The Money Huddle Bear Rally 2.0
people, year, inflation, prices, money, college, talking, business, continue, Michael, market, buying, area, rent, costs, stress, happened, months, spring, earnings
Michael Baker 00:00
Where do you want to go? What do you want to start with? I'm gonna start with this.
Ross Marynell 00:02
No, hell no bear rally 2.0
Ross Marynell 00:44
Does it does start to feel like we are we have entered a bear market rally 2.0 Michael, it's good to be with you today. I'm excited. We have a lot of fun stuff to talk about awesome things happening right now this week here locally. Our kids are this is the last day of school for our little ones. So we've got a middle schooler and an elementary schooler so they were fired up last
Michael Baker 01:06
for all for all of the retirees you're on notice. The kids are out. So they've been saying goodbye to the kid free lunches and brunches say goodbye to you know no lines at all the fun experiences in Fort Mill Rock Hill York County, kids are out and it's it's time for summertime button.
Ross Marynell 01:28
But also Michael the call to duty. The grandparents have been like, it's like in The Bourne Identity when when all the cell phones start going off and everyone gets called to action. And they spring in together and they're rated you know, they throw their little travel bag in and they hit the road like this is it you've been called to action that we go into a period of about two months here, where it's really hard to see our retirement clients face to face. Because they're out. Yes, with the grandkids traveling the whatever excursion it is that they've had planned. So have a wonderful fun summer. I know the kids are excited this year. So if you really think about it the first year fully back from COVID. They've been in school what feels like a long time because they didn't have very short summer break last year. So we are going to embrace it with open arms in the Merino household. These kids were rowdy last night. So we're able
Michael Baker 02:22
people are ready. And that is a great segue because that's what I think we're going to see in the economy in the months ahead. I think that you know, a lot of times, especially with with the you know, the conversation continues to be inflation. And I think that, what we're going to see is, people are stop, they're going to stop buying stuff. And they're going to start doing stuff, they're going to go do things they're going to travel, they're going to go out, have fun, have experiences. Man, I was looking at some tickets for football games in the fall. Good grief, like you've got to be like feeling pretty good about your financial situation to spring for some of these college football tickets. Now. It's unbelievable.
Ross Marynell 03:12
So a couple of interesting things. So as I mentioned, the top this is we're sort of we sort of open saying bear market rally 2.0 Maybe the stock markets had a couple of strong, strong days in the midst of a pretty painful decline earlier this year. So it's not unsurprising to have a little bear market rally during one of these types of sell offs. Something interesting that popped out from so target reported this quarter, and one of the things that stuck out to me was they had increased sales and luggage. Yeah, so like luggage sales sort of spiked, and it's just like that, that warning sign for all the retailers, hey, people are on the move. They're ready to travel, airline prices are up we know there's a combination of demand, but also input costs from fuel being at record highs. But yeah, people are on the move this year. So where should we start? Michael?
Michael Baker 04:10
I think that you know, we'll one is I'll just make a comment about target because Target had a huge intraday plunge when they when they came out with their earnings. And I listened to a little bit of their call and that was one of the things that they said it said like it wasn't that their sales were bad. It's just they just kind of caught got caught flat footed with the change in consumer behaviors that people were still buying things but they just weren't buying the same stuff and they didn't anticipate the quickness with which people were going to pivot to buying luggage and like the experience type stuff. So that's what I think we're going to see a lot of this summer time and I'm excited for it. I know your family is going to participate. We're going to participate too in my household. So looking forward to that but I think where we would start is you know if we want to kick things off, yeah, so some recent some good news. Who's actually just came out of and I'm going to read, I will see if I can pull it up for us. If you are listening on the podcast, you're not going to go see this, but what we're showing is an article that came out. I think it came out yesterday with the CBO. Most of you know, the CBO put out a report saying is US GDP growth estimates, you know, are going to be boosted a tiny bit, but they believe that inflation has maybe topped and will cool, potentially to 2% by 2024. That would be tremendous. If we start to see inflation subsiding, and allows the Federal Reserve to kind of make sure that they stay on top of things but not continue and feel like they've got to get over aggressive. I think that that's a positive. What do you think, man?
