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The Rise of Omicron

While many Americans were enjoying Thanksgiving leftovers and Black Friday shopping, the news broke that there is a new COVID variant of concern. 

In this episode, we chat about this week's market moving news from the Fed and the Omicron variant. 

Topics Discussed:

USC online course creates massive student loan burdens

Forbes article about COVID billionaires

Federal Reserve Balance sheet trends

New Omicron Variant detected 

The value of assets or income from investments may be worth less in the future as inflation decreases the value of money. Investing in the bond market is subject to risks, including market, interest rate, issuer credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies is impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise. Bond investments may be worth more or less than the original cost when redeemed. Income from municipal bonds may be subject to the Alternative Minimum Tax (AMT), and capital appreciation from discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.

Unedited Transcript

Ross Marynell  00:39

Michael doing fantastic. Had a nice quiet Thanksgiving. How you been? Man?


Michael Baker  00:45

I've been great. I've been great. I have, of course, like millions of other Americans sworn myself into hardcore diet to recover from what I just did over Thanksgiving because it was a food primary. It was a it was a food crime. Oh, my God, I have multiple accounts. Multiple Accounts, you know, I I don't know what else to say, man.


Ross Marynell  01:13

Now that would that would make some fun. Entertainment on Court TV.


Michael Baker  01:20

I would be guilty. I would have much of a case. You know, like the evidence is completely up against me, Your Honor. All I could do is throw myself at the mercy of the courts.


Ross Marynell  01:30

So we agree we can't mount much of a defense against our food crimes or Thanksgiving. Great, what's what's on what should we what should we kick off with today? Well, I


Michael Baker  01:41

think you know, we would be doing everyone a disservice if we just skated past the fact that we have yet another variant of our favorite virus COVID I think COVID-19 going for virus of the decade. What do you think


Ross Marynell  01:57

of that that's in the bag.


Michael Baker  02:01

So you know, of course, Thanksgiving, Friday, Black Friday, we my family, we were out and we were up in the mountain. And I just do a little shopping out just enjoying enjoying the town. And you know, I pull out my phone as as we all do. And man, the the stock market was just having a temper tantrum because the omachron variant was reported in South Africa. And of course, surely the time you're watching this or listening to this, you've likely heard that there is a new variant of the Coronavirus out there. And it's it's got a little it's got people nervous. It's got people nervous.


Ross Marynell  02:46

Well, the the anytime it resurfaces in the headlines, it's a full court press from the media, we get the whole round of presentations from all of our leaders. The the real question was is, you know, what's the severity of this variant? For what does it mean for us for our health if we get it? And will the vaccines have some effects efficacy against it. And so I think the jury's still out, it's obviously creates immediate news and fear and moves the market. But the truth is, we really don't know. And I think it's fine to just say we don't know where this is going yet. Let's just be patient and stick to what we've been doing for the last 10 years and see if that works. As far as our investment plan goes. And this is where it just takes a little grit to get past some of the initial fear and impulse to just kind of head for the hills. And know that we don't the facts haven't all been gathered yet. I listened to the doctor from South Africa that discovered this spirit. And she delivered some pretty it was what her feedback was that the symptoms were mild. And there was a little different than what she they had experienced with the other COVID variants. And that's what triggered her interest was it just didn't seem the same. And it doesn't mean that it was worse, it actually seemed more mild. And so if that becomes the if that is the outcome, which we all hope it is, then I think this is just another variant to add to the long list of COVID variants and the ones we'll continue to see because it's not going away. I think we have to come to grips with dealing with it economically a little better.


