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  • Trends with Benefits

    Trends with Benefits #39: Harley Bassman on Interest Rates, Demographics and Mortgage REITs

    Ed Lopez, Head of ETF Product
    December 29, 2020
     

    In this episode, I speak with Harley Bassman, publisher of The Convexity Maven about the influence of demographics on interest rates, when inflation returns and alternative income options in today's low rate environment.


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    I was interested in speaking with Harley about his recent commentaries covering the state of interest rates and his case for mortgage REITs. I ended up reading all of his past commentaries. They are informative and educational, sophisticated yet approachable, and I appreciated his high level view of the economic landscape.

    It's likely no surprise that in this low rate environment investors in search for yield have found their way to alternative income assets like mortgage REITs. Yet, there are risks with anything that takes on leverage to achieve higher yields. While rates are low, allowing for cheap funding of leverage, one has to keep an eye on the outlook for rates, among other risks related to the asset class being invested in. With that in mind I sought to explore a couple of themes common in his commentaries to help provide broader context.

    One, the relationship of demographics and interest rates. This underappreciated dynamic may help explain the long-term declining trend in rates. It may also provide an idea of what happens as boomers fully enter retirement and millennials start entering their peak earning years.

    Second, the relationship of the velocity of money and inflation. Inflation, as many think of it, has been missing despite massive monetary stimulus. Will fiscal stimulus spur velocity and inflation? And if so, how much inflation? In any case, according to Harley, there still may be time to safely navigate the Federal Reserve's low interest rate policies with alternative income assets like mortgage REITs, BDCs and muni closed-end funds.

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    Listen for Harley’s take on modern monetary theory, bitcoin, and cultured meat.

    Follow Ed Lopez @ThatEdLopez on Twitter and visit The Convexity Maven to read Harley’s commentaries and join his mailing list.

    You can listen and subscribe to this podcast on Apple PodcastsGoogle PlaySpotifyStitcherSoundCloud, and YouTube.

    IMPORTANT DISCLOSURES

    Please note that Van Eck Securities Corporation (an affiliated broker-dealer of Van Eck Associates Corporation) may offer investments products that invest in the asset class(es) discussed in this podcast.

    The views and opinions expressed are those of the speaker(s) but not necessarily those of VanEck. Commentaries are general in nature and should not be construed as investment advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Any discussion of specific securities/financial instruments mentioned in the commentary is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.

    There are inherent risks with fixed income investing. These risks may include interest rate, call, credit, market, inflation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall. This risk is heightened with investments in longer duration fixed-income securities and during periods when prevailing interest rates are low or negative.

    All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

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