Be it tarrifs or DOGE or whatever, the March markets start off (way!) down. A good time for Steve and Dave to reiterate their tangible and emotional investing fundamentals! Plus, you’ll learn a new phrase, “The Yen Carry Trade “.* All this and more on episode 118 of PFLN.
*If you already know what “The Yen Carry Trade” is, we recommend less screen time, and more person to person interaction.
Steve:
Welcome to Plan for Life now, episode one 18. We are joining you here on March the 10th. How’s everything going, Dave?
Dave:
Everything’s fine. Beautiful day. Okay, that’s all the fine part.
Steve:
The weather’s fine. Yes,
Dave:
The weather’s really breaking. How about that weather?
Steve:
I personally like the daylight savings time, although I know some people don’t. I am a big listener of Tony Kornheiser and Tony Kornheiser. If you’re not familiar, sports writer Washington Post long time on ESPN. I don’t know how old he is. Probably 75, 77, somewhere in that range. Man. He went on a rant the other day about how much he hates daylight savings time, but he’s coming at it from an opposite angle. He likes to get up early. I like to stay out later. Yeah,
Dave:
I don’t know. Having more light during the day and being able to do more stuff outside. I’m all for daylight savings time, and it just is also an indicator that spring is here. I’m not for permanent daylight savings time.
Steve:
Oh, I am
Dave:
Really? You realize it’s going to be dark as it could be.
Steve:
I don’t care.
Dave:
Early in the morning.
Steve:
That’s fine. I’m tired in the morning.
Dave:
No, I mean, I don’t care. It’s going to be like Norway dark. You don’t want that. Trust me. But anyway, actually every time, none of this is why we’re doing the podcast today. As a matter of fact, this is a rare one where we actually just sort of were talking and said, let’s just do a podcast now. We’re not going to plan even when, let’s just do one. And I think the impetus for that would be, and this might be totally different, and hopefully it is by the time you listen to this, but just notice the s and p 500 was down 112 points this morning so far. And that on top of all the other 112 points last week, Hey, good time for a podcast.
Steve:
Yeah, man. How quickly sentiment can change. These are the numbers from close of business on Friday, which was March the seventh. And like I said, we’re doing this March the 10th. You probably won’t be hearing this until later in the week, but as of Friday, the s and p 500 was down on the year 2.22%. The nasdaq, remember Nasdaq more technology heavy down 6.33%. And Dave, here is the surprise of the last couple of years. International stocks year to date up 11%.
Dave:
Wow. That’s because I swear I must have read something six months ago. Our international stocks dead seriously. People say, well, international, that’s never to never or something whenever, never say never in sports and in the stock market.
Steve:
But it’s been a rough couple of, I mean the s and p 500 has given back all the gains that we had from the election. So of course, let’s rewind back to the election. Trump gets reelected a lot of positivity around, he’s going to lower regulation, he’s going to cut taxes. We’ve got Elon in there doing whatever he is doing. We’ve got all the crypto people very excited. We’re going to have all this crypto, whatever. And the stock market was up. I don’t have the numbers in front of me, but it was up quite a bit from the election. And then it feels like just in the last couple of weeks, it all has started to unravel and these tariffs that were going to happen, and then they were postponed. Now they’re actually going to happen again. And Elon has been wreaking havoc in the federal government with all of his actions.
And I’m sure everybody out there has got their own personal stories where we’ve heard from a lot of clients, a lot of people who say, gosh, it’s crazy in our department, in our agency that these Doge people that are coming in here and they’re doing all kinds of stuff, cutting jobs, firing probationary employees. So all of this started to coalesce together here. And you’ve got tariffs. You’ve got essentially what’s austerity in the government and people are saying, Hey, maybe this is not all great. Maybe it’s not all quite as rosy as we thought. And I don’t think it’s rising to the level where you’d say it’s some sort of crisis, but maybe the market’s saying, okay, after we’ve had back to back years of being up 20 plus percent, maybe a 10 or 15% pullback is not crazy.
