Go Live With Tom – May 7th, 2021

Transcript:

Tom Vaughan:

Hello, everybody, welcome to Friday. This is our show called Go Live with Tom, really having a good time doing these are answering lots of questions. It’s really kind of fascinating experience altogether for all of us. We’re trying something a little bit new today. Katie, who has been here for the first three shows, is going to be our sort of moderator and host. And so when you have questions, you send them to asktom@golivewithtom.com and she’ll get those questions. She’ll ask if you have a follow up question, feel free to send it in. And then Easan, who is the actual host, moderator last week we’re bringing in also, so Easan’s one of the other advisors. And really, his job is to kind of come up with some follow up questions and different things along those lines. So, and if you have some direct questions for us, and feel free to ask those also, we have a special prize called Stump Easan. No, just kidding.

But in all seriousness, this is really an attempt to try to help us meet our mission statement, which is to help our clients build and maintain their wealth. And we focus on Financial Planning, Tax Planning, and Investment Management. And this is Investor Education. And so we’ve been doing this, for this is our fifth time, and I really am excited about being able to push this out and get some questions answered. So, also, if you’re interested, and you want to get the additional content that we’re putting onto our channel, and just kind of continue to build your Investor Education, go ahead and subscribe to our channel that you’re looking at our channel right now, there should be a little subscribe button there, you can hit that. If you want to get notified when we put something on there. You just hit the little bell button next to that, and you can get notified. So that’s the beginning. So let’s get started here. Let’s see what questions we have. Katie, go ahead.

Katie Nealis:

Thanks, Tom. So in your daily videos, you touched on the subject of cryptocurrencies. So Woody brought in a pretty great question saying yesterday, “You mentioned how the high paid athletes are being paid in Bitcoin. What happens if Bitcoin crashes, and what is Bitcoin mining?”

Tom Vaughan:

Okay, that’s great. The Yeah, it’s pretty fascinating. Last year, one of the Kansas City Chiefs players decided to get his pay in Bitcoin. And because it appreciated so much, he actually became one of the higher played players in the league. And then next was at one of the other Kansas City players decided to get his pay for 2021. And then, of course, Trevor Lawrence, who was just drafted number one by Jacksonville, got a $24 million signing bonus and he decided to put that entire amount into cryptocurrencies, Bitcoin, Ethereum and Solana. And so that, to answer your questions, if those fall apart, I mean, theoretically, Trevor Lawrence stands to lose $24 million there. The whole thought process behind cryptocurrency is essentially, it is a digital currency, it might be something that could be used to buy things in the future, maybe convert to cash, it can be done those types of things, it might be a world currency at some point in the future, sort of like the dollar is. So that’s the overall idea. But in the end, there’s nothing behind it, like the US government is behind the dollar. So there could be a collapse of the actual currency, cryptocurrency itself. Matter of fact, there has been several collapses so far. So that’s the big risk. And actually, I’m gonna bring Eason in on the mining, he has some experience with this and he can kind of describe, in some simple terms, what Bitcoin mining is.

Easan Arulanantham:

So Bitcoin mining, or just cryptocurrency mining is just a super high level is a complex mathematic equation that a computer runs through, takes a lot of processing power, and once it gets the correct answer, you’re then given a coin and that’s proof of work mining. And so, right now, there’s a lot of power that goes into mining Bitcoin in theory. And you could be an average Joe miner at home or you could be a big company that’s mining with these specialized miners.

Tom Vaughan: So you can spend a lot for energy to mine these yeah?

Easan Arulanantham:

Yeah, so all these mining centers are based where there’s low costs of usually your geothermal or some sort of hydro energy plants.

Tom Vaughan:

So for cheap energy. Now, how many different cryptocurrencies are there roughly?

Easan Arulanantham:

I think right now there’s at least over 5000 but most of the money’s in the big ones like Bitcoin, Ethereum, Ripple, Litecoin. So it sticks to a little bit a small group of them, I’d say that most of the money.

Tom Vaughan:

Alright. And they they mined all of them, or just Bitcoin?

Easan Arulanantham:

So usually for Bitcoin, you can only use a specialized miner to be competitive, otherwise, you’re just out of luck. But for like, so a lot people mine the smaller currencies, the Alt Coins, they’re called, and then they convert that into Bitcoin or Ethereum, whatever main currency they want to hold, that’s what they do.

