Transcript:
Tom Vaughan:
Everybody, welcome to Wednesday, the S&P 500 was down 1.94% today. And the big catalyst on the downside was the Fed minutes that came out. So they had their meeting last December, and the minutes for that meeting came out today. In there, there was some surprising announcement essentially, or the discussion that people weren’t quite expecting to have happened. And so they’ve already announced that, you know, they’ve got two ways of increasing the economy, lowering interest rates and buying these bonds. And they’ve announced that they are going to cut back on buying these bonds to the point where they’re not buying anymore by next by March. And they’re also going to start to raise interest rates. And so those are two big ones that we’ve already kind of know about it.
But one of the things they talked about at this meeting that was a little bit of a surprise was the fact that they also might allow their balance sheet to come down. Now, this is just discussion that they’re having as far as that goes. But what happens in the balance sheet, when they’re buying those bonds, they end up on their balance sheet, and they can either let them expire, or you know, sell some to shrink down their balance sheet. All three of those are designed to kind of slow down the economy, you know, when you stop buying the bonds, and you start splitting them off the balance sheet, and you raise interest rates, all designed to fight inflation. And so I think one of the things that is interesting here is that there’s this big assumption that we’re going to have inflation. And I think sometimes we have to be a little bit careful about those assumptions.
Remember, very specifically, last year, you know, the March timeframe, they felt like the 10 year treasury was going to skyrocket up to two and a half percent high inflationary situation. And, you know, we had some definitely, but things were moderated the stock market still did really well, even in that timeframe. So have to a little bit careful here with what is going on. Because supply chain issue has been getting better so far, you know, people are coming back into labor force at a fairly rapid rate. So if we have a lot more people back in labor force, all of a sudden, those jobs become more competitive, and that the increases that they’re having to get, you know, to get people into these jobs might slow down some and that could slow down inflation. And there’s a whole bunch of scenarios. And I do think there’s a, you know, likelihood that inflation is a problem this year. But I also think it would be a mistake to just assume that what’s going to happen, because it might not. And so, I think, you know, having a balanced portfolio, having broad indexes in your piece, having a portfolio that’s somewhat designed for some volatility, which I really feel like we’re going to see more of this year.
I still feel like we’re going to see a positive rate of return, you know, the average rate of return after 20 plus percent year, going back to you know, the World War Two has been a 10.4% average rate of return in the following year. So, but I still think that 10.4%, if we get into something around that number, will be you know, it’d be a lot more ups and downs. Because of this, because the Federal Reserve is coming out when they speak, you can see how much the market cares about what the Federal Reserve is talking about, much more so than anything else. And so it’d be very fascinating to see how this plays out. So, anyway, I think that, you know, we’re well positioned, we’re okay, the markets are still on an upward trend. You know, we’ll see what happens going forward, but we’ll, we’ll keep an eye on it. So take, take good care, and I’ll see you and talk to you tomorrow. Thank you.