#32 – Handling Market Sell-Offs And What The Federal Reserve Might Do With Interest Rates

Jeff Lloyd [00:00:58]:
It was a busy week. It was a wild start to the week after a wild end to last week. And it’s good to be back in the studio with you this morning.

Wes Moss [00:01:05]:
Wes, I’ll tell you what, I know it’s a bad week when not only WSB calls and says, can you please talk about the market? Von Hessler talk. Come on. But really, when my mom calls, I even got a voicemail from my mom.

Jeff Lloyd [00:01:20]:
That sounds serious.

Wes Moss [00:01:21]:
I am nervous about the stock market, what’s happening? And everybody was nervous on Monday of this past week. Feels like it was a month ago, but it was just Monday. The Tokyo stock market was down 12% in one day. That’s like, that’s one of the worst daily declines we’ve seen since 1987.

Jeff Lloyd [00:01:39]:
Yeah, it was its worst daily drop since Black Monday of 1987.

Wes Moss [00:01:44]:
Ooh. We don’t even like to go back to that some of these days in history. But it wasn’t just Monday. The Dow was down a couple of days prior to that. Go back in the prior week we saw, yes, Monday, the Dow was down over 1000 points in a day, but it was down before that. So we’ve seen a real cascade lower. And the question here on this Sunday morning, ironically, notwithstanding, that the market was relatively flat this week because it came back almost all weekend. But it was a terrible start to the week, which was the residual from the week prior.

Wes Moss [00:02:18]:
So we kind of had this slide starting to the point where at the, I guess if you want to call this, this current corrective phase we’re in, at one point, the S and P 500 was down 8.5%, almost 9%. The Nasdaq was down 13. The Dow was down at one point, down at its nadir more recently.

Jeff Lloyd [00:02:39]:
Yeah, off its all time highs. So the Nasdaq was off 13% from its all time high from its all.

Wes Moss [00:02:45]:
Time high S and P 500 down almost nine. And the Dow was down eight, seven, 8% or 8%. So, okay, we’ve had a little bit of rally since then. So we’ve had a comeback over this past week. And essentially stocks closed not perfectly flat for the week. Nasdaq was down less than two tenths of a percent for the week S and P 500 down 0.4. The Dow was down just a little over a half a percent for the week. But it started out really rough after a rough Friday preceding that.

Wes Moss [00:03:19]:
And the question here today, or what we wanted to solve and help with today, is how to handle these market sell offs. I can’t say this was a flash crash. You could say that if you’re looking at the Nikkei or the japanese stock market. Us stock market wasn’t a flash crash. But anytime you’re down two and three plus percent in a day, that takes a lot. The VIX spike dramatically? The VIX is the volatility index. We call it the fear index on Wall street. It’s people buying up protection for losses.

Wes Moss [00:03:55]:
The more fervent people are on that, the more the VIX goes up. And we saw that go up dramatically. We don’t know where we head, of course, tomorrow morning, markets open. We don’t know exactly where we’re going to be, of course. But we do know that this kind of event, these big sell offs that happen quickly, where people get nervous and people get scared, this does happen a lot. Happens all the time. Now, we go through these long enough periods of time where things go well and the economy’s good and the stock market’s good and kind of forget about it. And then wham, 1000 points in a day, 2000 points in two or three days on the Dow.

Wes Moss [00:04:32]:
You get reminded just how difficult investing can be, particularly in the short run. And I think today we really wanted to talk about how do you handle this market sell off? But it’s really not just about this market sell off. It’s about every time we get one of these sell offs that as much as we don’t like to see them, they happen literally all of the time. We just kind of block out the periods of time that they don’t happen. And then when they rear their ugly head, we get nervous. The world gets nervous. The commentators get, start sweating on television. My mom calls me Wes.

Wes Moss [00:05:07]:
I’m worried about the stock market and it’s time to kind of reset the table and realize that the world’s not ending. And the economy, we don’t know if it’s going to go into recession or a soft landing or quicksand or what it’s going to be. I think it’s actually pretty decent. But we do know that these declines eventually get made up. As long as America stays, America stays productive and we stay the most innovative, hardworking country in the world. We get through these. And that’s, and that is what we want to kind of talk through today here. Jeff Lloyd.

Jeff Lloyd [00:05:40]:
Now when you get that phone call from your mom, she’s seen the headlines that Monday the Nasdaq was down almost three and a half percent. The Dow was down over 1000 points or two and a half percent, s and P Slida 3%. That was the worst day since 2022 for both the S and P 500 and the Dow.

Wes Moss [00:06:00]:
That headline in itself makes mom call. So so is worst day in blank, fill in the blank. The worst day in X period of time or since when? Those, of course, you’re gonna get speaker one.

Jeff Lloyd [00:06:14]:
You see that headline, you’re gonna get a call from your mom.

Wes Moss [00:06:17]:
So here’s what’s happening. And some of this just, I think translates to any cycle sell off, anything that is precipitously and quickly negative and also the particular period of time we are in because every single sell off has its own special DNA and its own fingerprints because it’s always got to be a little new in order for us to get a sell off. So Jeff Floyd, I think here’s a couple of things. One arguably behind the curve, maybe a little bit behind the curve. I know Professor Jeremy Siegel from Wharton School. We love to hear. He’s on television once a week or once a month. And I always love hearing from him.

