Wealth from Wisdom

Volatility in the New Year

January 12, 2019
Wealth from Wisdom
Volatility in the New Year
Chapters
Wealth from Wisdom
Volatility in the New Year
Jan 12, 2019
Carson Wealth
Show Notes Transcript

If the market suddenly dropped in 2019, would you be prepared or would you be in a sheer panic? On this episode, Paul is joined by Scott Kubie to discuss how you can prepare for volatility in 2019.



Speaker 1:
0:00
Okay, and here's the legal Mumbo jumbo. The opinions voiced and wealth from wisdom with Ron Carson or for general information only and are not intended to provide specific advice or recommendations for any individual to determine what is appropriate for you. Consult a qualified professional. All indices are unmanaged. I may not be invested into directly. Investing involves risk including possible loss of principle. No strategy assures success or protects from loss. Past performance is no guarantee of future results. Advisory services offered through CW m L L C an SEC registered investment advisor.
Speaker 2:
0:30
The stock market hit another all time. Records as much as $10 billion in social security benefits go unclaimed every single year. Federal Reserve announced that they will raise interest rates by 250 the skyrocketing cost of healthcare and retirement could now run 350,000 planning for retirement today is a whole new ballgame. It's loaded with challenges, obstacles, and trap doors that you can do this and we can be your guide. Welcome to wealth from wisdom with bear and hall of Fame Advisor, Ron Carson. Straightforward and objective advice and how you could make your money go further in retirement. And now here's your host, Ron Carson. Hey, let's play a little bit of game called, what if, what if the market here,
Speaker 3:
1:12
2019 has the same impact that the fourth quarter had in 2018 what if we had an additional 20% correction? Or what if the market dropped by 2,500 points next week? Or what if the market actually had a 50% correction like it did in 2008 or what if the market dropped by 12,000 points? Hey, how's that going to make you feel? Are you going to be going to sheer panic would be you'd be saying to yourself, you knew this was going to happen. You're so smart. You went to cash, you got out. Then I'm going to guess you don't know what you're doing because you're not going to know when to get back in. And that fear and that was gonna happen. And did you follow your gut? Hey, welcome to wealth and wisdom on Paul West. And today I'm very fortunate. I have a cohost today. His name's Scott Kirby Scott's or senior investment strategist here at the Carson Group.
Speaker 3:
1:58
Scott, welcome to the show today. Thanks Paul. Glad to be here. Yeah, I'm so glad to have you, Scott. I mean, so today's show we're going to be thinking about and talking with everyone about some market factors that are out there and really we want to help people. We're gonna do a little bit of a look back at the past and we're partly want to talk about an outlook for the future. And so it was, I think about, this is a lot happened in the fourth quarter and I think for the first time I would say Scott, people woke up, they'd been asleep in 2017 I mean you've been helping give a strategy for a while here at the Carson Group. And you kept saying, and I think we repeat it, is the market was boring in 2017 right?
Speaker 4:
2:34
Yeah. I mean we saw some really Dole periods of time in 2017 I think it was the Dulles least followed till year. That certainly since I've been investing in, which was 1996 that we've ever seen, there was a period in the fourth quarter where there were no days where there was a 1% move, zero, zero, zero and that's only happened whether it or time. And that was in the third quarter of 2018 and so both times after that volatility came roaring back. The markets. Yeah.
Speaker 3:
3:00
So that's a good uh, predecessor it looks like now he'd be, be aware of that. The eye of the storm. Right, exactly. Exactly. That's what it felt like, certainly the second time. So I think in today's session, Scott, we need to spend some time. You're our special guests. We're so fortunate to have you. We know you've got a lot on your plate and you're helping really look at a lot of the macro and micro factors that are out there giving guidance to advisors and investors all across the country. So I thought we could talk about four topics. Number one, we're going to talk about what happened in the fourth quarter. Just a little look back. I mean, a lot of people, I call it over the holidays and New Year's parties all said, oh my gosh, what happened? The market? Where's it going to go? It was absolutely cocktail talk at that point in time too.
Speaker 3:
3:40
We're going to talk about the economic environment. Where is it right now and what, what do we think's going to happen with three? We have to look at the fundamentals of the market and what's going on. So we're going to share some of our insights. And lastly, we're going to give you the risks you better be watching out for right now. Those things that could twist your ankle, break your arm, or caused severe pain to your retirement. And we're going to look out for all of those. So, you know, I look at this, there's so many demographics that I look at Scott. Uh, and as I think about this overall, as we know, we work with a lot of families across the country. I'm going to go back 20 years though. I don't think this is interesting to me. So 20 years ago, 1998 60% of US adults, six zero we're actually invested in the stock market through funds, retirement plans, or just directly through individual.
Speaker 3:
4:26
So it reached his peak in 2007 and his peak went from 60% you want to guess to what? Who? I'm going to say 85 wrong. Not even close. 65 65% huh. And that was his peak and it's gone down a little bit since then. So I mean, it's amazing, you know, reading these articles to say what happened? Oh eight is that created so much fear for people and to what happened. People tend to get out of the market because of fear and they don't know when to get back in. And we'll, we want people to do is avoid that. Quarter four of 2018 was definitely a challenge quarter. And as I shared on last week's show, it was absolutely, you know, the worst quarter since, what was it, 1931 yeah, it was rough. Yeah. So what happens when it's rough? People run and hide. You go away. It's like, it's like a grizzly bear, right? Are they the ones that hibernate or what type of bear?
