The PlanStrong Financial Forum 06-17-17

Weekend Shows
Sunday, June 18th
00:52:06

Transcript - Not for consumer use. Robot overlords only. Will not be accurate.

Romo plan stroll in the broadcast studios here's the plan's strong financial forum where your host. Jim Scarborough pat moon president Clinton's strong investment management. Full force it's time Bruce Morton investing. Symbian phone. And I'm Ken carver had dinner just. And usually have some youth ball Parsons who plans on the today I'm joined by. Alex vendor CFA Alex's. He works with Paula planned strong and Alex has agreed to the American program great to be here and now followed. Really disagree whether you we often talk about the weather here because you know policy the only declared a little golf he escapes the weather to go to Florida and usually when that happens is home of the best what I know it's early sometimes guesses wrong in this time he's he's in the he's in London and I can't imagine their have a very good weather over there I don't know if they ever do -- another place one goes to the play golf now not all I guess had another city for sure but I assume balls there and Alex is joining us an analysis that is an analyst and a plan strong announces been joining us both rivers is from the starting the program argument in a few times a year happy generally once a quarter mile per about five years now. Now been with Paul for about seven. He don't trust me for the first two years. Only perhaps a wise decision. An interesting week we had some news this week and we're gonna go over some some news of some some purchases them and also some news from the Fed so don't get to that later on divert it always seems on Paul's not here there's a big announced whether it's trump winning the election and whether it's the Fed raising interest rates. You know I certainly don't have a shortage of things to talk about why whenever I come on the show well let's start a look at the big picture than solar for folks who are our new do programmer or. Aren't at least there I don't listen every week the big picture and usually we start up looking at the stock market in the bond markets what's been going to happen in the last week last week can be visual what did we put diplomacy is weak at the start. Markets you know there there were some of these are some down days at the end of the day the market ended the week about words stardom still very very good start of the year for US stocks. And even better start to the year of for international stocks. And bonds has always have kind of been steady Eddie Herrera a little bit better than anticipated because rates have come down a bit since the start of the year. On the just kind of and an update on that year to date now the S&P 500 which is an index of five and the lurch of the largest treated stocks in the US is is up about. 9% including dividends. International stocks are up about 14% including dividends this year. Which is really a reversal from recent years where US stocks have largely outpaced international stocks and we're starting to see. It's international stocks outperformed for the first time in many years and some are some see that is the start of a longer term trend. Others think it's a bit of a fake and that international markets and a struggle with some political risks later in the year. Mom you know were were kind of in the camp that international stocks have lagged they certainly offer more value but it's it's absolutely not without risk. There is potentially more upside but not without more downside and and you know we're we're investing their butt but very selectively. Now at the risk of burying the lead and before we talk about two. I call the US bonds I think we need to at least address sir are still some of the room which is the the bump in interest rates from the federal want to tell us what I'm. Yes so armed. Widely anticipated. Fed came out on Wednesday and announced that they would be increasing the Fed Funds rate by another point 25% or their target for the Fed Funds rate. And that's their overnight lending benchmark and as I'm sure you all know that has been. Artificially low for many years frankly since the recession that kept it close to 0% for many many years. And starting in late 20s15 they started raising rates and this is actually the force increased. Since the beginning of the rate cycle. They are projecting one more for the remainder of 2017. And they maintain their projection for three more increases 420 ET. The change this time around. Was related to their balance sheet as we all know they've they've accumulated quite a bit of of I'm bonds over the year on the balance sheet as they've been printing money and and and artificially suppressing interest rates. They announce for the first time. There are plans to wind down that balance sheet and they didn't specify the overall size of the reduction are currently the balance sheets four point two trillion. And they did indicate that there would be monthly limits as to how much they would sell back at the market. But they didn't indicate at the end of all of that how much they want of the ballot she took so retained in an asset so. Still a lot of unknowns but it was a shift comment frankly given the weak weak inflation data. And and retail sales data that we got this week some people were hoping that the Fed would be a bit more dovish and dovish meaning you know a little bit more accommodative. And and some saw this as a sign that yellow was was a bit more hawkish. Indicating that she would like to raise rates to continue on this pace and she did. Mention the concerns over inflation chief did say some of them were transit terror transitory. Factors such as you know. Wireless communication bills being temporarily lower due to price wars and things like that. Achieve expected to I'm subside and in future years they are still maintaining their 2% targets. For inflation next year they have lowered their target a little bit this year. So we see a little bit of a damn the torpedoes full speed ahead attitude from from the failure and you know so will the market react you know the market. Seemed like there was a bit of a risk off mentality in the markets. If there were a little bit blind sided by the hawkish tone. The markets were down a bit. On the US dollar to rally a little bit because you know if if interest rates are going to be going opt if if they're going to be reducing. Purchases that Matt lately means that it's come. More money could potentially flow into the US it means that economic growth is is relatively robust the outlook is is is still on point. That could lead to. Further strengthening of the US dollar and subsequent to that I'm on Friday. The good Bank of Japan came out