Tom’s Week in Review May 9-13, 2022

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®
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Transcript:

Tom Vaughan:

As always, I like to start off every show with just a summary of what I saw happening in the market this week. Of course, you know, this last couple of years have been really amazing to me in terms of just the complexity of all the things that are happening, and what not to. So I’m gonna dive into a few areas, we’ll talk about what happened this week, just in the price, you know what happened with the inflation numbers that came out the rebalancing that we did. And I’m going to show you some of the key things that I’m really watching for right now to kind of give me some clues as to where things might be going. So first of all, if we start with the S&P 500 graph here for the year, you can see things are down. Obviously, from the beginning, the high point was January 3, the low point was actually yesterday morning, for the year, as far as that goes. And so, um, you know, the market is digesting all of this kind of unwinding of this pandemic relief packages that have come through from Congress, from the Federal Reserve, lowering rates and increasing their balance sheet. And so we kind of have, we went one way really high to make sure we didn’t end up in a Great Depression, because we closed everything down for the pandemic. And now they’re pulling some of that back is essentially what’s happening. And it’s very tricky to try to kind of do this, it’s sometimes it probably feels like pushing on a string to the Federal Reserve, to make this work just right. But that’s what’s going on right now, this is still very normal scenario that we’re in right now. And I know, you know, we kind of got used to getting a statement every month that was higher than the month before. Matter of fact, I think in 2021, we basically had 5% downturns where we had an 18% downturn to this this year so far. And so really, you know, we want to be able to kind of identify, you know, what’s going on. But keeping in mind that the 10 to 20% downturns happen about every three years. So it’s not super common, but it’s not uncommon, right. And so it’s something to not worry about too much at this point in time. There are other things that could come up that could make it worse is what we’ll watch for. But we don’t see those happening quite yet.

So here’s what’s happening as far as I’m concerned. First, I want to talk about just kind of what I did with the rebalancing component, we went through a scenario where I’m looking at two different indicators. And when they both flash for me together, we do rebalance things. And so we did what’s called the VIX, which is a kind of a Fear Index. Basically, it’s the number of puts versus calls that are being written on S&P 500, futures contracts short term. And basically, when that number gets up, above 30, for example, more people are, you know, doing puts than calls, more people think the markets going to go down. Historically, if you look at the VIX as a timing mechanism 3033 35 Those numbers when you get up above 30, not a bad time to possibly be buying, or at least nibbling or adding or rebalancing. The other thing that I’m using is called a will, the Wilder’s RSI index. And that’s where essentially the market has, you know, gone down so far or up so far. And it’s this whole rubber band concept always talking about. And so if you take a rubber band and you stretch it, the resistance gets higher and higher and higher, right. And so oftentimes, they’ll snap down or snap back up. And so that one gets below 30 or below. That, to me is a very heavy stretch on the downside. And so when I see RSI at 30 or less, and I see the VIX at 30 or more, that’s a rebalance point. Totally happened four times this year. So far, they’ve all been pretty good rebalance points. One was a January 24th, which was a big kind of downward spike that we had that we were able to use. The second one was the 24th of February, which was the invasion date of the Ukraine, and then the 26th of April, that one actually didn’t work very well. But the one we just got was yesterday morning. And so we rebalanced yesterday morning.

At the moment the market was up quite a bit today, too. So maybe it’s going to be a good one, we’ll see what happens. So the object here is you’re just trying to rebalance your portfolio to get the portfolio back into its original intended targets. And generally speaking, for example, maybe the bonds fall slower than the stock. So you’re selling a little bit of bond and buying some stock to put it back to its original intended target. But the real aspect of it that intrigues me is if I buy a stock at a certain price, and that price comes down and I continue to kind of rebalance into that. I’m actually lowering my average cost because I now have three or four different points that I purchased that and then when the market does recover, I can get back to my average cost faster than just sitting They’re doing nothing. And so this is something that, you know, we use, especially in the IRA type accounts as far as that goes. So the inflation number came out today. And it was really interesting. I’m sorry, it came out on Wednesday. And the expectation was that we would have 8.1% inflation on the consumer price index, it actually came in at 8.3%. Not too far off, but still pretty high, right. And it was 8.5 in in March. So that’s a good sign.

