We know that when expectations lower and when things calm down and settle down, that the markets end up now re-pricing in more positive results in the economy of the markets. So right now we're in that stage as we record this where the market is trying to understand the negative aspect of it, but that always leads to the cycle of looking at things now doing better than expected down the road. Welcome to Keen on Retirement, a show dedicated to helping you thrive before and during your retirement years. If you are looking to grow and protect your wealth and want to make the second half of your life the best half, then listen in as well as advisor Bill Keen and his host sort through the key issues that you need to know in a lively and candid way.
Hello everybody and welcome back to another episode of Keen on Retirement on your co-host Steve Sandusky and with me is Bill Keen and Matt Wilson. Gentlemen, welcome back to another episode. Thanks Steve. We're excited to be on the program with you today and covering some of the topics that we're dealing with now in the economies and the worldwide issues as a whole here.
Yeah and this is a little bit of a special episode in that it's going to be shorter than normal and we're putting this one out quicker than we normally do because we do have a situation going on here with the coronavirus and the economic impact of that and the market reaction to that and so we wanted to get an episode out here to talk a little bit about what's going on there and share some of your thoughts. So Bill why don't I start with you and as you think about the coronavirus, we've had other viruses in the past that have impacted the financial markets so how do you think about the impact? I know you're not a doctor, I know you're not an expert on the virus itself so we're not talking about that per se but it's more about what is the impact that this is having on the economy and the market so how are you thinking about that? Right Steve we definitely aren't qualified to comment on the virus or on any of the numbers that will continue to come out with respect to mortality rates.
We're waiting to see hurry up and wait as they say with that type of thing as well like the rest of the world but what we can do is look back at history first and see how we've gotten through times like this whether it was Ebola or Zika or MERS, SARS, many others actually that we've dealt with and gone through in the financial markets or other volatility as well things like 9-11 that brought the World Trade Center down and the market closed for an entire week and the world as we knew it we thought was over at that point. We look at these things and simply say what effect will this have on the future earnings of the companies that we're investing in and how do we position ourselves so that we can take advantage of some of the volatility. This is not any different than we've talked about for many episodes Steve over a hundred episodes now on the podcast about how we deal with volatility and market corrections and how we're positioned appropriately and properly to get through whatever tomorrow might bring to the table with this and I'm speaking now financially there's also when you're dealing with something like this there's an emotional side and a health risk side and you know there's a spark of human fear as well that this thing spreads we do know it spreads well we don't know the real mortality rates we know that it spreads easily and so that can be scary. This simply can be scary.
I'm not the only in that in any way shape or form and for the people that it's touched and the lives that have been lost it was everything to them. I was going to say bring up a good point on the volatility you know we're going through some now in you know in the markets but this isn't anything new you know on average we talk about this a lot we can expect to see a 14% decline any given year now when you're living through it it's different than just talking about it but we forget the volatility that we lived through so quickly it wasn't that long ago that we had a 20% drop or almost a 20% drop in the market that was Q4 2018. So what's that 15 months ago or so? Yeah 15 months was almost a 20% drop in the markets and most people have forgotten about that already.
And during 2018 it happened twice there was a 10% drop in the middle before that and then it went to a previous item then it dropped again and so this volatility whatever the cause is this is getting the attention today you know coronavirus and what's the impact economic impact markets really just trying to figure it out you know that's really I think the big issue and that's one of the key things we're looking at is well how long does it last because if this can be contained in this quarter there's a lot less economic impact because of it now if it spreads into Q2 well that provides some uncertainty around earnings going into second quarter so that's really where the market is discounting the fact that they think that's happening I think the fact that we're already down you know 14% at least as we were at the low so far discounted that fact that's probably what they're expecting so anything better than that is good news. I think it's good for us to remind our listeners that the beauty of the market I guess the efficiency of the market sometimes it feels like the psychosis of the market admittedly the day to day at least long-term it's always back to fundamentals and the underlying earnings of the companies but short-term it can feel very psychotic but the market every day every second that it's open is evaluating all the information that it has it's a very powerful mechanism and it's determining what the right price is for this very second based on the information that it has so I would contend that the market has priced in the lower earnings already and that's why when you have expectations dropping yes it creates short-term downside that would Matt's mentioned so well that we've seen over in my nearly 30 years in the industry and many of you that have been invested in following the markets over your long careers have seen as well and lived through but we know that when expectations lower and when things calm down and settle down that the markets end up now re-pricing in more positive results in the economy of the markets so right now we're in that stage as we record this where the market is trying to understand the negative aspect of it but that always leads to the cycle of looking at things now doing better than expected down the road companies reduce their earnings expectations only then to beat those