Ross Marynell 05:49
So I'm just reading this for the first time as you're popping it up there. I think we're about to see some optimistic headlines coming on inflation that sort of in the sense that I've gotten I've we've been talking about the Fed pushing a pretty dire narrative for the last six months, that they've wanted to warn and prepare the market, they have a long runway to get their policy initiative in place they've been using, you know, it's been the bombardment of Fed speakers. Every week, it just seems incessant talking about how dire things are. And then all of a sudden it starts to curl. Were
Michael Baker 06:24
you think, do you think that that's been somewhat of a of a strategy to talk to basically scare people and kind of use some rhetoric to, you know, impact the wealth effect a little bit and make people maybe pull back some on their spending?
Ross Marynell 06:40
Well, I think it's certainly sounding the alarm bells, that there's trouble ahead and trying to get the appropriate action in the market. So we initially saw interest rates have been on the rise for the last, you know, really six months plus. But interest rates have started to cool a little bit. So we've seen the 10 year it crested 3%, but it's already kind of drifted back down and the 2.75% range, I think that's a very healthy 10 year yield. That's kind of, you know, if we can kind of hovered that two and a half to three and a half percent tenure yield range, then I think that's a healthy place to be we got down very, very low during the COVID era where we thought it had a podcast talking about are we going to have negative interest rates, that would not be healthy long term. And so, we've sort of repaired the yield market a little bit. And with the multiples compression has happened. So, we've seen stocks come down in price enough that the hardest hit stocks probably deserved at the most. You had bad earnings. You had bad guidance, you got hammered and your stock price. We saw snap go through that earlier this week, since the entire market in a tailspin for a day. Look, they lost 40% of their value. That's what you have bad guidance. That's what you get. And I think that's a healthy market. There's price discovery. Fundamentals don't matter until they do and now they do. And the businesses that make money and have earnings are getting rewarded, and those that have mismanaged, and misallocated capital are getting annihilated. And from my perspective, I think that's a healthy market. That's what should be happening. Things got too elevated during the COVID Rebound where stock prices got dislocated from reality that has changed, it's come back down. Look at the price of things like the you know, even just a Google Amazon Apple, I mean, you can have your obviously everybody has a perspective on it and in ours could vary, but it has reset a little bit now has it reset enough? Well, that'll depend on what happens with inflation and the war in Ukraine and how our businesses grow and earnings grow. But we've definitely had multiple compression we've had the rate increases. And now we're kind of this level off period where we need to see what happens from here.
Michael Baker 08:50
Well, I think if if we have an opportunity to pause, this would be a great opportunity this quarter, to just kind of continue to wait and see if inflation does show signs of peaking. I don't think it's going to pull back on every area. But I think that in some areas, you know, we're going to see, I hope, some positive, you know, green shoots, that inflation may be peaked in certain sectors. But we still got to get gas prices under control. If we if we can't find a way to tamp down fuel prices, then there's going to be some, I mean, it's going to be a little sticky and but the here's the thing, this summer will be a true litmus test to see if people just are not happy about it. But they continue to do their everyday their everyday lives and don't necessarily change their behavior too much.
Ross Marynell 09:45
Well, we were talking a little bit about sort of the effects of inflation in the Fed. And there's no better spot to look than housing. So I just did a little analysis kind of comparative of a couple of Sydney. areas that I think have emerged, just looking back just to show kind of illustrate to people how substantial the increase was in housing costs in in rent, really. And I just did a look back, Michael. So just assume you're buying a home five years ago, okay, in this area for $350,000. So if you borrow $350,000, going mortgage rates five years ago or in the threes, so maybe you got a great 30 year note under three, which happened, but let's say you were three and a half percent, right, your monthly principal and interest payment would have been $1,572. That seems quite manageable, I think that would be quite manageable from for a lot of households in this area. But you fast forward to today, that same home is probably worth $475,000. So if you just say we did a loan amount of 475,000, at 5.25% interest rate. Now that monthly cost is $2,623. That's a 66%. Jump mean, that's over $1,000. More a month
Michael Baker 11:11
is significant. For sure.
