Everybody Says Higher Interest Rates Are Coming … But When and By How Much?

Link: https://www.ai-cio.com/in-focus/market-drilldown/everybody-says-higher-interest-rates-coming-much/



Absent that nightmare scenario—and most prognosticators believe science can vanquish any of COVID-19’s shape-shifting—the conventional Wall Street wisdom is for better days ahead on both the health and the economics fronts. And since escalating rates are co-dependent on an improving economy, a sunny thesis appears pretty solid.

Historically speaking, low rates like today’s are an aberration. Thus, at some point, it’s reasonable to assume they will return to normal. Or at least to higher than now, to a degree. A new normal that’s hardly towering.

Author(s): Larry Light

Publication Date: 9 February 2021

Publication Site: ai-CIO

Should we stop GameStop?

Link: https://tinyletter.com/acs171/letters/known-unknowns-41


But the whole thing is being framed in an odd way—i.e., that the individual retail investor is rising up against the big, bad hedge funds. This is a compelling narrative, and that’s why it’s all anyone is talking about. And I suppose that could be the takeaway after a single day of trading. But making money in markets requires knowing when to get out (or having power friends who will lend you money when you need it), and I worry about some people betting money they don’t have without realizing the risks that they’re taking on. Taking down a hedge fund is only fun when you make money at it, and we don’t know whether these day traders care so much about taking down big whales until they actually lose money while doing so. And these funds have much deeper pockets and access to a lot more capital. It’s sad to say, but the game is rigged in their favor. So, as satisfying as it may be in the short run, I don’t see it ending well.
It feels like all of these discussions about risk, class, and fairness are dancing around the real question here, a question few will dare to ask: Should retail investors be able to buy individual stocks? Or should we only be able to buy mutual funds?
Investing in individual stocks is risky, and most people would be better off owning an index fund. If they did, they’d make more money on average and face less risk at the same time. Day-trading options are even riskier. So is shorting. My mentor, Robert Merton, has likened owning an individual stock to buying a single piece of car—it’s pretty useless, especially if you don’t know what you are doing. After all, a security’s value is largely about how it contributes to your entire portfolio as a whole.

Author(s): Allison Schrager

Publication Date: 1 February 2021

Publication Site: Known Unknowns

The problem with a 100-year US government bond

Link: https://qz.com/1962075/the-problem-with-janet-yellens-100-year-treasury-bond/


The US is running up debt like never before, and one of the reasons Washington can get away with it is because interest rates are hovering around their lowest levels ever. This raises the question—should the Treasury lock in these rates for 50 years? How about a century?

Government borrowing is under renewed scrutiny as politicians consider their third mega-spending package to support the US economy, adding to more than $3 trillion already earmarked since the onset of the Covid-19 pandemic. Federal debt owned by the public is expected to ramp up from 81% of GDP this year to nearly 100% in 2030, the highest ratio since 1946, according to Congressional Budget Office (CBO) projections in December. That ratio could hit 180% by 2050, by far the highest debt burden the US has ever had.

Debt levels are high, but the government’s borrowing cost is low. In March, 10-year Treasury bond yields fell below 1% for the first time and they’ve only ticked up modestly since, rising to about 1.1%. That helps explain why the US has amassed so much debt and, yet, is spending less on interest expense than it did in the 1980s and 1990s. The worry is that the unprecedented mountain of debt could have to be refinanced at higher yields down the road.

Author(s): John Detrixhe

Publication Date: 27 January 2021

Publication Site: Quartz