Podcast: A Look Back at 2019


Roger: We’re seeing the direct manifestation of the on-again, off-again nature of the trade war that’s been grinding for over a year now. And this uncertainty, that’s really what Wall Street can’t stand, is uncertainty.

Clark: You’re listening to “Retire Happy” with Roger Gainer, president of Gainer Financial and Insurance Services Inc. Thanks for joining us. I’m your host, Clark Buckner. In a year when so much has happened politically and economically, it can be hard to cut through all the noise and figure out how it all affects us. So, on today’s episode, we recap some of the main things that happened in 2019 and explain what they could mean for your future. We also discuss how a tool called the Thought Organizer can help you make smarter financial decisions for your future. For more content like this, head on over to gainerfinancial.com. Enjoy the show.

All right. Roger, we’ve got a lot of big things on the docket today. We’re talking about kind of a recap of some of the things we’ve been talking about the last several months. And, you know, this is still relevant, though, whenever someone listens to it because there are some big topics from trade wars, how the markets have been doing, suspension of the debt ceiling. There’s just a lot of things happening that I just want kinda go down this list. So first, how are you doing?

Roger: I’m doing great. To your point, what makes the stuff we’re going to talk about, you know, yeah, we’re looking back today over 2018, but there’s this old saying, “Everything old is new again.” Or, “If you don’t learn from history, you’re doomed to repeat it.” Probably our listeners have probably heard one or the other or both of those.

Clark: Well, you said 2018. So, we’re thinking 2019.

Roger: Oh, right. 2019, wow. So, I guess it would be valid for 2018 or 2019. But we’re going to talk about specific things that occurred in 2019 as we look forward to 2020.

Clark: But this is still relevant. And we’ve done this before last year, talking a little bit about, you know, where are the big things happening? So nonetheless, all relevant stuff. It’s been a good year. So, we’ve talked about a lot of things on the podcast, but how about we start off just with trade wars, where you’ve seen, I know it’s been on-again, off-again, but real quick snapshot, what’s been happening and how is that maybe impacting potential retirement and savings?

Roger: Well, it’s almost like the stock market’s been on a yo-yo string. There’ll be a pronouncement out of the White House that we’re close to a settlement with the Chinese. And then the Chinese will say something, or two days later, there’ll be a tweet and they’ll say, “Oh, no, no, no, we’re far apart. It’s not going to happen.” So, when they said it is going to happen, the market goes up 200, 300, 400 points like it did the other day. And when they say, “Oh, we’re not going to get this deal,” then the market drops. And we’re seeing the direct manifestation of the on-again, off-again nature of the trade war that’s been grinding for over a year now. Tariffs do have an impact and businesses don’t like paying them. And their ability to pass that cost on to consumers is somewhat limited. We won’t get into the reasons for that but competition is such that it’s hard to source things from other countries.

You know, we saw issues, and we still have some ongoing issues actually with the European Union and a trade war going on there. Last year we had Canada and Mexico, we were having a trade war with them and this uncertainty, that’s really what Wall Street can’t stand, is uncertainty. So, what we’re seeing in the corporate world is a lot of companies are either canceling or postponing expansion plans. If you’ve been listening to folks who analyze the stock market, they keep saying, “Well, as long as the consumer is spending, we’re okay,” because consumers make up 70% of the gross domestic product in our country, which we can get into another day why that might not be that healthy. But the other 30% is shrinking pretty rapidly. I was listening to NPR, National Public Radio, about a month ago or so, and a woman, a reporter, was traveling through the Midwest, Wisconsin, Indiana, Ohio, and just interviewing manufacturers, business owners.

One after another, they said, “Well, I bought this land. I was going to build another factory and I put all that on hold.” “Gee, we were going to expand into the international markets, but we put all that on hold.” “Well, we were going to hire a few hundred more people but we put all that on hold.” Because they just don’t know. And eventually, that’s going to creep in and slow down business. So, you know, there are good reasons that the stock market has been going up, but, you know, trade wars are just one of the things that are something potentially to watch out for. They’ve usually ended badly in decades past. That’s why we focused on open markets for so long. You know, there’s pros and cons to every international trade and economic relationship. This particular on-again, off-again scenario and inconsistent messaging is starting to take its toll on American businesses.

Clark: Well, we understand there’s been records set for stocks, but remember strong markets until the fall, and this is a little note I had written down and don’t forget about last December. What does that mean to you? How does this play into this?

Roger: What that means to me is we’ve seen a very strong movement in the markets this year. So, year to date, for example, the S&P 500 index is up almost 25% as we’re sitting here. That is very, very impressive. But over the last 12 months, the S&P 500’s only done 18%, so 7% worse. Now, it was at a record in November, so that’s what it’s picking up. But in December, we dropped double digits in a very, very short period of time. It was quite the roller coaster ride. And so, there’s been a lot, obviously, the recovery has been strong and a lot of the speculation, the buying, if you will, in stocks has been on the assumption that these trade wars will get settled. It’s been on the assumption that profits will continue to rise and jobs will continue to be created.

