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Hello this is our Market Video Alert for the week ending June 12, 2020. And so, a very important thing happened in this week just ended, and that is that the Federal Reserve Chairman Jerome Powell gave a statement saying that they anticipate the economy improving slowly — a slow recovery — which poured some water – some cold water – on people who want a “V” shape recovery, meaning a rapid recovery. They apparently don’t see that happening. And then secondly, he said that they’re not going to raise interest rates anytime soon. And so that is also a reflection of their view that the economy is brittle and therefore we don’t want to get in the way of the recovery.
So, what do we take from that? Well, as you know we reached our buy signal the week before last. And we did go in when we hit that. We don’t ignore our strategy. However, we went in very cautiously. We only went in with 10% of your equity allocation so as to be very conservative in case it goes back down from there.
Now, we think that we have today what we call asymmetric risk, which means that the upside potential is smaller than what we see as the downside risk. And so, in that kind of a scenario we want to be very cautious. Now, why do we see that? Well, we agree that the economy is going to recover. However, the question that we think is the most important is, “Where does the economy stabilize?” Because where it stabilizes will most likely be where profits stabilize. So, if profits and the economy stabilize here, but in before the pandemic it was here, then stock prices in our view should reflect this, not that.
However, right now until just recently, it was very near before the pandemic. And, we believe that is a disconnect between the realities on the ground and what the stock prices are. So, given that kind of risk, we believe it’s best not to go in right now and to wait. We anticipate that we should see the equity markets go down from here. And so, for that reason we’re going to stay the course.
Now, the other thing that is very interesting to us is that the Federal Reserve said that they’re going to leave interest rates alone for a while, and they’ve also said in previous announcements that they’re not going to go negative interest rates either. So, what that means is that zero is kind of the floor if they stick to that, and they’re not going to go above what they are today for a while. So, we’re kind of in this band, and interest rate changes tend to affect the bond market and cause volatility, and so if interest rates are going to stay within that band for a while then we look at bonds as being a more stable place and perhaps where we can get better yield. And so, our investment committee is looking very seriously at deploying some of our cash and going into bonds with that.
So, stay the course and maybe buy bonds right now. And know that the key thing here is that, you know, we want your money to last as long as you do, so we’re going to be very careful. And also, we want you to have financial peace of mind. So, we hope that you are letting us worry about this and you’re not worrying about it. Let us do it for you. And, you enjoy your second childhood without parental supervision. Go play. Enjoy. Do it cautiously. Don’t get caught; don’t catch the virus. But at the same time, let us do the worrying.
So, thank you for watching this video and we will talk soon.