In this month’s podcast Dave and Steve discuss a variety of topics. In 2020 there has been a dramatic rise in small investors placing risky bets in the stock market. Has the lack of sports gambling lead to a rise in stock market gambling? Next up they discuss the prospects for inflation going forward and what we can learn from the past. Last but not least, they discuss the ever present investment scam artist. How do these crooks pray on our fears to part us with our money?
Steve:
All right. Welcome to Plan for Life Now, episode number 71, Dave, how’s everything going? We’re here in mid-September now.
Dave:
Hey, I have zero to complain about compared to you. I say that every single time, I really do.
Steve:
Yeah. But I mean, in the grand scheme of things, I have very little to complain about compared to a lot of people.
Steve:
I mean, my biggest complaint is trying to get a six year old to concentrate on four hours of Zoom meetings every day while my wife and I try to juggle our jobs. Is it fun? Not really, but it’s not the end of the world.
Dave:
Yeah. I’m not putting in the grand scheme of things I’m putting in the scheme of just me versus you.
Steve:
Okay, yeah.
Dave:
In that, I have, my three children are older and their biggest complaint is not being able to go out and try to meet people and have fun, which I feel bad for them. Because when I was in my twenties, that’s your main social life, compared to your situation. What can I tell you? So I’m basically doing my quarantine thing. I think I’m in really good physical condition. Have you been keeping up your … because you and I don’t see each other.
Steve:
Very rarely.
Dave:
Have you been keeping up your physical condition?
Steve:
It’s a little different because a lot of our clients know you and I used to like to play basketball, basketball’s not happening anytime soon. I’ve been playing a little bit of pickle ball, not nearly what you play and then do it, a lot of lifting and some of the other stuff. So I wouldn’t say I’m in a peak physical condition right now, but I think it’s pretty decent all things considered.
Steve:
You know what I was going to say? I mean, this is totally off topic, but just as you were talking about feeling really … your kids can’t go out and meet people. I was just texting with our assistant Jen, who used to work for us, doesn’t work with us now. And she was talking about her son being … doing his freshman year in college right now. And I really feel bad for those kids. Because freshman year in college, he’s going there to play baseball. He’s got to wear a mask everywhere. He’s stuck inside his room constantly. He said he feels like he’s in jail right now. And this is not to make light of people who are really in jail. But he’s stuck in his dorm room. They’ve got to have all their meals delivered. It’s a real pain for those kids.
Dave:
It is. That’s a whole other topic. I’m not a big fan of them opening up the colleges and universities. I just feel like there is no upside to that because I think from an infection point of view is sort of being proven true. But I still feel from the kid’s point of view of the whole point of going to school, to college is to socialize, is to do all that stuff-
Dave:
I think not to force people, not to do it. So that’s going to be the case just back a year. But I mean, if you haven’t learned that colleges and universities are also a business at this point, then you’re really not paying attention.
Steve:
Yeah. Seriously, they can’t afford to have people not enrolling. All right. So Dave and I talked about in our super detailed pre-show planning session. We talked about a lot of things that we wanted to touch on here today. So Dave, let’s start it off with this Tom Boswell column that you sent to me. And this is basically talking about how America is addicted to gambling. And this is no surprise for those of us who follow sports closely and especially as we’ve seen over the last 20 years or so this rise of sports gambling and fantasy sports and just all kinds of betting on sports. And let’s be honest, for some people, it makes it more interesting. They’re a little bit more involved if there’s some sort of betting going on. And what Tom Boswell is talking about is when sports shut down, what filled that void? The stock market. And this is driven by a lot of different things, but I think personally, one of the things that drove this is the fact that stock trading has gone to being free. This used to be something where it was never a huge expense, but maybe it was back in the day, it was $15 or $20. And now it was down to $3.95 and now it’s basically gone to free, so people-
Dave:
In the advent of … this is all the prep work being done. What’s the app? Was it Robin Hood or something like that?
Steve:
Oh yeah.
Dave:
Trading [crosstalk 00:06:11]. Is that what it’s called?
Steve:
Robin Hood. Yeah. Yeah.
Dave:
Yeah. So now you have kids … these were probably people betting on sports before, these are people in their twenties or whatever, and younger. Now they’re getting on to all this stuff, which there is an inherent danger of, because of all that can go wrong in the stock market and the kind of trouble you can get in. But yeah, it definitely shifted during the pandemic.
