Kersten Wealth Management Group - Money Sense 5-20-23

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Episode Transcript

(00:00):
Good morning and welcome to money.Since you're listening to the advisors of Kurston
Wealth Management Group, Kevin Kurston andBrad Kurston, happy to be with you
this morning. As we muddle throughthe month of May, we've had one
of the most boring markets for thelast two months that we've seen in quite
some time. Brad, all thevolatility indicators are coming down. Usually that
coincides with a big increase in theoverall market. Right now is just coinciding

(00:24):
with boring back and fourth days.Still seeing pretty good performance and outperformance out
of the growth sectors. So twoand twenty three is looked looking a whole
lot like two and twenty one rightbefore we had our bear market year last
year. SMP five hundred up ninepercent on the year, and technology up

(00:44):
twenty five five, Communication services ledby Facebook up twenty nine point seven,
Consumer discussion area of seventeen point five. What's lagging? Energy minus nine point
two, utilities minus five, andfinancials in healthcare minus four and three respectively.
So there you have it. Imean, you have growth leading value
pulling back, and yet the overallmarket still continues to push higher because those

(01:08):
growth sectors are a much bigger percentageof the markets that we follow on a
day to day basis. A lotof times, if growth is lagging and
values really outperforming, you could seethe overall market still down because growth represents
such a large chunk of our overallmarket. It's a growing part of the

(01:30):
market. If you think about everyIPO and you think about every company that
has had had a real expansion inour economy the last ten years, they're
on that growth side. So theSMB five hundred, which is market cap
weighted, used to be maybe fiftyfifty value to growth if we look those
sectors, and now if you're fiftyfifty growth to value, you're way underweight

(01:51):
the growth side of the market forwhat it is represents for the overall parts
of the market. Even in thelast couple of years, we've spun off
a separate tech sector, which iscommunications services, which represents eleven and a
half percent of the overall market,and it's a brand new sector. So
this is definitely a continuation of whatwe saw earlier in the year. January

(02:13):
saw this huge resurgence and growth overvalue, and that kind of even the
growth sectors kind of went sideways fora little while, but since the fed's
last rate hike, we've really seenan acceleration at this we just look at
the numbers. You were talking aboutthe year to date numbers, but look
at the numbers over the last month. You have the three major growth sectors

(02:35):
up nearly five percent and one ofthem over five percent. And you have
seven other sectors over the last monththat are negative and some sharply so eight
percent for energy, four percent inthe last month for utilities, four percent
for the last month for materials.So seven out of eleven negative in the
last month, the rest of thempositive, and they're all on one side

(02:57):
of the market. And we havementioned that the the Nasdaq one hundred,
the QQQS is what we added tothe portfolio. Really even before the last
FED rate hike. It was reallyon the news of the of the first
of the cracks in the in thein the financial system uh cracks that we
felt like the FED was waiting forto be done. And so right after

(03:19):
those two bank failures, the twobig ones, we were adding two growth
and doing it via the Nasdaq onehundred. Over the last week, that's
up two point six percent over thelast month of full five percent so as
the market is basically flat on thelast month, the growth side of the
market up a full five percent,and large cap growth doing even better.

(03:40):
I think there is still some ofthe the we were looking at the long
term UH track record of even thebroader small cap index Russell two thousand,
you go all the way back totwo thousand and eight, and we're at
the same level for the Russell twothousand and so it is UH has been
a long time of sideways for theRussell, but not so long for the

(04:03):
overall market. We're really just backto last January for the overall market and
about four or five months before thatfor the nas deck. And you look
at it, that means that ifit takes us all the way until later
this year, or for the overallmarket till January next year, that's a
long time to go sideways two years, and so it will not be unusual

(04:25):
when we get there that we haveretraced another fifteen percent to get back there
in the nastack thirty percent to getback there, because it'll still meant you
went nowhere for two years, that'sright, And and so you kind of
have this market that's muddling along rightin the middle, and that's I think
why we haven't had a lot ofvolatility. I don't know that you could

(04:46):
call it overvalued or or undervalued atthe moment because we've bought, we've we've
hit that bottom last October and seena nice little recovery. But at the
same time we talked last week's show, it's a fairly lackluster recovery compared to
previous bounces off lows. So you'rereally in this push and pull mode.
I think overall sentiment is still prettynegative on the overall market. But I

(05:11):
was trying to go back Brad andsee, um, yesterday, for example,
was a four hundred point dow day. I'd have to go back and
see did you Did you end uplooking that up? You and I talked
about that the last time, thelast we had the biggest day of the
year. I did not look itup. But that was on the heels
of a little bit of late dayhope that we're going to have a debt
ceiling. Uh, well there's oneright here. Uh Uh. March thirty

(05:35):
first was a five hundred point dayon the overall dow. Really nothing since
then. Uh So that was rightafter some of the bank failures and the
and the FED stepping in and doingsome of its stimulus and opening up the
window and so creating that's that's athat's a really a lot coincided, a
lot coinciding with the end of themonth. There was a four hundred plus

(05:58):
point day on April twenty seventh,and then there was a May fifth was
another four four hundred point day orso. So hasn't been that many.
It's few and far between this year, and there's usually a lot more.
That sounds like a lot. That'syou know, percent and a half right
now, So that's not as extremeas it used to be, but it's
still This month has been really withina very very tight training range on the

