In Market Talk Episode 24, Natalie Picha, Glenn Royal, and Jason Strzyzewski discuss the Midterm Elections and how they may affect the markets.
And what is really going on with cryptocurrency?
www.royalharborpartners.com
Experience the difference of working with a firm that empowers your life—a firm that focuses on what matters most—you.
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https://podcasts.apple.com/us/podcast/rhp-market-talk/id1538051530
In Market Talk Episode 24, Natalie Picha, Glenn Royal, and Jason Strzyzewski discuss the Midterm Elections and how they may affect the markets.
And what is really going on with cryptocurrency?
www.royalharborpartners.com
Experience the difference of working with a firm that empowers your life—a firm that focuses on what matters most—you.
Whether you are beginning your financial journey now or have already taken steps toward your ultimate life goals, we are here to guide you.
https://podcasts.apple.com/us/podcast/rhp-market-talk/id1538051530
Welcome to the RHP Market Talk Podcast, Episode number 24. Brought to you by Royal Harbor Partners Wealth Management. Located along the beautiful Gulf Coast of Houston, Texas, serving families across the country. I'm Natalie Picha, a founding partner...
Glenn Royal:I'm Glenn Royal, a founding partner...
Jason Strzyzewski :And I'm Jason Strzyzewski, Investment Analyst.
Natalie Picha:And so welcome back to our listeners. Super excited to sit down with Glenn and Jason today and have some conversation. We are recording this the day after, on November 9th, the midterm elections. And it is the day before the big CPI print. So, Glenn said earlier; this is no man's land. Where are we? We still have, you know, we still got some election results coming out. I saw an interesting little blurb this morning in Bloomberg that they're not calling it the Red Wave. It was the Red Ripple. So you know how they are. They've always got to find a little phrase to throw out there. So, why don't we kick it off with that? I know we've got quite a bit to talk about today, but you know, a lot of clients will come to us and say, okay, you know, we're in the midterms. What is that going to mean for markets? What if we get this? What if we get that? And you know, a lot of times we'll just say, well, going in either direction, markets may not necessarily do anything. Right? But let's talk a little bit about that. We didn't get the red wave like some were thinking.
Glenn Royal:Yeah. The Red Ripple. I like how you put that.
Natalie Picha:The Red Ripple, what they were saying.
Glenn Royal:Red Ripple. Yeah. And that's a good point. We do hear this a lot. A lot of folks think that politics has a heavy hand in markets, and it does. But we've seen in the last several cycles that we have a divided nation. So we tend to have divided governments. And divided governments are hard to get things done. So, we're kind of in that situation. We didn't have the red roll...
Natalie Picha:...the red wave...
Glenn Royal:... red ripple...Right?
Natalie Picha:Yeah.
Glenn Royal:And that...so we look at that, with the setup that's happening right now, it seems like the Dems may retain control of the Senate. There's still going to be some time for those elections, results out of Nevada and Arizona to come out. But I definitely, it looks like the Republicans have won the house. However, not with the great majority of that wave that we talked about, wasn't there? So you're kind of just flipping the role of the house where the Dems have been in control with the very thin majority the last few years. Now the Republicans are in that position with the thin majority. I do want you to know in the Senate race, there's something that I am watching, and that is the way the lay of the land is that the Republicans are to win Arizona and Nevada. Then the key race will be the runoff in Georgia on December 6th. And that will be a very, very key date. Now, if the Republican...excuse me, when Nevada and Arizona. Georgia doesn't matter; they have the simple majority. So, but neither party in the Senate has a supermajority. So you're not going to be able to get big legislative pieces through. You're still going to get the Senate that stays in the Dem's hands to be able to make presidential appointments with a simple majority. So that'll continue to help the White House. On the Republican side, I think our greatest is that the setup with a divided house is next year, and the third quarter of 2023, we're going to come up against the debt ceiling again. And the last time we had this set with Republicans in the house. The Dems in the Senate was in 2011 and 2013. And we went into; it disrupted the financial markets because they were, they weren't reinstating the debt ceiling. That's our risk right now. Not so much that big legislative changes are going to affect policies. There are not going to be big spending bills because Rs can block that. There's not going to be, you know, tax cuts. Dem's can block that. But you are going to look at the potential risk as a result of this in the third quarter of next year.
Natalie Picha:Right. So, that's a very good point. So, typically what happens when we see a divided government. When we see gridlock, markets tend to be a little bit more favorable on that because that means nothing's changing. Nothing's getting done. Right?
Glenn Royal:It's true. It's the physical policies that aren't able to get through. So, we'll look at the broader economy and go from there.
Natalie Picha:Right. Exactly. But then, you know, as you said, the debt ceiling is really the issue, and that'll be the third quarter of next year. So, let's shift real quick over to what tomorrow brings, Right? Because I think everyone from a midterm election standpoint, and we see this across all administrations, right? We typically blame any particular administration for whatever the current economic ills are. And we're fixing to get a big indicator of where we are on inflation, right?