Steve:
Well and what I thought was interesting in here, he talks about for years, Wall Street has sought more resale investors, right? And why would Wall Street seek more retail investors? Well, they look at those as the little guy suckers with fast cash, fast money who are going to chase after hot tips and not put a whole lot of research into any of these things. And the idea was that after the .com bubble, because I know you’ve told this story before in the late 90s, when you had friends quitting their jobs to become day traders and that was going to be their job. Well, gosh, I’m day trading stocks. I’m so smart. I’m making all this money. And then the .com bubble burst and everyone realized, maybe I’m not so smart. Then you had the financial crisis in 2008.
Steve:
So the idea was that this whole generation of investors, they weren’t going to do day trading anymore. They were going to be against day trading because they’d lost their shirts. They’d learned their lesson. And that’s certainly not the case. I mean, we’ve seen all these people gambling. I mean, I’ll say that, given the volatility, how high the volatility was in the market in the spring and early summertime, it made a lot of us sit here and say, gosh, why didn’t I realize that Peloton or Amazon, or pick whatever stock was going to be the hot thing and was going to shoot up by 70%, 80%, 100%? I should have seen that in March. And that’s of course, very easy to sit here and do that. The problem is that you can do that. It’s not going to hold true for the next time. That’s not a reliable investment philosophy or a way to keep investing there because, I would also say that a lot of the common sense, what was a lot of the common sense and discussion in June and July, the market can’t go any higher. There’s just no way can hit all time highs when we still have unemployment at 10%.
Dave:
Right.
Steve:
What does the market go on and do? Hits more all time highs.
Dave:
And made no sense. Maybe still doesn’t make any sense. But that’s why I think if you’ve been doing this for a while, like we have, you’re just simply humbled by the markets. Humility, tremendous quality to have with this stuff and studying it.
Steve:
I hope that’s a lesson that people learn. I’ve been doing this too long to think that people will learn that forever. But I do think that people can learn a lesson for a couple of years and have this memory of gosh, nothing really made sense back in 2020. So this theory that I have now in 2025 about what’s going to happen in the future, maybe I’ll just remember back to 2020, how nothing made sense then for a while. And that’ll give me a little bit of humility in 2025.
Dave:
In Boswell’s article. What I thought was interesting, it’s a sports page. I was like reading the Washington Post sports like I always do. He just starts to move into, these people have been introduced, they’re sports betters and that’s never a winning game ever. And then they’ve been introduced to the stock market. And what if these people now realize that in the long haul, and this is the gist of his article in the long haul, investing in the market is a good idea. He starts to talk about the power of compounding and things that anyone listening to this podcast are basics. But for people reading the sports page who are sports betters, they were new concepts. So I thought it was interesting that he said learn from this. And in the long run, this will be good to actually make money by looking at longterm trends in the stock market.
Dave:
And I mean, what a thoughtful column by a sports guy. Now, the next column he wrote literally the next column he wrote, or one of the next columns you wrote was about the Redskins. It was the day of the first … I’m sorry, that’s going to happen forever. Washington football team.
Steve:
That’s hard to get over, but yeah.
Dave:
Talking about the Washington football team, it was the day of the game against the Eagles. And it was the most disparaging, angry column saying they’re going to be horrible, awful. They have no talent. And it was not like Boswell, because he’s usually a thoughtful columnist, just like the one we just discussed. And I’m like, [inaudible 00:11:28] friend of mine and we talked about the Washington football team. He’s like, what’s wrong with Boswell this morning? Why is he so bitter and angry? This is like the worst column he’s ever … and I was like, I don’t know. And of course the Washington football team, they went out and won their first game and played really well. So.
Steve:
Well, okay. You know, I don’t know-
Dave:
Now when you’re listening to this, they may have already lost, people listening to this. We’re recording. We haven’t had the second game yet against Arizona. So who knows what the future is?
Steve:
Right, well, I mean the famous thing back in the day was Boswell wrote this column where he proclaimed himself to be a Gibbsologist. Right? And he knew all things about Joe Gibbs and he said, absolutely Joe Gibbs was coming back and get a coach another season. And later that day Gibbs said, yeah, I’m not coming back. So even a Gibbsologist who obviously knows a lot, he could be dead wrong.
Dave:
Yeah, obviously the humility we just talked about when you’re making any kind of prediction, there was zero humility in that it was like, they’re going to be horrible, they’re horrible, the team’s horrible. And it’s like, well, if they win today, you’re going to look bad, but whatever.