Speaker 4:
5:21
I don't know. You don't know if you didn't know. I was going to ask you all this. As an investment person, my bare knowledge is not nearly as good as uh, as this, that other areas that's on now. So we should talk about a bear market. That's how it goes. All right, so let's go into first tier on quarter four summary. Scott, I mean, I'd love to hear just your insects. What, what happened in the fourth quarter? What really went on? Yeah, so we saw a number of rough down church. You know, one of the things to remember is the market actually hit a new high right towards the end of the third quarter and in mid to late September. And so we were coming into the fourth quarter to peak. And so there was opportunity for it. As I, there had been no moves are no moves of 1% in either direction.
Speaker 4:
6:02
So it was very calm. The markets had risen from the second quarter into the third quarter and almost all the way through, and then we started to get some series of bad news. So a couple of things hit the markets. First of all, there was some expectation that the trade negotiations with China and also over on the European side that Brexit would get worked out and what we saw was the opposite. Those trade offs, those trade negotiations actually escalated as far as their severity and we didn't get a deal in either one of those cases, so that was somewhat negative. We also had some really good earnings that came out in the fourth quarter, but there's some weaker spots and so certain companies that had been expected to do very well, not very many, but a few of them showed some weakness and that seemed to spook investors.
Speaker 4:
6:44
And then I think the big one that really started to permeate through is there was an expectation that the economy started slowing. It has been slowing globally for awhile. We started to see some signs of that showing up in the u s at the same time. And that really rolled through to get us to about a down 10% rolling into December. And then we got hit with what I would call the big event, which is the Federal Reserve raises rates and they go out and have a press conference and basically say we're not super concerned about the volatility that's going on in the market. And that made the market mad and certainly just frankly in a sort of personify in the market. And that set us down even further and that's where we got those sharp declines immediately after that event. That pushes to the lows that we saw. And a right I think on December 24th
Speaker 3:
7:28
yeah, I mean it was, it was amazing to me, Scott take that last week, right before Christmas. I mean watching what happened and I will tell you so you look at all the the numbers and I'm going to have to take my side here of saying I deal with a lot of people and the people side of it was fascinating because people got theirs first time I've heard invoices fear because they didn't know and they hadn't seen so many down days in a row and all of a sudden we had crossed that 10% down in the quarter and people just, you don't see it. You forget that those things do happen. But most importantly you don't react. I mean, and I will tell you right now is on the phone yesterday with someone's Scott, one of our advisers asked me to join a client conversation and this individual, or excuse me, prospective client and he had gone to cash on what day? December 24th 20 so forth. Well guess what? It's not back in the market
Speaker 4:
8:24
still Eric. Cause there's no way out. How, how do you, if you guessed I'm getting out, how do you know when to get back in? If you don't have a system,
Speaker 3:
8:31
you you don't. And so then your stocking, what happened was is, so of course they watched the deterioration in the market by the way, they also liked energy so they had some energy allocation. So what was the worst performing sector? Energy. Energy. So not only, I mean I look at the numbers here, you shared with me, I mean so the fourth quarter, the s and p 500 which most of our listeners use that as their barometer for what the market did. The market was down,
Speaker 4:
8:56
what it looked here, 13.5% so that's the price return of the S. And p. That's a lot. But a lot of it came in December of of yes. I mean it was certainly a majority. We saw and I think one of the things that really made people fatigued about this market is before we got to that December to client, we went down, we spiked back up, we went back down to the same level and we just keep going, bouncing back around and there wasn't a lot of movement up. And then we got that extra fall on. That's where I think we saw Sko from fatigue at dealing with the lower markets to transition towards a lot of fear and a lot of movement out of the market. So it was, I mean, we look at energy, I mean it was down 26.6% in that quarter. Ouch.
Speaker 4:
9:35
Yeah, I mean that's a massive decline. So the best performing sector in 2018 was healthcare, right? Yup. So, but it still was down 11% for the quarter. Well, actually I should, I think utilities where that was the best performing sector for the full year, but even that winter was down, I think what we saw some strength in the utility market and a few other areas that were much less risky and also tended to be more sensitive to interest rates because interest rates drop during that period and some of those dividend paying stocks tend to rally during those types of periods. So a lot of people love, especially if you do it on your own, they love to use style boxes. So what the style boxes due in 2018 yeah. You know, that's one of the, I think one of the hidden stories is we we, you know, just take it off shoot from the week, fourth quarter we had is that 2018 was still a very concentrated stock here where growth stocks, especially large growth names that were attached to technology did great.
Speaker 4:
10:29
And then healthcare names came in after that did very, very well where we saw the weakness was just playing everywhere else. Then we had the downturn, which seems to be the dominating story, but I think those two stories are the two things to remember. One returns were extremely concentrated and then we had a downturn on top of that, that even things out of bed but not nearly as much as the outperformance we saw by growth in the first nine months of the year and for the year overall. Again, going back to style boxes cause people like this, I'm not saying that's the best way. I'm just saying is, so the for the year large growth was the winter. Yup. Okay. And what was the loser for the year? Small value, small value, which is the opposite corner of the style box. If you're familiar with those, it's almost like being a Democrat and Republican.
