On this week’s show, Karl discusses the fact that while things have improved, a few comments can still move stocks. And, Karl gives something investors should consider doing over the next few days.
Hey. Good morning, everybody. Welcome to The Eggerss Report. It’s your investing playbook. Thanks for joining me. We appreciate it as always. If you would like to go to our website, it’s eggersscapital.com, E-G-G-E-R-S-S capital.com. Our telephone number’s 210-526-0057. If you need our help, you can always call us, or you can click the big, green button on our website, and we will try to help you any way we can. A lot of information on the website, of course, and a lot of people connect with us in many, many different ways. Some of you come straight to the website. Some of you subscribe to our blog, which is free, and every time we put something out on the blog, it comes to you directly.
Now, some if you listen to iTunes to the podcast. Some of you follow our Twitter account. We also obviously are on YouTube doing video, and I’ve been hearing recently a few people tell me that they found us on Reddit. I’ll have to admit, I did not use Reddit until this week and I got a little curious. You Reddit people, tell me if I’m right on this. It’s a little more for techy people, right? A little more of a hip crowd is on Reddit. Just another place to get information, stories, things like that, and apparently, some people of there have been saying they like to listen to The Eggerss Report podcast.
Anyways, we did have an email this week from somebody from Canada. His name’s Steve, who did find us through Reddit, as a matter of fact. He said, “You keep asking about, on the podcast, what we have been doing lately, so I figured I’d tell you.” He said, “I’ve been keeping my overall allocation about the same for much of 2018, about two-third stocks, about a third cash. I’m bearish, and that is keeping me from being fully invested, but I’m not all-knowing, so that is keeping me from 100% cash. I didn’t change a whole lot from October to now except to sell off a few losers and put most of that money in gold stocks. Gold seemed cheap and performed somewhat inversely correlated to the markets in October. I started buying them and adding to my position until about a month ago,” et cetera, et cetera.
“The rest of the equities I hold are fairly defensive,” gave a few names of some companies. “I can’t bring myself to own gross stocks like tech, et cetera, pot, et cetera, at what I feel is possibly the end of the cycle. The names I hold seem pretty cheap and held up relatively well during December. I also don’t really get things like tech. I’m baffled that Amazon has sold a single Echo device. There’s no way I’d ever let somebody basically listen to all of my words,” et cetera, et cetera. “Anyways, thanks for putting out the podcast. As somebody who’s bearish, I value hearing from someone a little more optimistic. In retrospect, I should’ve listened to you and bought the dip around Christmas and sold around now. Maybe next time. Thanks again. Enjoy.”
Feel free to email me. We get emails like that all the time. Some people just call me and tell me what they’re doing. Again, we learn from each other. I’m curious what people are doing. I like his email because while he’s bearish, he had a very interesting point in there, which is “I’m not all-knowing.” I had somebody this week call me and say, “What do you think about selling all my stocks and moving my whole portfolio into gold?”
Now, some of you, that may sound so outlandish, you couldn’t believe somebody would actually say that, but you have to remember, I get and communicate with people from all different walks of life, all different situations, scenarios. I think I was trying to combine that word situnario. I don’t know if that’s a word, but situations and scenarios. Because of that, they’re telling me what they’re doing, and there’s people that do very extreme things. One of those was somebody who’s wanting literally to sell everything in the portfolio and move everything into gold. Of course, the answer is don’t do that. I don’t care how bullish you are. People were very bullish on Enron. People were bullish on text docs before the dot-com bubble. There’s all kinds of reasons why you wouldn’t do that.
By the way, on a side note, go look at gold from 2011 until now. That’s another reason why you wouldn’t want to do it. Look, full disclosure, we own gold miners in our Aggressive Growth strategy and a couple of other strategies. We do own some gold. It’s a small amount, but we own some, but the reason I like his email is because it’s a balanced approach. Yes, he leans on the bearish side, and that’s fine. Look, there’s thing to still be concerned about, but I like the fact that he still is saying, “You know what? I don’t know everything, and so because I don’t know everything, I have to balance this out. I have to own some stuff that maybe makes me a little uncomfortable.” But anyways, that’s why he listens, to try to get a different perspective than his.
