Read Date: 10/2020, Source
- This is not a normal market cycle – most are stem from economic weaknesses and repaired by economic tools; this downturn was caused by an exogenous, non-economic development (the pandemic)
- The same economic tools cannot be used to repair this – the disease must be brought under control
- 17% of FHA-insured mortgages were delinquent in July and 27.2% of NYC mortgages were delinquent
- Cities and states are in trouble because they cannot print money like the federal government can
- Much of the stock market rise since March 2020 can be attributed to low interest rates
- Theoretically, low interests cause low discount rates which lead to higher DCF values
- Lower demand returns lead directly to higher valuations
- The Fed has the ability to lower yields by buying bonds
- Low rates encourage riskier behavior as investors search for yield
- The need to put money to work causes capital markets to open
- The odds right now are not on the investor’s side and this market is ripe for negative surprises