Wes Moss [00:06:59]:
He was kind of, he was almost panicky. On Monday he called for an emergency rate cut. The Fed is way behind the curve. There should be an emergency. The rate cut and the Fed is so far past. It’s funny, I did Evh’s show on Tuesday night with the doctrinaires. He asked me if there should be an emergency rate cut. I said no.

Wes Moss [00:07:23]:
Just because the stock market was down 1000 points or 2000 points doesn’t mean the Fed has completely messed everything up. I said no, I think this is way overboard. Ironically, Seagull came out on Friday and said, yeah, he didn’t think they did an emergency rate cut, but it did.

Jeff Lloyd [00:07:38]:
Make for some good tv.

Wes Moss [00:07:38]:
He was listening. He double usb radio.

Jeff Lloyd [00:07:40]:
He did make for some good tv that day. Emergency 75 basis point cut immediately. And then another 75 basis point cut at the September meeting.

Wes Moss [00:07:50]:
Well, and he had a good reason for it. I don’t think you need an emergency cut. I mean, the Fed could come out at any point and do something. They really like to have their cadence be whenever their meeting is their policy meeting. The Fed meets for two days. And then on that Wednesday afternoon at 04:00 they give this. Or maybe 230 or 215 or 02:00 they give this. Their decision comes out.

Wes Moss [00:08:14]:
The latest one was, we’re going to hold tight on rates. We’re not lowering, we’re not raising. But they changed their language and said, now we’re looking to maybe start cutting. And then reporters grill Jerome Powell for another hour or so, and the markets react to that. So to get an emergency meeting, that’s something like in the middle of COVID that we saw some emergency meetings when we had some really big things happening. Not the unemployment rate went from 4.1 to 4.3. That is not an emergency. That’s a normal economic data point that’s going kind of in the wrong direction, but not even that dramatically.

Wes Moss [00:08:49]:
So there’s an argument that the Fed’s a little bit behind the curve.

Jeff Lloyd [00:08:53]:
And I think part of his argument that maybe the Fed had met their dual mandate of continued, like, lower unemployment and lower interest rates and trying to squash inflation without killing employment too much.

Wes Moss [00:09:09]:
Right. Well, their dual mandate is obviously price stability and maximum employment. They knew that the unemployment rate would have to go up in order to combat inflation. And that’s what’s happened. They raised rates 1112 times, went from zero to five and a quarter. Five and a half. And they’ve stayed, quote, higher for longer. What Siegel was saying is that they have also said, they’re on record saying that if inflation gets back to the 2% level, near their 2% target, it’s an exact number, but target and unemployment got to 4.2%.

Wes Moss [00:09:45]:
Then they said the federal funds rate should be around 2.8. Was it 2.8?

Jeff Lloyd [00:09:51]:
He said 2.8. That should be the Fed funds target right now.

Wes Moss [00:09:53]:
So his point while he was so worked up this week, is that that’s where we are. We’re over 4.2% unemployment. We’re at 4.3, and we’re at 2.5% in PCE, which is the inflation number the Fed wants to be at, but they want to be closer to two. But we’re two and a half. And his point is that, well, if that’s the case, we’ve got, the Fed’s gotten to where we want to be, yet the rate is at five and a quarter. Five and a half, not 2.8 like they’re saying. So that’s why he’s saying the Fed is way behind the curve. Producer Mallory, she just said, okay, now she was, it was about a 1 minute period of time where she was giving me the west.

Wes Moss [00:10:33]:
I don’t know where you’re going with this. Look, let’s get the thought out, make it understandable. And I think we, hopefully we just did that. So number one, Fed behind the curve, at least a little bit, meaning that you can look no further than the log jam housing market. And by the way, we are going to talk about the housing market today. I think there’s some major implications about the Fed lowering rates for the housing market that buyers and homeowners want to hear today on this episode of money matters. But look no further than the log jammed housing market number one. And number two, there’s been a real rise in unemployment.

Wes Moss [00:11:06]:
Again, you could say, hey, the Fed’s a little, they’ve kept rates too high for too long. We went from 3.4% to 4.3% over the past year or so. That’s not an immaterial rise in unemployment. That’s an almost full 1% rise. That’s a lot of. It’s a lot more people out of work than used to be. Number two, though, on my list here in how to handle what’s happening in this current sell off is that this really is an unwind, at least the stock market sell off from a very overheated, mono focused tech AI trade that we’ve talked about now for the last, it’s really been going on for the last year and a half. And that even though you have one particular sector that gets perhaps overly inflated or too much attention, too much money chasing too few companies, you do get some knock on effects when that one particular sector starts to sell off.

Wes Moss [00:12:01]:
And it very often spreads. And it’s not just one little sector selling off, it usually spreads to the other sectors. This is the kind of dynamic that you could fill in the blank. Any sector on any sell off, not uncommon to see the sector of the year or the six month or the two year that’s gotten a little too frothy. That sell off sells off, and then so does, so do most other areas of the market. And that’s why we saw this be, this was a relatively broad sell off. More money matters straight ahead. If you’ve ever done a Jane Fonda workout, or if you remember as a kid rocky running the steps, and if Michael Keaton is still mister mom to you.

Wes Moss [00:12:45]:
Then guess what? It’s officially time to do some retirement planning. It’s Wes moss from money matters. Weren’t those the good old days? Well, with a little bit of retirement planning, there are plenty of good days ahead of schedule. An appointment with our team today@yourwealth.com. dot that’s your, yourwealth.com dot. Hey, wealth, it’s your mom. I just was seeing the market being pretty volatile and I just was wondering what you think is going on. I’m a little worried.

