WEBVTT - 5 things you need to know about rising interest rates | EP 14

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<v Speaker 1>Hello and welcome. Is this the end of easy money?

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<v Speaker 1>Central banks around the world are beginning to dial back

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<v Speaker 1>on pandemic era policies to fight rising inflation leading the

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<v Speaker 1>charge is the U. S. Federal Reserve which is set

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<v Speaker 1>to raise rates for the first time in three years.

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<v Speaker 1>So what does this mean for you and your money?

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<v Speaker 1>I'm solo ramesh from money mind at C. N. A.

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<v Speaker 1>I'll be looking today at the five things you need

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<v Speaker 1>to know about rising interest rates

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<v Speaker 1>with me this morning chris brankin, ceo of td Ameritrade

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<v Speaker 1>Singapore and bench assistant professor at anyone's business. Thank you

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<v Speaker 1>both for joining me today. Thank you for having me.

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<v Speaker 2>Thanks for having us

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<v Speaker 1>chris the Fed leading the way. But we're going to

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<v Speaker 1>be feeling the heat here in Asia as well.

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<v Speaker 2>Absolutely. The Fed being central bank for the largest economy

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<v Speaker 2>in the world,

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<v Speaker 2>it's impossible to avoid it.

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<v Speaker 2>If the Fed makes a move in one direction, you know,

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<v Speaker 2>you're gonna feel that ripples across the globe. I wouldn't

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<v Speaker 2>be surprised if we see that 50 basis point hike

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<v Speaker 2>and if we do and that would be slightly larger

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<v Speaker 2>initial impacts. Especially felt around the globe because other central

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<v Speaker 2>banks might act a little bit sooner. Might have a

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<v Speaker 2>little more ammunition in terms of when they might

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<v Speaker 2>start raising rates

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<v Speaker 2>to kind of counteract inflation. We're seeing around the globe.

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<v Speaker 2>Everything from supply chains to shipping crunches these things that

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<v Speaker 2>are really been impactful

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<v Speaker 1>across the globe? Over the last

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<v Speaker 2>9 to 12 months?

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<v Speaker 1>I'll put this question to both of you Perhaps starting

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<v Speaker 1>with Ben. So what does all this mean for markets,

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<v Speaker 1>Are we going to see another wave of this whole

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<v Speaker 1>volatility again? Yeah, that's a good question

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<v Speaker 1>to try to figure out what we might expect the

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<v Speaker 1>market to do. It's worth thinking about the context with

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<v Speaker 1>which we came into this in the first place.

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<v Speaker 1>Alright, interest rates have been low even before Covid and

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<v Speaker 1>since Covid hit, the Fed came out and committed to

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<v Speaker 1>printing as much money as it needed to restore faith

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<v Speaker 1>in the system so that we can stop the liquidity freeze.

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<v Speaker 1>That was happening in March of 2020. Since then there's

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<v Speaker 1>this term, everything has rallied right. It's been a bull

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<v Speaker 1>market in almost every single asset. The more risk you took,

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<v Speaker 1>the more reward you ended up getting.

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<v Speaker 1>So the market has been used to this kind of

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<v Speaker 1>really high returns. If we look at the performance of

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<v Speaker 1>the United States stock market, it's way higher than it's

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<v Speaker 1>been relative to its long term historical average,

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<v Speaker 2>we've seen a shift starting from november from more of

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<v Speaker 2>the growth stocks into more kind of the value type sectors.

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<v Speaker 2>Number one is energy markets. And if you've been involved

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<v Speaker 2>in any of the energy sector's futures, any of the E. T. F.

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<v Speaker 2>You know, upstream downstream quarter plus, you've been rewarded for it.

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<v Speaker 2>Emerging market space is also an interesting spot historically, as

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<v Speaker 2>we've seen our customers basically over the last, you know,

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<v Speaker 2>30 year period, if we get into a rising interest

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<v Speaker 2>rate environment, the emerging market space has always had some

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<v Speaker 2>relative strength comparative to maybe some of the bigger growth

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<v Speaker 2>stocks that we've seen in the US

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<v Speaker 2>As we kind of hopefully get to a little more

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<v Speaker 2>normalization of current runaway inflation markets, maybe have a little

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<v Speaker 2>less volatility. But in the near term I expect volatility

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<v Speaker 2>to be a little bit choppy. There's gonna be some

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<v Speaker 2>opportunities to buy some of these dips as we've seen

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<v Speaker 2>over the last 12 months.