Steve, thanks for the email, and again, if you’d like to email me, you can go to Karl, K-A-R-L, @eggersscapital.com is my email address. If it’s a question or comment, just drop it on the email, and we’ll mention it. Again, if you need our help, just go to the website. Best way to do that.
All right, let’s get right into it with the markets this week. Interesting week. A little different tone. We’ve been talking about, the past few weeks, that you have the situation of all this negativity that was there in the latter part of 2018, and it was the big three that I saw, which was economy was slowing, Fed was still tightening, and there was a trade war, and slowly but surely, some of those things have moved to the positive side. Now, they’re not 100% everything’s great, but it’s been the improvement. I think the thing that is probably the clearest is that The Federal Reserve is off the table for now. That’s something that has definitely shifted.
In fact, we saw this week another Fed governor come out and basically say, and this was the St. Louis Fed president, James Bullard, and he said the Fed policy is, quote, “a little bit restrictive,” and he’s concerned that the approach might be putting downward pressure instead of upward pressure on inflation. Think about that. What is he saying there? He’s saying that rates are too high.
Now, this isn’t stark contrast to what we were hearing from the Fed three months ago. Three months ago, what did we hear? “We’re way below the neutral rate.” Well, if you’re below the neutral rate, that means you still have whatever the neutral rate is, which I don’t even think they know that, but that means that they feel like they need to raise rates to get it back up to neutral. They’re just saying “to neutral.”
Well, the market didn’t like that, of course, and it was going through all this stuff, and then Jay Powell says, “We’re slightly below neutral.” Remember that? “We’re just below neutral,” and the market said, “Okay, we’re getting somewhere.” Then now we’re hearing that it’s actually restrictive, which would imply we’re above neutral. This is the massive shift that we’ve seen in The Federal Reserve. They’ve also taken out the language saying that they’re going to, basically, they’re going to continue to raise, paraphrasing it. That is a solid green for the markets in terms of what investors look at.
Now, secondly, though, we had the trade war. That had been going, improving. Remember, we said we thought that to have “a deal,” quote-unquote, “a deal,” I don’t know, that would be very difficult to do this quickly with so much in that deal and things that we disagree on, but it was something that we needed to see improvement, and we seem to be getting that improvement. I’ll come back to that in a minute.
The third thing was the economy. Economy is slowing. Is it slowing enough to have a recession? I don’t think so, but it is slowing. There’s some good data coming out still. We had some really good data a week ago. It’s mixed, but it’s definitely been decelerating a bit. Nothing to be alarmed about just yet.
But let’s go back to the trade war because if you look in the last few days of the stock market, primarily Thursday, market was flat on the week, but it had a negative tone to it. Didn’t it have that? Well, and it’s primarily because you had Larry Kudlow come out and say that the US and China still had a ways to go on trade. Well, that’s not what we were hearing earlier in the week. We were hearing that everything was moving in the right direction and we both won a deal, but then the pendulum swings back to “we need to keep negotiating here, so let’s just say that we’re still, got a ways to go.” Market didn’t like that, and then on top of that, that President Trump and Xi would not, probably not meet before the tariff deadline, and President Trump kind of acknowledged that when asked.
Remember, we have this deadline coming up, I want to say it’s March 1st coming up, that if they don’t reach a deal, the tariffs go into play.
Market didn’t like that, the Dow was down about 400 points, but it battled back and finished down about 200, but pretty much a down day on Wall Street on Thursday. That was Thursday. Now here’s what’s interesting. On Friday we had … The Dow was down once again and and battled back. It came back quite a bit. So we still have this market that still is clawing back even though technically it’s at a place where it should pause. I mean let’s be clear about that. The market should pause where it is. Okay? And if you want to call being flat this week a pause, but it’s broken a little bit of the uptrend since Christmas Eve. It failed just under, for you technicians, under the 200 day moving average. So it’s kind of stuck between a rock and a hard place.
It stuck between … It’s above the 50 day moving average, but below the 200. So there’s a lot of people who want to go back above the 200. That would be the all clear sign. Again, as if you’re a bull, you should expect a market pull back a bit. You should expect that even if you’re bullish, if you’re bearish, you’re saying this is … It should have pulled back already and it’s going to fall at least halfway back down. If not, go retest the lows.
