Hi. This is Michael Carlin president of Henry+Horne Wealth Management with your fourth quarter market outlook and we are fortunate again to be joined by my friend and colleague Joe Taiber Joe. Good morning how are you. And thanks for calling from Dallas. I appreciate it. You got a you know a super super busy week in the market continues to move economic data continues to pile in. So listen without further ado why don’t we just go ahead and jump in. You know we’re recording this in early October. I found an interesting quote I thought I thought you’d like it Joe.

I thought of you when I read it it said October. This is one of the about peculiarly dangerous months to speculate in stocks. The others are July January September April November may March June December August and February. Mark Twain said that I know you’re a student of history a lot of people think Joe that you know goodness October they’re thinking of you know somebody you know the market crash of 87. They’re thinking of difficult market environments and my experience in the twenty four or five years I’ve been doing this is that it’s just like any other month.

So I’m not expecting anything particularly gloomy because it’s Halloween season are you.

Joe Taiber

Now. Well I guess this is where Mark Twain quote It could also be a Yogi Berra I know.

Michael Carlin

Yeah.

No I will throw out because there is some truth to the urban legend of October and that is just looking at the market the fact really is that October for whatever reason historically has been a more volatile. I think the average interest might spread high to low in the S&P 500. Index in the 1920s has been six point nine percent. In October the standout higher Ball Park which is eight point to five percent say you get 25 percent more volatility in October but that said as with everything in this business history definitely is no guide for the future and it certainly is not an investable thesis by any stretch.

Michael Carlin

Right because maybe it may be that volatility is part of what gives people the inclination or belief or fear that October is going to be spooky for some reason.

So you know the question is is that you know we are some 3 percent away or a little bit more than that as we sit right here today from the top. And what we’re constantly trying to figure out is you know whether or not we are at the top. We did make some adjustments to our portfolio when the market reached its highs in September. We did take our stock exposure down a little bit across the board you know and we do that because we always try to preach to to clients is that we do work hard to try to buy low.

We do work hard to sell high not that we’re calling a market top because when you look at a lot of the the key indicators of what you what you’d be seeing and I’m just gonna roll through a few I mean you’re looking for that and kind of that blow off top that that massive amount of speculation that drives the market incredibly high. Quickly we don’t have that. Have there been heavy inflows into equity funds. No we have some data on that now. The equity there has been in fact it’s been remarkable how much money has come out of certain parts of the equity market.

There’s been a little bit of a pickup in emanate but by historical standards mergers and acquisitions it hasn’t been all that all that crazy IPO activity has been okay of course it’s headlined by Uber and Lyft disastrous performance and its release in Palatine more recently has it was was pretty underwhelming as well. DG You have rising real interest rates in fact no we’ve got quite the opposite. We’ve got the Fed helping us earning revisions are they. Are they up weakening upward earning revisions now in fact the third quarter is looking a little weak.

You know as you go through each of these points show it to me we don’t have the classic signs of a market top right degree degrade the past.

Joe Taiber

I would add to that we definitely see eye to eye in terms of the forward runway and add to that is it. That does not mean that there is an absence of volatility. Right because the market’s definitely it has been and will continue to be tethered to the two primary drivers both of which are worth I guess panic which is certainly what what’s. But the trade conversation is definitely dominating risk sentiment is number one and number two where global growth credit. Looking at Europe looking at the US looking at China and having a global growth rebound.

So those are the two drivers with constructive on both of those two. Longer and intermediate term that that does not mean we can’t have it be a couple of months of volatility right the near term.

Michael Carlin

And for those of you that are regular listeners of this podcast and thank you we know that there are many of you.

We’ve you know carefully use this word constructive now for the past number of quarters so if you’re if you’re looking at your relative stock exposure you know with us and if you’re looking at it yourself again I’m going to we’re going to use that word constructive which is maybe this is the way I position is that you want to have some equity exposure but less than normal whatever that normal rate is for you individually and again if you need some help reach out to us we’re happy to happy to let you know where we think you need to be.

Earnings growth estimated to be negative for third quarter. So let’s just kind of reiterate again year over year quarter over quarter the third quarter expectation for the S&P 500 the big 500 U.S. blue chip stocks in the United States is slated to be negative three point two percent. That is really negative and we just finished the third quarter. We’re going to start getting corporate earnings here soon.

