In The Lonely Bull

Interest rates are now the driving force for stock market activity. As rates work irregularly higher, it periodically freaks investors out. They sometimes sell-off high value holdings and rotate into companies that will benefit from the reopening of our economy. Then, when interest rates seem to be stabilizing, attention returns to some of the best growth companies in the world; many highly valued.

Interest rates are going higher. They have been too low and actually have negative returns when accounting for inflation and taxes; not a good investment for most. Interest rate trends are long-lived; not just measured in years but decades. (Remember, the bull market in bonds (declining interest rates) started in the early 1980’s so have had a 40-year run.) A rising trend will last a long time as well. Surely, there will be much fluctuation around this trend but make no mistake about where rates are heading – higher.

Investors do not like rising rates. It puts pressure on valuations and offers increasing competition for investment dollars. However, we have had many good stock markets with much higher interest rates and will again. What is more important is why rates are rising. If it is because the economy is strong and getting stronger creating greater demand for money, then they will not be much of a problem. If the Federal Reserve needs to raise rates because the economy is overheating, then that is unsurmountable and everything will go into correction; stocks, bonds, commodities, real estate- everything. That is not where we are; stay steady my friends.

The Lonely Bull

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