“If you know your history, you’ll have a much better chance of being able to navigate the future.” [49:30]
“The average investor can’t really withstand the volatility that equity brings at the table particularly as you look further down the path of life.”– Bryan [24:23]
“On balance we generally recommend around a 5% allocation to commodities overall in a diversified kind of portfolio.”– Bryan [28:48]
The Investment Market Status in 2020- with Bryan Piskorowski
It is evident that 2020 has been a hard year for not only the US economy but also the global economy and many sectors have shifted in one way or the other. It is important to note that the current inflation no matter how small has had either long-term or short-term impacts on your investment portfolio.
In this episode of the Page One Podcast, Luke Peters speaks with Bryan Piskorowski on the current investment market and the state of the economy. Bryan is the Managing Director, Head of Advice and Investment Guidance at Wells Fargo Asset Management. He is an accomplished wealth management executive with a proven track record of redefining advice delivery and portfolio implementation.
Listen in to learn what you need to know before investing in bonds in the current economic climate. You will also learn the importance of having an asset manager to help manage your portfolio and save you from emotional breakdown especially now during these unstable economic times.
- Why there’s no chance of hyperinflation due to the 2020 pandemic due to lack of rush in the growth of resources.
- How to be creative when investing in bonds to continually make money in the current economic climate.
- How COVID-19 has changed different sectors’ performance in the last 12 months and how people are now doing business.
- [1:44] Bryan describes his career for the last 25 years understanding clients’ needs and building new investment products at Wells Fargo Asset Management.
- [5:05] He explains the chances of inflation that exist in our economy in 2020 and 2021.
- [11:36] Why lack of stimulus packages won’t bring the economy down but will impact equity prices and the evaluation of equity risk.
- [16:24] The importance of having liquidity and short-term credit risk to get past the current inflation in your business.
- [19:30] Bryan explains the risks and advantages of investing in bonds in the current economic climate.
- [26:09] The potential of having gold as a way to diversify your investment portfolio.
- [29:42] How the unnatural buyers were brought out of the dollar market and the state of the USD currency.
- [34:10] The impact of COVID-19 in different industries plus the favorable and unfavorable areas to invest in.
- [43:08] The volatility of the 2020 market and how to remain optimistic by having an advisor to help manage your portfolio.
- [47:10] How to use your past successes and lessons to navigate your future.
Bryan Piskorowski: Welcome to the Page 1 Podcast, a podcast featuring a variety of guests and thought leaders on topics ranging from digital marketing, sales channel strategies, influencer marketing, best in class product launches, and all the details about how to accelerate sales. Now here’s your host, Luke Peters.
Luke Peters: Thanks for joining us on the Page 1 Podcast I’m your host Luke Peters, CEO of Newair Appliances and Retail Band Digital Strategy Agency. Business owners, do you wish you had someone to create a custom strategic plan to grow your online sales? Online sales focused around Home Bebo, Wayfair, and channels other than Amazon, someone to help show your team, actually, how to execute this, that’s what we can do for you with Retail Band.
Luke Peters: Find me on LinkedIn or email me at email@example.com. In this episode, you’re going to hear from Bryan Piskorowski, and Brian is a Managing Director, Head of Advice and Investment Guidance at Wells Fargo asset managers. Is that right Bryan?
Bryan Piskorowski: Asset management, yes, sir.
Luke Peters: At Wells Fargo Asset Management. Cool, and we’re going to talk about specifically how you should be investing your capital both short term and long term. We got a lot of business owners in the audience so I’m really excited to dig in here. Bryan, thanks again for joining us on the Page 1 Podcast.
Bryan Piskorowski: Thank you, Luke. I appreciate being on the show, and to spend some time with you.
Luke Peters: Yeah, it’s going to be a fun hour. And Brian, if you don’t mind, if you can just fill in the blanks on your background. I mean, you really got lots of experience, we’d love to hear a little bit about that.
Bryan Piskorowski: Sure. I’ve been with Wells Fargo and the predecessor firm for 25 plus years. As we all know, the financial services industry has gone through a lot of permutations, mergers and combinations and so for me, Wells Fargo is just another step in that journey and they’re offering that [inaudible 00:02:01].
Bryan Piskorowski: I’ve worked [inaudible 00:02:01] demand side most recently, but also in the brokerage side of the business, known to the public as Wells Fargo Advisors. There have been several roles both in research, sales and trading. The focus in my career really has been understanding the needs of clients, and then working on the product sets, and building new products sets to be able to help deliver those needs.
Bryan Piskorowski: So, again, looking at income models, and portfolios and things of that nature, I spent a fair amount of time in my early years, I’ve won a race out of New York [inaudible 00:02:32] prudential securities in New York on trading desk, they’re doing a big [inaudible 00:02:38], shall we say?
Bryan Piskorowski: They’re the tech boom and craziness [inaudible 00:02:41] the thing they’re in, but spent a lot of time in the financial media that’s turning into its own industry in its own right. But no, [inaudible 00:02:50] if it’s really getting an understanding of what a client’s needs are and building a comprehensive solution, hopefully to give them the best chance of meeting those needs both on an individualized level, or for companies and for corporations and so they’ll apply that.
Bryan Piskorowski: It’s really important from my standpoint, I think as well to set a fair amount of time teaching. I teach some classes for the Cisco program at Wharton at the UK. And so, maybe, we’re getting some of those ideas today too, and just some concepts around that aspect of portfolio construction and design, modern portfolio theory, income generation and things of that nature.
