Transcript:
Katie Nealis:
Why are interest rates rising right now?
Tom Vaughan:
Oh, that’s a good question. The really we’re seeing, in fact, if you go back to that, let me share that again, because that’s a good question. Here we go. Here’s the leading economic indicators. Look, oops, sorry, look at what has happened historically, right? So we have a downturn, and then look at how long it takes to get back, right? fair amount of time, that’s yours. Here’s 2000, about five years to get down. Here’s 2008. Took, you know, a long time from peak to peak here was about what, eight years. And so normally, when you have a big downturn, like you see here, it takes quite a while to come back, right, because things are in pain here. There’s a lot of unemployed, there’s a lot of inefficiencies that have been just hammered out of the economy. And they’re slowly recovering, well look at this, look at the recovery time. So this hasn’t happened, you don’t see that anywhere on this chart, going back to the 1960s. And so I think this is a great representation, look at how fast we got back to where we were. So the reason was, it wasn’t an economic event, it was a health event, it caused an economic event. But if you throw enough money at it, like they did here, all these central banks, apparently, we can get this economy coming back quite quickly. And so really, that’s what this is, this is a, this is not a recovery, like we normally see, even that can be somewhat inflationary, but it’s usually not as much pressure because it’s recovering kind of slowly.
Here, we’re recovering, you know, so fast. And basically what’s happening, there’s more people that want to spend money right now, you know, I think that Americans save $6 trillion last year in total. So there’s more people that want to save money or spend money right now, then these companies are able to even handle whether you want a rental car, you want to go to a restaurant, or they just can’t reopen fast enough, they have trouble hiring people, they’re having trouble getting supplies, like lumber and semiconductors, and whatever it is, and there’s more demand. And again, it’s just because it went from you know, zero to 60. So fast, and it came back. And we’ve never had anything like that. So what happens is, if if I’m making cars, and somebody is giving me semiconductors, and all of a sudden, they’re short on them, man, and I’m making money making cars and I got 1000s of orders coming in, I might pay more for that semiconductor just to try to get it instead of my competitors buying it. And so that becomes kind of just feeding frenzy that happened with lumber and went up four times the value in a very short period of time, because again, there’s housing starts are going nuts, and people are building homes left and right. So that that creates a situation where prices are going up, that employees won’t come back out of their home for a variety reasons. So they’re having to pay more to attract people to come back to work. And that’s all inflationary, because all of those costs go into the product you’re buying.
You know, like right now I think about increased lumber costs of average, $36,000 more per house, just for the lumber and the increase in the price. So that that means that you’re going to see interest rates on bonds come up, they come up with price pressure. And so that’s what’s happening and we’re seeing kind of this inflationary pressure that’s coming from all of these supply side shortages. And it’s really, really unique. This is a really unusual timeframe. We haven’t seen anything like this again, you know, that chart to show you go back to 1860 there’s nothing like this where that economy is coming back that fast after being down so this isn’t something we’re used to the corporations aren’t used to this they don’t know how to deal with this. And and if you look at it, why would you have all these planes or cars sitting there that nobody was using? And you’re going to lay people off you’re going to sell all those rental cars or what have you and so you’re waiting for the demand while demand has come now they’re all scrambling around trying to get the pilots to come back and I guess the you know, the rental car companies are actually buying used cars on the used car market because they can’t get enough new cars either. So it’s it’s a it’s a feeding frenzy. That’s really interesting right now, so that’s that’s what’s causing a lot of this interest rate increases. Now I feel a lot of this is temporary. So we’ll see what happens there then that’s more of an important argument as to whether this is permanent or temporary.