VBlog - 55 The Good The Bad and the Fed
We discuss the actions of the Fed and what it means for near term investing. Sector rotation is explained and we present what is hot and not.
We discuss trading in up and down markets and relate how investors should pick stocks not overall markets. finally we present some of our favorite BDC's.
We discuss trading in up and down markets and relate how investors should pick stocks not overall markets. finally we present some of our favorite BDC's.
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00:00🎵Jazzy Music🎵
00:30🎵Jazzy Music🎵
00:48Welcome back to Show Me The Money. Today is the 19th day of August.
00:54In case anybody's worried, it's still good and hot here in Central Florida.
00:58We've had two hurricanes, one missed us on the west coast, one came off the east coast.
01:04We haven't gotten hit yet, so knock on wood.
01:08We're entering what we call white knuckle time in Florida.
01:16Typically if hurricanes hit us on the east coast, the last week of August or the first two weeks of September.
01:24So starting next week, we'll start to be doing this out into the tropics to see if we see anything coming.
01:34And if we do, my wife packs a bag, gets in the car and leaves.
01:38Okay, so what's going on the market? Well, I haven't come back in a while for the simple reason that everything I said last time still holds.
01:46I said we were going to see a little bit of a dip. There was going to be some buying opportunities.
01:51I said don't sell things, but hold off on your buying. And now I think I'm going to show you that it's a good time to start buying.
01:57You should have been buying a little bit already.
02:01So let's take a look at where we are and where I think we're going.
02:05And then we'll be able to make some recommendations as to how I think we handle this transition.
02:15I've said before that we're in a sense being held hostage to the Fed.
02:21Well, that's true in that the overall market is being dragged down every time the Fed doesn't raise.
02:31And people are giddily running around saying, oh, the Fed's going to lower rates, they're going to lower rates, they're going to run.
02:37And then they don't. Okay. And then there's gloom in the market.
02:43And then six weeks later when the Fed meets, everybody says, oh, they're going to lower, they're going to lower, they're going to lower.
02:49And then now eventually they're going to lower.
02:52I've been saying all along I didn't expect it till September.
02:56I'm not for sure that they're going to lower in September, but I have said they're going to start talking about it.
03:03And you hear there's more and more talk now about it.
03:06I said if they talk it up enough, they won't have to lower.
03:10If they get the market to take off on the expectation that they're going to be lower rates, that's all that Wall Street is waiting for right now is lower rates.
03:19They can't do anything until they lower rates.
03:24Okay. They don't know how to operate in a market anymore that doesn't have interest rates at 2 percent or something.
03:34The notion that the Fed is nonpolitical is laughable.
03:40Okay. These people are beltway insiders.
03:46And not the ones that are out, say, in St. Louis and San Francisco, but the ones that work in Washington.
03:52They are political animals.
03:54They want to carefully promote, now it's Harris, it was Biden, and a rate cut in September might just do that.
04:08But even if they don't cut it talking about it, all they have to do is get the market in October to start moving up.
04:17And then remember the playbook. Wall Street doing great. Wall Street equals Main Street. Main Street doing great.
04:26The Biden and now Harris economy is wonderful. You should vote for them. You're going to get more of the same.
04:33Oh, forget about the fact that you go to the grocery store every now and then and you can barely afford to buy anything.
04:39You just don't understand. You haven't given it a long enough time to work yet.
04:45Okay. So, but I do believe when the Fed starts to lower rates or when they talk about it enough, you're going to see the market take off.
04:55Be there. Make some money. Okay.
04:59All right. Let's take a look.
05:05I did this before and I did it wrong.
05:12All right. Let's take a look at.
05:15Here's the QQQ, which stands for the Nasdaq.
05:20And you see this is two and a half years worth.
05:24Over the last couple of weeks, momentum has turned around. It's still negative, but it's now going positive.
05:32And you see the QQQ has actually led it.
05:37So the Nasdaq is coming back very nicely. It's not back to the highs it did, but it's halfway. It's halfway back.
05:44I expect this will make new highs before we're done.
05:47So, yeah, I mean, tech stocks over the next little bit of time, once this momentum slope goes positive, you're going to see this thing take off more.
05:59And I expect we'll have new highs again.
06:02Now, you notice the depth of this trough here in momentum.
06:07We haven't had one that deep for the growth stocks in almost.
06:14Two years, I mean, it's a year and a half at least.
06:17OK, so this was a fairly deep pullback.
06:21And growth stocks are down over what their highs was.
