Transcript

Well, this is our market alert video for the week ended June 5, and wow, big, big number today on the unemployment front. We want to talk about that and give you our perspective on it. But also talk about we, as you guys know, met our buy signal the day before yesterday, so therefore, we bought in yesterday. And, it looks like it turned out to be a good thing as much as the market rose today. So, let’s kind of go over all of that.

So we did meet our buy signal, and so we did go in with the allocations that we have discussed, and so therefore those occurred yesterday, and so today was a good day to be up, and yesterday was a good day to be down since you want to buy on a down day and have it go up the next day. That’s always a good thing, I think, right? So let’s talk about the unemployment numbers, and you may have seen those numbers, and if you were like me, you thought man that must be a typo. The expectation was that we would have 8 million jobs lost, and instead we had a 2 million job gain over the previous month so that was like a wow. So, of course, the stock market (the S&P 500 Index; is when I refer to the stock market I mean) had a big day of course.

So how do we put all of that in perspective? Well, the first thing is that we want to look at before the pandemic we had about 10 million people who were unemployed in this country, and today even after the big number we got today, we have 38 million people unemployed. So we still have 28 million people to go before we get back to where we were pre-pandemic. That’s the first thing just to put it in perspective. And our anticipation and most analysts’ anticipation was that once people start hiring back, the big surge is going to be at the beginning because that’s when you go from a very small employment number to needing people. So we don’t know if this is going to sustain and where it’ll stabilize because if it stabilizes at 10 million people unemployed – or 20 million people unemployed I should say – we’re still a far cry from where we were, and it’s still a bad number. So it’s a great improvement; it’s a great thing. Obviously, we want people to be employed, and we want the economy to improve, but at the same time, one data point is not enough to get us overly excited.

The other thing that it’s important for us to understand is that the stock market doesn’t care about unemployment. I mean it cares about unemployment only to the extent that it effects profits. And the reason I say that is because the stock market is essentially a profit-discounting mechanism. Meaning that it looks into the future, and it says are profits going to be higher in the future than they are today and is it priced for that, and if it’s not, I’m going to buy it because I want to participate in those rising profits. So just to illustrate what I’m talking about, let’s say that a new technology comes along tomorrow, and General Motors now doesn’t need any employees to run their business. They fire 50,000 people or whatever the number is. So at first you say, that’s terrible, 50,000 people just lost their job. But the stock market, investors would say, wow, that’s fantastic because now General Motors is going to be so much more profitable than it was before because it doesn’t have all that labor cost, and it’s stock most likely would go up dramatically on that news.

What the stock market is looking at is profits, so let’s examine the profit picture. Right now, if you look at where the S&P 500 Index is, the stock market, it’s back to where it was in December of last year. So, what that means is is that investors today looking forward are seeing the same profit picture that the people back last December were seeing. Last December, people were seeing what? All-time highs, fantastic profits, unemployment at record lows; the news was really, really good. Everything looked like it was headed in the right direction, and that’s what investors were seeing then, and that’s when they were pricing the stock market. The future looks fantastic. Here we sit today, and the market is sitting at the same place, but can we say looking forward that the profit outlook right now is the same as it was last December? We have massive unemployment still. Even though unemployment is not the driver of the stock market, it does drive profits, right? So in other words if there’s more people employed, there’s more profits so it is definitely a driver of it. And, so with still that many people, it’s hard to say that profits are going to be as good as they were looking to be last December. And, then we have bankruptcies. We have all the stuff that we’ve outlined in previous videos going on. It’s just difficult to say that the profit outlook right now is as good as it was if we backed up time and went back to last December. In fact, we saw an article in Market Watch that said that the profit outlook (what the market is pricing in; it’s called the PE ratio) is in the top 10% in history. So, we’re wondering what is it that they’re seeing that this is one of the top 10% in history times of profit in the future when we’re looking at potentially the top 10 worst things that have happened economically to us in history? We’re having a hard time with that.

So, we’re glad we hit our buy signal. We’re glad we did buy, and we’re glad we’re tiptoeing in. But no, this news is not enough to make us say let’s throw caution to the wind and let’s go in. In fact, if I were to ask you, should we go in right now with all of your money, what would you say to that? Probably you’d say no. So, we’re feeling the same way. It’s good news and gives us more clarity but not enough to say that we’re going to abandon our caution, and we’re going to go into any great degree. So good news, great; does move us in the direction of wanting to invest more. We did buy some here this week, so we were ahead of this big day today, and we’ll see where this goes.

Again, thank you for letting us worry about this for you. We don’t want you to lose any sleep over this. We want you to let us do the worrying so that you don’t have to. We want you to have financial peace of mind, and of course, as always, we want your money to last as long as you do. Thank you for watching this video, and as I’ve been telling everybody that I can say
this to, stay healthy and stay sane, and we will talk soon.

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