Subscribe
Share
Share
Embed
Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
But, oh, man. Yeah. Buckle up. I I think it's gonna be an interesting year. Welcome to how to retire on time, a show that answers your retirement questions.
Mike:Say goodbye to the oversimplified advice you've heard hundreds of times. This show is all about the nitty gritty. We want the details here. Now that said, remember this is just a show. It's not financial advice.
Mike:Even though we may say, we might do something like this, that doesn't mean you should do it. So please take it with a grain of salt. As always, text your questions to (913) 363-1234, and we will reach them on the show. David, what what do we got for our question today?
David:Hey, Mike. How should we react to the already crazy start to the new year?
Mike:Oh, buckle up. Yeah. Yeah. So they're asking us to get political. We typically say politically neutral on the show.
Mike:But then when I say politically neutral, I don't care about talking about politics. Let's talk about it. Yeah. But just know we're not we're not speaking to usher in a political agenda. We're commenting on how geopolitics affects the markets.
David:Yes. And they do. How much are they actually? How much do geopolitics affect the market? And what are some historical examples?
Mike:Yeah. So let's let's take a few examples. First off, what's the purpose of every business?
David:To be a profit maximizer.
Mike:It's to make money. Yeah. Do you think the business is going to stop making money or say, let's just let's just lose money this year because, you know, this party or that party's in office? No. That's never a situation.
Mike:So the expression is innovators will always outrun regulators in that businesses are always going to try to understand the rules, the the terms of which they're playing the game, and then win. That's how all businesses are. So if you are talking about the stock market, that is a business, equities. There's equity in a company that you've purchased that is trying to make money. Now whether they do it well or not, that's a whole another conversation.
Mike:Toys R Us.
David:Oh, RIP.
Mike:Yeah. But there's a lot of other ones. Mean, Bed Bath and Beyond has struggled. They've filed for bankruptcy, but I think they're trying to make a comeback.
David:Good luck.
Mike:Good luck. Yeah. So but but so all businesses are trying to make money regardless of who's in power. Now in the Trump administration, whether you love him or hate him, the the the rules have changed. I don't know any other way to say that, and here's why.
Mike:I cannot remember a time ever where a Twitter or X or Truth or Instagram or any social media account and one post could have that much influence over the market.
David:Right. Unprecedented.
Mike:It's never been this dynamic. That's the nice way of putting it.
David:Alright.
Mike:K? And what I mean by that is when a tweet goes out, it used to be, or an ex post goes out, or truth goes out, it's weird saying the truth goes out because it's not really a truth, it's his opinion or his idea, but whatever. Clever naming convention. Uh-huh. When he says, well, I'm thinking about doing this.
Mike:Well, now, the markets have to figure out, is he serious or not? How serious could he be, and how will that affect the price of a certain company or their profitability? So tariffs was a big shock wave to the the the economy because if you increase prices on the exporting, importing, and all the the movements of our our goods, our GDP in associates with other company or countries, excuse me, that you have to consider how does that affect the price. So every when you buy this the stock when you buy a company stocks and there's a price point there, you need to understand that price has an equilibrium. It's either hot or it's cold.
Mike:So if it's hot, you're overpriced. If it's if it's cold, you're it's underpriced. And the equilibrium typically is associated with the earnings per share of the company. So is the company profitable? And and you could have a whole argument there.
Mike:And and this is also different for different sectors. Tech sectors, earnings per share is probably gonna be different than utility company. Yeah. And then you have the price per book. So you have these different metrics that say, is the price relevant or appropriate today or not?
Mike:Okay? So if there is a new policy, if there's a new trade agreement, if there's something that changes that's going to affect the profitability of certain companies, that's going to affect their price. So there's this ripple effect. Politics very much has a ripple effect into the economy. That's kind of why it's not like, oh, I mean, we'll talk about the Venezuela situation.
Mike:Oh, Venezuela has happened. Now Chevron is gonna make all of this money. That's a reasonable assumption, but is it true?
David:Yeah. We don't really know fully, do we?
Mike:We don't know the deals that are gonna get made. Maybe there's a deal where other companies I think there's like five major oil processing companies that really do the type of oil that Venezuela has really, really well. They're, I believe, all in The United States. Like, the more efficient ones in the world. They're they're in The United States.
Mike:But it's not all one company. So who's gonna get the contracts? There's a lot here. So we can make fast assumptions, and the market is going to make fast assumptions. But you don't really know until the chips have have all, what is it, fallen, laid out?
Mike:How the
David:chips fall, yeah, where they may, so yeah. Where are they gonna fall? We don't know.
Mike:So so that's the kind of the first layer of this.
David:Okay.
Mike:Okay? Now, examples, you've got things like oh, I believe it was 1990 Iraq invaded Kuwait. It scared the market. A lot of it had to do with oil. Okay?
Mike:In the seventies, had the oil embargo. I believe it was the seventies.
David:That sounds about right. Was that a Jimmy Carter thing?
Mike:So, yeah, the price of oil affected noticed both those situations were oil based. Venezuela's oil based.
