Audio Transcript Auto-generated
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Welcome to this week's version of nickels and dimes are weekly video series.
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The markets have been in some turmoil lately. As you very likely noted.
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If you look at your statements, you watch CNBC and obviously you see what's going on.
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The markets have been selling off, particularly the NASDAQ,
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which is very tech heavy why one of the main concerns
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and main reasons is because of rising
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interest rates.
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Now.
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Obviously if, if you don't know,
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the NASDAQ is primarily driven by technology companies, uh,
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what we would term as high PE companies and traditionally those folks,
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those companies don't like rising interest rate environments.
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Why? Because the cost to borrow of course goes up, which means that
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in theory they're less profitable or at least they're casuals get hurt.
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So we're seeing a lot of risk, risk assets being sold off.
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And one of those assets is, for example, in the Cryptocurrency space,
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you see a lot of the Kryptos, for example,
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Bitcoin and ethereum and some of the others just taking a bloodbath if you will.
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So why are again, why are the risk assets selling off
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again? Primarily because of rising rates?
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So we're gonna do a little history lesson to look at
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how rising rates have historically affected
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the equity markets. Now. This is just a historical look back.
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So how have
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the,
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how has the S and P 500 over a long
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period of time perform in federal reserve rate height cycles.
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Well, going back to 19 fifties, you can see the mid to late 19 fifties,
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the average analyzed rate of return over that period of time
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was 13% fast forward a few years in the late,
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mid to late sixties
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generally a bit positive, even though, you know, certainly a lot more modest.
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We had one negative couple of year returns in the early to mid seventies.
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But basically, you know,
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you can see the markets have generally reacted positively,
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uh, to rate height cycles.
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Now, this does not mean that number one, this will continue again.
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We're seeing a sell off in the equity markets over the last few weeks.
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It's a risk off trade at this point.
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Will it continue? No one knows.
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So, I'm not suggesting that the past will equal the future. So, be careful.
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So, again, take this with uh, you know,
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it's good to have this in your file manager if you will,
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but this doesn't again mean that the past will equal the future.
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So, you still must have,
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uh, you know, hedging mechanisms in place that again,
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if the equity markets don't positively respond as they have in the past.
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So, again,
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our suggestion is just look at this information and I wanted to share with you today,
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because I do think it's important because why have
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equity markets generally responded positively to rising rates well,
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on some level, there's an assumption that if rates are going up,
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that means the economy can handle it
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and therefore it's generally seen maybe as a positive sign.
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Now, all I have to say is there's a very likely, very real likelihood that the,
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the equity markets have already priced in a rising rate environment, you know, so
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just keep that in mind and there's, you know,
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and I'm actually recording this video on monday and the market sold
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off at least the dow around 1000 points and has since recovered.
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Now, I don't know how it's gonna end of today, how it's gonna end today.
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I don't know of course, when you get this video on thursday, I don't know um you know,
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if the market will be up at that point, but my suspicion is at least in the short term
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we're very likely have seen at least again, a short term bottom. So
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if you're a client of ours,
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you know that we started hedging our portfolio back in september why?
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Because as you may recall if you've seen some of these videos
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in the past,
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we saw things back then were that were
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very concerning and they're still very concerning.
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What are the, some of the things we saw margin debt was at an all time high?
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Think about that.
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Generally speaking,
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the Marxist markets end up topping out when there's
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a lot of debt that leverage in the system.
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In addition to what we saw,
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we saw a number, the number of stocks that are participating
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in the ascension or in the appreciation of an indices were getting less and
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less traditionally when uh the amount of
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stocks that participate in the market appreciating,
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starts falling off over time.
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That shows that the market breath is contracting. That's not a good sign.
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So again, I'm just oversimplifying a few areas
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of the marks that we saw that were concerning, that gave us some, you know,
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some high degree of caution.
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That's why we started reducing our exposure last september again,
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to protect our clients portfolios.
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Why?
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Because the number one goal in investing in our opinion is risk management,
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is preserving capital.
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The second goal of course is growing your portfolio.
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So Again,
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I wanted to share some information with you today just to give
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you an idea how the markets have specific specifically the SP 500
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has done, has performed in rising rates and rising rate environments.
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Again, the past, is it not, does it not necessarily equal the future, But sometimes,
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you know, as you know,
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the past tends to rhyme with the future.
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So all that to say is make sure you keep your investment discipline in place.
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You have a well diversified portfolio that has
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hedging mechanisms in place to that end.
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If you would like a second opinion on the portfolio
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just to get a second opinion on what's going on, Is your portfolio better position?
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What should you do now? Are there
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opportunities in the marketplace that you want to
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take advantage of send us an email,
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See Nichols at Nichols wealth dot com or go on our website
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at Nicole's wealth dot com to learn more about what we do.
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Thanks again for watching. And I and I wish you a great day. Bye bye.