Can You Hold My Attention? Jeffrey Kleintop

I’ve known and respected Jeff Kleintop, Chief Global Investment Strategist at Charles Schwab & Co, Inc, for a long time. This conversation about what he’s watching in the worldwide financial markets feels extraordinarily relevant in these early days of both the new administration and the vaccine-led recovery. 

  • Why Jeff thinks we are at the beginning of a new economic cycle in the worldwide markets
  • Why Jeff is concerned about the potential of a surprise uptick in interest rates
  • How the performance of global markets will coincide with the performance of global economies this year
  • How Jeff thinks advisors should be allocating the global portions of their portfolios
  • What should advisors be discussing with clients who are close to retirement

Resources: Kingswood U.S.  | Can You Hold My Attention Archive on LinkedIn | Charles Schwab & Co., Inc.

Related: Can You Hold My Attention? Fran Tarkenton



Jeff Kleintop, Derek Bruton

Derek Bruton  00:16

Hello, everyone. It's enough to make your head spin what's going on in the world markets right now. And I literally heard this from two different Kingswood advisors in the same day, perhaps I think both in the morning the other day. One said the concerns over the large stock market bubble are overblown. He thinks they're completely overblown. . .

And the other advisor she said, She's increasing her cash allocation in client portfolios. With the new administration, skyrocketing unemployment, and of course, COVID still not really under control. She just thinks the markets can't find it won't find any support at these levels. So welcome to can you hold my attention. I'm your host, Eric Bruton. And this is what I'm experiencing in hearing out there and lucky for all of us. My guest today on the podcast is Jeff Kleintop from Charles Schwab. And he's going to straighten this all out for us so that in just a few weeks, we can watch this Super Bowl without any stress, and really enjoy it. So Jeff is the chief global investment strategist at Charles Schwab. Wall Street Journal recently named Jeff one of their best and brightest, which is really cool. I hope to have that moniker one day. In addition to the journal, Jeff has been on several media outlets, USA Today, New York Times, to name a few. And then he's a frequent guest on National Business, television and radio, including CNBC, Bloomberg TV, CNN and Fox Business News. So welcome, Jeff.

Jeff Kleintop  02:27

Thanks, Derek. I do all those shows. But man, it is great to be back together with you here today. I'm really looking forward to this conversation.

Derek Bruton  02:34

I am too and Jeff and I worked together at LPL Financial many years ago, and we shared the stages at conferences and you know, I always had a face for radio, but Jeff has a face for radio and television. That's so much. You know, the other thing Jeff, I learned and doing a little bit of research on you that you wrote a book in 2006 market evolution how to profit in today's business changing financial markets. I didn't know that told me about it.

Jeff Kleintop  03:05

I did. That's that's back when you know, people read books and stuff. But we didn't have to just follow tweets all day long. Yeah. Yeah, like 15 years or so just think how things have changed in 15 years? I think a lot of that book holds up. But you know, one of the things Derek, is when you actually put long term return forecasts in a book, you always sweat, because you never know what could come up.

Derek Bruton  03:27

Yeah, I bet I bet. So before we you know, kind of launch into what your thoughts are on the markets on the economies worldwide. I want to I want the audience to get to know you a little bit here. And one of the things that jumps out at me, maybe because I'm a football college football fan, is that you're a graduate of Penn State, Nittany Lion and the year that you graduate 95 the Penn State was nine and three under famous joke attorno Joe paws they as they call them and and you must have gone out to see some of these games right?

Jeff Kleintop  04:05

went to see every home game I went out to to see the Rose Bowl didn't actually get in the stadium but had a heck of a time nonetheless.

Derek Bruton  04:15

That's awesome. And I'm sure you know this, Jeff, many people don't know that. Beaver Stadium, which is Penn State's football stadium is the second largest in the United States. And actually the fourth largest in the world with capacity, I think around 106,000 which is which is amazing. I went to school with a stadium that was about the same size, except there was only 50,000 people in it. So that's not a good thing. Vince.

Jeff Kleintop  04:43

I know that you guys sold out just about every game, right? I'll tell you the sound that the crowd generates in a space. You know, that intense and that big is just unbelievable. I mean, it just rattles your teeth. It's It's It's so it's so you watching the game. You're feeling the game at the same time.

