Q3 2020 Market Update Key Takeaways:

Polaris Wealth Q3 2020 Market Update Presentation Audio Download

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All right, thank you all for attending. Again, we’re going to be the third quarter 2020 market update, we are going to be starting to do these types of things quite often, we’ve heard you guys loud and clear, wanting to hear a little bit more focused on what we’re doing from an investment management perspective. So expect to start seeing these every quarter. And obviously, we’ve got to collect data, things along those lines, and then make these things look nice and pretty for us. So we’ll probably do them, you know, two to three weeks into the quarter each quarter. Other things that we are working on to upgrade service to you guys, so that you feel more informed with what we’re doing. We are starting our podcast over again. So we already have three recorded, they’re just getting through approval, those will be out here shortly

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expect to start during those weekly from us.

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We’re also going to be doing our blog more frequently, as well as the the typical monthly educational pieces that you guys are all attuned to. So again, the blog pieces are going to be weekly pieces. Again, if you’ve ever used a blog or seen a blog, essentially, what you’re looking at from that perspective, is shorter pieces. And you know, you’re typically going to be under 400 words on a therapy, much more bite size and a lot more colloquial than the educational pieces, which tend to be longer and deeper within. And that also, like I said before the podcast will be coming out those will be typically 20 to 30 minute recordings, Ted Talk esque type of things, to be able to again, be timely, with what’s going on with the market, we realized that some people do best with audio and some do better with visual, we want to be able to provide you things that are both. So again, you’ll be seeing that coming up here shortly with us. So just be aware of that we are aware of it and we will be

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you know, being able to help them present that with you.

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So that in mind, obviously just going to jump through real quick, quick disclaimer from our attorneys who must have their say and everything that we do. But really today what we want to talk about, you know, I’m gonna give a just a quick introduction of the firm, we have several people that have brought friends and family to this event, I want to make sure that they know who we are, what we do those types of things. If you do have somebody that you want to see this, please direct them to the website. With this will be this is being recorded right now as we speak, and will be available to view probably within a day or so. So again, bear with me momentarily for those of you who who already know, but Polaris wealth advisory group is a wealth management firm. And what Wealth Management means in English is that we pair financial planning and portfolio management together all under one roof. The wealth management side of our business is definitely our core. We do also retirement plans for business owners, we get involved with 401k plans, profit sharing plans, Sep IRAs, cash balance plans, whatever you would like we can act as a 331 or 338 fiduciary. These may sound foreign to you. But what that means in English is just taking on different fiduciary responsibility for for you and running a plan if you are the sponsor of that. We are a federally registered firm. We work with clients right now in 46 of the 50 states in the United States, a $750,000 minimum to work with us as of our breakup date, which was why we have kind of a peculiar August 5 date here are assets under management were 1.1 5 billion. I’m happy to report the Polaris grows even stronger by the quarter, we increased by over 100 and $15 million, just this last quarter alone. So when we register it your rents depending on where market conditions are we’ll be able to give you more of an official number here to go with. That all said obviously, we wouldn’t have anything on our management it wasn’t it wasn’t for all of you. So thank you for being here. Thank you for your trust, your your loyalty. There are people on this that we’ve worked with for 20 or 30 years. There are those that are new to the firm. So a welcome one all and you know again, if you are interested in the potential of working with Polaris, we will run a comprehensive financial plan on you. We will do a full valuation of your investments for you. And then we’ll give you advice to work off of no strings attached no cost, no obligation of working with us. So again, if you have friends and family that you’d like to introduce to us, this is the best way possible, we’ll take good care of them as we’re taking care of you, with obviously, discretion between the two, to not disclose any information of either party. So we do appreciate it. And thank you for the for those that actually did bring people to today’s event.

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So obviously, we’re here to talk about our current market environment. So we’re going to hop directly into it. I’m going to answer some some questions that are kind of bigger picture questions that we have at the end of it. But I’m going to kind of roll through what we’re talking about right now. So right now, we are in what is referred to as a secular bull market. Even though we’re in a recession right now, the overall general trend of the market is still up. So we have secular bull markets and secular bear market secular meaning longer term. And so what we’re really looking at within this is to be talking about what the general trend is, if you remember, the last secular bull market we have was from 1982, to 2000. And during that time period, we had the 87 stock market crash, we had the 1990 recession 94 was not a whole lot of fun either. Yet, the overall general trend during that time period was still up. In fact, we’ve written about this, we’ve talked about it, a million dollar investment, back in 1982, would have grown to over $21 million dollars and 2000. So in a secular bull market, we really want to be more fully invested, there will be times obviously that getting away from the 87 stock market crash and the 90 recession would make sense. But for the most part, we’re going to want to be more fully invested, versus the 2000 to 2013 era, depending on how long you’ve been a client, you saw us dodge the great majority of the downturn and the 2000 2000 two.com bubble, only to emerge after 2003 pretty much unscathed. Same thing that we did in 2008, with a rise of our investments in 2009, are racing. In most cases, all the losses that were created back in 2008. Not meant that 2009 1011 1213 were all money making years for us versus it took the markets to get back to breakeven in 2013. Last, this, by the way is a very average 13 years is the average of secular bear market 14 years as the average of a secular bull. So if we went off of a an average that puts our secular bull market out the 2027, where it would be the end of the era, so to speak. If Roberge the shortest ever is nine, that still puts us up to 2022. Unless we want to break that record and have something shorter, which, given everything that we’ve gone on so far this year, I wouldn’t put anything past that last check of the bear market that we had prior to that was 1966 to 1980, to a 16 year time period, what you made absolutely no money, there was hyperinflation of like you’ve lost about 75% of your buying power between on average about a 1% loss in the market. So again, you lost 16% of the value of your overall portfolio, but then you lost a lot of buying power due to inflation. So we got to be cognizant of all the above, we want to understand what kind of market that we’re working within right now. And like I said, For the moment, we are in a secular bull market, we are in a bear cycle inside of a bull market. And this is what we’ve seen Go on, we saw the fastest, one time drop in the market. I mean, well, I should rephrase that. The fastest 30% drop in the stock market and our markets history. And again, if you’ve read our educational pieces,

