Is the Bond Market Playing Chicken With The Fed?

It’s episode 111 and the news continues to get better as we move into February. The Federal Reserve sounds like it might actually be open to a pivot sometime this year. Their hawkish policy looks like it may be over as inflation continues to come down. Interest rates continue to fall and earnings season hasn’t been amazing but hasn’t been that bad either. So questions about a recession are still a big question mark. Well, we’re going to talk about that today. We’re going to talk about questions you need to be asking yourself right now to make sure that you’re on your path to financial independence.

Don’t fight the Fed? Or, forget the Fed.

This week Jerome Powell raised interest rates. He didn’t decrease interest rates. He didn’t pivot. The Fed increased interest rates and the market didn’t fight the Fed and it went up 5%.  Don’t fight the Fed? Here’s a new term – forget the Fed.

The Bond Market seems to be forgetting the Fed

The Fed keeps raising interest rates, but longer-term rates are falling.  Markets are forward-looking. They’re not concerned about what’s happening right now and what the bond market’s been telling us for months is don’t believe the Fed. The Fed keeps saying that they’re going to keep rates higher for longer, yet longer-term interest rates kept going down. And as we like to say, the bond market’s a lot smarter than the Federal Reserve.

”The bond market's a lot smarter than the Federal Reserve.

 

Ryan Payne

Huge bounce in disruptive technologies

Tesla’s up big and Bitcoin keeps moving higher in the short term. Is this the real deal? Are we going back to big tech names like Bitcoin and Tesla, or is this just a dead cat bounce?

The Fed has flooded the market with liquidity

In the past, we’ve had the Federal Reserve flooding the market with liquidity. Interest rates were at zero. That’s when you get rapid speculation where people invest in things like pet rocks and cryptocurrencies and disruptive, innovative technology without any earnings. I’ve seen this movie before. Blue chip, good-quality companies are the place to be.

”Don't be fooled. Don't buy pet rocks and don't buy innovative technology.

 

Bob Payne

When we look at new portfolios we see most are underweighted to the global markets.

That’s where the best opportunities are going to be in the next 5 to 10 years. If you’re going to buy tech, buy some tech around the world because if you look at other stock markets, they’re just so cheap relative to the U.S.

”Look at like Amazon, it still trades at 50 times forward earnings. Meanwhile, you can buy the Chinese version Alibaba, it only trades for 14 times forward earnings.

 

Ryan Payne

The Tipping Point:

Basic Planning Questions To Ask Yourself

Question #1

Will I really spend less later in life?

Payne Point:

In our experience after seeing thousands of portfolios, the answer is absolutely not. When you factor in inflation and health care costs, you will likely spend more. It’s something you want to account for in your projections when doing your financial plan.

”The biggest fear anyone has is running out of money in retirement.

 

Bob Payne

Question #2

How are you going to fill in your income gap in retirement, after your paycheck stops?

Payne Point:

You need a diversified portfolio that will generate a steady income. For a lot of the new clients that we brought on in the last year or so, the biggest issue was they didn’t realize that they were overweighted to technology and a lot of these disruptive mega-cap growth stocks. And then when the shoe dropped we saw portfolios down 30 – 40% last year. But the problem is you only realize it last year when the market was going down. And it’s just so critical to manage that risk.

”Cash-flow is king when you're in retirement.

 

Bob Payne

Question #3

Are my finances organized in one place?

Payne Point:

Generally, most people do not have their financial information in one place. Keeping all of your account information such as passwords, wills, RMD information, and tax returns organized in one location, like our e-money portal, will make managing a more effective and efficient portfolio easier – for you and for your heirs.

”I have 150 clients and every year a handful end up with a 401k they forgot about or an IRA they had in some firm.. they always find some account they forgot about.

 

Chris Payne

Question #4

What would my tax picture look like in retirement?

Payne Point:

The more you project out into the future, the more proactive moves you can make when it comes to taxes. 

For example, small tweaks you can make to your portfolio with taxes, whether it’s converting money to a Roth IRA before you have to take money out of your IRA – when the government forces you to do it. And turning that into tax-free income over your life and then your heirs can inherit that money tax-free.

Hidden Facts of Finance 

Since 1970, there have been 20 government shutdowns related to the debt ceiling, and they always have been sorted out.

Over the past decade, the median net worth of the top ten billionaires has nearly tripled from 39 billion to 115 billion. In fact, the first billionaire to pass the $100 billion threshold was Jeff Bezos in 2018 when he took the top.

Jimi Hendrix was billed as the overall headliner at Woodstock in 1969 and commanded the highest paycheck of all the performers. Hendrix was paid $18,000 for his appearance at Woodstock, which was the equivalent of making $125,000 today.