The Following Is A Transcript Of Episode 35 Of The Retire Happy Podcast With Roger Gainer.
Episode recap: Even as millions of Americans are applying for unemployment and major companies are laying people off, the stock market has been rising. In today’s episode, Roger breaks down the reasons for this growth and explains why it might not last.
He also shares how Gainer Financial’s new risk profiling service can help you understand your feelings about risk and ensure your profile is aligned with your emotional, intellectual and financial decisions.
All episodes of the podcast can be found at Apple Podcasts, I Heart Radio, Spotify, and Google Podcasts.
Roger: But I want people to understand these structural issues, so that maybe you can see that bigger picture and how it funnels down and affects you as an individual. Because I think it’s really important right now that you understand where you’re coming from. Because let’s face it, how would you feel if the value of your investments was cut in half over the next year? How would that feel?
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. Even as millions of Americans are applying for unemployment, and major companies are laying people off, the stock market has been rising.
So in today’s episode, Roger breaks down the reasons for this growth, and explains why it might not last. He also shares how Gainer Financial’s new risk profiling service can help you understand your feelings about risk, and ensure your profile is aligned with your emotional, intellectual, and financial decisions. For more content like this, head on over to gainerfinancial.com. Enjoy the show.
Roger, I’m so excited to reconnect with you as always, here on the “Retire Happy” podcast. I always look forward to our conversations.
Roger: Well, and I look forward to it too. There’s just so much going on in the world and things are moving so fast, and I spend more time than any time in my career, frankly, researching and trying to figure out, you know, what’s coming next. And it’s been a very challenging time for most people, and there’s a lot of stress out there, so we want to get this information to people so that you can deal with that stress and still be making progress towards your goals. So that’s one of the reasons I look forward to these conversations with you.
Clark: Yes, definitely helps when you’re able to take all the things happening and trying to help make sense of it for folks who aren’t living and breathing in this kind of work day in and day out like you are. And one of the things that we’re gonna be talking about today, and some of this, it may sound time-sensitive, but I know we’ll get full circle into some of the evergreen lessons and things that you’re always talking about.
But, right now, you know, this is summer 2020 when we’re recording this, and there’s been so many challenges in the world, but we see the market’s going up. And I find myself scratching my head a little bit on like, hey, what? This doesn’t quite make sense from an employment and the pain and the suffering that, so many companies and bankruptcies. So I thought maybe we could talk about that, if you can help make sense of that, and then maybe we’ll take it full circle into your normal messaging that you talk about so often about retiring happy. So, how do you look at all this and make sense of it?
Roger: Well, and it, in so many parts of our society right now, it’s different. It’s strange. It’s not a permanent strange. Obviously, things will be not ever what they were back in January and February of this year, you know. We will be changed forever by this virus. But when you look and you see and you hear on the news, gee, the markets are setting new all-time highs, and then the next story is another million people filed for unemployment this week. Major companies are announcing layoffs, losses are piling up. We’re seeing more companies go into bankruptcy. We’re hearing advice from the administration that cities, counties, and states should consider going bankrupt. Terrible idea, but, you know… So you’re seeing that there’s struggles out there, so why the heck can the market, how can the market be going up?
And so the reality is there are two reasons for markets to go up. And really only two. Because they both lead to the same place. Number one is the historical understanding that most of us have that the stock market’s appreciation is a direct reflection of economic growth. So when the economy is growing and profits are up and employment is rising, stocks reflect that increased profitability because, you know, what is a stock? When you buy a stock, you’re a part owner of a company, so you get to share in the profitability of that company. That’s the real basic deal with stock.
So, when we’re seeing growth, that’s the reason most of us think about stocks going up. So this is why I’m getting so many calls, because we’re not seeing growth. We had negative growth in the first quarter. We probably gonna have negative growth in the second quarter. And we don’t know when the actual recovery… There’s been a market recovery, but there hasn’t been an economic recovery.
So it seems to be a disconnect, and after doing a lot of research, it’s become very clear to me that the market’s going up for a different reason. It’s going up because the Fed is putting so much money out there. Congress is putting so much money out there. We’ve had over $3 trillion thrown out into the economy. They’re negotiating for trillions more right now, and a lot of that money finds its way into the stock market.
