Tuesday, December 23, 2014

Is It Time?

The investing world has been talking about and expecting interest rates to rise for a long time now. It seems like years. And the stock market may be getting acclimated to a gradual rise in interest rates by the periodic scares over the last couple of years. Perhaps desensitized is the word.

The recent selloff in the junk bond market attributed to the rapid decline in oil prices and the expected effect of those prices on over leveraged oil and gas producers has caused more jitters in the broader stock market. Will the rout in junk cause more disruption or is it "a buying opportunity". (I detest that phrase!)

Perhaps the decline in junk is just the opening act in a general change in trend for interest rates in general. It does seem that the riskiest bonds would be the first to feel the effects of a change in interest rates.

I trade technically, but try to consider the fundamentals, particularly when trying to pick bottoms in a market. The next year may mark the bottom in interest rates. I do not think rates will rise fast enough to kill the economy, just that they will follow inflation upwards. Lagging.
But the turn can be rapid as far as interest rate markets go. Particularly after such a long period of declining interest rates. (Thirty years! or so.)

I am trying to find a long term position in the short bond ETF TBT. I did a trade several weeks ago that I abandoned for a small gain, but the chart looks promising again.


 control risk by abandoning a losing position if your timing is wrong,

Related thought: Look at the banks. They will do well with rising rates. You can track the days when treasuries are down by the days the banks are rallying. Banks loan money to make money. Higher rates will help them overcome their fear of loaning money. Higher interest rates may be all the world needs to jumpstart the next hyperinflation.  Oh, sorry. Don't get too far ahead.

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