Meeting a Band
Paul Winkler: I’ve got to start with something. I wasn’t going to do this, but I’m going to start with this. So, I had this thing that happened this week that was really, really fun. I’ve got a friend of mine, Jana, and she likes working with bands, music, managing, helping people, and she just likes working in that industry.
Well, she meets these guys. And you got to check them out. Essex County. Write that name down.
Go check these guys out. Nate, Mark, and Kieran are the guys in the band. And there’s such an interesting story. It would be a made-for-TV movie.
And even I would watch a movie such as that, which is, everybody’s going, “Paul, you don’t watch movies.” No, I would watch it.
This was such an interesting story, and I won’t tell their story because I would not do it justice. There are a couple of things that are pretty wild, like for example, Mark actually having engaged in a contest, a guitar contest, but how he actually wins the contest, and that’s a story in itself. But when he actually takes up guitar, he says to his dad, “I want to get a guitar.”
And his dad’s like, “Well, we can’t afford it. We’re broke and we can’t even pay attention. We can’t do this.”
But he says, “If you will learn this song, I’ll get you this guitar.” So Evan, you know Joe Satriani? You know that name?
Evan Barnard: Not really.
PW: Okay. So, Joe Satriani is this crazy, crazy, unbelievable guitar player. And I met him one time and he’s just the nicest guy, just a super, super nice guy.
But he actually does stuff on guitar that you shouldn’t be able to do on guitar. He’s one of those guys. So, his dad gives him a Satriani song to go learn.
And this kid, I mean kid, young, goes and says, “Okay, dad, I got the song.” “No, you don’t.” And he goes, and then he plays it for him.
EB: Wow.
PW: “Yeah, yep, you got this song. I guess, I got to give you a guitar.” So, then they have this fest and they’re going through the industry. There was a boy band when they were young and they got success, but never really, it was like everybody was always taking advantage of them.
And it’s just so stinking sad when you see that kind of thing happening. So, I’m meeting with them, talking business-type stuff, and just working through that aspect of things and helping them along that line. And they’re telling me all these really super things. They’ve been on “The X Factor.” I don’t even know what “The X Factor” is.
I know it is supposed to be a big deal, but it is some kind of a big music show and I am so clueless about it that don’t even ask me. But they had been on that.
EB: Don’t ask me either.
PW: They’ve done stuff at the Bluebird and all of that.
EB: Oh, sure.
Hearing Essex County
PW: Well, at the tail end, these guys — and again, it’s Essex County — come in and he had a guitar with them and he goes, “Anybody got to a pick?” Mark’s like, “Anybody got a pick?”
And one of his brothers, Nate had a pick. So, he gave it to him and he said, “Hey, let’s play a song for you.” So, all the staff in here at the Goodliftsville office, we all gather in this room here. And I had the presence of mind to go and hit my Pro Tools and actually record these guys.
And I’ve just got to play just a second for you. I had to play just a second for you. This is unreal.
The three-part harmonies that go with what these guys do, it’s just phenomenal.
Live Performance: Every time you drive that beat. Oh, baby. Makes me want to take the song. Keep it playing on repeat. Mmm, baby.
Because you got the bands and you got the swagger. Girl’s like Dolly, cool like Mick Jagger. Talk the talk and walk the walk.
He got that all that party rock your walls shake with the bass droppin’, yeah. Turn it up, like a long set, flip it on over baby play it again. Hip hop, rock and rollin’. Red-hot girl, you know it. You got my baby, please don’t stop with your boom-ba-boom-ba-boom-ba-boom-ba-boom-box.
PW: I’m like, I’m just, we were all, we were all, yeah, exactly. Yeah, yeah, yeah. Yeah, we’re all just having the biggest time in here and listening to these guys. They’re straight from England.
EB: Oh, wow.
PW: It’s where they’re from.
EB: I wouldn’t have guessed that.
PW: I wanted to throw that at the tail end because yeah, that’s where, and they’re just super, super, super nice guys. If you see them anywhere, go to their website. Essex County.
I’m telling you, we had the best time in here in the office. So it was one of those weeks.
EB: I wish they could see the expression on your face telling this story too.
PW: I know, I know. I know.
EB: You look like a kid at Christmas.
PW: I know. It was so fun. Yeah, thanks. Well, it was, and Jan is just going, “I can’t think of the last time when I walk in a room and the guys all stand up.”
They were just so polite. I was like, that is pretty cool. So, yeah, salt of the earth, guys. But anyway, so that was one of the fun things that happened this week.
What’s Going to Happen in the Markets?
