As Garrett Baldwin has noted in recent days, many negative factors are facing these overstretched markets. However, one topic that he didn’t touch on is that the market is largely ignoring inflation. Let me give you my take on this.
Good Intentions Lead Us to THAT Road
“The worst mistakes are made with the intention of making good a mistake that has been made.” This sentence comes from the German writer Jean Paul Friedrich Richter. Now, you don’t have to go back to the Romantic and Classical eras to find an example of this. The new Treasury Secretary Janet Yellen recently provided special illustrative material.
As head of the U.S. Federal Reserve, Yellen knew that markets are very sensitive to any half-sentence for years. But, as a policymaker, she is obviously less cautious. “It may be that interest rates will have to go up a little bit to make sure that our economy doesn’t overheat,” she said a few weeks ago. She then later tried to row back, speaking at a Wall Street Journal event that rate hikes are not “something I’m predicting or recommending.”
Behind former Fed Chair Yellen’s clumsy remarks are the discussion in the U.S. about the impact of the Biden administration’s billion-dollar aid programs. Various members of the government, including Yellen, had repeatedly stressed that there was no inflation risk. However, even among economists, the impact of the stimulus on price developments is disputed.
In a recent analysis, economists at Commerzbank wrote: “The specter of inflation is spooking the markets.” However, others are less spooked and see only a temporary effect on inflation.
Economists Disagree with Ignoring Inflation
It is precisely this uncertainty that is currently making market participants nervous. The fear is also that the Fed will be wrong in its assessment, and inflation will rise not just temporarily but permanently.
In that case, the Fed would have to normalize its monetary policy again more quickly than it had expected, i.e. raise interest rates. Whether this will happen will only slowly become apparent in the second half of the year. Do these tech giants have a financing problem?
Until then, market participants have enough time to take a more differentiated look. Nevertheless, the principle indeed applies that rising interest rates can become a problem, especially for shares of growth companies, because the financing costs increase.
However, this is particularly true for companies that have not yet leaped into the profit zone. This is not the case with Alphabet, Amazon, Apple, Facebook, and Microsoft. These tech companies have such a strong cash position that they can finance themselves on their own.
Here’s What I Recommend
You should bet on dividend yields of up to 9.46%. You buy back your shares or invest in high-dividend companies like the billion-dollar Gates Foundation does. With dividend yields ranging from 3% to over 9.46% in some cases, even with rising inflation, you can still earn handsomely with solidly positioned companies, some of which even pay out monthly dividends. We’ll look at a few great options very soon.