I'm guessing a lot of people are watching this graph of 10-year treasury yields.  The bond market is a large market and an important data point for sure.  Graphically, rates do look to want to move higher.  I've indicated the line of least resistance, in that a break above the green, dotted line would signal a reasonable move to the second red line.  Why not the first red line?  Because it is too obvious.  Most professionals are looking at the first red line.  Rates probably move through this point.  My guess is that IF that happens, the potential move I just described would happen quite fast.  If rates happen to get to the third red line, bonds might finally look attractive again (assuming the US continues to pay its debts - which is an assumption).

In my opinion, the bond market is the side show.  The bond market has been a pretty crappy place to try to make money for some years.  So, I think the best thing to do is look for cracks in other markets.  The dead bodies will begin to rise to the top.  IF rates begin to rip higher, trust me, there will be bodies.  Astute investors should only care about rates, in so far, as they will guide you into the areas of opportunity.  Complacency has ruled the capital markets for too long.  The capital markets need a good blow-up because that is what capital markets do.  They punish the misappropriation of risk.  In the late summer of 1998, we had a 3 month draw down in the SPY of over 20%.  We saw Russia default.  We had the Asian contagion.  We had the "geniuses" at LTCM blow up.  This set the stage for a sling shot move to the upside for US equities.  In times of chaos is where the real easy money is to be made!

I feel there have been too many asset classes that move in tandem.  There is no need for diversification if everything moves in unison.  There will be a break down because in the capital markets there are winners AND losers.  It is not like youth sports today where everyone gets a blue ribbon.  The market is not like colleges and universities today with safe spaces and language police.  The market is designed to take your money, but give you wisdom (colleges just take your money).  IF rates move meaningfully higher, I'll be watching the game board for opportunities.  

Happy Returns!

P. Franklin, Jr.

1/11/18

All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.