Speaker 4:
11:09
Somebody wins and somebody loses in each election. Uh, so I mean, as we look at those, how'd the bonds to what happened with bonds in the fourth quarter? No bonds actually rallied back. So prior to the fourth quarter, bonds had delivered a negative rate of return and then, um, as there were some bonds always are positive. Well, and it's, it's, and they, and they were for the year by the slimmest of margins. So they got back just above zero. Um, and which is, which is good. I mean they gave to say there was no negative returns, but from the standpoint, bond investors should be pretty disappointed because they took on risk to earn less money than they could have in cash. And so from our perspective, it was a negative year to be invested in fixed income, but they did do well in the fourth quarter as we saw concerns that the economy would slow. Yeah, I mean, amazing. I mean, people think bond safe, completely secure. Now, obviously it didn't have the pain of the equity markets and
Speaker 3:
11:54
in the fourth quarter, but with these rising interest rate environments, people needed to understand the opposite happens. Yeah, rising interest rates equals lowered bond prices. So that's a challenge and I think for a lot of people may be right now Scott is the best time for them to rebalance their portfolio as they've looked at everything or at minimum make sure they have the right plan in place. But most people have taken a 30 or 60 days off in the market and they needed to do something right now. So if you want some advice, you want to ask us some questions. (888) 419-8513 that's (888) 419-8513 we're here to help give you guidance and advice on what is the best way to get the best return for your life, your plan with your investments. Also by reducing your risk if you want some help, (888) 419-8513 coming up next, Scott and I are going to keep talking about what's happening to the market and look at the overall economic environment.
Speaker 2:
12:49
Trust, transparency, accountability. These are the values that drive Ron Carson and Carson. Well, you're listening to wealth from wisdom with and tall the same advisor, Ron Carson,
Speaker 3:
13:06
he's a published author and he's been featured in Forbes, investment news, the Wall Street Journal and CNBC and more now back to, well from wisdom with Barron's hall of Fame Advisor, Ron Carson, trade wars, rising interest rates, geopolitical risks, the worst quarter in the market since 1931 hey, these are just some of the reasons why the stock mark has a bad case of the flu right now. Hey, welcome back to wealth and wisdom. I'll Paul West and today I'm very fortunate we have our senior investment strategist, Scott Kirby on the show. Scott, really enjoying you on the show so far. Thanks. It's been great to be here. Yeah, I mean, so this first segment we went through and talked about a replay of what happened in quarter four. Um, and so you know, we can talk about the replay, we could spend a whole show on that, but we're not going to because we're going to give you some good soundbites to help you diagnose where you are and fix the flu and get you back invested if you got out or if you have concerns you we can help answer.
Speaker 3:
14:01
Those are hopefully our insight will help you think about 2019 and beyond. So we're going to really keep giving you strategies where it keep talking about the economic environment. We're going to look at some other fundamental features and we're going to talk to you about the risks you need to avoid both in the market. But also I would say from a behavioral perspective. And one of the things that we try to really thrive on the show, that's why it's called wealth from wisdom is the numbers and all the data Scott, your team looks at is super important. But equally important is how your advisor communicates with you. So I always look at your advisors should be just as good communicating with you about your investments as they are in actually managing them. So one of the biggest things is we want people to avoid emotional based investing, no knee jerk reactions. And if one of my favorite Warren buffet quotes, of course we're based here in Omaha with the show, so we've got to get a Warren buffet quote every once in a while is, is to be fearful when others are greedy and be greedy when others are fearful. And the fourth quarter and especially December reminded us of that great quote.
Speaker 4:
15:03
Yeah, and I think that's a great quote and something to aspire to, but it was under by the absolute best stock picking investor of all time. And so I think a more important and a reasonable approach do is to say, make sure you have a plan that you're sticking to. I know from my investment experience working with advisors all around the country for years and years is that they, that the, their clients that will pop out of the market and they lose some money usually. Cause a lot of times they pick the low, I think you mentioned that in the first segment is somebody hopped out right on that bad returns that we saw her on on Christmas Eve in that half day of trading when no one was around and it was vulnerable to that. But I think the bigger money is lost because they have no plan to reenter and once you're out and the market goes up, now you're either have to admit you're wrong or you have to have some plan or approach for getting back in. And that's really difficult and people can sit in cash for nine months and just lose after month after month after month because it's a recovery going on. Both wrists are really important. So I think the plan is much more important than anything else.
Speaker 3:
16:02
Yeah, I want to tell you it's gotten, I've seen it now. I mean here we are a couple of weeks into the new year and we've had more phone calls. So then we've had in a long time, which is great because people have questions and we're here to help you. (888) 419-8513 every call gets answered. We give advice helping you out. But I mean, I think a big thing for people is they've moved to cash and what it is like, ah, I'm in cash. But what happens wherever you're at, whether you're at a bank, whether you're at a custodian, you better make sure the cash or the money mark you went into is the highest pain one. And I'll give you a story here quickly, Scott. So someone went to cash and they're not a client of ours where they're talking to through it. And so they were nice enough to share a statement because I've talked on the show, we do a quantitative analysis. You don't get a qualitative, more important, you've got to look at the numbers. But as part of that, they were in the lowest pain money market at the custodian and they had a lot of money in there. I mean, so we calculated the math. So here's what happened is they were in the one pain like 0.3% even though the place where they were has one that essentially pays 2%. So they were missing out on 1.7% all right. On $1 million they had in cash. Wow. So do the math. Right.
