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Because -- treasuries and Howell as the yields started to fall later in the day that the markets did come back just a bit and it was financials.
That really got hammered on those rising interest rates they've been under performing over the last week as investors grow more concerned about the impact of rising rates on the entire industry.
So who is best positioned to benefit from the new rate and barber who might be seeing more -- joining us now Brad hence Sanford Bernstein equity research.
Analyst great to see Brad thank goodness -- -- thank you -- -- we're in the midst of a transitional period from one of artificial markets sort of made in Washington DC by the Federal Reserve board meetings.
To one that is war.
More affected by marker real supply demand is Liz was just saying what happened treasuries -- variation to brief spike to two point six -- people said.
She you know what I can make money buying treasuries they bought treasuries.
The supply came down a little bit and so -- the yield.
Is that what's happening are we becoming is should this be something -- to be dreaded somebody be appreciated that finally we're getting back to normal.
To an extent yes right -- you don't fight the fat and and the Federal Reserve is making a bet that the US economy's picking up.
So -- is coming economy's picking up you don't need the Fed standing behind.
Providing you know the additional support to it and so pulling out of quantitative easing of course is an early to comment about when they're going to raise rates.
Course raising rates that hurts a lot of financial institutions Anderson there's one of the challenges that we have which ones will do well which wants to do badly when rates -- Okay what are the banks that you feel which are the ones that you feel are best positioned in -- rising interest rate environment.
To absorb that and then most importantly to our viewers have a stock that is is undaunted -- now well actually it's it's more than just the bank's rate because.
Charles Schwab when a you you have a brokered -- account.
Cash is stripping off your -- elect that that pool of cash that's sitting there in your -- isn't worth a lot when interest rates are zero.
It's worth an awful lot as rates began to rise so for Charles Schwab that's a source of profitability and if that model of the cash dripping off of a brokerage account.
We can also think of pension funds where there's cash dripping off of the pension -- Now that is the custodial banks that's Northern Trust bank in new York State Street so when rates rise their net interest actually is going to -- is going to increase so there's sort of the opposite of a normal bank in terms of of a rate -- environment but of course then have been the fun when you tell you just had the CM -- And that CME is where do you hedge.
When interest rates begin to rise and so every portfolio manager worth his salt and fixed income right now.
Is reducing his history -- so he's he's bringing his maturity stuff.
The easiest way to do that is you're just going to some futures over at at the CMA so volumes on the CME or picking up.
And see any sort of an anticipatory.
Bet on rising rates.
They have 98%.
But the US interest rate futures.
So by the CME itself don't just listen to see anybody never had a problem is though you can make.
Money on rising rates in the short run in the long term if rates do continue to go up -- and everybody heard what.
It it certainly hurt certain players say -- fixed income day if we can undoubtedly have a number traders come on -- Fixed income traders always stand up and say I can make money in a rising rate environment.
Well you know statistically you can't there's a period of time like where we are right now.
Everybody's bringing their portfolio down trade volumes are picking up fixed income guy should be doing reasonably well in this kind of environment.
But if you look at the statistics over thirty years.
-- a year out.
You see fixed income revenue slowing down so for Goldman Sachs things look fine -- now.
But you don't take it a year out and you're gonna have a US fixed income remember US and Europe are different but but the US fixed income revenues would begin to slow down and that would.
That would begin to camp their earnings and -- -- a little bit further out here interest.
What we look at what Ben Bernanke says he will eventually -- hasn't even done it yet.
And the markets of gyrate it what you think behind the scenes at the bigger names the JPMorgan -- massive exposure to Morgan Stanley's.
What are they scrambling to do right now on their balance sheets for that moment when.
The announcement comes that yes we have scaled back the -- Well you've you've you've you've hit on that -- -- for.
For the big back so you know BankAmerica Wells Fargo remember they do a lot of mortgage origination right same with JPM.
So so mortgage origination and a rising rate environment probably is going to -- so that piece of their business slows.
For the 444 that that.
The the trading side of the house.
None of them were taking large bats and so I've had.
I've had clients institutional clients called and said -- aren't you worried about nineteen this is 1994 this is like the Mexican crisis rates won't rise it's gonna hurt your excess of well.
They did OK.
In booming fixed income environments but they didn't really coined that much money so if they didn't claim that much money in a booming -- -- environment.
There's really unlikely that they're going to take -- -- losses in there were in a pricing environment you know what has really happened to the poor banks.
Is that banks have been hobbled -- -- the regulators -- if they can't take a lot of risk anymore they have a lot more capital than one of them what they hit they used to they have more funding that's more expensive.
So as a result the volatility of their performance just isn't like they hate gays -- some help my -- record profits that are still making wrecked they're gonna.
The only there that we have to wrap I have to ask what as a former Lehman guy do you see any chance of a Lehman like devolution of the financial system in China taking place a lot of people making that comparison no you need large capital markets for that and and it worked China's a long way away from -- from having a large fixed income market Brad -- Sanford Bernstein great to see Brad thank you very much.
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