and they left error quantitative easing unchanged and and they had been receiving quite a bit of political pressure to start unwinding that quantitative easing cropped up process. Were there buying similar and twenty billion dollars a year of of bombs. The the continued their drum divergence from the Fed they continue to be. Easing ball the Fed is continuing to tighten which. Some would argue would would lead to the dollar continuing to be strong relative to the yeah. Now following the news from the affair and know what to receive with the price of our quality US bonds did there aren't democracy in the future. You you might say your rate hike means that interest rates are going up. And we've seen this several times in the last. You rate hikes come from the Fed where even though the reason short term rates longer term rates for either unchanged or in some cases actually came down. And you know they they they seesawed around a bit. Net they were up a little bit after after the announcement. But think a lot of the market didn't really believe the Fed because they they don't believe than inflation spec they don't believe that inflation's coming. Our men and without inflation. They think it's going to be hard to see interest rates going up to too much. Even with the Fed raising short club so I just 'cause the feds are raising rates doesn't mean that. You know your bonds are gonna lose value. These these rates at the reason. Don't have much of an impact to the end you know that those that. Investing the bonds or you're gonna be investing. You're gonna be investing in high quality bonds mutual funds through ETFs and those are mainly I'd say an average maturity of say seven or eight years so what happens with your prime lending rate doesn't necessarily have much to do with the bonds an airport or. Now this. Either despite all this news or maybe because of it many of the indexes in USR's. Stock market are at or near all time high still. So big we talked a little bit about the S&P 500 earlier but some of the other day indexes are still quite aren't. Yeah so it's just about all of them are. At at four year old Tucker that's yes and he hit a new one this week. On the Dow Jones's news but you don't just about at its peak the NASDAQ which got off to a phenomenal start this year. Tom is is actually has taken an. Taken a breath a little bit they're down about 3% from Turkey but they were already up fifteen or 16% to start the year don't. A little bit of a breather was not too I'm surprising. I guess the feeling is that. An and an image should. Later in the show I'm gonna discuss the outlook of nine leading investment managers as part of the the Barron's roundtable other midyear review. And the overall tone and and frankly the expectation that they had in their January review was that yeah markets were going to be pretty strong for the first half of this year. Arm and then starting in the summer months generally. You know you've heard someone may go away generally in the Summers. It's it's it's it's a seasonally weak period for the stock market not saying that that's always the case but they also saw some political risks coming out of Europe. I'm in the second half of the year they thought that it's going to be difficult for trump actually come through on the legislation that he promised. Which I think started a little bit earlier in the year than people anticipated. But corporate profits have been strong revenues up about 7% in the first quarter. Earnings are up about 14% a lot of that is is is based on energy prices. Not being as as subdued as they were this time last year. But overall with the theme is that even without. Trump getting his tax cut through necessarily end even with outs. Deregulation. Without changing around healthcare. Companies are still doing pretty well on the consumer confidence is still incredibly high. With the exception of a relatively weak number this week you know. Consumers are spending and a 45%. Annual increase compared to this time last year. And and and frankly one of the big changes now is you're actually starting to see some of the international economies pick up speed. So Europe is showing good numbers Japan showing pretty good numbers so all of that is leading to some optimism. In the markets right now. And I think frankly to beginning in the year were or after the election the markets were little bit too optimistic on trump. They they assumed everything from set meant that that was gonna happen in the markets. And now frankly it's one the exact opposite way that trump traders unwound and people are now probably a little too pessimistic. So were the market was relieved pricing in a tax cut early in the year were you know late last year now they're really not and I think that there is definitely some upside surprise from policy changes if if from the successful. Alex from a comeback rumors start about oil prices we saw some movement there and that's or to explain why that's happening also oil stockpiles. And of course there was that do big news you re calling Amazon which shall also discussed coming up it's a classroom financial form. This is Paul Parsons president of planned strong investment management. And you're listening to them planned strong financial forum on WRKO. Dawson's talk station. If you like what you hear on our show and what media take a look at your investments and retirement plan called my office. 808897275260. That's 888972. Plan. Securities and investment advisory services opportunity for them to prevent remembered him as I can see classroom investment management is an affiliate of this financial group thinks is located in Washington street in Massachusetts. Hi this is Bobby Nelson. People use different strategies to acquire enough money for retirement. Some try to do it themselves. Others buy insurance for investment products though sometimes will benefit the seller more than the buyer what makes sense is to hire an advisor with first rate credentials and why do investment management experience. Should have a fiduciary obligation to act in your best interest. And be paid the same amount no matter watcher invested in it these things matter to you. Call Paul Parsons at plan strong investment management to learn more. Call 888. 