Is an October Stock Market Crash Coming for 2021?

hey bowtie nation joseph hogue here thank you for uh joining me for another one of these beer money sundays i've got mine hope you've got yours whether it's an adult beverage or otherwise uh let me know where you're coming to uh coming to us from anywhere out there in the bowtie nation i already see a lot of you uh long time bowtime members bow tie citizens out there uh ambrose lose lose cat uh thanks for being here phillip eugene minerva uh got a great uh great episode for you today great live stream love doing these just as a way to kind of connect with you out out there in the community a little bit more informal take off the tie and and just kind of talk back and forth about the market try doing these every every two weeks you know uh but it's uh it's a little bit more irregular lately i got a lot of other stuff planned and trying to do so just make sure you're subscribed to the channel and you get that bell notification clicked so you're you're notified when these uh when these come out we want to get started here because uh it's something i i think is important to talk about you know the uh a lot of banks came out just this last week with warnings on the economy uh goldman sachs morgan stanley citigroup all issuing warnings over that and i think this is something it's important to talk about okay i know a lot of people are out there they're going to say oh you're just trying to spread fud and fear and if you just don't talk about it then it'll go away right yeah come on folks when did anything ever go away by ignoring it okay if that worked then that that little red rash that you've got because well you know what you were doing it would just go away because you know you're just trying to trying to ignore it you cannot ignore the stock market okay you cannot ignore the warnings the signals you gotta look at this stuff dispassionately um you know you can't get passionate or emotional about your stocks or the market you just gotta look at this take the facts in uh you know in stride look at them all the good and the bad and you know use that in your investing strategy because uh really what we're getting at we're getting into the worst months for returns we're seeing a lot of those warning signs out in the economy so it is something something you want to look at uh we can just look at the history right here you know uh august and september historically the worst months of the of the year and a lot of that is just seasonal factors right um you know people uh people are out for for the summer so august is is generally pretty bad because volatility and and uh you know trading is pretty low september also a little bit of seasonal factors going on there uh and actually october you know october is usually uh in this in this time period and even longer out is usually positive but that is where we see the biggest crashes you know the crashes of a 1907 1929 1987 uh all in october so they're just something to something psychological seems to be in october that that kind of tips the market a lot of those crashes though were kind of signaled in september the stock market kind of started coming down in september started giving those warning signs so that's something that we need to look at and we need to watch you know it doesn't mean you it doesn't mean you pull all your money out of the stock market it doesn't mean you sell everything and go to cash or anything like that but you need to watch these signals and you need to develop your you're investing your short-term investing strategy around that now there is a such thing obviously as a long-term investing strategy i've got stocks that i buy that uh that i'll never never sell you know no matter what the economy does um in fact if you i've pinned up in the the chat box uh free report the top five stocks in my own portfolio uh five stocks that i'm basically just holding and holding forever you know so uh click through i'll leave a link in that in into the description below uh for that it's a totally free report sign up by email um it's to the motley fool they're gonna send you some emails but it's totally no obligation totally free uh they're gonna send you some emails about the stock advisor service that they have i use the service uh they've got some great great reports and great ideas in the stock advisor service i can't remember what it i think it's like maybe 10 12 bucks a month it's it's not a whole lot but if you don't want that then don't sign up for it it's totally free no obligation to get this report for me it's just something that i wanted to offer uh to you out there in the community and it helps support the channel so i appreciate that click through uh you know put in your email address in there and and they'll send you that free report but i want to get started here because i want to get to get to those kind of the pros and the cons that the market is uh sending us you know the signals uh positive as well as negative it's not all negative out there folks uh there are some real strong positive uh you know positive signals that that we have in the market that could send stocks higher and i want to talk about those just as much as some of the warning signs right so i want to get to those i want to get to the question and answer uh you love that part of the the live stream every week just a chance to connect with you out there in the community if you didn't see the the videos last week had a really personal story on dividend investing out on monday check that out uh really kind of share why i prefer dividends against a lot of other stocks you know growth stocks have actually beaten dividends over the probably about the last 10 years 10 15 years even and that's not typical for you know the stock market history typically value stocks dividend investing uh beats the beats those growth stocks but over the last 10 years it's been growth all the way you know those big tech names and that kind of thing so why do i still prefer dividend stocks and that video kind of kind of goes into that personal story about uh you know financial stability and times in my life where i really you know where my family really needed that kind of financial stability that i think only dividends can provide so check that check that one out that was a last monday i think tomorrow we've got a short-term investing strategies video coming up always real popular on the channel so uh so check that one out and uh you know and we've got a monday wednesday and friday videos coming out uh check those out now i want to get to this right uh because there are you know there there are bull and there is a bullish argument to the market there's a bearish argument argument to market your job as an investor especially if you're you've got any kind of a horizon that's less than five years i'd say even less than 10 years up to needing the money in your in your investments even if you've got a horizon that's longer than 10 years though if you're more trading if you're if you're using some of those shorter term investing strategies then you want to uh you want to be balancing the bullish argument with the bearish argument and really looking for those sectors that are going to uh that are going to benefit again you know just because i see some warning signs and signals in the market that doesn't mean we sell out of our stocks right you might shift to uh to other sectors other stocks stocks in other sectors and this is really what we did you know last last october last november when we were starting uh you know starting our our bow tie nation portfolio for this year we shifted into energy we shifted into financials following a lot of those signals that we were getting out of the market and you know that's why it's beating the market right now that's why that that portfolio uh that we have is beating the market by i think it's about 12 beating the market it's up something like 27 uh for the year so there is you know there is a reason why you watch these signals you watch these warning signs and use those in your investing strategy not just to say you know i think the stock market is going to crash and you know you sell out of everything okay so i want to i want to cover the bullish argument first because right because we're always trying to stay positive uh and look at the the upside and uh you know i think over the long term it pays to be positive in the market right you know no matter how hard the crash is uh no matter how hard the crash has been in the past the market has always gone up right so it pays to stay positive it pays to stay invested in the market right and right now you know it's it's hard to be negative because uh chair powell the federal reserve is still extremely accommodative right uh you know chur chairman powell