The Things People Worry About
You've heard it before. And you'll surely hear it again.
"Higher inflation, hawkish central banks [and] weaker growth" may be fixtures in the back half of 2021, and they'll be accompanied by the "combo of rising rates, regulation, and redistribution" as well as "peak positioning, policy and profits." That's according to BofA's Michael Hartnett, who spent the last several months singing some version of that tune.
The read-through, he said in his latest, is low or negative returns for stocks and
What I do not have any clue about is this: If interest rates are guesstimated to go up, it seems like certain holders of short/medium even long term bonds (depending on the math related to interest income given up, etc.) might want to lock in capital gains on their bond holdings and shift to equities. Given the massive size of the bond markets vs the US equity market, it would not take much of a shift to positively impact US equities. It seems that if we enter a rising interest rate environment, the historical 60/40 may no longer be as relevant.
Is this relevant and if so, is this “factored in”?
Every bond I have is showing an unrealized gain of up to 20%. So I sell them and buy overpriced equities before the bubble bursts? And under Biden I’d have to pay 40% on the gains. If I wait until my bonds mature, no gains, no tax. Meanwhile, I’m earning interest I will be able to invest the interest received at higher rates that planned. So far the plan is working. Meanwhile I buy leveraged CEFs with the money and they invest in bonds and deals with rising rates.
I believe the 10 year will make at least one run higher; though I doubt it gets higher than 2%…my two cents…