Broken Pie Chart

It's official, we reached a bear market in stocks. But when and how long will a pending recession last? How do you know an official recession has been declared?

What is a recession?

Two consecutive quarters of negative GDP growth

NBER vs GDP 2 quarters decline

Calculate GDP C + I + G + (X – M)

Annualizing GDP quarterly growth rate

Cyclical, Structural, or Event Driven Bear Markets

Supply Shocks vs Demand Shocks

Recoveries: U Shaped vs. V Shaped vs. L Shaped

Mentioned in this Episode:

Percent change real GDP growth rates https://fred.stlouisfed.org/series/CPGDPAI

Historical recessions from the NBER https://www.nber.org/cycles.html

HBR Harvard Business Review economic shocks of coronavirus https://hbr.org/2020/03/understanding-the-economic-shock-of-coronavirus

Forbes on bear markets https://www.forbes.com/sites/greatspeculations/2020/03/17/keep-calm-bear-markets-are-temporary/#388b279230ba

Podcast deconstructing GDP and Inflation https://www.stitcher.com/podcast/broken-pie-chart/e/56922114

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

An official bear market has occurred and now down over 20% from recent highs. The speed of the 2020 decline only took 22 days to happen. How does that compare with previous bear markets? How long does it take to recover on average? And when do they officially call recessions? Get a sense of the numbers behind previous downturns.

What is a Bear Market?

Average Time from Peak to Trough in Bear Markets?

Average Time from Trough to Peak recovery?

What is the HY Yield spread and why it matters

Does every bear market accompany a recession?

How does the speed of 2020 decline compare to other periods?

What are fundamental analysts trying to figure out on 2020 earnings?

What multiples at different earnings estimates theoretically might mean?

Intra year market lows versus final full year performance

Length of previous recessions

GDP historical growth rates

Mentioned in this Episode:

Percent change real GDP growth rates https://fred.stlouisfed.org/series/CPGDPAI

Historical recessions from the NBER https://www.nber.org/cycles.html

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

People have been getting into arguments at grocery stores hoarding toilet paper, hand sanitizer, and bacterial soap among other things. News outlets have reported on Amazon and eBay pulling listings trying to "gouge" prices. But would price gouging create a market where items like this actual get rationed due to adjustments in demand? In this episode Derek goes over elasticity of prices and arguments for and against charging higher prices that would adjust supply and demand back to equilibrium.

What is price gouging?

What is elasticity of price?

Arguments that laws prohibiting price gouging are bad

Why have price gouging laws created opportunities for third party sellers to inflate prices?

What is retail arbitrage?

Examples of raising prices to ensure supply comes into an area

Supply vs Demand in marks

Would rising prices cause people to only buy what they need? (self-rationing)

Ideas for you to study the issue and make up your own mind

How airlines adjust prices to spur demand

Airlines execute "price discrimination" charging business travelers more

Incentives to increase supply

Mentioned in this Episode:

Someone stuck with 20000 bottles of hand sanitizer after Amazon removed listings https://www.nytimes.com/2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html#commentsContainer

Forbes article that laws against price gauging are bad economics https://www.forbes.com/sites/jeffreydorfman/2016/09/23/price-gouging-laws-are-good-politics-but-bad-economics/#425d325a64d3

Stossel video on price gouging https://www.youtube.com/watch?v=IqMFBdWkfo0&feature=youtu.be

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

The Federal Reserve just announced an emergency 50 basis point cut in the fed funds rate. What does cutting interest rates mean? What are the differences in the fed funds rate, discount rate, and IOER or interest on excess reserves? How does a fed rate adjustment effect my mortgage rate? Plus, how do they figure what the probabilities are that the Fed will move rates at future meetings?

What is the Fed Funds Rate?

What is the Discount Rate?

What is the IOER or interest on excess reserves?

What is the prime rate?

How does the Federal Reserve Fed funds rate affect mortgage rates on 30-year and 15-year terms?

How Treasury Bond Yields are linked to interest rates on mortgages

How interest rates affect the present value of future cash flows and earnings

Other ways the Fed can impact money supply such as altering bank reserve requirements

How to calculate the probability of a Fed interest rate change based on Fed Funds Futures

When does the fed meet and schedule?

