Paul, Evan, and Ira talk about the news stories that dominated the news cycle and affected businesses and markets in 2023 that seems like a distant memory by the end of the year. Listen along to hear these advisors reflect on the year and discuss what happened in 2023 that no one could have predicted and what seemed like big news for the economy or investors but didn’t make a large impact.
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Paul Winkler: Welcome, this is “The Investor Coaching Show.” This is the last episode of “The Investor Coaching Show.”
Ira Work: For the year.
PW: Oh, you just ruined it. Ira.
IW: For the year.
PW: Ira worked with me, of course, and Evan Barnard. It is the last episode of “The Investor Coaching Show” for the year. Yeah, we don’t want it to be the last. Do you guys realize…
Evan Barnard: No.
PW: Yes.
IW: Maybe.
PW: We’re going on 23 years.
EB: Yes.
PW: 23 years.
EB: On the radio or?
PW: Yeah.
EB: Wow. 23 years.
PW: Hey, you know what tomorrow is going to be a big day for, of course?
EB: Yes.
PW: Yes.
EB: We were talking about this at home.
PW: Weddings?
EB: Yep.
IW: Mm-hmm. Yeah.
PW: You guys saw that, right?
IW: I saw that, yep.
EB: Because that’s our anniversary anyway.
PW: Huge.
IW: Huge. Yeah.
PW: Oh yeah. I have another friend whose anniversary is —
EB: 30 years this year.
IW: 30.
PW: 30 years.
EB: Sure.
PW: Well, see, thirty’s got a three in it.
IW: Yeah.
PW: Which is if we play a waltz, it’s in three quarters, right?
EB: There you go.
PW: One, two, three. One, two, three. You guys do a waltz for …
PW: For your anniversary, because it’s one, two, three. One, two, three. Yeah, there you go. It is going to be a big day in Las Vegas, is what they’re saying.
IW: Yep.
PW: It’s like one of the biggest days. I think it is going to be the biggest day.
EB: At least for weddings. Yeah.
PW: That they have ever had, is what they were saying.
In 2007, you had 07/07/07. That got a lot of people. July 7 2007, a lot of people got married. You had 4,500 couples who were married on what became the Lucky Sevens day in Las Vegas.
EB: Okay.
PW: And then the second most popular was 11/11 of 2011.
EB: I was going to say Nov. 11 2011.
PW: Yeah. There you go. So they’re looking at another big day in Las Vegas tomorrow, and they’ve got these people out there selling packages.
EB: Yeah.
PW: The 12/31/23 package. They’re selling it for $2024.
EB: That’s pretty creative.
PW: Yeah, they’re selling. The idea is that you get a limousine ride, a wedding planner, a photo shoot and a cider toast.
EB: Cider toast.
PW: Cider toast.
EB: Oh, I guess like apple cider instead of champagne.
PW: They’re going to toast you with cider.
EB: Yeah.
PW: Yeah. Speaking of toasts, the guy who came up with avocado toast passed away. Did you see that?
EB: No, I didn’t.
PW: Yeah. Who’d ever thought of having avocado?
EB: I saw the creator of the Glock passed away this past week.
PW: Creator of the Glock?
EB: Yeah, he passed away.
PW: No kidding.
EB: He was an Austrian engineer.
PW: Okay. Yeah, I don’t know much about that.
EB: And I think he was like 94, something like that.
PW: Okay. All right. And then the next date that somebody else’s saying that’s going to be too crowded — she’s going to get married on 2/4 of ’24. She’s going to wait a couple of months. Maybe she’s got to think about it first.
EB: Is Vegas making the odds on the success percentages of these weddings on New Year’s Eve?
PW: No, I have not seen that.
PW: So it has been an interesting, interesting year. Evan, you’ve been talking to your son about it.
EB: Yeah, it has.
PW: And I’m sure he has a nice little list of things.
EB: We did, yeah. We went through a few things, and some stuff I just had totally forgotten about. It’s a function of the news cycle now that there’s so much coming on that I had failed to remember several pretty good-sized stories.
PW: So there were a lot of predictions.
EB: Out of sight, out of mind.
PW: There were a lot of predictions for the year. And I think it’s interesting because one of the things that I’ve talked about on this show over and over and over again is how the experts can’t seem to predict things.
