Is Your Portfolio Under the Weather?
by SGL Financial
Our 2 Cents – Episode #271
Is Your Portfolio Under the Weather?
The market’s running a fever, and if you’re not careful, your portfolio could catch a cold. Don’t worry, the Our 2 Cents doctor has the perfect prescription! On today’s episode, we’re examining quotes of the month, common financial ailments, and the latest market signals, all with a healthy dose of financial insight. After all, a little financial wisdom is just what the doctor ordered. Listen in now!
- Quotes of the Month:
- “People are living longer than ever before, a phenomenon undoubtedly made necessary by the 30-year mortgage.” – Doug Larson
- “I don’t pay good wages because I have a lot of money. I have a lot of money because I pay good wages.” – Robert Bosch
- Don’t Catch a Financial Cold:
- A few financial bugs may be going around! Does your portfolio have any of these symptoms?
- 7 Key Market Indicators:
- What’s going on in the market? These seven indicators help connect the dots.
Request Your Free Consultation Today
847.499.3330
Podcast Transcript
Announcer: You’re listening to Our 2 Cents with the team from SGL Financial, building wealth for life. Steve Lewit is the President of SGL Financial, and Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news, trends, strategies, and more.
Gabriel Lewit: Well, good morning, good afternoon, everybody. This is Gabriel Lewit and Steve Lewit here back for another episode of Our 2 Cents.
Steve Lewit: Retake, retake. Quick.
Gabriel Lewit: We keep all the bloopers in the show.
Steve Lewit: Let’s start again, guys.
Gabriel Lewit: Another episode, great episode here of Our 2 Cents here. We are excited to have you with us, our most valued listeners, MVLs, most valued listeners.
Steve Lewit: How do you think of these things?
Gabriel Lewit: Well, I was thinking of basketball, we were talking about basketball and MVPs. And so most valued listeners came to mind for me here this morning.
Steve Lewit: Folks, I was just commenting that I don’t know a name on the Chicago Bulls. I was watching the game last night.
Gabriel Lewit: Well, so I’m a Bulls fan, Steve’s a Knicks fan. And the Bulls were playing the Knicks last night and I was-
Steve Lewit: They were trying, they were trying to.
Gabriel Lewit: Well, they were ahead by 19 points and managed to lose the game.
Steve Lewit: Exactly. Yeah, exactly.
Gabriel Lewit: There you go.
Steve Lewit: Yeah. World Champions, by the way.
Gabriel Lewit: Well, they’re a good team.
Steve Lewit: When you refer to them, you need to say the World Champion Knicks.
Gabriel Lewit: I will not do that.
Steve Lewit: No.
Gabriel Lewit: No, that’s not going to happen.
Steve Lewit: Well, they are the World Champions, at least for a while.
Gabriel Lewit: Enjoy it while it lasts.
Steve Lewit: It won’t last much longer.
Gabriel Lewit: All right. So we’ve got a great show lined up for you here today. As always, we want to cover a wide range of hopefully helpful financial topics here that will give you valuable information and tips and strategies to help you improve your finances. We also have some quotes of the month just to keep you entertained.
Steve Lewit: And I don’t know what they are, folks, so I’m excited because I love quotes of the month.
Gabriel Lewit: Well, you want to know what the first one is?
Steve Lewit: I love giving my thumbs up or thumbs down on them. Yeah. What’s the first one?
Gabriel Lewit: You’re in a position of power here.
Steve Lewit: Yeah, I feel powerful.
Gabriel Lewit: Okay. The first one is from a guy named Doug Larson, who I didn’t look up again to see who he is, but Doug said, “People are living longer than ever before. A phenomenon undoubtedly made necessary by the 30-year mortgage.”
Steve Lewit: Doug has a good sense of humor.
Gabriel Lewit: Okay. He’s a newspaper columnist and editor.
Steve Lewit: Yeah, yeah.
Gabriel Lewit: Yes.
Steve Lewit: Yeah. I don’t have much to say about that other than it’s funny.
Gabriel Lewit: Well, they were talking about making a 50-year mortgage.
Steve Lewit: Were they?
Gabriel Lewit: Mm-hmm.
Steve Lewit: That I didn’t read.
