We all know that we're in a low inflation environment. I would say "ultra-low", but that is not the case anymore. So, we'll just say "low" for now. But inflation is moving up, ever so slowly.
Inflation that is too low is both a curse and a blessing. It's a curse because savers and those seeking passive income have been suffering through a decade of low interest rates. Another reason it's a curse is because it forced conservative investors to move their money into less stable - even downright high risk - investments. Last, it has helped funky business models look attractive to investors, a la the poor performance of a spat of recently IPO'd unicorns.
Its a blessing because borrowers have been able to borrow at the lowest rates since the 1950's. Owners of real estate and stocks have done very well due to low interest rates.
If I can point to one thing that I thought was significant in financial markets this week, it's how fear seems to have left the bond market. Interest rates on long dated US Treasury's jumped the most in years. TLT, the popular ETF that tracks long dated US Treasury's dropped by nearly 10% in just the last 10 weeks. It is still up a respectable 11% YTD, but I highly doubt a lot of retail investors are aware of the significant drop from its high; having been up 20% for 2019 this past summer.
The fact is, inflation has been rising a little, but global economic slowdown worries due to trade tariffs have been pushing investors into the safety of Treasury bonds, tamping down yields. Now that investors are showing a willingness to part with their recently purchased Treasury bonds, combined with inflation moving higher and worries about tariffs moving lower, the move higher in yields has been pronounced.
This is just my view of the most significant thing in financial markets this week; even more so than the major stock averages touching new highs. Is it time to bring out the theme "the great rotation" out of bonds and into stocks? It's a little early, but at least to a small extent, I think it's right on time.
On another note, even a low inflation rate could crush retirements. It is actually the single best reason I could ever give you about why it is so important to be a long term investor. Take a look.
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