Mike Larson, editor of Safe Money Report asks: Did you get a load of that inflation news Tuesday?
The Consumer Price Index soared 8.5% from a year ago in March. That was up sharply from 7.9% in February and the biggest annual rise in 41 years!
On the month, the CPI jumped 1.2%...the biggest monthly rise since 2005! And combing through the data, it was hard to find much to like.
Food prices rose 8.8% from last March. Electricity gained 11.1%. Energy prices soared 32%. Used cars and trucks jumped more than 35%, while new vehicles climbed 12.5%.
Apparel? Up 6.8%. Transportation services? Up 7.7%. Shelter costs rose 5%, according to official government accounting...but much more in the real world considering house prices just soared more than 19% year-over-year.
The market was braced for ugly figures, of course. So, we got a bit of a relief rally after the data hit. But this has truly been a dismal year for bond investors.
The iShares 20+ Year Treasury Bond ETF (TLT) has shed more than 16% of its value so far in 2022. Since bond yields move in the opposite direction of bond prices, the yield on the 10-year Treasury Note is exploding.
It has surged more than 1.6 percentage points, or 160 basis points, just since last spring. At around 2.8%, it’s the highest in 38 months. And it’s not just Treasuries that are getting trashed. Investment grade and high-yield corporate bonds are plunging in value, too.
All told, the benchmark $298 billion Vanguard Total Bond Market Index Fund ETF (BND) lost almost 9% year-to-date through Tuesday, more than the 7% loss on the SPDR S&P 500 ETF (SPY). The first quarter alone was the worst for the aggregate bond index since 1980!
Falling bond prices and rising interest have been particularly bad news for overowned, overvalued (and in many cases, unprofitable) tech stocks. That’s because rising discount rates drive down the value of earnings that won’t be earned until farther in the future, a process that hurts stock prices in the present. The Invesco QQQ Trust (QQQ) has shed 14% year-to-date.
So, what do you do in the face of soaring rates? Surging inflation? Greater volatility?
You don’t try to be a hero. You try to dodge the carnage in Treasuries and find sources of income elsewhere.
That includes things like Business Development Companies (BDCs), Real Estate Investment Trusts (REITs), energy Master Limited Partnerships (MLPs), and other high-yielding names that spin off yields double, triple, or even quadruple the yield of the S&P 500!
Selling options for income is another solid strategy to consider here.
You also make sure you own a higher-than-usual allocation to precious metals and mining shares, as well as stocks levered to other surging commodities like energy.
Most of all, you make sure to keep following the guidance here and in my Safe Money Report. Inflation is trying to rob you blind...but we’ll do our best to protect your wealth like an 80-pound, musclebound guard dog would.
