March 11, 2021

 Interest rates are often referred to as its own market. I admit that I’ve often said that the bond market has never let the Fed define where interest rates should be, and vice versa, but it stops there. First of all, when I refer to the bond market I’m referring primarily to the US Treasury market represented by the line of maturities that make up the yield curve. This is because the Fed controls the Fed Funds rate and Discount Rate, which represent the rate banks led to each other and the rate, usually higher as a penalty, to borrow from the Fed. And while banks set the Prime rate to the Fed targets, contrary to more popular opinion, it’s the US Treasury curve the determines the rate levels, based on economic influenced differences known as spread differences, for everything from commercial paper to corporate bonds to fixed and variable mortgage and home equity rates and to credit rates. Most important to note is rates are determined by the credit worthiness of the creditor, hence, public treasuries are the lowest and private credit is the highest. What I mean in bringing this up is that interest rates are a market, just like equities, meaning they trade in cycles, and right now the technical cycle for higher rates is nearly overbought. That said, it bears little on the future of interest rates nor inflation, that those spewing the narrative, with customary overconfidence, trying their best to place fear of in the current environment.


    Equities are experiencing their own challenges in the current market cycle. But as we’ve seen in the recent drubbing the tech sector has taken in what has been characterized as a rotation, is in my opinion more like a reversion from an overbought sector to an oversold sector. The only difference I ask myself will Amazon (AMZN) see a slowdown in sales, or will Apple sell less iPhones? During the pandemic Amazon increased membership by nearly 14 million and among those who signed up for trial membership historic data show 64% of those will convert to paid membership. Is it business as usual as we enter the new normal? I think so, and it’s trading cheap. Apple’s growth is focused on its introduction of iPhones with 5G technology, which now is only a hype. But as globally more people have moved online the demand for bandwidth has increased with the amount of activity from finance to online shopping to gaming leading the way the phone becomes a more sophisticated tool that needs more internet power than it currently receives with 4G. As a stock, Apple has always traded with a far more respectable multiple than many of its technology compatriots, which makes it attractive. While on the subject, another is Salesforce (CRM), a beneficiary of growth in global internet usage, has used its strength in providing its services through its cloud platforms (it has 8 at last count) to make it accessible to business owners, especially those businesses that will grow as the global economy grows. Nvidia (NVDA) is in a strong position to meet the demand created by a shortage in chip technology. It also contributes to 5G technology uses in areas such as autonomous driving and AI, and even gaming space, all of which should see steady post pandemic growth. What I mean with these examples is there are those companies that benefited from the pandemic that will continue to benefit from their impact on public thinking. And those that won’t. In the meantime, that doesn’t mean energy behemoths or airlines aren’t attractively cheap, only that they’re not exactly game changers.

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