A quick look at the markets early (5 am) this morning is a bit scary–a perfect storm seems to be brewing. Spiking energy prices and rising interest rates – certainly are troublesome.
I have thought that we would see higher interest rates with all the debt that the globe has floated in the last 10 years – sooner or later investors would demand to be paid a higher rate of return for buying this junk. BUT I only want higher interest rates if the pace of the move higher is at the rate that is most beneficial for me–ha ha as if anything ever does what I want it to do. The 10 year treasury is at 1.535% right now.
I have watched energy prices, in particular in Europe, over the last number of months and at the gas pump where I spend plenty of time. Filling the tank at $2/gallon is certainly a lot less painful than filling up at $3/gallon—honestly not a big deal for me, but the tread is scary. Europeans, Americans and the Chinese should hope for a warm winter because it is going to get plenty expensive to heat your home.
Of course these much higher energy prices feed right into the ‘transitory’ (not) inflation–it is part of the cost of everything.
The bottom line is we need to ‘batten the hatches’ a bit and be prepared for some rocky months. Maybe some opportunistic sales in low coupon issues—maybe some opportunistic buying in some higher coupon issues, but by and large not trying to be too ‘cute’. Decades of experience shows that we are not smarter than the market—over trading and trying to outsmart markets through the use of options, inverse ETFs etc. seldom are beneficial to us.
Lastly one should start getting the ‘watch list’ built—what do you want to buy when markets panic?