2022 May Be a Challenging Year For Your Portfolio

 

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Mark Elliot: Glad you’re with us today for The Retirement Income Show. I’m Mark Elliott alongside the CEO and Founder of Oak Harvest Financial Group, Troy Sharpe. Troy started the company back in 2008. You can find out more just by going to the website, oakharvestfinancialgroup.com, oakharvestfinancialgroup.com.

The office’s located at 920 Memorial City Way right off I-10 and Bunker Hill. Of course, you can always go to YouTube and search for Troy Sharpe and Oak Harvest, got tons of videos on there, over 100 that are really getting a lot of traction. People are really liking what Troy and the team have been putting out there. Some great information for you. If you have any concerns about any area in the financial world, the retirement world, probably got a video on it that Troy has done, just search for Troy Sharpe and Oak Harvest.

Of course, if you want to just talk to somebody which is nice when you get old, Troy, I am now social security eligible. I just hit the age of 62. How about that? There’s a lot of moving parts here. That’s why– First old people, Troy, like me. I don’t want to try to figure it all out on the internet. I want to call somebody and ask.
That’s 800-822-6434, no cost to chat with the team. 800-822-6434. All right, recent economic changes. You got the Fed dealing with the market you said. We also have inflation, the highest we’ve seen in 30 years. What’s going on in the economical world?

Troy Sharpe: Okay. First, you have to go back really to, I guess, March of 2020, we started putting these videos on YouTube. I encourage you to check them out. We were forecasting what happens in an event-driven recession versus a more structural recession. 2008, the financial industry is collapsing, the real estate industry is collapsing, the banking industry is collapsing. That was a structural recession, okay. Things were going to you know what.

COVID was an event-driven recession, okay. Historically when we look back at event-driven recessions, they typically last four to eight months. The stock market recovers far more quickly than the economy. We talked about the Federal Reserve starting to inject trillions of dollars into the economy. We’ve done videos on this before on YouTube. If you’re a client, we’ve talked to you about this almost certainly. The Federal Reserve has been putting true trillions and trillions of dollars to support the financial market, and that is on top of the trillions of dollars that Congress has essentially printed and put into the market.

Now, Congress doesn’t print the money, the Federal Reserve does, but you get my point. The Federal Reserve announced that they are going to start to taper, pull back their money-printing program. Now, back in March and April, we talked about how because of– I think it was the four S’s. The science, we believe there would be a vaccine or a treatment created. We believe consumer sentiment would turn around, the stimulus, and I forget what the other one was. We talked about how quickly we anticipated the market to rebound. The beginning of this year, we felt the market was going to have a very, very strong year because there was no way the Fed was going to pull this back, year over year earnings growth was going to be excellent.

Now, moving forward, there’s a couple of things to pay attention to here. First and foremost, the fact that they have begun to taper. They’ve said that they’re going to do 15 billion in November, 15 billion in December, and then they’ve left it very flexible from that point. They did not commit to doing an additional 15 billion per month or 20, or accelerating the pace of tapering. That is a good thing.

Now, most of you probably won’t remember, but back in the fourth quarter of 2018, when President Trump was battling with China over these tariffs and the trade wars, the Federal Reserve said, “We’re going to go ahead and raise interest rates.” They did that too soon, they made a massive mistake, the market corrected 20% in the fourth quarter of 2018 and they quickly reversed course.

We’ve been telling you this for probably a year and a half now. They weren’t likely to make that same mistake again. They did not make that mistake because they’ve built-in flexibility. They’ve done two things here. One, they said, “We’re going to do 15 billion and 15 billion.” That means they’re going to 30 billion less they’re going to print to support the financial markets. They also said, after that, it will be data-dependent, meaning, what is inflation doing? What is economic growth doing? What are wages doing?

They’re not just committed to this rigid schedule of pulling the stimulus back from the economy, the financial markets, specifically, they’re going to be more data-dependent.
This is the exact opposite of what they did in the fourth quarter of ’18. They’ve also said, once we do complete the tapering process, all 180 billion per month that they were putting into the market, once that is done, and they’ve completed it, that does not automatically mean that they are going to raise short-term interest rates.
The Federal Reserve sets short-term interest rates in this country. The market sets long-term interest rates. I know inflation is out there, it is absolutely real. One of the key gauges to determine how permanent inflation is or how the market perceives inflation, the length of the inflationary pressures to exist, is you can pay attention to the 10-year treasury and you can also pay attention to tech stocks or the NASDAQ specifically.

Long-term interest rates here, when the market perceives inflation to be not transitory but going to last for 2,3,4 years, very long period of time, you’re going to see longer-term interest rates start to adjust because the bond market is going to sell-off. When bonds sell off, prices go down, interest rates rise. If you have a bond, right now the 10-year bond is paying around 1.5%. If I think inflation is coming long term, why would I buy a 10-year bond paying only 1.5% when what we call the real yield, which is the nominal yield what it actually pays minus inflation is negative. The real yields right now are negative significantly. If I have a 10-year bond paying me 1.5% and the market perceives, and I’m talking about the market or the market participants who set the bid and ask price essentially, “I’m willing to pay this, you’re willing to pay that. Let’s come to an agreement, this is the market value.”

