The Fagan Financial Report

August 20th, 2023

Episode Transcript

(00:00):
Good morning, and welcome to theFagan Financial Report. This is Aaron Fagan
sitting here on Sunday, August twentieth, twenty twenty three. I'm by myself
for the first half. That mydad, my dad will join me for
the second half. But you know, we had quite a tumultuous week in
the stock market. As you know, we've kind of been having a lot
lately. You know, megacap Techdown ten ten percent on on the aggregate,

(00:25):
in correction, Territory, the TripleQues just this week down three point
three percent, So you know,I think we're seeing you know, quite
the pullback and in the leaders thathave you know thus far led uh this
stock market and in you know,twenty twenty three in general. But you
know, we have some good thingsfor you, uh for the first half

(00:46):
of the show. The second halfwe broadened out to more you know,
financial planning topics in the like,more macroeconomic themes. So my my father
Dennis will join me for the secondhalf. But you know, you know,
first half, you know what wegot for is, you know,
megacap tech is in correction, territorydown ten percent. The consumer, I
think the consumer is going to beone of those topics that we're going to

(01:07):
continue to talk about going forward,you know, as as Powell in the
FED continue to raise rates, youknow, in the in the five and
a half percent territory. You know, we still have you know, CPI
and inflation sticking about you know,three and a quarter percent. So you
know, we're kind of going tosee, you know, what can you
know, Powell do, if anything, you know, to to uh,

(01:32):
you know, to to to slowdown inflation and slow down the slow down
the economy. So, you know, we had retail sales this week.
They were strong, and we alsohad Walmart and Target earnings, you know,
both I think a little bit weakerthan expected the market. The market
reacting a little bit differently to toto Target and to Walmart. We have
mortgage rates they could three e threeeconomists say that mortgage rates could hit eight

(01:56):
percent. So you know what thatmeans for the economy. X snow more
dwindling pandemics savings. So we havea blog by the San Francisco FED this
week that's saying, hey, youknow it's possible that excess COVID savings could
run out in the third quarter ofthis year. And that's what we are
in We have black Rock mid yearoutlook on which I find really interesting.

(02:21):
You know, say what you wantabout black Rock as a company, but
it's they're one of the largest assetmanagers in ETF owners in the world,
so you know, it's always interestingto see, you know, what they
have to say. We also talkedto news Channel six on on Friday.
It was a Friday afternoon about youknow, inflation in schools, and not

(02:43):
only inflation in schools, but whatthat kind of means for for the economy
in general, just you know,inflation in general. You know, what
we think is, you know,this is a period where inflation could be
around for for for quite some time. And that's saying higher inflation, extremely

(03:05):
high inflation. But you know,maybe this new normal sea of inflation of
you know that we could see ayou know, a hovering around this three
percent mark because you know, Isaw some renroad online. You know,
we have a we have low unemployment, inflated money supply as as as as
I said earlier with you know,excess savings from the pandemic, and neither
of those are going away are goingaway today, you know, as I

(03:29):
was saying earlier, you know,excess savings can can can begin to dwindle.
But with a three point five percentunemployment rate, you know, retail
sales, in my opinion, aregoing to remain a little bit stronger for
for a little bit longer. Youknow, I don't think we're gonna hit
some sort of cliff anytime soon.And you know, have you know,

(03:49):
extremely extremely dwindling inflation, especially withthis with this extremely low unemployment number.
But to start the show, let'sgo over the market this week. You
know, I printed out some alittle bit different numbers than we saw than
we see usually per week. Butyou know, NASDA Composite was down three

(04:12):
point three nine percent, the TripleQues down three point three percent. You
know, I I punted out theTriple qs this week. The Triple q's
in general are are is larger captech. It is the invest Go QQQ
trust. I think it's a hundredholdings. I'm not positive on that.
But you know ten percent, elevenpercent is Apple, nine and a half
percent is Microsoft, five percent isAmazon, four percent is in Video,

(04:34):
three and a half percent is Metain six and six percent is Google.
So each Google classes is three misthree percent to bring you to six percent
so I think it's a good indicationof of of you know what uh you
know, megacap tech and and wherewhere that's headed. You know, we
we we kind of tend to beon the back of megacap tech in general

(04:59):
this year. I think, who'sa month or two ago, and if
you excluded you know, the magnificentseven in quotations that these large cap tech
companies have deemed themselves. Without them, the market would have been flat leading
up to about two or three monthsago. So, you know, it's
interesting to see where these these companiesare going because you know, they kind
of let us down last year andlet us up this year, so we're

(05:21):
kind of having that reverse happened nowin them leading us back down. So
the triple Queues was down three pointthree percent. Uh DW Jones Industrial average
was down two point one five percentover the last five days. SMP total
return SPY down two point five ninepercent. XLU, the utility ZTF is

(05:41):
down point eight nine percent, andyou know, make caps were down three
point one one percent for the forthe week, you know, for the
year, no, no, onemonth, And this is when we're starting
to see some you know, obviouslythe duldrums of summer. August and September
are the only two months on averagethat have negative historic performance on average.