David:Oil keeps making a comeback.
Mike:So oil is energy. And if you distill an economy down to four major things, the theory is a successful growth economy has the the same components. Let's see if I remember this. First off, it's freedom of speech. You have to be able to have people that can just say what they want and innovate and kind of the individualism of not manifest destiny, but the individualism of creativity, innovation, let's try something new.
Mike:That's one of the four cornerstones. You need to have an open market, an exchange of ideas, an exchange of all of that. What is the the third I forget the third one, but one of the one of the the four is energy.
David:Oh, yeah.
Mike:If energy is cheap Then what happens? Then the economy can grow quickly. Oh, yeah. Because if you think about the cost of energy, and this is kind of why a war for the sake of going to war for, you know, terrorism or for communism or these are the things. They might not affect the economy as much, keyword might not affect the economy as much, as a war over oil or resources or energy.
Mike:Specifically energy, because if you distill everything down to the economy, energy affects everything that we do. What's the cost of keeping the lights on in the building? What's the cost of the energy of getting, you know, transportation, processing the goods, and then sending it to the right place? Energy affects everything. It affects the amount of energy in your homes.
Mike:That's gonna affect how much you have to pay your employees. I mean, everything is distilled down to the cost of energy or the materials. So think of rare minerals. You know, how do we create chips? It's not like we just manufacture them.
Mike:They they comes from certain materials. Yeah. So that's the simplest version of of all of these geopolitical events is is it over something of limited resource that affects the fundamental baseline of our economy or not?
David:Okay. Yeah. And so to answer the question then, so how should someone react? So we've we've Yeah.
Mike:Forget about the drama for a second.
David:Alright.
Mike:Distill it down to the fundamental resources that that bubble up to the rest of the economy. You can be a smart individual and put some sort of, like, you know, cool, I don't know, product line in place. Maybe make some new shoes. Cool. Whatever.
Mike:The price of oil is gonna affect the economy more than your shoes that you've you've made. Because the price of oil isn't just gas. It's not just energy. It's also, like, the plastics. Like, you know those, like, little cheese wheels that you get and you, like, you split it open, you eat it?
Mike:Yeah. That wax that's around it, that's from oil. That's not wax from bees. Like That's wild. Plastics.
Mike:I remember there was one time that someone was protesting an oil and gas company in Washington on their kayaks.
David:Oh, yeah.
Mike:Their kayaks were made from oil. Yeah. I don't think people realize how much oil affects the resources. Yeah. Why is it that there's a lot of excitement around the new minerals that were discovered in Utah and Colorado and other places, because that allows us to get materials or these minerals, these resources for cheap.
Mike:So if you see a geopolitical event over minerals or oil or energy, yeah, it it could affect the economy significantly, for better better, for worse. And that's there's a lot of negativity around those ideas, you know, manifest destiny. You don't just take over a country to get oil. Well, kinda looks like that's what happened. Mhmm.
Mike:Now I get that people think he was a dictator. I really don't have a background on the history of Venezuela. I didn't dive into details with that. I've seen a lot of Venezuelans happy that he's gone. I I'm that I'm not a political science individual.
Mike:I don't wanna go there. It's not my special specialty or expertise, but I can say that if The United States has access to the oil, that's gonna make our economy cheaper. That's gonna make our not our economy cheaper, our ability to grow our economy more effective. So
David:Yeah.
Mike:Do do you see the difference? This isn't like just, oh, we hate dictators. There's an underlying mechanism. Why is The United States so focused on Ukraine and the and helping Ukraine out? There are many back end deals of very powerful companies that want the resources of Ukraine.
Mike:Mhmm. Why is The United States very involved in other countries around the world? People don't you know, why are we funding NGOs? And now why did we recently switch to fund governments? It's for the the deals.
Mike:There are there's and so you have to understand the deal, the resources, the reasons why we are having an influence over certain things. But to answer the question, yeah, I I if if the first two weeks are any indication of the rest of the year, it's going to be an interesting year. I mean, do you remember 2020, how that started? It was like, oh, there's this kind of virus, and then Australia was on fire at some point, and then something else happened. And then the COVID comes out, and then I mean, it just it was nonstop.
Mike:So maybe this is another year. Hopefully, there's no virus, but another year of just nonstop big news. I don't know. But this goes back to you need to have systems and not sentiment for your investments. Because if there is a volatile year of new cycle, geopolitical events happening over and over again, especially ones that revolve around oil Mhmm.
Mike:And you're you're investing based on emotions, there's a good chance you're gonna get screwed over.
David:So we shouldn't then look at the news and and, like, rush to to move a significant portion of our portfolio into Chevron. Right? Should we?
Mike:The by the time you got there, it was already priced in.
David:Oh, okay.
Mike:And what does that mean priced in? That bump in the market, that's the price probably associated with the current future profits that are already expected. Wall Street already got in. So if you're hearing about it on your phone for your morning breakfast, it's already been priced in. Doesn't mean you can't make some money.
