Inflation has taken over as Public Enemy Number One since the Biden Crime Family moved into the White House. Money has become a whole lot more expensive [or so it seems], and much harder to come by… I see this trend continuing unabated. However, many investors on the “street”, that is Wall St., apparently disagree with the notion. Okay, so the stock market has posted a comeback rally, somewhat narrow but showing that it can rally even when rates are rising in an attempt to quell inflation. There’s nothing new to see here except the fact that any fallout from constantly over-stimulating the U.S. economy [by injecting borrowed money in the $trillions] has not yet begun. We have seen a few small banks fail but it’s more the result of incompetence on their part, the mismatching of bank assets to bank liabilities given this higher rate environment. One could place these events into the category of a need to get something right between long and short dates.

Let us extend this conversation to the equity markets. Here’s where I see another mis-match going on. We have seen significant money pour into mostly “long-dated” securities. Let’s define “long-dated” securities for those that are not aware of this train of thought. Any security that extends into perpetuity, or has a maturity date that extends out for many years is considered “long-dated”. Preferred stocks and long term bonds fall into such a category. On the equity side it can describe any security where positive cashflow, in the form of profits & dividends, are not expected to be immediate or short-term. Growth stocks have always been considered “long dated” securities. This is a major reason why Technology stocks will generally outperform during times when interest rates [the effective cost of capital] is benign. Have you noticed that we have witnessed the exact opposite as of late? I have.

This market phenomenon, this NASDAQ buying spree is only sustainable should the Federal Reserve decide to pivot and lower interest rates. We won’t see that anytime soon. Well if an alien spaceship should land on top of the capital building in Washington and take several lawmakers hostage before it flies off again, then maybe. 🙂 Back on subject, the U.S. economy is best described as currently on life support, jacked-up by cocktails of over-stimulation and to “infinity”! The Democrats more recent “Inflation Reduction Act” which should have been named the Inflation “Production” Act as this program alone will keep the Federal Reserve Board locked and loaded with more rate hikes on the horizon. They will need to see unemployment rise significantly before rate hike recommendations cease at this point. Furthermore, in my humble opinion, unemployment will not rise enough for Fed officials to be in a position to lower rates anytime soon. So there’s the quandary. Meanwhile, the Socialist Democrats keep dreaming up new ways to spend borrowed money. Student loan relief in the form of halting interest accumulation on the debt at a time when a moratorium was placed on repayments, while all out loan forgiveness is still on the table, can’t you see? These lousy Socialists are buying insurance for the upcoming 2024 election.

Bottomline:
I would remain cautious of long dated securities and stay completely away from them whenever interest rates have a real bid. Growth stocks along with new-fangled securities such as SPACs and crypto offerings fall into a subset of perpetuities. My understanding is that some corporate paper is now yielding as high as 8-9%/year? Wow – bonds could, [just could] become all the rage!