Glenn Royal:Yeah. We have been dealing with that. It's that's our, you know, the 800-pound gorilla on our shoulder. But Jason, you've been looking at that. Jason, what do you think?
Jason Strzyzewski :Yeah, I mean, it's all eyes on tomorrow anyone's guess where we're going to be. We would like to see things coming a little bit lower. I mean, the surveys coming in about 7.9%, headline CPI. But really, looking at the market's past couple of weeks prior to the 75 basis point hike that we had last week, the Fed speaks. The markets they want to rally, they want to jump back in.
Glenn Royal:You can sense that.
Jason Strzyzewski :Not a full pivot, but a pivot in a sense where we're slowing down the rate of hikes. The market really wants it, and we both sense it. But we gotta remind ourselves we're not there. And Jerome Powell made that utterly, utterly clear in his speech and there's plenty of work that still needs to be done. And something interesting to note, Powell mentioned the greater risk lies in ending too early. Versus over tightening regarding the rate hikes.
Glenn Royal:Yeah. They didn't want to repeat Arthur Burns of the seventies, who did exactly that. It lightened up before the inflation had been under control, and then it reignited inflation, and then they had to go harder.
Jason Strzyzewski :So when we talk about all eyes on Thursday. We're waiting to see that change in CPI. We're waiting to see if this big old knockout punch is really going to affect the economy. Because the labor market still is strong. You're seeing big cuts in tech. But those are the first areas to go where you have those growth year areas that are more affected by higher cost capital. And we're waiting to see when that bleeds into the rest of the market and how it shakes out.
Natalie Picha:And basically, when we start talking about the CPI and the interest rate hikes, we're also talking about recession. No recession. Are we there? Are we there? You know? Not there yet. What's the terminal rate?
Glenn Royal:That's a wild card this year. Because we could, you know, if you want to go at that old rule of thumb...two negative quarters, two negative GDP is a recession. Now the real rule on that is, you know, material impact on the economy. You know, we've been surprised that CPI stays a little bit hot every...the data hasn't really rolled over, given the amount of Fed hikes we've had so far. And that is our key risk to Jason's point right now is that CPI comes in higher than expected, then the market will reflect very, very negatively to that. Because it is really wanting the Fed to have control, start seeing the signs and the data. Because underneath it, people want to go long. There's a big...you can sense it.
Natalie Picha:You can feel it.
Glenn Royal:And at the same time, I...we have to be sober-minded about this and be a little cautious. Be a little slow. We have some cash built up in the portfolio on our equity side. We, you know, recently we've talked about the change we've done in bonds, which has worked out really well as a result of all this. We've got a pretty good set for fixed income next year. And then equities are still a little bit questionable with all the volatility we have around inflation.
Jason Strzyzewski :Well, and we have growth concerns that are really uncertain at this point—next year. I mean, you were kind of mentioning we're not sure if we're in a recession, we're going into one, but all eyes leading. If you can't get inflation down, Jerome Powell has made it utterly clear that we need to get it down. Yeah. And what does that mean? That means killing jobs.
Glenn Royal:Killing jobs or raising rates. And killing financial conditions, you know—wealth reduction.
Natalie Picha:What about the tie-in? And we were, the three of us were talking about this a little while ago, is the impact of energy...on that CPI number.
Glenn Royal:You know, there, well, gas prices have come up. You saw Biden's maneuvers on SPR again. Talking about releasing some of that, which is what the reserves are.
Jason Strzyzewski :Recording. Yeah. And important to note down almost to 40-year lows SPR level.
Glenn Royal:So that makes me feel pretty good. We're long energy. So, I got a bid on energy by the federal government.
Jason Strzyzewski :Yeah. They
Glenn Royal:Get replace that.
Natalie Picha:So yeah, they have to replace that.
Glenn Royal:You know, I feel good about that space. But, you know that... If CPI does come in hot. Look for this to affect the market. But on the other side of that coin, and this is where we are, is if it comes in the right trend. And we're seeing anecdotal signs that it's going to. Used car prices are a perfect example.
Natalie Picha:That's a perfect example.
Glenn Royal:Semiconductors. You're seeing shipping containers. Housing is looking better. Housing prices. Across the board. The impact of the Fed is being felt. It's working. So hey, I sit here and hope. Cross my fingers and sit on my left shoulder and three circles and all that stuff. But tomorrow, we have a nice print on inflation. I think the markets are expecting a good print, given everything that's been done.
Natalie Picha:So let's just...I mean...let's do a total 180 and talk about what's going on in crypto today because that's not quite right of a spot.
Jason Strzyzewski :Fun times in crypto land!
Glenn Royal:I'm going to let my...the generation that understands crypto...discuss this one.
