John Norris (42:32):
Now it’s time to move into the Q&A.We already have a few lined up.
- Could you talk a bit more about India? Any particular mutual funds and/or ETFs?
I’d love to stay away from any specific recommendations regarding any particular Indian companies or any big exchange trade of funds. That just gets a little bit too granular for this and that does really means that we’re out there pushing a product and we’d rather not do that. So there are any number of companies out there and ETFs. I would probably be more inclined to use an exchange traded fund or a mutual fund in any one specific country. Understanding that when you buy a fund, you’re eliminating a lot of unsystemic risk and not understanding the Indian financial system quite as well as anyone would like here in the United States, I think that’s really kind of the safest approach and there are any number of them out there.
Now with that being said, the Indian market, we’re not alone in thinking that it’s going to be India’s room to run and it’s not maybe as cheap as it has been. It’s rallied quite a bit too. So any form of pullback significantly in the Sensex would be probably a decent time to buy. Now I’m not saying to go out there and buy 20% of your portfolio in India, but India specific? You know – nibble two, three, 4% at first. See how you like it and then add from there. So try to use a fund as opposed to any individual companies in my estimation.
- You mentioned populations problems having an impact on economies – what will a 20 million influx of people have on the United State? What about all the people streaming across the border here in the United States?
Let me start by saying that immigration has always been a net positive for the U.S. economy. Always. Everyone is here as a product of immigration. So I’m not worried about the long-term, with people coming to this country and taking jobs that no one would want to do. That’s historically the way it’s always been and this is historically going to be the way it always is. With the influx that we’ve had here…we just simply, with having had that many people come through… We can’t vet them all. We don’t know what diseases they have. We don’t know what skills they have. We don’t know their criminal histories and what have you. So bring on people that want to come to this country and work hard. I mean by all means bring them on. That’s why we’re all here and it will be a boom for the U.S. economy. Now, bringing on that number of people and we don’t know where they are, what they can do and whether or not they’re sick or not. That’s a little bit scary to me. So overall, and theoretically in a perfect economic vacuum, 20 million people come to the United States means 20 million people that need to work, 20 million people that need to be clothed, fed and housed, that should be beneficial for overall economic activity. David, Sam, your thoughts?
David McGrath (45:29):
Yeah, no, I agree a hundred percent. I do think the housing issue is larger now than normal since, with mortgage rates where they are, and I see a couple of questions on mortgage rates, so maybe we can delve into that after this. But I do think you have 15, 20 million people all needing a place to live and that is going to help drive the cost of rent. So I do think that is going to be an issue over the next couple of years that will have to be addressed. And I’m not sure that sinking mortgage rates are necessarily going to be where that comes from. I’d love to get John and Sam your thoughts, but I think mortgage rates are settling into kind of a normal maybe a 6%-type of range. It’s hard to believe we’re going to go back to the sub 5% mortgage rates anytime soon and especially if inflation remains a little hotter than expected, I think we’re probably getting close to where that long-run mortgage rate is going to stay.
Sam Clement (46:47):
Just mentioning the bond yields and mortgages, those rates are probably going to converge to a little more historic norm that 10-year to mortgage spread, but I think we would probably lean more on that being the 10-year kind of ticking back up rather than mortgage rates coming down too significantly. I just can’t, six and a half, 7% doesn’t seem that egregious for consumers to go out and borrow money for 30 years given the current environment and the economy being where it’s at.
- Where do you see bond yields and mortgage rates over the next 12-24 months?
John Norris (47:15):
I think we’re probably in sort of a range with the 10-year, and I’m going to tell you what I think is going to happen if the 10-year does get back up to 5%, which could happen given all the supply and the fact that I don’t think inflation’s going to fall terribly much more, if it does get back up to five, you’re going to see the Federal Reserve add to their balance sheet again. If not that, then they will quit quantitative tightening. They’ve already slowed the pace of quantitative tightening down. So we are going to see the Fed put a back step on longer-term interest rates. They’ve done it before, they’re going to do it again and if nothing else, they’re just going to try to keep the treasury’s debt service down. So I do think that the Fed will play shenanigans on the yield curve if we do see rates blow up the way they probably could or should. And at the same time the supply is going to keep rates a little bit higher than what we would like. So when we take a look at the 10-year, I feel comfortable in a relatively broad range of 4.25 to 4.75 longer term and it would take a very big economic downturn to change that estimate in my estimation.
- Is it correct to say that investors should make decisions based on their cash needs for living expenses and their ability to avoid reacting negatively out of fear during a down market?
John Norris (48:28):
What should you be doing during a downturn? What are the cash needs? At some point certainly we will have another downturn. People need to ask themselves, how much are you comfortable with a downturn? Is a 10% downturn in the market going to impact your way of life? Is a 20% downturn going to impact your way of life? If those answers are “now probably not too much,” then don’t agonize over it. I know I’m being cavalier with someone else’s money and I’m not trying to be. However, that’s really kind of the litmus test for how much risk you should be taking. If the prospects of the market going down 10% keeps you up at night, you probably need to take some money off the table.