Bryan Piskorowski: But the best thing about being in this side of the business is you wake up each day, and it’s always a brand new world and something’s always changing. I live by the guideline that Mark Twain once said, “History doesn’t repeat itself, but it certainly does rhyme.” And I think there’s a lot of that, that’s really true in investing and looking at markets on a macro and micro standpoint.
Luke Peters: Oh, cool. Well, thanks for that intro, and I was going to fill in a little bit on the education, but you guys heard there that Brian is teaching at the Wharton and also graduated from the Securities Industrial Institute at the Wharton School. And he’s had a lot of appearances on CNBC, Fox News, AP, Reuters, Wall Street Journal, New York Times USA Today. So this is a special episode on the Page 1 Podcast, usually we’re talking with business owners in the industry, but I know you guys are always looking for investment ideas and how to protect yourselves. And we’re going to specifically talk about industry related topics looking at inflation, how that might look in the future and questions around that. So Bryan, why don’t we start here? What is your one to two year inflation outlook? And the reason I asked this is, obviously, every decade it seems there’s more money printing, but this is like the ultimate amount of money printing, right? If a new stimulus deal is passed, which I know the president held off on yesterday, it would be something like $5 trillion this year, maybe, it’s not all money printing, but a lot of extra money being generated there, but yet we haven’t seen any inflation. It seems like we haven’t seen any at least In the CPI, so curious to hear your thoughts in the next one to two year time frame.
Bryan Piskorowski: Well, I think firstly, looking at the current perspective for inflation, I think we need to look at where we’ve come from. And so I was born in the early 70s. [inaudible 00:05:15] inflation there was running single digits at the end of the 70s it sort of looked like it was going to run a double digit.
Bryan Piskorowski: And when you think back to those times and periods, and that was when we were running into an inflation issue. Obviously, in my adult life, we have basically been in a deflationary or disinflationary type of spiral. From my standpoint, I mean, there’s base cases for what made this happen.
Bryan Piskorowski: First and foremost, it would be the globalization of our economy. Obviously, I saw this coming through the eyes of my 12-year-old last year, when we were buying a new flat screen TV and we’ve got to walk into a Sam’s Club and looked at the 72 inch, ultra high def, 10 million K, whatever it is.
Bryan Piskorowski: The TV price said $462 and when a 12-year-old can look at you and go, “Shouldn’t that be more expensive than that?” He made the mistake of saying that because then I gave him this deflationary talk and the attack that globalization has brought deflationary pushback into our society, that we’ve reaped the rewards up from a cost of goods sold perspective I can make the argument that China has been exporting deflation on to our shores for the better part of the last two decades.
Bryan Piskorowski: And at that same time, though, when you think about what drives inflationary spirals, and we go back to that period in the late ’70s, two things come to mind. First would be the fact that we had a much more industrialized economy than we have today, right? And thinking about today, for example, we have 70 plus percent services related, less than 30% industrialized.
Bryan Piskorowski: And often what comes with industrialized businesses is there’s also more union labor, and we’ve seen the secular decline of unionization over the past 35, 40 years. And those are all contributors to what drove that inflationary spiral in the ’70s. The concept of cost of living increases, [inaudible 00:07:17], would be automatic pass through based off of your reference there, Luke on CPI, right?
Bryan Piskorowski: And so, there’ll be an automatic uptick at the rate of CPI, which at the end of last month was running at a 1.8% clip on the latest rating, and will average on 2020, probably, 1%. They were far from the days of the ’70s and then add in, obviously, the drop in input costs, as well.
Bryan Piskorowski: When you think about input cost specifically coming out of the energy sector, when you look further than the gas pumps, and typically for you on the West Coast, I think the gas is a lot, I mean, it’s always more expensive in California than anywhere else anyway, but we’re not talking 60, 70 bucks a gallon.
Bryan Piskorowski: This is [inaudible 00:08:04], and I’ve been on the West Coast in a post-COVID world, but when you’re looking at [inaudible 00:08:09] crude here trading well off the highs, well off its all time spike highs of 150, trading around 40 bucks a barrel here, you don’t have that inflationary input, as well.
Bryan Piskorowski: And so you put all those things together, I think one can make the case that globalization is looking at the fact that lower input costs and looking at the facts, particularly, here in the US, and the lack of that major pass through coming from the cost of living adjustment, that makes the case that it’s not a massive inflationary spiral, which by the way to your point, though, is not to make light of the fact that the printing presses have been running.
Bryan Piskorowski: And that we have seen an extreme amount of debt be created here in this year of 2020, which is basically when one should expect anything but the norm in that type of year. As we look forward here, will that have an impact on potential forward inflation? Yes, I know for one, when we’re building our capital market assumptions, these are the base cases, these are the estimates of what we think each asset class would do on a go-forward basis.
Bryan Piskorowski: Looking out in the next 10 to 15 years, one of the key inputs to what that asset class will do is the benchmark completion rate. But over the last 10 years or so, this is in fact, my work with Wells Fargo Advisors an the Investment Policy Committee there. We’ve brought down our overall expectation on inflation used to run three and a half percent, now is running about two and a half, which is well above where we stand today or a forecast for next year, which is the inflation rise about 1.7%.
Bryan Piskorowski: But when I build a portfolio, when we go and construct the investments for clients, 1.7% inflation while it does seem low, 2% inflation will cut your standard of living by a third over the course of 20 years. I mean, you still need to keep an eye on that, right? A dollar today will buy you 66 cents worth of stuff 20 years from now, but definitely now it’s the rate of hyperinflation per se.
