The latest inflation read has climbed to over 6 percent—the worst in over 30 years. Recently, the 10- and 30-year treasury bond yield slightly declined. Mortgage rates along with corporate and municipal bond rates have also declined. What gives? Fixed income investors should be running for cover, but clearly they are not.

One explanation proposed is that the high current inflation rate will force the Federal Reserve to move more quickly in raising rates and putting the brakes on this economy. Inflation will then fall. Stock market investors believe that there is great momentum to further growth. Reasons cited for this are: a strong consumer, additional infrastructure spending, possibly even more government largess to come, and a prospective end to the Covid-19 pandemic, among other factors. Low interest rates and high inflation with strong growth cannot happily coexist. The dots are not connecting!

The Bull recently wrote that there are elements to inflation that probably will not be easily reversed, like wages. The Fed has not shown much alarm or interest in arresting the budding momentum. Once a cycle of price increases and corresponding wage demands get going, it is difficult to calm things down. Interest rates should be much higher in response to all of this but are not. When things seem illogical, something usually gives.

The Bull and his partners would not bet that low interest rates will persist. Who wants to invest and get back less due to inflation? Stay short term if you really need to own fixed income assets, so that when rates rise, you can average up. Otherwise, stay away; there are better places to invest. At Riverplace Capital we seek these out these opportunities and continue to monitor current conditions. We will respond as necessary! Stay steady my friends!

The Lonely Bull