Speaker 4:
17:21
And a lot of money and they're losing because inflation is well above that point, 3%. So as that money's sitting there, their purchasing power of the money that they have saved is actually declining.
Speaker 3:
17:30
Okay, good segue then. So what's happening in economics
Speaker 4:
17:33
environment? Yeah. So inflation is a used to be a concern, but all of a sudden that concern evaporated in, in the fourth quarter. So I, I, you know, we talked about how sharply in the markets turned in the first segment, uh, in the middle of December. And what we saw as the ACA, it was economic expectations were turning even than that. So the market was sort of balance that while we're worried about inflation, uh, because the economy seems pretty strong, but there are some worry signs on the outside, uh, that are, you know, the indications that might be slowing down in some, in a couple of key areas. As we look forward a few months and in the middle of December, people's opinions just switched dramatically to that. The economy was really going to slow. Inflation was no longer be going to be a concern. And that's one of the things that precipitated the downturn was that when the Fed raised interest rates saying it was still concerned about inflation, the investors of the marketers say, no, that's not what we think is a big risk. And I think that's when we see that next leg down in the market was a key issue there.
Speaker 3:
18:28
Yeah, I mean a lot of investors ignore inflation, Scott, it happens all the time. So as part of your plan, I mean it's just standard for us. We model in, you know, on average about 2.5% so we're just assuming your costs are going to go up on the real dollar perspective by 2.5% every year in terms of what you can purchase. And so I hope consumers are being smart about that. But also as you look at the economic environment, what's happening with this yield curve? Because the bonds and what's happening, the curve looks a little funky right now.
Speaker 4:
18:56
Yeah. So normally if you're going to loan somebody money, you're going to want a higher interest rate. The longer that you have to loan them, there's just more uncertainty, there's more risks and make makes lodging a lot of sense. And actually anytime you're dealing with dead as an individual investor about thinking about the debt markets, just think about if you loan somebody money to somebody, and a lot of those principles really applying can be pretty simple. In this case. What we've seen though is that the interest rates have spiked up a little bit on the front end, so they're actually higher at the one year than they are at say two or three or four years out. And that's an odd thing. Now there's a rule or an idea that they like, that concept is called an inverted yield curve, meaning that it doesn't slip up, but it has some part where it goes back down the historically those have suggested that recession risk is higher and that certainly is a warning sign within this picture.
Speaker 4:
19:44
But I will say that the technical analysis says that the, the yield curve needs to be inverted perhaps a little bit more, but it actually more importantly has to be the absolute front end. So like three months or six months compared to something very long term. So this is a little bit of a warning sign, but this is not the exact type of inverted yield curve that has caused recession. So there's been a lot of articles about that and that's very technical discussion. But it is something that we do look at either way. An inverted yield curve does suggest that people expect the economy to slow in some degree. And we see that in these numbers as well as the numbers such as leading economic indicators. This sort of economic stats that people say they give you an idea of what's going to happen, not what's happening. Right?
Speaker 3:
20:25
Yeah. Yeah. Well I knew in the fourth quarter things are off when local banks are paying you more money for to hold the money for 18 to 24 months, then they will for three years, five years. Yeah. That's a great example. A great example of it. Okay, so why in the world would I buy a three year CD or five year CD if I can buy an 18 month CD and make more?
Speaker 4:
20:43
Because the implicit expectation is is that rates are going to go down the second pure part of that period. So if all I can buy an 18 month that I could make, let's say 3% and then turn around and buy a another 18 month, well that real only be 1% it. So you might be better off beginning two and a quarter for the full three years up front, then one and then the other expectation. So it's really an embedded sense of what the market is expecting interest rates to be in the future.
Speaker 3:
21:09
Yeah. And so this is where this gets complex. So, uh, Scott, nine street fed meetings, right? Where we've had live fed meeting where we've raised interest rates, meaning the Fed. So it's hard for people just do it yourself or is in consumers. People, our listeners on the show are like, wait a minute, how can they raise rates nine times? But yet my CD rates barely go up or they've gone down a little bit. It's confusing.
Speaker 4:
21:34
Well it is. And they, and I think especially in the fourth quarter, we see that because they, they, they certainly have kicked rates higher. But what we've seen is that the Federal Reserve, when they raise interest rates and they raised the rates eight times and then announced that they were doing something with their balance sheet on the night. So technically they tightened monetary by, we're tactical in the investment space on that sort of thing. So, uh, uh, for, for whatever reason, uh, and uh, so what they've done is they've raised rates, but they raised them on the front end or the short term debt. And that doesn't necessarily forced the longer term interest rates to move nearly as much. So as the Fed's raising rates and that's pushing up the rates on the three months, six months, and those are getting higher and higher, but the market wasn't moving some of the longer term rates. And so you ended up with this flat or as we say, in an inverted yield curve, uh, in a couple of key places. And so that's one of the aspect of what the Fed's doing and, and where we see there they're going is that they don't necessarily push the CD rates, they just don't control those. It's more of the short term.
Speaker 3:
22:29
Yeah. And in a barometer I use for a lot of families is real estate. I mean, so they're home, you know, most prize possession for many people that take debt, you know, they get in that first home. I'm actually think back to my first home. So Scott, uh, occurs for you. So I, I distinctly remember, and mine was the end of 1999 when I did my first home purchase. So 20 years ago, the going rate for a 30 year loan at that point in time was 8.5%
Speaker 4:
22:54
yeah. And I think my first was seven something in there. Yeah. But I can remember back to the, the older periods where you almost 1820. And so, yeah, people say, oh, rates are so high, they're at five. I'm like, I just don't have that perspective.
