What Just Happened to The Market?

The Yen surges, the markets vomit and rumors are swirling. What really happened?

 

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TRANSCRIPT

(00:07) all right welcome to the true wealth show on this the greatest Tuesday you’ve had all week I’m your host Dave Little John in studio with me today Matt Dixon and as I like to say have we got a show for you cuz you know what there’s a lot of stuff going on yeah no kidding cuz the markets are giving us a show this week like I show a force in the wrong direction yeah definitely today was a little relieved but jeez woo Matt yeah what is going on all right so I’m going to break this down as simply as I can
(00:36) and you’re probably going to have to be like what Matt really tried to say is this I doubt it I doubt it all right so basically a bunch of us investors were going to Japan and changing in their dollars for Yen okay and then they were taking that Yen and they were borrowing at 0% because Japan had been basically letting people borrow it 0% and then they were taking that money and buying US Stocks specifically the Magnificent 7 so companies like Google meta Facebook Amazon Tesla like the big Microsoft Microsoft Apple and apple I
(01:18) think that’s the set let’s focus on Nvidia a little bit just by this is Matt’s favorite one to kick a little bit right now it is okay and we’ve loved Nvidia in the past but right now Woodshed all right here we go so they borrow this money at 0% and then what they did is they not only turned around and bought these tech stocks but they bought them on margin and on Leverage so a fancy way of saying that talk talk about what does that mean so like if you bought on margin right you could take $10,000 and then use your margin to buy
(01:50) $20,000 worth of stock yeah it essentially margin is the credit card right if the and the way margin works is you’re getting a loan with collateral okay so you’re using your in your account as the collateral so or they bought with leverage yeah is the other one well and well that margin is how you get leverage right but the other way that you get leverage and you still need a margin account to do this right a margin account is essentially an account that allows you to borrow money and it also allows you to have the
(02:26) Securities in your account loaned or borrowed that’s a good point to be made yeah so it is kind of like a loan right and not just loaned on but like if you have 100 shares of stock that you may that stock may be Borrowed by somebody else MH and then returned to you okay and it’s up to the broker dealer environment to manage that element but but we’re getting a little too complicated right now so basically they margin is leverage so they bought all these kind of higher risk I’m air quoting that stocks that had been doing
(02:59) really really well they had been making a lot of money yeah in fact on paper for the last year or two they would look low risk if you were just measuring the downside volatility let’s just for easy numbers say the stock went up 10% right but if you had leveraged it and say with twice the amount of margin for example so if your asset grew and grew by $10,000 but you had used margin times two maybe you’re now making $20,000 instead of just 10,000 yeah right so the it looked really good but you also get
(03:38) bit if the stock moves down twice as hard right yes yeah and I’m I’m getting ready to like explain all this it’ll be fun so what happened was you know we saw stock slide maybe 10% on these grow stocks well instead of just a 10% loss that’s a 20% loss and then you extrapolate that out with they now have this Margin Call where they have to pay back money that’s due so what do they have to do in order to get access to money they had to force liquidate the stocks that they were holding and how
(04:14) does the stock market work yeah uh the balance of supply and demand right so we just had a a supply glut and a demand decrease right so everyone’s having to well all these big hedge funds and other big investors are having to sell sell sell sell sell in order to cover the debts that they had well they did that and so now we see the stocks fall even further and on top of that now they have to go convert their Yen back into US dollars in order to make those payments well guess what the Yen appreciated 11%
(04:45) over the dollar in just that short little window of time so now they get dinged on the way out too yeah so let’s think of it this way um you the same way that if you were buying a house right you actually buy a house with Leverage I need 20% down to buy the whole house right and then I have to make payments on it right I have to pay interest okay the same thing happens in a margin account the difference is the equity in your house is Cash in a traditional mortgage right but the equity in a margin account is actual
(05:17) equities right it’s like your stock holding so let’s say I buy Google and in the account and then I hold it and that’s my collateral and and so I have $100,000 worth of Google and then I can borrow another $100,000 and go buy more Google right but Google just went down so now Google drops in value by 10% my original 100,000 is worth 90,000 I have to sell $110,000 of my Google stock to bring the account back up or close to it right it’s a little less because I’m going to sell and then I’m going to not have as much money any
