Transcript
Hello, everybody, welcome to Thursday, it was a Red Shirt Day today, the S&P 500 was down 1.5%. And the main cause of today’s downfall was that the interest rates on bonds and specifically treasuries, I follow the 10 year Treasury most went up fairly substantially the 10 year Treasury went up from about 1.61 to 1.74, at the high, which I know doesn’t sound like a lot, but in the world of increasing yields, that’s actually a pretty big deal. And this is a result of what happened yesterday, where the Federal Reserve, you know, said, Hey, we’re not going to raise rates, we’re not expecting to do that until 2023, we’re going to continue to buy bonds until the foreseeable future, our objective is to let inflation and the economy be hot, because we think it’s temporary, until all of these things work their way through, you know, the stimulus combined with all this money people saved last year, combined with the fact that all these companies have cut back on their supply, you’ll get a situation, at least for some of these companies, in some of these industries, where you get possibly higher prices, we’re already seeing it worse, you know, semiconductors are having a shortage.
And so we’re seeing higher prices and make into lumber is having a shortage, because people are building houses so much. And so now we’re seeing, you know, an increase in price and lumber. And that’s what they’re seeing. And so I guess the only fear that the market really has is that is the Federal Reserve under estimating the amount of inflation that might happen, and that they actually would have to increase rates are cut back on bond buying sooner than expected. And, of course, that would mean the market has to readjust to those, you know, parameters. So, personally, looking at this, I think that this is an opportunity, I think there’s some money to be made here, I think you have to be very careful with your bonds. Bonds are going to have a really tough time here for quite a while, I mean, six to 12 months would be easy. And so you know, we have two parts of our bond portfolio that go up in the bond market goes down, they went up today, that was really, really good. The other three parts that we had went down, but they went down less than the market because they’re all short term bonds. So that’s important. And then your stock portion of portfolio should be geared towards value in my opinion, and specifically geared towards things that are going to make more money as the economy open.
So for example, energy dropped today quite a bit, we have a couple pieces of that in our in our portfolio, clean energy dropped even more actually across the board. Now they’re going to be need for more energy as people get back out, right, there’s gonna be more people flying. So even more people driving and what have you. And really, what’s happened is energy’s kind of run up quite a bit. And I think this is just kind of a settling. So I think that will work out okay, also, but value is going out to growth in this environment. We saw that today, the NASDAQ had its worst day of the year was down 3%. That’s where a lot of the growth stocks are. So I would definitely be skewed towards the value side. And make sure you know, you take care of the bond pieces of the portfolio also.
So, you know, we’re in the right spot, I think that we’ll start to see some things work here. I think there’s some opportunity. Hot economy means companies are making more money means that they’re hiring more people means that those people have more money to spend. And ultimately, it means more earnings. And earnings ultimately means a higher stock market. And so I think that’s going to happen. Now I’ve mentioned last week that the transition from being under the pandemic, you know, lockdowns to being completely open, which is we’re heading into. First of all, we’ve never seen this before. So all the money managers are running around trying to figure out what’s going on also. But secondly, we’re probably going to see a lot of rockiness in there. And that’s exactly what we’re seeing today, just, you know, lots of the markets just all over the place as it tries to figure out what this means. And how this is going to work. You combine this with the fact that the Fed is doing something they haven’t normally done. And they got a lot of people like me that have been you know, this is my 35th year of watching money. You know, it’s kind of confusing. And so that’s why you’re seeing these markets kind of tumble around. But in the end, higher earnings will equal higher stock market. And I think, you know, as long as you can survive the bond portion of the portfolio, is this going to be okay, this is this is actually probably more of an opportunity than it is anything else to make some money. So, let’s see what happens tomorrow. I look forward to talking to you then. Thank you very much.