Speaker 3:
23:07
So how you just said it, Scott is something that I want to drive home to our listeners. There are many people, especially those first time home buyers who haven't experienced a decade where it's ever been about 5% and now we're getting closer to that environment. And I actually, you know, I've made this comment on the show and it's a prediction, Scott. And so as I look at it here, so I think that is much as mortgage rates in 30 year. I'll again, that's kind of the barometer I use like the s and p and 502 for the market. As that continues to creep to 5% and above, people are going to have what I call a mental barrier. So as I talk on the about behavioral finance, people have mental biases. So now that number five actually I think is going to be a mental bias for people because we haven't been five and above
Speaker 4:
23:56
for so long. And I think that's one of the reasons we see, I've seen slow household formation and slow moves from younger people to get that first home, which is a big shot in the arm for the economy.
Speaker 3:
24:07
Yeah, it is. And I think, uh, it, it's scary for people and I think a lot of us, you know, I've been really enjoying those low interest rate environments and who knows what's going to happen. But I'll put you on the spot, Scott. So how many, uh, interest rate hikes do you think we're going to get here in 2019 one one one. All right. I can hold you on record for that. We've got it recorded, so absolutely. Hey, perfect. So a lot of people, I think that tends to be the consensus right now in January of 2019 that that's what it looks like. I mean it says, I think about what's going on in your portfolio and what are the consequences of what if there was multiple rate hikes or what if the market goes down 10% one of the market goes up 20% and where do you sit?
Speaker 3:
24:47
So Scott, one of the things that we have on my side of the House here is we work with advisors and all of their families. We have what's called a five step retirement action plan. It's where we focus on those five big issues to make sure you maximize all your dollars that are your retirement. If you want one of these, give us a call. (888) 419-8513 that's (888) 419-8513 he, if you're the kind of person who really wants to make the most out of every dollar you've worked so hard in your life to get and you want to save it, and by the way, you want to pay the least amount of taxes we have to to give us a call. (888) 419-8513 and you're listening to Paul and Scott are well from wisdom.
Speaker 2:
25:28
He seemed good times and bad times and he's got the gray hair to prove it. You're listening to wealth from wisdom with Barron's hall, the same advisor, Ron Carson,
Speaker 3:
25:38
he's a published author and has been featured in Forbes Investment News, the Wall Street Journal, CNBC, and more now back to well from wisdom with Barron's hall of Fame Advisor, Ron Carson. According to Forbes, market volatility is surgery according to business insider. They're recent chaos in the markets is the new norm. Really chaos. They're trying to sell articles there, Scott, that's what's happening. Hey on Paul West today I'm joined by Scott Kirby. Our senior investments are going to just hear the Carson Group. Scott, you know we've been having some fun today sharing our insights on what's happening here in 2019 we actually gave you a quick summary of what happened in Q four. Again, the worst quarter since really 1931 I'm always curious what people did that move they made, hopefully not any or besides calling your professional to help you there. But we're gonna keep talking about we spent some time on the economic environment, we're gonna give you a little bit insights what we think's happened in the market and then we're going to give you the risks you want to avoid as an investor here in 2019 but I think the big thing that I saw happened, Scott and I want to talk about this for a moment.
Speaker 3:
26:41
So, and that is tax loss harvesting happened to bunch and 2018 especially fourth quarter was really the first time because of the down quarter that people did a lot of tax loss harvesting. And so I think what happened is, and again this is behavioral, so this is just a theory or I'm on my point, but I'm in the trenches. I work for a top 10 nationally ranked advisor according to Barron's and Forbes and many other publications is when we see this, we watch what people do. And I think what happened is, is a lot of people looked at the holidays. This year was on a Tuesday, so Monday that Monday, the 24th law people time off was does it, you know what if I got, if I'm down here in December, I'm going to take some tax loss harvesting to lower my tax bill in 2018 but get it all darn done before Christmas is what they told their adviser. We got several of those phone calls, certainly here. So I think a lot of what happened there on the, really, if you look at it, the 19th 20th 21st and 24th was yes there was some of the economic numbers and financial numbers, but a lot of it was just behavioral based. People are selling because their accounts were down, they wanted a tax loss. And I think that's why we've seen it come up a little bit since then too.
Speaker 4:
27:50
And once, once they had the, the s, you know, once the market had gone down for the fundamental reasons, what comes next is all wow, the opportunities to get larger tax lost, harvest senior even greater. And I thought, well it was different is sometimes we'll see people s harvest losses by selling something and then reinvest in something else that's similar in order to carry them through until they would go by. Back to the original thing, I think what we saw a lot of times now as they just harvested the losses and stayed out, which is basically the same as a partial, go to cash and put some additional selling pressure on top of the market.
Speaker 3:
28:20
Yeah. So I mean when we look at the market, we talk about what's going on in the overall environment. We've talked a lot about inflation already, Scott, we talked about interest rate hikes. You're to have your prediction on record one here in 2019 so what about trade? I mean, what do you look at his trade and what are risks with traders?