(06:02):
And you know, we're seeing theFidelity and as that Composite index down seven
point one eight percent for the month, Triple queues down seven point one four,
Dow Jones Industrial Average done one pointthree seven s andp SMP down four
point one one, Utilities down fourpoint one five, mid cap down five
point one three. So, youknow, as I was saying, I

(06:24):
think we're going to kind of continueto see you know, large cap tech
in general to you know, inmy opinion, maybe hover around down here.
You know, I don't see us. I'm bouncing back, you know,
and anytime soon, really, youknow, I think we're gonna hover
around down here. We're seeing interestrates, you know, above five percent

(06:46):
on the one year, above fivepercent on the nine month, six month,
three month, We're seeing above fourpercent on the you know, five
year, ten years at two pointfour point two five percent, which is
starting to look a little bit interestingfor us. You know, I think
when once it starts hitting the fourand a half percent, which we think
it'll get up to, that's whenwe might step in. But you know,

(07:08):
at at CPI round three point onepercent, you're seeing a real rate
of rate of return there. Nowthat you know, if if, if
the Fed is going to do whatthey said they're going to do and you
know, hopefully get that inflation ratedown to about two percent, you know,
the ten year does start to looka little bit attractive. As investors,
we kind of stick away usually especiallyin my time working here for about

(07:31):
twelve years, away from longer datedfixed income assets as you know, you
have that duration risk, you know, and you have you know, the
one year at five point three threepercent almost you know, one hundred over
one hundred basis points one percent overthe ten years, So you know,

(07:53):
it's it's what we're in kind of, you know, obviously an inverted year
yield curve, but that you knowone two percent, two percent is even
at four point nine seven percent.So this is all as of Friday,
So you know it's going to beharder to get into those longer duration assets.
But when you do, you kindof want to lock your lock your
money. And you know, forinvestors and a lot of our clients,

(08:16):
you know, uh, you're seeingthe not the death of the deferred compensation
plan, but a little bit.I think only twenty percent of jobs currently
have a deferred compensation plan. Soyou know, I think what we're seeing
is the risk kind of not kindof much more so now than in the

(08:39):
past. On the risk is onthe investor in the employee. So that
said, you know, we usuallysay, hey, you can take about
a four percent, four or fivepercent distribution rate. You know at the
ten yere at four point two five, four point two six percent, you
know, that's that's gonna give investorswhat they need for the distributions that they

(09:00):
need for the rest of their life. You know, when you hit I
have ten thousand people turn sixty fiveevery single day in America now, and
you know, just because of that, you know, at sixty five,
the days of in my opinion,getting rich are you know, kind of
behind you. You know, it'sthe when you turn sixty five and you're
into retirement, you know you wantto kind of let your portfolio do the

(09:22):
work for yourself, you know,turn your brain off a little bit and
just you know, and enjoy yourlife and not having have to worry about
your your money. And you knowthat rate to return on that's forty percent
of your the side of that fortypercent fixed incomes out of your portfolio,
you know, can now achieve aboutfour point two five percent if you're going

(09:43):
out to the tenure, but atleast at least four you know, I
think that's yeah, four point twofive percent, but you know, at
least four to five percent if you, if you, if you, if
you ladder some bonds from you know, three months out to you know,
ten years, you can easily geta you know, four and a half
to five percent rate of return forthe time being on that forty percent side

(10:03):
of your portfolio. So you knowthat's gonna do the heavy lifting. Now,
you know, the last ten twelveyears, you've had to see the
you know, the stock side ofyour portfolio do the heavy listing heavy lifting.
As we saw the ten year belowone percent at one point, which
is you know, crazy, andI think that that era of free money
is over. You know, asI was saying earlier, you know,

(10:26):
we have unemployment, we have thatinflated money supply, but you know that's
coming to an end and people aregoing to need some some return on their
on their investments. But you know, we saw retail sales out this week
and Walmart and Target earnings. Retailsales were hotter than expected. July sales
were both were boosted by one pointnine percent jump and spending at online retailers

(10:48):
while sporting good and related stories increasedby one point five percent, food service
and drinking places rose by one pointfour percent. On the downside, furniture
sales slumped one point eight percent,Electronics and applying is applying stores reporting a
one point three percent drop. Soyou know what we're seeing here in retail
sales are still strong. Retail saleson the aggregate, but furniture sales,

(11:11):
electronics, appliance is slumped, sothose larger ticket items aren't aren't being bought
as much, which is am Iwhich is a fact, is that you
know, it's a sign of aslowing economy, which you know is good
for the FED and not having toto maybe pause for a while and not
continue to raise rates. I won'ttalk about it if they will, if

(11:33):
they won't right now, but youknow, I think we're getting to the
end of this height raking cycle becausenow we're finally starting to see the consumer
uh sweat a little bit, youknow, As I was saying, you
know, I think yeah, SanFrancisco fed blogs that excess no more dwindling
pandemic savings. So you know,that's what's gonna have to happen to slow

(11:54):
down this economy, especially with unemploymentat three point five percent. And then
you know, to to to kindof continue on that same same line of
thinking. You know, we sawTarget slashes full year earnings forecasts as retailer
struggles to win over thrifty shoppers.So Target although had some a little bit

(12:18):
weaker guidance going forward, I think, and it opened up about you know,
I want to say seven percent,but only finished up about two percent,
you know, and for the weekis basically flat at at up about
point one two percent. So youknow, what we saw, in my

