Payne Points of Wealth

Is Inflation Finally Starting to Cool?

It’s Episode 118 and inflation is coming down. We had the Consumer Price Index (CPI) and the Producer Price Index (PPI) come down more than expected last week. Meanwhile, the labor market remains hot. Our vantage point of a soft landing is becoming more real by the moment. Recessionary fears are continuing to dwindle as investors are starting to put money back in the market.

The Market Goes Up 📈 with Ed Yardeni

We have a very special edition today. We have one of our favorite Wall Street strategists, Ed Yardeni, who has a research firm that we follow very, very closely. We're going to talk about Ed's viewpoint on the economy and the markets. Ed is one of the few optimists on Wall Street, there are not many of them. We are so happy to have him on the show. Join us for this episode of Payne Points of Wealth.

Entrepreneurial Skill Does Not Equal Investment Skill

The market continues to go higher, despite a banking crisis. Interest rates are starting to come down. Things don’t seem as dire as once thought. We’ll give you our thoughts on what we see right now with the ten-year treasury at 3.5%. Markets inching higher throughout the year. What’s next in the economy? In the market? You’ll get our 2 cents.

On the Tipping Point, we have a very special guest and friend Chad Madden, an entrepreneur who had a liquidity event. He’s going to talk about the psychology of money, the thoughts, and the processes he went through to have that liquidity event. Things will be helpful for you with your journey to financial independence.

Did the Fed just give banks carte blanche to mismanage your money?

The Fed put is back, Uncle Jay Powell’s got your back. Every bank in the country, every deposit, is basically backed by the Fed, stabilizing the entire financial system. Is this just a band-aid to put on a bigger problem with the banking system? We’re going to talk about exactly where we see the banking system, and where we see the economy right now. Does this mean we’re going into recession or will the Fed start taking the foot off the pedal, stop raising interest rates and give us that soft landing we’ve been talking about?

On the Tipping Point, we will talk about reallocating your portfolio. Is it time to reevaluate your investment strategy?

Is the SVB collapse the beginning of something bigger?

We’ve seen some bank failures over the course of the last week and there are questions about systemic risk throughout the entire system. The Fed continues to be hawkish on interest rates. Is this the beginning of something bigger? A big economic downfall that we all need to prepare for? We are going to give you our thoughts on what we think is going to transpire, and how to position your portfolio.

On the Tipping Point, today, we’re going to talk about SECURE Act 2.0. There are huge tax benefits available to you that you might not know about. We’re going to give you the rundown to make sure that you’re on your path to financial independence.

Trust, but diversify.

There’s a tug-of-war going on in the economy right now. Inflation is stubborn. Not coming down as quickly as expected. Yet the job market remains hot as people are spending money at unexpectedly high rates. So what does this mean? We’ve got consumer spending, yet inflation is still high.

Is that the recipe for disaster? Well, we’re going to tell you, we think today on the show. On the Tipping Point today, we’re going to talk about questions you need to be asking yourself to make sure you’re on your path to financial independence

Last year’s decline was really about wringing out excess speculation.

We’re in the midst of earnings season and 70% of companies have beat expectations, and that seems to be the theme this year. Whatever the economists and strategists told you was going to happen is not happening. Things are better than expected, just like we told you on this podcast. We’re going to tell you why everything is going better in the economy than everyone anticipated.

On the Tipping Point with Aaron Dessen, CFP^® we’re talking about what you need to be doing right now with your money. Also, we go over reasons why some investors choose to DIY their financial plan rather than have a professional financial adviser.

 

#recession

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.

Should investors be following the George Costanza strategy?

It’s episode 110 and the economic data continue to come in strong. GDP growth for the 4th quarter was better than expected. We’re seeing earnings growth relatively strong for the 4th quarter and guidance is not falling off a cliff. The data is coming in much better than what’s been anticipated on Wall Street and the market is following suit. We’re in a bull market. Prices are going higher. But is this a fakeout? Do you need to get to the sidelines right now? Is the economy ready to fall off a cliff? Or is this the real deal?

