Steve and Dave start things off by being the last two people on earth to wish you a “Happy New Year”! It’s a perfect prelude to their Predictions for 2023 extravaganza . What does the new year have in store for the “3 B’s” (Bonds, Bitcoin and Bezos)? Will the Fed pull off their “soft landing”? Is the 60/40 portfolio dead? If you like a slew of prognostications, and new financial catch phrases like “Slow-cession” and “The Great Inflation”, then hurry up and turn on Episode 98 of Plan For Life Now!
Steve:
All right. Welcome to Life Now, episode number 98. Happy new Year to everyone. Happy New Year to you, Dave.
Dave:
Although this is our first one of the year. This
Steve:
Is, we did one, uh, December 30th, or I’m just, yeah, December 30th. And now here it is, January 31st. So I’m still able to say Happy New Year to everyone.
Dave:
And since it’s our first podcast, I’ll say Happy New Year to everyone, even though my own personal rule is after January 15th, you stopped that already. It just gets annoying.
Steve:
Well, you know, I I, I feel like if you haven’t seen somebody yet, that deadline can extend a little further. So you could say, oh, I haven’t seen you. So Happy New Year all the way to the 31st, I think tomorrow, February 1st. Hard cutoff
Dave:
<laugh>. Absolutely. Absolutely. Geez, what’s happened since our last podcast? When was our last podcast?
Steve:
That’s what I said. December 30th. Oh,
Dave:
Okay.
Steve:
And we, you know, we had an awful lot to talk about there towards the end of the year, and we even started to get into some of those, um, you know, some of those predictions made by different authors and different analysts for 2023. So I, I want to spend some time going through those today. Um, I know you had, you had sent me some stuff you wanted to go through. Um, actually I’ve got, I’ve got a pretty good amount of things. Pretty good list here of things to go through. All right. So let, let’s start though by recapping 2022 <laugh>. It was a rough year to be an investor, and when I say it was a rough year to be an investor, just to give you a sense, um, you know, we talk about an awful lot about a 60 40 portfolio. And what we mean by that when we say 60, 40, 60%, 40% bonds, kind of your basic diversified portfolio. And 2022 was one of the worst years in history. In fact, it was the third worst year in history for a 60 40 portfolio. So a, a 60 40 portfolio lost 16.9%, we’ll call it 17%, uh, last year. And to get any worse, you’ve gotta go back to the Great Depression. Wow. So excluding the Great Depression,
Dave:
Wait a 60 40 in a single year, I guess January one, the September, even in the Great Recession, obviously
Steve:
Even the Great Recession, uh, where does it fall in here? Great financial crisis was only down 14%. So you go back, you’ve got the great inflation. That’s what, what some people are calling 2022 market crash, the great inflation, which I guess until somebody comes up with anything better, we’ll go with that. Um, you’ve got the 73 74 Bear Market, 14.7% loss, uh, great financial crisis, 14%. You know, there’s several data points in here from Great Depression. So 13, and then most, the rest of ’em are less than a 10% loss. so.com more 73 74 more.com. So it, it was certainly a bad year for a broadly diversified portfolio of stocks and bonds
Dave:
And bonds. As bad as stocks were bonds are the villain Yeah. For this
Steve:
And that <laugh>. Yeah, I mean that, that’s a line that I’ve been using in our review meetings. When we look at how poorly stocks did last year, you know, large cap down, 18 to 19% there. Um, you know, I, I say to people, I say, look, it was a bad year in stocks, but we sort of expect bad years in stocks. You know, it’s anyone who’s a student of the markets, or I shouldn’t even say student, just a casual observer of the market should say, yeah, I know I’m gonna lose money in stocks every couple years. And the scale of the losses last year were very similar to other declines for an economy that is slowing down and might or might not go into a recession. What’s not at all similar to past years is what Bonds did. So bonds were down 13% for the full year. And one of the charts that I used, uh, shows that the prior worst year for the aggregate bond market was a loss of 2.9%. So by my math, 13% is four plus times worse than a 2.9% loss.