(12:39):
opinion is they beat beat on earningsat one point eight dollar eighty verse one
third and nine. Revenue was lateat twenty four point seven seven billion verse
twenty five point one six billion,So we're seeing that, you know,
at the CEO Bryan Cornell says,as we look at the consumer landscape today,

(13:01):
we recognize the consumers still challenged bythe levels of inflation that they're seeing
in food and beverage and household essentials. So we're seeing you know, as
I was saying in the retail report, those larger ticket items people aren't spending
on anymore, and Target isn't historicallyor now they're not, you know,

(13:22):
a retailer that excels in that grocerydepartment small ticket items. I think groceries
only twenty percent of Target sales.Now if we look at you know,
Walmart's earnings, you know, inmy opinion, Walmart had very good earnings.
E Commerce sales for Walmart jump twentyfour percent year over year. Walmart

(13:43):
lifted its full outlook for the fiscalyear after beating Wall Street expectations on sales
and earnings. Chief financial Officer JohnDavid Rainey said there was modest improvement of
sales of big ticket in discretionary items. So you know, that's a little
bit of a contradicting some contradicting datathan what we saw on the retail sales.

(14:05):
But you know, Walmart continues topick up its its online presence as
well as uh Walmart has a hastheir foot in the door in groceries,
not just their foot in the doorto the nation's largest grocery retailer, at
over fifty percent of of groceries worldwide. I think it's about it's over fifty
percent of Walmart sales too, soyou know they have those lower cost items

(14:28):
to get them through, you know, times of a little bit of economic
hardships that that we might see comingup, because you know, the consumer,
the consumer retail consumer can't really bein better shape than they are now
with such low unemployment at three pointfive percent, as well as you know
that inflated money supply that we thatwe saw because of money going into the

(14:52):
pandemic. But you know, uh, second topic that I think we can
hit on a little bit is youknow what happens to house to the housing
if rates surge. You know,it was three economists came out today I
think it was today, No,no, it was last week and said,
you know, interest rates could reacheight percent and what does that mean

(15:15):
for the average person? He said. He noted that the monthly mortgage payment
for a median priced home at theprevailing thirty year mortgage rate has risen from
close to eleven hundred dollars per monthin January of twenty nineteen to over twenty
one hundred dollars today At eight percent. The monthly payment would rise to over
twenty three hundred dollars. So youknow, if it if it did hit

(15:37):
eight percent, that's only two hundredmore dollars a month only, which doesn't
sound much, in which sounds likea lot, but you know, isn't
much in uh, in terms ofwhat's happened in the past two or three
years. But you know, justfrom January twenty nineteen to today, the
increase on a thirty year mortgage ison average of one thousand dollars per month.
So that's twelve thousand dollars a yearcoming out of people's pockets. You

(16:00):
know. Yet we still we continueto still have a strong economy, and
I think that's brought upon by suchlow unemployment numbers. So you know,
what does that mean for the consumer? Though? You know, everyone sees
eight percent rates and sees, oh, you know, that's big, bad
and scary, but you know,it honestly isn't. For most Americans.
Uh. You know, ninety onepoint eight percent of US mortgage homeowners have

(16:23):
a rate below six percent, ninetytwo percent almost you know, uh,
eighty two point four percent have arate below five percent, sixty two below
four, twenty three and a halfbelow three percent. So what I'm saying
is, you know, the Fedand Jerome power can continue to raise rates
and can continue to raise rates,but you know, Americans in general have

(16:48):
long term debt locked in at lowerrates, so raising rates can only do
so much for the economy. Theycan they can slow down business activity,
and that's the big thing that itcan do, but it really can't slow
down the retailer or the consumer,you know, as much as maybe they
would hope, because you know,everyone that has a home has it as

(17:12):
a has it as a lower interestat lower rates that they're not going anywhere.
So maybe you'll see the average carlife I don't know the exact terminology,
but the average car on the roadright now is is almost towards all
time highs. So you could seesome you could see them mortgage rates affecting

(17:33):
like things like car loans, creditcards, which you know, could could
hamper the consumer a little bit.But you know, I also think that's
a you know, a little bitways out because you know, again people
are people are going to be hesitantto take on that long term debt because
you know, my wife was sayingthat she went to the track with all
of her friends and they started talking. They were talking about mortgage rates on

(17:56):
the way up, and they're like, oh man, we're old, we're
talking about mortgage rates. But whatI'm saying more is that you know,
everyone is is more conscious right now, you know, just because the media
is, you know, right inyour face, whether it be your phone
on TV, you know, notificationson your app telling you the mortgage rate.
But you know, everyone's more tunedright now with in my opinion,
the economy and you know, mortgagerates or any rates in general than they

(18:18):
have been in the past. Andyou know, I think people will be
more cognizant to take on longer termdeath because you know, my opinion,
the average American is is way moreknowledgeable about things like this than than they
have been in the past. Youknow, going forward, what could we
talk about here? Here's my Youknow, sometimes when you do this show
by yourself, you print out toomany things and then when I'm I'm mid

(18:41):
talking, I have to have tofind, you know, what I'm looking
for. But you know, Ithink the next good thing to talk about
would be you know, black Rock. Black Rock came out with their mid
year outlook, and you know,it's interesting to see what they think are
I guess themes that will take centerstage for the second half of the year.

