Transcript

Hello, this is our weekly market alert video for the week ended, Friday, March 19, 2021. Thank you for watching. So, this week has been very interesting. And I’ve entitled this video, The Fed, saying, Go Ahead, Make My Day. So, the bond market, and many of you’ve been asking about how, what’s going on with our bonds, what’s going on with the bond market. It seems to be going down. So, just to kind of set the stage. When interest rates rise, generally what happens, is bond values go down, and usually what happens is, is that interest rates rise because of an anticipation of what the Federal Reserve is going to do with the prime interest rate. So, when the Fed announces we’re going to raise interest rates, that tends to make bonds fall and vice versa, when they we’re now going into a period of lowering interest rates, that tends to make bonds rise. So, there’s an inverse relationship there between interest rates and bond prices.

So, what’s going on right now is, the Federal Reserve has been saying, we are not going to raise interest rates, but yet the bond market is saying we don’t believe you and therefore, what we’re seeing is that the long term bonds, which are driven, they’re not controlled directly by the Federal Reserve, are starting to rise. So, the bond market is saying we think you’re going to be raising interest rates and the Federal Reserve is saying, no we’re not, not until 2023. So, right now, it’s a game between the two. So, what do we think about it? Well, Jerome Powell, the Federal Reserve chairman, had an interview this week, where what he said is that in the past, the Federal Reserve has been essentially forecast, their decisions have been directed by forecast. In other words, they would look into the future and say the economy is going to heat up and therefore we want to raise interest rates to slow it down or conversely the economy is going into a recession and we want to lower interest rates to stimulate. Well, what they said is, we’re not going to do that.

So, all you people out there that are forecasting stuff, we’re not doing what you’re doing. What we’re going to do, is we are going to be data driven. Meaning what we are going to do is we are going to raise interest rates when we have confirmed fact that the economy is heating up. And the reason why they’re doing that is because they said, these are uncharted waters; pandemics, all the stuff that’s going on, and yes, it’s likely that you guys may be right, but we don’t want to stop stimulus, find out that the economy doesn’t heat up like we thought it would and then have to start again. That stop and start would be worse, they said, than if we let the economy go and you turn out to be right, bond market, and yes, the economy heats up and we overshoot. We’re more willing to overshoot and let that happen, then we are to undershoot and have to now start over again because the economy fades back into a bad recession.

So, what that causes therefore, is a big arm wrestling match between the bond investors, which currently are selling their bonds and driving the interest rates up and therefore making prices of bonds fall, versus what the Fed is saying, which is no, we’re not going touch interest rates, most likely until 2023. So, what applies here is an old expression, that whenever you violate it, it seems like you pay a heavy price for it and that is don’t fight the Fed. You may have heard that before. So, we believe that probably the economy will heat up, probably the Federal Reserve will raise interest rates at some point, but the bond market right now, as the stock market does also, is overshooting. Which ever way the pendulum’s swinging, people tend to drive it too far one way, too far the other and then it swings back to the middle and it kind of stabilizes.

So, in terms of the bond portfolio, we believe that there’s an overshoot here by bond investors, they’re going to pay a price for that, so we don’t think that this is actually a time to be selling bonds, lightening up on bonds. In fact, maybe it’s the opposite and that is that this is an opportunity because the bond market may have overshot and underestimated the Fed’s result. So, don’t fight the Fed. When it comes to our stock portfolio, as we’ve mentioned in the past, we still believe that with the stimulus, with the vaccine, with the pent up demand, and with the highest savings rate in the history of our country, lots of cash sitting there waiting for consumers that’s burning a hole in their pocket, we think there’s going to be a lot of spending that will drive profits, which will drive stock markets to new highs. So, overall, volatility, yes, ups and downs, yes, but anything to be overly worried about at this point, we don’t see it.

So, but, having said that, we don’t have a crystal ball and things can change in the blink of an eye. Things can turn badly. Inflation may heat up dramatically. A variant to the virus may come along and turn everything upside down. We don’t know, and those things certainly could upset the apple cart, which is why, of course, we have our investment protect strategy in place, to act on your behalf to protect you from, or at least mitigate you from downside losses as much as possible. So, that’s what’s going on. That’s what we think about it.

Oh, I have a big announcement to make. My daughter, my oldest daughter, has finally freed me to tell you that I’m going to be a grandfather. She’s expecting a baby and the baby is due on Labor Day, so she’s going to go into labor on Labor Day, which is kind of funny, but I’ve been kept, I’ve been sworn to secrecy until now, and it’s going to be a boy. So, don’t have a name yet, but I never thought I’d be happy to be a grandfather. I though that was just for old people, but I am very happy about it and excited and looking forward to that. So, kind of a happy announcement for our family. So, I’m glad you watch this video. Thank you very much. Don’t worry about where this stuff led us and also, please share this on Facebook, share it with your friends. This video is free for you to share with as many people as you wish. Okay. So, take care and we’ll talk soon.

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.