06:26So it's been a good opportunity.
06:29That's why I say you should have been buying over the last couple of weeks.
06:32Now, what about the overall market?
06:38This is the mean of all my stocks.
06:42This is the momentum slope out of all the stocks that I follow.
06:46And you may not be able to see it on your monitor.
06:49This goes back about two and a half years.
06:52Right here, it's just started to tip positive again.
06:56So the slope of the value stocks, the non-growth stocks, is starting to move up.
07:03And I think you're going to see value stocks do pretty well.
07:08And this has only gone a little bit negative.
07:10Now, you notice that this dip in the general value stocks, there are 1, 2, 3, 4, 5, 6, 7, 8 or 9 dips in the last two and a half years deeper than this one.
07:23So the dip in the growth stocks was much more pronounced than the dip in the value stocks.
07:32And again, we're just now, for a value stock, getting into a good buying opportunity, start taking a look.
07:43Here is the overall index of all the stocks that I follow.
07:48And you see, as I showed you before, for all the value stocks, it's almost back to its high of a couple months ago.
07:57And right here, the overall momentum is turning positive.
08:02So things are starting to come back.
08:07Now, I know that there's been talk of a recession, and that was only talk.
08:12I don't know why that was talk, but there's general euphoria when people announce that they're going to lower rates.
08:21And then when they don't, they're doom and gloom.
08:23I think you were just seeing doom and gloom and people saying, oh, there's going to be a recession now.
08:28Don't buy into all that crap.
08:31Life's too short.
08:33Okay, here's all my sectors.
08:36This cyan here came up, came down.
08:39Now making new highs.
08:41Utilities, baby.
08:43Utilities.
08:44Good stocks don't pay a nice dividend, give you some growth.
08:48They're pretty near the best of all worlds.
08:53Real estate investment languished for a long time.
08:56Remember, this is over the last two months.
09:00And now it's back up here within, you know, a couple of percent or a percent of making a new high.
09:10Growth.
09:11Growth did really well.
09:12And then it dipped way down about two weeks ago.
09:15And look what it's done in the last two weeks.
09:16Bang, it's right back making new highs.
09:19Value stocks, the red line, they're about halfway.
09:23They come back about halfway.
09:24They only fell about halfway, but they come back about halfway.
09:27They're just not as volatile as the growth stocks.
09:31The red dotted line is energy.
09:33It dipped along with everything else.
09:36And it hasn't come back quite as much as other things, but it's come back some.
09:40What's been the big loser?
09:42Oh, my business development companies.
09:44They fell just like the value stocks, and they are just now starting to come back.
09:49Why?
09:50Well, their interest rate's sensitive.
09:53A lot of them have variable rate loans.
09:56So as interest rates come down, the terms on their loans are going to come down as well.
10:03So people think or are afraid that they won't make as much money.
10:07I think they will, but they're slow to come back.
10:12They're still down about 6%.
10:14Actually, mine are down about 7% right now.
10:18Do I care?
10:19Not particularly, because this means when I buy some more, I'm buying it cheap.
10:24And I treat a business development company like a bond.
10:27I ain't going to sell it.
10:29So I would rather have the stock have some dips where I can keep buying it cheap.
10:36Remember, if the stock gets too expensive, then for what I'm paying for the stock,
10:41instead of making a 10% dividend on it, I'm making an 8%.
10:46And if I hold that stock for 20 or 30 years, I'd rather have a 10% over an 8% and a little capital gain.
10:54So it doesn't bother me that these things go down.
10:59You're not going to trade a business development company.
11:01You're just going to hold it forever and take the income off it.
11:05Okay, so that's what we got to say.
11:13Now, when we look at these things, we're looking at overall trends in the market.
11:24And so I want to spend a minute or two talking about that,
11:35because I think among a lot of investors, there's a little confusion.
11:43When the media talks about the market going up and the market going down,
11:49I think individual investors interpret that as this means something to me.
11:54Okay.
11:56I'll give you my experience.
11:59I have a computer algorithm that predicts when you should buy a stock, when you should sell a stock.
12:05I'm just still developed.
12:07It's underdeveloped now.
12:09And it's not foolproof, but it's under the beta development.
12:19It's doing pretty well.
12:21What I find is when the overall market's going down, like it did a couple of weeks ago,
12:28there are still a couple of stocks that are beating the market and going up.
12:33And I bought them and I made some money.
12:35I didn't make a lot, but I made over, say, a few week period, I made 4%, 5%.
