His argument runs that the financial system has become entirely geared around low interest rates after almost 15 years of cheap money in the post-2008 era. Many of the business models, investment ideas and hedging strategies that underpin the economy will now come unstuck as interest rates stay higher for longer.
There have been tremors already: pension funds were forced to rapidly sell bonds in the wake of the 2022 mini-Budget after liability-driven investment (LDI) strategies blew up.
“Everybody’s portfolio is geared up for a completely different structure of interest rates. You tighten very rapidly like this, and bad things happen,” says Mortimer-Lee, a Brit who is based in New York.
In his view, the original sin is that central banks went too far with quantitative easing (QE) during the pandemic.
The Bank of England massively ramped up its…
