What To Do With Your Plummeting Investments!
A lot of our listeners are watching the stock market fall in a panic. Our consumers want to know what to do as their investments plummet. Do I sell my 401(k) investments? What happens when I sell while the market is crashing? How do I manage and protect my portfolio?
There may be a silver lining to the damage done to the stock market by the coronavirus pandemic.
Enter Your Detective of the Air's esteemed radio guest, CEO and Senior Investment Executive of Triumph Capital Management, Derek Eichenwald. Mr. Eichenwald has enjoyed a long career in financial services, having worked at some of Wall Street's largest financial institutions including Raymond James, AXA Equitable, and Salomon Smith Barney. He manages wealth for individuals, corporations and non-profit institutions. Mr. Eichenwald assists clients with their lifetime financial and strategic goals through sound asset management, risk planning, and advanced estate planning techniques.
Steve brought Mr. Eichenwald on after reading an article he wrote this last week regarding the economy and the markets, hoping he could shed some light on exactly what's happening with the recent market volatility.
"It's important for investors to remember the market in the short term really runs on emotion and so right now when you're logging into your account, you're looking at your balances on your phone at a PC, and you see that over the last 30 days the DOW is down 35%.
The way that Wall Street and the markets are looking at things today, it's as if all economic activity will cease and go to 100% zero, in other words, Apple stores won't reopen, restaurants and bars won't reopen, and we will all be stuck in our home, unable to consume and every business goes out of business."
The good news is Americans are still consuming and now even more so from home!
As a "Prime" example, if you go through Steve's Amazon account he's ordered fresh-made kimchi, 9-volt batteries, a drone, and even steaks from Whole Foods, delivered right to the door. Doesn't that change the landscape of the market?
IT REALLY DOES. And Mr. Eichenwald agreed
"When you look at GDP, or gross domestic product, 70% of it is driven by you and I going out there and consuming, [sic] buying those steaks from Whole Foods online, buying batteries online...
In fact, interestingly enough, a number of days ago, Amazon came out [and announced] it's hiring 100,00 new employees and that's a big number for Amazon. That's about an increase of 10% of their overall workforce.
In fact two days ago, Walmart came out and said that they're adding 150,000 new employees and will also be paying out bonuses of 550 million dollars for their hourly workers."
So with this demand, people ARE buying. The economy is not dead. We are not at absolute zero. It's important to know that the consumer drives 70 percent of our consumption still has the ability to consume.
"We look at online activity of people buying stuff online as you mentioned through Amazon and other online retailers and you look at media consumption online...it's an ability that they didn't have a number of years ago.
...It's very convenient for you to consume online, however, with plane, train and automobile transportation largely shutting down, we do expect to see some GDP shortfalls for the first and second quarter of 2020."
Speaking of GDP, Steve points out how experts are predicting a five to ten percent decline over the second quarter that equates roughly according to 250-500 billion dollars. Meaning, during the last 25 trading days, consumers have seen the market lose trillions of dollars in market cap. So, why shouldn't people sell, sell, sell?
"We've all heard the old saying buy low, sell high... When we put this into perspective for a moment, even though...we can do a lot of consumption online we will probably see like GDP numbers for quarter one of 2020 and really kind of a horrible GDP numbers for quarter two of 2020.
You'll also hear people say, 'I predict that we will go into recession,' but what does that really mean? What is the definition of recession?
The true definition of a recession is simply two negative quarters of GDP.
The bottom line is a recession isn't as scary as the word connotes. if quarter one ends up in the negative and so does quarter two, but we rebound with a strong quarter three and quarter four, then although we technically experienced a recession, we could be well on the way to getting back to where the economy was, if not stronger.
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Until next time...