I don't usually post on fast-paced market activity, so this will be an unusual entry.
As said before, conditions are ripe for an increase in inflation. U.S. monetary and fiscal policy are aligned towards it, real estate markets are tight, and we are seeing food prices rising. As COVID-19 constraints fade, economic activity will increase and pent-up demand will be unleashed.
U.S. 10-year Treasury bonds have been gaining in yield, recently jumping rapidly:
Big change in 10 year Treasury (^TNX) yield today.
— Richard Lucas (@PolarizedCenter) February 17, 2021
1.2990% +0.0990 (+8.25%)https://t.co/o5Saa1vO6R
As things go back to normal, people will stop working from Zoom meetings at home, in their pajamas, will travel more, will live more, and will no longer accept that interest rates will stay near zero forever. Yields on debt will need to rise to keep up with the newer, higher implied discount rate, and stocks will be worth less than they are now.
As I write this we're in the second or third day of declining tech stocks, with Tesla (TSLA) collapsing another 9% to $650, not far from where I said it might be worth selling in December. Between then and now I was wrong, but then what does that matter in the long run? That's not the call I make, nor what I would advise any friend to do. We either invest for the long run or we're just gambling. The current market since about September has been much more of a gambling than investing market. During COVID-19 time you can watch Netflix in your pajamas or trade stocks on Robinhood, and some have chosen the latter. Soon they will stop.
Where to go? Buy companies that do well in inflationary markets, such as food, beverages, tobacco, construction. Watch MO, PM, BTI, MDLZ, KO, PEP. Corporate bonds and Federal debt will perform poorly. Cash will perform poorly. This is the time to refinance your home at low rates if you need to, or to swap a home that is mostly paid down with one that has a larger, but still affordable mortgage. You could try specialized vehicles like this Horizon Kinetics ETF (of which I have no opinion, unfavorable or not).
If you were born after 1980, you won't remember the inflationary days from 1970-1982. It might be worth having a conversation with someone who remembers those days and what it was like back then to have a mortgage, save money in the bank, and to deal with 5%, 7%, and 13% inflation in the prices of gas, food, clothes, and rent.
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