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'I'd be more cautious of long duration' assets like bitcoin: Payne Capital President

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Payne Capital Management President Ryan Payne joins Yahoo Finance Live to discuss the market outlook for 2022, interest rates, inflation, and the significance in the way the bond market is moving.

Video Transcript

ZACK GUZMAN: I want to shift over back to what we're seeing play out in the market action. And of course, some early calls to get to in terms of where to put your money. And I want to bring on one of our favorite stock pickers here in terms of what we saw play out in 2021, a tilt towards value.

The man himself, Ryan Payne, Payne Capital Management president and "Payne Points of Wealth Podcast" host, joins us once again. Ryan, happy new year to you, man. This is the first time we've had on in the new year. And obviously, not a lot to draw from in terms of the early action, but maybe if you look at some of your cyclical plays here and energy once again being a standout, what do you see shaping up in terms of what investors should be allocating to this year?

RYAN PAYNE: Yeah, I think a lot more of the same here. And happy new year to you, too, Zack. You know, I think the beginning of the year, we're already seeing the cyclical trade outperform. But again, we're only three trading days into the year. I don't think you can read into that too much. But I think what actually is significant is the way the bond market is moving. I mean, look at the 10-year Treasury. We just touched 1.7% yesterday. We know the Fed is going to phase out their bond buying.

And in addition to that, we know that we could see probably three rate hikes this year. So, you know, I think the longer term trend in the big picture is interest rates are going higher. They've been going higher. It's been a volatile ride. And of course, that's not good for the bond market. So I think you have to be cautious about this year is how you own your bonds. Like, for my clients, we own our bonds outright they come due because if rates go up, bond prices go down. And if you look at, like, high yield bonds or, AKA, junk bonds, you really haven't gotten rewarded for the kind of yields that you're receiving. They're very low for the risk that you're taking.

So, you know, I do think that inflation is going to continue. I don't that's, like, a shocking revelation. It's going to come down a little bit, right? The supply chain issues that we have at some point are going just start to ease. But I think overall, inflation is still here. I'd be more cautious of those long duration assets. Bitcoin-- excuse me, I had to cough there. Some of these more speculative assets which could still do well in the short-term, but again, I think, you know, there's a lot of risk ahead, especially if interest rates continue to go higher, and inflation continues to kick in.

AKIKO FUJITA: Ryan, we did have that conversation this morning in our meeting about the transition going from a Bitcoin conversation to you because I know you have been skeptical on that front. Let's talk about your stock picks, though. You said it is still about the cyclicals, the value plays. I know you've been bullish on that. What's a name that you're really watching closely?

RYAN PAYNE: Well, I think energy, which I was a big bull last year, one of the best performing asset classes, still looks good this year. I mean, it still trades relatively cheap. I mentioned Exxon last year. That's probably your most-- your pure play, let's call it, on the production side. So if prices go higher, Exxon's going to be the most sensitive to that. It still trades at, like, 16 times forward earnings, which is dirt cheap, versus the S&P 500. And of course, you're getting a 5% to 6% dividend.

So the energy sector still has a long way to go, a lot of runway there. Demand is going to continue to go up as the economy continues to pick up. We're still at, like, 40% of offices or 40% capacity, and oil's already close to $80 a barrel again. So imagine when we get fully open, what that's going to look like. So I think that energy is still a great place to be. I just mentioned interest rates were rising. Financials, again, I think look very good this year.

And the one play here that I think no one loves, but I love more than anybody, is the international markets. The dollar was strong last year. You know, growth rates there have been slower. But at the end of the day, if you start looking at international emerging markets, they trade so much cheaper. A lot of the markets there are more cyclical, less dependent on technology. And, you know, look, I mean, 80% of the world's population is outside the US. So you've got to have a healthy international position in your portfolio.

ZACK GUZMAN: Yeah, I wonder if some of the risks there, too, maybe why it is cheap is, is kind of reflective of maybe some of the fears that another variant popping up could derail some of the growth or recovery there. But, you know, that's also not to say that the same risks don't exist here, right? And we were talking with your old sparring buddy, Ross Gerber, earlier kind of about the risks to actually seeing the Fed follow through on three rate hikes in 2022. I mean, how realistic is it, do you think, that we get those in the way that there are so much uncertainty ahead?

RYAN PAYNE: Oh, I think it's very certain. I mean, at the end of the day, the Fed's always behind, not ahead, of the curve. Remember the Fed was still telling you that inflation was transitory up until, like, two months ago. So if anything, the Fed's probably going to have to play catch-up. So for my man, Ross, who has all those long duration assets-- he's like the Cathie Wood of Santa Monica-- you know, his plays are at risk here in a big, big way.

So, again, what I'm seeing with a lot of portfolios right now are these millennial clients that are starting to come to the door of my firm, is a heavy weighting to long duration assets, whether it's technology, disruptive technologies, Bitcoin. You know, all of that is the same trade. And really, what's going to put the fire out there is going to be those higher interest rates and living in a world where inflation is much higher than it's been for the last decade.

AKIKO FUJITA: The Cathie Wood of Santa Monica, I think that's a new one for me. But Ryan, that's a cue for us to do-- we've got to plan another segment between you and Ross and see you debate it out here because it's always been about value versus growth. Ryan, always good to get your insight. Ryan Payne, Capital-- Payne Capital Management president and the host of "Payne Points of Wealth Podcast." Let's turn our attention--

RYAN PAYNE: Best podcast in the country.