Category: interest rates

Interest Rate Hikes vs. Inflation Rate, by Country


This post is by Jenna Ross from Visual Capitalist


graphic comparing interest rate hikes with inflation in various countries

Interest Rate Hikes vs. Inflation Rate, by Country

Imagine today’s high inflation like a car speeding down a hill. In order to slow it down, you need to hit the brakes. In this case, the “brakes” are interest rate hikes intended to slow spending. However, some central banks are hitting the brakes faster than others.

This graphic uses data from central banks and government websites to show how policy interest rates and inflation rates have changed since the start of the year. It was inspired by a chart created by Macrobond.

How Do Interest Rate Hikes Combat Inflation?

To understand how interest rates influence inflation, we need to understand how inflation works. Inflation is the result of too much money chasing too few goods. Over the last several months, this has occurred amid a surge in demand and supply chain disruptions worsened by Russia’s invasion of Ukraine.

In an effort to combat inflation, central banks will raise their policy rate. This is the rate they charge commercial banks for loans or pay commercial banks for deposits. Commercial banks pass on a portion of these higher rates to their customers, which reduces the purchasing power of businesses and consumers. For example, it becomes more expensive to borrow money for a house or car.

Ultimately, interest rate hikes act to slow spending and encourage saving. This motivates companies to increase prices at a slower rate, or lower prices, to stimulate demand.

Rising Interest Rates and Inflation

With inflation rates hitting (Read more...)

U.S. Equity Funds Post Slower Inflows


This post is by Dorothy Neufeld from Visual Capitalist


bar chart showing the decline in inflows to US equity funds

The Briefing

  • U.S. equity fund flows sank to $48 billion in February, a 70% decline from March 2021
  • Large growth funds continue to see outflows as Russia’s invasion of Ukraine escalates

U.S. Equity Funds Post Slower Inflows

Investors are bracing for several interest rate hikes amid a Russia-Ukraine war.

In February, U.S. equity fund flows hit $48 billion, a 70% decline from the year before. In the previous month, U.S. equity fund flows hit their lowest level since the pandemic began.

With data from Morningstar, we show how the invasion of Ukraine and a rising rate environment has affected U.S. equity fund flows.

Risk-Off Environment

In January, investors shed a record $23 billion from large growth funds, the highest level since 2017. This trend continued in February as investors sought out lower-risk investments.

Growth stocks historically tend to outperform when interest rates are declining. When the price of capital is low, companies borrow and expand operations at a lower cost.

The reverse is true when rates rise, putting pressure on corporate earnings and equity valuations. In March 2022, the Fed raised interest rates for the first time since 2018.

Growth funds also tend to be more volatile during market selloffs. So far in 2022, the Cboe Volatility Index (VIX) is up more than 40%.

Fund CategoryJanuary 2022 Estimated Net FlowFebruary Estimated Net Flow
Large Growth

-$23.2B-$6.0B
Mid-Cap Growth-$3.5B-$1.2B
Small Growth-$2.7B-$1.1B
Large Blend-$3.5B$38.5B
Mid-Cap Blend$0.7B$2.1B
Small Blend (Read more...)

Where Does the World’s Ultra-Wealthy Population Live Today?


This post is by Dorothy Neufeld from Visual Capitalist


Where Does the World's Ultra-Wealthy Population Live Today?

Where Does the World’s Ultra-Wealthy Population Live Today?

The pandemic, geopolitical tensions, and supply chain disruptions have thrown the world into disarray in recent years, but that hasn’t stopped the world’s ultra-wealthy population from growing at a strong clip.

New data from this year’s Wealth Report by Knight Frank shows that the number of Ultra-High Net Worth Individuals (UHNWIs) grew 9.3% between 2020 and 2021. Nearly all regions saw an increase in ultra-wealthy people over the time period.

The above visualization from the report explores the global distribution of uber-affluent people. Below, we’ll also look at how the populations are projected to grow in the future.

The World’s Ultra-Wealthy, by Region

UHNWIs are defined as having net assets of $30 million or more, including their primary residence.

With over 230,000 UHNWIs in 2021, North America has the largest subset globally, followed by Asia at nearly 170,000. Over the last year, the ultra-wealthy population rose 12.2% and 7.2% across these regions, respectively.

RegionUHNWIs (2021)Change (2020–21)
North America233,59012.2%
Asia169,8897.2%
Europe154,0087.4%
Australasia24,2459.8%
Latin America10,3377.6%
Middle East9,7178.8%
Russia & CIS*6,54211.2%
Africa2,240-0.8%
World610,5699.3%

*Commonwealth of Independent States

Following North America and Asia is Europe. In 2021, the top countries for the ultra-wealthy were France (30,000), Germany (28,000), U.K. (25,000) and Italy (17,000). On a per capita basis, Monaco is the highest worldwide, at five people per thousand residents.

