Historian Edward Chancellor has warned that central banks have created a bubble in all types of investments through their long-term flood of money. According to Chancellor, the air is slowly escaping from this “everything bubble” as interest rates rise, posing a highly risky situation.
Recently, central banks have raised key interest rates significantly, yet a major crash on the financial markets has not occurred. Despite the recent increase in interest rates, some victims have been claimed, such as the Silicon Valley Bank and other American regional banks. There is concern that other banks heavily involved in commercial real estate may encounter trouble as well. Additionally, companies in various sectors could face difficulties due to the higher interest rates, as seen with heavily indebted companies like Thames Water in the UK.
Chancellor believes that interest rates will likely fall again soon due to the high level of global debt. The Institute of International Finance reported a record high global debt of $307 trillion in the first half of the year. Geopolitical risks are being underestimated in the financial markets while investors are not accurately assessing risks due to central banks frequently intervening in times of crisis.
The impact of higher interest rates has started to deflate the former bond bubble, with examples like 100-year Austrian government bond experiencing significant price drops recently. Chancellor anticipates that yields on the bond market will remain high or even increase especially with expected continued inflation. He sees opportunities for investors in inflation-protected bonds in UK and USA and value stocks in Europe, UK and Japan respectively.
In addition to these opportunities, Chancellor also recognizes opportunities in emerging market stocks excluding China where a real estate crisis has led to an enormous bubble deflation despite current financial environment he advises investors to seek out potential opportunities while remaining cautious about risks associated with ongoing changes
