What it Means to McMeans Series: A Deep Dive into Summer 2021

Where to start…cryptocurrency, EV technologies, a green-ish bill and a new tax bill in congress, ridiculously strong stock market returns, 4.2% inflation in April, renewed tensions between Israel and the Palestinians, mortgage finance rates finally starting to rise a bit, a global corporate tax rate proposal, the politics and other implications of lifting the mask mandate, the cost of building a home, transportation and logistics problems…goodness sake. It feels a lot like a full dinner plate, where you want a little of everything, but things keep sliding off to make room for what’s new. Might I prescribe disengagement? I’m not joking! If you don’t need to know, then you don’t need to know. Just turn it off, whatever it is…Apple news, the television, Facebook, Instagram, TikTok…whatever it is that is stealing your life and time and happiness from you.

It will change your life. Seriously.

It’s actually been a bit daunting, trying to keep up on it all, which I really only do for your benefit and only to the extent that I must. I have sources I trust, and I visit that consolidated list to bring you what I think is most salient. For the most part, it’s all noise, and you could make the argument that it’s intentional. For example, most people I speak to are chatting about the mask nonsense, which may be distracting from far more crucial items…the border crisis, a rather startling inflation number, or the evolution of Covid-19, just to name a few. Do yourself a favor and entrust this curation to me and perhaps a couple other trusted people, rather than crushing your countenance with media mayhem.

So what’s really pressing? Well, a lot of what is stealing the media spotlight we can do very little about. There’s probably just a few things I’d recommend if you have the ability to do them:

1. If you’re going to build anything, wait – A shed, an outbuilding, a new home…wait. Wood is ridiculous, and we are building 100,000-250,000 fewer new homes than required annually to keep up with demand, so prices aren’t coming down (and neither is the growth rate) anytime soon. The materials price problem is a combination of sawmills price gouging and there being a shortage of truckers willing to bring it to market. Prices should normalize in 6-12 months. In fact, recent economic data shows lumber futures down 42%. So just sit tight!

2. Get a job now; do not wait – Much of the reason truck drivers aren’t available is because anyone can earn over $40,000 a year just sitting at home. That inflated unemployment compensation is over. I don’t know what the job market will look like this fall, but you can find about anything you want right now, if you want it. Apply now if you’re not employed.

3. Cryptocurrency is gambling – That’s all you have to know. Cryptocurrency is a virtual way to pay for peer-to-peer transactions but cannot be universally used to purchase items such as your groceries or dinner at the local fast food restaurant. There are 5 big risks with cryptocurrency: 1. Volatility as prices are subject to big fluctuations; 2. Liquidity risk as you may not be able to sell quickly at a reasonable price; 3. Lack of regulation since cryptocurrency is not regulated by the government or a central bank; 4. Pricing volatility due to lack of a central market for pricing; and 5. Cybersecurity risk as the exchanges and platforms that trade cryptocurrency are subject to breaches. This information is provided for educational purposes only and is not a recommendation to buy or sell any type of investment.

4. Refinance your mortgage if your rate is over 4% – In some cases, you may even want to refinance if yours is lower than that. You can still get a residential mortgage rate for just a little over 3%, and investment property for an extra .50-.75%. The only other piece of advice I’d give here is that you should probably get a 30-year mortgage, even if you’re 75 years old. You can always make a 15-year payment if you decide it’s no problem, but you can’t change a 15-year once you have it. Also, the bottom has passed, but rates are still super low. Don’t worry about waiting for “the bottom,” or think that because you missed the bottom that refinancing isn’t worth it. Rates are still absurdly low. Just go get it done. Need contacts for that? Let me know.

5. Electric Vehicle (EV) technologies have ramped, and the opportunity is mostly over – Early money has already moved in, long ago actually. The opportunity for mega growth has largely passed. The facts don’t portend a great opportunity here. Aside from the sex appeal of a Tesla, there isn’t really a lot in this industry to draw me in. I’m all for a better use of resources, and I’m all for spending less to acquire what I want. But EV isn’t there. It’s not even close, if you ask me. It’s been hurry-up-and-wait for a battery that is small and charges quickly for a long time, and those prospects are little better today than ever. It’s also interesting that if you look at life cycle emissions and not just direct emissions, you see that the environmental impact between EV and gas-burners is closer to equivalent. Now if I were you, I might say, “but what about the government mandates requiring elimination of gas burners by some future year?” I see that pressure, too. But it is just that…pressure. And just like lightbulbs now burn on less energy, cars are requiring less and less fuel per mile. Also keep in mind that car companies like Toyota and Ford – every company actually – is being wise when it agrees with the party in power. Right now, it pays to say things like “no more gas sedans by 2025.” That statement should raise eyebrows. First of all, 2025 is conveniently one year beyond the current leadership’s tenor. And second, SUV’s are much more popular than sedans, and they can burn as much as they want, because they are not a “sedan.” It’s a game. But the end result for the investor in my view is “don’t bother with car companies.” They’re not doing business based on supply and demand which is predictable; they are doing business based on politics, which is not.

