Transcript: Hello and welcome to the weekly market alert video. I am Ken Moraif. I am senior retirement planner at Retirement Planners of America, and we’re going to be talking about the week ending July 19, and as we’ve been chronically for you over the last several weeks, all eyes are on the Fed with regard to the lowering of interest rates or not, and if you look at the last 10 years, what you’ll find is that the action in the stock market has been more often than not dictated by what happens with the Federal Reserve and the central banks around the world, so it’s important to look at them. Interestingly, with interest rates to see how the stock market is going to behave but of course, also how the bond market is behaving, so we believe that if you look at the last week, we had several of the Federal Open Market Committee members have come out and spoken saying that they thought that interest rates should be lowered. Many people think they spoke out of turn, because they should keep their mouths shut and let William Powell do the talking, but be that as it may, they’ve done a lot of beach softening to prepare us. They’ve set the stage for a lowering of interest rates at the end of the month, and we believe they’ve kind of painted themselves in a corner, because if they don’t lower interest rates, very likely the markets will freak out, because a great deal has been priced in for a lowered interest rate.
Now, several of the big banks have come out and said that they think that interest rates – the Fed – will lower them by 50 or even 75 basis points. Now, we find that to be difficult to believe, because on the one hand, because they’ve painted themselves in a corner, they pretty much we believe have to lower interest rates, but at the same time, if they go with 50 or 75 basis points, the message they’re sending is things are really bad, and that could freak everybody out as well. Therefore, being moderate in their approach seems to be a better way to go and in addition, if you throw 75 basis points away, then you don’t have ammunition for what could happen in the future that you may want to use then, so because of that, we believe that the interest rate drop at the end of this month will be 25 basis points.
Now, I was interviewed earlier this week by Fox Business where the reporter asked me, you know, she said the Federal Reserve raised interest rates last December – 8 months ago – and now they’re looking at lowering interest rates, and Donald Trump is saying that they made a mistake last December when they raised rates. What do you think? And my answer is that I wouldn’t characterize it as a mistake so much as the Federal Reserve listening to what the bond market is telling them, so last year, in November, November 7, interest rates peaked at around 3 percent on the 10 year treasury note, which is the bond market as I’m describing it, so basically, the bond market was telling the Fed raise interest rates, and they did a month later, in December. If you look at today, where are we? Well, the 10-year treasury yield is down to 2 percent, so it went from 3 down to 2. That is a huge move in percentage terms, and so basically, that’s what is happening is that the bond market is telling the Federal Reserve lower interest rates, and when the bond market talks, the Federal Reserve says yes ma’am, yes sir, I will make it happen for you, and so we believe because of that kind of pressure from the bond market is another reason.
Now, if you look at in the past over the last 50 years every recession that we’ve had in this country has been preceded by what is called the inverted yield curve. Now, what is an inverted yield curve? Well, it’s when long-term rates – the 10-year treasury yield – is lower than the current rates meaning that the Federal Reserve took too long to lower rates when the bond market told it to, and so the long-term rates drop below their rate, and that’s called an inverted yield curve, and many people believe that that slowness to act made the recession happen when it wouldn’t have if they had acted more quickly, so for that reason also, we believe that the Federal Reserve will lower interest rates at the end of this month, so what does that mean to you? It means that you should be invested. If you are not, we believe you should be. However, always make sure that you are invested with the amount of risk that is appropriate for where you are in your cycle. If you’re 5 years from retirement or 5 years into retirement, you have to balance growth with protection and also with conservativeness. You know you don’t want to be too aggressive with your investments. We believe you should only take as much risk as is necessary to accomplish your financial goals, so you want to make sure that you are taking a look at that variable as well. Now, as I mentioned, we are a firm that specializes in retirement planning, so if you are over 50, retired, or retiring soon, we would love to meet with you and see if we can help you. Of course, at no charge or obligation and regardless of what happens, we will part friends, so our web site is at rpoa.com, and we look forward to having a chance to meet you, so thank you for watching this video, and we will talk soon.