From what I can tell the indications that I’m getting is that you know maybe that three point two is a little bit too negative which leads us open for the possibility of upwards earnings surprise.

But before anyone gets too excited about you know upwards earnings or or or massive earnings expectations you look at a year like 2018 in corporate earnings were far and away greater great growth you know 20 percent 25 percent growth in 2018 seemingly quarter after quarter. But the stock market didn’t perform. Here we are looking at a negative potential third quarter number. I think we might be able to perform better than that but that doesn’t always necessarily mean that the runway is clear for the stock market to go crazy higher is there anything that you’re seeing the negative third quarter numbers and in Mark and in relating that into into market movements higher that we should be looking at.

Joe Taiber

No not necessarily. You hit the nail on the head Michael I mean earnings estimates have been revised downward dramatically.

This was this third quarter and historically what that means is the street is effectively just lowering the bar for companies to beat. And companies historically beat close to two thirds of the time. So the sixty six sixty seven percent beat ratio is pretty normal. So you can make I think a pretty strong statement that we’re not going to be down three point two percent but somewhere less than that. But the year over year eighteen was definitely a great year but largely driven by the 2017 tax bill. So now in 2019 you every year cups are pretty difficult.

So that we’re jumping over some pretty high 2018 numbers. So it’s important that we what we do with you Michael and your firm is is looking both at bottom line earnings but also top line growth revenue growth specifically and making sure that that revenue growth doesn’t significantly fall back because that right there is going to be a direct reflection of our really economic growth both the U.S. and global economic growth. So again still relatively OK despite the bottom line left number after 3Q. We feel OK just kept on the top like Obamacare.

Michael Carlin

And it’s also so interesting to me that is always and we always get back to this it’s always about the multiple expansion where we’re going to get multiple expansion are people going to be willing to pay more for earnings and that and that is so key and critical for driving market performance and and that has a lot to do with that. People feeling good in their attitudes feeling strong about about where we are. I also think it’s a function of where else are you going to invest your money and you can look at the bond market only so long and get so excited about investing there so it kind of naturally leads us back towards the market and maybe we see some multiple expansion which you know a little bit of favorable earnings boost plus some plus a multiple expansion because where else are you going to invest.

That creates an interesting potential headwind going into the fourth quarter. I think.

Joe Taiber

It stocks literally they are historically cheap when you look at them relative to bonds and no one absolutely achieved that magical expansion.

Right now the US trading roughly 16 times most expensive market globally and it’s not that know at all.

Michael Carlin

So right.

Joe Taiber

Returns from the equity market is down one of three places. It comes from market expansion or contraction so what happens to the P E multiple times earnings growth. Okay. And then it comes from the dividend yield that you get to see that’s it. So we don’t feel great about the earnings year over year that. Longer term we feel like multiples probably a little room to expand given it really doesn’t change much.

So that’s why we’re we’re sort of sitting sort of a moderate right here right now.

Michael Carlin

Are you ready to do a little bit of a little bit of economics.

I mean I’m ready to do this. I’ve got to I’ve got economic data and I don’t want to get too bogged down in it because I went a little crazy this quarter. There were so much for me to dive into and grab so. So I hope Joe you’re ready for some we’re gonna we’re gonna do this we’re going to talk for a minute and I don’t want to get too deep into the weeds. I’m going to try to move through some of these things quickly because we could spend a half an hour on each item.

Individually. But let me just kind of go high level here. I’m going to start with the ISDN manufacturing and non manufacturing we’re trying to get a sense of whether or not there is the economy is growing from a both manufacturing and services point of view perspective in the United States.

And what you’ll see is is that again if you haven’t seen it. Manufacturing has been in a steep decline even for the past couple of months has been in a contraction meaning that the actual manufacturing industry has been shrinking a little bit here in the United States at the same time the non manufacturing or the services sector which again is the majority of our U.S. economy it has is expanding albeit at a rate that has come down sequentially see again seemingly month after month with with that manufacturing number.