9727526. Hiring the right advisor could be your best investment. Or visit planned strong dot com. Securities and investment advisory services offered through next financial group in member tumor SIPC plans to investment management is not an affiliate of next financial grouping and is located at 980 Washington street. OK. OK okay. Okay. Okay. Okay. It's. The. But plans from broadcast studios and the epicenter of definition yeah this is the plan's strong financial forum where all portions president of planned stronger investment management functions are very independent. All is not here today all is in London you know an amateur vacation so Alex vendors CFA is an analyst at classroom is with us. And we've been talking about what's happened over the last week and there are some stories and the once again almost a couple big stories Alex and a wheat. Kind of tease going into the break the fact that oil prices we saw some more movement on that. And. Oil prices already continue to talk about this week after the hour but it's it's important. For the investing world it's it's it's a big change that's going on mom and and getting it right. Can relieve. Mean big profits for foreign best right so so what happened in the talk a little bit about the bigger picture the change so. Oil's been dropping all year. It's it's down now to. About 44 dollars a barrel started the year about 5354. Is there confusion over that fifteen and for quite awhile know last year was you know really a tale of of two. Two stories there the beginning of the year you saw oil you know drop to the low to mid twenties people said oh you know it's it's never gonna recover. I could go to attends a fifteen dollar range. We we said that's. You know oil oil demand is not going away you know it it appears in the US that people are using less. Fuel cars are becoming more fuel efficient or if you look around the world can look at China and India. They are increasing the demand for oil much more and more reducing our demand for oil through energy improvements and so for even electric cars even if they get eight to 10% market share which at this point seems like a long shot. That will not really eat into the demand for oil nearly to the extent that people are predicting. Oil prices are down this year frankly because the US has been more resilient. And because OPEC and there are supply cut that the agreed to. Last November hasn't panned out as anticipated. The market was really I'm optimistic that OPEC and even nonopec members like Russia. Would agree to an output cut and that they were actually following through with. But what they didn't anticipate was that the small incremental price increase that we've seen has gotten US thrillers back in the game. And these frankly brought that the price down significantly for drilling. Offer fracking and so forth and they've been increasing their production it's going to be increasing probably 5% this year and 8% next year then at this point last year people were projecting that number fall. This year or next year or so or even though they've been cutting. We've been increasing there have been some that increases from other nonopec members. And frankly the big story continues to be inventory. Even though they're they're reducing the supply. New supply there's so much old supply out there. And that's really keeping prices. Down from so what's happening to stockpiles. Won't there they continued increase. Although all the data that comes out whether it's some from OPEC or from the US. Indicates that stockpiles are either increasing their they're frankly higher than they were even before the output cut which is surprising. In the US. Gasoline inventories increased last week they were project significantly they're projected decline so as long as you all this excess supply out there regardless of what what new production as. That's gonna. You know. Be something that's can keep these oil prices now. We still think you know I think looking it's gonna take a little longer than the next expected to get through the inventory. Tom but with the increase in and then. Demand that has been consistent Tom around the world with probably extended production cuts from OPEC and Russia. And their frankly their desire to increase prices before their IPO. We do think that oil prices are gonna move higher from here doesn't mean that is going to be a straight line doesn't mean that they won't fall more before they go up. Our sense though is that oil prices it's just. There's not enough supply at at these prices took to fit demand the long term and prices at some point are gonna have to go up. Our Alex we did get some a key government data releases in over this last week somebody who's not so good so what do we learn. So there really. Other than the Fed to other big economic. Pieces of of information this week one was retail sales and the other was inflation. Both were relatively disappointing there was a third. We don't weekly unemployment claims which continued to be relatively strong. But let me start with with retail sales they fell point 3% and it's the largest one month decline we've seen since last January you remember how dire the situation was last January. It was really a shock to economists that had predicted a point 1% gain doesn't seem like a big difference didn't you know minus point three overs point one but it it was. Some of the drop can be attributed to lower gas prices. You know that that did the study is how much do people spend on these services and even if you're buying the same down in the same number of gallons of gasoline. You're paying five or 6% less per gallon on the gasoline that's gonna drive down on the revenue. In this calculation. Food prices climbed a little bit. Shelter costs climbed quite a bit they're up about 3.3 percent but everywhere else inflation was pretty weak. Carol airfare communication medical services. All were down. And you know you might say that sounds good it means I don't have this pay as much for services but the reality is the Fed wants to see some inflation because it's indicative of a relatively healthy economy. Without inflation the Fed probably can't tighten monetary policy in the are already so low that you know if we do run into. Potential problems on the road how are they gonna act to our problems the economy at that point that's why they want a normalize rates right now they don't want to tighten. They just wanna get back to normal level so they actually have some tools to combat the next. Economic out slowdown. So that's why they watch inflation so much. A man YE. You know what seems great to consumers lower prices lower gas price sure you're in a way it is. It doesn't necessarily signal he's a strong economy. On the that probably means interest rates are likely remain lower and that's why that the Fed announcement this week to raise rates and and and continuing to project their rate hike going forward. It was a little bit surprising to people given given especially the week unemployment inflation data which is what I'm gonna talk about next inflation was. Another week number. This week it's slowed from. 2.3 percent at the beginning of the year to oh run rate now about one point 7% the target for the feds