On this week’s show, Karl discusses the continued strength in the stock market. It’s now a 9-week winning streak and the Dow has regained 26,000.
Hey everybody. Welcome to the Eggerss Report, my name is Karl Eggerss. Thank you for joining me, I appreciate it. As always, grab yourself a cup of coffee, sit back, and let’s talk finance. We try to improve your wealth … I was going to say health and wealth, but we don’t do that on this show. I guess if you’re wealthier maybe your health is a little better, but those two things probably don’t always go together. I know I can be in better shape, and I’m not in the poor house. So what about you? I think we can all be in a little better shape, let’s face it. But we are here to talk about your wealth and improving that. We try to educate you and give you an update on what’s going on in the markets, financial planning, and all that kind of stuff. Welcome to the show, again my name is Karl Eggerss. If this is your first time, welcome aboard. We get new people every week from all over the world literally thanks to the internet. Listen to the podcast, come on our website.
Our website is eggersscapital.com by the way, and when you go there lots of information. If you go the blog page, or financial education takes you to the same spot, you’ll see everything we post on there; the podcast, videos, articles, interviews I do on radio and TV, it’s all right there. Of course you can subscribe to that blog if you wish, and also go check out our YouTube channel. If you go to youtube.com/karleggerss what you will see on there is my ugly mug. But you are going to see a lot of different things we’ve done with video over the last several months, tips, strategies. If you subscribe to the channel, and then click the bell, you will get notified every time we post something on there. So make sure you go check that out. If you want to skip all of that and simply go to “Need help” then you click on the green button on our homepage. Just go to eggersscapital.com and get a free adviser and consultation. We’re glad to help you out, a friend out, or anybody that needs your help in financial planning, or investment management.
We’ve had companies lately layoff people, right? Some big companies have announced layoffs, and people call me and they say, “Okay, what do I do here? Here’s my options …” they may have an income funding gap, “What do we do until I get another job? Where do I get my money to pay our expenses?” And you can make some big mistakes during that time because you’re stressed, you don’t have an income. We help people walk through that, what to do with their 401(k), some of them have a pension. If they’re retired, do they go ahead and start social security right away because they don’t have income? All of those different things we help people with all the time, so if you know somebody in that situation let them know that we are here and we can help. All right, let’s get in it. I did get a couple of emails this week regarding the podcast, one of them came from a lady named Connie.
Connie basically … I won’t read the whole thing, but essentially she really enjoyed the podcast last week talking about the way that we do need to educate our kids and grandkids on saving, lowering their debt, not taking on debt, investing. If you want to go back and listen to last week’s podcast where we discussed some of that, do so. I am going to probably come out with a video about some of my favorite books to give teenagers to read to get them into this kind of stuff. It’s really interesting, I mean again going back to what we talked about last week, when I have somebody in my office, a teenager maybe in high school or college, and we show them about some of these basic things, they really like it. They don’t shy away from it, they really embrace it. Even when you start at a very young age, talking to people at a young age, we do talk about individual stocks. Not that we’re encouraging them to go into individual stocks right away, but they can relate to a Disney, and Apple, a Coca Cola.
When you start talking about these companies, or Under Armor these companies that have been around a while, and you say, “Hey, you know this company, right? You’re wearing their shoes.” Or, “You’re wearing their watch.” Or, “You’re carrying their phone.” And you show them that the more of that stuff they sell, the more profits that company has which makes the company worth more and if you’re a shareholder, your value of your shares goes up. It’s a pretty easy concept. So sometimes we’ll go into elementary schools and do it, and make a game if it, we’ll give out a little gift card for whoever will be the winner of different things and they’re really interested in it. I’ve never had anybody come in here and go, “Oh my gosh, this is so boring.” Even people that aren’t necessarily going into finance or business, they really enjoy it. So have those talks with your grandkids, and kids, and make it fun however you can. But I’ll try to help you with some of the books of things that I’ve shard along the way with my kids, and then get them on a system.
