It’s Episode 129 and markets continue to chug along. The Dow having its best streak since 1987 as money continues to pile into this market. Economic data still coming in well, pretty good. Inflation numbers continue to come down. The Fed could be done with its interest rate policy. They may stop raising interest rates. We’re going to give you our viewpoint.
On The Tipping Point, we’re going to talk about cash management. Interest rates have gone up a lot. Are you making the right decisions with your money right now?
The Fed may be done raising rates
The consensus seems to be that the Fed is probably done raising interest rates. We think it’s one of the reasons why the markets had such a strong run in the last month or so. It’s also great for the overall economy because it creates clarity. And that’s one of the biggest issues when it comes to the market, markets hate uncertainty.
”This was the best Fed day ever.. Jay Powell spoke and nothing happened.Ryan Payne
Where’s this recession?
These strategists that have been calling for recession have been dead wrong. But they keep pushing out their predictions, to six months, then another six months. We don’t think we’re going to go into recession, in fact, if you start looking at the data, we’re going to see a reacceleration of growth going into next year.
- We had $122 billion in construction and manufacturing over the last year
- Big companies like General Motors, Intel, and U.S. Steel, are all building factories here in the USA
- Next year’s an election year. Politicians are going to spend a lot of money on infrastructure
- With 11 million job openings, clearly, there’s a lot of demand
But still, all you hear about is tech
People are missing these other trends happening in plain sight. So it’s really important to avoid the noise and spread out your money beyond tech.
”..whatever happened the last ten years.. odds are the next couple of years aren't going to look the same as an investor.Ryan Payne
”.. we don't give people jobs because we're nice guys.. it's because we need workers..Bob Payne
The Tipping Point
At our firm Payne Capital Management, we’re getting a lot of questions right now about what should you do with your cash. We’ve seen the Fed raise interest rates 11 times. You’re getting like 5% on a Treasury money market fund right now. The rates are really, really good. But we’re finding that a lot of you are making bad decisions.
What kind of yield is your bank giving you?
Whether you have your cash in a brokerage account or you have a money market fund or a bank, all these institutions call their savings accounts “money market funds” but it doesn’t mean you’re getting a good money market yield.
”Anything the banks can do, we can do better.Chris Payne
”It's surprising to me when you find out how much cash people are keeping on the sidelines..Bob Payne
Money Markets are paying 5%. Great, right?
Why shouldn’t you just put your money where you can get 5%?
- Money Markets are floating rates: If you’re earning 5% right now in a money market account and rates start to come down, so goes your return.
Yes, they’re taxable
Money markets, treasuries, and CDs are taxed on the Federal level. Depending on your tax bracket, that 5% could end up being under 3%. Meanwhile, you can buy a portfolio of tax-free bonds, paying between 3 and 4%.
”That’s why you don't want to have too much money in cash .. look at some more tax efficient options depending on your tax bracket.Courtney Garcia
What about the inverted yield curve? Shorter-term rates are better, right?
The rationale seems to be, “I can get 5% on a one-year treasury. Why would I lock in for 8 years at 4%?”
- You’re only locked into that 5% for a short period. With the likelihood of rates dropping, it leaves you looking for that yield again in a different rate environment
- Longer-term rates might be 4% but you get to keep it locked in for much longer
”.. that's where investors are being pennywise - dollar foolish, because at that 4% you're locked in for eight years.Ryan Payne
Stocks are a rising cash flow investment
When you buy that bond for two years, it pays 5%. Or that Treasury or sitting in a money market at 5%. That’s all you’re ever going to get. But when you buy stocks over the long term, the dividends are increasing. Maybe you’re only getting 3% on a stock portfolio, but that’s increasing over time. Five years now could be 8% – it’s a rising cash flow investment.
”When you're looking at your portfolio, you're looking at the income component, you have to start thinking about the long game, not the short game.Ryan Payne
Hidden Facts of Finance
European members of NATO in Canada are expected to boost defense spending by 8.3% this year to $356 billion faster than the 2% increase last year and 2.8% jump in 2021, according to NATO. This year’s defense spending increase by NATO’s European members in Canada is higher than any annual increase over the past decade, including the prior fastest spending increase of 5.9%, which is back in 2017.
The Bureau of Economic Analysis reported that from the first quarters of 2022 to 2023, interest payments by the federal government rose from an annual rate of 603 billion to 929 billion, a 325 billion increase. This was a 54% rise in one year, increasing the average interest rate paid on the federal debt from 2.1% to 3.01%.
Wall Street loves spotting new themes for stock buyers, but many fizzle. Three years ago, investment bankers marveled over TAMs (Total Addressable Markets) for meatless burgers and big screen exercise machines since then, Beyond Meat and Peloton Interactive have fallen each by over 85%.