EB: Right.
PW: Right? They’re not so good at predicting what’s going to happen next, where things are going to go or anything like that. There was a piece on CNBC where one of the anchors was talking about that very thing — the Federal Reserve and their economists, the most brilliant economists, the most educated economists out there, period, end of sentence.
Check this out, guys. Here’s what he said. I pointed this out many times: They have a terrible forecasting record. I just want to point out that their GDP forecast this time of last year was 0.5% for 2023.
Okay? So a GDP of 0.5% is what they predicted it would be. This is the Federal Reserve, whose job is to set interest rates, right? They help make sure that you have full employment and make sure that the currency is stable. That’s their mandate, their dual mandate.
Now this is what they basically said: 0.5% growth in GDP. And this is what the anchor said:
News Anchor: For the actual numbers, we had 2.2% for the first quarter. 2.1%, 4.9%, 2.7%. They were off by orders of magnitude.
They were off on the unemployment rate too. They had 4.6%; we’re 3.7%.
PW: Now it’s not quite as bad as he’s making it out to be because he said 2.4%. Because he’s annualizing all those numbers. You take the quarter, and you have to divide that by four. So you look at that, but that is a pretty doggone big percentage to be off when you have all the numbers at your disposal.
One of the things he made a comment about, he said, “This was predicted for this.” And he said, “Then COVID happened.” He had talked about several years back, of course. Thankfully, we can look back and say, “That was several years ago.”
But he was looking at that and saying, “They were way off. Then COVID happened.”
Well, this is what happened. This is our excuse for missing our prediction — because COVID happened.
And his point is, “But COVID happened.” That’s like, “But 9/11 happened,” or, “But the oil crisis happened.” You can fill in the blank.
EB: Yep, exactly.
PW: So I’m curious, Evan.
EB: Yeah.
PW: What did your son come up with? What were some of the things that he popped out?
EB: Yeah, so I’ll start with the curveball here. The Titan submarine sank. The submarine that was looking for the Titanic.
PW: Oh, yeah.
EB: There was the wealthy billionaire, whatever, and his son.
PW: Well, your son would come up with that.
EB: And all that kind of stuff.
PW: Yeah.
EB: That went down. And of course, there was all the news cycle — “How much air do they have? How long is this going to be?” All those kinds of things.
And of course, there was the commentary on the business side. Okay, it’s almost like the space shuttle.
“What failed? What design flaws weren’t we looking at? Oh, they rushed the process.”
Just like you were talking about with the economists. After the fact, they say, “Well, we would have, could have, should have.”
PW: Monday morning quarterbacking.
EB: Yeah, for sure.
PW: Right. And as I recall, there were a lot of things about how these people were kind of a fly-by-night type of operation anyway.
EB: You mean the designers of the sub?
PW: Yeah.
EB: Yeah. Well, yeah. I hesitate to use the term “fly-by-night.”
PW: Yeah. I don’t know much about it, but I remember that that was the commentary.
EB: Yeah. They were kind of rushing this. It was maybe an unproven — I’m not an engineer — like polymer in the ballistic nylon shell or whatever. Kevlar almost.
PW: Because there were a lot of wealthy people on board that thing, weren’t there?
EB: Yes.
IW: They were all wealthy people.
EB: Yeah. Well, there was …
IW: They were all wealthy.
EB: Yeah, were they?
IW: Yeah.
PW: Yeah. So that’s just what I recall about that one. Okay.
EB: I’d totally forgotten about that story.
PW: They’d been warned. They’d been warned.
PW: Columbus had no place going across the ocean when he was going to probably fall off the edge. But no guts, no glory, right?
IW: That’s it.
PW: So what else did he come up with?
EB: Well, let’s see here.
PW: Because I remember the bank thing. I’m thinking about what I was interviewed over.
EB: Well, Silicon Valley Bank was one I came up with.
PW: Yes.
EB: That wasn’t Justin’s.
PW: Right.
EB: You want me to run through the list?
PW: Just come up with a couple of things and we’ll talk about them.
EB: Well, the Chinese spy balloon.
PW: Yes, you’re right. That did happen this year.
EB: Yes, it did.
PW: Wow.
EB: And actually, this kind of led to it.
PW: Boy, that was in the news a lot.
EB: Yeah, it was.
