This Sector Isn’t That Healthy

On this podcast, Karl discusses one sector that was under pressure this week.  Is it a buy or a bust?

Plus, have you been laid off?  If so, you have a lot of decisions to make.  Karl shares a few.

Hey. Good morning, everybody. Welcome to The Eggerss Report. It’s your investing playbook. Thanks for joining me. We appreciate it as always. Happy Easter to you. Grab yourself a cup of coffee and we’re going to discuss all kinds of different things today on the podcast. If this is your first time, welcome aboard. We do take suggestions, questions, comments, even criticisms from time to time, although we don’t have many of those, which is good. I don’t know if you’re just keeping it to yourself and being polite. But we do take those as well, because we always do want to make the podcast better for your listening pleasure.

We get lots of feedback, lots of questions, lots of comments, and it helps really you because it gives you some answers that maybe you thought you were the only one that had the question to, and lo and behold, there was somebody else out there asking those questions. So the best way to ask that question is probably go on the website. Eggersscapital.com is the site, and on there, you’re going to see all kinds of information, and of course, the podcast is a great way to get information. We’re on iTunes, the Apple Podcast, we’re on Stitcher Radio, we are on Spotify, Overcast, all kinds of podcast platforms. And of course, we’re on Twitter, Facebook, Instagram, all those as well.

So welcome aboard. And for those that have been listening for a long time, thank you for your continued support. Don’t forget, you can always share the show, all kinds of ways to do that. Tell your friends about it. Hopefully, somebody can get some benefit out of it as well. All right. We’ll try to keep this short this week, simply because this is a holiday weekend, and you probably have things to do. So let’s get right into it. For the week, let’s go over what the markets did this week.

The Dow Jones Industrial Average was up about 0.5%. Technology up a little bit more than that. The S&P 500 was actually flat on the week. So we’ve seen a couple of weeks the markets have been kind of maybe losing their momentum, which wouldn’t be a huge shock, would it? Given the fact that we’ve had this enormous run since Christmas Eve. So we’ve gone from one holiday, Christmas Eve to Easter and it’s been quite a run. We also did see a little bit of movement in emerging markets but pretty much a flat to slightly up week.

As far as the things that were the movers, and there were some big movers this week, semiconductors up 3.5%. Railroads, I’ve seen railroads breaking out to new highs. Really nice technical formation three, up over 3%. Homebuilders up 2%. Industrials up 1.5%. So you get a flavor there. Its technology, its industrial type things, things that have to do with the economy doing very well. Those were some of the outliers.

On the flip side, natural gas down 6%, breaking down a technical level too. It was setting up earlier in 2019 pretty nicely and it’s just broken down. But watch that. This is one of those commodities that really when it breaks down like this, they can go on a massive run. Do you remember the end of 2018? Natural gas went up, it almost doubled. It went up about 80% in just a few months. So watch that. Now, since that time it’s gone down dramatically. I think from its high, which was around November, it’s down somewhere around 45%. So it can move quite a bit.

But the other big mover this week was really in the healthcare and biotech space. Biotech itself was down almost 6% and it hasn’t really broken any technical levels, but a lot of damage done there. It’s just, man, what a nasty week. 6% on the week for biotech and healthcare in general. The XLV ETF down over 4.5%. There’s all kinds of reasons why. Bottom line is, I would do some digging around in that area. We own some healthcare stocks in our dividend strategy. I would do some digging around because there are already some good value in that area, and I think there’s even more now, and watch some of those to see if they bounce back over the next few weeks here.

Gold miners got hit. The RETs got hit, which is really interesting to watch. Is that you think about RETs, which are the Real Estate Investment trusts, and they’re pretty interest rate sensitive. They had been rallying here to new highs, and part of the reason was, okay, interest rates aren’t going much higher, the economy is starting to slow, therefore the Feds out of the way. And because interest rates are going down, we can own RETs in this kind of slowing economy.

Well, now what you’re seeing is interest rates are starting to creep back up. The inverted yield curve that we’ve been talking about the last several weeks is not inverted anymore, at least most of it, and you have the Fed, even though they’re on the back-burner, the economy may, may be looking better. In fact, some of the leading indicators are starting to pick up steam again. And, take a look at China. A lot of their data coming out is improving. So maybe the China growth scare is over for right now.

So because of that, I think investors are looking at interest rates and going, well, maybe they don’t skyrocket but if they don’t keep going down, maybe we sell off the RETs. So you’ve seen interest rates on the 10 Year Treasury go from about, that’s caught 2.4%, 2.3%, probably about 2.3% and they’ve been going up to around 2.5%. So not a huge move, but again, it’s their direction. So that was something that was really a big mover this week was the RETs as well down almost 3%.