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again, if you just

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if you haven’t just go to the Paris wealth comm website in the top right hand corner, you’re gonna see

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an Edu button standing for

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education. Just click on that and you’ll go to our current perspectives and you can read everything that we’ve been writing about for years and years. Some good bedtime reading material if you’re having some sleep problems, but very educational nonetheless. So obviously, the markets early into the year COVID was known about but certainly the thought behind it is that every other health issue that we’ve seen, go on SARS MERS Ebola never really reached our shores. The thing with SARS and MERS, so they’re both coronaviruses. The much deadlier and the fact that they’re much deadlier with much shorter incubation periods meant that when they were able to be quarantine, people died off quicker, but they are also weren’t spreading out. And obviously with COVID we knew it was there. We just weren’t expecting it to come to the United States.

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When it did.

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And as we started to see the downturn in the marketplace, we got aggressively defensive in two different ways. One is we went into cash. And two, we went into defensive sectors of the stock market from historical basis. I’m going to get into what we did well, and what we could have done to improve upon things in just a moment here. But as we saw the market start to rise up, we did start buying. The second day after everything was announced, we started buying back in. And what you’ve seen with with a great majority of our strategies is we’re above our benchmark. So depending on your risk category, depending on what you’re trying to do, as an investor, we have had a very successful year, so far, recovering losses and putting you back into

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positive situations.

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Historically speaking, however, one of the reasons why we were a little bit cautious to start off with and again, we have these huge drops, but all by like slight gains, big drops, like gain, big drop, again, gain gain, even bigger drops. So finally, when stimulus came in, we bought in a little bit, but historically speaking, when you have a watershed type of event, like this 75% of the time, the markets after a short rally, fall back off, and they go down even further. So that got us, you know, we didn’t want to be first in because we were worried that we were first and all we were going to do is exacerbate the losses that you’re dealing with. And what we’re talking about is something that looks a little bit something like this. So here’s the Great Recession, the great recession. I mean, obviously people talk about oae, but it actually started the top of the market in October of 2007. If you take the original drop from October to to the first trough, you had an 18% drop in the market, then you had a rally. Should you be buying here. Well, now you should markets fall off even more. rallies a little bit. Okay, well, maybe this is over now. No got even worse. big rally 18% rally off of this big drop, falls off even more. Another really big rally 25% rally almost

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then followed by 27% loss.

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How do you know where it’s going to end? I mean, you got a big run up here. How do you know that the next thing isn’t just falling off? The answer is you really don’t. You’ve got to make some educated decisions on what’s going on here. To me, it’s not about being right. It’s about being right at the right time, understanding risk, understanding circumstances. And understanding when you want to start sliding some money back into the table doesn’t mean that we’re going to get it right all the time. I think that you guys have heard me talk plenty of times saying I’d rather be partially correct and completely wrong, which is what the appeal of tactical investment management is truly all about. We saw a very similar downturn in the markets, during the Great Depression, it just lasted a lot longer. So we have great recession, this is great depression is in 1929 to 33, we had the roaring 20s, where we had a huge run up in the stock market, only to find a 50% drop,

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fall by 50% gain.

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Again, doing some math here with you, if you had a million dollars at the top of the market here and you lose 50% of it, you’ve got a $500,000 portfolio.

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If you then regain 50% on 500,000,

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that only gets you to 750,000. So you’re still down 25% from the highs,

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then you’d again saw a similar thing,

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you know, drop, rally, drop, rally, drop, rally drop rally, and so on. Almost rhythmic to what was going on here with the broad based markets. And it wasn’t until 1933 when the New Deal came out that the the markets finally started to fully bottom out and start to do other things.

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From there, though, I mean, one thing that you’ve

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got to realize with how we manage money, the number one thing in the world that we can do is protect you against downside. If we don’t lose your money, we don’t make it back. If we can limit your losses, then we’re in a much better place when things start to rebound. Most people get really caught up in outperforming a good years. It’s not what it’s about. It’s not what it’s about at all. So we just had a market that dropped 33%. We just got done with that. So again, million dollars, you lose 30 $333,333 leaves your 666 unchanged as well. So in order for you to make back that 333 on 666.

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That’s a 50% return.

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We were well, the funding.

