Joey Loss 00:14
All right, welcome everybody to another episode of Market chatter. I'm Joey loss and I'm Adam fan. We I'm here with Adam. He is the leader of the brain trust for investing here at strive as wealth. And you know, this is our monthly check in to see what the heck is going on. And gosh, it seems like the government's determined to give us a lot to talk about.

Adam Van Wie 00:34
There's certainly no lack of things to talk about today. It's been a little bit of a wild ride over the last month

Joey Loss 00:39
for sure. So just to set the stage, I'll kind of run through some numbers, drop a couple headlines, and then we'll see where the conversation takes us. But the headline this year so far has been developed international stocks, which was exactly the opposite of q4 for last year, that index was way down, and currently, year to date, it is up 11.24% emerging markets is next in line. It's up 6.25% the S, p5, 100 is down about 1.7 right now it's almost noon on March 6, and the NASDAQ is down 3.4% year to date, if we look a little bit closer, the last month for us, stocks in particular, feels a little bit more painful, down about four and a half percent for the S and P down about little over 6% for the NASDAQ. And small caps are just taking a beating, down 10% for the last month, and this week has just been kind of a bumpy, bumpy roller coaster. So I'll pause there. Adam is this kind of what you expected the year to look like coming into

Adam Van Wie 01:42
Yeah, funny enough it is. I didn't know that it would actually play out that way, but it was my prediction that we would see some short term volatility. The thing that the market hates the most is uncertainty, and when there's big, huge changes in the world, like, say, a presidential election where the new party is 180 degrees different from the old party, and is going to make some serious changes that leads to uncertainty. The economy hates uncertainty. Businesses hate uncertainty. Investors hate uncertainty. And right now, that's what we're that's what we're dealing with. And so until some of these things start to flush out. I think we're going to see some more volatility. Now, I don't think every day will be a big down day, and we saw yesterday, we actually saw a big up day, so but the overall, the overall trend has definitely been down, but we're coming off of an all time high just a few weeks ago. So when you say that is down, yeah, we're at November levels in the stock market. That's not even really outside the norms of a six month trading period. And so I'm not, I'm not overly concerned right now, but it is for a lot of investors who are just thinking back to the last year where we saw very little volatility. I can understand why people are concerned. Yeah. I mean, in

Joey Loss 03:01
fact, we just walked out of a client meeting where you were telling this same story, that we were just kind of spoiled last year. And it's amazing how quickly our new baseline for volatility can adjust to pretty much none, which is what we had last year

Adam Van Wie 03:14
Exactly. We're seeing levels on the VIX right now the volatility index that are like the high side of normal, but we're not seeing extreme fear or anything like that. So really, what that's telling us is that this is just normal trading.

Joey Loss 03:27
Yeah, yeah. And one of the examples of that is that it's not like money is leaving the market as a whole. It does look like money's pulling out of one area, going into another. And, you know, in q4 it was out of international into US stocks, we saw a little bump post election and on the US side, and definitely a drop on the international side. And this year, so far, the year, this story has been a reverse.

Adam Van Wie 03:52
It sure has. I mean, Europe spent on fire. Some other markets around the world have been very strong, and that was that was definitely not the case last year, and hasn't been the case for the last 10 years, really?

Joey Loss 04:03
Yeah, yeah. All right, so let's go through a couple headlines. I mean, it's God, it's hard to keep up with them. We had State of the Union this this week from President Trump. We've got Germany once a beacon of frugality, jolts Europe with planned spending splurge. So they have a big shift in their spending plans. The recession, trade is back on Wall Street. ECB, the European Central Bank, cuts rates to guard stalled economy against tariff threats. We've got automakers getting a short tariff reprieve. Yeah,

Adam Van Wie 04:37
lots of, lots of surprise headlines there, I would say those are not what you would have woken up and expected to hear,

Joey Loss 04:44
no. But I guess if you expected shock wave, here you go. Yeah,

Adam Van Wie 04:49
there you go. I mean, so I think let's start with the one that happened this morning. The headline I woke up to was a Wall Street Journal alert about the European Central Bank cutting race. It's a bit of a surprise, especially when their market's been on fire. Inflation still a real risk around the world, in my opinion, including in the European Union. But I suspect it's a direct not retaliation, but response to to the threat of tariffs that Trump is out there touting. I don't think he's actually done anything with Europe yet, Canada and Mexico and China have been the ones in the headlines anyway and so. But I do think it may be a preemptive move towards anything he might do with with the European markets in mind.

