Kersten Wealth Management Group - Money Sense 7-22-23

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Episode Transcript

(00:00):
Good morning, and welcome to MoneySends. You're listening to the advisors of
Kurston Wealth Manager Group, Kevin Kurstonand Brad Kurston. Happy to be with
you this morning. As the marketcontinues to rally higher and the FED has
their next meeting next week, hopefullywe'll see some adjustment to the language.
Because we did see a inflation numberthat was under three percent. I think

(00:23):
we mentioned that in the last week'sshow, but I want to go back
to that a little bit because it'sgonna tie into some of the statistics that
we're talking about with the market aswell. So we saw the CPI number
at two point nine to seven percent, under three lowest level in what since
I think March of twenty one wasthe last number that was even in the
threes. And so inflation is moderating. It's not the end of the story,

(00:47):
because certainly there's some tough numbers tocompare against. As we get into
the fall, might see that numbertrickle a little bit higher, but certainly
getting closer and closer to where theFed can change the language and stop for
quite some time and maybe even setthe stage Brad to lower rates a little
bit in the beginning of twenty twentyfour. Well, I don't think they

(01:08):
would do it because the stock marketwould need it, But they might do
it because there are are signs ofa little bit of deflation in these numbers,
and no one's admitting it yet,but you do have some deflation.
And so if you get to thepoint where they've they've turned the wheel too
far and and you have six monthsof inflation between zero and one, and

(01:32):
believe it or not, it canhappen. There are times like that and
they need to ramp things back upagain. Maybe a cut or two and
a change in that language would doit. So their next meetings next Wednesday,
the consensus of what the consumer orthe average investor plus experts think has
changed a little bit, gone fromeighty five to eighty on. Will they

(01:53):
cut? I'm sorry, will theyraise one more time? They haven't surprised
yet in this whole cycle. Whateverthe market thinks is what they've done.
I don't think this would be abad surprise. Honestly, though, when
you're talking about Powell constantly saying thatwe're data driven, data driven, data
driven, the data you're just lookingget the data right in front of you.

(02:15):
And I think it's actually more itwould be more powerful to stick closer
to the data and to make astatement to say we're not going to raise
this time because currently the CPI numbersare under three percent. However, we're
seeing some indications that we might seea tick up before the end of the
year, and then if it does, we get that. Yeah, why

(02:38):
why are we just going to raiseit? Why not pause again? Yeah,
there's this whole thing about once westop, we can't restart. I
don't get that right. And bythe way, why can't you go down
and then back up and then downagain? What just because you haven't before?
Yes, just because nobody's no one'sever done it before. So that's
that doesn't make any sense to me. But I do think that once inflation

(03:01):
levels off at a three percent leveland you have a Fed funds at five
to five and the numbers aren't sovolatile month to month year to year,
I mean, you don't need theFed funds one and a half percent above
inflation, two percent above inflation.You would think if we if inflation can

(03:23):
moderate to two point seven five tothree and a half, that the Fed
funds could go back down to fouror less and stay and stay there.
Now, what does that mean.We're not going back to two and a
half to three percent mortgages, butthat would mean that the mortgage rate would
level off in the five percent range. Yeah, and I think that just

(03:44):
after being at seven percent on mortgagesfor a while, I think it would
really stimulate the housing market again tosee them back in the fives, if
not in the low fives. You'dget some of some investors who are you'd
get some home buys, have alittle bit more inventory out there because right
now, nobody wants to move becausethey would have to move and get a

(04:05):
more coy that's significantly higher than whatthey have. So that would be a
little healthier because there is a littlebit of a shortage there, um,
Kevin. This week, the marketcontinued to really not until we had midweek
earnings that were a little sluggish withsome of the tech related uh the the
kind of the top blue chip largercap tech having a little bit of struggle.

(04:29):
On Thursday. You really had apretty big week, uh the in
the last In the last week,um, you saw both stocks and bonds
moving up, and the one weeknumber on the SMP a little over two
percent, and tech related sectors upabout double that. So what what has
done well up to this point inthe year continued in the last week and

(04:53):
finally bonds giving you a little helpthere as well. That balanced portfolio has
had its it starts and stops thisyear, but really, if you look
at the whole year up to thispoint, it's really giving you a lot
of diversification and and and giving youa pretty consistently seven full months of positive
returns. When smallcats were lagging,they picked up since May. When international

(05:18):
led the year early on, thenit lagged and bonds kind of off and
on have added to performance. Uh, the aggre bond index up almost three
percent on the year, so alittle bit of a catch up year.
But the overall market, what whatdid well last year is lagging. You
still have three sectors that are negativethis year out of eleven, and those

(05:40):
are the sectors that all did thebest lashes well. And it's nice that
technology is the biggest sector in theSMP five hundred, But what that also
means is if you have a concentratedportfolio in large camp growth, your numbers
are even better. If you havea diversified portfolio, that owns anything but
large cap growth, which most peopletypically do value midcaps, small caps international

(06:05):
it's hard to perform. The SMPfive hundred is a large cap growth index.
If we look since the bottom inOctober, Brad, we really saw
and a good way to look athow broad based the market is. Is
it being driven by a smaller percentageof stocks or is there a broad participation?
There's three thy seven hundred plus stocksin the market. Are all companies