(06:23):
overall market, and we're kind ofsettling out here. Earning season is closing
out, and one of the thingsyou have to follow go back to it,
Hey, everyone's calling for a recessionbrand, right, Yeah, it's
gonna happen this year. Well,it didn't happen in the first quarter,
didn't happen in the second quarter.We go back at the beginning of the
year, everyone was saying it's goingto happen in the first quarter, and
when it didn't. It was definitelygoing to be the second quarter. And

(06:46):
now they've given up on that.Every every metric that we look at on
a weekly basis up this week.Jobs picture looked good, industrial production really
beat the expectation jobs are home buildingstarts well, expectations. Did anybody ever
stop to think that, you know, one of the things that many people
call have called four is the recessionto be quite mild. Well, here's

(07:09):
the problem with that. When arecession is quite mild, it's extraordinarily difficult
to identify. Yeah, right,so everyone's like, we're gonna have recession,
it's gonna be really mild. Okay, Well, one of the items
that goes into there's a lot ofdifferent things. It's not just two straight
quarters of GDP contraction that earnings forstocks are one of the metrics that goes

(07:30):
in. Well, let's look atearnings for stocks starting with the first quarter
of last year. Okay, ninepoint two percent on the SMP increase,
Then six point two, we're slowingdown. Okay, Then by the third
quarter we're two point four. Thenin the fourth quarter minus five point eight.
Once again, that's in the rearviewmirror. Sounds like a contraction to
me mild contraction, right, brandthen in the second quarters, first quarter

(07:56):
of this year, this year minusone point nine, a little better than
feared. Two back to back negativequarters for earning, and here's what's baked
in this quarter minus six point one, which more than likely will be lapped
over. But people are saying,where's the contraction, Well, earnings,
We've already had it. Yeah,we've already had it. And estimates are
by the fourth quarter will be thefirst time we get a positive earnings number

(08:18):
again. So once again, it'skind of already baked in. So when
we come to the end of earningseason, here you see something that was
a whole lot better than feared.Okay, And this is why predicting a
mild recession is an impossible thing,right, I mean you can't. Well
and if yeah, because if you'renot identifying what just happened. A stock
market going down by twenty six twoback to back negative earnings quarters, jobs

(08:43):
slowing down, We did slow down, we didn't go negative. Inflation coming
way down because of a lot ofdifferent things. Housing start taking a six
month pause. If that doesn't alladd up to a mild recession, that
you missed because you were waiting forsomething more until you called mild. Then
you're going to wait another six orseven years for your next mild one.
So if you're gonna sit out untilthe one comes that you see coming,

(09:03):
you might wait another since certainly amild one not one you can really see
coming. So you look at earningseason, for example, finished down one
point nine, and that was actuallya pretty good positive earning season was much
better than many had feared. Peoplewere saying that earnings were going to completely
fall out of bed in this firstquarter, and when you look at it,

(09:24):
you know it's kind of an undercell. We had expansion in profit
margins in the first quarter, encouragingguidance from from over seventy five percent of
companies, and so the risk ofan additional sharp contraction in profit margins and
earnings has come way down. Sowe had a lot of headwines in the
first quarter. Okay, growth wasslowing down. We still had persistently high

(09:45):
inflation and related cost pressures, stressin the banking system from all the bank
stories that came out, and yetSMP five hundred, we're also sorry the
fourth thing years SB five hundred companieswere coming off the fourth quarter where they
fell short of estimates, so nota lot was lining up well for companies
earnings for the first quarter, andthe forecast got all the way down to

(10:09):
a seven percent decline in earnings.That was that was the low point for
the average of analysts estimates. Okay, five percent declines. Where we landed
in the fourth quarter. Okay,we landed at one point nine versus seven
estimates. That's how much bad newswas baked in, So we got we

(10:31):
got some numbers that were a wholelot better than many had feared. And
what helped drive drive the upside surprise. Let's talk about what's really going on
under the hood. Okay, firstquarter GDP wasn't that great, but it
was positive at one point one.Once again, you need contraction for a
recession. One point one. Okay, it's one of the many metrics,
but but one point one isn't evenone that you could call close to contraction,

(10:54):
right right, We've had recessions whereall the other metrics line up and
we didn't get back to back quartersof GDP, and they still say it
was a result because it was pluspoint one. This is one point one,
so not very close. Corporate managementtines have been preparing for the recession
for some time. I mean thisis most well talked about recession maybe ever.

(11:16):
Okay, Now in this quarter we'veseen a steep decline in how everyone
talking about recession, that that wordhas come out of all the conference calls.
So when CEOs and CFOs prepared forrecession, what do they do?
They bring down earnings guidance Okay,and they made it much more conservative than
it needed to be. I mentionedminus seven. It came in at one
point nine on the downside. Socost controls started to get some attention with

(11:37):
big tech companies in the fourth quarter. Lots of layoffs in the tech space.
Facebook had huge layoffs and adopted morebroadly in the first quarter as well.
What happens when you fire a bunchof computer engineers making five hundred grand
a year, you save some money? Right, This is the thing a
lot of these businesses in the techworld that you're talking about the begining of

(11:58):
the show. Okay, Yes,they have to make innovation, they have
to make advancements, but think aboutanother business. For example, use Facebook
not a recommendation to buy your cell? Okay, they could send everyone home
tomorrow and it runs itself. Yeah. If they send everyone home at General

