Madison: Oh, yeah, next couple days. Absolutely. Yep. We’re starting to see grass out there now.

Mike: Yeah. That’s good.

Madison: Yes. All right, so today we are going to discuss an article from the Wall Street Journal, and it’s titled “Beware of the Most Crowded Trade on Wall Street”, and it is written by James Mackintosh. As previous episodes, I will read a summary of the article and Mike will answer some questions. All right, so the article discusses the widespread belief among investors and in a forthcoming soft landing and lower interest rates, based on the Federal Reserve’s dovish forecast. The author expresses skepticism about this consensus, pointing out past instances where investors convictions were proven wrong – the last three years. Despite signs of slow growing economy and potential challenges, investors appear confident in a soft landing scenario, with the market already pricing it in. The author cautions that gains from betting on a widely agreed-upon outcome may not be sustainable. All right, Mike. Do you think the historical examples of investor consensus being wrong, as mentioned in the article, should make investors more cautious about the current strong belief in a soft landing and lower interest rates? Why or why not?

Mike: Yes. So as he detailed in the article, the consensus was wrong the last three years. So three years ago, you know the view was, well, we’re just getting past this pandemic, we’re still in it. There’s no way the stock market could do well. And then it did. And then the following year, 2022, the thought was, well, interest rates will be low for a long time. Stock market’s probably about fair, and interest rates rose a lot. Stock market got crushed. So then at the end of 2022, going into 2023, the consensus was, well, we don’t know what’s going to happen. And then bond rates moderated and the stock market did really well. And so now the consensus is because inflation has come down a bit and we still haven’t had a recession. Knock wood there. The thought is now, well, the Fed will start cutting interest rates soon and we’re back to the races with the market, and we’ll avoid the recession. Well, we may avoid the recession, I hope we do, but if we don’t, it’s okay. But the thought that the Fed will start cutting interest rates so quick, I think might be premature optimism. I think when he wrote that article a month ago, there was a 20% chance that they would cut rates in January and like an 80% chance in March. Well, they didn’t cut rates in January, and interest rates are a little bit higher than they were when he wrote that article, not the government rates, but the ones sitting in the market. So I’d say already its shaping up, certainly not to be as quickly as the most optimistic takes, but I think after they stop raising, it would be kind of normal for them to hold tight for a little bit before they start to reduce interest rates. I think over my lifetime, people have been too focused on short term interest rate moves. Back 25 years ago, it was whether Alan Greenspan had a thick or a thin briefcase on his way to the Federal Reserve meetings, and people would think they’re going to cut or keep the same or raise them. That’s just ludicrous, right? All this talk of short term moves is really, I guess it fills headlines and lets somebody say something on CNN or CNBC or MSNBC, but it really is irrelevant to most people’s short, intermediate, and long term goals, other than the fact that it would be easier for people to buy houses if interest rates were lower. I mean, that’s the big thing.

Madison: Yeah. So how might the Federal Reserve’s recent dovish forecast and the dot plot of forecasts influence investors behavior and market dynamics in the coming months?

Mike: Sure. So if they think interest rates are going to be lower, that makes stocks more valuable and bonds more valuable and so, and then holding cash less valuable. So if they think all those things are going to happen, it would lead people to be bullish on stocks and bonds and bearish on cash. And there is a lot of cash on the sidelines. I think there’s, like, $8 trillion of investable cash in brokerage accounts right now. And so that’s giving people hope, too. If interest rates go down and you can’t get 5% anymore on a money market, it goes down to, like, two or 3%, maybe people will be more likely to invest that cash, and they probably would.

Madison: Yeah. So what do they mean by a dovish forecast?

Mike: Sure. So they use, like, hawkish if they think the Fed is going to increase rates, they try to, like, slam the brakes on the economy because inflation is getting too high or out of control. And dovish would be, like, a softer, like, lowering, interest rates, usually to spur the economy on. Right. So, yeah, good question.