Luke Peters: So it’s not-
Bryan Piskorowski: A lot of this just really stems from the fact that we don’t exactly have extensive growth, both here and abroad. Where we’re going to see a sharp pickup in growth, I think you’d see a commensurate rise in interest rates, but given what we experienced here in 2020, not only in the US but on a global macro basis, growth is not exactly a runaway train. And it’s hard to get a lot of inflation when you don’t have that kind of growth, when you don’t have that rush for the same sets of resources.
Yeah. Okay. And then just so the audience knows, we’ll talk about gold and some of those other things later but okay. And so the idea is, hey, we’re not going to return to the ’70s, basically, which is your thought there, so the inflation will stay relatively low. How dependent is this recovery on more stimulus? It seems, obviously, stimulus has cut the market drops a few points, and everybody freaks out.
Luke Peters: So this two part question is, how dependent is it? Meaning, is it going to drop 30% back to COVID [inaudible 00:11:20] if the government suddenly stopped? And how likely is the government going to continue to add stimulus? It looks like they’re going to, for our business owners we’re thinking, “Here is somewhat short term.” So we’re thinking, Q1, Q2 of next year, how is the customer going to be doing?
Bryan Piskorowski: Sure. And so I think there’s a few things and perspective to look at that. I think what you teed off here with Luke was looking at it from a fiscal stimulus standpoint, right? And putting cash in the hands of people, increasing the velocity of money, which has always been a key component especially in an economy like ours, as I mentioned is 70% services.
Bryan Piskorowski: I mean, so every dollar that goes into an extra dollar into some waiter or waitress, it is [inaudible 00:12:08], is money that then gets spent elsewhere and has a multiplier effect, yeah? But I think the markets today, where they stand today and where they stand on a year-to-date basis, has been supported by several different aspects of stimulus.
Bryan Piskorowski: One of which would, obviously, be the fiscal stimulus boosting here, but I think more importantly, and I think it was thinking beyond just the next two or three quarters, and you need also to understand the blunt force instrument that is monetary stimulus, the fact that you’re sitting in a zero interest rate environment, there is no return in a risk free rate of return per se, or [inaudible 00:12:46] single digit basis points in that case.
Bryan Piskorowski: And that the monetary stimulus has been immense this year. And we’ve seen the [inaudible 00:12:55] continue to basically voice their perspectives that did not need to be in any kind of rush to raise benchmark lending rates let alone also, obviously, all the additional stimulus that was thrown in, in the March-April timeframe.
Bryan Piskorowski: And when you really think about what transpired when COVID first went into full blown lockdown for all of us here in the US, that basically developed the playbook in my mind in the, ’08-’09 timeframe, and to one degree or another was kind of ad hoc. It was the, well, we’ve got a big fire, let’s throw this bucket of water and see if that works, let’s throw another bucket.
Bryan Piskorowski: And that was built over a period of 18 months. And under the [inaudible 00:13:37] hopefully we would never have to go that direction again. You fast forward to promote [inaudible 00:13:42] through here in 2020. The interesting kind of silver lining for that cloud that was ’08, ’09 was the fact that the government has a very good playbook, how to hit the panic button.
Bryan Piskorowski: I think more importantly, though, what was really essential to the V-shaped market recovery if you measure the S&P, or do the inverse of interest rates, right, would be the concept, basically, to get a bazooka I used every trick in the book in the space of, not 18 months but 18 days, here in 2020.
Bryan Piskorowski: And so running interest rates zero, you’re building all this quantitative [inaudible 00:14:19] in essence is more than just treasury bonds as far as collateral and things of that nature, in order to basically shore up the system. So there’s been a massive amount of monetary stimulus here, and it’s not our expectation at Wells Fargo that that is going to change over the next 12 to 18 months at the very least.
Bryan Piskorowski: And if it were to change it would be a function of the fact that the economy is growing much faster than expected, and it could be a potential specter of inflation, in which case, I think from an economic standpoint, that’s the type of change that a lot of folks will probably look fondly on.
Bryan Piskorowski: But we’re definitely not at that point right now, we’re still on the slow global growth, slow US growth environment, we’re still dealing with the impact of the COVID crisis, and as such, you still have seen some dampened consumer behavior. And so the bifurcation of the stimulus package, not adding a stimulus package, clearly, it will mark it that it’s [inaudible 00:15:15] to the slings and arrows of those types of headlines.
Bryan Piskorowski: And so I think that that’s something that we do need to be aware of, but I don’t think between now and [inaudible 00:15:23] we’ll not be getting a stimulus package that the economy is going to go to hell in a handbasket. But I definitely think it would have an impact on equity prices, and how we value and how we evaluate equity risk in the market.
Luke Peters: Yeah, that makes sense. Okay. And then somewhat related to that, so again, we’re thinking short term in business owners, actually, extension time is coming up right on us right now for taxes. And then business owners are thinking about their quarterly tax payments, or even just if they profited and what to do with money short term, right?
Luke Peters: Because, they might need to reinvest it next year. What is the best place for business owners to put cash short term right now interest rates are near zero, it doesn’t seem like there’s any risk list areas to make… Money markets aren’t paying much right now, so I guess soon there’s going to be some risk to make some money and what would that be on a short term basis, if business owners want to take a small to moderate amount of risk over, say, a six month period?
Bryan Piskorowski: Nice. So, obviously, to your point, there is no free lunch, I can have a riskless trade without taking and get any yield for that. But I think in looking at that, it could be a couple of parameters that one needs to focus on first. First and foremost would be what are my liquidity needs? What are one of my liabilities going to be coming in?
Bryan Piskorowski: I think that’s important from a standpoint of, basically, saying you need to have that liquidity for when that liquidity is needed. So, obviously, I think we’re talking inside of six months here and that type of timeframe. You can pick up some yield as you look to, basically, take on what we call credit risk, obviously, repayment risk in the credit quality of the issuer.
