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Fifth Street Finance CEO Len Tannenbaum on investing strategies for a potential rise in interest rates.
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You know it's got to eventually happen right and I'm not talking about the Cleveland Browns winning the Super Bowl that is going to happen but -- talking about this.
But a patent.
That question Ben Bernanke's tightening -- all the feds stop QE.
Sending interest rates higher we're bringing in Lantana -- its street finance chairman and CEO he's got about one point six billion in assets under management to publicly traded company -- a Fox Business exclusive.
You've got a game plan.
Capsule she Charlie Gasparino.
Is what is shorting the Dallas went shorting the essence yes on -- big plan as a.
I really asked him on the way and they he says he was bearish design -- am I'm not bearish -- there's so much liquidity.
-- have to go somewhere.
-- gonna put if you're individual investor money market earning zero -- treasury bonds earning virtually zero in the short term.
I mean where to go Europe with lots of problems he -- downgrade by Italy basically have to come into the market -- people have to put their money somewhere.
To counteract the effects of inflation.
But now what happens when -- operational planning.
Personal inflation -- -- really happened seen a lot of -- -- -- -- gasoline prices but that's a refinery she led -- -- I think you're right you have a lot of negative -- economy that caused a deflationary -- in Japan of other things.
Inflation hasn't come yet but it well look at first the timeframe what do you predict Ben Bernanke tightens rates -- -- -- starts to talk about doing.
Let's talk about the market persons can anticipate about six months right stocks anticipate marketing interest rates increased by six months.
So -- -- by the end of next year interest rates are gonna start going higher six months before that the stocks that will benefit from interest rates going higher.
We'll start to rally.
OK that's the when.
Now the -- How do you start to protect your portfolio not the names yet because that's the where great but how would you look at let's talk about what I do it fifth street anyway actually manage a billion -- billion won.
Equity and what we do is -- by floating rate loans.
So when interest rates go -- floating rate loans make more money -- and we borrow fixed rate so those will be with fixed rate mortgages out there at the same idea.
If interest rates go up -- -- payments -- amount so our debt fixed.
Assets floating investors have to start thinking the same white.
Now let's make it really easy for investors.
-- let's get TD Ameritrade and you like this company for awhile now have why this one.
So TD Ameritrade is one of the companies that benefits from an entry increasing interest rates they hold all of -- -- deposits from their Ameritrade customers.
And guess what.
They -- zero -- they pay zero let's not very good for margins -- up 17% over the past year just getting back up to its 52 week car once again but back in January -- really liked it it's been up 7% since then.
But is this a real opportunity to see some healed in particular I think it has I think it's a good company to begin with I know the CEO he's a Smart guy.
About some pals with him and I think that he will leave the company while but when interest rates increased.
He will say every every single.
Quarter point or half pointing to increasing interest rates will drive money to the bottom line let me correct that he is up 17% since -- checked it -- -- 7% over the past year -- -- let's give credit credit overlap definitely are let's get to some breach that you really like first of all.
Why increase in particular I know that the dividend is very enticing.
Right but is there something else here we're not talking about mortgage rates were talking about land -- dirt reits.
And actually its fifth street were thinking about the same areas as good for our investors entered why.
Because -- reits will appreciate.
When interest rates go up they can charge more rents they could charge more -- Revenue.
And these in these three picks that I have one of them is in health care and I think healthcare is a great stable -- is up eight CN talk about -- one.
Oh I'm not an expert -- -- but I -- got all three of these from a guy named -- chops he who has the analyst at UBS who acts as my director of finance with the -- your top three picks.
That's -- vis -- where his top three tax.
I can just tell you from a macro standpoint dirt reits.
Our great place to because I would say Boston properties -- flat over the past year so is -- -- I do have decent -- certainly is so that's a big Tyson I think they do and residential really interest because -- interest rates increased -- -- rates go up and it drives more money to bottom line Glenn are you worried about a 10% correction.
And what the stock -- You know in the short term anything can happen everybody say it's been a long overdue for a 10% correction.
But all we see in our industries a lot of liquidity that needs to continue to find a home.
The banks I think will continue rally elect the financial services industry today we have fifth third into the office and they're looking to lend it's really an exciting time.
For investors it's also exciting time of the financial services industry can you go push Charlie Gasparino around -- in the -- -- Kyra well let's start.
But our meantime -- -- -- three -- three quarter point right now thank you when good to see you always get -- -- his Fifth Street Finance chairman and CEO closing bell over.
