Interest Rates Topping?/TLT Finally Making a Bottom?/
Looks like the craze over high interest rates is coming to a congestion zone. If you go back to 2019, there were hella buyers at $135. I think we are getting to the point where such high interest rates, while the stock market is still skyrocketing, and yet the global economy has not recovered; or said better, investors are in denial.
When interest rates are low, and the stock market is high - that's inflationary. When interest rates are high, and the stock market is high (making ATHs), and yet we are in the eye of a deleveraging, currency crisis - I can't help but anticipate a top on both rates and the stock market. At some point, the Fed will have to get people to buy bonds, or they'll do it themselves, to push down the long-end, and I think the stock market will get cold feet, and start selling off.
That being said, there could be something more nefarious happening that we just aren't taking into account, which is the Fed just continuing the "we need to push inflation up" narrative until they are blue in the face (idk how they aren't already), and people continue to take on debt and play the euphoric stock market game until financials finally bite people in the ass. The fed knows interest rates going higher, in a crisis like this, is a ticking time bomb, and at some point, will have to give in, but that's the point - they're going to let the system panic and then they'll come in, once again, and lend a hand.
What worries me, though, is why would anyone give a shit what they have to say at that point? No one can get loans when banks don't want to lend - e.g. people are in forebearance, people's businesses are closing or on the brink, people are malignantly unemployed in higher and higher numbers - fred.stlouisfed.org/series/UEMPMEAN. We're getting to the point where the risky money has to go somewhere, and it's either bonds, savings accounts, consumer debt, or stocks, and the fed will make damn sure that it's stocks or consumer debt. But what happens when people are exhausted and don't want to take on debt - or quite frankly just can't? Or when the stock market isn't going any higher and the support zones for every major index is thousands of points down? The money goes into savings, banks go insolvent due to lesser and lesser risk-on sentiment, and they dive into treasurys to find a safe haven for liquidity, and boom - you've got negative interest rates.
I'm fairly certain this will be the case this year, and the Fed will, again, be forced to ramp up the emergency SPVs like we've never seen before, and virtually breaking every rule in the book so that banks stay solvent, and people continue to take on loans.
When interest rates are low, and the stock market is high - that's inflationary. When interest rates are high, and the stock market is high (making ATHs), and yet we are in the eye of a deleveraging, currency crisis - I can't help but anticipate a top on both rates and the stock market. At some point, the Fed will have to get people to buy bonds, or they'll do it themselves, to push down the long-end, and I think the stock market will get cold feet, and start selling off.
That being said, there could be something more nefarious happening that we just aren't taking into account, which is the Fed just continuing the "we need to push inflation up" narrative until they are blue in the face (idk how they aren't already), and people continue to take on debt and play the euphoric stock market game until financials finally bite people in the ass. The fed knows interest rates going higher, in a crisis like this, is a ticking time bomb, and at some point, will have to give in, but that's the point - they're going to let the system panic and then they'll come in, once again, and lend a hand.
What worries me, though, is why would anyone give a shit what they have to say at that point? No one can get loans when banks don't want to lend - e.g. people are in forebearance, people's businesses are closing or on the brink, people are malignantly unemployed in higher and higher numbers - fred.stlouisfed.org/series/UEMPMEAN. We're getting to the point where the risky money has to go somewhere, and it's either bonds, savings accounts, consumer debt, or stocks, and the fed will make damn sure that it's stocks or consumer debt. But what happens when people are exhausted and don't want to take on debt - or quite frankly just can't? Or when the stock market isn't going any higher and the support zones for every major index is thousands of points down? The money goes into savings, banks go insolvent due to lesser and lesser risk-on sentiment, and they dive into treasurys to find a safe haven for liquidity, and boom - you've got negative interest rates.
I'm fairly certain this will be the case this year, and the Fed will, again, be forced to ramp up the emergency SPVs like we've never seen before, and virtually breaking every rule in the book so that banks stay solvent, and people continue to take on loans.
Comment:
I was right.