Bryan Piskorowski: And you can do so in some short term instruments in the money market space, in the mutual fund space. But I think liquidity is the paramount aspect of that, and variability of the value of the assets or the NAV, net asset value. And so, those are the parameters that play, and you can be rewarded if you’re willing to, if you don’t need a completely stable never break the book type of instrument, and actually pick up income and pick up yield.
Bryan Piskorowski: And obviously, I think the goal for any of these types of scenarios is trying your best to basically, get past the current inflation rate, right? So you’re not losing money by sitting in cash. But honestly, the issue is that the whole point of what the Fed has done with their with a zero interest rate policy and a quantitative easing program, is to basically make that cash painful for holding and to, basically essentially, the velocity of money into the system, to incent you to want to invest, to incent you to want [inaudible 00:18:15] purchasing, and so forth
Bryan Piskorowski: And so, that is the issue with this, but obviously, their treasury bonds, [inaudible 00:18:23] their treasury bills, but they don’t have that much yield in any way, shape, or form. And when you look beyond that, though, by taking on credit risk, you can pick up the yield on that thing.
Bryan Piskorowski: But again, what an individual liquidity mean for your business, for your personal finance [inaudible 00:18:41]. Because right now, if you’re looking at out on Premium Bonds they’re only yielding 15 basic points, and if you go out to six months they’re yielding 34, to basically get over the inflation rate, you have to go out to 10 years.
Luke Peters: It’s so small, it’s very unappetizing if put that way. On that same point, you’re talking about the Fed is lowering these rates, and that’s their idea, they want to force the investor to invest. Does that kill or change the way that you guys think of the 60/40, “the 60/40 portfolio,” where be 40% bonds, and bonds are paying so little right now, and it seems like they don’t have that upside that they might have had in the past. Does that change how people think about allocation moving more into equities?
Bryan Piskorowski: Well, it’s funny you asked that question, because we actually have done a lot of work on the first 64 years in the broadcast the purpose of right, the Goldilocks type of asset allocation, right? Not too hot, not too cold, just right. And I think, well, to one it’s just like looking at what the component of return would be.
Bryan Piskorowski: Obviously, with bonds of lending somebody $1,000 to buy a bond and they’re going to pay me back, maybe, 10 years from now, but it’s a 10 year long bond, and I’m going to get a rate of return for basically lending them the money. And everybody thinks, “Well, okay, rates are so low right now and if I were buying a US Treasury on a 10 year, so I’m buying 2030, 2030 is yielding 78 basis points.
Bryan Piskorowski: So, you’re like, “Well, I know, I’m pretty sure the US government’s going to pay back, but they’re going to give me a .78% for my trouble. And that is one part of the equation, but the other part of the equation is actually something that I teach at Wharton. It’s kind of looking at the cause of the modern portfolio theory, which Goldilocks not too hot, not too cold, or if it can be translated into mom said, “Don’t put all your eggs in one basket.”
Bryan Piskorowski: But when you look at modern portfolio theory and Markowitz would say that, by not putting all your eggs in one basket, it’s not a bad thing, but it gives you a better return with less risk over time. Because, now let’s take a look at the year like 2020, this is the standout year for that 60/40 portfolio, and it’s not because bonds had been such a great performer from a yield basis, but remember as price goes up, yields go down.
Bryan Piskorowski: Bonds have performed very well from an overall performance perspective because of that drop in interest rates, and as such, you have a year like this where equities have done actually pretty… I mean, I think equities have done very well. If you basically left me blind and just told me what would have happened in 2020, and asked me to guess, what do you think the performance was in the S&P going into October, I would be very hard pressed to say the S&P would be up 5.8%, and it was up 10% about three weeks ago, right?
Luke Peters: Yeah.
Bryan Piskorowski: [inaudible 00:21:47].
Luke Peters: It’s hard to believe, honestly. It’s hard to believe.
Bryan Piskorowski: Yeah. Well, and that’s the case, if you look at that 60/40 type of portfolio, now this wouldn’t be just S&P and Barclays Agg US stocks bond, but if I looked at the full pie chart, and the full diversification with non-US bonds, non-US equities in it, on a year-to-date basis, that 60/40 type of portfolio is up about 3%.
Luke Peters: But how about on a go-forward though? The thing is, now interest rates are already crushed, can you continue to make money with bonds?
Bryan Piskorowski: Yes, and I think you can continue to make money from this. The fact that there’s nothing dampens equity market volatility like bonds, right? I think that’s the struggle that people are having. Now, the other side of it though is, when you look at the component of bonds, this would be the argument, if I’m going to lend the government money for 10 years, and they’re only going to give me 78 basis points, right?
Bryan Piskorowski: If I need income from that investment, yes, I think you’ll need to get more creative. And I think it comes in two fashions, first and foremost would be, if income, and deriving income and yield from a portfolio is the key objective, the main objective, one should look to other asset classes to also help them get that yield, a.k.a dividends coming from equities, and be it looking at your other alternative income type of sources, which often have some risk to them.
Bryan Piskorowski: But you’re taking in small doses, it can be added [inaudible 00:23:22] that type of income. But at the same time, you have seen this, right? What we say is 60/40 today, used to be 50/50 30 years ago, and you have seen some of these asset allocations shape and morph but here’s the ultimate problem, the ultimate problem trying to build a portfolio that works, that is efficient.
Bryan Piskorowski: You need the fixed income exposure, because not only does it provide income, and maybe the total return is lower on it looking at the next 10 to 15 years, but it is the counterbalance, it is the balance, it is a counterweight for equity risk, and dampens the volatility. So I think that’s also a key component as well.