Ross Marynell 11:13
That's what people are facing the decision, what do we do? Do we rent and continue in there in, you know, mentally to think, Alright, I don't own this, I'm throwing money away, I'm not gaining a net worth, I'm not gaining an asset. Well, rent rice rent prices are increasing too? Or do you go and make the plunge and buy a home at this price point and try and somehow make the difference of $1,050? That's a real challenge. And that's a tough call.
Michael Baker 11:46
It is it is a tough call. And we were talking before I think one of the issues is that they're just there's not enough supply. I mean, we need we'd need more housing. And we just don't we can't you even if you're building at a great clip, there's only you can only build a home so fast. And you know, when people are, you know, demand is really high. Now, of course, interest rates have moved up and along with the example that you gave property values going up. I mean, I think that this is going to this is going to put some downward pressure on some of the demand. And we may see that in housing. But the other the other side of the coin is I'm not really in the in the camp of we're going to see a housing collapse. I'm not I'm not seeing that necessarily play out now the rate at which houses house prices continue to rise. I don't know that's, that seems to be very regional. I mean, if you're live in an area, like where we live, where people are just kicking down the door to come in, then, you know, we may not see a significant, you know, downturn, but some areas, you know, they may?
Ross Marynell 12:57
Well, if you're going to take a negative kind of perspective on this inflation discussion, you know, and let's say it does cool. That doesn't mean that prices are going back down. You know, the price inflation that happened over the last couple of years may just be baked in, we're just looking back year over year, quarter over quarter and say, Okay, well, it's not going up at 8%. anymore. It doesn't mean it's back to where it was. I agree. Right. So some of this stuff mean, like up to a pound of meat may never go back to what it was before.
Michael Baker 13:29
Yeah, I think there'll be I think there may be some in some areas, there may be some reversion just because, you know, they're the supply chain. Circumstances are very real. And there's, there's some disruption that's happening, too. I mean, we can't dismiss back in in with what happened in COVID. In the COVID years, where, you know, a lot of things were just kind of exposed. I mean, I've still remember reading headlines where we get like, 85% of our antibiotics from China. And I thought, well, well, what if China just decides to do what they've just done and locked down? And they're not we're not sending anything out of the country? Well, one of the largest, you know, nations on earth can't get antibiotics. So I think that there's going to be this, there's going to be a transition where, you know, their supply chains disrupting, because they're being, you know, relocated. And I think a lot, a lot of that may be happening, but that takes time. You know, you got the war in Ukraine. So there's energy, how that could be impacting things is going to be something but you made a great point. And I don't think this should be lost on people that we have to be ready to not necessarily see prices in everything go down. It just may mean that the acceleration of inflation or the rate at which prices increase from here slows back down and reverts back to maybe that 2% overall year over year rate, which is what the Fed is targeting Feds never come back and said hey, we want prices to go up Back to 2020 level prices. They're just simply saying, hey, we want to get target inflation back to 2%. And we may not see, we may not see prices go down significantly. So this,
Ross Marynell 15:09
this leads me into a study that I came across, I wanted to share today. So it's mental health awareness month, I did not know this, but have a business owner friend that I work with who deals a very, very stressful job. And I shared this with a group of business owners recently. And we were talking about sort of stress in America. And this is a study from the American Psychological Association. And they do this stress in America study each year. And so of course, coming off the prolonged pandemic, people being, let's say, less social, less, out, just out and about in the world, you know, how did things fare, and then you throw in the components of inflation, war in Ukraine supply chain, as you just mentioned, so here were some of the results. So this said that 87% of people were stressed about the rise in prices of everyday items, due to inflation, so gas, energy bills, grocery bills, 87% of people were stressed about price 81%, were stressed about the supply chain issues, which makes sense. I mean, we had in the news this week, you know, new moms and dads kick a baby formula. It's like, how does this happen? You know, we so we've made a few strategic decisions or errors along the way, and we don't recover fast enough or pay enough attention to it. If you run a business, you know, just the effort that has to go into getting basic materials for jobs. You know, we've talked about just things that normal things, if you're in a construction business should be available ductwork, I mean, piping, this is stuff you have to spend time now stressing about sourcing. And then at 1% can stress about global uncertainty. So that's that kind of continued prolong, you know, are we going to have a war? What's kind of, we're going to have to deploy troops, and where are our sons and daughters being sent to another country to fight. So that combined was that so this was one of the worst studies, you know, as far as the outcomes of stress that they've seen. And, you know, it's, I think it's important to recognize that we've gone through, you know, obviously, there's been ups and downs, there's been positives and negatives, but overall, it's been a very stressful time.
