The Fed To The Rescue

On this week’s show, Karl discusses the Fed’s decision on Wednesday to leave interest rates unchanged. 

But, they indicated that they’re likely to cut rates at the next meeting in July.  Investors loved that message and bought stocks pushing the major indices to new all-time highs.

What happens in July if they indeed do cut rates?  Will it be enough?  On the other hand, what if they don’t cut rates?

Hey everybody, welcome to the Eggerss Report. It’s your investing playbook. Thanks for joining me. We appreciate it. As always, our telephone number: 210-526-0057. If you need any help with your finances, have a friend, have a question, what have you, we’re here to help you. Whether it’s financial planning, investment management, whatever it might be. And we got a great show. Later on in the show we’re going to be talking about something personal. Your personal finances. How do you track them, or do you at all? How do you know where you’re spending your money, how much is coming in, how much is going out? I will share with you what I do and why I may be making a change in the next few months. So we’ll get to that in a little bit.

And as a reminder also, tomorrow, Sunday morning, if you’re in south Texas, San Antonio area, I will be on the local CBS affiliate talking about Bitcoin. There were some big news this week with Facebook releasing or talking about unveiling their new cryptocurrency called Libra. And so I’m going to be talking a little bit about that but mostly about Bitcoin and cryptocurrencies in general. So make sure you tune into that. It’s on the CBS affiliate. I think it’s in the seven o’clock hour Central Standard Time.

Let’s jump right in. Very busy week. Let’s talk about what was moving this week, what wasn’t moving this week. And the markets, of course, were really focused on the Federal Reserve. Not so much about trade, as they have been, but more about the Federal Reserve. Now, the Dow Jones, up about two and a half percent, the S&P about a little over two percent. We had really stocks go up this week, bonds go up this week, gold go up this week, and volatility went up just a little bit this week. That’s kind of strange. Usually you see volatility going down when the market’s going up, or volatility going up when the stock market’s going down. Wasn’t the case this week.

But really across the board pretty strong when you look at what was making money. We obviously did see a big move in cryptocurrencies because of this Facebook announcement. We saw oil jump big, nine percent move, because of primarily the situation with Iran and coming within minutes of a strike apparently. And we saw big moves in biotech, exploration production companies, metals and mining, gold miners. You name it, a lot of stuff was up this week. So pretty much risk on high quality rally, and we’re at new highs.

And so here we are. Let’s run through really what moved this week. The market already had an upward bias on Monday coming into the trading week. We knew the Fed decision was going to be on Wednesday, and so there was anticipation of that. And then Tuesday we got a big up day. 350 points on the Dow Jones primarily because President Trump and Xi from China said they were going to be meeting for an extended period of time regarding trade at the G20. We also found out later that day that the White House confirmed that they had checked the legality of demoting Jerome Powell, head of the Federal Reserve.

So you got this tug of war going on where the White House wants lower rates and they’re probably going to get them, whether it’s because of pressure or not, who knows, but they’re probably going to get them. How do we know? Because Wednesday the Fed announced that they had left rates unchanged this meeting but left the door open for July and futures markets are pricing in a 100% chance that we’re going to get a Fed rate cut in July and probably another one in September. Two rate cuts coming up.

Now if they did that this would be the fastest change from hiking to cutting, I think, in history. And it begs the question why is that. Is that warranted that they would be raising rates in December and then they come back here in July and they start cutting rates. That seems very premature, does it not? It seems as if they’re jumping the gun. Now the bond market is suggesting that they were going to do this, and it’s almost as if the bond market’s leading the Fed around with a leash like a dog being led by its owner. So they’re just responding to what the market’s already telling them to do.

This to me, and you’ve heard me use this analogy before, but for you new listeners, you parents know this, if your child sneezes do you say bless you and move on or do you say huh, I wonder if they’re getting sick. Maybe you think they may be getting sick, but probably none of you listening would go and rush them to the hospital, demand a steroid shot for them to prevent anything, to make sure, to assume the worst. No you wouldn’t do that, because if you did that you would probably give them too many steroid shots which wouldn’t be good for their health.

