turning back to the major averages joining us now is
tim bagley era chief investment officer of cap wealth and
tim, what is your reaction to how markets closed
today? Well, I think it was good,
It was a little bit of relief. You know
, the markets have had to digest a lot of
action from the Federal Reserve, um this quarter and
it's affecting everything from mortgage rates to how they value
stocks. So you've said that the ongoing conflict in
Ukraine makes the U. S. Market a safer
bet for investors than european market. Why is this
? Well, we're the we're the stable source of
everything in the world. We've got the best regulation
, We've got the best national security. We are
self sufficient in oil and gas and our supply chain
issues are minimal compared to the rest of the world
. So the U. S. Is going to
continue to be the safe haven um place to invest
and save going forward. Now, does that mean
that you believe investors in european markets should sell or
what are you advising? Well, they, when
they allocate capital, they're already allocating to the United
States. You know, there's a reason why there's
no real estate development projects in the Ukraine. You
know, they're here in the United States. There's
money from south America from europe, From Asia,
15% of all the commercial real estate last year was
purchased by the Chinese. So that that is a
trend that even started and was very strong before the
Ukrainian crisis. Now, if you said you expect
the Fed to continue with the planned policies? It
has outlined, what impact do you think this will
have on markets and what should investors know? Well
, let's talk about the mortgage market and that,
that gives you the best insight as to what is
happening in 2020. The average mortgage was 2.75 at
the end of 2021, It was 3.25%,, It
just crossed over 4.7%. So the Federal Reserve was
the largest purchaser of mortgages. So they slowed up
purchases, they've stopped purchases and then this week they
announced that they were going to start selling mortgages.
So all of a sudden the largest customer is out
of the market and they're raising rates at the same
time. So you're going to see the mortgage market
and the housing market slowed dramatically. That impact will
ripple through the rest of the economy as well.
And it will start to bring inflation down as supply
chains open up And, and you know, they
reverse, you know, it's the reverse of the
pandemic. They're pulling back everything that they put into
the economy, we have 40% more money Has been
printed since February of 2020 that existed prior to that
. Now, you've also said that investors with cash
on the sidelines should consider investing in the market to
guard against inflation. Can you tell me more about
that? Absolutely, my good friend Ron Baron spoke
this morning about this, You know, if you
look at the last 50 years inflation has run about
4% and historically the best way to protect yourself against
inflation is well capitalized big companies that have products and
services that americans need where they have pricing power and
that pricing power allows them to continue to increase their
earnings and profits. And that shows up in good
long term results for investors. Now, what are
your thoughts on what we might see when first quarter
results start to come out in the next few weeks
? I think that there's a lag. So I
expect first quarter results to be to be good.
There will be some inflation protection pressures that will have
an impact on earnings because like you were talking about
earlier the rent, the runway, they've got higher
costs. They haven't been able to pass those along
yet. That has an impact on earnings and profits
. But by and large american companies are still very
healthy. The economy is still super charged and I
think we're going to go through the rest of this
year in better shape than what people anticipate. Alright
, my last question for you tim is what sectors
are you keeping an eye on Housing is the main
one. of the United States economy is housing.
We have to keep that moving. The the House
, the Senate and the House can do a lot
by getting Fannie mae and Freddie Mac recapitalized and released
from conservatorship so that they have the capital to make
up the slack from the Federal Reserve, not buying
and actually selling the mortgage backed bonds that they accumulated
since february of 2000 and 20. So what do
you think happens when the housing market reaches that point
where mortgage rates are so high that buyers are scared
off from buying and sellers are no longer getting people
walking through their house? Well, housing prices will
start to moderate, the supply will get better,
and builders, let's face it, they've been getting
fat in the last year, year and a half
, while there has been more demand than there has
been supply. So they may not have five people
bidding on a house waiting for them. It may
go down to one. And and so a lot
of the speculation that's been in the market in the
housing sector will start to subside as the supply comes
up, and it will naturally go up because of
the affordability problem with rates going up as much as
they have as quickly as they have. All right
, all right tim, Chief Investment Officer at Cap
wealth tim. It's been a pleasure having you on
, I appreciate your expertise and shared it with us