Dave:
Right. So,
Steve:
And that’s really what made the
Dave:
- Right. So this leads to a jeopardy question. You’re not gonna get this because this is just something in my brain that popped in. Okay. You know, jeopardy. Cause you get the answer and then you have to guess the question.
Steve:
Okay.
Dave:
The answer is no, no. God no. Don’t say it. No.
Steve:
<laugh>.
Dave:
What’s the question?
Steve:
Is this going to happen to Bonds again?
Dave:
Close. Is the 60 40 portfolio dead?
Steve:
Oh yeah.
Dave:
Yeah, because I saw one of those articles, right? No, no. God no. Stop
Steve:
<laugh>. Uh, who hosts, is it Ken Jennings that hosts Jeopardy nowadays,
Dave:
Or does he he, he shares it with a female co-host. I think she was the woman from the Big Bang
Steve:
Blossom, right? Not from the Big Bang from Blossom. Was she also on the Big Bang?
Dave:
Is this the Big Bang about those nerds who are like scientist? Yeah. Yeah. You just, you just lost challenge me on TV trivia. One thing I have, you have all this so much stuff on me, but not that one
Steve:
<laugh>. I watched Blossom. I’ve, I’ve, I’ve watched the Big Bang, but not much. Um, okay, so yeah, I agree. I, I mean, and that’s <laugh> that’s the thing when you talk about bonds performing so poorly last year, now, you know, I will say that, that investors who were positioned for rising interest rates and positioned themselves in shorter term bonds, um, which would be most of our clients, you know, did not do nearly as poorly as 13% loss. Um, so, you know, but some of those funds, you know, still lost 5% on the year, so still would be worse than the worst year ever.
Dave:
Oh, yes. We’re trying to be conservative. You know, I, I obviously we don’t remember, we’ve been doing the short term bond thing forever, worried about interest rates and figuring that’s okay. But in our worst years with you and me, it’s been like, what, half percent? Yeah. Something like that.
Steve:
Right? I mean, it’s basically been flat for a bad year. So, but what I will say the silver lining to such a bad year in bonds is, Hey, has anybody gone out and looked at CD rates or money market rates recently? You can actually go out and buy yourself a one-year CD paying 4.75%. You know, you can actually go out and get some reasonable yields on, on some of these assets that quite honestly, since the financial crisis back in oh 7, 0 8, first part of oh nine, we just haven’t been able to put money in those kind of assets. You know, you’ve just been getting no yield whatsoever.
Dave:
So, yeah. And we have, we have a lot of access, obviously, to products and investments that are tied to interest rates, and they are really attractive right now. A lot of them.
Steve:
Yeah, no, you’re right. I mean, even just going beyond bonds and, and, uh, you know, CDs and things like that, if you expand it out to, you know, fixed indexed annuities, even variable annuities, some of the structured products, all of those interest rates being higher makes all of them more attractive. So, um, you know, that, that has really changed, uh, the way that you put together a portfolio and, and look at diversification there. So I did actually, Dave today, because I had so many different things that I wanted to talk about, I did actually put together some show notes for myself. So that’s, that’s big. That <laugh> that we were doing this. Uh, so when we talk about 2023, one of the things that I want to get to is some predictions from various pundits and authors and things like that, that are out there. Um, but before we do that, Dave, let’s touch on that article that you sent me from the Washington Post. Um, what was the gist, uh, of this article here? Remind me.
