Anthony Speciale Stock Market Analyst

Better Way to

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Be warned: This will be true every time until it’s not

Speaker 1 (00:00):
Hi guys, I’m Tim. Melvin. This is a better way to wealth. And thanks for watching again today. Now there’s a new phrase. Actually. It’s been floating around wall street for a while, but it’s getting really strong right now. And it’s called Tina. There is no alternative interest rates are so low. You pretty much have to buy stocks. There’s nothing else that you can do. If you want to get a return on your money, you must absolutely participate in the stock market. Now I’m going to make sure I get these numbers right. Okay. Globally central banks are taking actions to keep rates as low as possible. The United States has led the way on that so far we continue to do so central banks according to bank of America, buying $834 billion, million dollars worth of bonds every hour across the world to help keep prices as low as possible.

Speaker 1 (00:50):
Now the United States government is doing its bit to keep the economy kind of on a level pace, not letting it pull back. They are spending you ready for this guys. $875 million every hour. So far in 2021 to prop up the economy and keep things just kind of on a smooth, steady path. So markets don’t realize how bad it would actually be without all of that money coming in and start to reprice themselves. So billions and hundreds of billions of dollars being spent to support the stock market all over the world. The problem with that is, is all that money coming in and buying bonds. It does act to keep prices pretty low in interest. I’m sorry, interest rates very low. So in some sense, you feel like there’s no alternative. We might as well buy every dip because the central bank and the government are going to save us and stocks will rally back up to new eyes so far, that has been exactly the case.

Speaker 1 (01:49):
It’s happened. Every time I look around at the world and I say, you know what? It’s going to be true every time until it’s not. And that’s, my friends is going to be a very ugly day. Remember, we’ve talked about some of this over the last weeks. Valuations are incredibly extended market capita gross domestic product is the highest it’s ever been. And GDP is not going to grow. After 2021, we stop stimulating the economy. We get back to a 2% growth rate. GDP is not going to grow fast enough to catch up with current stock valuations any time soon. So you’ve got slowing growth. You’ve got extended valuations, you’ve got low interest rates, but a fed that is looking at, you know, some kind of spiky inflation numbers and thinking, Hey, maybe we should start buying less bonds. And the last time they talked about stopping their tapering, their, their bond buying programs, the market really took a nose dive for several months.

Speaker 1 (02:50):
The only thing that they could do was turn around and lower interest rates again and start buying bonds to calm the market down. I’m not sure how to play out in this time. Like I say, I don’t think the market’s going to like it. The rally of the entire decade has been based on interest rates are low. So assets are worth more. Well, that argument is probably true. I believe that to a very large degree. However, there is a flip side of that when rates start going up, asset valuations have to start coming down. And I think we could see that happen. Now, remember we talked about last week, the threats that are out there to the market, there’s inflation, the fed says it’s transitory, maybe they’re right. So far, the bond market agrees with them the day the bond market decides it doesn’t agree with him.

Speaker 1 (03:33):
Stock market has a huge problem. The other problem that we’re talking about and don’t care about the politics of it. If we get a vaccine resistant version of the COVID virus, we have a major economic problem that will be reflected in the stock market. Relatively quickly. We have something I talked about earlier is weak China, no longer afraid of us, perfectly willing to go toe to toe economically, politically. And I fear militarily. Anything that happens negative on the China front is going to be bad news for the us stock market. Then we also have the fact that, Hey, this could be as good as it gets, right? This could have been peak growth in the second quarter, best easiest earnings comparison in 30 some years that I’ve been doing this. So there’s lots of things. Are there other things that could go wrong?

Speaker 1 (04:22):
Courses, Democrats getting control of all three branches of the federal government that would not be great for tax and regulatory policy and the market’s not going to like it. So now what can we do about that? There’s a couple of things we could do. We could just continue on using my small cap and momentum strategies to invest in stocks and implement. As we talked about earlier, a black Swan strategy. If you’re investing today at these valuations, with a virus, still running a muck in the, in the world and a bad actor on the geopolitical stage, without a portion of your money invested in a black Swan strategy. I think that is as silly as leaving your house on the shore during hurricane season down here in Florida, you may not get hit by a hurricane, but if you do, you sure want to have insurance.

Speaker 1 (05:12):
I feel the same way about stocks right now. Great strategy. Just keep moving forward with your day to day activities, using the strategies that I’ve been talking about and put two to 3% of your portfolio in a black Swan strategy. Like we have talked about, then there’s a couple of other things that you can do. There’s, you know, what are the, the crash proof investments? Well, nothing’s really crash proof, but there’s some things that are going to do better than others. One that I really like a lot, and this is one that recovered very quickly from the 2020 sell off. And that’s our rock capital symbol, O R C C. That’s actually on our trends list as the income pack this week. Now, how rock did fall in 2020 has recovered most of them. Here’s the thing coming in to 2020, it was trading at about 1.3, 1.4 times, that asset value, which if you know me, I don’t like to pay full price for anything.

Speaker 1 (06:07):
I never would have been involved in how rock until it traded at a discount of at least a little bit under its net asset value, which would have been you know, right around current prices. So I feel really comfortable saying that if you use my strategy for investing in Iraq, you wouldn’t have been involved in the crash of 2020 at all. So anyway, this is a business development company. It’s just a incredible loan portfolio. Most of the loan portfolio is secured. They’re recession. Proof industries want you to think food and beverage, internet software, and services, insurance, healthcare, all those fun kinds of things. So very little chance of the economy wiping out the companies in this industry and making it hard for them to get their bills paid back. 98% of the loans are floating rate so that you don’t have to worry about interest rates going up.

Speaker 1 (07:00):
The really cool part about it. This is a lot of their funding sources are floating rate. So you don’t have to worry too much about rates going too low for them to make money. The rates go too low and their loan prices reset. So will their funding costs. So that’s going to keep the spread kind of locked in, might even widen it a little bit, which is wider profits for us. You just check my notes here a little bit. Now, the thing that I love about this, I’m a big fan of business development companies. I said prior to, and it was like in January, February of last year, that I didn’t know what was going to cause stocks to have poor forward returns. I just knew something was going to happen. And business development companies would get destroyed. Those that survived would make folks a fortune.

Speaker 1 (07:43):
Our rock is not only a survivor guys. They came this through this thing in such great shape. As far as their portfolio, most of their loan book is still paying. Most of it never missed a beat. Last year, they had a ridiculously low 0.17% loan loss rate. This is on an $11 billion portfolio of loans. So look, interest rates go up. No problem. Interest rates go down. No problem recession, no problem for most of the companies in the loan portfolio, just going to keep cranking right along. So this is a great company. It’s got some upside. You are trading at a discount to net asset value as time goes by. I think you’ll see it go back to a discount and that may very well be cause for us to sell it and go shopping or something else. We’ll make a decision when that time comes in. The meantime, you’re getting about an 8.56% cash rate of return from dividend income that will help additionally cushion from any fall that may happen in the broader stock market. So adopt the black Swan strategy to go with your stocks, consider moving some money into a company that’s pretty much recession and interest rate movement resistant and should hold up very well. Should something bad happened in the stock market, in our rock capital ORCC. So anyway, guys, I’m Tim. Melvin, this has been yet another edition of a better way to wealth. Thank you for watching.