(06:27):
doing well? Okay? And itreally kicked off at October and lasted through
February first, In fact, fromOctober through February first. One of the
ways you can look at this isto look at the equal weight SMP five
hundred, just real quick. TheSMP five hundred that we watch on TV
every day is market cap weighted.So seven percent of the SMP five hundred

(06:49):
you see on TV is Apple,Microsoft. Those are all roughly the same
size, okay. In the equalweight Apple would only be point two percent
of that indep so it gives ahigher weighting to the smaller companies in the
SMP and would show you if there'smore if there's broad participation. So when

(07:09):
we looked at that low in October, Brad, and we go till February
first, we saw the equal weightSMP five hundred up seventeen point two percent
in that period of time, andthe traditional SMP five hundred only up ten.
Okay, Now, if you gosince February till today, you have

(07:34):
the traditional SMP five hundred up anothertwelve and that equal weight only up one
point five since February first. Andreally, so that's what we need for
the next leg, is what I'msaying. Just that back and forth.
But you think about that back andforth and what the average investor is doing,
whether it's taking a look at whatis leading in a very short period

(07:57):
of time three to six months,or you take a look at the past
three years. Think about you.If you're this type of investor and you
don't have a contrarian mindset, yougo twenty twenty and twenty one tech leading,
you get to the end of twentyone, the only thing working.
I can't take it anymore. Ican't take it. I've got half my
portfolio not working. Just put itall in tech tech from high to low

(08:18):
down fifty percent fifty I can't takeit anymore. Energy stocks are up sixty
five percent in twenty twenty two.Why don't I just do that? They
haven't done anything for ten years.This is the start of a boom for
them. I'm gonna dump my techand I'm gonna add I'm gonna add it
to energy, and I'm gonna addit to utilities. So you go into

(08:39):
this year and you give up ontech and you go back and now year
to date, utilities are down fourpoint six and energy is down four point
two five. What to do?Well, geez tech working again? I
should go back to tech? Well? Tech is up forty eight percent and
communication services are up forty one,the two tech related sectors. And instead
of what are you gonna do?Instead of being broadly allocated and diversified and

(09:01):
having a year where you know,minus fifteen and then plus eighteen or whatever
it might be, you lost fiftybecause you chase tech, and the next
year you chase energy and you're downanother ten. Yeah, it is a
continual cycle that if you're not thattype of chaser, the trend follower like

(09:22):
that, you probably say nobody woulddo that, who would buy high?
There are people that don't see itas buying high. They see it as
that's what's doing well. I needsome of that, and what I own
is not doing well. They don'tsee it as as what I'm adding is

(09:43):
going to run out of steam andthe other thing is going to catch up,
and that they have this ying yangrelationship. They see it as quite
the opposite. And instead of sayingone thing's on sale and one thing's overpriced,
they see it as this is thestart of something new. I gotta
get on board. And and therewill come a time here where whether it

(10:03):
happens over a two week period,a three month period, a one year
period where teco leg and whether itgoes down or it just lags, who
knows. I mean quite quite frankly, you've had that lag. If you
compared the best area of the market, which is small caps, over the
last two months to large caps,you've had that lag and and and so

(10:26):
maybe people are looking at that,but I think more importantly they look sectors.
They don't say, well, overthe last month, you know,
large caps are up two and ahalf three and small caps are up six.
They don't look at that. Butsector chasing happens all the time.
Brad. Let's revisit some of thefinancial stories from last October and some of

(10:50):
the things we were talking about onthis show, and the one chart that
we continuously brought out was how volatilethe interm election year typically is and how
great the performance is one year out. And I think that Mike Mike Wilson
at Morgan Stanley at Mike Mike Wilsonat Morgan Stanley claiming the SMP is going
to go under three thousand, andpeople at Bank of America and all the

(11:11):
big firms talking about that. We'rejust simply looking at the data. There's
no guarantee of any of this,just saying, well, this is their
prediction. But history tells us thatthat's not what happens. And we looked
since nineteen fifty, It's not asingle year from the low of the midterm
election year, which last year wasin October, Okay, twenty seven percent

(11:31):
high to low on the SMP.There wasn't a single year since nineteen fifty
that didn't have positive returns. Everymidterm election year low to one year later,
one hundred percent of the time positive. What's the average the average performance
on that low which was October fourteenthof last year to October fourteenth of this
year, is what we'd be lookingat the average performance of that would be

(11:52):
thirty two point three percent, withthe worst year being nine and the best
year being fifty seven in nineteen eightytwo. Okay, So where was the
SMP five hundred on October fourteenth oflast year? Three five seven seven.
So if we look at that thirtytwo point three, well, let's start
with where we are. Yeah,we're up twenty seven twenty seven point one

(12:15):
at the moment. Okay, soforty five We started today at forty five
fifty. I think we're at fortyfive thirty today on Thursday of this week.
In order to get to that thirtytwo point three number, we only
have to go about four more percent. We have to go to four thousand,
seven hundred and thirty two on theSMP. It's only about four percent
away from that. Ryan Dietrich,who used to be at LPL, was
pointing this chart out a lot onCNBC, and he get laughed at,

