It’s A Start (Audio Podcast)

March 28, 2020

On this week’s podcast, Karl discusses some of the boxes that got checked that helped the market rally.  Volatility continues and Karl shares what investors will be looking for next for the uptrend to continue.

 

Hey, good morning everybody. Welcome to the podcast, Creating Richer Lives. My name is Karl Eggerss. Thanks for joining me as usual. We do this each and every week and we’ve been doing this for a long, long time. I think I started podcasting probably in 2009 or 2010, just after the financial crisis, the GFC, they call it, the great financial crisis. And so, I’ve been podcast in a long time. I don’t know if I’ve ever… I may have missed a week or two, but pretty much every week for the last 10 years, I have been doing a podcast.

The name has changed over the years, but the type of show we do hasn’t really changed. I try to bring you what’s moved the markets in the previous week and the things that really stand out to me, not only that drove the markets, but really trying to help you think through what you should be doing or not doing. And again, as we’ve said before, this isn’t an advice show, this is an information show. This is a show to give you tools and to help you look at things from a different angle.

And a lot of you have given feedback over the years and saying, “Thanks, I didn’t think about this or I didn’t think about that.” And your comments are appreciated and your listening so constantly, the last several years, is appreciate. And of course, we have tons of new people that join the show each and every week, every month. And so, welcome aboard, interesting time to be joining the show. We certainly are continuing to see a history being made literally.

Before we get started, this show’s brought to you by Covenant Lifestyle Legacy Philanthropy. We help people with financial planning, executive compensation structures, family office help. We help people with 401K locations, help them through their taxes if need be, tax planning, cashflow planning, retirement planning, looking at your 401K, should I do a Roth conversion? When should I take social security? These are all things that come up and, of course, helping people navigate their investments.

This isn’t an exaggeration, this is a fork in the road that can really change your financial picture for the next several years for good or bad. You look back, and this is something I ask everybody when they come see me for the first time or really anybody at covenant is tell me what you did during dot com bubble and the subsequent collapse, and tell me what you did in the financial crisis, 2007, 2008 et cetera?

And oftentimes, what you did, not how you felt, but what you did tells you a lot about what you may be doing now or not doing now or things you’ve learned back then. And of course, all of these situations in the dot com bubble, market fell 50% ish, 2008, the market fell 50%, and of course, this market maybe, hopefully not, but maybe on its way to doing the same. We don’t know.

Right now, markets are down anywhere from 20 to 30% depending on what you’re looking at. Value stocks are down 36% year to date based on a basket of them. Standard and Poor’s 500 is down 21%. Blue chip dividend stocks, down over 29%. Small caps, down over 31% year to date. So, the losses are big so far, but as we’ve seen this week, the gains can be big too.

And so, what are you doing during this time? I’ve asked it before and I’m going to continue to ask it. Some of you have sent me your recent moves or just how you’re positioned in general. And I can tell you what, in general, we’ve been doing, is not making huge, massive changes in terms of out of the market, in the market, but I would call it giving the portfolio a tuneup. It’s like giving your car a tuneup and what that means is looking for opportunities. What’s the world going to look like after this?

And we don’t know exactly, but we do know there are certain areas that might do better than others. If you’re somebody that is working right now, you’re working from home, and you’re probably, I’ve been doing it this way literally for over 10 years, off and on, using technology to its ability here, which is video conferencing, Skyping, Zoom, VPNs, virtual private networks. All these things that some of us have been doing, now the whole world’s doing it. Is that going to continue?

But technology, in general, is really helping us through this. It’s what’s allowing us to keep ourselves entertained through this, through streaming services, through internet connectivity, some people are gaming. But we’re also looking at all these other companies that are providing behind the scenes, the cell phone coverage, the networks.

So, technology is a great area that is going to continue to do well in my opinion going forward. So, you start thinking about, “Do I want to own specific stocks, industries, sectors, whatever it might be, versus just owning the market?” And again, that’s very different for everybody, what that might look like. But think about that.

We’ve been fine tuning. You think about what’s going on in the healthcare industry. I think this situation we’re going through in the United States, in the healthcare world, is very akin to what happened to travel and security in 9/11. You Remember the talk back then was nobody’s ever going to fly again and we’re going to have security all over the place. And part of that was true. Security got ramped up, tons of money was thrown at that area. Those stocks did very well over the next few years because everybody agreed we have to up our game when it comes to security and we’re not going to choose to go on the cheap. We’re going to make it better and, whatever it cost, we are all in agreement on that.