(05:53) in Google anymore but what’s going to happen is I’m I’m going to sell to meet the requirement to have enough equity against my loan and then I have a little bit less of a loan after I sell right but I just flooded the market with more shares of Google and nobody wants to buy them and everybody else in the same boat as me is looking for somebody to buy at the same time and nobody shows up to buy which means the price drops even further and oopsie now I didn’t have 990,000 of Google now I have 80,000 of Google and I
(06:26) have to sell even more to meet the margin requirement and so it becomes a Feeding Frenzy of great I have to sell even more which is going against the market and and you you can get what we call a short squeeze that’s really the term it’s like the Stock’s going the wrong way and you have to sell it anyway in order to meet this margin requirement and then to make matters worse oh I forgot the money I put on margin was borrowed from somewhere else and when I originally got the loan it was a great deal but that loan went sour on me and
(06:57) now I have to pay back the loan even more than I took it out for so it’s like I lost money on the stock and I had to pay back the loan at a higher cost guess what one of the big triggers was that caused all of this it Japan decided that they weren’t going to hold it 0% they were going to up the the rates and so it was just like a quarter of a percent like 25% it was less than that cuz the the the rate started at 0.
(07:24) 1 and they moved it to 0 2 So it’s 15 basis points exactly it was a 15 basis point move and it was an 11% move or I think it may as high as 16% move in the currency afterwards and how much money did that affect globally oh the estimates were on the lowend 500 billion to the highend 4 trillion with a te yeah we we ran a bunch of math on this one behind the scenes and we did that got interesting it really did cuz it suggests that we’ve felt a lot of the pain right like like that we’ve probably seen a lot of the market price
(08:00) adjustment has probably been priced in and I use air quotes because the stuff is not really predictable no because like it said maybe there’s another 50% more Margin Call left in this it needs to be Unwound right and so the yin dollar could change a little bit more yep it could but did the market already price in that remaining 50% that’s the big question I’m like does it already know right and there you know that the efficient market hypothesis would suggest that well of course it already knows I think
(08:39) that that’s um the more I think about the efficient market hypothesis the more I kind of shrug my shoulders and go okay like even if it’s true the market knows everything that’s knowable about the price of a stock in the reflection of its exact price but it doesn’t account for the fact that that in mere fractions of a moment later new information will come along and the market will have to absorb that too so it’s basically saying well it doesn’t matter what the price is the knowledge is already in there so you’re
(09:14) so so then it’s like okay well then who’s the best at predicting the future because if the market can only price what it knows and it doesn’t know the future then the best I guess projections or the you know the best forecasting would then theoretically be a really good complement to the efficient market hypothesis right the flip side of it is what if it really isn’t efficient right what if it doesn’t know all the stuff in the price and I think that’s kind of true like we don’t all get information
(09:46) at the same time mhm so y it takes a while for information to travel a lot less than it used to yep and that’s why I think you can look back to some of the other you know maybe Market crashes that’s an extreme term but Market Corrections probably more accurate um they used to take longer right because information traveled slower but ah the old internet the the Broadband Theory well how long did it take you and I to just get to the kind of the bottom of this thing today yeah well 20 30 minutes yeah which was still significantly
(10:21) faster it would have been weeks early in my career what would that have looked like for us in the ‘ 80s we would have been looking for a newspaper article well or you had to had your so this was the advantage that a lot of mutual funds used to really tout was hey we have analysts on the ground like oh we don’t we have our research people in China they go and like walk the floor of these Chinese companies to give you a sense of which ones are the best and then get on their dialup phone and call it back yeah
(10:46) and while I still think there’s some benefit to like boots on the ground research like I think that’s real um I think that it is less less important than it was couple decades ago when information moved at the speed of did yeah but you’ve talked about this on the show before one of the big pieces is the market hates exploits right like it’s it’s going to figure it out and it’s going to correct why does information need to travel fast because these computers are doing a lot of trading and if the