We talked probably over a year ago, gosh, about how for 10 years, we’d seen money supply growth of over a trillion dollars a year, but GDP was only going up by about $335 to $350 billion a year. So basically, about a third of that money was being put into economic expansion, and the rest of the money was going into people’s pockets. I mean, that’s the economic explanation.
So there is an attitude out there that the federal reserve has declared that they will buy an unlimited number of bonds and mortgage-backed securities, and even ETFs and stocks, to backstop our economy. They’re really backstopping the stock market, not the economy. And people are saying, well, basically the Fed issued a guarantee that these assets won’t go down or become worthless.
And, you know, back when we talked about that, there’s only so long that that dance can go on before people say, well, this just doesn’t make any sense. Why is our money worth anything, because they just keep printing more?
And, you know, up until now, we’ve been blessed, really, that the world has felt our economic strength, and the strength of our currency and our bond markets and such have made it worthwhile for them to send money to us and finance our deficits and things like that. And again, we’ve had some past podcasts and blog posts on this topic.
So, it is this printing of money, this sending out, and trying to backstop by buying, frankly, junk bonds, a lot of bonds, corporate bonds. The Fed has never done these things before. And so, they’ve never bought corporate bonds. They’ve never bought ETFs. They have bought some stocks, back in ’07, ’08 in the Great Recession. But I don’t know how long this can go on, but as long as it does, we’re probably going to continue to go up. It’s when that perception changes and that the economic reality starts to sink in. We heard some of that yesterday.
I don’t worry about the market so much day to day, because I have a longer-term focus, but you wouldn’t see things like gold is about to go over $2,000 an ounce, probably some time in the next week or two. Oil has stabilized, but these are things that people move into when there’s nervousness.
So, we’re seeing this cycling into these defensive positions, while institutional investors are still holding on to their long stock positions, but they’re kind of hedging this, if you will, with things like gold. There’s been quite a bit of movement. Gold’s gone up almost $200 actually, about $200 an ounce, just in the last month. That’s a pretty hefty move.
So when you start to put all these puzzle pieces together, you can really see that risk is building more and more and more in the market. Now, as long as you’re nimble, and as long as you’re comfortable… Heck, you even asked me back in March. Market sold off. Is it time to pick up some bargains? And what did I tell you back then, Clark?
Clark: We got a lot more to go.
Roger: Well, what I said was, are you looking for an investment or a trade?
Clark: Okay. Right. Because the trade, it’s a good opportunity for trades is what you’re saying.
Roger: Obviously, you know, from the bottom to where we are today, we’re up 35% or so from that rapid sell-off back in March. So, great trade. A lot of people, you know, I’m reading headlines on financial websites about, oh, this guy made hundreds of millions of dollars, you know, playing the bounce, and now they’re saying this is what’s next. But in the long run, we really have to fix some of these structural issues. How are we gonna reopen businesses?
I spent 20 minutes online with my landlord from our office. I’ve been working from home. We were gonna go back in the office back in the beginning of July, but then we’ve seen this increase in infection rate, so we decided to stay home. And I was talking to the landlord about, you know, new guidelines from the EPA and the heating, ventilation and air conditioning society about, you know, indoor transmission of the virus through ventilation systems, and what building owners and maintenance people need to do to retrofit these systems to stop the spread.
So, we’re seeing people, you know, not going to their offices. Google just announced that, you know, they won’t be having people come back in the office until next July, of 2021. So you’re seeing these cracks all over the place, and they have to be stabilized.
We don’t really know what’s rental real estate worth in a multifamily when you have eviction moratoriums. So, you know, people have basically been told if you don’t pay, it’s okay, you’re not gonna be evicted. And I totally understand that people need to be housed and a lot of people aren’t collecting much in the way of income, and for whatever you feel or don’t feel, you know, we’ve got some of the highest unemployment right now in the history of our country. Worse than in the ’30s, during the Great Depression.
So, to really get on that solid footing, this artificial stuff has to stop, and we have to get back to real economic growth. And that’s when, you know, that traction will occur. But, it’s still a good trade. There’s an old saying, don’t fight the Fed. And if the Fed’s gonna go out and buy garbage from you at a high price, you can take advantage of that. A lot of people are taking advantage of that, and that’s what’s keeping things going. But I’m just afraid for the average investor that when this dance stops… Do you used to play that game musical chairs when you were a kid?