Dave:
I feel like historically, boy, we’ve been doing this a long time. There’s so much history since I’ve been in this business, but historically there seems to be always an excuse. I think this is a good recipe for that correction. Things that are pretty obvious to people. But when you have two years we just had, you are going to have a correction. You’re not going to, as a general rule, will have three years with no bumps in the road or serious corrections. So yeah, the good recipe for a correction, not that these aren’t real things causing it. There are real things causing it that probably need to be worked out. But yeah, nothing surpris. That’s the thing, Dave, about this one, I don’t know. I feel like the biggest surprise ever, the all time surprise correction. Well, there’s two. The great recession, 2008, and then covid. Now these two things, you’re looking at it. You’re looking in the abyss. This is not a looking in at the abyss cause No, this is a very, very obvious kind of cause that your gut tells you will be worked out.
Steve:
Yeah. I mean you could have last year, not saying that you should have, or frankly anyone should have, but you could have sat there and sort of predicted, okay, valuations are pretty stretched. When we talk about valuations, we’re always talking about the price you pay for stocks relative to the level of earnings. So you could say, well, valuations are a little stretched. Maybe some of this enthusiasm and hype over artificial intelligence is a little bit premature, a little bit overdone. And then of course, yeah, you had the tariffs kind of looming out there. We know that Trump loves tariffs. It doesn’t matter how many people get in his ear telling him that they’re not good, that they’re attacks on people, that this is right or left. This is not left wing people saying, oh, tariffs are bad. This is people on both sides saying it just doesn’t make sense. But Trump’s been saying this for 30 years long before he was a president. You can go back and pull up clips of where he said, oh, we’re being taken advantage of. We need to put tariffs on other countries. So that’s his thing. He loves that.
Dave:
And is his thing the rationale, because I did search for a rationale, like just hearing, there’s no rationale. There’s a rationale. So the rationale is basically you because of these tariffs, you build more things, factories, whatever, in the United States to sell in the United States. So United States produced, United States bought, my problem with it is it would take a long time for that infrastructure to, I might have other problems, but let’s just talk about from in basic terms, to build the infrastructure to build everything. That’s not something that happens like next Tuesday. So within that period of time, what’s happening? And then this is, I hate using economic terms, I wish I didn’t read so much. Here it comes. Everybody coming down the stagflation, sorry, had to use it. Stagflation, which is basically things aren’t doing well and you have inflation. So it’s like, oh, I can’t afford, and the price is going up. It’s like at least when things are doing bad, if the price goes down because things are doing bad, that’s something. But if we have that stagflation thing, so yeah, you could always find the negative pictures to all these things. I think we just described it right there.
Steve:
And I mean, I think that’s the thing to be clear about is the stock market does not go down for no reason. It might not always be a great reason, but it doesn’t go down for no reason. There’s always something. There’s always some little whatever, and sometimes they wind up being bigger or whatevers. And sometimes, I mean, I would challenge most of our listeners to even think back and remember what happened in August of last year. Think back rack your brain for a second. In August of last year, you had something that was called the unwind of the yen carry trade. And this is where you borrow in yen and I don’t know, you buy yen, you borrow in other currencies, blah, blah, blah. Some sort of unwind there. And the stock market was down not quite 10%. I think it got to about 9%, and that was just in August.
Dave:
Wow. I literally don’t remember that.
Steve:
Right. I barely remember it. So these things happen, and the statistic we often quote is that you get the 10% corrections about every 10 months. So if we get to that level there, it’s not abnormal.
Dave:
And at this point, I want to just interrupt for anyone listening to this, this is the time you flaunt knowledge to your friends. If you’re talking to your friends, when you listen to this, the stock market’s down. You say, I hope you guys remember back in August the unwinding of the yen. It was down 9% and your friends, will
Steve:
You got to say the yet, Dave, you got to say the yen carry trade?