Derek Bruton  05:02

But are you really feeling the game though? Jeff? I mean, because because I've heard about the tailgaters as well.

Jeff Kleintop  05:08

Okay, you might be a little numb in some

Derek Bruton  05:12

way. And I must, I have to, I have to say also that the producer of our show of our show here, went to Michigan. And it should be noted that Michigan stadium is the largest in the United States beating I think, Penn State Stadium by maybe 1000 people. So, so I'm sure he wants to He wants me to mention that. So another thing I learned another Penn State reference here, Jeff, is that you and your father, I believe, established a scholarship fund for the call the Business College at Penn State, providing an endowment and support to undergraduates with financial needs. Is that true? We do, yeah, we've got a scholarship, we've also got a separate

Jeff Kleintop  05:58

support program, a trust fund set up for the school of business so that professors and students can get the data that they need and, and also go on, visit conferences in normal times, and do a lot of other things as well. So just trying to keep the academic excellence up at what I think was a great school. And I really had a wonderful experience there and making sure that they remain competitive in such a, you know, such a unique time for you my daughter's in college right now. And just seeing what kids are experiencing these days and the pace at which they have to learn. It's so different than when I was in school. Derek, it's just absolutely amazing. So helping them helping them keep on top of that. And so when they come out of school, we're able to put them right to work and see amazing things.

Derek Bruton  06:40

It well it is because, you know, I read the other day, Jeff, that I think there's $1.6 trillion in student loan debt out there in the United States. And it was, I think it was $35,000 is typical as the average size loan that students are saddled with when they graduate. So it's even more admirable what you're doing a Penn State so that people can learn they can and they can exit college with a degree without, you know, debt and or as much debt. And I think that's, that's, that's really cool that what you and your, your dad did, are doing. Thank you. We're passionate about it.

Derek Bruton  07:19

Yeah. All right. So let's let's talk a little bit about, first of all, what you do, Jeff, I mean, you know, Charles Schwab is now 7 trillion in assets, which is just mind boggling. The company has 7 trillion in assets, over 30 million accounts. And more closer to home to what what we've been involved with financial advisor firms, over 30,000 financial advisors. And full disclosure, we're one of them Kingswood is a is a is a client of Charles Schwab. And we love our experience there. So you know, you got a big job. That's a lot of years, a lot of eyeballs on what you're saying out there. So no pressure, right.

Jeff Kleintop  08:04

Well, thanks for your business and your confidence in us. Look, you know, I get the opportunity to focus on equities with with sort of my partner, lizard, Saunders lizanne dives into the US for us. And I'm more the global picture us as part of what I do, but it's a much bigger picture. And there's just so much going on around the world, so many moving parts, trying to interpret that figure out what's going on and how that makes sense to to advisors, and individual investors. It's a lot of fun, but it's different every day. And that's probably the most exciting thing for me.

Derek Bruton  08:34

Yeah, I bet it is. And Jeff is the chief global investment strategist at Charles Schwab. And there's a rumor Jeff, and I'm not sure if this is true or not. But adding global to your title gets you a 20% bump in your salary. Is that is that true?

Jeff Kleintop  08:49

I'm unable to comment on that at the present time.

Derek Bruton  08:57

So let's talk about worldwide markets and I may ask you to steal a little bit from lizanne on on what's going on in the US but you know many worldwide markets they're at their near their near all time highs right now the the COVID pandemic trade wars, we've got a new presidential administration. The markets seem to be weathering just about everything and just kind of keep marching upwards. We've got unprecedent levels of monetary and fiscal support. I don't know if you saw just I think was about an hour ago. The Fed continues its dovish stance on rates. So rates are at historic lows, company earnings are mostly strong. And there's large reserves of cash out there both on the institutional side and the retail side. But on the high side, we got unemployment, which is now I think 13 million people unemployed. We have over 100 million COVID cases. 2 million deaths unfortunately. So what should I advise Look out for this year. And do you think there's there's a chance for a significant pullback.

