Speaker 1: Hello and welcome. Is this the end of easy money?
Speaker 1: Central banks around the world are beginning to dial back
Speaker 1: on pandemic era policies to fight rising inflation leading the
Speaker 1: charge is the U. S. Federal Reserve which is set
Speaker 1: to raise rates for the first time in three years.
Speaker 1: So what does this mean for you and your money?
Speaker 1: I'm solo ramesh from money mind at C. N. A.
Speaker 1: I'll be looking today at the five things you need
Speaker 1: to know about rising interest rates
Speaker 1: with me this morning chris brankin, ceo of td Ameritrade
Speaker 1: Singapore and bench assistant professor at anyone's business. Thank you
Speaker 1: both for joining me today. Thank you for having me.
Speaker 2: Thanks for having us
Speaker 1: chris the Fed leading the way. But we're going to
Speaker 1: be feeling the heat here in Asia as well.
Speaker 2: Absolutely. The Fed being central bank for the largest economy
Speaker 2: in the world,
Speaker 2: it's impossible to avoid it.
Speaker 2: If the Fed makes a move in one direction, you know,
Speaker 2: you're gonna feel that ripples across the globe. I wouldn't
Speaker 2: be surprised if we see that 50 basis point hike
Speaker 2: and if we do and that would be slightly larger
Speaker 2: initial impacts. Especially felt around the globe because other central
Speaker 2: banks might act a little bit sooner. Might have a
Speaker 2: little more ammunition in terms of when they might
Speaker 2: start raising rates
Speaker 2: to kind of counteract inflation. We're seeing around the globe.
Speaker 2: Everything from supply chains to shipping crunches these things that
Speaker 2: are really been impactful
Speaker 1: across the globe? Over the last
Speaker 2: 9 to 12 months?
Speaker 1: I'll put this question to both of you Perhaps starting
Speaker 1: with Ben. So what does all this mean for markets,
Speaker 1: Are we going to see another wave of this whole
Speaker 1: volatility again? Yeah, that's a good question
Speaker 1: to try to figure out what we might expect the
Speaker 1: market to do. It's worth thinking about the context with
Speaker 1: which we came into this in the first place.
Speaker 1: Alright, interest rates have been low even before Covid and
Speaker 1: since Covid hit, the Fed came out and committed to
Speaker 1: printing as much money as it needed to restore faith
Speaker 1: in the system so that we can stop the liquidity freeze.
Speaker 1: That was happening in March of 2020. Since then there's
Speaker 1: this term, everything has rallied right. It's been a bull
Speaker 1: market in almost every single asset. The more risk you took,
Speaker 1: the more reward you ended up getting.
Speaker 1: So the market has been used to this kind of
Speaker 1: really high returns. If we look at the performance of
Speaker 1: the United States stock market, it's way higher than it's
Speaker 1: been relative to its long term historical average,
Speaker 2: we've seen a shift starting from november from more of
Speaker 2: the growth stocks into more kind of the value type sectors.
Speaker 2: Number one is energy markets. And if you've been involved
Speaker 2: in any of the energy sector's futures, any of the E. T. F.
Speaker 2: You know, upstream downstream quarter plus, you've been rewarded for it.
Speaker 2: Emerging market space is also an interesting spot historically, as
Speaker 2: we've seen our customers basically over the last, you know,
Speaker 2: 30 year period, if we get into a rising interest
Speaker 2: rate environment, the emerging market space has always had some
Speaker 2: relative strength comparative to maybe some of the bigger growth
Speaker 2: stocks that we've seen in the US
Speaker 2: As we kind of hopefully get to a little more
Speaker 2: normalization of current runaway inflation markets, maybe have a little
Speaker 2: less volatility. But in the near term I expect volatility
Speaker 2: to be a little bit choppy. There's gonna be some
Speaker 2: opportunities to buy some of these dips as we've seen
Speaker 2: over the last 12 months.
Speaker 1: So chris what if I'm your average retailer who bought
Speaker 1: into these tech stocks and growth stocks and I'm seeing
Speaker 1: them plummeting now. What's my move? How do I sort
Speaker 1: of recalibrate what's in my portfolio?
Speaker 2: I would say, look if your longer term horizon is
Speaker 2: that you still believe that this tech space is still
Speaker 2: going to remain in a growth area.
Speaker 2: If we see a 10% pullback in some of these
Speaker 2: large tech names like Apple Amazon Google the metaverse. This
Speaker 2: would potentially be an opportunity to add to some of
Speaker 2: that position.
Speaker 1: We're looking at valuations in the market now that are
Speaker 1: historical levels according to some metrics, but not all there
Speaker 1: even more stretched than they were in the dot com bubble.
Speaker 1: So it is worth understanding that
Speaker 1: if you entered around the top, it can actually continue
Speaker 1: to go down and deliver a lot of pain, right?
Speaker 1: So if we think, what is the stock market, it's
Speaker 1: a pain delivery mechanism, right? It transfers pain from one
Speaker 1: person to someone else.
Speaker 1: If you're able and willing to bear the pain, you
Speaker 1: typically are rewarded. The lesson for the retail investor is
Speaker 1: to really think carefully about the investment horizon. Everyone is
Speaker 1: a long term investor until the market is down, right?
Speaker 1: But at the same time, you really have to ask yourself,
Speaker 1: how much pain are you willing to tolerate with the
Speaker 1: understanding that the past 23 years
Speaker 1: has really not been representative of the amount of pain
Speaker 1: that the stock market can deliver.