Wes Moss [00:13:20]:
That is a voicemail from my mom who saw the stock market down over 1000 points. All the headlines, I don’t know what news channel she watches. She tries to tell me she watches both Fox and CNN. But the whole world was nervous. The whole world was worried. The Nikkei was down 12% in one day. Not to mention the Nikkei was 10% the next day.

Jeff Lloyd [00:13:46]:
Yeah, it was up double digits the next day after having its worst day since 1987.

Wes Moss [00:13:52]:
But if we’ve been lulled to sleep so far in 2024 with really a placid market, that has been very escalator like, slightly higher, slightly higher, not a lot of big corrections. And then wham. This cycle started about a week and a half ago. It was a Wednesday. The Federal Reserve came out, they said, hey, wait a minute, we’ve been talking only about inflation for the last year and a half. And now we’re remembering that we have two mandates, not just one. We’re supposed to do inflation and jobs. And in our crusade to lower inflation, and they have done that and they’ve done quite a job at that.

Wes Moss [00:14:32]:
Remember, we were over 9% that we’ve dropped to call it around 3% for CPI. But then PCE, which is a personal consumption expenditures, which is the target that they like to look at, that’s down to two and a half percent. That’s close to their 2% target rate around two. But while that’s been happening, we’ve seen the unemployment rate, and we don’t want this obviously to go higher. We want this number to be low. It has gone from 3.4% all the way up to 4.3%. So there’s been a material rise, almost a 1% rise. So go back a week and a half.

Wes Moss [00:15:06]:
Wednesday the Fed comes out, says, hey, we get it. We’re looking at both sides of the equation here, not just inflation, but we noticed that unemployment is getting worse. So we realized that we may need to start lowering rates. So they were very open to that. Market, rallied market loved that. Oh, we’ve been waiting. Mommy and daddy Fed. They’re going to start, they’re going to leave the house so we can have some fun.

Wes Moss [00:15:27]:
They’re going to lower rates. And then that, I don’t remember if it was that day, but I think we finished down from up because we were up 600 points on the dow that day. And then wham, wait a minute. Does that mean things are really slowing down in the economy? The Fed’s starting to get worried. I’m, then we had the jobs report on, not this Friday, but last that saw rates go or get well, the Fed actually didn’t have the job numbers yet on that Wednesday. And then what they had said with unemployment going higher was confirmed by the jobs report. Up 4.3% or up to 4.3%. And then the world started to get worried.

Wes Moss [00:16:00]:
Wait a minute. We’ve been wishing for lower rates, but guess why you have to have lower rates because the economy is starting to slow down. Wham, here we go. The market starts to sell off. Then the worry of the carry trade, which is this esoteric trade where hedge funds are borrowing in yen because rates are so low. Well, guess what? Those rates are headed higher. Carry trade starts to unwind. They’re borrowing in yen and they’re buying the mexican peso because it’s yielding a much higher rate.

Wes Moss [00:16:32]:
That global trade, which is hundreds of billions of dollars worth of hedge funds, lots of leverage in the system. We know anytime there’s leverage, it’s a coiled spring that started unwinding. It did so very quickly, and hedge funds started to sell the big names that have done really well. And wham, this crowded trade that’s been all AI, it’s been all tech. You saw the Nasdaq drop 13% from its all time high. And some of the big names that have really carried the market down 1520, 25% just in a very short period of time. So here we are on a Sunday morning after the dust to some extent, has settled. We have no idea where markets will open up tomorrow, but we had a terrible Monday, so much so that I got a voicemail from my mom, hey, the market’s going to be okay.

Wes Moss [00:17:21]:
And by the way, the short answer is yes. I think they’ll always eventually be okay. We have to go through some pain to get there. But I believe in the us economy. I believe that companies will ultimately innovate, work hard, continue to press earnings higher and further in general as a big group. And if we believe in that, then we have these really tough periods of time eventually get corrected back to the upside. So where do we stand today for this particular correction? What is it? How does that help you as a money matters listener, handle a market sell off? One, in this particular case, fed a little behind the curve. We get it.

Wes Moss [00:17:57]:
That’s okay. They’re probably not that far behind the curve. They understand that they now have, well, now they understand their dual mandate and they’re talking about it. That’s a step. Number two, this is an unwind of an overheated trade that has all sorts of knock on effects. Money coming out of tech trying to deleverage the financial system that was overworked with this so called carry trade in asian markets, and then three more practically that I think applies to all of us. Jeff, Lloyd, and those listening, is that corrections, while very unpleasant, they’re more unpleasant for some people than others because certain people have different tolerances for this. But corrections are unpleasant, but they are just not uncommon.

Wes Moss [00:18:45]:
And they are very much part of the process. This is what markets do. Stock markets do. Market prices are overly emotional, both up and down recently down. Ironically, here we are on a Sunday, and the market was mostly flat this week. We had this terrible Monday, and then Nasdaq finished down less than two tenths of a percent for the week. The S and P 500 down less than a half a percent for the week. The dow was down a little more than a half a percent on the week.