So what you see is a tale of two economies one the larger part of the U.S. economy which is services is still growing and is still expanding. No it’s not as high or the expansion isn’t as great as it was several months ago. And manufacturing which was which was expanding again sequentially month after month after month even going back to 2018. We’ve seen that number continue to fall where where the manufacturing side of the economy is shrinking.

So you look at that the headline was oh my gosh manufacturing is you know manufacturing recession or you might have even seen a headline for recession. But before you get get too worried we are still a service based economy in that parts expanding. Is there anything else that we should be reading into some of those that those data points Joe.

Joe Taiber

I would give a little color.

Remember when you factor in cycles historically three year increments. They last roughly three years and that was the backdrop and then the subsequent downdraft. And that’s important because the current downdraft that we’re seeing in the major factories globally began in the first half of 2008. So they’re coming back to what would be a normal cyclical inflection point on manufacturing sites that I think is a pretty strong case that we might be closer to the bottom certainly and that that attack and the downdraft said that’s number one number two that is that number that the market really threw a fit about last week.

There’s really two different baskets of manufacturing data that we look at the data is survey. Data it actually go up technically an exact survey 300 companies. That the U.S. has been a some data how do you feel about the environment how do you feel about new orders. How did you actually feel about employment etc. that data how do you feel. The hard data on manufacturing right now is it really seeing the same reading the same way that hard data. It’s actually much more encouraging and actual durable goods sales. How many widgets are being sold. And that is a much more constructive read.

Right now the three month or three month annualized change global sales is actually looking really strong and trending upward. So it’s not quite as clear as that data versus hard data that we showed that the market should be too anxious about the manufacturing recession. The last point I’ll say is below you mentioned quantity of actual sectors so overwhelmingly what’s happening in Europe the European manufacturing sector is just a big auto sector. Germany is really having an impact as a trade war. So I think there’s some more transitory aspects behind this data hard data that’s mostly soft data but also I think a little bit of a different story.

So that’s what I have a reading those tweets right now.

Michael Carlin

That’s right. Again we’re on the same page there and when I look at the sum total of the economic leading indicators and it’s things like the workweek it’s jobless claims consumer goods orders new orders index nondefense capital spending interest rate spread if you look at all these different components and you add it up there are still a number of positive leading economic indicators that are favorable for things continue to move forward and at the same time it doesn’t appear that many of those things are so nose kingly astronomically at Australia you know it just in a different stratosphere are they are they too high.

No. Nothing is nothing to me is screaming of this this has got to be reversing and I get back to the most important part of of understanding the economic data and that’s the consumer and you know the consumer I’m looking at jobless claims and I’m looking at employment and the different measures of confidence in sentiment in all of those components continue to be really strong and it’s you know it’s it’s critically important because the size of our U.S. consumption is greater than the entirety of the just by consumers alone is greater than the entirety of the Chinese economy U.S. consumers are spending more than than all the consumption for you know the government and people own businesses that China can muster all together.

So consumer spending when it’s strong here in confidence is still very good. Sentiment is still very good. And again I mentioned the jobs numbers.

So as long as people are continuing to spend and they have jobs you know you gotta you gotta look at it in without any other major major warning signs from leading indicators as things continue to kind of gently move forward. Obviously we’re going to talk about some other potential pitfalls. But for me I look at this gently rolling forward given are the economic tea leaves that I’m reading.

Joe Taiber

I mean the consumer definitely is in a good place.

I mean the consumer balance sheet is one of the I’d that just shows the amount of debt or how levered the US consumer is we meaning the US consumers are very very healthy.

From a leverage perspective my number one job market no question. Overwhelmingly strong. Obviously everybody knows 50 year low unemployment rate right now.

But the near-term averages are the job market do start to show a little bit of sign really down a little deceleration that overwhelmingly is still very strong wage growth as it feeds into the consumer.

Well it has been decent. That number did slow a little bit in September. That’s still at two point nine percent in September so that we’re getting paid we have jobs our balance sheet looks and looks very good. Debt ceiling directly in the housing market is a pretty robust housing market indicators that we’re seeing as well mortgage rates factoring in it as bad.