6. Inflation is likely not a huge concern, believe it or not – I see it, too…seemingly endless government spending on unemployment and other responses to the pandemic, 2x4’s going from $2 each to $12 each, gas a dollar more today than it was a year ago…we all feel it. But two numbers have emerged from economists that have me thinking quite optimistically: the 5-year target for annual inflation, and the 10-year target for annual inflation. Those are 2.8% and 2.4%, respectively. What that means is that inflation happens – probably in the 3-4% range – and then falls of and levelizes. Why is that? Well, why are things expensive? Is it really that things are 3-4% more? Or that our money is worth 3-4% less? Actually, it isn’t, not yet anyway. It’s that the supply chain is rebooting from the pandemic. Not all prices will come back down or even do so to pre-COVID levels, but most will. I mean, I know all kinds of people waiting on building projects until lumber and materials get more affordable. When everything stopped, production stopped. You can’t just flip a switch and have it come back on again. We now have to wait for the system to correct, which it’s having a hard time doing until unemployment incentives (because I can’t think of what else to call them at this point) stop being paid by the Fed to the states; folks are being paid to stay home. That’s when the labor pool that does much of that work will go back to work, and the proverbial slosh of water to the one side of the bowl will slosh back to the other side, and have an opposite effect. Remember when we couldn’t buy toilet paper in April 2020? Did anyone suddenly start flushing double the product they normally would? Of course not. They just got scared, and prepared for the apocalypse of not being able to wipe at a moment’s notice. And now, what’s there a blithering ton of at Costco? Toilet paper, brands and brands of it, because no one needs it now due to earlier irrational overpurchasing. Ditto lumber and clothes and all the other items we FEEL are now in short supply. They’re not. We need truck drivers (which actually ARE in short supply) and we need the supply chain to right itself, which just takes time. Eventually, social programs like Medicare, Social Security, and some others – not irregularities in the supply chain – will be the things that either drive taxes up or water down benefits, and perhaps create excess inflation. Also, I am saying “excess” because inflation at a modest level is critical to our success. Just ask China.

7. Invest regularly, increase it periodically, don’t chase returns, don’t expect grand slams (i.e.: 2020), and expect solid performance annually – This past year wasn’t normal. In fact, our GDP still has not recovered to pre-pandemic levels. I have heard stories of extraordinarily high returns, as have many of you. That doesn’t happen. 100+% growth fund returns, opportunities to invest in quality companies at 80% off, EV as a burgeoning investment opportunity (although that one has passed)…you cannot plan for these things. All you can do is be ready for them, and you do that by having a systematic way of saving, of dividing up your income into categories. When you do that, then you can throw a few grand at a great opportunity when it’s worth just a few bucks. You can invest in something that is a good company that is inexplicably trading for pennies on the dollar. You can do lots of things to leverage your buck once you have them in a meaningful, intentional strategy.

More specifically, have an amount that you send to savings, and have a “zero” you establish for your checking, either as a couple or as a single person. So let’s say my “zero” in checking is $2500, and let’s also say my goal is to have $5,000 in savings. The discipline is to have a consistent amount moving from checking to savings. Let’s say that’s $500 a month. Maybe you look in savings one month and there is $7,000 in there. That’s when I coach my clients to call me up and say, “Hey, I have a couple thousand in savings that I want to have working harder for me. What could we do?” Then I either advise on a good opportunity, or I move it into a cash-equivalent strategy that pays something to “keep the powder dry” until a better opportunity comes along. This all happens at the same time as your contributions to retirement accounts and other retirement strategies. This allows us to take advantage of good opportunities, and it develops the #1 trait for successful investing: CONSISTENCY. And in case you think that you should wait for the next “buying opportunity” however you define it, you should not. Start today!

Take the following illustration: $100,000 with a 40% year at year 16 and 7.2% the rest of the 30 years = $1,051,418 $100,000 growing at 7.2% for 30 years = $805,088

Will you have more investing when those downs happen? Yes. Will you have game-changing-amounts more? No. Regardless, don’t chase. You’ll have the opportunity to double-down in a low market environment several times throughout your investing career, assuming you employ a savings strategy like the one listed above. You capitalize on it by having the discipline already firmly in hand, not waiting for blue moons that will save the day.

Feel free to reach out with questions!

Note: Securities America, Inc. and Silverling Financial are two separate companies.