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So again, if we just use the number 15. I can’t tell you for certain I’ve not gone back and looked at all of them. But I would kind of say in a general term. Most of our strategies were down less than 15. But let’s just use 15 as our number requires a 17% return to get back to breakeven. So negative 50 negative 17. That’s a 33 point percent increase on the markets not by taking more risk, but by taking less. This is how the markets are holding up. I mean, right now what we’ve got United States did really well. China does matter. Denmark is doing really well, Taiwan, South Korea, Argentina all doing very, very, very well very strong with regard to their, their portfolio performance here. So it’s definitely something that you want to look at and give consideration to. So we break down things by asset class, and then by sector, you’ll see as the NASDAQ’s been leading the way, and if you haven’t been paying attention, man, oh, man, oh, man, large cap growth is done exceptionally well, to a point where it’s very overvalued. And what’s something that we should be looking at very closely as a measure of what’s going on? I think that we’ve talked a lot about how benchmarks have really moved from their initial, you know, purpose, which was to be a barometer of what’s going on. Now. They’re really reflective of the top five companies, which dropped 44% this year, or looking at the next five, and saying, okay, the top 10 companies in the s&p 500 represent 30% of the stock market. How is that a good benchmark, if those 30 if those 10 companies go down, so does the rest of the index doesn’t matter what the rest of them do. And so it just really has skewed the numbers pretty dramatically. If you’re a Dow Jones person, you can’t rely on that either. I mean, Dow Jones is based upon price. So when the when Apple, for example, was priced as high as it was, it was the number one stock within the Dow Jones that represented over 11% of their the market capitalization when they were split at dropped down into the 2% range to the point where it has the same level of valuation as goldman sachs and Goldman Sachs is something like 40 times smaller as a firm. So how in the world do you give that kind of distribution change and make it make any sense at all. We had gold do very well. Gold has been on a tear. So as silver, silver is actually outpaced schooled. And long term treasuries have done well, as we’ve seen a lot more buying pressure going on within the markets, we still are sitting on $17 trillion worth of negative yielding debt in the marketplace right now. So you’re looking at places like Germany, and France, Japan, they all have negative debt. So the rest of the markets pretty sublime, but we’ll go into a little bit more about what’s going on commodities other than gold really got beaten up, international got beaten up, the US dollar continues to show weakness. Again, not everything was doing, you know, particularly well, we’ll be talking about

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the haves and have nots quite a bit this this session.

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As I said before, really the the markets been driven by really two segments of the marketplace. Information Technology, which we’ve got right here is up 28%. For the year, consumer discretionary is up 23. Other than that, I mean, yes, other parts of the marketplace are up some but really, this has been the driving factor, it’s really out of the ordinary Consumer Services, if you remember is our 11th and newest sector of the s&p 500. And what they’ve done is they’ve taken telecommunications, and some technology companies and kind of group them together. So you’ll see gaming companies in there. But you also see Google and Facebook in there. You’ll see the telco companies in there, it’s if you were to really look at how they were divided before the market weighting will be significant. You’ve got now technology representing 28% of the stock market. Again, if you grouped in what was in tech that we got moved over here, it would be the largest weighing that technology has ever had. With the s&p 500. No or the other comment, energy completely falling out about it’s down almost 50% for the year. As a result of it, its market weighting has dropped down to almost 2%. I don’t know that I’ll continue to keep it as a standalone sector if it continues to lose its valuation against its peers. And so it may not even be worth us having this done.

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So in looking at that, sorry,

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guys, if whoever is not muted, please mute pairing some background on air and everybody should have been muted going into this. So my apologies. So anyway, we’ve got a lot of things that we’re looking at from perspective on a consumer discretionary because Design and Technology, consumer discretionary, when we’re talking about this, really what we’re talking about is do you have a decision on how you’re spending your money, like a new car, or a purse or a shirt, or golf clubs, those are all discretionary decisions, versus consumer staples, where you don’t have that choice, where you’re talking about food companies. Walmart’s in here. We had Clorox for a number of months and our stock strategies. Those are staples. So your Campbell Soup your Tyson Foods, Kroger and Walmart, are in that space. Remarkably, companies like Target and Costco or not, those are actually still considered to be consumer discretionary. And the reason why Walmart is there is that Walmart’s actually the largest

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company in the country that is producing

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groceries 90% of the US population is within a 10 mile drive of a Walmart believing or not. Here’s part of the issue that we’ve been running into large cap growth up 24% for the first three quarters of the year versus large cap value being a down 11. We are primarily value investors, we do have our global growth stock strategy that does allow for us to have some of our money here. But we’re always going to be within a an environment that we’re going to have some of both, and obviously, I just showed you that the ephah index, which is international index was down two for the year. So our global growth strategy had that working against it as well. We’re dealing with a circumstance where growth has never been more overvalued, to value since the.com, bubble burst. So we’ve had a few people that are like, Well, why don’t we go more into growth, and we have Laura launched a large cap growth strategy, we launched it back in May, it’s doing very well. But if you’re going to look at that, for any part of your portfolio, make it just a small portion of it. Because what’s going to end up happening is this will revert to the mean at some point in time, and you’re going to see a reversal and trends, we’re already starting to see it The Fab Five that we were referring to being Apple, Amazon, Microsoft, Google and Facebook, which are up 44% for the year, they’re starting to wane in their performance compared to the rest of the overall broad based market, that will definitely have an influence on large cap growth to come. This is what I’ve been looking at it graphically. I mean, we’ve had a huge run a large gap versus small cap, or I’m sorry, large cap growth versus large cap value of 25. downtime. Again, looking at what was going on through October 9. We’ve also seen equal weighted versus non equal weighted. So if you’re looking at just the s&p 500, again, I’ve got a chart that’s showing into October, or we had a downturn in September’s numbers, the equal weight is down 6%. There’s a 10% disparity between this. And this is all driven by the fact that large companies are doing better than small and large growth is the number one place to have been during this entire cycle. Again, global growth will go there, there’s no and our new focus growth will go there. No one none of our other strategies will be in a growth oriented investment. We still believe in being involved in dividend paying companies for a really good reason. If you look at the the market from 1972, to presence, and look at what $100 would have grown into non dividend paying companies, it grows into $390, all dividend paying companies, it goes to 5800 and those that are growing or initiating a dividend, it’s at 600. So you want to be looking at this in the context of saying, My gosh, this is you know, this is definitely the place to be just realize that there are time periods in which growth outperforms value. And we’ve been dealing with it for several years. But I mean, if you look at what Polaris has done for you, during that time period, we’ve done exceptional, we’ve been able to sit there and compete with and outperform in a lot of cases, the s&p 500 We don’t even have non dividend paying companies to be part of that. So this is what I was saying, we’re definitely getting to a point where we’re a little overvalued as an overall market. So if you want to be looking at things from a lot of different perspectives, you can certainly look at that and say, Okay, well the 25 year average on on the s&p 500, just looking at forward p e ratio is 16 and a half read 21 and a half. Now, it’s not quite as high as it was just a little while ago, that certainly not quite at the levels that we were back in the.com era, but we’re about as expensive as anytime before that. You know, there’s things called cape ratios, which is the Shiller PE look at how dividends incorporated into this price to book price to cash flow. All of them are showing that things have gotten a little bit expensive right now. So if we’re looking at it from government context, you really don’t want to be looking at it from here. So and dealing with this and and dealing with the overall province markets, we are looking at a an overvalued situation, I’m going to show you however, it’s not all places. So again, this showing what the current p e ratio as compared to what it is from a historical standpoint. But if you take it one step further, this is the percentages. So large cap growth is trading at 163% of its norms over the last 20 years is that a place that you will really want to stick a lot of money versus down here. While we are certainly overvalued compared to historical numbers, all it really takes is a little bit extra earnings. And we’re back to kind of more of a normal number versus having small cap growth trading and almost twice its 20 year historical numbers.

