How To Invest And Profit In A Rising Interest Rate Environment

Learn how to invest and profit in a rising interest rate environment. If you do, you will invest better, make more money, and lose less money.

Even though we are in a rising interest rate environment, I'm in the camp that interest rates will stay low for years to come. I expect inflation and interest rates to fade over time again. Here's why:

  • Information efficiency
  • Economic slack
  • Contained inflation
  • Coordinated Central Banks
  • The growth of other countries such as China and India and their continued purchasing of US debt
  • The growing perception that US dollar denominated assets are the safest assets in the world
  • A 35+ year trend of declining rates is telling us we're more adept at managing inflation with each new cycle that passes

Despite inflation and rising interest rates being transitory, rising interest rate environments still happen. And when they do, investors need to better prepare. Profiting in a rising interest rate environment is harder as the easy money disappears.

History Of The Fed Funds Rate And 10-Year Bond Yield

Before we discuss how to invest and profit in a rising interest rate environment, it's good to understand the historical dynamics of the Fed Funds Rate and the 10-year bond yield. Please study this chart below.

How To Invest And Profit In A Rising Interest Rate Environment - inflation, 10-year treasury yields, FFR

As you can see from the chart, I wasn't lying when I said interest rates have been coming down for over 30 years. The primary goals of the Federal Reserve are to contain inflation, promote orderly growth, and provide maximum employment.

The Fed usually assigns an inflation target, which currently stands at 2%, and adjusts interest rates, prints money, or buys back debt to reach such a target.

Since about 1984, inflation rates (green) have hovered at a manageable 1-6%, with a downward trend. As a result, the 10-year Treasury and the Fed Funds rate have followed lower as well.

Low Interest Rates Can Create Bubbles In Asset Prices

When money is cheap, people tend to borrow, invest, and spend more. This causes inflationary pressure and lots of funny money gains. Suddenly, everybody thinks they are an investing genius when rates are near 0%.

Another thing to notice in the chart is how the Fed Funds rate (red) is much more volatile than the 10-year treasury yield (blue). The Fed Funds rate is controlled by a committee of people from around the nation. The 10-year yield is dictated by the Treasury bond market.

In a rising interest rate environment, it's actually easier to generate more passive income. As a result, you may ironically be even more secure, even though your asset values are likely declining.

Loosening Correlation Between FFR And 10-Year Yield

There is a good correlation between the two, as is evident in the early 1990s. But notice how the correlation starts to loosen since 2005.

In other words, we could see a large increase in the Fed Funds rate at 25 bps each hike, and the 10-year yield (the market) may still stay relatively flat.

OK, now that we've got some historical perspective on inflation, the Fed Funds rate, and the 10-year Treasury bond yield, let's look at how interest rates and the S&P 500 have correlated.

How Interest Rates, Stocks And Recessions Are Correlated

S&P 500 Chart and 10-year Yield Chart

The interesting thing about this chart is that whenever there is a recession (grey columns), the Fed has cut interest rates to help spur economic growth and employment.

The Fed seems to OVER cut rates compared to the decline in the 10-year yield. As a result, it has to hurry up and raise rates five years later. The Fed also recently promised us it will allow inflation to rise above its target rate for longer. This way, it helps ensure employment growth.

All factors point towards higher inflation. Too much inflation is bad for buyers of goods like housing, food, clothing. Inflation may be the biggest cause of war between the haves and the have-nots.

10-Year Pressuring The Fed To Hike

The 10-year yield's move upward is telling us the Fed should start raising the Fed Funds Rate again to counteract inflation. The Fed's easy monetary policy has created a lot of fuel for risk assets such as stocks and real estate.

Please realize the market determines the 10-year bond yield and a committee of seven governors determines the Fed Funds Rate. They don't move at exactly the same time or in the same magnitude. Just look at the Fed Funds Rate from 2004-2007. The move up was huge, yet the 10-year yield stayed relatively constant.

The 10-year yield is more important because it is a much stronger indicator for borrowing rates for mortgages. Also, the good thing about the 10-year bond yield moving higher ahead of a Fed hike is that if and when the Fed does hike, the market will have already baked the hike in. Therefore, any negative reaction should be muted.

Let's say you're still convinced that borrowing rates are going to skyrocket. Doubtful, but a possibility nonetheless.

Let's look at the losers and winners of a rising interest rate environment.

Losers In A Rising Interest Rate Environment

Here are the losers or underperformers in a rising interest rate environment. You either want to not hold these investments, sell, or short.

High Yielders. As interest rates rise, existing yields look relatively less attractive. Let's say investors have been buying a REIT or AT&T mainly for their 5.5% yield. If the 10-year yield rises from 2% to 6%, investors would logically sell the REIT and AT&T and buy a risk-free 10-year bond that provides a higher yield. Dividend stocks, REITs, Master Limited Partnerships, and Consumer Staples will likely underperform.

Highly Leveraged Firms (tech and growth stocks in particular): If you've got a lot of debt, your debt servicing cost goes up with higher rates. Your risk of default also goes up. As a result, investors will sell highly leveraged firms at the margin. REITs, utilities, and any sector that commands high ongoing capital expenditure will likely underperform.

S&P 500 P/E valuations versus US 30-year treasury yield
[Notice the inverse correlation]

More Winners In A Rising Interest Rate Environment

Exporters: As interest rates rise, the value of the US dollar rises because more foreigners want to own USD denominated assets. You need to buy US dollars to buy US property, US stocks, US anything. An appreciating dollar will therefore hurt US companies who derive a large portion of their profits from the export market because their goods will be more expensive at the margin.

Individual Debtors: Those of you with credit card debt, floating rate mortgages, student loans, and future car loan borrowers will feel a bigger pinch. If you have refinanced your mortgage yet, do so now as 30-year fixed and 15-year fixed rate mortgages have lagged behind the rise in the 10-year bond yield so far.

Winners In A Rising Interest Rate Environment

In finance, everything is Yin Yang. The following are the relative winners in a rising interest rate environment. You want to hold, buy, or buy more of these positions.

Cash-Rich Companies. If a company has no debt and plenty of cash, it will be perceived as less risky. The interest income from its cash will go up, and investors may flock towards these companies for relative safety.

Having too much cash is not a good use of capital. Therefore, the longer-term fate of the company will partly depend on its capital efficiency. I'd look for companies trading at book value, or who have a huge percentage of their book value in cash.

Average daily returns on days when inflation expectations rise

Tech and Health Care. Health Care is the opposite of high-yielding companies. These companies tend to utilize their retained earnings for more growth

In the past 13 rising-rate environments over the past 64 years, tech and health care sectors gained an average of 20% and 13%, respectively during the 12-month period following the first rate hike of each cycle. This compares favorably to an average 6.2% gain in the entire S&P 500. 

Of course, a lot of the future performance in tech depends on where current valuations and expectations lie. Unfortunately, when valuations are expensive for tech stocks, they tend to get crushed the most when interest rates rise.

Personally, I'm investing in private growth companies through the Fundrise Innovation Fund. 35% of the fund is invested in artificial intelligence companies, which have enormous potential. The fund's minimum is only $10 and it is open for all.

Financials Are Winners In A Rising Interest Rate Environment

Brokerages. Brokerages, like Charles Schwab, earn interest income on un-invested cash in customer accounts. So when rates rise, they can invest this cash at higher rates. This is the crux of the big debate about Charles Schwab's free roboadvisory service. The leading robo-advisors all balked that Charles Schwab really wasn't free since they recommended 8-30% cash weightings. Charles Schwab would use the cash to then earn a revenue spread.

Banks and Insurers. So long as there's an upward-sloping yield curve, banks should benefit. That said, I just wrote that the Fed Funds Rate (short-term) could rise aggressively, and the 10-year yield (medium/long term) could stay flat. As a result, banks could see a decline in net interest margins.