Fed funds current target rate range

Mentioned in this Episode:

Federal Reserve Meeting Dates https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

Federal Reserve Bank New York daily effective funds rate EFFR https://apps.newyorkfed.org/markets/autorates/fed%20funds

CME Fed Funds Rate Probability Tracking Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

Fed Funds Futures monthly prices https://www.cmegroup.com/trading/interest-rates/stir/30-day-federal-fund.html

Should I Pay off my mortgage early? https://podcasts.apple.com/us/podcast/should-i-payoff-my-mortgage-early-or-invest/id1432836154?i=1000467130109

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

Strong opinions exist on each side of this debate. Some believe plowing money to pay off the mortgage early is better. Others would rather step up their periodic investments and keep a low rate mortgage? In this episode Derek walks through how interest rates affect mortgage monthly payments. Key things to consider when evaluating which is better pay off early or invest. Also, what percentage of your monthly payment goes to principle and to interest depends on where you are in the loan and current rates.

What should you consider when evaluating whether to try and payoff your mortgage early?

How does inflation make your payment lower over time?

The present value of your mortgage payments equals your loan amount

How paying off your mortgage rather than investing the funds might overweight real estate

Considerations should you need to pull money out for emergencies

Will you do better over time investing periodically or paying down mortgage early?

How to calculate when you will pay more in principle than interest

Key assumptions that you will increase 401k contributions or investments monthly

Understanding how interest rates change the calculus on the decision to payoff mortgage or invest

Does the FIRE movement and Dave Ramsey get this question wrong?

Return on paying off mortgage early vs. potential investing returns

Liquid vs. illiquid investments

Mentioned in this Episode:

4% withdrawal rate and retirement considerations https://podcasts.apple.com/us/podcast/is-the-fire-movement-doable-and-the-4-withdrawal-rate/id1432836154?i=1000461766880

Inflation and purchasing power of the dollar https://podcasts.apple.com/us/podcast/how-purchasing-power-dollar-is-eroding-plus-why-inflation/id1432836154?i=1000433222599

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

Michael Lewis wrote the book "The Big Short" that later was turned into a movie starring Christian Bale, Steve Carrell, and Ryan Gosling, Brad Pitt, and Jeremy Strong. The movie focused on 3 different investors who bet against mortgage bonds before the Great Recession and housing market collapse using credit default swaps. Want to get a primer on swaps and how they work before you watch or re-watch the movie?

What are Credit Default Swaps (CDS)?

What do bond ratings mean?

What are the annual premiums on credit default swaps?

How to convert basis points to an interest rate percentage?

What is counter party risk?

What does Michael Burry use to short housing in the Big Short Movie?

How did people bet against the housing market?

What does the spread on credit default swaps mean?

Using Credit Default Swaps to hedge or speculate

Mentioned in this Episode:

Current Credit Default Swaps Spreads on Sovereign Country Bonds https://www.cnbc.com/sovereign-credit-default-swaps/

Michael Lewis Book the Big Short https://amzn.to/2SNhUr1

The Big Short Movie https://amzn.to/31ROJrc

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

Bonds prices are a function of current interest rates compared to their present value of cash flows and return of capital (baring defaults) at maturity. So, with interest rates so low around the world, is this a period of higher risk in bonds (fixed income)? How much more sensitivity to interest rate changes do we currently see in the sector? How do callable bonds mute the positive effects of reductions in market rate of interest? How does the US Aggregate Bond Index compare to the Global Ex-US Aggregate Bond Index from a yield and duration risk comparison? Derek Moore discusses these and other aspects of evaluating risk in bonds due to changes in interest rates.

What is duration risk in bond portfolios?

Comparing duration and yields between US Aggregate Bond Index and Global World EX-US Aggregate Bond Index?

Negative yield to maturity bonds in Europe and Japan

How does lower rates extend duration risk in bonds?

How do callable bonds potentially mute upside market move in bonds when rates fall?

Bonds market value a combination of present value of cash flows (interest payments) and return of capital at maturity

What are call provisions on corporate bonds?