(11:22) information can come in quicker you can get ahead of the curve and make better trades so it’s the market has basically been forced in to trading based on the most current information and so or or if I twisted that around cuz I think you’re right if I twisted it around and said that we trade faster because the information is faster right so I don’t it doesn’t matter is it a chick or an egg do the information go faster because or because the information goes faster we do this and it doesn’t matter it’s an
(11:53) academic discussion what we know is that the information gets baked in super fast what was really wild to watch was the um Japanese Index right I for I don’t even know how to pronounce it it’s their 225 index but um Yin sang or something like that starts with an in oh the Nik yeah that one um it dropped over 12% in one day which was like one of the worst crashes that Market’s had I think since the 80s I could be wrong don’t quote me on that but what was wild is the following day once all that information
(12:28) processed through it was up 10 % the next day so it’s like whoop and it’s back yeah I I will say even if the markets are efficient with information I still think that Traders just like Judo sometimes take the momentum of the market and pull even farther than it wanted to go and then the market has to kind of correct itself from there yeah so anyway um interesting stuff here uh I think that there’s more to explore but as I look at my watch I realize we’re kind of running a little long well what
(12:57) are we going to talk about when we get back well I think when we get to the flip side of this one um we got to talk a little bit about how the Magnificent 7 kind of warped their way through all this too okay let’s do that stick around we’ll be right back I’m Dave Little John and Matt Dixon we got true wealth on news radio 939 FM and 1240 kqen hey welcome back to the true wealth radio show I’m your host Dave Little John joining me today Matt Dixon um reminder we’re we’re talking today about you know
(13:23) markets have had some kind of chaotic activity this week some some big swings up and down a little bit of unpacking what we think’s driving it but we do want to get into some of the the key elements of like how do you navigate this if you’re wondering what we already talked about great opportunity to grab a podcast and so you can go back this will be available we got the cameras up again today so we’ll get it posted on YouTube for those of you that follow us there and you can hear the rest of the program
(13:48) so uh do that and also you can grab it at our website so that’s littlejohnfs.com and um I’ll I maybe I shouldn’t even tell you it’s under the educate tab because then you’ll explore the whole site you know really get a feel for the space um but yeah now we’d love for you to also if you’ve ever got questions comments things that you’d like us to address on air feel free to email us at [email protected]
(14:10) com there’s also a chatbot on the um website so you can get to us that way so Matt yeah we were talking about the chaos of this market right um I think for our listeners I would really like to get your thoughts on how does one sort of navigate through this chaos what do you do right well one of the things that I recommend is don’t make rash decisions especially when there’s volatility that enters the market right like you’ve got to be you’ve got to have a kind of a set of rules that are predefined so that when
(14:43) things do go sideways you can think objectively and not make decisions that are going to harm your future self and I think that’s actually one of the big kind of reasons why some people hire a financial professional is they might not have that discipline where it’s like hey this is my money I’m emotional I’m going to do something whereas you know your adviser might be able to have a little bit more clinical approach and saying you know I’ve researched this and okay here’s a situation where um you know we
(15:17) had a meltdown inequities because of a currency exchange issue and a few other things but are the economic you know how how’s the economy doing are things larger unchanged is it still strong maybe this is a buying opportunity and that’s not giving advice on today but you know we can look at so many different times in the past CO’s a perfect example of one right like the markets cratered what 30 40% and then recovered in a matter of what three or four months and so if if you are using a professional
(15:52) they can kind of walk you through this and they can also adapt we’re seeing interest rates or yields on fixed income products go down right um why because obviously there’s been some turmoil in the equities and the stocks so people have seen a flight to safety and so as more people are flocking to fixed income products like treasuries or CDs we’ve seen the yields go down because well they don’t have to pay as much and so you know what was 5 a half% like a couple months ago maybe as 4.8 % and is
(16:30) we possibly could get a rate cut we could see those rates go even lower so having someone who can navigate that for you is a really big deal because what was available yesterday might not be available a month from now or a year from now and so having someone that can adjust to changing Marketplace uh that’s a big deal yeah yeah I think um I like to sum it up I used the firefighter analogy on the program before that you or I run into a burning building and we probably don’t come out firefighters probably do and