U.S. yield curve steepening with rising interest rates
[Yield curve steepening, bullish long term]

Financial Enthusiasts Are Winners Too

Shorter-Term Duration and Floating Rate Funds. To reduce your portfolio's sensitivity to rising interest rates you want to lower the average duration of your holdings. The Vanguard Short-Term Bond Fund (VCSH) is one such example. Pull up the chart. You'll see much more stability.

Another idea is to buy a bond fund that has coupon rates that float with the market rate. Luckily, we also have an ETF for such a fund called the iShares Floating Rate Fund (FLOT). Treasury Inflation Protected Securities (TIPS) are another less sexy way to invest.

Personally, I love buying Treasury bonds when they are yielding over 5%.

Individual Savers And Retirees. Retirees on fixed incomes or prodigious savers should rejoice with higher interest and dividend incomes. Retirees can more confidently withdraw at a higher rate without the fear of running out of money before death.

Those of you following the Legacy retirement philosophy can also feel good knowing your estate may last longer for future generations and organizations.

Relatively speaking, cash becomes more valuable as other asset classes decline. Therefore, at the margin, it's good to start building a larger cash hoard now. Not only will you earn higher rates, you will also have the fire power to buy equities in case of an upcoming sell-off.

Rising Interest Rates Can Be Positive For All

It's important to differentiate between short-term moves with long-term implications. Rate hikes in the short-term may result in knee-jerk sell-offs in various sectors and stock market indices.

However, over the long-term, rate hikes should be viewed as positive because it means economic activity is accelerating. The demand for money goes up, hence, rates can rise to meet such increased demand.

Further, we must also assume the Federal Reserve is always trying to act in the best interest of the US economy. The Fed will only raise rates if they see excess signs of inflationary pressure, which it is seeing. The key is whether the Fed will be able to raise interest rates less in the future as the markets do its job for them.

Historical Effective Fed Funds Rate Through 2023

There's only inflationary pressure if employment is robust thanks to strong corporate profits and consumer demand. In such an environment, anybody who has a job and owns assets is doing well. The virtuous cycle continues until there's too much exuberance.

The Fed wants to contain irrational exuberance. People buying growth stocks on margin at all-time highs need to be stamped out. For it may ultimately lead to an asset bubble and a bursting of such bubble. Nobody wants social unrest, rising unemployment, and years of financial pain that follow during a recession.

The issue, of course, is short-term timing and disconnects.

The Yield Curve Today

In 2023, the yield curve is heavily inverted. In fact, the yield curve is the most inverted since 1981! An inverted yield curve is a harbinger for a recession. As a result, all of us need to save more and be prepared for potential hard times.

We've had tremendous asset price appreciation since 2020, when the yield curve was upward sloping. However, the bear market returned in 2022, and asset prices will likely not go anywhere in 2023. Nobody knows for sure, but the U.S. economy is experiencing a hangover after a lot of excess.

Economic devastation is unlikely to occur, but it's always good to be prepared. Personally, I think 2023 is actually the time to start buying some discounted stocks and real estate. Real estate should catch up to the rebound in stocks.

Over $150 billion in pent-up demand from China is looking to buy international assets. Some of that money will come to U.S. real estate. Further, interest rates and inflation are finally coming down. Hence, risk asset values might rebound.

Yield curve 2022
Upward-sloping yield curve in 2022

Summary Of How To Invest And Profit In A Rising Interest Rate Environment

Here's my plan to invest and profit in a rising interest rate environment.

At the margin, here are my suggestions on what to do.

  • Reduce / avoid adding on future debt as debt becomes relatively more costly
  • Refinance to a longer-term duration mortgage to take advantage of a lower fixed rate for longer. Imagine locking in a 2.75% 30-year fixed and the 10-year yield hits 3.5%. You would essentially be living for free.
  • Reduce weighting in higher-yielding securities. Reassess holdings in debt-heavy, valuation-rich growth companies.
  • Consider reducing overall exposure to risk assets, especially after a huge bull run since 2009
  • Recalculate your net worth targets for retirement and your safe withdrawal rates in retirement
  • Start mentally preparing for a sell-off, more volatility, or no more gains until earnings catch up and surpass the weight of higher interest rates.
  • Finally, start enjoying life with your massive gains so far!

Appreciate Higher Interest Rates

Although it's a little sad our investments may not be growing as quickly in, partially thanks to higher interest rates, we should also feel good about how much money we've made so far. I view any gains we received in 2020 and 2021 as gravy.

Further, I'm thankful higher interest rates help produce higher investment income. As someone who wants to get out of the rat race within the next year or so, the timing for marginally higher rates is good.

I'm on a mission to rebuild my cash hoard and invest in more high-yielding Treasury bonds. I'm seeking better entry points in the stock market. Further, I'm also focused on looking for real estate opportunities.

In a rising interest rate environment, please brace yourself for volatility to return. And if you haven't maxed out your tax-advantageous retirement accounts or 529 plans, be prepared to have another opportunity.

Related: How To Make Lots Of Money During The Next Downturn

Best Way To Benefit From Rising Inflation

Although rising interest rates make buying property with a mortgage less affordable, real estate is one of the best asset classes to benefit from rising inflation. Inflation will help push up rents and property prices.

Real estate is a key part of the inflation metric. Therefore, if inflation is rising, so is real estate. If you can lock in a long-term fixed mortgage rate, over time, inflation will reduce your debt down.

If you don't want to own rental properties or can't afford to buy a physical rental property, take a look at my two favorite real estate crowdfunding platforms.

Best Private Real Estate Investing Platforms

Fundrise: A way for all investors to diversify into real estate through private funds with just $10. Fundrise has been around since 2012 and manages over $3.3 billion for 400,000+ investors. 

The real estate platform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund is the way to go. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends. 

If you are a real estate enthusiast with more time, you can build your own diversified real estate portfolio with CrowdStreet. However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.


I've invested $954,000 in real estate crowdfunding so far. My goal is to diversify my expensive SF real estate holdings and earn more 100% passive income. I plan to continue dollar-cost investing into private real estate for the next decade.

Invest In Private Growth Companies

In addition, consider investing in private growth companies through a fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

One of the most interesting funds I'm allocating new capital toward is the Innovation Fund. The Innovation fund invests in:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

How To Invest And Profit In A Rising Interest Rate Environment Is a Financial Samurai original post.

104 thoughts on “How To Invest And Profit In A Rising Interest Rate Environment”

  1. Hi Sam,
    I am already subscribed for the newsletters, but is there a way to get email alerts for every new blog that you publish?

  2. Would REITs being “losers” in a rising interest rate environment include eREITs from Fundrise? or are (non-e)REITS losers because they are publicly traded and may lose value as a result of volatility when traders opt to sell REITs and take advantage of higher rates with more conservative investments?

  3. Sorry this is a newb question. Can you define “at the margin”? —  You use this phrase a lot and even add emphasis at times so I just want to make sure I’m understanding your meaning. I’m reading this as “for decisions above and beyond your current holdings/allocations”. Am I warm?

  4. Hello Sam The Financial Samurai! Really enjoy your posts and logic… Glad family is well!

    I have a question as to how you would handle this: 53 yo male, single. Owns a small corner lot with a 780 sq ft home. (Owe maybe $35k on it at an interest rate of 6%, have the cash to pay it off, great credit etc) It needs work. In the neighborhood it’s in, many people are knocking down and going to as many sq ft as they can fit in their lot. (2,500 to 3,100) Selling at about $350 per sq ft + depending on quality, layout and location.

    Great town. Summers walk to restaurants and nicest town in the state. We could get $300,000+ for the house/lot right now… Taxes are super low because how small it is and he’s owned it 25 years.

    He has about $600,000 in cash with $250,000+ in in stocks. (Mostly FAANG) and dividend Payers. Rest is cash.

    Income is way down this year… $50,000 maybe more… But normally $100k-$250,000+. But feeling a little burnt in the industry.

    The house as it sits can rent out on AirBnb for a low of $80 a day. Spring/summer, as high as $150-$300 a night. Weekly+ stays…

    Has an partially finished lower level that could be converted to a living area/bedroom/bathroom. For guests or additional renter.