Michael Baker 17:29
I agree. And I think that, in some instances, we are our own worst enemy, when it comes to that just because, you know, the online like, the negativity is just, it's constant, it's constant. And, of course, when you have when you have uncertainty, so we had this pandemic, that was, you know, one for the history books with how that all played out. We don't need to rehash that. But on the coattails of that, right, when we start to see like, you know, there might be some light at the end of the tunnel, and life may be normalizing, boom, we get this war in Ukraine. And, you know, and, and so now, like, everyone's heightened about, you know, could this turn into, you know, World War Three is, and then what's going to what's going to impact us with that, then you have the inflation. And then of course, our political environment right now is, you know, so unhealthy. I mean, it's everything is just so tribal and polarizing. And that's, and this is the information that is running on, you know, 24/7, you can't escape it. And I think people are just mentally just immersed in that. And it's almost like, if we could just unplug ourselves a little bit. It would be great. I mean, like, even today, like I went today, to get an MRI on my ankle, and I'm checking in and I'm like, signing it. And I had a shirt I had like my financial advisor shirt on. And the lady checking me is like, oh, my gosh, like, what, what must it be like for you right now? You know, she's just these markets. And I'm like, yeah, it's tough. And she goes, I'm just losing money. I feel bad. Because here's somebody who is like, you know, keyed in on like, the markets like every day, like the movement every single day. And, and we look at that, and we look at gas prices, and we look at grocery store, and then we turn on the news. And the news is telling us about some horrific, the latest horrific event. It's there's just, we're constantly being bombarded with, like negative feedback loops. And I feel like it's really taking a toll on people's mental health.
Ross Marynell 19:43
I agree. So the study continues at the cohort most affected by the stress and money. It makes sense. It's the 18 to 43 year old’s in the parents. Right. So to our retired retirement age cohort, you know, hey, if you won't, if you have on your home free and clear you own assets do you've seen those appreciate in price, you may have less stress to have to go out and replace a car, if something breaks down, if you can, you know, just share a car within, you know, within your house up for you. You've just it just hasn't been quite as painful even though you know, that also is the largest group of stock and bond owners, right? You are now facing a little, a little pain.
Michael Baker 20:26
But if you got but if you think about like these, if you think about these baby boomers though, a lot of these baby boomers, they were alive when we had Jimmy Carter, you know, like earning money. I mean, they remember Carter years, the Carter years in the 70s. Very, very quickly, they remember that the Volcker in the 80s was, you know, breaking the back of inflation. They remember the, you know, the Gulf War and the 90s they remember.com bubble, they remember, you know, financial crisis. It's, you know, they've got some street cred at this point, you know, I mean, if you've been through all of those things, and you've seen the resilience of markets, yes. Going through them living through them, we
Ross Marynell 21:08
never add a mortgage loan at 13 or 17%. Right? Right. Yeah, you've definitely weathered many, many storms like this. Well, it's just for that younger cohort, it's just so painful, because they finally find finally for the first time, right, they're getting some labor wage gains. And there, we talked about the great resignation and people shifting jobs to find themselves a better work life. And they're getting a little bit more income and, and then it's just all going out the other the other door for inflation and higher prices. And it's like, how do you know, can you buy a car? Is there a car available? Where do you know, you're seeing your rent go up? 25%, which is some of the stories that I've heard is, you know, these aren't small rent increases? For some people. It's a big leap. And so what a stressful time. And one more thing, one more thing with that younger group, if I can just throw this out there. Yeah, this is a little off topic. But it's just like, what's happening is, we made we see like a big change unfold here. But there was another study I came across this was from the National Student Clearinghouse Research Center. Okay, this is their spring 2022, current term enrollment estimates for college enrollment. Michael, this is this, enrollment declines continued to worsen this spring, total post-secondary enrollment fell 4.1%, following a 3.5% drop last spring, post-secondary institutions have lost nearly 1.3 million students since spring of 2020.