Now, what you’re hearing is nobody’s going to go to the office, everybody’s going to work from home, nobody’s going to want to go to movies or restaurants. Those things will come back. We know that, over time. But things are going to change a little bit, but what I do think money’s going to be thrown at are particular areas in the healthcare industry. People are going to be trying to find more cures

So that this doesn’t happen in the future or minimize it in the future. The supplies, we know has been a big issue. Not enough masks, not enough gowns, not enough respirators, not enough ventilators, not enough beds. Right? We know all of that. We hear all of that, at least. I don’t understand how that can be the case when we have the flu every year, which is a lot more people going to hospitals and doctors during that time and we get through it without hearing anything about that. But I’m not saying it’s not correct. I just don’t understand that, personally, how we’re coming up with that much shortage with the numbers we’re seeing. But regardless, if there is a shortage, that’s going to get fixed and addressed over time. We’re going to be overstocked in all this stuff. Right? And so there’s opportunities in that as you look forward. By the way, (210) 526-0057. Forgot to give our telephone number.

Our website is creatingricherlives.com. Putting a lot of commentary on there. There’s a lot of things going on with taxes and so forth that’s changing, which I’ll get into in just a minute. But getting back to the portfolio here, again, making huge wholesale changes can be great or it can really hurt you long-term. If you get very, very defensive on the lows and the market rebounds… If you go back to November of ’08 or March of ’09, which was when things were at their worst, and you got into 50% cash and it made you sleep well at night only to see the market go up 300% the next several years or whatever it did, those are the things I’m talking about. And I don’t know how long this will last. The economic damage right now is going to be real. It will also… A lot of things will recover quickly.

And so the market has a funny way of sniffing those things out and anticipating that. And I’ve been saying, I don’t know if it was on here, but definitely to a lot of people recently, that the drop was so drastic and so extreme and the volatility was so high, that we would not be surprised to see a breathtaking, literally breathtaking rallies as well, and that’s part of this type of market. This is what’s going to happen, but it’s not going to be a V in my opinion. It’s not like in a month from now when we’ll be back to where we were, I don’t believe, but it’s going to be sloppy and choppy and there’s going to be days of continued big move. What we need to watch is the volatility needs to come down on the volatility index.

The first part of this was the monetary reaction by the federal reserve by the treasury has been amazing to watch. 2008, 2009, it took them months to do literally what they’re doing in days, and that’s helping a lot because, and I mentioned it last week, the bond market, the credit markets had to heal. And you saw a tremendous amount of healing this week of investment grade bonds bouncing back a little bit of just all types of bonds that were really getting hurt bouncing back. That is huge because companies are tapping their credit lines. They need to go borrow money. The credit markets have to be healed first. That’s number one. Number two was the fiscal response, which took a little bit, but finally got done. The president signed it yesterday, on Friday, and that got done. Little messy, bunch of crap… Pardon my French, but a bunch of crap pushed in there, but that was negotiating. Some stuff had to get done in there, but it’s sad to see the types of things that have nothing to do with helping Americans get through this that got put in there, but it got done.

Some of the things that got in there were interesting. How it came, for example, money that’s coming to families that still have a job but make a certain amount of income are going to get a check, while those that maybe have a higher amount of income don’t get a check if they don’t have a job, they may not get a check. And so I don’t know if the means testing is the proper way to do this, because some people are going to be double-dipping. And I haven’t looked through all of it. That’s what I will spend this weekend doing. Also, what I heard and looked in there was that the payroll tax holiday was just on the employer side, not on the employee side.

So, social security, Medicare, you pay half, your employer pays half. If you’re self-employed, you pay both halves. Just the employer side was getting a holiday and it was going to have to be paid back over time or the employees don’t get that holiday. So ,some of these things I didn’t really understand and still don’t, but we needed fiscal help. That is coming. So, we have the monetary help. We have the fiscal help. Markets reacted favorably to those things. What are we looking for next? Obviously, a peak in the new cases, the active cases, the deaths. And will that come in the next couple of weeks? I don’t know. But when we see that start to crest and head down, that’s good, right? Not only is that good for humanity and health, but that is going to be good for the markets as well because you can start calculating and potentially start estimating when companies will get back online.

Now, the big number of the week was 3.28 million. 3.28 million. That’s the number of people that filed for unemployment this week. And I kept hearing it’s going to be over a million, and I was telling people in private, “This is going to be a two to three million number.” And it was. It was over three-million, but yet the market rallied strongly. Why would that be? One reason is because there’s a known. We now know what that number is and we can work off of that and start making estimates on things. But that’s a huge number. We were averaging in the 220,000 range each week of people filing for unemployment. Very big number. So, when people get the money from the stimulus, how they do it, it’s going to take time, right? Now, with any type of crisis comes people looking to take advantage of that crisis.