Mike:But, I mean, it's don't assume that you you've got the cutting edge of things. You you have to have access to overnight trading and and all sorts of other just resources to be able to even get ahead of that. Now one last thing I wanna mention for this, and that is there's two ultimate styles of trading. There's active and there's passive. Which one's better?
Mike:Who's to say? Typically, in volatile situations, it is better for a nonprofessional and even some professionals to take a more passive approach so you can get through whipsaw. Whipsaw is when the markets are going up one way and then just tank. So can you imagine, for example, and I'm hopefully, I'm not forecasting anything. But let's say, just for just for the most extreme example, let's say The United States starts getting really in bed with Venezuela, and now we have exclusive access to all of their oil.
Mike:We are raking it in. And then all of a sudden, Russia comes in, who had a significant investment and interest in the Venezuelan oil, and so did China. And they come in, and they kick us out.
David:Oh, then what?
Mike:Whether it yeah. Now our alleged future profits are getting held up. Uh-huh. Or maybe they split it. Maybe there's some cool oiled agreement, oil for all or whatever.
Mike:Now that's gonna change the profitability. Or the future profits coming in there, that's gonna affect the market. So, you know, I hope things are I like peace. Everyone likes peace.
David:Everybody wants
Mike:That's such a stupid thing to say. Everyone wants peace. Yeah. It doesn't mean you have to be nice about it. Like, you you have to build a whole boundaries with civility, and whether Trump did it the right way or the wrong way, I'm not here to debate that.
Mike:What I am saying is a very large event happened. That doesn't mean other large events could not happen in the future. And those events, especially the ones around oil and or certain minerals, have a can have a significant impact on the price or the whipsaw or the volatile shifts in the market. So trying to time the market, trying to be an active trader without sufficient experience may not be in your best interest. It may be better just to buckle up and ride the waves up and down as we go through what could be a very interesting year or maybe an extra interesting three years.
Mike:I mean, the first year of Trump's presidency wasn't necessarily, you know,
David:a cakewalk. That seems so long ago. I can't even remember what happened.
Mike:Well, you remember the tariffs?
David:And then
Mike:tariffs two point o.
David:Yeah. The first I guess, yeah, this this I I was thinking more of, like what was it? 2017, maybe? The first first year or the first
Mike:The the second year of the first administration was interesting because he got in a trade war of just China. And so if you look at, like, the market, if that's the market is the measurement of Trump's administration, which he seems to believe that's kind of a nice scorecard. First year was great. Second year, nothing. Third year, nothing.
Mike:And then at the end of the fourth year, it started to grow. So Yeah. What is it? Are we going into the is it maturation, the flat kind of phase of of his presidency before it takes off again? I don't know.
Mike:Maybe that's why he wants the Fed to drop interest rates to 1% quickly, and why he wants the Venezuelan oil to go to cheap so he can funnel the economy, but that might be hyperinflation. So anyway, it's Yeah.
David:Long story short, we we shouldn't react if we already have a system and and and we're we're not we're not, like, tied to our emotions or our sentiments, Stick to the system no matter
Mike:system that's tested. Yeah. Something that you you know that's whether academic based, it's been stressed, just needs to be tested. And if it's not tested, then consider it this way. Don't diversify your assets by just buying a bunch of stocks or some a bunch of ETFs.
Mike:Chances are if they're all kind of the same idea of growth, they're gonna share a bunch of the same positions anyway. That's not really diversification. Yeah. You could diversify out of different asset classes. So you've got the stock market.
Mike:You've got the bond market. You've got the cash and cash equivalents market. Think CDs, anything the Fed would affect. You've got the insurance market. You've got the alternative market, private equity, private credit.
Mike:You've got the I mean, there's all sorts of other markets that you could diversify that are uncorrelated that could help, or you could diversify by strategies. Maybe you have some that is active in growth. Maybe you've got some that's more passive. Maybe you've got some that's in a different market. And what that allows you to do is kind of take the best of different strategies, blend them together, and try and find your silver lining.
Mike:And your silver lining is different than someone else's silver lining. But, oh, man. Yeah. Buckle up. I I think it's gonna be an interesting year.
Mike:No one knows the future of the market, but it's it's certainly been interesting.
David:And we'll be here to
Mike:talk about it, so subscribe to the channel. Right? Yeah. Yeah. Like, subscribe, and make sure to get a part of our newsletter.
Mike:We actually send more detailed analyses, market with context newsletter, which goes out every Thursday where we're talking specifically about, you know, why did this happen, what's going on, what to look for. You know, it's it's nice to know what to look for instead of just, like, closing your eyes and hoping to figure things out. I'm not saying anyone closes their eyes out of ignorance. It's just you don't know unless you know, and and being guided to say look for these things and kinda connecting those dots really can help. And if you do like and subscribe, the more the bigger the channel gets, the better it's gonna be for everyone and us, you, the resource we can provide to you as well.
Mike:So make sure that you like, subscribe, tell a friend, and go to retireontime.com to either put your plan together, grab our book, and or, you can hire one of our advisers to help you put together put together your retirement plan. That's retireontime.com resources galore and more. Go there. Subscribe today, and we'll see you in the next show. Thank you.