Rates are Still Going to Rise – Here’s How to Prepare

If you think that last week’s inflation numbers would cause the Fed to pivot, I have a bridge conveniently located in lower Manhattan that offers easy access to Brooklyn available for immediate sale.

You could make millions charging other people big bucks to use your new bridge and recoup your costs in no time.

Yes, the chatter last Thursday was that the new inflation would allow the Fed to slow the pace of rate hikes, and so stocks skyrocketed.

But this does not mean rates have stopped climbing. The Fed itself has said so.

Here’s why, and how to position your portfolio to weather the coming rate hikes…

Look, the Fed has already talked about doing slowing the pace of rate hikes, possibly starting as soon as December.

But Jay Powell warned us that the pace did not matter as much as the ultimate level of Fed Funds rates would reach. He said that he now thinks that will be higher than the estimated 4.6% level.

The additional rate hikes of at least 100 basis points are not baked into stock prices.

With the S&P 500 priced at almost 20 times earnings, I cannot say stocks are cheap here either.

Fed officials rushed out last Thursday to tell people that inflation was not beaten yet and more rate hikes were coming:

  • Mary Daly, the head of the San Francisco Fed, said 7.7% might be lower than 8%, but it is a long way from the 2% target.
  • Cleveland Fed President Loretta Mester said the inflation trend is still unacceptably high.
  • Kansas City Fed President Esther George told us that inflation was still too high and monetary policy had more work to do.
  • Dallas Fed President Lorie Logan said that there were no rate cuts anytime soon and that more increases were coming.

The markets ignored them and partied like it was 1999.

The boom of 1998, as you you may recall, was followed by a very ugly 2000.

For now, I am sticking with my strategy of owning heavily discounted closed-end funds in Underground Income and low PE, high-yield bank stocks with solid balance sheets and excellent credit conditions, and carefully selected undervalued REITs for readers of The 20% Letter.

So far, they are both working really well. I expect that to continue.

I am also constantly on the lookout for special situations with upside potential regardless of market movements for you, the readers of The Hidden Profits Report.

One of my favorite hunting grounds for special situations is…

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