PW: And it’s funny how quickly we forget those types of things.
EB: Yeah. And really, that’s not so much of a business event. It’s not a market-related thing. But at the same time …
PW: But it sure can affect business.
EB: Yeah, it can.
PW:
EB: Exactly.
PW: Yeah, sure.
EB: And so that was one. Then, oh gosh, what was an interesting one was the popularity of two very different movies, “Barbie” and “Oppenheimer.”
PW: My wife, she was an avid Barbie collector, and she just wouldn’t go.
EB: Both totally different ends of the spectrum.
PW: She won’t even watch it.
EB: Yeah.
PW: That’s funny. Yeah. But yeah, just thinking about “Oppenheimer.” I haven’t seen either one.
EB: I haven’t either.
PW: I don’t watch movies. You guys know me. But I think “Oppenheimer,” that’d be fascinating, I guess. Ira, did you see that?
IW: No, I did not, and I see a lot of movies.
EB: Justin has seen them both and he really loved both of them.
PW: Did he really?
EB: He did. Yeah.
PW: Okay.
EB: Now this is on the business front, but it’s kind of left the headlines: what happened with Bud Light and Dylan Mulvaney.
IW: Yeah, I was just thinking about that one.
EB: Beer can debacle.
PW: Yeah.
EB: And that’s now old news. Their stock hasn’t rebounded much.
IW: Their beer sale’s down 24% against Budweiser.
EB: Yeah.
PW: Yeah. Well, I guess that maybe that memory of that is holding strong with people who were offended by the whole thing.
EB: Yeah, I think so.
PW: Interesting. Yeah. Because Nike was this big deal, right? And then all of a sudden Nike rebounded, and I don’t know where Nike is. You guys even watch that? That was a big …
EB: I don’t.
PW: … Controversial company.
EB: I missed that. Yeah.
PW: And that’s another example of just one of those things when we talk about investing. You don’t know when something like that is going to happen.
EB: Exactly.
PW: Something like that might happen to a company near you. All of a sudden, they do something that is out of step with culture in one way or another.
You think about Walt Disney and how that whole thing went down.
EB: Well, and if you think about it, this is news. It’s a surprise. It’s not like a natural disaster.
But just as recently as a month or two ago, Sam Altman was relieved, we dealt with OpenAI and ChatGPT and this power play between Microsoft and all of that.
All of that stuff can happen. That whole story started and ended and changed in about 72 hours.
PW: Well, yeah.
PW: There was actually some talk about that in the Wall Street Journal. I didn’t really get through the whole article. It was talking about whether or not 2024 will be the year that some of those cryptocurrencies are maybe going to be more legitimized. Because maybe some regulation will show up around them.
And if you think about it, people have been using it, quote, as an investment. And as we’ve talked about so many times here, it’s not an investment. An investment by definition is something where you have a cost of capital. But it’s been going up and down in value, and their volatility has been unreal.
If some of that regulation comes to fruition, you could see some of that volatility going away — not that it would be a good investment at that point in time, that’s not what I’m saying.
EB: You could regulate ice, but it’s still going to melt.
PW: But you could see the volatility or it stabilizing more. You think about gold as not necessarily tremendously stable by any stretch of the imagination, but it has been far more stable in comparison to these wild spikes and drops that we saw with cryptocurrencies — with Bitcoin particularly.
It is funny because we talk about Bitcoin all the time. Why? Because it was the one out of thousands and thousands of cryptocurrencies that was the winner. It’s just like anything else with stocks.
EB: Mm-hmm.
PW: We don’t talk about a stock in glowing terms until after it’s been the winner for a while, and then we know. You hear all these other companies that have come and gone.
IW: Well, I think Bitcoin was the winner primarily because it was really the first one to come out and get publicity out of all of the cryptocurrencies. And then they all tend to follow them, and now there’s just too many of them.
They’re not currency either because there’s nothing backing it.
PW: Well, I would say it’s more akin to gold though. In essence, that gold fluctuates pretty significantly based on supply and demand. Because people see it as a store value that’s outside of the monetary system, unlike another currency.
IW: But gold you can at least put in your hand.
PW: Right. Right. It does have another use.
IW: Yeah.
PW: Yeah, that’s a good point.