There are some danger signals. We’ve talked about them in the past, but I just want people to remember when they’re pulling out their statements and they’re looking here, you know, this quarter, and they’re saying, “Wow, this was a pretty good year so far,” that last year was entirely wiped out by the month of December. So, all the gains for the first 11 months were wiped out by December’s action. Now, I’m not saying that that would happen again this year, but the point is it can happen and when we have the kind of uncertainty like we talked about with trade wars, we’re seeing profit guidance. This most recent earnings season, they’re guiding lower. Even companies that are doing well are getting beat up. For example, today, as I just look at a quick list, it seems like every major retailer in the United States is being killed. Kohl’s is down 20%, Macy’s is down 11%, Nordstrom is down 5.7%, Home Depot’s down over 5%. These are pretty significant drops considering we’re going into the best retail time of the year. The Christmas season.

Clark: You think it’ll bounce up…it’s still going to…what’s your prediction? Even though this might come out where someone might listen to this later, what’s the thought?

Roger: Well, this is Wall Street looking down the road and thinking the consumer can only keep this party going for so long. And that’s really what I believe this is about. Those are investors voting a lack of confidence in the consumer’s ability to continue buying at the rate it’s been buying it. So, we have set records. We’ve set records, God, probably half a dozen times in the last month. You know, if you just focus on the indexes, everything looks great. But when we look behind the curtain, not as strong as the indexes would have us believe. There’s fewer and fewer stocks setting 52-week highs and more and more stocks setting 52-week lows. So, because of the nature of how these indexes are calculated, there’s really a minority of stocks that are responsible for us setting these records.

Clark: All right. Well, now as we’re looking into how this might affect the next area we’re interested in, anything you want to add around mortgage rates? I know we’ve talked about, you know, they’re down or…

Roger: Yeah. Mortgage rates have been very soft, very low recently. Really, the lowest they’ve been since right after the crisis, the recession, whatever term you like to refer to the ’07 to ’09 timeframe. But yeah, and mortgage rates, if you’ve got a mortgage, you might want to take a few minutes and at least look at what current rates are. I have a number of clients who’ve opened files with mortgage brokers so that they can get that approval, but they’re not locking rates quite yet. But the rates, you know, they’ve dipped a few times. We’ve been able to lock in all-time low mortgage rates in the last few months, and it looks like in the next couple of weeks, we’ll probably be right back there. So, if you got a mortgage or you’re thinking about buying, this is a pretty good time to look at refinancing. Remember, low-interest rates aren’t good for savers, but they’re great for borrowers. So, if you’re thinking of buying a house or you already own one, take a moment and look into whether it makes sense for you to refinance right now.

Clark: Yeah. And I know we’ve talked in the past around how important it is to not pay off the, you know, your mortgage to be more intentional and strategic about other ways.

Roger: Well, we all want to pay off our mortgage. And I think what you said in your second sentence was more appropriate. We want to pay it off in ways that accrue benefits to us. And we don’t have time for that discussion today. But you can go back into previous podcasts and we’ve talked about mortgage financing and the true cost of mortgage financing and how approaching your mortgage as a tool, as a financial tool as opposed to, “I got to get rid of this thing.” It’s not like a credit card, it’s a different sort of debt. And it’s to be managed. We don’t want to take on too much of it that you can’t handle or that puts you at risk. But if we pay off your mortgage on your balance sheet, then you control the equity, not the bank. See, in 2008, lots of folks around here had hundreds of thousands of dollars in equity and they couldn’t get at it because there was a gatekeeper, a buyer or a banker.

And that was the only way to get it. And bankers weren’t lending for cash-out against equity and buyers were offering paltry bids to buy property. You know, if you were desperate enough, you’d take their offers, but there were no generous or so-called “market offers” going on there in ’08. So, by managing that mortgage and using strong mortgage strategies, if any of our listeners are interested, I can run a mortgage analysis and you can look at different mortgage scenarios and how to use a tool, both your mortgage and your primary residence as assets and manage those in a way that will not get in the way of you retiring happy.

Clark: That’s right. It’s what it’s all about and part of the strategy for retiring happy is, this might be a good place to just make sure we mention the Thought Organizer. Do you wanna plug that really, really quick?