Investor expectation of annual returns equal to the current yield to maturity?

2018 when both stocks and bonds via the US Aggregate Total Return Index were negative

Mentioned in this Episode:

Short Selling Terms Explained through Tesla https://podcasts.apple.com/us/podcast/short-selling-explained-tesla-short-interest-short/id1432836154?i=1000463711042

Explaining negative yielding bonds https://podcasts.apple.com/us/podcast/wacky-negative-yielding-bonds-need-for-alternative/id1432836154?i=1000442461907

Real returns vs nominal returns above inflation https://podcasts.apple.com/us/podcast/importance-real-returns-above-inflation-how-to-calculate/id1432836154?i=1000440384756

Myths of the 60/40 stock/bond portfolio https://podcasts.apple.com/us/podcast/discussing-myths-around-the-classic-60-40-portfolio-part-i/id1432836154?i=1000434346248

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

Tesla stock it seems is always in the news. Between it's CEO Elon Musk and the latest price action, it has been commented on ad nauseum. Lately, the terms short squeeze and short interest ratio have been mentioned as CNBC commentators talk about those who have been betting against the stock and taking some losses of late. So what is short selling and what do the terms short interest ratio, days to cover, and short squeeze really mean?

What is short selling?

Borrowing shares to sell short

What is the short interest ratio?

What does Days to Cover ratio mean for share held short?

What is a short squeeze?

Tesla short interest ratio and days to cover

Risks of short selling

How do short sellers make or lose money?

Where to find short interest ratio?

Where to find days to cover ratio?

Mentioned in this Episode:

Tesla TSLA stock info at marketwatch https://www.marketwatch.com/investing/stock/tsla

Tesla TSLA days to cover short interest Nasdaq site https://www.nasdaq.com/market-activity/stocks/tsla/short-interest

Free Chapter Broken Pie Chart: https://www.book2look.com/book/YcqUhbCrtN

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

With the new decade came prediction after prediction trying to call what the next decade's compounded growth rate will be. Many have said investors need to prepare for lower returns based on the numbers. But what if other prognosticators have a different view that is more bullish? We can't predict future market returns, but we can talk through what they are looking at valuation and return wise to help you see both sides of it.

Why are CNBC and FOX Business guests saying to expect lower future market returns?

What is the CAPE Ratio?

What does the previous annualized 20-year return say about the next 10 years?

What role do interest rates have in stock valuation?

Just be long the market but be hedged or buffered

What is the equity risk premium?

What is the CAPM Capital Asset Pricing Model

Where are we currently valuation wise according to the Forward PE Ratio?

Mentioned in this Episode:

Of Dollars and Sense "Investors Fallacy" comparing past 20 year returns with subsequent 10 year returns https://ofdollarsanddata.com/the-investors-fallacy/

JP Morgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets

Free Chapter Broken Pie Chart: https://www.book2look.com/book/YcqUhbCrtN

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

Recently I've been asked by several people about the FIRE movement. Financial Independence and Retire Early. This strategy relies on increasing percentage of salary in savings, reducing expenses, and assuming a compounded rate of return. Then when they have 25 times their desired retirement salary, they achieve the FI. So, does the math add up? Does the 4% rule still work? And what might they and aspiring retirees be missing? Sequence of returns may play a larger part plus the 10 years prior need to achieve the right compounded growth rates.

What is the FIRE movement?

Using 25 times desired retirement income to determine assets needed

What is the 4% withdrawal rate mean?

Is 4% still doable given lower intertest rates

Different stages including accumulation, base maximization, and distribution

How does inflation affect the 4% withdrawal strategy?

Sequence of returns comparison

Is it better to lose early or late once in retirement?

Mistakes aspiring FIRE movement might overlook

How to calculate future values with compounded growth rate and deposits

Are medical costs underestimated by FIRE followers?

Mentioned in this Episode:

Free Chapter Broken Pie Chart: https://www.book2look.com/book/YcqUhbCrtN

CNBC How social security benefit amounts are calculated https://www.cnbc.com/video/2020/01/02/how-social-security-benefits-are-calculated-on-a-40000-salary.html

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com