So yes it got to consumer U.S. consumers definitely but the saving grace of the last couple years is we don’t see any reason for that case to weaken again if people have if people have the personal balance sheets to go ahead and borrow and spend and and consume it just you know again the keys are going to be that when you’re trying to think about you know investing on if you’re trying to look for an individual stock. The key is going to be for you is trying to figure out where those dollars are going.

Michael Carlin

There was an interesting report this morning about where teens are spending I don’t know. For me I kind of my ears perk up when I when I see any of those kind of stories and what I found very interesting in that a lot of people want to draw conclusions in that teen spending and really this millennial spending forever 21 Joe I’m sure you were tuned into this when you saw it but forever twenty one this morning continued to be one of the top five places the top six places where teens like to spend year over year over year over year which I find interesting because you think as an investment thesis where you know jobs are good and wages are good and you have this whole millennial push in terms of just where they are in the population distribution you look to see where they’re spending their spending in forever 21.

Yet at the same time forever 21 declares bankruptcy at the same time you would think that there’s just no way you can’t possibly have both of those things. Their opposite ends of the spectrum. But it is interesting to me that that again your due diligence and research when you’re doing it on an individual security has to go beyond just the demand in fact there was just a lot of things that that about that about that particular store that industry that that led to it’s challenging and very public demise but Joe I don’t suppose you’ve ever even been into a footnote forever 21.

Probably not.

I didn’t think so. I must say I wonder if there is a nice anecdote for me. So. So let’s kind of look. Yeah.

One thing actually I think that what we do share this research with your software that is actually added to the research that four years ago that the retail industry. Yeah. The cost structure and cost structure is being driven out of bounds by bad business. So yes a surprise. Maybe. Maybe just from that perspective maybe not.

Yeah. Gets into the death of the whole the mall and all that. Hey can we do we do a little trade war. It’s a little trade war stuff and you mentioned a little bit about Europe and the economic numbers. If you look at things you know employment and you’re looking at economic output it is kind of it is you’re seeing it continue to get worse quarter after quarter we’re going to look to see where Germany is this quarter if they have a second second quarter in a row of declining GDP. But we do see the whole world is really wrapped up in this trade war cycle.

It’s not. It really isn’t just reserved for China says a couple of things that I wanted to say on it and then Joy I need you I need you to jump in. But with the trade war cycle the thing that I find very interesting is that there’s this groundhog day effect that’s going on where you know the administration will be tough on China. The market will then sell off and then eventually the administration will hint at some kind of resolution and then the market will rally and then the rally the rally in the stock market makes the administration currently feel you know very bold bold enough to figure for them to say we don’t you know we we don’t need progress and then essentially they are tough on China.

Again the markets are lost and we go through this cycle over and over and over again. It does. It feels like Groundhog Day and today as we’re as we speak the market was down a couple hundred points before it opened this morning because there’s no longer this good feeling that when we meet with China in the next couple of weeks that there’s going to be a meaningful trade deal.

And you know number one I do I do I do want people to pay attention to the fact that they’re that that that there’s there’s a big you know part of the market that trades on these in these news algorithms meaning when we know these Trump tariffs come there’s people that are really trying to time things and get in and out of the market based upon good feelings with China which as it as a retail investor I would not recommend it. It’s a dangerous game to play in and there is a real financial impact in these trade negotiations with China and that you know our year over year change in total trade with China you know as a joke from July to July we were down 54 and a half billion dollars in trade.

And what I find interesting is that we’ve picked up one hundred and forty seven billion dollars in trade with places like most notably Mexico The Netherlands South Korea Vietnam to lead others. So on one hand the trade war is a lot of news noise with regards to the news you hear a lot of it and it creates a really difficult getting seasick feeling if you pay attention to it you try to trade into it. But at the same time there is a real economic impact that’s happening there is something real that’s going on where the money is moving and moving into different hands so it’s something to pay attention to.

So Joe I’m curious as to where your thoughts are on the trade war at this time given kind of this whole host of information out now I guess big picture at trade war bad bad for the global economy given the fact that it creates uncertainty on which business leaders need to make decisions.

Joe Taiber

So it’s pretty clear that a negative economic impact and therefore more negative financial market impact and the stock market reacting to negative trade news as it has for several months now. So those are pretty well-established words of the way for offshore. What does that mean. What do you think it means. You really do look at. What the incentives are on both sides can get something done. And that’s why we’re starting to get a little bit more constructive over certainly over the next 20 months because here in the U.S. the administration is being backed into an election in November of 2020.