Jeff Kleintop  10:07

There is a chance for a significant pullback. But I think, look, the biggest risk is in this vaccine led recovery. stumbling markets are I mean, we the markets move up and down on these stimulus programs, you'll get $190 billion being asked by the by demonstration, and the markets move up or down on the prospects for when that might happen. But the real shot in the arm for the economy literally is this vaccine rollout. And seeing that track towards 50% of the population and major countries being vaccinated by mid year is a huge hurdle. And a lot is based on that the markets gains the outlook for the earnings recovery this year, ranging anywhere from 20% of the US to 40% in the UK, is really all about a vaccine led recovery, full recovery in the second half of the year. And there are a number of risks to that. Now, our base case is that we get that recovery. And and that we do see earnings return and and markets do pretty well this year. But I'd say that the number one issue is is problems with the vaccine rollout, we could we could spend this entire call and focusing on what those bottlenecks might be. But let's just say there is some risk there. And they're off to a slow start. The second is geopolitical and trade tensions don't fade investors and business leaders think trade risks are yesterday's news that there's you know, with Trump out of the white house with a deal with Canada and Mexico, a deal between the US and Japan, the US and South Korea, there's really nothing to worry about. We've got this lingering us China phase one deal in place, everything will be fine. I'm not so sure the priority priorities of the Biden administration are just different than the Trump administration when they come to trade, but they're no less contentious, right? We've got environmental priorities, labor standards, big issues with with Biden, whereas maybe manufacturing jobs and the trade balance were big, big Trump issues, but that may not go away, that could affect the manufacturing sector, which has been booming this year. And a couple other risks, I'd say any hint of fiscal or monetary policy tightening this year, you know, we remember the taper tantrum back in 2013. Any signs that the Fed could at some point begin to pull back would I think, really shake up the market. And then you've got these other concerns about an interest rate spike, we've got inflation expectations rising, the dollar has been falling in the last couple of days, it's bounced, but you know, these kind of factors, the markets not really braced for a return of inflation, and we're ready to see something more significant. We have more debt than we've ever had before. So the the power that that lever holds is greater than it's ever been in the past. Those are the things I'm watching most closely here as this vaccine lead recovery unfolds, because there there the big risk.

Derek Bruton  12:47

Yeah, I mean, Jeff, I think I'm seeing these logistical kind of distribution issues, hampering the vaccine rollout. But it seems like it's these are blips, it rocks the market, perhaps for one or maybe two days, then it just gets back on its normal ways. Because I think people think the second half of 2021, we're going to see significant drops in the virus numbers. But I gotta agree with you on on on the trade side. I think that's, that's the gift that could keep on giving, even in the Biden administration. So it'll be interesting to see how that plays out, more longer term. And when I say longer term, the second half of 2021. You know, I was I was watching an interview you did, Jeff, I think it was about early last year, somewhere around then. And you said one of your favorite indicators in the past is the rate of unemployment. And when consider with another indicator, the rate of inflation, the gap between the two is often a sign of where we are in this economic cycle. So is the gap between these two indicators still important to you? First of all, what are you seeing today in the US and globally?

Jeff Kleintop  14:00

Yeah, it is. So when those two converge to the same number, the unemployment rate, the inflation rate, converging to the same number, it's usually a sign that things are overheating. And we're near the end of the cycle. And so it's pointing to that about a year ago, and my my outlook for 2020, published in December 2019 pointed to that pointed to the collapse in some of the leading indicators pointing to the yield curve inversion, a lot of classic signs of the end of the cycle. And so, you know, our outlook was 2020 was going to be very vulnerable to a recession. I thought it would come from trade policy, or something along those lines certainly didn't see a global pandemic. But the fact that we were so vulnerable made it highly likely we're going to see a bear market and recession. But the key message I was given was Watch out for the rotation. So there are many useful indicators that tell us we're late in an economic cycle. There are a few that tell you you know, kind of when to get back in so I tend not to focus on Hey, jump out of the market, jump back in again. I think the more important thing is to watch this rotation that happens with every new cycle. So the signs I'm watching right now are pointing to the start of a new economic cycle getting underway and new cycles come with new market leadership. This is the most important message I'm trying to get out market leadership tends to last for many years, even a decade before it starts to reverse at the start of a new cycle. For example, you know, after international stocks outperformed in the 1980s, led by Japan, the 1990 recession saw a shift the US stock market outperformance and then the one recession so I'll shift back to international outperformance before the Great Recession flipped the switch again to us outperformance and now, at the start of a new cycle we might we look like we're again switching that flipping that switch back to international outperformance. This happens because of a variety of behavioral and fundamental factors after a full cycle of outperformance. Relative valuations and earnings expectations often get stretched and begin to reverse with a catalyst of a new cycle. These factors, once again lined up and are favoring international stocks. What we've started to see since the low point in April in the economic data, is that since April 30, international stocks have outperformed US stocks by about 6%. And that's typical for what we see in a year, you know, during these cycles, us versus international even growth versus value. The gaps are usually 600 basis points. And that seems to be what's unfolding this time with value and international beginning to leave the market something there's a whole generation of investors, Derek that have never seen.