Interestingly, the ultra-rich in Russia & (Read more...)

Visualizing the State of Global Debt, by Country


This post is by Raul Amoros from Visual Capitalist


View the expanded version of this infographic to see all countries.

Global Debt to GDP 2021

View the expanded version of this infographic to see all countries.

Visualizing the State of Global Debt, by Country

Since COVID-19 started its spread around the world in 2020, the global economy has been put to the test with supply chain disruptions, price volatility for commodities, challenges in the job market, and declining income from tourism. The World Bank has estimated that almost 97 million people have been pushed into extreme poverty as a result of the pandemic.

In order to help with this difficult situation, global governments have had to increase their expenditures to deal with higher healthcare costs, unemployment, food insecurity, and to help businesses to survive. Countries have taken on new debt to provide financial support for these measures, which has resulted in the highest global debt levels in half a century.

To analyze the extent of global debt, we’ve compiled debt to GDP data by country from the most recent World Economic Outlook report by the IMF.

Debt-to-GDP ratio by Country: The Top 10 Most Indebted Nations

The debt-to-GDP ratio is a simple metric that compares a country’s public debt to its economic output. By comparing how much a country owes and how much it produces, economists can measure a country’s ability to pay off its debt.

Let’s take a look at the top 10 countries in terms of debt to GDP:

RankCountry2021
#1Japan ??257%
#2Sudan ??210%
#3Greece ??207%
#4 (Read more...)

Data Update 3 for 2022: Inflation and its Ripple Effects!



    Inflation numbers have been coming in high now, for more than a year, but for much of the early part of 2021, bankers, investors and politicians seemed to be either in denial or casually dismissive of its potential for damage. Initially, the high inflation numbers were attributed to the speed with the economy was recovering from COVID, and once that excuse fell flat, it was the supply chain that was held responsible. By the end of 2021, it was clear that this bout of inflation was not as transient a phenomenon as some had made it out to be, and the big question leading in 2022, for investors and markets, is how inflation will play out during the year, and beyond, and the consequences for stocks, bonds and currencies.

Inflation: Measurement and Determinants

    As the inflation debate was heating up in the middle of last year, I wrote a comprehensive post on how inflation is measured, what causes it and how it affects returns on different asset classes. Rather than repeat much of that post, let me summarize my key points.

  • Measuring inflation is not as simple as it looks, and measures of inflation can vary depending on the basket of good/services used, the perspective adopted (consumer, producer, GDP deflator) and the sampling used to collect prices. That said, the three primary inflation indices in the US, the CPI, the PPI and the GDP deflator all told the same story in 2021:
    Download historical inflation numbers

Green Bonds: Lasting Solutions For Climate Change



The following content is sponsored by IFC (World Bank Group)

green bonds infographic

Green Bonds: Lasting Solutions For Climate Change

How much will it cost to combat climate change? By some estimates, a staggering $50 trillion. And while this may seem like an impossibly daunting figure, you should know there is a solution to this financing gap: green bonds.

But having only been around for a little over a decade, they are still a relatively unfamiliar investment for many.

The above infographic from IFC explores the exciting world of green bonds, which are gaining serious traction in financial markets.

Green Bonds 101

To begin, green bonds are not that different from regular bonds. Both are debt instruments or fixed income securities that pool capital from investors for a specified project or objective. But while Fortune 500 companies issue bonds to generally enhance their bottom line, green bonds differ in their commitment to eco-friendly ventures and sustainability.

Here’s a closer look at the anatomy of bonds, including green bonds:

  • Yield: The fixed coupon rate as a % of the market value of the bond price.
  • Maturity: The predetermined length of the bond.
  • Credit Rating: The rating bonds receive to determine their riskiness and quality.
  • Bond Price: The price of the bond purchase (typically starts out in $1,000 denominations).
  • Coupon: The payment on the bond usually occurs in semi-annual or quarterly installments.

Unlike bonds which have been around for centuries, dating back to the Mesopotamian times, green bonds are (Read more...)

The State of Household Debt in America


This post is by Aran Ali from Visual Capitalist


The growing household debt in America

The Briefing

  • U.S. household debt stands at $14.56 trillion, and has doubled since 2003
  • Student loan debt has expanded a colossal 550% in the same time frame

The State of Household Debt in America

American households are becoming increasingly indebted.

In 2003, total household debt was $7.23 trillion, but that figure has recently doubled to $14.56 trillion in 2020. With just under 130 million households in the country, this equates to an average of $118,000 of debt per household.

Here’s how the various forms of U.S. household debt compare.

Type of Debt2003 (in trillions)2020 (in trillions)% Growth
Mortgage$4.94$10.04+103%
Home Equity Revolving$0.24$0.35+45%
Auto Loan$0.64$1.37+137%
Credit Card$0.69$0.82+18%
Student Loan$0.24$1.56+550%
Other$0.48$0.42-12%
Total$7.23$14.46100%

Mortgages: Steep Price to Pay for Home Ownership

Making up roughly 70% of all household debt, and growing $5.1 trillion since 2003, mortgage debt now stands at $10.04 trillion.

