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  1. #20
    Join Date
    Sep 2009


    "Navigating The ‘Not so Easy Money’ Era"

    "investors should consider the prospect of rates remaining higher for longer."

    “I believe investors can gain an advantage by studying cycles, understanding their causes, and watching for excesses in one direction that are likely to lead to corrections in the opposite direction.” - Howard Marks"
    "The Effect of Low Interest Rates
    Marks mentioned the following 10 effects of low rates:

    Low interest rates stimulate the economy
    Low interest rates reduce perceived opportunity costs
    Low interest rates lift asset prices
    Low rates enable deals to be financed readily and cheaply
    Low interest rates can lead to financial mismatches
    Low interest rates encourage greater use of leverage, increasing fragility
    Low interest rates encourage risk taking, leading to potentially unwise investments
    Low interest rates give rise to expectations of continued low rates
    Low interest rates bestow benefits and penalties, creating winners and losers
    Low rates induce optimistic behavior that lays the groundwork for the next crisis
    We’ve changed his order slightly, but the point is:

    The first five are mostly about the maths.
    The second five are about behavior, and are easy to overlook.
    The behavior of investors, business leaders, and consumers changes when rates are low - or expected to fall or remain low. This behavior has longer term consequences for the economy and individual companies.

    " When rates are low, lenders and investors are forced to take on more risk to earn a return. This leads to higher asset prices and more investment - but eventually reality catches up, leading to a scarcity of credit - and higher rates, which is the price of that credit."
    Last edited by kiora; 12-02-2024 at 11:47 AM.


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