Update on Bretton Woods 3 concept

Apr 4, 2024·Alasdair Macleod

You will have to prepare for your currency to buy less and interest rates to rise: how will your portfolio fare, and will you afford your mortgage?

In recent days, some commentators have begun to fear that interest rates will not decline materially for the foreseeable future. They had pinned their hopes on the Fed having no option but to ease monetary conditions, given mounting debt problems for the federal government, commercial real estate values, and the regional banking system. Declining consumer price inflation appeared to have created favourable conditions for lowering interest rates, but month by month, the US’s CPI has actually been increasing gradually since October.

That causes some alarm, as does the yield performance of US Treasuries, shown in the chart below. The magnified insert shows that technically the price and moving averages are in bullish sequence (i.e. yields are set to rise).

A graph of a chart

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Clearly, the monthly inflation trend and what’s happening to T-bonds conflicts with current expectations for lower interest rates. 

All the hopium about lower interest rates has been pushed by an investing establishment which actually knows next to nothing about the legal and commercial principles behind the colossal system of credit. This ignorance is not new. But it stems from the fact that economics and investing textbooks never properly address the topic. And while your broker or investment manager is highly qualified in financial matters on paper, their learning is entirely textbook based. Ill-prepared, they work their way up to managing your affairs in ignorance of practical elements which are crucial to protecting your wealth.

Never forget that only dead fish swim with the stream. The large majority of portfolio managers and investment advisers swim with the stream. It’s a mistake to get carried along with them.

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