Bryan Piskorowski: But, well, you’ve seen overall there has been a slight reduction in the amount of fixed income in that Goldilocks type of portfolio in our industry over the last 10 or 15 years. I don’t think it’ll ever go to zero though, just because I don’t think the average investor can really withstand the volatility that equities bring to the table, particularly, as you look further down the path of life, right?
Bryan Piskorowski: If you’re a 30-year-old investor, equity volatility means that you’re not looking for the money to live off of for any period of 30 plus years, you can live with that, but [inaudible 00:24:46] 60/70. You start seeing that level of volatility, when you have a shorter time frame, and a greater need for income and the distribution aspect of that portfolio, that it will still lead to bonds.
Bryan Piskorowski: But [inaudible 00:24:58] looking to take on a different risk. I think it also just plays into the fact of that diversification story, not in just about bond but also in the kind of bonds we buy. And then also looking at what your individual tax situation would be as well. Clearly, California is not light on the taxation story.
Bryan Piskorowski: And so you [inaudible 00:25:14] bond and we give you a same kind of correlation to equity risk in the mini bond [inaudible 00:25:21], or be it probably with better overall total return for people in the upper tax bracket. So I think that’s another variable that comes into play in that space.
Luke Peters: And on that same question, still bonds are going to be returning less and like you said, the “Goldilocks portfolio” has moved a little higher to equities. Is it advisable on your end for folks to put more of a significant amount in gold because of the money printing and just saying, “Hey, gold has to go up.”
Luke Peters: But maybe that thought is wrong, I don’t know, but instead of bonds some people can look at gold and say, “Okay, I want 20% in there, or play with the gold miners,” or something to that effect. But what’s the outlook on gold, and is gold a good counterweight to that volatility that you’re talking about?
Bryan Piskorowski: Gold could be a dampener. I think, particularly, in this type of environment nothing really… Gold’s unique, gold is that snowflake to some degree as an asset class. We locked that in, obviously, with the commodity type of exposure here. But I think when you’re looking at gold and think of it in that context, that it has no…
Bryan Piskorowski: First and foremost, gold beauty is in the eyes of beholder, literally. You look at this commodity space, there is no real industrial application for gold, whereas I could say differently for things like platinum, palladium and silver. I’m bringing in platinum, palladium, particularly just in the development of catalytic converters and things of that nature, but from a gold standpoint is that, it’s a universal type of currency, and there really isn’t any more of it. So you can’t just print gold per say, so we look favorably on gold right now but as my wife likes to say, “Bryan Piskorowski, is just taken in small doses.” So too, I think in many cases-
Luke Peters: That’s funny.
Bryan Piskorowski: Gold to be of a portfolio as well. Yeah, by the way, and I think in 2020 Heather Piskorowski overdosing on Bryan Piskorowski, because [inaudible 00:27:31] long. But, no, I think that that’s the case and I think [inaudible 00:27:36] almost any one of these types of investments or asset classes is that.
Bryan Piskorowski: A diversified portfolio is just that, you have all these different flavors and spices that go into the overall recipe. But, yes, I think gold had a nice run this year, up to 24%. I do not find that surprising, just given the amount of money printing, not only here, but abroad.
Bryan Piskorowski: I think from my perspective, going forward here though, I mean, gold cost you money to store if you own the physical, and obviously, there are properties that are out there for gold as well. And we do look more favorably on gold as we move forward here. I’m thinking out looking at the 2021, we have potentially 2,300, 2,400 announced, I think we’re around 18 in change today. I mean, I think there’s potential for that, but you still need to sell gold to use it.
Bryan Piskorowski: [inaudible 00:28:32] always paying for anything gold either, something to keep a mark on, but as far as looking for inflationary type of installation, and the printing presses, and now that everybody’s pretty much off the gold standard, to have an allocation of that, I mean, on balance we generally recommend around a 5% allocation to commodities overall. In a diversified type of portfolio, that may scale up a little bit to get the more aggressive asset allocation, but that gold could be a part of that.
Luke Peters: Okay, great. That makes sense. In similar, I guess, on the same trend. So again, we have a lot of business owners, a lot of them importing from China, I want to talk about the recent, USD has devalued a little bit. Honestly, if you look at older charts, it’s not as much as it seems the media is making it into, especially when you look at a chart against the RMB, it’s definitely not even at its lows in the last couple years.
Luke Peters: But what are your thoughts on that trend on a go-forward? Obviously, that valuation right there can affect the cost of goods for those working with Chinese factories. Where do you see the USD going?
Bryan Piskorowski: Well, we have a forecast to see a little bit more slide for the US dollar, [inaudible 00:29:47] dollar has gotten pretty strong, and so its, basically, getting back [inaudible 00:29:51] to one degree or another, versus Renminbi, versus Yuan, obviously. Development of China’s industrialized economy has been predicated about having a favorable interest rate trend, a favorable exchange rate translation, right?
Bryan Piskorowski: And the flat panel TV, an example we did earlier in the podcast. And obviously, remember too that the US, RMB exchange rate does have people that play with it [inaudible 00:30:26] trying to keep that range to stay in the range to facilitate. So, from a dollar weakness standpoint, I think you’re just seeing that.
Bryan Piskorowski: It’s a post COVID type example, but also remember too, what was driving dollar strength was also a carry trade. [inaudible 00:30:53] another way, right? We’ve had some zero interest rates in Switzerland for the last three or four years, if memory serves. We basically had Europe sitting at a zero interest rate before COVID.
