Should I Buy a House Right Now? | Portfolio Rescue 47

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00:02:42.320 | It's expected that the Fed will raise rates throughout 2022 and maybe 2023, and then cut

00:02:46.760 | them again in the near future, possibly before the elections.

00:02:50.160 | Isn't the following strategy an easy win?

00:02:52.160 | Buy when rates get high, and sell when back to zero.

00:02:55.240 | I know these cycles aren't supposed to be as short as they are now, but I don't see

00:02:58.320 | much attention on this strategy and segment.

00:03:01.960 | The bond market is certainly governed more by math than the stock market is.

00:03:06.800 | The bond market is easier in terms of expected returns.

00:03:10.080 | When it comes to the stock market, you could nail the forecast on dividends or earnings

00:03:13.160 | or sales or whatever other fundamental you want to pick, but it's impossible to predict

00:03:18.840 | investor emotions, and investor emotions are what help with determining valuations.

00:03:23.600 | So in the 1970s, earnings grew 10% per year.

00:03:26.440 | It was a terrible market for the stock market.

00:03:28.960 | In the 1980s, earnings grew like 5% a year, less than 5%, and the stock market did wonderfully.

00:03:34.700 | So you could predict these things and not know what people are willing to pay for them

00:03:37.440 | because of a bunch of other factors.

00:03:38.840 | But long-term returns for bonds are fairly easy to predict.

00:03:41.400 | So John, let's do a chart on.

00:03:42.900 | This is starting 10-year yields for the 10-year Treasury and subsequent 10-year returns.

00:03:48.640 | So you can see these two lines.

00:03:50.040 | They're pretty darn close, right?

00:03:52.580 | So the correlation between them is like 0.95, between starting yield and future 10-year

00:03:57.200 | returns.

00:03:58.200 | Now, this might seem blatantly obvious to certain people, but to other people, it's

00:04:00.560 | not because, well, what about inflation and interest rates moving and all these things?

00:04:04.560 | And the best determiner for long-term bond returns over 5, 7, 10, 12 years is just your

00:04:11.000 | starting yield.

00:04:12.280 | It's pretty easy to predict.

00:04:13.920 | So I like the idea here by this person, trying to think of bonds as maybe easier than timing

00:04:17.520 | the stocks.

00:04:18.520 | But if you're going to do it, you probably have to have some rules, and this person has

00:04:20.840 | some rules.

00:04:21.840 | So they say when they get high, and I'm assuming, let's call high 4% or 5%, and they say back

00:04:25.760 | down to zero.

00:04:26.760 | That range sounds pretty good right now.

00:04:27.920 | The problem is, what if your rules are entirely off?

00:04:30.320 | I looked at the distribution of 10-year yields going back to 1945.

00:04:33.080 | John, let's see it.

00:04:34.520 | This just shows the distribution of yields.

00:04:35.960 | So yields have only been 2% or lower 7% of the time.

00:04:40.560 | They've been lower than 4% roughly 1/3 of the time.

00:04:43.000 | So the range that we're in right now for yields is kind of unprecedented in the last, I don't

00:04:47.200 | know, 80 years or so.

00:04:48.840 | Now, it could be, but what if the ceiling is much higher than we think right now?

00:04:52.400 | What if you say my ceiling is 4.5% and I'm going to buy every time it gets there, and

00:04:56.400 | I go to 7?

00:04:57.400 | Or what if you say my floor is zero, but the floor, for a while at least, is two instead

00:05:01.920 | of zero?

00:05:02.920 | What if the Fed doesn't go quite as low as they've been?

00:05:04.040 | So I think that's the problem.

00:05:06.000 | And also, while the long-term is relatively easy to predict in bonds, John, show the one-year

00:05:09.720 | chart here.

00:05:10.720 | Chart on for the one-year.

00:05:11.720 | This just shows the starting yield with one-year return.

00:05:14.040 | You can see this is all over the map.

00:05:16.040 | The yield on Treasuries over any one-year period doesn't really tell you anything, because

00:05:20.600 | interest rates move and inflation and investor preferences and all these things.

00:05:23.520 | So it's tough.

00:05:24.520 | I mean, the good news is, bond returns typically aren't as volatile as the stock market.

00:05:28.400 | So a big misstep probably isn't going to cost you as much.

00:05:31.840 | But do you really want to add another element of potential volatility to your portfolio?

00:05:37.040 | To the part of your portfolio that's supposed to be more stable and less volatile?

00:05:40.520 | I do think investors are probably going to have to be a little more thoughtful about

00:05:43.040 | fixed income exposure going forward.

00:05:44.960 | And you could say, right now, the way the yield curve is positioned, I want to be in

00:05:49.000 | short-term bonds, because they're giving higher yields than long-term bonds.

00:05:52.640 | Or I want to take a little more duration, because I think there's going to be a recession,

00:05:56.200 | and yields are going to fall, and I'm going to get some -- so a lot of it depends on what

00:05:59.120 | you want to get.

00:06:00.120 | Do you want stability and safety in your portfolio?

00:06:03.280 | So maybe on the short end of the bond?

00:06:04.960 | Or are you looking for a total return and getting some price action where you want to

00:06:08.400 | make some moves, where you want to use macro variables?