PW: Some other things on the financial end of things, there were a ton of really, really interesting that happened this week. And one of the things that I think is really fun is listening to the guys on CNBC talk about different markets because you hear so much of, oh boy, hand-wringing regarding stock markets this week, in the past couple of weeks. And I’ll bet you haven’t had one person, Evan, ask you about tariffs, right? Have you?
EB: No, not at all. I mean, it’s really funny.
Most of the time if people come in, they know our philosophy and so forth, and if they ask any questions around the direction of the market, it’s always with this guilty phrase of, “I know you guys don’t do this stuff but…” “Yeah, I know we know market time, but do you think it’s a good time to be in the market?” And this week it’s like the gloves came off.
“What do you think about the tariffs? What’s going to be happening? Well, what about the tariffs?” Every day.
PW: Yeah. Yeah. Nobody had that question, right? Well, and it’s funny because if you look at markets, U.S. markets, yeah, they’re taking it on the chin.
The S&P 500 was up, and then now it’s in negative territory. But at the same point, the same token, and this is something I’ve been talking about quite a while, most American investors are too stinking focused on big U.S. companies and the big mutual fund companies like the Vanguards and the Fidelities and the American funds and you just fill in the blank. Target date funds.
And I’ve been told, one of the guys told me this week here in the office, he said, “Paul, we’re not even seeing just target date funds and 401(k)s anymore. We’re seeing balanced funds.”
It’s almost like the word is out that the target date funds are problematic.
And now they’re deciding that what they’re going to do is, “Hey, let’s go. Let’s change the name.”
EB: They’re buried inside of one fund.
PW: Yeah, “Let’s change the name and let’s actually start marketing this.” And it was kind of like the robo-advisors took it on the chin and all of a sudden you didn’t hear about them anymore as well. And the robo-portfolio.
EB: That conversation just kind of vanished.
PW: Yeah. Do you hear it anymore? I don’t. I really don’t hear it much anymore.
International Markets Doing Well
PW: So, the thing that has happened though, and this is where people, you don’t typically see this, the S&P 500 and large U.S. companies are in negative territory, about negative 2% for the year.
But at the same token, you have areas of the market in the international sectors, the value, that are 13%, 11% for small international value companies, and I can’t tell you the last time I saw that asset class in a portfolio. I can’t tell you when I’ve seen that at all. So, this is, you know, clients that really pay attention have been saying, “Hey, you are right on this diversification thing. What a good thing.”
EB: Yep.
PW: And my point is, yeah, really, really good. So, this was a big topic of conversation on CNBC, and they’re talking about U.S. versus foreign. Jim Cramer and David Faber are talking about this, and here’s basically what they had to say about that.
Jim Cramer: The forces are aligning, Carl, to be one of the more negative periods, and if you’re the president, there’s going to come a moment, here’s what the president’s going to say, “Get me that German thing. What’s the, how’s Germany doing? How’s France doing?”
David Faber: They’re doing great.
JC: “Yeah, but how’s we doing?”
DF: Not doing well at all.
JC: No, what do you think?
DF: I mean, it is interesting to note the German market, European markets overall, by the way, the Hang Seng, China all doing really well.
JC: How about us?
DF: Not good.
PW: Yeah. And you go, why? What is going on that’s causing things to be okay over there? Have you had any theories about that? I had a couple.
EB: Well, I mean, to me, part of it is just the sensational coverage here of the tariffs. And I’m going to say kind of a negative bias towards talking about them in general.
That creates, I’ll say, more fear on the uncertainty side of the equation than optimism on the uncertainty side of the equation.
And businesses are just trying to figure it out.
PW: And for me, one of the things that hit me as I was thinking about this, and I actually got disconfirmed this week because I was saying, “I’m wondering if it’s this.” And then I heard a news story saying, “Hey, this is what’s going on.”
I was like, “Okay.” My instincts were that, what is Trump saying? “You need to defend yourselves over there in Europe.”
EB: Yeah.
Looking at Exponential Charts
PW: I was having a conversation, and I guess it was when I was having a conversation with this lady that she’s up there in age and she’s lived through an awful lot.
EB: Mm-hmm. Sure.
PW: And we got into a conversation, I was explaining markets to her, and we were going through various decades in history. I said, “Yeah, if you look back through history and if you look at charts …”
And I’m explaining the difference between a chart that is if you just take a regular stock market chart and just look at it and where it goes from 1 to 2, to 3, to 4, to 5, to 6, straight line up, versus when you have a chart that goes from 1 to 10 to 100 to 1000 to 10,000. So, when you look at stock market charts, a lot of times that’s what we’re going to do is we’re going to go that particular direction where you have 1 to 10 because that takes that compounding out of it. And I’ve talked about this.
EB: And it fits on the screen.