IW: Well, regardless of gold, whether you use it for something else or not, silver is probably one of the most used metals of all of them for industry. You see it in soldering and circuit boards and so forth.
PW: Yeah. It has a utility.
IW: Right, but you can just hold it. You can’t hold cryptocurrency because there’s nothing there.
PW: Right. Are you saying that this is precarious in any way?
IW: I’m just saying — so for example, we have cash, and a percentage of the portfolios in cash.
Why? Because the dollar doesn’t fluctuate up and down like a stock or a bond does. It’s not sensitive to interest rates. A dollar is a dollar is a dollar. My dollar today will be my dollar next week.
PW: Well, you have an entity that’s making sure that there’s stability going on there, like a Federal Reserve. Whereas you look at some countries where their currency has fluctuated wildly because they print and they increase the supply. Then you have hyperinflation.
EB: Venezuela, anyone?
PW: Yeah, can you say that? Yeah.
IW: And that’s the only reason why the dollar for us is so stable, and why we keep a certain percentage of the portfolio in the dollar.
Now it does to other currencies around the world. We can see the dollar went down compared to the pound, or the dollar went up compared to the Euro. But the dollar for us is always a dollar, as opposed to Apple dropping in value, or interest rates growing down, so the value of the bond goes up. The dollar is fixed for us.
PW: Right, and it’s a good point to make, Ira. When you’re investing and you hold bonds in your portfolio, they’re there for stability. And if you do have bonds outside of the US — and a lot of people have these things — you don’t know whether your bond funds are actually hedged against the currency risk.
That’s one of the things that we’re adamant about: that we have that hedging against currency risk because you don’t want that to be fluctuating.
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Paul Winkler: All right, we’re back here on “The Investor Coaching Show.” Paul Winkler here, with Evan Barnard on keyboards and Ira Work.
So speaking of predictions, there was an article in the Wall Street Journal. What did Wall Street get right about markets this year? The answer was not much.
We’re on, like I said earlier, the 23rd year going into this radio show. And that was one of the things we started it on: what passes as investment advice is terrible. Most people don’t realize that what’s going on is gambling, speculation and predictions about the future.
And you’ll see changes in your portfolio, or most of the time, you don’t see it, because you don’t look. But there are things going on and you don’t even realize that that’s what’s happening. It’s built into our bodies that we have to try to predict what’s going to come next.
But, 2023 — almost no one thought it would be a blockbuster year for stocks. They could have hardly been more wrong.
S&P finished up 24%. That was the winner for the year. More about that in just a second.
A year ago, everyone from the strategists and Wall Street banks to rap artist Cardi B. — I don’t know, did I say it right?
Evan Bernard: Yes, yeah.
PW: Okay. All right. Everyone was calling for a recession instead. Inflation continued falling, consumers kept spending and the unemployment rate fell to 3.4%, the lowest level since 1969.
It was interesting. You guys see the ten-year bonds?
EB: Yeah.
PW: Basically, they’re ending in the same place where they started the year before.
EB: Same place as last year, yeah.
PW: Which I thought was fascinating.
EB: Yes.
PW: So we had this big run-up in interest rates, scaring the living crud out of people.
EB: Mm-hmm.
PW: It caused all kinds of problems for the banks.
EB: Yes.
PW: Silicon Valley Bank. Then more about that. There was something about that. I’ll talk about that a little bit later.
But it caused all kinds of problems, and then they ended up back down where they weren’t. Now the thing is, that you can have interest rates go way up, and they come back down. And what caused the banks all the problems was the interest rates going up because of the bonds that they held.
EB: Yeah.
PW: Well, by the time they came back down, it was too late. You think about that. It was too late. Why?
EB: Right. It’s like shorting a stock almost. It has to happen in the amount of time before you’ve got to pay that stock back.
PW: Good example.
EB: To have the market move, it’s just the same phenomenon. It’s the time value.
PW: Yeah, exactly.
PW: So they had here that the unemployment rate went to 3.4%. Lowest level since, I hadn’t even caught that, 1969.
EB: Wow.
PW: Lowest unemployment rate. Now, of course, the unemployment rate doesn’t contain those people who have decided not to even look for jobs.
EB: Right.
PW: So that can be a little bit misleading.