Derek Bruton  16:30

Right. Yeah, that's true. But let's shift a little bit towards interest rates. And I mentioned, you know, just just about an hour ago that Fed Chairman Powell decided to keep rates near zero, no surprise there. And the central bank is essentially doubling down on a commitment to buy massive quantities of bonds until the US economy stabilizes. So the dovish stance continues here. It's translating into a lot of things down here in San Diego, mortgage rates are at an all time low, and people are moving out of the urban centers that move into to the suburban homes that offer something other than a kitchen table as a home office. So tell tell me what you think about both interest rates in the States but but internationally as well. And the effect that's going to have and then over in the market over the next year,

Jeff Kleintop  17:22

short term inflation in in international markets generally running lower than it is in the US, but they're all headed in the same direction inflation expectations, and actual inflation is moving higher. And that's pushing the risk of higher interest rates, you know, where roughly 1% on the 10 year could see that going to 1.6%, or that's our base case could even be higher at the end of this year. So it doesn't seem like a big move, right. But when we have so much more debt than we've ever had before, it doesn't you don't have to move that lever that much to really have an outsized impact on the economy. My concern is that as rates begin to move higher, if you had businesses and consumers that were unwilling to borrow at one to 3% rates, they're going to borrow at three, four or 5% rates, probably not does that create a recovery? That's miserable. That's like a 1% GDP growth rate, because no businesses are really investing in new trucks or opening up a new bakery are hiring new people. And that leads us to kind of this lackluster environment where we can't just get much in the way of earnings momentum. And it wouldn't take much of a move on interest rates to get us there. I think we don't have to see hyper inflation to see this. And right now, we're seeing bottlenecks in in supplier deliveries, right? We were hearing it in the ITSM index that suppliers manufacturers can't get products, they can't get the inputs. supplier delivery times are the most stretch they've been in 20 years. And they're having even trouble delivering their products to end consumers with the the port traffic and everything going on right now being so congested, so the demand is there. But the supply isn't. And that's that's pushing up prices. And that may continue throughout this year. And when prices get moving, they tend to surprise how much they move on the upside. So right I worried because this market is totally not braced for surprise on inflation. And that's always the thing that gets you right, the thing that you don't expect.

Derek Bruton  19:14

Yeah, exactly. It's interesting because in our business, or in the financial advisor, Wealth Management space, firms are taking advantage of cheap money out there. And the m&a activities are just off the charts. I mean, the number of deals done in the first two weeks of 2021 just smash records and and but but I but I hear you saying that, you know, small business small midsize business owner is still a little reticent to borrow at these low rates. And if there's a tick up in rates, especially a surprise tick up, that could really have a have an effect on on performance of the economy.

Jeff Kleintop  19:57

That's what I'm worried about. I'm watching that and I again, it's You know, if you look at the market expectations look really across any markets, there's not a whole lot of inflation expectation built in. So that's the risk is a surprise on the upside, what that could mean for rates. And then you know how that affects the small business person. And we know, certainly in the US, 50% of jobs are at small businesses, but outside the US, it's even greater, it's more like 70 to 80% of jobs are in small businesses. And so as those rates pick up, it could really weigh on them disproportionately. So I'm concerned about that.

Derek Bruton  20:30

In addition to rates, you know, and I have advisors that are concerned about this, they mentioned it all the time. So there's interest rates, there's, you know, where to invest in markets, these are questions they often get from their clients, in addition to perhaps, you know, an uptick in rates and inflation issues, what other What are other surprises that could come upon the market over the next six to 12 months that advisors probably should be aware of?