PW: Yeah, yeah. It fits on the screen because it’s ridiculous when you look at it. But what it does is when you have a stock market chart that just goes 1, 2, 3, 4, 5, 6 versus you have the other form of doing a chart, what ends up happening is that you get this feeling that all the stock market performance that we’ve had, that we’ve seen has been because of recent history.
EB: Right.
PW: So if you look at that and you go, “Wow, the stock market is …” And I heard somebody say something about that this week saying, “Well, 1980s were just great, 1990s and, recent history is where all the stock market performance has occurred.”
And I’m shaking my head going, “No.” You look back in the 1930s, ’40s, ’50s, ’60, no, it’s nothing new. It’s not brand new that the stock market has performed at the level that it’s performing at.
It’s age-old. And when we look at an exponential type of chart, we see that that’s exactly what happens.
EB: Chart built on that.
PW: Yeah, logarithmic, right? And we see that and we see that it’s done logarithmic exponentially. Yeah. We see that.
Now, what happens is that we go back through history and we look at the 1940s, and we think that you’re dealing with a period of time where, gosh, it was terrible. “We’re in the World War II. It’s awful.”
And I said to her, “No, actually stock markets did quite well.” And then, it hit me.
Oh, what caused them to do really well? Well, of course, a buildup in events spending.
There was a tremendous amount of spending that occurred during that period of time and companies that made weapons and things that we needed to use in war and companies that actually supported that effort did quite well. And I thought, Maybe that’s a little bit of Europe, because now they’re having to gear up to possibly defend themselves.
That would be the case. And somebody actually came out and made that comment this week, and I thought, Wow.
Then, the other thing is that these companies are starting to see the lay of the land, what’s going to happen, and they’re deciding that they’re going to do things a little bit differently as far as how they’re going to get around these different types of tariffs. So, that was a topic of conversation.
What Will the President Do About the Stock Market?
PW: So, they’re talking about that on CNBC, and then they go on to say, “U.S. versus international, just what’s the president going to do?” “Oh, he’s not going to stand for this.” And here’s the thing next.
JC: And lower stock prices.
DF: Right.
JC: I mean, at some point, the president’s going to say, “Get me something, this German thing.”
Carl Quintanilla: Does he want to see our 10-years do what their 10-years did yesterday?
PW: Okay, so let me explain that really quick.
EB: And we’re about, he’s talking 4.3 right now or something on the tenure?
PW: Yeah, U.S. Well, what’s been happening is that their 10-years have been rallying. And what that means is interest rates came down.
Well, what was one of the goals of Trump? To lower interest rates, and they’re actually having that happen.
So, that could be a negative sign, but it causes the cost of borrowing to come down in those other countries, which is a cost of doing business. If you look at the cost of doing business, buying capital goods, paying for operating expenses and paying for taxes, of course, and then paying interest payments, all of those expenses can take away from your earnings.
And if you have those earnings come down, it can actually help those countries. So, that would be another reason that would’ve happened.
CQ: Biggest one-day gain since reunification.
JC: All I know is that there’s going to come a moment where the president is going to say, “You know what? We’re doing real well here. We’re going to keep doing real well.”
“I will not have our stock market be as bad as it is versus Germany. What’s it versus Italy?”
How about versus those countries he made fun of? Remember had some countries, that he didn’t hit the countries.
DF: It is notable.
JC: How are they going versus us?
DF: Better.
JC: The differential is now starting to irritate. The White House has to be …
PW: Yeah. He’s thinking they’re going to come in, they’re going to do something about the stock market, and that is actually on the back burner, from everything I’m hearing. It’s getting some of this trade stuff and letting everything work out itself in the long run is what I’ve been hearing.
EB: Well, the market will figure it out. And potentially, and again, this has been a perfect quarter for why diversification works, but you have to think that some of those corporations overseas, Europe, let’s say, specifically, but even China, their market was up, is okay, now there’s going to be tariffs getting smacked back and forth.
Okay, Canada’s not going to buy U.S. stuff. Maybe they’ll buy our stuff. And so, they may be thinking, Okay, we can export more to Canada or export to Mexico. Or something, that they can pick up the slack.
But again, some things you can substitute easily, toilet paper or whatever. Some things, it’s not real easy to find a substitute offshore if it’s something that we produce and they just may have to pony up.
PW: And what you just said, I think you were talking about Canada.
EB: Yeah.
PW: I got a good clip coming up next regarding that and regarding, how are the stock pickers doing? How’s the big old stock picker doing in a time like this? So let’s talk about that right after this. You’re listening to “The Investor Coaching Show.”
Getting Diversified Now
PW: Just an interesting couple of weeks we’ve been talking about so far, year-to-date. International markets are just absolutely trouncing U.S. markets. And this isn’t a call to go, “Hey, go and invest.”