Michael Baker  04:26

I agree, I think from from your lips to every pharmaceutical CEOs ears. Now one of the big Quotes Of The Week that was moving markets slightly was I think it was the Maderna CEO she came out and basically said that, you know, from what she was hearing the vaccines would struggle with the new variant but from what we've been hearing so far, that doesn't seem like it's it's really early to make that call because they just found it and they found it like you were saying from the top After that actually discovered it was like, things just seemed a little off, but there was nothing really too severe going on. I think there's, you know, concerns about transmissibility and all that. But, you know, I think if this things ends up being, you know, highly transmissible, but the very mild, you know, that's, that's good, that's, uh, you know, we don't want it to go the opposite direction being highly transmissible and even more severe. So it's still too early to tell. But that's, that's one of the things that's weighing on people's minds, especially as we get into the holiday season. But you know, as we were just talking the other day, as we were chatting about it, we just sat here and watched, you know, they they announced the the new COVID variant. And then the very next day, we watched, you know, there were 100,000 people, I think, in the stadium watching Michigan and Ohio State play football, again, 110,000


Ross Marynell  05:47

people in Ann Arbor. And so that's kind of is my point, I think as, as a whole, we've come accustomed that there's going to be some variant of COVID around for as long as we're here. You to you take all the precautions that you feel you need to take, as an individual, whether that's vaccination, whether it's social distancing, whatever you choose to do, I fully support. And we have to get back to normal economic activity. We have people that have held back and waited for travel, to see family to see grandkids that are, you know, newly born, I was talking to a neighbor the other day, whose parents live in India, and they were prepared, they were ready and looking forward to hopping on an airplane to come over in December to see a grandchild is three years old now that they haven't seen yet. So there is a people want to get back to normal activities. And we have clients that are just out there traveling the globe we did last year, they took their time, they took all the precautions they could for their health, and they are out and they're traveling. And if anything, anything we do right at this point to derail normal activity, I think is counterproductive economically. Here's the I want to add this to Michael because this does kind of get under my you know, I'm not that old. I'm I'm a boomer. Right, you


Michael Baker  07:18

you completely have a Get off my lawn sign in your front yard.


Ross Marynell  07:22

I'm the graffiti advisor, I you know, I hear them a Maderna CEO come forward and say, well, we're not sure that our vaccines going to be effective against this. Here's a reality. There are Forbes put an article together recently, that highlighted the 40 new billionaires that have been minted from the COVID. Just economy, whether that's pharmaceutical companies creating vaccines, if it's supply companies, testing companies, this is a huge business. There are on that list alone, three people who have become a billionaire associated with Maderna. Chose over were college professors, one from Harvard, one from MIT, they have an economic incentive to keep this in the news. Now, I'm not saying they're doing this wrongdoing or that they're not being honest or sincere. But I think that is a conflict of interest that everybody should be aware of. Well, it's,


Michael Baker  08:32

you know, incentives matter. And I think that, you know, that's not saying, I hear what you're saying, and you're not set, you're not what you're not saying is that, hey, they won't perpetuate this thing, just because, but what you're saying is just like anybody else, you know, hey, let's just be fully transparent here. There are some people that are going to do extremely well, economically, if this thing persists, and we continue to have to create or manufacture more and more vaccines. So, you know, listen, it's mess. There's opinions about this virus that are super broad and widespread and everything in between. But I do think I agree with you 100%, we have to, we have to get people's lives back on track. And I feel like, unfortunately, whether we like it or not, if we get into a place where they try to come back and get heavy handed with restrictions, again, people are going to really push back and that's going to be self defeating. So hopefully, you know people are going to you know, take this news, be sober about it, do what they think is right, be responsible, you know, whatever they feel is the best thing for themselves. But at the same time our leadership will also be so about and realize that the best thing we can do is just try to do the best we can without going into a full blown lockdown shut down because that clearly It doesn't work.


Ross Marynell  10:01

I agree, thankfully, you know, knock on wood in this area are our children have basically live normal lives. They've been in school, they have not had to wear masks, they've been able to just attend sports and do things they normally do. It's It's time, you know, I hate to see our higher risk population. under so much pressure to not travel, I mean that the restrictions on those folks, I want it to get back to normal so they can travel and be free and do the things they want to do enjoy their life, enjoy the retirement. I mean, there are people that have retired in the last two years, I have really not been able to, to have full enjoyment of what that means, and the time off and away from work. And so I hope that gets back to normal. So alright, Michael, moving on. We had our Federal Reserve Chairman, Mr. Jerome Powell took the took center stage a couple days ago, set the market in a little bit of a frenzy as well, with this commentary about we need to retire the word transitory from our discussion about inflation.


