What if there are a startling number of people who work in real estate who don’t realize that their industry has been running a giant levered long bond fund for the past 40 years?
Not saying that it’s necessarily true, but I don’t think most real estate investors are taking the rising interest rates thing seriously enough. Most real estate investors I know are assuming that the Fed pivot is inevitable and we’ll be back in a declining interest rate environment within 6-12 months. That scenario is entirely possible, but it’s not inevitable.
When you look at a chart of the 30 year mortgage and how long it’s been in a downtrend, I’m not sure why everyone thinks we’re likely to have only a few years in an uptrend after a 40 year downtrend.
I think this is THE most important chart in investing right now. Looking at this chart, it’s very easy to see what you should have been doing as an investor for the past 40 years. Buying assets with as much leverage as possible was a no-brainer for over 40 years. But just as the saying goes “don’t confuse a bull market with brains,” I would also say don’t confuse a 40 year downtrend in interest rates with brains.
Sustained higher for longer interest rates would have a dramatic effect on asset prices. And almost certainly not in a positive way. Buying assets with leverage in a rising interest rate environment could yield some rather interesting results.
Welcome to my blog!
This blog is being created so that I can make my own meager contribution to the advancement of human liberty. I believe that the advancement of liberty is a learning problem and not a teaching problem. My goal is simply to learn. As I learn, I hope to share what I’ve learned with you. It is my hope that in giving, I will receive. As Leonard Read said:
“Why is this simple solution so little recognized, as if it were a secret; or so hesitatingly accepted, as if it were something unpleasant? Why do so many regard as hopeless the broadening of the single consciousness over which the individual has some control while not even questioning their ability to stretch the consciousness of others over which they have no control at all?
Most of the answers to these questions are as complex as the psychoanalysis of a dictator or the explanation of why so many people dote on playing God. Leaving these aside, because I do not know the answers, there stands out one stubborn but untenable reason: the widespread but desolating belief that the world or the nation or society could never be “saved” by the mere salvaging of private selves. People say, “There isn’t time for such a slow process,” and then, to speed things up, they promptly hurry in the wrong direction! They concentrate on the improvement of others, which is a hopeless task, and neglect the improvement of themselves, which is possible. Thus, the world or the nation or society remains unimproved.”
It's A Learning Problem 