around 2% right. And again that's another thing we're consumers like to see low inflation but that's a number the government really has is targeting. For a little bit of inflation and about 2% to like to see that exactly exactly. So you know with weak weak retail sales mean consumers account for two thirds of our economy and if if they're not spending as as much as anticipated. That's gonna have a negative drag on GDP growth. An and frankly if inflation is lower than that probably means that interest rates are lower for longer than that though the Fed you know. It might not be able to do everything they wanted to do and maybe there are some other problems up there some say that the retail. Data was really Mora a shift in consumer tastes you know shopping on line more price conscious I think there is definitely something to that. On the other said that they expected to release via a blip. And for it to really recover because the boot the fundamental story for the consumers too strong low unemployment. Are relatively. You know rising wage is not as high as he'd like to see but certainly going in the right correction. And high consumer confidence and that's a stool and our number on and then homeownership and end. A lot of pent up demand for housing a lot of people do anticipate. You know consumer spending to be strong and and hopefully this was just. So the next story we need to address is the grocery wars and a lot of stuff happened including Amazon and jumping into the breach so. When you fill us in and what happened over this last week and it's funny when it when I was putting together this outline over the week and it started with Croker. And you know Kroger announced pretty disappointing results and the stock was down 20%. I'm the CEO said that this is an incredibly challenging time that there's so much. The consumers'. Demands have really shifted. And that there's a lot of disruption going on in the industry. Couple days later Amazon. Announces that they were gonna be buying whole foods. For about 25% premium to stock price and Amazon was really just dipping its toes into the water of Tom. You don't groceries are testing it out a few markets and then buying. Whole foods was was really a big commitment to space a lot of people and anticipated then becoming a more involved in the space going forward. But this was really a big shock and it's sent. Crow we're down after after it's frankly Kroger was already down about 12% this year. After they had negative about earnings and then negative forecast they were down another 20%. And then it was announced that whole foods who's being acquired by Amazon core result of the 50% so it has not been very very good run for Croker no. Brown and frankly a lot of the other gross restorers responded were armed and in the same way whether discount. Alec Wal-Mart was down about six or 7% Costco was down on the news just because they don't like to see. Amazon making such a big commitment to respect there that's the main reason nobody wants to compete with the amateur hour we are exactly and then you might say you know was it really that good of a business and it's a low margin business in the US grocery industry generates about 600 billion. Dollars a year in annual revenue. Big number but the Martins are only about two or 3% real and frankly they're getting tighter. You know you've seen food costs are a commodity food Costco down which has forced a lot of these on these retailers frankly to cut prices which is hurt their property more in some cases they've been forced to increase wages for their employees that's cut in the margins even more and now Amazon's getting into the game and you now have some international supermarket chains coming targeting the US mom as well you have. Wal-Mart ramping up their grocery efforts and it's really just more of this. Trend towards. Value but at the same time consumer certain or not gonna wanna sacrifice quality. On their stolen wanna pay. Low price they probably want more convenience and that's that's really what Amazon and Wal-Mart brings to the table cures. Quality convenience and and frankly that presses and that's that's gonna create significant headwinds for the grocery industry. Up all gonna bring down margin even further and I'll talk in the next segment kind of why isn't Amazon's so interest in such a low margin business tool dress that why Amazon's interest to do this I mean aren't even interested in turning your problem we'll address that when we come back its plans strong financial form. This is tall Parsons president of planned strong investment management. And you're listening to the plan strong financial forum on WRKO. Boston's talk station. If you like what you hear on our show and what need to take a look at your investments and retirement plan called my office of 80889727526. That's 888972. Plan. Securities and investment advisory services offered through metro metro group member to go as I can see classroom investment management and building business financial group thinks is located in Washington street domestically. The six. Hi this is on he Nelson. If you're fifty or older here's a suggestion. Commit to getting your financial house in order over the years you worked hard took chances made sacrifices. And built up as much wealth as possible so you'd never run out of money in retirement. Well. Now it's time to get organized and to make sure you have a financial plan will protect your retirement. If your financial life together. Call Paul Parsons at planned strong investment management. A schedule financial checkup call 8889727526. That's 888972. Plan commit to getting your financial house in order call 888972. Plan or vision plan strong dot com. Securities and investment advisory services offered through next financial group. SIPC plans to investment management as unaffiliated and X amount of money and little tiny because I don't. This says financial dog can do your signing and informative. At least it's informative it's black and strong financial forum where you hold portions president's bold plans stronger investment management. I can cover the anchor desk called Parsons is not here right now he's in London on a well deserved vacation round is a Google deserves it's brutally is Alex. Best of course it is Alex's CFA and he's got an analyst at plans strung him have been talking about. The news of the week and a lot of stuff going on so will we talked about the grocery wars and that Amazon. Dipping its rather large and inches of toe into the grocery waters. And you talked about how the margins here are very very slim so once Amazon's interest there aren't they didn't seem like they're kind of used to that slim margins anyway. Are they are so and this actually