David L. Blain, CFA, CEO of BlueSky Wealth Advisors, and author of “Invest In Your Life, Not Just Your Portfolio,” addresses, in the first episode, what’s happening in the markets and his perspective on the issue. What can we expect in the future? What actions should you take during this time?
Transcript of Episode One: Market & Economy Perspective
Good morning, everyone. This is David Blain, CEO of BlueSky Wealth Advisors, coming to you today to talk a little about what’s going on in the economy and the markets. It’s been a pretty wild summer after a really poor start to the year. We had about six really good weeks of market going up and things were looking a little bit better, and then last week, it seemed like the wheels started to come off again. So I just wanted to talk to everybody here today a little bit. We’re going to talk a little about the Federal Reserve. The Federal Reserve is meeting again this week, talking about raising interest rates again. We’ll talk about that a little bit. We’ll talk about inflation, but before we do, just want to put what’s happening in the market in perspective.
So for over the past year, the stock market is down maybe 10, 12, 15%, depending on which you’re looking at, U.S., foreign, small, large, definitely down. We did enter a bear market, which is traditionally defined as a more than 20% decline from a peak. Fixed income with interest rates going up. Fixed income bonds are down about 5% over one year. Even gold, supposedly this great inflation hedge, is down this year, over the past year by about 5%. As we know, inflation is going up. We’ll talk about that in a few minutes. Real estate REITs are down. Now private real estate, for those of you that invest with us in our private real estate, still doing very well, but the public real estate market also is down.
About the only thing that’s been up over the past year has been commodities, and it’s been a pretty wild ride. So the past year been up maybe 15, 20%. However, the past three months with oil prices coming back down, commodity price has also taken a hit, are off 10, 15% in the past three months.
So not a lot of great things to invest in, but I do want to put it in perspective for you. Here I have a chart, and we’ll talk about the U.S. stock market for a minute because that’s what people tend to focus on. I have here a nice chart that goes back to 1926 to December of 2021, so it isn’t updated yet for this year so we’ll talk about that. But as you can see, the blue above the line are your bull markets, positive returns for equity markets, and you can see they’re quite high and quite long for the most part.
Below the line, in the gold-ish color, are your bear markets. And you could see over here on the left hand side, the worst one, minus 80%, the Great Depression, 27 months long, very, very brutal bear market. Of course, there was a lot of market reforms after that. In fact, we operate investment advisors. We operate on the Investment Advisors Act of 1940. It took them a while to get some laws passed after the Great Depression, but they did finally pass. And so some of these older in the ’20s and ’30s, the Great Depression, some of these returns may not be comparable. We didn’t have some of the same market protections that we have that would cause this 80% decline.
But anyway, the ’20s, the late ’20s into the ’30s, were really, really bad. Then, of course, you had World War II, really pulled us out, but then you had a short bear market after the end of World War II. And then again, in the ’60s and into the ’70s, we had the ’73, ’74 bear market. Once again, a high inflationary period, some bear markets. This one was pretty bad, minus 43%, 21 months long. We had these two really huge bull markets, only interrupted very briefly there. 1987, anybody remember that? The crash, it was a very quick, sharp minus 30% drop in three months, resume the bull market. Then we’ve had a couple other bear markets here.
And then we will, once this chart is updated for 2022, we’ll see another gold line spike below the line, for sure. How low will it go? We don’t know, but what I want you to get from this perspective is the majority of the time, markets go up. Yes, occasionally you have these terrifying bouts of a bear market, but generally speaking, it’s impossible to time it or to figure out when it’s going to end.
I like to use the analogy of an airplane. You decided to go from wherever you live, say you were going to Florida. You wanted to fly to Florida. Well let’s go across the country. Let’s fly to California, or if you’re in California, let’s fly to North Carolina. And you decided to get on this plane. It’s going to be a long journey. It’s kind of where you get to, and about halfway across, or when you’re reaching the Rocky Mountains, the pilot comes on and says, “We’re going to run into some turbulence here.” And the plane starts shaking and drinks are rattling, and everybody’s buckled up, no using the bathroom. Everybody knows what that’s like, turbulence on the plane. Well you don’t all of a sudden decide you want to jump out of the plane at 30,000 feet because there’s some turbulence. No, you have to ride that out.
And that’s what I’m trying to do here is, I’m the captain and I’m telling you to expect turbulence in the plane, but we’re not going to jump out. Now when you get to your destination, you may say, “Wow, I really did not enjoy that. Next time, I’m going to drive to California or I’m going to drive to North Carolina.” That’s fine.
But it’s like stock market investing. You decided at some point in conjunction with your advisor to invest in the market in order to get to your destination. For most people, in order to achieve their financial goals, they’re going to have to take some market exposure. They’re going to have to invest in something. Just putting it in your mattress or investing in the bank is generally not going to get most people to where they want to go. So you decide to get in the stock market, which is like the plane, and we’re in the middle of the journey. Do not bail out in the middle of the journey.
Now you could say, well maybe when you land, you’re not going to take a plane anymore, but that’s where it’s critical, and this chart helps explain that. It doesn’t make it any easier as you’re going through it. It doesn’t make it any easier if you were going to buy a house or you’re trying to retire, those type of things. The timing is very critical on these events.
But I just wanted to put this in perspective that this is not the end of the world. Yes, it seems like it. I’ve been doing this for almost 25 years professionally, as an individual investor, closer to 35 years, and these things will pass. Absolutely will pass.
Next up, I’m going to talk a little bit about the Federal Reserve and inflation. I’m going to stop the video here and make another one. So if y’all wanted to just hear about the stock market and what’s happening, that’s what’s happening. We’re in the midst of a bear market, just like we’ve had before. We’re confident that the world is not going to collapse and that at some point we’ll come out of this on the other side.
So for those of you that want to hear about more about the Federal Reserve and inflation, go ahead and tune into the next video.