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Comment by shabbatt | Hacker News Reader

When they were printing money endlessly and rates were low, your strategy is sound. However, the house of cards is now crumbling and there is no end in sight to rate rises.

My hedge fund manager friend for a private family office is saying we will see double digit rates by end of 2023. If you believe this then you know what to do. If not, you should at least think what such macro conditions would do to liquidity.

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Sounds like the thing to do now is sell everything vested so far, then hodl new vests. Falling prices means the vests will hit with lower income (and smaller tax bill) but are likely to go up when interest rates fall again.

ELI Financially Illiterate. What do high Fed interest rates mean in this case?

People invest more in companies when interest rates are low, because shoving it into lower risk vehicles becomes less profitable / likely to beat inflation. As interest rates rise, the value of safer places to put your money, such as bonds, increases.

This is the super simple version.

Also money market returns are significantly higher.

it'd mean your savings account would beat the S&P500 (after it finds a bottom obviously; this year having cash in a 0% savings account has been amazing!).

Stock price is calculated as a sum of future cash flows (dividends D, for example) discounted by time value of money (risk free rate r, for example): sum(P_n), where P_n = D / (1 + r) ^ n and n is a year. When rate r is up P automatically down.

- Higher int rates make it more expensive for companies to borrow, and to invest in additional production capacity. Depending on the company, this can cause their stock price to decline as lower investment usually signals lower revenue growth in the future.

- Higher int rates also encourage consumers to put money into savings accounts and bonds instead of stock markets, which lowers demand for stocks --> lower stock prices --> market indices fall as well (S&P500, Dow Jones Industrial Average). Movements in these indices are considered a barometer for the broader economy.

When the risk free rate goes up (which is what happens when the fed increases rates), then risk gets re-priced across all assets.

It means that there will be less investment cash pumping up the valuation of startups.

High rates means that there is less liquidity overall (people don't want to borrow money and invest it), and it means that there are decent alternatives to investigating in startups (if T bonds pay 10% guaranteed, why burn cash on a company that will probably fail?)

It means the stream of capital being injected into companies, startups, incubators is inversely correlated to fed interest rates.

Likewise for real estate sector, the monthly mortgage payments increase as rates rise and that puts a big strain on the mortgage holder to continue.

Now instead of real estate, think startups, stocks, tech. Everybody is beholden to the obligations at the rate dictated by the fed.

Is your hedge fund manager friend shorting bond funds like crazy? If not, why not?

One would think so but he is cash and says he is unsure. He thinks that inflation may not be curbed even with low double digit rates!

Considering they’re pushing 75% in Argentina, 10% sounds like a deal.

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