It has the data as well as assembling it’s pretty clear that the economic data financial market data that I just described probably also is extremely clear and choppy gets really high marks on the economy and the scale of the economy because they made pretty much everywhere else. But given that the economy he gets really really high marks now public approval or public polling on it like a trade negotiations with China is overwhelmingly negative right now a 35 percent approval and 57 percent disapproval. And this is this is of course a battle of both sides of the aisle.

And the impact of tough trade policies on the chance of recession also very pronounced in 43 percent rate of ever increased chance of recession given Trump’s trade tactics and a 60 percent chance of decrease or a decreased chance of a recession. So that’s the public polling that is very clear the election is looming. I think political pressure ultimately brings something to a realization political pressure to chalk up a victory political pressure to keep the economy on track. I think that’s ultimately the primary incentive which in any political analysis you need to look at what their options what the incentives really are.

And that’s Utah which we thought we feel like that’s the case here with the other the trade flows.

So again the next couple of months ago and today as Michael just mentioned no different you know with some dispersion get a look Thursday this week. I think there’s still some more points to be had before that the number date really starts to materialize on the part of the administration.

Michael Carlin

You know it’s interesting there is a bit of a Merrill Lynch report that came out and it was a survey of the big money managers and economists and it’s seemingly sudden all the sudden in September the the number one the number one answer for when do you think the trade will be resolved the new number one answer is overwhelmingly that this is the new normal. And it was surprising enough to me to put it in our market outlook piece for this for this quarter because you know all the tariffs what they do is they do put us on level and on par with the tariffs that China has has had in place against the United States.

So you know we want to you know we want to say oh this is you know this is gonna be resolved we’re gonna kind of go back to the way things were. And it seems to me that you know there’s been a leveling of the playing field of sorts.

And in this the market can the market can go up if this is kind of the status quo.

But but it would be nice to see some kind of a situation where it’s at least stable because I think the market can do well if we have a stable environment. But I don’t know if it necessarily means Joe that we just take away these tariffs that we’ve put in place.

Joe Taiber

Questions like this …Well it’s tricky because to me I would agree with the survey by the way because I agree it will not be resolved quote black and white switch and switch off ultimately and probably be a partial deal associated with some tariffs. Both sides remaining at the issue of removing itself from the headlines is really what what the financial markets are looking for without question. And by the way the speech did it 20 20.

Let’s be really clear that the Republicans and the Democrats both sides of the aisle at this point are very much protectionist type posturing. So they’re both very much protectionist so even if even if the White House changes hands in the air don’t expect the protectionism and all of a sudden global free trade to be back on the front burner. Right. But that was at this point it doesn’t look that way.

Michael Carlin

Right. And now I wish we could spend. I wish we could spend a half an hour on that. Here we were we’re we’re in concert on that. That’s. We agree and in one of the things I didn’t want to touch on with the few remaining minutes that we have left here Joe is you know you did talk about the environment for stocks in the environment for stocks that you’re referring to is you know how historically favorable to some degree it is. And I think this is what you mean but you’ll let me know some data that I found really compelling.

Fifty six percent of stocks in the S&P 500 here in the again the big 500 U.S. based companies those stocks have a in that S&P 500 56 percent of them have a yield they pay more than the 10 year Treasury and say well how often does that happen. I’ve got data that goes back to 1990 and if this is as high of a percentage that that that has has been it’s higher than it was in 2008. It’s higher than it was in eleven or twelve and then if you wanted to look at it another way that’s 56 percent of stocks that have a greater yield on the 10 year Treasury and 43 percent of stocks in the SPF 500 have a yield greater than the 30 year Treasury.

So I look at this from a very simplistic standard standpoint and that is would you rather own the S&P 500 or a 10 year treasury or in again does a lot of stocks if you want to have a yield that’s greater than the Treasury pick one you know pick a basket of those and at some point you would think over the next 10 years the value of those companies hopefully will be higher where the 10 year Treasury won’t be moving you’re just hoping to clip your coupon. And again the 30 year Treasury with 43 percent of companies in the S&P 500 having a yield greater than the 30 year Treasury.