Jeff Kleintop  21:01

You know, I think that there are some some geopolitical risks that probably not many folks are focused on, I mentioned the ones related to trade. But whenever we, whenever we enter into a new administration in Washington, you generally get countries that have interests that are adverse to those of the US as policy goals. Well, they look for opportunities to take action, thinking the US is just internally focused or doesn't have the personnel in place to respond directly or effectively. So in the past, we've seen Russia do things Iran, we've seen North Korea take action, but even China, and Venezuela could could take some actions here. And it tends to shake up the market, it's a surprise, that kind of comes out of the blue. And so we could see something like that unfold, wouldn't surprise me at all here in the coming weeks, or something like that to happen. So that's a bit of a shock. And surprise, I mentioned a few other risks I'm focused on but I do think that, you know, one of the one of the one of the biggest issues that the market tends to, you know, React pretty aggressively to is just what's going on with the Fed, we heard from them today. But there are a lot of other central banks and the extent to which investment policy becomes uncoordinated, right, that everybody's been saying, Oh, yeah, let's eat as aggressively as we can. But at some point, budget budgets and and the amount of you know, the the the size of assets on balance sheet at Central Banks is going to become an issue. And we're going to start to see this tapering, I don't know if that's a 2021 story, but it could rear its head towards the end of the year. And the markets are just so sensitive to those issues, you know, we've seen anywhere from 40 to 75% of GDP being applied to stimulus over the last 12 months, either in fiscal stimulus or monetary stimulus, absolutely jaw dropping, you take that away, it's a very different picture. And and whenever you take away stimulus, you know, just just the just the year over year effect, it has a bit of a drag. So I do worry a little bit of the effect of that dollar liquidity being poured in the effect that's having in the markets, which we can see every day and the impact on different stocks in different areas. As that begins to dry up, what are the consequences of it? That's that's a that's a worry, maybe we don't have to worry about it this year. But I think towards the end of the year, it'll start to rear its head.

Derek Bruton  23:17

Let's talk. let's delve more into what you're involved with it at Schwab on the global side, and how will the performance of global markets coincide with the performance of those same global economies in 21?

Jeff Kleintop  23:32

I think it looks I think it looks really bright, the brightest it's looked in a decade, international earnings growth is expected to exceed us earnings growth this year. I can tell you the last time that happened, and in part because of the mix of businesses, right, they're more economically sensitive industrials, financials, energy materials dominate international indexes, whereas tech and healthcare dominate in the US and they did okay. Last year, there were kind of COVID winners. So I think that's an interesting picture. But one of the most interesting things I think, relatively few people are focused on is the fact that this recession, this global crisis, didn't kill emerging markets, like the last three did, you know, it seems like whenever we go into a recession, emerging markets get annihilated and take forever to come back, and emerging markets where the ground floor for the COVID-19 crisis, which started in China and began with a cover up, but most major emerging market economies came into this recession, with fewer fiscal and monetary imbalances compared to the prior couple of recessions. And they had more manageable debt and deficits and even trade surpluses in some cases, and their central banks acted swiftly to alleviate financial stress in the markets, and that allowed for emerging market policymakers to quickly enact stimulus of their own without a concern for a currency plunger is some kind of currency crisis. And that healthier backdrop for emerging markets combined with the global economic rebound and weaker dollar has protected The outperformance by emerging market stocks since the lows of last spring, the IMF just published their World Economic Outlook here in late January. And they have emerging markets have having fallen less on a GDP basis last year in 2020, and rebounding more in 2021, then developed market countries. And that is the opposite of what we've seen, in each of the last few recessions. That hasn't happened a long time. Usually, it's always a crisis. So that's great news. And it's easily missed by those kind of following the old investment playbook, which said, Get out of the emerging markets and stay out.

Derek Bruton  25:33

So I'm hearing a lot of enthusiasm about emerging markets. And that's an interesting point that this client, this crisis, very global in nature, hasn't rocked or killed emerging markets like it has in the past. So to the To that end, what should How should advisors be allocating the global portions of their portfolio today?