(17:04) the difference is training right it’s the circumstance is no different but one of them is training some of it’s the right tools for the job I think training is a big one though well and knowing your options set I don’t think we talk about that one as much either for someone who doesn’t really understand stocks bonds or even if you do maybe you don’t understand the vast majority of what’s actually out there because there’s so many different ways to invest mhm well and what what happens and I
(17:31) think this is something that we like to do on this program too I mean you and I both really like the the the wonkiness of the markets right it’s a fun puzzle to try to solve it’s really an unsolvable puzzle right but you know trying to figure out well what are the what are the core things driving the market right now and those things keep changing right that’s that whole idea that markets abor and exploit and so the exploit gets washed out but you’re constantly trying to get a sense of well where’s the the mass or the the the
(17:59) center of mass of the target of the market what’s driving it there’s always things around the periphery but it’s always moving right so it makes for an interesting puzzle and even as you hear me describe it what does that say it’s like oh well we like this stuff so we tend to talk about this stuff the I think the thing that I noticed for investors is we we’ll come here and start you nerding out about the markets and and a lot of people will listen and their eyes will roll back in their head because that’s not what their
(18:25) interest is I think the bigger challenge is back to that firefighter concept if you are if you get really stressed out for anything you you know you go into a fight ORF flight response those are not necessarily rational decisions anymore fight ORF flight is sort of panic driven and so you either what you you run you freeze you you know so fight or freeze yeah you hear one of those ads on the radio for move everything to Gold because you’re scared and then you actually do it like we’ve seen that that’s exactly was a wonderful example
(18:57) right because it’s really a appealing to the fear side of the equation in order to induce a sale or IND induce an action and what an adviser should be doing is taking a step back and applying a more rational or longer term response and so the idea is through training they’re going to be less emotionally swayed doesn’t mean zero cuz I mean I still maintain like I feel the emotions when things go chaotic I’m like that does not feel good but the behaviors look different because of the training right
(19:32) and and the a lot of the studies play this out over time that usually where a financial professional demonstrates the most value is in Dam markets right and so the the returns are made by a mistake avoidance right right it’s not that advisors outpick the markets I mean we’ve talked about right the S&P 500 it’s hard to beat mhm it’s the downside it’s the risk management it’s the tax management it’s all the other things that improve efficiencies that lead to Superior outcomes over time typically according
(20:05) to the data right I’m not I’m not I guess we you know advisers are always pitching themselves right but the idea is just look at the data it’s pretty clear you just mentioned something interesting you said it’s been kind of hard to beat the S&P 500 yeah but I actually kind of want to and I know we’ve talked about this off air a little bit kind of dive into looking at you know what does the S&P really look like if you take out those Magnificent Seven that we talked about earlier yeah is it
(20:34) a fair bogey right now or is it a good bogey right is it good right now that’s a good question yeah cuz I can tell you there’s there’s some elements to that that when I look at it it frustrates me yeah well you know you hear people say often just by the index and we’re not trying to discredit that right because sometimes that’s a really good option however what happens when you get these Mega tech companies or these really big growth companies that have had a huge Run is it still the play well let’s let’s use this
(21:14) as a an interesting opportunity here um mostly because the clock right but hey look at the difference between the S&P and the Dow this year mhm okay the Dow 30 stocks that are industry leaders yep right then they are they are the the right and so you got the the the supposedly best to breed 30 stocks in the Dow S&P 500 you’ve actually got like 503 stocks in the index and yet this year at least until recently it was the correction has has made them closer but as recent as a week ago the S&P had outperformed the Dow by
(21:57) close to 10% the yep a 10% Gap so you mean to tell me that by owning 503 stocks I made more money than concentrated in 30 I want to unpack why that is yeah cuz that’s really weird by the way like if you’re listening to that going like huh that’s that’s just not typical and it hasn’t really ever occurred before but there’s a very interesting CU cuz what we would expect is broader diversification M would typically lower the overall return right because a lot of companies fail they go under yeah