We also saw an oil and gas exploration production stocks down 2%, metals and mining down about 2%, and utilities which kind of get thrown in there with the RETs sometimes down about 1.5% as well. So again, kind of a mixed week. It kind of begs the question, are we pausing or are we stalling? Look, here’s the deal. We talked about it a couple weeks ago. There was this major pattern that if you are into technical analysis at all, you would notice this head and shoulders pattern. Which is essentially three tops, if you look at it, and one came at the beginning of 2018. We fell and then, of course, we went to new highs in October just barely, that’s the head, and then it fell. And now we’re coming up to maybe what could be considered the right shoulder and we’re starting to pause.

Now, the longer we go on here without rolling over, it’s kind of inevitable that we would break out to new highs. Because everybody seems to be expecting and looking for an excuse to take profits. I mean, if you did buy in the fall and into December, which we were doing, you’re looking for a way to take profits. You’re saying, I want to lock some of this in because it’s got to go down. And the longer it doesn’t, it just seems to push higher. I think that’s what’s going to happen. But there’s no doubt that we’re starting to lose a little bit of momentum, nothing major.

I mean, there’s no real negative technical signs that I can see other than this, when you zoom out and you look at this market and you say, well, wait a second. After this big run, shouldn’t it pause here? And yeah, it should, unless you think that the whole fall, growth scare, the Feds out of touch scare, and the tariff scare. If all of that was just bogus and it shouldn’t have gone down, then we’re simply retracing what we did. We’re simply getting back what should not have been lost. You see. And so that’s the difference. So the fact that we fell, is it’s just reversing and coming back up to where it was. Is it not really gain but it’s just getting rid of the losses.

So some people are viewing it that way, but the fact that we still have what looks to be progression on the China trade war. We have China’s growth potentially bottoming and starting to go back up. Some of our leading indicators in the US look like they may be starting to turn up again, we may start seeing acceleration. We saw the tax cuts, we’re going to see refunds come into the economy as well. Those all things … And we still have the Fed on the sidelines. Are those things that will get us up to new highs? Probably so.

Look, we’re sitting … Is it hard to buy at these levels? Yeah, it’s hard, but it’s also hard to sell. I mean, there are many reasons that you’d want to sell but it’s hard to sell. You got to pay taxes on it. What if it keeps going up? All the things we’ve talked about in the last few weeks about kind of the negatives of short-term trading.

Now, one thing I am watching is, we are seeing some overconfidence by the retail investor. That is something that we watch because you kind of break the market into two camps. You’ve got the retail investor, people that watch bald men throwing animals on TV and they invest, and then you have the “professionals”. The best time to buy is when the retail folks are getting really scared, like in December and the professionals are licking their chops because they see bargains. This is the opposite.

Right now, you’re starting to see the retail folks very, very confident because everything’s great, right? And you’re starting to the professional scale back a little bit. So that is a concern for us, at least short-term. Are we doing anything about it right this minute? No. But that is a concern. And so watch for that. How does that resolve itself over the next few weeks? Because again, we’ve started to see a little bit of, I don’t want to say rotation in the markets, but you’re starting to see some things not participate as much. But look, it’s been a fantastic 2019, it’s been a fantastic recovery. Most things are up in the teens for the year.

You have things like oil up 38%, semiconductors up 35%, oil and gas equipment and service companies up 34%, railroads up 29%. Home construction, remember the home building market, that was it. Lumber prices were falling. Guess what? Lumber prices are starting to go back up again and home construction stocks are up over 26% this year. Technology up 25%, aerospace and defense 22%. I can go on and on. There’s not many areas that are suffering other than volatility, suffering if you own that. Natural gas, as I mentioned earlier, down about 11% year-to-date. Silver’s down, Gold’s down, not much. But those are the things that aren’t really hanging with the market.

So, again, I would use a little caution here. What I would focus on, especially for you’re in individual stocks, there are still tremendous deals out there, you just have to search around a little harder than you would have back in December. But there are plenty of bargains out there especially for you folks that like dividend paying stocks. There are really good high quality companies selling at discounts. You have to be a little patient. When you buy them, I mean, you don’t have to be patient to buy them, but you have to be patient once you buy them to get the rewards that may come your way. All right.

Congratulations to Tiger Woods for winning the Masters. I was there last year, didn’t get to go this year. If you haven’t been, it’s phenomenal and it lives up to everything … Everything that you imagined, it lives up to the hype. It’s just the way they run it, the way they run the pro-shop and the merchandise coming through there, the way they do the prices and the green packaging, so you don’t see trash on the ground and it blends in with the grass if you drop something. The way they don’t allow cell phones into the facilities at all. It’s amazing. The roars, the condition of the course, all of it is just unbelievable.