might be an improvement to their mart okay faster on so as as just to recap from the last segment. It's it's about a 600 billion dollar in annual industry in the US. In terms of revenue. Only about two or 3% margins moms for the players. When they get herbal or cost of paying employees and and so forth. That's not a particularly attractive margin but in tougher for Amazon which. If you took a look at the last should it turn a 136 billion dollars worth of revenue and 26 team. And only 2.3 billion dollars of profit that's a profit margin below 2% third they're used to. Selling certain things at a loss certain things that a small profit just to really get you hooked. On the whole concept of Imus so as I said two or 3% margin business probably going to be driven down even more. On through shipping costs if if I'm that becomes kind of continues to be a theme. That Amazon's going to you know be delivering these fresh cursor sticker door going to be having armed. You know a much more convenient shopping experience I don't know about you but. Going to the grocery stores when my least favorite things to do did convenience is not a word did you as I go parents you know I know planned on or anything is I end up going to the end of the story having to go back to the beginning and never finding what I'm looking for and never being able find an employee at the store who knows what I'm looking you don't Newt knows where to locate what I'm looking for so it's. Something that should take about. Ten minutes ends up taking over an hour ago and then you have to on loan and all this other stuff. Convenience is. Incredibly important to me and I assume that that's what Amazon's really brings the market run if so that's something we'll be looking for from Merriman and as you say they're they're they're comfortable with slim margins and a this mighty can help them out then and you know. These as I said a lot of what they've sold has been at a loss over the years you know maybe they make us a slight profit on the product but then they lose it to shipping costs come that's released just kind of been the didn't do the focus of Amazon at this point. One way or another they're gonna monetize to a special they're gonna make some money for Iran and even if they do lose some money on certain things are getting you know be given him enough time and personal information they have about either gonna figure a way to make some money. Oh they're making in my nursing all right so I can tell you can definitely make you money from an I don't know how but it seems like I'm writing them. Checks or at least I was seeing the dead it's not my credit card for a very often. So they're they're making some money from me and there's going to be a problem there's some of the but I feel the same way we I think we all we all have and the Amazon wish didn't exist promotes most of us not too long ago to become a very large monthly bill. It has. And it's just it's there every month I mean it's it's it's. Forced other bills lower but I definitely by more than I've Amazon dot that I would have other us just because it's so convenient and who doesn't like a package waiting for the wings. And perhaps food will become one of those bodies sooner or convenience via and if they can do there are either party in the business. But rather really just testing announcer certain markets they've had quite a bit of success and positive feedback so far a lot of that was from Seattle. Which is where they're located so you know that they might be a little bit by assessing their opinion for Amazon might be a little bit higher than other other people around the country but overall it's been a good. A sort into the industry in this this acquisition really was was a big move for them to to really make this a bigger part of the business for. Alex a certain change gears a little bit and talk about the meet your round table from Barron's. Com once you just explain big picture what happens here what would baron's does. There and every year celebrates every year her so they they have a panel of experts in these experts are anywhere and from mom you know Goldman Sachs and JPMorgan to one of our favorite guys Jeff gun lock from double lined their ominous poll them on their expectations for the year to date they discuss some of the paper stocks some of their favorite industries. Ominous talk kind of generally about what what the tone was yeah. They also assess kind of how your views changed since beginning of the year and that's what to meet your round tables for and so rather than them all getting together lake they do in January it's a much bigger event. This is really just a phone interview where where they they pull them all over the phone so it's not employed is the biggest story but I'm. There were some some interesting changes. I don't know if you were call I think I discussed this one of the last times those on the show in January. Com the group generally believe that the markets were performed well. For the first half of the year a lot of them were saying the market was gonna cheer just been everything that trump didn't. Wrong about that they were right about the fact the markets did well for the first after the irreverent markets were definitely not cheering anything to do with trump. For the first half of the year in fact I think it the pessimism for the trump administration now was about as much as the optimism was in the markets shortly after the election. Probably swung a little bit too far in the other direction if you ask me. The it just kind of back to the scorecard how'd they do for the first half. Many caution against Europe. They saw some of the local bands there that was not a good call because Europe actually has has outperformed the US men emerging markets have been even better. Most of them thought that. The Fed raising interest rates would mean that. It bonds would do poorly. Actually has not happened either bonds have done relatively well that are that are annualized rate of return about 6% for the first half of the year there about just under 3% now. Rates have actually come down which most people predicted rates to go up. So take everything they say with a grain of salt there were some some within the group that were much more. All spot on than others Jeff got locked for one did predict that the markets would do well for the first half of the year but he thought it would be because interest rates coming down. He also predicted that Europe and international would be a better place to be in the US that was the case he also predicted that. Emerging markets would be even better then developing a national and that's been the case so far. He's actually changed his tone a little bit. Many of the panelists now sees