(22:34) they they get gobbled up or they you know they just couldn’t make it so why is it that these 500 something companies outperform the 30 Darlings I want to talk on that yes and I think this is if you’re wondering yeah we totally set it up we’re going to take a break okay and when we come back we’re going to pack like what the heck is up with the S&P 00 compared to the the Dow I’ve got a great answer for you David good hold that one cuz we’re going to come right back I’m Da Little John and Matt Dixon you got
(23:07) true wealth on news radio 939 FM and 1240 kqen hey gang welcome back to the true wealth radio show Dave Little John in studio today with Matt Dixon we’re covering a lot of material yeah yeah well the markets are definitely I mean we started with hey it’s wild ride and a little bit of uh maybe why you’re never quite sure but we think we have a pretty good understanding of what what uh triggered the draw downs we the internet said it it has to be true that’s a good point you know the other Theory um from
(23:37) uh you know we all know dark State yeah is that if somebody has a logo on their shirt when they say it that also can make it real oh yeah yeah yeah so like logos any kind of if there’s swag for the company it’s probably leg legitimate yeah yeah so glad we had that talk um we were going to talk a little bit so this this segment I hope will age pretty well like I hope this will age well it’s something that will probably show up online cuz I I feel like this is really important we just monking around today
(24:10) in our investment committee started pulling some data on this cuz we we’re talking about why the S&P 500 and the Dow have had such a disparity in returns this year yeah right typically speaking more concentrated portfolios when the market is going up they tend to make more money this sort of makes intuitively it’s intuitively sensible if you will because a concentrated portfolio is higher risk right so if you take on more risks then you are supposed to be rewarded for doing so right supposed to be okay now of course there’s security
(24:44) selection in there and so forth but the that this whole theory is sort of what was driving the latest uh collapse or collapse it’s probably an over you know abuse of the term but like the latest pullback this week was because a carry trade people were investing in really the seven concentrated positions in the S&P 500 right so if you want to understand why this matters it’s a little funky but the Dow and the S&P they are not weighted the same way the Dow is a price weighted index where the price of the share influences how big of
(25:21) a position each company has in the index but they’re more similarly weighted than the S&P P where seven stocks now account for close to one third of the S&P 500’s total asset value right think about that for a second if one third of the S&P 500 is controlled by seven stocks how Diversified are you that’s the question right so if those seven stocks perform twice as well as the rest of the market think about this for 2/3 of your portfolio could lose 50% and 1/3 of your portfolio doubles and you
(26:06) look like you lost nothing mhm right that’s a wild way to think about it I mean like numerically speaking you would be right where you started because a portion of the portfolio doubled while the other half the other portion was cut in half and so 1/3 became 2/3 and 2/3 became 1/3 it’s still 3/3 here’s an interesting thing for you to think about so you look at just how much are these companies like earning per share right yeah if you strip out those Magnificent Seven the rest of the stock market this
(26:39) year would show a decline yeah so earnings are actually shrinking right which indicates what well that’s kind of a loaded question it’s a loaded question because my guess is you’re thinking it indicates recession well maybe not maybe not but but slowing growth for sure right because here’s an interesting Theory could we have already experienced a recession gotten through it and we walking out of it on the upside and no one even talked about it like cuz it never was declared we never declared this a recession in the last let’s
(27:17) here’s we haven’t done this now I want to go run this experiment like this we’re talking about this live on air right the idea of if you looked at the performance of the S&P 500 x the Magnificent 7 right and then you overlaid that with the purchasing power of the dollar and you looked at it and said well if we lost purchasing power and the rest of the index was flat or negative the vast majority of the market really did experience a recession we just had a very concentrated group of stocks kind of propped it up so bucked
(27:54) the trend and I I use the term Eclipse right right when the moon which is smaller than the Sun Passes in the right spot at where you’re standing you can’t see the sun anymore mhm and so to you it’s blocked everything out well if these stocks Eclipse everything else you don’t see the other data points all you see as the effects from those stocks yeah there was some really interesting charts I was looking at I won’t even get into the details but they were showing um things that have happened in the past