Madison: Okay. All right. So the article points out the lack of investor concern about the potential downsides, such as a slow growing economy turning into something worse or inflation proving stickier than expected. Do you think investors are overlooking potential risks or are they justified in their confidence?

Mike: So that’s a good question. When he refers to investors, I think he means professionals who make bets on the short term moves in interest rates. And so those people probably are overconfident in what they think is going to happen. But if you use the broader term of investors, meaning everybody else like me or you or our clients, or people who manage their own investments, I don’t think that people are overwhelmingly bullish and not thinking about risk. I think we did a podcast just a couple months ago about how the economy is so much better than people think it is. People will say their own position is good, but everybody else is bad. Consumer sentiment has gone up a lot in the last two months. I don’t think it’s gone up that much, that people are no longer thinking about risks or that inflation might be an issue. I think he’s talking only about professional investors.

Madison: Okay. All right. So considering the market’s rapid rally and the significant gains in the interest-rate-sensitive stocks, speculative technology and biotech stocks, do you believe these sectors are accurately reflecting the economic outlook, or could there be a disconnect between the market sentiment and the economic reality?

Mike: I think there’s always a disconnect between the economic reality and investor sentiment. And I wouldn’t be surprised if that is true now. You know, part of the S&P 500s big rise last year, more than half of it was because of how seven stocks did. Those seven stocks were up, accumulated more than 100% since October 2022, in 15 months. Now, the other 493 stocks have not done nearly as well. And so I think it would be pretty normal for there to be some mean reversion. So those seven stocks can’t just keep going up like that because the math doesn’t work. Right. They can’t be worth $50 trillion. Right. Like, it just can’t. And the hope, my hope is anyway, is that the other 493 stocks do start to perform better and have more of a normalish market.

Madison: Okay, so the article discusses the shift from fear to greed in the options market, with the VIX reaching its lowest since before the pandemic. What implications might this shift have for market volatility, and how should investors interpret this change in sentiment?

Mike: Sure. So the VIX is a measure of volatility in the market, and it’s really low. That changed a lot. And so that is forecasting lower volatility. The thing is, though, that ViX historically I feel anyway, has changed on a dime. So anything could happen, especially something out in the greater world. Right. An escalation of some of the, the armed conflict in the Middle East or Eastern Europe where us getting involved to a higher degree than we are, anything could happen. I wouldn’t put too much faith in where the VIX is.

Madison: Yeah. Okay. So given the past three years instances of a strong consensus being proven wrong, how should investors approach the current situation? And are these lessons to be learned from these historical examples?

Mike: Yeah. So what I’d say is they should pay no attention to what the consensus thinks. Just like in our, you know, don’t rely on the pundits talk. Listen, you know, there are things you can do to make sure your situation is good. And don’t think that, oh, I’m going to go into all stocks because the VIX is lower or I’m going to buy bonds because I think rates are going to come down. You need to figure out what your allocation should be based on your personal situation and risk tolerance. And then move to that allocation quickly and tax efficiently. And forget about the VIX or sentiment going up or down this month or last month.

Madison: Okay. So don’t listen. Don’t listen to the consensus. So. The article mentions the broadening of the stock market beyond the big tech winners, with smaller companies and interest-rate-sensitive stocks seeing gains. What factors do you think are driving this diversification, and do you see it as a sustainable trend?

Mike: Well, I hope it’s a sustainable trend. Since he wrote that article, some of the small caps have lost ground again to the S&P 500 and those magnificent seven. But yeah, I think it will be normal over time. I don’t know when. I don’t know if it’ll be this year, next year. But yeah, it makes a lot of sense for the magnificent seven not to perform so extraordinarily well and for the rest to catch up. Historically, once stocks are in the top ten returners for the year, or they have, they get to be the largest stock because their value has gone up so much. Historically, the returns have come down from that. Because if you are the largest company and you have a $3 trillion net worth or market cap, how could you possibly double or triple in the next couple of years? It’s just a math problem. There’s not that much money. It makes so much more sense for a company that’s worth a billion dollars to be able to double or triple in a couple of years. I hope that answers that question.