Steve:
Well, okay. So let me take this theme and let me transition really well into something else I wanted to talk about. And this is kind of a whole encompassing topic of inflation and goals and cryptocurrency and things like that as a hedge against inflation and how that fits into an overall portfolio. Right? So let me set the stage here. We’ve got the federal reserve doing a replay of what they did back in 2008, 2009, with quantitative easing with super low interest rates with stimulus package, in the trillion … $2 trillion and talking about even more. And if you remember back in 08, 09, one of the just absolute locks … this is to use some gambling terminology. They would say it’s a stone cold lock. Stone cold lock that we were going to have some big inflation numbers going forward.
Steve:
And that is once again, the consensus out there. And a lot of people say, you know what? All of this stimulus and the central bank policy, this is going to lead to inflation. And to draw these parallels, obviously different circumstances, but back in 08, 09, we knew there was going to be inflation. What did that do? A lot of people bought gold in those time periods and it really bid up the price of gold going into, I think it was around 2010 or so. So in 2010, 2011, you saw gold around $1,700 an ounce. And what happened? We didn’t see any inflation. I mean, we haven’t seen inflation for those of us who’ve been investors for the last 20 years. We haven’t seen any inflation, even more than that. We’ve been right around 2% per year. And what did gold do? Gold fell by about 50%. So it was an absolute certainty. Everybody knew it, it didn’t happen. So things like gold went way down. What have we seen recently? Gold going way back up again because people are once again certain that we’re going to see big inflation numbers.
Steve:
So I know I’ve talked about this before, but when people ask this question about gold, do you have gold in the portfolio? We don’t hold gold in our portfolios. Now when people ask the question, can I buy gold on my own? Well, you can do whatever you want of course, would I recommend it? If you’re going to do it, I’d say keep it to less than 5% of your portfolio, because gold is a very volatile asset. It fluctuates about twice as much as stocks do historically. So, if you’re going to have gold in there, don’t make it, this is my whole portfolio. You may get, like it was an individual stock. You know, it’s going to be less than 5% of your portfolio. Not huge holding in there.
Dave:
Right.
Steve:
Just on my train of thought here, as far as talking about inflation going forward, while I’m not going to sit here and predict that it’s going to happen, because hopefully from our discussion in the last 10 minutes, I have some humility that I don’t know what the future’s going to bring, but in the same sense we do want to prepare for any potential outcome. So one potential outcome could be that we do have a lot of inflation and other potential-
Dave:
I’m going to interrupt you for a second.
Steve:
Yeah.
Dave:
Because the fed has indicated that they want inflation going forward. That’s going to be better for the house. The economy is going to grow things don’t cost more.
Steve:
Right.
Dave:
At some point. So I looked at that and I guess I’ll get your answer on how we’ll deal with this. But I think the bottom line to me is, well, if the fed wants inflation, what they want is … everything the fed wants, they seem to get. They’re kind of like the spoiled child that gets whatever they want.
Steve:
Probably because they control everything.
Dave:
Right. Like money would be their parents in this case. So yeah. So how are we going to deal with that?
Steve:
Yeah. So, that’s the thing is that the fed has really changed their policy from saying … well, let me back up a second. So normally the fed has dual mandates. The dual mandates are controlling inflation and full employment, right? So historically they’ve termed full employment, being an employment rate. And I don’t know what the number is 4% or 5% unemployment, because you’re never going to have a 100% employment, but whatever their rate is for full employment. And they’ve said they want this inflation target around 2%, which they’ve been right on with recently. What they’ve really changed their tune is to say that they’re going to let inflation run hotter than that. So they’re going to say, okay, inflation’s running more than 2%. normally, if that were to happen, you would start to raise interest rates to try to cool off the economy.
Steve:
And the feds basically said, well, we’re going to deviate from that. We’re going to let inflation run hotter than that. Now I want to take an extreme example here to talk about bigger picture, why they might do this. So one of the problems that we have with this country is we’ve got a lot of debt and obviously the stimulus package and everything the fed’s doing, not really helping right now. So letting inflation run hot and go a little bit above will actually help us sort of inflate our debt away. And I don’t know if you’ve heard this term before, when people talk about what is inflating our debt away really mean?
Steve:
So let me take an extreme example here to make my point. Let’s say that GDP was running at $20 trillion. And if we had inflation for the next year, at 100%, GDP would double to $40 trillion, right?
Dave:
Right.