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<v Speaker 1>So chris what if I'm your average retailer who bought

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<v Speaker 1>into these tech stocks and growth stocks and I'm seeing

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<v Speaker 1>them plummeting now. What's my move? How do I sort

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<v Speaker 1>of recalibrate what's in my portfolio?

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<v Speaker 2>I would say, look if your longer term horizon is

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<v Speaker 2>that you still believe that this tech space is still

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<v Speaker 2>going to remain in a growth area.

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<v Speaker 2>If we see a 10% pullback in some of these

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<v Speaker 2>large tech names like Apple Amazon Google the metaverse. This

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<v Speaker 2>would potentially be an opportunity to add to some of

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<v Speaker 2>that position.

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<v Speaker 1>We're looking at valuations in the market now that are

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<v Speaker 1>historical levels according to some metrics, but not all there

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<v Speaker 1>even more stretched than they were in the dot com bubble.

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<v Speaker 1>So it is worth understanding that

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<v Speaker 1>if you entered around the top, it can actually continue

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<v Speaker 1>to go down and deliver a lot of pain, right?

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<v Speaker 1>So if we think, what is the stock market, it's

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<v Speaker 1>a pain delivery mechanism, right? It transfers pain from one

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<v Speaker 1>person to someone else.

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<v Speaker 1>If you're able and willing to bear the pain, you

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<v Speaker 1>typically are rewarded. The lesson for the retail investor is

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<v Speaker 1>to really think carefully about the investment horizon. Everyone is

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<v Speaker 1>a long term investor until the market is down, right?

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<v Speaker 1>But at the same time, you really have to ask yourself,

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<v Speaker 1>how much pain are you willing to tolerate with the

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<v Speaker 1>understanding that the past 23 years

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<v Speaker 1>has really not been representative of the amount of pain

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<v Speaker 1>that the stock market can deliver.

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<v Speaker 2>Great point. Ben, one thing that we've seen maybe our

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<v Speaker 2>customers and customers around the globe is maybe there's been

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<v Speaker 2>a little more complacent in their overall, we'll call it

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<v Speaker 2>investing strategies or horizons because the last couple of years,

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<v Speaker 2>it was literally close your eyes and by

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<v Speaker 2>All 11 sectors in the S&amp;P 500 are up. If

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<v Speaker 2>you buy and it dropped down a little bit and

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<v Speaker 2>you bought some more. Well, you were rewarded. So, I think,

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<v Speaker 2>you know, as we come into this sustained volatility, which

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<v Speaker 2>I think we're going to see through all of 22

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<v Speaker 2>is there's gonna be some opportunities. And whether that's across

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<v Speaker 2>the growth, whether it's energy, whether it's value

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<v Speaker 2>investors, especially in the retail perspective,

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<v Speaker 2>they'd have to rebalance or look to rebalance their portfolios

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<v Speaker 2>a little more than they have in the past, you know.

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<v Speaker 2>So if you have positions that go up 30 40%

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<v Speaker 2>no one's ever gone broke from taking profits or locking

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<v Speaker 2>some profits in off the

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<v Speaker 1>table. Okay, so here's what we have spoken about so far.

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<v Speaker 1>Number one impact rising rates going to be felt in

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<v Speaker 1>asia

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<v Speaker 1>more volatility expected for stock markets and look to diversify

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<v Speaker 1>maybe in things like energy value stocks, emerging markets. Now,

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<v Speaker 1>I want to go into something that affects everyone whether

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<v Speaker 1>you invest or not. And that's the property market and

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<v Speaker 1>the impact of rising rates here.

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<v Speaker 1>So what's the story for people like myself, maybe who

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<v Speaker 1>took advantage of these really low rates in the last

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<v Speaker 1>two years to buy a home?

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<v Speaker 1>What happens to mortgage payments now? And do you expect

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<v Speaker 1>this to sort of cool the property market globally, then

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<v Speaker 1>I'll start with you. Yeah. So it's worth thinking about

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<v Speaker 1>how different markets function. So in a place like Singapore,

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<v Speaker 1>most mortgages here are all adjustable rates. Right? And so

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<v Speaker 1>when rates rise, your mortgage payments will rise.