expectations a quarter or two out or some time period out yeah exactly it's kind of a game they play and they'll get a pass because of the virus and getting all the attention because of the virus it's not because the bad product or bad sales you know relative to their business and how their business is actually operating you know there truly is a reason for for the numbers to be slightly lower than they previously said we don't have any information from companies yet this is all just speculation we don't you know companies we're assuming they're gonna come back and say earnings are lower and that's I think a pretty fair assumption but it's still speculation that's right we've had a couple come out I think it was an apple and Microsoft man probably several several others come out and say that they'll be impacted but I don't think that's news to anybody that's right and the quicker the supply chains and everything else get back online the quicker those earnings catch back up to because there's gonna be pin up demand that's gonna correct itself in the quarter following the containment of the virus too so it does rebound to the other side as you know as time goes on and you know you look back it's one of those things you look back 12 months from now and it's not even something that's even on anyone's radar screen or even thought processing more that's right now one of the other things that's been happening here is the government's reaction to what's going on and so of course we've got significant governmental resources that are being applied to try and stop the spread of the virus we've got researchers we've got doctors we've got all kinds of medical professionals pharmacy companies that are trying to come up with some kind of vaccine or some kind of cure for this so we've got all that going on for sure we also just had the federal reserve announced that they were lowering interest rates by half a percent the interest rates that the federal reserve can control so that is I think providing some additional monetary stimulus so how do you two guys think about the government's reaction and how that may or may not be able to cushion some of what's happening here in the financial markets it helps when in you know we have some weakness or at least some some fear of some weakness when the federal reserve does those things you know whether the emergency rate cut is a response that's gonna create more you know more demand out there it's hard to say but you know part of it as we've mentioned in previous episodes is the yield curve inverted again we've had interest rates come down and the federal reserve has short-term rates higher than the tenure treasury right now so they were again bringing it back in line by cutting rates and that's probably more so the reason they did it than it was because cutting rates is going to solve the virus problem right no correlation there but when we look at what do we do in times like this when opportunities are presented to us with interest rates where they're at and I don't know if you've seen a you've seen a 15 year let's say a 30-year fixed mortgage quoted here in the last day or so Matt. The last I've heard maybe three and an eighth on a 30-year mortgage I don't think 15 year is much you know lower than that and those could be rates that are going to come down even more so in the next couple of months because this was so quick that mortgage companies and you know the way they price other rates maybe they're just not necessarily dropping them to rock bottom instantaneously because they know a lot of people are going to refi right but being able to be conscious of this and watch that closely and any type of mortgage debt or a consumer debt if we're able to refinance that at historically low rates can you imagine having a 30-year mortgage under 3% in the twos when I first got in the industry and maybe even a little before that when I was following this stuff back in the 80s it wasn't uncommon to think of a 8 or 10% mortgage back then and so just imagine having a mortgage that's a fixed rate note for 103%. It stimulates the economy doesn't it?
Well it gives you more money to spend on other things that's for sure. That's right. So what else can folks be thinking about here so we've got as interest rates dropped there might be an opportunity to refinance and free up a little bit of cash flow or there's some other things that folks can do in times like this as it relates to their financial situation. It is tax time and a lot of people are thinking about making contributions to the retirement accounts whether it's traditional IRA, Roth IRA, you know, SEP IRA for self-employed and even if you just are making regular contributions to your taxable investments definitely keep doing that and maybe even thinking about doing it quicker sooner than later because this is an opportunity.
I mean, you know, we believe that this will be similar to the other recoveries we've had. It'd be AV shaped recovery because the economy is still strong. We still have record low unemployment numbers. We still have record job growth here in the US and no reason to see that all of a sudden we're going to see a bout face on those numbers to lead us to think that the economy is weak and now we're headed for a recession.
And so adding to your accounts right now makes a ton of sense, especially if you're in that stage of your life. We've had several folks, well many call and this is a testament to them and their understanding of the long-term market experience and it's hopefully because some of our educational events and materials we've delivered and council and guidance but folks calling insane. We'd like to up our monthly contributions. One fellow has 401k that he can contribute any time of the year because it's an individual 401k so we can put in his 19-5 anytime throughout the calendar year.
He got that right over to us and said he wanted to put that to work as soon as possible. Understanding that he's not trying to time the market. He just knows that it's a lot less expensive to buy stocks today than it was 10 days ago. And if it goes down more, he's not going to be regretful for him.
It's a long-term investment. He understands that. He just knows that it's a good time to be adding to the portfolio. And of course, this is money that we're talking about rebalancing and investing is money that's long-term money.
But five years or more money can be invested. So that's important to keep in mind as well. One thing we haven't talked about is we talked a little bit about the government response. We mentioned what the Federal Reserve has done.