    Also has a killer car for long travel with all belongings, a Harley etc… SO toys can stay at home or go with…

    Loves to travel, house as it is, makes living in a nice area, basically maybe $15k a year with services. (Basically free)

    What would you do now that rates are so low? Building is happening all over. (Corner lot, neighbors on all corners except this and maybe 1-2 other in the entire city 2,500sq ft+ Modern ($750,000- $1,000,000) this side. Over $1,000,000 across the road or up a few blocks and rising.

    Would hate to build and have to go/sell… Love the freedom

    Could fix up the outside, but was built in 40’s and needs stuff, like driveway , pation, plunig issue, chimney, old hot to built into a 20 yo deck…

    Anything put in, would be bulldozed at some point, most likely.

    Could build on garage, too, make another bed/office. Good sized yard…

    Have enough cash for another second property somewhere, but income not steady enough income to feel comfortable.

    Ideas? Suggestions? Money is so cheap right now… Do not like having someone else’s name on the property (ie. bank) but probably will never see rates this low, again!

  5. Mike Weinstein


    I appreciate your site and the many insights you provide us. It’s much more meaningful to me that you worked the field, achieved FI on your own and continue the American dream of building and investing for a better future for your loved ones…..nothing wrong with that regardless of the madness being propagated today.
    A question I often am perplexed with, when you research new companies and the innovative disruptive positive changes being developed today its all very compelling, and inspiring. However, I offset that with the absolute economic suicide being suggested today as policy and my confidence is very negatively impacted?
    How does one balance concrete, innovative, beneficial advances against the non-economic, ideological insanity being spewed?
    I’m not trying to be political I’m trying to understand how one maintains a positive investing mindset in such a conflicted environment?
    Would appreciate your feedback
    Mike W

  6. Jon Kuperman

    I’ve been going aggressive on a decent range of technology companies for years. Glad to see your note that cash-rich and high-tech companies do well in rising rate markets. I don’t know a lot about this stuff but I find these posts fascinating even if I don’t have all the context :)

  7. Sam

    Per our discussion on Poverty versus Poor:

    I mentioned earlier that I had spent 2 years in a Children’s Home after my parents had an extremely violent divorce.

    This home was specifically designed for the purpose of family reintegration after single mothers were able to establish a suitable household.

    This included developing self reliance and personal resilience skills, through the performance of household chores! (For the Marines this would be called Field Day!)

    During my time at the home, there was a boy who had been stabbed through his belly by his father.

    The boy had obviously been through more of an ordeal than myself and I do not want to over exaggerate my own perceived slights.

    My house parent at the time was a truly wonderful woman who was also the person who introduced me to God and Christianity; this is important to mention!

    So one day me and another boy had failed to vacuum the dining room area as we had been assigned.

    It just so happened that same day the other boy who had been stabbed had had a disturbing episode that same day that our house parent was stressed over for having to deal with.

    The boy had defecated in his closet and then painted the walls with it like it was kids finger paint.

    So here’s the good part, me and the other boy were given our due punishment for having failed to vacuum the dining room.

    We were individually put into the 2/2 ft closet with no light while the other boy completed their portion of the dining room.

    It was about thirty minutes of standing straight up in the dark trying not to touch the walls.

    Even the best of Men and Women are evil and willing to execute evil ideas onto those they know and even care for, but that no one else cares about and when they are stressed beyond their mental capacity to deal with that days events!

    All men are evil a good man works hard every day to not be!


    Yes, I do still love Mrs. Westmoreland my house parent, although it was a cruel thing for her to do, as an adult one must realize that she was having probably the most difficult day of her career and this act gave her some relief.

    This is the difference between Poverty and Poor!

    If you or any of your readers are at all interested I will give a short story about my “Nike” experience next week?


    Trump is a moderate demonized by the liberal media because he chose to run as a “Republican”; they could not afford to lose control of the poor and minority groups he was taking care of!


  8. Hey Sam. I’ve been following you for years. You are my one of my favorite financial guru’s. I especially like how you breakdown a topic and look at it from a different point of view. All that being said I’m surprised there is zero mention of Bitcoin. In my opinion It is the number one way to counter the actions of the Fed. I’m sure you have been paying attention to it’s rise the last year. Have you not conducted your own research? I was on the sidelines of Bitcoin too up until a year ago then I conducted did my own research and started DCA into the asset and have continued thankfully at developing a position. You and other readers would be well served at researching Bitcoin and from that establish at least a small 1-5% position. Dan Held, who is a Bay Area Bitcoin financial analyst has a great quote “Everyone buys Bitcoin at the price they deserve”. I hope you don’t wait too long.

    1. Thanks. I’m stuck in a hard place because I was very hesitant about bitcoin years ago, which proved to be right after it crashed.

      But now obviously it’s at all time highs and on fire. I don’t have enough bitcoin to make a difference in my life (<$100,000). It is a speculative investment that I don’t want to talk about too much just in case it crashes again by 80% plus. Even though I tell readers to do their own research and not follow my investment advice bc they are not me, Inevitably, some people do. I don’t have enough conviction to make it a core position in retirement. Therefore, I just focus on what I know. But for those of you who are very interested and who have done a lot of work, I invite you to write a guest post. How much bitcoin do you have and what percentage of it is your investment portfolio or net worth? And just in case you feel bad about me for not having a massive bitcoin position, I have been able to get lucky owning Nvidia, Tesla, and other names. Better than a poke in the eye!

      1. Sam, you are a Samurai, a leader cutting through the noise on all matters financial, without caring what others think. …. I totally get it your position as being considered an expert and if it fails feeling somewhat responsible. My deep dive on this can be summed up as simple as gold only better. It’s better because it’s finite, 21 million Coins, easily transferable, and if stored on a hardware Wallet it can not be confiscated. In 2013 and 2017 bulls and bears we saw retail traders trade it. Now we are seeing corporations and financial institutions put serious dollars to hold (hodl in bitcoin terms). The internet has many gurus on Bitcoin. The one I like hearing the most is new to the space, Michael Saylor, CEO of MicroStrategy. Some call him the Bitcoin Jesus. It’s my opinion he is a major reason Bitcoin is “mooning” in the last several months. He’s all over YouTube and several podcasts. Probably the best podcast to listen to and certainly the most detailed is one hosted by Robert Breedlove. It is a series of 9 episodes. If after listening to those you are not convinced about Bitcoin and it’s future to not only replace gold as the ultimate store of value but further impact the financial system I will be shocked. It is truly a revolutionary invention. Saylor describes it perfectly.

  9. Alex Hamilton

    Your graph of the Federal Reserve US Money Supply trending toward infinity in a radical departure from the past 20 years makes me nervous. The thing about a Black Swan, as other commenters have brought up the author, is that, in retrospect, you could see it coming.

    1. Alex – You are not kidding about that money supply chart being scary. Definitely makes me more likely to believe we are going to see elevated inflation OR a market crash/recession if and when the fed pulls back on the money supply. I just pulled up the M2 money supply chart, it’s not quite as crazy but still a radical departure from the prior trend. Definitely a potential black swan event sooner or later.

  10. with rising rates, what are your thoughts on gld? generally a contra inflationary hold. it has dropped significantly. my thesis – if rates increase more, market sells off, and gld looks attractive due to inflation as well as an alternative to equities. if rates drop, inflation fears reduce and gld increases from its current levels. if rates hover in between, then gld remains status quo pegged to inflation (this is worse case as there is opportunity cost missed). but best case seems to be a 10-15% upside on a relatively safe investment/hold. thoughts on this ?

  11. I started reviewing the comments and did not at first realize that many were from pre 2016. Sam, can I still take you up on that bet that a democrat would win in 2016? LOL
    In all seriousness, we will face the same problems in 2024. In fact one could argue that the it may even be worse if today’s wokeness continues.
    I have been looking at FarmTogether and AcreTrader and also encountered another, Steward, that is somewhat similar but you participate but loaning directly to a farmer rather than purchasing shares in farmland. I had started to consider participating in their platform until today when they sent out an email with the subject – Black farmers matter.

