QUESTION: Hi Marty,
I continue to read your blog and if I understand correctly, interest rates are going up.
My question is, can one profit from higher interest rates such as buying CD or bank stocks like Wells Fargo?
ANSWER: The one thing you do not want to do is buy a CD with maturity. As rates go higher, you will be locked in and unable to take advantage of the rising rates. Bank stocks will not benefit from higher rates in general. So that is not a valid reason to buy bank stocks. The safest thing would be to buy US TBills or agency paper no more out than 90 days and keep the cash rolling in that area until we reach a point when the rates are peaking. Toward the end, the yield curve will invert so that means the short-term rates will exceed long-term when confidence is shaken.
In an upward cycle for interest rates, never lock & load – always stay nimble if you are the investor. If you are the borrower – load & load fixing the rate out as long as possible.
....related from Martin: Russia Dumps US Bonds – Is it Politics or Yield?