Tom’s Week in Review Aug 30 – Sept. 3, 2021

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

By participating in any of these live streams, you agree that any questions submitted by you might be used by us in the future on this YouTube channel. We will not share your personal information.

If you have questions, please write to us at: asktom@talkmoneywithtom.com.

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Transcript:

Tom Vaughan:

What I’d like to start with for the show is just kind of a summary for what is going on in the stock market for the week, and this has been a very, very interesting week. And so let me share my screen here, and I’ll go through it with you. So, what’s important about this week, is really what just happened this morning, and this is the jobs report that came out. So, this report’s for last month for August, and it’s saying there’s 235,000 new jobs created in August, okay? Well, that’s a bit of an issue because there was 720,000 jobs expected to be created, and so that’s a really big miss. And there’s a couple of things that I think are interesting about this. Number one, is that normally when there’s a big miss like this, that means the economy is kind of falling apart. There’s not enough jobs being created, and the economy is heading in a downward direction. That’s not true right now, and I’ll show you why: This is a different time period. And number two, it actually is a very, very important number for the way the Federal Reserve is going to look at this. And again, I’ll talk about that in just a moment. But, one thing that also did happen interestingly enough, is that unemployment actually dropped. So even though there weren’t a tremendous number of jobs created, the number of unemployed dropped down to 5.2%: You can see it was all the way up to near 15% here, at the worst part of the pandemic. And if you look here, back in 2019, was around 3.2%, so we’re not too far away from what they would consider kind of full employment as far as that goes.

Let me show you some surprising things: Only 235,000 jobs were created, but there’s a lot of job openings. And so this shows the number of job openings, going back to 2000. You can see it drops during recessions. Dropped here obviously, during the close… the shutdown, that we had during pandemic. But look at this: This is a record, we have almost a little over 10 million open jobs: That’s the most open jobs. And so why are we only creating 235,000 jobs? It’s because people aren’t taking the jobs. And so there’s a variety of reasons for that, and what have you, but companies are having to kind of go out of their way to find people. And I found this this particular sign here, it’s really fascinating: “Now hiring, this is McDonald’s in Medford, Oregon. 14 and 15 year olds are welcome, essentially.” And so this is what’s happening is not that the economy is growing slowly, and not creating jobs, is that people aren’t taking the jobs that are available, so they’re starting to try different things. They’re moving down in age and taking on younger people and trying to kind of expand the pool of people that they might be able to hire. And so that’s been very, very fascinating. And then one of the things that’s also interesting here to me is just, “what is full employment, right?” So full employment, if you thought about it, just in a common sense way, is everybody’s working. Well, that hasn’t really ever happened. If you look back, here’s the employment level, going back to 1950s, and you can see it never went to zero.

As a matter of fact, if you look from the 1970s to now: About 6 million people unemployed, is as low as it gets. So we saw that here, we saw it here, just before 2000, and we saw it here in 2019. So there’s about 9 million people unemployed right now, and 6 million people that maybe would stay on employed, historically. And so we have some people left that could go get a job, but it is shrinking down. And so that is one of the things that’s important. And so one of the ways that they’re trying to attract people out of that pool to come to work is to go down in age, the second thing is to pay more. And so this shows the average hourly pay wage. And so you can see here: It was about 3.6% growth, over a 12 month basis in 2019. We had some very unusual spikes during the pandemic; you can kind of ignore those. But we’re back to 4.3% right now. So it’s a little bit higher growth in wages than what we saw, for example in 2019. And so this is one of the components that the market is going to look at. So there’s two pieces here that are very fascinating: One, when you can’t get everybody to come out to work, that could be inflationary. But at the same time, when there are less people coming out to work, the Federal Reserve might stay with their stimulus plans and keep rates lower longer. So very… these are two competing forces. So if we look here at the inflationary situation, you can see here that the 10 year Treasury, which is a great measure for what’s kind of happening with inflation, this is the yield. So what you get essentially out of that, and you can see that the yield skyrocket in February and March, and what have you. At that time, vaccine is rolling out. People are expecting a reopening to happen very quickly, and for a variety of reasons, it didn’t really happen as quick as everybody thought. For one thing, we just didn’t have enough semiconductors. We couldn’t get enough people to come out of their homes to come back to work. We had all of these different issues, and now of course, we have this Delta Variant.