(19:07):
But you know, in my opinion, these are all topics that I
think will continue to be popular goingforward and continue to be issues for the
next five to ten years. Soin this mid year outlook, which is
you know, very well done,they highlight a few things. The first
one will be geopolitical fragmentation, whichwe can call reglobalization. You know,

(19:32):
as we're seeing with you know,what's going on in China, China can
can can continue to not get theireconomy rolling like they thought it would.
You know, we saw this withthe Chips Act. We saw this with
even Tanwan semi building plants in Arizona. We're seeing this reglobalization and shift for
how how we produce things. Andyou know, we've kind of been saying

(19:52):
it for a while. We didn'tenter into a position on Intel. We
do think Intel's a turnaround story,but you know, well we do think
it will struggle. But where wethink it will be in five to ten
years is you know, kind offront and center with bringing production back to
the United States. With so manysemiconductors GPU CPUs going into everything nowadays as

(20:15):
well as you know, extremely weakPC market that can only get better.
You know, we do think thatthe best way to build up the middle
class will be through the chip sector. I think we talked about it last
week, but fifty community colleges nowhave associates degrees that specialize in semiconductor manufacturing.

(20:37):
So, you know, we thinkit's a great way to build up
the middle class again, and it'sgoing to be something that's here to stay.
Chips aren't going anywhere. They arekind of like the picks and shovels
of of that technology industry, soyou know, we kind of can continue
to think that, We continue tothink that it will be extremely important to
to build up that sector of theeconomy. You know, aging population means

(21:03):
an ever rising share of the populationis past retirement age, resulting in worker
shortages. That's a key constraint fuelingUS inflation now is a tight labor market
keeps wages. Wage growth elevated.The rise of AI could help offset some
of these supply constraints thanks to predictproductivity gains, yet that impact will likely
only be felt in decades, notyears, So you know, they have

(21:26):
these themes of twenty twenty three.But you know, they kind of are,
in my opinion, are more likeyou know, twenty the twenty twenties,
latter half of twenty twenties themes,and that you know, artificial intelligence
kind of replacing that aging population.As I was saying earlier, about ten
thousand people turn sixty five every singleday. So you know, going forward.

(21:51):
You know, I think that we'veseen that pullback in large captech this
week because you know, although artificialintelligence has really been a you know,
front and step center story this year, we're not seeing many revenues come out
of come out of anything artificial intelligence. With this larger captech. Yeah,
we've seen Google stepping with chat GPThaving influx of downloads than it kind of

(22:15):
plateaued off. We saw Google introducedbarred. Amazon's working on their own ship
in their own AI platform. Ithink that came out last week or so.
So I think, you know whatwe're going to see now is the
markets say, hey, prove tome that these companies will be revenue producing,
and let us know when these companiesand these these parts of our companies

(22:37):
will be will be revenue producing.Because you know, it's all great and
it was a great catalyst for themarket. But now I think the market's
kind of now and a hey,you know, I think the Nasdaq was
up twenty seven percent so far year. Today we're I think we're going to
be now and to show us,show us that these that these parts of
your businesses will be you know,revenue generated. Let me go, what

(23:02):
else does the black Rock thing haveto say? Oh, let me let
me talk about that sixty forty portfolio. You know it's on CNBC. It
was a good article and we've beentalking about it. Uh, you know,
just that theme in general a lotlately. If I can find it,
I don't want to hold you uptoo much. Well, you know,
I can't find it. But it'sbasically saying, how you know,

(23:25):
we do have a resurgence of thesixty forty portfolio, and that makes a
lot of a lot of sense.You know, the job of your portfolio,
especially in retirement, isn't to getrich anymore. It's to maintain stable
distributions from your account. You know, you you reduce the volatility. Although
you know, we're seeing a lotof volatility, and I think we'll continue

(23:47):
to see volatility on the equity side. You know, at least that forty
percent of your portfolio that maybe onlycould have been twenty five percent five years
ago because rates were so low andyou needed that four percent gain. You
know, now you're seeing rates fromyou know, the one year at five
point three percent, two year atfour point nine percent, ten you're at
four point two five percent. Sonow you're seeing you know, maybe locking
in some some of those uh,you know, fixed income assets. So

(24:14):
you know you actually have that fortypercent of your portfolio, even fifty percent
of your portfolio having you know,four to five percent returns while you're laddering
bonds. But you know, thatjust about does it for the first half.
Second half, my father Dennis willbe on. We'll talk about more
macroeconomic themes going forward, but rightnow, it's uh, it's ten thirty

(24:38):
on the station you depend on fornews, weather radio eight ten w g
Y. Good morning, and welcomeback to the second half hour of the
Capitol District's Money and Investment program.You're listening to the Fagan Financial port airon
and Dennis Fagan sitting here with thesecond half hour, and I've just kind
of come up with a good ideaof not not today, but this week.

