Harry Dent: Well first of all I was the most bullish economists in all of US history. So all I'm saying is the next crash is going to take them to a new low around fifty-five hundred to six thousand and it's going to end up peaking eighteen thousand and if we get one more rally, which is possible. Nineteen thousand on the Dow, that's going to be a sixty five to seventy (unclear 00:19).
Male voice 1: But why don't you just straighten this out? Where will we be? And I'll just give you a date July the first two thousand and seventeen, where will we be?
Harry Dent: I think Stew, I think we are... this rally is real, it was a technical breakout, what I call a fifth wave or a blow off rally so it should go substantially farther as I said last time I was on your show. I'm expecting in July, around July is where I think we could have a top if we start to see some divergences and I think the dollar would be about twenty-two thousand maybe a little higher. So, the bubble is starting to burst and we're seeing huge divergences now in the stock market which says to me this stock bubble, the third one after each stock bubble has gone higher each crash has brought us lower. So we're getting ready to see the worst crash we've seen in our lifetime or at least since nineteen thirty-one for the year, I think two thousand and sixteen is going to be the worst year and the Fed is tightening too late. They should have done it when the economy was stronger, it's already weakening and they're only going to add to the (crosstalk 01:23).
Female voice 1: Okay, but hang on Harry, because you just made a pretty big proclamation and you said we're going to see the biggest stock market crash next year and we're in two years than we've seen since the thirty's?
Female voice 2: Lay out your thesis for me. Do you see a massive correction coming?
Harry Dent: I do, I think this is going to be a stock market peak of a life time followed by a crash very similar to the early nineteen thirty's. This happens once in a lifetime and it creates incredible investment opportunities if you see it coming, I think we do have a strong rally. I think this is the last rally in this bull market, it's probably going to be ten to twenty percent in the next few months, and it is a Trump rally. The markets are assuming that he is going to create three to four percent growth on a sustainable basis and I'm here to tell you, just as we told people about Japan in the late eighty's. It is demographically impossible.
David Scranton: How Jones Industrial average down around six thousand or so and I'd like to hear your side of this and why you believe so strongly that this likely happened probably by two thousand and seventeen I think you said?
Harry Dent: Yeah, yeah this final peak will take us in the next year or two down to about fifty-five hundred to six thousand. So, that's just a really good guess. When I look at these four cycles that I've refined over thirty years and you can't look at everything, that's how economists get so confused. You have to find out what really matters? What really calls a turning point? These are the four cycles and they're all pointing down at the same for the next six years, the only time that's happened in the last century and a half was nineteen thirty to thirty-four when we had the Great Depression. The worst crash, the worst bubble burst everything I'm talking about and people on the mainstream media look at me like I'm crazy, I'm not crazy this is reality.
David Scranton: You just heard from economist Harry Dent, a guy who's not afraid to give you a dose of reality when needed. He was reversing his earlier market forecasting, he's talking about the new market rally following Donald Trump’s election, let's talk more about that perspective. Take a close look, is this an old woman or perhaps a young lady? How about this? Come closer, you're looking at a hollow pillar right? No wait, it's a pillar with a pyramid on top. Bottom line is that there are two sides to every story, there are buyers and there are sellers, there are winners and there are losers. It's a new year we have a new president
Donald Trump: Big league, big, big league.
David Scranton: And Donald Trump turn his post-election bump into a sustained rally or is he inheriting a bubble from President Obama that's about to blow up in his face? Well, it depends upon whom you ask get ready to separate reality from myth, if you're over age fifty and you're planning for retirement you're a member of the Income Generation, you've come to the right place. I'm David Scranton, if you're tuning in for the first time you couldn't have picked a better show with our annual kickoff show. Welcome to the Income Generation, if you're back for more, well then thank you. Coming up, I'll face off against some of my fellow financial advisors we'll mix it up, we'll debate, and we’ll compare strategies. Spoiler alert I'll probably win the debate. But now, let's get started protecting and growing your hard earned money. Now, chances are you've heard other financial experts talking about the animal spirits and the animal spirits driving the post-election market rally. You may have heard others talking about optimism and the adrenaline shot. Trump's election, it seems to have given Wall Street this incredible boost. But it's important to understand what's dominated the news since November has mostly been just one widely held perspective of the post-election market rally. But it's not the only perspective. The reality, is that just like those optical illusions we showed you just a moment ago not everyone sees the movement of the markets the same way. If you haven't heard much about a key alternative perspective yet, just wait, inauguration day is now passed. Donald Trump is officially the forty-fifth commander in chief and there's a good chance you're going to hear a lot about what comes after the honeymoon. I've already been exposed to it a lot in fact, significantly as a financial advisor, I've talked before about investors jumping out of the stock market as if it were a burning building. Some of those people were my own clients, they see the so-called animal spirits driving the market rally very differently from the gung ho Wall Street insiders. Donald Trump may have won the election but remember he did not win the popular vote in fact, that's just one huge reason I believe you'll hear much more about a burning building investment perspective during Trump's first hundred days. And we, at the Income Generation are going to help you sort all of this out. First, allow me to provide a history lesson, that's my personal contributing factor as to my own perspective on what's going on currently. In the days between the Ronald Reagan election November of nineteen eighty and his inauguration in January of eighty-one, the stock market rose eight percent. But by the end of Reagan's first year in office the stock market had fallen more than ten percent. Not ten percent from the top part, ten percent from the beginning before the election this is not the first post-election honeymoon period for equities. In fact, a perceived change agent like Donald Trump can magnify this effect but, if there's one thing we all know about honeymoons is that they all eventually end. And married life also known as reality takes over. We'll dive deeper into the numbers and show what we've learned about the markets over the last couple of months, but let's first get to our guest because I don't want to keep him waiting any longer. Joining us now we have Eddie Ghabour, he's a financial advisor, managing partner at Key Advisors Group from Delaware, Eddie, thanks for joining us today.