Joey Loss 05:35
Yeah, I think that's a good call, and it might be helpful to you know, we with how the speed of these headlines coming out, it's so easy to just say tariff and run right past it for listeners, why don't we spend a minute talking about the impact of tariffs on different areas of spending? Because it's really not the same across all types of goods. No,

Adam Van Wie 05:56
definitely not. And tariffs aren't just a static thing you've got, you when you get a tariff put on a good that you're importing. Yes, the direct reaction is that most likely the price will go up. But there's other implications of that as well. So you're going to see demand fall. Most likely you're going to see maybe a retaliation on other things. And so the net effect of the tariff on that good is that the price goes up, but if demand falls, you may see that price then start to come back down. It's it's not as simple as a one to one relationship, tariff to price. So I don't think you can make these broad, general assumptions about exactly what will happen. That it's going to be inflationary. It may be inflationary. That's entirely within the realm of possibility, but there are other things that can happen as well. So maybe a domestic producer ramps up production and is able to sell at a lower price and therefore gets all the sales, and it's not inflationary at all. I don't know. Nobody knows that's that's the that's the interesting thing about this. So people making 100% sure predictions about what the results of these tariffs will be, I think, are maybe jumping the gun a bit

Joey Loss 07:10
for sure. It might be nice to be that confident, but I've never felt that way when it comes to something this complex. And, yeah, like, as an example, if we pull out a couple goods, you know, something like a like a blanket crafted in India, right? That's something that's probably not going to see 100% of the tariff pass through to the consumer, because there's so many people ready and willing in other markets to produce that good at a very similar price. But something like an Italian wine in the like $30 range, people are pretty loyal to the brands that they like. It's a discretionary spending good. It's not a consumer staple, necessarily. So it kind of becomes something that's going to be, it can go up 10% in price, and it's probably not going to affect demand that much for that particular good, though there may be some impact, but it's going to be all of these things together. Impact how much of the price gets passed to the consumer, whether producers eat it, whether importers eat it, whether the producer creating the goods shift. There's just a lot of questions that depend on the type of

Adam Van Wie 08:16
the good. No doubt about it, the price sensitivity is a big issue with this. When you're talking about, I think wine is a great example. If you're somebody who's very into wine and you love your Italian $30 bottle, a $33 bottle probably is not going to affect your consumption to a great degree. You're not going to then go and say, Oh man, this Chilean wine is is probably a perfectly good substitute. It's just not how that market works. But when you're talking about widgets or commodities, anything that is has a great price sensitivity and is available from many different countries, you're going to see the effects much greater on things like that,

Joey Loss 08:57
definitely. Okay, so let's move on to some of this, this spending splurge in Europe, particularly in Germany. You know, we'll see if it really happens, but it's being talked about right now. And you know, one of the things about the current environment, I'll just go ahead and say it, we try not to be political as we talk about these things, but it's an there's a very deep connection between politics and what we're seeing economically right now. So if we talk about politics, it's just coincidental to the effort to explain what we think economically and what we know and see about this. But it looks like Germany's desire to spend is sort of connected to what happened with Zelensky in the Oval Office. I mean, it seems like Europe is starting to take a position that they need to be a little bit more responsible for their defense, because they can't count on the US, the way that they have historically, is that your read,

Adam Van Wie 09:51
I think so. I'm I'm not. I'm with you. I don't know that this is actually going to happen, but the fact that they're even making a signal. All that they're willing to do that is a seems like a big shift in policy, and I think it's probably long overdue. I mean, you've got a land war actually happening in Europe, and the US are funding the opposition to it. It seems like that's more of a European problem, and that's not a political view, that is just a location view, and the willingness to step up because of our unwillingness to continue to be the major funding source seems like a pretty major shift in the political landscape across of the world, and one that is probably likely to happen at this point, I'm thinking,

Joey Loss 10:46
yeah, and there's a million potential economic consequences of that. Consequences just being the outcomes, not good or bad. And one of the main factors seems to be they're willing to take on debt in a way that sounds like they weren't before, right? They didn't really have to think about leveraging the fact that they have their own central bank, the European Union. The European Central Bank operates a lot like the Federal Reserve does for the United States. They now have, you know, a perspective that maybe it's time for them to take on some debt, to create, to help prevent, you know, negative impacts in the economy at large, as some of these tariffs take place. But then also, because we're just not willing to do it for them like we have, they're gonna have to step up and do it a little bit too and, and so maybe that's a good thing for the United States to have a little bit less of, you know, just a deficit habit for other nations, and we'll see what that does.

