Features

Jim Chanos: a rate rise is long overdue

Interest rates have been so low for so long, many people in financial markets today don't know any different.

Wall Street has benefited from a "once-in-a-lifetime move" in interest rates from 14% to basically 0%, says Jim Chanos, founder and president of Kynikos Associates. This slide in rates has gone on for so long that many people working in financial markets today haven't seen high or rising interest rates for any sustainable period of time. However, "when you see things like Greece borrowing at rates lower than the US for two-year notes", it suggests things aren't sustainable. Indeed, based on current nominal growth levels and inflation, then history suggests that ten-year US bonds should be "north of 4%" rather than below 3%, as they are at present.

Another sign that we're in the midst of a bubble is that investors seem to be "discounting the same good news over and over and over again". For example, it was clear nine months ago that tax reform was going to pass in the US. Yet "people wanted to get more and more excited about it" and the market continued to rise in the last half of last year. However, Chanos warns, while "people will find all kinds of reasons" to discount the same piece of news multiple times in bull markets, "they do the opposite in bear markets".

It's not just America that concerns him. Chanos thinks that "the most important single asset class globally" is Chinese real estate, which "is probably a quarter of the Chinese economy" and the "backbone of their banking system". That means that 4% of global GDP is being spent on an asset class that "most would realise is simply being bought for speculative purposes." A Chinese property collapse could have huge implications for markets and commodities in particular.

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
Great frauds in history: the Independent West Middlesex Fire and Life Assurance Company's early Ponzi scheme
Investment strategy

Great frauds in history: the Independent West Middlesex Fire and Life Assurance Company's early Ponzi scheme

The Independent West Middlesex Fire and Life Assurance Company (IWM) offered annuities and life insurance policies at rates that proved too good to be…
21 Oct 2020
Mukesh Ambani: the Indian billionaire eyeing global expansion
People

Mukesh Ambani: the Indian billionaire eyeing global expansion

Mukesh Ambani is already the richest man in India by a large margin, but his ambitions do not end there. He wants India to be at the front of the worl…
19 Oct 2020

Most Popular

How will we repay our vast debt pile? Do we even need to?
Sponsored

How will we repay our vast debt pile? Do we even need to?

In his recent articles looking at different aspects of the fixed-income investing world, David Stevenson looked at inflation. Today he looks at a clos…
19 Oct 2020
The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020