But isn’t that what the Fed’s doing? It’s like any time the market slows or, excuse me, the economy slows a little bit, as it is right now, it is slowing, that doesn’t mean that we’re going into recession, and that certainly doesn’t mean we’re going into financial crisis. Do they really need to be cutting rates this quickly? Are they trying to massage or are they worried about the worst? Or are they feeling pressure from the Trump administration? Who knows, but many of them wanted to cut rates this time and they left the door open for next time. Now they’re using the excuse well, trade and the tariffs could slow things down and if it goes on. That’s true, but it seems still premature to me, but that is what happened. And we know you don’t fight the Fed. If the Fed says they’re cutting rates, markets go higher. And we’re seeing that. Markets went to all-time highs this week.

Now we did see on Thursday the 10-year treasury rate for a 10-year bond went below two percent. You lend your money to the government for 10 years, they say we’ll pay you back but we’re only going to give you less than two percent a year. That’s what happened, and that’s the first time it’s been that low since 2016. We also saw gold break out this week. Really on Thursday, and it’s been red hot. Full disclosure, we own some gold in some of our strategies and the junior miners in our aggressive strategy. But Thursday was another good day. Dow went up 250 points, internals were good, and the market kind of digested the news that the Fed was going to cut rates in July.

But I want to go back to this for a minute. I mean if things are great why are they cutting or talking about cutting rates? See, here’s the problem. If we fast-forward to July, they’re going to have to cut rates because the market’s priced it in. You understand that stocks are going up in anticipation of it. It always goes up in advance of something. And then when it happens there’s a risk that it could sell off. So it could be a buy the rumor, sell the news situation. We’re buying the rumor that they’re going to cut rates, and then when they actually cut rates you sell the news. That’s what Wall Street likes to do.

Secondly, what if they don’t cut rates? That’s a worse scenario now because they’ve boxed themselves in the corner where they’re going to have to do it. So that’s the situation we’re in. And for a minute here, I don’t want to talk about the 30 thousand foot view, I want to talk about the 100 thousand foot view. And what I mean by that is where are we in this big picture? I mean we have an economy that is decelerating. We got more data this week that suggests it’s slowing down a bit. We have interest rates that are negative, quite a bit in fact. If you look at the amount of money that is yielding, the bonds that are yielding negative interest rates around the world, it’s like $13 trillion, with a T. Astronomical number. New high. We are seeing companies without earnings going public and getting premiums. It kind of smells a little like the .com bubble. It’s not as extreme. I don’t have you guys emailing me saying hey, how do I margin my account, meaning borrow money to go buy IPOs. We’re not seeing that like I saw in the 1999 bull market. I’m not seeing that.

But it does smell a little bit like, and remind me a little bit of the .com bubble. Very different than in ’08, but it’s a situation where you have technology leading the way. You have a lot of companies not making any profits going up, coming public, selling their stock to you or your friends or somebody, the public, and they’re not making any profits. So we have that. We have the stock market that isn’t cheap. And again, we have negative interest rates across the board. I mean Switzerland. Look, Switzerland has negative interest rates for a 30-year… your bond, if you buy a Switzerland bond, 30 years and you pay them to hold it for you. In fact, the United States is one of the few countries that doesn’t have some negative interest rate somewhere, whether it’s Germany, I mean Germany has negative interest rates all the way out to 15 years. Something’s wrong, right? Now does that mean I’m doom and gloom, and one of these naysayers? No, those people have been dead wrong. If you’ve been listening to the naysayers and the doomsayers, and the world’s ending, they were there in December, while we were telling you to buy. We weren’t telling you to buy, we were telling you we were buying. And just recently we had a selloff in May. We didn’t change anything. Because I’ve been saying that we believe we’re still in a bull market. There’s no signs of the market rolling over into a bear market.

So even if you get some of the stuff right, meaning, hey I think interest rates are going to keep going down, I think interest rates around the world are going to be negative, that doesn’t mean the stock market goes down. And even if the economy does something that you think it’s going to do, it doesn’t mean the stock market goes down. So you can get some things right, but to get all of it right, it’s very difficult. So what I try to stick to, and our company is looking at, the big picture of sentiment, what are we paying for things? And paying attention to that, and trying to get the best deal always. But again, a lot of this boils down to going back to the financial plan. What are you, individually, trying to accomplish for yourself and your family? Which is different than another listener.

