Also in this playlist...
This transcript is automatically generated
Well bills like inside notwithstanding most traders this week -- buying into the notion that the Fed would taper it's bond buying sooner rather than later and that helped push the ten year yield forty basis points higher this week as the biggest weekly gain it.
Since 2003 if it continues on pace.
-- where we're gonna have 6%.
And a ten year by December so how can you protect your portfolio.
From an uptick in rates and are their names that might actually benefit from rising yields Bill Harris.
Personal capital CEO.
Joins us now good to see you bill thanks for coming in.
Let's look at the big picture first of all lot of folks and that was clear from what was happening yesterday and on Wednesday a lot of folks are cashing in.
And holding their cash until they think this storm passes is that wise.
No I don't think so -- I mean I think you always need to have your value at work and that cash is a place where.
Where it's not doing anything for you particularly in this environment.
It makes a lot of sense to to taper -- allocation to long term bonds we've been saying that for a long time.
They are quite.
Exposed right now to continued.
It increases in in the rates particularly the long term peace is if we get -- 2% rise.
In overall rates.
Twenty year bonds could lose 30% of their value.
Jas and is there any bond though there did not not all bonds are equal you would not -- treasuries are ready Barnes and look good deal.
Oh sure and I think everyone should have a reasonable exposure to two.
Bonds in general and if you have.
If you have exposure to the aggregate bond market.
That same 2% rise because a lot of it is shorter maturity.
That -- 2% rise real will only he achieved by 10%.
And even within that a particularly international.
And emerging market those bonds have higher yields certainly volatility but it's a great diversify.
By the way guys emerging markets are still down significantly for the week the ET ETF -- EEM of emerging markets is down.
Or 5% for the week but it was up about 2% today so a lot of people were buying it that's Smart you say.
I think so yes body when various.
Sectors are under pressure.
Okay interest rates in general let's talk about equities now the cost of capital is -- that's the bottom line what this means is that it it's gonna cost more to borrow.
Companies that have to -- -- -- I would assume a under this new environment are going to do less well than those companies have a strong cash flow correct.
Yeah I think that's true and particularly if you look at for instance.
Small cap value stocks which are often.
Often paying dividends they're not only.
Often have debt and so they're they're gonna pay higher prices for their own -- but they're also some of the valuation.
Is being propped up because there relatively.
High yielding -- of the bonds -- bonds go up then that advantage dissipates.
Now some companies will actually do better as a result of rising rates tell us why and which ones specifically.
Well what I like the financial services sector in general.
And in particular -- -- take a look at brokers say discount brokers as Schwab as an example of people at Schwab talk about their PNL being spring loaded.
In other words ready to jump up in the event significant increase in interest rates.
The fundamental reason for that is that they hit they hold a lot of cash.
The cash that's not invested in securities goes into free cash balances they -- very low interest rate to their customers.
And down as the interest rates rise then all of a sudden.
They're spread increases and that drops straight to the bottom line.
Bill Harris CEO of personal capital and by the way and former CEO of -- -- and PayPal not not a shabby background he Bill Harris good to see have a great weekend bill.
Thanks David thank you.
Filter by section