However, we are now seeing a reestablishment of the increase of the yield in the 10 year Treasury. And so what there’s a couple things that that means: Number one, it means that that the bond market might be looking forward and saying that the economy’s still going to grow, which is good: We like to see that. Number two, is that there might be some inflationary pressure because of that, and that has a lot to do with what we saw today in today’s labor report. And so again, this is not normal. Normally, we don’t even pay attention to the labor report, to be honest, because it’s such a lagging indicator. The people that were just hired in August, those jobs were created a long time ago: It just takes a long time for people to get through the whole process to finally get hired. But, right now it is very, very important to what’s happening the market because of the possible inflationary pressure, how much more are we having to pay to get people to come out, and because the Federal Reserve has very specifically said that they’re looking at employment as a measure as to when they are going to start to increase rates and cut back on their bond purchases. So it’s really critical right now to focus on these areas. One little quick sidelight here: As you’re looking at this, I get asked all the time about refinancing. And so, if you look at the 10 year Treasury, it has a fairly direct relationship to the mortgage rates, over a period of time. Now it’s coming back up.

Again, if you were going to refinance, if you haven’t already, it might be a good time to do that. So let’s take a look at what’s been happening to the market here in the short term, and the long term; especially as it’s been dealing with this labor issue as far as that goes. So this particular chart is the S&P 500, for the last five days: Each one of these little bars is a 10 minute increment. So you can see a Monday, big jump. Tuesday morning, big jump. But since then, we’ve basically gone sideways, right? And the reason we’ve gone sideways, and because it was waiting for this jobs report. It’s very important.. makes a difference as to what the Federal Reserve might do here. But I will say if you look at today, we’re actually up a little bit as this sits, and we’re seeing a decent motion. Again, normally, if you have a big miss on the jobs report, the market would be down, because it’s afraid of what might be happening to the economy: Sort of a confirmation of what we’ve been seeing. And that’s not the case here: The markets actually up, because a low jobs report allows the Federal Reserve to keep interest rates lower longer, and allows the Federal Reserve to keep going with the bond purchase.

I will say that our August report isn’t nearly as important as the September report is going to be, mainly because in August, you still had kids at home, so a lot of people didn’t come back to work, because they had take care of the kids. You also had a Delta Variant that was going up, and you had in some cases a $300 extra per week benefit that as now expiring is September. So, outside of the Delta Variant, which is still here, the other two issues with kids and the bonus for the unemployment are maybe going to be mitigated with schools reopening and what have you too. So, it’ll be interesting to see if there’s a lot more people to come back into the workforce next month. And the Federal Reserve has said as much: They’ve said that they’re going to focus on September, and see what happens there; and then maybe make some announcements, more concrete announcements in November, at their November meetings, as to what they’re going to do.

But just lastly, this is just resulted in this unbelievable market: This is a very unusual 12 month bar chart here. First of all, this is the… each one of these bars now is a day; this is the last 2 years. And so you can see, what’s been happening here, is that we had this giant downturn obviously, and this amazing recovery. But we the last time we’ve had any type of bigger downturn is really the September-October timeframe, and since the end of October here: Each one of these bars here is is a trading day; there’s 210 trading days that we have gone without at least a 5% downturn. Very, very smooth, upward movement. There’s only seven other times that have had more trading days in a row, without a 5% downturn; and we’re still going/ it’s still happening. This blue line here is the 200 day moving average. And you can just see: It’s very smooth, and things are going really, really well as far as that goes. So really, really unbelievable timeframe. And to me, this is fascinating how this is all going to work out: What really happens, and what happens along those lines. But what has happened for the stock market is that it’s been allowed to kind of stay in this zone. The job growth isn’t too high; it isn’t too low. The inflation is a possibility, and it might still be a possibility; but it’s not really happening yet. And then the Federal Reserve is has some room to kind of stay where they are. So really, really interesting timeframe. So I look forward to kind of talking to you again next week about that for the summary and we’ll see what happens then.

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

By participating in any of these live streams, you agree that any questions submitted by you might be used by us in the future on this YouTube channel. We will not share your personal information.

If you have questions, please write to us at: asktom@talkmoneywithtom.com.

  • MoneyGuidePro®
  • Advent Software/Black Diamond Reporting
  • Riskalyze, Inc.
  • thinkpipes®
  • Right Capital
  • YCharts, Inc.