Transcript
Intro
Hey folks, this is Paul Winkler and you’re listening to The Investor Coaching Show. What follows is an interview with Michael DelGiorno from WTN talking about the decline in the US dollar and the implications on stock markets around the world. Hope you enjoy it. And thanks for listening to The Investor Coaching Show.
The Value of the Dollar
Mike DelGiorno: Okay. Let’s get back to news and finance. I bumped into Paul Winkler at a very small gathering we had. And I don’t know how the conversation got to this, but it got to the dollar. And then today I’m doing show prep this morning and I see this story on the dollar. All right, what’s all this talk about the dollar and the value of the dollar and the impact it would have on the economy,
Paul Winkler: Man. It has been a mixed bag. So it’s really, really interesting. Michael.
Mike DelGiorno: Yeah, it really was. Because you brought up the value of the dollar, I think a lot of people probably still have questions even from your last zoom workshop that you did on the election, and what’s going to happen with a new president and policies and so on. And again, this is oversimplifying. Don’t worry as much about your 401(k) as your job is always the reality, right? But you got me focused more on the value of the dollar that no one is talking about. Tell them why. Right?
Paul Winkler: So it’s really important to me because, well, Larry Kudlow, you know, the President’s economic advisor, he used to be on TV virtually every night. And the reason that somebody in his position would be concerned about that is the strength of the currency is the strength of the country, the strength of the economy. And as an investor, most American investors we’ve said this time and again, too many people are too focused on big US companies because during Trump’s administration, that area of the market has done better than any other. It’s not that other areas haven’t gone up in value. It’s just that large US stocks have done better.
Paul Winkler: So people naturally equate good performance with skill. And what has happened is people go, “Oh man, you know this 401(k)” or “this investment in my 401(k) has done better than the other investments in the 401(k) let’s shift over to here and put more money in large US stocks.” Well that has benefited under Trump. And part of the reason has been a very strong economy. Now with the dollar weakening, it doesn’t necessarily mean the economy’s going to be terrible here or anything like that. But relatively other countries around the world, it’s looking like their economies are going to strengthen because there’s going to be a difference in how this presidency handles the economy going forward.
The Dollar and Trade
Mike DelGiorno: Just to interrupt for one second. And I’m not gonna make anything political, cause we’re talking money, the value of the dollar. I don’t wanna put you in that position, but I mean, I’m making a case earlier about China. China ends up being a very big winner up from COVID and a big winner in Donald Trump not being president. And they might be the big winner in this, in terms of the dollar and its value. I’m not a fan of Bloomberg, but I mean, they had everything. And this is what led to this conversation. Little tidbits you’ve been dropping tidbits, like given another example, when the market went up, it wasn’t going up because Donald Trump appeared to have lost. And Joe Biden, one, you clearly discerned and dissected.
Now this has to do with the vaccine. This has to do with COVID being over and the stories of governors in blue cities and blue states that are panicking and locking down again, that can make the market go down. But we can see that. And I think this, you are you on the cutting edge. I mean, you always say, and I love this line. It’s so simple, that’s what makes it profound and true. If Paul Winkler knew tomorrow’s headlines, like in the movie Back to the Future, he’s the perfect investor. If you can anticipate tomorrow’s news, you can anticipate tomorrow’s market as fast as or faster than the market, which is usually going to beat you to that acknowledgement. And you really seem to be honed in on the two things. Two things, people should be focused on the value of the dollar and how that will impact trade and other countries versus the big stocks here in America. And then the other aspect you said COVID and COVID going away. Those are really two benchmarks, right? And this story had both of them. I was shocked.
Paul Winkler: Yeah, it was huge. So one, one day I was on the radio and after I got off, I actually watched the futures markets because they had made an announcement that day, that Saturday, that it looks like Biden’s one is basically what the announcement was. So, I went to look to see how the markets were responding because you can look at futures markets and tell what they’re likely to open up on, on Monday. And I noticed there was almost no change, which tells you what I always say, which is markets anticipate what’s likely to happen. But what was interesting is the vaccine news came out on Monday and that’s when the market really went up. And what happened is the media came out, go, and the market’s going up because Biden, it looks like he’s won, that was their interpretation. I’m like, no, not exactly. You know, so.
Mike DelGiorno: But Paul, that was so basic, right. So if I’m sure if COVID made the market go down, COVID going away would make the market go right back up. Yeah. Yeah. It was a V-shaped recovery. Exactly. It’s just too simple for most people to see, I guess what’s sure.