00:06:11.960 | I just think if you want to be more tactical in bonds, it seems easier, but it's easier

00:06:17.400 | to be tactical long-term in bonds than it is short-term.

00:06:20.280 | And so timing the bond market is probably easier than timing the stock market, but that

00:06:23.640 | doesn't necessarily mean it's a slam dunk, because there's so many other variables involved.

00:06:27.840 | Yeah, no, that makes sense.

00:06:30.280 | I mean, with bonds, too, it seems like so many people roll into them big-time when,

00:06:37.320 | you know, it's the bottom or near the bottom, right?

00:06:39.800 | Historically, it seems like that's what often happens.

00:06:42.120 | People look to hedge when it's kind of, I guess, too late.

00:06:46.040 | I think Josh was recently talking about this.

00:06:47.600 | Well, a lot of it is, yeah, the asset allocation changes.

00:06:51.080 | Just changing asset allocation a ton of times, just -- it opens up the potential for an unnecessary

00:06:56.640 | or avoidable mistake.

00:06:57.980 | And for a lot of people, I think it's probably easier, like you said, Duncan, just setting

00:07:00.920 | it and forgetting it and not trying to be too cute with this stuff, because how much

00:07:03.520 | are you really going to add to your returns if you're constantly jumping in and out of

00:07:06.240 | the bond market and going back to cash?

00:07:08.600 | One wrong move could effectively take out any right moves you make, too.

00:07:11.680 | So all right, let's do another one.

00:07:14.120 | Next question.

00:07:15.120 | Okay.

00:07:16.120 | And that question was from Georgie.

00:07:17.120 | So up next, we have the following.

00:07:19.120 | My name is Max, and I'm a new financial advisor.

00:07:21.800 | My dad decided to throw me a bone to help me get started by entrusting me with around

00:07:25.320 | $400,000 of equities and cash to manage.

00:07:28.200 | My dad is 76 and has been retired for over two decades, not to brag.

00:07:32.300 | He as well often doesn't look at these investment accounts all that often.

00:07:35.960 | His money is primarily in mutual funds, ETFs, and cash.

00:07:39.240 | Being new to the business, I'm struggling to understand what to do with the money he

00:07:42.040 | wishes to transfer over to me.

00:07:43.480 | What is your advice for how to manage a large sum of money when you're first starting out

00:07:47.520 | in the industry?

00:07:48.520 | All right.

00:07:49.520 | So if Max wants to be the next Bernie Madoff, he can start siphoning this money from his

00:07:52.320 | dad because the dad's not paying attention.

00:07:55.400 | No, I mean, this seems like the perfect scenario to get some practice as a newbill financial

00:07:58.560 | advisor that wants to gain some experience.

00:08:00.600 | So it sounds like the father is in a good financial position, so he probably can't screw

00:08:03.480 | things up too badly.

00:08:04.480 | I'm sure that's why he's giving you this.

00:08:06.240 | But my whole line of thinking is you can't possibly hope to invest money on someone else's

00:08:09.520 | behalf without understanding what their goals are and what they want to do with the money.

00:08:12.880 | So this is the perfect time to get some reps in as a young financial advisor and have a

00:08:16.640 | conversation with your father.

00:08:17.800 | So what do you plan to do with this money in the future?

00:08:20.920 | What's your time horizon?

00:08:21.920 | What's your risk profile?

00:08:22.920 | What are your return expectations?

00:08:24.400 | How much are you willing to lose to get those return expectations?

00:08:27.200 | How do you invest the rest of your money?

00:08:28.560 | Is this bucket going to be a complement to the rest of your money?

00:08:31.980 | Is it going to be invested a similar way?

00:08:36.360 | What are the tax issues, potentially, if this is taxable money?

00:08:39.400 | When do you plan on spending this money?

00:08:40.480 | Is this for us?

00:08:41.480 | Is this for the next generation?

00:08:42.480 | Is this free to spend soon?

00:08:43.840 | So I think if you're a young person, you definitely need some reps, and this is the perfect time

00:08:47.360 | to do it.

00:08:48.360 | Sit down and have a conversation.

00:08:49.360 | It's not always easy to mix financial advice with family, unfortunately, but it sounds

00:08:52.880 | like this is a pretty good chance to get your feet wet, and then really sit down and have

00:08:56.000 | a conversation with your father about, well, what are you doing this for?

00:08:58.840 | What's the point of it?

00:08:59.840 | And if he has an investment plan elsewhere, maybe you can incorporate it into that.

00:09:02.840 | But that's what you need to do, is have a question.

00:09:05.080 | It's not like, well, I think you should invest in municipal bonds, I think you should invest

00:09:07.780 | in growth stocks, I think you should put your money in small cap value.

00:09:10.740 | That's not the idea here.

00:09:11.740 | The idea is, what are your goals, what's your risk profile, what's your time horizon, and

00:09:15.240 | then we can build a plan for you.

00:09:16.580 | And that's the conversation you need to have with your father, just like you're going to

00:09:18.640 | have with clients in the future.

00:09:20.960 | Yeah, and I like that he's asking us though, right?

00:09:24.000 | He's asking you for your advice, rather than being like a know-it-all, and thinking that

00:09:28.120 | as a noob financial advisor, he knows everything.

00:09:31.080 | So that's good that he's surveying.

00:09:32.920 | Yeah, it's okay to say, I don't know everything, but you do have to know what the client is.