(12:39):
you get literally laughed at, becausehe's saying, the average is thirty two
point three from where we are today. He's just reading facts, yes,
and people still, I mean,everybody else is making predictions about what they
think are going to happen based inno history or no fact that we're gonna
go down by this much, andthen we're also going to go down by
another twenty five percent, which wouldbe not only rare, but in some
cases people were predicting something that neverhappened instead of predicting something that has happened

(13:01):
one hundred percent of the time.So here we are, We're all we're
three months away from the one yearanniversary of the low, We're four percent
away from the average figure, andstill you know, still yeah, people
saying that it's unattainable to get backto an all time high, it's unattainable
to do thirty two point three offof a bottom. But we're well on

(13:24):
our web well, and I wouldpoint to two two particular years, actually
three years here on this chart breadwith a lot of similarities to last year
nineteen eighty two, FED raising ratesaggressively trying to stamp out inflation. Of
course, at that point in timeinflation was double digits, but the mid
term election low to one year laterwas fifty seven percent nineteen ninety four,

(13:46):
sort of a mid cycle of alonger term bowl market and also consbined with
raising rates, the FED raising ratestwo coincidentally just over six percent, So
we're at five to five right now. One year later up thirty thirty seven
point nine two thou and eighteen FEDraising rates one year later up thirty seven

(14:09):
point one. So there's a littlebit better than average, even even better
than average in those cases, andno guarantee of it, but looks like
at this point, with only threemonths to go, that this particular mid
term election year low will will addto this list. So you're looking at

(14:30):
a set of data here since nineteenfifty, what do you have seventy two
years divided by four, so you'relooking at not quite eighteen eighteen instances.
We're gonna have nineteen Yeah, okay, so we're gonna be a one hundred
percent of the time. You're positivea year later. So very interesting chart
there. The second chart that wepulled out is for people not to give

(14:52):
up on fixed income. Fixed incomeat its worst year ever last year bonds
and it's worst year ever prior tothat. It was the aggre bond in
next down two point nine percent.Nineteen ninety four aggregant bond in next last
year was down north of fifteen percentand say, don't give up on the
traditional sixty forty, because the wonderfulthing about this reset of interest rates is

(15:13):
you've also reset you've reset your coupon, your interest payment, but you've also
reset the amount of volatility that youwould see in the aggregant bond. In
next Why well, if if theinterest rates are if interest rates are one
percent and they go to two percent, that's a doubling, So that's that
much more volatility in your principal value. But if interest rates go from five

(15:37):
at a quarter where they are todayto five seventy five, that is a
much smaller percent increase. So thatpercent that interest rate risk is dramatically lower
today, and the price movement thatyou get is also eaten up by higher
yield on those bonds, So youjust have a little bit more cush So
we were talking on this show,don't give up on the sixty stock forty

(16:00):
on portfolios looks some of these otherprevious worst years. Of course, last
year was the worst by far,with the blended sixty forty being down eighteen
percent. Incidentally, that was actuallyworse than two thousand and eight. Two
thousand and say, what do youmean, SMP lost thirty seven that year.
Well, yeah, but bonds madealmost twenty percent. So in two
thousand and eight, the blended sixtyforty only last fourteen percent, lost eighteen

(16:22):
percent last year. But look atsome of these other years were bonds also
lost? Okay, and look atthe bounce back. Two thousand and thirteen,
bonds lost eight percent nine percent.The sixty forty the next year was
up twelve and a half. Isn'tthat roughly what the sixty forties up right
now? It's up thirteen point twothirteen point two? Okay? Two thousand
and how about eighteen eighteen eighteen ageis a flat year for bonds, a

(16:47):
negative year for stocks. And thefollowing year nineteen, you saw the bond
portion up almost ten the stock portionup thirty one and a half, giving
you a twenty two point seven percentreturn for the sixty forty point fol I
mentioned nineteen ninety four earlier Brad bondsthe second worst year with bonds down eight
percent, and you saw the bounceback for the sixty forty portfolio stock to

(17:11):
bond thirty one point nine. That'ssixty stocks and forty bonds. You're up
almost thirty two percent. How aboutnineteen eighty two. Uh, you saw,
you actually saw a decent, decentyear. So I'm not gonna use
that because that's a midterm election year. You actually saw a decent year for
bonds at that point they had alreadybottomed out. That was just the midterm
election year. Let's just look atnegative years for bonds in particular. How

(17:36):
nineteen sixty nine minus five percent forbonds blended sixty forty, up eight point
eight the following year. Other negativeyears in the mix, there's not a
whole lot of big. Nineteen eightyseven is a negative year for bonds,
down down five. The following yearbonds are up eight and the blended sixty
forties up thirteen point three. Sowe're really on pace for one of the

(17:56):
best years ever for the blended sixtyforty. Twenty nineteen was twenty two point
seven, twenty four percent nineteen ninetyseven for the blended sixty forty, so
there's a couple better ones in there. I mentioned nineteen ninety five as well,
but investors had given up all thesebonds they lost. This is terrible,
but even still, the reason Ihave this conversation now and over the