(28:26) and the charts you know when when they got to a certain point showed well there was a recession during this little window of time and I looked back at it and I looked at where we are today we’re kind of actually crawling out of this hole um and I look at it and I’m like there I think there’s an actual chance that history books might look back and say we’re kind of in it right now well that we passed through a recession and no one even talked about it I think it’s possible well I think it’s possible that
(28:55) with this much concentration in a handful of stocks mhm and the way we keep sort of retooling the way that we record data at a government level I’m like I I don’t know that you can take the same indications that we had 15 20 years ago and apply them today because that’s why I keep think STP the stocks out yeah just look at job growth as an example of that where are all these new jobs coming from government sector are they actually like well we talked about they they add to GDP but they do it through more debt right
(29:29) right so it’s like okay is a true reflection of the actual economy you could debate that both ways I guess yeah I mean you start looking at GDP versus um debt right the debt to GDP ratio and where those fall but again if we keep changing the way we measure right if CPI is measured differently today than it was 30 years ago right it excuse everything or if we have sectors that have changed like sectors that didn’t really exist but like AI wasn’t a thing 20 years ago true it wasn’t a big investable sector it was an idea that
(29:58) like some tech companies were playing with right Tech is getting so big that we’re starting to break it into sub sectors that are becoming whole sectors right right I mean semiconductors is practically its own sector it really is you know there’s like 12 big players in that and so you look at that and think well we call it Tech and we call semis a sub sector but it’s like darn near its own sector like when it’s asig Amazon’s basically a tech company yeah it’s called retail it’s online retail right
(30:31) yeah you’re like come onun this stuff right so you’re just like wait a second and Microsoft I think is software Apple I think is Hardware so you just like I don’t even know how we’ve assigned these I just know it’s a giant portion of the economy it’ be interesting to know as a percentage I I don’t know right I mean I I would not go by market cap for sure oh gosh you went by market cap it’s got to be over 50% but but and even revenue is kind of a tricky one to measure these days because you still look at like oil
(31:07) companies and how much revenue goes through those companies and you’re like oh my gosh but then you see like a multiple on on their their earnings of like eight you know 10 and you say well but Microsoft said a 48 yeah and I’m like huh why is the multiple on Microsoft so much radically higher and some of it is I think it just comes down to what are your net earnings because you can make a ton of money but if you’re not putting any of it in your pocket I think that it’s not just that I think what Microsoft does is it benefits
(31:43) it gets an expansion of multiple because it’s in a sector where other companies that are growing fast that are in the same sector are given higher multiples and so what we do is we say well Tech gets a higher multiple because of higher growth rates right and so we just sort of lump it in with all the fast movers and the reality is Microsoft has been a pretty fast mover right I mean for a giant fish they keep getting bigger Microsoft’s like its own bank almost right like you have that much free cash sitting on the sidelines and everyone
(32:15) wants to take a loan from you because your credit rating is so high so you can go you know here’s a dirty secret Matt all of the giant players are like that if you look at a hospital system it basically functions like a bank all of these giant companies now are cash flow management machines right right so the earnings that come in there’s always a huge bankability aspect there’s a huge aspect of Leverage these margin accounts all the there it’s all mixed together like even oh it’s a tech company yes but
(32:48) it it’s going to do a lot of things to manage its finances this is why and that’s why you can get into these situations where it’s like there is more money that’s being borrowed than actually exist right and it’s why the FED matters so much and it’s why when you hear Warren Buffett say the derivatives Market is a weapon of mass destruction right that that is it’s a scary place when you are creating financial instruments built on other financial instruments that may have already been built on other financial
(33:18) instruments right because I mean you think a lot of people think well when I go and I take my money to the bank and deposit it well it’s just sitting there waiting for me to come and get it back it’s like no it’s not because the bank just loaned it to someone and then that institution is loaning that money out to someone else and how many times did that money get loaned right like yeah it’s not just sitting there waiting for you if you want a great explanation of this by the way um go to KH Academy and look
(33:45) up fractional Reserve Banking and it actually will explain it pretty well in a in a very clear format and all of the sudden when you hear us nerd out about like oh well you know look at uh the yield look how yields are dropping M okay we always say yields are dropping but you know what people don’t say which is equally true look at how the price of bonds are rising right why is the demand for bonds going up like if you own that Bond already and the yields drop someone’s going to pay you a premium well if the yields drop yes your