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Our Dollar Is Weakening
Paul Winkler: What’s really important for investors to get their handle on. Now, the thing that really did well over the last four years is not likely to be the thing that does really, really well in the future. Simply because trees don’t grow to heaven. As I like to put it, you know, things don’t go up forever and large US stocks, that’s what Americans are enamored with is that area of the market. Now, how does this whole dollar weakening actually impact things? And the example I gave you, which I like to give people when I explain this is, let’s say you have this thing called a widget and it sells for one yen and it’s, you know, made in Japan, it sells for one yen. And let’s say that the yen and the dollar are exchangeable, I can take one yin and $1 and I can exchange them back and forth. If all of a sudden that widget which sells for one yen, I can buy it for $1.
Cause I changed it into a yen and I buy the widget if the dollar weakens, and let’s say it takes $2 to buy what one yen waiting for, you know, to, to exchange for one yen. Now it costs me twice as much to buy that widget from Japan. Why is that important? Well, number one for trade that’s one reason because why inflation? Right? Absolutely. They can, they can both be hand in hand. But the other reason is, if you’re an investor and you own international stocks, those companies are outside the US and hence you actually exchange into the other currencies to buy them. And when we had the debt decade, remember when there was let the S&P 500 had absolutely zero return negative return from 2000 through 2011, it actually went longer than a decade over that period of time, international stocks, US stocks, not necessarily because their economies were better and all of that, but because the dollar weakened versus those other currencies, and that has an impact and too many American investors are almost totally concentrated in US companies and big US companies in particular recency.
Mike DelGiorno: I was just saying, and isn’t it interesting that when, when we first started talking about this and it just ends up now just being, and I don’t care if you love Trump or hate Trump it’s narratives. It’s not news. It’s not true understanding, but that’s how simple it becomes. Oh, well, Trump was anti-China, you know, he’s just, he’s just racist and a narcissist boom. It’s over. No, what Donald Trump was talking about was real in terms of theft of intellectual property, in terms of unfair trade agreements, leaning China’s way, and yes, currency manipulation. And here we find ourselves with Donald Trump being a temporary thorn in China’s side, Joe Biden and his administration saying they’re going to restore things with China. So it looks like China was a big winner from COVID a big winner from this election and how it was weaponized.
And now they get to manipulate their currency. And meanwhile, our dollar value is shrinking. And not just versus the yen. I mean, we’re seeing this pretty much across the board, right? Because I mean, I looked and I saw 13%, 8% against the Swiss Franc 4% versus the yen in 2020, in fact, probably more so down in value with our currencies versus the yen, but across the board down. So what does that mean? It shouldn’t mean inflation and trade. It can, but there’s more to it.
Paul Winkler: There’s even more to it than that. Michael, you know, if you look at, let’s say the US 10-year bonds, and look at the difference between the yield between our bonds and the German bonds. Now the German bonds are a lower yield than ours, lower interest rate. And what is, what has been happening is that spread has been actually narrowing. So that actually has, and it’s not even something you’d think about. It’s part of it’s because of the simple fact. And like you said earlier, go back to the virus. A lot of countries around the world were more deeply impacted than the United States because they closed down more than we did. And as a result of it, a vaccine opened them back up.
So you can think of it, that they were depressed even more, the stock values were depressed, even more as a result of that. Now, if we have a vaccine and they start to open up, they have more to gain. So it’s even deeper than you think. And that, of course, that’s why the bond differences are occurring is because of that spread difference changing.
Turning Uncertainty into Certainty
Mike DelGiorno: So talking about the falling value of the dollar with Paul Winkler, from Paul Winkler, Inc. and I’m very careful not to interrupt, but with three minutes to go, I want to get into two biggies and I’m going to shut up and let you take, as long as you need to answer it, what does this mean to everyone listening? I want their uncertainty to turn into certainty. What might this mean for them and their investments if this continues?
Paul Winkler: So what this actually does is it helps international stocks. It may help some smaller companies, US companies as well, value companies that have been depressed as a result of it and, and the reason being is that they would be less likely to be doing international trade. So that’s really important as well. So in, let’s say that we take a typical 401(k) plan. Most people use these target date funds, and they’re targeted to a certain age. You’re going to retire in 2040, 2045, 2050.
And all these fund companies, they literally look like each other. You know, typically it’s somewhere in the neighborhood of 75% of the portfolio is US and 25% is international. Typically about 90%, large companies, only about 5% to 10% small companies
Mike DelGiorno: I am just going to balance this by saying that the last question is going to be for those that are blindly trusting some of these managers, what might they be concerned and expect and how it will impact them. So let’s first do how it will impact their investments, how it might in fact impact the economy. And then let’s come back and do that for those that are blindly trusting what they can expect their managers to do now, and in anticipation of this.
