Taking Stock: Is everything about to get more expensive?

**Rahul Tandon** (0:00)
I'm Rahul Tandon, welcome to Business Daily on the week that this happened.

**SPEAKER_2** (0:04)
Victoria Beckham's fashion and beauty businesses are making an operating profit for the first time since they were created back in 2008

**Rahul Tandon** (0:15)
Taking Stock of that and lots of other stories with me today. We have David Kuo, co-founder of The Smart Investor based in Singapore, familiar voice on the program. And for the first time, we have the German business journalist, co-host of the Pioneer podcast, Money Matters, Ellen Frauenknecht.
And we say thank you to both of you for joining us. David, do you want to go first there? If you had a business that was taking 18 years to make a profit, would you stick it out?

**David Kuo** (0:41)
That's a really tough question. I think I probably would because if I really believed in the business, I would continue to finance the business. But it really depends on who is financing the business, Rahul. If it's your own money and you do believe in that project, then I think you will continue to finance it until such time that it does become profitable.

**Ellen Frauenknecht** (1:00)
Yeah, I actually agree with David there. If you truly believe in that idea, why not? You should definitely sit it out or better adjust your strategy. And as far as I'm aware, that's what Victoria Beckham did. She realized that she had to make serious adjustments. I think it was her husband, actually, who found this adventure.
But especially since I happen to be a huge fan of her clothing, of her products, I'm very happy that she stug it out.

**Rahul Tandon** (1:32)
Well, maybe you helped her by buying some of them. It does help if you have a husband like David Beckham. He's not short of a penny or two.

**David Kuo** (1:40)
Yeah, Ellen, I mean, it's unlikely that the Beckhams are going to run out of cash.

**Rahul Tandon** (1:43)
We've learned one thing already on this program. You two are far more patient than I would be.
It's going to be a lot of talk about money on this particular program. And this week, across the world, it's got a lot of people jittery. There's been a lot of talk about rising bond yields in Japan. The 10-year yield broke 3% on Tuesday, the first time since 1996 We've seen upward movements in the UK and the US. A lot of people will be sitting at home and wondering, Ellen and David, what does this mean for them? Because it has huge implications, doesn't it, Ellen, when these bond prices begin to go up for the markets for all of us?

**Ellen Frauenknecht** (2:26)
Yeah, absolutely. I think a lot of people are wondering now if everything is about to get more expensive. And I think it's very important to draw a distinction. Not everything is about to get more expensive, but money itself certainly is. Higher interest rates, of course, make mortgages, corporate borrowing, government debt more expensive, but also central banks raise rates precisely because they want to stop the prices of goods and services rising so quickly, right?
So we're seeing this in bond markets right now, these two layers, immediate triggers, renewed inflation anxiety, oil prices rising sharply because of the escalation in the Iran conflict, which raises the risk that central banks will have to keep rates higher or raise them further. But underneath, like this is much more structural problem. Governments are borrowing enormous amounts of money, and investors are increasingly saying fine, we'll finance you, but you're going to have to pay us more for it. So yes, I mean, the cost of capital is definitely rising, and that's something that households, companies, and governments are all going to feel one way or another.

**David Kuo** (3:36)
Part of the problem is that central banks haven't been increasing interest rates, and that is why bondholders are really so angry. I mean, bondholders at the moment are saying, enough is enough. We know that there is inflation in the system, particularly over in the US. You say that your target is 2%, and you're running above that for the last five years. What have you been doing for the last 60 months? You haven't been increasing interest rates. Or if you have, it hasn't been enough to actually tamp down on that inflation. So bondholders, particularly those people who are lending the US government over the long term, 30 years, they're saying, well, if we don't tackle inflation, well, we're going to require more compensation. In other words, we're going to be charging you more interest for borrowing that money. And we know you continually want to borrow money because your national debt is already $40 trillion US dollars and it's going to rise even further.