Peter Lynch once said that if you spend 14 minutes a year on economics, you've wasted 12 of them. He had a point; nobody forecasts the economy well, including the people paid to. But "ignore the forecasts" isn't the same as "ignore the weather."

Understanding the current macro environment won't help you figure out which businesses are good. It will, however, help you understand what the next few months are going to feel like for the business you already own in your portfolio.

So what’s the weather looking like right now? Well, it’s pretty ugly.

The war in Iran is grinding on with no resolution in sight. Oil started the year near $57 a barrel and has spent September above $100. Oil isn't just a big cost for airlines and people filling up their tanks… It's also the fertiliser on the farm, the plastic in the packaging, and the diesel that moves every item around the world, whether on trains, trucks, or ships. So when the price of oil doubles, eventually you're paying for it in almost everything you buy.

Central banks around the world are moving. First, the European Central Bank and the Bank of Japan raised interest rates. Last week, the US Fed joined them, raising rates for the first time since 2023. The 10-year Treasury now yields just over 5%.

This is a very important number, because every asset on earth is quoted against it. In an environment where doing nothing pays you a handsome 5%, there are clear winners and losers at a micro level.

Loser 1: Housing

Mortgage rates tend to follow the 10-year. The 30-year rate to taking a loan on a house is now above 7%; on a normal loan, that's a few hundred dollars a month. And the house is only the start of it. A home sale is the starting gun for a whole chain of spending: the sofa, the new kitchen, the fridge, the contractor, the broker who arranged the loan in the first place. None of that gets bought by someone who has decided to stay put another year.

Loser 2: Private equity

The private equity model, described unkindly but not unfairly: buy a business with borrowed money, service the interest out of its cash flow, sell it on a few years later. That works well when debt is cheap, not so easily when it’s expensive. If the 10-year stays around 5%, we’ll probably see lower bids for private companies, fewer deals, and a much harder path to the returns these funds promised their investors.

Exits will also be more difficult. Firms are sitting on companies bought in the cheap-money era, at prices that assumed the cheap money would keep coming, and now facing buyers who can't or won't pay those prices.

Loser 3: Low-quality companies, everywhere

A 5% 10-year is a hurdle. It's what anyone can earn for doing nothing at all. Every stock you own now has to beat that. A company trading at 20x cash flow yields exactly 5% (identical to the bond). Buy it, and you're taking on everything that can go wrong with a business (margins compress, a competitor shows up, management does something daft) for the same starting yield as a government guarantee.

Companies with too much debt, weaker growth, weaker FCF will now have a harder time getting higher multiples.

Winner 1: Insurers, and anyone else sitting on float

Insurance is a strange business once you look at it properly. Customers hand over premiums today for claims that might be paid years from now, and in the gap between the two the insurer gets to hold the money and invest it. That pile is the float. In the zero-rate years, that privilege was worth almost nothing. At a 4-5% rate, that float can start earning some real cash.

The same dynamic applies to any business that holds cash for its clients and invests it over the short term. There are plenty in our coverage:

Winner 2: The exchanges

Banks and other large institutions deal with uncertainty by hedging it; that means trading futures and options on rates, FX, and equities. Every one of those contracts crosses an exchange, and the exchange clips a small fee on the way through.

The exchange has no opinion on where rates are going. It's a toll booth on anxiety, and the traffic is heavy. Here are a few of our favourite plays:

Winner 3: Companies with net-cash

These win twice. First, the obvious way: the cash on their balance sheet now earns roughly 4% instead of nothing, and that income drops almost untouched into profit. The second benefit is more subtle; their competitors who rely on debt now have a much higher cost of capital.

A fortress balance sheet gives you some pretty attractive options: the ability to acquire a rival at a price that rival never wanted to accept, to keep investing through a downturn, or to take customers from someone who has dialled down on marketing. This company is the perfect illustration of a fortified balance sheet:

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