Mano A Mano

On this week’s show, Karl discusses the meeting between Presidents Xi & Trump and the potential impact on the market.  Plus, how do you feel about the market?  Karl would bet most of you are skeptical that the rally will continue.

Hey, everybody. Welcome to the podcast. This is The Eggerss Report. Thanks for joining me. We appreciate it as always. Remember, if you need anything from us, the number is 210-526-0057, and we will be able to help you with anything you need. It could just be a question, it could be a comment.

A lot of you send emails each week, kind of tell me what you’re thinking. Appreciate that as always. Sometimes I can’t respond to those right away, but just know that I am reading those, and keep the comments coming. Keep the questions coming, and we want to continue to improve the show. We got a lot of big things coming up in the next several weeks, so stay tuned for that, and make sure you share the show when you get it.

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Keep your comments and questions coming, and we will try to answer them. Appreciate it as always. All right, let’s jump right into the markets here. Got a big weekend coming up, right? We’ve got President Xi and President Trump meeting at the G20 to hopefully hash out some trade stuff, and you’ve heard all kinds of rumors coming out, but most people believe that there won’t be a trade deal done, but maybe we hope for a ceasefire of some sort.

Before we get into some of that, let’s talk about what the markets did this week. The S&P 500 was down slightly. The Dow Jones was down slightly. Kind of a flat week, but if you look at the markets right now, this is the fourth time roughly that we’ve been at these levels. Roughly early 2018, and then October, 2018, and then, of course where the nasty fourth quarter sell-off, and then we had that big, big rebound in early 2019, and then we peaked in … In May, remember what happened? We started to hear the tariffs being put back on again.

All this progress was being made, and then all of the sudden, out of nowhere, it seemed like we were hearing that, “No, there was no deal. We were kind of taking a step backwards, and the market went down,” but it has rebounded in June, and we just came off … I think it was the best June since the 1930’s or ’40s, something like that, so very good month of June for stocks as they bounced, but here we are back at these highs that we were for the fourth time, but here’s the thing. I think, you hear about double tops, triple tops. When’s the last time you heard about a quadruple top? I don’t think that’s a technical pattern that we should be worried about particularly, because I don’t know if there’s a lot of precedents for that type of technical pattern, a quadruple top.

When we look at the underpinnings of the market, they are still strong. They still support an ongoing bull market, and there’s a lot of talk this week about the small-caps and the mid-caps lagging behind. If you look at the small-caps, for example, that were up about 1% this week, they’re doing well, but a lot of people are saying, “Yeah, but they’re starting to lag behind,” but if you go back and look at the actual data, you will see that oftentimes, when small-caps are lagging like they are, the market tends to go up from there, tends to rebound it, so be careful about what you’re looking at, or the headlines you read. Now, it is true that if we were going from a bull market to a bear market, typically what happens is, small-caps will go down first, right? The small companies, because if people are trying to raise some cash, prune some weak positions out of their portfolios, get defensive, they’re going to hang on to those large-cap stocks, the big companies and prune out the small and medium-sized companies, and so that is true.

That tends to happen. However, just because small-caps are lagging, doesn’t necessarily mean it goes down every time, so just be careful about that, but as we look at it, looking at the underpinnings of the market, or I should say, I look at it, looking at the technicals, there are no signs of an imminent bear market. Now, as we’ve always said, there can be corrections for anything. It could be a tweet, it could be a new tariff, it could be, you name it, and that can cause a five 10, 15, 20% pullback, anytime, anyplace. That is the risk of owning stocks, and it is over the long-term why you get the rewards as well.

This week, we saw the indices’ pretty flat for most of the week. We did see a little sell-off earlier in the week, and then it kind of a little rebound in the last couple of days, but some of the things that were kind of the standouts this week, we did see a big, big move on Bitcoin. Now remember, I did an interview a week ago, tomorrow on the local CBS affiliate about Bitcoin, talking about it, and then why it had this big move, what is it. We obviously have competitive coins coming in, Facebook developing their own. If you want to see that, just go to our website.

You will see that interview on there. It’s about a week old, but we did see a real massive sell-off in Bitcoin from Wednesday, Wednesday’s high down to Thursday’s low. We saw a sell-off of about 20% in Bitcoin, okay? Now, think about that. Let’s just say for grins that you like Bitcoin, you’ve adopted Bitcoin, it’s your currency, you don’t keep any dollar bills anymore.