Gabriel Lewit: Because the house prices were getting so high and it was gladly vetoed.
Steve Lewit: Can you imagine never owning your home?
Gabriel Lewit: I mean, that would take you more than half of a hundred-year lifetime.
Steve Lewit: Hey, I can buy a home at 22 and own it at 75, maybe.
Gabriel Lewit: Crazy. And pay almost all interest for the first 20 years of that 50 year mortgage.
Steve Lewit: Banks know how to make money.
Gabriel Lewit: They sure do.
Steve Lewit: Yep.
Gabriel Lewit: Okay. The next one is for you business owners. I had to read this one twice before I understood it, but a guy named Robert Bosch. Okay. It’s a cool name.
Steve Lewit: Yeah.
Gabriel Lewit: There’s a TV show called Bosch, which is by the way, a very good TV show.
Steve Lewit: I watched it and Bosch is a big engineering firm. Yeah.
Gabriel Lewit: Okay. So he’s a business magnet. Magnate?
Steve Lewit: Oh my God.
Gabriel Lewit: I’m reading it fast on the screen here.
Steve Lewit: Folks, my son does have a college education. I just want you to know that. He graduated very high in his class.
Gabriel Lewit: Thank you.
Steve Lewit: I think two or three.
Gabriel Lewit: I didn’t say magnet. I said magnate.
Steve Lewit: Just go on.
Gabriel Lewit: Anyways.
Steve Lewit: Keep going.
Gabriel Lewit: He says, “I don’t pay good wages because I have a lot of money. I have a lot of money because I pay good wages.”
Steve Lewit: I love that too. Yeah. Yeah.
Gabriel Lewit: Yes.
Steve Lewit: I read that somewhere in my history. I remember reading that and that is great because people think you make money by being cheap and sometimes frugal is a great way to save money, of course, but sometimes you’ve got to spend money to make money. We were talking about that just the other day, you and I. And you pay good wages, you get good people, they’re loyal, they’re productive and they appreciate it and you make more money.
Gabriel Lewit: Well, it’s hard to run a business if you pay rock bottom wages. You have a lot of turnover, you have unhappy people, you have challenges of a different kind, but this is for all you business owners out there, you’ve got to find the right balance of what to pay or what not to pay and attract qualified people that help your business grow. And that in turn should make you hopefully more successful.
Steve Lewit: Why do I have this feeling directors John and Gabby are going to ask us for raises after this podcast?
Gabriel Lewit: Who knows?
Steve Lewit: Well, who knows?
Gabriel Lewit: Who knows? All right. Well yeah, hopefully those inspired you to think through whatever they meant to you.
Steve Lewit: Right. Which could be all or nothing.
Gabriel Lewit: Yes, exactly. All right. Well, onto our main topic here-
Steve Lewit: A lot of fun.
Gabriel Lewit: … for today, onto today.
Steve Lewit: Yeah. What are we talking about?
Gabriel Lewit: We’re going to talk about financial diseases.
Steve Lewit: Oh, I remember this, I think. Yes.
Gabriel Lewit: Yeah. We were previewing this.
Steve Lewit: Yes.
Gabriel Lewit: Okay. The doctor is in, as they say.
Steve Lewit: Yeah, I liked it.
Gabriel Lewit: The financial doctor.
Steve Lewit: I thought this was very funny.
Gabriel Lewit: Dr. Steve.
Steve Lewit: No, I never got my doc PhD. You have these things in your life that you regret. I finished everything other than writing my thesis for my PhD. And I said, “You know the heck with it. I’m not going to teach. I don’t need a PhD.” And my ego is like, “I should be a Doctor Steve.”
Gabriel Lewit: Well, why don’t you go back?
Steve Lewit: They won’t take me. I tried going back about 15 years ago.
Gabriel Lewit: You got rejected.
Steve Lewit: And they said, “Steve, you have no idea what’s going on.” Yeah, they wouldn’t let me write it.
Gabriel Lewit: Well, that’s too bad.
Steve Lewit: It is too bad.
Gabriel Lewit: You can just write it and be a doctor in your mind.
Steve Lewit: Well, I kind of am.
Gabriel Lewit: All right. So here are various… We like to have a little bit of fun, but also talk finances here. So these should help give you a sense of possible undiagnosed issues in your life from a financial doctor perspective. Okay. So the first one here, this is very common. It’s acute portfolio risk-o-pathy.