I got to go last year. It’s one of those things I probably go to every year if I had a chance and pretty phenomenal. So Tiger Woods wins it and I’ve never been a personal fan of Tiger Woods. He is the one that probably got me watching golf on Sunday afternoons. That’s when golf ratings really took off was when Tiger came on the scene. There’s a whole generation of golfers that really struggled because of him. He was so dominant. And now they’re kind of entering the senior tour, the Champions Tour they call it. All these young guys grew up really not intimidated by Tiger Woods because of the fact that he wasn’t really there for the last few years.

So they all had a chance to win and gain some confidence. But he is the elder statesman. He’s the one that they understand what he’s done for the sport and they respect them. I’ve never liked him personally because he just he had this air about him back even before his troubles. He seems a little more humbled now. But everybody loves a comeback story. America loves that. So he’s loved. I mean the roars for him, you don’t find anybody who wouldn’t pull in for him. It was amazing to watch. Again to see what he came back from to not be able to walk. And if you’ve played golf, it can be excruciating on your back and all your joints. To come back and do that, let alone to win, but then to win another major? I don’t think he’ll break Jack’s record. But to be able to win a major is phenomenal. Anyways, that was enjoyable.

My point in telling you all of that, I can talk about that for all day, but my point in telling you that is that, do you have any friends that bet on sports or gamble on any type of sports? Or really are aggressive in other forms or factions in their life? Maybe with their business or how they spend their money, anything like that, yet they’re terrified of the stock market. I know people like that. It may amazes me. And the reason I bring it up is because I see lots of people gamble regarding the Masters. They put money down, big money on who’s going to win? What combination of players? But yet, they’re scared that the stock market may fall 5 or 10%.

It’s interesting to me, it’s really interesting. It’s one of the most fascinating things, I think. Because I found that a lot in my career that for some reason, the stock market feels risky to a lot of people, and it’s interesting because you’re investing in businesses. I don’t understand other than the fact that it’s extremely transparent, but … I guess people expect that they could lose all their money gambling. So it’s like they know that. They know they could lose their money and they’re willing to do that. But with the stock market, I mean, unless you buy something flaky, you’re not going to lose your money. Hopefully, you’re invested in some diversified portfolio, but it will fluctuate.

It’s amazing to me that, that fluctuation can cause nervousness, yet for the same person who can go and gamble or make very aggressive moves with their money in other areas of their life. I don’t know, have you seen that? I mean, do you know people like that? Because it’s one thing to be conservative across the board. I don’t like stocks. I don’t like gambling. I’m very frugal. That all makes sense. What doesn’t make sense is this polar opposite when it comes to investing versus gambling or the way you spend your money. So just interesting to me. So when I watched the Masters, it reminded me of that. So let me know if you have a friend like that and why that may be? I’m really curious. I don’t understand that.

I’ve talked to a little kids before, and when I say little kids meaning teenagers that say, isn’t the stock market risky? I’m not sure where they get that other than, do they have parents that have made really dumb decisions when it comes to investing? Selling out at the low of, “Oh, wait.” Or buying stocks on margin or buying too few stocks. Or investing in fly-by-night companies trying to get rich quick. Is it that and so they’ve heard about that so the stock market’s risky?

Because if I show somebody a chart of the stock market for 100 years, it would seem like the least risky thing you could do with the best return. Right? I mean, if you show somebody a 100-year picture, that’s including the dot-com bubble, that’s including the financial crisis, you would see those 50% drops. But you see this zigzag line that continues to go up from the lower left to the upper right. So I don’t know where the reputation of the stock market being risky comes from, but yet people are willing to go to Vegas, and they’re willing to bet on the Masters. I don’t get it. Look, like I said, I get it if you’re really aggressive, really conservative across the board. But I don’t understand how people can compartmentalize things like that.

So you look at the evidence, that’s really what you have to do. The odds of winning the lottery are extremely slim. Now, people are putting up probably few dollars doing that. But people play the lottery every week knowing, I think, hopefully knowing that their chances are so slim. Yet, if they would stick that money in dollar cost average into an ETF, I mean, the odds of success are so high. And yet, it’s the get rich quick. It’s fascinating.

It’s the behavioral finance, the behavioral economics. That’s probably as I age and continue in this profession, that’s the most fascinating thing to me, is watching how people think about their money and think about their savings and think about their investing and their preconceived notions. Where does it all come from? It’s really, really interesting. So I’m just curious if you have any friends or a friend that is like that.