Contrarian Costanza

In one episode of Seinfeld, George figured that every decision in his life he made was wrong. He decided I’m going to do the opposite. I’m going to become the contrarian Costanza. So the George Costanza strategy is to do the opposite of what you think you should do. Or what the experts are telling you to do. In terms of the market, it worked out pretty well following that strategy over the last couple of months.

Conventional wisdom turns out to be excessive pessimism

Conventional wisdom over the last year was the Federal Reserve is going to have to get so aggressive, they are going to have to kneecap the economy and bring it down. It turns out that was more like excessive pessimism.

The Payne view is always a bit contrarian. Last year is a perfect example. We had every strategist, and every economist extremely negative on the economy, extremely negative on the market. But if you’re diversified, last year you were down around 10%. It’s not that big a deal. And meanwhile, now markets are off to the races. And if you were sitting in cash, you try to time it. You’ve put yourself in a bad position now.

”If you were diversified last year you were down around 10%. It's not that big a deal. And meanwhile, now markets are off to the races.

 

Ryan Payne

Germany is another example. Germany was the poster child of the worst place to be last year. They had an energy crisis because Russia invaded Ukraine. Yet Germany is up 40% since September. How can that possibly be? You have to be able to have the fortitude to invest when things are down and when the optimism is not there.

Most of us project the future based on our most recent experience. And as you know, the year went by, the news got more down, and the market got more volatile.

Anticipation is mitigation. Corporate CEOs last year were worried about a slowdown, just like everyone else. So what do they do? They got proactive very, very quickly. They start to rewrite their business in anticipation of things slowing down. So all this proactive activity is happening to make sure that their balance sheets stay in check. And that’s why you always see the surprises in the positive because that anticipation is already happening as we’re worrying about things, people are actually taking action.

As the talking heads are telling us that the economy is slowing they’re starting to reduce their earnings estimates. So when the estimates are met with the actual earnings, the market’s not surprised by that.

Bear market illusion. To some, it seems these bear markets last longer in their mind than they actually do. They do things like lock themselves into a 4% CD. Well, the market’s up 6% now, and you have to wait a whole 12 months to get that 4%. And you’ve missed that move in the market. So it’s amazing how quickly times can change and markets can change.

Emerging markets are up 10% as we’re recording this. You don’t get that return back. You’re not going to make any money unless you’re invested in the market.

”Your boat's not going to go anywhere unless your sails are up.

 

Chris Payne

$5 trillion sitting in money market funds earning 4%.  But what happens when you don’t get 4%? And that 4% is over 12 month period. You’ve already missed the one-month period where you’d have a 50% better return.

Think of the FOMO as the market rallies. With 5 trillion sitting in cash, while you’re starting to see markets catch a fire. All these private equity firms sitting with all this cash and these big banks that have to put the money to work, or it goes back to their investors and they want to put it to work.

Company buybacks. Chevron just raised its dividend. They announced a $75 billion buyback. Exxon came out with a similar buyback. So there’s there is a lot of cash on the sidelines. And, the question is, where is that money going to go in the future? And the pressure, from professional money managers, from institutions, from hedge funds, and from individuals, it’s just going to continue.

”Markets operate by discounting the current environment and looking to the future.

 

Bob Payne

The Tipping Point:

Lessons you can learn from last year

Lesson #1

Inflation and Your Financial Plan

Payne Point:

inflation is real and you’ve got to account for it in your financial plan It’s been in the headlines for the last year because especially since the Federal Reserve completely dropped the ball in not recognizing that inflation wasn’t transitory initially. We’re dealing with 40-year high inflation than we’ve had to deal with in 40 years.

During the 40-year period, we still had inflation at 2%.  That still means a huge cost of living increase over your lifetime.

Long-range planning should include inflation. Inflation is insidious, it’s hidden, but it’s real. A good rule of thumb we always use is you’re going to have to double what you need to live on every 20 years. And most of us will be retired for up to 30 years plus. So you really have to account for your expenses doubling in retirement. And most of us don’t do those calculations.