Steve Lewit: Yeah, I love that.
Gabriel Lewit: Okay. Acute portfolio risk-o-pathy.
Steve Lewit: Yeah. Now what does that mean?
Gabriel Lewit: Well, this is when you experience significant portfolio volatility, which can lead to secondary symptoms like an upset stomach and trouble sleeping.
Steve Lewit: Yeah.
Gabriel Lewit: And possible arguments with your spouse.
Steve Lewit: Stress, heart attacks.
Gabriel Lewit: Hopefully not those.
Steve Lewit: In 1929, people jumped out the window.
Gabriel Lewit: Well, that would be not good.
Steve Lewit: Not good.
Gabriel Lewit: Not good, no.
Steve Lewit: That’s called life ending.
Gabriel Lewit: Yeah. So this would be, again, a disease here that could apply to people of any age, but more commonly applies to those who are in their older or retirement years because they are concerned about the impacts of market risk on the value of their portfolio and what that might do to their lifestyle if they were to experience it at the wrong time.
Steve Lewit: Yeah. So understand folks, when most folks retire, they have what’s called an income shortfall, which means that their social security and pensions are not enough to cover their expenses. So you have to draw money out of your investments. And most people do that by just leaving their money in the market and pulling it out. And that’s great when the market’s going up. However, when the market goes down, that’s not a great idea. Pulling money out when the market’s going down is like exasperating the loss and then there’s less money-
Gabriel Lewit: Try again.
Steve Lewit: … to… What was the word?
Gabriel Lewit: You were going to give me a hard time earlier, so I’ll have to throw it back at you.
Steve Lewit: And if you do your income properly, you can become a magnet.
Gabriel Lewit: Okay. I see what you did there. Well, so yeah, Steve, very quickly, how does somebody approach acute portfolio risk-o-pathy, AKA having the concern of too much risk in the portfolio to help alleviate these symptoms?
Steve Lewit: Yeah. So understand the way we look at it folks is that if you’re in the stock market, you have to understand that the market does go up and down. And some people have forgotten that because basically since 2008, the market has gone straight up.
Gabriel Lewit: Pretty much.
Steve Lewit: We’ve had some blips and everyone’s wondering when the next crash is going to be, but it’s a long-term investment. Gabriel, long-term, what does the market do long-term?
Gabriel Lewit: It goes up.
Steve Lewit: It goes up. It’s like having a yo-yo going upstairs, but it goes up. So if you’re in the market long-term and the market goes down, so what? It’s a blip on the radar screen and you just let it do its thing. However, if you need that money to spend and the market’s down, well, maybe that money shouldn’t be in the market.
Gabriel Lewit: Well, I think the –
Steve Lewit: Or that portion of it.
Gabriel Lewit: So, the prescription here for addressing this is a balance of both safety and risk to a level that you would feel comfortable with to eliminate these undesired symptoms like stress and indigestion.
Steve Lewit: Exactly. Unless you like stress. A lot of people say they don’t like stress, but their actions do not back up their words.
Gabriel Lewit: Yeah. You’re taking this a little more seriously than I was trying to make it a little more lighthearted.
Steve Lewit: Well, you know why? Because I just did my health exam with my new doctor who scared the daylights out of me.
Gabriel Lewit: Oh, great. That’s good news. Thanks for sharing.
Steve Lewit: Oh, you’re welcome.
Gabriel Lewit: Okay. Well, that leads us to number-
Steve Lewit: I’m not saying any more than that.
Gabriel Lewit: That leads us to number two, which is-
Steve Lewit: She said I was in good shape, but-
Gabriel Lewit: Okay.
Steve Lewit: … you got to watch this. You got to watch that. You got to watch that.
Gabriel Lewit: Well, that leads us to number two, which is old fogies disease.
Steve Lewit: Well, maybe that’s what I have. That’s exactly what she called it. You have old fogey disease.
Gabriel Lewit: So, this is caused by a long lifespan combined with a plan that wasn’t built to last. It could leave patients dependent on maybe just social security and running low on money and late in life. Is there a cure for old fogies diseases?