Bryan Piskorowski: So think about this, if you were living in Germany, and your German bond, that would be the German long bond, maybe yielding 10 or 15 or 20 basis points when we were at 87 today on the 10 year, but we were where? 150. It might make good sense too given the fact that you can sell your euros, buy dollars, and then buy US Treasury, right? And pick them up at 1.5%, right?
Bryan Piskorowski: So it basically gives you 135 basis point yield advantage, and that can pay for the currency translation and the rate of return, right? And so, remember as the interest rates moved to zero here, that trade deflated, because there was no point in sticking around in US yields, if US yields were comparable to those in other countries.
Bryan Piskorowski: And so that brought some of the unnatural buyer out of the dollar market to foster a trade like that. And so, I think that’s [inaudible 00:32:09], but I don’t think that the US dollar is going to hell in a handbasket, and then we’re going to get absolutely crushed on that standpoint, particularly also, as we’ve seen some of the trade saber-rattling, a bit.
Bryan Piskorowski: There’s other more hot topics that you know at hand perhaps, but I think, for those that are sourcing in China, it’s along the lines of the same question that you often get, will the dollar lose its status as a reserve currency? For the time being, I don’t think so, particularly, because the Chinese government does not let the renminbi flow freely. You know what I mean?
Bryan Piskorowski: And so, it’s somebody else controlling the strings on what that exchange rate looks like, it’s hard to be a reserve currency. But I think a big picture on this, though, I would say, I probably be a little bit of dollar weakness from here. As we move in, that’s generally our forecast, both the Wilton Advisors, and Wells Fargo Investment [inaudible 00:33:12] and Wells Fargo estimates.
Luke Peters: Okay, cool. No, that’s helpful. It seems like it’s swung around, it’s just got a lot of exposure, but that is really interesting, you describing that carry trade, it makes perfect sense in what’s transpired over the last six months or so. Here’s a question as to short term and long term.
Luke Peters: So short term, where do you think, let’s call it the S&P it’s going to be at the end of next year, just literally from now. Is it going to be higher or lower, but then more long term? What sectors do you like? Looking back, I think I was looking at the Wall Street Journal over the weekend and they showed who the biggest winners were, and what mutual funds won and every single one of them was a QQQ, or a tech, or a chip fund or whatever.
Luke Peters: Of course, with what’s happened the last couple years. So the two fold is, where do you see S&P higher or lower at the end of next year? And then, but what sectors over the next five or 10 years do you think are the ones to look at?
Bryan Piskorowski: Sure. From a market perspective here, we’ve got the S&P trading around 3400 per lead, let’s just say they’re trying to purchase, just so the rest are ready too. S&P has always been my benchmark, Nasdaq’s come and gone and come again, and the Dow Jones is… When I first started working on Wall Street, I actually worked for a guy from Brooklyn, who had this awesome accent and I’d literally say, “I got into the business, because I fell in love with a 65 year old guy from Brooklyn.”
Bryan Piskorowski: But someone would always quote the Dow, to which he would always bark, “It’s a 30 stock index, it’s not representative of what this country is about.” But his name was [Larry Wetzel 00:34:53], God rest his soul. But for the S&P, we’re sitting here 34/10 change here today.
Bryan Piskorowski: Obviously, we’re off of our highs for the year, but not that far off, but from the highs back in August. And it’s our expectation that with the restart of the economy, that that’s going to be helpful to the overall earning story, and that maybe looking 37-3800, so modest gains from here.
Bryan Piskorowski: And like we said before, Luke the fact that we’re up to 5.8%, and we’re up over 10%, at one point this year, I think it’s pretty astounding, considering the year that we’ve had. And so, I think moderately higher year predicated off of the resumption, of recovery in overall earnings.
Bryan Piskorowski: It’s not to say that the market’s going to be willing to just pay blindly pay more for the future, and so, I’m not looking for basically a pretty substantial increase in the overall earnings of all the S&Ps combined, all these big companies combined on that front, and we’re looking for lesser type of recoveries outside US for the equity market here.
Bryan Piskorowski: And so I see a modestly higher equity market, obviously, I think will have a positive impact on the economy overall as well. But, when you think about that moderate growth and income, what we call it a 60/40 type of portfolio. Our average annualized return on a normal year, not that any year’s [inaudible 00:36:24] far from volume probably about 6.9%, that’s not a bad return for a blend of those types of portfolios, and right now our trailing 12 months, that number if you can believe it is 8.5, and so-
Luke Peters: Its hard to believe.
Bryan Piskorowski: And Luke that speaks to the fact that equities have zig and zag, but bonds have rallied, yields have dropped, right?
Luke Peters: Yeah.
Bryan Piskorowski: And so I think, again, it plays back to that diversification story and how it actually does work. It doesn’t work perfectly every day, every week, every month, every year, but you look over the long term, it actually plays out. As far as sectors go, listen, I think there’s definitely been a skew, right?
Bryan Piskorowski: I think 2020 has definitely been a year where we’ve seen, obviously, a massive shift just because people’s behaviors have been influenced by the fact that we’re all cooped up at home to one degree or another. And so from that perspective obviously, when you think of the names in, basically, internet retailing, they used to be in the tech sector, they’re not all at the tech sector anymore though.
Bryan Piskorowski: So we looked more favorably in areas like communication services, which was not a industry sector as of three years ago. Consumer discretionary, which has been historically retailers, but now has been what used to be considered tech as retailers as well, and healthcare. Those are the three areas that we’re very favorable or most favorable on Infotech.
Bryan Piskorowski: And these are areas that have actually delivered a majority of the return in the S&P, on a year-to-date as well, I think that’s also something that’s worth just considering, just from the fact that when you break down the different sectors in the marketplace, and what has performed or what has done well?
