Even The Bulls Are Surprised

On this week’s Eggerss Report, Karl discusses the persistent stock market and how even when there should be a pause or pullback, the market continues higher.  Bears are frustrated while bulls are a little surprised.

Plus, Karl gives a few ways parents and grandparents can educate their kids about finance.

Hey everybody.  Welcome to The Eggerss Report. It’s your investing playbook. Thanks for joining me. We appreciate it. Just a reminder that we do have a three day weekend. We have the holiday on Monday. So markets will be closed. So if you’re trying to trade and things aren’t moving, it’s either going to be … you’re going to think it’s really, really calm out there or you’re going to know that the markets are closed.

So anyways, thanks for joining me. Appreciate it as always, continue to keep your questions and comments coming our way. Lots of ways to do that. You can obviously email karl@eggersscapital.com. Go to our website, eggersscapital.com or you can call us at 210-526-0057. We also do YouTube videos. So go onto YouTube.com/karleggerss. You’ll see our videos on there and we’ll continue to build that library out and kind of organize them in a library fashion with different playlists and so forth. So make sure you go on there. You can subscribe and click on the bell and every time we put a video out, you’ll get notified very quickly on that, and also we are on iTunes for the podcast. We’re on Spotify, Stitcher. So different ways to listen to the podcast and later in the show we’re going to talk about different ways you can educate your kids and grandkids in the areas of finance because it’s something that’s desperately lacking in our country, in my humble opinion.

All right. Let’s get right to it. So markets, what are they doing? They are continuing to go up and we had a lot of interesting things this week. I think the market at this point is, it’s almost baffling to the bulls as much as it is to the bears. So the bears continue to say, recession’s coming things are awful, we just crossed $22 trillion of debt in this country, it’s horrible another financial crisis coming, it’s horrible, horrible, horrible. Meanwhile, they’re losing money every day because they’re betting on the market going down and meanwhile it continues to go up.

So not only are they not making money on the way up, they’re losing money because they’re betting against it. Now some of them may just be sitting in cash, either way they’re not making money and the market continues to go but it’s almost baffling to bulls as well as bears because it just keeps going up. We had a really strong day Friday and look, we have some mixed news flow, and you don’t want to get too caught up in some of it because a lot of it is just trying to get the markets to move.

You know, we heard talks earlier in the week that the market was up big because there’s been all this progression on the China trade talks and President was also going to sign this deal with congress on boarder security so that the market went up almost 400 points on Tuesday, you know, real broad based and then Wednesday kind of piled on. President Trump said he was going to perhaps extend the tariff deadline past March 1, and so market went up again and now we are off to either the eighth best start to a year ever, in the S&P 500s history and the last time we saw a start this strong was 1991.

So we’ve had a very strong start to 2019 just like we saw a horrible end to 2018 but then we get this mixed messaging, you know, you hear about Trump saying he’s going to do the tariff extension and then there’s reports that maybe the two sides aren’t as close as they say and I mean you get this mixed messaging. So you can’t really trade around that. That’s the smartest thing to do is not be trading around these news headlines, and so the other thing that we saw this week was, we saw some of the weakest retail sales we’ve seen in a long time.

Well what’s funny about that is Larry Kudlow came out, who’s the permeable in the White House, the one that sees the glass more than half full all the time, and he says, well, well you know, those retail sales are muddied by the government shutdown. Well the government shutdown was in January and this retail sales report was a December retail sales report. So again, even people in the White House are making these types of comments trying to downplay negative news and make positive news sound great. It is what it is, that retail sales softened in December, quite a bit. We need to continue to watch out for, is this economy getting weaker and weaker or not, and there’s no signs that it’s going into a recession in our opinion.