Steve Lewit: You could die young. It’s always a way out. No, seriously. Look, we get older, the expenses go up. Sometimes we have really bad illnesses. We need home healthcare, very expensive. You might have to go into a long-term care facility, very expensive. And if you don’t have a sound income plan, you may run out of money and only left with social security and pension, which is not enough. So I don’t like calling old people old fogies, but we get the idea.
Gabriel Lewit: Yes. In jest.
Steve Lewit: It’s in jest. It is, but there’s so much truth in that, that we get older and we’re not prepared for the expense of older age often.
Gabriel Lewit: Well, I think the cure for this is, it’s kind of for many people that… We know smoking is bad for you.
Steve Lewit: Oh my. Yeah, really bad.
Gabriel Lewit: And the cure in many ways is not doing it for a long period of time. So in this case, if you are worried about running out of money in retirement, plan further ahead and have a game plan, spend less, save more. It’s not something where if all of a sudden you’ve ran out of money at 85 years old, you can do a whole lot about.
Steve Lewit: Right.
Gabriel Lewit: So, it’s something that’s best identified ahead of time and prepared for.
Steve Lewit: Yeah. And money, unlike health, Gabriel, health we can work out and eat well and get our LDLs down and all of that great stuff, but nature does its thing. But money, you can plan. Money is predict. You can make it predictable and plannable and not be blindsided by an event because you didn’t plan it out the right way.
Gabriel Lewit: Yes. Well, the next one is inflation-itis.
Steve Lewit: Yes. We also-
Gabriel Lewit: It’s very common.
Steve Lewit: All of us, we all have it.
Gabriel Lewit: Very common disease inflation-itis.
Steve Lewit: It’s a germ all over the place.
Gabriel Lewit: Everywhere you go, you see it.
Steve Lewit: No inoculations.
Gabriel Lewit: Everything gets more expensive. You feel it everywhere you go, and it can really surprise people. All of a sudden you go to the store and wow, this costs how much?
Steve Lewit: Yeah. And it’s really interesting. I don’t know about you, but this is the way it is for me. Inflation, we know it’s there, but all of a sudden, you and I were buying lunch. I don’t know, we talked about this a few months ago, I think. You and I were buying lunch and the lunch bill was 40 bucks. And you and I looked at each other and said, “What?” It suddenly appeared.
Gabriel Lewit: I remember when a soda, I call them soda, not pop. Sorry guys, that’s my East Coast in me.
Steve Lewit: That’s East Coast. Yeah, I do too.
Gabriel Lewit: I remember when a soda, anywhere you go would be a dollar.
Steve Lewit: Yep. Always a dollar.
Gabriel Lewit: And now it’s what, 2.75 or 3.75. I’m like, “What? For a little bit of sugar and sparkly water?”
Steve Lewit: You go to the fountain thing and it’s-
Gabriel Lewit: My gosh.
Steve Lewit: … 2.75.
Gabriel Lewit: Yeah. So that’s to me right there, that one jumps out at me.
Steve Lewit: It kind of sneaks up on you. So what happens folks, and this might be happening for you, is that you’re on a budget and all of a sudden it doesn’t cover and you start dipping into your savings a little bit, and then a little bit more. And for some people, they can’t make ends meet. And that’s what the ongoing problem is today, which is many people cannot meet their budgets, pay their bills, build up credit card debt because they use their credit cards instead of paying their bills. And then that, what do we call it? Inflation-itis-
Gabriel Lewit: Inflation-itis, yes.
Steve Lewit: … becomes more like cancer or something more serious and leaving people in a bad state.
Gabriel Lewit: Yes. Yes, indeed. So well, watch out for that. There’s not a lot you can do about it other than make sure you’ve got the right savings, the right investments to offset inflation, and then make sure you don’t lose your purchasing power over time.
Steve Lewit: Yeah. And make sure you do competitive shopping, folks, because when I buy something especially expensive, I go on the internet and I really shop around.
Gabriel Lewit: Yeah, exactly. Exactly. Okay.
Steve Lewit: Are you saying I’m taking too long?
Gabriel Lewit: Well, I didn’t want to… Just a little bit of a light nudge under the table here on that one.
Steve Lewit: You should have seen the look he gave me. He gave me this look.