Joe is this part of what you mean that the stock valuations look particularly good relative to bonds. This is exactly what I mean when you break down a. Little bit to technical but when you break down the risk premium the expected return that you receive in investing in the stock.

Joe Taiber

Relative to prevailing bond yields that is extraordinarily high right now at that meeting the scales are tilted very much in favor of stocks relative to bonds. This is probably the most pointed chart to really put that out.

Michael Carlin

Oh well. Oh yeah I thought so. Kids certainly jumped out at me. I do want to point out that we should also we’re noticing that there were within.

And we’ve got all kinds of beeping. That would be the camera.

We’re good. Okay perfect.

So I would say that you know from a from a valuation standpoint you know one of the trends that’s existed for a really long time is that growth has performed better than value growth meaning again if I want you to think just traditionally of your of your technology names versus the value side which tend to be the companies that pay dividends every year tend to be your more well-established companies we’re seeing perhaps a.

1. The point where it’s so it’s been so outsized for so long the growth performance versus value that value may be something that you want to put a little bit of a tilt on if if you’re looking for stock exposure you’ve already you’re looking to reallocate maybe this is a good time for you to start to move a little bit in that direction. So I did want to point that out.

I also wanted to point out that the price of oil has been remarkable.

You know there’s been incredible consternation in the Middle East. There has been a major supply disruptions in Saudi Arabia.

And you know the the with economic performance being OK. You would think that oil prices would be remarkably high but oil prices are down about 12 percent or so this year. They’re nowhere near where they were in 0 8 and in 2011 and 12. We had this hundred dollar a barrel oil that we saw oil is even in a place where for both businesses and consumers it’s inexpensive enough to it to not be something it’s going to hamper our economic movement and recovery so. So I see you know I see good signs there too.

Is there anything else that you read on on oil or any of those you know kind of based commodities Joe that we should take take and extrapolate for what we should be doing with our money.

Joe Taiber

I don’t think it’s too much to have oil. Oil is always has been and always will be is influenced by you know ultimately by global growth. So it’s going to grow along the lines of global growth number one.

Number two was susceptible to weather shocks as we saw the drone attacks in Saudi Arabia really put a shock on the oil markets which subsequently recovered oil spiked 90 percent of the day. That was very historic. Just more recently here and then moved down to recover most of that that pretty quickly after Saudi Arabia came back to render production online pretty quickly so no commodity prices again. I think the truth is the commodity price perspective in oil is really just global growth. So that’s how we read them.

Michael Carlin

Yeah. And I you know I agree on that and I I do want to make sure there’s two more things I want to hit real quick.

The first is I did I did do a look into the past to see what impeachment does to the market. It seemed like this. I don’t know how we can do this market outlook Joe without at least mentioning it. We’re not going to get political we’re not going to take sides. But. You know where we’re right now in kind of this impeachment inquiry mode there seems to be a lot of evidence mounting and if you look at prior impeachment situations with both Nixon and Clinton the market did not perform well it really depends upon how long it takes some of this information to come out.

And you know in the case of Nixon the market performance was was was pretty dramatically negative from whence the information started to break.

And again we had an oil embargo there too which which made things which makes things a little bit messier. Economically speaking so there was more going on than just the impeachment but the market did not perform. And if you look at it from the moment where Monica Lewinsky admits to her relationship with President Clinton at the time and then Clinton testifying for the grand jury and gosh the Starr report and then when the House votes to Vito for the impeachment inquiry the market there in that case didn’t perform well. That was a real difficult you know six or seven month run their So in terms of October volatility if we’re looking for something spooky in it it seems like we got to pay attention to this impeachment inquiry and where it goes because it may if again if it trade the market trades historically as it has in the past may portend to some difficult trading days for us in between now and then because it gives the market does tend to hate uncertainty Yeah well these two chairs together overwhelmingly I think is a little bit too early to handicap exactly what’s going on because as you get more information that’s coming out every day.