Wes Moss [00:19:14]:
So a little time really healed some of these, this unwind and the sell off. But there’s so much emotion in the market when we’re headed higher and particularly when we’re headed lower, and we tend to pay attention to the painful days. That’s what really moves us emotionally. But it doesn’t mean just because the stock market sells off that it won’t pass, and it doesn’t mean that it means the economy is headed to south and that earnings that are tied to the economy are going to be damaged forever. In fact, it’s quite the opposite. There’s a cure for this, and at least over the course of 100 year of market history, actually further back than that is simply time. And the progress that we know we will eventually make as a country, as companies that make up the stock market of our country, stocks we know net of inflation, almost any 20 year period you look at are up 7% net of inflation. So that on average about 10% a year over economic history -3% inflation.

Wes Moss [00:20:23]:
So you get a 7% real rate of return. Not everyone experiences that due to these shakeouts, these shakeouts get a lot of people out. The people that do realize that these are often, and they’re a necessary part of the process. Those are the investors that typically are the ones that prosper the most over time. The trick to making money in stocks is to not get scared out of them. Jeff Lloyd this chart I love.

Jeff Lloyd [00:20:52]:
Yeah, we have some real interesting data that shows how often drawdowns in the market happen. And we have data going back to 1928.

Wes Moss [00:21:02]:
So we have, I can’t see that number because I don’t have my glasses with me, but that’s what that 28 to 20 819 20 819 28 through 2023.

Jeff Lloyd [00:21:11]:
We have over 95 years of data and what this data says. 95% of those years see a drawdown of 5% or more.

Wes Moss [00:21:21]:
So literally all the time.

Jeff Lloyd [00:21:22]:
It literally happens all the time. Drawdowns of 5% or more as measured by the s and P 500.

Wes Moss [00:21:29]:
How about 10% or worse?

Jeff Lloyd [00:21:32]:
Corrections almost two thirds of the time. So 64% of the year see a drawdown of 10% or worse.

Wes Moss [00:21:39]:
How about 15 or worse?

Jeff Lloyd [00:21:41]:
Jeff Lloyd 40%. So 40% of the time, 40% of years, we see a drawdown of 15% or more. And then finally, about a quarter of the time. So 26%, we see a 20% or worse drawdown in the S and P 500 or 20%.

Wes Moss [00:22:00]:
20%, yeah, 20 quarter of the time. 26% of years. We’ve seen at least a 20% or worse drop in markets. The other thing that I think is always nice to remind ourselves, I wouldn’t say it’s nice to remind, but it’s important to remind ourselves, is that when it comes to the average drawdown in any given year, if you go again same time in economic history, the average drawdown in a given year is 16.3% on average. That’s a normal circumstance. It doesn’t happen. In some cases it’s worse than that. In some cases, a lot less bad than that.

Wes Moss [00:22:42]:
But that’s the average. All the years together. And look at all the times the market is falling at its low point for the year, averaging negative 16.3%. So down days and down periods of time are tough. That was down over 2000 points in about three days. That’s what makes investing so hard for so many people. Why do you, why, you ask, do I subject myself to these swings? That’s what happens during these market downdrafts. They’re so big, they’re so violent, they’re so unsettling.

Wes Moss [00:23:13]:
What’s the point? Well, it’s the pain that is the point. The pain is the toll of long term ownership in companies that happen to reside in the stock market that is full of the world’s collective emotional highs and lows. There are no highs without some lows. That’s just the reality of it. That’s the toll, that’s the price. It’s the price of long term market and investing success. And we all know these long term rates of return, and they’re great, but it doesn’t mean it’s easy for everyone to do so. Wait a minute.

Wes Moss [00:23:53]:
10% rate of return, 7% net inflation. Bonds are six and only 3% net of inflation. So why would we do that when we just, we know that’s what’s happened. Why wouldn’t just be all stocks? Well, because of weeks like we just saw, days like Monday. That’s why. Simply not all of us can take the pain of these downdrafts, the pain of a big minus sign, however temporary, might be. That’s what makes investing so tough. And the future is unknowable.

Wes Moss [00:24:22]:
And it’s uncertain. And there’s always the worry that, hey, maybe this time it is different. And maybe the biggest, strongest was innovative companies in the world. In fact, won’t prevail. That’s possible. Possible. It’s just not very probable. And therein lies that sliver of doubt that makes this whole thing so hard.

Wes Moss [00:24:44]:
We’re trying to make it a little easier. Jeff. Lloyd. The world’s gonna be okay. The market’s gonna be okay. Just gotta give it some time. I have all these different notes. It’s almost like we’ve been dealt a hand of cards.

Wes Moss [00:24:55]:
I could pick any one of the cards to pick up. How about it’s either how to handle a market sell off. Yes. Politics don’t matter. Meet El Terre, possibly the greatest Olympic athlete ever that you’ve never heard of. And then maybe I’m most interested in, because I’ve been wanting to write about this for a long time, what could happen to the us housing market with the Fed poised to drop interest rates? I don’t know. That’s one through four. Which is the most.

Wes Moss [00:25:31]:
Which number is the most interesting to producer Mallory? Sheila wants number four. We’re going to go there. What could happen? She’s in that life phase. She’s thinking housing. She’s newly married. She just bought a house, but I think has another house. Is she ever going to be able to sell it? You get this log jam. Housing market.

Wes Moss [00:25:53]:
We’ve underbuilding the United States for so long. Good luck. Getting new house for first time home buyer because they’re so expensive. Median home price today is what? Jeff Lloyd $426,000 for the median existing us home sale price just keeps going up and up and up and up. So however, however, there’s been a lot of chatter from the Federal Reserve around rates finally starting to maybe come down. We’ve got higher for longer. Higher for longer. Didn’t seem like that.