If I think that inflation is going to run at 6% over the next five years, I’m going to sell that 10-year bond paying me 1.5%. When I sell that 10-year bond, prices will plummet, rates will shoot up. 10-year bonds right now, government bonds, are not shooting up. This means the market does actually perceive that inflation is transitory. Now, does that mean it’s going to be gone in a month? No, it’s absolutely not going to be in a month. As a matter of fact, I think it’s going to get worse because of the vaccine mandates.

We could see truck drivers stop working, we could see– which obviously would impact food prices and all types of prices across the entire consumer spectrum. I do think inflation is going to get worse and it’s primarily driven from government policy right now. It’s unfortunate because as we said in the beginning of this show, it is primarily impacting those with the least amount of money in society.

We are going to have higher gas prices, almost certainly. They’re shutting down pipelines, they’re eliminating coal, they’re committing to, again, green energy. I’m not saying whether this is good or bad, that is not my point. I am talking about the impact of these policy decisions and how it affects your retirement, how it affects your income, how it affects your portfolio.

Getting to the point here, answering those big questions. Inflation most likely will continue into next year, there’s absolutely no doubt about that. The stock market, the Federal Reserve is going to, as I said, stop the– taper 15 billion this month, taper 15 billion next month and then remain flexible. They are not going to automatically raise interest rates once the complete tapering program has been finished. What does that mean? We also have midterms next year.

If you go back, we have all this information on our website. We felt that after COVID that the market was going to rebound very, very quickly. We felt 2021 was going to be an excellent year in the stock market. Go back, look at our first half outlook, it’s on the website oakharvestfinancialgroup.com, but 2022 is most likely going to be a more difficult investing year because the lack of stimulus from the federal reserve to support the financial markets and also inflation continuing to pervade people’s pockets, the economy.

I really wish we had more time to go through all the different challenges that we face. We’re seeing the effects of a lot of the policy decisions, whether it’s from the Federal Reserve or from the current administration, starting to get to critical points to where your retirement, your portfolio, your income, the purchasing power of it, at least, could seriously be impacted, it does. I’m not saying the market is going to crash, I do not think the market is necessarily going to crash. We very well could have a 10%, 15%, 20% correction at some point during the next year, though, that would not shock me at all.

Mark Elliot: 800-822-6434 is the number if you’d like to chat with Troy and the team at Oak Harvest about any of this. Troy, as he does every week on this program, covers a lot of ground. 800-822-6434. You’ve got two minutes left, and I know you wanted to bring up the gentleman that works for you that graduated summa cum laude from Georgia Tech course who doesn’t. Then he has an MBA from Harvard Business School, you wanted to touch on Chris Paris.

Troy Sharpe: Yes, so Chris, our Chief Investment Officer, and Chris is kind of a– I just really appreciate everything that he does for the firm, everything he does for the clients. He started a new segment called News or Noise. Eric, who does the video production for our YouTube videos, which, by the way, we’re recording this, we record all the radio shows, we put them on YouTube. Eric created this green screen, he had them do this New News or Noise, New News or Noise segment where Chris gets something that’s very prominent in the news, a big headline for that week and he records a video and explains if it’s news or noise.

I’ve never actually seen this side of Chris’s personality before, it’s pretty cool to see. Chris just does an amazing job figuring out what’s going on out there in the world, not just– Here’s the thing, with the time we have left, I want to talk about Chris. He does an amazing job with the math in various markets, so the options markets, the commodities markets, the futures markets. The math that he does behind the scenes there and then he takes the headlines in this new segment and essentially helps you, the consumer, understand what’s going on, should you pay attention to this, should you be concerned, or should you just brush it off because it’s more noise than anything else?

Go to the YouTube channel, you got to check it out. There’s no cost to subscribe, just go to YouTube, search Oak Harvest Financial Group. This is The Retirement Cncome Show, give us a call, 800-822-6434, and we will see you next week.

Mark Elliot: Investment advisory services offered through Oak Harvest Financial Group, LLC. Oak Harvest Financial Group is an independent financial services firm that helps people create retirement strategies using a variety of insurance and investment products. Investing involves risk, including the loss of principal, any references to protection benefits, or lifetime income generally referred to fixed insurance products never securities or investment products.

Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Oak Harvest Financial Group, LLC is not permitted to offer and no statement made during this show shall constitute tax or legal advice. You should speak to a qualified professional before making any decisions about your personal situation. We are not affiliated with the US government or any governmental agency. This radio show is a paid placement.
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Summary
2022 May Be a Challenging Year For Your Portfolio
Title
2022 May Be a Challenging Year For Your Portfolio
Description

Investment Portfolio Challenges for 2022 maybe coming. The government announced that they will be tapering off economic stimulus, which just may slow down the economy. In this episode of the Retirement Income Show, Troy talks about how that may be impacting your investment portfolio and your retirement in 2022.