    1. As years go by, history repeats itself. And cycles go over and over again. All the data, charts, and everything have been updated for this latest cycle.

      It’s also fun to see how we were thinking in previous cycles in order to learn from our past. Always be learning!

      1. Sam

        Good Afternoon

        I do appreciate that you update and revise your information as it relates to current events!

        Sorry you supported the idea that a disgusting democrat candidate like Hillary Clinton could have beaten God’s gift to America “DonaldTrump” in the 2016 election!

        Trump was the first true moderate politically positioned candidate in 30 years! Completely sabotaged by the democrats because he decided to run as a Republican versus a Democrat and why I can only call them all as idiots, communist or criminals! You know if you voted against him in 2020 you are a member of one of those three categories and if you do not know which category you are in, then you are in the idiot category!

        I would like to give your readers some moderate perspective on why it is important to revisit and explain the same topics on a recurrent theme with some minor adjustments from previous explanations and theories!

        For everyone reading whether it is your first exposure to “Financial Samurai” or if you have been an avid reader for years you should understand and expect that a true expert in their field must revisit basic fundamentals with more nuanced understanding of the topic they are discussing!

        Yes that means that you as a reader must be able to grow with the topic being discussed and realize that over time and with new situational circumstances and awareness that the information becomes more relevant and solid in its delivery even if there are some discrepancies in the details from previous discussions! (Hypocrisy is the devil’s way of allowing evil idiots to prevail over those who’ve made mistakes and have decided to take a more enlightened path to righteousness!). Hence why 20-30 year old Dumocrats still have the ability to become God Loving Americans sometime in their future! (I will pray for all of you evil people to find a positive way back to supporting the constitutional gifts provided to you from our founding fathers!)

        Idiots (Communist, Criminals, and Dumocrats) scream hypocrisy when they can identify a minute discrepancy in minor details of the larger argument of Morality!

        This allows them the false high horse moral status to confirm their collective evil beliefs against the individual who has realized the errors of their previous thoughts and actions!

        It is like those (Communists) who dismiss previous drug users who believe it is disgusting to promote the legalization of drug use as hypocritical!

        I smoked marijuana in my teenage years and even tried to plant, grow and sell it!

        Fortunately, because God loves me more than most people I know, things fell through with those plans.

        I have used and watched those who sold and used illegal drugs enough to realize that any person who would vote to legalize the use of mind altering drugs of any kind to be a true idiot or an outright conniving Communist/Socialist set in the destruction of our American Constitutional rights and privileges in order to destroy our most Wonderful country!

        If you support the Chinese, Russian and Western European nations (Except Britain, Poland, and other but more struggling countries like Hungary, the former Czech Republic, Slovakia and Slovenia) in their concerted efforts to destroy our American way of life through capitalist principles please continue to vote as a Democrat (The only true Supporters of disgusting communist, socialist, and dictatorial evil human behavior designed to exploit those who are impoverished to ensure their disgusting children remain in control of America’s future!)

        Ask yourself why 80% of Highly paid Government employees are ideological proponents of the democrat party?

        There is a concerted effort by the federal government powers that be to ensure that conservative Americans are not admitted into the Federal employment system (utilization of the Human Resources office holders as the communist gate keepers) so that they can control the future indoctrination of our country into the world domination of communist China and Russia!

        Yes if you are a conservative American applying for a federal or state government position you will likely be hampered in your efforts by the HR technicians who are overtly trying to ensure that they employ as many like minded liberal thinking minds to continue their future takeover of the U. S. Federal government systems!

        The Deep State Truly exist and they hope to continue by dissuading Americans citizens as to the concept itself!

        God Bless America and “Nathaniel Hale”!


          1. Trump basically combined the worker class wing from the left (Think Dennis Kucinich and to a decent degree Bernie Sanders pre general election 2016) with basically the Republican party platform pre NWO 1950s – which is smaller government, with more immigration limited to more historical levels, but without putting the US involved in everything globally, especially shirking wars for the first time in nearly 100 years (since Hoover). He basically commandeered the GOP elite’s system and was on track to take half the left as well. He would basically have neutered both existing power political systems in the US in one fell swoop.

            If he was more likeable and if the media was even remotely fair, he probably would have done it, too. This is why the old guard in the GOP hates Trump at least as much as the left does and they worked just as hard to undercut Trump as Dems did, especially his first 2 years. By year 3, with the economy so strong, some did back off for a bit, but COVID resurrected a lot of that. Trump will be an interesting case studies for centuries to come and I predict his popularity will increase significantly over time, much like Clinton’s did after he left office (in both cases – may not like him personally, but hard to argue with the results – and I think even on Covid he will ultimately look like a standout with similar or better case/death rates to Europe and much of latin America but a much stronger economy AND helped developed 3+ vaccines at the fastest pace in human history).

            1. Rob

              Thank you for articulating what I know in my heart to be about Trump but become to emotionally charged to convey more appropriately.

              Well spoken!


        1. Chris in general thank you for articulating many of the thoughts I have long held. I know we have a left leaning audience so I’ll expect pushback which is fine. What I object to is the cancelling of anyone who disagrees. Truly the sign of the uninformed, the insecure, and the mindless compliance the demo- commies demand.
          I’ve always been amazed at how anyone regardless of what your opinion is would willfully give up the right to articulate it to some self appointed censor.

          1. Mike

            Thanks for being willing to acknowledge a like mindset!

            It is the intent of the left to muzzle anyone who does not comply to the will of those (foreign leaders) who control the media and utilize them to oppose and persistently challenge the U.S. constitutional model for its desire to provide Liberty for all!

            “One man speaking the Truth is a majority”
            Author unknown.


        2. You forgot the part about how Trump almost achieved a violent coup and potentially incited a mob to kidnap/murder members of Congress.

          But yeah, go back to reading whatever QAnon blog you were on before this.

          1. Clearly you do not understand how coups work. A group of unarmed rioters had zero chance of overthrowing the most militaristic country in the world. Now had you seen some tanks and copters approaching the capitol, that might be a different story. Your comment reminds me of those who kept saying Trump would have to be forcibly removed from the White House. Now we have to withstand listening to a president who by the day becomes less coherent. There are going to be a lot of remorseful Biden voters. The grass is not always greener.

            1. Alan, you don’t need a gun to be violent. Eight dead proved that. And I love the use of “rioter”, rather than “loyal Trump seccesionists”. But anyway, back to your bubble.

              1. Do you really believe these guys had even a slight possibilty of overthrowing the government? I have been to countries where the government has been overthrown in a coup – this was not even remotely similar. Had this been a real attempt the capitol would now be a charred ruin.

              2. At the end of the debate wouldn’t you agree that it would be more patriotic to be called a failed secessionist than a victorious communist collaborator.

                Personally I don’t support any of the violence conducted by any of the groups!

      2. Sam

        Good morning

        Not sure what is wrong with this sites capability but I have attempted to interact with you and your readers on at least 4 occasions where my postings have disappeared into the Ethernet/cloud.

        I will post another short story on “Shitty Paint” tomorrow night my time.

        “Poverty versus Poor”


  12. Very insightful, thanks! I’m surprised the markets have done as well as they have given we are still in this pandemic. I think it’s a good sign if interest rates start to rise especially because they are still so low. Overall, I’m still being conservative with my investments this year. I’m legging in bit by bit and keeping my eye on the long game. I’m sure the job market is still very challenging for a lot of people, but I’m relieved that several of my close friends recently found great new jobs so there are companies hiring out there. I’m hopeful this will be a better year all around.

  13. I am still sticking with a fairly aggressive long-term strategy. It makes no matter to me if the market tanks for a bit, as long as on average it continues to go up.