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And what you can take it even further when you’re looking at growth being expensive or cheap to value. Again, we’ve not seen it as this expensive since.com bubble burst. Okay, so pretty much in the 9798 levels. Yes, we started, we saw the markets go up and through 99 and into the beginning of 2000, before it started to come back.

26:14
I don’t think you want to be on the side of the equation.

26:16
Again, when I talk about reversion to mean just kind of imagine a pen with a rubber band

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on it

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on the end. So you grab the pan, and you grab the rubber band, you keep on pulling it up, and you keep evolving it up and you keep pulling it up and it starts to lose its elasticity. And then it stops down. That snapped out it’s gonna be quick, and it’s going to bring it back to its normal averages. And really what you’re looking at within it is you do not want to be in front of that situation for the wrong reasons. And this is what I was saying before, these numbers are saying 22.6% for top five and top 10 at 29.2. But Google has two different classification assurance, which takes the second class of Google out of this top five, if you if you group, Google Class A and Class B together, this is up in the 25% range. And this is well over 30%. This no longer makes a benchmark a benchmark. And the whole idea of us having benchmarks is to sit there and tell us a story. Is it sunny outside? Is it raining outside is a changing of weather, I want to understand what’s going on to the overall the overall market as a whole, not the top 10 companies within it. So the s&p 500 Well, you may want to watch it, what you really may want to start watching more of is the equal weighted s&p 500, which again for the year is still down. The average company in the s&p 500 has not had the performance of those top large cap growth investments as we just discussed, which are very overvalued. From there, what we need to look at is also what’s going on economically. So we have had the largest one time drop in our GDP, gross domestic product, we had a drop of over 30%. Now in order to compare that to other declines that have happened in days past, we actually have to equalize that by taking inflation into account. So you’ve got GDP and then you’ve got real GDP. And what we’re talking about with real GDP, is taking the inflation into account. So if you thought things were scary during the Great Recession, in 2008, pullback that was a 4% pullback in our GDP. We’re at 10.1. And we’re not through this yet. The only time that you’ve seen a larger recession, going back to our really modern economy of the last hundred years, is the demobilization of our military after world war two and the Great Depression. Now, the demobilization, we went from building airplanes, ships, tanks, and guns, well, and bombs and whatever, to going back to a non wartime economy. So factories had to be kind of reset. On top of it, we had soldiers coming back, that needed to find work. That’s why we had a material pullback

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after World War Two, the Great Depression is the only thing that we can really compare ourselves against. And obviously in that circumstance, we weren’t dealing with a worldwide pandemic. The other part of it is we didn’t have any government intervention during that time either. Which is depending on how you want to look at it unnecessary evil. The result of this, and the stimulus that’s been thrown towards this is that we have a 15% deficit to GDP. Again, this is another equalizer in saying Hey, how are we doing what’s going on? During the Great Recession, we had 10% deficit to GDP meaning that we were spending 10% more than our even our entire economy was worth at that time. We’re at 15. Now. So a substantial increase in debt to GDP, you’ll even see, you know that during the first Gulf War, you ran into the same specific issues. Second Gulf War, same thing, Cold War, same thing. We’re beating them all. down over here, we’re beating them all. It’s not a, not a not a sport that you want to win the medal for, if that’s for sure. But employments bike up to 14%, actually 14.4, to be exact. If you’re looking at what went on with unemployment, and how it spiked, we have not seen levels at that height since 1937. So obviously, Great Recession, we had a 10% unemployment. At four recession, we actually were slightly higher in unemployment than we were during the Great Recession.

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This was almost 50% more.