(25:00):
You know, yeah, what isit? We've already heard it.
But once you know it's, it'syou feel good about yourself, so you
can you can tell everyone again,thank you. What is it though?
But it's it's the whole market.As as as as really a show,
the day to day show of Imentioned it like a coin toss, you

(25:21):
know, almost like with the superBowl. You know, you have you
have the play by play person,you have the color person, you have
you know, the lead up tothe coin to us, how's the market
gonna end up for the day?You know, you have tailgating, you
have all these shows. You havepeople coming on and talking about where is
the market going over the short termand long term? He's I think he's
Wall Street journal artic uh writer Uh. Jeffries Wide talks us about he has

(25:47):
that I can't talk about on theshow once a while, The Devil's Financial
Dictionary. But it's almost like,you know, it's a guide to facts,
fads, follies in fiction of businessand investing. And he kind of
talks about that in one of hisdefinitions about how you know the market and
like pundits use words like jump andyou know, human actions for the stock
market just to you know, piquepeople's interest, and they do it all

(26:10):
the time. But you know,it's just to gain viewership, you know,
you give you know, the marketthese personalized traits, you know,
jump in right, speed up thedialogue. They speed up the dialogue to
raise voices in this. That.But my point is too that and you
say quite often that and most Idon't know if most people realize, is
that the market, the stock marketgoes up about fifty three percent of the

(26:32):
days, about seventy percent of theyears, maybe seventy years, maybe eighty
five percent over five years, youknow, ninety eight, ninety seven percent
over ten years, and one hundredpercent over twenty years. But it's the
job of the media really to breakthat down. If you break it down
to the day to day, thenyou're really fifty percent right or fifty percent

(26:55):
wrong all the time if the marketgoes up fifty three percent of the time.
So the job of the media inorder to get you to watch is
to then to not say, Okay, look, you know, if you're
investing over the next twenty years,you've got one hundred percent chance of making
money in an index. No,their job is to break it down into
man, you can't miss this day. You can't miss today because there's fifty

(27:19):
fifty. So if you know,it's hard to it's hard to really express
I'm founding a hard time express myself. But if it's fifty fifty, it's
fifty fifty day today. But it'snot fifty fifty as you extend those periods,
because the market goes up greater thanit goes down, despite the fact
the frequency of the inclines and increasesand decreases are almost the same. So

(27:41):
then then the the average person who'snot familiar with the machinations of the market
gets sucked in because of the emotionalaspect of their money, and they see
their whole life flashing before them,and and it kind of it kind of
promotes mistakes with your portfolio. Yeah, and and and you know, and

(28:06):
like I said, it's a flipof the coin day to day, whether
the market goes up or down,and the media and just promotes that and
and acts like, man, youcan't miss this because you could make or
you could lose money today. Wellyou know that's that is true, but
not as you extend those periods,and that leads me into really what where
we as we sit here today afteryou know, what would be you know,

(28:27):
yeah, more difficult than average August. As we mentioned last week,
generally speaking, historically speaking, themarket goes there were two worst months and
the losing months really for the Sand P five hundred are August and September
and both down. But you know, less than one and a half percent.
What I don't know the exacts thanone percent on the average, you

(28:48):
know, if you extend back fiftysixty years, and what's the uh?
The markets down this month if youlook at the SMP five hundred down about
four percent this month, NAS downabout six percent, the DAOs fared better
down two point two three percent thusfar this month. The Russell two thousand,
which is the second third thousand largestAmerican stocks down six point five seven

(29:11):
percent of the US total market downabout four point four percent. So we're
starting to feel that tension of themarket going down then needing to do something.
You know, as I mentioned lastweek that you know, when you're
lost, no, you don't roamaround and look for the path. You
stay put, you know, butpeople find a hard time staying put.
You know, I met with awoman who I've known, she's been a

(29:33):
client for about six or seven years. This past week, you know,
she talks about you know, theyou know what, I hope you don't
have another market like we had twoor three years ago. I hope you
don't this. She's sixty two,you know, without revealing her name,
not that her first name is gonnamean anything to you. Probably plenty more
hopefully. Yeah, you know,opportunities, you know, you want to

(29:56):
call them. You don't have,That's that's not you're thinking when it's going
on, But you know, opportunities. But you know, I don't know
at sixty two, you know howYeah, you know, I guess you
should have a portfolio that shouldn't youknow, keep you up at night even
if the market goes down twenty percent. Yeah, I mean, and you've
got to expect that's just taking ageinto account. You know, if you

(30:18):
just take the past five years,we've had three We've had one year bear
market in the fall of eighteen andwe had the pandemic bear market of down
thirty three percent nineteen we had lastyear and yeah, y five percent.
Yeah, so you know, andyou know in one year, the one
year returns are they're probably negative asof this week, but they were even
positive last week, you know,hovering around positive. So you know,

(30:41):
you had half of a year whereyou could say, hey, you could
sell them, buy back in,but you know that's just harder. Said
that done. I think you weresaying, you know, stay put.
That's the correct course of action.I think when you think the market's a
little heavy, it's just stay putsometimes, you know, not don't do
as much buying as you asy orselling, yeah, or selling, you

(31:03):
know, kind of just stay put. Have the market I guess, you
know, we balance itself out alittle bit, re align and then kind
of continue to go up year overyear as we've seen. Right, So
if you look at one hundred percentof your assets, let's say it's one
hundred one hundred thousand dollars, putrealistic number on an investor's portfolio will say,