    BUT, there is something to be said to having a lot of cash on the sidelines to take advantage.

    So right now I have 10% of my portfolio in cash or cash-like instruments.

    1. Paper Tiger

      AR, this is pretty much where I am as well. I was always a buy and hold investor but moved in and out of the market a bit last year through my 401Ks. I think with all the monetary stimulus being thrown at the economy and interest rates still remaining low for the next 18-24 months, the market should at least return a historical average over the next couple of years as the economy recovers, albeit with some volatility throughout. How choppy depends a lot on the vaccine rollout and getting COVID under control.

      Part of me would like to de-risk a bit but I just think the market is going to perform well and fixed income just isn’t paying enough to get me excited in the short term. When the risk-free return rises, I will relook at our mix.

    2. I’m taking a similar approach to you AR, plus I wouldn’t hesitate to pull out $100-$150k HELOC @ 2.75% if something really interesting came up as well. In the meantime I am fairly well diversified between real estate, large cap US, global stocks, with a good mix of bonds, small, mid and precious metals with most of the rest, along with ~7-10% liquid cash at the moment.

      1. Yeah, even if/when the market does underperform, my plan is to exit many of the single stocks I got stuck with from my former financial advisor. But right now it is not practical without taking gains. I started to set up alerts for any major downturns, so that I can respond quickly.

        I like the HELOC idea a lot. I am keeping that one in my pocket for any future Real Estate Investment opportunities, but right now the market has been out of control in my area and the expected returns are too low to be worth the hassle.

  14. Sam,

    Correct me if I am wrong, but there seems to be some slightly contradictory information.

    Your chart is showing a positive correlation between inflation & interest rates. You specifically call out highly leveraged REIT’s as a major loser.

    In the “How to Invest and Profit” section, you specifically call out refinancing into a long fixed-rate mortgage.

    It seems like highly leveraged real estate with a below-market interest rate in an inflationary environment would perform well. As inflation drives up the cost to build & the rent; the value of the underlying asset should increase. However, the cost of the interest is decreasing over time as inflation erodes the value of the dollar.

    Where I think the building could lose value is if a higher interest rate drives up the cap rate as buyers demand a higher yield. But if the inflation rises with the interest rate (as per your chart showing correlation), rents should increase, driving up the property NOI and offsetting any increase in CAP rates.

    TLDR: The same forces that make it a smart play to lock in a fixed-rate mortgage at today’s interest rates apply to commercial real estate.

    1. It’s all about looking at things at the margin and at various time horizons.

      Let’s say the 10-year spikes to 5% and mortgage rates for a 30-year go from 3% to 5%. If your currently in a 5/1 ARM expiring in 2-years at a 2.5% rate, at the margin, you would want to refinance to a 7/1, 10/1, 15-yr, or even 30-year fixed at perhaps 2.75% – 3% BEFORE rates go up.

      The ideal scenario is if you have a fixed mortgage rate that is lower than inflation. Then you are living for free.

  15. Historically, gold has been a hedge for inflation. I’ve been buying Barrek gold the last couple months. I’m glad I’m averaging down because it seems to drop on a daily basis. Bitcoin seems to have taken the place of gold in the short term. However, I’ve been around long enough to know patience is eventually rewarded.

    I welcome inflation since I’m more of a saver than a borrower. I’m still dreaming of a 5 percent cd. Unfortunately I don’t think we’ll ever get there.

  16. Pingback: Should I Buy A Home When Interest Rates Are Rising? | Financial Samurai

  17. Pingback: Mortgage Payoff Fees And Procedures To Know | Financial Samurai

  18. Reminds me of Nassim Taleb’s imagery – people picking up pennies in front of a steam roller. Sure rates could hold steady for another 5 years or go lower – and then you win. But the people this strategy appeals to most can’t afford an ARM with rising rates. If you can’t afford a bad scenario – especially retirees – ARMs for borrowers are reckless. Just like 30 year fixed rate loans at 3.75% are reckless for lenders (which is why they get sold to FNM and FRE as soon as possible).

    1. Picking up pennies in front of a steam roller was one of our favorite sayings on the trading floor. Are you in finance or were you as well?

      The thing is, we are driving the steam roller here in America! Much of the world is reckless then, as much of the world doesn’t have 30 year terms to borrow.

      How long have you had your 30 year fixed mortgage?

  19. Thomas Patton

    earlyretired –

    “more divided than ever before in our history”? No, I would submit that during the Civil War (1861-1865) we were a bit more divided.

    “more indebted”? No, it was way worse after WW2 and especially after WW1, when debt to GDP was running about 300%. It is specious and misleading to measure indebtedness in inflated dollars.

    We haven’t racked up 20 T in debt dealing with this recession, using your own stated numbers 10.626 T was preexisting debt.

    Re food stamps, per WSJ last September the number had dropped to 46.2 million from a peak of 47.8 million in 2012 and continues to drop as the economy slowly improves> Still too many and too slow, I agree.

    And why has the recovery been so slow? I’m guessing the severity of it is a big part of it; all recessions are not created equal as you seem to imply. Another huge problem is due to globalization; the US worker is now competing with labor all over the world – hard to realize and real wage growth. That’s just a fact of current economic life, I don’t blame any political party for that.

    You will recall that it took us a long time to claw our way out of the Great Depression as well, which was another economic debacle born of a business friendly Republican administration.
    I take it you would have advocated a Herbert Hoover approach in 2008 – 2009? We can thank our lucky stars that didn’t happen. That’s what I will remember when I vote.

    1. I cannot understand why one would vote against their financial best interests. I am referring to self-made, working people without trust funds or parental help, btw.

    2. Regardless of how it began, there is a pretty large consensus that FDR turned a two-year depression into a twelve year one.

      Which is not to say that all of his initiatives were bad, but they were certainly badly timed.

      Also, a wide sampling of people that actually spoke with him also indicates that his general level of intelligence seemed remarkably low for the position he held (to put it charitably).

      1. The Social Capitalist

        A large and fairly incorrect consensus.
        First, FDR struggled with a SC that cared little for Jim’s suffering, only political gain.
        Second, Republicans refused stimulus in 1932 that allowed so many businesses to die off. Many govts. world wide did a much better job intervening to quell the Depression. But our long political divides precluded this and caused undue hardship for years.

        Thank God FDR was around, or this country may not be.

  20. earlyretired

    Thomas –

    The root cause of the 2009 recession was formed in the Clinton administration. Every American has the “right” to own a home. (Remember that?)

    Government policies soon followed to support this “right”. Looser lending standards, new Fannie and Freddie policies, et al.

    Bush failed to correct this populist rallying cry as he calculated it would have been politically impossible. (He was probably right).

    We have had recessions throughout our history. The only question that matters to me is why has it taken longer to recover from this one, than any other?

    Why did we need to rack up $20 trillion of debt in the process?

    And why are we more divided, indebted and have more people on food-stamps (50 million) than ever before in our history?

    As Einstein said, the definition of insanity is to keep doing the same thing, but expecting a different result.

    Remember this when its time to vote.

  21. earlyretired

    Thomas – The national debt has soared nearly 70 percent under Obama.

    When he took office, it stood at $10.626 trillion, and it’s risen nearly $7.5 trillion to over $18 trillion. Its projected to grow to $20 trillion before we get rid of him.

    If you want to defend this by saying “Johnny started it”, then I am fearful of our future as a nation.

    P.S. Quiz question, did a democrat or republican say the following:

    “Let me be clear, if you vote for me, I will take from those who earn the money, and give it those who vote for me…..

    …After all, although 20% of workers pay 85% of the taxes, the rich need to pay their fair share”

    1. earlyretired – You mention being fearful of our future as a nation. I think it is fairly safe to say more US citizens were fearful of the nation’s future in 2008 and 2009 given the utter shambles the economy was left in by the previous administration.

      My point is that the standard right wing boilerplate of “we are the fiscally responsible ones!” is not born out by the actual history of the last half century. Tax cuts and enforced frugality has obviously not led to a reduced deficit. Europe has learned this as well.