Gabriel Lewit: I gave him the finger spin.
Steve Lewit: People might be enjoying this.
Gabriel Lewit: No, we have a lot of other diseases to get to here.
Steve Lewit: Okay.
Gabriel Lewit: We’ve got a time allotment per disease to talk through here.
Steve Lewit: Is there a talking money disease?
Gabriel Lewit: Well, the next one I’m going to jump to is Uncle Sam-onella. Okay.
Steve Lewit: That’s fantastic. Yeah. I’m not going to say anything now. You talk.
Gabriel Lewit: Well, Uncle Sam-onella, it’s one of the most reviled ones where you have to pay taxes.
Steve Lewit: Oh my gosh.
Gabriel Lewit: Okay. And it causes people to have to give their hard-earned money to the government more than they want to give. And this is called Uncle Sam-onella.
Steve Lewit: Yeah.
Gabriel Lewit: Okay. So we want to try to avoid this whenever possible. Eating healthy doesn’t help.
Steve Lewit: Well, eating healthy is like taking care of your IRAs and your RMTs and getting money into the tax-free bucket. I’ll continue on this since you are not giving any real information here.
Gabriel Lewit: You’ve got to cook your eggs to avoid Uncle Sam-onella.
Steve Lewit: I’m going to give him the let’s move on finger.
Gabriel Lewit: No. Well, yes, really at the core of this is tax planning, right? How do we pay less money to Uncle Sam, the government? No more than necessary. Well, you do that through good tax planning and we can assist you with that. We’ve talked a lot about that. ‘Tis the season for tax planning at the moment. So you might have recently got a letter from us talking a bit about it. I know we’ve had a lot of conversations in recent weeks about tax planning and throughout the year, of course, but that’s really the objective. First and foremost is paying as little as possible. Obviously you have to pay some taxes or the country wouldn’t work, so that’s not about that. But if you can’t control how much you pay, that’s not so much fun. But if you have control over what you can pay, let’s take advantage of those legal loopholes to pay less in taxes.
Steve Lewit: Absolutely. I’ll just add one thing real quick, Gabriel, is that people generally underestimate how much wealth can be produced through tax planning.
Gabriel Lewit: Yeah, absolutely. Okay. So we’ve got another one here. Care costs fever.
Steve Lewit: Yeah. Could be pretty high fever.
Gabriel Lewit: Yeah. So you talked a bit about healthcare. You just touched upon it earlier. Care cost fever is a rapid decline in wealth due to the high cost of healthcare costs, nursing home assisted living, long-term care costs. Care cost fever is not a good disease to get.
Steve Lewit: No. And at the rate of 100 or $125,000 a year in a nursing home or 150 grand a year and other expenses, that fever could do you in.
Gabriel Lewit: It certainly can. Now, what do you do about that? Well, if you’re concerned about care cost fever, you can inoculate yourself by injecting yourself with some form of long-term care coverage and insurance. It’s a pretty expensive shot though to get.
Steve Lewit: It could be, yes.
Gabriel Lewit: And that’s why a lot of people-
Steve Lewit: Who don’t do it.
Gabriel Lewit: … choose not to do it. Yes.
Steve Lewit: Or they think it’s not worth it.
Gabriel Lewit: Correct. Yeah. Okay. Last one is called someday syndrome. Okay. It’s our last financial disease for you today. Someday syndrome. Do you want to talk a little bit about this very infectious disease?
Steve Lewit: Tomorrow is always better than today, Gabriel. I’ll get to it like I’ll get to my garage and my closets and-
Gabriel Lewit: Someday.
Steve Lewit: … I’ll get there. Yeah. Someday I’ll get my trust done. I’m working on it.
Gabriel Lewit: I’ll get that plan in place someday. Someday soon.
Steve Lewit: Yeah, someday soon. Yeah. Someday. Yeah. I think there’s a song about that. I can’t remember which one it is. Yeah. But look, folks, all of us, I would say, are no one exempt, most people are procrastinators. We can put off tomorrow what we can’t do today or put whatever that is, what I’m saying.
Gabriel Lewit: Why do today what you can unto till tomorrow?
