Debate: “How Do Higher Rates Affect the Economy and Market?”
Featuring: Bob Grunewald, CEO & Founder of Flat Rock Global, an alternative credit manager investing in areas of the credit market they believe are less efficient with the goal of preserving capital and generating current income.
In the face of a once in a century event, the government provided massive aid packages to the population during a period of already historically low interest rates. Consumer savings rates grew exponentially as remote work became a permanent feature and as service related businesses temporarily went off-line. At the same time, a global supply chain built for efficiency but not risk (i.e., redundancy and inventory) came to a screeching halt. The supply / demand construct went haywire and inflation increased worldwide. Then, Russia invaded Ukraine resulting in skyrocketing energy and food costs.
Many believed inflationary pressures would be temporary but it proved to be more stubborn than initially conceived. The Fed has so far raised interest rates at one of the quickest paces in history. This is considered “tightening” policy as the Fed is using this blunt tool to add expense to the system in addressing one of their primary objectives – to maintain inflation in a tight range. Consumers have used up much of those savings provided through aid packages and the student loan moratorium, which represents 9% of consumer debt is about to be up. Now both consumers and companies need to contend with materially higher borrowing costs.
Topics reviewed:
Context of how the increase in yields affect a typical companyHow variable vs fixed rate debt are faring in the current environment Private vs public company debtHow the consumer is holding up Views on yield curve inversion and inflationThree letter words: CLO Investing – what is it and why it isn’t quite so scary
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