A New Beginning

August 3, 2019

Welcome to Creating Richer Lives, where living a richer life goes beyond the balance in your bank account. In fact, it’s about what you do with your dollars and how the choices you make with your money, not only define your lifestyle now, but impact your legacy for years to come. Whether you’re working towards retirement or seeking ways to make philanthropy your goal, there is a road to get you there. It’s time to redefine what it means to have a richer life. Welcome to Creating Richer Lives. Here’s your host, Karl Eggerss.

Hey everybody, welcome to the podcast. My name is Karl Eggerss. Unfortunately, the big debut of the new podcast, Creating Richer Lives, comes with little bit of a cost, it is you having to listen to a laryngitis voice. Now, I almost didn’t do the show and I said I’m going to power through. My voice is good enough to do the podcast, so I’m going to do it. I’m going to attempt to do it, so bear with me. There will be some throat clearing, a lot of coffee, but there’s so much going on right now and so much to tell you that I couldn’t not do the show. So here we go. It’ll sound at times like perhaps going through puberty, but I’m not, I’m a grown man.

But yeah, welcome to Creating Richer Lives. This is going to be a podcast that very similar to what you’ve heard in the past. However, we’re going to add a lot of new features, probably more interviews in a lot of different areas. We’ve done interviews over the years on the Eggers report in the past and they were just few and far between. So I want to do a few more interviews, bring on some experts in the fields of financial planning, tax planning, the state planning, all areas trying to help you live a richer life. And what does that mean? I mean, obviously when you hear a richer life, you think, great, these guys are going to try to help me make more money. And certainly, we want to do that, but we also want to give you a better lifestyle and it’s really choosing what you want to do with the money that you create. And that can be, obviously it could be taking care of a an elderly parent, it’s making your life richer.

It could be anything, educating your kids. And what you do with your money is really your choice, right? You can use it for your own benefit and do whatever you want to do, whether it’s travel, or going to nice restaurants, or just spending time with family. It can be given it away, right? The legacy part of it. It can be given it away and we’re going to help you over the next several months, teach you ways to do that. And it can also be giving it away to not only your kids and grandkids, but it can also be giving it away to charities and being philanthropic with your money.

And then the last thing is what we’re going to try to help you reduce, if we can, is the tax part, right? We can always give our money to the IRS, we choose not to do that, as little as possible, obviously we have our taxes to pay, but there are ways to reduce your taxes, and we’re going to try to help you do that. So that’s what this podcast is all about, is us really helping you create that richer life. And that’s what we’re going to do.

So, having said that, go to creatingricherlives.com that’s the new website and you will see the podcasts on there, and we’re going to beef it up over time, you’ll see more content on there, but we wanted to launch this so you would have a place to go to listen to the podcasts and get some more information. So, please do that, creatingricherlives.com.

Now, I’m really powering through with this voice. Let me take another sip of coffee here. So, we did have a very important week, very, very busy week. We had not only the Federal Reserve, which everybody knew they were going to cut interest rates at least a quarter of a point. Some people hoping for a half a point, but a quarter point was already baked in, they’d pretty much said they were going to do that, they did that. Market didn’t react much to that until the press conference when Jerome Powell, the head of the Federal Reserve comes out and says, “Hey, here’s the deal, this is a mid cycle cut, this is a case by case situation,” and of course I’m paraphrasing, but he gave the impression that it may be a one and done. Like we did this and we’ll see how it goes down the road. Instead of, yes, this is the beginning of a rate cutting cycle.

The market in Wall Street and investors did not like that comment and stock market went down very quickly because remember, the United States, all the countries around the world are addicted to low interest rates, cheap money, and we’re seeing that. And so, that comment caused the stock market to sell off.

Now, what’s interesting is I thought it was silly because they’re still going to look in six weeks and assess the situation and probably do it again. And so, you saw the next morning the stock market went back up and was up about 300 points, the Dow Jones, until president Trump said more tariffs are on the way as of September 1st because China is not holding up their end of the bargain. They said they would do this and they’re not. They said they’d do this and they didn’t that. And so, they are not living up to their end of the bargain, therefore come September 1st, we are going to implement more tariffs. So the Dow fell about 300 points.

Now, remember it was up about 300, so it had about a 600 point swing on Thursday and then of course on Friday more selling down at about another hundred. So for the week what we saw was, we saw the Dow Jones down about 2.6% the S and P up down over 3%, we saw growth stocks get hit, we saw the Nasdaq down about 4%, queues down over 4%, emerging markets down 5%, small caps down 3%. So selling across the board.

Areas that did very well bonds, gold did very well for the week. In fact, if you look at the things that made money last week, treasury bonds, gold, gold miners, real estate, corporate bonds, housing stocks made money, utility stocks, your usual suspects. But let’s think about this for a minute, what’s really driving the market right now? Is it the fact that the Federal Reserve only cut interest rates a quarter of a percent? Some believe we should’ve had an element of surprise in cut, they should’ve cut by a half a percent and really caused the market to go, wow, we wanted that, We didn’t expect it, but boy, what a surprise the market goes flying up. Others believe that they should not have cut rates at all because the economy is not heading into recession, therefore they shouldn’t have cut.

Honestly, at the end of the day, it’s more about the tariffs than it is about the interest rates right now. And you could see that because the market didn’t do much, it went down a little bit the date of the interest rate cut because of the comments, but then it rebounded and was up really nicely on Thursday only to sell off once the tariffs kicked in. And if you look at a chart of when president Trump has implemented these tariffs, that usually begins the sell off. It happened in January of 18, happened in the fall of 18, it could be happening now. So watch the tariffs because that seems to be what’s driving the market a little more than interest rates.

