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A.steve

What Would Happen If...

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IMHO, we're seeing extraordinarily sharp drops in prices of equities worldwide because interest rates are very low. Not only can long-speculators (indirectly) use cheap funds to maintain bullish positions on equities - but so can the bearish - with corresponding short positions.

If low interest rates make markets more, not less, volatile... this might lead us to expect increasing interest rates - except that this will likely cause problems in the bond markets and a downwards economic spiral... So... what if central banks were to put a floor under bonds - by extending asset purchases - but also, simultaneously let asset prices rise? I know this would pose a problem for rolling finance (where successive short-term deals are taken... but, perhaps, a gentle solution would be to allow portions of old short term debt to be rolled on favourable terms - in order to cushion the blow of companies unexpectedly needing to re-finance at significantly higher rates.

Is this a daft idea, or might it happen.. or both?

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IMHO, we're seeing extraordinarily sharp drops in prices of equities worldwide because interest rates are very low. Not only can long-speculators (indirectly) use cheap funds to maintain bullish positions on equities - but so can the bearish - with corresponding short positions.

Actually, high interest rates help the short position, because they sell the stock and recieve interest on the cash from the sale, which will pay the short stock rate plus extra.

And short positions are not proven to make markets more volatile. For instance, in a bubble, short positions can help prevent even higher prices.

Edited by blackgoose

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  • 309 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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