PodcastAdam Taggart | Thoughtful Money®Mike Preston

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

The speakers argue that high debt makes historically normal rates around 5% to 5.5% more consequential, while persistent inflation and cooling housing markets add pressure to the economy. Markets remain vulnerable to narrowing equity breadth, elevated valuations, rising yields, and potential shifts toward bonds, commodities, and other real assets. They expect Treasury yields may reverse toward 3% after a stock-market decline, while Mike separately outlines a potential dollar surge and a prolonged period of weak S&P 500 returns.

Interest RatesGovernment DebtInflationMarket ValuationsMarket BreadthCurrencies

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Key Takeaways

The speakers argue that historically normal rates of roughly 5% to 5.5% are more damaging today because elevated federal and corporate debt increases debt-service and borrowing costs. That pressure is already visible in housing, where mortgage rates rose from about 3% to 7% or 7.5%, contributing to slowdowns or corrections in Western Florida, South Florida, and Austin.

The speakers attribute the post-COVID inflation surge, which reached about 9% before easing toward roughly 3%, to large fiscal and monetary stimulus and expect the coming decades to be more inflationary than the prior 40 years. They favor real assets as a hedge, although the approximately 2.32% five-year break-even rate does not currently signal runaway inflation.

A roughly 5.1% third-quarter GDPNow growth reading could allow the economy to tolerate higher bond yields for a while, but rising yields are making government instruments more competitive with stocks and could pull capital toward credit markets. This tension is occurring while equities remain near all-time highs despite a spike in yields across the curve.

The speakers see equity valuations and earnings expectations as extremely high and expect a future reset, with market leadership already narrowing toward technology and semiconductor stocks. The gap between the cap-weighted S&P 500 near its high and the equal-weighted index about 10% below its recent high illustrates that concentration.

The speakers connect inflation risk with the potential for traditional stock-and-bond portfolios to struggle, noting that both lost value during the 1970s while commodities performed better. They also point to cooling real estate, including longer listing times in New England, and continue to favor real assets as a hedge.

GEO-POLITICS

Limited Influence — The speakers argue that midterm politics and individual political platforms have limited direct influence on current markets. They attribute market distortions and opportunities more to forces developing over years or decades.

“I got to be honest I a long time ago I kind of we as a firm watered down the direct influence of politics and markets…”—

ECONOMY

Rates And Debt — Although rates around 5% to 5.5% are historically normal, the speakers argue that higher federal and corporate debt makes them more economically consequential. Higher debt-service and borrowing costs could create challenges and slow economic growth.

“Those rates are historically normal. But they're not normal with 40 trillion in debt, like you said, going up by almost three trillion a year…”—

Persistent Inflation — The speakers attribute the post-COVID inflation surge to large fiscal and monetary stimulus, noting that inflation reached about 9% before moving toward roughly 3%. They expect the coming decades to be more inflationary than the prior 40 years and favor real assets as a hedge.

“And then we shot up to 9% after COVID because, you know, finally that that huge amount of stimulus came out…”—

Housing Rate Shock — Mortgage rates rising from roughly 3% to 7% or 7.5% are pressuring real-estate markets. Western Florida, South Florida, and the Austin area are cited as experiencing slowdowns or corrections.

“0% deposit rates, 3% mortgages. Well, what happened when we went right from three to seven or seven and a half, seven and a quarter where we are now?”—

MARKETS

Yields And Equities — Rising Treasury yields make relatively safe government instruments more attractive than stocks and can pull capital from equities into credit markets. Despite yields spiking across the curve, equities remained near all-time highs.

“So they look more attractive on a relative basis to stocks and so when rates go up it tends to kind of pull capital from the equity markets into the…”—

Bond Duration — Bond prices generally move inversely with interest rates. The speakers estimate that a one-percentage-point rise in yields could produce an approximately 5% loss for their five-year-duration bond portfolio, while emphasizing that the estimate is nonlinear.