(31:23):
and your asset allocation model would dictatethat you should be sixty to seventy
five percent in the stock market.That is your leeway, I mean,
that's your that's your Hey, I'mbullish on the market or embarrass on the
market. I love Biden or Ihate him. I love Trump. Or
I hate him. You know,I'm afraid of China. I'm not.
I'm this rush of things keeping meup at night. That's your peace of

(31:45):
mind parameters that you need to workwith. Now if you you they're you're
suffering emotional trauma. That yeah,you want to be able to sleep at
night. But your peace of mindparameter is to a set up an ascid
allocation model will work over the longterm the climate of the of your portfolio,
not the weather, so it worksover the longer, the long term.

(32:07):
And then that window that that thatsixty to seventy five percent is your
peace of mind. Uh window.Should you get antsy about the market,
but you want to stay within that. You don't want to say, okay,
this is it. Joe Schmo saidthat the market's going down to zero,
or Mary Schmo and and get outof the market, or someone's really

(32:28):
bullish on the market and getting ingetting all in. So so your flexibility
rests within the parameters of parameters thatcoincide with your longer term objectives. And
I think you always say that tooalmost you know, it's it's we have
software here that can run uh,you know, different scenarios through someone's portfolio

(32:53):
and you know, give you kindof the results, you know, the
standard deviation whatever you want to youknow, see the probabilities of you outlasting
your money. But you know,I think what you will be say as
smart is you know, take yourportfolio where it's at now. You know,
have a twenty percent correction in yourequities, and that's kind of the
the simple stress test you can dofor your portfolio. And if you know

(33:15):
your your distributions can't withstand, youcan't withstand that, then it's not time
for you to retire, really,right, And I think that's any kind
of an easy stress test to do. And you know, kind of align
your portfolio, you know, inbonds and stocks, and you know,
make sure it can it can withstand. You know, I guess you know
that twenty percent correction true that we'veseen three times so so here we are

(33:37):
now down five or six percent andinterest rates have backed up a little bit.
You know, the ten years ataround four thirty fourth, the five
years at four seventy eight, thethree years at four seventy, the two
years at about five, one yearsabout five forty, the nine months about
five forty six months, about fivefifty and the three months is about and

(34:00):
we're getting this that that battle betweenyou know, asset allocation models. Should
we take some of our money andpull it out of the stock market and
move it into the bottom market.And we've got a couple of things to
talk about that. First of all, are let's let's talk about the stock
side of the equation. Uh,you know, you manage you do to

(34:27):
day to day trading of our accounts. You know, we have you know,
obviously you and I have input togetherand then you actually do the pulling
of the trigger, so to speak. And I know talking about it,
you know, and I don't wantto put my two cents in because it's
hour or two cents really, butyou know, where where do you think
we are in the whole cycle ofyou know, this five or six percent

(34:49):
pullback? Is it going to betwenty percent? Is it going to be
ten percent? We just talked aboutflipping the coin, so really who knows?
But positioning assets right now? Youknow, how do you think?
How do you think that we're surewe've been talking about you know, a
five to ten percent pullback. Youknow, I think we'll we'll fall within
a few percentage points of ten percent, I would start picking up different stocks
here, even Apple for new clients. You know, it is our largest

(35:12):
holding, but you know, Iwould still pick up those, you know,
core holdings of the S ANDP,whether it be Microsoft, Apple,
Google, I would start picking thoseup around here, especially for new clients.
We are pretty fairly allocated on theaggregate though, but I think there's
they're a good place to start buildingyour portfolio. And I think these ten
around the ten percent mark is fair. I think as we've been kind of
saying that, you know, weneed to see a new catalyst for the

(35:36):
market to go higher, and youknow, I think we could start seeing
that, you know, at theend of this year, as the consumers
still remains strong, and I thinkwe're still in a fairly valued I guess
uh stock market. But that said, you know, I don't see us
going I think, you know,I think the statistics are going to come

(35:59):
are going to a little bit youknow, obvious going, not obvious going
for but historically accurate. You know, I think we're gonna have a hard
August, hard September, and Ithink we're gonna have a strong end of
the year, as you know,the consumer remain strong, and we're seeing
the economy remain strong. Yeah,so things pretty fairly valued. And I
was I was saying too, thatyou're working well. You're working clients with

(36:23):
brand new money. Let's say anI area roll over the life to have
those large cap companies in your PORTFOLI, even if you think they're a little
overvalued, because they give you thatcorrelation to the stock market. But here
I think they're actually fairly valued,and I would I would happily pick them
up for clients around right, ratherthan feeling obligated. Well, and I
think too, I think if youtake a look at somebody's we're working at,

(36:45):
you know, with new money,someone rolls over one hundred thousand dollars
or whatever the case may be,you don't want to take too long to
get that into the market because youwant to be correlated to the market.
In our seventy four percent of thetime, seventy four percent of if you
if you inherit a lump sum,seventy four percent of the time, it's