Paul Winkler: So they’re probably not because the managers are probably not going to change their stripes. They didn’t during the whole last dead decade. So that’s why a lot of people didn’t get any returns from 2000 through 2012 are very low returns. So the managers aren’t likely to change because there’s safety in numbers from a compliance standpoint, it is safer to look like all of your peers. Because if you stand out from your peers, you run the risk of actually lawsuits and, and being, you know, regulators coming down on you. So one of the things that I look at is, okay, how do we diversify out of this? You actually have to go and look at other investments in the portfolio, and you don’t want to blindly trust anybody when it comes to that. A lot of these companies that do the management for you are doing the same exact thing.
So that’s why we bring people through an education process. And there’s no shortcut right now. There really isn’t. You have to understand it because the reality of it is markets go up and go down. You’ve got to get people to the point where they understand before they invest, what to expect. You know, disappointment comes and disillusion comes when you don’t know what to expect or your expectations aren’t met.
The Paul Winkler Difference
Mike DelGiorno: Ultimately, well, what’s the Paul Winkler difference. Well, he’s not selling anything. He’s not saying commission anything, but he’s educating. He’s mentoring. Now, where does that process leave? Me? After all these years, look at my instincts. I mean, it’s how I listened to a conversation with you in an event. And I’m reading this, reading this, and it all starts coming together. And, and if, and if you were working with somebody, you would still be there for them. So I would have called you as somebody and said, look, there’s something up with the dollar. And there’s something up with COVID and the attachment to COVID, and probably the two biggest things to keep our eye on right now is the value of the dollar and how that’s gonna impact trade inflation and international companies. I would notice and say, we need to look at the balance of my portfolio. This needs to be adjusted.
Paul Winkler: That’s if you knew exactly what was going to happen, and you just put it all in the place, that’s going to do the best. So, you know, I see markets go up, they go down, they go up, they go down, people always ask me what the market can do. It’s going to go up, it’s going to go down. So literally making sure that you understand what you’re doing, why you’re doing it, what the expenses are and what to expect. I think that that’s the big thing for 2021. If people are going to do something different plan people, life between people’s success and failure is playing
Mike DelGiorno: Life is best understood. Looking back, unfortunately has to be lived looking forward. You always get the perspective of history, and you always share that whenever we’re talking about topics personally, or even on the air, and it does, it gives you perspective. It gives you confidence. The sun, I can’t prove to you that it is going to come up tomorrow, but history suggests there’s a really good chance that it will, and I better be prepared to live with it. That’s right. Which, which is kind of really the essence of what you do. I can tell you this. I think, you know, it’s probably going to take years, not months, years for us to really know what happened on election day, just to use that as an analogy and the anomalies and everything points to fraud and things that were abused.
And we’ll know for certain, it’ll be too late by then, but we’ll know for certain, I think it might take years as well to know just what kind of transference of wealth took place during COVID and the mistakes from people selling off. How long before you think you’ll be able to, cause you’re, you’re a student of this looking back where we see this as one of the, maybe three or four in the last a hundred years, three or four biggest transfers of wealth from people that the difference between those that knew what they were doing and didn’t know what they were doing and panicked and sold and never got back, you can’t ever get back in and get back to them. I am completely restored. When I remember that listener that was taunting me. You’re such an idiot. You’re so hubris. I can’t wait for you to be broke. You should be selling everything and buying Bitcoin.
Trajectories Have Been Changed
But you know, a lot of people bought into that fear and a lot of people did sell off. How long will it take us to get, get a feel for how some people literally changed the trajectory of their entire retirement?
Paul Winkler: I’ve already seen issues. You had 30% of money flowing out where people over the age of 55 pulled all of their money out of the stock market back in March during the market low. So that’s a huge amount of people. And then people pull money out after that a little bit after that. So there’s a, what is a once a month transfer?
Yes. Yeah. Multiple decades, large US stocks are up over 50% from that period of time. Some areas of the market are over 60% or 70% from that period of time until now. So it’s huge. And if you think about, you know, what the typical market return is year by year, it’s unfathomable, how much people know
Mike DelGiorno: Let’s take a break from politics and from COVID and really get to what people are concerned about their future and their livelihoods and sustainability. I mean, that’s, I think keeping an eye on this vaccine and keeping an eye on the value of the dollar is a pretty wise thing to do in the new year, as much as policies from a new administration, right? Yeah.
Paul Winkler: Well, we’ll be talking about it all year long. I’m sure It’s going to be this stuff. I’ll get into a little bit more detail on what you and I are talking about right now. I’m going to be talking about really, really interesting research that I did. Going back to the 1970s on returns of different areas of the market and how many times they had negative five-year periods, that it was eye opening.
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