Spencer Mcallen, 2012, 2011 discussed on Networth Radio


I'm Spencer McAllen President McGowan Group and co host Alex to lean An experienced technical trader. Yes, a market maker at one time putting those skills to work on your behalf. And the title this of this week. Alex. I wanted to. I wanted to kind of delve into the title. Okay, Because sometimes we'll cover you know, we'll put up a topic and then we run out of time. That's right. This one I wanted to cover the scenarios so you may be taking the counterpoint in the debate. Okay? The next recession is the title of today's program. All right, because that that sends chills. You know, everybody's like, Oh, man. Winds are going to happen again. Yeah, And that was a big question after 2000. So I want to explore that scenario. But before I do explore the 2000 and eight scenario how it applies right now, because that leads to the questions Tell me what you believe will cause the next recession. Uh, you got free reign on this one. All right. So if you look at the past 30 years The precursor to most recessions is a federal Reserve rate hiking cycle. And, um, in combination with You know, an overheated part of the economy, and that's usually I guess inflation that causes them to do that. Or hot growth. Hot growth, so they don't like hot growth now. So yeah, so the one is slow things down, Get the business cycle. You know on deliver it a bit and and and so it doesn't get out of control. You saw that 99. Right. He had a big rate hiking cycle. You had a big Internet boom. You know what? Lot of a liquidity in the marketplace chasing things that shouldn't be chased. Who? There's a parallel. Mm. Okay, Dad that again in 2000 and 7 2000 and eight At this time it was housing. Okay, Right. And I would argue that a trillion dollars on the Fed balance sheet was overly tight in 2000 and seven right? You didn't have enough liquidity. And you had lots of lots of lots of leverage. But well, not only that you had a pretty big rate hiking cycle that started in 2000 and six. Okay, so that and when you look at a ballot sheet that's now eight trillion Mm. Used to be a trillion that's more. Then it went to four. And The that that leads to the center. Okay, so take us through the triggers on the next recession. Just just briefly. Recap it. Yeah, I think I think when there uh um if you get a big reduction in balance sheet And or tightening on the on the interest rate side that would that would cause a dislocation. Okay, so they they've said they're not gonna do that for a while. That's right. You can engage in numerology. Okay? Okay, Numerology, because the years are kind of parallel, So 2010 was a recovery. Yeah, um 2011. 2012 and the Fed change Posture 2013. Well, if we're and I'm joking about numerology, we don't really use that in finance. My mom uses it. You know, she's kind of a mystic, but anyway, so 2023 would be a kind of a parallel, Almost a parallel, Okay, And that's what the Fed said is. We're really not gonna do anything till 2023. Yeah. Okay, So if that's the scenario, let's get to the questions. All right. What do the 2020 10 to 2013 recovery scenario? Parallels. Tell us about potential strategy, Okay? What I want to cover on that question. Is the important part. Of 2010 2011 2012 for us. Was? Yes. You were in recovery. Yes. You had higher taxes. You had hostile regulation. Right? That sound parallel. Yeah, well, you had a significantly cheaper dollar, too. Okay? Yeah, And so that That scenario. When you look at it, you had a 10 to 20% almost instant correction. Every year 2010 2011 2012, and at the same time corporate profits were coming up, amazingly as they are right now. Well by the 2012 correction. I want to recall a conversation we had Um, that I had with the client. Okay, okay. And he was, you know, and he was freaked out again because everybody's like, Oh, here we go again. We're going right back into it, and it's gonna be ugly said No the earnings if you look at the earnings Companies are raising their dividends at record levels. Profits are going up, so we're buying dividend companies in the correction. So how if that's a scenario, how would you handle it? You lighten up on stuff that may be overpriced or not fulfilling its thesis or mission. At the end after after big increases. Then you've got dry gunpowder. Then in the corrections, 10% is normal. 20% is very uncomfortable. Yeah, right. A little bit takes good psychology. Then you put that capital back to work. While being guided by the mission to say I want to wind up yes with more capital but also with more cash flow through that cycle, and that happened in 2012. We lightened up on some of the bond funds of premiums, and then we had dry gunpowder for the 2013 rates. Spike. Remember that? Okay, so that that was good. What's the next question? What factors are emerging? That could cause the next correction? I didn't say recession because we're postponing that we're saying that we don't have. We don't have those factors yet. So we're saying corrections. What do you think leads to the next correction? That's interesting. Um You know, one of the one of the factors that, uh Oh, you know what? I'm gonna let you go first on this one. Okay, So you're going to punt that one back to me? Yeah. Okay. So you did a lateral on that when I got to run for the touchdown, always throwing, throwing each other bombs on the show? Well, the corporate tax increases a 10% reduction in the in the after tax. Earnings based valuation of companies. So the company's gonna make all this money and they stick it in a spreadsheet to value the company over time, then What happens in in a higher taxes your after tax earnings go down by 10%. If you go from 21% to 28. Yeah, I'm glad you're saying this because it is making me think because there's a wage inflation piece too. This too. That takes away some profit that takes away some profit. See, you could be eating the earnings growth at both ends. 9.3 million jobs available. We're going to get to the jobs thing, which is good. What's the next question? What is true and what is unknown. Okay? Who asks the question What is true?.

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