The historic bond route that drove 10-year treasuries to 5% in October for the first time in 16 years, sparked a stretch of stock volatility.
But it didn’t stymie the rally for long. Of course, partly because the interest rates came back down. They didn’t put that there, but that’s part of the reason that it didn’t stymie the stock market rally. I remember learning that word when I was in ninth grade.
EB: Stymie.
PW: Yeah, an English teacher was so proud to teach us that word.
Wall Street finally conceded that T.I.N.A., or the notion that “there is no alternative” to stocks —
I thought this paragraph was interesting, guys — was over. They conceded that the notion that there is no alternative to stocks is over after a record torrent of cash flooded into money market funds. So remember what they were basically saying is that bonds have gone down in value because interest rates went up.
And then stocks went down with bonds and they were basically going, “There’s no place to hide. I mean, what can we do? We don’t have anyplace else that we can go.”
EB: Yeah.
PW: So what happened is you heard a lot of that earlier in the year. There’s no alternative to stocks. There’s nothing else to go into. Some people will try real estate and commodities, and all that other junk, but technically that was the thing.
PW: So what did people go to but money markets? Which I thought was interesting. It says, “They had a torrent of cash that flooded money market funds.” The hottest investment for the year.
Can you just imagine people walking down and just kicking themselves? People who bailed out of stocks and jumped into money market accounts and went, “Yeah, I got a 3% yield, or whatever, for the year.”
Then stocks, as they said here, had a 25% jump up almost in the S&P 500. Ouch.
So the article says, “’When everybody’s on the same side of the boat, it’s time to look to the other side,’ said veteran investor, Leon Cooperman.” Well, the only problem is, by the time you’re looking at the other side, the movements have happened already. Right?
EB: Yeah. I had a conversation about that just this last week, and was talking with someone — actually it was a client and her daughter who were in the office. But I’ve had the conversation with a few people, and basically, the discussion was, “Well, why would I put something in the market when I can get 5% guaranteed?” That was just basically the deal.
And you’re thinking, “Well, last year you weren’t getting 5% guaranteed. You were getting 1% or maybe it would’ve climbed up to 2%.” But you’re looking at today’s rate, and then just from what you said earlier in the segment, “I got my 5% guaranteed, but the S&P was up 24.”
PW: Further in the article, it says, “Soaring interest rates caught a number of regional banks flatfooted.” You had Silicon Valley Bank deposits, the value of the bond portfolio dropped and then First Republic Bank collapsed. A lot of these banks collapsed.
And you go, “Well, wait a minute. What happens when that happens?”
With insurance companies, as I’ve often talked about, people say, “Well, the insurance company.” And I say, “Well, who’s going to back the insurance company if it starts to fall apart?”
You look at markets and you go, “Well, yeah, the interest rate was higher, but why was the interest rate higher?” Because inflation was higher.
EB: Right.
PW: Well, what is the hedge against inflation? It’s certainly not fixed-income investments in banks, or CDs, or insurance companies, or anything like that.
That’s why we want to own it, and it’s the very thing you run away from when you need it the most. And yeah, good point.
EB: Go broke safely.
PW: Well, I mean that’s unfortunately what ends up happening so often. People do that and they try to avoid risk. I use the example of me playing football when I was in ninth or 10th grade. I was a terrible football player because I was always trying to avoid getting injured.
IW: Yeah, that’s why I played one game of lacrosse. I got hit by three people and said, “I’m done.” I said, “No more. I don’t need this.”
PW: I’m done.
IW: “I’m done.”
PW: “You can’t pay me enough to put up with this brutality.”
IW: No. I swam and played tennis, so I wasn’t going to be really into doing that.
PW: That makes more sense.
IW: But when people would ask me, “Well, why should I keep my money in the market when I can get 5% in the bank in the CD?” My answer is, “No, that kind of makes sense. Just lock it into that inflation that’s at 7%, and just know that you’re going to lose 2%.”
PW: Hey, this is Paul Winkler. Hope you enjoyed today’s edition of “The Investor Coaching Show.” If you want to learn more about what we do, go to our website, paulwinkler.com. You can watch some of the videos there, and if you’re not already a client, you can set up a free initial consultation.
Until next time, I’m Paul Winkler reminding you that I believe that more educated investors are more competent investors. And confident investors are more successful investors. Have a great one.
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