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One of the biggest worries that investors have is market uncertainty. David D. Holland, radio host, author, and financial planner, returns to The Goldstein on Gelt Show to talk about the factors that cause fluctuations in the markets. How does the energy industry affect the economy, and what are the effects of election year? Get useful advice on the best way to react to market changes and manage your money.
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Interview with David Holland
How should you deal with market uncertainty? David Holland, financial advisor, founder of Holland Financial, and host of the Real Money podcast, gives tips and ideas on how to handle volatile markets. Do investors need to worry?
Douglas Goldstein: The markets have truly been crazy recently, and I'm noticing that the interviews I do with people on my show about the crazy markets get a lot of hits. I think it's because people are really nervous about that. So if you like to look at both sides of the market, there are those who are the pessimists and those who are the optimists. Just for a minute, put on the shoes of a pessimist and tell me: when people are saying things are going bad, why are they saying that?
David Holland: Uncertainty is the big one, and it's interesting because whenever you are in pessimist mode, it's always that things have never felt this bad and they feel ugly. We've even got a 24/7 news cycle that continually reminds us. This reminds me of so many times in the past when something happened and there wasn't much else going on, and all of a sudden in the media they just ran it 24/7. So it's a constant bombardment from all sorts of different venues. The other thing is that there are so many different products and services that are available in the marketplace. Some of them are more complicated than others, and there are so many different people attempting to sell those products to the consumer that they will latch onto this. When was the last time you heard somebody who is a big seller of gold? Where was the last time you heard somebody say sell your gold? They never do, and they always are all over the bad news. So I think for the person who is a bit pessimistic and concerned, it's natural to feel that way, but there is also a lot of information out there that people will use to support that negativity because they want people to respond a certain way.
Douglas Goldstein: Let's say that maybe the people in the media, who I don't normally respect too much, may have some justification. Despite their constant bombardment, they are not fools. There is something behind it. What are the reasons they are saying it? The reason I'm trying to push you into a corner on this is that I want to see what the reasons are behind what they are saying and see if we can look more closely at them to determine whether they are really right.
David Holland: I will say some of the specific reasons, which I don't discount completely. I think with a lot of things there's a measuring of how bad is it really, but I think some of the things that they are concerned about are oil and the impact on the energy markets and on the energy stock. It's one thing to see a drop in gas prices, and we are happy about that as a consumer, but when we see that these major oil companies have some pretty nasty hits to their profit loss then that can cause real problems. You've got all the fracking and the new development of new technologies, and a lot of those things have been shut down because of the drop in oil, so those are costing real jobs. So that's one piece.
Two, you've got the Fed and what it may do. There are concerns among some that the Fed may move too fast, too soon, and they may truncate or put the recovery in reverse and push us into negative growth. Then there is this overall theme of the national debt, and there are a lot of concerns that we are on our way to 20 trillion in debt and how can we handle that? How can we afford it with the mandatory obligations of Medicare, Social Security and the debt? They're something like 70% of our budget, so people, I think legitimately, have questions about that. So we start taking those things and adding them together, along with what may be some significant inflation at some point. Those are legitimate reasons why people are concerned, and on top of that, one final thought is unemployment. A lot of people are concerned about it. We have this big announcement of going below 5% on unemployment, but the truth is that you have a lot of people who've just simply given up. If you add those people back in, you are more like in the 10% range for unemployment, and that doesn't count underemployment.
Douglas Goldstein: Now that you've given all the reasons, let's take a look at each one. The first thing you said is that the drop in the price of oil, which has been so huge, is hurting the energy companies. But shouldn't that be helping not just you and me buy gas, but also the companies who have to transport their goods? The average American foodstuff travels 1500 miles to appear on your plate. Shouldn't that lower the price of everything?
David Holland: I think the answer to that is yes, it will, but here's the rub. The energy cost and how those are all reflected in the price of the pump and then how we see that affect the consumer can be seen from two perspectives. I think we are seeing the reflection with energy prices affecting the energy companies and devaluing their stocks, and how those stocks are trading, but the point you make is very good. But I think it is going to take a little time for that to be borne out. So if you say to me, do I think the market will be higher a year from now, I think the answer is yes because those things take time to build in terms of all the savings that will translate to the consumer. Filling up your gas tank one time, or one trip to the grocery store where the lower cost of transportation is reflected in the food prices is all good. But it will take time for that to really add up and to really permeate through the economy, whereas the impact on the energy stocks themselves is much quicker.