(49:22):
I mean truthfully. If it doesn’t keep you up at night, then you probably need to maybe add a little bit more risk to it. I mean that’s kind of a vague way of answering that. Don’t sweat what historically happens with some regularity. And also while we have downturns, and we have always had downturns, the markets historically come back. If you were to take a look in 2008, often as awful as it was… David – what was that 28 months later you had all your money back? In 2022, as awful as that was, it was a horrible year. Everyone’s got all their money back and then some less than 24 months later. And you go back time and time again over history and you see that happen. If you feel as though you really can’t sleep at night, you want to take some risk off the table, by all means do so. But don’t let a short-term disruption in the markets that’s not going to impact your way-of-life dictate how you manage your money for the longterm. David, Sam am I wrong?
Sam Clement (50:31):
Cash is really, I view it a little bit partially as a buffer. If you’re in a point where you’re having to spend down your portfolio, low cash is nice to where you can ride out the swings of the market and also buying opportunities. So that’s kind of the primary, I think, objective for cash.
- What will Oakworth do to protect my assets if the firm anticipates a large drawdown on the horizon?
David McGrath (50:54)
I think that’s a great question and I think right now if you look at the S&P 500, it is more overweight growth-to-value than even the tech bubble of early 2000. And so I think if you look at our asset allocation right now, we’re about even between growth and value, which is a significant difference than the overall market. And I think if we do see a massive slowdown in the labor market and the consumers starting to pull back, we would definitely allocate to more of the things the consumers need versus what they want. And those are the defensive sectors of the market. Utilities, people are going to heat and cool their home, they’re going to buy their medicine and they’re going to buy their consumer staples: toothbrushes, toothpaste, deodorant, those basic necessities… those defensive sectors usually hold up very well in the down market and at that point we would go a little overweight on shorter-term fixed income to try to protect the downside.
John Norris (52:05):
Great answer David, and I’ll kind of finish it up with this before we go into sort of last thoughts. Also, please remember that at Oakworth Capital Bank, our interests are perfectly aligned with our clients. I mean I am just going to tell the way it is businesswise, the more money our clients may make in terms of rates of return, the more money we make. The less money we make or if assets value fall, the less money we make as a company. So we are going to do everything that we possibly can in order to maximize the rate of return that you get while minimizing or mitigating your downside risk. Our interests perfectly go hand in glove with that. Now, if we feel as though there’s going to be a permanent impairment of US assets, by all means we’re not going to pay too much attention to the tax code.
(52:49):
We are going to go ahead and protect as much of your money as is possible. So short-term disruptions in the markets, a five to 10% sort of downturn, We don’t want to go out and realize 28% capital gain tax, consequences for clients, because we’re worried about a five to 10% sort of decline. So everything that David said is absolutely spot on.
Focusing a little bit more on value, focusing on a little bit more inelastic economic sectors and companies would be our first way of minimizing downside risk.
Connect with us. If you’ve liked what you’ve heard today and you aren’t familiar with Oakworth Capital Bank, or even if you are familiar with the bank, but not necessarily familiar with our investment team or wealth management offer, please by all means go to oak worth.com, O-A-K-W-O-R-T h.com.
(53:54):
Read a little bit about our history, but by all means, go to our Thought Leadership tab. It’s towards the right hand side of the page. Go down there and scroll around. You’ll find links to all kinds of exciting information, including links to the podcast that Sam and i co-host called Trading Perspectives, which comes out mostly every weeks, mostly every week. I think we try to get 50 out a year as well as links to our newsletter/blog. It was a newsletter when I started writing it 20 years ago. Now it’s a blog because that’s the verbiage that we use. So I still call it a newsletter /blog Common Cents, which is a little bit different than your standard weekly rack from a lot of firms. We try to touch on topical things and help that will impact your daily life.
(54:37):
And then finally, recently out are a brand new quarterly magazine and analysis report called Macro & Market. Really good stuff in there. Go on there. You can find all this and more including pieces from our financial services group that has some really good stuff out there. So please by all means, go out there, play along with it, like what you see, like what you read, like what you hear. Please feel free to give any of us a shout. Our bios and our contact information again are on the website. Of course, I’m not going to say this again. I’ve already hit on it once or twice, but there you have it. There’s the caveat. I want to hold on for just one second, let people to read it before we say goodbye today.
(55:26):
All right. If you’ve gotten through that gang, thank you all so much for participating, listening. Thank you for the questions. We appreciate it. We love doing what we do. We love doing what we do at Oakworth Capital Bank. That’s part of the reason why our net promoter score for the company as a whole is in excess of 94, which is outrageous. And then also we have been named the best bank to work for. I know that’s a bad way to end a sentence where bankers not only English professors, but we have been named Best Bank to work for six years in a row by the American Bankers Association. It just kind of shows you that we love it, we love our clients, we love doing what we do. So thank you all and I hope that you make our next webinar, which will be at some point in 2025. David, Sam, say goodbye.
David McGrath (56:12):
Thank you everyone.
John Norris (56:15):
Y’all take care.