Friday Five at Five: August 4, 2023
The 5@5 is a short blog written by Kevin T Clark, RF™ every Friday before 5pm EST.
Kevin has been in the financial world since he graduated college way back in 1997.
Kevin is currently the CEO & Co-founder of Plan Confidence Corp which provides personalized and ongoing (ERISA Compliant) advice for anyone that is investing in their company’s retirement plan.
DISCLAIMER: All of the opinions expressed below, however awesome and insightful, are that of Kevin T Clark and not of Plan Confidence Corporation.
1) US Downgraded
US ratings agency Fitch has downgraded all of the debt (Government Bonds) that the United States has been creating. Fitch is one of the three major rating agencies along with Moody’s and Standard & Poor’s. The rating agencies took a lot of heat from the government about 15 years ago during the 2008 Financial Crisis. There was concern that the ratings agencies were really just “rubber stamping” their approval and not really wanting to downgrade anything.
So, what about now?
Well, Treasury Secretary Janet Yellen was not too pleased with Fitch’s downgrade. She called it “entirely unwarranted” as she believes the Biden administration is doing a good job (because the economy is strong with low unemployment). Well, a strong economy and low unemployment combined with increasing inflation means “The Fed” (Jerome Powell) is going to have to keep increasing interest rates for quite some time.
Which means ultimately, “The Fed” cannot stop until the “damage” the economy which will increase the need for more government debt which will lead to more downgrades.
(And if you think inflation is under control like some politicians want you to believe, go fill up your gas tank)!
2) Tactical Change
Plan Confidence Corporation (PCC) advises participants on how to manage their money within their employer’s retirement plan (401k, 403b, TSP, etc). We run traditional Strategic Models which remain fully invested at all times.
For example, our Moderate Model is 60% stocks and 40% bonds. The Strategic models will rebalance back to a 60/40 split every quarter. (Although there may be different types of stocks/bonds used depending on if “growth” or “value” is in favor and many other factors).
We also run Tactical Models that have the ability to move in and out of stocks given the current conditions of the markets. On Tuesday, August 1st, our Tactical Models told all of the subscribers in the Tactical models to take half of their money out of the stock market.
So, the Tactical Moderate Model is now 30% stocks, 40% bonds and 30% cash.
We use a charting pattern to identify the direction of the overall market. Specifically, we monitor the S&P 500 50 day and 200 day moving average, the MACD (momentum indicator) and Volatility Index (VIX). We do not allow our own personal biases or hopes to dictate the tactical decisions.
(Lord knows I would be wrong more often than right if I did that).
All of the clients in the tactical models received an email and “push” notification (if using our app) giving them the exact allocations that they should make by the end of the day.
If you would like to learn more about Plan Confidence, please ask your financial advisor.
3) Fear Index
As mentioned above, a key component on figuring out how finicky the markets will be is the Volatility Index or VIX as we like to call it. The VIX is also called the “fear index”.
The higher the number, the more likely there will be panic in the markets.
The lower the number, the more likely markets will fluctuate like “normal”.
Anything above a 20 is considered to be “bad”.
The VIX started the year out above 20 which is to be expected coming off a terrible year in 2022.
It has consistently stayed below a 20 since March 27th.
On Monday, the VIX started the day at 13.95 (which is really good)!
However, as I sit and type this at 4:21pm, the VIX is currently at 17.10.
That’s not terrible, but that is quick rise in just a few days.
It means that “fear” is starting to creep into the markets. If you see that number go above a 20, you should expect to see some pretty large selloffs until the market get “capitulation” (when everyone just gives up).
So, I will be keeping a close eye on this number and hopes that it goes down next week.
If it doesn’t, then buckle up!
4) Barbie Mania!
The Barbie movie has been out for a few weeks now. It is expected to break a BILLION DOLLARS in global sales over the weekend. A BILLION DOLLARS!!!
Are you kidding me?
In full disclosure, I have not seen the movie. I’m not sure if I will ever see the movie. But it got me thinking.
Why, dear god why?? – lol
So, I put my analytical hat on. And I came up with a couple of things.
First, Barbie isn’t just a movie you go to see.
It’s an “event”. I know this by my Facebook pages covered over the past two weeks with grown women dressed in pink taking pictures in the Barbie display to make them look like a “Barbie Doll” in a box (which was a genius marketing move by AMC or whomever came up with that).
I was in Savanah GA the weekend Barbie came out. There was pink everywhere! Women “pre-planned”, went shopping, got their tickets and made it an event.
And the “event” became a “shared experience” with friends. And to my knowledge, this was the first “shared experience” we had since Covid (unless you were lucky enough to see Taylor Swift).
The second reason I thought of why the Barbie movie is so popular has to do with Hollywood itself taking advantage of us consumer for so many years. Barbie was original. It was not a remake or sequel or prequel.
Barbie was “new”. No one knew what to expect. Hollywood did not just crank out a sequel with similar story as an original movie. It shows that there is an appetite from us consumers for new and fresh ideas. It shows that Hollywood has to stop being lazy and just doubling down on a good movie trying to make it a franchise like Star Wars or the Marvel Universe.
And because of this, Hollywood should settle the writers strike and let them free. Let them create new and exciting movies. We consumers are ready. Yes, it will be risky for a studio to do. But if Barbie can teach them anything, they have a BILLION reasons to get back to the drawing board immediately.
5) Joke of the Week!
Q: What do you get from a pampered cow?
A: Spoiled milk!
Kevin T Clark, RF™ is the CEO and Co-founder of Plan Confidence Corporation (PCC). Kevin is also an ERISA Nerd and one of only a hundred Dalbar certified Registered Fiduciaries (RF) in the United States. He has been helping hard working Americans invest their money for over 25 years!
PCC is an SEC registered investment firm specializing in providing advice to hard-working Americans investing in their employer’s retirement plans (401k, 403b, TSP, etc).