Speaker 2: Great point. Ben, one thing that we've seen maybe our
Speaker 2: customers and customers around the globe is maybe there's been
Speaker 2: a little more complacent in their overall, we'll call it
Speaker 2: investing strategies or horizons because the last couple of years,
Speaker 2: it was literally close your eyes and by
Speaker 2: All 11 sectors in the S&P 500 are up. If
Speaker 2: you buy and it dropped down a little bit and
Speaker 2: you bought some more. Well, you were rewarded. So, I think,
Speaker 2: you know, as we come into this sustained volatility, which
Speaker 2: I think we're going to see through all of 22
Speaker 2: is there's gonna be some opportunities. And whether that's across
Speaker 2: the growth, whether it's energy, whether it's value
Speaker 2: investors, especially in the retail perspective,
Speaker 2: they'd have to rebalance or look to rebalance their portfolios
Speaker 2: a little more than they have in the past, you know.
Speaker 2: So if you have positions that go up 30 40%
Speaker 2: no one's ever gone broke from taking profits or locking
Speaker 2: some profits in off the
Speaker 1: table. Okay, so here's what we have spoken about so far.
Speaker 1: Number one impact rising rates going to be felt in
Speaker 1: asia
Speaker 1: more volatility expected for stock markets and look to diversify
Speaker 1: maybe in things like energy value stocks, emerging markets. Now,
Speaker 1: I want to go into something that affects everyone whether
Speaker 1: you invest or not. And that's the property market and
Speaker 1: the impact of rising rates here.
Speaker 1: So what's the story for people like myself, maybe who
Speaker 1: took advantage of these really low rates in the last
Speaker 1: two years to buy a home?
Speaker 1: What happens to mortgage payments now? And do you expect
Speaker 1: this to sort of cool the property market globally, then
Speaker 1: I'll start with you. Yeah. So it's worth thinking about
Speaker 1: how different markets function. So in a place like Singapore,
Speaker 1: most mortgages here are all adjustable rates. Right? And so
Speaker 1: when rates rise, your mortgage payments will rise.
Speaker 1: And when rates rise also, it tends to
Speaker 1: either decrease the house price or at least slow down
Speaker 1: the house price growth. Unfortunately, if you had just very
Speaker 1: recently purchased both of those two things are negative for you.
Speaker 1: Right. Whereas compared to a market like the United States
Speaker 1: where you can lock in a fixed rate mortgage for
Speaker 1: 30 years, changes in rates don't really affect you that much,
Speaker 1: only to the extent that it affects capital gains or
Speaker 1: losses on the house. But the bottom line is if
Speaker 1: you bought a house to stay for this generation or
Speaker 1: the next couple of generations,
Speaker 1: and you were never thinking about selling your house and
Speaker 1: downgrading or upgrading in the first place, then it shouldn't
Speaker 1: affect you that much. Right? Because the mortgage will affect
Speaker 1: your monthly payments, but we're not expecting the monthly payments
Speaker 1: to triple or quadruple at this point. Okay. And before
Speaker 1: we run things off, I just want to get a
Speaker 1: quick take from both of you. Higher interest rates. Not
Speaker 1: always a bad thing. Right?
Speaker 1: Yeah. So having interest rates that are above zero give
Speaker 1: the monetary authority broadly speaking across the world
Speaker 1: More ammunition, more tools in their toolkit to actually respond
Speaker 1: to economic cycles. To me, this is a normalization of
Speaker 1: the market. We're going back to how the stock market
Speaker 1: has behaved in the past 400 years.
Speaker 1: Right? And so it's really what we had in the
Speaker 1: past three years is not representative of how financial markets
Speaker 1: and the economy function together. So, overall, to me, it's
Speaker 1: a return to normalcy.
Speaker 1: Having some inflation is good, it might be a little
Speaker 1: higher than what we want now. We think maybe this
Speaker 1: is a term transitory keeps getting stretched, but we're thinking
Speaker 1: it's not a decade long event, right? It might be
Speaker 1: a 1 to 2 year type event as the world's
Speaker 1: economy starts to come back online and supply chains are
Speaker 1: restored and so on
Speaker 1: to me overall, we're returning to a good place.
Speaker 2: Things aren't all bad. That means there's some underlying health
Speaker 2: of the economy, especially if we look at it from
Speaker 2: the US side, the US GDP is made up 70%
Speaker 2: from the U. S. Consumer. That means we have strong
Speaker 2: job from the labor department, some wage growth. Maybe there's
Speaker 2: some things that are helping to support the higher type
Speaker 2: of inflation that we're seeing
Speaker 2: and right now and over the last 6 to 12
Speaker 2: month period you've seen, you know higher prices, less supply
Speaker 2: and people are willing to
Speaker 1: pay it and
Speaker 2: they're and they're continuing to do that over this period
Speaker 2: of time.
Speaker 2: Some kind of staff that I'm always throwing out there
Speaker 2: is the last 100 years, inflation has averaged about 2.9%
Speaker 2: per year and stocks have averaged about 10.3% now. Look,
Speaker 2: that's not saying that it's always going to happen every
Speaker 2: year like that. But over the long term, if your
Speaker 2: investment horizon, you know, it's spread out over many years,
Speaker 2: it's always been better to be invested
Speaker 2: over the long term than literally stuffing your money into
Speaker 2: your
Speaker 1: pillow. Okay, so the impact on asia more volatility ahead
Speaker 1: but stay invested. Don't panic diversify and be prepared to
Speaker 1: fork out more, but maybe not that much more for
Speaker 1: mortgage payments. So chris and Ben, thank you very much
Speaker 1: for joining me on this podcast.
Speaker 2: Thanks Sona. Thanks Ben.
Speaker 1: Thank you very much.
Speaker 1: And that's top five things you need to know about
Speaker 1: rising interest rates.
Speaker 1: Mhm.