Clark: Yeah. When the music stops, everyone kind of scrambles.
Roger: And when the music stops, there’s not enough chairs, and somebody gets kicked out. And I’m just afraid when the music stops here, that the people are going to get caught by surprise. Gee, we had no idea this was going to happen. I find it…a lot of times, we find out that we knew things were gonna happen. We just chose to ignore.
Clark: Just hope it goes away.
Roger: Yeah. That’s why I always tell people, you know, trusting your gut. Well, that was our last podcast, right? We talked about how you keep out the noise. And the biggest way is to keep in touch with your gut. And if it just doesn’t feel right, don’t do it. So, how long can we continue to rise? Heck, we could probably continue to rise right through the election and into next year. Will we? Your guess is as good as mine. And that’s the rub.
Clark: So the music stops. What do you think that might look like if it does stall out?
Roger: Well, I think it might look like some problems in the bond market first. I mean, the government bond market. We had some issues back last year with the treasury market not being as liquid as is normal, and the Fed had to intervene. That was an unprecedented move, and again, something we’ve talked about previously.
And I hope I’m not getting too technical for our listeners, but I want people to understand these structural issues, so that maybe you can see that bigger picture, and see what economists call the macroeconomic picture, and how it funnels down and affects you as an individual. So, we’re seeing a lot of shifting, people are moving out of cities and into suburbs.
Heck, my wife was stopped while she was walking the dog the other day, just by stranger in the street, and they said, “Do you live in this neighborhood?” And she said, “Well, yeah, but I don’t live in this house.” She said, “Do you live here?” was the wording. She said, “I don’t live in this house, but I live in the neighborhood.” She said, “Well, do you know of any houses for sale? We’re trying to move out of the city. We want our kids out of the city. We’re being locked in and there’s no point in living in the city when we can’t enjoy restaurants, museums, music venues,” you know, parks and stuff like that.
And we’re seeing this all over the country. So there’s this big trend of people moving out of the city. I have a client’s daughter who’s been working with me just the last couple of months, and they bought in upstate New York about four months ago. Today, they couldn’t afford anything in upstate New York and in that mid-state area, because there’s a huge exodus leaving Manhattan.
And we’re seeing, you know, rents have gone down here in San Francisco by as much as 15%, and in some cases, even more. And people are just walking away from their leases. And they’re saying, hey. So what is that gonna do to rental property valuations, for example?
So, you have to look at these different areas and how that changed, but I really think we’ll start to see it become difficult for the treasury to auction off bonds to finance this massive deficit that we keep generating. And that’s probably what the beginning will look like, although it could be something else that triggers it. It could be a massive spread of COVID. It could be shutting down everything again because it’s gotten so bad. I, frankly, I could think of a dozen different things that could trigger, but what you’ll start to see is, just like we’ve talked before, fewer and fewer stocks participating on the upside.
Right now, over 20% of the up movement in the S&P 500 is really just five stocks. Those same FAANG stocks that we’ve talked about before: Facebook, Amazon, Netflix, Google, and Apple. So, those are the FAANGs, and they’re over 20% now of the S&P 500. They’re even a higher percentage of the NASDAQ, even higher on the NASDAQ 100. So you’re seeing this outsized effect based on the movement of just a few stocks. And so, you know, we really want to keep an eye on things like how many stocks are going up versus how many are going down, how many are setting new highs versus new lows, and that sort of thing.
But, you know, if you don’t have the time or the inclination to do that, you won’t see the market going down until after some of this deterioration occurs. So, you know, and that takes us back to the evergreen stuff, as you mentioned in the beginning. If you’re not of a mind to pay attention to this kind of stuff, and you might want to use this money within 10 years, then you might want to consider putting in hedges, looking at the amount of risk building in your portfolio, or moving to assets that provide you with guarantees while still being able to see appreciation.
When you hear it going up every day, even if you’re a conservative investor and you’re in the market, you always feel good when you’re making money, even if you’re nervous. But if that anxiety is increasing and increasing, how much of your health are you willing to give up for the stress of making money? So, that’s one of the things, we’ve added a new service. We can do a risk profile on clients, and understanding where your risk profile is and how you feel about risk emotionally, as well as intellectually, and then we can run analysis on your portfolio through the same program, and see how that, the risk profile of your portfolio compares to your feelings about risk and where your risk comfort level is. And that way you can identify, and we can say, well, what if we change this to this, and we can see how that risk score is affected.
