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Hello and welcome to Investing from Zero. Over the past two weeks, we've seen stock markets experience high volatility. This is mainly due to the apparent confirmation that the Fed will implement two more interest rate hikes in the coming months. This has undoubtedly raised enormous skepticism and criticism from major investors, such as Bill Lakman, who doesn't understand why the Fed is still considering raising rates in an economic environment where the main reason for raising them is inflation, which has already moderated to levels close to 3%, and where the consequences of these interest rate hikes are proving devastating for businesses.
To give you an idea, we're currently at the highest bankruptcy levels since 2008. If you want to know all the details and consequences that these two interest rate hikes could have for you, stay tuned to this video. This is crucial information you need to know, and I'm going to explain the whole truth about the current economic situation in under 10 minutes.
So give it a thumbs up! Video and let's get to it. Welcome to Investing from Scratch, the channel that will show you all the secrets of professional investing. The renowned investor Belagman and owner of one of the most important asset managers in the United States, Persign Square Capital Management, has made headlines again for lashing out at the Federal Reserve.
Just after it became known that interest rates will almost certainly rise twice more this year, as you all know, the Fed undertook at the beginning of 2022 the most aggressive interest rate hikes of the last 40 years in order to control and reduce the inflation generated during the pandemic. It was undoubtedly a painful measure for the stock markets but necessary for the economy.
After more than a year and a half of interest rate hikes, and until reaching interest rates above 5% and inflation levels below 4%, the Fed decided to pause interest rate hikes last June, thus giving a respite to companies and stock markets, which, as you know, are one of the main agents affected by interest rate hikes.
Interest as access to capital or liquidity becomes more expensive. And, as most experts, including the protagonist of our video, belacman, say, the main reason for this aggressive monetary policy of raising interest rates is that inflation is already modernizing and, according to the latest inflation data published this week, is approaching 3%, a very positive figure considering that the objective of every Central Bank internationally is a healthy inflation level of 2%.
It's important to keep in mind that interest rate hikes don't have immediate effects on the economy. They are a type of instrument used by central banks with delayed effects, requiring several quarters to impact economic indicators. This poses a risk for central banks because, unable to accurately measure the effect of their latest monetary policies, they could overdo it by tightening policy, potentially causing a complete economic slowdown.
This would undoubtedly lead to an economic crisis, which is what Belagman is pointing out could be happening. Given this program to improve inflation levels, we all expected interest rates to remain at current levels or even decrease. However, this doesn't seem to be the case. This week, as you can see in this chart, we learned that there is a 95% probability that the next meeting on July 26th will see another interest rate hike.
As we will see below, this could have a devastating effect on businesses and a subsequent major crisis. Despite the fact that most media outlets and political leaders try to project an image of financial stability, the reality we find when we analyze the data in depth is very different from what these leaders are trying to portray.
Before continuing with the video, I'd like to remind you that if you're interested in learning to invest like a professional and understanding everything surrounding companies—the underlying business language, which is nothing more than accounting and valuing companies to know if you're buying high or low—I'm giving away a completely free course of more than 6 hours where you'll learn everything you need to know to get started.
Simply send me a WhatsApp message to the number you see on the screen with your full name, and I'll personally send you this 6-hour course where you'll learn everything you need to know to begin investing. In fact, business bankruptcies are increasing not only in the United States but worldwide. In some countries, they are already reaching levels not seen since the 2008 financial crisis.
Experts like Belakman point out that if current monetary policy isn't changed urgently, this is likely just the beginning. Something much worse, as I stated a few weeks ago in the digital publication Fortune. This is not an environment in which the Federal Reserve should raise rates and add further pressure to the system, since financial stability is the Fed's primary responsibility.
The main damage that Ackman points out, and which we are already witnessing, is the insolvency of millions of companies. Many of these companies enjoyed a golden decade of cheap money until 2022; however, with the arrival of interest rate hikes, many financial problems surfaced, mainly due to excessively indebted balance sheets combined with high inflation and weakened demand for goods and services, which consequently and permanently damaged the fundamentals of their businesses.
All these problems have led to corporate bankruptcies in the United States reaching their highest level since 2010 during the first six months of the year, and this effect is spreading to many other countries around the world. In England and Wales, for example, corporate bankruptcies are close to their highest level in the last 14 years.
Bankruptcies in Sweden are already the highest in the last decade. In Germany, the leading European economy, corporate bankruptcies are also at an all-time high. They increased by almost 50% in just one year, reaching their highest level since 2016 in June. In Japan, bankruptcies are already at their highest level in the last five years.
The curious thing about this situation, as Vilacman also points out, is that company bankruptcies increase once a recession is already underway. However, this collapse of companies has already begun, and all this at a time when supposedly all economic indicators are good. What do you think? Do you believe that the economy and companies will really be able to withstand two more interest rate hikes?
Leave your opinion in the video comments. I imagine many of you are thinking that the businesses going bankrupt are small companies. But that's not the case. All kinds of companies from different sectors are going bankrupt, as was the case with the digital media company Vice Group Holdings, which was valued at almost six trillion dollars and today is worth absolutely nothing, or Bed Bad, the US home goods giant that collapsed last April, or also the case of the well-known electric vehicle manufacturer SPAC.
Lordstown Motors Corporation, which ended up like the other two, ruining all its investors, undoubtedly faces a suffocation of the business sector if monetary policy doesn't change course soon. This would undoubtedly lead to an unprecedented crisis, as many experts are already warning. They assert that this time the shock to the business sector won't be a short, sharp blow like in 2008, but will lead to one of the toughest and most prolonged periods of corporate restructuring in history.
This is due to the persistence of high interest rates, which will prevent or greatly hinder companies from refinancing their debt. In this sense, the impact this crisis could have on the population would be a contagion spiral, beginning with an increased rate of business bankruptcies, followed immediately by rising unemployment rates, and ending with a drop in personal consumption.
This last consequence would be utterly devastating for the United States, since, as you know, it represents 70% of the total American GDP, condemning the country to an immediate economic crisis. In my humble opinion, it has never been easier to avoid an economic crisis than it is right now. The Fed must act now.
Relieve the pressure on the business sector; otherwise, the effects, as we've seen, could be utterly devastating, not only for businesses but also for the entire population. What do you think? Leave your opinion in the comments. I'm sending you all a big hug, and I'll see you next week. I think this is the beginning of a great friendship.
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