What to know about the reeling financial markets right now

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• Geoff Bennett:

  We're going to take a look now at the financial markets, the third quarter has come to an end and many investors are wishing it good returns. The Dow Jones Industrial Average saw its worst September since 2002. And its worst monthly drops since March 2020. And the S&P 500 and NASDAQ are on track to experience their first three quarter losing streaks since 2009.

  Here to help us make sense of the markets is Roben Farzad, host of Public Radio's full disclosure podcast. Roben, it's great to have you with us, and look around the world you've got markets reeling the values of currencies are plunging, oil and other commodities are getting hammered. What is happening?

• Roben Farzad, Host, Full Disclosure:

  Everything Geoff is ultimately hardwired to the United States' main interest rate with the Federal Reserve controls. And we've gotten use over decades that just really low interest rate policy. In times of crisis, indeed, we take interest rates to zero. And it's a free for all for real estate and risk asset holders and stocks and NFTs and crypto.

  The problem this time is there's this broadening idea that the Fed doesn't have a handle on inflation. And it could be so out of its control that it has to keep hiking rates. And so, no one knows they're kind of selling first and asking questions later whether you talk about the Brits, asset markets across the world, emerging markets, corporate debt, junk bonds in the United States, it's really such an overdue reckoning. And people for years have been saying the 40-year bull market in bonds is over the, 30-year bull market in bonds is over. And there's this idea right now that it's finally caught up to us.

• Geoff Bennett:

  And there have been few places for investors to hide because as you mentioned, there's so much volatility in the bond market. I mean, what are some of the best practices? What are people supposed to do?

• Roben Farzad:

  That's the consternation in this. We call my episode this week, Bondsternation because typically bonds provide ballast in a portfolio. You see in 2008, or 2011. And other times when people are selling, they pour into the readout of safety that is the U.S. Treasury market. What's unusual this time is a diversified portfolio is getting hit kind of equal opportunity victims this year. Bonds and stocks because of inflation, and inflation is such a wily foe, it's one that we really haven't had to deal with, in robust terms since the early 80s.

  So, whether you're talking about gold oil, they're open to the vicissitudes of so many other things that there isn't a place to kind of hide out. I asked people like is it Hass avocados, Peruvian alpacas? Like, what is going to hold its value? That's the question, the multi-trillion-dollar question right now.

• Geoff Bennett:

  Well, look, Roben, you spoke to this. I mean, there seems to be global agreement about who is causing all of this volatility, the central banks with the Federal Reserve in the lead, I was going to ask you if this is all part of the Fed's plan, but based on what you said earlier, it seems like it's not?

• Roben Farzad:

  Here's one of the things that the Fed can't come out and say, Jerome Powell, the Fed Chair cannot jawbone housing prices and tell you people you guys, you're ridiculous. 25% In two years, get out of here. He can't jawbone NFTs and other things. He has a blunt instrument of hiking rates by chunky terms, three quarters of a point, three quarters of a point, three quarters of a point. When does that end? What that does, is I think, the ulterior motive and actually one of the main motives is to soften the labor market. He actually does want higher unemployment or more slack, for wages to come down. He wants to see asset prices, get a haircut. He wants to see real estate, take a haircut. And indeed, we saw mortgage rates this year touch a 15 year high. They're near 7%. You can buy a lot more house with a 3% mortgage than you can have 7% more.

• Geoff Bennett:

  Are there any winners in this brutal bear market?

• Roben Farzad:

  Gosh, what is defensive out there that time was you could go and look at Campbell's soup, or a pickle company or something that was stayed but I've looked all across. I mean, grocery companies are getting hit because again, we don't have an institutional memory of pernicious persistent inflation. It's something that I often say my dad talks to me about when I was a little kid and he showed me the passbook savings accounts, and he told me about the price of milk, but in our adulthood, Geoff, you know, my investing lifetime I haven't had to — we really haven't had to deal with inflation.

• Geoff Bennett:

  Roben, for people who don't study the markets as closely as you do, but who really only see their retirement accounts plummeting. Is a bear market the same as being on the precipice of a recession or, are those two, sort of different things?

• Roben Farzad:

  They don't necessarily go into lockstep. We've had So many bear markets just even since the crash of 87 or the early 80s as a part of a broader kind of broad increase in the S&P 500 and the Dow. But bear markets hurt, you don't want to log into the 401(k) or the Roth IRA and see that it's taken 25% haircut.

  But to answer another question, Geoff, there is a silver lining, you can finally get yield. You know, let's not underestimate this, with inflation up there. It's keeping the fixed income markets and the dividend markets a little more honest, you could get something like a three and a half percent yield on a shorter-term treasury or a 10-year treasury. Certificates of deposits, the banks finally have to pay up after a long period of not giving you anything. So, there is real yield out there. But it's probably comforting at a time when we don't know if the Feds going to have to stop at 5% at 6% at 7%. What is the cry uncle point and so again, everyone is selling first and asking questions later.

• Geoff Bennett:

  Roben Farzad, Host of the Full Disclosure podcast, thanks as always for your insights, friend.

• Roben Farzad:

  My pleasure. Thank you, Geoff.

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