Wes Moss [00:26:30]:
Five and a half rate where we still are to this day here on this Sunday morning. I wish there was an easier way to say it. It’s a target range of five and a quarter to five and a half. So it’s technically 5.3, but let’s just call it close to five and a half. Rates have been close to five and a half now for a very long time. And of course that means mortgage rates are about two points above that. That’s why we had the 7% range for, for quite some time now. They’ve dropped recently and there’s a reason for that.

Wes Moss [00:26:58]:
The question is, do they continue to drop even more? Jeff Lloyd, when did you buy your house that you live in now? How many years ago was it?

Jeff Lloyd [00:27:05]:
It was about four years ago. So it was in July of 2020. So we moved still during that kind of what I call like peak Covid era, not many houses for sale.

Wes Moss [00:27:18]:
That was a brave time to move.

Jeff Lloyd [00:27:20]:
It was kind of twofold. We didn’t know if economy had just reopened. We didn’t know if we’d be able to sell our house and we didn’t know if we’d be able to buy a house. And thankfully it worked out well.

Wes Moss [00:27:31]:
You got one of those great golden handcuff mortgage rates, probably.

Jeff Lloyd [00:27:36]:
We got one that is not around the 7% mortgage rates that we’re seeing right now.

Wes Moss [00:27:42]:
And that’s why we have this, of course we know that what a big contributor to the housing log jam is that 75 80% of americans refinance during the post Covid 0% years where rates were two and a half to three and a half percent. Well, two and a half to 4%. Now we know the big kahuna economic statistics of the day. What are they? Well, the unemployment rate, just not this past Friday, but the Friday before rose to 4.3%. PC inflation, that’s personal consumption expenditures, that’s fallen to two and a half percent. Remember, the Fed wants it to be around two target two. So we’re getting close. This is why the Fed is likely soon to pivot from their very longstanding higher for longer interest rate posture.

Wes Moss [00:28:32]:
Along with them starting to allude to this. They’ve started to talk about this their week and a half ago, the Wednesday meeting. They’re starting to talk about this dual mandate. Well, we’re cognizant of unemployment going too high. We don’t want it to go too high. So that means we’re open to start the rate easing cycle. We can track it now. Again, this is just a right now you can go to CME, Fed fund futures, and CME was the, it’s actually called the CME group fed watch tool.

Wes Moss [00:29:05]:
CME was, that was formerly Chicago Mercantile Exchange, the big company, still a big company. And the marketplace they’re talking about, they’re looking at wherever people are placing trades and bets for futures contracts on where rates are going. So they look at all that data where people are kind of putting their money, and it gives them a probability of where rates could be in the coming months. It’s actually something we look at a lot. So it’s not just CME saying we think rates are going to be. It’s their tool that takes some data that suggests where rates might. And here’s what they’re saying right now. It’s essentially saying, and I’m looking at a couple of different categories.

Wes Moss [00:29:49]:
So it’s all the difference. So if we’re at five and a quarter today, looking at, call it four and a quarter and three seven five, there’s different tranches about. There’s. Right now there’s a 94% probability that by January we’ll see rates in the, in the 375 to four and a half percent range on the federal funds rate. These are not the mortgage rates. These are fed funds. So could these rates be the catalyst? Is the question, mathematically and mentally, which maybe is even more important, that unlocks all the pent up housing demand that has been growing and growing in this reservoir of people. More and more and more people would like to move and haven’t moved there.

Wes Moss [00:30:37]:
Haven’t. Guess what didn’t stop because of higher rates. It didn’t stop people from having babies and then more babies, which means I’ve got too many kids for the house. The square footage I got, it didn’t stop marriage, didn’t stop divorce, didn’t stop people simply just wanting to move. So this massive lack of activity, you got to go all the way back to the financial crisis of zero seven to see existing home sales this low. We’re lower than when we were in the middle of lockdowns. Right now, the existing home sale activity, it’s lower today than when the world was shut down that whole period of time. Well, let’s call it.

Wes Moss [00:31:22]:
We’ve had this housing log cham for now two years or so. As rates are higher the whole period, life has gone on, all these life events, they don’t care where rates are. But we still haven’t seen a whole lot of activity. So I think we’ve seen this just growing pool of people, a backlog of people wanting to probably do something, real estate wise, despite all the stagnation. And I think a lower rate environment might be the catalyst to start to unlock some of that. So could that change if mortgage rates fall to a new level and people start to feel, not just financially better about where rates are going, but psychologically a little bit better? What kind of drop could we see in the 30 year mortgage again, going back to CME, Fed fund watch tool, let’s say we get to the 4% range. We’re only at five and a half today. Is it conceivable we get to four by January? Absolutely.

Wes Moss [00:32:22]:
I have no idea if it’s going to happen. It’s hard to predict interest rates, just as. Just as hard as it is to predict markets. But let’s say that happens hypothetically. We get down to the 4% federal funds range. Well, we also know, and let’s go back to 1986. We go back in history, the 30 year mortgage rate has averaged about 1.75% above the ten year treasury. So we kind of know wherever rates are, where mortgage rates are going to be.

