Transcript:
Tom Vaughan:
Well hello everybody, welcome to Wednesday. Unfortunately, the S&P 500 was down a little over 2.1% today. So it’s kind of the third day in a row that we’ve had a downturn, Red Shirt Day. Again, for those of you don’t watch this very often, it means more than 1.5% down when I wear this red shirt. And so really very fascinating as to what’s going on. Today, the numbers came out on inflation, and so the inflation was up 4.2% over the last year, and the expectations were for something lower than that. And that’s what’s been happening this entire time, everybody thinks things are gonna go slower, and they’re not going slower, they’re going faster. But if you dig into the numbers, you can kind of see what happens. And one of the things that I’ve tried to do with this particular video series is to make sure that somebody in your life is pointing out, some of the positive things are happening even on red shirt days when things are going poorly.
So really, what I see here is, if you take a look at it, first of all, we had a big jump, versus last year, of course, last year, this time, the economy was actually going down quite heavily. So prices were going down. So compared to last year, of course with prices coming up wasn’t as bad as it really looked as far as that goes. And we had some really strange things happen in terms of the the portions of what was moving the most. So used cars, the price of used cars jumped 10%, which is a record going back to 1953. So if you’re going to, if you have an old car laying around that you want to sell, now’s the time to sell it if you if you have if you have to buy one, maybe if you can wait a little while that would be a good idea.
But if you look at used cars, and then rental car rates, which both relate as far as that goes, and then hotels that made up 50% of the gain in the inflation, and it’s only 5% of the basket of goods that they look at. So really kind of skewed towards a couple of areas in order to keep consistent inflation coming in, we’re going to end up having to have a really, really weird situation as total. But really what this shows, and that’s why economists look at inflation, especially kind of this normal inflation as a good thing. Really deflation and dropping prices is a much worse thing as far as that goes. And this is a situation where things are too good, right?
I mean, if you look back at 2008, where everything was falling apart, and that whole thing that was that was much worse than what we’re dealing with right now, no doubt about it. This is a scenario where things are just opening so rapidly as far as that goes. So I do think there’s some other really important things to understand. I think some pieces that will moderate our inflation here in this country going forward are two areas.
Number one is what’s happening around the world as a whole. Still lots of problems in India and Europe and what have you, you look at the mobility data that’s going on, and there’s still tons of countries that are really not moving around very much compared to where they were moving at the beginning of February, last year. And if you look at interest rates around the world, the US had a big jump today in the interest rates on the 10 year Treasury. Well, what we’ve seen in the past is when that happens, all of a sudden, all of these other countries start buying our bonds and other members, or people from around the world start buying our bonds, drives those yields back down oftentimes, too, which should be something that would be positive in the short term for the market. My overall gut feel for looking at what’s happening.
I feel like the market is kind of overreacting. We we had a couple of things that happened today. There’s a gentleman who’s name’s Tommy Lee, who I follow on CNBC, that I think is really interesting. And he mentioned two things today. Number one, the VIX, which is kind of the fear index, the Volatility Index jumped 40%, just this week. And so that’s only happened a few times, actually, throughout history. And historically, when that has happened, you’ve had a 10% increase in the S&P 500, 6 months later. The other part that jumped today’s was called a NYSE, the New York Stock Exchange tick volume, and they just second by second, how many shares went positive versus negative in terms of those sales. And today was the biggest negative they’ve had in recorded history.
And so I know those sound like bad things, but the weird part about the market is that’s basically capitulation. So the sellers have sold, and what’s left is the people that want to come in and buy. Again, you look at last year, we had a 10% downturn basically in October, and we led to November, December, January, the three biggest months, I can remember one of the best runs that I’ve seen. So you often need kind of this capitulation in this fear to come through. And the last time that the tick volume got this low. The market on average, when the tick volume gets as low the market went up 22% on average over that the S&P 500 over that six month period of time, according to Tommy Lee.
So these are things that I think are really an overreaction. I believe we need to kind of absorb this information for what’s happening. We’ve got a labor shortage, even though we shouldn’t, because we got a lot of unemployed. But that we talked about that yesterday as to why that’s happening. We’ve got shortages and all kinds of different areas. I also think that you’re going to have some issues with growth going forward, as it gets kind of herky jerky gets back into order, things start to come around.
So honestly, never pleased with these type of days, I’d rather be talking about my green shirt that I’m wearing this day and what have you. But oftentimes, in order to get these green shirts, you kind of have to get these downturns. And you need to get these prices down to a point, it takes some of the excess out of the markets like today, for example, you can also borrow, right what’s called margin to borrow against stock. And then if that stock drops enough, you get what’s called a margin call. And that’s me to have to sell that stock. And so sometimes you see an acceleration to the downside, when you get a lot of margin calls.
That’s a good thing, believe me, the more we can stamp that stuff out of the market, the better. People get really carried away when things go well. And so you get that out of there. And then you start getting back into kind of this normal buying mode. And again, this environment should do better for the types of stocks that we have. I’d say it was medium today, growth and valuables kind of sold off. But so far this year, as inflation has come up, and as interest rates have come up, value has actually crushed growth altogether. And so I expect that to continue. And then that’s where our portfolios right now is really heavily in that area.
So I think, just some patience here, let this work out. Again, this is a scenario where things are too good. And that’s not terrible. I think that eventually we’ll figure out what’s happening here. There could be some more volatility coming at us what have you. But I wouldn’t be surprised to see some decent gains here, even in the relative short term, as some bottom fisher buyers start to come in at these prices. Let’s see what happens really looking forward to talking to you tomorrow. Thank you very much.