00:09:38.920 | I think the important thing here is that the client's circumstances and your father's circumstances

00:09:42.760 | are more important than what's going on in the market, probably.

00:09:45.600 | That's the starting point.

00:09:46.820 | Would you want to manage $400,000 for your family members?

00:09:50.640 | That doesn't sound fun to me.

00:09:53.680 | Mixing financial advice and family is difficult, because if things go well, you're probably

00:09:58.200 | not going to get much credit.

00:09:59.200 | If things go poorly, you're going to get the blame.

00:10:02.020 | So it's a good time to have a conversation about it, but just setting expectations is

00:10:06.200 | probably not a bad thing either.

00:10:07.800 | Right, yeah.

00:10:08.800 | All right, let's do another one.

00:10:11.560 | Okay, up next we have a question from Kim.

00:10:14.400 | I'm sure many of your listeners' ears perked up when Michael said he was no longer keeping

00:10:17.980 | cash at Marcus, but instead had moved to New York State Munis.

00:10:21.860 | Can you expand on this as a choice in the current environment?

00:10:24.300 | I've looked at Muni funds, state-specific funds, and state-specific ETFs that use leverage.

00:10:29.060 | Any thoughts on the differing formats?

00:10:30.980 | Duncan, last week I think you said we're getting more bond questions, and it is true.

00:10:34.860 | We're getting so many questions about bonds these days.

00:10:37.020 | I think it's just because everything's a little more interesting there and yields are finally

00:10:39.340 | higher.

00:10:40.340 | So I'm not going to answer on his behalf.

00:10:41.700 | Let's bring him in and ask him himself.

00:10:43.580 | Michael Batnick.

00:10:44.580 | Here I am.

00:10:45.580 | He's here with us today.

00:10:46.580 | The Batman.

00:10:47.580 | I felt like Eric Andre in the "Let Me In" meme, or gif, you know?

00:10:51.540 | I know.

00:10:52.540 | Let's get on the action.

00:10:54.380 | The people want to know, why did you change from Marcus to Muni funds?

00:10:57.180 | What are you going for here?

00:10:59.260 | Before we get to that, I just have to compliment Duncan's hat.

00:11:02.500 | Show me the quack on that Daffy thing.

00:11:04.460 | Well, there's no like audible quack, but you know, it has the bill.

00:11:08.060 | It should make a sound when you open that thing up.

00:11:10.220 | That is pretty fabulous.

00:11:11.220 | They used to.

00:11:12.220 | Yeah.

00:11:13.220 | That's the quacker.

00:11:14.220 | Did you see any fans in Disney?

00:11:15.220 | Anybody stop you with that shirt on?

00:11:17.220 | No one has.

00:11:18.220 | No one stopped me.

00:11:19.220 | I mean, you're pretty recognizable.

00:11:20.220 | Yeah.

00:11:21.220 | I mean, there's dozens of people who know me.

00:11:23.740 | All right.

00:11:25.140 | So what's the question?

00:11:26.500 | Why did I, why am I investing in municipal bonds?

00:11:29.480 | So you went, it sounds like you went from, I think you mentioned Sentinel Spirits.

00:11:32.140 | You took your money out of an online savings account and moved into Muni's.

00:11:35.460 | What was the reasoning there?

00:11:36.580 | Yeah.

00:11:37.580 | So before I answer that, and I'm not just filibustering, you said we're getting a lot

00:11:40.300 | of questions about bonds these days.

00:11:41.540 | You know, questions we're not getting about the triple Q's until yesterday.

00:11:44.420 | Did you see that email coming in Ben yesterday?

00:11:46.940 | I didn't see it.

00:11:47.940 | No.

00:11:48.940 | 2021 was all about the TQs and somebody emailed us yesterday.

00:11:51.900 | I know you guys haven't spoken about it lately.

00:11:53.340 | We'll get to that on Animal Spirits.

00:11:54.660 | All right.

00:11:55.660 | So here's the deal.

00:11:56.940 | Marcus is now offering 2.15% on cash, which is not bad.

00:12:03.860 | It's a hell of a lot better than zero or 25 basis points or whatever it was.

00:12:08.220 | So this cash that I have allocated to New York State Muni bonds is not cash that I have

00:12:15.740 | earmarked for any particular purchase.

00:12:19.180 | If it was, I would not be holding municipal bonds because guess what?

00:12:24.300 | They're not risk-free.

00:12:25.300 | Matter of fact.

00:12:26.300 | So this is more of like an intermediate term than a short term, I guess.

00:12:28.620 | I have no.

00:12:29.620 | Yeah.

00:12:30.620 | I mean, I have no stated use for the cash, not to brag.

00:12:33.820 | It's just sort of sitting there for a rainy day.

00:12:35.740 | So this particular fund is 11% off its highs.

00:12:40.660 | I bought the dip, so I'm only down 1%, but whatever.

00:12:43.300 | That's not the point.

00:12:44.300 | The point is that this is now the stated yield on the thing is over 3%.

00:12:49.500 | I'm in New York, high-tax state.

00:12:51.300 | And what do you pay, 80% taxes there?

00:12:54.020 | Taxes.

00:12:55.020 | It's worth it because I get to buy $15 burritables from Chipotle.