Jeff Kleintop  25:56

I think there's a time to be very precise, and then there's a time to be pretty broad, I think you can be pretty broad. Now I don't think you have to worry about picking and choosing, I think, returning to international exposure. I know you probably heard you know, year after year after year, we're going to rebalance and international, it's really didn't pay off. This is the time when it does as we start this new cycle. So I think looking to that and looking at broad ETFs and mutual funds that really invest across the international universe is a great way to do this. And and I say you don't need to get too picky, in part because this is something that's less appreciated. But each of the major countries of the world tends to act like one sector of the stock market. For example, Canada acts like an energy ETF financials are actually the biggest sector in Canada, but who did the banks lend to the London natural resource companies, the whole stock market in Canada is basically an energy ETF in Australia, metals, and mining just dominates the stock market there. In Japan, the stocks tend to act like financials, the entire stock market, one big financial ETF in Germany is autos. And so rather than trying to balance all these different exposures in your portfolio, only buying the one or two countries you think are ahead on COVID are the vaccines are looked like they have the best GDP potential, then you end up with this kind of warped, sick sector exposure. And so I think a broader approach to international really is going to pay off now at the start of what should be a longer term cycle favoring international investments. We just went overweight International. So we have not gone to an overweight and international since I've been at Schwab, we've been either underweight or at best market weight. This is the first time this is really a turning point. I think we'll be here for a while favoring this cycle. And it's really kind of a tough sell, to be honest, to get people to think differently about the leaders of the last cycle not being the leaders of the next cycle.

Derek Bruton  27:51

And this is not just because you've been speaking louder at the Investment Committee at Schwab. Right. It's because it's justified. So that's good. That's good. So we'll shift it I want to shift a little bit domestic here and even even more pistol like in terms of companies and Fang companies, I think this this acronym was was coined by Jim Cramer. These This is Facebook, Amazon, apple, Netflix, and alphabet or Google. My wife refers to this list as the could have should have would a list of stocks in our that never enter our portfolio, unfortunately. But they make up 50% of the s&p 500. And I think the worst Fang performer in 2020, was Google at 37%. And Amazon was at 71%. And so I think the s&p was 16. And Russell 2000 was around 90. So these clearly did well and outperformed. And in the outperformance even more pronounced over the last decade with I think the worst performer again was Google. It's somewhere around 537%. So I mean, it's just it's just ridiculous. But can't can this keep going? I mean, are these are these stocks going to fall out of favor? What should investors watch for?

Jeff Kleintop  29:12

Well, I think we are in a rotation that will likely favor other sectors, you know, we've been in periods before where, you know, there were there was incredibly narrow tech leadership and and it went on probably longer than anybody thought and then subsequently corrected very, very hard. You know, I don't know if we're gonna see a big pullback in these names. A lot of their gains are justified and supported by earnings. But I think as we look at relative performance going forward, we're likely to get better performance out of areas that are more economically sensitive. Remember, those were COVID winners, and that's why they did so well last year. We also may be entering a new regulatory environment. I mean, there is some risk here look at China and and financial. Right. I mean, regulators have been discussing both digital taxation and breaking up tech firms before they become too big to fail. I see business potential for fragmentation of the internet, which means rising costs. For these internet giants the US perspective that universal access to data is a right and it should be able to move unencumbered across borders between public and private users. But this isn't shared globally, US dominance of the internet and direct access to the 21st century's most valuable resource, which is data has spawned a backlash in a number of countries in China, and Iran and Russia and North Korea, there's only a domestic internet or a heavily censored version of the World Wide Web available, stifling access by these us giants. And in some, and by the way, to the world's biggest consumer market, which is China. Remember, Coca Cola sells more cases of soda in China than in the US, GM sells more cars there. So it's a very important market and the fact that access is restricted becomes increasingly important. And they're tending to favor their own domestic giants and in Europe, data privacy and antitrust tendencies have resulted in a push back against the big US companies in the form of fines and taxes and regulations. And the rise in local regulations just adds complexity and cost to providing users with fast and universal access to data that's increasingly now segregated behind layers of differing regulations, it could come down to different state regulations here in the US as well. So that rise of nationalism can be seen everywhere lately, even in the internet. And that is a risk to these internet giants.

