Rising Rates And Clueless Economists

Includes: TLT
by: Lou Basenese

By the time Friday rolls around, we've already overloaded your brain with information and analysis. That's why we like to take it easy on you and use this day to convey some important insights by using pretty pictures. So let's get to it.

The Era of Super-Low Interest Rates Is Officially Over

If the Fed won't raise rates, the market will. And it just did. Take a look:

So far this year, the yield on 10-year U.S. Treasury notes is up 64% -- from 1.76% to 2.89%. As you can see in the chart, even after such a big jump, interest rates remain well below historic norms. However, the magnitude of the increase -- 113 basis points in 230 days -- is, indeed, historic. It ranks as the seventh-largest year-to-date increase since 1980. We need to keep an eye on this. If rates keep increasing this fast, it could prove to be a headwind to the economy.

The Bullish Case for Small Caps in One Chart

If stock prices ultimately follow earnings, which they do, what stocks should we be buying now? Survey says: small caps.

According to Richard Bernstein Advisors, U.S. small-cap companies are expected to increase earnings the most over the next 12 months. Invest accordingly. (Go here if you're short on specific ideas.)

The No. 1 Reason to Ignore Economists

Don't let your friends drive drunk. While you're at it, don't let them listen to economists, either. Once again, they've proven to have no ability to predict the future. Particularly recessions.

As John Mauldin said, economists are "all extremely smart people. Unfortunately, their pronouncements are completely unusable in real time." Amen, brother!