Douglas Goldstein: Let's go to your next point. You mentioned the Fed might make a mistake. They'll push too hard, or they'll be too light. Do you trust the Fed to make wise decisions in terms of controlling interest rates?
David Holland: I think in a general statement, I'd say yes I do. I'm not in the camp of people that say let's abolish the Fed or change how they do what they do. I think a lot of people would question or may disagree, though, on the benefit of the Fed's actions over the last seven, eight years, nine years, 10 years. As a general comment, I think that I do trust them now, and part of that is a little bit because of my own ignorance. There are things that they've done, when we see how they act, but we don't have the same information they do. We are intelligent guys, and we do this every day, but the information that they have available is not the same information you and I have, and I do trust that we hopefully have some of the smartest people who are making decisions. But that doesn't mean they can't maybe go a little too far, a little too quickly, so my concern or my hope is that they will not move too fast. But as a general statement, I do trust them.
Douglas Goldstein: You mentioned the possibility of negative growth, which I guess is just things getting worse, out of the frying pan and into the fire. Is that possibly the direction we are going, or do you think that maybe we are bottoming out?
David Holland: I think it really ties back to the long-term or cumulative impact of lower energy cost. We consume so much energy in our country for so many things, and some of them not as obvious when you talk about just transporting food. When we think about that, most of the time we just think about some farmer out there who's planted something, and they've used some fertilizer, and they've done what they've done. Then, we'd only think about the energy cost associated with not only growing it, but then bringing it to market and getting it to the public so that you can pick it up nice and easily and drop it in your cart. So I think that I am optimistic about the future. I am optimistic about the markets. There's two things that we've got to keep in mind. There's always going to be uncertainty. There could be some sort of shock, or some other event that can occur that can disrupt the markets and can upend them. But there is also going to be the longer term trend, so I think that we will have a longer term trend where I think the Dow will be higher. But it's always a question of when, and it's difficult to predict that. I am optimistic that some of these positive things that have happened, and of course none of this can be talked about without considering elections, and election years can be good years, but they can also be uncertain years.
Douglas Goldstein: As far as we know, the White House does not control the stock market, but then you said the national debt, which is something that the government does control. It seems to be getting pretty scary, but should we really be scared?
David Holland: I think we should be concerned. I think we should be aware. One of my favorite movies is Point Break, and there's a classic line in that movie where one of the characters says, "Fear causes hesitation and hesitation will cause your worst fears to come true." So I don't think we should panic or we should be scared. I think we should be concerned. We should pay attention. We should, as with anything, be very careful how we invest our money, be diversified, don't go all in on one thing, and be measured in our approach. But there should be no surprise here. When President Obama took office, his original budget projected that in 2018 the debt would be around 18 trillion, and everybody acts all surprised that we are somewhere close to that number. So I think it is what it is. Despite 3 trillion dollars in revenue for the United States in terms of our governmental income coming in, we still have a budget deficit of some half trillion dollars. So we don't have really a revenue problem. It's a spending issue, and the only way I see it is that I don't think they are ever going to be able to really control the budget as well as us everyday citizens would like them to. I think the way out is to grow, and that's by stimulating the economy, and that's going to take leadership to do that.
Douglas Goldstein: We didn't get to touch on unemployment or inflation, but I still would like to leave our listeners with a takeaway. As we've gone through some of the big fears that a lot of people have, and maybe some of the reasons why we shouldn't be so afraid, what would you say to the regular guy to do today?
David Holland: There are so many choices available and so many different messages that every person receives. The takeaway I would like to give people today is that no matter what you decide to do, don't bet everything you have on somebody else being right. Don't go all in and push your chips to the middle of the table and stand back and then just hope it's going to work out.
Douglas Goldstein: How can people follow you and follow your work?
David Holland: Go to www.planstronger.com, a lot of good stuff there, videos, and interviews of course with experts, and a lot of great resources.