Transcript

This is our weekly market alert video for Friday, March 5, 2021, and thank you for watching. So, this week we had a oh no or yay moment, depending on your point of view. The jobs numbers came out on Friday, and guess what: 379,000 jobs created. All the economists, the survey of economists, all these people that get paid a lot of money, and I don’t remember when they’ve gotten it right, okay? In the 30 years I’ve been doing this, I don’t think they’ve gotten it right once. But anyway, these economists said that the number of jobs is going to be 182,000, but what came in was more than double that. So, this is what we talked about last week, which is the rotation trade. So what’s happening is that people are starting to hire in the restaurant business, in the travel business, the entertainment business, because they’re anticipating people are going to be coming out of their homes, money in their pockets, ready to spend, get back to normal life, and so people are hiring in advance of that. They don’t want to be caught left behind.

So, is it good news or not? Well, investors are going to be of two minds. One is, oh my gosh, that many jobs, the economy’s going to heat up, inflation’s coming, oh no, and the other side of it is, the economy’s going to heat up, the stock market’s going to go up, that’s good news. So, which is it? Well, in our view, it is always, over time, the profit picture that drives the stock market, and so if profits are going to rise, people invest ahead of that so as to take advantage of those profit gains, and therefore, we think that over the next year, the stock markets, the S&P, the Dow, will see lots of new all-time highs despite the volatility we’re seeing right now, which is the hand wringing over, oh no, not inflation, oh no, not this, oh no, not that. So that’s the first thing.

The other thing that is also interesting to look at is the behavior of the bond market, and as you may have noticed over the last 2 weeks, the bond market has been beaten up a lot, and basically that’s because people are essentially saying, we don’t believe you, Federal Reserve. You’re telling us you’re not going to raise interest rates until 2023. We don’t believe you. We think you’re going to do it sooner. The economy’s heating up. All these jobs are happening, and so therefore, you’re going to raise interest rates sooner, and we’re going to start selling our bonds now because bonds tend to go down when interest rates go up. My advice to those people who think that is, don’t fight the Fed, okay? Federal Reserve Chairman Powell came out on Thursday and said, we’re not raising interest rates until 2023, read my lips, and the market didn’t like that because, like, wait, we still don’t believe you. If you don’t believe them, then you’re fighting the Fed, and in my view, that’s a loser’s errand.

Now, think about this. If the Federal Reserve suddenly said, we’re going to raise interest rates, when they’ve been telling us all along that they’re not going to, then their credibility is shot. Nobody’s ever going to believe them again, and not only that, but they will cause such an upheaval in the financial markets that we could have a massive thing. This happened in 2004 when we had the taper tantrum when Ben Bernanke was the Federal Reserve chairman, so for all those reasons, we do think that the bond market is overreacting to all of this. So, what does it all mean in a nutshell? Well, it means that our view continues to be new all-time highs on the stock markets over the rest of this year, and also the bond market stabilizing, once people kind of realize that the Fed is serious. They’re not going to raise interest rates, so those two things we think will bode well for the future.

Now having said all of that, there is the possibility that it falls apart, inflation comes in a big way, and we have massive problems in the markets, and they could all go down, and we know that. We’ve seen that happen many, many times in the past. So that’s why we have our investment protect strategy to address that, because that’s the whole reason why we have it. We don’t know when things will happen, but we stand ready to act on your behalf when it does, and it’s in our view not a matter of if, it’s a matter of when, and when, we think, not for another year at least. So, I’m glad you watched this video. I hope that you have peace of mind. I hope that you are going to go out and enjoy your second childhood without parental supervision. Hopefully, you have the freedom from COVID to be able to go do that very soon, and I think all is well and the skies are blue. So thank you, and we’ll talk soon.

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