the tough second half of the year partly because it's been such a good start it's hard for. The momentum to continue church on some of the received mounting on risks whiff with what's going on in the US politically. They're seeing some ships out of some. Momentum stocks like the tech stocks that have gotten off such a good start of the year. And frankly they just think evaluations are not nearly as compelling. I'm going forward. Don Black at this point is kind of in the same boat he he thinks that were a little ahead of ourselves he doesn't. Necessarily predict that markets are gonna go down from here he just doesn't really see that much upside for the second half of the year for the US stocks and and granted everything we're talking about here is very short term if he does continue to have to think that the international trade has legs he thinks that. A lot of those economies are improving in Europe Japan. Emerging markets and that that trade will likely be a continued. Profitable trade. Relative to US stocks from here on out. For the rest of the year he does think now that interest rates are gonna go up. That. Those people were a little bit too negative on the bond market start the year another little bit too positive they think you know. Just because rates have been coming down it means there's gonna continue to happen. Generally what most people there was a big they extract the project future based on past he's thinking that rates are actually arise too about two point 82 point 9% from here on the tenure. It's trading ended just under 2.2 right now so that's a pretty significant jump for the second half of the year. And that could mean that frankly interest rate sensitive sectors like bonds. And utilities and real estate and things along those lines might actually suffer for the second half of the year. Were certainly positioned for that with our client portfolios. You know we frankly have seen interest rates being a little bit too low. A relative to where they should be. If if you look at historically where the tenure has created it's it's generally been right around where nominal GPS and when word three to 4% nominal GDP growth and that's frankly where the the the ten year treasury should be trading. And it's stuck at about 2.2. A lot of that is based on the Fed buying bonds are reinvesting. Are maturing bonds you know a lot of a lot of demand for bonds keeps keeps prices up and and rates down same thing internationally if you have a lot of the central banks around the world doing the same thing. Keeping interest rates low. Buying buying all the supply of bonds keeping those rates sound and that has an effect on our bonds as well I know Paul's mentioned in the show in the past and and that's kind of it's likely to continue some but there is some X expectation that the central bankers around the world are likely going to be easing up this decide QE program. Japan didn't didn't stepped take their foot off that gas this week but it is expected that they will you know sometime in the rubble so we your future. There's also a little cautioning against an investor shifting to reach here at city index funds that's nothing why is just not shocking them given given the nature of the of the panel it's there are always leave it could forage there mostly active fund manager right arm in America you know and and ends of their career is based on picking. Stocks more areas of the market that the finger and outperform from him and what investors have done is they've actually said oh you know we don't think that they're gonna be able to do that consistently let's just go with an index fund or an ETF. You don't pass a strategy and what we did for those of you weren't too familiar with passive index ETF and so forth when we just briefly explain it. Active means that you are actually. Doing research and making predictions as to what companies are gonna do better and others you're doing what's called fundamental analysis in many cases. You're projecting what a company is going on next year in the year after and and frankly what sort of value they're gonna return to the shareholder. And discounting that back to the current took to figure out what the intrinsic value us and comparing that to what the stocks trading so. If they think stocks over Chrysler either gonna avoided her or bet against that. They think of stocks under price maybe they gonna they they overweighted in the portfolio that's active management and actively managed mutual phones. But a lot of people have come out and said oh fees are too high end and these guys aren't. Guys and gals are always right. Wanna we just bet all stocks you know for example there's an index fund for the S&P 500. That instead of picking a fifty stocks within the S&P 500 there they're picking off 500 and they're just waiting them whatever the market waiting list. And rising and falling with with that. And that's strategy has been successful in recent years. Especially as the US is outperform international press and as people have really been wrong on their calls on interest rates. A lot of these these folks are cautioning against that saying that it's creating bubbles it's creating. Companies are trading on fundamentals and I think there is something to that if you just look at the flow and to index funds and ETS. From 2007 to 2014. They took and one trillion dollars in new money at the same time active mutual funds lost about 700 billion. My love of money. To these passive strategy and current and of course they're not particularly happy about that other defend their stock picking to the end a lot of them are great moments it's a lot of them can't justify their fees because they they are outperforming and they and they they they don't are able to. Consistently outperformed the the benchmark index but it is something that is creating these headwinds and and it was something that wasn't just mentioned by these panelist JPMorgan actually came out with a study. On that I'll get to the beginning of the next segment. So when we come back we'll talk more broad that would do review of the media roundtable from Barron's is strong financial form this is tall Parsons president of planned strong investment management. And you're listening to them plans strong financial performance WRKO. Costs talk stations. If you like what you hear on our show and what immediate take a look at your investments and retirement plan called my office EDD 89727526. That's 888972. Plant securities and investment advisory services opportunity for an intra group member to go as I can see Clinton mismanagement and filling in this country grouping things computed tiny Washington street demands include who. Hi this is Bobby Nelson. People use different strategies to acquire enough money for retirement. Some try to do it themselves. Others buy insurance for investment products though sometimes will benefit the seller more than the buyer what makes sense is to hire an advisor with first rate credentials and why do investment management experience. Should have a fiduciary obligation to act in your best interest. And be paid the same amount no matter watcher invested in if these things matter to you. Call Paul Parsons at plan strong investment management to learn more call 888. 