00:13:01.020 | So on a tax equivalent basis, I'm getting over 5%, which feels pretty okay.

00:13:08.180 | Pretty compelling.

00:13:09.180 | That is pretty good.

00:13:10.180 | I looked at the average yield for a handful of short-term Muni bond funds.

00:13:12.860 | You can look at them anywhere, Vanguard or iShares or Schwab or wherever.

00:13:16.180 | In the range for yield to maturity, the average yield to maturity is like 3% to 3.5%.

00:13:19.980 | So to your point, we're talking at least a 4% to 5%, maybe 6% tax equivalent yield if

00:13:25.180 | you're not paying federal and state taxes on there, if you do the state-specific fund.

00:13:28.100 | So that's not bad.

00:13:29.100 | Let me say one more thing.

00:13:31.020 | Somebody asked about losing leverage.

00:13:33.700 | If you are confident in your assertion that you think interest rates are topping and you

00:13:39.260 | want to make a tactical call on interest rates, which is what I'm doing with this particular

00:13:44.940 | slug of money, then sure, why not use leverage?

00:13:48.260 | However, I'm not looking to make a bond trade here, right?

00:13:51.400 | So I'm not looking to have like a 24% drawdown in Munis, which has it ever happened?

00:13:57.060 | Maybe it has.

00:13:58.420 | But either way, if it does happen, no, the deepest drawdown that I'm looking at was 2020,

00:14:03.100 | which was-

00:14:04.100 | And I suppose the leverage would come with a closed-end Muni fund.

00:14:06.620 | There's no leverage in any ETF probably.

00:14:08.500 | You'd probably be investing in a closed-end fund that uses leverage and maybe is trading

00:14:12.100 | at a discount.

00:14:13.100 | Yes.

00:14:14.100 | And then you're trying to play the bond market.

00:14:15.100 | I'm not looking to do that.

00:14:16.100 | You could also do that if you really are like trying to make a bet on duration or interest

00:14:19.260 | rates, which I'm not doing.

00:14:20.260 | You could do ZROZ, which is down a cool 50%.

00:14:24.020 | Holy gazole.

00:14:25.620 | So anyway, 5% plus tax equivalent.

00:14:28.540 | Now you've got my attention.

00:14:31.020 | Getting back to our stuff about timing the bond market from the first question, I think

00:14:35.260 | the last couple of years should show anyone that predicting interest rates is really tough

00:14:38.940 | to do.

00:14:39.940 | The Fed can't do it.

00:14:41.020 | I think anyone trying to say either rates are going to go to 7% from here or they're

00:14:44.580 | going to go back down to 2%, I mean, you could place a probability on that, but I wouldn't

00:14:48.820 | want to bet my emergency savings on that either way.

00:14:51.420 | So I think, yeah, using leverage for emergency savings.

00:14:53.980 | There's a big difference between cash and emergency savings.

00:14:56.820 | This is cash.

00:14:57.820 | It's not emergency savings.

00:14:59.380 | Right.

00:15:00.380 | Okay.

00:15:01.380 | Do another one.

00:15:02.380 | And when you're, just to clarify, when it's New York state for you as a New York resident,

00:15:06.780 | your tax advantage from a state and federal standpoint for munis?

00:15:10.260 | Okay.

00:15:11.260 | That's right.

00:15:12.260 | I don't take tax advice from anyone wearing a daffy duck hat.

00:15:13.500 | I'm sorry.

00:15:14.500 | But...

00:15:15.500 | Well, I would never give it.

00:15:16.500 | I would never give it.

00:15:18.620 | Okay.

00:15:21.220 | Up next, we have a question from Brennan.

00:15:23.300 | I'm new to the market, so this is my first bear market experience.

00:15:26.580 | This could be way off, but I have a theory.

00:15:28.580 | It seems like the first half of the year sentiment was so pessimistic that it brought us to a

00:15:32.180 | low 4.

00:15:33.180 | It was negative news after negative news, causing the market to say, okay, we get it.

00:15:36.980 | Everything is red.

00:15:38.220 | Now we see upticks from positive earnings and buy-in, only to be followed by more unforeseen

00:15:42.780 | negative catalysts the following week, dropping to lower lows, thus confirming our original

00:15:47.380 | negative sentiment bringing us further down.

00:15:49.700 | I'm curious if there's any historical evidence that backs up this theory that uncertainty

00:15:53.340 | can bring us lower lows more quickly than actual negative news.

00:15:57.060 | I mean...

00:15:58.060 | This is a good one.

00:16:00.060 | Yeah.

00:16:01.060 | So...

00:16:02.060 | 100%.

00:16:03.060 | John, throw up our first chart here of the worst years in the stock market.

00:16:05.700 | So this just shows the worst years ever for the U.S. stock market, going back to 1928.

00:16:09.260 | And I put a reason next to every one of them.

00:16:10.980 | You can see there was the Great Depression, Great Financial Crisis, '73, '74 bear market,

00:16:15.500 | dot-com crash, all these bad...

00:16:16.740 | World War II, all this stuff.

00:16:18.400 | I think usually when you have a nasty, prolonged bear market, it's for a reason.

00:16:22.860 | Obviously, uncertainty comes into play, but I think the only crash, maybe we didn't have

00:16:26.620 | a nasty economic crash, crisis attached to it, was 1987.