12:41I'll take that.
12:42Okay.
12:44Now, when the market is on an upswing, then instead of having two or three stocks that the computer recommends I buy,
12:53I may have a dozen.
12:56So is it fair to say that I'm going to make more money when the market's going up or when the market's going down?
13:03Because I got 12 over here and three over here.
13:07Well, no, it doesn't.
13:09Think about it.
13:10If I'm going to keep, let's say, $40,000 invested in stock trading, and in a down market, I know I'm not going to have as many opportunities.
13:24So I just invest, you know, $10,000, $12,000 in each of those three stocks.
13:30And in an up market, I know I'm going to have a lot more opportunity.
13:33I invest $3,000 or $4,000 in each of those 12 stocks, whatever.
13:39I can make the same, whether the market's going down or the market's going up.
13:43I just have to adjust my knowledge of how many opportunities I'm going to have to buy stocks and make money from.
13:50So do not be led by all these CNBC, MSNBC bullcrap that, oh, woe is me, the market is down.
14:04You can still make money.
14:06It's a stock picker's market.
14:07You pick your stocks.
14:09You follow your stocks.
14:11Don't get swayed by the market is up, the market is down.
14:15Oh, euphoria.
14:16Oh, gloom.
14:17You just keep picking your stocks and understand that in a down market, you may not have as many opportunities.
14:22So you invest a little more.
14:24In an up market, you have more opportunities.
14:26You invest a little less.
14:27It's just that simple.
14:29A lot of this euphoria is ill-founded.
14:33The other thing I want to take a look at is I talked about how much I like business development companies.
14:48By the way, I don't know if you know this.
14:53But if you hold a business development company for more than a year, the dividends are treated like a long-term capital gain, and you only pay long-term capital gain taxes on it.
15:15With a bond, you're going to pay your peak income on the interest.
15:23But if you hold these business development companies for, say, 20 years, for the last 19 years, it's only taxed as a long-term capital gain instead of at your short-term capital gain, which is your normal rate.
15:39Think about that.
15:43Let's take a look.
15:45And I'll show you a couple of business development companies that I like.
15:50ARCC.
15:53This red is the stock.
15:56This solid red line is sort of the smooth stock.
16:01This is 5% above the smooth stock, 5% below the smooth stock.
16:05And this is the momentum.
16:07You see these things have taken a little bit of a hit.
16:10The momentum has now turned positive.
16:13Now is a good time to buy it, my friends.
16:17And there's a lot of them out there.
16:19These are just the ones I like.
16:22CSWC, my favorite of all.
16:26It's a little more volatile than some.
16:28You see it fell almost 8%, 9%.
16:33It's just now you see the momentum is just now coming back.
16:36I'm buying down in here.
16:3724%, baby.
16:38I'm buying.
16:45This is another one of my favorites.
16:47MFIC, baby.
16:48Oh, this is a nice stock.
16:50It's really taking it in the shorts.
16:52It went from about 15%, 30% down to 13%.
16:55Man, it got hit hard.
16:57It's now back to almost 14%.
16:59Momentum has turned positive again.
17:03And you see, we haven't had a dip for business development companies like this in years, okay?
17:09I was buying down here as well.
17:12Now is a good time to buy this one too.
17:15These things are paying between 8% and 13% dividends.
17:19And soon, the Fed is going to be back to 2% or 3%.
17:26And you're going to be collecting 8% to 10% in a 2% market.
17:31Blue Owl, OBDC, another one I like.
17:34This one has taken it in the shorts as well.
17:38You see it was up here well above 16%.
17:41It was 16.5%.
17:42It's down here to 14.5%.
17:44The momentum is lower than it's been in at least a year or two.
17:49And you see right here, it's very close to turning positive.
17:54This thing is leveling out.
17:55Now is a good time to buy it.
17:58And the last one, I've had lukewarm feelings about this stock.
18:03I invested in it years ago, and then they ticked me off.
18:07But I think to have it not make it one of your biggest positions,
18:13but you want to spread your money out among a bunch of business development companies.
18:18And so I would keep a position in this one as well.
18:21You see it's taken it.
18:23The stock is only $7.
18:25It's taken it from $7.25 down to about $6.50.
18:28So it's lost about 10%.
18:30But it's already back to $7.
18:32Momentum has turned up.
18:34Now you can pick up this stock for $7.
18:36And it's only over the last next year.
18:38It's only going to go a little bit higher, okay?