Bryan Piskorowski: A lot of that, has been those types of areas, and it’s not surprising to us in that standpoint, just because there’s been a dynamic shift in consumer behavior there. Obviously, for the Infotech, the problem with all Infotech as we all know is, they weren’t cheap yesterday, they’re not cheap today, and it’s our expectation they won’t probably be cheap tomorrow.
Bryan Piskorowski: Infotech if you can believe it, has over the last 12 months, is up over almost 58%. And so, at the other end of the spectrum, Luke, what do you think would be the worst performing sector of the last 12 months?
Luke Peters: Geez, I don’t know. Maybe industrials, or energy, maybe financials.
Bryan Piskorowski: Yeah, its energy. Actually, the yin to Infotech’s yang would be energy down 33% over the last 12 months. And so, obviously, that just come out of the fact that not only is economic activity overall, lower, correct? I don’t know about you all, but people aren’t driving nearly as much either. So, if we’re not going anywhere, we’re not going to the pump and so-
Luke Peters: It’s hard to see it coming back.
Bryan Piskorowski: Yeah. I think at some point, honestly, and this is not an investment perspective as much as an opinion, but I do think that there’s going to be a reactionary response to the fact that all of America’s been cooped up since March. Things like concerts, sporting events, people being able to be with people, we hopefully we get through the day sooner than later, where that can all happen again.
Bryan Piskorowski: I think that’s just part of the American culture, American spirit, and getting to and fro will be part of that as well. Infotech is definitely an area where we think that once you… You can’t put the toothpaste back in the tube to one degree or another, and this may be played to your audience but your standpoint of, if you haven’t gotten used to doing things online, in COVID 2020 you have, because you’ve figured it out, really not any further than the fact that everyone knows how to use Zoom now.
Bryan Piskorowski: And it’s amazing for you to think just doing… If I were to come out to see you all in California and do a client seminar, would be one approach, but it clearly means no clients have a hard time getting on Zoom these days. And maybe, it is similar that my baby boomer mother has no problem talking to my son via Zoom, or FaceTime or whatnot.
Bryan Piskorowski: And so, in that aspect, we believe that that trend should continue. Obviously, healthcare being where we are with the current COVID situation we can [inaudible 00:40:59] and there’s also just the demographic aspects of that as well, with the aging baby boom demographic that plays in. And then areas that don’t look as spectacular, shall we say?
Bryan Piskorowski: Energy still remains, as an unfair whole area that we’re not looking to accentuate or overweight. I would likewise, say that I think a lot of people, and the same other people reimagined or rethought how they purchase things in 2020. I think people have also reimagined what they own and how they own it, these would be real estates.
Bryan Piskorowski: I mean, and from an investment standpoint, real estate investment [inaudible 00:41:36] trust, just your big shopping. As we all know, there’s been a [inaudible 00:41:41] decline of the mall environment over the last decade, but I think that’s essentially it. And then obviously, thinking about what commercial real estate looks like, these are the office space.
Bryan Piskorowski: And I think there’s going to be a lot of companies that are reevaluating that thing with majority of folks in the US have moved to a work from home type of structure. Those are areas that would be looked to probably avoid a little bit more here. And despite the fact that they had nothing, energy being done 33% last 12 months and real estate being there about 4.4.
Luke Peters: Wow, that’s super helpful, we’ve covered a lot of ground. So hopefully, for the listening audience, you guys can have an idea we’re in short and long term. And I think the biggest point there that you just talked about, Bryan, was a lot of these things have gone up, and you’re looking at the PEs or whatever you want to look at when you look to invest in a particular stock, but in a lot of cases, they’re going to keep going up, and they’re making a boatload of money.
Luke Peters: And actually, some of the PEs aren’t actually a lot higher than stocks in these other sectors. So, I think, to your point, I think what you just said is that, hey, they’re up 58% this year, but they’re probably going to keep going up in the years ahead of us as a whole. So it’s always one of those things as an investor you’re like, “Oh, man, Zoom went up too much. Is it too late to get in it?” But then it just kept going up, and then people still missed it.
Bryan Piskorowski: But your point, though, Luke Peters remember this and just think if the market had a nice run, and heck that doesn’t mean it can’t continue on, but that also doesn’t make it sensible to a pullback. And let’s face it, as we look out, definitely, over the next three and a half to four weeks, and through the year ending into the beginning of 2021, there’s definitely a huge potential to see an uptake in volatility.
Bryan Piskorowski: So I just think we all collectively need to be aware of that. That volatility is, unfortunately, part of the world that we’re living in today. And if you just think of 2020 in its own right, we basically… In this calendar year, we saw the end of the longest bull market in history, second largest in history behind the [inaudible 00:43:53] we had in the ’90s.
Bryan Piskorowski: [inaudible 00:43:56] in my mind the sharpest, [inaudible 00:43:58] bear market in the 25 years I’ve been doing this and the dawn of a new bull and a new all time high are all in one year. And so which is not to say that we can’t continue to see this level of volatility.
Bryan Piskorowski: Which again plays back to me that concept for building portfolios for individual private clients, and having that diversification, despite the fact that you don’t get a lot of [inaudible 00:44:22] your bucking bonds today. Relative to our discussion today on dollar, having a diversified, well-rounded portfolio that involves not just US stocks, but non-US stocks.
Bryan Piskorowski: And then beyond that too, [inaudible 00:44:35] having someone to work with and partner with, and beyond just what the individual investments need to be. But, in my mind too, this is the year where active management has definitely shown its cards. Just look at the bifurcation of returns from those different indices, no subindices within the S&P can make the case that some of these got different focuses and maybe tactical overlays that play into the areas that have done well, like Infotech.