(37:06):
beneficial for you to invest it asa lump sum right away. Makes as
as opposed to dollar cost averaging,which makes sense. As you said,
the market's up seventy four percent ofyears that's said. You know, I
think it's still prudent to dollar costaverage into securities, into into the stock
and to the bond market because thereis that chance that you know, there

(37:27):
is a black swan event, right, you know that, you know,
but a lot of times we havepeople coming over in a four one K
that are seventy five percent in themarket. You know you have to get
them invested faster than normal. Right, So if someone comes over with I
have I had a CD mature fora one hundred thousand dollars, I know
this isn't my longer term objectives.I want to put three quarter. I
want to end up with three quartersof it in the stock market, three
quarters in, a quarter of itin the bond market. You're gonna move

(37:51):
slower because it was in cash,but in slower than in years past.
Also because let's say you know twoor three years ago, if someone came
over with one hundred grand, Let'ssay you know that that money market rate
was near zero. Now when someonecomes over, you can put that one
hundred grand into a money market accountand be even more selective as you're at

(38:13):
least earning five percent to wait more, so we're kind of being more picky,
I would say, with our youknow, equity picks specifically, just
because it does pay to weight.Now that risk free rate is five percent,
so you know, going forward,we're kind of a little bit more
waiting for different price points for differentstocks that we like, you know,
the fifteen to twenty that we doown, and making sure that we're really

(38:36):
happy with the price there, becauseit's you know, you do get paid
five percent to wait, and thisis the first time you know in my
career that it's it's paid to wait, all right. So and then,
but however, like you were,you were saying at the top of this
discussion, you know, if someonehad seventy five percent of their account in
the stock market in their four oo K and they transferred to us,

(38:58):
then we're going to be quicker toget that seventy five percent because that's a
lateral move, you know, toget that. Investor say, we get
it probably pretty fully invested within amonth or two, right, I would
agree, I would agree. Andso with this market pullback, don't look
at it at as as a problemor an issue. We I would look
at more really as as an opportunity, because the FED is certainly closer to

(39:22):
done raising rates than than you wouldthan you would have thought at one point
in time. We're gonna so justcontinuing to talk about the bond market in
general, we've come to a pointand there was an article and I printed
it out and I did not whichone. Well, well, there's there's

(39:44):
two that I wanted to talk aboutpertaining to pertaining to investing in bonds.
One is, I guess, startoff with investors, when will it come?
When will the time come when investorsthe risk free quote unquote rate to
return And there's not a there's nevera risk free Well, there is a

(40:05):
risk free to cert extend rate toreturn if you quantify, if you quantify,
if you qualify risk as loss ofprinciple. But will will what will?
Because retail sales are strong this week, I would I would have thought
had strong earnings. Retail had strongearnings, really strong jobs numbers continue and
continue to have really strong job numbersright there. There is some weakness,

(40:29):
but the service sector jobs remain reallystrong. So you know, you're seeing
some tightening of the credit market.You're seeing you know, high interest rates,
so there's a lot of you know, conflicting information out there, But
you know, I kind of continueto think, like how deep of a
recession can we have if we continueto have a strong jobs market. And

(40:49):
I think that's it's gonna be hardto break the strong a strong jobs market
in the economy. In my opinion, right now, we're having ten thousand
people turned sixty five every single day. We're having at forced having job creating
jobs not becoming available in the market. So it's going to be hard to
break that. And you know,again, you know, the consumer is

(41:10):
going to continuously be in strong shape. As you know, I think only
like three hundred and forty thousand thisisn't even an old number of people that
have mortgages that can refinance at alower rate. So you know, there's
like those two things combined. It'sgoing to be hard to really push us
into a recession. And what elsecan the Fed do other than raise rates?
That's enough. I mean, I'veheard that said though that people The

(41:32):
big discussion is, look is goodnews bad news? Really for the stock
marketers? Good news good news?If why would good news for the why
would good retail sales? Which indicatesa strong economy be bad for the market
because the FED might have to stayhigher for longer. Move higher than to
stay higher for longer. It's nothaving the effect on It might take a

(41:53):
long time for that to have aneffect on the consumer because people are locked
into long term debt right now.But it will eventually. It will eventually,
But you know, will five orseven percent matter or I think the
pause is more important than the rateat this level. What do you mean
by that? I think I don'tthink continuing to raise rates is gonna affect

(42:15):
the economy. I think just timeis going to affect the economy. People
getting out of their long term debtis gonna affect That's what's gonna, I
think, really start to affect theeconomy. And you know, if we
go from five and a half toseven and a half, as long as
people are are locked into their longterm debt, that's not as important.