Dave:
Yeah, it was an opinion piece, and it’s titled what the Mass Tech Layoffs mean for the US Economy. And the gist of it is, as you’re having more and more white collar layoffs like tech layoff Yeah. That is really now starting to affect the economy because these are the people who are now gonna cut back on, uh, big ticket purchases, things like that. Yeah. Uh, you know, anything vacations, think about the things that you would guess that a a, a high income white collar person would cut back on if they are laid off or, you know, they’re not getting the promotion or whatever is going on, and then they say, this is gonna lead to what this person believes will be a slow session. Yeah. So we have another nickname for something,
The Great Inflation, horrific Slow Session, not great, but better <laugh>. Um, and what I was thinking of when I read this was, you know what really the Fed, the big, like another villain in this whole thing has been the Fed, the Federal Reserve. Oh my gosh. They keep raising interest rates or they’re didn’t do it early enough, or this or that. Yeah. And get rid of Powell and a million different things. They’re basically the scapegoats of, of everything. But their goal always was to, uh, basically, uh, I’m trying to remember what the, the word was and Oh, soft landing. They have a soft landing. Yep. So in other words, you know, we kind of have recession, but not really. It’s a soft landing. It’s not bad unemployment, it’s not ultimately bad on prices. It, and that soft landing, if you were to go by this opinion piece and start to look at some of the evidence with inflation dissipating with these tech layoffs, which quite frankly is, might add to that and, and other things, maybe we’re heading to the soft landing, they’ll sort of thread the needle there, the Fed, that was their goal all along.
Steve:
Yeah. And I, it seems reasonable to me. I mean, if, you know, if somebody asked me directly, are they Right? Seems reasonable. You know, I don’t, I don’t know the data well enough to say yes, they’re right. No, they’re not. Right. But yeah, it seems reasonable because that is, you know, all of these tech layoffs have been getting all the headlines, you know, when they talk about, you know, 8,000 people at Salesforce, 10,000 at Microsoft, 12,000 at Google, 18,000 at Amazon, blah, blah, blah. You know, they’re getting a lot of the headlines, but a lot of those people are, like you said, those higher paid people who are gonna spend more money on discretionary items. And quite frankly, the unemployment for the lower economic spectrum who does spend more money on necessities, um, unemployment’s still been very low. So, uh, maybe that is the key to, to threading the needle there, like you said, and, and having that soft landing. I mean, that, that’s what the Fed is trying to achieve. Um, but there’s no, there’s no guarantee that any one method or one approach would work.
Dave:
Correct. And there’s always landmines ahead anyway that we don’t even know about.
Steve:
Of course.
Dave:
Yeah. Like the debt ceiling, which we really don’t know about. Yeah. In fact, what is predicted this far ahead, I wonder if it’s actually gonna be a problem. It’s like reverse pathology.
Steve:
I I, I don’t wanna get too worked up over the debt ceiling until we have to get worked up over the debt ceiling, cuz
Dave:
Right. We gotta save that for a future podcast. There’s only so much stuff to talk about.
Steve:
Yeah. Um, alright, so let’s dive into some of these predictions in here. Um, and, and I thought this was pretty interesting. This is, uh, this is from Michael Batnick, um, and Michael Batnick. He, he does one of these podcasts that I listen to. In fact, you know, a little detail behind this. He is part of the Barry Riff, Holtz Empire, <laugh>, I dunno if you listen to any of those guys. Um,
Dave:
I, but see I have a little bit, I don’t real, they’re not on my two listen list. But now that the, uh, commander season is over and I can get over that obsession, I have more time to broaden my horizons.
Steve:
Um, so, you know, he, he did these predictions here and, and so I’m gonna go down on these, this list and you can chime in if you agree or disagree here. Um, so number one, bonds hold their own as a diversifying asset. Agree or disagree there?
Dave:
Agree.
Steve:
Agree Totally. I don’t <laugh>. I I think that one’s an easy one. Well, that was a layup there. He wanted to get started on a, a nice easy one. Um, how about this next one goes right along with what you said before, um, tech layoffs continue. So big tech layoffs continue.
Dave:
Uh, soft agree,
Steve:
Soft <laugh>. Yeah, I mean, I, I think so. I mean, I think a lot of now y you know, I go back into to give some context to some of these tech layoffs, you know, you talk about Amazon and, and all of these tech companies that were some of the biggest beneficiaries of the pandemic, you know, as we were all stuck at home, we had to order all this stuff online. We had to find ways to entertain our kids in the house. So we had to order more devices and more, you know, everything. So tech was a huge beneficiary of the pandemic. And I think, I think Amazon basically during, from 2020 to now had basically doubled their headcount. So, you know, they went from, I don’t even know what the numbers are, but you know, so they go from, you know, a hundred thousand to 200,000. So okay, they cut 20,000 jobs, they’re still way ahead of where they would’ve been.