uh just does not want to raise interest rates he does not want to slow that taper the the fed is still buying 120 billion dollars in bonds mortgage bonds and treasury bonds every single month you know and when they buy those bonds they push money cash out into the economy right so it's a stimulative effect on the economy uh obviously rates are near zero uh even long-term rates are are some of the about the lowest they've been in history and um you know despite an economy that looks pretty darn good uh we're expecting you know six seven percent uh economic growth this year in the us and and internationally around six percent uh unemployment is back down to uh the low five percent handle which is really close to where the fed says is kind of that natural rate of unemployment that rate of unemployment that you're not going to get under and that's when they start you know raising rates and even despite all those signals uh of a very healthy economy they don't want to stop that stimulus right we're expecting trillions more in stimulus from the government whether it's through the infrastructure bill or just regular budget spending so there is a lot of money being pumped out into the economy and we'll look at a chart here in a little bit that shows just just how that is affecting the stock market okay um because it is affecting the stock market and is a very very strong piece of support for the market uh we've also got household and corporate savings right we've got about two trillion dollars in each of those household and corporate savings beyond what they were saving in you know late 2019 early 2020 that is just excess you know is it's money from all the stimulus payments and all the other things that households saved up you know we had a household savings rate that was upwards of of 20 and 30 which we've never seen that in history right so households were saving an immense amount of money up to two trillion dollars across the us right now uh corporate corporations have also been saving a lot of money fearful of really spending it on a capital expenditures and growth and that kind of thing so they've been saving it along that's about another two trillion so you've got about four trillion dollars between households and corporations that are you know excess savings that savings beyond what they've had in the past that they could be out spending once the economy really opens up so four trillion you know a little bit more than a 20 trillion dollar economy that is that's about a 20 uh boost to the economy right there so you know even as we look at a lot of these warning signs and signals in the market that point to a correction you know we had four straight down days last week uh even as we look to a lot of that stuff then you know i don't you you just are not going to see a full-on stock market crash okay it is very very possible the potential is there that we get something like a a five to a ten percent correction in stocks you know which are actually much more common than people believe or people understand uh but with that much money uh you know getting ready to be spent in the economy that much pent-up demand the rates as low as they are a fed that is still very accommodative you're not gonna get uh you're not gonna get a crash in stocks so you know how do you use that how to use some of these signals to really tweak your investing strategy and uh and really look forward to 2022 really so i want to i want to look at some of these things uh you know some of the ideas here are it's it's kind of deep into the economics right because at its real core you know that's what that's what uh the stock market follows the stock market follows corporate earnings right uh profits at uh corporations and the profits that they go on those stocks this the the profits follow the economy right so if you look deeper at the economy kind of see what is pushing the economy then you get a better sense of that bigger picture in stocks right and right now one of the biggest uh biggest things i've been watching is just the money supply right and we've talked about this in the past where the fed has uh has pumped so much money into the system through low rates through bond buying all that the money supply has gone up 40 in the last two years folks that's the biggest two-year jump ever right to give you a perspective of that in the past you know historically the money supply so the amount of cash in the system uh goes up about five percent a year okay that's kind of the the rate that the fed manages um the treasury uh the treasury prince the fed manages as far as bond buying and and you know bond selling that kind of thing to keep that kind of state stable five percent growth right and uh you know so five percent historically 40 percent over the last two years and that's really where we see all that savings by households by corporations because obviously people just weren't spending it right people were locked down corporations were scared about a recession or a depression or anything like that so they weren't spending it so that 40 in money supply growth really just went into savings right and that's what we're looking at as far as that pent up demand and that kind of thing but it's also feeding into inflation you know we've seen an immense a massive spike in inflation over the last uh you know over the last few months it's about five percent uh the cpi the consumer price index comes out on tuesday that's probably the biggest news of the week to be watching for is that consumer price index and to see really where that is um now a lot of people you know you're going to see the report it's probably going to be a kind of kind of hot you know it's probably going to show another month of a very high inflation and what i'm looking at really with that cpi is we're going to start seeing rents increase in that you know i i've and i've got a graph on this i can show you if i can find it but basically uh rents okay so so the kind of the average rent increases across the u.s is 30 of that cpi number of total consumer inflation rents is about about a third of that right and we really haven't seen that increase very much over the last uh over the last year why uh even though even though house prices have gone up like 16 house prices have gone up you know the fastest on record over this last year you know and that's another function of that money supply growing in that inflation but we just haven't seen rents going up right and that's acted to kind of hold down inflation actually believe it or not uh well why have we why haven't we seen rents increase well because of all these moratoriums you know uh landlords weren't going to increase the rent if uh if they couldn't kick people out for non-payment or if they didn't think they would get it okay you know so so landlords have actually only been increasing rent by about two percent uh on an annualized basis over the last few months okay so compare that two percent increase in average rents with a 16 increase on home prices all right you would expect the two to move pretty closely right because uh you know obviously the more expensive it is to to buy a home then uh you know more people are going to be renting well that's going to push up that supply and demand factor that's going to push up the rent prices but it's been broken you know it's been broken because of those moratoriums um and as those moratoriums those eviction moratoriums and foreclosure moratoriums get come off then then i think you start seeing those rent increases uh start start going higher right to catch up really with the supply and demand picture okay so so over the next few months you start watching uh for those owner that is called owner's equivalent rent that's going to start being a much bigger factor in inflation and that's why a lot of the reason why i think inflation is going to be a lot more persistent and a lot higher than a lot of economists and the federal reserve really believe okay so but back to the the cpi that comes out tuesday i think that's going to be high and you're going to hear a lot of people start saying well you know this just forces the fed's hand this is forcing chur chur powell's hand they're going to meet here uh not this week but the next week the federal reserve they're going to meet and kind of do their policy decisions and all that and people are going to get spooked people are going to say well this this higher inflation makes it that powell has to start tapering they have to start bringing back some of this money that the fed is pumping into the economy and you know i i don't believe it i don't you know just watching chair powell watching the rest of the fed members uh you know over these last 12 years but but over the past few months they are doing everything they can to slow