Understanding Long-Term Interest Rates and Inflation Trends

Mr. Lee Sang-jin discusses the impact of FOMC meetings on long-term interest rates and the market's reaction to inflation and bond prices.

### Market Insights: FOMC Meeting Impact, Inflation Expectations, and Asset Allocation
* 💼 Following the recent FOMC meeting, Federal Reserve Chair Jerome Powell's remarks on **potential interest rate cuts in September** and **ample room for further cuts** have positively impacted **long-term interest rates** and the **stock market**.
* 📈 The market is showing a shift towards **value stocks**, with the Russell 2000 index rising by **11%** in the past month while the Nasdaq technology sector has declined by **-2%**.
* 🛢 Despite short-term fluctuations due to geopolitical events like the recent Israel-Iran tensions, the long-term oil price trend is expected to **remain stable within a certain range**, with a potential for **sustained higher prices if triggered by significant events**.
* 🪙 Gold prices have hit an all-time high, reaching around **$2,500**, driven by **low interest rates** and **safe-haven demand** amid **global uncertainties**.
* 🏦 The discussion emphasizes the importance of **real returns on long-term bonds**, considering potential **future inflation rates**. The historical average inflation rate over the past 110 years has been around **3.267%**, significantly higher than recent decades.
* 💰 The current 30-year bond yield is around **4.3299%**, which may not provide a sufficient real return if **future inflation exceeds market expectations**.
* 📉 The market is currently pricing in an average inflation rate of around **2% for the next 10 years**, but historical data suggests that this may be **underestimated**.
* 🥇 The CEO's long-term view favors gold as an investment over savings accounts or time deposits, but **short-term market dynamics can impact precious metal prices**.

### Precious Metals and Economic Analysis
* 💰 Buying physical assets like precious metals can be a good long-term investment strategy, especially during **economic recessions or periods of high inflation**.
* 🥇 Gold is often recommended as a safe haven asset, but some argue that **silver may be a better choice** due to its **historical undervaluation** compared to gold.
* 🏦 Japan recently announced a **15 basis point interest rate hike** and a reduction in bond purchases, raising concerns about its **high debt-to-GDP ratio**.
* 🌐 The speaker discusses global economic dynamics, including the potential impact of **Japan's economic decisions** on **currency exchange rates and asset prices**.
* 📈 The Federal Reserve's balance sheet shows a shift towards **longer-term bond holdings**, which could have implications for **long-term interest rates** and **asset valuations**.
* 💬 The speaker emphasizes the importance of political factors in economic decision-making, suggesting that countries like Japan may have **more flexibility in managing their debt** due to **internal ownership**.
* 📊 The discussion touches on **economic theories, market dynamics, and potential investment strategies**, highlighting the **complexity of global financial systems**.
* 🔮 The speaker concludes with a cautious outlook, suggesting that **inflation may continue to be a significant factor in the future**, and emphasizing the **importance of monitoring economic trends**.

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프루츠투자자문 대표

동아탱커 프랍 데스크 총괄
현대선물 트레이더 (국채/ 외환 등)
유진투자선물 LME(LONDON METALS EXCHANGE) 기관 딜러/ 브로커
피닉스 자산운용 대체투자 펀드매니저

건국대학교 부동산 대학원
University of Texas at Arlington 경영학

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프루츠투자자문
P: 02-577-2305
협업 문의: biz@fruiting.co.kr 


이선철의 매크로 투데이 

Discussion on FOMC Meeting and Market Reactions

Lee Sang-jin discusses the FOMC meeting's impact on long-term interest rates and the market, highlighting Powell's comments on potential interest rate cuts.

He explains the current trend of value stocks rising and the decline of the Nasdaq technology sector, attributing it to the market's focus on inflation and the shift towards value stocks.

Sang-jin also emphasizes the importance of long-term interest rates and cautions against oil price movements influencing interest rate spikes.

The Impact of Geopolitical Events on Oil Prices and Gold

Geopolitical events, like the assassination of the Israeli leader, can cause short-term spikes in oil prices, but sustained increases depend on fundamental factors like inflation and economic conditions.

The long-term trend for oil prices is likely to remain around the mid-70s, with the potential for significant rise in the future.

Gold prices have recently hit an all-time high due to low-interest rates and the Middle East crisis, but their short-term fluctuations are also influenced by liquidity and inflation concerns, especially in response to changes in short-term interest rates.

The Relationship Between Long-Term Bonds, Inflation, and Gold Prices

Long-term bond yields are currently at 4%, but the market expects future inflation to be around 2%.

This would result in a real annual return of 2% for the next 10 years, potentially making it a less valuable investment.

The average inflation rate for the past 30 years has been below 2%, but if it exceeds 3% in the future, the real return on long-term bonds could be as low as 1%.

Despite the current high demand for long-term bonds, their performance in the future is uncertain, especially if inflation rates rise.

The Impact of Lowering Interest Rates on Investments

Lowering the benchmark interest rate is expected to increase inflation pressure, potentially leading to higher raw material prices.

Long-term bond investments may not be favorable in the current stage of declining interest rates.

The market's reaction to lowering interest rates is likely to drive up the prices of Nasdaq and gold, while the impact on precious metals in the short term is uncertain.

The Preference for Gold Over Silver & Japan's Economic Situation

Many prefer gold over silver due to its stability, despite silver's historical undervaluation.

Japan's high debt-to-GDP ratio raises concerns about its ability to afford interest costs and potentially lead to bankruptcy.

However, Japan's status as a creditor country with significant overseas assets may allow it to manage its debt through political mechanisms.

The Impact of Long-Term Bond Investments on the Economy

The Federal Reserve has been increasing its holdings of long-term national bonds, while decreasing shorter-term ones, leading to a shift in the balance sheet portfolio.

This strategy is aimed at controlling long-term interest rates and preventing continuous rise in asset prices.

The Fed's manipulation of interest rates and bond investments is expected to impact inflation and the overall economy, ultimately leading to a potential rise in prices.

The Impact of Quantitative Easing on the Financial Market

Quantitative easing is currently happening, with the Fed buying long-term bonds to control supply and address inflation concerns.

In the event of a recession with deflation, the NASDAQ and M7 are projected to have the smallest drop among stocks, largely due to multiple support and declining interest rates.

The individual, who claims to be a subscriber, raises questions about investment strategies, to which the response emphasizes the importance of patience in investing and compares the portfolio's performance to that of Warren Buffett.

Buffett's Thoughts on Investing and Business

Warren Buffett is advising his subscribers to seek advice from investors better than himself and is reluctant to engage in external broadcasts or writing articles.

He discusses the impact of inflation on valuation, using the example of commercial buildings in San Francisco.

Despite the challenging tempo of broadcasting, he expresses gratitude and reflects on the early days of his career.