(12:20):
Motors, does it run itself?Right? They send everyone home at Boeing,
does it run itself? Well?I think Twitter is the perfect example.
I mean, there's a quote,you know, the new CEO came
on with to or maybe talk aboutit a little bit later in the show.
And I don't have to say nota recommendation or buy yoursel because it's
private. Okay, But Twitter,Elin was literally saying when he was firing
people, I'm first firing everyone that'sphoning it in. He literally said,

(12:43):
you're phoning it in, you're justcollecting us ireen doing nothing, and all
of these people who want to juststay home, I'm requiring a forty hour
work week in the office. Ifyou don't want to do that, then
I know you're phoning it in andso leave. Now everyone's saying that all
the marketers leaving, the revenue hasn'tgone down. In fact, the revenue

(13:03):
is staying the same and the earningsare going way up for Twitter because they
have only ten percent of the employeesthey used to have, and a lot
of companies are realizing that too.They can do more with less so with
those cost controls, okay, profitmargins went up last quarter from eleven point
three to eleven point five. Andpeople said, yeah, we haven't seen
the trough yet. Oh, wehaven't. The peak of profit margins BRAS

(13:24):
was the second quarter of twenty one, okay, for the SMP five hundred
net profit margin was right around thirteenpercent. Got all the way down to
eleven three. Now the average forall recessions is two percentage points. That's
one point seven, okay, Andwe're already seeing an uptick in those profit

(13:45):
margins because there's an immediate savings fromsome of the cost cutting, especially in
tech companies that we've seen. It'sreally tough for a manufacturing company to do
it because it basically means you're shuttingdown. Okay, you're not doing that
when you're technology companies. The otherthing we had this earning season was revenue
prizes, brand analyst, strategists andreally everybody. And I've talked about this

(14:05):
show, and I want to revisitthis. Okay, everyone forgot that inflation
boost revenue. Now, that soundsreally simple, but companies increase their revenue
when they can raise prices. They'renot gonna go out of business. They're
not gonna say, oh, geez, our input cost her X. Let's
take away how tough it is.I get it. It's tough, right,

(14:26):
prices of stuff, grocery store.You hear all those stories. Okay,
but we're just going to talk aboutinvestments right now. Companies make more
money when they can raise prices.It's a shocker for most people. But
that happened, and you would thinkthat that's a simple thing. No.
Analysts, strategists, everybody was predictingthat it was all going to go down.

(14:46):
Okay. Revenue was up four percentthis quarter, compared with forecasts of
less than two Higher prices mean morerevenue for somebody. Given consumers came into
this week earning sees periods flushed withcash. Those are being absorbed much better
than it had been anticipated. NominalGDP or GDP, which includes inflation rather
than inflation adjusted, rose seven percentyear on year and tends to correlate well

(15:11):
with higher revenue over time. AllRight, the dollar pulled back immediate money
in the pockets of companies who aremultinational corporations. The dollar was actually up
year on year in the first quartercompared with twenty two but it has fallen
year to date. Management guidance earliestUS a year may have banked on more
conservative currency assumptions. A lower dollarprops up international earnings for US multinationals,

(15:35):
which, by the way, sellingproducts overseas is forty percent of SMP five
hundred earnings. It's a big number. Yeah, tighter credit, we were
worried about that with what happened withbanking. Sp five hundred. Companies still
with forty five balance sheets don't relymuch on banks for credit. There's number
one private credits as big as it'sever been. And in the in the

(15:58):
banking world, many companies, ifthey had credit, it was only a
tool because rates were so low.And now we're seeing many of that,
many of those bonds where companies wereusing bonds for credit or just lines of
credit being closed out with higher interestrates because companies were still flushed with cash
and we're able to do it.So. Tight credit will continue to put

(16:18):
pressure on smaller companies, but thebig companies that drive SMP five hundred profits
are more insulated than markets had assumed. Also, note the SMP five hundred
banks have been beneficiaries of the stressin the banking system. Gaining deposits from
the smaller banks. So these areall the positive upside surprises that contributed to
an increase in twenty twenty first quartertwenty three earnings estimates, offering a sinus

(16:40):
stability that should cause some of theearnings bears and there are quite a few
to reign in some of their pessimism. So if you look at what's happening
moving forward, we get back fromthe break we' going to talk about that's
what happened already, but what didWhat did most companies say leading into second

(17:00):
quarter, third quarter, fourth quarterearnings estimates as well, and it was
pretty good. You're listening to moneySense, Brad and Kevin Kurston will be
right back and welcome back. You'relistening to the advisors A Kursten Wealth Manager
group, Rad and Kevin Kurston herewith the other this morning talking about earnings
and talking about what all of thecompanies are saying, what their guidance has
been. There's been a lot lesstalk about worries of a recession, and

(17:21):
there's been a lot less talk aboutthe inflationary fears. Think about it.
If a company is planning on inflationgoing forever and inflation being at the pace
that it was. They're preparing forit. They're either beefing up or inventory
or they're working into their models howmuch they're gonna have to pay for goods
if these increases keep up. Ithink home depot not a recognition or buy

(17:41):
or sell home depot perfect example ofthat. You now have lumber prices below
pre covid. They had this hugespike, then they came down, then
they spiked again, and now theyhave come down all the way to where
they are below the start of twentytwenties prices. And so does revenue go
down because the total cost of everything, even what they're passing on to the
consumer, goes down. Yes,but their input cost goes way down,