(34:18) bond is going up in value and and it’s just people it’s backwards of what you kind of associate but you know if if the yields on bonds are at 8% the bond looks cheap because well I can get 3% at the bank or I can get 8% on a bond I’ll go buy the bond right and that’s supply and demand right demand went up at that low price point it’s going to be interesting to see in the near future I’m talking like the next three months where will the money move because we have seen like we just talked about rates have gone
(34:49) down you can’t go get that you know if what was 7 and a half% might now be 5 a half% so people are going to be less incentivized to go uh lock up their money in those fixed income products but there is now all this added volatility to the stock market so where does the money move I think it’s a great question I actually want to ask you where you think it’s going to go okay but first right I’ll disclose this one we’re not going to make predictions or recommendations okay and two we are going to take our last obscene profit
(35:27) break of the show okay stick around we’ll be right back I’m Dave little and Matt Dixon you got true wealth on news radio 939 FM and 1240 kqen welcome back to the true wealth show home stretch here uh Matt I want to play the game of um you not accountable to the answer and U if anybody ever says that you are we fully disclosed we’re not giving advice here okay but you know we got this we got a lot of variables going on right now I’m putting you on the spot just a little because I think you did a great
(35:59) job of walking the fence this morning in our investment committee kind of talking about the pros and cons help our listeners a little bit with I mean all the stuff that’s going on what do you do with this like like how do you where’s the market going to head if someone said Matt you got a pick I would say we’ll probably see investors still leaning in to the fixed income stuff the CDs and the bonds I think we’re going to still see people leaning in even even though it’s not paying quite as much as
(36:30) it had in the past um let me ask you do you separate in your mind between retail and institutional right now I think it’s going to be both I really do I think that um that market is still going to see money coming in um just because the FED is looks really committed to a rate cut and I think people are like last minute scrambling can I throw something at you too you mentioned this earlier I know I’m I’m sorry I’m throwing him up will you talk for a minute about like you brought up the um unemployment
(37:03) numbers and that was kind of a surprise and what do you think the FED does now well yeah I think with I mean that’s one of the pieces right like job growth is slowed and there’s this overwhelming looming cloud of like did we kill the economy and the FED doesn’t want the economy to be killed off and so one of the things that they can do to try and prevent that from happening is to lower the rates to incentivize spending which would in turn in theory pick the economy back up um and so if we and I think I
(37:37) looked at the numbers it was like a 95% chance we get a rate decrease come September so it looks highly likely so the Market’s betting that’s the case the market is betting that and I think investors with especially with what just happened in Japan and this carry trade I think investors are going to say you know what um especially um since the markets had a huge run early why don’t we play a little bit of safety play a little bit of Defense kind of maybe move more into these bonds and fixed income
(38:11) products for a season and get some of that uh yield while it’s still available it’s really pricing in that it’s going to be gone like the 10year treasury is below 4% again like it’s really slipped but I think people are going to in some of that short-term stuff the one to two year money and so I do think we’ll see an influx there but I also think we will see people coming back to the equities as well because greed the market is greedy investors are greedy where does the money come from that is a great question now I’m
(38:50) going to flip that back and say retail investor or Institutional Investor yeah well Institutional Investor I feel feel like you can almost conjure money with rates coming down margin should expand so I can see institutions being able to conjure money to be putting to go after assets and especially in the derivative Marketplace you know you can basically leverage up more with lower rates right and so you could see major companies buying their own stock back right yeah like if they’re already like beat up on
(39:19) paper and they’re like hey we’re a solid company let’s buy up some of our own company and then hold it because if our share price Rises we just makes the share price rise right if you buy your own stock you’re taking um Supply out of circulation so same demand lower Supply price goes up y so so or if you are the Demand right you’re you’re generating artificial demand would be the the other side of it it’s like okay well we we’ll be the demand too and we’ll drive that’s
