Why Are People So Scared?
THERE IS A GOOD REASON TO BE SCARED Higher rates on the horizon mean many things. It is bearish for 1. Bonds 2. Income stocks 3. Companies that borrow a great deal to operate their businesses (profit margins will be negatively impacted) 4. All assets with fixed income and rising costs It can be bullish for 1. Common stocks of growing companies (they will get money formerly allocated to bonds) 2. Commodities that benefit from inflationary psychology (when short term interest rates rise slower than the rate of inflation, it adds to inflationary psychology) 3. Companies and products that benefit from higher inflation INFLATIONARY PSYCHOLOGY IS A TRICKY THING People often say that interest rate increases put pressure on inflationary expectations. In our opinion, this is only true if interest rate increases are faster than inflation increases. Currently, it is obvious that inflation is rising faster than interest rates and as we allude to above, this causes inflationary expectations to grow