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And if your mom always told you to stay in school, this is a really good point, this is most likely going to be an upcoming blog for me, which is to sit there and show you really two things. One is if you’ve got a college degree, you’re making substantially more than just somebody who has a high school array, to $32,000, almost hundred percent improvement from where you were from high school up to college. from undergrad to grad degree, you’re getting about a $29,000 bump, again, sizable dollar amount, not quite the same sort of percentages. So but the interesting thing is, if you’re looking over here, only 6.7% of the current situation, which is about a point for unemployment, they’re the only ones without jobs. During the Great Recession, it was a little over 4%, when we were just discussing the overall Brabus was eight, sorry, 10. So again, huge gap here between the unemployed, that are college educated and not a little bit harder to see, because it was such a huge spike up. And it’s such a great back down that it was it’s kind of hard for you to see the colors here in the differences, but they’re found right here on this chart. We’re back to a zero interest rate environment. So if you’re looking at it from this context, we were in zero interest rate, basically, from 2008, all the way through 2015. Till 2015, we started to see the Federal Reserve raise rates, they had cut a little bit within the current administration. And then when zoom had they went took it immediately down to zero. And I applaud the Fed for doing that, you know, this is the one of the best ways that they can stimulate our economy is by doing exactly this. If you remember, obviously, this was an extended time period, people really freaked out when the Fed was raising rates. So we’ve got to be keeping an eye on us making sure that we understand the influences of it. But we’re really does have more more of an impact here is which direction is the wind coming from? Now, you’re going to be looking at it from the context of saying, you know, are we dealing with headwinds? Are we looking at tail ones? Right now we’ve got televisions. And so that makes lending easier, it makes corporate borrowing easier. So we really want to be looking at it from that context. And really looking forward. We’ve got really almost no shot whatsoever of having rates being hiked on us anytime soon, September’s the furthest out that we can look at from the Federal Reserve side of things and saying, Okay, well, based upon what we’re looking at, from a probability standpoint, the Federal Reserve hundred percent chance of rates remaining where they are. Now, does that mean that things will be there the whole time? Of course not. What it’s saying is, it’s most likely that’s where the funds are trading at the moment, it can certainly change from that point. We have consumer price index at 1.7%. Okay, that means that our inflation rate is completely under control. From a historical standpoint, you know, if you’re going back into the 70s, you can go and say that our average is about three and a half percent. Inflation, we’re way below normal with regard to this, expect this to potentially change. But for right now, it is where it is. But this is definitely something that we need to be looking at looking very closely at because with the Federal Reserve having rates where they are, it’s lowered rates to such a ridiculously low level, that it’s really not as attractive to be in bonds anymore. So what I mean by that is, if you look at the 10 year Treasury right now it is it is trading right now at about point 7%. You’re getting seven tenths of 1%, which is Guess on paper sounds okay. But when you’ve got inflation of 1.7, what you’re saying is you’re willing to give up 1% of your buying power every single year. So think about it, you go out and buy a 10 year Treasury, you put $100,000 into that Treasury. And in 10 years time, you can buy $90,000 worth of goods. Now your actual yield is going to show that you went from 100,000 to 107,000, you’re just gonna be buying $90,000 for the goods.

35:32
That’s a problem.

35:34
One of the things that we’re looking at is high frequency data points. So we want to understand what’s going on as it’s going on, to get a better understanding of the overall turnaround within our economy. So we’re looking at things like TSA, dining out, hotel occupancy, how people are spending money, mortgage applications, we’ve seen a huge demographic shift. And again, if you’re, if you read anything that I’ve written, or certainly meetings, we’ve talked about this at great length and the fact that people are moving out of cities and into the suburbs, we’re looking at having people that are now you know, your best renters have left, which is going to be placing a lot of pressure on multifamily unit residents, so apartment buildings to say it nicely, and they’re moving to the burbs, that’s also going to be placing a big amount of pressure on commercial real estate. Right now, San Francisco, for example, 14% vacancy rate right now, it’s a 20 year high, you’re seeing rents dropping through the floor as people are exiting San Francisco proper. And if you live out in the suburbs, perhaps you’ve already negotiated with your boss to be able to sit there and work from a distance. I know of multiple companies that are sizing down their office space. And you know, it’s going to be done in a very different way. You’ve got Google saying, Hey, don’t expect to be on campus until summer at the earliest. With if you were to come to me a while back and said, Hey, Jeff, tell me about your work from home policy. I’d say we didn’t have one. We are professional firm, we don’t work from home, we work from the office, it creates culture, it creates teamwork. Now we’ve done great through this whole thing. I’m absolutely shocked at how, how well our team has worked together the efficiencies. I mean, we are cranking things out as best, you know, better than we have ever. Our productivity has gone through the roof. And so if somebody came to me today and said, Hey, can I work from home? Yeah, I mean, maybe not for the first year or so as you learn the culture of the firm, and we want to monitor to make sure that you’re working your tail off. But after that, yeah, absolutely. You’ve just you’ve earned our respect, we’re gonna allow you to do it. So expect to see a lot of pressure on the real estate market as a result of it even though rates are really low. So are their income levels. And so when you see retail space closing, when you’ve got cinemas, closing, restaurants closing, it’s gonna be an ugly situation, the one and only place that you’re seeing positive results, is in single family dwelling homes. And especially in the starter range, you’re seeing those fly off the market, and then you’re starting to see push up in market based upon sort of the ripple effect that’s going on buying, I’m really going to be interested to see what goes on there as soon as winter hits. It’s one thing to be sitting in the Bay Area, or in Southern California, down in Texas during the winter and enjoying something and it being just a little chilly. That could be as much fun for our clients in the Midwest in Chicago and Detroit and so on. When winter hits, I don’t think there’s gonna be a lot of outdoor dining going on. This hotel occupancy has been a little bit misleading here. And the reason for that as we saw it go up as high as 30% of normal, it’s come back down some again, not far off. But what’s going on is the hotels are actually discounting rooms at such a high level that it actually makes it almost double this number. So it’s about a 50% discount to where they were able to charge in days past. So even though that they have people coming in, they’re not paying anything close to what they were doing in days past. And then the last one that I think is very interesting and we’re gonna we keep a very close eye on is how people are spending. So consumer debt credit transactions.

39:45
Huge pullback to start off with.