For our listeners, if anybody’s interested in trying out this new tool that we have available, reach out to us through the website, www.gainerfinancial.com, G-A-I-N-E-R-F-I-N-A-N-C-I-A-L.com, and we’d be happy to give you access to the tool, and we’ll review that tool, 30-minute free consultation with anybody that takes advantage of this. Because I think it’s really important right now that you understand where you’re coming from. Because, let’s face it, how would you feel if the value of your investments was cut in half over the next year? How would that feel? If it would feel horrible, if it would give you anxiety, if it would change your behavior, then you want to match up the emotional with the intellectual and the financial. Does that make sense?
Clark: Yeah. Yeah. So much of this, I know we’ve talked about the emotional role that it plays, and if you’re not careful, the emotions can kind of take over any kind of logic or thoughtfulness.
Roger: Well, and in an upcoming podcast, we’re gonna dive into how can you stay optimistic in strange times like this? You know, what are the things I can do to keep me relaxed? I have clients that they’re making money, they’re not stressed out, and it’s just because they’ve embraced strategies that work with them emotionally.
Clark: This has been good. And I know there’s a lot of things that are happening right now, but to use this time to review something like the Riskalyze tool. I’m excited about that new tool. There are good things that are on the horizon when you stop, you slow down, and you breathe, you think, and you evaluate and reevaluate where you’re at and where you want to be so you ultimately can retire happy.
Roger: Yeah. We talked about a lot of those tools in our last podcast. How do we shut out the noise, because boy, oh boy…
Clark: It is overwhelming.
Roger: You just turn on the TV and it’s enough to make you crazy these days. And I don’t care what side of the political spectrum you’re on, it’s stressful, plain and simple. Doesn’t matter if you’re conservative, liberal, Republican, Democrat, or some third party. It doesn’t matter. You turn on the news and, you know, you’re worried. Things are going bad with China. Things are going bad with Russia. Things are going bad in the economy at home. People are fighting in the streets. I mean, it’s a lot of negative out there. And what I really want people to hang on to, if you will, is that there’s still a lot of good.
You know, I talk to people, and people are much more in touch with each other than they’ve been in years. We’ve been so caught up with technology and, “Oh, I’ll shoot you a text,” and now people are actually talking to each other. And I know I hear from clients and friends, you know, having that, the latest car, or making sure I’m changing over my fashions and staying up as a fashionista, obviously, you’re not eating out at high end restaurants right now…
And so, people’s values are evolving. And I think, you know, that could be a real positive for us going forward as well. So if all these other things are wearing at you, there’s still plenty of blessings that we can all really stay focused on. And keep an eye on where we’re headed, because this too shall pass. I don’t know how long. I hope it’s not two or three more years, but it will pass, and it’s how do we get from here to there without driving ourselves crazy?
And that’s why tools like Riskalyze, podcasts like how to shut out the noise, how to stay focused. And then we’re going to start talking and going forward about strategies that you can employ right now that will help you, they’re tested over time, they’ve made it through market volatility, they’ve make it through depressions and recessions and crashes. There’s plenty that can be done that will still get you where you want to go. And so, as we look forward, we’re gonna talk more and more about those things.
So if you have friends that, you know, are stressed out or sharing with you, forward this to them. Let them know that they can go to our website and subscribe to the blog and the podcast, because we really want to kind of create that spotlight, if you will, so that through all this darkness and craziness, you can look forward and get where you’re going.
Clark: Good stuff. Roger, thank you for taking the time to catch up and share more, and I’m looking forward to our next chat.
Roger: Excellent. Well, it’s always good talking to you, Clark, and all the best to our listeners. And remember, it’s all about retire happy, so let’s keep focused on that.
Clark: Let’s keep focused on that. Yeah. A lot of things right now, but let’s keep focused on that. Thank you.
Roger: All right. Take care, Clark.
Clark: Roger L. Gainer, RICP, CHFC, California insurance license number 0754849, is licensed to sell insurance and annuity products in California, Illinois, Arizona, and Nevada. 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.
Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance and a Certified Paralegal for Estate Planning.