go on this uh you know on this stimulus right so what i think is going to happen is is you're going to get that cpi number it's going to be high it's going to spook the markets a little bit and people are going to start talking about this but then when you get that fed meeting it's uh you know wednesday of next week not this week but the next week then i think it's going to be a little bit more bullish than people people expected you know people expect if we do have a high cpi number high inflation this tuesday people are going to expect the fed to come out and say okay you know what we're going to start tapering right now we're going to taper fast uh and eventually we're going to start raising rates we have to because we have to get inflation under control well what we've seen from powell in the uh you know in the past and what i think we're going to see from in the wednesday after this is uh again he's going to come out and he's going to play you know he's going to play daddy to the markets all right he's going to try to soothe the markets he's going to say you know what inflation is is running higher than expected but uh it's still temporary they're going to they're going to focus on that transitory word uh still stick to that argument and say that we've still got a lot of you know a lot of unemployment out there and a lot of things like that so they're going to kind of slow they're going to kind of soothe the market so you know if we do get a big sell-off on you know the cpi report tuesday i think it comes back and turns a little bit more positive when the fed actually comes out on wednesday of next because you know i mean if there's one thing that has been uh has been clear over the past uh several you know several months is that chair powell just does not want to he does not want to spook the markets uh with this kind of thing right and uh and and that that accommodative stance that stimulus from the fed is so important uh and we've this is something we've looked at on the you know on the channel before uh if you want an idea of how important the the federal reserve and their you know that 120 billion dollar bond buying is that zero interest rates all the stimulus that they're pumping out into the system if you want an idea of how important that is just look at a chart just look at pretty much any chart i've got the the fang charts right the facebook apple amazon google microsoft netflix and tesla here in light blue but you can pretty much use almost any jar you can use the the s p 500 you can use the nasdaq for this because they all show pretty much the same thing you've got you've got those stocks in in light blue in in dark blue you've got the central bank liquidity right so all this money being pushed out into the into the system from the federal reserve uh and they line up almost exactly you know i mean you see the uh you know since the financial crash the the recession in 2009 uh they both increased pretty pretty uh pretty well at a a decent pace there until uh right right during the pandemic you know right when the pandemic started and all the stimulus got pushed out and i'm not saying that we didn't need the stimulus the stimulus definitely kept us from some kind of a depression era you know of events but they have just gone overboard with how much money they're pumping into the system all the stimulus and everything and you see it in the stock market you know you see that 40 percent money supply growth in the last two years in stocks because it hasn't been spent it hasn't gone anywhere else except in stocks right so you've got you know you've got the the central bank increasing their balance sheet uh which when they increase their balance you they they buy those bonds and they push that cash out into the system uh increased it by five six billion dollar or trillion dollars that's trillion with the t uh and you've just seen a huge jump in these stocks right um and you know it's really it's really created uh created the market uh in which we we live right now uh we'll look at another chart here kind of these signals the the price the valuations in the market the price to sales ratio on this s p 500 is now at three times that's three times for all the companies in the s p 500 the highest since 2000. we can look at some charts by factsa here you know i love factset as a uh you know as a research tool we'll look at look at a few of these charts this first one is the sector level uh forward 12-month pe ratios right and as always the dark blue there is the current the light green or the green there is the 10-year average right so it's a great way to look at each stock sector each sector of the economy uh see how expensive it is right now compared to that 10-year average compared to history right and you know as we've uh you know as we've seen every single stock sector is trading above its 10-year average uh as far as price price to earnings right so over so premium on those prices over valuations uh and some more than others you know and really it's you know you look at consumer discretionary here this first one trading for 30 times 30.3 times on a price to earnings basis versus 20.6 times on that 10-year average so that's a 50 percent premium on those stocks you know and while i do think those start coming down you know as we start seeing uh earnings growth continue to grow higher uh we're expecting something like 43 percent earnings growth this year and nine percent next year uh so a real fast decrease deceleration in earnings growth next year but uh you know as that as those earnings uh continue to increase then you start seeing these p e ratios come down a little bit but 50 um you know p e ratio on those consumer discretionary stocks is really amazing 50 percent premium on those same thing with it information technology tech stocks you know trading for 26 almost 27 times pe ratio uh versus 17 times on that long term average um so there are about nine as that's uh that's about another fifty percent premium on there you know so so you can really get a sense of how expensive the market is how expensive each sector is you look over here some of these uh some of the relatively cheaper ones uh you know energy selling for 12.6 times on a pe ratio basis uh 8.7 times uh you know long-term average so still overvalued not quite as much as some of these others financials trading for 14 times the the long-term average there is 12.6 so financials materials healthcare all three trading very much closer to their long-term averages so you know if you're a value investor or if you're looking to switch into value you know being afraid of maybe uh maybe a stock market correction or weakness in some of these growth stocks some of these tech stocks then you want to shift to value you want to shift to you know uh stocks that aren't expensive to begin with so maybe they don't have a much farther to run so you want to look at those the financials materials and the healthcare sectors we can also look at just the market the overall market you know the the blue here is uh or the the dark blue here is the forward 12 month earnings per share well let's look at this one instead there you go there's the p e ratio just uh plain and simple the p e ratio there at 21 times and and you know you can see the green is the five year average the blue dash line is the uh the the 10-year average uh 10-year average right around 16 17 16 and a half you know so right now trading at 21 long-term average of 16 that's five that's a little a little under 30 or you know 30 right so a little bit under 30 premium on the market right now 30 overvalued versus that long term average um i want to go to one more chart that's always real popular here uh the uh and then we'll get to more of those those signals those those uh market signals and stuff but this is the the sector level bottom-up target price versus closing price okay and so what this is this is uh you know analysts have their price targets on every company in the s p 500 that sector level bottom up target price the target price on every company in there versus the closing price right so this is this is actually the percent return those analysts see on all the stocks in each sector over the next year okay so uh and you don't just jump into these sectors because you got to use this in your own strategy use this with your own thinking and say whether you agree with this or whether you don't okay so first if you look at these then we've got energy with an expected 29 return over the next year okay so the the target prices for all the companies in the energy sector in the s p 500 are 29 above the closing price right so that's the highest one they've also got industrials here 15 return materials 14 consumer discretionary 13 return right on the other end here you've got