High inflation versus high interest. Let battle commence⚔️.
“To be, or not to be, that is the question”
William Shakespeare, ‘Hamlet , Act 3, Scene 1’
Did you ever imagine that investing in US treasury bonds could trigger a banking crisis? Well, that's what happened. Silicon Valley Bank and First Republic Bank suffered losses up to $60 billion, leading to their bankruptcy in early 2023. The iShares 20+ Year Treasury Bond ETF (ticker TLT) experiencing its most significant decline on record. The $39 billion ETF investor struggled with a 48% loss from its 2020 all-time high. How can we navigate this ongoing battle between high interest rates and soaring inflation?
The reason is that Governments worldwide took desperate measures to stabilize society during the pandemic. Including stimulus checks for households and bailout loans for businesses. Huge amount of debt created piled on top of massive debt accumulated until 2019. Our attention was on the pandemic until inflation became a concern. Central banks find themselves in a dilemma seeking a balance hard to achieve. Keeping interest rates high for too long can lead to a recession. If rates are too low then inflation could come back. High interest rates mean higher mortgage rates and less money for investing. High interest rates hurt the prices of previously issued treasury bonds with lower yields.
Global debt has surged to a record high of $313 trillion (£248 trillion), as higher interest rates drive up borrowing costs for companies and governments worldwide. With global debt levels skyrocketing every day. Savvy investors must seek alternative options for stable passive income. Investments that preserve the value of their money. Investments that generate steady income during uncertain times. Investments that make them sleep well at night. Why? Investments generating stable returns is a good way to increase your chances of surviving financial crises.
“You need cooling , baby I’m not fooling”
Led Zeppelin. ‘Whole lotta Love’
Article's References & Suggested Reads:
By René Bennett, Yahoo! Finance, May 1, 2023
Produced, filmed, and edited by James Sandy, Financial Times, December 26 2023
By Vitor Gaspar, Paulo Medas, Roberto Perrelli, IMF, December 15, 2021
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