(18:18):
next couple of months is if you'vemade the hard decision to sell what was
down the most in your portfolio,which was stocks not bonds last year,
and rebounce the portfolio by a littlestock, you're out of whack right now
because your stocks are up much morethan your bonds. So if you had
just taken your sixty forty that wasprobably fifty five forty five and made it
to sixty forty again, you're nowsixty five, sixty six, sixty seven

(18:41):
percent in stocks. It's time probablyto take a little bit off the table
and do a quicker rebounce than younormally would. And it needs to happen
at these inflection points where you've hadthis outsized return of one versus the other
and you're not giving up as muchas you think. People think, oh,
but the market's rallying now. Idon't want to give up. Can
we just sell at the very top? Go here right Go to last week's

(19:03):
show, what do we talk aboutexpectations for returns for a blended stock bond
portfolio gone up dramatically, And ourlittle back of the napkin math last week
was if you were eighty twenty beforethe Fed started raising rates, you can
now get the same return now thatrates are higher with a fifty fifty stock

(19:25):
to bond portfolio, because that otherfifty that's in bonds is giving you so
much more yield. Okay, soI take our first pause. You're listening
to money Sense, Kevin and BradKirsten. We'll be right back and welcome
back. You're listening to the advisorsof Kirsten Wealth Management Group. Brad and
Kevin here with you this morning givingstats, and I think it's gonna be
a show of stats, and Iwant to talk about a few of the

(19:45):
things that we're going to start tobe hearing of the yeap but crowd,
you know, the sometimes we have. We're talking in the last segment rebalancing
and pulling some of the a littlebit back, you know, five six
seven percent out of some of thethings that are your best performers, to
go to things that are more conservativebecause you're actually getting paid for them,

(20:07):
whether it's dividend paying stock or bonds. We have a constant look for the
negative out there in the media,and I think it spills over into the
into the investors psyche. And oneof those is always this presidential cycle.
It is never ending and if itis a democratic president. And most investors

(20:27):
around here are negative on the marketbecause of that. And I want to
talk about this the presidential cycle,and what we got last year was pretty
common. The worst year in thepresidential cycle is that second year. The
best year is the third the averageperformed. It's going all the way back.
My chart here is showing it.I think till to a great depression

(20:48):
nineteen thirty seven, ninety two yearsof history here, and the average for
the third year is seventeen point sixfour. The average for the fourth year,
the year of the election, isten point two. Okay, so
the worst is last year. Now, coming off of the worst last year,
the average is still eight and ahalf. And we got much worse

(21:11):
than that calendar year of negative eighteenpoint one, fifth worst calendar year of
all time. So what happens aftera second year that's that bad, You
have an above average return, andthat's what we're getting this year. You
don't get the average. The thirdyear, you get above the average because
you came off of a worse thannormal year. And what are we going
to start to hear next year?You're going to have whether you're turning on

(21:32):
the news or you're reading something,you're going to have. Oh, the
market's going to be volatible because ofthe election. Like, the market doesn't
see this election coming every four years, in my opinion, and it is
as much bearing on the fourth yearas the Olympics. We know it's coming,
but it shouldn't have any effect onit. The market is self adjusting
for these things. So the fourthyear is the second best. Okay,

(21:56):
So you'll have people come on TVand say the market's typically not too good
during election years. Well, that'sactually not true at all. It's the
second best. The average is alittle bit better than the long term average
of the market in the fourth year, so it's not over yet. The
other would be who's in office.Now. Imagine there's an advisor in California

(22:17):
and four years ago, what washe hearing, Yeah, I understand that
we should be invested. But Trumpand what are we hearing? Yeah,
I know I should be more invested. But Biden. Well, when it's
Democrats in office, going all theway back to nineteen thirty seven, those
four years, the average in yourreturn is fourteen point ninety three. When
it's a Republican in office seven pointeight five. So the yeah, But

(22:41):
Biden crowd, whether it's on TVor it's you as an investor, don't
you don't know the real stats.And this is not just a small sampling.
This is ninety two years of historyand what it gives you. It's
seventy three percent of years positive.And the higher performance actually for the Democrat
in office now, the highest performanceis what we actually have right now,
which is a Democrat in office withRepublicans in control of Congress. If we

(23:07):
have that Democrat in as a presidentwith Republicans control of Congress, the average
in a return is eighteen point fivepercent with that makeup. The worst is
Democrats having a full control of Congresswith the Republican president. But even though
it's the worst, it's still sevenpoint five percent. So I think a
lot of people would say for thenext four years, I take seven and

(23:30):
a half percent, Well, that'sthe worst of any of the makeup.
What we currently have is the best, and we have it from now until
election day next year. Eighteen anda half percent per year is what the
average is of what we currently have. So if you're going to use the
presidential cycle or who we have inoffice or what Congress is doing as your
excuse to be investor or not bean investor, It would be to have

