The trend on interest rates has finally reversed. It is no longer down, or lower for longer, but now higher. Rates will be gradually climbing for years to come. This trend will not be a straight line, but have fits and starts, and be irregular in its progression. But make no mistake, interest rates are going higher, both here in the U.S. and around much of the developed world.
An important question is how much inflation will accompany these increases. The Federal Reserve has stated that the large increases in prices we have been seeing are transitory. Only time will really tell. Inflation that persists will only drive interest rates even higher. The Bull and his partners believe that inflation will be more persistent than projected. It is now a global phenomenon. Inputs, such as wages, are very difficult to roll back once increases have occurred. Once a cycle of rising prices starts, calming it gets very difficult.
Rising interest rates depress current bond prices. The good news is that reinvestments take place at higher and higher rates. The shorter the maturities in a bond portfolio, the more this process helps in rolling up to higher and higher rates. Investors must simply stay away from longer maturities. Bond funds that have these in the portfolio should also be avoided. Beware of esoteric instruments that make promises that probably can not be kept. Unless owning bonds are a requirement, don’t! There are better ways to get income. Stay steady my friends.
The Lonely Bull