Michael Baker 22:35
Wow, that's pretty big. Wow. I mean, well, I should say, that seems big, you know, to me, that without that,
Ross Marynell 22:46
I mean, 4% drop over two years.
Michael Baker 22:48
I think we talked about that before, in, you know, another show where, you know, I think people are starting to get wind of the, I don't want to say scam, but the burden that student loans placed on somebody and you know, for so long, for so long. The marketing departments of these colleges and universities have really had their day in the sun, because people were just, I gotta go to college, I gotta go to college, I gotta go to college. And some of the best paying jobs out there are these, you know, trades where if you are willing to be teachable, go in and learn a skill that you can get started working very early, even while a lot of your peers may be even still in college, and make start making great money. And, you know, hopefully, there are more people like latching on to that, because college isn't for everybody. I mean, there's some vocations that definitely need it. But, you know, in some cases, it's, you know, maybe it's better to like, you know, get a two year degree or go to community college and figure out what you want to do with life before signing on the dotted line for one of those student loans. I
Ross Marynell 24:01
definitely think there's increased interest in trades, the trade groups had National Signing Day, this past week. So doing a little publicity, were there. It's actually pretty cool to go into this trade. I definitely think there's less desire to borrow significant student loan debt. And I think the change could be for those that continue to go to college and follow that that path is, well, they may see higher acceptance rates, because the colleges are going to be scrambling to fill freshman class. It will you would expect in hope that it would trim cost that the colleges and universities would wrap their head around their administrative costs and just the the costs it takes to run the school for a year. Because if you're gonna have fewer students, you're gonna have less revenue you need to make it work just like any other business in the world. If your demand if your demand is down, figure out a way to make it work and so Maybe we will finally see some changes in the college costs trajectory because it's just been a steady up into the right line as well.
Michael Baker 25:08
Well, to me, like, and that's, to me, that's the missing component. Whenever I see people talking about student loans, and we're in like for student loan forgiveness is like the broad term, but the whole, the whole enchilada, with student loan forgiveness, all these things. The one component for me that is missing is how are you going to attack the root cause of the problem, not the symptom, you know, the student, you know, the student loans, like what we have outstanding and people being able to borrow more money than they're, they can actually repay given their career path. You know, to me, it's like, that's, that's bad, but it's, we gotta address the other side of the issue. And that's the administrative bloat. That's all this other stuff that goes on. That makes it where it's so incredibly expensive to go to these schools, right?
Ross Marynell 26:02
Yes, I mean, Alabama has a world class student workout facility it's like these poor kids these poor out Alabama grads, you know, are leaving this this the most impressive. A training facility in the world go into an NFL screening facility. Whoa, wait a second. What happened? I've downgraded my advisor, they leave,
Michael Baker 26:21
they leave Alabama and go play for the Panthers. What are you doing?
Ross Marynell 26:26
What do you go work for a billionaire and your work environment is less impressive. There's some there's a disconnect somewhere.
Michael Baker 26:33
Like problems better in college, I was getting you know, now these college kids can get paid and playing sports. They are.
Ross Marynell 26:41
So last topic I had and I'll just throw this out there. Sure. You know, I was kind of reading through Morgan Housel psychology of money,
Michael Baker 26:52
such a such a good book. It's a good book.
