US Interest Rates Stay at Zero, Global Markets…Fall?

If Shylock were around today, you have to imagine he would be one disappointed merchant.

You may recall Shylock as the villainous money lender in Shakespeare’s The Merchant of Venice. He lends money to his nemesis Antonio, with the agreement that if he’s not paid back he gets to take a pound of Antonio’s flesh. (That’s 450 grams, if you’re too young to remember imperial measurements.)

Of course that was back in the 1600s. Fast forward to today’s world of easy credit and record low interest rates and Antonio would likely have driven a harder bargain. Even if his credit record was less than stellar.

I mention this, of course, because of last week’s Fed decision to keep US interest rates at zero — where they’ve languished for six years now.

Now if you’ve had your fill of reading about Janet Yellen and the Fed, you’re not alone. It’s been the top running story across the financial news all week. Admittedly, we’ve spent our fair share of electronic ink on the topic at Port Phillip Publishing as well.

The US is the world’s largest economy, after all. And, like it or not, the Fed’s decision on interest rates is going to affect your investment portfolio…one way or another. But now we can finally lay this to rest, right? The decision has been made. On to more important news, at least for the rest of 2015.

Not so fast. Here’s this from Bloomberg: ‘Yellen May Emulate Taper Template and Raise Rates in December’. The article goes on to say:

Federal Reserve Chair Janet Yellen shows signs of taking a page out of her predecessor’s policy playbook as she inches toward the central bank’s first interest rate increase in nine years: Delay action in September only to move in December.

While the Fed on Thursday opted to keep rates pinned near zero for now, Yellen told a press conference that most policy makers still expect to raise rates this year.’

Do you get the feeling these people enjoy the limelight? That without the world’s attention constantly focussed on them they might just fade away like morning mist?

I think Pink Floyd summed this up perfectly:

Take all your overgrown infants away, somewhere

And build them a home, a little place of their own

The Fletcher Memorial Home

For incurable tyrants and kings

They can appear to themselves every day

On closed circuit TV

To make sure they’re still real

It’s the only connection they feel

The Fletcher Memorial Home, from The Final Cut

Unfortunately, until we build such a home, you can still expect them to appear every day. Not just to themselves though.

Anyhow, whether Yellen does or doesn’t raise rates in December, for now, the official US cash rate stays put at 0.0%. Certainly not good news for cashed up savers. And apparently not great news for the markets either.

More bad news for Japan
Last Thursday, the day of the Fed announcement, the Dow Jones closed down 0.39%. Across the pond the FTSE 100 fell 0.68%. And in Japan the Nikkei 225 fell even further, closing down 1.45%. Although Japan has more to worry about than falling share prices. Standard and Poor’s just cut their sovereign debt rating as well.

As the Wall Street Journal reports, ‘S&P Downgrades Japan — Cuts sovereign-debt rating one notch, to A-plus from AA-minus, pointing to weak economic growth’.

Vern Gowdie, editor of The Gowdie Letter, had this to say:

Japan’s miracle economy of the 1980s was nothing more than a credit hazed mirage. Japan peaked in 1990 and has been in correction mode ever since.

Japan never really had a credit crisis bank collapse-type moment. Rather it has been an economic death by a thousand cuts.

Falling share and property prices have seen hundreds of billions of dollars in wealth destroyed over the past 25 years.

Maybe you already subscribe to The Gowdie Letter. Either way, you’re probably familiar with Vern. We’ve written about him quite a bit these past weeks.

Vern cautions that Australian economy is very much on the same path as Japan’s. If we don’t see a swift and brutal 50% plus market correction, Australia could well be in for what he calls ‘The Long Bust’. Neither scenario is particularly rosy. But Vern’s not afraid to call it as he sees it.

He lays it all out in his new book, The End of Australia. But he does far more than point out the cracks in the dam. He also offers actionable ideas you can implement today to protect yourself from the coming bust — whether it’s swift and brutal, or long and drawn out.

If you haven’t ordered your free copy yet, you can do so here . If you’re one of the 14,224 people who have already ordered one, we started mailing them on Monday. Hopefully you’ve already received it.

Once you’ve had a chance to read it cover to cover, I’d love to hear from you. Please mail your feedback to Just type ‘I read the end of Australia’ in the subject line so I’m sure to get it.


Bernd Struben
Managing Editor, Markets and Money

Ed Note: This is an extract from an article published first in Port Phillip Insider.

Bernd Struben is a contribution Editor of Markets & Money. He holds a degree in Economics and is a published novelist. Bernd’s career spans multiple countries on four continents. With his diverse background, he brings unique business insight and a libertarian twist to his columns and analysis in Markets & Money.

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