There’s also no signs that it’s rip-roaring so much that we have to worry about the FED at this point. So it still is kind of a Goldilocks scenario, right. The FED is on the back burner and the economy continues to do okay, and it slowed down a bit as we’ve said but you’re seeing progress on China, you’re seeing a potential delay in the tariffs but look, what’s the … to me the biggest thing out of everything we’ve seen the last several weeks, the biggest thing we’ve seen is the Federal Reserve shift considerably from a tightening FED to a neutral FED if not one that could ease at some point.

They’ve even talked about negative rates and how helpful that is. So we’ve seen all of that and that’s been the biggest move and that’s why the FED is so powerful, and that’s why everybody watches what they say so closely. Look what it’s done to the stock market. I mean we’ve had a complete V and the stock market’s up almost, you know, 18% from its lows, without pretty much a pause at all. I mean you get a day or two of a pause and then you continue to see this market moving forward and that’s why I’m saying it’s even confusing the bulls because even the bulls would suspect we’re going to have some type of pause but we haven’t yet.

We’ve had a very strong market and so you know, we’ve been on record for a couple of months, more than that, saying, we think we are in a continual bull market. Even during December we said, we’re in a bull market, this is a correction that is happening inside of a bull market. Where does it go, what level? We don’t know, obviously but we have been consistent in saying that we thought it was a bull market just because of the underlying data.

You don’t get markets that just roll over like they did that quickly and then you just head straight down. That’s just not how it happens. So again, what we see is, could we go back up to new highs? Yes. Could we technically make a head and shoulders pattern? In other words if you look at the high in January 2018, the high of October 2018 was even higher, that’s the head and then what if we make a lower high right now? That could very easily happen. We don’t see any evidence of that just yet but you have to separate the economics and the news from what the market’s telling you, and that’s why all these bears are getting it so wrong the last several weeks is because they’re purely going off news flow, and there’s a big disconnect between inverted yield curves, and China trade deals and even the economic numbers.

Even if the economy’s slowing, there’s a big disconnect between that and what the market’s doing. We don’t know why the market’s going up practically every day, all I can tell you is, it is, and I can look underneath the hood and see that it’s either a strong rally or a weak rally and it’s been a strong rally. Very, very strong but we can’t tell you how long it’s going to last or where it’s going but I can tell you that I think that it has legs and there’s no evidence of a big, broad bear market.

Now we run an article a few weeks ago regarding naming these markets, bear market, bull market and it’s kind of silly. So I’m using the terminology Wall Street uses but I use it in a different way because to the market, to Wall Street, they were saying that we didn’t quite go into bear market because the market didn’t fall 20% and my argument was, who cares if it’s 19.9 or 20.05%. There’s no difference there. You still lost money. All right. Who cares what you call it. It’s a horrible market and it was, and who cares if it’s gone up 10, 15 or 18% right but if we’re going to label it, they’re even doing it wrong in my opinion.

A bull market is about duration, a bear market’s about duration. How long does it last, how long does this stuff last? You can’t say we’re in a bear market that lasted three months. That’s not a bear market. I would argue 87 wasn’t a bear market. That was a nasty, nasty correction. It wasn’t much different than what we just saw just happen in one day. So let’s quit labeling it. It doesn’t really matter. It’s not going to help you get to retirement any sooner or later right?

You need to know more about, are we in a market that is very difficult and we don’t have the odds of making money are low or not but it even starts before that. It’s more about allocation, right. It’s about how much should you even have in the stock market, how much should you have in lending to other people or other institutions versus owning equity. You can lend or you can own equity and when you own equity, you can do it privately or publicly right. You could invest in a friend’s business, that’s a private equity deal or you can do it publicly and invest in a stock that’s on the New York Stock Exchange and none of those are good or bad, it depends on what’s going on in your specific situation.

So again, understanding what’s going on in your life and then building an allocation that makes sense. A lot of you are in situations where your allocation doesn’t make sense with what’s going on in your life, and maybe it did before but maybe there’s been an inheritance or death or divorce and so your allocation doesn’t make any sense anymore and that’s what we help people do is say, what are you trying to do and then let’s give you all the tools.