00:16:30.500 | And that seemed to come back really quick.

00:16:33.220 | Even then, the stock market was going bananas and rates were rising pretty quickly.

00:16:36.140 | But I think the uncertainties you're dealing with are always, for every bear market, how

00:16:40.100 | much longer will this last?

00:16:41.780 | How long will it take to break even?

00:16:43.400 | How much worse will this get before it gets better?

00:16:45.260 | Ben, can I nitpick?

00:16:46.260 | Can I nitpick?

00:16:47.260 | Can I get that chart back on, John, please?

00:16:49.380 | What?

00:16:50.380 | You can't give the reason for a bear market as bear market.

00:16:53.060 | 1974.

00:16:54.060 | Okay.

00:16:55.060 | There's no name for that one, though.

00:16:56.780 | Yes, there is.

00:16:58.100 | What's the name?

00:16:59.100 | The oil embargo, stagflation, inflation.

00:17:02.100 | You can't say the reason why stocks had a bear market, it's because of the bear market.

00:17:05.700 | Come on.

00:17:06.700 | So, 2008 is the Great Financial Crisis, 2000 to 2002 is the dot-com bust.

00:17:11.540 | What's '73, '74?

00:17:12.540 | There's no good name for it.

00:17:13.540 | I just told you.

00:17:14.540 | What?

00:17:15.540 | The oil embargo.

00:17:16.540 | The inflation.

00:17:17.540 | Yeah.

00:17:18.540 | What's this one going to be called?

00:17:19.540 | What do you mean?

00:17:20.540 | What do you mean?

00:17:21.540 | I'm throwing out for this one right now, it's the Great Inflation.

00:17:22.540 | What do you think about that?

00:17:23.540 | 2022, the Great Inflation.

00:17:24.700 | The Great Inflation?

00:17:25.700 | Yeah, it's a good one.

00:17:26.700 | Put great in front of it and people are going to remember that.

00:17:28.700 | Okay.

00:17:29.700 | So, here's the thing.

00:17:30.700 | No one knows the answers to those questions.

00:17:31.700 | Oh, wait, wait, wait.

00:17:32.700 | I have another one.

00:17:33.700 | I have another one.

00:17:34.700 | Inflategate?

00:17:35.700 | But, I mean, don't you think that, yes, uncertainty is part of it, but most of the time, especially

00:17:39.420 | this year, I think there's been a lot of bad news and the stock market has taken that

00:17:43.900 | into account.

00:17:44.900 | So, it's not just the fact that things are uncertain and no one knows what's going to

00:17:48.140 | happen.

00:17:49.140 | It's that there's bad news that's hitting the stock market.

00:17:50.140 | So, okay.

00:17:51.140 | So, to get back to this question, if there is any historical evidence that backs up the

00:17:56.520 | theory that uncertainty can bring us lower lows quicker than actual negative news, absolutely.

00:18:01.780 | This is the opposite of sell the news, buy the rumor.

00:18:04.740 | Buy the rumor, sell the news.

00:18:05.740 | So, that would be sell the news type of thing or buy the news.

00:18:09.860 | The market hates uncertainty.

00:18:11.340 | So, once you get bad news, usually, or at least when the market is down so much, the

00:18:17.700 | market has anticipated that.

00:18:19.380 | So, the market doesn't always bottom on bad news.

00:18:22.540 | The market usually bottoms before it, in anticipation of.

00:18:25.420 | I think you could say the uncertainty now is the biggest economic data point everyone's

00:18:29.180 | following is the inflation data, and it comes out once a month.

00:18:32.100 | And so, in between those monthly inflation data points, there's a ton of uncertainty.

00:18:37.380 | What is this Fed official going to say?

00:18:39.180 | Well, the other uncertainty is, to your point, what are the Fed officials going to say?

00:18:42.940 | Kashkari said today, "We are seeing almost no evidence that inflation has peaked."

00:18:46.580 | Really?

00:18:47.580 | Well, that's interesting.

00:18:48.580 | Okay.

00:18:49.580 | He also said, "I anticipate cracks in U.S. financial markets, but the bar for a change

00:18:52.820 | in Fed policy and response is very high."

00:18:54.700 | So, Kashkari is hell-bent on doing everything he can to signal that they're not pivoting.

00:19:00.060 | They're deadly serious.

00:19:01.060 | So, there's a lot of uncertainty in terms of inflation and what the Fed's response to

00:19:05.480 | inflation will be.

00:19:06.980 | Besides the perma bears, no one actually thinks that the bear market is going to last forever.

00:19:12.060 | I think some people would find joy if it did.

00:19:14.700 | The biggest uncertainty now is, okay, how long is this going to last and how much worse

00:19:17.620 | could it get?

00:19:18.620 | And that's the thing we don't know.

00:19:19.620 | No one knows, is this thing going to get 10 times worse, are we going to go down 50%,

00:19:24.220 | or is this about the worst of it, and things are going to be choppy for a while, and then

00:19:27.220 | we're going to be fine, and all-time highs will be here again in no time?

00:19:30.380 | That's the thing that you can never predict in a bear market.

00:19:32.660 | No one knows how long they're going to last.

00:19:34.740 | There?

00:19:35.740 | That's right.

00:19:36.740 | I feel like I don't hear enough Bad News Bears jokes in the market.