Tom Vaughan:

Well, I want to expand a little bit, and I’ll share my screen here, just kind of what I was talking about yesterday, too. I’ll show you a couple of different charts because this is where I see some of the risks to the, to the market, or at least some of the holdings that we have or have had in the past. And so I’ll share my screen here. You see here, here we go. And this particular chart is called ARK Innovative Technology. This is Cathie Wood, she’s become quite famous, and she has five main ETFs and this is the ARKK we call it, and so essentially, you can see great run up, huge run and then really struggled right coming down coming down. And then in the last weeks here, we can see it even fell below this 200 day moving average. And, one of my thoughts here is that as I’ve been watching this, as we’ve seen cryptocurrency really rise in terms of volume, and for example, on Monday, Robinhood’s app crashed trying to do cryptocurrency trade. So that means that there’s obviously a lot going on. I actually think the same group that was buying this type of investment, here’s another one here. So this is the same this is Cathie Wood also. But this is the genomics, right, so this is I call this advanced healthcare. Same thing fell pretty good acceleration here.

I think this group that was buying this is now selling this moving into Bitcoin, and here’s clean energy, here’s Invesco Solar (TAN), same thing quite a bit below its 200. day moving average, pretty big, again, a lot of sell off here. I think this Trevor Lawrence thing kind of got things going, too. I think that was done on Friday, and then, you know, Robin had crashed on Monday. So those might be related as far as that goes. And so my, one of my main points is just where can you go and still kind of avoid the selling that’s happening. And, and if you look, you can see where the money’s going, right? So here is materials, right? This is Vanguard’s Materials index. They buy most of the materials companies out there. And then we’ve got consumer discretionary. Again, this is Vanguard, you can see look at the line, it’s very smooth, there’s no big drop, it’s well above the 200 day moving average. Right, and so materials, consumer discretionary, and financial. So the banks and what have you, again, nice, smooth movement upwards it’s an all time high today, for example.

And so, that’s kind of one of the things that I look at when I’m looking at these pieces, in terms of, “where is the damage happening? And then where is, you know, it not happening, where’s the money going?” And you can kind of see it in those charts, you can see where it’s leaving, and you can see where it’s going, and we kind of just keep moving towards those things that are going up in the right direction. I will say one thing, I think, and Easan touched on this, there’s 5000 different types of cryptocurrencies and, and that people just keep making new ones. I read some article about a guy on Tiktok that made a joke one called Scam, and people started to find interest in it. And there’s, there’s a lot of crazy stuff going on here. But I do think that might be kind of the downfall is just the number of cryptocurrencies. It dilutes the market enough, that there aren’t enough people to buy. And that’s how you could get a sell off. Because, again, you’re relying on somebody buying it from you at a higher price. And there’s not a lot else behind it, except for the potential future use as a digital currency. So nonetheless, that’s kind of a fascinating thing. All right. Anything else? What’s the next question?

Katie Nealis:

So we have a question that came in from Carol and her question is, “My 25 year old daughter is getting married soon. Any advices on setting up finances for the married couple?”

Tom Vaughan:

Oh, yeah. Well, yeah, there’s, that’s a really great area altogether. And so kind of depends on what they have and what they’re doing and do they have a house or not have a house. But the best place to start, in my opinion, and Easan helps me with all of these, is to set up a financial plan. So we set up plans for our clients, kids all the time. And so, what do you want to do? What are you trying to accomplish? Do you have a house if you want to save for a house, when would you like to retire? You know, what’s your work situation? Do you have a 401k? We talked a lot about Roth 401Ks and Roth IRAs. Because I really love a 25 year old to be contributing to something that’s going to grow tax free for the rest of their life. You know those types of things. So it really it comes all around the goals that they have. I will say that looking at, I’ve done, 1000s of financial plans, one of the keys that I’ve seen, is just the ability to save. And so if you’re a great investor, and you’re not a great saver, you probably don’t get very far. So great saver is the place to start. And a plan motivates you to save because you can see, oh, I can see these goals and I can get somewhere with this. And so I’m interested then, in putting money aside and not spending that money. So that would be my advice. It’s very, very exciting for me personally, to work with young people, because the impact that you can make at age 25 is is absolutely unbelievable.

Easan Arulanantham:

Yeah, going off of that, any way you can automate, it is really good for saving. So you have it’s like $50, every month from your paycheck, automatically go into some sort of your 401k or something like that making as simple as possible for you will really help in the future.

Tom Vaughan:

Yeah, I have a lot of very wealthy clients. And they’ve said exactly that. They just set it up so that that money just kind of disappeared, and they just didn’t even think about it anymore. And they lived off the difference, and had this automatic amount going someplace into some kind of savings. That’s the most common comment I have heard amongst the wealthy clients, is that. Yeah, that’s a great point.