Get them on a system of some sort, mine … and it’s not perfect because we get busy, but in my household we have a spend, and save, and give. Those are the three buckets if you will, and if they put it in the save bucket they can’t get it out because it’s for something longer term like a car, but I match them on it. I’m teaching them how to do essentially a 401(k). So there’s all those types of things that we can be doing, bur Connie thanks for the feedback. She talked about basically being old fashioned, and doing paper budgeting still, which is really cool. But even that, that may be a great way to teach your grandkids how to do it because you’re saying physically, “Here’s our budget each month.” And there’s lots of tools, and as we move on we’re going to get more and more tools available to us throughout. We already do, so thank you Connie. I appreciate you listening. I also got an email from Patrick, long time listener.
He was discussing … I don’t know if you guys saw the Kraft Heinz company … of course they used to be two different companies, but now it’s one company. Kraft Heinz, KHC is the symbol. Of course it was down about 28% on Friday. That’s a company that … wow, you look at the picture of that thing, this thing has been falling, that’s what’s so interesting about it. They had a … I want to say a double whammy, a quadruple whammy. Earnings were bad, guidance was bad, dividend cut, and then the SEC investigation and that’s really what I think ultimately caused the stocks to go down so much. Because normally when the stocks falls like this, it would be a surprise. Well this thing has been falling, and it was around $90 a share back at the beginning of ’17 and it’s sitting around 34, $35 now so you’re talking about two thirds of the value wiped out. It had been falling all this way. Normally when there’s some kind of a kitchen sink, sometimes stocks can hold up a little better but when you start downing in SEC investigation, that may have done it.
So basically Patrick wrote and said, “Wow, I thought that buying Kraft Heinz in late December was a safe bargain.” He said, “I did not foresee it dropping 27%, but I guess messing on revenues, earnings, and SEC investigation, the dividend cut, write downs, and secular change in consumer taste will do that. Do you think they just got all the bad news out at once? Eek, this sounds similar to the Coke situation you talked about last week on the show. Moats don’t seem as protected anymore.” It’s not the same as Coke, I have something different there basically talking about their stock with the dividend because of the fact that they’ve had it for so long, and they have to continue paying on. So more and more of their profits are going to pay that dividend. With Kraft Heinz, it was a kitchen sink. If you’re a CEO, or anybody you want get that bad news out there all at once. You don’t want to keep … rip the bandaid off, don’t just peel it off little by little.
“What’s interesting though …” that’s what I wrote to him, was I said, “What’s interesting though is a stock that’s fallen so much prior to this already. That’s what’s interesting is that it had already been falling.” But when you hear about all this stuff, and especially SEC investigation … that can’t be good. I think more than likely this bounces a bit, but I wouldn’t look V shape recovery for a while. I think this is a type of company that you will see an activist go in, I think if you look at one activist … and I wouldn’t call him activist, but Berkshire Hathaway of course Warren Buffet, he lost about $4 billion on Friday because of this, and … or at least. He didn’t lose 4 billion on a Friday, maybe 4 billion for the whole time he’s been in this thing and it’s been falling. But somebody like him could announce up to stake, could try to get in there, and … he didn’t really have the activist mentality necessarily, but some activist may come in and say, “This is too big of a company to not get on board here and try to make some positive changes.”
But pretty nasty what we saw to that, but again a good lesson unfortunately of owning too much of one thing. So if some of you own the stock, that’s unfortunate. But if it’s a piece of the portfolio, you can survive. If it’s 40% your portfolio, that’s devastating. And obviously if you’re somebody at works at the company and have all your eggs in that basket, it’s another example of pure diversification one on one. All right, as far as the markets for the week, kid of a flat. Of course we were closed on Monday for President’s Day. Pretty flat week for the market’s, but still it’s amazing because we’re still getting this … as soon as it drops a little bit we get buying. We saw it on Thursday and Friday, down down Thursday and then an up day on Friday. Really we’ve been getting these little trickles of news events regarding the trade war, we keep hearing about, “Well, maybe the March 1st deadline will get pushed back.” … or whenever this deadline is. That probably would happen, but we’re getting trickling out.