Dave:
No, you do. I already forgot it. The unwinding of the yen carry trade. Is that correct?
Steve:
That’s it. Now don’t ask me to get into more of that. Oh,
Dave:
I have a feeling you throw that one out at a cocktail party, you’re not going to get anything besides, oh my gosh, Frank is really all over this stuff.
Steve:
Well, you know what this lends in perfectly to this blog post that Josh Brown from OLTs, we’ve talked before, and I’m not going to do the Barry Riol theme song here. It’s not his writing in particular, but I think Josh Brown is, what is he a president or CEO or whatever of Riol wealth management. And I sent this to you and I said, man, he summarized this so much better than I ever could have, or at least put in one place there. Because here’s what happens when the market is down, and maybe it’s a yen carry trade, maybe it’s tariffs and doge and whatever, it doesn’t matter the reason. But here is the thought process that people go through and as you’re listening to this, you can mark down which 1:00 AM I? So there’s a bunch of different ways that you can react to a market decline like this. Number one I’ll sell when I get nervous, and Josh says here, this is probably the worst plan that you could come up with, and I’ll give most of our audience and our clients credit to know that that’s not a great plan. I think the financial media has done a good enough job of teaching all of us that just selling every time we get nervous is not a great plan.
Not saying everybody abides by it, but I think most people say, yeah, okay, I know that’s not a great plan. Number two, and I think this bleeds into number three here. I’ll wait for the dust to settle or what I often hear from people, I’ll wait until everything gets better. Here’s the thing about when the stock market bottoms out, whether it’s covid or whether it’s just yen carry trade or this stuff. Now when the stock market bottoms out, that’s when the news actually sounds the worst. So absorb that for a second there. When the stock market hits the bottom, that’s when the news, when everything around you sounds the worst, and then it goes up. So if you’re going to wait for the dust to settle or wait until everything gets better, you’re going to have to say, I’m going to sell now. And the news is not great right now, but once it gets really bad, that’s what I want to buy. That doesn’t make any sense.
Speaker 4:
No.
Steve:
If you’re not too thrilled, not too happy with the way things are going now, you are going to be less thrilled with the way they’re going when you’re supposed to buy,
Dave:
Right? So the whole thing about the dust settling makes no sense because the dust is settled, things are on the way up. Now you’re buying and you’ve lost money.
Steve:
It
Dave:
Makes no sense.
Steve:
Then he’s got some stuff in here about I’ll sell when the stock market breaks. It’s 200 day moving average and blah, blah, blah. I throw that out immediately. I don’t think I understand that. Some people who are traders who go by these technical analysis, the 200 day moving average is one of their favorite things to look at. I just don’t think any real people do that.
Dave:
I think that falls under the category. Like you and I listen to Bloomberg Radio a lot. Most people probably don’t, but they start talking about the 200 day average, and I start to tone out because I don’t exactly understand the technical aspect of that stuff. It falls under the category of unwinding of the yen carry trade. It’s like I’m starting to zone out, but it sounds awfully smart.
Steve:
All right, then he’s got some other stuff in here. I’ll hedge with some options. Once again, I don’t think this is, I was talking to a friend recently who is talking about getting into day trading his account, and he was just scratching the surface of options. And my advice to him was like, just don’t. Don’t do it. Just don’t do it. I didn’t want to insult him and say, you’re going to be bad at it, but
Dave:
I’m going to make it easier for people. You’re scratching the surface on trading options. Why don’t you scratch the surface on the wizards getting seven tonight?
Speaker 4:
Yeah.
Dave:
Why don’t you scratch the surface on a parlay during football season of under on the Commanders and the Eagles getting three, because that’s what that is. It is just a more, what would you call it? Sophisticated way of betting. That’s what it’s, you might win and you might lose,
Steve:
Right? No, I just don’t think that’s a great, I mean, could it be fun for somebody to do it on the side with a small amount of money? Of course. Doesn’t mean sure.