      I won’t respond to the quiz question. I am certain I could fish around and find equally inane statements by republicans. I don’t want this to devolve into juvenile political name calling.


        1. earlyretired

          Nice track record.

          As for 2016, I won’t take the bet. Just because I may wish a crack addict would stop their addiction, doesn’t mean I’m going to bet they will.

          More “free” stuff, debt and dependency on the government for all….

          (I just wish they wouldn’t take the rest of us down with em).

        2. I think you should link this comment back to previous posts like “Learning From The World’s Happiest People,” and “I’ve Seen The Future And It Looks So Bright.” That is your world view. You seem to confuse agreeing with a political party and predicting a win for a political party. If I put my money where my beliefs and interests lie, I would go broke. I am a voting minority. It is also interesting to look back and now tie in all of your effort to not work beyond certain tax thresholds.

          So far I have also learned that you can’t understand why anyone would live on the east coast. You do not have familial financial obligations or burdens. You made ton of money when you were young.

          I am your opposite. No wonder tennis didn’t stick.

          1. Since this is a finance blog, the main point is improving one’s finances. I’m pretty sure a Democrat will win the Presidential Election again, and therefore I’m investing according to this outcome like I have been since 2008 at the margin.

            There’s no use fighting the power Meg. You will be crushed. We are the same. Not sure what tennis has to do with anything. But to get better just takes practice. You can do it!

            BTW, how do you know I don’t have family financial obligations or burdens?

            I think you’ll enjoy this post as well: Sweat Dreams Of Becoming A Millionaire

  22. Note to “Earlyretired”. Your snide political swipes are either misinformed, dishonest; or both.

    For our 20T national debt, your sarcastically state “Thank you, Obama.” and also you state that that the debt problem cannot be fixed until “Obama is replaced”. You also imply that somehow Republicans and Libertarians are honest and Democrats are rank thieves.

    Okay, let’s go back quickly over the last 55 years to 1960. Five democratic prez and five republican prez since then. Here are the dollars attributable to each party in aggregate towards our national debt:

    Republican: 9.608 trillion
    Democratic 7.927 trillion
    Hm, that’s funny, seems like the “honest” Republicans are spending more than the thieving Democrats.

    Unfair to use raw dollar amounts that are distorted by inflation, you say? Okay, fair enough. Let’s look at percentages, that is how much each president spent than his predecessor on a percentage basis.

    Obama 53% Bush 2 101%
    Clinton 32% Bush 1 54%
    Carter 43% Reagan 186%
    Johnson 13% Ford 47%
    Kennedy 8% Nixon 34%

    Average 29.8% Average 84.4%

    Gee, looks like a trend is developing here. Looks to me like Republican administrations over the last 55 years have been more fiscally irresponsible by an order of magnitude of almost 3! So “Earlyretired” are you going to say “thank you” to them as well?

    Sadly most Americans are unable or unwilling to grasp the fairly basic numbers stated above and thus are easily swayed by the political sophistry purveyed by “Earlyretired”. I know this is a finance blog mainly. “I felt “Earlyretired made some astute financial observations, however I felt the obvious political bias unsubstantiated by history or facts needed to be called out.


    1. Thomas

      To bad I am 6 years late to this conversation!

      Communist and Democrats are the only detriment to a free and democratic future for the United States!

      Your pathetic attempt at persuading idiot Americans to buy into your manipulation is disgusting however after the 2020 Riots induced by your communist Antifa coalition it seems you are right to think the 20-24 year old Americans are completely ignorant and are willing to destroy the Constitution to support the Chinese, Russian and the European Union new world order!

      Please respond if you are still paying attention in the more recent post submitted by Sam!

      I look forward to your idiocy in debate or your silence for acknowledging you are an idiot without logical debate!

      Dumocrats are easy to destroy however they travel in packs and therefore you have to deal with a significant number of collective cowards who will say any number of illogical thought or reasoning statements to garner support from the idiots they target!

      1. Not quite sure why you are trashing the Chinese and Russians. The US could learn much from both of them.

        The infrastructure in China is bar none, the best in the world. They have high speed rail and some of the best expressways in the world throughout the country. Their planned cities are incredible considering how dense the population is. They purposely include large green areas and wide avenues. Their tourism sector, until covid, was the largest in the world. It was difficult to travel to most parts of the world and not encounter Chinese travelers, far outnumbering Americans. I personally saw this in Egypt, Turkey, and even Albania. The Chinese government may call itself communist but I can assure you there is not a more capitalistic place on the planet.

        As for the Russians, they are in many ways still a developing country. You really have no reason to be concerned. They are in no way a communist nation any more. On the other hand their people have and will continue to face hardships. They have learned how to support each other and life there reminds me more of the US prior to the 1970s.

        I did not vote for a democrat and agree completely that they are ruining the country especially with their wokeness that only serves to further divide the nation. Had Trump succeeded in his overtures to Russia, the world would be a much better place. His trade policy towards China appeared to be at least have some positive benefits. I just disagree with your concerns about China and Russia. China in particular is an economic competitor and that can only further enhance the capitalistic system in the United States. Without competition, the markets would stagnate.

        1. Alan

          Something you should look into about historical policies quietly being implemented by Democratic led congresses for their European backers.

          We have a law that forbids our corporations from bribing foreign government, companies and citizens while establishing their future contracts.

          On the surface this sounds good and is consistent with great conservative American values!

          Actual outcome of the law, foreign competition use the law against American businesses by turning them in to U. S. Authorities to be investigated at U.S. taxpayers expense! Then they use bribes to obtain the contracts because they cannot compete openly with their U. S. Counterparts due to the tax burdens placed on them by their socialist governments. Their countries of course turn a blind eye to the bribes!

          Anything that promotes socialist principles will eventually destroy our way of life and destroy hope for the rest of the world’s poor.

          The world’s next emerging middle class is in China where every country and corporation in the world who will be allowed to participate in the economic boom will have to succumb to communist acceptance and their human rights violations against religious freedom.

          Just a thought about the future of the world to come!

  23. The charts are proof of what I am seeing in the rearview mirror, and ahead. Realizing I’m alone at the end of the pier, I’m seeing deflation ahead. Oil $60 barrel in 2015; $145 barrel in 2010 (-59% in 5 years). Can of 3 Dunlop tennis balls $2.79/can 2015; $2.99 in 1980 (-7% in 35 years). 30 year Mortgage rate 11.5% in 1990. 3.75% in 2015. Long story short, no matter what the nominal purchase price for real estate in 1990, it would be worth almost exactly the same amount today 25 years later in 2015, adjusted for inflation; oil and tennis balls much cheaper. Interesting.

    5 of 20 full-time workers in 2008 are out of the workforce, and there is a great amount of labor slack. My 5-year CD best rate is 2.0%. With the Fed mandate focused on dual goals of employment and inflation, like our gracious host FS I am not seeing significant rate increases in the near future. The one thing that catches my interest (always) is the artificially low rate…there is no room for error or correction now for Fed action. A terrorist attack, natural disaster, act of war, or just a cyclical event, has no wiggle room at a 0-0.25% Fed interest rate. Whatever the macro metric is today (5.5% unemployment, zero to neg wage growth, 0% projected GDP, etc.) the ‘boots-on-the-ground’ reality is worse for all but the 1%.

    With eight years of ZIRP (does everyone know what “ZIRP” is?), some of our younger investors who don’t know any other environment might be surprised if/when the Federal Reserve takes an action that might impact the “haves” (stockholders and real estate owners). Good luck to us all.

    1. Ooops, that is 1 of 20 (not 5 of 20). Labor force participation in 2015 is 95% of what it was in 2008. Look around, especially at entry-level positions and the competition for employment that is not what anyone dreamed of as a child.