Dave:
And I think that goes for almost all of these tech companies, way more employees now than right before the pandemic.
Steve:
Yeah. And you’ve seen a number of
Dave:
Playoffs.
Steve:
Yeah. And you’ve seen a number of these tech companies, you know, Peloton is a great example. You, you’re a a Peloton guy, right, Dave?
Dave:
Uh, you know, actually I was in the, I’ll do it occasionally when I haven’t worked up a sweat. I’m really more of a Peloton classes guy.
Steve:
Yeah.
Dave:
The little classes for your core and stuff like that and the weights and things to help older people like me not have their joints atrophy Yeah. More than,
Steve:
Yeah. I, I, uh, well my point on Peloton is the Peloton guy, you know, came out and said, I think their stock is down 94% off of the highs. Um, you know, and he basically came out. Yeah. Well we made the mistake of thinking that trend from the pandemic would continue, you know, into the future. No kidding. You know, we kind of figured at some point some percentage of people were gonna go back to gyms and, and you know, going outside their house. Right. All right. Um, now this next prediction off of Michael’s list here, I think this one is really funny. Um, just because here’s the prediction. Jeff Bezos returns to Amazon now, he made this prediction on the heels of the Disney guy whose name I’m blanking on right now. Michael Eisner or no, no, no, Bob Iger. Bob Iger, yes. Not Eisner. That’s years ago.
Bob Iger came back to Disney and basically said, yeah, you know, there’s a lot of stuff that didn’t go right. He is been gone for less than two years, I think if even that long. And, you know, he came back. So Michael makes this prediction here. Jeff Bezos returns to Amazon. Okay. Amazon stocks down 50% or so in the last year. Um, and I don’t know how long Bezos has been gone for, but it’s probably something like that. So I thought this was pretty funny because I listened to the podcast that these guys do, you know, Michael Batnick and, uh, his partner, you know, and they do this podcast. So they went through all of these predictions here and, and you know, you know how it is when you listen to podcasts. You know, one of the things I like about that medium is you, you feel like you can get to know the people a bit.
Right. You know, and, and television, all the hits are have to be so tight and they, you know, okay, you’ve got 10 seconds to talk about this and that in a podcast or radio format, you know, it’s much longer form you can, you feel like you get to know the people. So, you know, hi Michael talks about, okay, Jeff Bezos might return and it’s just, it’s just kind of a, a funny thing to add to his list there where he said, yeah, you know, he might return. Okay. It’s funny. Well, what happened after he did that is it got picked up by a number of different outlets. It got picked up by C M B C, by, by Market Watch, by Yahoo Finance, by all these people. And it, it said, you know, uh, analyst predicts that Bezos returns in 2023 <laugh>. And it, it makes it into this thing where it’s like, oh my gosh, this guy’s got some insight. And you know, not at all to slight Michael here, but he was just a guy with a microphone just talking. Right. And then they go even further and, and this, there, there is sort of a larger lesson here to my story. Um, you know, they go even further and they went back and they looked at his 2022 predictions and one of his 22 predictions was the stock market might be down double digits. Right. Well now the headline reads analyst who predicted market down double digits predicts Bezos will return to Amazon.
Dave:
Yeah. That’s how you get people to click on your, I mean, that is the media that we live in today in a nutshell. Yeah. Um, having said that, if you want my opinion on that, I’m gonna disagree with that one.
Steve:
Yeah. I I don’t
Dave:
Think so. Although I might agree if we bring up the same point in 24, I might agree with it then.
Steve:
Right.
Dave:
Opera 23.
Steve:
Yeah, I, I would disagree. He’s, I think he’s having a lot of fun just being a rich guy and, you know, building gigantic boats and I don’t know, doing him, whatever else you do, if you have a hundred billion dollars
Dave:
Go to space, try to buy the rent. I mean the commanders Oh yeah,
Steve:
That’s right. I forgot about that. Um, all right. The I p O market, uh, that’s initial public offering market remains frozen. You know, that’s not surprising. You had companies in, in 21 going public like crazy and you know, because a lot of ’em are technology based, a lot of those technology valuations were through the roof and IPOs basically were nonexistent last year. Um, you know, here’s one that relates more to what we do. Um, value outperforms growth again this year. Do you think that’ll come true or not?