(23:53):
you be fully invested because we havethe perfect makeup from what history tells us
is the best political and environment forstocks, right. I mean, these
aren't even predictions. And this iswhy it's very strange to me when you
have the wind that you're back fromthe standpoint of well for starters, we
know that above average returns come afterbelow average return right wind it you're back

(24:18):
because we're coming off of a negativeyear. Right whind you're back because you're
in the third year of the presidentialcycle. Whend you're back because we have
a split Congress with a Democrat president. Well, but this time it's different.
Maybe, But you know, shouldn'twe be non emotional with our investing
and when things have you where youshould be leaning more into the stock market

(24:41):
than away because of what history tellsyou. Why aren't we doing that?
Why are we finding excuse to goagainst what is normal? If the market's
up seventy three percent of the time, and we're saying that with the current
environment that we have in what stocksgave us last year versus this year,
or what the political environment is isbetter than that or a higher return than

(25:02):
that, then that is not somethingyou should really be fighting now. The
opposite would also be true. Afterthree positive years like we had in nineteen
twenty twenty one, and especially threepositive above average years, you start to
not have the wind at your back. When you're in the first couple years
of a presidential cycle, you startto not have the wind at your back.
So that's not the environment we're inright now. And so that's why

(25:26):
when we're saying that we might bestarting to talk about rebalancing the portfolio back,
it's not to take everything out ofstocks. It's just to rebalance back
because we've had a little bit ofa big move off the bottom. That's
been a little lot sighted into onearea and some things have been left behind
and they might be the leader forthe next six months, but you never
know. That's why you got tostay diversified. We get back from this

(25:49):
break, I want to go backto October of twenty two and maybe go
back to a couple of different inflectionpoints in the market, because remind people
what the talking heads, what thepeople that you see and listen to on
a regular basis. We're talking aboutwhen the market was at a high,
when the market was at a low. And also remind folks, because I'm

(26:12):
hearing a lot of talk about bubblesright now and people say this is a
bubble in the markets out of control. I've never seen a bubble below the
all time high. Is there everbeen a bubble that that was below and
all time high? Seems it seemsto me that they're not even at the
all time high. There there twoyears after everybody said the bubble, what's

(26:34):
gonna happen? So let's go backand look at previous bubbles and where the
market was at that point when thatbubble. Popular listening a money Sense Kevin
and Brad Kurston will be right backand welcome back to the show. You're
listening to the advisors of Kurston WealthManage GRIPT. Kevin Kurston and Brad Kurston
happy to be with you this morning. As a reminder, we are professional
financial advisors and our offices are inPerrysburg. Give us a call throughout the

(26:56):
week if you want to get intouch, set up your own consultation to
review your financial plan or just getstarted, or if you're already in retirement,
you want to sit down and geta second opinion for nine eight seven
two zero zero sixty seven, orcheck us out online at Kirstenwelt dot com.
Brad investors think it's obvious at inflectionpoints, and I'll get to the
bubble talk at the moment. Butlet's go back to October of twenty twenty

(27:18):
two. Just a simple Google searchheadline from Yahoo financed stock market News,
stocksfall, Yields rise, talking aboutthe falling stock market in the In the
headline, they go on to quotea strategist from I Shares. If,
as we expect, earnings will disappointmoving forward, earnings expectations are guided,

(27:42):
will be guided lower. We mayyet see another down leg for equities.
This was at the low. Sincethis comment from I Shares, equities are
twenty seven percent higher. Okay,don't be fooled or chase these bear market
rallies. That's a quote. Oh, we had three months of everybody's saying

(28:03):
it was a bear market rally.The market will of course eventually bottom.
Wow, that's very profound. Itwill eventually bottom, but not until the
Fed pivots or earnings are properly markedout. Well, the Fed has not
pivoted, right, they pause,They have not pivoted. Pivoted would mean
they're going the other way, oreven changed their language to say that they're

(28:23):
done. They haven't done that yet. So here we are. By the
time they say that, you know, we're gonna be in the back half
of this year, and even rightnow, they might not even say it
next week, and you have themarket up twenty seven and a half percent
off the bottom CNN headline, Octobertwenty fifth. Why do stocks keep rallying?
So we've hit the low at thispoint, but consumers feel so lousy?

(28:48):
Okay, so talking about the overallconsumers still being fairly healthy at that
point, even though inflation inflation wasstill you know, running rampant at the
end of the year. Looking atall the headlines from October twenty two,
it all is about but we haven'thit a bottom yet. But we haven't

(29:10):
hit a bottom yet. And whatit doesn't matter what week you look at
the stock market news from Yahoo,they always get a quote from a strategist
in the middle of it, andevery single time, Brad the strategist is
negative on the overall market. Soyou could go back to March of two
thousand and nine, and then youcould also go to a peak in the

(29:30):
market and see how positive all investorsare. Well. Looks like we have
smooth sailing moving ahead. But onething I keep seeing right now is the
investors that are still on the sidelinesprobably want to get an opportunity to get
back in. And it's appropriate,as you mentioned in a previous segment,
rebalance, you're getting five percent intreasuries today, rebalance back to your original.