Jason Strzyzewski :So, about a year ago, everyone and their sister wanted in on crypto. It was the hot dock...
Natalie Picha:We got calls. We got the calls for sure.
Jason Strzyzewski :It was the place to be. And this year, we've been reminded over and over again why we do not want that. And we don't condone it whatsoever. More importantly, notedly. So, this year you've had the collapse of multiple exchanges. But now in the past several days, two of the largest exchanges in the crypto space have been battling. We were going back and forth with each other. So you have Sam Bankman Fried of FTX and Cheng Penza of Binance. Long story short, CZ for short realized that there was a large amount of assets on FTX investing arm of their company. And those assets were of its own digital coin. Now to essentially wipe them off of the face of the earth. CZ made a material sale. Manipulated the market and...
Glenn Royal:SBF lost many, how many billions...
Jason Strzyzewski :They lost 15 billion. There was a letter of intent yesterday to buy for Binance to pick upFTX. Now they're blocking. And now the US is probing into FTX how they were leveraging their client's assets. And it's just an entire mess. And yesterday, so the reason why we bring this up. We're starting to see some early signs of contagion bleeding into equities now.
Glenn Royal:People have to sell stocks for margin calls. Right.
Jason Strzyzewski :Exactly. So, we haven't seen that much traditionally in this huge crypto selloff. But it's something we're keeping an eye on. As you know, these crypto asset prices really get to almost a breaking point. And we're not fearful that it's going to make a material impact on equities. We've got bigger issues at play there. But we're definitely well aware. And again, this is why we're steering clear. I mean, two of the largest exchanges going at war with each other.
Glenn Royal:The SBF they got, I love the CZ, and SBF is wonderful how they do this stuff. So FTX is an exchange that SBF owns. Then he had a proprietary trading house that was trading in the exchange that he owned. That would never be allowed in traditional Wall Street Finance. So you're...I kind of this morning, you know...hey, schadenfreude a little bit...I admit. But you've got the long knives coming out, and the crypto bros are killing each other right now. It's wild. We don't need regulation. They're just killing the industry themselves. They're doing it themselves.
Natalie Picha:Yeah. Right.
Glenn Royal:The regulation is coming. You've already had the federal government going to investigate.
Natalie Picha:The regulation's going to be just...yeah. It hasn't even started.
Glenn Royal:You come out of this is...all of a sudden possibly this technology that we all talk about. The blockchain. It starts to come out. I saw there was a move the other day by one of the trading commissions that they can use blockchain to shorten the linked currency transaction settlement to 10 seconds.
Natalie Picha:Oh wow. That be great.
Glenn Royal:There's some cool stuff underneath all this cryptos story that's happening.
Natalie Picha:That the technology is real, I mean, there's no doubt. And there's no doubt about that.
Jason Strzyzewski :Just plenty of use cases. Plenty of applications where absolutely it could save a lot of people a lot of money and time.
Glenn Royal:Think about home titles.
Jason Strzyzewski :Titles. Business.
Glenn Royal:Very, very easy to track that stuff. So there are benefits and that's one of the things we're looking for in investment cases. Is how do I get into that bitcoin ledger technology a little bit? The cool stuff of Bitcoin. The tech.
Natalie Picha:Right.
Glenn Royal:So hey, I'm going to ask you something, though. So, today's all the joy about Bitcoin. It's all the news and pain and joy and all that. But you just came back from a trip to Denver, to represent the firm. You and Michele went to Schwab's Impact Conference. It's their annual conference where RIA's like ourselves come from all over the country. But the question I have, Natalie, we're an RIA. What are we? What is an RIA?
Natalie Picha:RIA? That is such a good question. So, last week was the Charles Schwab Impact Conference. It's one of the largest ones that happen in the country every year. It was a pretty epic moment for everybody because, you know, this was the first time everybody got to come back again in person, which was huge. I think we all have embraced technology over the last three years or so. And doing things virtually, and that's great. But there really isn't anything like being in person. And so this was, you know, Schwab Impact is all about bringing RIAs together. Those are Registered Investment Advisors. And that's what we are.
Glenn Royal:We're registered with who?
Natalie Picha:We are registered with the SEC. So I, you know, I just kind of want to remind all of our clients what that means. You know, we are fiduciary. And we're a registered investment advisor. That means we're independent. Right. And so that's why we can have these conversations. These podcasts that we're having and being able to share those with clients and talk about the portfolios and the markets and the way that we do Schwab is our custodian. I always say we hired them. They didn't hire us. Right. And if at any point we want to make a change, we could do that. Whatever is in the best interest of the client as a fiduciary. It's always the client's interest first above all else. That's what it means to be a fiduciary. But the conference itself really allows the RIAs around the country to come together to share best practices. To talk about what's going on in the space. And what I found really truly inspiring about it was that, for the most part, RIAs really, really care about their clients. Their families.