We have a bunch of tools in our tool belt and what’s the right tool for the job. Now the financial industry, mutual fund industry, sales people are trying to push the tool for every job, the same tool. Those would be an insurance salesman, annuity salesman. You need to be careful because they’re the ones with the free steak dinners, they’re the ones that typically have weekend radio shows that come out on at goofy hours of the night or a Sunday afternoon and they call it like the, you know, they’ll have some type of title that is either about a lifestyle or about retirement or about how safe the money is.

All of that is smoke and mirrors to sell annuities to you, okay. Be very, very careful because all they’re doing is preying on fear and getting you to pay a premium, which is a big commission for them and they call it, financial planning, they’ll call investment advice and it’s not. It’s not at all. That’s not what financial advice is. Financial advice should be a view of the 30000 ft view of your situation and then figuring out the best tool to accomplish what you’re trying to do and sometimes, by the way, that may not involve an advisor and sometimes it does, and as a fiduciary it’s our job to say, you don’t need an advisor you do or you don’t need a mutual fund or you do or you don’t need a stock or you don’t need a bond or whatever it is, is to build that portfolio based on what you are trying to accomplish, period but if all you do is sell insurance products, guess what, everybody that walks in the door is a customer that’s going to buy a product.

So be very, very careful with that. Okay. Just a little side bar because I still see it. I see people come off and man, they’re getting the full court press from Jimmy John’s cousin down the street who used to sell cars, then they did, you know, then they worked at a bank and then they helped a friend who was a home builder and now they’re in the financial services industry. You know, does your advisor have a finance degree? That may be a first place to start. Has your advisor been doing this more than a year? Has somebody been doing it more than 20 years? That would be good. So those are some things to ask. So I get a little annoyed by that because these people are still out there still preying on fear. See, told you the market was going to go down. Well did they also tell you it was going to go up 18%, right, since Christmas Eve because that’s what it’s done and they don’t tell you that side of the story. They just prey on the fear.

So again, just a little side bar regarding that. Now, speaking of, I mentioned individual stocks and mutual funds and all that, speaking of individual stocks, did you see what happened to Coca-Cola this week? Coca-Cola dropped over 8% on Thursday and this is a company we used to own in our dividend plus strategy and we sold it some time ago, and the reason we sold it was some things kind of scared us, which is the stock’s expensive, it’s over-valued. We knew it was over-valued. It hasn’t really fallen a tremendous amount just yet but I think there’s a bigger theme here.

If you go look at Coke, they’re … one thing that you look at, when you look at a dividend paying stock is can the company afford the dividend and Coca-Cola, 10, 15 years ago, let’s call it 15 years ago, about half of their profit’s coming in, were going out to shareholders in the form of dividends. It wasn’t that big a deal. Now their dividend payout ratio, something for you to look at is up to like 87% last time I looked. So what’s happening is most of the money coming in that they’re keeping is going out to shareholders and they’re kind of slave to the dividend now, and so imagine if Coke, one of the longest, if not the longest dividend paying company out there that raises it pretty consistently too, imagine if they cut their dividend. Well that would be good for the company. The stock would get hammered because if all these people that rely on that dividend and own the stock specifically for the dividend and there’s a lot companies that are like that. So look at the dividend payout ratio.

That’s very, very important to look at and you’ll see on Coca-Cola’s it’s crept up consistently. It’s doubled.

Doubled in the last 15 years. So be careful about that because the reason I bring up Coke is not to pick on them specifically but there’s a lot of companies like that where people go, it’s got a decent dividend, and Coke doesn’t have a huge dividend but again, how much of the profits coming in are going to the dividend. It’s kind of like if your mortgage payment was 90% of your expenses, your mortgage is too big right. You probably have to downsize and that’s kind of a similar situation. They’re kind of stuck with this dividend because everybody’s used to it, everybody expects Coca-Cola to continue to pay these dividends and there’s a lot of people who buy stocks based on that.

