Earlier this month, the Federal Reserve cut the interest rate to 0% in an effort to try and limit the economic impact of the coronavirus outbreak. From a macroeconomic perspective, this decision has a direct impact on the lending environment and how the U.S. economy goes about recovering from this crisis, but it also has an impact on the kinds of investment opportunities Yieldstreet is able to bring to our investor base.
Here, we take deep dive into why the Fed made this decision to cut interest rates to 0%, what it means for the lending environment, and how Yieldstreet is in a unique position to help investors make the most of a market downturn.
Why does the Federal Reserve cut interest rates during times of emergency as they have done in response to the coronavirus crisis?
The coronavirus crisis has plunged the global economy into an unprecedented period of uncertainty. As the United States Government grapples with the immediate impact on public policy, the healthcare system, and the economy, it’s using one of the most powerful tools it has at its disposal, its monetary policy. The Fed has taken several measures to try and soften the blow to the U.S. economy. These include:
As the economy slows and potentially enters a recession, these steps are meant to help reduce the pain of everyday Americans so that they are able to pay the bills as well as to calm the market down. By aggressively cutting the interest rate to 0%, the hope is that the economic downturn will be as short-lived as possible so the economy can recover as soon as possible.
What is the impact of a 0% interest rate environment on lenders?
Once a way forward emerges through the pandemic, the markets can be expected to calm down and a new set of credit spreads will come in. This will establish new rates in the market. The absolute yields in this period will likely be lower than what they were prior to the coronavirus outbreak as the economy will still be in the recovery phase. We anticipate that institutional quality lenders will find it more difficult to find high quality and high yield investments to lend to in this time period, but will likely gain access to cheaper paper due to lower rates. This will mean that fixed-income investments will appear less attractive than they did in the past.
This period will also mark a time where some interesting distressed opportunities with attractive yields may emerge. Historically, whenever investors start buying-in during scenarios like these, they have the potential to make money, irrespective of whether they operate in the equity market or credit market.
There will also be dislocations in corporations that have seen a lot of selling-off of their stocks, which investors could potentially look into to find good returns.
We anticipate that investors will start looking to alternative assets for better yields. When it comes to alternative investments, it will also take some time for things to recover but we expect that there will be some interesting dislocations where risk and reward could be better than before the coronavirus outbreak.
What is the impact of a 0% interest rate environment on borrowers?
Borrowers with access to the market will have the opportunity to refinance their debts. Homeowners will also be able to refinance their mortgages.
What will this mean for Yieldstreet and its offerings?
If you are an accredited investor, you may find it challenging to decide where to invest. In the current scenario, stocks and bonds may appear to be unattractive investments and, unless you are able to tap into private investments and act quickly on your own, you stand to miss out on a number of opportunities of interest.
During the prior recessionary cycle in 2008, many hedge funds made money through alternative asset classes and private credit because they had access to assets that were not available to individual investors. This is because the Jobs Act, which eased regulation around crowdfunding, had not yet been implemented.
This time around, individual investors will have access and be able to participate in such opportunities through alternative investment platforms like Yieldstreet. In our view, this is unprecedented and exciting. The Yieldstreet business model is optimized for times like this. As we do not have a fund for deploying capital, we are not sitting with any marked-down positions.
Now that there has been a disruption in the equity and credit markets, we believe we can opportunistically find attractive investments for our investor base. We are already starting to see opportunities that are looking attractive at these levels. Additionally, in times where there is a ‘credit crunch’ or lack of liquidity in the market, we’re also able to work with higher quality borrowers and be able to charge a higher premium.
What will this mean for Yieldstreet investors?
A good metaphor for investing in times like this would be learning how to drive. When you first learn to drive, you start slowly, but eventually, as you become more comfortable, you can make better calls about how you drive in various circumstances.
Similarly, when thinking about investing in the current environment, we would recommend that investors start small and slow. As markets cannot be timed, it’s not really a good idea to stop investing entirely, but investors should not overextend themselves in times of uncertainty such as these. As the dislocation in the market reveals potentially attractive investments, Yieldstreet will look to offer them on the platform. By investing regularly across multiple asset classes and not going all-in on any single offering, investors could diversify their portfolio with some interesting alternative assets and be in a better position once the market recovers.
How does the current crisis compare with what happened in 2008?
The main distinction we’re seeing now is that businesses are shutting down due to the lockdown needed to prevent the spread of the virus. In 2008, the flow of money was not disrupted as it is in the current scenario. While money will continue to flow within the economy, for it to function normally, it must do so at a fast enough pace to create GDP growth. Even though the Fed is doing everything it can to pump money into the economy, it’s still not flowing fast enough. As much of the world is still rooted offline, without the day-to-day activities that constitute a stable economy, it is still uncertain what the full impact of this outbreak will be. Additionally, the concern that the disease could re-emerge is also a factor that makes this situation different from the economic crisis of 2008.
This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Any link to a third-party website (or article contained therein) is not an endorsement, authorization or representation of our affiliation with that third party (or article). We do not exercise control over third-party websites, and we are not responsible or liable for the accuracy, legality, appropriateness or any other aspect of such website (or article contained therein).
1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.
2 Represents a net estimated, unrealized annualized internal rate of return (IRR) of your portfolio and is based by reference to the effective distribution dates and amounts to and from the investments, as well as any outstanding principal and accrued and unpaid interest as of the current date, after deduction of management fees and all other expenses charged to the investments.[read more]
3 "Annual interest" or "Annualized Return" represents an annual target rate of interest or annualized target return and "term" represents the estimated term of the investment. Such target interest or target returns and estimated term are projections of the interest or returns and or term and may ultimately not be achieved. Actual interest or returns and term may be materially different from such projections. This targeted interest or returns and estimated term are based on the underlying investments held by the applicable.
4 Reflects the initial quarterly distribution declared by the board of directors on February 6, 2020, which will be payable to stockholders of record as of June 10, 2020, and the initial offering price of $10 per share.
5 The Fund will cease investing and seek to liquidate the Fund's remaining portfolio no later than 48 months after the Fund's initial closing. It may take up to twelve months thereafter to fully monetize any remaining illiquid investments in the Fund's portfolio.
6 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.
7 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 8th, 2021, after deduction of management fees and all other expenses charged to investments.
8 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Prism Fund before investing. The prospectus for the Yieldstreet Prism Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetprismfund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.
No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.
Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.
Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.
Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.
Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.
Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.
Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.
Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.
Banking services are provided by Evolve Bank & Trust, Member FDIC.
Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.
Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.