Eddie Ghabour: Thank you for having me on your show.
David Scranton: You know Eddie, I have to tell you with most guests you know we mention the city and state that they come from. But if you noticed when we talk about Delaware, I just talk about the state I kind of avoid the city if that makes any sense to you.
Eddie Ghabour: Hey, Louis Delaware is a hidden gem, if you haven't been here you're missing out so... Our best kept secret.
David Scranton: Just so I could be clear here, is Delaware the smallest state or is it the second smallest state in the union, geographically?
Eddie Ghabour: Second smallest.
David Scranton: Second smallest. So there you go, okay well then I apologize if I showed you any disrespect right there in the introduction, you know...
Eddie Ghabour: Apology accepted.
David Scranton: Eddie, before we get started what's your take on the video clip that we just saw from investment genius Harry Dent?
Eddie Ghabour: You know to me it's all over the place you know there's very extreme predictions both up and down. And I've never been the type to make such a bold prediction because I don't think when you have something that bold most of the time, those things don't come to fruition. I just don't think these are realistic expectations, he said in both up and down in his bold predictions.
David Scranton: So the reality is he made a couple of bold predictions, right? He made a bold prediction that the Dow would get as high as twenty-one-five or in one clip even twenty-two thousand. And of course, you know Eddie's been a guest twice on our show actually, so I know him personally and when he was a guest earlier he was talking about the lower production not the higher production. Now, we heard the twenty-one-five and the twenty-two thousand, the higher production but also he's still sticking to a subsequent production of six thousand or so on the Dow. So which one do you think is more troublesome? Which one do you think is more unlikely, the high production or the low production?
Eddie Ghabour: I think the low production is less likely to happen because I mean doing a quick math is that a sixty-sixty-five percent drop in the market he's predicting by summer time. I just don't see what systemic risk is out there that would cause a crash double of what we had back in two thousand and eight, so I'm more on the bullish case than Harry is. But I'm bullish in a way that I don't think anyone should be in all equities and I think this recent run up we've had since the election is going to run out of steam over the next hundred days. Because a lot of these market increases have happened because of fiscal policy that investors believe are going to happen. But let's not forget we're still dealing with Washington D.C. and nothing is guaranteed to happen so, I think the markets got ahead of itself in the short term I wouldn't be surprised to see a short term market correction. But I find that more in the five to ten percent range if I was to make a prediction and I see that more as a buying opportunity versus a... you know running away from the market. But I just don't see what systemic risk on the table would call it a sixty to sixty-five percent drop over the next six months.
David Scranton: Well and that was exactly what I was going to ask you if the amount of the pullbacks. So you're thinking maybe only five or ten percent no more, is your best guess?
Eddie Ghabour: That's correct and short term that's what I see and keeping in mind you know when we look back over the last thirty-five years the average intro year drop in the market is generally around fourteen percent. So this type of volatility is very common, most investors...
David Scranton: Eddie if I can...Eddie, I apologize for interrupting if I get you to stand by for just a minute we need to take a quick break. We have a lot more to discuss so please stay with us when we come back we'll talk more with Eddie about the future of the economy under a Donald Trump administration. If you are not using someone who's well trained in fixed income and you're born before nineteen sixty-six, it may just be time for you to break up with that advisor and move on. I would suggest someone who will care for you through these important years of your life. If you need help finding someone call or write us, I'd also like to remind you of the special report entitled, The Income Generation. This is available free to you our loyal viewers online, if you haven't downloaded your report pick it up after the show. If you're near or in retirement head over to the Income Generation dot com and download your special report written specifically for the needs of the Income Generation. Again, those born before nineteen sixty-six. I'm David Scranton and you've been watching the Income Generation.