00:19:42.860 | Have you heard many of those?

00:19:44.500 | It sounds like a layup.

00:19:46.300 | Didn't that movie come from like 1980?

00:19:49.900 | I think it was in the early 2000s, right?

00:19:52.980 | That was the remake, Duncan.

00:19:54.820 | Oh, the remake.

00:19:55.820 | Okay.

00:19:56.820 | Yeah, I never saw the original.

00:19:57.820 | Bad News Bears is like the '70s.

00:19:58.820 | Oh, okay.

00:19:59.820 | I didn't see that one.

00:20:00.820 | I'm talking about the one with that guy.

00:20:01.820 | I can't think of his name.

00:20:02.820 | Billy Bob?

00:20:03.820 | Yeah.

00:20:04.820 | Yeah, Billy Bob.

00:20:05.820 | Is that a corduroy couch?

00:20:07.500 | It's actually not.

00:20:08.580 | It looks like that on camera though.

00:20:10.100 | Yeah.

00:20:11.100 | All right.

00:20:12.100 | Another question.

00:20:13.100 | Okay.

00:20:14.100 | Up next, we have, "We're 38 years old, married with two kids.

00:20:18.420 | Our total annual comp is about $200,000.

00:20:21.380 | We have $125,000 in brokerage or savings and $500,000 in retirement."

00:20:26.820 | They didn't put not to brag, though.

00:20:28.820 | Pretty good.

00:20:29.820 | "My employer recently announced a merger."

00:20:31.380 | New listener.

00:20:32.380 | Yeah, yeah.

00:20:33.380 | "My employer recently announced a merger with another peer where the other company will

00:20:38.100 | be the surviving entity.

00:20:39.340 | As a result, I will be left with two options.

00:20:41.780 | Option A, continue on with the new company.

00:20:44.300 | Option B, take a payout of $500,000 and 18-month COBRA.

00:20:49.420 | If we took option B, we'd likely move closer to family, but we'd be looking for new jobs.

00:20:53.460 | My wife, who makes about $100,000 a year, could likely find something comparable anywhere

00:21:02.420 | we move, but my prospects of finding an equivalent are lower.

00:21:05.620 | My gut says to take the payout and figure it out, but I'd love to hear your thoughts."

00:21:10.780 | This sounds to me like pretty decent options.

00:21:13.260 | So if his wife makes $100,000, their total is $200,000, he's making $100,000.

00:21:16.980 | The company's offering him five years' worth of a salary.

00:21:19.940 | That sounds like a long time to be able to find a job, and you have 18 months of health

00:21:23.700 | insurance.

00:21:25.180 | And if you actually like spending time with your family, moving closer to home seems to

00:21:29.300 | make sense.

00:21:30.700 | This seems like a fairly easy one for me.

00:21:32.620 | Obviously, the uncertainty of not knowing if you're going to find a job hurts, but don't

00:21:36.340 | you think it's now easier, depending on the industry or the job, to find a remote job

00:21:40.300 | these days instead of having to work somewhere and be at the place?

00:21:45.380 | I do, but given that he said, "My prospects of finding an equivalent are much lower,"

00:21:49.300 | I would say for what this person does, I'd take his word for it.

00:21:52.860 | However, to your point and his point, he's got a five-year cushion, so surely it can't

00:21:59.300 | be that hard.

00:22:00.300 | Right.

00:22:01.300 | Right?

00:22:02.300 | Even if it takes two years.

00:22:04.740 | Unless they're saying that moving to family would be bad for them or something.

00:22:08.620 | But I didn't get that from reading it, but it sounds like a positive.

00:22:16.460 | Maybe you go to your current company and say, "All right, we're doing the merger.

00:22:19.780 | I want you to double my salary to make it worthwhile for me to stay here."

00:22:22.980 | But the $500,000 to get out of there, I don't see how you could turn that down.

00:22:27.260 | Plus, if you just put that $500,000 into levered municipal bond funds, boom, golden.

00:22:32.740 | Now we're talking.

00:22:33.740 | Yeah.

00:22:34.740 | This is a pretty good life.

00:22:35.740 | I think we've got one more life question here, and then we're out of here.

00:22:39.760 | Just out of curiosity, why would a company offer that kind of payout?

00:22:43.220 | How is that financially?

00:22:44.220 | Because he's got real dirt on them.

00:22:46.540 | He has pictures that they don't want him releasing.

00:22:50.100 | If that's a severance package, it's a pretty good one.

00:22:51.900 | I don't know.

00:22:53.260 | Maybe he has some shares if it's a private company, or it could be that where he has

00:22:56.300 | some equity maybe.

00:22:57.300 | Okay.

00:22:58.300 | Yeah.

00:22:59.300 | It sounds like a pretty good deal.

00:23:00.860 | Someone is saying you have to pay taxes on it, obviously.

00:23:03.020 | That's true.

00:23:04.020 | Also, you have to pay taxes on your income.

00:23:05.740 | But I still think that's a pretty good margin of safety there, especially if it allows you

00:23:09.260 | to move closer to family and you have two kids.

00:23:12.820 | That seems to make sense to me.

00:23:14.100 | All right.

00:23:15.100 | Let's do another one.

00:23:18.100 | Okay.

00:23:19.100 | Up next, we have a question from Adam.