Speaker 4:
28:36
Yeah, so train is certainly one of the places where we've got a lot of risk. We've got Brexit, we talked about it, and then the US China relationship. And what we're seeing is that because we can't get certainty, you'd like, just like in your own of life, if you are not sure whether you're going to go to vacation in Hawaii or in Florida, you're not going to book a hotel in either one of those places.
Speaker 3:
28:58
Right? You're not, I mean, yeah, you losing your voice tell you're getting so excited, Scott. I have before, but I mean I think is, I think about the trade is we really have this desire for longterm fairness, right? Yeah.
Speaker 4:
29:10
Yeah. And I think that's a big goal and so they kind of continue that. The first point is if you don't know where you're going to go, you don't book hotel and need a place. And that's what essentially what companies are doing. They don't know whether there's going to be a trade deal or not. They don't know what kind of fairness is going to be associated with it and so they're not engaging in that economic activity that would ultimately spur things on. And so with China in the u s it not only affects those two countries, but it also affects Japan because Japan might export your things in the Chinese workers who were doing the trade work. And so that has really helped contribute to the overall global slowing as far as the economy, the Cargill world's economy is still growing, but it's not growing nearly as fast. Is was a year or two ago and trades one of the reasons why.
Speaker 3:
29:49
Yeah. Hey Scott. So I mean I love doing this and sharing this insight, but sometimes people want to hear this in person in and see something. So actually I want to share with everyone for our listeners today, if you're in the Omaha area, we're actually, Scott and I are doing this again live on Wednesday, January 16th we actually have a few spots left. If you want to attend, you have two ways. One, send us an email info@carsonwealth.com and asked to Rsvp for our market outlook. You can come attend in person, will give you the address and directions on how to get there, what to do. Or you can call us (888) 419-8513 to RSVP. Happy to have you. But let's next go into Scott. Like what are we thinking about the market? I mean, what's, what is it fundamentally telling us about what to do here, right?
Speaker 4:
30:34
2019 yeah. So I think one of the things that we get very focused on economics and trade risks and some of these macro areas, but one of the most important areas is earnings growth. And we've had a phenomenal year in 2018 as far as earnings growth in part because corporations did awesome. And in part because there was a corporate tax cut, which even enhance on top of that, there's no additional tax cut. So when we're comparing the 2018 it's all about corporate performance. Right now, what we're seeing is decent solidarity needs growth, but we're really expecting a lot more risk and a lot more misses on the part of certain companies as whether it's trade or the slowing economy or just specific issues to companies that they're going to be some earnings misses. What we've seen is when that's happened, the market has reacted very strongly to that and so we expect those earnings misses even if their earnings are good. We expect her need Mrs to be another source of volatility, especially in the first quarter.
Speaker 3:
31:25
Yeah. I'll give you an example that happened earlier this week, Scott and I couldn't believe it. I walked by the TV on Thursday and I like to watch the retail sector. I have some interest in that. I'm not saying you should invest in it or not, I'm just, you know, personally I know a lot of people in it and it was, you know, the, the TV quote was Macy's is going to have the worst day in a stock's history. Why? Because they now Ptolemy sales and I just think it's interesting. So there you go. There's an earnings expectation and it created massive volatility that day. As you looked at one specific stack there again, I'm not recommending anything. It was just because of one thing for an earnings outlook changed. Everybody's okay,
Speaker 4:
32:04
not only did it affect that stock, but it affected the whole retail space because those concerns enrolled all over. So you may not even have a holding a Macy's, but you may have, your portfolio may have been affected pretty dramatically cause you had allocations in another competitor of theirs for him.
Speaker 3:
32:18
Yeah, absolutely. Or you could have been in anywhere in the wheel to the sector like Walmart or whatever else that could have dramatically impacted you. And I think, you know, I wonder are we at the end of the benefit of the tax cut for corporations? So I mean it was 2018 the boom for them and is 2019 now you gotta deliver on actual the true fundamentals of your, so your
Speaker 4:
32:36
business. Yeah. And I think that the, you know, the example in the retail is an interesting one as well because that's an area where we've seen from found a technological change. And so we have new competitors, you know, you ordered things online all the time and those are going to be much, uh, they have a different cost structure. They've been very successful and they've really threatened some of those more traditional retailers. And that's one of the other big things that we look for in 2019 is are the incumbents, the firms that we've known for years and years and years to be very strong, are they able to start coming back and compete more effectively against some of the disruptive technologies that we've seen? And that's true in retail, but we also think about the same thing in entertainment and the lots of other areas are doing that as well. We don't see it cause it's not as public or is easy to see or consumer facing. But that kind of dynamism creates a lot of opportunity. But it also creates a lot of risk. And Mark.
Speaker 3:
33:26
Yeah, I think we've definitely moved. I mean the, the behaviors now disruptors moved into favor, right? People like the story of a disruptor. People like change. They don't like change if it impacts them individually. But they love hearing about change. I mean, could you imagine a life really now I would tell people is without Netflix or on demand services from Amazon prime.