utilities real estate and consumer staples so basically all the safety sectors are expected to post the lowest returns in the market over the next year you know utilities only six percent real estate six and a half percent consumer staples nine percent so when you look at something like this then what do you think to yourself you think to yourself okay what are the analysts thinking is going to happen in the market okay they're thinking you know energy energy these cyclicals industrials materials all cyclical stocks all do well with the economy when the economy grows moderate inflation that kind of thing so obviously analysts as a whole you know analysts as a group think that the economy is going to do well you're going to have slight to moderate inflation uh energy prices are going to stay high right so they're seeing they're seeing good things in energy industrials and materials on the other side here what are they saying utilities real estate and consumer consumer staples are going to lag those are all the safety sectors so obviously you know if people are still plowing money into riskier stocks cyclical stocks that kind of thing they don't need the safety stock sectors right so uh so maybe a little bit on those they're also saying here i think that if uh interest rate inflation is going to go higher interest rates are going to go higher okay because what you see in these three sectors consumer staples real estate and utilities obviously those are big dividend uh dividend paying sectors right so what happens is when interest rates increase then um you know investors look at the dividends they can get from these three sectors and and they look at higher interest rates and they say well you know what i'm just going to i'm just going to invest in bonds or some other interest bearing assets some other interest bearing investments instead of these because interest rates are now higher and they're more attractive right so as interest rates increase you start seeing money come out of those three uh those three safety sectors the consumer staples real estate and utilities because those dividend yields don't look quite as attractive anymore okay so if you believe this market narrative that interest rate is going to increase uh inflation may be slightly moder moderately higher then yeah you do want to avoid these these uh cons these safety sectors i would say with the exception of real estate i think real estate can do better here i think a lot of this lower return analysts are seeing on real estate stocks is just because real estate has done so much this year real estate is is like the second the first or second top performing sector so far for this year and it's because of those that inflation worries right people are plowing their money into real estate real estate stocks you know as a hedge against possible inflation okay so so i think in real estate can actually do better here than the analysts expect i would avoid those utilities those consumer staples because i i don't think those are going to do quite as well energy industrial materials i think can do well you know as the you know as interest rates increase the economy sputters along uh pretty well you know so so uh so that's kind of where the market is as far as the valuation i want to get back to some of these signals though that we're looking at in the market some of the biggest signals that that we're looking at as far as uh you know signs of a stock market correction signs that that that that this could be could be worse and uh trying to find the other graph here uh one of them is margin debt okay and when you're looking at these things it's not that when you're looking at stock valuations and prices price to earnings that kind of thing you know stocks don't crash or stocks don't fall just because they're expensive right you know if if that were the case then stocks would have been falling all the way through the last 10 years because stocks have been expensive for for you know at least five years maybe even more but especially these these last couple of years stocks have been ridiculously expensive versus the history and versus those p e ratios but stocks don't fall just because they get expensive okay you've got to have a catalyst and then you've got to have you know things that kind of exacerbate that correction okay so right now you know um and corrections five ten percent corrections are actually extremely common uh research by charles schwab shows that uh that stock market corrections of ten percent so the the indexes s p 500 uh falls by ten percent in in a uh you know from the peak down to down to the trough those actually come every other year about every two years right they uh they they looked at the last i believe it was the last 30 years on that research and and they had 15 times that the stock market fell 10 right so that's pretty common every other year the 5 corrections you know so a little bit less corrections those actually generally happen almost twice a year right uh you know one and a half two times a year where uh where stocks will actually fall about five percent and we haven't had that for a year so i think a lot of investors have been kind of uh kind of spoiled right because we haven't had even a five percent correction in more than a year uh and so a lot of investors think that just stocks just go straight up right uh but so you gotta you gotta watch for some of these warning signs and one of the biggest ones that i that i've been watching that i've covered on the channel is this margin debt okay this is you know obviously when you borrow money from your broker from that uh that trading platform that uh that investing app that you use when you borrow money to invest right so say you have fifty thousand dollars in your account you borrow another fifty thousand so you can invest a whole hundred thousand in stocks and why not you know if stocks are going to keep on going up one way all the way up then why not borrow on you know two or three percent and get that you know 10 20 return right so so that's margin uh that the problem here obviously is that works both ways you know uh that uh borrowing uh borrowing at that lower rate to get higher rates of return that uh that juices your return on the way up but it also hits you on the way down um and so what we see is this margin debt this amount of borrowing to invest always peaks always spikes uh just before a big crash or a big correction okay right and it's it's obvious you know usually we see uh just before a crash we see the market just jump you know 20 30 percent in in the previous two years you know and so obviously people get enthusiastic people get exuberant right they they borrow more to invest because they think you know if i can borrow a borrow at two or three percent and make those 20 or 30 percent returns every year then i'll be rich in about a year and i won't have to worry about it um so you saw these big spikes uh you know this blue line here is the margin debt uh that changed billions of dollars so the the increase in margin debt each year and of course you saw those big spikes there before the the previous two crashes 99 and 2007 huge spikes uh 150 150 billion dollar spikes in margin debt out in the economy and this is generally you know generally only about one two percent of the you know of the market size that kind of thing so so not real big but it did it did uh you know translate into huge crashes the biggest some of the biggest crashes we've seen in history right well now look at what has happened over this last year this increase in margin debt 350 billion dollars okay over this last year investors have borrowed 350 billion more dollars on margin to to invest in the stock market okay so of course what happens is you know when stocks do come down then people start getting those margin calls you know they they start the value of their stock starts falling so much that the investing app the brokerage they say hey you know we need more collateral so we're going to sell some of these shares and it's just forced selling that exacerbates the the market correction and exacerbates any kind of a correction that we do get so that's a that's a big signal last one here and then we'll get to kind of how to use this to invest some investing strategies that i'm looking at uh and the last one i want to look at it's actually warren buffett's favorite uh favorite valuation measure okay this is the total market cap to gdp ratio okay so basically this is the total amount market cap of all stocks right and they usually use u.s stocks so so total the total market size of all stocks in the u.s uh on the u.s exchanges to the size of the economy right and so that's the green line here the tmc to gdp current is 205 so the current the current value of all stocks on