Wes Moss [00:32:52]:
Earlier in 2024, the yield on the ten year treasury, which again, is different than the Fed funds rate. But in fact, today the ten year treasury is lower than the Fed funds rate. But we know that in 2024, earlier this year, the ten year treasury approached, it almost got to 5%, which naturally pushed the 30 year mortgage rate to the seven plus percent range. We were at almost 7.5% at that point. Today, the ten year treasury yield is around four and was even lower than that, and potentially could head even lower. If the Fed really starts to aggressively lower rates, we could see mortgage rates fall a bunch. So let’s say that the ten year gets down to 3.5. Add one and three quarters to that.

Wes Moss [00:33:37]:
That’s historically the spread above. You’d have a mortgage rate could be at five and a quarter. Five and a quarter. That sounds like it’s on a different planet from seven and a quarter, doesn’t it? You’ve been shopping, Jeff Lloyd, and your mortgage person’s quoting you seven and a quarter. And you’re like you. You sit down at the dinner table with your spouse, you say, you know, nah, it’s just too much, too high. And then they call you the next week, and you say, oh, no, I’m. No, no, not seven and a quarter.

Wes Moss [00:34:08]:
Five and a quarter. What happens? You and your spouse buy a house that night at dinner.

Jeff Lloyd [00:34:14]:
I think psychologically, it might even be more important than financially. You know, financially, you’re going to save six or 700 more dollars a month based on, you know, if you got a four or $500,000 mortgage. But just psychologically, 7%, that’s a big mental hurdle for a lot of current homeowners to get over and for potential new buyers to get over. But you get in that kind of five to five and a half percent range, that’s a little more digestible and tolerable for homeowners.

Wes Moss [00:34:49]:
All right, I want to talk psychological in just a second, but just the straight math on this. On a $500,000 mortgage at seven and a quarter, it’s $3,400 a month. At five and a quarter, it’s 27 50 a month. Yeah, $650 less, or almost eight grand per year. Psychologically, people talk about mortgage rates. I bet you that ten times more people could tell you where mortgage rates are today. You just went on the street. Ask ten people.

Wes Moss [00:35:20]:
Ask 100 people, I bet you ten times more people could tell where mortgage rates are versus telling where the Dow Jones is. So people talk about mortgage rates, mortgage rates, it gets a lot of chatter. Six sounds a lot better than seven, and five sounds way better than seven. So I think if we got to the point that the rate had a five handle on it, five something, I think that in itself will start to gin up interest from buyers and start making sellers think, wait a minute, I can leave my rates only four? If I can get having to move and get a new mortgage at five and a quarter, that doesn’t sound that bad. So all of a sudden now we get four sales signs popping up. Okay, well, honey, we can move, we can go, we can sell this place that’s too small, and we can get another place that’s better. All of a sudden, you got more. Now we have more inventory, and we’ve got now more buyers every.

Wes Moss [00:36:23]:
Perhaps the whole thing gets unlocked, jammed. This could be wishful thinking, Jeff. Lloyd, for all those homeowners out there, I’m just saying it’s possible more money matters. Straight ahead. The Olympics are wrapping up today. So that brings me to a story about el terrible who? Mister el terrible.

Jeff Lloyd [00:36:49]:
Oh, this is the greatest Olympic athlete we’ve never heard of.

Wes Moss [00:36:53]:
Evidently, he’s the greatest of all time on some measures. He doesn’t have 23 gold medals like, like Phelps. But even Phelps is going to tell you that this guy is the best there’s ever been because he’s won five golds in the same thing in five different Olympics. So that. Think of it the way.

Jeff Lloyd [00:37:12]:
So he’s won five golds in five different Olympics. Jeez.

Wes Moss [00:37:17]:
It’s a long run. And the guy’s name is. I don’t know how to pronounce this. Mijon Mihan. And by the way, my voice starting to go a little bit here, so I’m relying on you, Jeff Lloyd. But Mi Jean machine Lopez, he’s six. 5290 pound greek roman wrestler from Cuba. Might just be the most formidable olympian we’ve ever seen.

Wes Moss [00:37:41]:
He’s 41. Just want, again, another golden. Five consecutive golds at the he again one 60. I guess to get this latest gold, he had like a ten year stretch where nobody even got a point against him.

Jeff Lloyd [00:37:57]:
I don’t even know really what Greco roman wrestling is, but if you don’t give up a point over the span of a decade, that’s got to be pretty impressive.

Wes Moss [00:38:06]:
I think right out of the gate. You starting to sound like an expert because you said Greco. When I first saw it, I thought it was Greco. Greco Roman wrestling. It’s Greco Roman.

Jeff Lloyd [00:38:18]:
Tomato, tomato, Greco Grico. Come on.

Wes Moss [00:38:22]:
I had to look this up because I watched some highlights. I couldn’t even understand what they were doing. And good for him. And supposedly his competitors would say it’s like wrestling a boulder where he just doesn’t even move. Like, no, no, no. And that’s. It’s kind of boring to watch. Cause.

Wes Moss [00:38:40]:
And I had to look this up on to figure out the sport itself. Cause it’s totally different than any wrestling I’ve ever seen. So, first of all, there’s no grabbing of the legs. It’s all above the waist. And if you’re trying to engage with your opponent and you’re trying to, like, get something going and you start to wrestle and they don’t engage, you get a point. So a lot of these points I saw were, it’s like the other side is not. It’s almost like in boxing, if you went up and tried to hit somebody and you keep avoiding them by backing up, the other guy automatically gets a point. So it’s hard to even really understand.

Wes Moss [00:39:19]:
But so it’s not. Not the most exciting sport to watch, I guess. And maybe that’s why we haven’t heard of Lopez, but he is known as the terrible el T reblade, and he’s in a pretty special accomplishment. Five golds in the same sport, in the same match division.

