Taking Advantage of Inversions

On today’s show we are talking about inversions of all kinds. We have an interest rate inversion. That’s when short term rates are higher than long term rates. That’s the market signalling that they believe an economic slowdown is upon us and that central bankers will have little choice but to lower rates when the realization of economic contraction becomes apparent.

Higher interest rates have impacted returns in the stock market. They have caused prices to fall in the bond market which has devalued virtually all of the debt that has been issued in the past decade.

The real story is that the path to improved returns relies on timing a transient effect.

What investors really want to happen is for good quality investments to drop precipitously in value in the short terms. Those good quality investments will do well over the medium and long term. So the drop in value represents an opportunity for an entry point that will offer outsized returns.

It’s really as if the market is asking for a repeat of the GFC. The vultures can then swoop in and pick over the carcasses of these good quality, but slightly damaged assets.

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Host: Victor Menasce

email: podcast@victorjm.com