Don’t Let Rising Rates Get the Best of You: Market Commentary from Cabana’s CEO – March 22, 2021

3 years ago

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We spent much of last week reviewing the ongoing rise in interest rates, with a particular focus on how it may impact other asset classes. Our weekly commentary also suggested some possibilities on the continued advance going forward. On Friday, we conducted our monthly webinar for our advisor partners and provided data that set out the technical aspects of this meteoric snap back in rates since the end of August. The move just since the beginning of this year borders on historic. It seems that we have essentially seen a bounce straight back to where we were before Covid-19 took over the world. To us, this makes a lot of sense. It is almost like we pushed the reset button on investments, much like we are doing in our lives. We have commented several times over the years that the markets are simply a reflection of ourselves. It is one of the things we love about investing and one of the reasons we believe Warren Buffet is always so optimistic about future market prices. After all, humans always find a way forward. It is in our DNA!

We would like to reiterate our belief that the rise in rates is necessary for financial markets to move forward. In our view, we need higher rates if the world is going to grow. While rapid moves up in rates put pressure on bonds and other interest rate sensitive assets (at least temporarily), it is the rise in rates that can create the safety found in those assets when things turn south, and rates begin to fall. We would argue that the more rates rise, the safer those assets become in the event of a future recession. The problem is simply that people are impatient and have a strong temptation to chase the hot trade. Investors seem to have a bad habit of forgetting risk and letting FOMO (fear of missing out) take over. This psychological phenomenon is a foundation of the field of behavioral finance. It is also a principal factor in most investors failing over time. Suffice to say it is usually a good idea to understand your risk tolerance and invest accordingly. A person’s risk tolerance (suitability) doesn’t change just because the market does, and it always does.

We expect rates to moderate and perhaps even pull back over the next few weeks before moving higher in response to strong demand side growth in the domestic and international economies.

Disclaimers

January 17, 2024

This material is prepared by Cabana LLC, dba Cabana Asset Management and/or its affiliates (together “Cabana”) for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. This material may only be distributed in its original format and may not be altered or reproduced without the prior written consent of CabanaThe opinions expressed reflect the judgement of the author, are as of the date of its publication and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Cabana to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Cabana, its officers, employees or agents.  

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