Adam Van Wie 11:45
Yeah, in my opinion. And I look at, I look at the government as a business. I mean, it is, and it's not exactly the same, but there are a lot of parallels between a large corporation and what the government does. Now, obviously there's, there's more important things that come out of the government than out of most businesses. So you, you have to make decisions in a little bit of a different context. But when you look at a business that has revenues that are falling short of their total expenditures by, I don't know, 30 to 60% or maybe more. It's, it's not sustainable. We're broke. We just haven't hit the breaking point yet. But the US as a country is broke, and there are only a few ways to fix that, and just printing more money is not a good solution. We know the outcome of that, and it's, it's not a sustainable solution. We need to figure out how to live within our means, or at least get a lot closer to doing it than what we are today. That is, that is just an opinion, but I feel like it's if you were running this as a business, you would be looking at bankruptcy. I

Joey Loss 12:55
think that's right. And you know, if you, if you think about it like government spending, when that government spending is 100% committed to growth efforts of the economy. You can kind of get away with it in a different way, because maybe you're borrowing at three or 4% and encouraging an economy that produces five right? And so future tax dollars, all these other things come in at a rate that's greater than theoretically what you are coming in. But that's not how spending works, right? We have all this spending that really has nothing to do with growth directly, and I think that's where we've been able to grow this deficit so greatly over time. Yeah, it's just, it's been,

Adam Van Wie 13:31
it's, it's really ramped up in the post COVID era. And a lot of that was unavoidable. There were, there were things that happened during COVID that we had to do that. I totally understand. But now it's sort of where the rubber meets the road. The the total debt to GDP ratio is off the charts. I think it rivals all but maybe one period in history, around one of the world wars, it's just gotten so high that we're, we're, I think we're in trouble. We need to do something. It's it. The time is now to act not, not 10 years from now, yeah,

Joey Loss 14:06
and we don't really want, like, the production labor force of a world war to be the only solution. Like it would

Adam Van Wie 14:11
really hope that is not the case.

Joey Loss 14:14
Okay? So we might have just scared some people who are listening. Let's, let's broaden it and say, what do we think? You know, nobody should trade on any of our predictions, you know. But we have been doing this for a while. We do have a feel for how things are and how things tend to play out in different environments. What do you see as you think about, you know, to the rest of the year? Are we going to hit a new S, P, high, after all this volatility, what feels possible?

Adam Van Wie 14:40
I think that's within the range of possible outcomes. Of course, I think a correction, or even a bear market, is also in that range of possible outcomes, though it's really impossible to tell what I will say is that there are data points that you can make a very strong case for the economies in Okay, shape, and there are data points. That you can point to that make a case for this is an economy that's in decline. It really depends what story you want to tell or what your favorite indicators are of the economy. So where to start? I think if you want to make a case for a bear market, that's super easy to do. We've just seen a two year, roughly two year period where you had an inverted yield curve. Has almost 100% track record of predicting a recession coming when, when the yield curve on inverts recession, not necessarily a 2008 like recession. It can be a very mild, very, very quickly resolved recession, but that track record would lead me to believe that we will see a recession in the next year. So, but that's, that's an anecdotal thing, and it's, it's based on a historical set of facts, because this has happened, and this has happened every time. That doesn't mean that it will happen this time, this time could be different. Now, those are also famous last words, so, but making that case is very, very simple, just using that set of facts. Now, you could also make the case that, look, the market was at an all time high. PE ratios were were so elevated up in the high 20s, and that's not a sustainable state of the market, either. So we needed about a volatility and a sell off to get things back down to where they start to look attractive again to investors. And if you if you have PE ratios that just do nothing but go up, eventually you run out of buyers, because things start to look less and less attractive every time the market goes up. Now, when that comes back down, suddenly, people that thought Nvidia was overvalued are thinking, Oh, maybe this is a good buying point, and they want to jump in. And that's true for any stock. So these types of events are very normal. You see a correction, on average, about once a year, 10% decline in the market. And what it does is it brings in new buyers and people that are looking for bargains,

Joey Loss 17:02
yep, yep. And it pops bubbles in certain sectors that maybe not be merited properly. You know, it helps, helps restore breadth to the market, which is a good thing.