Bryan Piskorowski: You can produce superior returns, or use the US large cap market as an example, but that plays across the entire fixed income spectrum in both ends as well as non-US equities. So in my mind, I think that active management with this type of volatility actually has an opportunity to type of to shine.
Bryan Piskorowski: And that’s something that we should also just consider as we move through the year end. But I think volatility is here to stay, and be opportunistic, you can play in. I for one will say, when the market gets whacked around like it did in March and April, to see the recovery, the bounce and more importantly, the way that people have, very specific duties, as our portfolio managers do it [inaudible 00:45:46].
Bryan Piskorowski: You see the bond market getting clustered and our California unit teams happy about it, which seems antithetical, but the reality is, remember, that they like buying stuff on sale. And so for them, it’s when you see those types of blowouts and spreads in this case. That they feel the opportunity to them it’s like, “I know that’s the quality bonds.”
Bryan Piskorowski: Or, “I know there’s the quality company,” if you’re an equity manager, that you know what the intrinsic value is in your model and that you see it on sale, that’s an opportunity for I think active managers to shine. So, we look optimistically as it relates to that in the active market and being able to do so for our clients.
Luke Peters: Yeah, I couldn’t agree more. And that’s a good example why investors, it’s good to have an advisor and your money with someone else who’s less emotionally tied to it, right? When it goes down, they’re looking for those opportunities to buy, and a lot of times on the individual side it’s painful for us and we may want to pull out.
Luke Peters: So those are two big areas outside of just nominal returns where you can make gains just by being in the market and having the right person managing that money. And listen, I really enjoyed talking with you today Bryan, and covering all these subjects. And I kind of wanted to finish up with a question, just with some pure advice to me. What’s the best piece of investing advice you’ve ever received?
Bryan Piskorowski: Yeah. So for me, the one thing that, and I touched on, actually, in the beginning, I got into this business, I didn’t grow up thinking I wanted to be an analyst and trader on Wall Street. I actually was going to get my doctorate and teach History, and I was set to do so. For example, I wrote my honors thesis on declassified documents from World War II.
Luke Peters: Oh wow, I didn’t know that.
Bryan Piskorowski: But then I fell in love with this guy from Brooklyn, and I saw his side of the business. And the thing for me, really was the fact that what I love and the best piece of advice I ever got was, one understands, it goes back to that concept of history, right? We’ve seen stories like this before, the story never plays out the same, but there’s nuances that play into every one of these types of stories, be it bull market, be it bear market.
Bryan Piskorowski: And the concept for all that is human behavior and human mentality. And I look at this with an investment lens, I’m sure everyone on podcast who listens to this is understands that aspect of human behavior as they run their businesses. And that was the carry through here, of being able to disassociate yourself to one degree or another and look at the big picture.
Bryan Piskorowski: And so for me, it was about looking at the history aspect of that [inaudible 00:48:27] of my Bloomberg having a discussion with you today, looking at a 30-year chart on the S&P to give me a frame of reference, and it helps me in two ways, one you’re like, “Well, the markets done pretty well over 30 years.”
Bryan Piskorowski: Two, you look at this year, and in that 30-year-period you’ve never been involved [inaudible 00:48:45]. So give me a frame of reference there to relative to that. But I think the big story on this is that the frame of reference is you pull the lens back far enough, and I think it plays back to the theme that I’ve come back to our session here today, which has been diversification actually works over time.
Bryan Piskorowski: And you run to periods where active outperforms, [inaudible 00:49:05], outperforms active. You run into periods where growth outperforms value. You see Businessweek saying, “Well, Warren Buffett value investing style is dead,” only to see after the late 90s that value story play on.
Bryan Piskorowski: And so the fact is that there is a cyclical nature to some of this, and you just have to actually look for those types of waypoints. And so for me, best piece of advice was, if you know your history, you’ll have a much better chance of being able to navigate the future, so looking at where we’ve come from to get an understanding for that.
Luke Peters: That’s great advice. Keep reading, keep learning, be curious, and you’ll make better decisions. Man, listen, I really, really appreciate you taking the time out of your day, Bryan, to hop on the Page 1 Podcast, how can listeners learn more about you, or maybe contact you, or your team if they’re interested in investing with you?
Bryan Piskorowski: Yeah, so wellsfargoassetmanagement.com is where our shop holds all the [inaudible 00:50:03]. We have a [inaudible 00:50:04] blog that a lot of folks can check in. And then I for one do work for the public, but my good friend Geoff King is the one who put us all together for this for this, and he’s a great resource for me and a good friend as well. But I think the big story, let’s take a look at wellsfargo.com you get a lot of our information, a lot of things we said here today all available right on our website, and I think it’s definitely worth checking out.
Luke Peters: Awesome. Thanks for that. And Geoff King, that’s King Financial Group out of Seal Beach, California. And we’ll have all this in the show notes. And again, I want to thank everybody for listening to this episode of the Page 1 Podcast sponsored by Retail Band. Hope you enjoyed the interview today. I’d really appreciate your reviews, makes a big difference for this podcast. If you guys can take the time to write a review on iTunes and hope you join us for the next interview. Take care.
Speaker 3: Thanks for listening to the Page 1 Podcast with Luke Peters. If you enjoyed this episode, please help us out by leaving us a rating on iTunes. Want to double your online sales? Check out www.retailband.com, and don’t forget to join us next week with our next amazing depths.
Get a FREE evaluation of your online sales strategy
Contact Bryan Piskorowski: LinkedIn