39:49
We saw going on here. As soon as COVID hit, people started to clam up. We saw one of the largest savings rates ever in our country we had over a 30% savings rate in March and April as COVID head. And then people started freeing up and started spending money. And we’re almost back to where we were pre COVID. I find this a very interesting statistic. Again, given what we just went through from an economic standpoint, we are still seeing lots of companies increasing their dividends, obviously, we’ve got more cuts than normal, a lot of suspending. So within consumer discretionary, you’re seeing that a lot within the restaurant world as well as retail, where they’re getting rid of at least on a temporary basis, their dividend in order to keep themselves financially on good footing, or at least as best as they possibly can. You’ve also seen them a trail drop, and earnings expectations. So really, again, what we’re looking at is, how do we look out into the future and get a clean grasp, because these are, I mean, if we did see this happen, this means the markets are not only recovering, or recovering very, very, very nicely. These are consensus estimates. So we take them with a bit of grain of salt. But this is basically pointing towards a few quarters off, that we’re going to be better off than any other previous quarter that we’ve seen in recent days at all. So that means a recovery across the board really with almost all of the market. So where do things go from here, what about the rest of the year? I can tell you is as COVID goes, really so as the economy, we’ve got certainly things that we’re looking at, you know, further stimulus as needed. There’s a lot of talk back and forth about that. But right now, we’ve started to see an uptick in COVID kisses again, this is about 10 days old, we’ve seen an uptick, we’re at 60,000 cases a day, on a seven day moving average, our height was 69. The difference being is that we’re not seeing the same sort of death rates. And that’s really sort of a couple factors. One is we’re now a whole lot more in tune with what needs to be done in order to keep somebody out of hospital from just a general care cost capability. But also, once they are in a need of a hospital visit, we’re knowing how to care for them way better than we were before plus, or better equipped, I mean, incubators, things along those lines, those were all things that we were missing out on. If we were to start to see this start to rise, obviously, that is a deal changer. There are I mean, I’ve read plenty of predictions that are saying, hey, expect rates to be in the three or death rates to be in the 2000 a day range. That seems pretty high from where we are,

42:45
then again,

42:46
you know, anything is possible anything could be turning up with within these circumstances. So next thing I know that’s on most people’s minds, is a presidential election. Before we get into anything to do with the presidential election, I want to say a couple things. First, we have clients that are of every single spectrum of the belief system when it comes to politics. And depending on who you are, and what your belief is, I don’t want you to read into any of my statements as being political in the slightest. Polaris wealth advisory group is not red. It’s not blue. It’s not even purple. Okay, if you want to mix the two, we have to be translucent. We have to be agnostic to what’s going on politically, in order to manage your money in the best way possible, given the circumstances that were involved, or delta, I should say, Sorry, we don’t want you to dwell on it, but dealt. So what we’re talking about under the circumstances here is pretty straightforward. Okay, so historically speaking, presidential election years are a little bit more volatile. But they’re really actually the second best year out of a four year cycle. The first year, presidents trying to get their footing. Next year again, trying to get footing, third year really do have their footing, fourth year, you know, finish it up with a splash. So we’re expecting the markets hold down, or at least from a presidential standpoint, this is a 120 years worth of affirmation that Yeah, maybe we see a little bit of bouncing around a little bit more than some of the other years but certainly not a thing that’s again, worth discussing and in greater detail. performance, yours also matter what’s happening with the who’s in power, and will they remain in power. So I’m just going to concentrate on on uncommon party wins and loses on the Republican side of things because we obviously have

45:00
republican president of the moment.

45:03
Here’s what I want you to keep in mind, though. 1900 tonight or to 2016, because obviously we haven’t had our election yet in 2020. During this time period 30 elections. That’s it. So small sample size 16 of those, the Republican Party was in power, and presidency. And what I talked again about republican party wins or income a party wins. Think about like, I don’t know, go back to Reagan, and Reagan’s administration, what we saw was he won for two terms. And then george HW Bush won the party of the next time next election. So that would be the incumbent party winning, not necessarily a president, but a newcomer party winning. Obviously, again, in that same situation, you could say that, when when Trump won, he would say the incumbent Democratic Party lost it wasn’t Obama, who lost Clinton

46:03
lost,

46:03
Hillary Clinton lost to be more specific, because obviously her husband didn’t. But we want to sit there and understand what all these mean. So again, only 10 sample sizes to the positive only six sample sizes to the negative. Is that really what we’re going to use? No, it’s not. But should you know what the general trend is of the markets? Yeah, absolutely. So you tend to have continued to rally and going on with the markets after a incumbent Republican wins the election. When they don’t win the election, from everything that we can see. And again, it’s only a six piece sample sizing. But what it looks like to me out of this whole thing, is that you’ve got the drop happening before the election, this is mid October. So again, you see a drop in the market. And then as a lame duck president, it just goes sideways the entire time, which makes complete sense. I mean, again, you can see what happens when a common Democratic Party loses also, there’s virtually no performance in the markets for the time in which they were a lame duck president. So just kind of keep that in mind with with what’s going on, is if we start to see the markets drop and drop in advance of the election, because we still have a couple weeks left, you’ll see us get more defensive. If we’re saying this, again, lethargic, if it’s dealing with a lame duck president, but what we’re gonna do is, again, we’ve already built us out is really put together for scenarios. So it’s if then scenarios. Now, if Trump retains his power as reelected, and the Republican Party retains control of the Senate, that how do we want them best? If President Trump wins the election and does not retain control of Congress of any kind? What do we do then? What if Biden wins, and the Republicans control the republican senate? Okay, let’s let’s talk about how to invest there. Then the last of them really is a blue if you’ve got Biden winning presidency, and you see, you know, the democrats keeping the house and then taking the Senate and what does that do to the markets? So, we have mapped out all of that. We are, we do not go into things, unsurprised. I mean, you know, you do not want or is surprised, I guess I should really say, it’s about being prepared. It’s about being clinical. It’s about being able to be opportunistic with what we’re trying to do as a firm for you, regardless of what’s going on around us. Right now, we have polls, at least the polls that I’ve been saying show about an 8% of Pro, you know, variation between Biden and Trump. And if you’re looking at the statistics behind it, you’re looking at about at its height, where we are right now, was about an 88% chance of Clinton winning over bush. Right now, if you took this exact poll and replayed it over again, you’d have almost the exact same percentages. It’s really scary. I want to add just a day or so ago to understand it. So the only thing I can throw out is we have very similar polling, and obviously we know what ended up happening at the atoms. My biggest concern out of this is will this be contested by either party? Do you guys remember a night or 2000s election between bush and gore with things like hanging chads and so on in Miami Dade Higher dade counties. I think there was also, oh, gosh, it’s been my tongue. So I want to go, maybe Kern County, there’s another one that was like that mean, they were doing recount, recount. The markets went absolutely nuts, in a negative way nuts with what’s going on here. So we want to be monitoring monitoring closely. And make sure that again, we understand what’s going on, we do not want any kind of contesting of the election itself. If that were to happen, you would see us get very defensive.