Derek Bruton  31:33

You know, it is really interesting in in China, for example, the what you say about GM and Coca Cola, sure, McDonald's and a lot of a lot of big American companies and the amount of exposure and success they have in China. And as the glass is half full side of this is that as as data becomes more prevalent, as the internet opens outside of the borders of China, I just got to think there's the upside there is just is tremendous. I realize there's going to be more regulation, there's going to be other things going on that could serve a little bit as of headwind. But but it is, it is interesting, the amount of opportunity that exists in in China alone is just staggering.

Jeff Kleintop  32:17

Yeah, I mean, you know, when you look at the demographics, when you look at where the income growth is, when you look at the opportunities are, it's clearly Asia with a mega trend of the next decade, you know, we've always talked about how there's more people in Asia, there's more people in China, but now they're spending powers eclipsing that of the US, you know, this last November, Singles Day, you know, the big sales holiday in China, outpaced Black Friday in the US seven to one, I mean, just absolutely amazing amount of spending power. And increasingly, that's where businesses are focused on developing products, orienting their marketing, and really focused on building that consumer base. And so focusing on businesses that have an Asian strategy in China in India are critically important to their success long term. But that also means we've got to be able to, to operate in those countries and function effectively and on a level playing field. And, you know, I think that was maybe part of of some of the emphasis of the Trump administration was to try and get there, I just don't know that was that effective. And I'm not sure how effective Biden's going to be. So very important to these techniques, anything now the market sort of taking for granted that it'll be just fine. And I think there's still some hurdles to overcome.

Derek Bruton  33:25

Let me ask you a question that actually kind of came from one of our advisors, in fact, a Schwab advisor. He, he I, I told him that you were going to be on with me today on my podcast. And he asked me to ask you about I'm sure you haven't heard this one before. Jeff, Bitcoin? And he is allegedly getting this question every day from his clients about what why aren't they in Bitcoin? And even how to access it? So I mean, what do you think about Bitcoin overall, but what effect is it having internationally as well?

Jeff Kleintop  34:02

So I when I when I taught when I go to college campuses? I mean, this is always the number one question that that comes out, and I get a little credibility with the kids, because I've had I've had some Bitcoin since 2013. So I don't know if I was IV called that early. But it was early enough that I have a little bit of street cred with people who are, you know, 19 years old. So, but I'm not entirely a believer myself. I just I don't quite look. Whether you're bullish or bearish on Bitcoin, you got to admit there's something strangely conflicted about, let's say, government restrictions on not being able to eat at a restaurant indoors in big portions of the world, but also being able to transact business or speculate in a currency beyond the reach of government control or oversight or taxation. You know, no concrete actions have been taken yet, but it's safe to assume that I think we will see some proposals being seriously considered with the new Biden ministration and overseas. We've got Gensler now lining up in The SEC, he's an expert on crypto actually taught on crypto. So I think we may see some regulatory scrutiny there. And I guess I just wrap it up by saying we think it's worth noting that older alternative to fiat currencies, gold, which is more than held its own over the past few years with less volatility is still an option for most investors looking for an alternative.

Derek Bruton  35:22

Yep. Yeah. So I'm going to change course, a little bit here. This is great, by the way. Thank you. What What do you think are the three biggest risks for individuals, say three years or less from retirement today? You know, now, now just put your advisor hat on and, and, you know, what, what, what should you as an advisor be talking to individuals about that are close to retirement?

Jeff Kleintop  35:52

Well, I mean, I am very passionate about this new cycle and leading to international leadership. So you know, if you don't have any exposure there, you're playing, you know, you're catching up here in the last few years before you head into retirement, I think focusing on where the returns might be very important global exposure. But also, look, I think understanding that trying to get income is harder than ever, right? I mean, everybody understands that I just think that clients sometimes think, Oh, well, don't they're behind you. They're on the shelf, don't you? Don't you just have some good bonds back there with four or 5% coupons? Just give me those right, did they think it's out there, you just haven't found it. And the reality is, income is so hard, and we all want it in retirement, I look to Japan is an interesting example. So in Japan, the the Bank of Japan went to zero interest rates. In 1999, they adopted a zero interest rate policy. Prior to that most Japanese investors will they put most of their retirement money, remember, they're demographically quite a bit older than we are about 20 years advance from where we are, they had 90% of their money in bonds, but zero interest rates, you can live on that, right. So over the course of the next 10 years or so, they went from 90% in bonds to 90%. in equities, they get their income from equities now. So I think we have to just think differently, they just don't pay attention to the price fluctuation, they just they just look at that dividend payment. So thinking way more flexibly about how we get income retirement is I think important those old rules about you know how you shift the portfolio towards bonds, they may not get you there, I think we've got to think a lot more a lot differently. And that's why I'm still emphasizing this international picture, where dividends tend to be a little bit higher outside the US than inside the US, we can maybe find that source for at least some of that income to support us in retirement.