Friday we saw the U.S and China had reached an agreement on currencies, which is really interesting because both countries manipulate their currencies. So, I don’t know. Maybe the agreement was that they would both continue manipulating their currencies, I don’t know. But that news flow came out late in the day. We keep getting more and more positive news flow out of that, and so the markets are kind of hanging around. But where are we right now? It’s on an interesting level because if you look back at … let’s take a look at the S&P, we are essentially from the lows on Christmas eve. We’re somewhere up about 18-19%, which is phenomenal. As we said last week, those that completely went to the sidelines because a recession is coming because we’re in a bear market because this, that, and the other are really … if they sold, they’re really sitting out in the cold right now going, “What do I do?” Which is the whole problem of taking these massive moves with your portfolio. But we’re on a level right now where if you look back the S&P had trouble getting through this level of … let’s call about almost 2,800.
It reached it, it kind of fell through that level in October. That was kind if the shot across the bow there, and then we bounced. Then it failed at 2,800, then it rallied in November and failed at 2,800, then it rallied in late November again. Early December, 2,800 failed again and that’s when we went down. Once it hit that for the third time, it was like, “That’s it.’ The bear started selling, and it snowballed down in December of course. Now we’ve rallied back up to that level, so the question is do we go through it or not? And look, we should expect a pullback, shouldn’t we? But we haven’t had one yet, so again don’t anticipate one and make all these massive moves because you know it’s coming. I get people that … the people that are the most hardheaded and think they know exactly where it’s going for sure, are the ones that I meet over the years that have the most long-term trouble growing their portfolio. The ones that say, “We have to have a recession, I know we’re going to have one, right?”
And I talk to people like that that say, “That’s going to happen, right?” And actually they don’t even say, “Right.” With a question mark, they just say that’s going to happen. They’re so sure, and then when it doesn’t happen and the market’s up 15 or 20% from the low, then they’re stuck again and it’s just this vicious cycle. You have to have a strategy and stick with it, and again you can tweak it. If you want to take some off the table here whether it’s for trading purposes, or you’re a little over allocated, or you just want to be a little nimble, fine. This is a great place to do that, that’s trendy. Now that’s not saying, “I’m going to move 60% to the money market because it has to go back down.” There’s a lot of stats coming out right now, and of course I did a podcast a few … maybe a couple of months ago about data mining, and how we can really … whatever we want to validate in opinion, we can find data to support it so you need to be careful with that.
But I think that right now with the volatility index falling as dramatically as it has, that usually doesn’t happen in bear markets. That doesn’t happen, so the odds of us going back to the lows of December at least in a short-term here are pretty low. Now having said that, again from a technical standpoint we’re in a point right now where we’re seeing a little more selectivity on the part of investors and that makes complete sense. Market is still going up, but it’s definitely losing that momentum, that trajectory a little bit. Not major, it’s just a momentum slowing down a bit. Again it makes sense if you’re sitting here with new money to put to work, it would have been easy to put it to work in December, early January. Right? Or it should have been because you were getting a bargain. Now it’s not that way, now you’re looking and going, “Well, we’re back where we were in November.” And it’s run so much, surely it’s got to pause. So with new money people pause and wait, and if that buying slows down a little bit , and then a little bit selling comes in, that’s when you can get a little bit of pullback.
From a psychological standpoint it makes complete sense we would pause here, and then the momentum slow a little bit. We could also see a buy the rumor sell the news event, the mountain’s been climbing on the fact that the Fed is not going to raise rates. It’s been climbing on China trade progress, which were things we told you we saw coming. And if that stuff comes to pass, the market could sell off. Which again sometimes the news doesn’t really make sense, but if the market sells off it’s because it was already priced in. That could be coming in the next days and weeks, we’re through earning season, everybody is watching the China deal but we’re not moving as much as we were in that. It was moving headlines big time, and we’re not really seeing that type of movement anymore. Now we’re back to, okay the markets have that bounce. Now do people start to get more selective in what they own because when the market falls in late December like it did, what happens is it’s a time where you say, “You know what? Instead of buying stock, I just need to go buy the market.”