Steve Lewit: Exactly. Exactly. But the problem with that is that psychologically it doesn’t work. It’s always becomes something that I got to do, a loose end that’s not fixed, that weighs on you. And financially, it could be disaster like not having a proper trust or estate plan in place.
Gabriel Lewit: Yeah. And folks, just in seriousness here, we did want to have some fun with this topic, but we’ve recently, Steve and I, we have both kind of lined up throughout the year, we had both been to doctors recently, just taking care of your health. Regular maintenance, regular preventative care, looking ahead, if you have something that’s bothering you. The general rule with your health is don’t put it off till tomorrow. Go take care of it today. Just make sure it’s not something serious. And I think the same rule can apply to your finances. You want to avoid just saying, “I’ll be fine. I’ll be fine. I’ll worry about this when I get to retirement. I’m sure I’ll be okay. If not, I’ll work longer.” Life just has this funny way of all of a sudden-
Steve Lewit: Not working out the way you planned.
Gabriel Lewit: … not working out the way you wanted it to, right? And time just goes by so fast. And so if you can prepare ahead of time for retirement, really feel like you’re on track, make sure you’re healthy in all these different areas, you’re going to feel, I think, so much better about where you are and where you’re headed. And that will give you great confidence and peace of mind over the next 20, 30 plus years.
Steve Lewit: Amen.
Gabriel Lewit: Okay. Well, hopefully you had a little bit of fun walking through these common diseases, financial diseases with us and some of their cures.
Steve Lewit: I had a ball.
Gabriel Lewit: And of course-
Steve Lewit: It was good.
Gabriel Lewit: … in real life, if you have questions about your financial planning, tax planning, long-term care, portfolio risk, any of the things that we talked about here today, you can give us a call at 847-499-3330 or go to SGLfinancial.com, click contact us, and we would love to set up a complimentary time to talk with you, learn more about your goals, and then help you come up with some strategies and solutions that may be a good fit for you.
Steve Lewit: Absolutely. Well said.
Gabriel Lewit: Thank you. All right. So let’s switch gears here a little bit more on a more serious note. We wanted to just cover here briefly a seven key market indicators and what they’re telling us about the state of the economy right now. Just an update, because we do this periodically throughout the year. We have our market update events, and I think it’s nice to just touch upon these from time to time.
Okay, so we’ve got gold prices. Well, someone actually the other day asked me, “Should I still buy gold? It’s been dropping.” Well, they still remain high despite the recent pullback. So what does that really mean? Well, it could mean a lot of things, but I do think on an investment side, it may not be the top hot pick anymore. You’ve seen it fall off the news. It’s gone now. It was all over the news for a long period of time, right? The news loves things that are hot and rising.
Steve Lewit: Well, yeah. I mean, gold is off, what is it, Gabriel? 25% around that number. Still over 4,000, I believe. But yeah, it’s lost its luster. The speculators that are buying gold a lot based on the price of the US dollar and just speculating on gold are leaving that commodity little by little, which is why the price is going down.
Gabriel Lewit: Yeah. I mean, historically, if you have bought gold after a big run up like we just saw, it has usually quite a bit of room to drop.
Steve Lewit: And stay low for quite a long time.
Gabriel Lewit: Yeah. Yeah. I mean, the last time gold reached a peak, it then had a 13-year period before-
Steve Lewit: It did nothing.
Gabriel Lewit: … it got back to that prior peak.
Steve Lewit: Yeah. Yeah.
Gabriel Lewit: Yeah. So it’s just something to be cautious with in case you’re still wondering about this world of gold. And I had a client that said, “Well, what if the economy goes to heck? Won’t gold be worth a lot?” Nobody knows exactly.
Steve Lewit: I don’t know. Yeah. It might not be. You see, people think, “Well, if I have gold and the dollar erodes or becomes worthless, I can spend my gold.” Well, maybe.
Gabriel Lewit: Yeah.
Steve Lewit: Maybe not.
Gabriel Lewit: Maybe not. Okay. Interest rates, of course, we’ve talked about this, are very recently well above their historical average.
Steve Lewit: They are. Yep.
Gabriel Lewit: Okay. Fed just recently voted to keep rates steady just a day or so ago. Not too much more to say about this for now. We’re going to keep it on the radar for you, but we talk about it pretty regularly, so I don’t want to spend too much time on it today.