That’s what it boils down to. And have allocation that makes sense for that. You start there. But in terms of the market, and the commentary around that, again, it’s very difficult to predict the economy, it’s very difficult to predict where interest rates are going to go. And then what effect that has on the stock market. But in the big picture, are we in the fifth inning of an economic cycle? It feels like we’re maybe in extra innings, this is a long economic cycle. So we’re slowing down, I don’t think we’re going into recession, but we could. But that’s okay, even if we are.

You see, this is like, I was talking to an investment banker, on Friday, and had lunch with him. And we were talking about the markets, he was asking what I think about stuff. And this is somebody who deals with sales of businesses $30, $40, $50 million business, or private owner wants to sell, and they handle that transaction, and they’re able to optimize it, in terms of taxes, and structuring it. And he said, “What do you think about what’s going on right now?” And I said, “It’s really interesting. Because it is like a helicopter mom, that any time something barely goes wrong, everybody freaks out and thinks about 2008. And we got to do something. The government has to do something, the Fed has to do something.” Economies ebb and flow, they inhale, they exhale, we’re going through a cyclical slowdown. Does it go negative? I don’t know, it may go negative. But that doesn’t mean it’s a financial crisis.

So you need to stay focused on buying good quality things for the longer term, verses listen to the noise. Because when you listen to the noise, which is mostly very negative people, they’ve been dead wrong. They’ve been losing a lot of money this year, while hopefully you’ve been making money this year. But it’s interesting right now because you do have some interesting things. Like for example, a lot of people pointing out that, look, why if things are so great, and the market’s going up, why on Earth are utility stocks continuing to go up, right? Those are defensive. Why is gold all of the sudden breaking out dramatically, and at a real high level relative to where it’s been?

But it’s been, look, it’s been a good, I would say a good quality rally. There’s some things I don’t like. There’s some things I do like. So owning good value, right here, makes sense where we are. But exiting the stock market doesn’t seem to. Now we could be in this kind of blow off top period, where this is as good as it gets, right? Unemployment’s as low as it gets, the Feds already told you they’re going to probably cut. Once they do it, markets are going up. What’s left? I don’t know. The only thing that’s left is profits of companies, which if those continue to go up, usually the market does the same thing over the long-term.

So interesting to watch, but again, I always welcome your emails. What are you doing right now? Are you getting a little nervous, or are you getting more bullish? I mean if we break out to new highs, which we have, are you more bullish because of that? I mean that was something missing from the markets, right? Everybody’s saying, “Well we haven’t made any new highs.” Well now we have. Intraday, we didn’t make some new highs on Friday, all-time highs. So that’s a good sign if you’re bullish, because that’s what we were looking for, right? We hadn’t made a new high since, on some indices, since January, February of 2018, that’s a year and a half ago. A lot of volatility, not much appreciation. But now, we did break out a little bit.

But look, the fact that, yeah the VIX was up this week, kind of interesting to watch. Gold breaking out, interesting to watch. You got a lot of geopolitical stuff going on. You have the tariffs, which some believe that, hey, even if we had this long meeting with Xi and Trump, that does not mean that we get any time of resolution. And the longer it drags on, the more these tariffs start to trickle into various things, and effect the actual economy. And we already saw this week, Apple, exploring moving 15 to 30% of their production capacity from China, given the trade war. So the longer it goes on, the more it’ll impact the economy. And the Fed claims that’s why we are probably going to cut rates. I don’t know if that’s the case or not. But do you really want to buy a bond right now? Do you really want to pay a premium for a stock? And again there are a lot of IPOs coming out, and a lot of those companies aren’t making a penny. They’re losing money, and people are paying a premium for them. So you got to be careful in this market.

But that doesn’t mean we’re overall bearish, meaning, run for your lives, get defensive. But you do need to know what you own and why you own it. And over time, I do think there’s a bubble, in certain areas, that’s no shock, and something I’ve been saying for weeks. There’s no bubble, or excuse me, there is a bubble in certain areas. And one area I think is just plain Jane, buying the old index. The S&P, that to me is … I mean we will continue to probably see some volatility over time, at various times. And again, I don’t know anybody’s prepared for. We are now in a year and a half of a sideways market, volatile but sideways. It has not gone up in the last year and a half. Looking at many of the indices.

