Quick ref

• FOMC sets Fed target rate for overnight interbank lending - primarily for banks to maintain reserves 
• Do this by buying govt securities which infuses cash and lowers rate, or selling govt securities which tightens supply 
• Could also do this by changing reserve rate but is drastic measure 
• LIBOR tracks very closely to Fed rate 
• In US, banks have prime lending as spread to Fed of about 300bps - other debt is sub prime 
• In RoW, it's usually quoted as spread to LIBOR
• If Fed decreases rate, economy is stimulated, consumer spending increases, so growth increases. Interest rates are low, too, so investors usually prefer equity markets 
• Conversely, when rates are increased substantially, credit tightens and investors may choose bond markets in general 

Will be interesting to see chart with fed rate and equity performance 

Duration of bond measures risk and sensitivity to prices based on change in interest rate - is essentially measuring wt avg CF of bond by year to maturity. Higher duration, higher vol. Zero coupon usually most sensitive 

Rule of 70 - divide by int rate to see how many years to double investment 

Various sector reports

I asked BRC for some 101/primer reports today, and went through the key ones on tech - semiconductors, software, IDM, and social media among others. Want to spend more time on RE, commodities, and fintech/banks soon.

I'm warming up to learning more about tech and believe that investing here can be a good solution to keeping USD assets, and can provide significant growth compared to India which has fewer investible stocks. I also don't have to worry about fx translation losses/gains.

Had a quick look at Match Group which people seem to be short on, but makes sense to be for the longer haul. My thesis is Diller exits this, and IAC at some point, for cash.

Long Facebook and Amazon also seem like good initial ideas but i havent dug at all. I guess that's like holding Coke in today's world. 

China-US debt loop

In theory, current and capital accounts on BOP balance each other out, since foreign reserves are effectively a plug. Where there's a minor imbalance, its usually a statistical discrepancy. So if the US - for example - runs a current account deficit (CAD), it will likely run a capital account surplus. 

The US has also been running large fiscal deficits since more than a decade which has led to increased issuance of USTs and internal borrowing from Social Security Funds which should be used to fund baby boomers' retirement. When SS payments come due, will US be able to fund w/o depreciating the dollar? 

The US is now using world savings to meet its local investment and consumption needs ie net debtor to rest of world - total debt is $20tn at this point. A third is owed to intra-governmental agencies (SS funds mainly) and two thirds to the public. 

In the longer term, the US can be expected to be severely indebted - and debt/GDP is beyond 100% already. That has happened because USD is still the global standard (can just print). China has been calling for a replacement for a while now - yuan did become a reference reserve currency and joined the USD, GBP, EUR and Yen club in 2014/2015.

Since China pegs the yuan (+/- 2-5% of 6.25/USD), and has to print yuan to buy dollars to maintain this peg (to avoid yuan appreciation), it builds a pile of dollars which it will eventually lend to US by investing in UST. This is effectively China funding US to buy Chinese products and continue to run CAD. Same with Japan.

If China lets yuan float after having built up these reserves of USD, yuan appreciates which causes the value of held USD reserves to decline. China will also stop buying, or even sell, UST which might lead to increase in LT interest rates which means lower consumption / low growth. Hard to get out of this situation for either country.

Below is an interesting table i found the UST website. Total is c.$4tn in UST.

Will go into China's current debt situation soon.