the u.s exchanges is twice the size of the economy and warren buffett has said in the past he likes to see i mean obviously he likes to see uh see it when you know stocks the market cap is less than the value of the economy obviously the lower the better you know because that's a discount on stocks relative to the economy but obviously anything over a hundred anything over 100 percent when the total market cap of all stocks in the uh in the market become higher than the economy that's a warning sign and uh you know you saw you saw even in some of the the big crashes you know even in 1987 right uh it was only like maybe 60 total market cap to gdp uh you've got i mean we didn't see even until until the this millennium okay the 2000s uh when we started seeing total market cap to gdp rise above a hundred percent so obviously there the first big spike is uh 2000 the big tech boom the big tech bubble uh almost reached 150 percent before it fell all the way down to 75 percent uh again before the the next little bump there is the the financial crisis right the stocks stocks really jumping uh there before the crash in 2000 and uh you know stocks actually made the peak in october of 2007 that's where the peak was before that big crash you know 2008 2009 but they actually reached 100 uh total market cap to gdp then uh fell all the way down to fifty percent right uh you know down to uh down to march of 2009 was the was the trough there in the in the last market cycle and now i mean just look at this and this is just going back to everything we've seen you know everything we've seen with that that increase of money supply 40 over the last year the fed the fed support to the federal reserve pumping money into the system and what it's done to stocks and you can really see here stocks stocks in the stocks in the on the u.s exchanges are now twice the size of the us economy okay 200 205 right now okay so these are these are you know undeniable warning signs and again folks it's not that not that i'm trying to scare you as i'm not saying stealth sell all your stocks i'm not trying to spread fear and all this crap okay but this is something you have to know you have to understand you have to be watching you can't just ignore it okay like we said things don't go away just because you ignore them and uh you know even if everybody was yeah a positive pam and and you know all that kind of stuff the market could still fall you know it doesn't the market doesn't care whether you're saying it's going to crash or not okay so so do nothing isn't really an option for for a lot of investors uh the one the one thing i would say if you're a long-term investor if you have more than 10 years to retirement okay then then yeah you can you can just keep on dollar cost averaging every month every month you put money into your stocks and buy and and you don't really have to worry about it okay because you know if there's one thing like we said if there's one thing uh that is market uh you know that is a truth of the market is it's always going to eventually go back higher okay the market is always going to recover it's always going to make those newer highs it might take a while though and that's why i say if you've got less than 10 years to retirement that's when you know or if you just you know do a little bit more short-term investing strategies that's when you really need to pay attention here right because you know like we saw it took uh well it took 35 years after the 1929 crash it took 35 years to for the market to reach that that peak again okay after you know we've been talking about a lot about inflation lately stagflation that stagflation years from 1966 to 1982 that was 17 years the the dow the dow industrials average reached a thousand in 1966. it didn't reach that point again until 17 years later 1982 right so you know if you look at something like that you know if you've got i mean even with that if you've got 17 years left to test left to retirement then this is still something you need to be watching right because uh you know that's a that's a long time to watch your investments just kind of flatline okay so you know not that we're trying to spread fear here but but this is something you just can't ignore uh you know to to ignore it is just to be just ridiculous okay uh so what you wanna what do you wanna look at uh inflation you know the one thing that i'm i'm extremely sure about folks is we're going to get higher inflation okay it's going to be higher than the the fed expects can be higher than economists expect they're already increasing their their inflation expectations what they see as as inflation they're still saying it's going to be transitory which is crazy you know they they have they have a number and they keep on uh increasing the the number that they're they're saying is going to be inflation and they still keep on saying that it's transitory they still say that's inflation's going to go down and and it's just not going to happen right you know you can't pump 40 percent more money into the system in two years and expect not to have long pervasive intense inflation okay obviously it's not going to be like what we saw in the 70s it's not going to reach double digits or anything but it's going to be five percent you know we're gonna have five percent or higher inflation for uh for quite a while i think and again as we start seeing those owners equivalent rents start hitting the cpi numbers that's when you're really going to start seeing how long lasting that is so you know inflation-protected assets you look at things like gold you know i mean gold is already kind of expensive you know if you look at look at the price return of gold over the last 20 30 40 years even 50 years uh it's it's done about nine percent over the past 20 years right so which isn't isn't really typical for gold it's a little bit higher than you would expect on just normal supply and demand characteristics so gold you know will do well with more inflation but it's already pretty expensive so so i don't think i don't think that's your best bet for that inflation protection real estate you know as much as home prices have gone up i think they still have you know they still have some support under them uh because of that inflation those real estate stocks those reits are going to be another good sector to be in right i think those continue to do well uh as well as you know some of these other inflation inflation production ones actually i've got a a stagflation video coming on friday i've got it scheduled for this next friday make sure you you check that out so you know make sure you're subscribed to the channel and click that bell notification so you get notified when it comes out because that's going to give you a much deeper look at inflation and stagflation which is really becoming a you know an issue it's not that you don't you don't need a recession to have stagflation folks you don't need economic growth to come down to zero or negative you just have to have inflation that's higher than that and that is what we're seeing right now uh you know over this next year is is the real potential for stagflation so you need to know what that is how it how it affects stocks as well as just personal finances as well as your bank account so be sure to check that out on um you know on friday bonds bonds actually in stagflation during stagflation times and even inflation aren't the aren't the destruction that people say they are okay the general the wisdom out there is that uh you know higher interest rates higher inflation kills bond prices right and that's true you know bond prices do come down with higher infra inflation and higher interest rates right but it's not necessarily the destruction a lot of people think if you actually look at the the data from 1966 to 1982 when we had that big bout of that 17 years of stagflation uh you know last time and i looked at this for that video on friday uh when you when you look at that bonds actually beat stocks during that period and people are blown away by that people think that bonds are just trash you know any type of inflationary environment any stagflation but bonds actually beat stocks on a return basis from 1966 to 1982 and the reason there is because you know obviously stagflation part of that that stagnation is that lower economic growth you know earnings from companies uh really underperformed so so stocks came down they had just come off of a big bull market right before 1966 so so uh and much like we have now stocks have gone up to record valuations so you know over that 10 15 17 year period that we saw back then and you know kind of equivalent to right now i mean if if earnings growth does slow down and we don't get that earnings growth that we're expecting especially from