Now, have you been laid off lately? We’ve been seeing, especially where I am in the South Texas area, we’ve been seeing some large corporations laying people off, and through that process, they have a lot of decisions to make. Are you one of those people? The decisions you’re going to have to make are, A, can I transfer within the company? If not, can I retire now? Like, can I call it quits now or not? Should I take the pension? If there is one. Or should I take a lump-sum rollover? What do I do with my 401(k)? Should I take Social Security right away? Because I don’t have any income anymore. What do I do for health insurance?

I may have told you a story but I recently had a gentleman got laid off from a large corporation and he had a choice to apply within the company, but it would have been a transfer. So we talked about it. I was encouraging to stick with the company, even if it meant a transfer to a different location. Because A, he could have commuted for a while until he got to retirement. But the pension that he would have lost by leaving the company was so great and the salary that it didn’t make any sense to leave, even though I’m sure he was a little frustrated with the company for laying him off in the first place. But that continuity with that company was a really big deal.

So walked through all these decisions. We talked about this, we calculated some numbers. And at the end of the day, he ended up getting a position at a different location with the same company. So he gets to keep the pension and he actually ended up getting a raise, believe it or not, bigger title at that other location. So yes, he’s going to have to move and he decided, you know what? He actually did an interesting thing, he’s actually going to stay longer than he was even anticipating originally. That’s good. That’s going to put less strain down the road on his retirement. He’s going to have more years where he’s putting into his 401(k) than taking money out.

But it was helpful to him to talk through the scenarios, and for me, to give him that advice from a non-biased perspective. Just saying, here’s things to think about and here are some things that you need to consider before you do this. Because initially it was, I need to start looking for another job and that ended up not being the best thing for him. But we talked through all those different things and we had the figures in front of us, and we could run what if scenarios.

So if you or somebody you know is in that situation, let us know. You can just go to eggersscapital.com, there’s a green button on there. You click on the button and it’ll schedule an appointment. That’s what we do. We plug this stuff in. Look, we’ve talked about this, in fact, we talked about it last week that some of these decisions are mathematical and some of these decisions are emotional or they’re just not mathematics, they are something other than that. Having somebody to talk this through and just walk through these things with you, it’s really beneficial.

Because when you get laid off, or there’s a death in the family, or there’s a divorce in the family, or location changer, or some other need. Had a friend that lost an infant, just a few weeks old this past week. Those are major life decisions or events. And when those events happen, you sometimes make irrational decisions. So it’s good to have an advisor sitting there walking alongside to help you through that. But we’ve seen some layoffs lately.

The other thing that we’ve been seeing is interesting things within the financial advisory business where we talked about for the last couple of years this fiduciary rule that starting to get traction. A lot of companies started changing the way they did things, which was good for you. And then it kind of fizzled out and all these people, all these “advisors” were going to their clients. You know what, instead of charging you commissions now, we’re going to do it on a fee basis, which is how we’ve always done it. And they said, well, that’s great. What’s the deal? Well, we just think it’s a better way to do it. Well, they were being forced to. They knew what was coming down the road.

What’s interesting about that is it’s kind of like saying, well, it’s better now than the way it used to be. We think this is better for you. It’s almost as if saying, hey, that milkshake now has half as much sugar than it used to have. Well, that just tells you, it used to be really bad for you. Now, it’s just kind of bad for you. Why would you change and look back and say, well, we’re going to change from a commission world to a fee world, just because. Well, it’s because they saw the writing on the wall. They were seeing a lot of companies do that. Again, give us a call. We’ll walk you through that, and at least help you out. It may not be us that you need help from in the long-term, may just be a short-term question. We’re here to help. 210-526-0057. Our website, eggersscapital.com.

Now, before we go, do you think … I’ve been hearing something. I don’t think this is the case. These better economic data coming out of China, do you believe that that is hurting the US’s negotiating power? Because we saw some two weeks ago, saw some good economic reports this week. I don’t think it’s that fluid. I don’t think China looks at their economic numbers and say, we don’t need the US anymore. And I certainly don’t think the US says, things are so great over there that they’re just not going to need us anymore. So we need to change this. I don’t think that. Do you think that? But I heard that floated around this week, that perhaps because of those economic numbers coming out, it’s putting China in a better negotiating place than they were before.

Let me know what you think. You can always email me to karl@eggersscapital.com. And again, thanks for your feedback and thank you for your listening all these years. If there’s anything you want us to cover, please let us know. Have a wonderful Easter with your family. Appreciate it. And we will see you back here next week on the Eggerss Report, your investing playbook.

This show is for entertainment only and information provided by the host, guest 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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