(18:04):
and their profit margins are still stayinghigh because there's still this fear out there
that maybe prices will go back up, and so they're keeping profit margins at
a very healthy level. And that'sone of the reasons that the earnings the
fear of real earnings declines did notcome true. But what were some of
the other things Kevin, that companieswere saying on these earnings calls. Well,

(18:26):
I mean, the biggest thing isthe ability to raise prices and not
really feeling the pressure to lower prices. Now, does that mean we're going
to continue to see CPI eight ninepercent? Of course not, because if
companies could just maintain, we're gonnaend up seeing CPI numbers that are relatively
flat, which is exactly what theFED wants to see. You don't go

(18:47):
up and then back down. Youdon't retrace like we're talking about with lumber
prices. Right, that's one component, but the overall CPI, it goes
up, comes down, bounces around, and levels off because some of the
items that go into CPI that arevery large components, like wages, are
much stickier and don't tend to beas volatile as something like lumber. Okay,
So that's why it's gonna be toughto see too much of a clawback

(19:11):
in prices you see for goods andservices out there. So, but that
means more profits for SMP five hundredcompanies. You know, you look at
something around two hundred and thirty dollarsa share has been some of the estimates
out there for this year, andpeople were saying, oh, it could
go all the way down under twohundred. We're halfway through the second quarter,
it's gonna be hard to see itgo all the way down under two

(19:33):
hundred without some catastrophic event. Soyou see a market that for current year
earnings is at you know, nineteentimes and change, and for future price
to earnings ratios is it still atsixteen seventeen times if you look at twenty
twenty four, and so that's somethingthat many of the worst case scenarios aren't

(19:53):
playing out. If you look intotwenty twenty four and you say that based
on estimates that are that are thatare currently banked in, and that these
do fluctuate when you're looking a yearand a half out for twenty twenty four,
the estimates right now are right aroundtwo forty two hundred and forty dollars
a share for SMP five hundred earnings. So if you look at the current

(20:15):
level of the SMP that puts thatfuture you know what I say, we're
about forty forty one hundred and change. Brad, Yeah, yeah, the
forty two hundred level has been thehard level for the SMP to breakthrough,
right about seventeen times earnings. So, um, you know, looking forward,
uh, if this really is thetrough, you know, we expect
to see a much more fairly valuedmarket going into twenty twenty four. Sou

(20:37):
and plus inflation by the end ofthe year will be pretty violatile, but
we're not gonna we don't see nineten percent inflation numbers coming down the pipe
with with what the FED has alreadydone. So so that's really it.
I mean, I think this year, what does that mean for investment portfolios?
Well, I hate to say it, but I think it's the comeback
of the balanced allocation. Think ifyou're in stocks, you want to have

(21:00):
some international because we mentioned the fallingdollar and the fact that overseas profit margins
are even better than ours, andthe earnings coming out of in particular the
EAFE countries are even better than theUnited States. Small caps are beat up.
Yeah, I would say that wasthe one thing I was going to
say, is if you're not therealready, this is the buying opportunity for

(21:22):
small caps because over the last threemonths, with the bank failures and the
small and MidCap value area, especiallyhaving a big big waiting to regional banks
and areas that we're kind of babyout with the bathwater. You're seeing negative
twelve percent over the last three monthsfor small cap value negative eight percent over
the last three months for mid value, and even just the broad index is
all negative, with large cap growthbeing positive significantly over the last three months.

(21:48):
So if you're trying to get diversified, obviously at the beginning of the
year would have been a better time. Right after the bank valures would have
better, better time to add growth. But certainly now is maybe a better
time to think about, am Iall large cap and do I need to
diversify into some small, amid andsome international. Now is about a really
good time to be doing it,because you're getting this this kind of what

(22:08):
in my opinion, and kind ofa brief moment in time where every it's
nervous about these banks. And we'renot gonna be I don't think we're gonna
be talking about bank failures or anyother banks in the next three months.
We're gonna be three months out andsay, oh, yeah, you remember
that three of the largest bank failuresever happened. Well, you and I
joke the largest bank failure will bein the future, because they're talking about

(22:30):
these in the in the in size, Well, the largest bank failure happened
twenty five years from now. Becausesize will be make it bigger. But
as a percentage of the overall economyand and or the percentage that these banks
represent in the overall banking world,that minuscule. Yeah. I mean,
it's just like saying, this isthe worst point drop for the doo ever

(22:52):
when the Dow is thirty three thousandsa day and it was three hundred,
you know, twenty five years innineteen eighty seven when it crashed it dropped
five points and that was nothing today, but that was twenty five percent back
a percent and a half today.So in looking at it, let's just
close this out with a couple ofbullet points. Here I saw this is
how does this all line up?You got the stock market, and you

(23:14):
got the economy, and that's saywe're saying recession. People are worried about
a recession. Then you got thestock market. So what do you need
to look for to see whether ornot the stock market has already priced it
all in? Okay, So theSP five hundred lows have always occurred after
the start of recession, So rightnow that would be a little bit concerning,
right that would say, well,if we haven't started the recession yet,

