Tags: McAlvany | Fed | gold | taper

David McAlvany to Moneynews: Fed Unlikely to Taper Next Month

Thursday, 29 Aug 2013 04:04 PM

By Dan Weil and Kathleen Walter

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The Federal Reserve probably won't begin tapering its quantitative easing next month because of the damage it would do to financial markets, says David McAlvany, CEO of McAlvany Financial Group, a precious metals brokerage and money management firm.

"If you took away the punch bowl at this point, you would see a major negative impact on the stock market," he tells Newsmax TV in an exclusive interview. "It might even be 30 or 40 percent on the downside if you were to really tighten things considerably."

The bond market would suffer too, McAlvany argues. "We've already seen a foreshadowing of that with rates jumping considerably." The 10-year Treasury yield stood at 2.75 percent Thursday afternoon, up from 1.66 percent May 2.

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"That's the kind of massive volatility we've just seen in the interest rate market, and this is just with the suggestion of tapering. If they actually take away the punch bowl, what are the real consequences?"

Real estate would get hit hard too, McAlvany claims, because mortgage rates would go up. "You'd have your mortgage rates back toward the 5.5 to 6 percent range, and your marginal buyer would be squeezed out of the market."

The 30-year fixed mortgage rate averaged 4.47 percent nationally Thursday, according to Bankrate.com.

Editor’s Note:
Obama Donor Banned This Message (Shocking)

Even without a tapering, U.S. stocks could fall 20 to 30 percent soon, McAlvany predicts. "That's in part because we are looking at a cyclically adjusted price-earnings (P/E) multiple of close to 25," he explains.

"That's pretty high. If you're looking at a normal P/E — 18, 19 — again, you're not in the nose bleed section but you're certainly not buying a value today."

If you purchase U.S. stocks now, "you're still operating on the greater fool theory," McAlvany quips. "You're hoping someone else will come in and pay an even higher price than you did."

He expects to see serious inflation over the next 24 months. Indeed, McAlvany believes that U.S. inflation is greatly understated. Consumer prices officially rose 2 percent in the year through July. But he thinks inflation is actually running at 5 to 10 percent and could rise going forward.

"We would expect that awareness of inflation to enter the mind of investors here in the United States as it already has in the rest of the world," he maintains.

As for gold, he expects it to reach the $2,500 to $4,500 range over the next three years. "We'll continue to see high demand in Asia, because we have global inflation, and we have ways of covering that up here in the West to make it appear that there really isn't much inflation," McAlvany states.

India's inflation is about 10 percent, and the rupee has dropped to a record low against the dollar. "This [inflation] is common throughout Asia," he notes.

"You'll continue to see demand for gold as an antidote to inflation. The supply-demand fundamentals are very powerful for gold."

Editor’s Note: Obama Donor Banned This Message (Shocking)

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