Federal Reserve Chairman Ben Bernanke announced last week that the Federal funds rate will stay near zero for now. He reasoned that the “low rates of resource utilization and a subdued outlook for inflation over the medium run” would likely “warrant exceptionally low levels for the federal funds rate at least through mid-2013.”
This will likely translate to the real interest rate (which is the rate of interest an investor can receive on a U.S. Treasury bill after allowing for inflation) remaining negative for at least another year and a half.
For gold investors, a low-to-negative interest rate has been associated with a powerful historical trend. Going back four decades, gold has experienced positive higher year-over-year returns whenever the real interest rate tipped below 2 percent. And the lower the rates drop, the stronger gold tends to perform.
Why Italy is ‘Oh, so special’
Well this is embarrassing. Turns out that Banca D’Italia released its latest financial stability report on November 2.
It’s a shame we missed it because it is literally jam-packed with market info. Worth a read on all fronts.
We’re still picking our way through it. But here’s one chart that immediately jumps out:
The Wednesday That Was...Winners from the Debacle Du Jour: What Will Thursday bring....short etf's were the place to be! Shaza
Is this how the euro ends?
Here’s how it was supposed to go: Greece first. Then, perhaps, Portugal and Ireland. If things got really bad, Spain. If the world -- or, more precisely, the euro -- was coming to an end, Italy. It was not supposed to go Greece and then Italy. No one was prepared for that. The markets weren’t prepared for that.
And so the markets are falling. The Dow is down 290 points. The Stoxx 50, a blue-chip index for the euro zone, is down 2.5 percent. Italy’s borrowing costs have skyrocketed. The Euro has plunged.
The problem, put simply, is that Italy is both too big to fail and too big to save. It’s the eighth-largest economy in the world. At $2 trillion, it’s about seven times as large as Greece’s $300 billion economy. France and Germany’s banks alone have $600 billion in exposure to Italian debt. But Barclay’s says Italy is “now mathematically beyond the point of no return.” Silvio Berlusconi might be out, but changing governments does not change arithmetic. And so the question is simple, and stark: If there wasn’t the will to really save Greece, where would the will -- and the money -- come from to save Italy?