Donald Trump: (Unclear 12:39) head people at Sprint and they're going to be bringing five thousand jobs back to the United States. They're taking them from other countries, they're bringing them back to the United States and also one web a new company, is going to be hiring three thousand people. So that's very exciting so we have a combination of Sprint for five thousand jobs and that's coming from all over the world and they're coming back into the United States. Which is a nice change.
David Scranton: That was Donald Trump announcing a new deal to add thousands of jobs to the U.S. economy. Welcome back to the Income Generation, I'm David Scranton. Now, let's continue our interview with financial advisor Eddie Ghabour, he's managing partner at Key Advisors Group thanks for sticking around Eddie.
Eddie Ghabour: Thank you.
David Scranton: I apologize for interrupting you a moment ago we were talking about why you thought that the pullback in the markets was likely to only be about five or ten percent versus the sixty-five that Harry Dent predicted.
Eddie Ghabour: Yes, I just don't see the systemic risk that would call such a big drop so, I think the five to ten percent drop that we'll probably see at some point in time, is just a normal correction that we've had consistently happen over the last thirty six years. Looking back at market history, the average (unclear 13:52) year drop in the market in this thirty six years is approximately fourteen percent, so double digit corrections within a calendar year. Is actually very normal, it just scares average investors and unfortunately most times they sell those instead of buying them like they should be.
David Scranton: So, his prediction you know on the upside of twenty-one thousand five hundred and twenty-two thousand is really only a seven and a half percent or ten percent growth rate. Which sounds like from what you're saying is not out of the realm of possibility.
Eddie Ghabour: It's not, but I don't think based on what he's saying I interpreted his as it being a straight from here another seven points. I think we're going to be having that correction before that time period because a lot of it is pressed into the market from the election. And I think it's time for a short term breather from the market so although seven percent maybe realistic return this year, I think the path getting there is going to be very choppy and they'll be bumps on the road before we get there.
David Scranton: Now, Eddie we've known each other for quite some time now so I need to push back just a little bit on this because as you know my thoughts are much, much different about this. I believe that we're... we must have a pullback in the stock market in the not too distant future of at least thirty percent and whereas I'm not going to go out with crazy predictions that are going to say yes there's definitely going to be sixty or seventy percent. I believe strongly according to history it has to be at least thirty percent because (a) every bear market we've ever had has lasted longer than the one we've been in now since the year two thousand. B, Because every bear market we've ever had is at three or more major drops within it so far as you know we've only had two and lastly because we've never recover from a bear market until price earnings ratios get back into the single digits. So, in the last minute we have available today on the show tell us why you think this might be the first time in history that history doesn't repeat itself and that doesn't happen?
Eddie Ghabour: Well, I think one thing that we're going to see that we haven't seen in years is the corporate tax reform and repatriation. That's trillions of dollars back here in the U.S. for stock buy backs and building our economy to get to a growth rate of three to four percent. I think if those two things happen history will not repeat itself here over the next few years to have that thirty percent correction that you're predicting.
David Scranton: Well, so you think that some of the magic's going to continue, some of the momentums going to continue. Well, I have to admit I hope I'm wrong and I hope you're right because it's good for our economy, it's good for the country. So Eddie we need to leave it there for now, thank you very much for being with us we appreciate your presence.
Eddie Ghabour: Thank you for having me.
David Scranton: And you know the fact that you're up in the cold climates in Delaware and you're still smiling God bless you, I love it. As we were telling you earlier Donald Trump is by no means the only president of the United States to enjoy a post-election bump in the markets. President Ronald Reagan, saw an eight point bump only to see it slide down by more than ten percent and again not ten percent from the eight point bump. Ten percent from before the eight point bump started and this drop happened by the end of his first year in the White House, here's some details on what we've seen since the presidential election of two thousand and sixteen. Donald Trump has seen the S&P five hundred index climb by about four percent, the S&P was it twenty-eighty-five just a few days before the election in November. By early January, it had climbed to twenty-two-seventy-six again just about a four percent jump in fact, all three major market indices the S&P five hundred, the Dow Jones Industrial Average and the NASDAQ. All hit new all-time highs multiple times in the wake of the election. Now, what this did is this prompted some Wall Street insiders, brokers and cheerleaders in the media to proclaim that we had entered a new long term bull market cycle. But, as I mentioned to Eddie just a moment ago there's another dose of reality, Trumps post-election gains are pretty much in line historically with other so-called honeymoon periods. We're not really seeing anything unprecedented here at least in the markets, in fact, equities typically start to rise after the election and the jump continues just about until the inauguration day. Producing a median S&P five hundred increase of just over five percent that's according to Renaissance macro research, a New York based firm that studies market performance. Renaissance macro's chairman head technical analyst Jeff Degraaf said in a Bloomberg interview recently that these honeymoons can be attributed to as he said a sense of the optimism that goes into the election promises. And the change hope or whatever the slogan may be tends to sweep the people off their feet before the inauguration and the reality seems to set in some time afterward. Historically, we've known that reality starts to set in when the S&P slides back to a net gain of only about two percent post-election day and for the next fifty or so trading days. A trading range between two and four percent net gain since the election is typical. Where the markets go from there of course, depends upon a variety of factors, as noted they drop by over ten percent during Ronald Reagan's first full year in office. And that was after an initial eight percent jump between his first election and the inauguration day, the S&P five hundred dropped from one hundred and thirty-five point seven on December nineteen eighty at the height of Reagan's honeymoon period. To one-twenty-two point five exactly one year later now, by the end of Reagan's two terms yes! Equities that climb more than fifty percent thanks to a number of factors. Members of the Income Generation can count on us to keep you apprised of what's impacting markets under present Trump, so stay with us.