Roger: Oh, sure. The Thought Organizer, actually, we’ve redesigned it recently. I think we’ve added some really thought-provoking features. It’s a tool that’s designed to help you take stock of where you are mentally, emotionally, economically and sort through what your real priorities are and feelings about money and expectations about investing and about your future retirement and other issues. So, it takes only about 5, 10 minutes. There are no wrong answers, but you can go to our website at www.gainerfinancial.com, gainerfinancial.com, and download a copy. It’s right there on the front page. Just scroll down and a little deal pops up and tells you you can download your very own copy. And if you take it, it’s a great discussion starter with a spouse. When we get a new couple that comes in to work with us, we have them each fill it out separately because it’s a very interesting exercise to see where both spouses are coming from and because it’s usually not exactly the same place. And so, having each spouse be aware of the other spouse’s priorities and fears helps in the decision-making process and reduces stress and strain when it comes to making financial decisions. So, if you are a couple, I encourage you to download a copy, make another copy and each fill it out separately, then get back together and compare notes as it were, or you can give us a call and we can take you through that exercise and how to take the next steps with the issues that you identify through the Thought Organizer.

Clark: That’s good. So, kind of jumping back into where we were, there’s…

Roger: Oh, right.

Clark: But it’s good.

Roger: Looking back over the year.

Clark: Well, and a lot of things recently, well, I shouldn’t say, I mean, there’s been a lot. So, what I’m getting to, there’s been a lot of discussion around just government partisanship and a lot of the Mueller report, impeachment inquiry. You know, what kind of impact have you seen so far and how will that play a role in just the external economics of what’s happening around us?

Roger: Well, like we were talking about before we went on air here, the impeachment thing is certainly sucking all the air out of the room right now. It’s hard to think or talk about really anything else. It doesn’t matter if you’re Republicans, if you’re Democrats, this is dominating the conversation right now. But it’s really that partisanship, you know, the Mueller report came out and Republicans said, “Oh, it exonerated the president.” The Democrats came out and said, “No, it clearly didn’t. You know, people are going to jail.” Mueller’s suggested that there were these improprieties but didn’t have the ability to go after a sitting president. It’s just been two sides not really listening to each other, not really trying to move the country’s interests ahead. And there’s only a few places where we’ve had agreement this year and one of them, I want to make sure we get to it, has to do with the debt ceiling.

But right now this partisanship in a weird, perverse sort of way is actually providing solace to Wall Street because it means nothing’s getting done. So, the Democratic House has passed something like 300-plus bills since they became the majority in the House. They’ve sent them up to the Senate, the Senate hasn’t heard any of them. Senate’s controlled by the Republicans. So, they want to introduce what they want to introduce. The Democrats want to introduce what they want to introduce. Nobody’s really talking to each other and that creates gridlock, which, again, is good for Wall Street. But impeachment, I think, is really on a lot of folks’ mind. And what the heck is that going to do for the markets? Is that going to really make the market tank? Are we going to, you know, go into the dumper if Trump is impeached and then we have a trial in the Senate?

I think a lot of people don’t understand what impeachment really is, but the trial would be in the Senate and if you’re old enough to remember when this went on with Clinton or even back with Nixon, interestingly, whatever was happening in the markets before this stuff happened continued to happen afterwards. So, we had pretty strong markets under Clinton. They kept going up even as the hearings dragged on and on. They dragged on for so many more years than what this has been going on for, it’s not even funny, but, you know, the market’s really weren’t messed up by the impeachment proceedings. The country continued to operate and things continued to move forward in the Clinton administration. Under Nixon, when he was impeached, we were right at the end of a bull market and inflation was starting to take hold dramatically at that time. And of course, many people remember that we ultimately peaked in the 18% to 20% range in interest rates.

But this is a point at which we were hitting double digits for the first time during the impeachment of Richard Nixon and the markets were going down because of that, not because of the impeachment of Richard Nixon and his resignation or any of that stuff. So, I would tell investors that’s going to be more noise than it is going to be market-moving revelations.

Clark: A lot of noise right now.

Roger: A lot of noise. Yup. It’s easy to get caught up in it. It’s hard to ignore it.

Clark: So, you mentioned, you were kind of teasing this a moment ago, the suspension of the debt ceiling. Is there anything else you want us to wrap with on this?

Roger: Well, yeah, I don’t think a lot of people know what happened over the summer, but there was a fight a-brewin’. It’s funny. The Republicans were very much against raising the debt ceiling under the Obama administration. Every single time you bumped up against it, it became this partisan, you know, “See, fiscal responsibility,” “We need to cut back on social programs,” and this, that, and the other thing.

And then since the tax cut in 2017, the deficit has ballooned. We’re going to have close to a record deficit this year. We’re probably going to have a record deficit next year, budget deficit. And so, there’s been a whole heap of borrowing and we were going to run up against the debt ceiling of $22 trillion in the early fall. That was where the projection said we were going to hit up against this. And neither side at this point in time politically felt like getting into a fight over raising the debt ceiling. The Republicans didn’t want to seem irresponsible or responsible for the explosion of the deficit, the operating deficit. The Democrats really didn’t want to get into the argument. And so, there was an agreement between the Republicans and the Democrats. Probably the one big thing they were able to agree on this year and that was to suspend the debt ceiling.