00:23:20.580 | "My wife and I are leaning towards buying a home in the next few weeks.

00:23:24.100 | I'm an idiot, right?

00:23:25.460 | Here's the deal.

00:23:26.460 | We owe $100,000 on our $200,000 home right now at 3.75% 30-year rate.

00:23:32.220 | We can put down 20% and get a fixed 10-year 5.5% arm after 10 years versus 7% 30-year

00:23:39.500 | fixed.

00:23:40.500 | We want to buy our dream home in a school district we know we want to be in eventually.

00:23:44.420 | Our son is three, so we have a little time.

00:23:46.900 | I've been as financially prudent as one could be, and we've saved for this forever home

00:23:50.520 | for 10 years.

00:23:51.620 | I'm planning to keep adequate savings available for the next few years of uncertainty and

00:23:55.380 | hope we can refinance in the next 10 years."

00:23:57.860 | Ben, do you mind if I go first so you don't take all the good talking points?

00:24:00.940 | Sure.

00:24:01.940 | Thank you.

00:24:02.940 | Okay.

00:24:03.940 | Here's the second part.

00:24:04.940 | Oh, it's a two-parter.

00:24:05.940 | Yeah, yeah.

00:24:06.940 | It's a two-parter.

00:24:07.940 | "How does one balance always making the right financial decision with living the life one

00:24:10.820 | desires?

00:24:12.220 | Mortgage rates are the highest they've been in 20 years.

00:24:14.700 | Do I pass on the one-in-20-year home because it went on the market when the economic environment

00:24:18.940 | sucked?

00:24:19.940 | I'm leaning towards the YOLO approach, otherwise I fear I'll be 85 with a ton of retirement

00:24:24.220 | money but full of regret of a life lived as safely as possible."

00:24:27.420 | Michael, before you go and take the good points, I just want to do a pop culture reference,

00:24:30.500 | then you can go.

00:24:31.500 | Okay?

00:24:32.500 | John, throw up my ... This, to me, feels like Robin Williams, Matt Damon, Good Will Hunting.

00:24:35.500 | It's not your fault.

00:24:36.500 | It's not your fault.

00:24:37.500 | Do you know?

00:24:38.500 | I know.

00:24:39.500 | It's not your fault.

00:24:40.500 | I know.

00:24:41.500 | It's not your fault.

00:24:42.500 | What?

00:24:43.500 | It's a coincidence that I fell asleep to this movie on Tuesday night.

00:24:44.500 | The first, like, 30, 40 minutes are ... I mean, the whole movie's incredible, but the

00:24:49.060 | first 30 to 40, in particular, are really spectacular.

00:24:53.540 | So that's ... this person ... you're going into a crappy house ...

00:24:58.340 | Time out.

00:24:59.340 | Time out.

00:25:00.340 | Go ahead.

00:25:01.340 | Hold on.

00:25:02.340 | It's my turn.

00:25:03.340 | I'm the captain now.

00:25:04.340 | Okay.

00:25:05.340 | Go back to the first part of the question because I've ... now I'm thrown off because

00:25:06.340 | he, in the second part, he said ... he was talking about the one-in-20 home.

00:25:08.500 | Duncan, or John, please throw up the first part of that question.

00:25:11.340 | All right.

00:25:12.580 | That might take him a second.

00:25:13.580 | Okay.

00:25:14.580 | A bit of quick housekeeping.

00:25:15.580 | Yeah.

00:25:16.580 | He's watching YouTube, he's watching ARM, is an adjustable rate mortgage, right?

00:25:20.260 | That's right.

00:25:21.260 | Yes.

00:25:22.260 | Okay.

00:25:23.260 | So here's the thing that threw me off.

00:25:24.260 | He's talking about we want to buy our dream home in a school district we know we want

00:25:26.220 | to be in eventually.

00:25:27.220 | So that told me that this home is not his forever home.

00:25:30.900 | But then he said it's a one-in-20.

00:25:31.900 | So Ben, what do you make out of this?

00:25:33.780 | Because this matters.

00:25:34.780 | I think this is ...

00:25:35.780 | Is this his forever home?

00:25:36.780 | It sounds like it is, but it isn't.

00:25:37.780 | I'm not clear.

00:25:38.780 | Well, he's saying that they want to live there for at least 20 years.

00:25:41.860 | That sounds like a semi-forever home.

00:25:44.580 | That's not what he said.

00:25:45.740 | He called it a one-in-20 home.

00:25:48.820 | I think he's saying it's like the rare home that actually fits all of their desires, right?

00:25:52.820 | Fine.

00:25:53.820 | One-in-20.

00:25:54.820 | All right.

00:25:55.820 | So here's why it matters.

00:25:56.820 | If you're not going to be there for the duration, then the ARM absolutely makes sense, right?

00:26:01.580 | To save a point and a half, that's a significant savings.

00:26:05.740 | The risk to that, and there are all sorts of different types of adjustable rate mortgages

00:26:10.140 | that have different bells and whistles.

00:26:12.260 | The risk, of course, is that you end up getting very comfortable, and this does become a permanent

00:26:19.140 | home, and rates are higher in 10 years, which we were saying 10-year forecasts are silly

00:26:29.180 | on Animal Spirits this week because Druckenmiller was talking about where the Dow will be in

00:26:32.420 | 10 years.