Joe Taiber

But I look at the Clinton impeachment and I think you can make a strong case that the Russian default on their debt and Long-Term Capital dominating market movements more so than the impeachment hearings. I think that’s I think the one thing that I urge everybody to keep an eye on here at the impeachment hearings are one thing but overwhelmingly it’s spending again. It’s going to be you know trade negotiations and global growth. We think that’s going to be more dictating what the market does. We don’t think the markets begin to place that much in the way of impeachment the risk right.

To talk about impeachment risk. You know I think you really just need to think through that first second third derivative which be I guess technically would be a president tense and the metal t shirt for a short while. If there’s a convict which I think is stretch far far out of the cards at this point if it’s just an impeachment by the house and nothing more than that this is marvelous political base. You know if the Senate doesn’t vote to connect to the Senate to convict and this there’s some early potential you know talking points there.

I don’t know where that goes. But if it did I think it changed the game quite a bit because I think that the Republicans certainly would have to scramble for a candidate in 2020 and with that cannot be able to beat a Elizabeth Warren or whoever the front runner is on the Democratic side that starts to mean something. And because I think Market overwhelmingly I think would probably favor more of a status quo handling of the economy which Republican side of the aisle has delivered. So the Bartlett would appreciate whether the very hands on approach is going to be you know spend it on the media.

Michael Carlin

Oh Joe you’re almost you’re here being very politically sensitive very well stated. You danced around that perfectly.

So I didn’t want to touch on one of the ways one of the ways that we tend to find hedges with our clients certainly right now is not the hedge funds we don’t. We know there are times in markets we will look that way. But right now we don’t and we tend to be in the municipal bond world so I just wanted to touch on this real quick and then we’ll get to conclusions and that is you know we’re looking at the expected rate of return of municipal bonds. And again for us municipal bonds provide a liquid again we can get in get out Sell it buy it when we need to.

At the same time it tends to tends to be the kind of investment that when the market sells off they tend to hold their value maybe even do a little bit better. The big question mark is always well gosh what about interest rates they’re so low. And right now the 10 year Treasuries run around one and a half plus or minus a little bit plus a bit today. What if the 10 year treasury gets back up to two and a quarter what is if the 10 year Treasury goes down to one and a quarter.

How can we expect to perform and what. Well I’m here to say is that even if the 10 year Treasury at a roll up to two and a quarter the expected rate of return on our muni bond portfolios and that’s a difficult situation from uni’s meaning interest rates are rising the value of our bonds are falling. We’re expecting the year over year performance for Mr. Bonds to be still about point eight percent. We still expect going to be positive. If you if you think rates are going to be the same we’re expecting rate of return in munis to be two and a quarter and if the 10 year Treasury drops in mind you there’s a growing list of economists that I read and respect very much that are seeing a 10 year Treasury that’s going to touch 1 percent.

Some even think even less is it’s going to be dragged down and sucked in and pulled down by by the other developed countries outside the United States with their negative interest rate environment. If the 10 year Treasury drops to one quarter then maybe you see a year over year performance of munis of three point one percent. So we continue to like munis as a hedge. Which brings us to the conclusion of where we are.

Joe wrapping it up. You know again we from the way I look at it we’re constructive in that we’re not completely out of the market but we are here taking client dollars and we are actively positioning it to take some risk off the table when the market’s making highs. If we see an opportunity that that is going to create itself whether by tweet or by some kind of impeachment inquiry where the market sells off a bunch we look at we know well we’ll look at increasing our stock exposure because largely an overall we don’t see the economy falling into any kind of major abyss here at this moment.

So Joe how do you want.

How do you want to wrap up the conclusions and 40 seconds arise.

No pressure.

Joe Taiber

I want to rebalance the equity side of your portfolio. Given given that too much of the volatility that I’ve been seeing here number one keeping an eye on should or as we do with our clients. Oh. Yeah moderately moderately moderately constructive.

And I have to touch volatility here in the near term. I think that’s a great role to serve the TV. I appreciate you having me as always.

Michael Carlin

All right Joe thank you again and thanks for listening to our fourth quarter market outlook.

Again if you need slides and thank you for emailing me I’m happy to send them out its info at h h dash w m dot com. You can always hit us on social media manage the funds were there we’re on Instagram we’re on Twitter we’re Facebook and there was probably more.

She thing now those are all of them. We’re everywhere. All right. Thank you so much. Take care and have a great quarter.

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