Dave:
Uh, yeah, I’m gonna agree with that. I, because I basically feel historically value as I’m catching up to do.
Steve:
Yep. I,
Dave:
So I believe this will be another year where the catching up occurs, because over the super long term, these two things are pretty close to even. So Yeah, I’ll, I’ll agree with that based on my own statistical thoughts.
Steve:
I totally agree. I, I think, you know, I think that value will continue. Maybe the, the spread won’t be quite as wide. Um, I don’t know exactly what it was last year, but value just blew growth out of the water. I don’t think it’ll be quite like that, but like you said, the long-term trend, these things are pretty close and it hasn’t been close for the last decade or so.
Dave:
Right. We also a year that we could feel pretty solid about not easy money out there for these corporations. Exactly. Yeah. Would help that prediction.
Steve:
Yep. I agree. I think although inflation seems to be slowing, it’s not down to the fed’s target yet, so interest rates will stay a little bit on the, the higher side of things. So yeah, I, I think that one is, uh, more likely than not. Um, what about this one gold hitting a new all-time high? Um, you think, you think gold will have a, a rally there?
Dave:
Uh, gee, you know what, you know this, I don’t think a lot about gold. I don’t know, you know, I don’t know what to say about gold. I, I I, I would say I’m gonna go with no,
Steve:
Yeah,
Dave:
I, I’m predicting gold to go up and then it’s probably due to go down a bit, but I’m not someone who worries so much about gold. I don’t think it’s, personally don’t think it’s that important.
Steve:
I agree with you. I’m not gonna weigh in real strongly on that. Um, you know, housing market doesn’t crash. Uh, I agree with that. I, you know, a lot of people are predicting interest rates are so much higher, you know, we’ve all seen the data about how much more expensive a monthly mortgage payment is at six or 7% versus the, you know, two and a half or 3% that a lot of us locked in. Um, but I, I don’t think you’re gonna see a crash in the housing market. You know, probably some regional weakness here and there some areas that got overheated. Yeah, it could happen.
Dave:
I don’t think we’re gonna have those kinds of rising interest rates for the majority of this year. Um, so I would also think that it would probably, the housing market would stabilize. I don’t think, I don’t see any boom though. I’m just, I would guess if I had to be a micro prediction, I would say the housing market would go down a little bit this year by just a few percent.
Steve:
Yeah. Um, this is another one that we’ve seen many times before. Um, and, and I would tend to agree, but I feel like I’ve been burned before, is this idea that international stocks will outperform this year. And, you know, we’ve seen this prediction, I would say out of the last five or six years we’ve seen it, you know, if six years we’ve seen it five out of the six. Um, and that the whole idea is that US stocks, depending on the day, are trading at a 16 PE ratio. International stocks are trading at 12, emerging markets are trading at nine or 10. So it’s usually evaluation story where people say, Hey, look, maybe the growth prospects aren’t nearly as good, but at those prices international, you know, is bound to outperform, I would probably tend to agree, but man, I, I’d be lying if I said I wasn’t gun shy because for for a while they, people have been predicting that and it just hasn’t happened.
Dave:
I’m gonna go in the agree category. Okay. And mainly seems like they’re off to a good start and why they’re also due to come back a little bit and say comparison to the US plus if we have a little debt ceiling crisis that would also help that them. Yeah,
Steve:
I mean I, I think the most convincing argument that I’ve heard is just China being, um,
Dave:
Can you hear my dog barking? I’m sorry.
Steve:
I I heard one bark, but it’s it’s pretty
Dave:
Faint. That’s oshi. He’s a big on international stocks. So
Steve:
<laugh>, he’s chiming in. He feels strongly about Chinese equities.
Dave:
It’s a large part of his portfolio.