Madison: Yeah, absolutely. How might external factors, such as a geopolitical event or an unexpected economic data, impact the likelihood of a soft landing and lower interest rates? How should investors prepare for such external uncertainties?

Mike: Well, I don’t think that there is any way to prepare. Right. Because I think you should be thinking about what your plan should be all the time and shouldn’t really deviate from the plan. But I think we talked about a few minutes ago, the geopolitical risks are probably the biggest risk to a soft landing and inflation, some sort of shock. So some of the houthi rebel shooting at some of those cargo ships has influenced inflation in some small places. But what if that increases? I think we have been drawn into a little bit of skirmishes over there, if they get worse, what if it does block supply chains? We’ve had issues with supply chain inflation not that long ago. So maybe that’s it, or maybe some other thing. Usually these things come up and it’s something like totally different. So back in 2019 or 2020, this year, at this time of the year, Covid was like this thing that might have happened in a lab, and we don’t know what’s going to happen. Well, it really, really impacted us. You know, I think generally we tend to get blindsided by these major things. I think that people are always looking for what’s going to be the next thing and probably overstate the problems, most of the time, and then something else will come up and just bite us in the butt.

Madison: Yep. Yep. I remember the COVID times when it first came out, everyone was like, how long is this gonna last? Like, no one thought it was gonna be, you know, a year or two.

Mike: Maybe you’ll have to stay home from work for a week or two.

Madison: Yeah, exactly.

Mike: And then games are getting canceled. Plays were getting canceled. And then next thing you know..

Employee Spotlight: Karen Lynch

Madison: We are joined here today with Karen Lynch. Karen is the COO here at Yardley Wealth Management. How you doing today, Karen?

Karen: I’m great. How are you guys?

Mike: Really good. Really good. So glad to have you with us.

Karen: Thank you.

Madison: So, Karen has been with the YWM firm since February of 2015. So, Karen, tell us about your role in the company, and what do you enjoy most about work?

Karen: Sure. So I make sure that we’re all working efficiently and our clients needs are met on a daily basis. And I like sharing my experiences in this business with my fellow colleagues and being a mentor. I enjoy making sure our clients have the best experience possible, and I love speaking with them and helping them and making them feel, you know, like their needs are met.

Mike: Yeah. And so, nine years, Karen, what does it feel like, about 30 to you?

Karen: It went fast. It really. It really has. I think back, and I’m like, wow, I can’t believe it’s already been nine years. So it’s been very enjoyable, and I’m really glad that I met Mike and was able to join Yardley Wealth and have this experience and share the journey.

Mike: It’s amazing to me. Right. Because. So, Yardley Wealth will be 18 in February. Is 18 in February. Right. So you’ve been here half of the time now. Crazy.

Karen: Yes, hopefully it’s been good for you, too.

Mike: It has been very good for me. Has been very good for me.

Madison: So Karen was one of your first employees for YWM?

Mike: Yes. Before Karen, we only had interns, and so they worked a short amount of time. Some of them were amazing. Some of them were okay. None of them were bad, but, yeah, it was always, like, a brief part time, couple hours here and there, and then usually longer hours during the summer. But Karen was the first actual full time. Well, she started as part time, became full time quickly as she saw all the things that I should have been doing better than how I was doing them.

Karen: Happy to help with that.

Madison: Karen, outside of work, do you have any hobbies or activities that you are passionate about?

Karen: Well, I really enjoy Zumba. I love the dancing aspect of it. I find that very enjoyable. I do that at least two evenings a week. And same with yoga also to just help relax. It feels as good as a massage, I think, when you’re done doing a session, and I try to do that at least two times a week for about an hour period. I love trying new foods and cooking new things. I collect a lot of recipes, and I have piles and piles and books of things. And someday maybe I’ll get to make them all and try them all.

