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Tuesday, January 29, 2013

Interest Rates Will Spike This Year: Soros

The next crisis of confidence (financial crisis) will send both interest rates and gold higher.  History's numerous financial crises, a few highlighted green below, confirms this tendency (chart 1).

Chart 1:  High Grade Corporate Bond Yield (Aaa) and Gold London PM Fixed

The transition of capital flows from bonds (public sector) to stocks (private sector) is nearly completed. A breakout from 14-year consolidation should happen in 2014.  The next financial crisis, an event that sends interest rates surging, will only accelerate the transition once calm is restored.

Chart 2: Large Cap Stocks Total Return Index (LCSTRI), LCSTRI to Long Term Government Bonds Total Return Index Ratio (LCSTRILTGBTRIR) and LCSTRILTGBTRIR Cycle Z Scores (LCSTRILTGBTRIRC3&4)

Headline: Interest Rates Will Spike This Year: Soros

There will be a dramatic rise in interest rates as soon as there are clear signs the U.S. economy is picking up, billionaire financier George Soros told CNBC.
Soros said that the U.S. needs to reestablish growth to help shrink its debt pile and that the Federal Reserve's policy of buying U.S. debt, is the right one since it doesn't add to the net amount of debt outstanding. "It's about as close to a free lunch as you can get," he said. 

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