This is scary beyond belief to me because it means Congress can spend with impunity. The Federal Reserve can print money with impunity because it doesn’t make any difference because there is no debt ceiling. And they suspended it for two years so that it covers the timeframe into and shortly after the next election. It’s really the only way that Congress who, historically, is very generous in a presidential election year. It’s the only way they could be generous and start giving away money to everybody, is that they could go out and borrow it, and give it away. You know, I won’t get into how much money has been borrowed by the Federal Reserve and our Treasury Department since 2009 and where that money has gone and how little of that money has translated to an increase in economic activity. We’ve been expanding money supply to the tune of a trillion and a half dollars a year for the last 10, actually 11 years.

That’s big money. And we’ve only seen a growth of an average of $335 billion in our gross domestic product during that timeframe. And I know that’s kind of technical and esoteric, but the point is, where’s the other trillion dollars? If they put a trillion into the system and only $335 billion of that is making, creating jobs and things like that, it suggests to me that the other trillion is going into people’s pockets. You know, it remains to be seen, but that is a theory I’ve read in more than one place, you know, and we have this income disparity that we’re hearing more and more about. The growth in the difference between the haves and the have nots and the shrinkage of our middle-class. Anyways, this suspension of the debt ceiling could accelerate this process, is what I’m suggesting, because it facilitates more government spending without the responsibility.

Essentially what they’ve done is suspended something called the balanced budget amendment, which said if you cut taxes, you have to cut spending in an equivalent amount. That’s why the tax law that was passed in 2017 was temporary because they couldn’t make it permanent unless they went out and through a different process. So, it was a little bit of political maneuvering to get this thing done. And it certainly has been a bonanza for wealthy people. There are so many loopholes to exploit. I have more and more people coming to me and we’re exploiting them because that’s what you’re supposed to do. But it is kind of interesting. And the debt ceiling kind of mixes in with all of this because it just lets Congress and the executive branch be irresponsible, frankly.

Clark: Right. Well, I know there’s a lot of movement. There’s a lot of noise and it’s all the more reason… We’ve talked a lot about fear in the past and when you don’t know about something, it can kind of be paralyzing at times, but it’s important to get the Thought Organizer filled out and start to really, you know, don’t just try to shy away from how the landscape around us is changing. How can we be smart with what’s happening, and all of this, this reminds me how important that is.

Roger: Well, yeah. And that is a good point, Clark. You know, we’ve talked about a lot of mostly negative kind of things today and you can really get depressed listening to all of this stuff. You know, it all sounds bad, but first of all, nothing’s ever bad for everything. I mean, even at the height of the recession in 2008, we still had, 85% of the population was working, most people were paying their mortgages and there were some stocks that actually went up and went up big during the downturn. So, it’s, you know, nothing’s bad for everybody at the same time. And, you know, we still have tremendous opportunities, but use that Thought Organizer to focus on what you’re trying to accomplish. To me, that’s the way you can keep positive, you can keep a positive outlook, you can continue to function and move towards your goals is to create that context.

And that way, you can make those financial decisions and personal decisions towards something, something of value, of importance to you, that helps to get this noise out of the way of decision-making. One thing I want to mention before we close about that suspension of the debt ceiling. Eventually, the debt has to be paid back and that arguably should give us a high probability of higher tax rates in the future. I don’t know if it’ll be a Democrat or Republican, but somebody’s going to have to deal with this stuff. I know that the Republicans like to say that the Democrats, you know, are financially or fiscally irresponsible. The proof is actually contrary to that. Regardless, you have to take into consideration, when you’re saving and accumulating money for retirement, what the taxes might be when you go to spend that money. So, things like Roth IRAs and other strategies where we can accumulate money in a tax-deferred and access it in a tax-free basis, these are the kinds of things we’re really looking at with my clients these days, is where can we put money so that when the you-know-what hits the proverbial fan, they won’t have to sweat it because, you know, it doesn’t matter what your investments return in a 401k or an IRA. If they raise taxes by a third, you’re in trouble.

Clark: Yeah. Well, I’m thankful that we could have another session with you and to hear what is happening and I always enjoy these as you are so much fun. So, until next time, thanks so much, Roger.

Roger: All right. Take care, Clark. Have a great holiday.

Clark: Roger L. Gainer, RICP, ChFC, California Insurance License Number 0754849, is licensed to sell insurance and annuity products in California, Illinois, Arizona, Nevada, and Oregon. Roger L. Gainer is an Investment Advisor Representative providing advisory services through HFIS Inc., a Registered Investment Advisor. Gainer Financial and Insurance Services Inc. is not owned by or affiliated with HFIS Inc. and operates independently.