For the better part of the last twenty months, the world has been grappling with rising interest rates. Higher interest rates are nothing new or unique. During rising rate-cycles market participants tend to focus on the pace at which interest rates are increasing and set their sights on the supposed level at which they peak and are no longer expected to rise any further.

After the vast majority of the world’s Central Banks opted to hold interest rates at current levels during the round of September meetings, the long-awaited ‘peak’ was apparently upon us.

But, unlike in other cycles when short-term interest rates had reached their highs and bond prices have traditionally stabilised, the subsequent weakening of bonds that has followed in the last two weeks has certainly startled investors and markets the world over.

“Higher for Longer” is now the phrase across headlines as we anticipate a far longer period of rates at these record levels before Central Banks once again start dropping rates. And with the jury still out on whether enough has been done to break the back of stubborn inflation, some pundits believe rates may only start coming down some 12 to 15 months from now, at the earliest…!

Remember, yields are still rising; inflation across developed economies has somewhat stabilised, but remains above target; energy and fuel prices the world over are at record highs; consumers are getting squeezed through mortgage debt, credit cards, and car repayments; and the Chinese property market could be crashing (again!).

Buckle-up, Folks – it looks like we still have a bit of a journey ahead of us!

Since the beginning of last year when Central Banks embarked on their rate-hiking paths, borrowing rates have increased by over 5.00% per annum on average, with many households across the globe unable to meet their debt-obligations and creating a potential spiral of defaults, sending waves through all segments of the global economy.

The market has essentially told governments the world over that we expect a higher rate of return on the money lent to them to sufficiently cover the possibility of higher risks stemming from weaker economic conditions.

And because bonds function on an inverse relationship between price and yield, as investors have demanded higher interest to be paid, prices and values on these bonds have weakened.

Crucially, this is not just a South African thing – bonds across the globe have weakened, yields have risen, as the higher cost of borrowing takes grip and economies struggle. And if your name is not ‘Uncle Sam’ with the tailwind of having the world’s reserve currency behind you, every single other currency on this planet has weakened as investors seek the safe-haven of US Dollar cash, driving an already over-valued currency ever-stronger…

Taking a short-term view, it is difficult to be bullish on much right now. On a longer-term basis though, the opportunities presented just seem to grow by the day…

I have previously quoted the time-hallowed words of the world’s greatest investor, Warren Buffett, when he said, “Price is what you pay. But Value is what you get”. It is at times like these that we all tend to forget about valuations and fundamentals and instead overtly focus on price.

The truth is valuations and fundamentals eventually always matter more than short-term price fluctuations. But while we try and hold this time-hallowed truth at the forefront of our minds, it is undeniably difficult to not feel unnerved when markets are correcting.

And therein lies the holy grail.

The are only two types of investors in this world – those who are inclined to sell when the market drops, and those who know what they are doing. Markets empower ordinary people with ordinary incomes to build extraordinary wealth. But it does take discipline, consistency, and patience.

And right now, it is our collective patience as investors that is being put to the greatest test.

So, as we head into the last quarter of 2023 and the highveld’s jacaranda trees start showing their lilac colours, remember the punishment of Sisyphus and the slight difference in our scenario to his:

While Sisyphus was condemned for eternity to roll the immense boulder up the hill only for it to roll back down every time he neared the top, one could liken this market cycle to the hill in the legend. And even though each time we seem to be nearing the peak there is another setback, the cyclicality of both markets and economics will eventually take us over the ‘hump’ into clearer air where the tailwinds will be more apparent.

Our punishment is not permanent. We’re just not there yet.