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<v Speaker 1>And when rates rise also, it tends to

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<v Speaker 1>either decrease the house price or at least slow down

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<v Speaker 1>the house price growth. Unfortunately, if you had just very

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<v Speaker 1>recently purchased both of those two things are negative for you.

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<v Speaker 1>Right. Whereas compared to a market like the United States

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<v Speaker 1>where you can lock in a fixed rate mortgage for

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<v Speaker 1>30 years, changes in rates don't really affect you that much,

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<v Speaker 1>only to the extent that it affects capital gains or

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<v Speaker 1>losses on the house. But the bottom line is if

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<v Speaker 1>you bought a house to stay for this generation or

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<v Speaker 1>the next couple of generations,

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<v Speaker 1>and you were never thinking about selling your house and

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<v Speaker 1>downgrading or upgrading in the first place, then it shouldn't

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<v Speaker 1>affect you that much. Right? Because the mortgage will affect

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<v Speaker 1>your monthly payments, but we're not expecting the monthly payments

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<v Speaker 1>to triple or quadruple at this point. Okay. And before

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<v Speaker 1>we run things off, I just want to get a

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<v Speaker 1>quick take from both of you. Higher interest rates. Not

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<v Speaker 1>always a bad thing. Right?

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<v Speaker 1>Yeah. So having interest rates that are above zero give

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<v Speaker 1>the monetary authority broadly speaking across the world

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<v Speaker 1>More ammunition, more tools in their toolkit to actually respond

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<v Speaker 1>to economic cycles. To me, this is a normalization of

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<v Speaker 1>the market. We're going back to how the stock market

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<v Speaker 1>has behaved in the past 400 years.

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<v Speaker 1>Right? And so it's really what we had in the

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<v Speaker 1>past three years is not representative of how financial markets

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<v Speaker 1>and the economy function together. So, overall, to me, it's

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<v Speaker 1>a return to normalcy.

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<v Speaker 1>Having some inflation is good, it might be a little

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<v Speaker 1>higher than what we want now. We think maybe this

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<v Speaker 1>is a term transitory keeps getting stretched, but we're thinking

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<v Speaker 1>it's not a decade long event, right? It might be

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<v Speaker 1>a 1 to 2 year type event as the world's

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<v Speaker 1>economy starts to come back online and supply chains are

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<v Speaker 1>restored and so on

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<v Speaker 1>to me overall, we're returning to a good place.

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<v Speaker 2>Things aren't all bad. That means there's some underlying health

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<v Speaker 2>of the economy, especially if we look at it from

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<v Speaker 2>the US side, the US GDP is made up 70%

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<v Speaker 2>from the U. S. Consumer. That means we have strong

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<v Speaker 2>job from the labor department, some wage growth. Maybe there's

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<v Speaker 2>some things that are helping to support the higher type

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<v Speaker 2>of inflation that we're seeing

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<v Speaker 2>and right now and over the last 6 to 12

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<v Speaker 2>month period you've seen, you know higher prices, less supply

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<v Speaker 2>and people are willing to

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<v Speaker 1>pay it and

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<v Speaker 2>they're and they're continuing to do that over this period

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<v Speaker 2>of time.

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<v Speaker 2>Some kind of staff that I'm always throwing out there

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<v Speaker 2>is the last 100 years, inflation has averaged about 2.9%

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<v Speaker 2>per year and stocks have averaged about 10.3% now. Look,

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<v Speaker 2>that's not saying that it's always going to happen every

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<v Speaker 2>year like that. But over the long term, if your

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<v Speaker 2>investment horizon, you know, it's spread out over many years,

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<v Speaker 2>it's always been better to be invested

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<v Speaker 2>over the long term than literally stuffing your money into

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<v Speaker 2>your

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<v Speaker 1>pillow. Okay, so the impact on asia more volatility ahead

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<v Speaker 1>but stay invested. Don't panic diversify and be prepared to

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<v Speaker 1>fork out more, but maybe not that much more for

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<v Speaker 1>mortgage payments. So chris and Ben, thank you very much

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<v Speaker 1>for joining me on this podcast.

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<v Speaker 2>Thanks Sona. Thanks Ben.

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<v Speaker 1>Thank you very much.

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<v Speaker 1>And that's top five things you need to know about

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<v Speaker 1>rising interest rates.

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<v Speaker 1>Mhm.