What if that turned into, instead of a year and a half, what if it turned into six or seven years? Do you have enough income in your portfolio? Do you have enough things that maybe are moving differently than the market? Do you have any alternative investments? Do you have any private investments? I mean those are things to examine, right now, especially while we’re at a high. Don’t get that confidence and be lured into the fact that, well I’ll be fine, and everything’s great, and the market’s good. So I don’t have to pay attention. I mean this is the time to pay attention. You’re getting an opportunity to maybe again, reassess where you are. And do I have too much exposure into a certain area? And I want to take profits in that area, and balance things out once again. Kind of a rebalancing. Those are all things to consider.

All right, I want to switch gears for a minute. And I want to ask you a question. How do you track your finances? Do you track them at all? Is tracking them to you, looking in the checking account or savings account, and just what’s in there is what’s in there, and you’re kind of getting a routine? Or do you keep it on a spreadsheet? Do some of you use Quicken? Do you use an online service like Mint? What do you do? We have an online track your finances tool, that some of our clients are using. But to be honest, when I look at this, and I do want your feedback, I want to know what you guys are using, to track your finances. I don’t mean necessarily just looking at your investments and what you own, but where you spend your money. Do you know how much you spent on groceries last month? But the bigger question is, do you care, right?

Because I have been using Quicken since 1992. So there’s a lot of data inside my Quicken file. Now, partially because of my job, and my career and what I do, and what I like to do. I keep track of every penny, and I always have. And I’ve always recorded it, I’ve always looked at this, and checked on it from, daily. And it’s a lot of work. It’s a lot of work when you’re putting receipts in, and yes, there’s download features. But to categorize things, which is really what we’re talking about, what’s the best way to do that, and does it matter? And it came up this week as I was talking with a colleague, and talking about that we’ve seen a lot of change from a technology standpoint in finances, but we still haven’t … I don’t believe that we have a good system, an easy system, for most people to track their finances. When you link it up, whether it’s a Mint, or something like that, even if you’re using that, the links break. Right? You haven’t logged in in a while, and you didn’t realize that, “Oh yeah. I changed my password, so Mint doesn’t know my password, and therefore, it hasn’t been tracking some of my spending.” That’s a problem with some of those, and so there’s really to me no good solution. Is there something I’m missing? Let me know. Email me, but I don’t think there is. I think there’s a fork in the road.

You either take a glance at it, and get a general idea of what’s going on. You do nothing, or you go to the nth degree like I’ve been doing the last … When is that? Almost 30 years, and enter everything in there, which is a lot of work, and a lot of labor. Now there are some tools that are out there now that actually work with a spreadsheet. It’s an overlay. It still takes work though. I guess the bigger question is, “Do we need to do this?” That’s really what I want to talk about because as I was talking through how I did it, it made me realize that, “Do I really look, or do I even care, that I spent a little more money last month on dining out than I did the month before?” I know that I’m spending more money now on groceries than I did five years ago.

Why? Well, because I have two teenagers. Why? Because there’s inflation. Right? So what do I do with that information? I know it. Does it benefit me to look back and see what I used to spend five years ago? I don’t think so. Again, this is coming from the person who keeps track of everything. Do I need to do this? Really what we’re really trying to do as individuals is, “How much is coming in the door? What are our taxes going to be on that money? Where do we allocate that money in terms of savings, giving it away, or spending it? What’s deductible at the end of the year?” Isn’t that really all we really care about? I mean I do at this point in my life. I want to know what’s coming in, what’s going out, and I want to have enough going into savings for down the road. Right? That’s what we want.

Where I do think it does matter though is for people who are on a budget. I think that is the big question. Are you on a budget or not? If you’re on a budget, you have to know every category, every penny, where it’s going, in order to reign in your spending. Or it may just be that your income’s not quite high enough, and so you have to account for every single dollar. But most of us, if we get to a point where we know there’s enough coming in, there’s more coming in than going out, then it’s a matter of, “How much are we saving to make sure there’s not leakage?” We’re not wasting money going in various places. I think that’s why setting some of these things up on autopilot is so critical in terms of savings. That’s why 401(k)s are so successful.

