"It is so easy to be wrong—and to persist in being wrong—when the costs of being wrong are paid by others."
"Formal education will make you a living. Self-education will make you a fortune."
I hope this note finds you doing well.
In a room of Smartest guys in the room I will often be the hayseed that does not even comprehend the vocabulary; however, we have learned that behavioral biases and perverted incentives are often good tells on the direction of "private" deals, sales pitches, and public stock & bond markets. For the entirety of the past 8+ years my inbox is full of bank/fund offers for "rising rate protection" products.
The large banks/brokers are once again (8+ years) wrong re: Interest Rate Forecasts for 2017. It often begins with their incentives, = pushing "interest rate protection" products on their customers (trust me, you need this). Not ironically, they often get paid either way.
After 8+ years of economic expansion and Treasury rates well below 2.50% we are still not buying this nonsense. Demographics (boomers aging), debt loads (massive), and global central banks (own 54% of the bond market) prevent rates from rising materially. Net, net our bond-like (safer, income securities) returns have been fantastic in 2017.
2017 is shaping up to be a fun year - strong returns and little volatility, except upwards. Accordingly, we are pruning and culling (h/t D. Hartman) in order to protect profits. We never expect a free lunch, but will certainly take one.
The attached is a quick note on Interest Rates for 2017. The 10-2 yield spread* is a trusted indicator of growth and inflation expectations. Directionally, it is signalling the Trump Trade (reflation) is likely coming to an end.
As usual, thank you for investing your time and money into Forest Capital. For additional information on portfolio positioning, please do not hesitate to contact me directly at firstname.lastname@example.org.