Transcript

Hello, this is our weekly market alert video for the week ended June 19, 2020, and we have a lot to unwrap today so I’m going to dive right in. But first I want to say that I hope you are staying healthy and I hope you are staying sane. I hope that you have not let your guard down with the resurgence in infections and most likely, the resurgence in deaths that are associated with that. I hope that you are staying very, very careful and that you are not letting your guard down. Okay? We want you to stay safe and stay healthy and stay sane.

So, let’s dive in. So first of all, I want to talk a little bit about Warren Buffett. So, Warren Buffett right now, I saw an article in Market Watch where he’s being criticized by investors that invest with him that he is old; that he is out of touch; that he’s missed out on this huge rally that we saw here just recently; that he has underperformed in the last 2 years because he is too conservative. And interestingly, I’ve been around long enough that I remember almost word for word those kinds of criticisms during Y2K with the dot coms and his lack of investing in those, and saying he didn’t understand these companies and therefore, did not want to invest in them. And the criticism back then, 20 years ago, was “Warren you’re old, you’re out of touch, you don’t understand the economy with technology and all that. We get it. You’re just an old guy so why don’t you just retire and let us do the driving because we know what’s going on.” And as it turns out, a year later, after all of that happened, Warren Buffett turned out to be right and the technology stocks did in fact take a big tumble.

So here we are today. There’s an app called Robinhood that essentially, the average age from the article that I read in Market Watch said that they’re 31 years old and mostly male. And, they’ve added 3 million new people on to their app this year. So, these are people, in my view, that they’re investing in such a way that it looks much like gambling. And in fact, that app does sort of have this Las Vegas feel to it where they reward you for things, and some people say very addictive. And, these young men, mostly men, they’re used to betting on basketball and football and all these other things, Las Vegas – it’s all closed! So, where are they going to go? It seems like they’re going on this app.

So, let me give you something that might make you pause a little bit. So, Hertz, the car rental company, declared bankruptcy on May 22. And, their stock went from a peak earlier this year around $20.00 all the way down to 55 cents. Now, that would make sense for a company that’s declared bankruptcy. It’s basically worthless at that point. So yeah, that makes sense. Well, soon after that between May 22 and June 8, their stock rose to $5.50. Okay, so that’s a 1000% increase in the price of a stock for a company that is bankrupt. And so, if you look, according to reports from Robinhood, the number of accounts on May 22 that owned Hertz was 43,000; that’s on May 22, the day that they announced their bankruptcy. On June 8, when it had gone up the 1000%, it was 73,000 accounts owned Hertz. So, it means that a lot of people bought Hertz and were driving the price up. So in my view, Hertz became a gambling chip. It got to the point where Hertz actually had a press conference where they announced to everybody, “Hey guys our stock is worthless. There’s no value here and by you investing in it, you realize that what we’re going to do with that money that you’re giving us by investing in our stock, we’re going to give it to the creditors in bankruptcy. They’re going to get your money. So, don’t do this anymore.”

So, that reminds me very much of the people back in Y2K that were buying pets.com, a company that had very little, if any, profits, had almost no customers, had a dot.com on the end of its name and they drove that company to be worth $600 million before it crashed and burned and went out of business. And, people who invested in that and were in it at that time lost all their money. This seems to me to be a bubble. And, who in our view is feeding this bubble? Well, it’s the Federal Reserve with all that free money and I’ve kind of coined the phrase – and I hope I’m not being offensive, although maybe I am – I’m calling these people that are doing this crazy. So, crazy is you know if you’re wondering why there’s this big disconnect between the market and what’s happening on the ground with bankruptcies and unemployment, part of that of course is crazy. Crazy is bidding up Hertz to $5.55 – 1000% increase. Why? It’s worthless. There’s no fundamental value there. And so, that’s the thing that I’m concerned about is that crazy is driving this? And, where’s crazy getting his food? Where’s, who’s feeding him? Well Federal Reserve chairman, J. Powell, is pumping all kinds of money into the economy. We’re getting all this stuff, all this free money, cheap money. And, we fear that the Federal Reserve is actually, essentially inflating a bubble. And, that bubble could burst and that would be very bad.