Dave:
If you want to do it as your hobby, just like some people bet or go to Vegas as their hobby, nothing wrong with that. But that’s not a strategy to deal with what we’re talking about, which is worrying about the bulk of your assets and trying to make the right moves.
Steve:
And here’s one, I’ll reduce my long-term equity allocation and take less risks to begin with. Yeah, I like that one probably the best, at least what we’ve seen so far. But here’s the problem. We were having discussions with people towards the end of last year and the early part of this year where we had this discussion of what maybe let’s reduce your stock exposure beyond just regular rebalancing. Let’s go from a 70 30 to a 60 40. And I was telling people, I said, I like this as a decision right now because the market’s up, we’re doing this. Are we giving up some potential upside? But I like that coming off of a really strong market return, I don’t like it nearly as much when the market’s in a 10% drawdown. I don’t think that’s a great time to be doing it, which is why the last thing here, I’ll diversify, stay put and hope for the best. And I don’t love the phrasing that you hope for the best. I think that if you have a well diversified portfolio with a pool of assets that’s not subject to the stock market, you don’t have to just hope for the best. You’ve got money there to pull from. Even if the market goes from 10 to 20 down or 20 to 30, you don’t have to worry about the stocks anytime soon.
Dave:
The best move to make already happened. You plan the right way for something like this beforehand.
So when it happens that you’ve been sitting here planning for, you’ve already done the hard work. Part of the decision making, I feel like flies by people. One is when you say, we always throw that word diversified around, but to me it makes more sense when you start the beginning of the show. You talked about international stocks. Wow, up 11%, who would’ve thunk? Well, it’s nice to know in a diversified portfolio that you have some skin in that game. Do you hear my dog Oshi in the background? He’s upset about Doge because he can’t spell, don’t pay attention to him. So the bottom line is that’s a diversified portfolio. It’s taking advantage of things that you don’t even really think about because at the end of the day, that’s how you win at this game. And the end of the day is like 10 years, 5, 10, 15 years going forward on all this stuff. So that to me is a big part of this. The other big part is another thing. It’s like we say it, clients don’t really understand it. Some do understand it, but it’s as exciting as what you do with your tires. Rebalancing.
Rebalancing is basically, Hey, you’re not thinking about this, but you have a 60 40 portfolio and the market’s down 10%. Now you’re basically buying stocks on sale. You’re not doing anything besides keeping your portfolio in balance. But the process of that, hopefully your advisors are good at that. That’s one of our big jobs is to be on top of that. Now you are in fact buying low or selling high when it goes the other way. And that is not sexy, but it’s a huge part of all of this that leads to the end game being, that’s why we’re in business. That’s why unlike Ritz results, they have a whole staff. They have time to write these incredible lists. We don’t, as you pointed out to me off the air, but the bottom line is that’s why we have clients who I think are happy because over this long period of time, we’ve all done very well by sticking to this type of strategy. End of the day now is not the time to, the strategy should already be in place.
Steve:
That’s it. All right. I hope that by the time everyone else out there is hearing this, the market has turned around, rallied and come back.
Dave:
Well, the good news about one of these types of podcasts, Steve, is if it has, oh yeah, great advice. Heard it after the fact. If it hasn’t, good advice,
Steve:
Right?
Dave:
Either way, it’s a successful podcast.
Steve:
You know what? I said that, but I don’t know, maybe this is healthy because I do feel like that US stocks, in particular large cap technology, it was just, I don’t want to say it was too easy, but it was just too much up, up. And that’s just not the way that it normally works. So maybe this is a little dose of reality to say, okay, Nvidia can still be a phenomenal company, but they’re not going to go up 160% every year,
Speaker 4:
Right?
Steve:
All of these things. So, alright, as always, reach out to us with any questions, concerns, thoughts, whatever. And we’ll check in with everyone again soon.