Announcer: Read David J. Scranton's groundbreaking new book, Return on principle, seven core values to help protect your money in good times and bad. Discover practical solutions to the financial challenges facing today's generation of retirees and near retirees. Learn the truth about Wall Street, the financial media and the secrets they try to hide from every day investors. This isn't just another book about investing, working Americans who have lived through two major stock market crashes and the worst financial crisis since the Great Depression in the past sixteen years don't need another book about investing. David Scranton's approach to financial planning is a holistic system designed for maximum protection, strategic growth and reliable income regardless of market conditions. Stop planning for retirement with your fingers crossed, read Return on Principle, seven core values to help protect your money in good times and bad, available now.
David Scranton: No one can promise fifty percent growth in equities or anywhere for that matter. But wise planning and strategy can increase your odds of positive returns even if the markets fall significantly. That's why we want to turn your attention now to what we consider the seven core values necessary to help protect your money in good times and bad. Today we're going to cover core value number one, over protection the older you are and the closer to retirement you get the more important it becomes to avoid big losses. Please, please, please never forget that a fifty percent loss in the stock market requires a subsequent one hundred percent gain just the recoup the loss and to break even. And how long might that take? Well, since the year two thousand historical averages say that it takes six to seven years and this doesn't take into account your potential losses due to inflation during that time or what we call lost opportunity cost. Meaning the gains that you might have made through other non-stock market based investments, the question is, and can you afford to be digging out of a hole for seven years just to break even? Buy our ties over-protection. We'll break down all seven of these principles in future episodes and you can always learn more at the Income Generation dot com. Coming up on the show, I'm going to be explaining exactly why it's important to see post-election market rally from more than just one perspective. Especially if you haven't yet started to reduce your stock market risk and after that we'll break down some of today's top financial headlines. And a little later I'm going to welcome two fellow financial analyst and top financial advisors and get their thoughts on today's important topics. And to talk about the concerns that they've been hearing amongst their own clientele, so stay tuned you're watching the Income Generation.
Announcer: Read David J. Scranton's groundbreaking new book, Return on principles, seven core values to help protect your money in good times and bad. Discover practical solutions to the financial challenges facing today's generation of retirees and near retirees. David Scranton's approach to financial planning is a holistic system designed for maximum protection, strategic growth and reliable income regardless of market conditions, available now.
John Bachman: Hello I'm John Bachman, this is your Newsmax finance update. A quick recap of the stories that move the markets this week. President Donald Trump vows his company will not do any new foreign deals while he serves as president. He also announced that former Georgia Governor, Sonny Perdue would be his pick for agriculture secretary. Perdue is a son of a farmer and has been involved in agribusiness in the past. U.S. home construction rose more than eleven percent last month, it was led higher mostly by new apartment buildings. And fewer Americans filed for unemployment benefits last week, another sign that most American workers now feel like they are enjoying better job security. And the Tekata airbag recalls continue, thirteen automakers are recalling within six hundred and fifty thousand vehicles in the U.S. alone due to even more of those exploding airbags. That's your news, (unclear 24:17) finance update, now backing David Scranton, the Income Generation. David.
David Scranton: Thank you John. If you've been too busy to read or watch financial news for hours on end don't worry. Here's a condensed version of what you would have heard from the other guys.
Female voice 3: Wall Street extending the rally that has continued since the November eighth election of President elect Donald Trump.
Male voice 2: There's huge optimism, I travel and visit with a lot of financial advisors everybody has gotten a little pep in their step if you will.
Female voice 1: We're seeing higher wages, we're seeing lower unemployment, and we’re seeing better earnings.
Female voice 3: Trumps promises of tax cuts, higher spending on infrastructure and less regulation have been seen by investors as beneficial to certain industries.
Harry Dent: We're seeing a huge surge in certain sectors like the finance sector you know people are looking at positives, potential positives or at least you know in their industries possible tax cuts, deregulation, infrastructure stimulation. So finance and industrials are surging, in the months since the election global equity markets have added something like two trillion dollars in value and this is a huge, huge rally.