(29:52):
But these investors are saying, oh, it's a bubble, it's gonna
pop, get out. Can youfind an example whether off the top of
your head are actual stats that youknow of of a bubble that burst underneath
and all time high where you didn'teven make it back to the prior high
and then you had another full legdown. No, I mean even two

(30:14):
thousand and eight went higher two thousandand eight bubble popped October of seven,
all time high, nineteen ninety nine, March of two thousand, all time
high, bubble popped. Where where'sthe In fact, the only time we've
ever had a twenty percent rally thatlasted more than four months since nineteen thirty

(30:40):
seven that failed was nine to eleventhere was a four month rally of more
than twenty percent that went on tomake a new low. Every other time
since nineteen thirty seven that the marketsrallied more than twenty percent, it marked
the end. And that one reallywas it was two different recessions. We
always say that because it was thedot com bubble bursting and then the from

(31:03):
the ashes of those companies. Thehealthier ones like Apple and Amazon and Microsoft
are all doing fine at that point, and then nine to eleven happens,
and you have a different kind ofrecession at the back half of that,
and so that that's I don't thinkwe can look at that precedent and say,
well, you had three back toback negative years, then you really
had one recession and then one eventthat held the entire economy down. And

(31:27):
so barring that, I don't understandthe predictions that are not rooted in history
and not rooted in actual data,that don't get called out when we hear
them on TV. That's right.So you know, I just I find
that to be very interesting because thisweek, with the first time I started
hearing all this bubble talk, andyou know that you have to do everything

(31:51):
in degrees when you're talking about portfoliomanagement. Right, if you were,
as you mentioned earlier, if youwere sixty forty stock to bond and eighty
twenty when the SMP hit its low, and you want to go back to
sixty forty today, fine, yes, fine, you're not giving up that.
We're having a lot of those conversationsright where we had people who maybe

(32:12):
we're going to be even less thanthat forty sixty or fifty fifty, and
I said, you know, wenever intended to take it up much beyond
sixty sixty forty, and even bytaking it to sixty forty last year,
we're way above that now. Solet's bring it back to sixty forty and
then eventually get to fifty fifty again, all the way back down to where
we were at the low of themarket. And here we are not at

(32:32):
the low of the market, andwe shouldn't just stay here at this level.
So that'll be continue to talk throughoutthe next month of just kind of
individually where we're pulling a risk back, or even in the models where we're
pulling risk back, we haven't reallydone it yet. The last adjustment two
models was to add even more togrowth when the bank failures happened back in
March, and that you know thatthat was not buying the bottom for tech

(32:54):
tech had already moved for three months. It was it was buying it after
the rally had already. So let'srecap, because let's recap twenty twenty three
and the fears going into twenty twentythree, and then what actually happened,
Okay, fears going into twenty twentythree stubbornly high inflation. So we kind
of already mentioned at the beginning ofthe show, but let's talk about it.

(33:16):
Inflation at the beginning of the yearwas what roughly bread Oh, at
the beginning of this year, wewere probably back down into the sevens to
start this year. A year priorwe were also at seven. So we
started twenty two pretty near seven,went all the way up to nine point
one, and slowly came back downto be bright about the same level to

(33:37):
start this year. Second fear wasbecause of stubbornly high inflation, which actually,
when you get inflation to moderate rightnow, you've already raised prices.
So all the moderation of inflation rightnow goes right to profit margins because their
raw materials prices are coming down.Okay, So people are making more money.

(33:58):
Incomes went up as a result ofinflation, and now the cost of
raw materials and gas and all theother things that are the most volatile components
of inflation all go right in thecorporate bottom line but also the consumer's pocket.
But the other thing that was saidat the beginning of the year is
earnings are going to completely fall outof bed. Earnings are going to be
terrible, okay, And certainly ifyou look at the first quarter of this

(34:22):
year minus one, second quarter ofminus six. This is in our market
commentary from July seventeenth on our websiteKristalwealth dot com. But even it's all
about expectations, okay. Q twoQ two earnings are estimated to be six
point six and have been coming inbetter than expected. So the positive or

(34:43):
negative, it doesn't matter. It'sbetter or worse, okay. One point
three quarter. First quarter of twentytwenty three earnings was one point three.
The estimates were more than four onthe downside negative, and so as we
get into the latter half of twentytwenty three, by by the fourth quarter,
the estimates are eight and a halfpercent higher, So earnings didn't fall

(35:04):
out of bed, So inflation wasn'tstubbornly high, came down, earnings didn't
fall out of bed. And thenI'll go to the third one. Bread
Before you get there, remember thenarrative, though, we started the year
and they say first half of theyear we're gonna get a recession, doesn't
come. They push that off tothe end of the year. Earnings are
gonna fall. They didn't fall,and they say, well, earnings haven't
fallen yet, but they're going to. And now it's a complete flip flop.
Everyone's given up on the recession talkand each company is guiding higher for

(35:30):
the back half of the year.So we're starting to hear even less of
this talk of that earnings are gonnafall out of better be negative of the
back half. And what we're hearingis they can't possibly meet these expectations.
So why would the market fall?Because expectations are now so high. There's
there's not a there's no way theycan they can meet these expectations. Expectations

(35:52):
are not that high. I mean, look at these numbers. Yeah,
the estimates for the second quarter andminus six point six there's that high expectations.
Well, because they've on up.Everyone thinks that they're on its team.
From a I mean you're you're jumpingout of the basement window at that
point. I mean, this islike and the people that keep pushing off
their recession talk is like me decidingI'm gonna work out in the morning and
setting the alarm at five thirty andhitting the snooze button seventeen times. If

(36:15):
I do that for three months straight, I don't get credit for exercising when
I never went yeah, okay,what do you finally do you mean?
What if you finally do exercise,then I still wasted three months? Okay?
And this is the the recession peoplewill eventually be right. You don't
get to pat yourself on the backif you were wrong for three years.