Steve:
<laugh>. I, but I, what I was saying is that, you know, the idea that China maybe sort of has, has gotten rid of their COVID zero policy and you know, is opening up more fully. I’ve heard that argument to say, okay, that could be bullish for Chinese stocks. Um, you know, what about Bitcoin being up 100% doubling next year? I, you know, <laugh>
Dave:
What about, what about black or red on the roulette wheel?
Steve:
<laugh>? Yeah, I think that’s fair. I think it’s might as well go to, to Vegas or Atlantic City, wherever and just bet one or the other. Um, you know that Bitcoin and cryptocurrencies, we’ve given opinions on this stuff before, but to me that was one of the surprising, surprising things about 2022 is the fact that Bitcoin wasn’t down more, you know, if everything was down and just getting crushed, I think Bitcoin was still down 65%. But man, if, if it was a totally risk off environment, I’m just surprised Bitcoin didn’t crash even further.
Dave:
I would, I would phrase it another way. If I’m long on Bitcoin, do I feel good right now? And I would say yes, I do because after all that Bitcoin coming back, it’s still on my screen there with all the other different things I can invest in. And if I were to project out 10 years, it’s looking pretty good right now.
Steve:
So, so that’s your indicator that if you go to C N B C, they still have crypto listed there <laugh>, right? If they got rid of that, it’s
Dave:
All, it’s up there with all the other real investments. I’m just kidding all you people who have money in there
Steve:
<laugh>. Um, all right. So that’s, you know, that was a, a prediction. You know, 10 random predictions there, who knows right or wrong. I just think it’s fun to go through those. Um, one last thing I want to add to this podcast, cause I know we’re, this is a pretty long one by our standards, um, just to talk about the Secure Act 2.0, you know, what the heck is that Secure Act 2.0? I don’t think most people have paid attention to this or noticed this and, and really I don’t think there’s a ton of big things here. Um, but the Secure Act was actually passed back in late 2019. Um, of course beginning of 2020 it went into effect, but totally got lost in all the covid stuff. Um, but it, it changed a lot of the rules around required minimum distributions and, and things like that.
So Secure Act 2.0 comes along and just makes few tweaks to some of these things. Um, I think the biggest changes were around RMDs. So one thing that we saw last time, secure Act 1.0 or the original, um, the required minimum distribution age went from 70 and a half to 72. And just when you felt like you were learning that 72, now this year they’ve moved it to 73. So if you didn’t turn 72 last year, then you’re, you know, so if you’re gonna turn 72 this year or sometime in the future, y your R M D moves to, to age 73 and if you’re 10 years younger, it actually is gonna move out to 75 automatically in 2033.
Dave:
Right. I did the math, I’m looking at 75.
Steve:
Ah, you’re a 75 guy now. It’s
Dave:
Good to be 61 right now. Yeah.
Steve:
All right. Um, yeah, and I think it makes sense. I mean, people have talked about with everyone living longer and longer, you know, why are you forcing people to take money out of, out of retirement accounts? Um, the counter-argument to that would be of course <laugh> that disproportionately the wealthy people have money, large amounts of money in their IRAs. And frankly as a country we need more taxable income. So, you know, force those rich people to take it out. But rich people aren’t the ones or the poor people aren’t the ones making donations and lobbying. So, um, and a couple other things, they increase some contribution limits and, and things like that. One thing that, that, I don’t know how this is gonna fully come into effect, but I’ve already had one question from a client and it’s around unused 5 29 plan contributions can be converted or, or transferred into a Roth I R A. I’m not saying I understand it fully quite yet, but I think that could be interesting if you’ve got money in a 5 29 plan or you even decide to over contribute to a 5 29 plan to get some money into a Roth, I r a, that’s some really nerdy planning stuff. Um, but it might be fun in the future
Dave:
There. Wow. I have about $224 left over from those.
Steve:
Oh, so you
Dave:
Do That is going to help me a lot.
Steve:
<laugh> Prime candidate for that.
Speaker 4:
Alright,
Steve:
Thank you all for joining
Speaker 5:
Us
Speaker 4:
Soon.