these growth and tech stocks then uh stocks can flatline you know stocks like i said the dow hit 1000 in 1966 and didn't reach that point again until 1982 that's 17 years of zero uh you know zero return on stocks the only return from stocks during that period was dividends right stocks actually did a 5.8 actually i want to say about a 6.8 return uh over that period annualized return over that period because that was the dividend uh that was the dividend rate okay so stocks did provide the positive in positive return but only on those dividends okay uh bonds during that time actually produced a 7.4 return okay and why is this why do why are bonds not completely destroyed during this inflationary stagflation environment right now uh and it's because of duration okay it's because you know bonds pay those those uh you know those semi-annual payments right they pay they pay that coupon twice a year and then they mature and they pay back all your money all the coupon or all the the bond price right so you can take that money and reinvest it on new higher interest bonds right and so what you want to do is you want to focus on shorter dated bonds right if you do have bonds as a part of your portfolio and i think everybody should have some bonds in their portfolio you want to look at the bond funds that are a little bit shorter term bond funds right like the vanguard bsv that's the bank vanguard short-term bond fund right bsv it holds bonds shorter dates right i think the duration in that which is kind of the average life of the bonds it holds is like 2.8 years right so that says that the average bond in that fund matures every in less than three years right so if we do start getting higher inflation and it's persistent then you know every every year they're they're rolling over bonds they're having bonds mature so but every three years you know the average bond has already matured they get that money back and they can reinvest it in higher interest rate bonds right so that's why bonds you know aren't necessarily the the destruction that that people think they are in inflation now what i will say if we do get inflation higher inflation but also higher growth you know so we're talking about stagflation we're talking about high inflation a little bit lower growth that's when bonds uh bonds actually do better than stocks if we do get you know still keep on getting higher growth then stocks can still outperform okay they can still do better because you've got those earnings growth boosting uh boosting stock prices okay last one for uh for investing strategy here and then we'll get to get to some of your questions uh cryptocurrencies you know these are not going away folks and i know a lot of you aren't sold yet uh but i got to tell you this crypto uh bitcoin bitcoin cardana ethereum matic really really my four the four coins that i'm investing in there are a few other alt coins that look really good but you know the the big coins uh that is my highest confidence play okay you know you've got more company countries recognizing these uh you've got el salvador made it official uh you know legal tender this week you've also got panama and the ukraine that uh that came in to say this started uh kind of started that recognition process in their laws and what you see is a lot of these emerging countries right these countries that get a lot of remittances from people uh you know living in the us or living in europe uh and that's expensive you know i think i saw i saw uh analysis that said you know uh western union alone could lose like 400 million dollars a year uh from the fees that it charges people to send from the us to el salvador just because now they're they're going to be able to do it you know through bitcoin and without a fee right so a lot of these emerging countries they are very much on top on top of this because it's going to mean a boost to their economy because you know their their expats their people living abroad aren't paying those fees so you see a lot of that you see a lot of uh you know a lot of these emerging countries that don't want that dependence on the us dollar uh anymore so they're they're transitioning to it uh mastercard and visa have both announced over the past couple of weeks uh huge acquisitions into the cryptocurrency space you know making it possible in the future that they're gonna start accepting cryptocurrency payments and and things like that uh paypal and square obviously very big into that space um you know cryptocurrencies it has grown to a point that uh and i've got a a really important video coming out on wednesday that is really the the intrinsic value of cryptocurrencies uh that we can get into but uh the cryptocurrencies have grown to a point where no one country no one government no one regulator or central bank can kill it okay we've heard a lot of central bankers uh this last week i think it was the ricks bank there in uh you know i think in norway uh we've obviously got uh powell and a lot of people talking and talking about cryptocurrencies but you got to understand these these central banks the people that control the money supply the the dollar supply and the fiat currency supply you have the traditional bankers that make their money on that lending that that monetary uh that financial system they're always going to be the biggest critics of cryptocurrencies because they have the most to lose okay you know the central banks they control the money in their system in their country they obviously don't want to see competition from a digital currency okay the traditional banks they make billions of dollars wells fargo made almost nine billion dollars in the last quarter alone uh just on you know taking your money putting in the savings and then lending that out okay so what happens when people can just go to a cryptocurrency platform and and borrow and land on that digitally instead of you know going to going to wells fargo okay so so those those two people are you got to take this with a grain of salt whenever you see jamie dimon from from jp morgan or whenever you see some central banker say that uh you know that cryptocurrencies are worthless or whatever now you'll you'll also see a lot of people we had john paulson talking over the last couple weeks that cryptocurrency is worthless that's the video that i've got coming up on wednesday okay we're really talk looking at the intrinsic value and there is a real intrinsic value it's not the stock to flow valuation it's not the the uh the network effect that we've talked about on the channel it's none of these that that everybody always talks about it is this intrinsic value from the uses of the blockchain okay and i don't want to get into too much of it because we have that video coming up on wednesday but this is real intrinsic value that is really a a great valuation tool for these uh you know for these cryptocurrencies so again you know i mean as inflation heats up as the stock market looks expensive i'm putting more and more more of my money in cryptocurrencies i'm in bitcoin ethereum uh cardana and matic okay so four coins uh ethereum and bitcoin obviously probably the the largest right there uh i want to get to uh i want to get to your your questions here uh so i'm gonna scroll back up and look for questions in the chat if if i don't see your question ask it again in the comments um you know and make sure you use a question mark so i can see so i can see your see that it is a question see a few of these you know i mean again thank you for being here every every well every other sunday i'm trying to do every other sunday i love these talks with with all you out there in the in the nation ohio connecticut zeke uh you know uh phil from murrieta marietta california uh from nyc it's awesome the birmingham uk it's great to see everybody from all around the uh or all around the world really okay so what else uh how are you protecting your portfolio from the september effect okay uh beachbum wants to know how i'm protecting my portfolio um kind of talked about that with the this investing strategy uh really i am i'm honestly i'm not putting any more money in stocks right now okay all my money is going into cryptocurrencies cash um actually stocks at 4 500 on the s p 500 that kind of triggered my next my next level and i've shared this with with you on the live streams before but but i basically and this is what i think everyone should do is you look at the the s p 500 or the nasdaq you look at the indexes and say okay if the stock market goes up to this point this is what i'm going to do and basically for me that 4500 level that was when i you know i sold more more calls against my stocks right so i sold other investors the right to buy those stocks away from me they paid me a premium it's kind of like