Transcript:
Tom Vaughan:
I would like to start off the beginning of the show, just talking about what I saw as important in the stock market. So, a piece of a good successful retirement, in my opinion, is the ability to make sure that the assets that you’ve accumulated, or are going to accumulate, if you’re not there yet, are well positioned. We have some good philosophies around that.
So, one of the key pieces that I talk about all the time, is to be able to identify the good things that are happening in the stock market. Those are much more difficult to find. The negatives are easy. They’re all over the news, and if you only read those you’d probably never invest, or you’d under invest. And so, getting a balance between the positive and negative is critical. And so I try as much as possible to present a lot of the positive pieces. And this week is very fascinating, because it’s doing very well. …Thursday was the… best day we’ve had since March. We’re up a bunch again today. So things are really, really moving. And so the question would be why?
Well, the reason it’s going up has a lot to do with all of the positive things that we’ve been talking about here in the recent past. So for example, earnings were starting to be released this week, and they were pretty good. Better than expected in a lot of cases. Got a long ways to go on earnings. But the key situation right now that we’re looking at with earnings are we have this supply chain issues. We have tight labor market, and those are causing some inflationary problems. But how does it actually impact the company earnings? That’s what we’re gonna find out.
These are some of the best run companies in the world. Let’s see how they handle this situation. So far, earnings have been good, and that’s been pretty useful. The next thing that came out on Wednesday actually was the unemployment report. So this is first time unemployment claims was the lowest it has been since a pandemic started. So that’s critical, and that’s a good thing that’s happening. People aren’t getting laid off as much and those types of things, as the economy continues to grow. And then also on Wednesday, there was a press conference talking about the supply chain. And so they’re working on programs to try to help that supply chain move more efficiently. And they’re using kind of the Amazon example. So Amazon got hit very heavily with lots of orders right at the beginning of the pandemic. And they ended up switching over to a 24/7 model, where they’re running the business 24 hours a day, seven days a week. And so now they’re trying to take that model out to other parts of the supply chain, to catch up. So what happens here, this is a lot like the end of World War One and the end of World War Two, where there was this huge demand as everybody came back, but the supply wasn’t there. And so it creates these inefficiencies. In both of those cases, those work their way out. But what they’re trying to do here is just at least temporarily, get the port in Los Angeles to run 24/7. Several big companies like UPS and Federal Express, and Walmart all agreed to a 24/7 model, also.
The market moved quite nicely on that information, so that was good. And the big piece though, that has to happen, there’s we have to have people. So it’s one thing to put that into place and to have the structure and decide you’re going to go 24 seven, but the other issue that’s happening is getting people to take the jobs. And so there’s two main things that need to be dealt with, to get people out to take the jobs. One is the virus …the fear of the virus, and the second is childcare. And those are somewhat related. The childcare industry is struggling because they can’t get enough people to come out and help in these daycare type situations and what have you. And so we’ve got a scenario where people are staying home for that purpose.
So a couple things that are happening, I think that are positive here. Number one is, if you look at the charts, the number of new cases of the virus is dropping pretty nicely. Actually, it’s coming down pretty dramatically all over the country, so hopefully that starts to make people feel better about coming back to work. We also have this new pill from Merck, which is an antiviral pill. It is not yet approved, but it looks like it’s going to be approved pretty closely. And so far in testing, it seems to have done a pretty good job with somebody who already had just caught COVID, take the pill, and less chance that they end up in the hospital. And again, if those things start to come out, and they start to work, and they start to get some press that again will make people feel more confident to go work at a childcare center or go back to work at at the port for that for that matter.
And so I think these are things that are there good that are happening that are starting to develop. And let’s face it, overall, we’re probably going to figure out the supply chain and the labor issues. This is just this anomaly that’s happening. How long it takes, that’s a big question, but it’s going to happen at some point here. And so the market again is always operating on a future look. And so if the market starts to think that those things are starting to get to a better spot you’ll see it move, which is what we’re seeing.
One of the big drivers today was this, the retail sales numbers that came out. So we have this scenario where September sales numbers were much better than expected. And again, one of things that you got to be careful of when you’re investing is to bet against the American consumer. Very powerful group that continues to come out and buy and spend, and that helps the economy here. And another thing I wouldn’t bet against is American companies. These are some of the best run companies in the world. We just been through some really crazy times with all the work from home and everything. And these companies, for the most part, have done really, really well. So you know, when they’re faced with supply chain issues, and different labor issues, and possible inflation, I think they probably do better with that than we think they might do. These again are some of the best companies in the world that are, especially these big ones that we’re investing in. So that’s important.
Last piece that I think’s important to understand that might be driving the market upward here is just that we’ve got three pieces that the government is dealing with: the debt ceiling, the “build back better” program, which is the reconciliation bill, and then the infrastructure bill. I think all three of those could be taken care of here in the short term. The debt ceiling was moved off to early December, giving room for them to get the “build back better” program together. Add the debt ceiling to that, which they seem to be more willing to do. Increase that so that maybe we have enough to get all the way through to December of 2022. And then sign the infrastructure bill also all at the same time. So think about all three of those could come along here in the short term.
And let me tell you, first of all, that debt ceiling going out another year would definitely make the market excited. So that’s really, really important. The two bills being signed would cause some fear of inflation because of the stimulus effect of those. But I think that will probably be offset by the fact that those bills are spread out over an eight to 10 year period, and I really think that that’s going to moderate some of the inflationary pressure that we’re seeing there.
So anyway, these are the things that I’m seeing this week. Those positive pieces that we’ve been talking about for quite a while are playing out here. The stock market only dropped 5.9% from its high to its lowest point here early September to early October. Even with all the bad news and debt ceiling issues, and what have you that are happening, it should have been down more. That just shows you the power of this market. And now we’re less than 2% away from the all time high, which I think we’re going to. We’re above the 50 day moving average, which again, I think is something that will be a catalyst that we’re probably seeing today really in the stock market.
So really, really a good time to be an investor in the market altogether. And I think you know, we’ll see how this plays out. But keep keep some focus and some balance in your overall view of what’s going on, and I think that would help you. It should certainly long term help your retirement out as far as that goes. So anyway, that’s what I saw this week. Looking forward to really talking to you about this again next week.