Adam Van Wie 17:11
Long time, definitely, the market seems to get things right, but it also tends to overreact. So anytime there's really good news, you see the market just absolutely shoot up, and it almost always overshoots what seems like a normal, like a like, a logical level, and same thing on the way down. I think that, I think that COVID was a great The best example so exaggerated, but you saw COVID hit and the market sold off so hard that it was pricing in something like a, like a 50% decline in, or maybe more, more than 50% decline in profits in all American companies in perpetuity. That makes no sense. It just it always does that it overreacts, and then it corrects itself.

Joey Loss 17:54
Yeah, and as you say that two things, one, I'm glad you brought up the video, because I feel like that is the perfect hyperbolic example of what you were just talking about, where people had priced in pretty much the exact earnings that they accomplished. They hit that and then the price goes down. So talk about a buy, the rumor sell the new I mean, they did exactly what they said. You know what the stock price was saying that that stock was going to do, and it just wasn't enough. And so if anything shows you that the expectations of growth have kind of over inflated. That's it, right? I

Adam Van Wie 18:25
don't think there's anything Nvidia could have done to have a positive reaction to their earnings, because they they had one of the best quarters that you any company has ever had, and their outlook is great. I mean, what more could you possibly ask for as an investor, and then you get a sell off. It's just, it's one of those things. It gets ahead of itself. It's got to come back, and then suddenly, oh my gosh, it looks so attractive. Let's buy, buy, buy, and it'll go back up, and it will exceed where it is today. And I think that's what will happen eventually, yep.

Joey Loss 18:55
And, and number two is, you pointed to the the overshooting tendency of the market on big news. And you know, the, I think the international fluctuation that we just talked about at the beginning of this episode really captures it. You know, the if you go the news comes out about potential tariffs, the world doesn't know what to think. How hard is Trump going to hit, how quickly are they going to hit? What are the details? Nobody had anything. So it overreacts, you see a big decline. And then going into this year, people kind of get a sense that maybe they overreacted to it. The money starts pouring back into international markets. Now we see developed markets as the leader of the market. This is the ultimate case and case study for diversified portfolio with rebalancing, right if you, if you just had a simple strategic asset allocation, it didn't really matter what your numbers were, for US and international, as long as you had some portion of both, if you had some sort of rebalancing event, because there was a lot of volatility there, you just made money and the market stayed flat.

Adam Van Wie 19:59
Yeah, definitely. That that is a, I mean, you could, you could do a business school case study on the last five months in the market. And it would be, it would be a great example of why to stay diversified, why not to react to short term news, and why to rebalance? Yep,

Joey Loss 20:14
yeah. And so, from a broader outlook perspective, I think, you know, people might get frustrated with advisors saying, well, it could be this, but it could also be this other 99% different thing, and throughout is, you know, that's, that's what the strategic asset allocation is about. For most client portfolios, is it's, it's, there's ways to protect yourself from the downside and make money in turbulent markets without the market actually doing all that much. You just have to be invested in a proper, a proper allocation to accomplish that. Yeah,

Adam Van Wie 20:47
and it's also just a really good time to keep things in perspective. You have the S, P trading at November levels that that is in the terms of of investing. You're you're investing for your entire life, and you're then going to get worried, because in a five month period you haven't made any money. It's totally normal to not make money over a five month period. You're not even trying to make money over a five month period, you're trying to make money over 30 years, 40 years, 50 years. This is you cannot get caught up on short term events. I promise you, if you try and trade the news, you would have sold off international at the end of the in December, when everything was tanking, and then you would have missed a 10% bounce on the way back and before you got back in. It's just a bad strategy. Do not do it.