Michael Baker  11:06

Yeah. You know, the that Jay Powell, I, you know, I mean, he's, I feel like I would say, he's done a very, he's done a commendable job. When you're dealing with pandemic, I mean, they stepped in, and really, the central bank's, you know, throws or they stepped in and really, I think really helped us significantly last year. But here we are, again, where they've been providing liquidity, quantitative easing, and they they need to look at, you know, how long do they allow that to persist, especially since one of the mandates for the Federal Reserve is to control inflation, and we have inflation? And he's saying, Look, we probably need to get rid of the word transitory because it's here. And, you know, so So now we're in a situation where, hey, we still got virus stuff going on, we're not through the woods, you know, out of the woods yet. And the Fed is talking about, you know, tapering. And, you know, the markets react course, you know, you know, me, I hate, I hate it when everybody hangs on the word of the Federal Reserve, because that's not the way our markets should be responding, you know, where Federal Reserve, anybody on the board of governors or the chair gets up and has a press conference, and that that moves markets, those are my least favorite market environments to be but here we are, yet again,


Ross Marynell  12:26

we are because you mentioned the word taper. So part of their process here to try and control and real inflation. And really what kind of slow things down is slow the bond buying program. So the Federal Reserve was buying $120 billion worth of bonds, monthly, they have agreed to drop that by $15 billion a month. So they did start that reduction, I think it was November was the first month it was less, and it was 105 billion. And their anticipation is that by mid next year, they will be done buying bonds in the US market. So that is one part of the change, which is what the media has dubbed the taper tantrum. We went through this back in 2013, with then Fed Chair Ben Bernanke key. And so the market did have a little bit of initial reaction at that point, too. I was looking at an article that sort of detailed from the time that bernacchi ads began speaking about potentially tapering, the market had an initial jitter down of a little over 5%. And then kind of leveled off. Interest rates did rise a little bit, but it wasn't out of control. So we have been through down this rodeo before. And so I think the next step is what will the Feds response be, once they're done with the bond buying program, to then turn their attention to raising rates. And I think that's what's got people a little focused on the commentary, because that can certainly have an adverse reaction on certain components of the market.


Michael Baker  14:04

100%. And that's what people are looking for. Because if you know, when the when the Fed essentially announces their schedule for tapering, then you can reasonably deduct, alright, they're going to be done tapering at this time. So likelihood of us seeing a rise or an increase in the federal funds rate will happen at x at certain X date, right in the future. But if he says, Hey, we're going to accelerate that and move that up, and that potentially moves up the dates of when they will start seeing interest rates increased, or the increasing the federal funds rate. And that's what people are anticipating, and it's, you know, listen, I don't like to boldly say, this is going to happen or this is not going to happen, but I'm going to lean heavily in camp that they're not going to be able to speed up their their taper, unless some significant inflation And I mean, significant inflation hits. Now, you we could debate about whether or not five or 6% is significant. It definitely is higher than, you know, historical averages. But at the same time, you know, we're not at double digit yet. In fact, most of the inflation, the heavy, heavy inflation we've seen has been an asset, you know, real estate prices are up, stock market prices are up. You know, we're seeing it now at the pump, we're seeing it in grocery stores. But you know, at the same time, I don't think that we've reached the point where it's debilitating, but it's concerning, and I know that they need to address it. However, we're just in this place now, where everyone's eyeballing what the Feds going to do. And I just can't stand that from an investing standpoint, because that's not the role that they're supposed to be playing. But here we are. Um, so we'll see what happens, we'll see what happens, but I just don't think they're going to be able to do it, especially since let's not forget that one of the things that's happening right now this week is we've got congressional discussion on raising debt ceiling, funding the government and Oh, lo and behold, let's not forget that the Biden administration still wants to pass another $1.9 trillion and build back better plan. So you know, I just don't see it with all this additional spending that is desired by our administration. And everything else going on. I don't know how they I don't know how they raise it, no, increase their rate of the taper. I just don't have to do it. So


