10 Takeaways from Jim Bianco on Talking Markets
On October 7, Jim left us with a lot to think about - not least that we are never ever getting back together with the pre-pandemic economy
Jim Bianco thinks the age of zero interest rates is over, he told me October 7 on Talking Markets. As ever, the President of Bianco Research left us with a ton to think about, on everything from Hurricane Milton to how we should be thinking about risk. Here’s what you need to know:
Low Interest Rate Era - Dead
“This is no longer the quantitative easing period of 2009 to 2022, [it] is no longer the zero interest rate period,” Jim said. “That era is over.” He believes we're moving back to a more historically “normal” environment where rates are higher.The US Economy Can Handle Higher Rates…
“This economy can handle higher rates,” Jim said. “The problem is most people are not equipped to [handle that] as they're anchored to that QE period, they think that's normal.” Pointing out that the US is still at 4% on unemployment and still growing at 2-2.5% GDP, he added: “You’d be very hard-pressed to tell me there’s any pain out there because of these rates.”…The Stock Market Might Flip Out Though
Jim is positive on the economy overall but says that the stock market gets bothered by higher rates, so investors should be prepared for some volatility if rates continue to climb.60/40 Portfolio - Also Dead.
“The 60/40 portfolio died in 2022, the negative correlation between the price of bonds and stocks is gone,” he said. “We’re at the highest positive correlation between stocks and bonds in 18 years, they move up and down together.”CRE Probably Needs A Reckoning
Jim echoes Harry Melandri on Friday’s episode by saying commercial real estate is on shaky ground, but says that low interest rates aren’t the answer - they just mask the problem. “I think lower rates make it worse,” he said. “There’s a lot of bad commercial real estate. It is time we understand that they are bad and that they [need to be] restructured, and if the answer [to this] is to whine like a 5-year old to ‘give me zero rates so I can keep this crappy property alive for another 2 years,’ that is not doing anybody any good.”
Continuing to not hold back in literally any way (we love it), Jim added: “If your project cannot survive in a 5-6% mortgage world then your project’s not viable because that’s the world we are in right now.”Cutting Rates Won’t Fix the Housing Market Either
Housing prices are at an all-time high and aren’t coming down even though sales are coming down. Jim ascribes that largely to the population growth of the US. “We have between 7 and 15 million more people in the country now than we had in 2020 - that’s the population of Georgia.”Hurricane Milton’s Ripple Effects
Beyond the potentially devastating humanitarian crisis brought by Hurricane Milton, Jim says it could have a ripple effect on markets. Basically, insurance companies may have to raise cash in a hurry to cover claims, and “the fastest, easiest way to raise cash is in the Treasuries market,” Jim said. “The stock market’s not going to take kindly to rapidly rising interest rates or the bond market being under pressure.” And in extreme circumstances, the insurance companies may even have to resort to selling their stock portfolios.Gold is a Good Hedge In Uncertain Times
… And we’re in uncertain times. “What has been the best performing investment asset class over the last four months?,” Jim asks. “It hasn’t been crypto, it hasn’t been Mag 7 stocks. It’s been gold - gold is up 30% over the last 4 months.”A “Hmmmm” on the Chinese Stock Market
Jim is skeptical about the sustainability of the recent rally in Chinese stocks, and skeptical of fund managers chasing a move they’ve already missed. “The Chinese economy is in trouble,” he said. “They are stimulating because they recognize they're in trouble.” He's not convinced that handing out cash and propping up the property market will solve their problems: “Color me skeptical as to whether or not long-term this will work but stranger things in life have happened.”The Important Thing is to Not Panic
Jim's overall message is that we're in a period of transition, and investors need to adjust their expectations accordingly. Citing Jeremy Siegel (whose WisdomTree colleague Jeremy Schwartz we had on recently), Jim said that a 7-8% annual return on your core portfolio is a reasonable goal, with one-third of your portfolio outside of that allocated to the higher-risk, higher-reward plays like AI, growth, tech, and crypto.
To watch the full episode, right this way.
Enjoy,
Maggie
Important Disclaimer: It is crucial to remember that this article is for informational purposes only and should not be considered investment advice. Consult with a qualified financial advisor to assess your risk tolerance, investment goals, and determine if an allocation to oil aligns with your overall financial plan.