        1. earlyretired


          I need JayCeezy around to watch my back in case OutandAbout throws another sucker punch…

  24. I know that the FED may raise rates a bit in the next year or two, but shouldn’t actually borrowing costs be determined more globally? Shouldn’t the crazy low rates (negative sometimes) in Europe and Japan keep the US 10 year yield low as well? I never hear anyone talk about this, but it seems to be a big part of the equation going forward for me. Am I off track?

      1. earlyretired

        Sam – Here is one of the places where you and I diverge.

        If the MARKET determines bond yields, then why did the Fed go to all the trouble of QE 1, 2 and 3?

        That’s $4T added to the balance sheet that could have been avoided if the Market is just going to do what it wants to anyway…

  25. Adam @

    US rates are still higher than much of Europe and inflation is near zero. Those 2 facts alone make any rate hikes unlikely in the next 12 months.

  26. earlyretired

    Sam – One more concern to add to my previous comment. (By the way, why hasn’t it posted?).

    Your second graph is very misleading on how you represent the S&P-500 without correcting it for inflation. If you want your readers to understand the relationship between interest rates, inflation and stock prices, you need to give them the “real” facts.

    The “real” facts are that from 1968 to 1982, the inflation adjusted (or “real”) value of the S&P-500 fell to 40% of its starting value. In other words, if you had $100k in 1968, it was only worth $40K by 1982. Kind of a relevant point to gloss over! There are significant lessons from that era that apply to today. Why keep it a secret from your readers?

    I get that my opinions are not always popular in the moment. But they are correct. (This is why I no longer need to work). I’ve kept a lot of people from making very bad mistakes over the years and I’m just trying to keep that going. If you happen to disagree with something I say, explain to me why. Don’t just not post my comment!

    Do you ever post comments that disagree with your opinions?



    1. earlyretired,

      Do you have a website or other resources that I could read on these issues? It’s a mighty confusing thing to wrap my mind around and your perspective is very intriguing.

      1. earlyretired

        Blake – Thanks for the comment. And no, I don’t publish anything. I keep my identity anonymous so that people can choose whether to listen (or not) based on the message, not the messenger.

        (Just think how you would perceive the content of my messages differently if I told you that I was John Travolta, or a high profile CEO that’s had a lot of press, or just Joe schmo).

        Sam has one of the few blogs I really like. He keeps it open, welcomes alternative opinions, and doesn’t screen out comments that are not politically correct. (Something I am admittedly guilty of from time to time).

        There also seems to be a pretty good cross section of views and backgrounds amongst a an intelligent group of commenters.

        If you have a specific question, I’d be happy to try to answer it. But to respect Sam’s forum, it will need be in the context of the posts that he’s written.

    2. SP500? Take a look at the velocity of changes to the list of companies that are part of this index.

  27. I think you’re spot on with respect to banks and insurers. Typically, a higher-rate environment will increase spreads for banks/insurers, but you’re absolutely right that the 10-year yield could stay flat, especially when the yields for government bonds of other countries are so low.

    Really, really good article.

  28. earlyretired

    Great topic. Great Graph. Your Analysis – Not Great.

    Sam – I genuinely wish I could join you in your utopian view of the world. But some of your core stated beliefs that enable this view are just flat out wrong.

    I know this statement is harsh. But my goal is not to stroke your ego. My goal is to make you (and your readers) richer.

    So in the spirit of trying to buy low, sell high; ask yourself:

    Why doesn’t the Fed just keep rates low forever? Look what it’s done for stock and real estate prices after-all! Why should they ever take away the punch bowl?

    The reason is always the same. Every action by our government (or the fed), always comes with unintended consequences. In this case, the consequence is $20T in debt that must somehow be repaid one day. (Just ask Greece if you have been deluded otherwise).

    There are only a couple of ways to repay it. We either raise more money (e.g. more taxes); or redirect current government spending.

    Unfortunately (or fortunately depending on your perspective), neither of these options is politically possible when the amount of debt is an astronomical $20T (Thank you Obama!).

    Nope, the only way to deal with a number this large is to inflate it away. In other words, it’s a lot easier to repay $20T when each dollar you’re repaying it with is “worth” only fifty cents. (Let the printing presses roar!).

    Interest rates have two components, the “real” part, and the inflation part. When inflation increases, the “inflation part” of interest rates has to increase. Arithmetic requires it. And as this occurs, interest rates rise. (Arithmetic, once again).

    You can find this relationship on your first graph. You can also find how our government dealt with a similar problem in the 70’s. (Though it was officially blamed on the Arabs).

    So speaking of the 70’s, there are strong parallels as to what we can expect as the inflation machine takes over.

    Fortunately however, if you’ve enjoyed the “good” part of the fed fueled rally in the stock market since 2009, your investment accounts are full.

    But please recognize that with every valuation metric confirming that the market is very expensive right now, this is not the time to be greedy.

    So how do we buy low, sell high?

    Reduce your exposure to stocks (and all interest-rate sensitive assets like real estate) right now. Momentum may still carry markets further, but there is no longer a “valuation” reason for markets to go much higher. (By the way, if you’re looking at historical stock charts to confirm this, make sure you use “inflation adjusted” charts).

    Stay very short on the yield curve. (Interestingly 5-yr CD’s yielding 2.5% are not a bad option right now. Their yields are actually greater than 10-year treasuries; their downside is limited by very modest early withdrawal penalties, and at least for the moment, they are outpacing inflation).

    That’s it. Other than get ready to go shopping after the fallout of all the above has finally played out.

    Good luck,


    1. Greece is a poor comparison. No currency of its own; a small fish in a large pond.

      The U.S. national debt is a political problem, not a math problem. The debt is denominated in our own currency. We owe the majority of it to ourselves either directly or indirectly. Today’s global economy requires the U.S. dollar simply to function both now and within the even remotest reaches of the forseeable future.

      That is not to say either premise is impossible (sustained low interest environment v. sustained aggressive interest rate increases). It is just to say that your analysis of why we would end up in a high rate environment starts with the wrong assumptions.

      1. earlyretired

        David S – If our debt is not a “math problem”, why do we have taxes?

        Why not just hike up the debt even more? And why didn’t our politicians think of this a long time ago?

        I really wish you were right. I’d sleep a lot better.

        But ironically, I sleep even worse understanding that there are voters who actually believe our debt is not a math problem.

        As they say, the first step to solving a problem is to admit you have one….

        1. I’m not sure why you suggest that those of us who doubt your arguments live in a world where governments somehow don’t need taxes.

          The US national debt is a political problem because we can always decide whether (and which) creditors take haircuts. For instance, we can (and assuredly will) radically change social security benefits to future retirees and stop limiting the income level at which taxes are paid into the system. As I pointed out, we owe a large majority of our debt to ourselves–the very definition of a political problem.

          Maybe someday the way you (incorrectly) perceive the national debt will become correct. But it will be many, many years from now, and if we end up with Volcker style Fed fund rates before then–as you seem to believe–it won’t be because the Treasury was trying to surreptitiously inflate away the national debt. Assuming you believe what you say–that a well managed Fed wouldn’t allow the debt to be inflated away anyway–one has to presume the folks at Treasury would get the memo also.

          1. Earlyretired

            David – You seem like an intelligent person, but you have been fed incorrect information. Its not your fault. It’s in the best interest of big spending politicians to keep you misinformed.

            But if you just apply common sense, its very simple.

            If you borrow a dollar, you have to pay it back. If you don’t have the dollar available, you have 4 choices.

            1) Raise more dollars (taxes);
            2) Reduce government spending (not until Obama is replaced);
            3) Manipulate the currency (Unlike Greece, this is a perk of controlling the world’s reserve currency); or
            4) “Decide which creditors to give “hair cuts” (Not an option in the real world. How do you think this would work out the next time you wanted to borrow a dollar?)

            Your example of Social Security ($25T) is not included in our $20T of National debt. SS is referred to as an “unfunded liability”. This amount, along with Medicare ($28T) is in addition to our National debt and a completely different topic.

            One of the reasons I spend time on Blogs like Sam’s is because I am very concerned about the direction of our country.

