Jim Niedelman:
It’s time for another addition to 4 Your Money. We are joined once again by David Nelson of NelsonCorp Wealth Management. Always great to see you, David, hope you doing well.

David Nelson:
Thank you, Jim. I am, how about you?

Jim Niedelman:
Hanging in there, for sure.

David Nelson:
All right, good.

Jim Niedelman:
Let’s get to the things that matter right now. We see that rally in the stock market since those lows of late March. Now you have talked about other financial markets, and the economy sending messages that seem to disagree with the one that this stock rally suggests. What could be driving those returns at this point?

David Nelson:
So, it is interesting to see. We’ve had crazy unemployment, and I brought along a slide here to visually show folks, as far as what’s taken place. Unemployment numbers are just off the charts, as we all know. We’re hitting the Depression levels back in the late ’20s, early ’30s. Retail spending is just totally disappeared. Commodity demand is just gone. Bond yields, we’ve seen plummet. And then on top of that, stocks have continued to charge forward. So, the slide that I brought is going back to ’07, ’08, ’09 crises. And what it was called back then is quantitative easing, and QE. So if you hear the term QE, that’s what’s been started up as far as this go-round as well. But, back then we had three versions of quantitative easing. It lasted a lot longer than the Great Recession did. It actually continued on six years past. And if you look to the left, you see that towards the left and then starting to move to the right, that things were really, really moving up as far as quantitative easing.

David Nelson:
This is Fed buying. Basically the Federal Reserve is buying bonds. If you go to the far right, it’s dark blue, and it’s this line straight up. This is the difference this go-around versus the prior go-rounds. The prior go-arounds, we had three times that the Fed came in and they came in rather late. This go-round, the Federal Reserve came in early and they came in with a big, big punch. And again, all indications are that it’s really made a difference as far as the markets are concerned, stabilized things dramatically as far as in the stock arena.

Jim Niedelman:
So, if the monetary and fiscal response so far is positive for stocks, has it had any impact on other areas?

David Nelson:
It really has. In Graphic 2, we’ll show folks, as far as the visual on this, and basically what it boils down to is the bond market is what they’re targeting. The bond market is what would basically started flipping out early. The trading wasn’t taking place. We like to use the terminology as far as, the plumbing wasn’t working. And so what happened is, you saw bond yields start spiking. So in the middle of the chart there, you see that yellow circle. Well, the yellow circle is indicating that huge drop. That’s when the stock market started tumbling, and people were gravitating towards safe investments, and they’re moving to Treasury. So we saw yields go to under 1/2%. Then, within a very short period of time, it’s a little over a week, all of a sudden they’re at 1.2%, as far as in, again, a week and a half period of time.

David Nelson:
That’s when the Federal Reserve had announced, as far as the buying, the market started calming down a little bit, and then we reverted back as far as to these lower levels. And the bond markets seems to be stabilizing somewhere around 0.6, 0.7% on a 10-year Government Bond, which is the benchmark, as far as how to judge as far as what’s happening out there. So, it seems to be calming down. $2 trillion later, the Fed is now buying Treasuries, they’re buying corporates, they’re buying munies, they’re buying all kinds of stuff, and the plumbing seems to be working these days.

Jim Niedelman:
Let’s talk about what this means for the people watching at home. What are some of the implications of these policies for their investments and retirement accounts?

David Nelson:
It’s hard to say, exactly, we’ll find out as far as through time, but I would say number one would be inflation. Inflation is going to be one of those things that again, time will tell as far as whether that continues to stay low or whether that spikes up. And then understanding as far as how long is this going to last? It’s probably the other big thing. Last go-round, back in ’07, ’08, it lasted over six years, after we were out of the woods. So in other words, in 2014, it ended. And this go around, I’m guessing is going to probably last just as long. This was serious, and again, it’s not going to go away in the foreseeable future.

Jim Niedelman:
Always great things to consider with you, David Nelson, NelsonCorp Wealth Management. Continued health.

David Nelson:
And you as well, Jim, thank you.

Jim Niedelman:
And if you missed any of our discussion, we’ll make that available for you on OurQuadCities.com.