Mike: The Zumba and yoga, do you do that in person now or you still do, like on the screen or.

Karen: No, we do it in person for over a year now. I did participate during COVID. They did have it remotely, just like in a Zoom session, like we are now. But it’s more fun getting together with a crowd of people and doing it. So glad we’re back at that in person.

Mike: I’ll say I never, ever was disappointed in a yoga class. I haven’t done one recently, but I’ve done a bunch over the years, and it’s always, always a great feeling when you’re done. I don’t know, you just feel better now. Zumba I could never do because of my lack of coordination. No one wants to see me in a Zumba class.

Karen: Well, if you stick with something and you keep at it, it doesn’t matter as long as you’re moving.

Mike: There you go.

Karen: And you get better as you go.

Madison: Yeah. My gym offers the Zumba class, too, and I feel like a puppy dog on the outside. They’re all having so much fun and laughing and dancing, and I’m like, I should really join one of these classes. They look like they have so much fun.

Mike: My sister Debbie has been an instructor. At the gym, she’s taught kids to do it, too, and she said it’s always fun. Like, they really liked it.

Karen: That’s great.

Madison: Exactly. I get that energy out, right? Share a bit of what you love to do in your free time.

Karen: Okay. So. Well, as I did say, I do like trying new restaurants, and my husband and I like to visit museums. We just enjoy visiting different types of artwork. And when I had the opportunity in the spring the past year, we went to Denver, Colorado, for a conference for Yardley Wealth, and he joined me and did some skiing. But we were able to go to the Denver Art Museum there, and that was different types of artwork indigenous to the city there, and we enjoyed it very much. So I just like exploring to different places. Yeah. So my family and I, over the holiday, just went to Pod. I don’t know if anyone’s ever been there in the city in University City, but it’s a fun dining experience because they actually have pods. And we had a group of eight, so we got to sit in the larger pod, and you get to change the lighting and the mood while you’re eating. And it’s fun. So we just try to have different fun experiences like that. Someone chooses a different, you know, during the holiday between the Christmas New Year, a different restaurant, and we’ll go exploring, sometimes go to a new museum or someone will pick a new experience. So that’s something that we enjoy doing.

Madison: Very nice.

Mike: That’s great.

Madison: So whether it’s pets, children, or anything else, do you have any interesting or funny stories to share about your family or furry friends?

Karen: We do have Xena, our Aussie doodle. And then my daughter recently added Luna, a Cavapoo. It was interesting to see the two of them interact. We called it the zoomies that Luna would get. She’d run around the house, looked growling and running super fast. Very fast. It was interesting. And she would jump up and hit Xena in the face. And Xena would just stand there because she’s old. And she just was like, I don’t know what’s going on. That’s all I have right now is Grandpuppy.

Madison: Yeah. She’s also on our YWM website. What is she?

Mike: Oh, yeah. She’s our chief canine officer.

Karen: Yes, our chief canine officer.

Mike: Somebody’s got to keep charge of those two unruly boys of mine.

Karen: Yes, yes. She’s very, very sweet, though. Hopefully we have her for a long time.

Madison: What accomplishments at work are you most proud of and why?

Karen: I think helping Mike these past nine years just grow from the two of us. I always would think of when we were going to add more employees and implement processes and systems. With that growth in mind of having more people join the firm. Yeah. I mean, there is a lot to it, more than people probably realize. With everything that goes on every day, the activity and things are always changing in the environment. So we keep up with that and do the best we can. I think we do a great job.

Madison: Yes, absolutely.