Not only do they spread the money out into investments in a methodical manner, but they also … You have the match, but they do every paycheck. So not only are you buying securities through ups and downs in the market, but it’s a forced savings, and it’s very systematic. You look up one day and you go, “Wow. That’s a big number inside my 401(k).” We need to do that with all of our other things too in terms of saving. It’s not just your 401(k). Are you saving in a Roth? Are you saving in individual account? Are you saving for kid’s college, or some other goal, buying a house? Once you know that, then you can feel free that, yes, you can spend the rest. Does it really matter if you spent that money on hamburger, or a gift for somebody? Again, if you’re budgeting it does matter. If you’re not, it doesn’t really matter.

Again, this is something that I literally just had an epiphany about. Because I love looking at charts and graphs. You guys know that. That’s what I do for a living, and so looking at how much you’re spending in different categories was neat to look at, but was it very beneficial? I would say, early on in my marriage it was. We didn’t have as much money. We were trying to make sure that we weren’t spending too much. We had a lot of big things coming up. Right? We knew we were going to have kids, first house. But it could just be, again, that some of you like to stick to a budget. If you do, that’s where you’re going to have to categorize that, and I don’t know of any good software out there other than Quicken that can be that detailed.

Now again, you may have a budget for your business, but when it comes to your home maybe you don’t. Right? Because again, you kind of know what you’re spending, and whether you can afford a trip or not. Again, I’m generalizing. A lot of you have very different situations, but I am curious. How do you guys handle your personal finances? Because what I see most of the time working with people, is most people want me and my company to hire, they want to hire us to manage their assets. It usually does start with some planning, but it doesn’t always get down into the weeds of where those dollars are going. The bigger picture is, “How much are we spending?” Right? “How much is saving, taxes, and spending?” That’s what we want to know.

But some people, yes, we need to go into the weeds and figure out really, “Where is that money going,” and so I will challenge those folks to do a budget so that they can track it, and then I can see where that money is going. It’s helpful for me, and it’s helpful for the client as well. But I’m curious what you’re using, because I would guess that most of you are not using some sophisticated system. You’re probably using a spreadsheet or something like that, which is fine, whatever system you’re using to track. It’s not that I’m going to not use Quicken, because I still want to produce various reports. But it will probably be going forward maybe higher level instead of needing to know the breakdown of each receipt and where it specifically goes. Just knowing that it’s an expense versus using that money on an asset, or saving, or charity. Right?

That’s what I want to know at this point. So let me know what you are doing because I am curious. Just email me, and let me know what that is. It’s Karl, new email address by the way, karl.eggerss@covenantmfo.com. Maybe I’ll share them in the next couple of weeks, and see if there’s a huge response as far as one particular thing that you guys are using or some software that I don’t know about. Let me know what that is. Hey, don’t forget. For those of you in the South Texas area, I will be on CBS tomorrow morning talking about the Bitcoin. Nobody’s asked me about Bitcoin lately. The last time I was asked about Bitcoin was in 2017 because it was going parabolic, and then it crashed 85%, and of course everybody didn’t want to talk about it anymore. Now it’s up about … Oh, I think it’s tripled since Christmas, and everybody wants to talk about it again. Or at least starting to, and so I will be on the local CBS affiliate in San Antonio talking about Bitcoin, and really what it is, and where we are at this point.

Some of you kind of know what it is. But where are we at this point in this stage of the game as far as here we are a couple years later from when we last really talked about it in depth on TV? Tune into that. We’ll probably post a link to that video on the site, and sent it out to you guys as well. Don’t forget to share the podcast. Again, keep in mind we’re going through some changes over the next few weeks in terms of just looking at how it’s distributed, and the look and the feel of the podcast. We want to continue to bring you the best information, but do it in a maybe a slightly different manner, just tweak things more efficiently. Be on the lookout for that. You’ll still see some Eggerss Capital things popping up here and there over the next few weeks, but just be patient with me, and we’ll get through that. But we will continue to be doing the podcast as we always do. Appreciate you listening, As always, if you have any questions, let us know. Have a wonderful weekend everybody. Take care.

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 the 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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