hi I'm Jimmy in this video we're looking at why the Federal Reserve recently cut
interest rates for the first time since 2008 and what does it mean for us
investors then after that we're going to go over three different investments that
I think will do very well in this new type of economy and two of them are
excellent dividend payers so if dividend investments is something you're
interested in stick around this is a video for you okay so let's look at a
few different things as to why the Fed would cut interest rates at this point
the labor market has been doing pretty good this is a chart of unemployment
going back the past couple of years and as we could see this is heading in the
right direction now I know some people don't like the u3 unemployment rate
since they say it leaves out things like underemployed or people who stopped
looking for work and that's true this is the u6 unemployment rate which as we
could see is higher than the u3 but the trend is still looking pretty good so I
think it's safe to say that the labor market is overall doing decent and then
when we jump over the S&P 500 this is a five-year chart of the S&P 500 and
clearly things have been going pretty good in the stock market so why cut
rates an interest rate cut is intended generally to spur the economy forward
keep things moving higher and in fact the last time that we had a rate cut was
all the way back here in 2008 and by the way at that time the US economy was in
trouble the US was very quickly slipping into the Great Recession unemployment
was rising fast the stock market had already lost about a third of its value
when the last rate cut was done so that whole series of rate cuts at that point
made a lot of sense but today is different so why'd the Fed cut rates now
well as they pointed on their announcement this is more of an
insurance move than anything else they're trying to keep the economy going
forward despite the fact that we're in one of the longest bull runs in history
but they also pointed out the fact that with the trade tensions with the slowing
growth around the world and muted inflation lower interest rates make
sense right now to them now the Fed also let us investors know that this will not
be a long drawn-out series of inter straight cuts like they typically are
like they were back in 2008 this is supposed to be an insurance cut as they
put it and ultimately the goal is to keep things pushing forward so for us
the question is what does this interest rate cut mean for the economy well some
economists say won't do anything 25 or 50 basis points isn't enough to move
things along and I would probably agree with that but they're not trying to turn
the economy around here and in isolation perhaps 25 basis points isn't enough but
over the course of the year if there's turns it to 50 or 75 basis points it
might be enough to nudge the economy along further since they're not really
trying to spin things around they're just trying to keep it heading in the
directions it's already been going in so the theory here is sort of like going
back to the 1990s and as we could see in the 1990s well the fed up the rates a
couple times they lowered them a few times they had a couple sort of bumps in
them in the chart there and they kept that going for a while until the end
when the stock market really started to go crazy and they tried to up the rates
this level off the economy a bit so let's assume that this is what the Fed
is aiming for and if we're curious well this is what the S&P 500 did during the
1990s now I'm not on percent sure we're gonna see this type of movement again
because at that time period well the internet was just becoming popular and
we had the tech boom this whole thing ends with the tech boom sort of crashed
in the market at the end there I just thought it made sense to look at this
chart if we were curious how the market reacted to these types of rate cuts
during the 90s so now considering that rate cuts have just happened are there
any investments that we think will do well in this new economy well one thing
that's likely to happen is that the US dollar should fall generally speaking
higher interest rates would lead to a higher currency and vice-versa so the
fact that they're lowering rates should lead to a lower current and if these are
our gold versus silver ETF video well you may recall that when the dollar
Falls gold tends to do quite well to illustrate this this is a chart of gold
versus the US dollar and and as we could see broadly speaking
when the US dollar Falls well gold goes up and this also happened the other way
around then after a while on the tail end of this chart we can see that the
dollar sort of stalled out for a bit and gold kept rising now I think that this
has a lot to do with the fact that people were worried and gold people were
worried about the economy gentlemen in general and gold is known as a defensive
play so in theory makes sense to move into gold not push the price higher that
means that if we're still worried about a collapse and we are interested in
playing with something that should do well if the dollar falls gold should
work for us to weigh it's both a defensive play and it should inherently
get stronger as the dollar falls now just like I said in the gold versus
silver ETF's video my favorite gold ETF is BAR why you ask no it's not because
I know the guy that started the ETF it's just because that ETF acts just like the
price of gold why because what they do is they buy actual gold that's it
most importantly though they have the best fee GLD is the largest gold ETF in
the world and they charge 40 basis points to a basically invest in gold bar
does the exact same thing except the bar charges 17 and a half basis points it's
as simple as that so for the gold piece of our portfolio
var makes the most sense in my mind now what about ETF now I actually have an
ETF that I've been watching and I think it is well suited for this particular
situation this is the S&P 500 high dividend ETF put up by spiders and they
have a feel about 7 basis points they have a dividend yields of almost four
and a half percent and they own about 80 companies that invest in the top
dividend stocks from the S&P 500 some of these companies aren't quite as large as
the companies you'd find in an ETF like NOBL which is another great dividend ETF
but this one I think has a little growth potential on top of it which is why I
would like it in this type of slow growth economy now this is a fairly
diversified ETF and I think that it has the potential to do well even if the
market were to pullback dividend-paying stocks
have been known to outperform once a recovery begins and assuming that we
want to own this fund for the long run well it makes sense to invest in
something that pays a good dividend like this and it provides a certain amount of
safety through the full let's say through a full market crash and recovery
if that were to happen and for our final investment in what we'll call a suspect
economy well there I think it makes sense to go with target ticker symbol
TGT I believe that target is well positioned to thrive in this type of
economy we'll call it a slower growth but still positive economy in this
scenario I would expect for target for target to do very well and since they're
currently trading at a PE of bond 15x compared that to the if we compare that
to the S&P 500 by 19x they seem rather reasonably priced and then they're
sitting on a dividend yield of about 3% so we get to collect a decent dividend
while also positioning our portfolio to do fairly well if the company continues
to perform at a decent pace as the economy somewhat sort of slugs along now
we also have a choice like Walmart but Walmart has a lower dividend yield and a
higher p/e multiple so given those choices I think it makes far more sense
to go with a great dividend stock like Target so what do you think of the Fed
cut do you think it was a good move and which of the three investments do you
think will outperform over the next couple of years do you have one that you
think will do better please let me know what you think in the comments below if
you haven't done so yet please hit the thumbs up hit the subscribe button thank
you for sticking with me all the way into the video and I'll see in the next
video thanks