[downrightmike]

Overvalued by a lot, we expected a full global crash in which so far in history the USA has bounced back first. But instead we pumped out 20% of all USD ever printed, which created a slow burn. As long as the keep rates where they are or higher, we should recover. I personally think rates are too low, and this last week has proven that is the right view, the market can still remain delusional far longer than I can. The longer the unrealistic expectation of rates falling at all this year, just increases the risk we'll have trouble. Cheap cash is gone, you gotta earn it now. Downvote all you like, doesn't change the fact that rates need to stay up or we risk a similar situation as the early 80's.

[rapsey]

I mostly agree the market has entirely unrealistic expectations of rates going lower. I think the cause is structural due to the tight employment market which is not going to change any time soon. The period of low inflation and low rates is over and the market analysts are living in the previous decade.

[Timber-6539]

The Fed needs an excuse to return ZIRP. There's no way around it as the economy is now designed around cheap money and inflationary valuations. And for this specific reason I present to you AI.

[tarsinge]

Generative AI has potential and there are fun experimentations, but nothing game changing for the vast majority of businesses at the moment. People always overestimate short term change a new technology bring. Sure long term as with the internet it will change everything. But for now in the broad picture of the economy this is a toy and the FED doesn’t care about it. “AI” looks more like a Hail Mary for VC before being definitely crushed by high rates at this point.

[Timber-6539]

I somewhat agree with you on some points. Am not all in on AI becoming a main driver for business productivity (not yet at least) but that's not really up to me to decide. It could very well be a flop but we could be calling it no more revolutionary than the fax machine and be wrong about it just like Paul Krugman's infamous prediction in 1998.

The tech boom was as much influenced by silicon valley VC money as it was by the technological solutions themselves. AI fits into the same playbook. It's only rational to look at it in the same lens. The only difference is that tech has hit its limits as we are seeing with the layoffs but AI presents itself as a new vehicle to continue with the inflation.

The reason the Fed care about AI in my view is because it's new a conduit for letting loose the money printer. Once AI begins increasing economic output they'll have their missing piece for ZIRP. Without this, opening the floodgates again will be a catastrophic mistake as the inflation won't match the productivity output.

[rapsey]

S&P 500 has hit an ATH not long ago with high rates. The economy seems to be working quite well. There is not even a crash in residential real estate. The commercial real estate is going bust, but there are funds just waiting for current owners to go out of business and buy up the buildings for pennies on the dollar.

[giantg2]

"S&P 500 has hit an ATH not long ago with high rates. The economy seems to be working quite well."

The market is not the same as the economy. We are in fact seeing rising consumer debt defaults across various types. Jobs data is not as good as it seems since there are higher percentage of part-time and low wage jobs in the numbers. Consumer spending is stagnating or down in many sectors. Hiring in consumer discretionary industries like restaurants has stagnated too. I'm not sure the economy looking that good, despite the optimism (inflation even?) in the market.

[Timber-6539]

The S&P 500 rally is just 7 stocks and is not a true representative of the real economy anyways. I think you have my argument confused. I'm not saying the U.S is supposed to be in a recession or headed into one.

[satellite2]

Yes I have the same sentiment.

It used to be that rate going up would make asset price go down but the market got used to it.

Now the rates go down and asset prices go up and the rates go up and asset prices stay the same but rent increases.

[hughesjj]

> There's no way around it as the economy is now designed around cheap money and inflationary valuations.

Eh, I say just trudge right through it. The economy will adapt, as it always does. In this case I think it would be for the better.

[Timber-6539]

The economy needs the next boom to save the day from every fiscal problem we are facing today. It's the only answer that has worked since 2008.

[giantg2]

"I mostly agree the market has entirely unrealistic expectations of rates going lower. I think the cause is structural due to the tight employment market which is not going to change any time soon."

They expect it to go lower because they got used to it over the past decade or so, and the Fed has said they are expecting a rate drop. It's not unrealistic if the people who make up the rates say it will happen. Of course that doesn't make the decison to do so reasonable.

[ffgjgf1]

> entirely unrealistic expectations of rates going lower

The Fed has already announced back in December that they are planning to cut rates to 4.6% by the end of 2024 (of course that might change). The bond market consensus is somewhere between 4.25% - 4.75% so how is it “entirely unrealistic”?

[jhallenworld]

The rates need to go lower: government debt is too expensive to service at these rates.

[bequanna]

Good!

Govt debt growth needs to slow. Too much money spent by govt is being wasted on undeserved transfer payments, creating do-nothing jobs and has been a huge contributor to inflation.

Real efficiency is falling because of overspending in the public sector. Fewer people making things everyone wants in the private sector and more people with govt jobs digging holes and filling them in creates inflation.

[exclusiv]

> As long as the keep rates where they are or higher, we should recover.

This is not the case and is actually impossible. Impossible they will maintain them or higher. And impossible we would recover.

The US is headed towards $1T in interest payments alone annually.

$34T in national debt AND $213T in unfunded liabilities. 2/3 of the budget is non-discretionary

The longer they stay elevated the more the average interest rate on debt goes up. For the US and the world since it's the reserve currency. This pisses everyone off.

Rates will go back down to around 2% because the US AND the world cannot sustain an expensive dollar. There's 65T in eurodollar debt (US dollar denominated debt) globally. [1] I've seen higher estimates too.

"Approximately half of all cross-border loans, international debt securities, and trade invoices are denominated in U.S. dollars, while roughly 40 percent of SWIFT messages and 60 percent of global foreign exchange reserves are in dollars." [2]

We aren't going to end up back around 2% because the Fed wants to. It's because we have to. You cannot maintain the world reserve currency at these rates after everyone got drunk off the lower rates for decades. And you cannot have the debt load we have and maintain these rates or higher. There's no easy way out of a debt spiral.

Just my opinion but rates will go lower. Printing will go into hyperdrive. Inflation will rip. There will be more unrest. Personally, I'm holding inflation-hedging assets.

[1] https://www.weforum.org/agenda/2023/01/65-trillion-debt-bank...

[2] https://libertystreeteconomics.newyorkfed.org/2022/07/the-u-...

[ffgjgf1]

How high do you think the rates should be?

Historically they are not low at all relative to inflation and considering how highly the government debt to GDP ratio is raising them further would lead to severe issues. Since a surplus or even a balanced federal budget is basically politically (probably financially too) impossible at this point high growth + low rates + predictable moderately high (2-3%) inflation is the only way to keep public debt from spiraling out of control.

> risk a similar situation as the early 80's.

IMHO the early 80s are about as relevant today as the 30s were back then. So a bit but not a lot. The global economy and financial system (and the position US has in it) is extremely different

[giantg2]

"As long as the keep rates where they are or higher, we should recover."

Yet the Fed is talking about rate drops. We're also seeing rising consumer defaults and more perilous bank debt. And those great job numbers aren't that great since we're seeing higher part-time and low wage jobs than before. I'm not sure we're going to really avoid anything.

[grugagag]

Ever more Americans can’t afford or can barely make rent.