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A Global Shift — There’s change afoot, and global markets are slowly digesting changing conditions. Morgan Stanley co-president Ted Pick made comments over the weekend that the last business cycle was defined by cheap debt and low interest rates, and both the next business cycle and economic cycle are currently TBD.
According to Pick, this probably won’t happen overnight. It could take a year and a half or longer, which definitely means there is some uncertainty for your portfolio in the interim.
Interest rates are going to rise, and debt will no longer be inexpensive; we all understand that. But what else will unfold is still uncertain.
The last 15 years have been defined by negative interest rates that basically penalized those who like to save their money and enticed us with quick and cheap hits of debt whenever the urge to borrow struck.
The “Fed Put” is no longer in play, and there’s a decent chance that we might not see the same levels of monetary policy maker intervention to prop up some of the growth shitcos that have only survived on cheap debt.
As you’ve watched expedited valuation compression, you might start to see a return to fundamentals, i.e., you might have more success in picking companies that actually make money with healthy balance sheets.
This might be a wake-up call for markets. As real interest rates return to the table, you’ll see the cost of capital at levels that haven’t been in the economy for a decade and a half.
You know this, Apes: higher interest rates are great for banks and capital markets. Will big lenders emerge from the ashes of the previous business cycle as big winners?
As pre-revenue growth names struggle, large-cap tech might look a little bit more attractive relative to other Nasdaq darlings. Will consolidation benefit the $AMZNs, $AAPLs, and $MSFTs of the world?
The beauty is that there will be lots of right answers and probably even more wrong answers. Let’s just hope that it doesn’t take 24 months to tame inflation and get on with our lives.
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