(23:36):
or maybe it started. Well,you and I just said the two
negative quarters of GDP. It maywe're the last two quarters, so six
months ago would have been the startof that recession. That's the biggest thing
that leads a lot of analysts outthere to say that we haven't hit the
loads yet. However, and thisis the butt Okay, recession declines are
not always that steep. We haveseen a bias towards reporting only the size

(23:57):
of recession declines during bear markets,but this is deceptive even if we're already
in a bear market. Typical marketbehavior during recessions needs to include all recessions.
The median decline of the SMP fivehundred in and around a recession is
twenty three point nine. We hadtwenty six point two last year. There
you go, So it's not alwaysperfect on average. The low point is

(24:19):
after the start of the recession.But in terms of checking the box to
see if the SMP five hundred correctedenough to be an average recession, boy
we got even worse than that,and many are only predicting a mild recession.
So the current twenty six percent maximumdecline of the bear market to date
is already greater than that medium decline. If we get a recession in the

(24:41):
second half of the year, theSMP would have peaked earlier compared to the
start of the recession than for anyother recession in the lookback period. It's
been four d sixty five days sincethe all time high on January third.
By the start of the second halfthe year, it would be five hundred
and forty four days. No otherrecession has seen the index peak more than
four hundred days before the recession began, so that that would be a unique,

(25:03):
you know, anomaly. Once again, it's a big iff. But
again, if there's a recession,it just to remind people we get into
the future before they say when therecession happened, If it happened, so
we might look back and they'll say, yes, the recession was those two
negative quarters of the fourth quarter oflast year. In the first quarter of
this year, that was our recession. That's all you're gonna get. And
the market already gave you the selloff that you're gonna get time served for

(25:25):
the market down twenty six point twoand the market bottomed right after the recession
started. When we look back,that might be what ends up happening.
So given that it happened last year, in terms of the bear market component
of the recession, if you goback all the way to nineteen thirty seven,
this would be the most from theperspective of when the market bottom,

(25:48):
this would be the most anticipated recessionsince that time, since nineteen thirty seven.
So, but in looking at itand looking at the amount of time
it's been since that low and thewell telegraphed effort of the Fed to control
and fitflation, if we were tohave a recession, getting a new SMP
five hundred low would be surprising.So if we use the rough but interactorate

(26:11):
inaccurate definition of recession as two consecutivequarters of contraction for argument's sake, that
we had a recession in the firsthalf of twenty two, okay, which
we did have back to back GDPcontraction. We did, we did?
Yeah, if you, if you. If we go back and they still
have time to call that a recession, they could in the first first two
quarters of twenty two, the bearmarket would have looked entirely consistent with history.

(26:36):
And here's the thing we don't know. People don't don't realize that O
eight, that recession two thousand andone and two thousand and two. Those
recessions weren't called until two or threeyears later to say here's where it started,
here's where it stopped. That's correct, that's correct. So if you
look the bear market would have lookedentirely consistent with history. As I mentioned,

(26:57):
February twenty two would have been calledthe peak of the expansion, putting
the start of the first full recessionarymonth at March first. The market low
October twelfth would have been two hundredand twenty five days from the start of
the recession, which would in write, smack dab in the middle of what's
average, and the SMP five hundreddecline would be almost exactly the same as
your average recession. It is agreat point because anyone predicting future recession it's

(27:19):
coming later this year, is missingthe point that in twenty twenty two,
with the stock market selling off twentysix point two percent at the beginning part
of the year, we had oneclassic component of a recession, two negative
GDP quarters, and at the backhalf we had another classic one, which
is two declining back to back quartersof earnings. Both of those kind of

(27:40):
coinciding with recessionary symptoms, and sowe might have already had it. And
you want to keep in mind whengoing backwards and looking at all these periods
bear markets and recessions, none ofthem check all the boxes. And if
you check seventy eighty percent of theboxes, which certainly last year did that,

(28:00):
that's nothing's one hundred percent. Maybeeight O eight maybe have checked every
box for recession, right the massivedrop, the decline in GDP, cracks
in the system, job losses,which we don't have right now. Oh
eight would have been the only onethat really checked all the recessionary boxes.
Well, earnings are starting to reaccelerate, so our jobs, so is
spending, So every every component islooking like we're on the road to recovery

(28:23):
and not a future recession. Wecome back, we'll talk about a few
other things. There's a couple ofthings I think we're interesting stories that kind
of get glossed over in some ofthe areas of the market that have been
left for dead, and we'll talkabout that when we come back from the
break. You're listening, Advisors KurstonWealth Manager Group. We'll be right back
and welcome back to the show.You're listening to the advisors of Kurston Wealth
Manager Group, Kevin Kurston and BradKurston. Happy to be with you this

(28:45):
morning. As a reminder, weare professional financial advisors and our officers are
in Perrysburg. Give us a callthroughout the week if you want to set
up a consultation to review your ownfinancial plan or get one started four one
nine eight seven two zero zero sixseven, or check us out online at
Kurston dot com. Brad, you'repulling some stories that sometimes I've said this
often with the inflation numbers too.It's it's much more nuanced than people saying

(29:08):
inflation is good, inflation is bad, deflation is bad, deflation is good.
You know. One of the examplesI often said was in the last
CPI report, all the metrics arecoming down. You mentioned lumber, Okay,
you mentioned a lot of things thatare coming down for CPI, and
they said, yeah, but inflationsticky because people are making more money and
their wages are going up. AndI said to myself, okay, so

(29:30):
it's bad that everything that people spendmoney on is moderating and going down and
their incomes are going up. Yeah, that's a bad to make that a
bad thing. Yeah. Yeah.So one of them that I think people
are in the post COVID world arejust leaving for debt is real estate and
real estate as a even a stocksector. Real estate as you know,
what are we going to do withall this? I mean, the world

(29:52):
will change, supply demand will willfix it all. And the story out
in a Wall Street Journal over theweekend about publicly traded sunglass company that started
was going to be just an onlinecompany, and at the end of twenty
and twenty two they had two hundredstores. Now they we're gonna just gonna
be online. Okay, it's publiclytrade. It doesn't it's war Be Parker.

