Chapter 12 Interest Rates and Falsehoods
Interest rates, like London fog in a Victorian era movie, are ubiquitous and seep into almost every aspect of people’s economic life while still maintaining a certain air of mystery. To carry on the simile, even when the characters in the movie are all sitting inside by the fire, interest rates are out there impacting inflation, currency rates, car and home sales, and the decisions by companies to invest in new projects or not. Rates impact stock valuations as fixed income assets become relatively more or less attractive versus equities and funding costs for trading desks, hedge funds, and other margin loans move. Interest rates creep into every aspect of the economic and investment decision process.