(42:35):
I agree, when this debt maturesand people have to you know, reef
take on more debt, Companies haveto take on more debt. You know,
corporate debt's even locked in at longterm rates because people have been paying
on long term debt over the pastyou know, ten years, So it's
probably gonna to slow down the Uh, well, it's certainly it increases the

(42:58):
quest of capital. It's gonna probablyslow down capital intensive projects. Yeah.
You know, we have a creditline with our company, you know,
Fagan Associates. We don't have wehave a zero balance on it. But
the rate now is ten and aquarter. You know, I think he
would talk to someone in New YorkCity saying they're having a hard time selling
a property. And I taught afriend of mine went to he actually went

(43:21):
to Georgetown for construction management, andhe does rentals and flips like that out
of Pittsburgh. And he's not eventaking on any projects right now. So
well, you're that's you know.Yeah, So so you'll see you'll see
a comment like what you're saying.Well, and the consumers in good shape.
The consumers in good shape. Theconsumer will slowly deteriorate as the unemployment

(43:44):
rate rises. Right now it's athree point five percent, so it's got
a rise, So they'll slowly deterioratefrom that because of that, and also
because of the cost of capital.You know, when you've got to overcome
a bogie of you know, eightnine, ten percent in order to make
a project work. You know thatthat's going to be much more different call
and but but so there's this littleI kind of I would think a headwind,

(44:05):
just a headwind to head wind tothe stock market. Conflicting data,
but a headwind to the stock market. And as much that they're they're at
at the periphery, we've seen,you know, and we've even gotten more
into locking in these rates because Ido think of eventually the FED is going
to be successful and drag him inflationback down a bit, and I think

(44:27):
two percent is going to be awhile. Leave it at that, and
more than just some months. Ithink it's going to take year plus to
get inflation really down and the coreinflation rate X food and energy down to
two percent. So interest rates willstay somewhat elevated. It's going to take
a while and there so there isgoing to be that headwind to the stock
market of those that are in themarket saying, look, you know,

(44:50):
I never really want it to behere. The volatility keeps me up at
night. I'm gonna take this treasuryat five percent. Be careful of that.
By the way, short term treasuries, make sure you ladder them out
to maybe eight or nine years now, maybe even ten. With the ten
year treasury at four thirty, you'regoing to have that group of investors who
are going to opt for something fixedrather than assume the volatility stock market.

(45:15):
It hasn't happened yet. I wouldhave thought it would have happened at four
percent in the ten year, butit has not happened yet. But I
think that's in addition to the seasonality. I think that's what's going on with
the market. One of the thingspertaining to the bond market really that the
investor has to consider. We've alwayssaid it. Fagan Associates invest in bonds
for stability, bonds for income,and stocks for growth. And that article

(45:38):
that I read that it's coming goingto quote somebody and I don't even know
who it is because I can't findthe author. So I don't like making
investment decisions based on predictions or macroforecasts. Making predictions about the future is
hard enough, but even if younail the macro forecasts, the financial markets
might not react. How you assumethe pending upon what's already priced in.

(46:00):
And I think when you have thestocks up twenty to twenty five percent,
that you're actually it is below twentypercent of the S ANDPF I've wanted.
That's I think that's that's what isthe the the the the Trump and that
President Trump kind of like the supremevariable is how the investor responses to the

(46:21):
response to the data that he orshe receives, how they interpret it,
how they react to it. AndI don't think, especially with the bond
market, you really are never goingto not especially with the bomb market,
but with the financial markets, thatthat investor response to data is almost unquantifiable.
Yeah, and I think it is, Ben Carlson, Actually, you
know, I have ever in frontof me too, But yeah, and

(46:43):
I think, you know, especiallywith you know, computer models, algorithmic
trading, you know, yeah,you just can never, you know,
really lock in what the stock marketis going to do based on data.
I agree, and the article closesout or the last pages. I'm not
a fan of taking a lot ofduration risk, and that's like a maturity

(47:05):
risk or duration is specifically how theinterests, how the bond response to changes
in interest rates. I'm not abig fan of taking a lot of duration
risk, even in normal times whenthe yield curve isn't really wildly inverted,
which is what it is now,as long termates are lower than short term
rates. We're not a big fanof duration risk either, because if you
look at the meat of the yieldcurve, you're really looking at the ten

(47:30):
year the excuse me, the fiveyear yielding more than the ten year,
So you're not getting paid to goout on the yield curve. All as
you're getting is more predictability. Soalong those lines of invest in bonds for
stability and income in stocks for growth, you kind of want to stay within
ten years maturity on the average andladder those bonds rather than assuming that you

(47:55):
know where interest rates are going togo over the short term. And then
you have the article air by JamesMcIntosh investors need to worry about the bond
markets return to normality and I thinkthat, yeah, it's the hit Shaker's
guide to the galaxy. He quoteswe have normality. I we have normality.
Anything you still can still can't copewith is there for your own problem.

(48:16):
I think that's a good uh quotefor companies out there right now.
You know this is what it Thisis the hurdle rate. This is the
rate of return. You'll need toyou know, make money now. And
I think it'll it'll be good forthe stock market going forward in this next
bowl market. Right, money shouldfollow where it's needed because not necessarily because

(48:40):
it's free or for the from aliquidity you know, water seeks its own
level. You just got to becareful, you know. And that's the
FEDS chore is to make sure thatthe assets of a company or the lending
of a bank is done you knowappropriately, and and and the and consumer
borrows money for reasons, for reasonsrather than hey, it's free, why

(49:04):
wouldn't I take it? You know. So but so that that that bond
markets return to normality, I thinkis the point that I wanted to get
across it. You know, thisis spending and more efficient spending. So
anyways, uh, that'll just aboutdo it. You know. I want
to give us a call during theweek five one, eight, two,
seven, nine, ten forty four, check us out on the webit,

(49:25):
fagin asset dot com, or likeus on Facebook. Have a good day.