Follow Up: Where Will Interest Rates (Inflation) Go?

On Wednesday, I wrote about the positive and negative of rising interest rates for bond investors. I also promised a follow-up to share my opinion on where interest rates go from here so let’s dive into that.

Note: In both today’s and the recent commentary, I’m addressing treasury bonds, specifically, not to be confused with corporate bonds, which I hold relatively very little of across client portfolios as I’m purposely avoiding credit and default risk at this point in the market cycle.

In short, I believe by the time this market cycle is complete over the next couple years, interest rates on 0-10 year treasury bonds could fall back towards zero again. This would imply a great investment opportunity in an asset class that is widely hated at the moment! But that’s how it normally works doesn’t it?

Obviously, if inflation is sustained for a prolonged period then rates will continue higher, but I don’t think that’s the likely outcome. Therefore, this is really a forecast about inflation / deflation over the next couple years. Continue reading “Follow Up: Where Will Interest Rates (Inflation) Go?”

Quarterly Market Update: All That Glitters is Gold…

This has been a strange period in that both traditional bonds AND stocks are down around 7%-8% simultaneously. Historically, if stocks were down like this bonds would at least be holding up, if not appreciating, and vice versa.

A couple months ago I wrote a commentary about why we own treasuries in portfolios referencing the fact that since 1928, treasuries and stocks have only been down simultaneously in the same year three times! Historically, stocks and treasuries have been great complimentary, non-correlated assets. In fact, they have about a negative 0.40% correlation.

At this point, if nothing were to change for the rest of the year, we could have our fourth year in almost a century where both bonds and stocks are down simultaneously. Continue reading “Quarterly Market Update: All That Glitters is Gold…”

Stealth Inflation Example

Inflation does not always show up in higher prices for the things you buy but often shows up in lower quantities for the same prior price.

Check out the paper towel quantity difference between these two rolls.


Now, this guy circled the wrong thing but compare the square footage of each roll. The prior roll included 85 square feet of paper towel while the new one included just 74 square feet. So, in order to get the same quantity as before, you need to buy 14.9% more (i.e. 85 / 74 – 1 = 14.9%)!

If the cost was previously $1.67 per roll, and the new smaller rolls cost the same amount, the equivalent quantity today would cost $1.92 or 15% more! That’s a very SIGNIFICANT inflation rate especially considering this inflation is not solely impacting paper towel but likely many of the goods we buy on a daily basis.