Katie Nealis:

Thank you both. So we have a question for Easan from Robert. And his question is, “What areas do you support Tom in as an advisor?”

Easan Arulanantham:

So mainly I help with the plans. And so whether it be a Roth conversion, buying a house or any of those kinds of questions, I can set up a plan. So we can kind of test out that scenario, and play with the possibilities and see what you can do with your current assets, or what do you need to do to kind of change it up to hit your goals.

Tom Vaughan:

Yeah, it’s been incredible, actually. Because I’m able to kind of turn over the beginning of the planning process to Easan. And he goes back and forth to get the plan set up. And then we meet and look at that plan. And then we set up an appointment with the person that’s doing the plan. And we go over it together. And it’s been really, really good. It’s been great.

Katie Nealis:

Yeah, we’re lucky enough to have this dynamic duo at RCS.

Tom Vaughan:

Yeah, I agree.

Katie Nealis:

So we have another question in from Ryan. And Ryan’s question is, “What does the low jobs report mean? Especially since it was lower than expected?”

Tom Vaughan:

Yeah. Okay. So all week, they’ve been talking about the expected number of new jobs to be reported today. For April, for last month, was supposed to be around a million. And we’ve been pretty much coming in higher than expected on almost everything to be honest. And then there was a lot of talk and rumors and articles about the possibility of coming in much higher than that, a million and a half or 2 million. And then there was all kinds of concern about that, because that would be a lot of jobs all at once the Federal Reserve might have to start raising rates, which the market doesn’t like. So now, we had just the opposite today. Pretty surprising number 266,000 jobs. And that is the biggest miss compared to the expectations since 1998. And so, there’s actually a whole bunch of factors that are coming in there. And they’re all a little bit different as to how you look at them. But people are still getting an extra $300 from unemployment insurance per week, that goes through September, maybe some people don’t want to take a job because of that. People are afraid of the virus, as far as that goes.

So the jobs are there, but they’re not really being filled as quickly as possible. Although, there’s one other key area. I read an article it says of roughly half the kids that are in school are still at home. And so obviously it’s somebody is probably at home with them. And they’re not taking a job because of that. So that needs to clean up. But there have actually been some jobs shrinkage that happened in April because of shortage of certain types of supplies. Like in the automobile industry, 27,000 jobs disappeared, at least temporarily because the the semiconductor shortage and so they’re having to cut back on the number of cars and trucks that they’re making. So now, the market is pretty excited today. If you look, there’s a tremendous amount of green and the market took off soon as it saw that number, which seems counterintuitive, right? Why would the market go up?

When unemployment wasn’t as good as it was? When employment a new jobs weren’t as good as expected? And really, it’s because the market looks at kind of like Goldilocks, they don’t want a economy that’s too hot, don’t want one that’s too cold, they want one, that’s just right. And so having a little bit less jobs right now take some of the pressure off of having an economy that might be too hot. And the market just jumps so you can tell how important potential inflation is to the market and what the Federal Reserve might have to do by looking at what happened today. So it’s a weird thing, bad news was good news to the market in the employment arena. And it wasn’t negative jobs, because that, 266,000 were lost that could be so it’s still a fair amount of jobs added. It wasn’t what was expected. And I bet you anything, though, next month, could be a big makeup. And we might see some big numbers, but we’ll see.

Easan Arulanantham:

“Do you think the consumer data, just like spending, is going to start shooting up? Do you think all jobs will lag behind that kind of, in the reporting?”

Tom Vaughan:

Yeah, they’re having a hard time getting all the people into these jobs. And people are you’re reading stories about, like restaurants or putting signs up saying, “Please bear with us, we’re having a hard time getting new people into work. Please be nice to the people that did show up.” And so, yeah, I think that pent up demand is going to come out really strong. And, and that and that, again, and one thing that was part of this jobs report is they actually increased wages by .7%. So as an attempt to attract people out of their house, they’re starting to pay more, which is a good thing all together. But then that’s another inflationary potential to so lots of interrelated pieces. But yeah, consumer spending is going to be the driver there.

Katie Nealis:

We have another question in from Gladys. And her question is, “What do you think about the companies leaving California for Texas?”