Mike: So I’m going to say Karen is being characteristically modest. Right. You know, when she joined, it was one guy in a practice with occasional help from interns. And I think that I always did a pretty good job with the financial planning and investment advice and held things together pretty well for that part. Right. Like doing everything myself. But, you know, adding Karen, you know, she helped control and shape the complexity of the firm, because it’s different now. Right. There’s six of us here. And so that means there’s an HR function. There is always evolving software that we need to look into, maybe decide to use, maybe vet for a little bit. And then once we make the decision to go with it, to actually build it out, none of the stuff that we have is just off the shelf stuff and plug it in and just play. Like, everything has to be customized to how we are. And as we’ve evolved from two to three to four to five to six, like, every time we add somebody and a role, it changes the workflows, the dynamics of how people work together. And it’s a constantly evolving thing. And it’s Karen that figures that out and makes the decisions on. Maybe she has to get my buy in because some of the software is expensive, and Tamarac probably took two years longer she would have liked. But we have it, and we’ve had it for four or five years now. And so, yeah, it’s a lot. You’re just adding the five people makes it a lot more of a complicated endeavor. And I don’t know that I would have the patience for that or the bandwidth. Right. Because I have to stay on top of all the financial planning and tax rules and keep up to date with all the investments and stuff like that. There’s no way that one person could do a good job with everything like that. Like, I might have been able to hold it together as a solo when we had 15 clients and three or five pieces of software. It’s a way more complicated endeavor now.

Karen: I think I like to say I lay the structure and foundation for the rest of the team and obviously getting their input, their experiences and feedback, but try to provide some foundation and structure around that and plan the systems around that things to keep us moving forth.

Madison: If you could give one piece of advice to your colleagues or peers, what would it be?

Karen: I’d say, you know, feel fulfilled and accomplished. But don’t take anything too seriously. Try to have a good balance between your work life, your personal life, you know, and do the best you can with that. So that you’re not killing yourself working too hard, you know, enjoy. Life goes by quickly. So make sure that, you know, you take care of you first.

Mike: She’s on a podcast with her boss, and she’s telling her peers not to work too hard. Hold on a second. I might have heard that wrong.

Madison: Hey, you need an equal balance.

Mike: I get it.

Karen: You need an equal balance. Yes.

Madison: And I think you guys really do do a great job at that equal balance. I really do.

Mike: Thanks, Madison.

Madison: Absolutely.

Mike: Yeah, it’s hard.

Karen: You really do need that because, you know, you get.. Maybe you get a little burnt out or whatever. Make better decisions. If you’re being fulfilled that you’re doing that yoga on the side or getting something done personal, and then you can focus on work when you’re there and focus on your personal life and dedicate your time towards that. You need to find that good balance.

Mike: Yeah. So, Maddie, this reminds me of the conversation we had with Sandy Smith. Right. And, you know, Sandy is the same age as me and Karen. We started working in the eighties and nineties, and there wasn’t a thought of work life balance at the time. You know, you’re supposed to be in, you know, before your boss and work after him or her and, you know, be constantly available and, you know, like, put your personal life aside for the vast majority of the day. And it’s much better being balanced. Your life is a lot better. It’s one thing that has certainly, over the last 30 years, improved a good amount. Not in all environments, obviously, but certainly in a lot of them and certainly in this one.

Madison: All right. I don’t have any more questions for you, Karen. That is all for our employee spotlight.

Karen: Thank you.

Madison: Of course.

Karen: Thank you for having me and having this discussion.

Madison: Absolutely. Thanks for joining us, Karen.

Mike: Yeah. Thanks for taking the time.

Karen: Yeah. Okay. And if any clients are listening and you have any thoughts or ideas or improvements or anything you want to talk about, just reach out.

Madison: Yes. They know where to find you.

Karen: Yes. Thanks very much.

Madison: All right. Thanks, Karen. So for more information on Yardley Wealth Management or Yardley Estate Planning, you could visit our website at yardleywealth.net and yardleyestate.net. You can also follow us on socials at Yardley Wealth Management. This podcast has been produced by Madison Demora and Mike Garry with technical and artistic help from Poe Productions.