50:40
So we’re looking at things and kind of sort of wrapping it up here a little bit. given everything that’s going on, I just got done saying we had the worst economy that we’ve had during my lifetime. And unless you were a professional investor, so you got to be born most likely and and the 20s. In order to sit there and say that you saw the 42 correction. No one that’s investing today has gone through this. So we’re really in unchartered waters. And I’ve talked to you guys about that multiple times that you know, how exceptional The situation is what we’re dealing with. And this is not untrue. So if you’re looking at the four pillars of how we typically invest, macroeconomics is a really big thing. You’ve heard me say this before, hey, you know, if the economy is growing awesome, you know, rising tide lifts all ships, but with the economy shrinks, you got to be way more cautious? Well, not in this case, throughout through macroeconomics out the window, they don’t matter right now. Oh, by the way, when you’re out the window, throwing macroeconomics out, throw a fundamental analysis out, too, because we had a major, major pullback in corporate earnings. So the fact that companies are still up in the face of all that, I find it crazy. So what is driving up?

52:00
market sentiment?

52:03
So it’s something that you’ve heard me say multiple times before is the markets can remain irrational longer than you can remain solvent. So we want to be looking at this saying, Okay, good God, you know, does it make sense? Does it not make sense? Well, it really doesn’t matter if it makes sense or not. If there’s more buyers and sellers, we need to stay in front of it. You know, where you get separated from your money is when you allow your ego to get the better of you. And that’s certainly not something that we want to be dealing with in the slightest, we did not want to sit there and say we have a better mousetrap or that we know better. We know more. For us. It’s all the statistical probabilities. It’s all about understanding what risk is where it is impacting the markets, avoiding those markets as we watch as best as we possibly can. And then getting ourselves involved in the right areas of the market. So through market sentiment, we can read that sentiment with technical evaluations, which is part of what we talked about today. That is truly what’s been driving us and the investment decisions is getting in front of the right storyline, so to speak of what’s going on with the market, making sure that we’re still involved with it. Because if we were buying hold, or you know, again, if you’d have gone to cash at certain points, man, oh, man, man, we will be in big trouble. So where are we going? What are we looking at and so on. If the markets keep going up, this is kind of how we’re looking at it. Work From Home Damn. Okay, so think about laptops, think about Logitech. Think about how you sign things. Think about, you know, how you go to your doctor or how you shop. There are lots of very interesting work from home school, from home, play from home companies that you can be investing in. A lot of the security companies that deal with internet,

53:55
handover over fist making money

53:57
doing very, very well.

53:59
The other thing that you may want to consider is at the point in time, when we start to see the economy really start to turn back a little bit as to get into a lot of these really oversold companies. It’s way too early to be talking about like things like the cruise lines, or other things, but you’ve got companies that are trading at 20% 30% 40% of where they were before COVID head. So imagine making a 200% return being an airline over a several several year time period because all it did was went back to normal. I mean, those things, hotels and airplanes are going to grow faster than what you’re going to see going on. Within. You know the cruise lines, the cruise lines, you’re sequestered for a week. One of my favorite means that I’ve seen was a Carnival Cruise Line ship coming into port and not a realized tagline and say we have a special bonus by one week. Get to for free, all you have to do is put in the these code word of Coronavirus and your salt set, which obviously is telling you, you get the one week, they were expecting and then you get two weeks for the quarantine. But pretty, pretty damn funny conversation as an overall, start looking at demographic shifts, again, like we were saying, use cars are flying off the lot because people that were living in the city needed to get transportation, we talked about housing, look to both be in front of and away from depending on on locale because there are certain areas that are showing a lot more strength than others. No, and again, no areas of the market to avoid, as we have already discussed. There are areas that can be defensive, there are areas that can be aggressive. We want to sit there and be involved with the areas that make the most amount of sense for growth going forward. But avoid things like, again, real estate, you know, avoid energy, avoid financials, those are all areas that we may trade in, we might put, you know, a little bit of effort towards being involved in an area that might get some uptick, but they’re not great longer term investments. So we want to be able to sit there and avoid particular areas of the market for longer term investments, understanding of course, that even those areas can be really, really, really oversold. So they can financials or energy got really oversold, and significantly oversold. And we might step into them just to trade just to get back to the the lether pre covered levels, or their post covered covid levels in order to be able to take advantage of it. So again, if markets keep going up markets retreat, number one thing is to get out of your high risk stocks, high standard deviation, high beta stocks, those are the ones that are going to go down the most when the markets are starting to fall. We’ve already kind of hit on the Fab Five, and what might likely happen without them. But there could be very easily a baby and bathwater situation, you might have a bunch of tech stocks thinking you’re doing the right thing. And then all of a sudden, there’s rumblings through, you know, hardware or software or whatever, say technology. And that whole area can be wiped out. So you really want to be smart about how you’re investing in those high betas have a replacement of music when you should zag. We have historically again, moved into the defensive stocks, those are staples, healthcare, utilities, and telecommunication. telecommunication as a sector has gone away, there were plenty of telecommunication industry investments, but those are typically the areas that will be the best place for you to go. So again, defensive stocks, with staples that was we’re talking about Clorox be a great example Walmart, another great example. So keep that in mind. This is one that I’m throwing out to you as again, one of my learned lessons learned, which is to be aware of index share sowing. What I mean by that is almost 50% of individual investors right now are owners of ETFs, and index mutual funds. So if they were to sit there and sell out of a s&p 500 Vanguard fund, for example, and we got enough selling pressure from other people as well, that portfolio manager may be forced to actually sell all 500 stocks in order to raise money for you. Well, if I’m in defense of segments of the market and the portfolio manager, that you’ve hired a selling, that’s going to potentially put downward

58:46
pressure on my investments.