Tom Vaughan:

Yeah, it’s kind of interesting. I’ve read a mixed reports on how many companies are actually leaving and what have you. But that has been going on for a long time. I remember, even back in the early 90s, when so many companies, even from the Bay area here, we’re moving to Austin, Texas, they were calling it the San of the Bay Area, or the Silicon Valley of Texas, or what have you. You know, if you look over the history of time, you we’ve still done really well, even though Texas has picked up a lot of jobs for different reasons. And, we have a high concentration of very intelligent labor here, high concentration of venture capital, that’s here also, and so a lot of companies, want to locate here for that purpose. So, I think it’s okay, it’s just part of the process, to a certain degree, at least let some of the steam off of the area’s cost. Because one of the problems with being here for as a company is, of course, the high rents and those types of things. So if some of the companies move that brings that back down a little bit, and lets other companies kind of flourish in this environment. But yeah, it’s gonna be interesting to see how that plays out. But Silicon Valley is pretty hard to replicate.

Katie Nealis:

Touching on the California to Texas, “How do you think about or what do you think about the people moving from California to Texas? Will that cause any economic impact?”

Tom Vaughan:

Maybe, it hasn’t so far, per se. California is still I think we’re the fifth largest economy in the world if we were a country. And, again, it’s just hard to replicate what we’ve done here and what we have here, in terms of weather and commerce and different types of industry. Hollywood’s here, venture capitalists are here, and they are moving a lot of the really high margin businesses are still here, because they can afford to be here. And that makes sense for them to be here. But you’ll always find things moving out to different areas, or even different countries. We’ve seen that over the years. So far, we haven’t seen dramatic impact. I know, the housing is still worth more than it was and those types of things. So you can kind of see what’s happening. And amazingly, like in my area here of Willow Glen, I mean, when we go for a walk, these houses sell right away, they pretty much put up the sign and the sold sign right on top of it out the same time. So, to me, that means things are still going okay, as far as that goes.

Katie Nealis:

Great, thank you. So we have another question from Annie that says, “Why do 401k and employer plans have limited investment availability as investment choices?”

Tom Vaughan:

Yeah, that’s very fascinating, because that’s one of the big problems with 401Ks is that limited availability. So let’s say like I just showed you the Vanguard Financial index, or the Vanguard Materials index doing so well. I’ve never seen those inside of a 401k. So if you want to, like buy those particular indexes, you can’t. And it really has a lot to Do adjust the logistics, the way that it’s set up. So, there’s usually a an administrator. And they’ll only allow 20 or 30 different funds or ETFs to choose from. And it’s really kind of an administration piece. But what has happened, and I believe this was brought on, buy some suits, against 401k providers, they have a lot of companies and you should check with yours, now allow you to do what’s called a self directed 401k, where you can go out, and open up a essentially a brokerage account and buy anything that you want. It’s a bit more complicated, a little bit harder to do, you have to know what to buy. But you can buy anything: Any stock, any bond, any ETF any mutual fund, because it’s just a regular brokerage account that is through your company. And those are, those are becoming more and more popular, I have quite a few clients that have set those up now. And I think that’s a better way to go personally.

Easan Arulanantham:

“Do you think there’s major risks with having a self directed 401k versus having one that you have a plan administrator helping you out? Because they are required to tell you help you figure out your investments?”

Tom Vaughan:

Yeah, definitely. I mean, you have to kind of know what you’re doing, as far as that goes. Theoretically, that list that they’ve chosen will eliminate some of the really crazy things, because on your own, you can go by, any of these, really wild stocks and those types of things and end up losing tons of money. And so that is the aspect that would be the negative is just you have to be able to control that risk. I manage a lot of the 401Ks that my clients have in those brokerage so we can kind of manage risk together that way. And that might not be a bad idea, is to find somebody to help you if you want to go that direction. But yeah, no, that is an aspect of it. That is part of that, although, honestly, even in a 401k that’s got a curated list of 20 holdings. When you know, in 2008, when everything fell apart, people still lost plenty of money. I mean, you still could be down 50% pretty easily. So you kind of have to know what you’re doing even inside that 401k.

Katie Nealis: So Tom, another popular question that we have coming in is, “Are bonds a safer investment than stocks overall?”

Tom Vaughan:

Yeah, it’s a good question. Actually, let me pull up a little thing here that I keep. Here it is, I’ll share my screen. This is from Vanguard. And I keep this up almost all the time, just because I want to be able to show clients different levels of risk for different types of mixture, stock and bond. So this would be a good way to look at so 100% fixed income. So fixed incomes, another word for bonds, and just keep in mind that a bond is, you’ve lent some entity, a company or government, money, let’s say $1,000, and they’re going to pay you back at some point in the future. And in between that they’re going to pay you an interest, right? So if you look here, the worst year since 1926 through 2000, it was 1969. So this was a period of time where inflation was coming up a lot. And that makes bond values go down. And so you can see it actually lost 8%. And just to give it a comparison down here. Here’s the 100% equity, again, equities, another word for stocks. And so what we’re doing here is you’re buying a piece of the company, and you’re hoping that company continues to grow, in theory is that that should make your stock grow also, right? But if you look, the worst year here was 1931, where it was down 43.1%.