Ross Marynell  16:34

I had reference back to the original sort of taper tantrum, which was a fun media topic that didn't truly materialize into much of a market Shakedown. Sure. It is important to note though, back in so just looking at the balance sheet of the Fed, so this is from federal reserve.gov In the late so this is 2008 2009. The Federal Reserve balance sheet was a little under 1 trillion by the time they wrap this supposedly wrap this bond buying program mid next year, the Fed balance sheets gonna be around 9 trillion.


Michael Baker  17:14

So said they've spent some money is what you're saying. A


Ross Marynell  17:19

little bit of money. Just a little money. Just listen, it's it's it's more than what USC paid to have Lincoln Riley come coach their football program.


Michael Baker  17:30

Oh, there you go. Man. You listen. Do we need to find we need to find out if if they've been providing liquidity to some of these universities to hire football coaches? Yeah, yeah. Fine. Oh, like hey, man, you know, our programs in the


Ross Marynell  17:51

southern stop, but they're gonna stop buying, you know, US Treasuries and mortgage bonds and it starts supporting boosters. No, it's


Michael Baker  17:58

like money. Like you've been thinking about it all wrong, is like you need to start thinking about buying wins. How do you buy win? Oh, we need coaches. It's crazy. Yes. So we were talking about that the other day, two major moves in college football. And you know, and you might be thinking like, why are they talking about college football a? This is our podcast is called the money. How do we talk about sports on here because we love sports. But sports, college sports, especially is big business. It's big business now. And Lincoln Riley left Oklahoma for $100 million to go to USC plus unfettered use of the private jet for him and his family and literally the same day or within 24 hours. Brian Kelly and as he's leaving Notre Dame and going to coach at LSU I think he's also getting 100 million is everybody is that like the right now is 100 million is


Ross Marynell  18:59

if cow if becoming a college coach is not a football coach is not like a a program at these universities. It should be because obviously there's a lot of money in coaching. I don't know how these people are getting acclimated. But my goodness. Yeah, it is. It is crazy. Now I would say this just kind of circling back, you know, because earlier this year, there was the big hubbub about college athletes finally being compensated for their likeness, their name or likeness. And their result the counter argument was their amateur athletes they are there to get an education they are in you know, the reality is what we don't have now. We don't have a lot of coaches that are just they're dedicated to a program for decades. That stick with through thick and thin, you know, the good and bad of a program to see it through their jumping ship when they can when it makes sense for them to get to a better team to get to an easier division to make more money to have Have more ancillary benefits, there's, they're not committed to those programs. And I think it's wrong to not allow these, these young athletes that obviously produce hundreds of millions of dollars for these programs to not be able to take advantage of that. So we saw our first female basketball player from UConn, get a Gatorade deal, some of these athletes are gonna make a lot of money, too,