So just a little side note. When you’re looking at dividend stocks, that’s one thing amongst, you know, 20 other things to check but one of them is, look at the dividend payout ratio. So I want to switch gears for a minute and talk about something I think is a problem, not only in our local communities but as a nation and its financial literacy.

We don’t seem to get the education at a younger age for kids going into college and then into adulthood and that’s why you see these stats like half the people in the US have only $1000 saved and of course we know student debt’s a huge problem, we know debt as a country is a problem. Our government has a lot of debt, our adults have a lot of debt, and it’s no shock that then our kids have a lot of debt and unfortunately a lot of the stuff is just not taught in school.

Some of it is, you know, you hear about economics classes but just basic financial literacy I think is missing. There are some programs. So if you’re listening in a city or state that has this at their high school, great. It’s just you’re in the minority and what they are teaching are really some bad habits. I may have mentioned this on a previous podcast. So for those that have heard this, I apologize but I don’t remember if did or not be honest but my niece came to me a few months ago regarding a contest in one of her economics classes and was basically saying, hey can you help me put together a portfolio for the next 90 days, you know, some time frame like that. It may even have been 60 days and of course, do you want to win the contest or you want to learn about investing?

Those are two different things because of that short time frame. They’re teaching her about trading. They’re teaching her about short-term performance and so they’re really not doing her any service and so, you know, of course I filled her in on some things but that’s what they’re teaching and that’s not what we should be teaching. We should be teaching basic financial literacy and we’re just not getting that. So there are some programs being started. We talked to a lot of high school and college kids all the time about finance or either we’ve actually gone to schools or kids come in here. They may be kids of our clients, just different kids in the community and they want to come here and we let shadow us for a day but even that, they’re not getting the basics down right. They’re getting some things and it’s more about do they want to go in this career or not but we really need some of those basics.

So what can you be doing at home, either with your kids or grandkids because a lot of you have kids that are obviously older and some of you, I know, are listening that have kids that are adults that still don’t get this stuff. So regardless of age these are good things but we do have an issue of not enough financial literacy being taught. We’re going to do a video on this pretty soon but there’s a handful of things that we can be doing now.

I think number one, you know, if you are doing a budget for yourself with your spouse for your family, whatever it is, share that budget. Go over the family budget with the kids. Now some of you may be uncomfortable doing that and kind of opening up the vault on finances and that’s fine if you don’t want to do that but I will say if you’re going through the budgeting process and you’re really serious about it, show them what you’re doing. Show them where you’re cutting back, where you’re willing to spend, how that changes, how much things cost now versus a year or two ago, how it’s going up, you know, basically inflation. So I think that’s a good thing to do. Kind of have these budget meetings if you will once a year, is probably enough to go over it and just show them all the categories and say, “Look when you go out on your own, this is what you’re going to have to be dealing with. You’re going to have to figure out how much rent you’re going to have to pay, are you tithing, your grocery bill, your auto insurance bill, your cellphone bill”, and let them figure out.

There’s only a little bit of money left over perhaps and that part does need to be saved, and speaking to savings, one thing that you can do is help them open a Roth IRA as quickly as possible. When they’re 18 and they have earned income, that’s key, they can open a Roth IRA where the money goes in, it’s not tax deductible but it grows tax free. So they’re going to be in a very low tax bracket, through college and even the first few years of their job. You know if they have a 401K available to them at their new job where they’re doing matching, that’s fine but you can still, if they have Roth 401K option inside the 401K, I would suggest they do all of that in the Roth 401K because more than likely they’re in a low, low tax bracket and so the tax benefits now aren’t as great as the tax free growth that they’re going to get over the next several years.

So that’s something that they should do. There are, I believe, custodial Roth IRAs but if you want to just keep it clean, you can do a Roth right when they turn 18. It’s their own account, keep in mind that you’re not in control anymore of their kids when they’re 18 in terms of their finances there to a certain extent but that’s what you can do, and also you can … a lot of these have paper accounts where you can, you know, do some mock trades if you will and mock investments and kind of watch them over time but teach them about that.

