Yesterday was my first day of unemployment since 1988 when I started as a Baskin Robbins trainee. By 1989 I had moved my way up to “Head Scoop” and increased my hourly wage from $3.15 to $4 (including best employment perk of all times: all you can eat ice cream)! As a teenager with few obligations, I was crushing it financially and I was young enough to burn off all the calories/free ice cream. At the end of the summer, I decided to buy a CD at my local bank with all of the money I saved. I still remember the exact amount — $750. I was rich! Even better, the one-year CD I invested in was yielding 7%. From that day forward I was hooked on the power of compounding.
As an absolute value investor I long for the days of 7% risk-free returns. Are such risk free returns even possible now? If the yield curve shifted upward 500-600bps, developed countries would become insolvent overnight. Total US debt of $19 trillion x 0.06 = $1.14 trillion increase in fiscal deficit = game over. Has global debt reached a point that makes normalization of rates impossible? The math doesn’t support normalization; hence, the consistent delays on the emergency monetary policy exit. Is the Fed data dependent, or terrified of the normalization process?