a protection against losses in those stocks right i still wanted to hold those stocks but i wanted a little bit more downside protection so when when the s p 500 hit that uh 45 i think it was actually like 45.60 uh when it hit that then i sold more calls on that um if it goes up even higher which yeah i don't think it's going to go up that much higher but if it goes up to i think my next level is like 40 46.50 somewhere like that i'll probably start buying puts so so actually start excuse me start i need more beer that's what that is so so if the market keeps on going up it gets more overvalued more valuations even go go even higher then i'll probably start buying puts and raise basically that gives me the right to sell a stock for a certain price so if that slot goes down then i've still got the right that put option to sell it for that price so it's kind of extreme right it's it's a that's because you're actually paying for that right you're paying a premium for that right uh so i'm waiting for the market to get a little bit more expensive uh you know if if that goes up there but new money you know i still i still put money in my account every month i think you know you really need to uh to you really need to treat your investments like a savings account you put money every month every paycheck you know and whether you invest it or not is a different story but you put money in there um you know so you can start you can start seeing that portfolio grow right so i still put money in in there every month uh it's just sits there in cash or cryptocurrencies right um you know i've started maybe some of the shorter dated bonds that we talked about that bsv the vanguard bsb fund which is the short-term bond fund you know just to just earn a little bit more return over inflation and keep my money safe there ah yeah billy why am i going live during football time i i this time of year i mean football time is all the time right so so it's it's hard to do it's hard to find a time when that is i've found that you know right around this time sundays it's it's kind of most people are are available you can always watch the watch the replay uh watch the replay of this i'd say i'd watch live football and then watch the replay of this later though dimitri from the balkans thanks for being here uh you know love seeing love seeing everybody from all over in the nation there uh looking for more questions what percentage of money should i keep ready uh mike from new jersey wants to know what percentage of money should i keep ready i'm assuming you mean cash there uh and again you know i mean this is this is a lot kind of a personal question right you have to understand you know how far out till you need that money you know for retirement how how far out do you need stocks so and what's your risk tolerance you know if you're going to get spooked by a 10 crash in the market correction in the market then uh you know maybe you want a little bit more in cash maybe you want a little bit more in in some of these safer stuff like real estate gold bonds that kind of thing cryptocurrencies uh you know whereas if you've got more than 10 years till to retirement if you don't worry about the the ups and downs in your stocks then you know you don't really need to do quite as much okay you just invest normally and watch your stocks over that longer period watch them go up higher you know so so it depends on really where you are personally i'm kind of a risk averse investor right you know a lot of my business depends on you know the stock market and that kind of thing and how well it's doing so you know if the stock market crashes and people get disinterested in stocks and that kind of thing maybe they watch fewer videos right so i not only lose some of my income but i lose some of my uh you know some of my investments as well so anytime you're in that situation where you know your job is uh kind of tied to the economy and tied to finance and that kind of thing and that's not necessarily just stocks if you're if you work at a bank you know that is very cyclical a very cyclical job right they have a lot of hiring and firing according to that economic cycle right so if stocks were to fall if the economy was to fall that kind of thing then uh you know you could you could lose you could face losing your job and your investments at the same time so for people like that for people like myself that's you know small buzz small business owners maybe you have a little less risk in your portfolio so i tend to have more cash actually more cash more bonds more real estate more uh you know more in my own business that kind of thing rather than stocks actually you know i love talking about stocks that's where i got my start it's where it's worth where you know the obviously my passion is in the channel but i actually own less stocks than most people believe you know so right now actually i think cash i'm right around uh you know 15 20 cash i've also got a lot of uh you know a lot of option hedges against my stocks so a lot of calls sold against those stocks uh that kind of thing um i've also got probably actually right now it's probably hired about 20 25 in cryptocurrencies right i've got uh about so it's about 270 on block five it's another 260 250 on coinbase so you know upwards upwards of half a million in uh you know in cryptocurrencies right and that's again that's just because i think that is my highest confidence bet right now in cryptocurrencies um i truly truly believe if you look at some of the the valuation videos on the channel where i think cryptocurrencies could go uh ethereum bitcoin uh some of those others you know i i mean it would not be a surprise to me to see bitcoin up to you know 80 90 000 by the end of the year or early next year right which would be about a a twofold return but about 100 return uh you know from the current price when do you get that on stocks you know you even even this last couple of years where stocks have just gone up like crazy you just don't get 100 return within a year you know uh and i really think that's where we're at with cryptocurrency so i've got a lot in cryptocurrencies right now okay ah okay aaron wants to know how much further will chinese stocks drop if the stock market crashes uh great question uh and actually kind of two questions there one is should you invest in chinese stocks period or or you know will chinese stocks do better or you know will they do okay even if the u.s market doesn't crash right so if the u.s market crashes or if we see a significant correction in u.s stocks i think stock chinese stocks are going to come down just just in sympathy right you know investor sentiment is a big part of stock market prices of stock prices right so uh so you know if the u.s market uh they used to say if the us economy uh you know sneezes the rest of the world catches a cold right and that's still kind of you know we've we've kind of diversified the global economy a little bit but that's still you know something to watch in in stock so if the u.s market struggles then then you're going to see lower chinese stock values as well but even if the us market doesn't struggle even if u.s stocks keep on going i i think it's you know these chinese stocks it is a is a nightmare uh right and this is coming from somebody that has invested in chinese stocks i held alibaba for a while for a long time and i think it's a great company but the government has just made these in uninvestable assets okay uh you cannot compete with a government that wants to wants to return further and further towards uh towards socialism towards that communist ideology you know they've started limiting you know what kids can do they've started uh i mean you just look at some of the language coming out of the government over the past few months and it's really really trying to scale back the the excess and wealth and capitalism and that kind of thing in the economy now it's not to say that you know you can't you make some really good money uh if you're if you're able to get the dip on those and they do come back up you know and what we're seeing a lot of times with these is you know they'll they'll crash down uh on one day on on something that the government does and then you know the next few days they'll come back up a little bit so you know if you're trading these then you can make some money if you're a longer-term investor or even a swing trade investor it's it's going to be very hard to make money in chinese stocks so i would i'm not touching them i wouldn't recommend people touch them right now um just because you know there's there's other opportunities for return and not have to worry about the government as well uh roxieth thank you appreciate it uh michael reisberg thank you for being here from denmark