Now this is a full calendar year that we’re looking at, you can see bigger drops as far as that goes from high to low, but if you hold on to it for a full year, the worst year was a 1931. So obviously 43% down versus 8%. Yeah, bonds are much safer than stocks. Although you kind of need to realize the risks altogether. And that’s why we tend to mix them together, so we can set different. So if you only wanted 40% stock and 60% bond, you can kind of see the different numbers, you can see the rates of return, I really liked this, this little chart, I think it does a good job. And it goes back far enough so you can really see kind of everything, at least that’s that’s transpired for quite a while.

Easan Arulanantham:

“So, right now the environment’s like a super low interest environment. So is there money to be made in fixed income, or just general returns?”

Tom Vaughan:

Now, it’s very, very difficult period of time for fixed income, because we’re more like this 1969, then we are like this 1982. And 1982, interest rates are super, super high and they started to come down. When interest rates come down, thevalues go up and man, bonds made 32%. We’re more like this, exactly what you’re saying, interest rates hit very, very low numbers last August. And so now they’re starting to come back up. And we’re seeing some negatives here. The first quarter of 2021 was one of the worst quarters for bonds in the last 20 years, for example. And so you just have to be super careful in this area, right now. What we’ve been doing is sticking to very short term bonds, short term government bonds, short term, Treasury Inflation Protection Securities called TIPS, those are do better when there’s higher inflation, generally speaking, and short term high yields. And we even use a couple of inverse bond positions, because I think that they’ll make money if the bonds come down. And I think we’re heading into a period of higher inflation, higher growth. And it’ll be a little bit of a hard time for bonds as far as that goes.

Easan Arulanantham:

So going off of that, “are you saying that, because when interest rates are increasing, you want to stay to very short term bonds. And when it’s decreasing, you want to stay to long term bonds?”

Tom Vaughan:

Yeah, that’s exactly right. So last year, interest rates are decreasing, because they were lowering rates to try to bail the economy out, and make it easier for companies to borrow at a lower rate and what have you. And we went to longer term treasury bonds, and they appreciated quite nicely. This year, again, just the opposite. We’re seeing interest rates come up and see, then you want to go more short term? That’s exactly right. So kind of depends on what you see happening as far as that goes as to how to play this bond portion of the portfolio.

Katie Nealis:

Great, thank you for another detailed answer. We have a question in from Anthony saying, “Right now I have all dividends in my portfolio, paying the cash and then buy shares as the cash accrues. Do you think I should have all dividends automatically reinvest instead?”

Tom Vaughan:

Yeah, so there’s two strategies, one, you can have dividends is something that a stock pays out, or even a call it more interest, but you can get interest from these bonds. They call it a dividend, also, in some cases, but let’s say you own that Vanguard Financial Index, for example, and it pays out a dividend. So you could either just let it go to the money market, or,have it just automatically reinvested back into that, particular index. We advocate letting it go to the money market, and then taking that when it builds up a little bit and buying into the portfolio. What we try to do is kind of buy whatever is lowest. And so it creates, I call it a smart dollar cost averaging, in other words, is that dividend accumulates, we let it accumulate in the money market, and Theresa actually goes through and sweeps through those, and we purchase the, kind of rebalance the portfolio with that cash. I find that to be much more powerful than just letting it reinvest into each piece, just because of the fact that maybe we don’t want to reinvest in that one, we want to actually put it in this other one. And so and that, that keeps the portfolio in balance, also, which I, which I really like. It’s a good question.

Katie Nealis:

We have another question from Dave that says, “Would you ever advise clients to invest in precious metals?”

Tom Vaughan:

Yeah, we have not used precious metals, in our portfolios over the years. And mainly because especially like a direct investment with a kind of a concentrated position, like gold or silver, or those types things, mainly because of volatility. You know, again, in our particular case, we’re dealing with, mostly we’re dealing with somebody’s life savings, and we are the primary advisor on that asset. And our average client is in their 70s. So, making sure that that money is still there. And high volatility, investments can really be a challenge. You know, and I don’t want to be talking to that clients, why we don’t do crypto currencies, why we don’t do China right now, because of the volatility. It’s why we don’t do cannabis, all of these things. We don’t do oil either, which is actually doing really well right now. But again, it dropped 80% last year, I don’t want to be in something that can drop 80%. So, that would be the reason we kind of stay away from the precious metals, that they tend to move to rapidly and you could get in trouble there pretty quickly.

