Redrick Terry:
Time now for 4 Your Money. We’re joined as always by David Nelson, CEO of NelsonCorp Wealth Management. David, welcome back.
David Nelson:
Thank you, Redrick. I appreciate it.
Redrick Terry:
Absolutely. We’ve discussed a number of times over the past several months that the stock market has seemed kind of disconnected from economic reality, but we have seen some economic improvement in a number of areas. Is this something that you’re still concerned about?
David Nelson:
Yeah, I mean, we’re paid to worry, so I have to qualify with that. But at the end of the day, yes, we’re still concerned. The stock market isn’t really interested as far as if things are good or bad today. What the stock market is interested in are things getting better, or are they getting worse, and trying to look ahead three to six, maybe even 12 months out. What the market’s telling us today is that things were horrible and things that were actually not now only just bad. It’s improved, and that’s why the market has rallied, but there’s still a lot of uncertainty out there, rhetoric. And again, things that we’re focusing on today that are very significant. I brought along a slide today to try to illustrate some of that.
Redrick Terry:
Yeah, we’re going to talk about that in this next one. We’re talking about some of those mixed signals that are out there. What are some of those that people should be paying attention to?
David Nelson:
Yeah. We share the term all the time. The importance of a weight of the evidence. You can always find some data point to support a bias that you might have. What we try to do is to look at the whole body of work, to try to make decisions as far as where things are going. What we find in this chart that I brought along today is a really nice visual to illustrate to people that, and we’re only looking at a very short window here. This is only several months. And if we look at the top, the top is illustrating as far as the stock prices, and the bottom is looking at the 10-year government bond yield. And if you look at the left part of this chart that I have here, what you see is the two are running in sync.
David Nelson:
Historically, if we look over the last 20-plus years, that’s typically what’s taken place. This was the crisis, what took place. And now, if you look at the far right of this, we’ve got arrows, one on the top going up, and the one on the bottom going down. What we see here is that there’s been a disconnect that’s taken place as far as between the two. The stock market is basically telling us that things are looking much better, and the bottom is basically telling us that the interest rate on the 10-year bond is dropping to all-time lows. That’s pretty much telling us that things aren’t so rosy. We’ll have to see as far as how these things unwind, but clearly at this point, this is a real big red flag that’s out there telling people to be cautious at this point.
Redrick Terry:
Certainly. Let’s dig into it a little bit. How do you see these circumstances playing out, and what should people be thinking about moving forward?
David Nelson:
Clearly stimulus has been the big thing that’s helped as far as pushing this thing forward, as far as the markets are concerned. Don’t know how long that’s going to last. The government is still trying to get this all put together, but bonds and stocks, we need those. One of them is going to win. One is going to lose. We just have to wait and see what happens there. But we clearly have long-term high valuations. Bonds are paying close to zero today. Balanced portfolios, probably the closest scenario that we can look at in comparison to today, ’07 through ’09, was down, a blended portfolio, balanced portfolio, 60/40 portfolio, was down 30%. We’re telling people that going forward, a static portfolio is going to really have a difficult time in the conditions that are out there today.
Redrick Terry:
David Nelson, CEO of NelsonCorp Wealth Management. Thanks as always for the time. We appreciate it.
David Nelson:
Thank you, Redrick.
Redrick Terry:
And if you missed any part of our discussion, we’ll make it available to you at ourquadcities.com.