uh what else same question is nolan curious where a firm will go from here i really couldn't tell you about a firm uh it's that buy now pay later kind of idea which is which is really interesting because when i was a kid and that was a long time ago uh so back in you know back in the 80s and night mostly the 80s but early 90s as well um the obviously layaway was the big thing so now it's by now pay later so it's interesting seeing that that's part of the market uh grow and develop and evolve but i really haven't covered the these stocks you know that obviously the valuations are very high for a lot of these companies because of the acquisitions that have been happening i do like what i do like is this idea of the digital wallets right so you look at paypal you look at square you look at uh a lot of these companies and even coinbase to an extent uh if they start diversifying a little bit more but you look at these uh you know online financial companies these mostly paypal and squares is what we've looked at on the channel in the in the past and if you go to the video section and search for digital wallets you'll find that the video i'm talking about but right now i mean they're these companies are creating uh you know really a whole financial services uh universe right on their platforms okay you know in the past paypal is basically you you just think about it as you know billing and and money money coming back and forth and that kind of thing but there really have a huge potential in these sites for everything financial you know i mean insurance lending uh anything you would do at a normal bank you can you're going to be able to do on paypal on square on a lot of these uh as well as just you know a lot of the other the data data management that they can do as far as uh advertising and and that kind of thing so you know i mean paypal and square have been two of my two of my best investments over the last year or so just because i mean even you know you look at you look at some of the weakness and some of these other growth stocks these other tech stocks and you just haven't seen it in paypal or square because these valuations are really actually pretty good for for these digital wallet companies these financial services companies and and that's what they're doing with these acquisitions into these buy now pay later companies they're they're adding another uh you know another part onto those digital wallets right they've got the lend they've got the uh you know the the transactions the processing that kind of thing now they're getting the lending and that kind of thing okay paul semper fi uh what else looking for more question marks jobs are ineffective so a lot a lot of talk about the uh you know the work the labor labor force you know work uh the work from home that kind of thing and yeah that is is a really uh a huge uh thing that i think most investors are kind of missing right now kind of not paying attention quite as much as they should to the labor market uh i mean this is there's a huge demand uh demand problem with jobs right uh and people just aren't taking the jobs for for one reason or another uh so you know i mean it's a really big something i think is going to feed in that inflation argument obviously companies if they can't find the workers they need they have to raise prices they have to convince those workers that don't want to go back to the office ever they have to pay them enough to convince them to come back right so wages are going to start going up wages are going to go up a lot more than i think the fed or economists are are are modeling right now and that's going to feed into that those inflation expectations okay is this not currently being seen what else uh short the market now so in monroy wants to know if you should short the market right now uh you know i like i said i right now at this point i'm mostly in i've gone mostly market neutral not necessarily market short but market neutral right where i've got a lot of cash got other assets like bonds real estate uh cryptocurrencies a lot of assets outside of the market so it's more market neutral rather than shorting the market now i will tell you i do have uh like a put spread a bear put spread on the qqq and the and the tlt okay so the qqq is the nasdaq 100 basically i've just got you know i've got uh three like uh i bought the 370 puts and sold maybe the the 360s right if i remember right and then with the tlts i've bought the 350 puts and sold the the 340s 335 something like that right so basically this is just this is just hedging my uh my other stocks right i'm not selling stocks right but i do want some protection if the market does uh weaken or if interest rates go up in the case of that tlt so i want some protection some hedges for that so i'm actually i've got some of these uh these put spreads that that can pay off a little bit more if the market does come down or if interest rates go up so not necessarily shorting the market or or you know betting against the market but i am hedging and i've got more of a market neutral uh you know market neutral idea okay mr hogue looks worried he's usually happy no not necessarily i i mean i've been in the market for for more than 20 years right 20 plus years i've had about a little more than half of that time as an analyst as well as working as venture capital private wealth management markets are going to go up market's going to crash i'm you know i i don't i don't want anybody to lose money but i'm waiting for a crash i mean the crash is when you make your most money folks uh if you can go market neutral or or something like that hold enough in cash hold enough in other assets then market crashes can be huge opportunities right i do not like the market right now okay and it's because it's really hard to make money with stocks so expensive you know it's uh you look at the the forecasts of of all the major banks you know you look at uh most of the forecasts are for at best like a four percent annualized return over the next 10 years uh on stocks and that's basically just because you know the valuations are so high right now valuations like we saw about a 30 40 premium on valuations it's really hard to make money there and and i'm lazy i like it when it's easy to make money right so i need stocks to come down i want stocks to come down a little bit to make that a little bit easier uh but i'm not worried about it because you know i i do my thing and i make my money and and uh you know and i'm smart with it uh so you know i i think that's that's the biggest thing you probably should do is don't freak out when the market uh if you're freaking out when the market falls or when stocks crash or something like that it's because you you've got too much faith in the stock market you've got too much uh buy-in in the stock market okay if unless you're you're a 24-7 trader or something then you need to be doing something else to make your money okay stocks aren't going to make you rich folks even even over the last couple of years where stocks have made people made people a lot of money uh cryptocurrencies have actually made people rich and all that kind of thing you shouldn't be looking to stocks to make you rich okay because you know it's it's just that kind of chasing return that is gonna bite you in the ass when when stocks do crash okay you're gonna lose more money than you would have otherwise uh so you need to you know focus on what you do best focus on your job or you know your side business or your side hustle or whatever you can do to make more money and uh you know let the market do its job don't worry about the market though okay what else i've kept an eye on vixx probably will drop turf okay uh chris is coming big time okay so i'm not seeing a lot more questions so i'm gonna actually uh i'm gonna actually cut it off early uh again thank you for being here i love doing these uh these every other sunday uh live streams just uh just uh you know talking back and forth with you with you here uh gotta take my kids to the mall i promise to take them out there uh today but again you know subscribe the channel make sure you have the the notification bell turned on uh it'll be not now probably not next week but another two weeks and we'll have another one of these live streams if i didn't get to your question ask it in the comments below and uh and i'll try to get in there thank you

Channel: Let's Talk Money! with Joseph Hogue, CFA

Views: 31,263

Keywords: stock market crash, stock crash, will stocks crash, stock market news, stock market live, stock market crash 2021, stock market crash october, stock market crash strategy, when will the stock market crash, stock market crash explained

Id: tkuQr5IXg_0

Length: 66min 45sec (4005 seconds)

Published: Sun Sep 12 2021