Ross Marynell 26:56
And he's got he's got so many great quotes and in ways that he frames financial topics, but I thought this was important. This, so here's his quote, he says less ego, more wealth. Saving money is the gap between your ego and your income and wealth is what you don't see. To me, we've, we've all kind of gone through a mental hurdle over the last couple of years of being going through the fears of pandemic and loss of life to stimulus checks and PPP loans and rent moratoriums and student loan payment, moratoriums and wage increases in Job availabilities to now, in the face of the backlash, right? The Boomerang has swung back and now we're dealing with Pan inflation related issues. Can businesses get materials we're seeing costs go up, we're also seeing the warning signs of layoffs. We don't know what will happen yet. But we've seen through earnings reports this year target talking about being overstaffed, Amazon's renting 10 million square feet of warehouse space because the demand is starting to slow a little bit for some of the goods. Walmart mentioned, again, potential staffing layoffs, it's just important to remember, we don't want lifestyle creep to get a hold of us, meaning as you your income increases and grows to try and level off your expenses. Save grow, right wealth is what we don't spend. And I say this, you know, in relation to some of the businesses we've seen misallocate capital dramatically to colleges that have let administrative bloat take over to our households where we don't need to buy a pool, we don't need to drive a $90,000 truck, it's okay to just let monies build and grow in the event that we see more trouble ahead over the next six months to a year.
Michael Baker 28:57
I think that that's just the way that people should almost always operate even in in good in good times. And in bad. You know, it's and that's the one thing that we try to coach people is, you know, put your plant, you know, first thing is put your plan together, in like, this is how I'm gonna deal with cash flow and think through like, if I get a pay raise, this is how I'm going to deal with a pay raise. If I get a bonus, this is how I'm going to deal with a bonus. Because it can be really easy. In fact, I would sit there I'd say almost intuitive that just we do a plan one time and then as we continue to, you know grow our earnings potential make more money. We never revisit that and adjust our plan for you know, the increases that we've been able to have either through you know, through salary or through business, you know, getting better or bonuses. And it's like, you know, you have to try to find a balance between enjoying and experiencing the fruits of your labor. Ever but at the same time being diligent about saving for the future and your you know your future self and that's tough and emotionally like psychologically most people are not wired to do that naturally you have to like create a plan and be diligent about you know, creating those disciplines and habits that are going to enable you to do that over time.
Ross Marynell 30:25
Well, we will see if bear market rally 2.0 Actually materializes maybe we have a little summertime bounce definitely feel like we've seen some market compression multiples congrats and hopefully we have some bigger times ahead. You don't Michael leave you with this. kind of afraid of bears. You aren't allowed to like bears man we're sitting here in the in the Carolinas like you can go you go left you get there as you go. Right. You get beach man, I'm going beach every time.
Michael Baker 30:54
Yeah. Well, of course. If we could do if we could do that, but you know what I mean, the bears are, you know, least the bears here in the Carolinas.
Ross Marynell 31:04
Michael Baker 31:05
They're not grizzly bears. I wouldn't call them friendly bears. But they're not grizzly bears. That's
Ross Marynell 31:09
the problem. And they're too nosy too they're hungry. And they're nosy and they're not afraid of me.
Michael Baker 31:13
They just want your trash. You know, they don't want to try they don't want you per se they just want your trash like I will say you know, I'm you know, Alaska, Montana, you know where the grizzly bears are now? I'm good, right?
Ross Marynell 31:24
Yeah, I know. Well, I'll stick to the beach. I'll just I'll just keep going further east.
Michael Baker 31:30
Well, you know, for everybody, like you know, thank you for tuning in and listen to us chop it up. Just remember, you know, we're here. If you got thoughts or questions about your financial plan, or if you haven't created a financial plan, don't hesitate to reach out to our team, but at the same time, try to protect yourself your mental health from all of the negativity that's coming out, you know, all the negativity that's constantly being broadcast to the financial media. It I told the lady today when I if you remember in the show, I said I had an MRI what I told her when she asked me I said you know what, it feels worse than it is. And that's most of the time. That's the case it feels worse than it really is. So take that with you. Hope you have a great weekend. Great Memorial Day, and we will talk to you next time.