The worry about interest rates is getting very over done now…
September 21, 2022
All eyes on Fed
It’s inflation, right?
Bond yields too high
September 21, 2022
All eyes on Fed
- It’s time for another Fed interest rate decision tonight; cue much alarmism & market jitters on higher interest rates.
- What seems to be forgotten is that the Fed is hopelessly behind with their own interest rate at 2.25% while the bond market rates are above 3.5%.
- So whatever the Fed does do is going to mean nothing, & they’re probably going to be raising rates at exactly the wrong time, as I expect the market rates to come back down now.
It’s inflation, right?
- There is much talk of inflation at decades highs, but inflation is a growth number, so if a price went from 10 to 0.5 & then to 1, inflation would be a huge 100% but the price would still be -90% from where it was…
- & so it sort of is with current prices. A decade ago in September 2012 (which I remember well), the price of oil was 93 dollars. Right now the price of oil is 84 dollars or -8.7% in 10 years!
- Soybean futures back in 2012 were at above 1,621 dollars, now they’re at 1,477 or -9%. Copper was 3.8 dollars, now it’s 3.5 or -8%… You get the picture.
Bond yields too high
- But with all the panic about inflation, the US government 10 year bond yield has gone from 1.76% in September 2012 to 3.57% as of last night, almost exactly 100% higher!
- The Fed is (of course) even worse. Back in September 2012, post that financial crisis, their rate was at only 0.09%, now they’re talking about raising to 3%!
- With commodity prices still lower than a decade ago, interest rates should be coming down not up now… & that will lead to a new rally in stocks.