Joey Loss 21:37
Yep. Okay. So today, market is down about 1.6 you know, I'm seeing an increasing number of articles from the Wall Street Journal saying the recession trade is back on Wall Street. That's, that's your 1.6 down day here for the s, p. And as far as tariff news, it looks like some of the car makers are getting extensions, you know, or some exemptions for another month or so on tariffs. And I think that was just a good call if you're going to do tariff policy to not hit the auto makers, because first of all, that business is super difficult and unprofitable in good times, and as we've seen by the number of bailouts in Detroit over the over the years. And there's an article out yesterday in Wall Street Journal saying, like, the average car price is going to go up nine or $12,000 you know, if these hit right then. So I think giving automakers some time is probably a good idea. Yeah,

Adam Van Wie 22:31
definitely. You can't pick up a plant that is in Mexico and move and re rebuild it in the US overnight or in a month. This is a years long capital allocation, design, Manu, building the plant itself, staffing it. I mean, these are years long projects. And to just Ford, I know Ford has a has a plant in Mexico, probably several, and if you just slapped them with a tariff for a decision that they made, long before you were even even thinking about a tariff happening, it just doesn't make any sense. It's, it's it puts them in a position that they're going to then you have this great American company that's put at a huge disadvantage because of something that's totally out of their control. And so, yeah, I think it's a great decision to to do this, and I think that you do need to take these on a case by case basis, especially in industries that are as difficult to make money in as something like the automobile industry. Yep.

Joey Loss 23:30
Okay, so any any other topics that we didn't cover that you think are probably top of mind for you? My biggest

Adam Van Wie 23:36
theme of this podcast should just be, just don't make long term investing decisions on short term current events. It is a strategy, I think, as advisors, this is one of the biggest values that we add to our clients, is keeping them from doing things like that, because it will only lead to losses. I've never short term. Yes, occasionally you might get one right, but if you do it 10 times, I would guess that 80% of the time, you'll get it wrong. And so just stay the course, unless something has changed in your life, stick with your investment plan, stick with your financial plan, and just try and ride out this volatility and ignore it. And hopefully you're still investing every month in your 401, K or your IRA, and so you're getting all these things that you're going to buy anyway at a bargain relative to where they were a couple months ago. Yeah,

Joey Loss 24:24
and I to further prove that point about not trading on short term news, I know a lot of advisors who manage their clients money prudently based on the academics, you know, the way we do it for our clients, and then with their own portfolio, they kind of do some of this screw it around because they think they're smarter. And which one of those portfolios Do you think outperforms almost every time?

Adam Van Wie 24:49
I have a good guess that it isn't the advisors portfolio as well, that's

Joey Loss 24:53
right, it's the broadly used client portfolio, and that's. I, you know, I just don't mess around with mine. I put my money where my mouth is, because I know if I let my brain do the picking, I'm going to just screw it up.

Adam Van Wie 25:08
Definitely. I try and make my my portfolio look exactly I'm an aggressive investor. I try and make it look exactly like my aggressive client portfolios. If I'm putting someone else in it, I have to believe in it, yep,

Joey Loss 25:23
yeah, okay. Well, I have a feeling that next month we'll be having a completely different and somehow similar conversation. Well, I'm looking forward to it. Joey, all right, man, thank you. Thanks for your time. Thanks.

Joey Loss 25:41
Thanks for joining us. If you enjoyed the podcast, please consider sharing it with your friends or family. This is the best way to spread the word, and we want to keep churning out great content for you guys. Show Notes and episode transcripts are available on our website at strivous wealth.com/podcast special. Thanks to Bo delicens for the intro outro music and to the podcast man for producing this show. Until next time,

Disclaimer 26:06
the wealth unplugged podcast is sponsored by strivus wealth partners, Joey and Adams SEC registered investment advisory offering Financial Planning and Investment Management services to clients across the United States, The opinions voiced in this episode are for general informational purposes only. Nothing any host or guest says on the podcast is meant to serve as advice or recommendations for any individual security to determine which investments may be appropriate for you consult your financial advisor prior to investing. This information is not intended to substitute for individualized tax insurance or estate planning advice. Please consult your tax advisor, insurance agent or estate advisor regarding your specific situation.