(30:15):
They're a publicly traded company. Sonot a recommendation to buy your cell.
Two hundred stores for a company thatwas only going to be online,
and those two hundred stores represents sixtypercent of their earnings. So here they
have more output costs with the rentingof a space, and they're surprised that,
geez, people actually want to goto the store and see what these
glasses look like on your face.I mean, if you're a first time

(30:37):
buyer, yeah, can I buymy next pair online? Great? But
I want to walk into the storeand look at five hundred pair of glasses.
Fore I make my decision, andthen I can buy all the rest
of them online if I want to. But that's not going to change.
And the same goes for the wayreal estate evolves. There are areas of
cities that just fall and other areasthat rise. You can even take cities

(31:03):
that are kind of cities that seemlike they're on the fall. I'll take
just down at the Kentucky Derby.There are areas of Louisville you wouldn't want
to be in. But every newarea is where everything is going just outside
the city and they're gorgeous and they'rerefurbing old buildings and they're making every restaurant
and retail shop cool again. Andevery city has this resurgence. But if

(31:23):
you just pinpoint the bad area,I mean you could do that in Toledo
as well. There's good and there'sbad of every city. Very few cities
have it all good and don't havethis this up and down of the real
estate cycle. So real estate's notgoing away. People don't we will.
People are kind of go kicking andscreaming back into an office or to go

(31:44):
in for a forty hour workweek,like like Elon Musk wants his employees to
do. But once they do it, they'll realize they're longing to be out
and interacting with people and not besitting around in their pajamas for their job.
And I think that's where there wheresome of the tech companies. You're
going to have your winners and losers. The ones that are demanding real work

(32:05):
and not people phoning it in aregoing to have less output costs for their
number of employees their need, andthey're going to get more output by each
employee. And that's what Twitter's alreadyseeing. And I think any tech company
that's doing it and making that shiftto not be more like COVID and be
more like it was, will beour winners and losers in tech. Yeah,

(32:25):
and you mentioned real estate, andthere will be some that don't have
as many people go back to workand can you work from home? And
that's been the concern with commercial realestate. But the properties will evolve.
Okay, we have a shortage ofresidential real estate. There's no way New
York City is not going to takesome of these office buildings and be able

(32:46):
to zone them for residential because there'sa need or healthcare or whatever the name
might will evolves, right, whateverthe need might be. And when you
go out to the suburbs and yougo out to the Midwest where you have
much more land, and people arecomplaining right now that there's no houses for
sale. Well, you mentioned lumber, right, the cost of lumber going
down so much, people are goingto have to start looking to build a

(33:08):
home as opposed to buying existing Andyou know, that's that's a tremendous boost
to the overall economy when more peopleare building home. You know, when
people buy an existing home, it'snice, there's some turnover there. People
go to home depot, they goto buy a few things, but they
don't fill the house with every applianceand every piece of window covering. It

(33:30):
is much more stimulated to the economyto build than buy a house. That's
and it's actually a boost to theuh, the city as well, from
from the standpoint of proper revenue,your revenue from property taxes. So when
you're when you're looking at something asall bad or all good or whatever it
is, most of these arguments havea lot more to them. And uh,

(33:51):
you know, I especially think theone with commercial real estate. There's
going to be this transitionary period.And in the big cities, they're they're
short where people want to live.You know, if I were some of
these businesses that had big exposure inNew York, for for example, Brad,
I would say, Okay, youdon't want to you don't want to
come to the office, I'll buildyou in an apartment right across the hall
here and have their some of theirexecutives or whoever, whoever wants it.

(34:17):
Yeah, it was empty space anyway. Well, yeah, and in some
cases they have these big campuses wherethey could convert part of that to housing.
You know, it's called a campus. Campuses have dorms, right,
you're a you're a first year employee, have access to a reduced rent apartment,

(34:37):
you know it on our campus.Well, it's kind of a weird
way of going full circle back toyour college. And I work from home.
Where do you live? Well?I live on the Apple campus.
Well I don't know who you callit work from home if you live there.
But if that's what people want togive it to them, yeah,
I don't think the Apple or Googlecampus would probably be a bad place to
hang out for a couple of yearspost college with all people your age,

(35:00):
you know, with the freedom towork when they need to. I don't
think it would be a bad thing. None of them have done it yet,
But maybe we'll put it on adifferent list. We have our lives.
I think the point is the economyis dynamic, and the economy changes,
it will fix itself, and itwill fix itself, just like all
the stories about the AI alternative intelligenceworld ruining everything. No people said the