Derek Bruton  37:40

Asset managers and product sponsors. You know, investment, investment management companies out there are continually finding other ways to generate income in an environment such as what we have today with interest rates. So it's, and I'm sure that's happening internationally as well. But I agree with you that you just have to you have to think a little bit more outside the box for your near retirement clients about what's going to happen over the next couple of years. I lived in Japan, I remember those times of zero interest rates. And oddly enough, my account was with the post office. I don't know why in Japan, they have all their investment comes with the post on. But with inflation I was it was a negative return at the time. So I always wonder when that shift would occur. It's it's, it's good to see that happen. So Jeff, I'm going to ask you one last question. And I want to, I want you to keep that advisor hat on for a second. You know, Schwab does does a wonderful job, you do a wonderful job. lizanne does a wonderful job of, of sharing your expertise and insight with both the retail advisor retail clients and financial advisors. But in so much, so that I often wonder if advisors should more often be outsourcing investment management should be recognizing the tools that they have around them and the knowledge set that you all have that perhaps it's better that they outsource that investment management versus do it themselves. And I always lose this argument, by the way for with advisors that love managing money, you're not going to change that. So I move on beyond that, because that's their passion, that's fine. But for advisors out there that think that that's exactly why they're paying their clients are paying them is to specifically themselves perform the markets. I've always had a bit of an issue with especially with all the tools and the resources like yourself out there. So again, long, long, long question here, but as an advisor, would you find yourself availing yourself and your clients to more of the resources out there than trying to trying to tackle these markets on your own?

Jeff Kleintop  39:54

Yeah, I mean, I think that and thanks, thanks for the kind words. I think that there are There was a time when you did have to do all the legwork yourself there just weren't those resources and and that was just part of you know why we you know why the billing on assets and all that took place because it really was about managing those things as opposed to the broader pictures and the planning aspects and so many other taxes and some of the other things. There's, there's still room for all types of advisors to enjoy different aspects of what they do, right, the growth side of the business, the investment side, are focusing on being more detailed and customized versus nailing the broad strokes. And I think that's what's so great about what advisors do. They're all different, just like their clients. For those that really like to follow the markets and the day to day news flow and insights, you can do that you may not be able to grow your businesses as quickly, but you can focus on what you want to do. But for those that are more into the big picture of managing wealth, there are great solutions for that too. And the cost of everything has come down. It is a golden age of investing, however you like to approach it.

Derek Bruton  40:59

Well, Jeff has been great. I want to summarize a couple key points for our listeners that I heard from you. One is that you think this is gonna be a vaccine lab recovery, that the success of the vaccinations and, and the distribution of it is going to lead us into a recovery. Second, that any any surprising changes, in particular to interest rates, and he takes up, it could be a shock to the system and could have a pretty, you know, could be an effect on the market that could we could see a pullback there. And that. And thirdly, international stocks are outperforming us that this worldwide pandemic hasn't had nearly the effect that other international issues have had in the past on emerging markets and such and that your your sounds like very bullish on international international markets and allocating portfolios as such. And this is a fourth one but that you've had Bitcoin since 2013. And with regular regulatory scrutiny coming, you may be a seller so if anybody wants to call you up, you might sell their Bitcoin to him as well. Jeff, thank you so much. It's been great. You know, you're one smart guy, Charles Schwab is very, very in Charles Schwab. His clients are very lucky to have you. So thank you for doing the podcast today. And thank you all for listening. You can subscribe to can you hold my attention podcast through our LinkedIn page with the same name. So I'd urge you go there and subscribe and follow us that would be great. Have a fantastic week everyone and remember any worthwhile conversation starts with listening. Have a great day. Thank you.


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