What Do Rising Rates Mean For Investors?

ratesLarry Edelson: There’s no question that interest rates bottomed last year, just as I predicted. This is the chart I showed everyone for the 30-year U.S. Treasury.

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As you can see, the yield on the 30-year Treasury was due to bottom in June 2012, and that’s precisely what happened.

Since then, interest rates have shot up, especially since late April of this year.

The 30-year yield soared from a low of 2.58 percent on June 4, 2012, to 2.86 percent in April of this year, and then it jumped an amazing 102 basis points to its current yield of 3.88 percent.

That’s a 130 basis point move since last June, or a full 50.3 percent rise in interest rates in just 14 months. That’s as if the Dow Industrials had advanced from 12,414.79 at the end of June 2012 to 18,658.98 today. Amazing.

As I recently pointed out, interest rates are not just rising in the U.S., but in every corner of the globe.

It’s also a blatant sign that the Federal Reserve is losing control over interest rates, another prediction I made not too long ago.

So what do rising rates mean? What are the short-term consequences? The longer-term ones?

Naturally, I can’t cover all the consequences in every sector of the economy or the markets in such a brief column. So I will confine my comments to the most basic impact of rising interest rates.

Rising interest rate environments are where you see the biggest gains in real estate prices.

First, as I noted previously, investors all over the globe are starting to see that the U.S. sovereign bond market is the world’s biggest bubble and it has to burst.

There’s simply no way investors are going to keep putting money in to bonds when the U.S. government’s balance sheet is in such horrible shape. So you should expect rates to continue to rise, and bond prices to fall.

Second, the short-term impact will be largely deflationary. Rising rates are why you are seeing the dollar now jump in value … and commodities largely selling off.

The dollar has gained a huge 2.1 percent just since Aug. 20. Meanwhile, most commodities are now tanking again. Copper is starting to roll over to the downside. So is platinum and palladium. The grain markets are getting whacked too, with the prices of corn, soybeans, wheat and more all getting hit hard.

Gold and silver are now rolling over to the downside as well. Almost no one believed me when I warned that the precious metals would head lower into September.

They told me I was nuts for two reasons: First, September is typically a seasonally strong month for gold and silver buying. Second, with Syria about to erupt into a war for the U.S. — there’s no way, they said, gold and silver would fall.

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Yet fall — and fall hard — is exactly what they are doing. You can see it in my latest updated cycle chart for gold.

Notice how it shows an extended decline through September, with a low not expected until the Sept. 26 to Oct. 3 time frame.

Rising rates are now also taking a bite out of the stock market. Short-term. Investors are fearful that rising rates means lower corporate earnings, debt disasters, sluggish economic growth and more. So the stock market remains caught in a corrective mode, with lower prices to come.

But here’s the irony of it all: While most investors are caught up in the short-term consequences and knee-jerk reaction of the economy and most markets to rising interest rates …

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