signs of Spring-metaphor only

We’re bracing for another 7″-8″ of snow tomorrow, following close to two feet last week. But…

A few days ago, the German government announced that it’s preparing to raise interest rates there in reaction to what it expects will be 3%+ inflation there sometime this year. We should note that Germany’s fundamental economic policy–stop inflation at all cost–is a product of its Weimar-era hyperinflation and differs markedly from that of the US–maximum economic growth with moderate, and non-accelerating, inflation. Also the US is still suffering from years of Trump’s economic incompetence. Still. I read this as a signal that we’ve passed the pandemic-induced low point for rates.

The fact that the US has been an economic laggard under Trump suggests recovery here will be longer in coming than elsewhere. The yield on the 10-year note, however, has already risen from 0.93% on January 4th to 1.30% today. If rates in the EU do indeed rise more quickly than here will most likely mean mild depreciation of the US$. If so, US multinationals with large EU exposure would be beneficiaries.

For what it’s worth, Warren Buffett is reported to have sold a big chunk of his AAPL shares and put the money into Chevron and Verizon. I’ll confess to knowing less about Berkshire Hathaway than about the Mets, or even the Yankees, but I have two reactions. I’ve read in the financial press that AAPL is by far his largest position, so the sale may just be housekeeping. What’s more interesting to me is where the proceeds went. Both VZ and CVX have been severe market laggards, have pedestrian prospects, and sport 4.5%+ dividend yields. Their biggest virtue, it seems to me, is that they probably won’t go down a lot in a stormy market. True, I think the world has long since passed Buffett by as an innovative company-level analyst. But he has an incredible information network through the US-centric businesses Berkshire owns. As a strategist, one’s first question should be whether we’re in an up market or a down one. Buffett’s answer is that an incipient return to domestic economic growth is going to mean interest rate increases–implying sideways would be a great outcome for stocks. If so, it would be good to take in some sail and to have some ballast in the bottom of the boat.

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