Pay No Attention to the Man Behind the Curtain — at Your Own Risk!

On the 3/29/2019 edition of Stock Talk, Chris talks about the “Wizard of Oz,” Federal Reserve Chairman, Jerome Powell, and the recent Fed announcement that may have changed the course of the stock market for the rest of 2019.

Chris Perras: This is Chris Perras, Chief Investment Officer at Oak Harvest Financial Group. Welcome to the March 29th edition of our weekly Stock Talk Podcast: Keeping you connected to your money. Each week, we try to share with you our views on the market. Try to talk to you about what’s coming down the pike for the economy and the stock market. We also try to educate you to how the stock and bond markets work. This week’s episode is entitled Pay No Attention to the Man Behind the Curtain at Your Own Risk.

When I was a young boy, the movie, The Wizard of Oz terrified me. It was a movie filled with fear, losing one’s home and family in a tornado, evil hunting witches. It even had flying monkeys. It had it all. At every turn, Dorothy had disruptions galore as she tried to find a way to Oz along the yellow brick road, which would ultimately lead Dorothy back home. When she finally arrived at Oz, she in the movie as the audience discovers that a godlike wizard is just a man, a regular man operating behind the scenes. “Pay no attention to the man behind the curtain,” the wizard declares as he tries to hide from his viewers.

The investment world and investors’ experience in a stock market can be as terrifying as the path Dorothy took to the wizard. There are daily, weekly, and monthly economic and macro events and headlines that appear very scary at first. On our website, we provide a timeline and list of annual economic crises that have been concerning since the 1930s. Go to our website, oakharvestsfg.com. Look for the investment management tab. Then look for the lessons from the market tab, and then look for the piece entitled, I don’t want to invest now because.

Over that timeframe, the Dow Jones Industrial Average has risen 22,000%. 99% of the time, macro concerns are just that, short-term macro concerns. They have little to no meaningful long-term effects on the economy or the stock market. However, on January 4th of this year, we got macro matters 1% of the time event. The head of the Federal Reserve, Chairman Jerome Powell, some say the modern-day Wizard of Oz, stepped out from behind his curtain and essentially said, “I was wrong in October through December of last year, 2018 on my comments on the economy.

The economy has slowed down much more than we thought. We are now data dependent on raising interest rates for 2019.” He also said there was uncertainty in the global economy. He went on to say the Federal Reserve was okay with inflation running higher than their models and their normal forecast. This is a 1% of the time macro event that matters. I repeat, this is a 1% of the time macro event that matters, the head of the most powerful bank in the world. The central bank of the United States said we are no longer raising interest rates and tightening credit conditions in our economy.

Within the next two months, January and February, almost every other central bank in the world has turned tail and stated they are more likely to ease credit conditions than tightened going forward. This is exactly what is needed for Goldilocks to return to the economy and stock markets for the second half of 2019 through 2020. Recall from prior podcasts, Goldilocks isn’t 4% to 5% GDP growth. Goldilocks is boring. Goldilocks is stable to slightly accelerating economic growth of 2% to 3% when monetary policy conditions are easing.

Golding locks is not too hot and not too cold. Goldilocks isn’t sexy. Economic policies of central banks work with a lag of six to nine months in the economy. However, these policy shifts are initially reflected in the stock market within two to four months. As we’ve seen in the first quarter, the stock market has rallied the S&P 500 right back to around 28, 25. However, this is foreshadowing or second half, the 2019 market outlook and the 2020 market outlook, the stock market positive returns last 15 to 18 months or more after these Federal Reserve pivots.

We believe that the bull market is still strong and others will recognize their emotional air of selling stocks late in the fourth quarter of 2018. They’ll recognize this year later in 2019. However, by then, after a second-quarter pause and pull back in the stock market, the stock market is likely to have reached new all-time highs on the way to even more gains in 2020. Pay no attention to the man behind the curtain, Federal Reserve Chairman, Jerome Powell. Do this at your own risk.

If you have assets or additional assets being managed outside of Oak Harvest Financial Group allocated to those tactical asset allocation strategies, those rotational strategies, those I’ll get you out strategies, we’ve spoken about in the past podcast, please give us a call at 281-822-1350. We would love to meet with you and see if we can add value to your financial plan or investment portfolio. I’ve managed money for over 25 years through all kinds of economic cycles. I’ve managed the number one mutual fund in the country ranked by Lipper twice.

I’ve run the number two mutual fund in the country ranked by Lipper over a five-year period and managed a hedge fund to a minus 3% return in the crash of 2008, 2009. There are better ways to protect your portfolio from market declines than trend following or tactical asset allocation that historically have sold too late and down moves or bought even later in bull markets. In closing, if you find this content helpful, please forward it to friends or have them give us a call at 281-822-1350. Go browser our updated website at oakharvestfg.com.

You shared your vision or your money with us during our meetings, we’re here for you. Occasionally, the investment environment will change and in those rare cases, we will make strategic changes in your asset allocation. These are rare, but they happen both ways, not just negatively. They happen as positive setups to the market and the economy. When we see these rarities, we will adjust your allocations. Our main job at Oak Harvest Financial Group is to have you retire only once in your life with a customized retirement planning. Many blessings. This is Chris Perras with Oak Harvest Financial Group.

Announcer: Content contained within this Oak Harvest Podcast is for informational purposes only and is based upon information current as of the time of recording. It should not be considered an offer or solicitation to buy or sell securities, nor is it tax or legal advice. Investments involve risk. Unless otherwise stated, particular investment returns are not guaranteed.