”A good rule of thumb we always use is you're going to have to double what you need to live on every 20 years.

 

Ryan Payne

Lesson #2

Not knowing how much risk you have in your portfolio

Payne Point:

Many were overweighted in Tech. 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, they were overweighted to 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.

”Risk is only seen in hindsight.

 

Bob Payne

You have to expect the unexpected. You can’t have foresight for black swan events and unexpected market sell-offs. Look what happened in 2020 when we had the pandemic collapse – 35% in two days.

”Ignorance isn't bliss. Hope is not a tactic. You should have your portfolio thoroughly evaluated to make sure that you're covering all your asset classes and not just investing in one thing.

 

Chris Payne

Hidden Facts of Finance 

While the S&P 500 price declined by 19.78% in 2022, S&P dividends went up by 10.82% in 2022. The increase was higher than inflation and since 1926, dividends have contributed approximately 32% of the total return of the S&P 500. While capital appreciation contributed to 68% all the way through 2021.

Canadian Labor shortages are so severe that the government has announced plans to admit nearly 1.4 million immigrants over the next three years.

Ken Griffin, Citadel hedge fund cranked out a record 16 billion in profit for clients last year, topping John Paulson’s bet against the subprime mortgages in 2007 that was described as the greatest trade ever. The top 20 hedge funds collectively generated 22.4 billion in profit after fees.

Don’t fight the Fed? Or, don’t trust the Fed.

It’s episode 109, the first podcast of the year and there is a lot going on right now. Europe, emerging markets going through the roof. Interest rates dropping like a rock. Yet the Fed says they’re going to keep rates higher for longer.

Who’s right? The bond market or the Fed? Every economist telling you we’re still going into recession. Yet employment is strong. Inflation is coming down. Well, we’re going to give you our 2 cents on everything today, give you a blueprint for how to look at the economy, and how to look at the stock market this year. And we got tons of questions from you, the listener over this holiday season.

We’re going to answer your questions today to make sure you’re on your path to financial independence.

Don’t fight the Fed? Or, don’t trust the Fed.

The oldest adage on Wall Street is don’t fight the Fed. But it seems like everything they say the opposite is of what’s happening or they’ve done the opposite. Or, they don’t always follow through on what they say they’re going to do. 

The Fed has been reactionary

In the face of good economic data, the Fed says we’re going to raise rates and keep rates higher for longer. Analysts and strategists are believing it is gospel. A year ago they didn’t believe anything the Fed said.

”I’m not listening to the Fed. I'm listening to the bond market.

Bob Payne

Prices have been dropping. Oil, copper, and corn prices have come down a lot. Inflation is dropping. And we somehow believe that the Fed isn’t going to capitulate and lower rates?

Look at the markets, it’s the difference between reality and expectation. That’s where prices are. And misery loves company. So when you have 60% of the economists predicting a recession, it’s comfortable to be there. You don’t want to be the outlier.

It’s not just the Fed. The strategists and analysts talking about recession. I think we’re being a little harsh to the Fed. They’re not the only ones. They’re in good company. Let’s talk about the strategists, the analysts, and the economists that have said that we’re going into recession. But what does the data say? 

Positive signs for the economy. We’ve got a strong labor market. We have inflation coming down, Wages are staying strong. But it is remarkable with all the economic data being relatively strong, professionals and experts are coming to the same conclusion…Recession.

The experts were wrong about Europe. Look at the best-performing part of the portfolio year to date. And the last six months happen to be in Europe and emerging markets. 70% of the markets around the world outperformed the U.S.  We’ve heard the conventional wisdom, “Oh, don’t put your money in Europe, don’t put it in China. China is never going to come out of lockdown.”

The experts were wrong about China. The second-largest economy in the world, and they’re never going to come out of lockdown. They are coming out of lockdown and it’s very good for the global economy. Who would have thought that? And if you read the news last year, nobody was talking about that.