After two decades of almost zero Interest Rates for Certified Morons, reality seems to have decided to make a comeback. The Fed has actually mentioned raising interest rates. Flee to your huts, the deluge is upon us!
Well, how about that? The markets, therefore, are having another quite unnecessary if muted existential crisis. It’s their usual reaction to anything which requires sentience of any kind. The world’s favorite human-hating parasites are in a real tizzy about it.
Let’s clarify – The ultra-low rates have made gigantic amounts of money for the Big End of Town, a very apt description anatomically. How could you NOT make money at those rates? Borrow at 0.25% and sell at 7-8%. That, pundits and other vermin, is a profit margin of about 3000%.
…Meanwhile, simultaneously screw anyone on Earth with a bank account and get their money for free, while charging them ridiculous amounts for the privilege. Fail totally to note that anyone with a working brain cell could offer interest of up to 7.9% and basically take over the market, and still make money. Ain’t you brilliant?
So these zero-IQ geniuses are much better off after a couple of decades of that. They’ve locked in at those rates, and now the rates are (shudder in one’s dear little booties) moving. Wind up the tired old dystopian analogies. “Oh, whatever will become of us all? Where shall we go? What shall we do?”
Frankly, you allegedly conscious pseudo-human spam, I couldn’t give a damn. It’s a measure of the insularity and vacuity of an entire generation of utterly talentless nobodies in the investment sector. It makes infant-level Monopoly look like quantum physics.
In this to put it mildly unsophisticated environment, you can talk anyone’s rear end off about how great your numbers are. You can elect ignoramuses and psychopaths, if you want.
You can also prove beyond any possible doubt that you can’t compete in a more realistic market. I’ve seen more credible competitive behavior among actual gravestones. The interest rate market is simply a cartel in any possible context, from wholesale to retail.
Why are rates rising? It’s hilarious – “Inflation”.
After the same two decades of mindlessly driving prices for essentials through any number of roofs, inflation is suddenly an issue. Never mind insane prices for education, housing, and health. Someone’s now decided that current Main Street price moves are inflationary.
Affordability has never been a market issue, of course. Low rates jacked up the sacred property prices. This fuelled property investment, credit, and probably the egos of a lot of two-dimensional policymakers and financiers.
There’s some circular spin on this, too. (I have some doubts whether the logic in that link works at all if I understand it correctly. Hopefully, I don’t, and it’s not as dumb as it looks.) Some are predicting that 2022 will be better than 2021 for price rises. The problem with that is this “improvement” is in comparison with 2021. So the baseline cost, already up, is a justification for saying further rises are somehow better. Regardless of the fact that these are cumulative rises.
If you add 5% to 100 in 2021, then 5% to that in 2022, you get 110.25. Your net inflation has actually doubled. That’s better than what, exactly? Anyway – goods prices may go down or up, but the net costs of the money that pays for them don’t have to behave like that. Maybe the best shot is not to try to justify theory in the face of head-kicking contradictory facts?
…Except also that tens of millions of people spending big money they don’t have in a very expensive market and having to buy back into that market tends to be costly. Portfolio values begin to look a bit…edgy. Defaults are more likely.
Raise rates, and these market mayflies are likely to die like flies, in theory. High-end properties get hit hardest and fastest. Asset values tend to move around a lot, depending largely on what values people want to be visible.
Those values will typically have nothing at all to do with actual sale prices. Even now, you only have to glance at prices in California to see a few obvious moves and a lot of upper-bracket stuff that’s been on the market for quite a while.
The question is whether rates rises can trigger a panic stampede. You’d have to be a pretty timid soul to be bothered by a quarter-point move upwards, you’d think. The trouble is that every market has a lot of margin-dwellers. These guys are terrified of their own shadows, tax returns, etc.
They can and do leap long before they look. It’s their major defining characteristic, and they can drag markets in any unwanted direction with ease. These are the guys who buy in at the top of the market. Their margins are barely two dimensional. They take big hits, and those big hits look bad.
So the smell of smoke is likely, whether there’s a fire or not in interest rates. Impossible as it is to sympathize with the bloodsucking rates vampires:
- The wider market(s) could get hit in real terms in 2022-23 if the usual fan-hitting exercises happen.
- Investments could tank simply because of relatively dumb, transient, valuation moves.
- Some of those who can’t afford to hold will, of course, have to sell, adding more angst to the mix. (A lot of people get hit with overextension in good markets, let alone queasy markets.)
- Banks and other selfless charities can and probably will have portfolio value issues, affecting the LIBOR rate environment to at least some degree.
- …Therefore rates will go up further as money becomes more expensive. Standard practice, standard hazards, but maybe on a very large, unwanted, scale.
Unlike the sub-primes of 2008, this isn’t just massive amplified fraud. The market is actually chained to the cost of money in this case. That chain could become a noose for some, so it’s not quite the usual financial hypochondria about losing a few bucks.
Entire portfolios and markets are joined at the hip to the cost of money as it now is. This is where low rates get ugly – You have to absorb any and all rising costs in such an expensive market.
Now the very appropriate news
This is a comeuppance in so many ways. The good news is that some of America’s more conspicuously obnoxious trashy-peasant property investors obviously can’t and won’t be able to take higher rates, even slow small rises. You’ll hear squeals in the sewers of offshore finance, too.
They’ll vanish in a well-deserved cloud of hydrogen sulfide much like their social skills. Some of these guys should and will have credit ratings that don’t deserve a letter in the alphabet.
Rising rates could also finally put some equity back in baseline investments in the retail market. That’s long overdue. Financial institutions shouldn’t be getting money for nothing. You might want to pass an enforceable law, because that’s caused so much unnecessary hardship.
You might also want to do some antitrust work on those cartel-like rates. If a supermarket can be competitive with prices for baked beans, why can’t lenders? This is price fixing, just called something else.
Finally – In the name of god knows what, can someone come up with more innovative ways of making housing and other REAL core inflationary costs more affordable? How often do we have to go sailing around this black hole of anti-prosperity lending practices?
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Disclaimer
The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.
