The U.S. Federal Reserve’s Interest Rate Policy Has a Direct Impact on Us
Anton Panayotov, founder and CEO of Alaric Securities, on “The World is Business”
August is historically the most volatile month. A combination of many factors has led to turmoil in the financial markets. There is a significant focus and concentration on the IT sector related to artificial intelligence, with a large bubble. Just four companies make up 40% of the index. This was stated by Anton Panayotov, founder and CEO of Alaric Securities, on Bloomberg TV Bulgaria’s show “The World is Business” with host Ivaylo Lakov.
According to Mr. Panayotov, a comparison should not be made between the dot-com bubble and the current situation. The situation is completely different. At this stage, expectations are already reflected in prices, and now everyone is waiting to see the companies’ revenues. The ball is in the companies’ court to justify the trust and investments made in them.
“The free offering of artificial intelligence is perfect marketing. Over time, prices will rise, and some services will become paid. At Alaric Securities, we use artificial intelligence at many different levels. It helps us with customer-related operations, and I’m willing to pay to continue using it. Customers are willing to pay much more than they currently do to continue benefiting from the capabilities of artificial intelligence.”
Nvidia does not own AI, but provides many of the components needed for its development. We will soon see companies that will emerge into our view and make their mark. This is just the first stage for this new technology.
For the past 30 years, Japan has maintained zero interest rates. This is a key reason why Japan’s monetary assets have moved out of the country. The resignation of the Japanese prime minister last week is a very serious signal—a tectonic shift. Since 2022, the yen has weakened by one-third against the dollar. In other words, even if the S&P falls, Japanese managers and investors are still in the black. The effect of what happened is a prerequisite for eliminating the swollen dollar-yen credit. We are yet to see which banks will announce problems as a result of this. Let’s not forget that the American and Japanese economies are closely linked. In the future, all this capital will no longer flow into U.S. capital markets at such speed and in such volume.
“There is a high likelihood of a recession in the U.S. The market expects and demands a reduction in interest rates,” the guest commented. There are preconditions for instability and a slight economic slowdown. Index returns are unlikely to be as high as they are now.
Money cannot be worth zero. It must have value. If it is worth zero, then our savings will have zero value. We will no longer see zero interest rates, but a slight reduction in rates is reasonable. This will guard against recession fears. Interest rates must align with inflation—an old rule.
The real estate market in Bulgaria is very high. Whether and when this bubble will burst, we don’t know. It is reasonable to note that prices compared to other European countries are high. According to Panayotov, the fact that we see a record number of loans being taken out is not good news. This is a red flag. The situation is similar in the U.S. All this means that people lack cash and seek refinancing.
Government securities are regulated. If the rating is AAA, there is no reason for concern. We should not forget that one of the biggest players in these markets is American funds. When U.S. interest rates rise, much of these funds are repatriated—returned to the country. This is a big problem for economies that rely on external financing. When rates fall, these funds seek better returns in other debt denominated in other currencies, offering different yields. “This directly answers the question of how the Federal Reserve’s interest rate policy affects us,” the guest summarized.
At the end of October and the beginning of November, geopolitical shifts are expected. This is not only related to the U.S. elections. In the EU, new commissioners are being appointed and policies are being formed. “Europe is just a museum—you can buy a ticket, democracy, rules. However, the EU lacks the means to compete on the global stage. A long-term formula is missing. Europe needs to seriously rethink,” the guest firmly stated.
In this context, Trump is great for Europe because he contributes to Europe’s emancipation.
See the full commentary in the video.
Source: BloombergTV Bulgaria