A fundamental driver of mortgage activity is interest rates. Given the two variables tend to have an inverse relationship with one another, interest rates have a big impact on the affordability of housing. As long as U.S. interest rates remain near 200-year lows, its likely mortgages will maintain at elevated levels.

Students Continue Struggling with Student Debt

The second-largest form of debt is student loans. Although not quite the size of mortgages in raw dollars, student debt is the fastest growing as a percentage, having (Read more...)

A Golden Future: Visualizing the Economic Case for Gold



The following content is sponsored by Kalo Gold.

Visualizing the Economic Case for Gold

Throughout history, people have revered gold as a sign of wealth and a store of value. Today, gold is not only a precious metal but also a precious investment.

In fact, in 2020, 47% of global gold demand—the largest share—came from investors.

Today’s infographic from Kalo Gold outlines the economic case for gold and highlights some of the main reasons why investors are attracted to it.

Gold as an Investment: A Shield for All Financial Conditions

Gold can protect investors’ wealth during tough times while preserving capital for the long run. Investors add gold to their portfolios because it offers many investment benefits:

  • Effective diversification

    In a typical portfolio of stocks and bonds, gold’s historically low correlation with major asset classes and negative correlation with the U.S. dollar can reduce risk through diversification.

  • Hedge against inflation

    Gold is priced in U.S. dollars. Therefore, as the purchasing power of the dollar falls due to inflation, gold becomes more expensive to buy, acting as a hedge against the eroding value of the dollar.

  • Long-term returns

    Gold has always maintained its value in the long run. Between 2001 and 2020, gold’s annual return averaged 11.2%, outperforming other key asset classes including U.S. equities, bonds, and treasuries.

Additionally, gold’s low correlation with other assets allows it to outperform during recessionary periods, reducing the downside of stock market downturns. In fact, gold delivered positive returns during the recessions in (Read more...)

The Ballooning Valuations In Private Equity Deals


This post is by Aran Ali from Visual Capitalist


ballooning valuations in private equity deals

The Briefing

  • Private equity (PE) deal valuations by EV/EBITDA are increasingly rich and are hitting higher double-digit figures
  • 2021 is expected to be another home run year for PE, with 20% of buyouts estimated to be priced above 20x EV/EBITDA

The Ballooning Valuations In Private Equity Deals

Private equity is getting increasingly expensive. As a result, the pricing of an average deal today, by the EV/EBITDA metric, is expected to be at a premium relative to the last decade.

The EV/EBIDTA ratio breaks down into two parts:

  • Enterprise Value (EV): Adding debt to market capitalization, while subtracting cash gives us the enterprise value. This gives us the total value of a company.
  • EBITDA: Earnings before interest, tax, depreciation, and amortization or, EBITDA, provides a popular way to look at earnings. By removing these expenses, we obtain a clearer look at operating performance.

Overall, EV/EBITDA shows the relationship between a company’s total value and its earnings, and is often seen as the price-to-earnings ratio’s sophisticated sibling, used to view companies the way acquirers would.

However, the EV component is not necessarily intuitive, so let’s expand a little on it:

Why is Debt Added Back to Enterprise Value?

To acquire a company completely, one must pay out all stakeholders in order to reach the final cost of the acquisition. This includes the stock (equity holders) and the debt holders, subsequently, adding back the market value debt to market cap does just this.

Why is Cash Subtracted from Enterprise Value?

Subtracting (Read more...)

Interest Rates, Earning Growth and Equity Value: Investment Implications



The first quarter of 2021 has been, for the most part, a good time for equity markets, but there have been surprises. The first has been the steep rise in treasury rates in the last twelve weeks, as investors reassess expected economic growth over the rest of the year and worry about inflation. The second has been a shift within equity markets, a "rotation" in Wall Street terms, as the winners from last year underperformed the losers in the first quarter, raising questions about whether this shift is a long term one or just a short term adjustment. The answers are not academic, since they cut to the heart of how stockholders will do over the rest of the year, and whether value investors will finally be able to mount a comeback.

The Interest Rates Story 

To me the biggest story of markets in 2021 has been the rise of interest rates, especially at the long end of the maturity spectrum. To understand the story and put it in context, I will go back more than a decade to the 2008 crisis, and note how in its aftermath, US treasury rates dropped and stayed low for the next decade. 

Coming in 2020, the ten-year T.Bond rate at 1.92% was already close to historic lows. The arrival of the COVID in February 2020, and the ensuing market meltdown, causing treasury rates to plummet across the spectrum, with three-month T.bill rates dropping from 1.5% to close to zero, and the ten-year T.Bond (Read more...)