Your reserve currency for yourself is Bitcoin. Imagine within 24 hours, your cost of your groceries going up by 25%, a cost of a car going up 25%, your utility bill going up 25%. Everything in your life going up 25% in 24 hours. Massive, wild inflation. You say, “Well, how could that happen?”

Well, the price of your currency just dropped by 25%, so you see, the problem is if you’re holding a currency, it’s got to be something that is fairly stable. Now, for those of you who say, “Yeah, Karl, but what about the dollar? The whole reason Bitcoin even exists is because people are tired of all these countries, printing more and more dollars of their own particular currency.” That is true. Over the long-term, all these currencies, fiat currencies depreciate as they print more, which just means the cost of things go up, inflation, but the dollar doesn’t move 25% in a day like some of these cryptocurrencies.

That’s why I still believe we’re a long ways away from having a cryptocurrency. Is it an asset class? That’s debatable. Does it move differently than the stock market and the bond market and the gold market? Yes, it does, and there’s going to be winners and losers. I don’t know the future of this, but I am telling you that as a currency, we’re a long ways away from it being an actual currency.

Now, for the week, Bitcoin, if you look at the GBTC, which is the Grayscale Bitcoin Trust, up about a little over 11%. If you look at the actual Bitcoin index, about 21%, so we saw some wild movements this week. Some of your other winners, natural gas, up a little over 6%. We saw the pharmaceuticals ETF, XPH up. That was up three and a half percent.

Another standout, in semiconductors. Micron Technology, one of the cheaper stocks out there had a really a nice earnings report, and that buoyed the semiconductors, and so now, the semiconductors are up about 13% from their late May, early June lows, and they’re still off of their highs, somewhere around 9% or so, so they’ve got some catching up to do. Remember, semiconductors were very, very strong until we got to last year, so watch those, but up about almost 3% this week. Regional banks did well, metals and mining. Steel stocks did well, just banks in general. Gold miners did well this week, homebuilders, all up somewhere around one and a half to two and a half percent.

Now, on the flip side, some of the losers this week … Interest rates went down as we continue to see them hover. They closed right at 2% on a 10-year treasury, so again, do you want to lend your money to the U.S. government for 10 years, and get paid 2% a year? That’s what people are doing right now. Now, REITs, Real Estate Investment Trusts were down a little over two and a half percent based on the IYR, which is an ETF. We also saw utility stocks go down.

Low volatility stocks went down, which is interesting. You did see some risk on this week, and healthcare stocks went down this week as well. Again, a mixed bag, but for the most part, pretty much we have kept the bull market intact. I alluded to the fact earlier that the bull market is intact, and this is not about a trade war or lack thereof. This is not about interest rates.

This is not about earnings. This is not about anything really. It’s simply looking at the characteristics of the market from a supply demand standpoint, looking at what’s leading, what’s lagging, looking at the fact that … Again, looking under the hood, if you will, and just seeing the overall supply and demand, and it just does not have the same characteristics of something that would be rolling over into a bear market. Now, the bulls would want new highs, which we recently got, but substantial new highs.

To break out of this, I mean, we’ve really been going sideways for a year and a half if you look at it. Are we going to break out massively to the upside? Many people believe the longer we stay here, the longer we won’t. I think it’s the opposite. I think the longer we stay here, the better chance we do break out to the upside, but we’re just not seeing the intense selling that you would get in the lack of buying at the same time that would cause a bear market, because that’s what a bear market is.

It’s when you get somebody saying, “I don’t want to buy,” but number two, “Not only do I not want to buy, I need to sell my positions.” That is a bear market, and we don’t have that. We do have some hesitancy on the part of buyers. We’ve seen kind of a buyers strike, if you will for the last couple of months, really since we started to see the trade war pick back up again with some momentum, and we’ve seen a little intensity of selling, but nothing major. I mean, this is something that builds for months and months and months, and you see this rotation happen in the market, and we’re just not seeing that right now, so I still believe we do move up to new highs, but look, here’s what’s going on.

