Higher Rates Bringing Higher Risk For Investors? | New Harbor Financial

Summary

The discussion focused on whether rising interest rates threaten markets or represent a return to more historically normal levels. The panel argued that yields near 5% are not extreme by long-run standards, but that today’s much larger government and corporate debt loads make those rates more consequential.

Their overall stance was cautious rather than fully defensive. They did not advocate moving entirely to cash, but cited elevated valuations, narrowing market breadth, and selective hedging as reasons to monitor and potentially reduce risk.

Rates, Bonds, and the Economy

• The 10-year U.S. Treasury yield was described as approaching 5.1%, with the 30-year around 5.4%. The 10-year yield’s range in recent years was characterized as roughly 3.2%–5%.
• The panel contrasted current yields with the exceptionally low-rate period after the financial crisis. The 10-year yield fell below 0.4% in March 2020, and an estimated $20–30 trillion of global debt had negative yields during the 2010s and early 2020s.
• They emphasized that 5% yields today are not equivalent to 5% in 2007, given much higher debt. U.S. federal debt was described as roughly $40 trillion, increasing by close to $3 trillion annually, versus less than $10 trillion before the 2008 crisis.
• Bond prices move inversely to yields. Duration was presented as a rough measure of rate sensitivity: a portfolio with five-year duration could lose approximately 5% if yields rose by 1 percentage point, though the speakers stressed that this is only an estimate.
• New Harbor’s model portfolio was said to hold about 32% in fixed income, mostly U.S. Treasuries, with approximately five years’ duration. The bond sleeve’s current total return or yield was described as in the mid-4% range, with some parts of the curve near 5%.
• One speaker argued that another large jump in yields would intensify pressure on government finances, corporate borrowing, economic growth, and expensive markets—and could ultimately limit further yield increases. That speaker viewed a 6% 10-year yield as difficult for the economy to sustain, though not impossible.
• The Fed had recently raised its policy rate by 0.25%, as expected. The speakers said the probability of another increase at the next meeting appeared to be below 50%, while emphasizing that future policy was uncertain.
• U.S. GDP Now was cited at 5.1% for the third quarter, as a counterpoint to concerns about rate pressure.

Market Positioning and Risk Management

• New Harbor said its main tactical model held about 50% in equities, rather than moving to cash. It also held significant non-U.S. stocks.
• The panel characterized valuations as extreme, citing an S&P 500 cyclically adjusted P/E (CAPE) near 40, and said analyst profit expectations might be too optimistic. They warned of a possible downward reassessment of both earnings expectations and valuation multiples.
• They saw deterioration in market breadth: the capitalization-weighted S&P 500 remained near highs, while the equal-weight S&P 500 was described as roughly 10% below recent peaks. A recent market advance led narrowly by technology and semiconductor shares, despite weakening breadth indicators, was viewed as concerning.
• New Harbor described holding out-of-the-money S&P 500 put options as tail-risk protection. In a severe decline, these hedges could reduce equity exposure by about 40% of the portfolio. Another 10%–15% of the portfolio was said to be near levels that, alongside other indicators, could prompt further risk reduction.
• The speakers stressed that they would respond to price and market signals rather than attribute market weakness primarily to the U.S. midterm elections or try to forecast its cause.
• One speaker’s base-case scenario was that yields were near a short-term peak, equities might peak within roughly six months, and a subsequent downturn could prompt Fed easing or renewed quantitative easing. In that scenario, the 10-year yield might fall toward 3% within one to two years.
• The panel viewed high-quality bonds as a tactical opportunity over roughly the next two years, not necessarily a long-term holding for the next 20–30 years. One speaker cited a 7.5% allocation to long-term U.S. bonds as an “unpopular” position and said the potential return included both yield and price appreciation. They cautioned against oversized positions and acknowledged the risk of being early.
• A possible 20%–30% housing-price correction was discussed as a view, not a certainty. In the speakers’ opinion, lower rates would not necessarily be enough to restore housing prices or affordability.