And I saw an article this week. I’m not going to read it to you, not going to go through it with a fine tooth comb, but I did want to mention it because I’m shocked that I see this, but at the same time, nothing surprises me anymore. So, apparently, a man… And this has happened a lot over the last few couple of weeks here. There’s people that are seeing that the cruise lines and the airline industry are going to get bail out money. So, there’s a man out of Indiana named Rodney, and guess what he did? He launched an airline company. He called it Bailout Flights, and he said the mission of Bailout Flights is simply to collect a portion of the $54-billion of bailout money, and he’s on record stating that he’s confident they’re going to collect about $10-million. He said, “I’m pretty darn sure…” This is a quote, “Bailout Flights will be able to collect at least $10-million from the government.” He put, “You see, the government isn’t very smart. I highly doubt those government officials will even check to see how long Bailout Flights has been in business.” He’s not alone.

There’ve been 25 new airline companies started in the past week and over 50 cruise ship companies. Half are headquartered in Boca Raton, Florida, the other half in Bermuda. And this came from Eloise Williams on a website called thestonkmarket.com if you want to go look at that. So I thought that was interesting and thought you’d want to know that, that you know people are going to try to gain the system. And of course, whenever there was a big bailout package like this, just like an ’08 and ’09, you’re going to have people that take advantage of it. You’re going to have a winners and losers and the government’s going to pick who they’re going to give money to and who they’re not. And that’s happening. So a lot of businesses are going to be applying for different types of loans. Some will be forgiven, some people will be applying for the loans that don’t really need it, and some will need it and not be able to get it. We know all of that.

What we need to know is when is America going back to work and the president’s getting criticized on one half and applauded on the other because they use those exact words. And somebody long ago told me, “When you hear the government use those words, you go buy stocks.” Let’s put America back to work. Those are the keywords. And when you hear that, that means money is going to be thrown in the system. Infrastructure spending and bail bailout money. It’s all going in the system and it usually works. Don’t fight the Fed. You’ve heard that one. [inaudible 00:17:30]. This is the Fed on steroids, the stuff they’re doing and it was needed by the way.

But when is American going to go back to work? And now you’ve heard hints in the last few days, the Trump administration saying, “We’re going to label high risk areas, medium risk and low risk.” And you know why they’re doing this. They’re calling the governors telling them, “We’re rolling this out.” Because if you’re in a low risk area, you’re going to be able to do x, y, and z. If you’re in a medium risk area, you’re going to have to do x, y, and z. And if you’re in a high risk area, you’re still under quarantine. And that’s their way of walking that fine line, the tight rope of not spreading this anymore, but not having our economy go into a depression.

And again, we don’t know the economic damage yet, but it’s going to be big. The question is how fast do we ramp back up? We know we will go back up. How fast? And as I mentioned earlier, things will change. Some people will continue to work from home for many weeks. And people may not go to the restaurant. They don’t want to sit next to somebody who’s sneezing, right? We’re going to have a bunch of germaphobes as we move forward. And nobody’s going to want to sit next to somebody in a theater. But people are going to go back to their office, people are going to go get their car washed, people are going to go to Home Depot probably. Those are the types of things that probably will come back very, very quickly. But international travel, maybe not. Right?

So we don’t know. We don’t know. Again, going back to 9/11, nobody’s ever going to fly again. And of course everybody was as of a few weeks ago. So that’s what we need to know and the market’s trying to figure that out. So don’t expect the market to just run back up because we don’t have those answers yet. And the market will go up at some point once it knows those answers because you can start modeling things and you can start figuring out how much a company will ultimately make or lose, and do they have enough cash and loans to get through that in bailout money. That’s all we’re trying to figure out here.

So as I mentioned at the very top of the podcast, this is a time for fine tuning, knowing what type of bonds you own in your bond funds, knowing what types of stocks you own and sectors and industries in your ETFs and mutual funds. And also, did you own any types of investments that do things that are different than the market? What I mean by that is, liquid alternative types of funds, alternatives, things that are mint, had structured not to necessarily move opposite of the market, although some did, but to move differently than the market. Some of those have done very well during this time.

And if you’ve been listening to me the last several years, you know I’m a big proponent of what I call real diversification. What made this challenging, and it’s not much different than ’08. Is that when things started to get tough for the stock market, what happened was the correlations went to one. What does that mean? That means everything moved together. Stocks, bonds, gold, commodities, cryptocurrencies, marijuana stocks, anything you can think of was going down at the same, pretty much the same speed in the same direction. So diversification didn’t help unless you had cash.

But there were some types of funds that moved differently during this timeframe. And so some people having added that to their portfolio may have navigated a little better than people that didn’t. So it is good to understand that and look at portfolio asset allocation. But here’s the thing, it was very challenging and still is because when the credit markets are freezing up, your conservative investments, the things you have on their conservative side of the ledger are going down almost as fast as the stock market and then diversification breaks down.

So again, these are all lessons, these are all things to fine tune to figure out do I want to get more safe now? Because we know when markets bounce and you saw it this week, the things that get hurt the most are the things that bounce back the fastest. So you have to weigh that. Do I risk this company got on a business versus the fact that it can literally jump 70% to 100% in a week? And that’s what happened this week.