We’ve had seven months in a row where it’s gone straight up, it’s higher every single month. So now we have a little dip here. The last if we had was in August of last year, during the Delta Variant, outbreak, things slow down a little bit. So is this a trend? You know, we’ll have to wait and see. Right? If we hit peak in March, and then continue to kind of bring inflation down throughout the rest of the year, the market could respond quite well to that. But that’s the big question. You know, what, what happens as far as that goes? So the next thing that we’re going to be looking at really is, you know, what’s going on with that inflationary situation. And what’s driving that because it’s, in the end earnings are the key, right? We know that. But inflation is the key to earnings right now, because inflation is the key to what the Federal Reserve is going to be doing to fight that. And so if you really focus on inflation, you want to focus on what the Federal Reserve’s focusing on, which is job openings, there’s 11 point 6 million job openings right now, which is a record high. And there’s almost two jobs open right now, for every one person collecting unemployment, which is a situation that’s going to create inflation. And when the Federal Reserve had their meeting, the chairman Powell came out. And this was one of the things he was focusing on getting the number of job openings down. And to get that in line. Because if there lots of job openings, and not that many people applying it paying more and more to get those people to come into work. And so then okay, now I paid this employee more, I might have to increase the cost to my client. And then all of a sudden, we’ve got a scenario where my employees have to pay more for everything they’re buying. And so they need more. And that’s this wage cycle of inflation that happens, and the Federal Reserve and Chairman Powell talked about that, specifically, as something they’re going to fight. So that’s one of the key things we don’t want to watch is essentially what’s happening with the openings. And does that start to come down. If they continue up, the Federal Reserve will continue to hammer the market with their words and then hammer with the inflationary period. So we’ll see what happens there. So far, we haven’t seen much of any change there. But that’s something we’ll be watching for.

The other aspect of it is just looking at what’s going on in China. We’ve got this scenario where of course they’ve locked down. And so you want we really want it we’re watching shipping at a China, you know, exports into China because they’re the biggest supplier of all of our goods worldwide. And so do we see a big drop off we have seen a drop off from February and March. And related to probably the lockdowns, Shanghai is interesting. I mean, they’re locked down in the city, but the ports still open. But the some of the factories have been closed for periods of time. And so the market has reacted negatively to that over the last several weeks, I’d say there’s the biggest chance for upside surprise right there with what’s happening with China. Only because it’s a decision process, they decided to do the lock downs, they decided what they’re going to do. And one of the things that they decided to do, which I think is fascinating, is what’s called a closed loop. So they’ll take a factory, like the Foxconn factory plant that produces a lot of Apple products, and they will have everybody that is manufacturing those products live inside the factory. And then they can’t come out right. pretty unusual scenario, but it’s happening and they’re doing that. So they might be able to continue with their lockdown scenario and still be able to keep the exports out. The expectations is that they’re going to drop quite a bit at least as far as I’m concerned. You can see that in the market.

So I think that’s the biggest upside surprise that we have to watch for Ukraine and Russia situation is all about oil and wheat. What happens there. That’s the other things that we’re watching right there because that they’re they’re difficult to bring back down the Federal Reserve is going to have a hard time producing more wheat to bring down the price of wheat obviously so they can try to bring down demand on that side. So really interesting time. I think that this is opportunity so far. You know, we’ve got a scenario where the market has kind of calmed down. Pessimism is extremely high. Usually that’s a time when things you know go the other way. I read a lot of books and there’s a lot A lot of things in there, but one of them is, you know, when everybody’s thinking one thing is oftentimes the market goes the other direction. And that’s really common. So everybody’s nervous about the market, everybody’s buying puts on the market, and all those types of things, and the market often goes the other way. So it could happen very, very quickly. So be very careful here. And at least we are just trying to maintain the overall balance of the portfolios, keep doing rebalanced things. I think we’ve got a good strategy for finding when those are but anyway, that’s, that’s the process that we’re doing right now. I think that that this week is, you know, very interesting in the fact that we did hit that low point and then really kind of bounced today. We’ll see what happens by the end of the day. So nonetheless, look forward to talking to you about this next week. Thank you

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.