“Bond prices move inversely with interest rates. That's that's a simple thing. I like to use the analogy of a seesaw for people that like to use visuals…”—

Equity Valuations — The speakers view equity valuations and earnings expectations as extremely high and expect a future reset. Their core tactical model, however, still holds about 50% equities and includes non-U.S. stocks.

“We do believe that the valuations are extreme and not reflective of anywhere close to fair value looking forward perspectively over the next decade for example.”—

FORECASTS

Yield Reversal — The speakers expect Treasury yields to be near a peak around 5%. They outline a scenario in which a stock-market decline leads to renewed easing and 10-year yields falling toward roughly 3% over the next year or two. They view high-quality bonds positively over the next two years but not over the longer term.

“Yields up here in fiveish, probably approaching a top, some kind of market top in the next, who knows, six months in stocks, some kind of big draw down or…”—

Housing Downturn — The speakers estimate that housing prices could fall 20% to 30% when the stock market peaks and declines. They do not expect lower rates afterward to rescue or reinflate housing.

“So, it's a it's a bit of a trap, but still if our guess is that house housing prices will come down 20 to 30%…”—

Dollar Surge — Mike expects a crisis or deflationary scare to trigger a rush into the U.S. dollar and high-quality bonds. He says the DXY could rise above 120 initially before eventually settling around 60 to 80 over many years.

“I think there's going to be a huge rush into US dollars and so everything's path dependent like you say the dollar basket is very strong here recently it's above…”—

Higher Rates, Higher Risk

Adam frames the discussion around whether historically normal bond yields now pose greater risks because they raise capital costs and compete with equities.

Treasury Yield History

John argues that Treasury yields near 5% are historically ordinary, while the exceptionally low-rate era after the financial crisis and COVID was the true anomaly.

Debt Makes Rates Matter

Adam and John explain why 5% rates have more serious consequences today, given the much larger federal, corporate, and household debt burden.

Duration And Bond Risk

John describes New Harbor’s short-duration Treasury allocation and explains how duration estimates the portfolio impact of further rate increases.

Mike’s Rate Outlook

Mike says higher yields are pressuring markets, housing, and debt-heavy systems, but expects rates near 5% to 5.5% may be approaching a peak.

Bonds After A Crash

Mike expects a stock-market decline to trigger aggressive central-bank intervention, pushing Treasury yields toward 3% and creating a tactical bond opportunity.

Equity Valuation Reset

John says extreme valuations and overly optimistic earnings expectations imply a future reset, but New Harbor remains invested rather than moving entirely to cash.

Market Breadth Deteriorates

John identifies narrowing participation beneath headline index highs and describes put-option hedges and potential equity reductions as defensive responses.

Dollar Crisis Surge

Mike expects the dollar to surge during a future crisis despite long-term fiat depreciation, with investors temporarily favoring dollars and high-quality Treasuries.

Personal Inflation Rates

John explains that inflation varies by household, with housing, healthcare, and other personal expenses often diverging sharply from official headline measures.

Inflation Break-Even Signals

John reviews five-year TIPS break-evens and says markets are pricing persistent but not runaway inflation, supporting continued attention to real assets.

Oil Refining Constraints

John describes refining and energy investment as capital-intensive boom-bust industries, while current backwardation suggests a short-term supply shock rather than permanent imbalance.

Gold Breakout Levels

Mike sees a constructive long-term gold pattern but wants gold and silver to clear key technical levels before confirming the next major advance.

Precious Metals Setup

Mike interprets the recent gold and silver consolidation as a possible buying opportunity, while cautioning investors to wait for decisive breakouts.

Investor Action Steps

Adam summarizes the metals outlook, invites feedback on the live format, and encourages viewers to apply the discussion to their financial decisions.

Year-End Financial Planning

John urges viewers to address tax, Medicare premium, and other planning decisions before year-end rather than postponing them until the holidays.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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