You don’t want to get in your own. If you had said you’re buying an individual stock on December 24th, which was the bottom, and on the 26th, or the 27th, or 28th, that company comes up and says … and calls at Kraft Heinz, “You got in your own way, you should have just … you knew the market was oversold, so buy the market.” Just like you think Kraft Heinz is a good deal today, you buy Kraft Heinz. You don’t go but the stock market to get a position, you buy Kraft Heinz. You don’t go buy the stock market to get a position in Kraft Heinz. So you have to be surgical in what you’re doing, and the reason for it. So was that was the time to buy the market because everything was selling off on Christmas eve. Now it’s a time where maybe you want to get more selective because the market could pause, the market could pull back. But there’s a bunch of individual stocks that could still continue to grow up even if the market starts to rollover.
That’s kind of the mentality, as it goes up here watch to see if we get a little more selective, individual stocks start to going up but the market kind of goes flat. If we just go flat, it’s not the worst thing in the world after this type of move because again if we rollover and head straight back down, obviously that’s a bigger issue. But the longer we stay this levels, the more it makes people comfortable they can go and put in and put new money to work. We saw that back in mid-January, we went sideways for about four or five days, six days at some critical technical levels and it made people go, “Maybe it’s rolling over, maybe I’ll wait.” Well once it broke out to the upside, fresh new money came in and that’s when poof, it took off to the upside and we went up a whole another level and from that point we’re up another 5% on some of the major indices. Now for the week, some of the winners and losers. The winners on the week; cryptocurrencies, bitcoin was up double digits.
But it’s interesting we look at what’s been winning this week, yet things like steel stocks, metals and mining stocks, the gold miners, you got natural gas, you got copper, you have lithium, all these things that are industrial use, and minors, and all that type of stuff, anywhere from 2-4% this week. Material stocks up over 2%. Then when you look on the downside, a biotechnology oil and gas exploration production, equipment and services. Airlines down a bit, retail down a bit, pharmaceuticals down a bit. Kind of a mixed bag, but what’s more interesting than the downside was what was working this week which was again a lot of those commodities, materials types stocks, things of that nature. I want to discuss something real quick that I saw actually a couple of weeks ago came up from Bank of America Merrill Lynch global fund manager survey before this came out. They were shown a picture of the percentage of people saying … of managers saying that they are overweight cash, and that percentage of people was about 45 which is the highest level since ’08 … actually since January ’09.
And you think about that and you go, “May, that sounds pretty bearish to me.” Again, these types of things are contrarian indicators. If somebody says, “This is the highest level since January ’09.” Do you know what January of ’09 was? It was within a couple of months of the greatest buying opportunity that you and I will ever see in our lifetimes. So again it’s a contrarian indicator, when people are overly heavy in cash and bearish, that is a time to start looking for markets to go higher because that cash can come back into the market. Conversely, obviously people are saying, “Oh, I have zero cash. I’d like to borrow more money and go buy stocks.” Or so confident, that is a contrarian indicator. So as you siphon through these things that are supposed to be scary, I always look back and say, “Well if they’re scary, why was the last time it was scary, the bottom in the stock market now the top?” So think about that, but that is something that I saw that was pretty interesting.
All right before we wrap up, I do want to tell you if you do have any … more than likely I’ve read them, but if you have any books regarding finance especially in the children’s education world that just stand out to you, that changed your life, or changed your kids life, or really educated them, pass them along. I want to make sure I give you a comprehensive list or all our listeners, and I’ll do that over the next several weeks. But make sure you do that Karl K-A-R-L@eggersscapital.com is my email address. We’re going to keep it a little shorter this week, so I appreciate it. If you want to email me about anything else, any questions, or comments, or feedback, please do so. Again as always feel free to share the show, and thanks for listening. Take care everybody, have a wonderful weekend.
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This show was 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 adviser.