(35:22):
automobile was going to ruin everything,and people said the plane was going to
ruin everything. Okay, And therewere growing pains with a lot of those
things too. I've mentioned it onother shows. I mean the automobile,
we didn't have seat belts for thelongest time, right, I mean there
were there was a lot more injuries. There's a lot more deaths. Same

(35:43):
thing with commercial air travel. Andyet the market and the economy is dynamic
and it adjusted so and I certainlythink this will be no different if work
from home, you know, Idon't know there we'll ever go back to
where we have such a high percentageof people going into an office. Be
hard to see that number go allthe way back. It's come back slightly,
but companies will change, companies willadapt, and the market will be

(36:07):
okay and maybe be better off forit in the long run. So let's
take our last pause come back totalk about a couple of planning topics,
topics that come up with clients throughoutthe last couple of weeks that probably apply
to it more than just one person, So stick with us through the break.
You're listening to Money Sense. IfI just a Kurston Wealth Management Group,
we'll be right back and welcome back. You're listening to the visor of
Kurston Wealth Management Group, Bratt andKevin here this morning. If you're listening

(36:30):
on iHeart or streaming it on ourpodcast. And a reminder to anybody if
you're out of town and want tohear any of the old shows or any
of our current shows, you canfind it anywhere you listen to podcasts.
Most people have an Apple phone.The podcast app is right on there blue
with a microphone and the easiest wayto find it. I know we always
say the show is Money Sense,but there's a lot of money shows.

(36:52):
If you just type Kurston or KurstonWealth, Kurston Wealth we'll get you.
It'll be the first one. You'llsee our our logo on there and you
can click on if you have followthen every time there's a new show,
it'll pop into your phone and letyou know there's a new show. I
think there's there's more and more peoplelistening that way, and in the future,
eventually I think that's the only waywe'll put the show out. But
for now, I think we havemore people listening live on Saturday morning,

(37:13):
So that's good. But let's let'stalk about a few things that have come
up with the last few weeks.One of those, you know, people
are working longer, and even peoplewho are full retirement age working after they
have started Social Security. Used tobe years ago that SoC Security even if
they caught it that you were workingand maybe replacing one of your thirty five

(37:34):
years of income, they would eventuallycatch it. But I just talked to
our Social Security person down here inToledo this week. They said, now,
after you've started your Social Security,if you're still working, you're going
to get the inflationary increase you know, earlier in the year. You know,
typically we're always talking about in thatDecember and it picks right up at
the beginning of the year. Butafter you file your taxes, the IRS

(37:57):
is getting a notice for that,or the IRS is given a notice of
your wages to so Security and arecalculation is being done now automatically annually.
For most people, you think aboutwhat that increase would be, it's not
very much. You know, ifit's thirty five years and you had a
zero as one of those thirty fiveyears and you replaced it with a full
max Social Security, your increase isonly one thirty fifth of a percent.

(38:22):
So for the average person, you'regoing to see it go up by even
if that were your scenario, byfifty to sixty dollars of an increase,
so most people wouldn't even feel itor see it, but it would happen
more towards the middle of the year. And for most people it's even less
than that. It's going to beyou're replacing maybe a year where you had

(38:42):
less income with a year you havemore income, so it's even less of
an increase, maybe a half apercent of increase or a one percent increase,
So one that probably is is smallenough that you don't even know what's
happening. But if you are stillworking even past age seventy. You know,
past at age seventy, it doesn'tbehoove you to wait on SoC secure.
But even if you're working past seventyarea replacing a lower income year,

(39:04):
you will get the benefit for thatbecause you're getting with some tax withholding.
So something we used to tell everybody, let's let's make a call to Social
Security to have and reclculate. Youdon't have to anymore. It is getting
caught. So sometimes that question comesup for people who are still working and
collected social Security. Let's talk aboutdebt. So the government got a lot
of government debt talk this week.You know, the debt ceiling talk is
out there, even the increase ininterest rates, and some of the news

(39:28):
media misconstruing how that will affect thegovernment balance sheet as if it is.
It is adjustable rate mortgages that thefederal government is putting out with these thirty
year treasuries. It only affects newdebt for the treasury. But let's talk
about your new debt versus old debt. Most people who are retired, the
goal is I don't want to havea mortgage anymore. But if you took

(39:52):
a mortgage out and still have itand you're just making payments. And that
mortgage was post middle of two thousandand eight through the middle of last year.
You have a mortgage that is cheaperthan the current rate right now for
mortgage for thirty year mortgage because ofthe way amorgization works, because the way
well just by no, I'm sayingthe thirty year the average thirty year mortgage

(40:15):
in the middle of two thousand andeight was below where it is today,
okay, and it stayed below thatlevel all the way until the middle of
Sorry, I thought you were sayingthat once you're ten or twenty years in,
you've paid most of the interest.So what I'm saying is you have
a mortgage that is a pretty gooddeal. Let's just put it. Put
it at that. Most people arebelow three and a half on a thirty
year, below four on a thirtyyear. And yes, when you took

(40:36):
it out, you were paying mostof the interests up front. And now
if you only have ten years orfive years left, the average of the
whole life of your mortgage is thatthree percent or four percent. What you
have left is not three or fourpercent. But even even if you did
have the same mortgage as say,another piece of debt that most people have,
a car loan. Most people haveon the brain that I want to

(41:00):
get rid of this mortgage and neverhave it again. But the car loan,
I'm always gonna have that, alwaysgonna have one or two car loans.
That's okay. If you have thechoice to pay off one piece of
debt or to make an extra paymenton something you should always be doing,
even at current rates, the carloan, because the car loan that you
just took out has probably a higherrate than the thirty year mortgage you just
took out. And reverse ambrogization meansthe extra payment you make is principle only.

