Interest rate increases appear here to stay as the yield curve points upward at the steepest it has been in three years. With the ten year at 2.88% and headed north over the next few years, it is time to look at your debt position and consider whether it is time to go long or to sell before rate rises cause deterioration in your values. It is unlikely that Bernanke will start to taper before he departs both because the Fed will need more proof that the ;labor market is really strengthening, and because he is now likely to let that decision be made by Yellen. As for Yellen, it is not likely, but possible, that she will commence her tenure with taper the first meeting out of the box. Especially since she is more of a dove on monetary stimulus than Bernanke has been.

On the other hand, debt is back in its old ways.  Leverage is now as much as 75% and there is mezz allowed. Five years ago the thought that mezz on top of 75% would be back was questioned. Now it is there. Top quality borrowers like some of the major PE funds can still borrow sub 3%, although probably not much longer. In any event it is like free money. If you can’t make positive cash flow and profits at those rate levels, you should get out of the business. Even if you just count on a current return of around 12% to 15% and sell for little gain, you should be able to do that if you buy even decently. However, these deals are going away quickly now. There is not much of real interest left to chase, and rates will be rising from here on.

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