            I’m 48, and grew up in a very different reality. Politician’s have always been lying to us (e.g. Nixon-watergate, Clinton-Monica Lewinsky).

            But until Bush (Weapons of mass destruction) and Obama (You can keep your plan if you like your plan) we haven’t ever been lied to on this grand of a scale.

            The consequence of the current distortion of facts that we are being fed has resulted in a National debt that now exceeds our GDP. (Google it).

            Even though we’d like to just not think about it, it’s an enormous problem. Interest payments alone will be a drag on our economy for generations to come.

            What do we do about it?
            – Vote for fiscal conservatives who want to fix problem;
            – Educate ourselves (through discussions like these); and
            – Make personal investment decisions with a sober understanding of the facts.

            Good luck,


            1. OutandAbout

              I think your lack of work is negatively effecting your judgement. Condescending with nothing new to say from the post about how to profit.

            2. @OutandAbout, that was uncalled for. And your personal attack on EarlyRetired should correctly read “…affecting your judgment.” You need to work on spelling, syntax, grammar, and reason. btw, this post is not ‘condescending’, but ‘patronizing’ and I trust you understand the distinction.

            3. earlyretired

              @OutandAbout – You’ll know when I’m being condescending. This time however, I was just trying to clarify some confusion with apples-and-oranges…..That’s what this type of forum is all about after all….

              By the way, you really made an excellent contribution to the discussion! (See what I mean?).

    2. Guys who think like you are the reason why I’ve been able to make so much in stocks and real estate over the years. You’ve been wrong for the past decade, and you’ll be wrong for the next decade.

      Don’t confuse economics with the market. It’s clear you don’t understand how the investment world works and I venture to guess you don’t have any experience working in finance.

      Please correct me if I’m wrong.

      1. earlyretired

        Jimmer –

        Not sure if you are addressing this comment to Sam or me, but we both have extensive backgrounds in finance.

        In my own case, I’ve been CEO (and in an earlier role, CFO) of a publicly traded company. Also graduated HBS so I understand the way the way the Finance world is supposed to work, and also know how it works in real life.

        But more important than any of that, my knowledge of how to make (and not lose) money in the markets over the years, enabled me to retire at 46.

        Markets do become decoupled from economics from time to time. (1901, 1929, 1966, 2000, 2008, 2015).

        So what are you doing about it?


          1. earlyretired

            I’ll keep commenting if you will also…! Lot’s of interesting differences in opinion on this site, aren’t’ there…? That’s what makes a market….

    3. Not sure how your two recommendations of reducing exposure and staying short the yield curve are any different from my recommendations since those two are two of many recommendations I make in this post.

      It’s fine to disagree with me about interest rates. That’s why there’s a market. Where people have got the “interest rates must rise” for so long is that people mistakenly analyze free capital forces. The market are not free. They are regulated, and government has grown more powerful. Hence, one most properly analyze the government instead.

      1. earlyretired

        Sam – Guess I’m confused about your recommendation:

        On the one hand you say in your response above to Gen-Y Finance Guy:

        “I’m aggressively saving as much cash as possible myself, but that’s b/c I’m all in with real estate, and a decent position in stocks”…

        But on the other hand you tell me:

        “Not sure how your two recommendations of reducing exposure and staying short the yield curve are any different from my recommendations since those two are two of many recommendations I make in this post”

        Yet the first thing you discuss in your post is that you don’t think rates are going to rise ….So why would you stay short the yield curve?

        Anyway, If you are taking profits right now in stocks and real-estate, and staying very short in anything with a fixed rate, I’ll look forward to shopping with you at the next blue light special….

  29. Given how manipulated the data and the economy is these days, I find it impossibly frustrating to attempt any sort of rational analysis of trends and investment. Effectively all the risks are unknown in scope or timing, so you place your bets and you take your chances.

    Personally, I diversify as much as possible, and tend towards physical or income producing assets with the hope that the asset value and income will correct somewhat in line with the correction, whenever it occurs.

      1. earlyretired

        Now that is an excellent point!

        For instance, the next election is going to decide whether we ignore our $20T of debt a little longer…., or start dealing with it beginning, Jan 2017.

          1. earlyretired

            Republicans and Libertarians adamantly believe that it is wrong to steal.

            Democrats adamantly believe it is wrong to steal, unless of course they think they can spend the stolen money better than the person who earned it.

            This issue will decide the election.

  30. I love how you put things into perspective and make them easy to understand. I agree that a significant rise in the 10-year yield doesn’t seem very likely. I don’t have any plans to increase debt in the coming years and am not too worried if rates do start to rise. And I love your last suggestion about going on a European vacation. :) Paris in springtime sounds lovely or Greece in summer.

  31. Wall Street Playboys

    Ahh the ole’ interest rate debate.

    Going to have to agree that the increase is not going to make a material difference near-term. That said, they will likely raise rates (very slightly) in the next year or two.

    The issue is that a 25-100bps doesn’t matter in the grand scheme of things.

    The most interesting space to play will be oil companies *if* rates do change. They have extremely high costs, oil is getting crushed and many of those companies are loaded with debt. (Maybe this is why they won’t raise rates to your point!)

    Either way, we are not going to see a 5% environment any time soon, so worrying about a massive rate hike is a bit delusional at this point. A percent or two? Sure. 5% move… Unlikely.

    1. Good thing Oil prices are rebounding!

      A rise of 1-2% isn’t going to do much, and I don’t think we’ll rise by more than 1-2% on the 10-year bond yield anyway, so nobody needs to panic.

  32. Gen Y Finance Guy

    I tend to be in the same camp as you and believe that rates will stay low for a very long time to come. Even if the Fed increases rates by a token 25 bps or more. It will likely have very little effect.

    It would also be interesting to see a study on different interest rate levels and what that means to the interest paid on our national debt. There is probably a study like that already, but my gut tells me that any significant rise in rates could be crippling for the US government. I have to think the Fed is keeping that on the radar as well.

    It will be interesting to see if the Fed can muster a rate hike before we slip into another recession that will inevitably happen at sometime. We have been hearing about rate hikes for years…but some how this time is FOR REAL! I am not sure I buy it.

    I have no idea what rates will do but I am in almost 50% cash waiting patiently for lower prices in the financial markets. I also wouldn’t touch bonds with a ten foot pole. If rates do rise then I think there is a lot of capital risk to the downside. And if they don’t rise, I don’t think they are going lower, so there is not much upside either. With rates on the 30 year around 3%, I would much rather pay down my mortgage in lieu of a bond allocation.

    Who knows, maybe there is a Japan like scenario where rates stay low for decades. They have not been able to successfully raise rates and are now embarking on a QE program that is massively larger than ours proportional to their economy.

    Speaking of Japan, I think it will also be interesting to see how policy is managed globally. We are in the midst of a massive experiment.


    1. I think the US is in a quasi-Japan interest rate scenario for another decade or more. Globalization is causing deflation in wages and product costs (Except for when you want to sell real estate!!!).

      50% cash is a huge position! I’m aggressively saving as much cash as possible myself, but that’s b/c I’m all in with real estate, and a decent position in stocks.

  33. To put things in perspective, I graduated from elementary school in 1988. Here are my basic current beliefs. Today’s stock market even at its all time high is cheaper than it was the day that I graduated from elementary school. Today’s stock market is also cheaper than the date I graduated from junior high school. It’s also cheaper than the date I graduated high school. Additionally, It’s cheaper than the date I graduated college. There will be a time when it’s no longer cheaper than all or some of the above dates I mentioned above (I’m constantly monitoring this). At the time that the stock market is no longer cheaper than the dates I mentioned previously, possibly I purchase a second home at that time. I’m fully aware though that when that time comes interest rates will be higher. It would be nice to not need a mortgage when that second home is purchased. It’s likely several years away though. By that time period I would also expect to be an accredited investor though I am not currently. By my fuzzy estimate, I should be an accredited investor in 2 to 4 years.

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