Now I did send a picture internally to a couple of folks on our investment committee earlier in the week and saying, you know that volatility index looks like it could spike very soon, had that little picture, the curling up a little bit, and boy did we get it. We got about a 45% jump in the volatility index this week.

And what about interest rates? Interest rates on a 10 year treasury have dropped to 1.85%. Bonds are very, very overbought, but they keep going up, right? Overbought stuff can keep going up. So this is where, again, having a balanced portfolio makes sense because most people would believe interest rates would be much higher. The bond King, Jeffery Gunlock, it said interest rates were going to be much higher, he’s been completely wrong on that because they’ve been going down. I’m not picking on him. A lot of people have, but it’s a good lesson in diversification because if you say bonds are not a good deal, I’m going to only own stocks. Bonds have been doing very well this year and continue to do well.

So that’s a balance approach, but they’re over bought right now, probably going to pull back a little bit [inaudible] but look at interest rates across the world. Interest rates across the world are becoming more and more negative. Germany is supposed to be one of the best in Europe, their interest rates are negative across the board from one month maturity all the way out to 30 years. Unbelievable, negative interest rates. We’re seeing it spread. Could it happen here? Why not. That we would probably have bigger problems if that happened here, but we’re certainly headed that direction and it’s something we’re going to have to watch.

Now the areas that get hit the hardest, obviously interest rates were down quite a bit, steel stocks down 8%, right? Right in the cross hairs of tariffs and so forth. Metals and mining down 6.5%. Oil and gas stocks got hit. Semiconductors down 6%. Regional banks, and why would banks be getting hit? Remember they are profitable when they can lend at a higher rate and borrow at a low rate, and right now it’s compressing. They’re not getting a big spread. So they’re getting hurt. Retail down 4.5%.

So there’s a lot of damage across the market right now. Are we in the middle of a sell off? So far, the answer would be yes, but remember we had not had even a 10% sell off in 2019 and we typically have 13% to 14% sell offs at some point during the year, and we have not had that, so we’re due for a sell off. In this script, the last year and a half has been tariffs, whenever tariffs flare up and a trade war flares up, the stock market sells off. You combine that with interest rates when the Fed was tightening and stock market sells off. Now the feds loosening and the stock market’s still selling off, which tells you this is about tariffs, the script is the same.

If we go into late August and a deal is not, market continues to sell off more than likely. However, if we see progress, because this is a threat about September tariffs, if they get some type of progress, remember that’s all we need right now, some continued progress on trade. I think the market rebounds. And remember we’re in our estimation, we’re still in a bull market, okay. We are still in a situation where the economy, not only in the US, but around the world is slowing and it looks like it’s going to continue to slow. We don’t see a recession on the horizon based on our consensus view, but we do see an economy that is good but not great. We’re getting mixed signals, but there is a slowing going on and because of that many believe this slowing is going to continue to lead to lower interest rates and therefore you can continue to own bonds.

That doesn’t mean you don’t own stocks, it just means that the interest rates spike that everybody was thinking may be delayed. My thing is we have to look at the behavioral side of this. If everybody agrees on something, you know what happens. We could get an interest rate spike just because everybody’s leaning the wrong way and it separates from the fundamentals. So let’s continue to watch that. I’m going to spare you the rest of this podcast with my voice. It is deteriorating as I speak, therefore, I’m going to cut it short.

But just keep in mind that right now what’s going on is the tariffs are probably leading the way for the stock market. Again, watch the action on Thursday, market was recovering fine until the tariffs, so let’s continue to watch that. There’s a lot of rumors about this trade war and the timing of the election. Is Trump trying to maybe perhaps delay this trade deal knowing he may have one in his back pocket until closer to the election or is he trying to … some people say he did this right after the Federal Reserve because he’s trying to force the Fed’s hand to cut rates, because remember, the Fed said, “We are cutting rates partly because of the trade war.” So Trump wants lower rates. He’s begged for it. He’s criticized the Fed, he’s criticized Powell, he did it again this week. If he exacerbates the trade war, could that lead to lower rates?

I don’t think that’s the reason he’s doing this. I think it’s because China is not doing what they said they were going to do and he’s getting impatient and he knows tariffs are the way to get them to give in. And again, I’ve said I don’t like the tariffs. You hear about costs going up, right, on various things. It’s going to be a tax for you and I, but nobody else has offered a solution. Tariffs do seem to work to get China to always come back and give in on some things. So, we’ll see how that goes.

Next week, God willing, my voice will be better and we will do a more in depth podcast and we’re very excited about Creating Richer Lives, hope you are too. We’re going to have on just a lot of guests and do some really fun things that will hopefully help you create a richer life for you and your family. So, don’t forget creatingricherlives.Com. Our phone number is the same. You can always email me or call me, (210) 526-0057. if you or anybody you know does need help, we are here to help you, that’s just for a conversation and you can always email me as well, but just go on to creatingricherlives.Com. All right, have a good weekend. I’m going to go have some more coffee. Take care, everybody.

 

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy or product, including the investments and or investment strategies recommended or undertaken by Covenant Multifamily Offices, LLC, Covenant, or any non-investment related content will be profitable. Equal any corresponding indicated historical performance levels be suitable for your portfolio or individual situation or proved successful. Moreover, you should not assume that any discussion or information serves as the receipt of or as a substitute for personalized investment advice from Covenant to the extent that a listener has any questions regarding the applicability of any specific issue discussed above to his or her individual situation, he/she is encouraged to consult with a professional advisor of his/her choosing. Covenant is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of our current written disclosure brochure discussing our advisory services and fees is available upon request or at creatingricherlives.com.