. And the Euro Stoxx 600, an index that tracks 600 of Europe’s biggest companies, fell 1.63%.
Meanwhile, gold jumped 1.9% over Thursday and Friday.
• One member of the Fed wants negative interest rates…
Bloomberg Business explains:
For the first time ever, one monetary policymaker thinks the U.S. needs to move to negative interest rates until at least the end of 2016 to achieve full employment and get inflation back to 2 percent.
This is another sign of our warped economy. Negative interest rates shouldn’t even be possible. Negative rates mean that a bank will charge you interest to hold your money instead of paying you interest. Negative rates mean that lenders pay interest instead of borrowers.
• Negative rates would push us further down the rabbit hole…
Regular readers know easy money policies have created a “Wonderland” economy…
Zero percent interest rates have made it incredibly cheap to borrow money. Americans have borrowed trillions to buy houses, real estate, and cars. This has warped the price of nearly everything.
Now instead of unwinding these crazy policies, one member of the Fed wants to make it even cheaper to borrow.
• We think these crazy policies will eventually cause a major financial crash…
Investing legend Jim Rogers agrees with us. Rogers cofounded the Quantum Fund in 1973 with George Soros. The fund skyrocketed 4,200% while Rogers co-managed it. In a recent interview with The Star Online, Rogers said:
“My main concern is that the U.S. Federal Reserve doesn’t know what it’s doing. It does not know what it is going to do next as interest rates are going to go higher so it has to start withdrawing huge artificial oceans of liquidity. When that takes place, 2016 and 2017 are not going to be fun years because these guys have made mistakes and they have to correct it,” he said.
• The most important energy deal in decades is moving forward…
On Thursday, the Senate killed a resolution to stop President Obama from lifting economic sanctions on Iran.
Casey readers know the U.S. and five other countries recently reached a nuclear deal with Iran. The deal requires Iran to stop developing nuclear weapons and to use nuclear for power generation only.
If Iran passes key inspections of its nuclear sites, the six countries will lift economic sanctions against Iran…including the ban on importing Iranian oil and natural gas.
• If the sanctions are lifted, Iran could nearly double its oil exports…
Regular readers know the price of oil has crashed over the past 15 months. An oversupply of oil has pushed oil down 56% since June 2014.
The lifting of Iran’s sanctions could make the oversupply worse…
Iran is the sixth-largest oil producer in the world. It produces 1.2 million barrels per day (bpd). But its oil exports have dropped 45% since 2011, largely because of the sanctions. If the sanctions are lifted, Iran’s exports could nearly double to 2.2 million bpd.
• Iran is eager to sell its oil…
According to Iranian oil minister Bijan Zangeneh, the country will increase exports even if prices stay low.
We should sell our oil whether the price falls or goes to $100 (a barrel). Even though we would like to sell our oil more expensively, the price is determined by the market…
This isn’t a good sign for the price of oil. The lifting of the sanctions against Iran will likely put extra downward pressure on oil prices.
Chart of the Day
We explained earlier that the Fed decided not to raise rates…and that the easy money policies will continue.
Gold is one of the best assets to own during times of easy money…because governments can’t debase gold like they can debase dollars and other currencies.
Today’s chart shows gold’s price action on Thursday, the day of the Fed announcement. As you can see, gold jumped 1.4% in just a few minutes.
Gold continued to go up on Friday. The price of gold is now at $1,139, its highest level in nearly a month.
Delray Beach, Florida
September 21, 2015
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