I mean, again, short-term, we have interest rates. We saw the market react this week or investors react by taking and selling stocks because of the fact that there was … I think it was Tuesday, Powell and I can’t remember who else, another fed member came out and basically alluded to the fact that there’s not going to be a 50 basis point cut in July, meaning a half a percent, so the market was disappointed in that. This is what I’ve been talking about the last few weeks is, is the market kind of priced to perfection in the short-term? I mean, what else do you want if you’re a bull?

You’re like, “Okay, earnings have been okay.” The fed is not only not raising rates, which is why everybody threw a hissy fit last December and November, is because they were raising rates when they shouldn’t have been. That’s what that was all about. They’re not doing that anymore, and in fact, now, they’re actually cutting. They’re going to cut. In fact, there’s 100% chance based on the market futures, that they’re going to cut in July, so that’s a bull’s dream, is for the fed to be cutting, earnings still to be okay, and the kind of the last piece of the puzzle is that we don’t have a big fight with China, and so the global economy can keep moving along, and so we’re kind of have everything there.

If one of those things doesn’t happen, if the fed doesn’t cut, if we get a trade war escalation, then yes. Could we have a sell-off? Absolutely, and we’ve had a minor sell-off this year, but if you really think about it, when you compare it to a typical year, and I’ve often said, and this is based on J.P. Morgan’s research, that you get somewhere between on the S&P 500 in the last, since 1985, you get somewhere around a 13 to 15% sell-off at some point during the year, a drawdown they call it. That’s just normal, and we had a 20% last year. This year, in May, we had the stock market fell about … The S&P at least fell over 7% in May alone.

Now, in June, of course it went up about six and a half percent, basically erased all of those losses. It was almost, it looked very similar to October, November, December sell-off, January, February, March rally, that V, and we just kind of had another one here within May and June, and so markets are shrugging off some of the stuff, so we really haven’t had a significant sell-off, and that can happen at any time for any reason, but yes. Are there things to be concerned about? Absolutely. I mean, the fact that interest rates are sitting at 2% when the economy is supposed to be good, and the fact that, not this week, but last week, we did see the Volatility Index go up two weeks ago. Now, this week, it actually went up a little bit again this week, about 1%, so you have the VIX the last couple of weeks not going down, and so you look at those things, you look at some defensive areas.

We’ve talked about utilities and things like that. Why are those sitting near all-time highs? Something seems like it’s going to give, and we’ve had some very strange days where stocks go up, bonds go up, gold goes up, utilities, defensive stocks go up, and cryptocurrencies go up. I mean, you have everything across the board going up. Something has to give here, so it still boils down to diversification 101, and then when you do get those inevitable sell-offs like November, December, that’s the time to reassess and say, “Do I want to rebalance? Do I want to take advantage of that sell-off?”, but right now, it’s very difficult.

Look, the sentiment out there, and we talk about this all the time, how do people feel about the stock market? I can tell from your emails, and I can tell from surveys that I look at, and indicators I look at, that there is not euphoria out there. With the stock market near an all-time high, there is not euphoria. There is the sense of, “I don’t quite trust it. I don’t think it’s sustainable.”

I get those comments all the time, and that is more fuel for a further rally, because again, if you feel that way, if you truly look in the mirror and say, “I don’t really trust this market,” you probably don’t have 100% of your money in the stock market, and I’m not saying you should. I’m just saying that you probably have some powder dry, and that powder tends to come into the market and buy stocks at some point, so when everybody’s agreeing, and your neighbors are outside talking about wanting to get in on the latest IPO, wanting to buy the latest tech stock, wanting to find the cheapest rates so they can borrow money to go buy more stocks, those are warning signs. Those are things that we saw in the late ’90s, and we also, if you say, “Well, we didn’t see some of that in 2008 or 2007, but we sure had a bad sell-off,” that’s true, good point. However, that sell-off, we did see a lot of deterioration happening within the markets and the economy that we’re not seeing right now. There’s always some kind of warning signs, but the sentiment right now is a contrarian indicator.

There’s a lot of people, there’s more bears than bulls. There’s a … Again, and I get a lot of emails from you guys. In those emails are again, not the most bullish. They’re not bearish, they’re just skeptical, I would call it, and so I think it’s kind of a good scenario here where you still have this market kind of climbing the wall of worry, and again, if we don’t get a full-blown trade war, if the fed is not raising rates, and if we have the economy continuing to do okay, there’s no reason why stocks won’t continue to go up, but having said that, again, as we continue in this bull market from 2009 essentially, we do have to continue to get choosier and choosier and choosier because it’s a long bull market, and bull markets don’t just end because they’re old, they end because something causes them to end, and we’re not there yet in my estimation.

