Thursday, December 13, 2012

Blankfein: Borrow As Much As You Can at These Rates Because Interest Rates Are Headed Higher

Well, what do you know, the ultimate bankster and EPJ are on the same page as far as expectations  for interest rates.

John Carney has some important reporting coming out of the New York Times DealBook conference. He writes: 
Lloyd Blankfein is worried that investors think low interest rates will last forever.

"One of the big risks that's looming is complacency. People are once again complacent about the low level of interest rates," the Goldman Sachs CEO said at the New York Times DealBook conference Wednesday.

As a result, there could be losses for investors with portfolios heavy with low interest loans, Blankfein predicted.

"At some point growth will come back. I think its going to come back sooner than people think. Now what's going to happen when growth comes back, interest rates rise?" Blankfein said. "That will have an effect on portfolios and people will have losses."

Blankfein said that Goldman is advising all its corporate clients to borrow "as much as they're going to need for as long as they think they could need it" because of the low interest rate environment.
The sooner than expected "growth" that Blankfein refers to is, of course, Fed manipulated growth, largely the result of money printing that will ultimately also cause price inflation, which will push interest rates higher.

Ray Dailo, the hedge fund manager with the most assets under management, also sees rates heading higher and said so at the same conference:
"The biggest opportunity, and I don't think its an imminent opportunity, will be shorting the bond market," Dalio said.
Dalio, however, is possibly making one pedestrian error. It appears he expects the higher interest rates to cause a crash in asset prices or what he is calling financial assets:

Rising interest rates in 2013 will likely push down prices in almost every financial asset in the world according to Ray Dalio, the founder and chief investment officer of the world's largest hedge fund, Bridgewater Associates.
Low interest rates made necessary by global deleveraging have squeezed risk premiums out of nearly every asset class, Dalio said. As a result, most financial assets are "fully priced" and many are overvalued, according to Dalio. 
"I think those risk premiums are likely to expand, and as a result I think that is generally a negative for asset classes as a whole," Dalio said.
If Dalio is including equities in his definition of asset classes, he is dead wrong. Interest rates are going to be driven up by rising price inflation. The Fed will only allow rates to climb higher at a slow pace. This will means the climb in assets such as equities and real estate will continue to climb higher. Only when rates are higher than the price inflation will asset prices be choked off. And, Bernanke isn't anywhere near doing that point.


  1. This Mr. Blankfein is quite the guy. He so concerned about the public missing out on this wonderful opportunity to borrow money!

    So open and honest, he is showing how much he cares about us that we don't miss this incredible offer by alerting us through CNBC.

    Who knew that the Government Sachs CEO was a genuine friend of the public and their bank balance? He is doing "God's work" of course.

  2. Goldman also called for a top ino gold just a couple of weeks ago. So we know that we can follow their lead.

    How can rates rise when the FED is the buyer of last resort? If rates were to rise how would the debt service be covered? Raise taxes again? Can't happen fast enough with market rates rising.

    $250 billion in debt service at today's low rates and no way does any mandatory or descretionary funding get cut.

    The rates will stay low for a couple of years and the snake will continue to eat its tail.

    Wenzel has been calling for intrest rates to go up since mid 2009. He chooses to ignore the debt/deficit problem with regards to the debt service.

    Can someone explain to me how this will play out if rates rise to there historical norms or higher?

  3. Bob,

    And bernanke has total control over this?

    So we can go long s&p risk free and ride the inflationary bull?

  4. Mr Wenzel,

    Would it be possible for you to put up a post with a more detailed explanation of the relationship between interest rates, inflation rate, and asset prices?

  5. Doesn't anyone else think that the Euro situation will affect prospective interest rates?

    What about this story?:

    This indicates total capitulation to the South. What happened?

    Won't this mean that huge deficits will soon exist even in the Germanic Euro countries? Why not? Does anyone think that their governments do not understand that the choice is now to go into debt for their own welfare or for others'?

    How can this indicate anything other than an extended period of low interest - even giving money away (well, to crony's anyway)?

    This positively screams of a global race to devalue.

    Borrow for the S&P???


    How does Gresham's law operate when alternative currencies are controlled globally????

    Is currency (whether commodity or not) money?

    Or is barter material money, and currency just a marker for it?

    You thought you were in a commidity bull?

    That Mushroom Cloud you see in your crystal ball is the dust rising from the feet of people rushing into commodities.

    Where else can wealth be protected from global inflation?


  6. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal…

    The Fed published a table and charts summarizing the economic projections and the target federal funds rate projections made by Federal Reserve Board members and Federal Reserve Bank presidents for the December 11-12 meeting of the Committee. I assume that the inflation contingency is based on these projections. The FOMC and district presidents saw no likelihood of inflation reaching beyond 2%. Not now. Not ever. Let me say that again, just to make sure it’s not a typo. The Fed governors and bank presidents didn’t see inflation surpassing 2%, EVER.

    Full Article