Michael Baker  20:24

I think they should, you know, I used to be a purist on this. And I have, I have changed my position, I used to be one of those people that was, you know, college athletes are getting scholarships, you know, they're going to school getting education. And, you know, they don't need to be compensated their amateur athletes are not professionals. However, we live in a world now. I mean, we have social media, you have college athletes that have, you know, millions of followers on social media, where if they were just a regular student, or regular kid, you know, they would be getting paid, they would be getting, you know, opportunities for marketing partnerships and other things. And they can't do it, because they're, you know, kind of excluding it. And I kind of liken it to, you know, the Olympics of tiny bit where the Olympics, you know, they didn't want to, you know, Olympics are supposed to be the competition of the best athletes in the world. But for a long time, like professional athletes, specifically, like NBA basketball player, we're not playing and representing, you know, our country, you know, in the Olympics. And that was silly, because the best basketball players in the world play in the NBA. So it was kind of dumb to think that, that the gold medal meant anything when those weren't being, but I will say, you know, watching these coaches get paid. And some of these athletes can't get paid. When, you know, I remember reading about the kid who's the quarterback at the University of Alabama. And this kid had, I believe, almost a million dollars of deals set up for himself, and he had not even thrown his first pass in college football yet. And so, you know, obviously, he's got the talent, this kid's good enough, I think he's got the talent to be a legitimate NFL prospect, but nothing is guaranteed. I mean, how many great players have we seen go through that? The, you know, the NCAA and, and do really well and barely make a dent in the polls, or they play one or two years in the pros. So I'm for it, especially since, you know, if you have C is paying their coach $100 million, their players can get paid as well. But speaking of USC, this was an article and I want to I want to talk to all the parents out there that may listen to the show parents, future parents, grandparents, linear years, college is a business decision, it is no longer it is no longer this thing where you can just say, You know what I want my kid to have a great experience. If you want your kid go to an all expenses paid resort for the next four years, then send them to a resort for four years. Like, let them like live up, let them go to Europe, let them travel, let them have the laugh experiences do not sign on the dotted line for these PLUS loans for these crazy loans, where your kid's going to borrow $100,000 to get an education, if they're going to go and be, you know, working for less than like minimum wage when you break it down hourly. So USC was just in the news in the Wall Street Journal, because they apparently were marketing a master's degree for social work. And they had hired a for profit entity to help enroll kid in a virtual program. So this is not on campus. So USC, his prestigious university in Southern California, they're using their name and their brand to enroll people into an online class. The median amount that was being borrowed was $112,000 for Master's degree in social work. And it was saying that two years later, two years later, that half of the students were earning $52,000 or less, annually. This is coming from the Wall Street Journal. These kids are wrecked. They're wrecked. And I mean, it's like I said, I I don't want to like I want to feel sorry for them, but I don't feel sorry for them. I'm so torn because this is such a catch 22 Because we're telling kids you know, go to school, get educated because that is the key to a better future. But then they're mortgaging that future to go get a degree from these big universities that are really phenomenal at marketing, but they can also get the same degree at you know You know the State Community College and be much better off. So I'm off my soapbox, but parents, grandparents, young people, stop mortgaging your future for these overpriced degrees. Think about college as a business decision, it's an investment, sure, but run the numbers, if you're going to be a dentist, what you got to do, if you're going to go into social work, you do not need $100,000 master's degree from University, South Southern California to do that.


Ross Marynell  25:30

So this is the annual reminder, that private student loans through Sallie, this is how I'm looking at Sallie Mae calm right now, as you were talking, that we have variable rate options with interest rates up to 11.23%. Today, fixed rate options as high as 12.6. Now, they can be lower than that, if you have great credit, if you have cosign parent loans, if you do take all the steps to lower those. But we have seen people walk through the door with double digit interest rates on college loans, it happens, yes is it is a hall to pay for. And if you don't have the income coming from the the postgraduate work, from when you get out of college and get a job, if you can't cover those payments, it is really hard to discharge them and get them if you can lower payments, and there are things you can do. But those who are with you, you pretty much


Michael Baker  26:33

have to die if you want to discharge it, if you're not gonna pay it off. I mean, even that, it could be taxable. So, listen, you know, I, I'm a firm believer, I love education. I love learning. But I think that we got to do college differently. We got to we got to teach people that, you know, I mean, think about the proliferation we've seen in online degrees in community colleges, but you just look at like, what, where places are hiring now and how they hire people. You know, we've been in business together for, you know, almost a decade. So I have I haven't been on a job interview in a hot minute, you know, but I doubt that people are going to be, you know, I'm 41 years old, I doubt people are gonna be worried about like, where I did my undergraduate studies. You know, I mean, I think they're gonna be like, Hey, can you do the job? What's your experience? How long have you been doing this? They're gonna ask you more relevant questions. Now, I could be wrong. I'm not a hiring manager. But to me, it's, you know, I think parents and families need to stop falling for this idea that if they have the name brand University, on their diploma, and no matter how they gotta, you know, borrow and deal to make that happen, that it's going to work out. Because we're finding, we're finding out that it's not working out for so many people, they have these massive student loan debts. And then they're going into the workforce. And they're, they're earning maybe enough to, like scrape by, but they're not making a dent in those loans over the long term. And then and then they can do things like save for retirement, invest and participate in our in our markets, which is how you build wealth. So I'll get off my soapbox, but please, folks, please think before you say buying a car, like Think before you sign.