(39:44) kind of what the FED did when they were buying bonds by the way that’s how they lowered interest rates through quantitative easing is we’ll just become the demand for the market But to answer your question I think there are a lot of Institutions from what I’ve been reading that are sitting on a substantial amount of cash somewhere between 10 16% I think a lot of I think a lot of people are doing that and so if the stock market gets cheap enough which we just had a pretty good pullback we could see
(40:10) some money flow back in and start buying those positions back but I think more money might actually flow into the bond market interesting for the short term yeah next next 30 to 60 days I could see that especially given the the high levels of uncertainty and the high polarization in politics right now MH you know that’s another one that’s a good point we’re coming up on an election people are scared what do you do and you’re scared yeah you buy safety yeah and so I could I could see that and
(40:40) it’s interesting because people are scared or depending on how the polling data goes it’s funny cuz I could see both both directions here and and the statistics are really um interesting here like a lot we tend to have a pretty conservative political base around here largely not exclusively but largely and uh interestingly enough uh the highest performing Market environments have been Democratic Leadership with Republican House and Senate right it’s true you know but but but the more gridlock that
(41:14) exists the better the market tends to perform isn’t that weird yeah and and I my suspicion is it’s just well we’re not making a lot of changes and so when things are more stable for business they can yeah well that’s true you don’t have to worry about economic policies changing not as much fiscal change yeah this is also my case for why when we hear I have people question like hey what happens we’re not going to go down this rabbit a whole real far but like what happens if uh Israel and Iran go to
(41:41) war you know Russia is supplying Iran now and it looks like there’s going to be proxy war with Russia going through Iran and Iran going into and it’s like what does that mean for the markets and and I go it’s a human tragedy but I don’t know how significant it will be as a market mover other than for the initial news of like this is happening larger defense spending yeah and I hear people say oh you know what about the price of oil or this that and the other said well I think it just sort of moves
(42:06) the political pressures around for where oil is pulled from well yeah are we really getting a ton of oil from Iran so we don’t we get a lot of our oil from Canada exctly right but when what we get from Canada then other people get it from Iran so it’s sort of fungible about where it comes from um but yeah that’s the the bigger question if you will is like those are foreign policy issues but I don’t know how significant the impact to the market in the short term David talk to me a little bit about the person who
(42:36) is tuning into the radio show because they’re scared they’re worried about the world the markets and they’re like you know what I need to get this figured out what do I do yeah okay so if you’re a do-it-yourself investor first of all keep learning and the more you learn the and the more disciplined you become the better off you get for the person that that’s just not what you’re interested in doing right and there’s lots of reasons for it either you you can’t you won’t you don’t want to all of those are
(43:05) perfectly reasonable Reasons by the way then I would say find somebody that you get along with and that you trust okay and get get aligned for some help okay and and that can just be a second opinion of will you look at what I’m already doing and and help me there uh if it’s the kind of thing where you want to actually work with someone this is basically what we talk about with our firm is you you contact an advisor you you usually get uh some there’s a certain amount of like free that’s going
(43:34) to come with well just come kick the tires and figure out if this relationship’s got potential and does the does the culture of the the advisor and their resources match what you’re looking for right and I think that’s the huge thing right there is you know is it a good personality fit for you can you work together can you will and will you follow the advice right but I think that it’s something that you can’t ignore right if if you’re not investing right now you’re wrong mhm so I just really
(44:03) think it’s important and so um you know what I’ll say to that is if you don’t have somebody already give us a call we’d love to at least help get your point in the right direction the question is how do they reach us yeah go to our website uh little jfs.com you can chat us on there or you can uh give us a phone call at 541 37508 98 you can text that number as well yep so lots of ways to reach us but the important thing is to remember don’t do nothing yeah no decision is still a decision it’s just a
(44:35) bad one right so give us a shout if you can but uh we’re out of time for now so until next time thanks for tuning in I’m Dave Little John and Matt Dixon you’ve been listening to True wealth on news radio 939 FM and 1240 K in