Jeff Lloyd [00:39:35]:
So that’s really impressive, especially when you have one of the most decorated and celebrated Olympians saying, you know, and Michael Phelps saying, no, this is the greatest olympian of all time.

Wes Moss [00:39:50]:
To some extent, though, I do learn from the. And I think a lot of these athletes, these athlete stories, there’s a couple big themes, obviously, that run through this. It’s the perseverance, it’s dedication. It is the kind of the grit and the fortitude to fight through. I mean, there’s no easy Olympic gold, right? It just. It’s so difficult. I was watching the shot putters, and it was raining, and you’ve got this giant weight on your shoulder, and you’re doing this 360 spin, and they’re doing it with shoes on, on wet concrete, and they’re slipping. It’s just, there is no easy anything at that level.

Wes Moss [00:40:32]:
And, but I think, like, what do we, what do we learn from Lopez, as an example? This is a guy who found one thing that he was particularly spectacular at, and by the way, he did retire. He left his shoes in the middle of the mat in his last match. He’s done. It was symbolic. He spectacular at this one sport that I don’t really even understand, greco roman wrestling. So he found the strength, he stuck with it, and he didn’t stray from it, and he kept doing it, and he kept winning Olympic gold, five of them. And in some respects, that reminds me of kind of just the principle, the Adam Smith principle of economics, which is specialization of labor, where we focus on what you’re really good at and what you’re really good at and what you’re really good at. And we put it together, and all of a sudden, you create this huge efficiency.

Wes Moss [00:41:27]:
You get this success for the collective. And from a career perspective and an investing perspective, maybe it’s similar. Jeff Lloyd maybe we find what works. Maybe that’s real estate for you, and you do it over and over and over and over again. All of a sudden, you’ve got a bunch of wealth. All of a sudden, over half a century. Maybe it’s diversified stock investing, and that strategy works for you, and you’re comfortable with it. You just do it over and over and over again.

Wes Moss [00:41:55]:
You don’t do it for a year. Year doesn’t help. You do it for five olympics. And now all of a sudden, it starts to help you. Can you start your four hundred one k at zero. Five olympics ago, you put in the max, 15 grand. Now it’s up to, what, 23 under 50? Put in the SB 500. Guess what’s over a million bucks? I haven’t run the math, but I bet you it’s over a million bucks.

Jeff Lloyd [00:42:18]:
Wes, I got to tell you, I kind of like this investing correlation that you’re given with this greco roman wrestler who you said, maybe it’s all.

Wes Moss [00:42:29]:
Maybe none of it makes sense. I don’t know. I just thought of it.

Jeff Lloyd [00:42:32]:
No, but maybe, you know, like you said, maybe it’s not the flashiest Olympic event to watch. Maybe it doesn’t get as much viewership as track and field or. Or basketball.

Wes Moss [00:42:42]:
Snoop Dogg didn’t cover it.

Jeff Lloyd [00:42:43]:
Snoop.

Wes Moss [00:42:44]:
Snoop Dogg wasn’t there.

Jeff Lloyd [00:42:47]:
But this guy’s been doing the same thing over and over for 20 years. He’s got five gold medals. You know, maybe it’s like dividend investing. Okay, kind of boring. Kind of boring. But over time, you’re drawn in two, three, 4% dividends, and over time, those dividends compound on themselves and you have a nice little income flow.

Wes Moss [00:43:14]:
I’m going to do a couple recaps here. While I’m doing that, I want to see if my math would work. 20 years. Fifteen k, and then it’s escalated. I know there’s a little work to do there in excel, but you’re almost like a wizard at this. You’re particularly spectacular at it. But then you’re going to have to pull in the s and p 500 rate of return. Let’s just see.

Wes Moss [00:43:39]:
We’re going to test Jeff Lloyd here. I’m going to talk for about a minute uninterrupted. Jeff Lloyd’s going to go into Excel, where he’s particularly specialized at. They gave out medals. He might. Might be on the podium. We’re going to see if someone. What they would have had, you may even be able to use.

Wes Moss [00:44:02]:
Is that even a. Could you use artificial intelligence for that question? We’ll say, I bet you’re just going to use Excel. I know how you work. One thing I do want to remind us, and maybe we should do this every week until the election, but yes, politics don’t matter when it comes to investing. They do. Yes, they matter to all of us. But I just want to always remind, and we may need to do. We may need to do this every Sunday just because we’ve got a heightened state of political nervousness and we always do in every presidential election year, you’re thinking, will the Democrats win? What will happen? Will the Republicans win? What’ll happen? Won’t it be terrible if they win the other side? Whatever side you’re on, you cringe at the thought of the other side winning.

Wes Moss [00:44:50]:
And for some people, that translates right back to what they’re invested in. Wait a minute. Does that mean it’s bad for the economy, bad for the market, people should just get out? Well, of course, we know that that is not a strategy that works. Two reminders that kind of help us put into perspective history and markets when it comes to politics. If you were to only have invested, and this was a study from Schwab, but if you’re only doing this 1961 to 2023, only putting money to work in the s and p 500 under a Republican, I guess this is a republican president, your $10,000 would. Yes, this is president only. This is White House. So it’s not Congress.