Also, kids nowadays are very app oriented right? So you know there’s apps like Acorns, which I have used before but Acorns is a, basically it takes some of your … it basically scrapes some of the account and goes and invest it. So you can invest for little small amounts and of course those small amounts can grow into big trees is kind of where they go the name Acorns but there’s a lot of apps like that. There’s apps that’ll track their spending, there’s apps that’ll aggregate all their assets and liabilities. So that is really important to do and in terms of saving, teach them 15% probably good starting point, 15% of their income is a great place to start and you know, if they’re in college, don’t worry about it but as they go into the job world if they can save 15% and primarily if they can do it in that 401K where they’re getting matched, would be ideal.

I would also say show them some bad stuff. Show them things that have not worked out. Either things that you have done, financial mistakes you have made or even show them investments like some of the cryptocurrencies that were so popular at the end of 2017 because a lot of the high schoolers were hearing about cryptocurrencies and wanted … that’s where they started their investing and you may not know that but a lot of high schoolers that I talked to were investing in cryptocurrencies in 2017. Well of course 2018, they fell to 95% most of them. So show them that and say, “Look this was something that regardless of what happens over the next 10 or 15 years, this was something that was very popular, it was going up very fast, it made a lot of people think that it was going to go to the moon and they were going to get rich quickly and this is what can happen. You can lose almost all of your money if you time it wrong, if you buy something you don’t really understand, something that’s not vetted”. So show them that.

I would also say show them the perils of debt. Maybe situations you’ve been in where debt really creeped up on you and again, you know, this also ties into the delayed gratification. I mean if you have debt available to your credit, they’re going to use it and so they’re getting credit cards given to them right off the bat in high school, and so teach them to use a debit card. Teach them that, you know what if you don’t have the money, don’t buy it right now, it can wait and it’s hard because, you know, we have these smartphone upgrade cycles, every year Apple’s coming out with a new iPhone and it does this and it does that and the one you have doesn’t do that, it doesn’t do this and it makes them want that.

Then they see their parents upgrading and then we have Amazon which makes purchasing super easy and now they even Amazon same day delivery in some cities. So I mean having to push for delayed gratification teach that’s really, really difficult but that’s really what gets people into trouble is buying stuff now that they really could wait for. So those are just some tips. I would also say … I’ll probably at some point come out with a list of, at least my favorite books that I’ve read over the last several years regarding just basics on finance and mine’s not an exhaustive list.

I haven’t read every single one out there but some that I think that are important, that would be appropriate for kids, that are teenagers to read. It’s just a good thing and then have them just start watching different things, listening to different things. Obviously shameless plug for our podcast but a lot of parents tell us they do let their kids listen to the podcast and the kids are really getting a lot out of it. So we try to do things on a very basic level and also try to do things obviously on a very higher level so that those of you that have been investing for a while will also get something out of the show as well but this is a problem and you know, if we keep going on this road, you know, we just passed $22 trillion of debt in this country and again, people look and say, “Well if the government can’t control their spending, why should I control my spending?”, and of course what are the kids going to do? They’re going to do the same thing and they’re not going to control their spending as well.

So anyways, just a little bit about that. Just a few ways that hopefully you can educate your children or grandchildren about finance. Hey, thanks for joining me, appreciate it. Have a wonderful weekend. Don’t forget Eggersscapital.com. Our telephone number 210-526-0067. Enjoy your three day weekend. Markets are closed on Monday. Take care everybody.

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This show is for entertainment only and information provided by the host, guests and this station should not be deemed as advice. Your investment decisions should be based on your own specific needs. You should do your own research before you make those decisions. As president and CEO of Eggerss Capital Management, Karl Eggerss may hold securities mentioned in this show for himself and his clients. Just don’t buy or sell anything based on what you get from radio or TV. Use your own judgment or get yourself a trusted advisor.

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