(36:36):
If you're wrong for three years inthe market on up one hundred percent and
you missed out on all of it, and you finally get your twenty percent
downturn in the market and your recessionto go along with it, and the
investor who stayed in the whole timeis up eighty and you're up five,
you don't get to pat yourself onthe back. And the last thing that
was mentioned Brad and I think there'sactually one more housing, but we'll get

(36:57):
that. In the minute of thebanks. We the Silicon Valley bank failure.
Other banks had some stress, soit was assumed that our banking structure
was in terrible condition. And oneof the things that came out of the
two thousand and eight financial crisis wasthe bank stress test. Now it's not
a perfect system, of course,it missed Silicon Valley banks. So not
a perfect system by any stretch,but certainly better than with the fact we

(37:19):
had nothing before. Okay, alltwenty three major banks, so you're not
getting all the small region all thesmall local banks in this either you're getting
a lot of the big ones andthen the big regionals, the superregionals like
fifth third in Huntington. All thetwenty three major banks exceeded their minimum capital
levels after putting through a severely adversescenario that did envision global a deep global

(37:45):
recession that would have generated half atrillion dollars in bank losses. So here's
what they assumed in the stress tests. Okay, ten percent unemployment, forty
percent decline in commercial real estate prices, and a thirty eight percent decline in
house prices. Now, keep inmind, overall house prices dropped about fifteen

(38:05):
percent in two thousand and eight andnine to the bottom. This is assuming
thirty eight and with those assumption anda loss of over a half a trillion
dollars in the banking sector, theaggregate banks capital ratio would have dropped by
two point three percent. Okay,this is less less than the two point

(38:30):
seven percent drop experience in the entirein the twenty twenty two stress test that
was done a year ago. Someaning even after what we've gone through,
we have to get into the specificnumbers. Even after what we've gone through
with banks, they actually have healthierbalance sheets today than they did when these
stress tests were run one year ago. I think it's a valid point now

(38:53):
too, because you just go backthree months, four months now to when
the bank failures happened. That wasto be the next shooter job, right.
We were going to have these thesethree banks that most people around here
have never even heard of, failand it was just going to be the
tip of the iceberg. Did justwait, It's going to be just like
two thousand and eight all over again. And yet here we are with the

(39:14):
NAS deck up twenty five percent sincethen in the overall market up ten and
all of those people who said thisis the reason I can't be in are
waiting for a ten percent recession ora ten percent bull back now, just
to get them back to where wewere on those days, right, and
to go through all that stress andanxiety of being out just to end up
right back where you started. Sotake our last pause here, Brad.

(39:35):
You're listening to Money Sense Kevin andBrad Kursten. We'll be right back and
welcome back to the show. You'relistening to the advisors of Kurston Wealth Manager
Group, Kevin Kurston and Brad Kurston. Happy to be with you this morning.
We're wrapping up here. Two differentthings I wanted to cover in this
last segment here, Brad, sortof an investing lesson. I guess,
you know, I don't know whatelse to call this. I sent to

(39:57):
you. I sent you this chartthis morning. I found it to be
very interesting thing. And there's youknow, there's two schools a thought of
investing. You know, buy cheapstocks or buy stocks that are growing and
don't worry about the price to earningsratio or something like that. And there
are times when buying cheap stocks works, and buying growthier stocks work. But
really, overall, you want tobuy a good company that's growing regardless of

(40:22):
its price. I think we're ina market right now, especially with the
megacap large cap tech, maybe trainingat a higher multiple than than the than
they're definitely training at a higher multiple, and maybe not over their long term
average, but over the market.And so people are saying, I can't
own this. Look at the valuation. The price to earnings ratios are are
are way higher now than the overallmarket. But when they're growing companies with

(40:45):
growing earnings, you have to lookat their own historical pe and not what
the what the pe currently is versusthe market or versus other sectors. Right.
So Morgan Howe, who wrote ThePsychology of Money, took a look
at the Dow Jones in nineteen ninetyfive, okay, and looked at all

(41:07):
the price to earnings ratios of theDow Jones in nineteen ninety five, and
looked at the next seventeen years ofperformance. And what he did was he
took all It's a little bit confusing, but he took all the stocks and
said, what price could you havepaid to get an eight percent return?
Okay, what price could you havepaid for the stock to get an eight

(41:28):
percent You're doing is saying a lookat their current PE and saying, you
know, X y Z stock performed. Let's do the math easy sixteen percent,
So I actually could have paid doublethe multiple. Instead of paying twenty
five percent to PE, I couldhave paid fifty gotten the same. So
let's do an example. Not arecommendation to buy your sell any of these
names, but Microsoft at nineteen ninetyfive was trading at twenty eight times earnings.