And here’s the thing. You go back and look at some of the times we’ve had some V’s like this, V as in victory. If you’ve had that V, it’s very common for you to go in and retest those lows or at least pull back and it kind of looks like a W, if anything, and so that wouldn’t surprise us to see that.
But here’s the thing, the sell off, and I’ve talked about this in weeks past. The selloff we saw with the subsequent rally, we saw the intensity behind that was very rare and that’s why I don’t think we will retest the lows. Could we give back half of the gains? Perhaps. I don’t know the number and nobody does, but if the market can’t keep going up at this, at this level, at this trajectory, so we should expect some sort of pause or pull back and it looked like we were going to get that on Wednesday, Thursday, Friday, and it was just a very … It just kind of battled back. So for the week, what we ended up with was the major industry indices, pretty flat on the week.
Now, some of the outliers were things like we saw a big move in bitcoin on a Friday up about, think it was up like 11 percent or something like that, or 15 percent, but 11 percent for the week. So that was kind of your big winner. And also aerospace and defense. Aerospace and defense now, from the low in late December is up 25 percent. It was up three percent just this past week. We also saw things like utility stocks up two percent, technology up to percent, industrials up a percent and a half, railroads up a percent and a half. Nothing huge one way or the other, but it definitely had a … The tone was bonds did well, utilities did well, kind of that risk off a little bit was kind of your out-performance. You’re under-performance was oil fell five percent. Oil and gas stocks seem to be rolling back over the exploration and production companies down over seven percent this week. So they got hit hard, natural gas down five percent, just energy in general got hit, but the Vix continues to fall, the volatility index, which again, look like maybe it was going to start turning the corner heading back up, just didn’t do so.
And so here we are, we’re in this market right now that again, the news flow has been better, but there’s so many skeptics out there because we have some big issues going on, right? I mean, when you look at Europe, Italy is in a recession. Germany’s probably in a recession if not close. And so you have those things going on overseas. You have, countries that owe other countries money, a lot of money. So people think they’re going to have to be bailed out. You have the US, it’s doing pretty well. But slowing a bit, so you go, “How can I possibly buy stocks? Because it’s about what’s priced into the markets. So when I tell people I like international stocks, some of them go, “Don’t you know what’s going on over there? Don’t you read the papers? China’s slowing and Europe …” Yes, but that’s why they’ve underperformed the last several years is because of those problems that you and I know about Merck.
Remember the market is a discounting mechanism and so when things are going bad, it’s going to sniff it out much earlier than you and I are. Remember, emerging markets, they’ve been outperforming since October. And by the way, slightly, the developed markets have been outperforming since September. But pretty much on par. So what was happening for literally a year and a half or so was that consistently, almost daily, the international is underperforming the US and that has stopped.
So the market is discounting what’s happening. So if you think about it, why was the market going down? It was discounting. The economy’s slowing the fed, raising rates, all that kind of stuff. And now the markets rallied because it’s, again, it was sniffing out that the feds next move may be down. They may cut and not raise anymore. But these things that I’ve been talking about that are getting better, they’re still up in the air. I mean we don’t know. We don’t know what’s going to happen with trade. It’s been improving and it’s been going the right direction. At least the rhetoric has, and China seems to be conceived conceding on some stuff. But all it takes is one statement.
We saw that this week, that says, “You know what, we’re not making enough progress and so we’re going to let the tariffs kick in March first. The deadlines come and gone.” Market would drop on that. We know that. So the market’s still vulnerable from that standpoint. Right? But don’t you think that these countries know that? And so I still think that whether it’s really a soft deadline. They push it back, and President Trump says we’re going to give them another 30 days. Who knows? I think that that will get resolved, and the market’s kind of telling you that as well, but yes, a negative headline like we got this week, will push stocks down two or 300 points, especially given the fact that we’ve had such a run.
So if you did buy the lows and you’re sitting there with big gains, you’re chomping at the bit to take your profits because you’re worried about giving them back. And see that’s the psychology when we get to these levels, that’s the psychology is … I don’t want to go back to where we were on Christmas Eve, so I got to sell. And so some of you told me you were stopped out of positions this week, and some of you admitted to me that the hard part is now figuring out when do I get back in if it goes back up, right. It’s easy if it falls because you can just say, “Good, I’ll take that cash and put it right back in.” The harder part is what if you’re wrong and it goes back up. So to me, again, this is when strategy comes in.