9727526. Hiring the right advisor could be your best investment. That's 888972. Plan or vision plan strong dot com. Securities and investment advisory services offered through next financial group member and SIPC plans to investment management does not definitely not an improving and we'll give you and I need to Washington street Dedham mass. Ground zero for your financial news and economic commentary. This is a plan's strong financial forum where all portions president of home plans stronger investment management. It's okay. And again you're burning the anchor desk and Paul Parsons is not here he's in London enjoying the brain and I. We don't want to be enjoying good weather. And I'm here without its vendors CFA was and it was an analyst with plaster and let me just take the storm to remind you. Of the toll free number you can reach Alex and nor Paul eighty 9727526. That's 888972. Plant. Review online to plan strong dot com this is a good time to call them to set up a time. To review your portfolio this that Imus. Everything wouldn't argue about your Alex over this up at the last portrait minister so really addresses the amount of change going on Clinton this is this place is Mardy is in flocks dot com. Some folks say good for example justly about Florence some folks who say neither budget is still changes is definitely happening. And this the time for you to decide if take a look at your portfolio to see if it is if you are structured properly for what's coming next six months year year and a half etc. this is this is. Not up by an old market around this is not in my opinion they have a market where you just go with the flow I think come. Especially now you're starting to see certain sectors do and do phenomenally well and certain sectors really suffer. On the depending on how you're allocating your your money between your portfolio as you can really take advantage of of some of these trends that are coming. Not not not necessarily ones that are already here but one's actually you predict that are going to be coming later because as you know the market is always predicting. It's always looking at you know whoa what's this company can be doing you know 510 years from now not just how's it how's it done over the last quarter rent. Once again the till for a number 88897275268. DD 972 planned use it was Alex and Paul bulletins every meeting. Just don't like to plan strong dot com you can send them an email that way too. Or 888972. Plan for a no obligation portfolio review Stewart talking hours before the break about. The the Barron's armor. You're review really are right a lot of money's leaving leaving active mutual funds and and when I just what I described in the end and last segment was active mutual funds are. You know analysts who are really looking to identify companies that are creating get a good felt right. An end to end in such betting on those companies' relative to other companies with an X vs passive funds are really just. They say oh I just unhappy to grow with the market timber taken him I want to pay low fees low transaction costs low tax consequences to doing it this way. I'm a lot of money has shifted to that latter approach. A trillion dollars between 2007 and 2014 has left. Actives are sorry has actually gone into index funds passive management. And 700 billion has left. Actively managed mutual funds and he's panelists. Are you know from his parents. Berenson our roundtable are all active managers and I'm so clearly they're they're going to be addressing this big shift in how money is being managed. They're talking about bubbles that are being created by this new strategy of just you know not. Not necessarily. Pricing properly stocks you know for the stock has has better prospects it should be priced more favorably than a stock that that has has lower growth prost. So were you saying that some of some stocks may be treated. And you people really going some sort simply because are included on an index the right and for example charm for example look at look at those are the movement of the the famed socks this year yeah you know FaceBook. Amazon. Netflix and Google they called on phenomenally well. They're also they also make up the largest proportion or some of the largest companies within the S&P 500 run so if you're buying an S&P 500 ETF. You're buying the largest companies within their ETF member of a lot of people are moving into that strategy then that means that there they're continuing to buy those stocks. Whether or not they like all of them are they like three of them if they're just buying the index are buying the mall. Which is kind of pushing up all. On the other hand. If people decided. That they wanted to get out all at once then that would lead to the the negative effect happening and that's a lot of these these analysts and end fund managers are warning. Is that you know all this money into and so passive management is is really there's a lot of miss pricing. It's not being fixed by normal trading because JPMorgan came out with a study this week that said. Only 10% of of equity stuffed a stock trading. Is done by people who were actually looking to to buy stocks based on no fundamental root value and that 60% of that is either passive investor and you know index funds ETF. And quantitative models which. Do you c.s computer algorithms to determine where they wanna trade back so you know maybe maybe tech stocks have done well well you know maybe they have a momentum strategy that says. You don't buy things have done well because we think they'll continue to do well credit for so you buy a moment and ETF it's gonna push the stocks that are in that ETF up even higher. Fred so so might an index funds fund almost become a self fulfilling prophecy exactly. Stats this year right that's the fear. Some people like you say to people decide to get into it the stars just won't be computers people decided to get into it you move side to get out of it for no other so everything they're not you know maybe they don't. Necessarily think that a recession is gonna change the that the business of Kleenex. But if they sell the S&P 500 they're selling a company that makes Kleenex. And she has so I know also happen as is their