Interest Rates

Get used to present interest rates. Historically, interest rates are about where they ought to be, given current economic conditions. They just seem high because we remember the extraordinarily low rates of a few years ago. Those rates are not coming back. The Lonely Bull has been warning for quite some time that rates were headed higher. Now, they may finally be getting interesting.

Higher rates may not be good for housing and other big-ticket item sales, but they are good for many financial firms and savers. Remember, one man’s cost is another’s income. Most of our economy can handle these rates. It just takes time for everyone to adjust. Many who are over-leveraged when rates were low may get wiped out. However, our economy can handle that. Those assets will be reabsorbed. The strong and prudent will win out.

Our policy at Riverplace Capital has been to keep fixed income maturities short. Gradually, we extended these out to as much as three to five years. We still hold that. This way, we capture most of the yield available to longer-dated commitments but avoid the risk that rates on longer-term paper go much higher. That is becoming less likely. Therefore, our next move may be to extend commitments, but we are not there yet. Stay steady my friends.

– The Lonely Bull