(41:23):
That's what the bank will tell you. Want to make a principle only
payment. Hey, isn't that soundedlike a good idea principle only. What
if they said, do you wantto make an interest free payment, one
where you have no interest on itat all? You're just gonna give us
our money, We're gonna get ridof this mortgage so we can sell it
to somebody else's quick. Well,it takes off years and I would say
two. In general, when you'rethinking about working with banks and insurance companies

(41:44):
always switch the role, always switchthe role. So now let's say you're
the bank and you have a threepercent mortgage on the book. Okay,
took it out five years, butyou can only loan out so much because
of rules that one's on the books, well, and because of rules and
regulations and the FED, you canonly loan out so much money. So

(42:05):
if there's a three percent mortgage andmister Smith comes in and says, I
would like to pay off this onehundred thousand dollars mortgage, if you're the
banker, you're like, great,yeah, because now I can take that
hundred thousand that you just paid offand loan it out to someone else at
six or seven. And what ifyou have send out a marketing piece that
says, hey, did you everthink about this? Make an extra payment

(42:27):
per year, make it thirteen insteadof twelve, and you'll be paid off
in X number. Well, whydo you think some loans have pre payment
penalties? Yeah, okay, becausebanks do a lot of upfront work.
They make all their interest early,but they don't care if you pay it
off with five years to go,because they're not making anything left. Yeah.
They in fact, they'll give youan incentive to pay it off earlier.

(42:50):
Like you said, they'll send youmarketing pieces in the mail. But
the point is you're doing exactly whatthe bank wants. Now. Do you
want to do what the bank wants? Of course not. Do you ever
want to do what a bank oran insurance company wants you to do?
Of course not. If we're goingto prioritize debt to pay off, that
is the last one you should bethinking about, even if you took the
mortgage out in the last year.Because if you took the mortgage out in

(43:12):
the last year and you have anyother debt, that debt is also at
a higher rate too. So evenyou you're used or new car, probably
is a higher debt than that thatmortgage that you just took out. That
is the one that you should bepaying off sooner for two different reasons.
One it's probably higher and two,every payment that you make extra on your
car or credit cards saves you theexact amount of interest on the loan.

(43:36):
I mean, there's there is somethere is some diminishing returns. But when
you're talking about in terms of theway amortization works, But when when you're
talking about a five year loan versusa thirty year loan. It's not as
extreme. Yeah, but if yourfive year loan on your car is six
percent, you're saving six percent onevery extra payment you make versus the versus
the amortization on a mortgage. You'renot saving what you think you're saving.

(43:58):
Yeah, And one way to findthat out is take a look at what
the full amount of your payoff isversus taking the amount of payments you have
left times the number of the paymenttimes the number of months, and see
how much you saved. Okay,Then divide that out by the number of
months you're talking about saving, andyou'll realize, wait a second, that's
not very much interest. That's notfive percent, that's not four percent.

(44:20):
That's more like one and a halfpercent. That's all you have left.
And just to close out, youknow, I would certainly say credit cards
with inches number one, car loannumber two, student loans, while you
have to look at that and seewhat, see what the parameters are.
Mortgages last, Yeah, mortgage islast. Yes, Okay. But along

(44:42):
that same thought process, Brad Isaw a story about government debt that is
a completely different animal, okay,but one of the things I see Republicans
do a lot is say, well, if we take all thirty two trillion
to debt, we have to refinanceat five percent, then we'll go bankrupt
tomorrow. That's not that's not howit works. We don't have the FED

(45:04):
and interest rates go up to fivepercent and then immediately have to refinance thirty
two trillion. In fact, partof this the QE packages we did,
the Operation Twist package, was totake all short term and move it to
long term to lock in the lowrates that we have. Most of that
was ten years ago, but stillthe biggest bond we have is the ten
year treasury. That's where most ofthe money is, followed by the twenty

(45:27):
and the thirty year. Okay,so when we're having the debt costs go
up, and they are going upa little bit because of what the FED
has done, it's certainly not honestto say, well, if we had
to pay five percent on all ofit right now, look what it would
it be. That's not an honestdiscussion. It will be over the course
of ten, twenty or thirty years, and that's if rates stay this high

(45:49):
for that long. So that's anotherargument with debt government debt. But a
separate thing that I heard this weekthat I had to shake my head ad
because, although while partially true,most political people will jump off the deep
end with that argument and have tolie and exaggerate about it, which isn't
the right. I think we're gonnaget some good news. You're gonna I
think they're gonna cave a little bitto the Republicans so that we can get

(46:12):
some debt reduction and spending reductions.We'll see, probably hopefully by next week.
Thanks for listening. We'll be backwith you next week. You've been
listening to Money since brought to youeach week by Kursten Wealth Management Group.
To contact Dennis Brad or Kevin professionallycalled four one nine eight seven two zero
zero six seven or eight hundred eightseven five seventeen eighty six. Their email

(46:36):
address is Kristen Wealth at LPO dotcom and their website is Kurstenwealth dot com.
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