David Scranton: It's now time for our financial advisors roundtable. Let's introduce our guests we have Jeff Small, a financial advisor and president of Arbor financial services. We also want to welcome in Michael Eastham, Michael is a CPA and a PFS. He's also the founding principle of fellowship Financial Group. Welcome to the show gentlemen.
Jeff Small: It's great to be here, David. Thank you.
David Scranton: So, okay we have a new president now. How does that affect people's moods, thoughts about the markets? How does it affect the markets? How does it affect the economy? What are you telling your clients these days? Michael, let's go first.
Michael Eastham: Well there's a ton of optimism out there in general, but the reality is that there's this honeymoon period that tends to take place. We've seen it from the election in early November to today where now we have a new president, but I think there are so many skeletons in the closet that it makes it very difficult. For example, the one that continues to loom is going to be there for a while is a twenty trillion dollar debt. That's a massive thing to try to overcome.
David Scranton: That's a big number, absolutely. Jeff what are your thoughts?
Jeff Small: Well, I think the trump bump is going to become the Trump dump as Trump's policy dreams meet the sausage making of Washington.
David Scranton: The Trump bump becomes the Trump dump. That's interesting, okay. So you know we talk a lot about parallels between what's good for the economy versus what's good for the markets. And what do you think here? Do you think ultimately Trump is going to be good for one, not good for the other? Do you think he's going to be good for both, bad for both? What are your thoughts?
Michael Eastham: Well, I think obviously he's a pro-business guy and much of his agenda has to do with adding jobs and growing sectors in the economy. And even before he became president, he was already in the works of doing that I mean we looked at probably over sixty billion dollars in additional investment. There were commitments in to U.S. businesses, manufacturing and other types of jobs and certainly. You know certainly one hundred and fifty thousand jobs that he's already talked about adding to the economy and commitments from major companies. So that's all positive for real growth in the economy.
David Scranton: Positive for the economy, okay your thoughts on the economy and the Trump effect.
Jeff Small: Well, I think the Trump effect is pure optimism at this point from a corporate level and from a consumer level we've seen those things spike and we've seen kind of economic patriotism rise to the surface. But we have to deal with some real issues Michael and I think the issue's going to be really what Trump is going have to do with the budget? It's probably going to be a fiscal bloodbath there, is he going to add tariffs that'll affect the economy as well? Is he going to start a trade war? You know what's going to happen with stimulus? The budget is finite, so he's not going to be a miracle worker.
David Scranton: It's interesting, so as far as the tariffs are concerned is that positive or negative?
Jeff Small: Well, it depends on how it plays out. I think that would really rattle the markets if he puts a thirty five percent tariff on products coming across the border from Mexico.
David Scranton: You think that's a negative. Michael, what are your thoughts about the tariffs, this whole story that came out a week or two ago about Mexico and BMW's getting imported and the possibility of a thirty-five percent tax?
Michael Eastham: I think it can work both ways honestly, it could be it... I mean on the surface it could be a negative but I think on the... and when you dig a little deeper I think it could be a positive. These companies may look at okay, well maybe it's going to cost an additional twenty percent in labor costs if I hire U.S. workers but if I offset with a potential thirty-five percent tariff. Well I'm net fifteen percent positive, so there may be some positive decisions for the U.S. economy that come out as a result of the threatened tariffs.
David Scranton: And Jeff what's wrong with that? I guess my question is what's wrong with that if the reality is most of the BMW sold in the Americas are sold here in the USA. Then isn't it kind of... isn't B.M.W. kind of sort of doing an end around by putting their factory a few miles from the border in Mexico? And shouldn't they be penalized for that? Shouldn't those jobs... if these cars are being bought in America, shouldn't those jobs be going to good hardworking Americans that deserve them?
Jeff Small: I completely agree with that, the reality is though it remains to be seen and we have to figure out what's going to happen when the prices go up and they have the cars made here because the labor costs are so much more.
David Scranton: I see, okay well that's true. That's true but are they thirty-five percent more that's a big hurdle to overcome a thirty-five percent tax.
Jeff Small: That's a very large hurdle. So we'll see what the metrics turn out to be and right now it's anybody's guess.
David Scranton: Okay, so guys help me here you know this is a... He's positive for the economy but yet we're all saying you know we're going to... Trump rally is going to turn into the Trump bump is going to turn into the Trump dump. So, why is there a disconnect if it's good for the economy shouldn't it be good for the stock market I mean?
Michael Eastham: Not necessarily, I mean you have to look at the underlying fundamentals and even now price earnings ratios are still in the mid twenty's. Any time we've recovered from a long term secular bear market P.E ratios have dropped to below ten. And we're not even anywhere near that.
David Scranton: So you're saying the markets ready to take a dump any way...?
Michael Eastham: I think it can.
David Scranton: That essence that he could stand on his head and spit nickels and it doesn't matter either way the market's going to drop no matter what kind of job he does.