Wes Moss [00:45:38]:
It’s just if you, if you invested $10,000 back in 1961, but only left it invested in the SB 501 Republicans in office, it only grows to $102,000 over all that period of time. Do the same thing for only other under Democrat presidents, your $10,000 grows to a little over $500,000. Keep in mind, you’ve got different timeframes of how many years we’ve had Republican versus Democrat. The real kicker here, though, and the one that what really matters, 10,000 invested 1961, if you just left the money invested under both sides, doesn’t matter, Democrat or Republican. Of course, that means it’s the whole time. Your 10,000 is over 5 million. Over $5 million versus trying to pick which political party that makes you feel good. So the answer is we need to invest under blue and red and blue and red, no matter what.

Wes Moss [00:46:32]:
The other way to look at this would be political combinations under and what that means for markets, meaning republican president, democratic Congress or Senate or Congress. And of course, we’ve all the different variations. The reality here is that pretty much any iteration that you can think of, which call it a Republican Congress and a republican president, Republican Congress, Democrat president, Republican Senate, Democratic House, republican president, just any combo. They mostly come out to kind of on the low end, 9%. And most of them land in the eleven to 12%, 13% annual s and P 500 annual rates of return, again going back to 1933 through 2023. And the message there is just yet another reiteration that political combinations, though they may make us feel like we need to do something, and they may feel like it’s going to be big for the economy and it may feel like it’s going to wreak havoc or success when it comes to the market. History tells us otherwise. History says, just don’t let politics influence you being in or out of the market.

Wes Moss [00:48:03]:
Almost any combination should be able to work. And it makes sense because we have companies that adjust to whatever the political climate is we were talking about. I guess it was greco roman wrestling, and it brought up 401k investing. I don’t know how that ended up correlating, but we did some calculations during the break that were essentially, if you just started out from scratch, call it Jim. Jim started from scratch in zero four. Back then he was sub 50. So the max contribution back then was what, 13, 13,000. And then when did it go to.

Jeff Lloyd [00:48:42]:
15, and then in 2006 it went up to 15,000.

Wes Moss [00:48:46]:
And then from 20, when did it hit 20?

Jeff Lloyd [00:48:49]:
It hit 20 back in 2022. It was 20,500 back in 2022.

Wes Moss [00:48:54]:
So assuming Jim put in the max every year, put it in the s and P 500. So back in the envelope calculation, if you just take it a 10% rate of return, it’s a little over a million, but you actually put in the s that you tried to get a little more granular. And where did he end up?

Jeff Lloyd [00:49:09]:
He ended up without any 401k match and no employer matching. He got to about $1.2 million over that 20 year span. If he maxed out every year. Every year.

Wes Moss [00:49:22]:
Wow. In the time that it took Lopez to get five gold medals, five times four is 20, approximately here, a 401k invested. Again, this is just all hypothetical s and P 500. Some couch this to say that the numbers could be a little different, or maybe largely different, depending on the timing here, but largely do the math here. Max out every year over the last 20 years, assign about what the S and P 500 has done, and you’re over a million pretty easily. And that’s not even with an employer match.

Jeff Lloyd [00:50:02]:
I think the point is, over time, with some discipline and just continuing to invest year in, year out, regardless of volatility, regardless that the market’s up, regardless if the market’s down, if you continue to do that in general over time.

Wes Moss [00:50:18]:
Grind, grind, grind it out, grind like.

Jeff Lloyd [00:50:20]:
Greco roman wrestling, you could be rewarded in the end.

Wes Moss [00:50:24]:
You could be in, into the future, possibly, maybe in the future. With that, we’ve got, you know, one thing I wanted to mention before we run. We’ve just launched the Happy retiree planner. Happy retiree planner. It’s right on the website under resources. And this took us a long time to do. I hope people like it. I hope people find it helpful, really.

Wes Moss [00:50:46]:
That’s how we designed this. I wanted the end user to actually get something out of it. I wanted it to be useful. And it’s a dual, it’s a happy retiree planner because it’s lifestyle questions, then it’s financial questions to help you in your retirement journey. And so it’s got both sides of the equation. You answer some questions, see where you are on the happy retiree lifestyle scale, and then how do we pay for it? And you can put it in all your own variables. It’s very self explanatory. It does it kind of in real time.

Wes Moss [00:51:20]:
It’s interactive. And then you get a report. You can print it out as a PDF, it’s a five page report. It takes a few minutes to do. And it’s a nice, it’s at least planning. It’s at least doing something. Some little bit of a plan can go such a long way. Again.

Wes Moss [00:51:36]:
The happy retiree planner, right under the resources tab on the web@yourwealth.com. dot that’s y o u, ryourwealth.com and Jeff Lloyd, so much fun today. Thanks for doing that. Thanks for being here. It was awesome.

Jeff Lloyd [00:51:53]:
It’s great being back in the studio with you.

Wes Moss [00:51:55]:
Thank you so much for listening to money matters. Have a wonderful rest of your time.

Mallory Boggs [00:52:05]:
This is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. The mention of any company is provided to you for informational purposes and as an example only, and is not to be considered investment advice or recommendation or an endorsement of any particular company. Past performance is nothing indicative of future results. Investing involves risk, including possible loss of principal. There is no guarantee offered that investment return, yield or performance will be achieved. The information provided is strictly an opinion and for informational purposes only and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing.

Mallory Boggs [00:52:53]:
This information is not intended to and should not form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment tax, estate or financial planning considerations or decisions. Investment decisions should not be made solely based on information contained hereinhood.