Ross Marynell  28:30

Alright, so I think that's a good synopsis. It's a tough decision is expensive. Be mindful of what the outcome is just treat it like any other decision like any other project, what do we put in? Are we going to get back out enough to make it worthwhile? What else you got today, Michael?


Michael Baker  28:48

Well, the I mean, the the final thing, I'll just say, you know, for everybody, I know, we're coming into the holidays. But this is interesting. And this kind of falls into line of personal finance. So I know that a lot of people that do that are no, they're crushing their their cash flow, they're doing well they're making money. You know, I refer to credit cards as a black belt move. But a lot of times people that have a firm grip on their budgets, though, use the credit cards, to, you know, pay their expenses, and they'll take it, they'll pay the credit cards off monthly, which could end up being as you used to, you tend to run a relatively, you know, medium to high balance on these credit cards, depending on what your spending levels look like. You need to start looking at those credit card statements carefully because this has happened to be this week. I pay my credit cards like normal. I normally review them briefly, but I had reviewed them yet and I got a notification that apparently somebody not me had just spent $1,500 at Lowe's. Oh Lowe's calm so I know that we're in that season where people are buying you know, likely for the last you know for a while have probably been buying Christmas presents are buying a lot of things online, so that you can make sure that they ship to your home or wherever you're going to, you know, have your Christmas, you know, well in advance, be monitoring those credit card statements, because, you know, people are out there trying to defraud you. And you know that that charge had gone through clears clues day I saw it on on my card, and thankfully, I caught it. But people are out there still trying to you know, manipulate and use credit cards. So be mindful of what's going on if you use credit cards this time of year. I mean, I think it goes all the time, but especially this time of year, when you're may have a higher than usual number of transactions because you're buying gifts and things for other people. So be watching that stuff, guys.


Ross Marynell  30:43

All right. All right. Is that it?


Michael Baker  30:46

I think that's it for today. I know that, you know, we had a jobs report, I think come out. You know, that looked you look fairly good. So we'll see how the market continues to digest this news. But hopefully over the next few days, we'll kind of get a little bit more clarity on on this new variant and where things are going. And I would be I would not be surprised at all, if we don't see some clarification coming back from the Federal Reserve. Regarding Jerome Powell has comments because I know he he doesn't want to move markets with what he's trying to say. But forge Unfortunately, these guys everybody feels like they have to say something instead of just saying, Look, I don't know, hey, we'll we'll get to that when the time is right. I feel like they have to make a statement. Sometimes the media just runs with that. So all that to say is I'm ready to continue on with my diet before the holidays before the Christmas cookies start to kick in. And what about you in your three weeks


Ross Marynell  31:42

before the next food crime? I will leave people with this. So when we see some of these short term, heightened volatility periods, it's important to remember that this comes from our from our fin twit friend, Morgan Housel. He says progress happens too slowly to notice. Setbacks happen too fast to ignore. So thankfully, we've had wonderful markets over the last several years. So hopefully, you've had a chance to build retirement balances, get yourself prepared and ready to retire. And sometimes, you know, we it's it's almost impossible to not notice the short term volatility. But let's not lose sight of the progress that has been made over the last decade.


Michael Baker  32:26

100% 100%. Well, thank you guys for tuning in and listen to the show. And as always, if you got questions for us, you got something like us to talk about. We'd be glad to do that. You can email us at the money huddle at BC planning.com. Also, we will begin probably next year with some of these episodes, we're going to get a little bit more detailed and some of the some of the topics and planning topics that we'd like to talk about. So if you got anything specific to financial planning or retirement, feel free to shoot us an email, let us know we'll make sure we get it in one of those episodes. Alright, thank you for joining us and we will talk to you next time.



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