Easan Arulanantham:

“What’s your feelings on I guess collectible metals or collectibles versus precious metal, so bullion versus of old coins?”

Tom Vaughan:

Yeah, we still don’t do it, the volatility is still a little bit high, they tend to be better, as far as that goes. Are you talking about investing in coins directly?

Easan Arulanantham:

So saying you have a coin collection. It’s kind of like a hobby or side.

Tom Vaughan:

Oh, I think that’s spectacular, especially since you’re doing it on your own. Because, if you want to take the risk on your own, as long as you kind of understand what you’re doing, that’s great. It’s your money. Having me do that, that’s what I don’t want to do. We strive to stand in front of all these things, but actually have quite a few clients that do collectibles, and they’ve done fantastic with them. It’s a great investment area. You do need a depth of knowledge, just like investing in stocks and bonds, to know what you’re talking about when you’re looking at like a gold coin or something along those lines. But I think that’s pretty cool. I’ve always collected things myself over the years, but it’s not really possible to do it in an investment vehicle like we deal with deal with. We can’t ask TD Ameritrade to hold on to your gold coins, or that type of thing. So generally, it’s something that the clients are doing on their own. And I have no problem with that.

Katie Nealis:

We have a question for Easan saying, “I usually call on Marie or Theresa. May I also call you about my accounts?”

Easan Arulanantham:

Yeah, sure. I’m always open for calls, and I can help you answer your questions about your accounts. For trading, and that kind of instructions, I can always pass along if needed to.

Tom Vaughan:

Yeah, we’re a pretty tight group, we have a thing called Microsoft Teams that we all are on all day, basically. And so you can call almost anybody to be honest. And we’ll get you to the right spot or find out that information. We all have kind of specialized knowledge areas. And Easan has had several direct calls, specifically dealing with the different financial plans that he’s worked on, too. So that that works, too.

Katie Nealis:

Well, we have a question in here from Jeannie saying, “My husband and I just made reservations for a restaurant that reopens in the end of May. But I couldn’t get a reservation until late June, as it’s booked up. It seems like everyone is getting ready to back to get back out in the world and move on from the pandemic. Based on this, do you think you might see a crazy booming consumer spending the summer?”

Tom Vaughan:

Yes, I do. It will be tempered by the ability to spend that money because what you just said right now. Theoretically, Allison and I go on date night every Saturday, we could have gone to that same restaurant five or six times in the timeframe that it’s going to take to get into it once, right? So that’s going to be one of the problems, there’s just this pent up demand is going to meet this shortage of supply. Part of that will probably be alleviated. I would assume part of the reason the restaurant struggling isn’t just that they don’t have staff or the food, although there is a chicken shortage, apparently, which is kind of amazing. But it really has a lot more to do probably with the regulations for that particular area as to whether they can be open. Because if they only allow 25% in, then it’s pretty easy to sell that out, right? So maybe by the end of June is when they have the ability to bring more people into that restaurant indoors. Because I think in California that we’re going to be allowed to eat inside, after June 15. As far as that goes, so yeah, it’s it I expect really, really crazy environment for the from really from the summer, maybe for six to 12 months, where people are trying to travel and do everything. I think it’s gonna be fun. It’s gonna be really interesting to watch how that plays out.

Katie Nealis:

Definitely. So we have a question in here from Mike saying, “Real estate sales are going through the roof. This is confusing to me, given that we are still in a recovery. What are your thoughts on this?”

Tom Vaughan:

Well, because it’s not really recovery in the traditional sense. And I think that’s one of the things that’s really interesting is that when you look at a normal, recession everything falls apart for some reason. If you take 2008 it was a financial disaster basically. And then a recovery takes time, because you’re still suffering is the economy still wounded. This particular situation is a reopening, which is actually I think, completely different. You know, we closed everything and it’s just going to reopen, I think it’s going to be a very sharp V recovery. And on top of that the government has put out tremendous, trillions and trillions of dollars of stimulus and help. And I read that last year, Americans save $2 trillion more than average, that’s a lot of money to go buy a house with and then because of the shelter in place. People are looking for more room and more places. And so yeah, how sales are definitely going through the roof. And I suspect they’ll continue to do so for a while. And, we’ll see how it plays out.