58:49
So we got to really understand

58:53
how that influences. So in days past, like in March, when we got defensive and really defensive, one of the things that we did was don’t go to cash move to the the consumer staples sector, that didn’t work as well as it hadn’t is past. So what we’re saying is, be aware of it, if we start to see massive selling of index shares, especially on the equity side of things, you’ll see us already start to make those bones for you. The other part is do it in phases. I can’t reiterate this enough. I mean, when you look at what we do, we don’t ever go from 100% of us to cache. Now, if you’re driving up to Tahoe or bend, or you know, if you’re from somewhere else, just imagine being in a snowstorm. The moment it starts to snow, it doesn’t mean you pull off the highway. It means you start driving defensively. And so again, looking at it in this particular circumstance, we want to sit there and just take our foot off the gas to start off with if we start to get scared. Then we start pumping the brakes and slowing down a little bit more, though, as we get more confirmation that this is a bad storm, awesome, you know, maybe we do pull off the highway. But again, we want to be, you know, I was talking about rather be partially correct and completely wrong. So within this, it’s that kind of ideology that will help protect you from making unrack fast action decisions that don’t always act to your benefit when you do it, you know, with complete emotion.

1:00:36
So, in conclusion, we are expecting volatility

1:00:39
in October, we’ve already seen a little bit of it, the VIX is up higher. One thing I would recommend, especially with the election, take a deep breath. I mean, I know that that although see all this impacts us from a political standpoint, but you know, if you are a Republican, pragmatically speaking, half the time, you’re going to have a democrat as their as your president. And, you know, the other thing you could sit there and throw out is that about 50% of the time, you know, as a grownup, if you’re a Democrat, you’re probably gonna see a Republican in office as well. Nobody is a great evil. So let’s, you know, let’s, let’s call it what it is, and just take a deep breath and understand that, that we have to get behind whenever commander in chief that we have. And we have the ability to invest your money based upon what’s going on in this market. And you’re gonna be okay. Most of you already have a financial plan already set up. If you don’t have one, please reach out to your wealth advisor, it’s part of what we do. Okay, so the thought behind it is how can we give you proper financial advice, if we don’t have a financial plan on you, it’s really, really, really hard to sit there and, and give you good advice. So let’s go through it. Oh, by the way, if your plans up up to date within the last two years, ding, ding, ding, ding, ding, it’s time to do it again. So how can you be successful on purpose without being purposeful with trying to accomplish your plans, you need to have goals. The other side of it is if we just run financial plans with no implementation, that’s just a dream put on a piece of paper, it means nothing. So we want to be able to, again, match you with the right strategies that you can stomach through thick and thin, make sure you don’t want to sit there and run for the hills, with a big downturn of the market, we want to make sure that we’re doing it and doing very well for you. So that’s what we’re really talking about with, we want you in diversified portfolio strategies, which lowers our risk helps you down your path to accomplish your goals, and a much better way that you would be doing with having one strategy versus the other. Ravasi very, very, very keen to tactical Investment Management versus a modern portfolio theory or buy and hold or even market timing. This is where we shine. I mean, this is what we do and do well. And so again, you’re looking at how, you know, you should be trying to get yourself set up turned to us, we’re going to put you into the right strategies. Over strategies are gifts verified. So those gifts compliance, which means you’re following the rules, or gets verified over strategies, or Morningstar ranked as well. So if you want to talk to your advisor, find out what’s your, you know, what’s your and what are what makes the most amount of sense for you. Maybe you have that re evaluated at this point in time, especially over the next few weeks, with the markets being a little bit more volatile. If you were able to stomach, February, March, without too much, probably probably have you in the right allocation, or you might even be too conservative. So again, we’re gonna be shooting for the best returns that we possibly can for you. But we’re going to do it within strategies that are well diversified within your portfolio based upon goals that you’ve set in front of us. If you haven’t met with us recently, please, by all means, you know, set up a meeting with your financial advisor, let’s go over where you stand, let’s make sure that your plans are up to date, make sure the strategies are in line with what you’re going to do. And again, just take a deep breath, nothing that goes on over the next several weeks is going to be that material to be able to change all of our lives, I think that we’re gonna be able to get through this and just fine. But we are also cautious. So just

1:04:38
if things are starting to go south,

1:04:40
just realize that we’re going to go ahead and get you know, get defensive for you. You do not have to call us in order to do that. Those that have been with us for a long time already know that but I just wanted to kind of reiterate it. So that’s really all I have for you today guys. Again, appreciate you coming to the event. Appreciate you attending As I said, this will be airing

1:05:02
within probably a day or so

1:05:05
of what’s. So if you want to share this with a friend, we can get a link to you where it is on the website. If there’s anything that we can do for you at this point in time, we’re here. We’re here. We’re working hard and trying to make sure that everything that you do is being well taken care of and well squared away. So have a wonderful afternoon. And we look forward to speaking with you very soon if we have an argument with you soon. Thank you

1:05:35
very much.

Transcribed by https://otter.ai