I’m not saying it’s all algorithmic and black and white, I’ll do this and I’ll do this and I’ll do this. Yes, there is some finessing here and some judgment call always. We’re not computers, we’re not robots, but the more you can have the strategy laid out in advance and the more you can make it scientific, the easier it is for you and you won’t get caught going, “I sold on Christmas Eve, now what do I do?” That’s what we’re trying to avoid. And these … You certainly don’t take the portfolio you have which is balanced and go sell it all and go throw it in gold or whatever. That’s just … That’s a way of not accomplishing your financial goals. Now, this week, some other news, we did see Bill Gross retire. Remember he was the bond king and then he kind of lost that title. He left Pimco, went over to Janice after what seemed to be kind of a tiff with his other partners over there and kind of lost that title after some rough returns.
And then Jeffrey Gundlach, the young star, kind of took over the title as the new bond king. Well Bill Gross is retiring because of poor returns apparently. Did you also see this on Monday? A Canadian cryptocurrency exchange says about $140,000,000 worth of customers holdings are stuck in an electronic vault because the company’s founder and sole employee died without sharing the password. Oh my gosh, are you kidding me? This is what you have to worry about when there’s not enough regulation. There’s something new, and right now, what are the two new things? The cryptocurrency space in terms of investing and all of that and the cannabis space. Those are the two things that are new. So because of that, there’s people that are going to make a ton of money. There’s people that are going to lose a ton of money. There’s mistakes that can be made and there’s just all kinds of stuff.
And there’s chasing, there’s … So the crypto currency, when you store this stuff, you have to have a password to retrieve it. That’s the safety of it. And if you don’t you can’t get to it. And so there’s $140,000,000 locked up. So what a mess. Also this week, the state of the union address by the president. What’d you think about that? Well, don’t tell them what you thought about that because it really … Outside of … It didn’t affect the markets. Okay. So, and that’s really what we’re trying to focus on here. There’s a whole political side to that. Alright. It was quite the scene for many, many reasons, but I watched the whole thing. But that was a obviously something that was Tuesday night. You know, Wednesday was just kind of this ho hum day.
There wasn’t a ton of news flow this week other than … Really what it was was global economic data was a bit weaker and this trade stuff that came out. That was the two big things that kind of had a little sour tone to the markets, but this is something interesting. We are seeing the most positive reactions to earnings and over
… for five years. So that tells me that the analyst kind of followed the herd and brought down their earnings revisions last quarter too much. And so because of that, the stock market, the earnings come out … I’m not talking about are they beating or missing, I’m saying the reaction. Meaning the stock price after the earnings are released is some of the biggest jump in five years. So interesting to see that.
Now, the other thing that was brought to my attention this week is, you know we obviously do investing for our clients, but we also do financial planning, we help with Social Security, all these education funding, all these types of things that have anything to do with our clients’ financial lives. And we had a client asked us something about Social Security, about a situation he was in. We told him the answer and our answer completely contradicted what the Social Security Administration had told him. And that didn’t surprise us because there’s numerous stories on the Social Security Administration not giving people the correct information. We were 100% accurate in what we were telling him and it was different than what somebody had told him.
Now there’s three ways, you can call a national number or you can call a local office, you can go down and talk to somebody locally. It just depends on who you’re talking to, but there are some people who either don’t know the rules, or they … I would hope that they know the rules. I wouldn’t hope that they would know the rules and not tell you about the ways to optimize it, but unfortunately, they didn’t. So this is why a lot of people need a financial advisors because even the information you’re given from Social Security isn’t accurate. There’s a lot of little, I don’t want to call them loopholes, but a lot of the ways to optimize it kind of closed a few years ago, but there are still numerous things you can do that can still give you the most social security over your lifetime. And they don’t voluntarily call you up and say, “Hey, by the way, this is what you can do.”