Steve Lewit: No, it’s good for your safe money. You can buy CDs or MYGAs at a higher rate. It’s nice to get a higher interest rate than a lower interest rate.
Gabriel Lewit: Yes, absolutely.
Steve Lewit: What that does to the economy and long-term and inflation is another story.
Gabriel Lewit: Yeah, exactly. So moving on here, US stock market valuations remain elevated despite strong earnings growth. So what that means is stocks are considered pricey relative to their earnings, but the earnings growth themselves has helped to lower valuations or trend a little bit lower this price to earning ratio. So if you have a certain price of a stock and then the earnings go up, what does that do, Steve?
Steve Lewit: That makes the price to earnings ratio lower, which means that that stock has more value.
Gabriel Lewit: Yes. Yeah.
Steve Lewit: A lot of tech stocks have very, very high price to earnings ratio.
Gabriel Lewit: And if those earnings have grown, then their PE ratio is coming down a little bit. So they’re not quite at the peaks that they were recently, but they’re still considered very, very elevated, very high relative to historical standards.
Steve Lewit: Yeah. Especially people compare it a lot to the dot-com bubble in 1999 because then we had three years of a down market in 2001, two and three… 2001 and two, sorry. But this is a different world with technology and AI and the numbers are just work differently than it did back in the dot-com era.
Gabriel Lewit: Yes, exactly. And ultimately the risk is that the earnings portion of that falls, right? And if the earnings falls or doesn’t continue to grow and the price remains too elevated, eventually people say, “Gosh, this stock is too pricey relative to the earnings,” and that could be the precipitator of a market crash. That’s what some people get worried about when that price to earnings ratio remains high or gets too high or stays elevated for too long.
Steve Lewit: Yep.
Gabriel Lewit: Okay. We talked about this recently as well. Oil prices, of course, have risen sharply.
Steve Lewit: Yeah. Crude oil now, I think I read $116 per barrel, which means that I keep spending $100 plus every time I fill up my gas tank, which really annoys me.
Gabriel Lewit: At least you don’t drive diesel.
Steve Lewit: Oh gosh. Gosh, no. But I keep kicking myself for buying a car that has a high test gasoline necessary.
Gabriel Lewit: Yes. Yes. Well, that was your choice.
Steve Lewit: I wasn’t frugal.
Gabriel Lewit: So, you can’t complain about it.
Steve Lewit: I’m supporting the car companies.
Gabriel Lewit: There you go. All right. Well, we’ve got Bitcoin has rebounded, but still is well below its peak.
Steve Lewit: Yeah.
Gabriel Lewit: So that is something that is, of course, for those non-cryptocurrency fans, you’re going to be like, “Well, it’s just going to crash to zero anyways.” But of course it’s still a very, very… What’s the word I’m looking for? It’s a big component of this economy now. There’s, again-
Steve Lewit: Oh, geez.
Gabriel Lewit: … trillion plus dollars in Bitcoin, and it’s likely not going to crash to zero, but it is now more of a digital gold type benchmark that you can keep track of just like you could keep track of gold prices, but it is not anywhere near its prior high and it’s going through its own cycle to keep track.
Steve Lewit: And like gold, if you have a small piece of section of that in your portfolio, not a bad thing to own. I know that you and I like Bitcoin as a long-term investment, so it’s just a matter of personal taste.
Gabriel Lewit: Exactly. Let’s see here. US dollar remains historically elevated.
Steve Lewit: Yep.
Gabriel Lewit: You’re the economist. You want to give a little snippet on what that means?
Steve Lewit: Not really. It’s so complicated.
Gabriel Lewit: Not even a snippet for our-
Steve Lewit: Well, it means the value of the dollar is decreasing relative to other currencies. And a lot of that has to do with treasuries and money coming into the US based on how much foreign sources are buying treasuries, which is down a little bit. But what it doesn’t mean, folks, is that the dollar is going out of business. And a lot of people, Gabriel, seem to take a big jump from the dollar losing some value, which it’s done historically, cyclically, to it being worthless, which is not going to happen.
Gabriel Lewit: Yeah. I think that’s a pretty big stretch. It also means you should have some money in internationals-
Steve Lewit: Absolutely.