Speaker 4:
33:48
Yeah. And those are, those are huge changes, but I think there's a possibility that 2019 to borrow a star wars term might be that the incumbent strike back because they're able to compete more effectively and they've, they've been under this pressure for a while and they really have to adapt or these disruptors are going to really put them out of business. And so there, I think there's some great opportunities there, but those are going to be very volatile as well and create ongoing higher levels of volatility that we will expect to see certainly in the first half of 2009
Speaker 3:
34:15
so since you're using puns now with star wars third terminology, are you a star wars fan? I am. I am, yeah. So what's your favorite episode? Uh, five five which is the empire strikes back. Of course it is. That's why you just, yeah, it's, I think that's the best movie. I think four and five are the best. But uh, that's, you know, that's showing my hard for me to go off the original number four just hard is because that's the first one you ever saw it. And a little bit like I joke about when I f you had your first Krispy Kreme doughnut ever, you loved it so much that all of a sudden I had to eat a second one and it wasn't quite as good as the first one. So I ate a third one and then all of a sudden I said, I can't believe I just ate three donuts.
Speaker 3:
34:55
And that's what happened to me because of that. So what happens though too is I think people make stock picks here, Scott and do same thing and they pick one, they get a winner, then they think they're going to get another one that was just as big of a winner and it's not quite. And then also I think it was his third one and they create this domino effect. And what we do is we help people think about how do you avoid those mistakes? And we were talking about it and we're giving you some insight on the show, but if this has happened to you or you got a question about the way you approach it and you add some of our guidance, give us a call. (888) 419-8513 that's (888) 419-8513 I'm telling you, Scott, I see it all day long is people really let one mistake compound on other and don't be afraid. I really want people to be open minded. If you get advice, what's the worst thing that can happen? It confirms what you're doing is right, but it better than that is if you get advice to help you, you're going to feel so much better. (888) 419-8513 hey, coming up next, Scott and I are going to talk about these big risks you better be watching out for in 2019
Speaker 2:
36:00
how could you make your money go further in retirement? Learn how next unwell from wisdom with Barron's hall of Fame Advisor Ron Carson. Is it possible you could pay fewer taxes in retirement and keep this money for yourself? You could learn right here and right now on wealth and wisdom with bear and Taller Foam advisor, Ron Carson. Hey, welcome back
Speaker 3:
36:26
buddy. I'm Paul West, joined by Scott Kirby, senior investment strategist here at the Carson Group. Scott, I'm not going to ask you any more star wars questions, but I'm glad to know that's one of your favorites. Um, you know, as I think about the market and what's going on, we've spent some time talking through some really big insights. We see what's happening. Um, but I want to get into risks like what are we seeing right now? What's happening at 2019, you know, we're, is Darth Vader Kylo Ren or who are those people out there coming after us right now? I'm going to keep you
Speaker 4:
36:55
the promise. No Star Wars and right back at start. I know I just had to make you happy. Just had to make you happy there. So what are these big risks? What do we see happening coming out right now? So I think the top risk, and this was our top risks last quarter as well, was trade disputes. Um, the U S and China need to get something resolved. It's really contributing to slowing economic growth. I think the space where it's, and this is actually one of our other risks as well, is China's economy is slowing. And one of the things that we look at when we look at where the president's negotiating strike a strategy with China is starting to look pretty effective. Cause every indicator that we sat of China is that as that economy is really slowing down, people that are getting nervous and they need to grow at a rapid rate, that's just part of their overall plan. And so that's slowing plus the trade disputes and how that rolls through the whole world. That was what we would put as our top number one risk to look out for in 2019
Speaker 3:
37:50
Yup. I like that. And I think second, we would both agree with this and I'm going to take this one here, Scott, is as we think about investor behavior, and I used the word 2017 was boring in a lot of 2018 especially quarter three was boring because what I mean by boring wasn't volatile. So we kept saying, and you and I have been talking about this for the last two years, Scott, is investors are just silly and complacent. They're just, they become almost irrationally complacent with ignoring things that are happening in the market. And now with this change that happened with volatility in quarter four again, especially in December, is switched from investor complacency, the investor panic. And I think that is something we're going to have to keep watching out for here.
Speaker 4:
38:33
2019 yeah. And emotionally you don't have to go the stable spot in the middle. You can switch from one side to the other and back and then you get the Jacqueline. Hi Jacqueline. Hi. That's a great example. And because of that, that can really swing markets as people because people don't all, you know, I, I've, I'm selling out today and all by myself, air rationally, but in fact they're just part of a herd that may be panicking at a particular time and reacting and the collective group can really move markets in one direction or the other.
Speaker 3:
39:00
Again, I'll give you an example. Somebody, uh, reached out to us and said, hey, I made a decision. And they said, I'm not sure if I was lucky or not. I am is, I chose on my own to get out at the end of September. Well, great. And now guess what? They have no idea what to do. And that's why now in that they're actually panicking the opposite direction when to jump back in. And I can tell you, you can guess, right? Once you can maybe guess right twice, but you're never going to keep doing well. There's all this empirical evidence that shows time in the market is so much better for you than timing the market. So that's a risk we see. Let's move to another one. So this fiscal stimulus we've had is do we just continue or does it not?
Speaker 4:
39:39
Well, it, it isn't going to continue it because the, the tax cuts already in, it's already baked in. People have already received the benefit of now the tax got lasts on and on. And so there is some benefit from that, but there's no new fiscal stimulus coming. And so one of the things that you, you, if you've taken an economics course, you know, certain theories believe that when the government pushes a lot of money, either through a tax cut or extra spending, that that juices the economy, but then when they don't keep it going, that the economic growth sort of moves right back down to the levels that we, we've seen before. And so I think one of the risks that we're watching very carefully is do we see that or do we see the opposite, which is the lower regulation, the lower taxes in, in sent people to do more economic activity and growth actually catches up and growth heals a lot of wounds. The deficits that I gets healed. If there's growth, you know, a personal spending jobs, everything is better off if we're growing. And so if that growth phase, then we have another risk factor we need to look at.