So the initial bounce we got was not a huge surprise. It was good to see. It was a good start. We got some really high quality days, but they’re still a reluctancy as I look into the numbers of people are still selling into the rally and we’re trained now and we got charts to go back and look. We all know that these are dead cat bounces, right? Everybody knows that you bounce and then you kind of may test the lows. Well, that’s generally true. But what if it doesn’t do that this time?

So again, take a balanced approach. Stay focused on your plans. You may have to modify your financial plans a bit. But stay focused on that because none of us know exactly how this is going to play out. So just again, assess your risk and you have to ask yourself, especially if you’re making moves right now, if the market went up 30% from this point, how would my portfolio probably act? How would I feel? And on the flip side, if it goes down another 30%, what would I do? How would I feel? And if you play through that, now that you’ve been through some of these market moves, I think it will help you structure your portfolio a little differently or maybe the same. Maybe it stays exactly the same.

But I would use this time to just fine tune the things you’re doing, really swapping out of something that didn’t do what it was supposed to do or you are upgrading to higher quality. There’s a lot of good quality stocks out there. In fact, when you see the correlations of the stock market go to one, as we did, everything sells off very hard. The good goes down with the bad. That’s the time to say, get rid of the bad and swap in something good because if they bounce back again, assuming that it’s, as I mentioned earlier, you don’t have a company circling the drain that could move very violently, but just upgrading your stocks. This is a great time for that. You can harvest the tax losses

… and upgrade the portfolio without changing your equity position. So those are a couple of things. I’m going to spend the weekend looking at some of these tax changes and what was in this bill. There’s a lot of stuff in here. Maybe we’ll put a report together. Maybe we will have somebody on next week to talk about it. There’s a lot of different things going on here. Most of them are going to affect you one way or the other. We know of course you have until July 15th to file and pay your taxes. But there’s some changes with donations. There’s changes with who’s getting money, loans, forgiveness of loans, small businesses, large businesses, employees, self-employed. We will be going through that. I’m sure you will hear a lot about it as well, but a good start to a bounce, a good start. But that’s about all we can say at this point because we don’t have enough evidence.

We’re not in the middle zones, if you will, from the high to the low. But we’ve had a significant bounce but not really shocking to be honest. Many of us, and you that have been here in ’08, and here during the dot com bubble know, big selloffs lead to big rallies and a lot of those just continue downward. So we need to watch that over time. But certainly as you noticed, the moods of the market can change very quickly. It went from despair on Monday to happiness and hope and I should have bought more perhaps the other day by Thursday evening.

But it’s good to see some of the unknowns are becoming knowns. We know what the unemployment number looked like this week. We know what the bail out money at this point looks like and there’s probably going to be more stimulus down the road guys, 2 million right now, 4 million from the Fed and Treasury, $6 million or 6 trillion, I should say $6 trillion probably going to be bigger. We know that, but we know what the Fed and Treasury are doing and so we have some things we’ve checked off so far.

What we don’t know is still with this virus spreading, very hard to start saying, when can we come out of our bunkers and start consuming again and getting our lives back to normal. Very surreal still, praying for you and your family that you are healthy and safe. We are here in my Eggerss family, our Covenant family is is healthy and safe. We’ve been doing a lot of Zoom meetings, touching base with everybody internally. We’re all functioning. We’re here to help you. If you need help looking at your financial plan, looking at your portfolio, we’ll evaluate it. You need to understand some of the new tax ramifications. We’re here. This is what we do. We’re continuing to work.

I’ve been putting in long days as has the whole Covenant team here. This is a tough time, but we will get through it and we’re here to help you. So if you need our help, (210) 526-0057 and our website as usual is creatingricherlives.com. I hope you pass this podcast onto a friend, somebody that needs it. Somebody that says I need some help. I’ve never gone through a market like this. I thought I could just hold stuff and it would just go straight up because that’s what it’s done in the last several years. This is when it gets real, investing money is not always easy, especially the behavioral side of it, right? We know what to do sometimes, but our emotions get really in the way and we’re all guilty of it. We’re all human. I feel better on updates than down days, right? That’s my human emotion. I’m telling you that and you probably feel the same way. It’s normal reaction. We got to control that though.

So if you know somebody that needs our help, again, send them the phone number, have them reach out to me and share the podcast. And if you would do us a favor, go on iTunes, we’re on Spotify too, but iTunes or Apple podcasts, they call it, give us a rating, give us a good comment on there and whatever feedback you want, always looking to make the show a little better. Always looking to refine it, going to continue to do that and we always appreciate you listening and without you listening there’s no reason to do this, so appreciate it guys. We’ll continue to pray for one another and we’re going to get through this. All right, have a great weekend everybody. Take care.

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