(41:52):
Okay, to generate an eight percentreturn. You could have paid an
additional one hundred and fifty percent onthe share price to get eight percent annualized.
So even though it was trading attwenty eight times earnings, you could
have acted so it could have beentrading at one hundred Let's say it was

(42:13):
ten dollars a share. You couldhave paid twenty five dollars a share and
still made Now. Conversely, CocaCola was not trading at twenty eight times
earnings. It was trading at well, now, that's actually not a good
example there, sorry. Alcoa,the aluminum company, was trading at ten

(42:34):
times earnings. So some people goin and say, well, that's cheaper.
That's trading at ten. Microsoft's trainingat twenty eight. That's a better
deal. But it's in a sectorwhere the average PE is much lower,
and the expected return because most ofit's coming from dividends, should be lower.
It's not a growth of earnings company, so lower multiple is justified.
So if Alcoa at the time hadbeen unless use ten as an example,

(42:57):
okay, trading at ten dollars share, it wasn't. I'm just using that
as an example. In order togenerate the same return as Microsoft, you
would have had to have bought itfor three dollars in order to get the
same return. No, in orderto get eight in order to get eight,
the same eight percent, the sameeight percent, not the same as
what Microsoft got. Microsoft performed muchbetter than that. Yes, So the

(43:22):
ones that really outperformed in a lotof cases are the ones that had the
highest PE ratios. United health Groupwas trading at twenty seven times earnings at
that point in time, and youcould have paid triple that price and gotten
an eight percent return. So itkind of goes to this conversation of not
buying the market at all time high, which nobody thinks they should or want

(43:45):
to do, or not buying anythingthat is trading at a higher multiple,
or not buying anything that's had acurrent three or six month run up on
their price. You can't about oneof the lowest ones in the Dow at
that point in time, Bank ofa It was only trading at six point
seven times earnings. And to generatethat same eight percent return that you got
when you paid more than double theprice for Microsoft, you would have had

(44:08):
to have bought Bank of America downfifty percent in order to get the same
return even though it even though ithas six times earnings. Another way to
look at the market, the marketknows, right, the market has it
trading that low because the future earningspotential is low, and it has the
other ones trading at a higher multiplebecause the future growth of earnings it justifies

(44:30):
that high multiple. Right, Andthat's where we are right now. No
one can believe where the chip companiesare, but they have extreme growing earnings
and they probably can justify that multiple. But all those sectors that traded a
high multiple, yes can the bubbleburst, sure, but more often than

(44:50):
not, they're trading at that multiplefor a reason, and the lower ones
are low for a reason. That'swhy energy has been so low for so
long. I'll close out too,because we're kind of overlapping a couple different
segments here. But then the lastthing we were talking about the narratives of
this year and what was going tohappen. Earnings, We're gonna fall out
of bed. We were gonna havea recession, which hasn't happened. The
bank the bank crisis. No,everyone kept saying when the bank thing was

(45:15):
happening in March, Well, thisis this is there's never one cockroach,
is what they kept saying. Thisis going to be a systemic problem or
whatever. Well, another thing thatwe talked about was that don't sleep on
housing yet because it's not so muchthe price of houses. But what's the
boom we were looking for was construction. Okay, we've got a report in

(45:37):
the month of June brad single unitand multi unit projects wide, So multi
unit projects, apartments are booming rightnow. Housing starts are still below COVID
pre COVID levels, but there's beenan uptick recently in single family permits.
So what are we seeing. There'sbeen a boom right now in multifamily build

(45:57):
because rents are so high, sowe're filling that demand. Okay, But
just recently in the month of June, what are we seeing uptick in construction
permits, which is a precursor tobuilding a house. You get a permit
before you build a house, sothat's a leading indicator of future homebuilding activity.
The number of multifamily units is stillgrowing significantly, but we're finally starting

(46:20):
to see that turn in single familydwellings because people are going out there.
They either can't find the house orthe price is too high. So it's
signed to start built and building itto start the year. Everyone said,
at these high rates, nobody's goingto build, and that's exactly that is
what has been exactly wrong, andyou didn't have to wait very long for
it to be wrong right now,so that's another tailwin going on in the
US economy at the moment. Sothanks for listening, everybody. We'll talk

(46:43):
to you next week. You've beenlistening to Money since brought to you each
week by Kursten Wealth Management Group.To contact Dennis Bread or Kevin professionally called
four one nine, eight, seven, two zero, zero, six seven
or eight hundred seventeen eighty six.Their email address is Kurstenwealth at LPL dot

(47:05):
com and their website is Kurstenwealth dotcom. Opinions voiced in this show are
for general information only and are notintended to provide specific advice or recommendations for
any individual. To determine which investmentsmay be appropriate for you, consult with
your financial advisor prior to investing.Securities are offered through LPL Financial member FINRA SIPC