I think that that’s something you need to take in consideration, but it is a great time, as always to just continue to look at the portfolio, your portfolio, and number one, does it match up with what you’re trying to do? That’s the most important thing. Then number two, are you getting good deals on stuff? Do you really understand what you’re buying? That …

Look, if you own mutual funds, those change frequently. You need to know what you own in those. In addition, ETFs are the same way, so make sure you’re looking at all of those things to make sure they still match up with what you’re trying to accomplish. Speaking of sentiment, if you look at … I saw something this week from Bank of America Merrill Lynch. It was a Global Fund Manager Survey.

The question was, “Have you taken out any protection against a sharp fall in equity markets for the next three months?” These are managers, and they’re basically asking those people that control money, “Are you buying any insurance?”, which could be put options. It could be hedging techniques, whatever you … “You have any protection because you think the market’s going to fall in the next three months?”, and the percentage of people saying they have taken out protection is … This survey goes back to the beginning of 2008, and this is the highest it’s ever been. It’s not just you, and I don’t mean you specifically, but a lot of you listening are hesitant about this market.

It’s not just you feel that way, many people do because there’s things to worry about, and as I was telling a client a couple of weeks ago, “But there’s always something to worry about.” I mean, really, when you think about it, there’s always something to worry about, and so that’s where really why stocks tend to pay these premiums that they do over the long-term, and so don’t look at it and say, “Well, we have this going on and that going on.” I mean again, go back and imagine times during wartime, during massive recessions, all kinds of things that have happened in the past, and the stock market is still at this point near an all-time high, so it is always important, “When do you need your money?” If you don’t need it for a long time, obviously you can take more risk, and because you can take more risk, generally speaking, that involves equities to a certain extent. How you do it is very different.

Many of you email me with all kinds of different strategies. Some of you email me, and you don’t have any strategies. It’s just kind of a hodgepodge, but I am a firm believer in putting a portfolio together like little puzzle pieces, and that whole puzzle really makes sense once you put it all together, but really, it does drive … The plan drives that, knowing how you’re going to get there, and if you’re on track for your plan, you’re good, but I talk to people all over the map financially, and a lot of them are getting some bad advice from their tax people, their attorneys that are trying to go into the financial world, or they’re trying to sell products or sell services and get them to do things they shouldn’t be doing, so you really need to start with an independent financial advisor. We’re registered investment advisors, so we are independent.

Nobody pays us but our clients, so we can look at it and say, “You know what? You don’t need that insurance. That insurance salesman is trying to sell you something you may not need, or you don’t need this complicated estate plan, and there’s a simpler way to do it, instead of creating all these structures and having all these documents, and having to maintain all of that, very expensive and labor-intensive as well for you, and potentially that’s not what you probably want to be doing in retirement.” Again, it starts with a plan, having a strategic plan created, and then the investment strategy comes out of that. Now, once you have that strategy, how you do it, again, many different ways.

Lots of ways to slice that pie, if you will. All right. As we wrap up here, just remember we just had the best month for the S&P since, I think 1955, their best June. Shouldn’t say the best month, the best June for the S&P 500 since 1955, and that just came off of one of the worst Mays probably, so we had this bad May, good June. It’s a great lesson, just like it was in October, November, and December that, they get a little too pessimistic.

Oftentimes, this market’s going to V bottom on you, but that’s why it’s made it very difficult to maneuver because just when the market’s leaning one direction, and you say, “Okay, it’s starting to get bearish. Things are breaking down. Up we go to new highs,” and then maybe just when you get to those new highs, you start piling in, and we get another sell-off. Again, we’re sitting here pretty much the same level we were about a year and a half ago, so let’s see over the next couple of weeks as we enter earning season, if we can get a trade deal done or at least delayed or progress being made. Can we go up to new highs?

I think we can. All right, guys. Don’t forget, 210-526-0057 if you need anything from us. We appreciate it as always. Take care. Have a great weekend.

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