Now probably the majority of the time, if you go in there and sit down and say, “Here’s my situation.” They’ll tell you what you’re eligible for, but I have seen and read about numerous mistakes. And this client of ours had wrong information given to him. So very valuable for us to tell him, “That is not the rules. Here’s the rules, and you are entitled to more.” So be careful of that and if you need any help with your Social Security, trying to figure it out, plan for it, when to take it, when not to take it. There’s a lots of factors. It’s not just about, “If I wait longer, I get more, but I may die so I should take it early.” That’s what most people do to analyze it.
That’s not analyzing it. Because you have to you have to look at several factors including existing marriage, previous marriage, right? Are you single, married, divorced, widowed, kids at home, younger kids? Are you working now, not working, are you taking taxes into consideration, what that might look like in the future? so it’s not in isolation, one thing you can look at. You have to take it in conjunction in a kind of a comprehensive way. So if you need help with that, let us know.
So to kind of sum up the markets, we have not made hardly any changes at all. What we have done, and this is something you might do this weekend, getting ready for next week is because we’ve had such a big, big move off the bottom, if you have things that you did buy for a trade, this is the time to address those and say, “Should I take that trade off the table?” Okay? This is probably not a bad place to do so.
The other thing to look at is are you now out of whack? Are you out of balance? In other words, did your stocks, because it’s been such a big move, get too big of the portfolio? And because of that it’s time to take some off the table and put that in the back to the safer assets, or let’s put it another way. Let’s say you owned too many stocks going into Christmas Eve, they bounced dramatically. And you already own too much, but you were you did the right thing and didn’t panic out, they jump. Now is the time. Now is a reset. Okay, I’m getting a second chance to sell riskier assets that I really shouldn’t have owned in the first place. This is probably a really good place to do that. I’m not saying it’s not going to go higher or it’s going to fall, but again we’ve had the relief rally at the very least. So you didn’t sell on the 23rd, 24th of Christmas Eve, that was good. Good job. You knew you weren’t in the right place, but you said, “I’m certainly not going to panic out on selling things for this stretch to the downside.” And now is the time to say, “Okay. Now we’re reassessing we’ve all exhaled a little bit.”
But see here’s the problem, often times, we get greedy, right? You know you had too many stocks on Christmas Eve and guess what? Now you go, “Yeah, but it’s going up. I want to keep riding this.” But just be careful. And even if you want to use some stop-losses, you can use that. Of course, there’s issues with that at times, but the bottom line is this is a good time to maybe rebalance and reassess because we’ve had a nice, nice bounce.
I mean if you’re looking at the S&P 500, we have bounced 15% from the Christmas Eve bottom. And we’re sitting here, only about 8% off the all-time highs. So it’s not a bad time to reassess. So that is one practical thing that you should do this weekend.
Now I want to end this up podcast with something I thought that I just had to share with you because it’s pretty funny. Got a little meme. Guess that’s what these are called, right? It says, “1998 ‘Don’t get in car with strangers.’ 2008 ‘Don’t meet people from the internet alone.’ 2019 ‘Uber, order yourself a stranger from the internet to get into a car with them alone.'” That is so true. You know it’s funny how … I mean I use Uber, I should say all the time, but when I’m traveling, I use Uber quite a bit. And it is comical that we’re going to get in the car with somebody that we don’t know, that we found off the internet. But aren’t we really doing the same thing with a taxi cab? I mean come on. When people say, “I would never do an Uber. I’m not going to get in a car with a stranger.” I’m like, “Well, don’t you do the same thing when you get in the taxi cab.” Oh my gosh.
Okay. Hey, don’t forget, Mondays I go on the Trey Ware Show. You can hear that live if you’re in the South Texas area. AM 5:50, about 7:20 Central Standard Time. If you’re not listening to it live, don’t worry. We usually post it on the site later in the day. So again, if you want to get all that, just go to eggersscapital.com, click on blog, and there’s a place to sign up for the blog. We just ask for name and email and then you get everything we post each and every week.
Hey, don’t forget eggersscapital.com . Our telephone number 210-526-0057 . That is our telephone number. If you need anything from us, we are always glad to help. Make sure to share the show and tell your friends about it. Our audience continues to grow and we want to continue to help people. So thanks a lot everybody. Have a great weekend. Take care.
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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 decision should be based on your own specific needs. You should do your own research before you make those decisions. As president CEO of Eggerss Capital Management, Karl Eggerss may hold securities mentioned in the show for himself and his client. 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.