Inflation, the Dollar, and Real Assets

• The market-implied five-year breakeven inflation rate was cited at about 2.32%, which the speaker said did not indicate runaway inflation. Official inflation was described as having reached roughly 9% in 2022, with more recent inflation around 3%.
• The speakers noted that personal inflation varies with spending needs, particularly housing and healthcare, and may differ substantially from official CPI.
• One speaker expected persistent inflationary pressure over the coming decades and favored precious metals, commodities, and other real assets as potential inflation hedges. They also noted that both stocks and bonds lost value after inflation in the 1970s, while commodities and some real assets performed better.
• On the U.S. dollar, one speaker expected a possible crisis-driven rally before longer-term weakness. The DXY was described as above 100, with a prior high near 120. The speaker suggested it could exceed 120 in an early crisis phase, but potentially fall to the 60s or 80s over a longer horizon. These were opinions, not forecasts presented as certain.
• The speakers cautioned against betting everything on one outcome or asset. One suggested that a highly uncertain investor might consider one-year Treasury bills yielding about 4.3% while waiting for events to unfold. This was an illustrative opinion, not personalized advice.
• They argued that active investing may be more important in the coming decade than in the previous decade, when simply owning an index often worked well. They specifically cautioned against concentrating an entire portfolio in the S&P 500, gold, or Bitcoin.

Housing, Energy, and Commodities

• Higher mortgage rates—described as roughly 7%–7.5%, versus around 3% during the low-rate period—were said to be pressuring housing. Slowdowns were noted in parts of Florida, the Austin area, and New England. The speakers mentioned homes taking longer to sell and fewer cash buyers in some markets.
• A questioner cited U.S. refinery capacity near 98%. The panel described refining and oil-related infrastructure as capital-intensive, cyclical industries subject to boom-and-bust investment patterns. They noted that overbuilding after the shale expansion had previously contributed to a downturn.
• Oil futures backwardation was interpreted as consistent with a near-term supply shock, which could make companies hesitant to invest in new capacity if they expect conditions to ease. The speakers said shortages or constraints could persist, but acknowledged uncertainty.
• New Harbor disclosed owning a position in XES, the SPDR S&P Oil & Gas Equipment & Services ETF, while explicitly saying this was not a recommendation for viewers to buy it.

Gold and Silver Technical Discussion

• One speaker remained bullish on gold and silver but said confirmation of a technical breakout was still needed after a volatile pullback.
• Gold was described as having risen from around $2,000 per ounce in early 2024 to above $5,000, then falling to roughly $4,300 after a reported peak around $4,700. The speaker said higher yields and a stronger dollar had pressured gold.
• For the GLD ETF, the speaker described a pullback from about 500 to 350—roughly 30%—and a possible cup-and-handle pattern. A move above a local level near 423 was described as confirmation, associated with gold around $4,500–$4,600. The transcript’s references to GLD/GDX levels are internally inconsistent, so these chart thresholds should be treated cautiously.
• For gold-mining stocks, GDX was said to have peaked near 117, fallen to around 70, and recovered to roughly 105. The speaker described a possible cup-and-handle setup but did not present it as confirmed.
• For silver, the speaker cited SLV above about 71 as a possible technical confirmation level, corresponding to spot silver around 74–75.
• The speaker called the pullback a potential opportunity to buy a small amount if an investor was underexposed, while advising viewers not to assume the breakout was confirmed.

Key Numbers and Timelines

• 10-year Treasury: Near 5.1%; possible long-term target in the speakers’ scenario: 3% within one to two years.
• 30-year Treasury: Around 5.4%.
• New Harbor portfolio: Approximately 32% fixed income, with about five-year duration; main tactical model approximately 50% equities.
• Illustrative rate sensitivity: A 1 percentage-point yield rise could mean about a 5% loss for a five-year-duration bond portfolio.
• S&P 500 CAPE: Around 40; equal-weight index: about 10% below recent peaks.
• Five-year breakeven inflation: 2.32%; GDP Now estimate: 5.1% for Q3.
• Gold and silver technical levels were approximate and, in places, inconsistent in the transcript; see the caveat above.
• Personal-finance reminders: Extended tax returns were said to be due October 15; speakers also flagged IRMAA and year-end tax and financial planning.

Disclosures and Cautions

• The speakers said the discussion was general information, not personal financial advice, because individual circumstances differ.
• Portfolio positions and chart analysis were presented for illustration; the discussion explicitly said it was not a direct recommendation to buy specific securities.
• They repeatedly cautioned that forecasts can be wrong, market timing is difficult, investors may be early or late, and concentrated bets or oversized positions carry significant risk.
• The video promoted consultations through Thoughtful Money with recommended financial advisors. This was promotional information, not an investment-performance claim.

Presenters and Sources

• Adam Taggart, host of Thoughtful Money.
• Mike Preston and John Loder, managing partners of New Harbor Financial.
• Data and tools referenced included FRED for Treasury yields, the FedWatch tool, GDP Now, and charts for GLD, GDX, SLV, XES, the S&P 500, and Treasury/TIPS breakeven inflation.