Michael Eastham: It will, but I don't know what that tipping points going to be and neither does anybody else. The reality is that at some point when people get like institutional investors they've got their finger on the trigger already, you can see it in the market right now. It's just been going sideways and a little bit down but I mean you're looking at a Dow twenty thousand just around the corner potentially and people get excited about that. So maybe there's a five percent or a ten percent increase but... or at least potential but what's the downside risk? If that downside risk is thirty, forty, fifty percent you've got to weigh that risk versus the reward.
David Scranton: Yeah and we've been talking about this... the media's been talking about this Dow twenty thousand now for over a month so we're still waiting, right?
Michael Eastham: Right.
Jeff Small: Yeah, the market is severely overpriced. We have the second highest valuation in history in the stock market and that was before the advent of Trump and all the optimism from corporate America, the C.E.O.'s and consumer sentiment that went through the roof in December to buy about ten percent. So, we need some real policies in place in order for there to be some traction or twenty thousand on the Dow was just not achievable at these valuations.
David Scranton: Yeah, so now the question is, when? Okay, when? We've got this momentum you know your clients want to ride the momentum up you know we talked earlier on the show about how there are some people right now who are Hillary Clinton supporters. Who, I had people come into my office in Connecticut, right? Connecticut's one of those blue states that we saw, that the evening of the election not the red states in the middle of the country. It's one of the blue states, I had people coming to my office before Christmas saying Dave, please get me out of the stock market before the inauguration date. We talked about that earlier on the show, it's not even like jumping out of a building, and it’s more like jumping out of a building before the building even catches on fire.
Jeff Small: Well, the markets unwinding as we speak Dave. And there's lots of inflows back into the fixed income components and out of the rotational moves that push the market up ten percent after the election. So I think that speaks volumes about the direction of the flows right now and what's going to affect the market, there's not enough buyers to push the prices up.
David Scranton: Okay, so the move out of the market into fixed income, but fixed income yields have gone up too. So at least up until last week or so the last week or so is when we finally see money flowing into the bond market which I... What I think you're referring to. Guys if you have a few more minutes, I'd like you to stay with us we've got to take a commercial break and then we'll be right back. Coming up we'll continue our discussion with Jeff and Michael and we'll talk more about the future of America's economy and how it will fare under Donald Trump's administration. Will the Trump bump actually become the Trump dump as our panel predicted? We'll talk more when we return from this commercial break, you're watching the Income Generation. If you're here or in retirement head over to the Income Generation dot com and download your special report written specifically for the needs of the Income Generation. Again those born before nineteen sixty-six. I'm David Scranton and you've been watching the Income Generation. Regular viewers of the Income Generation know that we've always boasted a guest list as included in some of the top financial experts in the country. Men like Steve Forbes, Peter Morici and today's returning special guest, Harry Dent. And that's going to continue but as part of our new format we'll also be welcoming other practicing financial advisors as we're doing today. From around the country each week for panel discussions, role plays and even a recurring game. In addition, to their market expertise these guest will also bring valuable perspectives of financial professionals who work with everyday investors just like you our Income Generation viewers on a regular daily basis. They know your concerns, your challenges, your priorities and your goals and those insights are sure to make for some lively and informative discussion. So let's continue our conversation now, we have Jeff Small, financial advisor and president of Arbor financial services. We also want to welcome back Michael Eastham, Michael's a CPA and PFS and he's also the founding principle of Fellowship Financial Group. So, if these gentlemen here look happy and they have smiles on their face it's because like myself they live here in sunny Florida and it's a great time of year to be down here, is it not?
Michael Eastham: Absolutely.
Jeff Small: Very nice.
David Scranton: So, I know I get this a lot I'm sure you do too because a lot of people try to ring the last little bit of juice out of the stock market when it's climbing upward. This pullback we've seen over the last couple weeks, it's small but they say well is this a long term pullback or short term pullback? Maybe it's going to jump a little bit more, they always want to know when that drop is really going to start. So what are you telling your clients when faced with that question?
Michael Eastham: Well Dave, that's an excellent point and one of the things that I like to tell people to understand is, I actually refer to that as the financial musical chairs. I mean thinking about... think about it, if you're a consumer investor you're going up against institutional investors that are trading hundreds of millions of dollars every single day. And when they pull that trigger then who do you think's going to win at that game? It's certainly not going to be the consumer.
David Scranton: (Unclear 35:48) the average investor. That's right.
Michael Eastham: That's right and we've got a market approaching twenty thousand never been there before, then that to me is a time to be cautious.
David Scranton: Okay. Now Jeff you're smarter than Michael at least in your own mind you are, right? So I'm sure you have a more specific answer than that, tell us what you tell your clients?
Jeff Small: Well right now we are seeing very low volatility Dave. And when we see low volatility like that this market valuation we know there's going to a correction so for the clients who don't want any exposure at all to the market no matter what their age or objective is with their money. They shouldn't have more than a thirty percent exposure, if they're near retirement they should have zero and be completely uncorrelated to the
market at these peaks.
