It would be wise to ready your portfolio for a massive interest rate shock in the near future, according to Michael Pento, president of Pento Portfolio Strategies.
Investors have become reliant on quantitative easing, or stimulus from the Federal Reserve, to lift prices up and move yields down after debt purchases were made, according to Pento.
Pento said current yields don’t reflect the credit, currency or inflation risks associated with owning U.S. Treasurys. Holders of U.S. debt must discount the potential of inflation as well as the effect of owning debt backed by a weakening U.S. dollar, he said.
Once the Fed begins tapering, rates will soar on the long end, according to Pento. He said when the Fed stops buying Treasurys, foreign and domestic investors will follow suit. (About 50 percent of debt in the U.S. is held by foreign investors.)
Pento expects rising rates to have a profound impact on stocks, currencies, real estate values and global economies.
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