Interest rates, 10 years ago were at the highs of 6% in the developed countries. Personally, I don’t think we will ever see Interest rates the way they use to be before the financial crash of 2008.
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But what do we have now where the U.S unemployment, hitting at a record 22 million from 330,000 in just 6 weeks. The Fed has gone on saying that it will cut its growth for 2020 and will likely only see a small increase in 2021.
Therefore this means, that interest rates in the short term aren’t going to get much higher due to wanting to increase spending though way of monetary policy.
Although, somewhat different than in the 2008 where the Fed ECB, Bank of England, and to some extent the BOJ, had the luxury of cutting rates dramatically, to stimulate the economy. It will have to use more fiscal policy’s this time and more QE.
How Is It Different To 2008
Unlike 2008, it can’t be fixed by just bailing out the banks. This is global, runs though different sectors and is not caused by irresponsible debt. So it is very different.
Despite the different circumstances, the IMF have gone on record stating that this will be at least worst than what the 2008 market crash.
The Virus Effects
We are seeing no real, progress being made in government shutdowns and seeing that it could last for another 8 weeks this impacting further on the already declining economic situation.
What Can Central Banks Do?
Well, the Fed & BoE weren’t in a position to raise interest rates before the in 2019 the U.S was only 2% while most of Europe was at 1% growth back in 2019, this shows the inability to cope with an interest rates raises right now so how could they raise them now with the present situation.
Higher interest rates are really not a concern right now. What might be prevalent is that we could see more local buying as what is presently happening in Japan. To help bring back their own manufacturing levels to help somewhat restore the GDP levels.
But these are unlikely to bring back levels or even hit targets before the virus and the fact the QE and larger interest rate cuts began to bring back the levels in 2008 so doubt they would do so now.
Where Is The Safe Place To Invest For The Long Term
People will go to safe assets these being the U.S Treasury bonds and U.S equities. People will want to hold the money in a safe currency main USD and Euros as the ability to print more money.
Japan has had government debt of about 200% of GDP for quite some time, and the Japanese Yen has been stable.
Some naysayers claim that the Japanese population owns most of their debt as opposed to non-Japanese people, implying that nationalism might lead to investors keeping hold of their Yen. The fact of the matter is that the USD is the world’s reserve currency.
That trumps any other arguments about US debt. Realistically, the US could sustain a debt 2x-3x bigger than the one they have. The flight to safety (USD) and the riskiness of several developing economies, will probably make the world more reliant on USD for a few years than it already is. So therefor see USD getting strong despite the increased debt.
Stocks would look for ones with good cash flow balance sheets, for example, a stability utility companies with a good balance sheet might not be a bad option right now. Real estate with lower interest again is also a feasible option. As a higher level of inflation due to higher borrowing look certain. A near 0% interest looks a good option.
Short Term Investments
I have written an article on the effects on why oil right now is a feasible short term asset. In the short-term, there aren’t many more obvious places to go apart from cash and bonds.
Gold has been stagnant since the times of Christ in inflation adjusted terms, and went down during the worse of the crisis in 2008 and 2020. Gold’s 2000-2011 bull run was only interrupted by 2008-2009, and again with this crisis, gold fell during the worst of the panic.
Other commodities such as oil, gold and platinum have tended to do worse during an economic crisis.
Housing is struggling now, because it is harder to find tenants that will pay, in such a market. The construction sector has slowed because they have to adhere to the social distancing rules and they can only do desktop valuations. The sector is carrying on, but not as it’s usual pace.
