ETFs To Invest In When Interest Rates Are Rising

In March, the Federal Reserve decided to raise interest rates for the first time since the Covid-19 Pandemic began. The timing of the interest rate hike was needed as inflation has grown during the pandemic for many reasons. Some believe inflation is on the brink of running out of control, which has Federal Reserve members, economists, and those who work in the financial industry all making a case for more aggressive interest rate increases in the future.

With inflation above 7%, not many people would argue that interest rates need to increase in order to slow and eventually lower the inflation rate. Higher interest rates lower the number of large purchases consumers will make; think cars and homes. But high-interest rates do a similar thing to businesses; it reduces the amount they are willing to spend or reinvest in their company. These two factors together typically end up pushing the economy into a recession of some sort once and if interest rates slow the economy too much.

Tampering with interest rates is a double edge sword; you go too far in one direction, and inflation grows; too far in the other direction, and you send the economy into a recession. Unfortunately, though, we are at a point where the Fed almost has to raise rates in order to slow inflation to a more reasonable level. Continue reading "ETFs To Invest In When Interest Rates Are Rising"

Protect Your Portfolio From An Inverted Yield Curve

In March, the spread between the 5-year Treasury bonds and the 30-year notes inverted. This means that the yield on the shorter-term bonds was actually higher than the yield for the longer-term notes. This is a signal to some that a recession is coming.

Since 1955, equities have peaked six times after the start of an inversion, and the economy has fallen into recession within seven to 24 months from the time it first occurred. This inversion occurred in 2019, and then we did drop into a recession at the start of the Covid-19 pandemic. The inversion also happened in 2006, prior to the start of the financial crisis, which began in 2007. Those are the most recent occurrences, but there are others.

Not all the times we have seen the yield curve invert have we experienced a recession. Furthermore, from a historical view, a recession occurs every few years anyway, so the idea that the inverted yield curve is the cause or the canary may be a little overplayed. Continue reading "Protect Your Portfolio From An Inverted Yield Curve"

Interest Rates Are Going To Go Higher

Even while the Russian-Ukraine conflict continues to rage on, the fact of the matter is the US, and honestly, the majority of the world is dealing with higher-than-expected inflation. And the most direct way to bring that inflation back down to sustainable levels is for the Federal Reserve and other central banks around the world to take action and increase interest rates.

Prior to the Russian-Ukraine situation occurring, it was widely expected that the Federal Reserve would raise the benchmark interest rate by 0.5% in March. However, now that the war in Ukraine is occurring, many believe the Fed will only increase rates to 0.25% in March and reassess the situation at the following meeting.

However, even while most market participants expect a rate hike of just 0.25%, some Fed officials still believe that a 1.00% rate hike is justified in March. While there is talk of the 1% hike, very few believe it will occur in March, especially since the Russia-Ukraine situation.

Furthermore, market participants also need to consider when and how quickly the Federal Reserve decides to start winding down its balance sheet. Some believe when the Fed begins that process, it could have more of an effect on interest rates than when the Fed actually raises rates since the Fed was a huge buyer of bonds. Since the bond market and bond interest rates are essentially determined by supply and demand, if demand is weak due to limited buyers, the interest rates will increase until buyers step in. With the Fed no longer buying and potentially selling bonds, supply will be high, which will require much more attractive yields in order to entice investors to step in and buy bonds.

So as an investor, how can you profit from this information? Continue reading "Interest Rates Are Going To Go Higher"

Oil And Gas ETFs Are Headed Higher

When the Coivd-19 Pandemic began, the oil and gas industry went into the tank as demand for oil came to an abrupt halt. Around the world, air travel and domestic passenger vehicle travel were essentially non-existent when governments around the world implemented travel restrictions and lock-downs to slow the spread of the virus. Once stay-at-home orders were lifted, demand began to creep higher for oil, but since the airline industries consume a large percentage of global oil demand, for the bulk of 2020, oil prices and demand were still well off their normal levels.

As we moved further into the pandemic and passenger vehicle travel began to increase, airline and even the cruise line industry came back online, demand for gasoline quickly rose. At the start of 2022, demand was once again strong, and as the Omicron variant peeked in January, oil began flirting with $100 a barrel oil prices in the US, a level not seen since 2014.

Just a month or so later, the oil industry seems to be going through another significant change due to the Russian-Ukraine situation. Due to Russia being one of the largest oil and gas producers globally and countries around the world implementing sanctions against Russia, supply for the commodity appears to be a significant issue moving forward.

Most of Europe relies on imported Russian oil and gas. However, the longer the war in Ukraine continues, there is ever-increasing likelihood that Russian oil and gas may not Continue reading "Oil And Gas ETFs Are Headed Higher"

Gold, Should You Own It In 2022

As we continue to roll into the new year and the market volatility appears only to be strengthening by the day, you may be wondering if gold is worth investing in during these turbulent times.

Well, the real question maybe is why are the markets so turbulent today? There are a few reasons, of course, but the big reason is because of the coming higher interest rates and deleveraging of the Federal Reserves balance sheet. But, the why behind the higher interest rates is what's very appealing to some gold investors today; high inflation.

Gold has forever been the hedge against high inflation. The thinking is that the dollar losses value as inflation goes higher, but it will continue to keep up with inflation, and historically it has pretty well. So, the Fed is currently talking about raising interest rates in the coming month in an attempt to slow inflation but not derail the economic recovery due to the negative effects caused by the Covid-19 pandemic.

So, we know that gold is good when there is high inflation, but do we know if it's good when interest rates are rising? Continue reading "Gold, Should You Own It In 2022"