But there's also another tool that the government can use this thing called fiscal policy. This is where the government can come in and they can spend. In the past, we talked about the infrastructure bill that hasn't really gone anywhere yet. But what are your thoughts on what we might be able to do from a fiscal policy standpoint that might also underpin the market here at some point?
Well, there's been some discussion of some tax cuts and especially related to investments specifically. So that would be a nice stimulus for the market for sure. Any type of tax cut, whether it's market related or just goes to any individuals, that just provides more, some more dollars in people's pockets to spend, which is basically what most people do with that, which is good for the economy. I think one thing we can say here is the current administration is very focused on the financial markets.
They want to see these markets stay up and go up. So they're focused on what they can do. Now that doesn't guarantee that that'll happen, but they certainly have that attitude that they want to do what they can to support the financial market. So we definitely have that wind in our sails.
That's right. And I think all of us want to see things stabilize. We want to see things do well. That includes the leadership of our country all around.
It includes the Federal Reserve, which is a tailwind, having the Federal Reserve working toward creating policy that stimulates the economy. We say don't fight the Fed. And right now it is a tailwind that we have working in our favor. So I think that's yet another reason to know that this will be like many of the other downturns in the equity markets we've seen many, much deeper.
And of course, we don't know if we're done with this one yet, how long it will be, how deep it will be. But I have the ultimate faith that we will emerge from this and be on to setting all time highs again at some point in the near future. But don't make me define near Steve. Okay.
To maybe give a little more context, when we're not headed into a recession, these recoveries typically were at new highs within six months. Could be sooner than that. Could be a little longer. I mean, it's all about averages, but there is no indication of a recession on the horizon to indicate that that should be any difference.
So yeah, maybe by election time, we're already at all time highs, new all time highs. That's right. And Steve, I wanted to address something my daughter, as we've shared, I've been trying to get her on the podcast, but she's kind of shy. She's a third year med student.
She's in her clinical rotations right now in internal medicine rotation. You know, of course, we have other physician clients, we have a research providers that have medical expertise that we rely on. And I would suggest to our listeners to try to rely on factual information more the media, which I know is where we get our information, a lot of people get their information from the media from the news. But to attempt to look for the the factual and biased objective information as opposed to potentially something that's biased, which can either make things seem too good or make things seem too bad.
But I talked to my daughter and she said, Dad, I just want you. She's given me advice. She says in the US, every day we lose about 44 people to the flu. As we know it, 44 people die.
And I think all she did was took 16,000 deaths a year estimated divided by 365 and that ends up being the number. But there's 44 people every day that pass away in our country from the normal flu. So she said, I hope that you've gotten your flu shot this year. That's something that I would highly recommend and I haven't.
So that's something that I will do, even though it's March, she said, avoid sick people, especially those who are coughing or sneezing, be sensitive to that. Wash your hands frequently, sanitize. If you're not feeling well, stay out of nursing homes, even though we want to go see grandma and that kind of thing. If you're not feeling well, don't go there.
And these are things we should be doing anyway, regardless of the coronavirus. So I'm hoping that we will be a lot more sensitive as a country to do in the things we should have been doing anyway before this came about. And we get information and clarity on exactly what the coronavirus is, how to contain it, that we can reduce the lives lost going forward as quickly as possible. But I thought that was some good unbiased objective information that my own daughter had for me, Steve.
Bill or Matt, is there anything that you would like to wrap up here with? I think Steve, at this time, it's really focusing on the things that we do have control of. And as Matt mentioned earlier, making contributions to our accounts being sensitive to the timing of those, rebalancing portfolios gives us opportunity to actually buy some of the securities that have declined in value. We mentioned refinancing mortgages.
There's opportunity there. So anytime there's dislocations in the markets, it provides opportunity. But I would contend only if you have a plan in place. And we don't want folks to be making knee jerk reactions in a vacuum without having it be in the context of their overall financial plan.
So the folks that we actually physically work with that we are engaged with at our firm, keen wealth, have plans in place. So we're able to make these tactical moves in the context of their overall plan. But let this be a time if you do not have a financial plan in place that you have confidence in, that I would contend that a fiduciary advisor is partnering with you, walking through with you, coaching you through, looking at all the aspects to now would be the time to have one in place. Steve and Matt, I always appreciate your contribution.
You guys make it easy on me. Thank you. All right, Bill. Well, thank you.
Matt. Thank you. I appreciate you guys on short notice putting this together. It's an important topic today.
We wanted to turn this around, make it a little bit shorter than we would normally do. So guys, we'll get this out and appreciate this. And if any of you listening have any questions or comments about what's going on, please reach out to the folks at keen wealth. You can go to keenwealthadvisors.com and they would be happy to set up a phone call or meet in person.
So appreciate that. And thank you all for listening. Thank you. Thanks.
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