Gabriel Lewit: … which have been performing quite well as of late. So of course, that’s part of a typical diversified portfolio recommendation.
Steve Lewit: Yeah. What Gabriel means by that, if I can go say it, Gabriel, is most people are so tuned into the US and tech US because so much money has been made on that just ignored international. And right now international is actually outperforming US.
Gabriel Lewit: Yeah. And it did last year as well. So it’s part of a well-diversified portfolio.
Steve Lewit: Yes.
Gabriel Lewit: Okay. Last part here. US home prices remain near their inflation adjusted peak.
Steve Lewit: Yeah.
Gabriel Lewit: Okay. Current level for US home prices is still considered very high. And of course, so are mortgage rates, which is part of the interest rate environment.
Steve Lewit: I look at the housing market and to me, it’s very problematic. There’s no supply out there. People do not want to sell because they have 2%, 3% mortgages and they don’t want to buy a new home with an 8% mortgage or 7.5% mortgage. So that whole sector of the economy is very suspect.
Gabriel Lewit: Yeah. No, here’s an interesting quote from one of the research articles I was reviewing on this. It actually used a Chicago metropolitan area example, but, “The median home is now priced at about 389,000 compared with as low as 160,000 just as recently as 2012.” So that’s not only a 100% percent increase, it’s more than that, right? They’ve more than doubled in the last 15 years.
Steve Lewit: Yeah. And the question like everything is, is that a bubble about to burst?
Gabriel Lewit: It could be. Nobody knows. There’s a lot of factors that go into it. Yep.
Steve Lewit: Yep.
Gabriel Lewit: But yeah, that’s what’s making it hard for people combined with high mortgage rates to be able to afford new homes. The prices are just out of reach.
Steve Lewit: The prices are out of reach, and the mortgage rates are… People say the mortgage rates are high, actually a six or 7% mortgage rate… What was the mortgage rate when you bought your home?
Gabriel Lewit: When I first bought my home, which about 10 years ago, it was actually four and a half percent.
Steve Lewit: Four and a half, yeah.
Gabriel Lewit: Which was pretty good.
Steve Lewit: Yeah.
Gabriel Lewit: Yeah.
Steve Lewit: So, 6% ain’t that bad.
Gabriel Lewit: Well, 7% worse.
Steve Lewit: Well, and 8% is worse than seven. Write that down, folks.
Gabriel Lewit: That reminds me of a movie I watched once. I forget what it was. It was a popular one back in the day where there’s this guy, there’s a video, ‘Seven Minute Abs’.
Steve Lewit: Oh, yeah.
Gabriel Lewit: Right? And he comes out and he’s like, “I’m going to come out. It’s going to blow ‘Seven Minute Abs’ away. I’m going to do six-minute abs.” So yes, 8% mortgage rates are worse than seven and 9% is worse than eight. These are some of these life truths that-
Steve Lewit: Let me see. Five minute abs. Can I develop a company around that?
Gabriel Lewit: You might be able to. Maybe even four minutes. Nobody knows.
Steve Lewit: Yeah.
Gabriel Lewit: All right. Well, folks, we went around and around today.
Steve Lewit: Yeah, we covered a lot of territory, didn’t we?
Gabriel Lewit: Yes. If there’s anything on your mind, financial questions, goals, concerns, worries, anything we can do to give you greater peace of mind, security, help guide you through any of these challenging, or not so challenging, depending how you view them, questions in the financial world, give us a call. We’re here at 847-499-3330 or you can go to SGLfinancial.com, click contact us, and we would love to speak with you about anything that’s ever on your mind. So give us a call and we can’t wait to talk to you soon.
Steve Lewit: All right. Be well, everybody.
Gabriel Lewit: Bye-bye.
Steve Lewit: See you now.
Announcer: Thanks for listening to Our 2 Cents with Steve and Gabriel Lewit. For any questions about your finances, give SGL a call at 847-499-3330 or visit us on the web at SGLfinancial.com and be sure to subscribe to join us on next week’s episode.
Disclosure: Investment Advisory services are offered through SGL Financial, LLC, an SEC Registered Investment Adviser. Registration with the SEC does not imply a certain level of skill or expertise. Insurance and other financial products are offered separately through individually licensed and appointed agents.
