Last fall, the Federal Reserve was forecasting three interest rate cuts, the Market manically priced in six.  Because the economy is still running HOT, a year later there’s been only one cut.  Which coincidently occurred about a month ahead of the presidential election.  So, it should come as no surprise that today’s CPI is reflecting higher inflation than “expected”.

The below chart shows 10 Year Treasury yields for the past couple generations.  Note the long term moving average, it illustrates a series of interest rate ERAs.  From the 1960s through the mid ‘80s, yields went up.  Then yields declined for 40 years, until the Pandemic.  Post-pandemic yields have been rising, and I believe it’s the beginning of a new interest rate era. 

Unless there’s a drastic economic event, I believe 10 Year Treasuries are staying near or above 4%.  That’s about where they were prior to China entering the World Trade Organization.  Over the decades, China flooded global economies with unrestrained goods, essentially exporting deflation.  Post-pandemic, globalization has peaked and consequently inflation is on the rise…despite Fed monetary policy.

The kneejerk reaction to high interest rates is that stocks will underperform.  While I think that’s true for zombie companies that make little to no profit, I believe higher rates will have little impact on companies that are favored by Cold War II (or perhaps better named: Hot Peace) and re-shoring of the supply chain and manufacturing to North America and allied nations.

Regardless of what the Fed does with interest rates or the outcome of the presidential election, my plan is to continue investing in key sectors like: Technology, Energy, Infrastructure and Industrials.  Watch for more trades to be announced in the coming weeks.

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