Speaker 3:
40:34
Yeah, I think Scott is, as you think about this, and I mean, and you and your team spent so much time, and by the way, there's a reason why, I mean I'm so fortunate to have you on wealth from wisdom this week. I mean you do Bloomberg radio, you go on Fox. I mean you do. I'm sure you're on other outlets as well. And then on Damien at the moment. But you're, you're, you're talking nationally with people about this. And so I always like to tell people these are the type of people like Scott that I want on my team. I want working with me and helping me and helping my advisor think through this. And I can't imagine this by the way, if your advisor build your game plan, picks all your stocks or your individual investments does all the research, I don't know how they have the time to do all that analysis. And I like to use the phrase, and we've heard it all the time, you know, um, Jack of all trades, master of none.
Speaker 4:
41:24
Yeah. Even with the investment side of, you know, I focus a lot on the macro factors, the economy, the big picture. But we have different people with different specializations. You're spending tons of time and have greater expertise than I do on those areas of looking at the individual companies, analyzing the different factors. And so I think that's one of the great benefits that that can be provided, is to have a full strength, that full team behind you. Not only a great planner and a planning team, but also a great investment team with different skills. And so that you're not overwhelming anyone's one's person's capacity with, with just too many jobs that they have to handle and juggle.
Speaker 3:
42:03
Yup. Well, I promise people five big risks that are out there. So we've talked about trade, we've talked about investor panic, we've talked about this. Fiscal stimulus is fate in a way. What else is out?
Speaker 4:
42:12
So we've kind of covered the China's slowing as well. So I think we'll, we'll all right, call this number four. That's four. As the Chinese economy is slowing, just in general, I mean there's been a huge economic growth. Just to touch on it briefly, it's really fast. I mean it's five, 6% year after year, but that's starting to slow down and that means that there are going to be some big changes for that economy and the areas they export in it to it. The other one is peak earnings is a risk. Corporations have been extremely diligent in returning cash to shareholders. They've managed that money very, very well, especially since the financial crisis. And that has caused margins and earnings to be very, very strong, a great boon for investors. However, at some point those can only go so high before we start to see some of those benefits roll out to the wages for the workers at the firm and other costs. And so one of the things that we're looking at very carefully, is Tara corporations able to continue to grow their earnings at a decent pace or are there those that money have to go elsewhere? And if it goes elsewhere and we would expect to see some decline in stocks us because
Speaker 3:
43:17
of that. Yeah. So I mean I think Scott, those are five great things and they're going to continue to change. I mean that's why you have to monitor and watch it. And uh, the five things, if we looked at where you were 2019 versus 2018, there's some of them that are similar, but there are definitely different. And what would, the fascinating part here is human behavior changes. I mean, earlier this week there's talk about now we could have the new richest female in the world and why? Because of separation, right? As we look at Jeff Bezos. So I mean, a lot of things happen and things happen in the market and I would say, here's some tips I'm going to give you. So I'm elite advisor, you know, had been ranked with Barron's and others. Here are six tips I want you to do right now to help yourself.
Speaker 3:
43:59
One, keep your perspective. Downturns are normal. Everybody does happen. So realize they're normally short lived, but on average, the bear markets 1.4 years. Number two, be comfortable with your investments. If you got any anxious or anxiety at all, call a professional and get some help. Somebody who's been trained on how to look at this. They're not guessing or doing this after they've had some cocktails one night and making some trades. Three, don't try to time the market. It is a fool's errand for invest regularly despite if there's volatility. So if you haven't done dollar cost averaging, maybe that's another way you could approach the market. If you haven't or you're afraid to get back in the at least let you get your toe back on the water to take advantage of the best days. Five, take advantage of opportunities. There's actually, Scott, we're doing some short term investing with our families.
Speaker 3:
44:50
That's not directly in the market. That is a big, big opportunity. It's helping them generate some returns. We did really well for people in the fourth quarter, yet they didn't have to take all the rest of went on. And lastly, I would say is consider this hands off approach. You gotta be hands off and you gotta be careful with what you do because you could make too many mistakes if you want some help with that. (888) 419-8513 (888) 419-8513 you got questions for Scott? Give us a call. We'll help get them do them. Will help get back to you info@carsonwealth.com hey on bath, the Carson Group. I'm Paul West head. Scott Kirby, thanks for joining me. Wishing everybody a good week.
Speaker 2:
45:29
Risk social security income taxes, estate planning. Every week we talk about how to make your money go further in retirement right here on wealth from wisdom with Barron's hall of Fame Advisor Ron Carson.
Speaker 1:
45:43
Okay, and here's the legal Mumbo jumbo. The opinions voiced and welfare wisdom with Rod Carson or for general information only and are not intended to provide specific advice or recommendations for any individual to determine what is appropriate for you. Consult a qualified professional. All indices are unmanaged. I may not be invested into directly. Investing involves risk, including possible loss of principle. No strategy assures success or protects from loss. Past performance is no guarantee of future results. Advisory Services offered through CW m LLC, an SEC registered investment advisor.
Speaker 5:
46:16
Yeah.
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