but the thing stocks exactly are exactly and interest or you know it could certainly helped the stocks but it could just as he easily hurt them if things turn an end. We have seen the thing stocks down about two to 8%. In the last couple weeks after frankly getting off to us slightly better than. Expected start they were up there still about 20% on the year but some of them were up 3035%. This year and then this. This our recent pullback you know might might change the trading that is the buy singles on this momentum ETS and people are gonna be you know the momentum ETS gonna do you view selling these names and people might not wanna buy growth anymore they won by value which means of selling even more could these advisors also be a little afraid of computer trading models and algorithms that might be sending out. By signals now and then. Switch to a cell signal that's become a much bigger portion of the market again it's it's not based on fundamentals it's it's based on. You know. Computers looking at patterns and and and predicting what patterns are gonna continue on what patterns are gonna reverse. And that's sort of trading wallet can be effective in the you know the short term it's certainly. Could have a negative impact longer term. Alex moving out of two belongs a little bit time there was an article in Barron's talking about. Our bonds signals and historically short term interest rates rise when the rise above long term rates. Bull markets for starts have ended and bear markets have begun or are we seeing that could we be seeing that what do we what do we learn from this article. You know let's let me put teeth this puts it this way and kind of and it's called the yield curve. And people look at it because that the shape of the yield curve can be indicative. Of how the economy's performance. You're losing me on chief of current government that's why I want how to get into. So the yield curve is nothing more than. You know zero year third US call one day loan all the way out to a thirty year low and you'd expect in a normal market for. A short term bonds are short term interest rate to be lower than a long term interest rate you'd expect a ten year mortgaged it to ten have a lower mortgage rate that a thirty year mortgage. And that's that's customary given normal market. There are times when you seat short term rates exceeding long term rates so. A true year treasury. Yield would yield more than a ten year treasury which doesn't seem right but it happens and and one that does happen. Historically at least it has. Been a signal that a recession is on. Or that's the stock market might be Pete. And what we've seen recently in the US has been the what's called a flattening of the court so. Longer term interest rates are falling. Interest and shorter term interest rates are rising. So the fear. And we're not there yet is that if short term interest rates rise too much worse long term interest rates fall too much or combination. The net might signal a weakening economy and might portend. Trouble times. So visited the spread between a ten year US treasury two year US treasury sort of the year about one point 3%. So a ten year treasury was paying. Caught 2.5. And a two year treasury was paying one point two thus the spread of one point 3%. That's spread now is about zero point 8% so we've seen a fifty basis point reduction in that spread which is a pretty significant move. When you look at it beyond. Kind of under the hood. All I'm seeing is a an unwinding of the Crabtree and because this is the steepening of the yield curve. Went from eighty to a 130. Differential. When trump was elected because people thought that treatments don't work roles for men higher interest rates higher inflation and that generally. Brings a steeper yield curve it's gonna send longer term interest rates up. And cents. You know what these investigations. And ends. You know some although the lack of agreement and congress people are now saying you know what. All these assumptions we meet about trump are probably not gonna come true so we have to give up all the gain that we saw from that country. And that's that's I think it's it's more story of that. It is oh you know the economy's weakening there are signs that that we are a bit cool too long in this economic recovery but. Just because we've seen a reduction in the yield curve and in the spreads. Doesn't necessarily portend a recession and frankly if you look at the day historical data suggest that. The recession doesn't occur until you know after. The yield curve becomes inverted so not until after short term interest rates exceed long term interest rates rise and we're not there yeah we're not there yet and and we may not be there and we may not either you know there there's been movements in this send some of them have been fundamental some of them have been based on the Fed buying. Come on saying don't take too much into it is just one of many economic indicators that we're looking at. Mom as we meet strategic asset allocation decisions for clay court. Alex vendors and our guest today you are filling in for all Parcells Bobby Jack next week Al Aqsa is an analyst at classroom once he and the toll free number eighty 89727526. That's ADB 972 plan. Or go online to plans strong dot com to set up no obligation portfolio review Alex thanks for joining us today thanks for having a disciplined strong financial form. This is tall Parsons president of planned strong investment management. And you're listening to them planned strong financial forum on WRKO. Dawson's talk station. If you like what you hear on our show and what need to take a look at your investments and retirement plan called my office. 80889727526. That's 888972. Plan. Securities and investment advisory services opportunity for me to prevent member Tim as I can sequester investment management is an affiliate of this financial grouping is located in Washington street and Massachusetts. And strong investment management is located 980 Washington street Dedham mass 02026. And can be reached at eighty to 89727526. Political views may not reflect the views or opinions of next financial group the securities and investment advisory services offered through next financial group ranked number fender SIPC classroom investment management has not affiliate in its financial grouping this radio show is for informational purposes only and is not a solicitation recommendation that any particular investor should purchase or sell any particular security. The information contained herein is obtained from sources believed to be reliable but its accuracy and completeness or not guaranteed neater next financial groupings nor represented two of provides tax advice.
READ MOREREAD LESS