So, the question then – and before I get to “So do we invest like crazy?” – meaning do we do what all these people are doing; do we invest right with them because it could go on for another year – our view is that it could go on until the elections. We don’t see any politician deciding to not continue to fund all this stuff before the elections. Who’s going to say we need to stop all the funding with the elections on the horizon? We just don’t know who that is. So, we think this might go on at least until the elections. So, we’re considering increasing our stock portfolio somewhat (a little bit, not a lot) so as to at least participate with crazy. So, that’s why the title of this video: Do We Invest Like Crazy?

Now, there’s the other part which is last Wednesday –  and by the way, forgive me for this long video, but there’s a lot to talk about – last Wednesday, we did buy in with the amount that we said we would with our bonds and the reason we did that once again is because of the Federal Reserve, and that is that they said that they’re not going to go below zero on interest rates and they’re near zero now. So, we know what the bottom end is, the low end, and then they also said they’re not going to raise interest rates. So, we know where the high end is. So, we know the range within which interest rates will be and if that’s the case, then bonds that are generally affected by what interest rates do should be relatively stable, especially the safer side of the bond spectrum. And so, that’s why we decided to put some money in there to try to get higher yield than we were getting in essentially the money market fund. Now that also is an area that we are looking at increasing into and doing more of because of the stability that Chairman Powell reiterated again a few days later that “We will spend as much as it takes. We’ll buy bonds. We’ll do whatever it takes to keep the bond market stable.” And so that being the case, we might as well get a higher yield and a stable environment. So, we’re thinking about that too.

So, do we invest like crazy? You know if it’s going to go on until the elections, then perhaps a little incremental change in that direction might be appropriate. We’re going to talk about it, and we’ll keep you posted. Okay, so I can tell you something. In all my years of doing this, this is the craziest world that I have ever seen when it comes to the markets. There are lessons from Y2K that we can take away and see parallels to other periods, other bear markets. But, we’ve never had the Federal Reserve pump this much money in. We’ve never had a hard stop of the economy. This is all very, very new.

But, that’s why you have us. You want us to get the gray hair so that you don’t have to worry about it, and we don’t want you to. We want you to have peace of mind. And remember always our guiding principles, one of them being growth is important. We want to grow your money for sure. But, protecting principal is even more important. And, in today’s world, we don’t see that that’s a change at all. Okay? So, thank you for letting us worry about this. And, thank you for letting us be your retirement planner, your guide to all this craziness.

MMWKM Advisors, LLC (d/b/a Retirement Planners of America ) (“Retirement Planners of America”) is an SEC registered investment adviser with a primary business location in Plano, Texas. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. References to the “invest and protect strategy” (the “Strategy”) and recommendations made under the Strategy from 2007 through 2009 refer to strategies collectively employed and recommendations collectively made by Retirement Planners of America’s principals while employed at Eagle Strategies, LLC., and also at Cambridge Investment Research Advisors, Inc. Four of the five principals remain as principals today, including the Retirement Planners of America’s founder, Ken Moraif, and Chief Investment Officer, Eli Dragon. Retirement Planners of America has been employing the Strategy since its inception in 2011. Therefore, any references to Retirement Planners of America’s performance or its investment advisory recommendations predating 2011 generally refer to recommendations made by Retirement Planners of America’s principals at the respective other firms described above. Like all investment strategies, the Strategy is not guaranteed. It is possible that it can incorrectly predict a bear market (generally accepted as a 20% drop in a market index), which has, in-fact, happened before at Retirement Planners of America and affected its clients accordingly. When the sell / “protect” portion of the Strategy is implemented, affected investors will incur transaction costs and taxable accounts will incur tax consequences. However, when implementing that portion of the Strategy, Retirement Planners of America generally believes that the benefit of avoiding bear markets outweighs the burden of these transaction costs and tax consequences.