It’s already too late. If you weren’t diversified in it, don’t go and change your whole portfolio based on that.
But if you’re not diversified, I know that’s where you’re going, right, Evan?
EB: Possibly.
PW: Yeah, go ahead.
EB: If you are worried about what’s going on, this would be a great time to call us and at least make sure you’re ready for the next time this happens.
PW: Yeah, that’s the truth. Well, and when you look at U.S. markets versus international markets, we look at things like what are companies selling for every dollar of earnings.
And right now, U.S. markets are at like $22 for every dollar of earnings, or international is still at only $10, half. So, it is still a huge difference between them.
So, I’m not saying don’t dump all your international because it’s already done what it’s going to do. Don’t take that from it either, but just recognize that shifting around and doing that is just a big waste of time. Well, I say that because if you look at the disclosure documents of virtually every investment firm that I know of in Nashville, they all have that, they engage in fundamental analysis and tactical asset allocation and those types of things, which it’s all the type of stuff that I’ve railed against for 25 years.
And I see commercials all the time on CNBC, you know, Jim Cramer, “You need to join our club. Join our stock club. You got to join this. You need to be in the know.”
And you hear all these people doing testimonials saying, “It’s the best thing I’ve ever done. Now, I really get it, I understand this stuff. It’s really wonderful. I feel like I’m in control of my money for the first time ever.”
And you hear that kind of thing and you go, “Well, how are things going over there in Cramer land?” Well, he’ll tell you.
JC: Look, the information today, I do my morning memo about what I’m looking at. … I had 20, okay, at Burlington, all right, Burlington. I had 24 different things of which there were two that were positive and 22 that were negative.
PW: That worked real well. “I have 24 stocks and these are the people that are really going to do really well.” Two are positive, 22 are negative.
EB: Yeah.
PW: It’s brutal.
EB: Well, and it’s kind of funny, he talks on, I don’t know, lightning round, whatever you call it. Am I diversified? He says.
PW: All right.
EB: Five is too few, 10 is too many, and he’s got a portfolio of 24. Of course, it still sucks, and yeah. He’s still all in one.
PW: I’m looking more like 22,000 maybe, might be a little bit better, not 22 stocks.
EB: But you would think if that’s his message, that it would be between five and 10.
PW: Well, that’s a good point too, but I just think that that was just interesting.
EB: Oh yeah.
PW: Twenty-four stocks, 22 negative. I don’t know. Things maybe aren’t so good.
How Companies Are Adapting to Tariffs
PW: So, back to the tariff thing. So, you look at it and go, “So what are some of these countries doing?” And I’m always fascinated. You said this a little bit earlier, Evan, you said that the markets will figure it out.
EB: Yeah, I stand by this.
PW: And I think that’s a very good statement to stand by. How do companies figure it out? I think it’s always fascinating.
EB: Yes.
PW: Here is one of those things that Trump was talking a little bit about.
Donald Trump Clip: It could be some disturbance, a little bit of a disturbance. I solved a little bit of that because I have respect for our auto companies, and I gave them a little bit of a one-month reprieve because it was unfair.
Although I’m sure they’ll take advantage of it. I see they’re driving a lot of cars into the U.S. to try and avoid the tariffs, and they’re taking advantage of it a little bit.
PW: I think that’s just funny.
EB: Yeah.
PW:
Number one, people are making trades based on the tariffs being long-term things, and you just don’t know. You can’t predict what he’s going to do.
He says, “I’m going to give them a one-month reprieve.” Well, you had to be able to predict he was going to be able to do that. But then on the other hand, you got to be able to predict that Canada is going to drive the cars across the border to sell them over here and avoid the tariff altogether.
Now, that’s not going to be widespread, but I think it’s just an example, one of many, of how companies adapt. The idea has been to, let’s bring that back over there. And he’s doing this whole Oval Office thing, and he’s talking about the numbers and how companies are adapting to what he’s doing, and they’re adapting in ways that are definitely in their best interest, but they’re also in the U.S.’s best interest as Trump sees that as well.
EB: Right.
PW: And that is why it is so hard for investors to try to figure out, “Hey, what’s going to happen next?” Because you got to be able to predict this guy, but you also have to be able to predict what every company is going to do and how they’re going to respond to the incentives or the constraints that are put upon them.
EB: And every consumer when those companies make the changes.
PW: Precisely. How is the consumer? You said substitution effect a little bit earlier.
EB: Yeah.
PW: Which I think is just absolutely right on. You have a substitution effect, which is, “Hey, I can’t buy that for that price, but I can buy this thing over here. It’s not my preference, but it’s going to be a lot cheaper and I’m going to move over there and I’m going to do that.”
Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.