David Scranton: So in your case then, the when is now, let's not worry about the drop let's just get out.
Jeff Small: Correct.
David Scranton: In your case it's more or less, well you know we're not going to time the drop maybe you don't get out completely but the reality of it is you don't want to play musical chairs and be the guy whose stuck standing, correct?
Michael Eastham: Well, actually I agree with Jeff on that one. I mean I think it's very important especially if you are of the Income Generation, your baby boomers, you’re in retirement or you're approaching retirement. Right now you've got to focus on long term income and making sure that you've got your allocation prepared for that.
David Scranton: So how big could this drop be? Let's say someone’s fifty years old and they're concerned about the market drop but they're not going retire for fifteen years. If you figure like they've got time on their side you know they can weather a drop, how big do you think this next one is likely to be?
Jeff Small: The average drop out of the top ten bull markets Dave has been twenty percent. So let's go to twenty-five because the last two drops that we've had were over fifty, if we have one twenty-five percent drop and we (unclear 37:31) out an anemic four to five percent rate of growth. Which is what most talking heads say, that would lower our net experience our net rate of return to under one and a half percent. And most investors, especially from the Income Generation don't know that so we teach our clients the very first thing on (inaudible 37:46).
David Scranton: One and a half percent under what? Mic if you want to clarify that for our viewers and for the host, quite frankly.
Jeff Small: Sure, well right now the market's averaging about four percent as a rate of growth. Okay, if it keeps up let's say the average is five percent the next ten years hypothetically. One bad market year ruins the party, it can lower your actual rate of return, and one bad year ruins it to a sub one and a half percent.
Michael Eastham: But Jeff, if I could jump in there, I mean you know what you're not taking into consideration is if I'm drawing income when we see that twenty-five percent drop. And I'm having to sell shares in a down market well at the bottom I have to sell you know almost twice as many shares as I did at the top to get the same amount of income. So I'm cannibalizing my principle, even when the market does come back up you're not going to see the recovery.
Jeff Small: I completely agree with you.
David Scranton: So you're saying it's even worse than just lowering your return from four percent average to one and a half is the fact if you're taking withdrawals now you could be in negative territory. And I've heard financial advisors call that reverse dollar cost averaging, I've heard someone called it dollar cost ravaging, all those kinds of terms and that's exactly what it is.
Jeff Small: Yeah, but the best term Dave is we just want to eat the eggs. We don't want to eat the chicken, we want to keep the chicken intact because we won't have any eggs. And the chickens our principle.
David Scranton: And I've heard you talked about that before. We have... in the final minute we have left in this segment go ahead and tell our viewers what you mean by that?
Jeff Small: Well, if your principal represents the chicken itself and its generating income that we need to live on in retirement then we want to make sure we just eat the interest or the eggs. And we want to keep that chicken safe and intact and not have it get reduced by what Michael said by cannibalizing the resource if the market corrects. We want to be uncorrelated to the market and be focused on yield based investing, interest rates, dividends that type of components.
David Scranton: Because if you kill the chicken you're not going to get any more eggs, it's that simple. So we need to take another commercial break just stay with us, we'll be right back in a moment. This is fun, this is very... Three, two, one but I'd like to take a few seconds and tell you why I decided to write the book entitled, Return on Principle. Basically it all boils down to this, let's face it you deserve to live a happy retirement. It's as simple as that but for many the subject of money, finance and math is complicated. Here's a fun fact, many Americans claim that they'd much rather clean a toilet than calculate a tip in a restaurant. Thank you, I guess. But it doesn't have to be that complicated, using the seven core values I outlined in my book. You too will be able to build a life based upon the right core principles, cut. Return on Principle isn't just a book about financial investing, it's about investing in your life. I know for a fact that you're going to love. Okay, now it's just getting weird here. Let's welcome back our financial advisor Roundtable, we have Jeff Small financial advisor, president of Arbor Financial Services and also Michael Eastham, Michael's a CPA and a PFS and he's the founding principle of Fellowship Financial Group. Gentlemen, I have to tell you this doesn't make great television here because we're all agreeing, we're so like-minded. Can we at least create an argument of some sort? Can you help me out with this? I want to have a little bit of a feud here make it more fun.
Michael Eastham: Well, I'll jump in there with that one Jeff I got to say something about that tie. You must have bought that tie because I know your wife has some pretty good taste.
David Scranton: We know his wife didn't pick that one out, right?
Jeff Small: And you bought that jacket at the thrift shop.
David Scranton: Alright, so we knew we had to get some feud in here we can't always agree on everything. And if it's Jeff's tie well then so be it but in all seriousness. We have about a minute each and what I'd like to do in that last minute each is have each of you tell our viewers what kinds of things you do recommend for your clients? If you both think the market's overvalued right now, you're worried about the Trump bump turning into the Trump dump and thankfully you didn't register that so I can actually get away with saying that. Michael, tell us what you tell your clients makes sense if you are part of the Income Generation.
