rates and gates

First Published November 2021

Rates and Gates

Lurking in the flattening yield curve are mounds of monopoly money guided by the inalienable right to stupidity. Central banks around the world have printed enough specie that Arizona real estate was bought wholesale by bots with presumably human lenders and sellers. Entire zip codes were taken down that could only inspire awe at the creativity thirteen years after Lehman.

The model assumed that interest rates were low and would remain low long enough for money to be available for the next buyer in asset flips for the machine thinking ages. The model cast zero probability that the Fed would reduce its $9 trillion balance sheet, that inflation existed, and that interest rates would rise. Other central banks challenged by real inflation and housing prices at 400 year highs demurred.

The banks of Australia and Canada stopped making promises they could not keep. The buyers of short term credit sold first and relocated to the long end of the yield curve. Mortgage rates spiked and the bot decided Arizona real estate whould be sold at 10% less than it was bought which makes perfect sense somewhere but funds stuffed with specie will be the next gated community keeping residents in and intelligent life forms out.

The good news is that markets are supposed to act this way. Veto the last bad idea in hopes of the next one.

From Lehman to Zillow. Rates to gates. The entertainment has just begun