Easan Arulanantham:

“Do you also think that the low interest environment is also pushing people to try and get a house while they can?”

Tom Vaughan:

Yeah, because we saw a big jump, like when interest rates came up a little bit, and mortgages came up, all of a sudden, we saw a big burst of buying. Because those people that were sitting on the sidelines a little bit probably panicked some, because the mortgages now the mortgages have come back down just recently, like right now. I do expect mortgage rates to be higher by the end of the year, kind of that November, December, January timeframe. So, if you’re going to buy a house, or if you’re thinking about it, and you can figure out a way to do it, this is a great environment. Yeah, it when you can get a 3% mortgage. Wow. I mean, that’s crazy. It used to be 15%, 18% back in the early 80s. So it’s, it’s a bargain.

Katie Nealis:

For someone like me who’s applying for a mortgage right now, “when would be the best situation to buy a mortgage, would you say sooner than later, or within the three months from now?”

Tom Vaughan:

You know, because what we just talked about for the summer, right? Where you’ve got the situation where it could go crazy, and people could really get out there, and you could have a shortage of labor, of chicken, of semiconductors, of airline pilots, of hotel rooms. Only because the supply isn’t there to match. And so when that happens, that pushes the inflation fears, and when inflation comes, you’ll start to see bond yields go up. And when bond yields go up, mortgages go up. And so yeah, I think this little dip that we’re in right here right now, is a really ideal timeframe. As far as that goes, you don’t have to see what happens. I will say one caveat to that, that could slow down the raise of mortgages, is the global situation is not like here. And so what happens is that if Germany or Europe, or even India is struggling, and having to close down and what have you, their bonds aren’t going up like they are here.

So when our bonds go up, the rest of the world buys them, which drives down the yields again. And so that might keep mortgages a little bit better, because you kind of need a global reopening to really push things. But you know, and that’s why I’m thinking more like the end of the year before we really see. But you never know, things are happening pretty quickly. It’s amazing to me that we’re here right now, here we are in May, right? It’s incredible how fast we’ve gotten back compared to what I thought would happen. So yeah, it’s there’s a there’s a window here, but it won’t be super big.

Easan Arulanantham:

“Do you think just the cost of constructions also going to affect current existing home sales? Because I know, material cost is just going up through the roof right now.”

Tom Vaughan:

Yeah, copper. So like all the copper piping that you might want to do, and lumber. So supposedly, from what I saw your lumber is up 230% in, I think year to date, I can’t remember exactly the timeframe. But it adds $36,000 to an average house, right, just for the lumber costs. And so yeah, although I will say, houses are so expensive. I do think the material costs are important. But they probably aren’t that critical. There’ll be other issues like the mortgage payment, it might pay $36,000 more for the lumber. But if you end up with a 1% higher mortgage for the next 30 years, that’s going to be extremely expensive, if you add it all up. So I’d say that mortgage cost is more important than the lumber cost. But yeah, it’s it’s a piece of the puzzle.

Katie Nealis:

We’ve got a question from Taylor saying, “We are coming up on the summer months. I was wondering if the time of year affects trading?”

Tom Vaughan:

Oh, yeah, actually. It tends to soften after taxes are done April 15. If you look at kind of the volume that happens on the market, that wasn’t true last year, everybody was stuck at home. For the most part, although, we could do outdoor activities. But last year, the summer was fantastic. July and August. Were just off the hook good. So it kind of depends. I’ve not seen any super strong correlations. Personally, I used to track this pretty religiously. I haven’t seen a lot of super strong correlations to the time of the year. There seems to be just so many other things that come into play. They used to say that you would sell in May and then come back in November. We’re having a great day to day. May’s doing okay so far. So, it’s hard to say it’s it’s a difficult one. But I think this summer could be fine.

Katie Nealis:

We have another question in from Alyssa saying, “Do you think we would have another GameStop situation?”

Tom Vaughan:

You notice that it’s kind of died off, right? I mean, there was a bunch of them, AMC theaters and GameStop and etc. And it has really kind of died off. And because those guys are the same guys that are now buying this cryptocurrency, just in my opinion. And the other part of that is the GameStop and the AMC, it took a special situation, you need to have a relatively small company with a relatively small number of shares. Because that’s how you can run it up. And there had to be a lot of short interest on that company. So that as you run it up all those people that were short sale, GameStop had to buy it back, because that’s how shorts work and which makes it go up even further. And so a lot of the hedge funds that were shorting these companies have now backed off. And if they’re shorting they’re going to do it on a much bigger stock that’s much harder to manipulate. So I don’t think it’s going to be as big a deal going forward. And now they’re actually talking about changing some regulations around it to which will probably take a while, but that could create a problem for those guys to continue doing that also.