Michael Eastham: Yeah, absolutely Dave. I mean one of the things that we tell people is to trust your gut a little bit more. People are so exposed to the general Wall Street talk and the banter that you've got to be in the market for the long term, never defining what that really is. What we try to help people understand is you know your gut instinct in other words, trying to be more conservative with your investments. Utilizing what I refer to as a universe of income generating options, things that pay interest, dividends, individual bonds, preferred stocks, things of that nature that can give you a consistent income. And you know like generating the eggs like Jeff was talking about earlier in the broadcast.
David Scranton: So what it sounds like you're saying is use common sense.
Michael Eastham: Common sense.
David Scranton: Use common sense don't throw that away. Don't be the person who says well you know he's the doctor so he must know best. You know use common sense.
Michael Eastham: Don't be afraid to ask questions.
David Scranton: Perfect, Jeff.
Jeff Small: Well you know Dave, for our clients we teach them really that the market gives the test first and the lesson afterwards and sometimes it can be very cruel. And so with these market peaks we really want to be uncorrelated to the stock market meaning, if the market goes up we don't really want to participate in another market drops. We don't want to lose that either, we want to be uncorrelated and yield centric or yield focused very similar what Michael had said.
David Scranton: And I guess that's good advice even if you're younger than the Income Generation members overall, right? Be in things that have things that are not correlated to the stock market so one zigs the other zag so that makes sense.
Jeff Small: I think it does because over the long term those investments should outperform the market and historically over the last sixteen years the uncorrelated components have.
David Scranton: Wow, I love it. Gentlemen, stick around for a minute please alright. When we return we will continue our conversation with our advisors roundtable we'll even play a new reoccurring game that's all coming up next after the break. I'm David Scranton and you're watching the Income Generation. If you're near or in retirement head over to the Income Generation dot com and download your special report written specifically for the needs of the Income Generation. Again, those born before nineteen sixty-six. I'm David Scranton and you've been watching the Income Generation.
Male voice 2: There's huge optimism, I travel and visit with a lot of financial advisors everybody has gotten a little pep in their step if you will.
Female voice 1: We're seeing higher wages, we're seeing lower unemployment, and we’re seeing better earnings.
Audience: Trump, no KKK, no crashes USA.
Female voice 2: Trump promises of tax cuts, higher spending on infrastructure and less regulation have been seen by investors as beneficial to certain industries.
Audience: Stop Trump now, stop Trump now.
Harry Dent: We're seeing at huge surge in certain sectors like the finance sector. In the months since the election, global equity markets have added something like two trillion dollars of value. And this is a huge, huge rally.
Audience: Donald Trump go away, racist, sexist, and anti-gay.
Donald Trump: That's okay. I think they're actually on our side, they just don't know it yet.
David Scranton: Welcome back to the Income Generation, I'm David Scranton. Let's continue our conversation now with our advisors roundtable panel Jeff, Michael thanks for sticking around.
Michael Eastham: Sure.
David Scranton: So this is the fun part of the show, we're going to be playing a little bit of a game. I want to see how the two of you do, okay. Michael let's go first. What do you do when your clients lose money? How do you handle that?
Michael Eastham: Well Dave, that's a bit of a trick question and one thing I will tell you is that on the income strategy that we usually put clients into. Well the interesting thing is the markets can increase and decrease but it doesn't affect the income that they receive. And so I always yes, you can have a market value that's up or down but unless you sell the principle you're not going to lose money so that's a critical way to look at it.
David Scranton: Great answer. You past, so now so if we're talking about over protection is the theme of the show. You know what happened back in two thousand and eight? I mean, I know your clients lost a lot of money in two thousand and eight everyone's clients did Jeff. So how did you handle that back there?
Jeff Small: It's really funny that you’re bringing that up Dave. Because we're at the same valuations in the market that we were prior to two thousand and eight that big historical correction. So most of the time back then we were sounding off the warning bells about being uncorrelated and avoiding risk, so for the clients and chose to stay in risk they bit the bullet. But for the ones that listened that got out of the market made their money safe, they partitioned well.
David Scranton: You passed the test, you might be the only two of a few advisors in the state of Florida that passed that test today. So thanks for being on the show, I appreciate you here look forward to having you back.
Jeff Small: Thank you David.
Michael Eastham: Thank you.
David Scranton: Before we go, I'd like to thank all my guests for making this first show of the year a huge success. I'd also like to thank all of you our new and loyal viewers for tuning in and I hope you'll continue to tune in because if there's one thing that's certain about financial markets and the challenges and opportunities facing investors. Is that they're always changing, so if you're close to retirement and you really want to know how to protect and maximize your money it's absolutely essential that you stay informed and up to date and right here is where you can do it on the Income Generation. I'm David Scranton and thanks again, we'll see you next week.