Glenn Royal:I've found that to be true.
Natalie Picha:It's, you know, it's a pretty small world in a lot of ways. And it's people like us who obviously we left a large firm in mid-2019 because it was all about taking care of our families. And our clients. And being able to have that independence to make the decisions that we knew would best affect... that would have the most effect and the best effect on the families that we care for. And we've been caring for, you know, for three and four generations. So it was really a cool experience to get to go out and just kind of share an exciting too. I mean, we're really kind of a baby firm. Suppose you think about our age, even though we have a combined experience between all of us here, 75, 80 years. I don't know how those count because we're getting old. But you know, we've got a lot of combined experience on our team, which is extremely valuable. But as an RIA, we're still fairly young. But it was really impressive because we are doing a fantastic job. So when you look at best practices and what RIAs are doing, RHP stands out.
Glenn Royal:It does. I want to brag a little bit about you. Schwab had selected our firm as a representation of other RIAs. What it's like. The RIA experience, but then even further down, as they chose you as the face of these RIAs that are making these changes. So, tell me, what was it like when you walked out to do the keynote presentation in front of 5,000 people in Denver?
Natalie Picha:Well, I mean, it was very exciting. And I had the opportunity to introduce one of the keynote speakers on the main stage Michael C. Bush. Which, you know, I hope our listeners will go look him up because it's impressive. And he is with Great Places to Work. It was quite an experience. I will tell you the oddest thing about the experience was walking by my head, which was about 20 feet tall, and having to do a double take, you know, because my face was, was all over the place. And the campaign, it really was at Schwab's campaign for just the independence campaign. But it was, it was a very cool experience.
Glenn Royal:Well, we are really proud of you. You represented very well.
Natalie Picha:Well, thank you very much. It was a lot of fun. And again, what I go back to saying is that. What I've seen over the last year and a half being part of the campaign. But also, you know, working up to this big conference is that RHP has really stood out in terms of what it looks like to be an RIA right now in this industry. And, quite frankly, being independent. When we left in June 2019, we had no idea what 2020 would look like. But when Covid hit, having that level of independence made us nimble.
Glenn Royal:It did.
Natalie Picha:And that ability is really key for, you know, what we do for our clients.
Glenn Royal:So financial markets are fast. They change in a blink of an eye. And RIA's have to stay on top of that change. Have independence. You have the ability to address it much more quickly.
Natalie Picha:Right, right.
Glenn Royal:Better results for the clients.
Natalie Picha:So, I mean, all in all, it's been...it was a great week. It was super exciting and, I can't...you know...I can't talk anymore about just seeing how RHP is positioned among their peers. And where this industry's going. That was something else I will just touch on quickly. Several different breakout sessions. Lots of education. What the financial services, wealth management, and financial planning. Whatever you want to call it. There are so many ways to talk about what we do. But financial planning as an industry is heard from several different CFPs. Some are from the CFP boards. That talked about CFP as a whole is only about 50 years old. It's fairly young as an industry. And we are beginning to see how it's not just the mass affluent that need access to financial planning and personal financial services, but it really is everybody. And we are figuring out the best ways to make it available. And to create at certain levels. They're creating entire degree programs now at the university level, specifically for financial planning. We're starting to see. There was a professor there that spoke a little bit about a Ph.D. Where we're starting to see the doctoral thesis as being written and studied specifically. What does it look like if you actually have a healthier outlook on money and finances from a very young age? And what does that do, and how does that affect your long term? Very, very interesting. So I think that, as an industry, where we are, where we're going, and what the trends are, obviously, we're a financial planner and investment managers. So we're going to tell you need to work with somebody like us, Right? It makes a difference.
Glenn Royal:Of course, you need to work with Royal Harbor Partners. Who else would you want to be with?
Natalie Picha:But it's really...it's starting to come out now, and it's starting to, it's starting to prove itself in other ways. It's, you know, like I said, research. And career paths and things like that, which is pretty cool.
Glenn Royal:It is cool. So, we appreciate you representing the firm and Michele out there with you too. And I'm excited about the future of our firm.
Natalie Picha:It was really a lot of fun. Okay, well, I'm going to close this out and just want to say thank you to our followers for listening to RHP Market Talk. If you have any questions, or would like to discuss today's topics. Please feel free to contact us through our website at www.royalharborpartners.com. At RHP, we're passionate about planning for your financial future. We're devoted to our relationships with multi-generational families for the creation of successful legacies. Through our one-on-one conversations, we can help you navigate your personal wealth management and investment journey. How different will your life look with the right advice?
Disclosure:Royal Harbor Partners is a registered investment adviser, and the opinions expressed by Royal Harbor Partners on this show are their own. Registration as an investment advisor does not imply a certain level of skill or training. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. The information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment adviser to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.