Steve:
Or even take your income, whatever your income is now, double your income. If your income is twice as high, but your debt stays the same, it’s going to be a lot easier to pay for that debt. Right? Think about what your mortgage payment is right now, double your income, your mortgage payment stays the same. Hey, it’s a lot easier to make that payment. So, that’s what they talk about when they talk about inflating the debt away. So if you can get that growth, grow the GDP, have inflation, but now you can pay down that debt more easily. Now inflating the debt away is a really bad thing for savers, because imagine that you’ve got whatever money sitting in the bank there and all of a sudden everything now costs twice as much. Well that’s that really crushes your savings because they’re not worth nearly as much. So that’s why the government doesn’t want to do that and the numbers that I’m talking about, 100% things like that, right?
Dave:
At the same time a policy like that, wanting to have inflation in the long haul, which is all we care about with our clients, just like you said, is not a positive thing. It’s something where we have to keep … because who our clients are near retirement or retired. So having things cost more is never a good thing when you’re on more or less, either less than your highest earnings or a fixed income.
Steve:
Oh, absolutely. And I-
Dave:
So for us, we look at that and you, and I’ve already talked about this. It puts even more emphasis on our main job with every client. And that is making sure that when you’re not working anymore or working less, you have enough income coming in every month to deal with expenses. It seems like everything leads back to that these days in planning, it’s like the six degrees of Kevin Bacon. You can go through any problem and you go through a few iterations and it always leads through making sure you have enough money coming in every month.
Steve:
I mean, that solves a lot of problems. Right? If you’ve got plenty of income coming in, month in, month out, what about higher healthcare costs? Great. Have more income. What about rising inflation? Great. Have more income. I mean, it solves a lot of issues. If you’ve got more income now that’s putting it very simply, but how do you create that income? How do you put this plan together? That’s going to balance all these competing objectives.
Steve:
All right, Dave, let’s talk about this last thing here, because I just saw this, this morning, this came in from a client and it’s not the first time. And we’ve seen things like this before he sent me this link and he said, “Oh my God, what do you think about this? My wife sent this to me this morning.” And I don’t even want to reference specifically what the company is because I think it’s pretty crazy, but it was a link that was talking about a video and it’s all well-produced and it’s got all this data, blah, blah, blah. It was basically talking about how cash was going to be outlawed fairly soon. And everything going through the rigmarole of what was going to happen and how this was going to be done.
Steve:
But it was basically saying in the next week, cash was going to be outlawed. So you should take all your money out of your retirement accounts. And all the retirement accounts are going to be nationalized, basically taken over by the government. So here’s what you should do. You should buy my solution. This is the person saying this, not me, saying you should buy my set of whatever. And this is going to solve all your problems. And like I said, this is not the first one of these that I’ve seen. I’ve seen them before pitching in particular gold and silver investments or cryptocurrency investment seems to be a new saying, they’re always selling something. And I always just think that when we see something like this, I always take a step back and think, okay, this is the only place I’ve seen this. I’ve gone to many different media outlets and whether you want to go to Fox news or CNN or MSNBC or wherever you’re going left, wing right wing. And I haven’t seen it on any of these other things.
Steve:
So is this either a huge conspiracy to suppress this on all media outlets left wing, right wing? Or is this guy just trying to sell me something? And I think it’s usually going to be more likely the latter, but I’m not a conspiracy theory kind of guy. I don’t believe that it’s easy to conceal big conspiracies like that from large numbers of people.
Dave:
Okay. Yeah. Well, here’s the deal. First of all, who’s listening to this podcast for the most part, virtually everyone listening is 55 years old or older, most of you are older. You are being targeted … it’s some marketing targeting thing, so you are being targeted because of your age. People who are older, tend to be more panicky about their money. And they’re going to just look at marketing trends and that’s going to be one thing. What else is going on that I think everybody needs to be extremely … you already touched on it, extremely aware of. We’re having an election coming up. What do we know for sure about this election? What do we know 100% for sure? We know that at least based on the voting cap, it at least 45% of this country is going to be extremely unhappy and pissed off and scared at the end of the outcome of this. I was going to say after election night, but let’s face it. That’s not going to be the end of the outcome of this.
Steve:
Right.
Dave:
So maybe overblown, but we’ll see. So, okay. So now you’ve got that segment of the population that is ripe for all this stuff. Ripe for being terrified, ripe for conspiracy theories, ripe to be preyed on. So all we can say to our clients are, if you’re our client, you call us, you contact us. That’s great to have a sounding board. If you’re not, I would say you don’t have a sounding board, like you just said, use common sense. Don’t do anything without checking with several sources, independent sources, whatever you’re reading, because you are being highly targeted.
Steve:
Yep. Okay. Thank everybody for listening. Thank you all for listening. We will hopefully talk to you soon, stay safe out there.
