Cluster Family Office Blog

Predictions are always easy to make but very difficult to get right. As I’ve already mentioned repeated It is often said that currency speculation is the mother of all speculation. But in the same vein, I would also go so far as to say that speculating on the direction of interest rates is one of the most predictable bets or speculations we can make across the entire economic landscape.

However, the current situation that has arisen since this summer as a result of the global credit crisis has created a great deal of uncertainty in this area. The rally The rise in interest rates for both $ and the euro has been cut short unexpectedly due to the serious destabilisation of the US mortgage market. Fears that the global securitised credit bubble might burst have forced a radical change of course in the upward trend in interest rates for the world’s two benchmark currencies.

The Research Department of the BBVA warns according to a report in *Expansión* that in just one year’s time we’ll be able to see the Euribor at 3.9%, compared with the current 4.725.

If, as we said at the start, currency speculation is the mother of all speculation, interest rate speculation could be the youngest of her daughters. So how might we derive some benefit from this higher level of predictability? A logical option would be to position ourselves in medium- or long-term fixed income, moving away from the contrarian strategy that has been recommended during the recent period of rising interest rates we have experienced. We are not suggesting that one should abandon the RV in support of the RF but rather that we consider a change in the investment horizon strategy for the latter.

It seems reasonable to assume that, if the negative effects of the credit crisis are set to persist over time due to the involvement of securitised mortgages in the medium and long term, we can also expect a scenario in which interest rates flat moderately bearish or even slightly bearish in the short term. The ghost inflation, which is so feared by all official bodies in times of economic prosperity, becomes a the lesser of two evils during times of major crisis, such as the current credit and liquidity crisis affecting the system. In other words, the ghost It’s not so scary next to a Alien, and a rise in inflation is better than a collapse of the system. However, we have already made our view clear regarding the possibility that this crisis might bring down the system, despite the irresponsible panic. You can now look back (not all texts stand up to this test) at the articles we wrote at the height of the crisis back in August: A historic opportunity or a global economic collapse (I), also the second part and (II), or No news, bad news...good opportunities.

A slowdown in interest rate rises boosts hopes of overcoming the crisis and makes investing in RF, lending our money preferably to solvent companies outside the financial sector, although we can also take on greater risk and find real bargains within the sector, as was suggested at the time Buffett. But there’s no doubt that the crisis of confidence is leaving us with some real gems, whose returns shine even brighter now that interest rates have come to a halt.