Easan Arulanantham:

I know just for them in communication on forums and on the internet, it’s a lot more watched, and it’s a lot more speculative. So there’s people aren’t gonna be as aggressive with gathering people together to make these kind of big moves as a group.

Tom Vaughan:

Yeah, because technically, that’s collusion. You know, you get it set the market manipulation. That’s been its old as time actually, as old as the stock market. People have been trying to do that. But you’re not supposed to do that. And technically, you’re putting it right out there in the public view. So if the SEC really decides to go after that, that could be interesting to see. So yeah, I think that’ll be another piece that makes it harder. I don’t think that’s going to be a big, big issue here. I think the cryptocurrency craze and this, I think we’re in the first quarter of this year, watch, this is tulip mania, this is going to go pretty nutty, just with people trying to do that that’s going to distract anybody. When Dogecoin, which was essentially set up as a joke, is up 11,000%. You know, that’s the game. That’s what they’re gonna play.

Katie Nealis:

We have about three minutes left, so I’ll just ask one or two more questions, depending on the timing. So we have a question here from Theresa saying, “In 2020, I had more short term and long term gains to report. What is the difference?”

Tom Vaughan:

In 2020, more short term gains? Oh, yeah. And if you hold on to security for at least a year, and then sell it, it’s called a long term gain. And long term gains are taxed at a separate tax rate, it could it could be zero, depending on your total income, or 10%, or 15%, or a maximum of 20%. So for long term gains. If it’s a short term game is just part of your ordinary income, which could be all the way up to 37%, right now, depending on how much income you have. So short term gains are a lot more expensive. And so for the most part, you kind of want to hang in there for a year, if you have a gain. You got to be careful, you don’t want that gain to disappear and turn into nothing. I’d rather pay a little higher tax on the gain and lose it all. So there’s this kind of balance that you’re trying to strike there, which is very difficult to actually because we know none of us have a crystal ball. But ideally, you’d have long term gains instead of short term gains because of the taxation differential. Yeah, it’s a good question.

Katie Nealis:

And let’s do one more question. “When do you think money market rates might improve at my bank?”

Tom Vaughan:

Right, quickly. So one of the things that’s gonna happen, though, well, okay. I take that back. Money markets are attached to short term interest rates. And right now, the Fed is really in control of short term interest rates. If you look at the yield curve, you’ll see the 10 year Treasury right now is about one and a half percent, it was one in three quarters. But the short term end of the curve is, controlled by the Fed funds rate. And they have said, they’re going to keep that at zero to a quarter percent all the way through 2023.

Now, whether they’re able to do that or not, kind of depends on how much inflation we get, and whether they change their mind. And the other thing that might increase the short term interest rates is that they’re the federal government is buying $120 billion worth of bonds, mostly on that short term arena, every single month. And so, if they taper back on that, they call it tapering. If they pull back, you might see that jump and that would probably happen, 2022. So it could be a little while before we see money markets, which are attached to that short term rate really start to move. You go for a longer term CD, a five or seven or 10 year CD, you might see those jump up faster, just because that end of the market is moving. So it’s a it’s a good question. It’s a, it’s sort of a travesty, you practically have to pay these banks to keep money in their money markets. And they’re not making anything either. So it’s not not something that they really enjoy either.

Easan Arulanantham:

So going off, “is it a good mindset to be hunting for returns in your money market? Or should it be important just to be having that liquid?”

Tom Vaughan:

Well, ideally, yeah, it’s great, right? And make more money, there’s always that’s part of building of wealth. Having said that, the true objective of that money should be for emergencies, right? I mean, that’s the key issue. If it’s not for an emergency, you might consider investing it in the bond market or the stock market or something, make sure you have all the money you want to have in emergencies, and some of that would probably be in a money market. So that’s why the yield isn’t that critical, because the true objective of that is to cover you for an emergency. So liquidity and safety are more important for that money, in my opinion. But having said that, like the like, I would love to get a higher rate of return on every everything I have, if I have a choice.

Katie Nealis:

Well, Tom and Easan, it is now our time. Thank you so much for your time today. And thank you to our viewers for sending in all these great questions. Please feel free to subscribe to stay updated on our videos. And don’t hesitate to ask more questions throughout the week, even if we aren’t live. And thank you again to our viewers. And I hope to see you again next week.

Tom Vaughan:

Thank you very much, everybody. We’ll see you next week.