18:40So those are the business development companies that I like.
18:46And you can do what you want.
18:52You shouldn't be thinking about investment in terms of just trading stocks, okay?
19:00The way I do it is I have bonds, I have income stocks, and I have stocks that I trade in and out.
19:08And I just said before, I try to make the same among each one.
19:11Each one is riskier.
19:13So the stocks that I trade in and out, I put less money into because it's riskier.
19:18The income stocks, well, if the market takes a hit, they're going to go down too.
19:22But they're going to go back because they basically just lend money to other businesses.
19:27So they'll be all right.
19:31And the bonds, right now is about the last time I would buy bonds.
19:36I'm pretty much done buying bonds.
19:37I bought them when interest rates were high.
19:40I started in Christmas of 2022.
19:44And I stopped buying bonds about two or three months ago.
19:49And I will convert those bonds to income stock, maybe even some utilities and some real estate investment.
19:58And then I will continue to trade stocks.
20:04Particularly as my algorithms get more and more sophisticated and I see how to use them.
20:11But as of right now, I'm still very much on the buy for income, hold for long term.
20:18Now, remember, I've got three stocks that I'm holding long term.
20:22One is Microsoft, one is Costco, and one is a Cadence Development Network, CDNS.
20:30And those I just add little, little.
20:33And they both are horrible over the last month or two, two or three months.
20:39But that's OK. I'm holding them for 20 years.
20:42I won't cash them in. I understand that. I'm going to die first.
20:45But my wife will or my kids will or somebody will.
20:50You're going to be an investor. You've got to think long term.
20:55If you're 85 and you're investing, start to really think about when you're going to need that money.
21:03Because you probably ain't got 20 years.
21:06So you might want to just invest in some nice interest stocks now and take the income.
21:12Don't let the income seize. I have my income automatically reinvested.
21:18So every time I get a dividend, it just gives me the dividend in stock shares.
21:23But if you're 85 or 90 and you want the income, don't do that.
21:26Just have the income give you and spend it. Do what you want.
21:30But you get you can get a nice income every year of 10 percent.
21:34Well, if you're if you got a nest egg of $100,000 and you're getting 10 percent income,
21:39your $100,000 stays and you get 10 grand a year to add to your pension or Social Security.
21:45So basically no risk.
21:48Even if the stock goes down, you're still going to make 10 percent a year.
21:52You're still going to make your 10 grand. So you can't beat it.
21:57All right. That's about as much as I was going to say.
22:02I will come back. Probably about the time the Fed's going to tell us whether they're going to lower or not.
22:11Expect a lot of jawboning. This election has gotten so crazy.
22:19I don't understand it at all. I mean, if it's a fair election, Trump wins going away.
22:24But it ain't going to be a fair election. You can see that coming.
22:28I can't imagine a human being or two human beings worse than these two we've got running on the Democratic Party.
22:36And if they win and they could, I mean, her playbook is inexplicably stupid.
22:49She's going to go to price controls. That's going to solve your problem.
22:53I don't get it. But I mean, if you're a good communist, that's the way you think.
22:59What will the market do if she wins? Good God, I don't know.
23:07The Democrats are, you know, they're in bed with the Wall Street crowd.
23:11So maybe they'll make sure Wall Street does OK by keeping rates low.
23:16But that can only go on so long. Eventually, you're going to have so much debt that you can't service it anymore.
23:24And then I don't see any option, but rates are going to go back up again like they have the last two years.
23:31And you saw what that did. I mean, how many businesses have gone under in this country?
23:36Because they can't service their debts because inflation has killed them.
23:40And this notion that corporate greed is that's just nonsense. That's not even possible.
23:48OK, so blaming it on corporations.
23:52Yeah, you can make people believe it, but you can't solve the problem that way because it ain't true.
23:58All right. Corporations are just stockholders.
24:02So, man, if she wins, I have no idea what the market's going to do, but I don't think it's long term.
24:08It'll be good. It might be good short term.
24:11There might be euphoria on Wall Street, but man, long term, I'd be very careful.
24:20I'm not advising buying gold. I don't think gold is a particularly good hedge against inflation.
24:25I think just buying stocks is a better hedge against inflation.
24:29But as the Chinese say, may you live in interesting times.
24:38You know who lived in interesting times? John Gold did. Buddy, go read Atlas Shrugged.
24:45It'll change your life. All right. Hey, I'll see you guys down the road.
24:50Hopefully we got something good to say. Take care.
25:08You.