00:26:33.420 | So I don't want to be a hypocrite here.

00:26:34.420 | However, I will be a hypocrite, are 30-year mortgage rates going to be higher in 10 years

00:26:38.580 | than they are today?

00:26:40.060 | All right.

00:26:41.060 | John, throw up my mortgage rate chart here.

00:26:43.460 | The last table.

00:26:44.460 | Excuse me.

00:26:45.460 | I asked a question.

00:26:46.460 | I asked a simple question.

00:26:47.460 | I'm going to hit you with data.

00:26:48.460 | Look, so this is 30-year mortgage rates during every single recession since the 1970s.

00:26:53.700 | The average decline is about 1.7% from the high during a recession to the low.

00:26:59.580 | We're going to have a recession sometime in the next 10 years.

00:27:02.060 | I think at that point, he's going to have the ability to refinance, correct?

00:27:06.500 | So I think the problem is I don't think you can feel like an idiot for being financially

00:27:11.860 | prudent, saving, and then finding your dream home.

00:27:14.260 | Guess what?

00:27:15.260 | The people who are in the best position to still buy right now, we've been talking about

00:27:17.940 | the housing market being kind of broken, the people who own a home and have some equity,

00:27:22.460 | it's going to be tough.

00:27:23.460 | You're going to have to plug your nose and do it.

00:27:25.180 | But if you find your dream home and you want to be in the school district, then I don't

00:27:28.660 | think you can feel bad at yourself for mistiming it.

00:27:33.100 | If you can afford it, then you go ahead and do it, probably.

00:27:35.620 | And if you can get the arm, yeah, I don't think you worry about the financial problems

00:27:40.580 | here and say, "Oh, I gave up this wonderful mortgage rate," and let that override all

00:27:46.140 | your decisions.

00:27:47.140 | I think you just suck it up and you do it.

00:27:48.940 | Agreed.

00:27:49.940 | Didn't we talk about some places have portable mortgages?

00:27:54.220 | In Great Britain and Canada, I think.

00:27:56.780 | But I say all else equal, the life decision should always trump the financial decision

00:28:01.980 | when it comes to this kind of stuff, right?

00:28:04.180 | 1,000%.

00:28:05.180 | It has to.

00:28:06.180 | 1,000%.

00:28:07.180 | If it's going to make you happier.

00:28:08.180 | Switching it up.

00:28:09.180 | Yeah.

00:28:10.180 | I agree.

00:28:11.180 | Guess what?

00:28:12.180 | He said, "I fear I'll be 85 with a ton of retirement money but full of regret of a life

00:28:14.140 | lived as safely as possible."

00:28:15.380 | Yeah.

00:28:16.380 | It sounds like they've already thought through all this too, right?

00:28:19.420 | Yeah.

00:28:20.420 | They're saying it's a school district.

00:28:21.420 | They want their kid to go to school in.

00:28:23.060 | This sounds like a thoughtful person and it sounds like they're asking us to give them

00:28:25.740 | permission to do what they should do.

00:28:27.500 | And Ben, do we give them permission?

00:28:29.180 | Yes.

00:28:30.180 | Yes, we do.

00:28:31.180 | I'm giving them permission.

00:28:32.180 | And if interest rates reset at 15%, don't come complaining to us, but yeah, go for the

00:28:37.700 | dream home.

00:28:38.700 | Hey, this is fun.

00:28:39.700 | Yeah.

00:28:40.700 | You do this every Thursday?

00:28:41.700 | Can you believe it?

00:28:42.700 | Yeah.

00:28:43.700 | Thanks for watching.

00:28:44.700 | Live every Thursday?

00:28:45.700 | Just kidding.

00:28:46.700 | I'm a fan.

00:28:47.700 | You know I watch.

00:28:48.700 | Yes.

00:28:49.700 | Duncan, thank you for calling in from Disney.

00:28:50.700 | I think, so Mike will be the next one to go to Disney in a few months, right?

00:28:53.300 | February.

00:28:54.300 | I'm going in February.

00:28:55.300 | I went earlier this year.

00:28:57.140 | We're keeping the Disney economy humming.

00:29:00.100 | We should do this as an economic indicator, just every quarter someone goes to Disney

00:29:04.140 | to report.

00:29:05.140 | It really is.

00:29:06.140 | All right.

00:29:07.140 | So thanks to Duncan.

00:29:08.140 | Did Duncan just put in a higher low on Disney?

00:29:10.220 | I think so.

00:29:11.900 | Duncan, is that your hotel phone ringing?

00:29:15.020 | It's not actually.

00:29:16.020 | What is that?

00:29:17.020 | All right.

00:29:18.020 | Maybe it is.

00:29:19.020 | I don't know.

00:29:20.020 | Send us an email.

00:29:21.020 | Askthecompoundshow@gmail.com and we'll see you next time.

00:29:24.980 | Thanks Ben.

00:29:25.980 | Thanks Duncan.

00:29:26.980 | See you everyone.

00:29:26.980 | Bye.

00:29:28.980 | Bye.

00:29:29.980 | Bye.

00:29:30.980 | Bye.

00:29:35.980 | Bye.

00:29:40.980 | Bye.

00:29:45.980 | Bye.

00:29:50.980 | you

Should I Buy a House Right Now? | Portfolio Rescue 47

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