Kersten Wealth Management Group - Money Sense 7-29-23

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Episode Transcript

(00:00):
Good morning and welcome money Cents.You're listening to the advisors of Kurston Wealth
Management Group, Kevin Kurston and BradKurston. Happy to be with you this
morning. As the month of Julywinds down, Brad, UH still going
to be slightly positive, well prettypretty well positive on the month overall.
After an amazing month of June.The one month number on the SMP five
hundred, I kind of you know, downplayed a little five point six percent

(00:25):
on the one month UH for thefor the month of July. So the
rally continues, and a couple ofnews stories this week. We're in the
heart of earning season as well.There's gonna be UH one hundred and sixty
companies I think report today, UHand another forty or fifty report tomorrow.
So we're gonna get a good ideaon earnings as well. But the market

(00:47):
continues to move along, continues tomove along higher. We're we're running out
of bears at this point for themarket, and UH certainly having quite a
few people that we're seeing still maybelooking at the market and saying maybe I
was wrong. We finally had oneone of the but he really didn't he
really didn't. He said I waswrong about how overvalued the market was gonna

(01:08):
get. Well, that's not exactlyadmitting that you were wrong. Even thought
at the bottom he said we couldmove up ten percent, but then I
would run for the hills. Andnow he's saying maybe I was wrong,
right, and that that's a chiefstrategist who pretty much runs all the portfolios
for a major wirehouse. And soyou know there when they start throwing in

(01:30):
the towel, that doesn't certainly meanthe end. I talked about this on
last week's show, Brad, whichis the fact that find me if they
if you're going to call it abubble, which I would push back on
that dramatically. But if you aregoing to call it a bubble, find
me a bubble where the bubble burstsbelow an all time high. It doesn't
happen. And you already find mea bubble that burst two times in two

(01:56):
years. Okay, you can't.You can't find that either. It was
a post COVID and the post COVIDrally and tech did burst. If you
didn't know it burst, it's probablybecause you weren't overweight there. But there
were areas of speculative tech, andeven major tech that sold off. The
speculative tech selling off eighty percent andlarge cap tech selling off fifty that's your

(02:19):
bubble bursting. That was last year, going all the way back to the
middle of twenty one and ending atthe end of last year. That's it.
And that's my frustration with having theseperma bears on TV now saying we're
going to have a recession. Betterrun for the hills. You already got
your sell off. Last year wasthe fifth worst calendar year of all time
for the stock market, the worstyear for bonds of all time, the

(02:44):
second worst for tech from hide tolow of all time, and now we're
on the heels of that. Goingto think that we're going to have something
again major it would be kind ofunprecedented. And so when you're hearing the
bears out there or the people thatmissed out, or to your friends who
say, oh, I'm worried aboutthis or that, or I'm worried about
this conspiracy theory really not following history, or they're having to dig really deep

(03:08):
to find something negative. And onthat topic, I was gonna wait a
little bit, but it segues rightinto something I wanted to talk about as
well. But one we did mention, by the way, in last week's
show, about not getting more cautious, but rebalancing back to your original allocation.
The easy money has been made.That doesn't mean we're negative, okay,

(03:29):
but you could do it now,you could wait till the all time
I somewhere in this range would notbe a bad idea to still stay along
the market, but to be somewherenear your original allocation, whatever that risk
profile might be. But one thing, one of the things I've heard NonStop
throughout all this is the yabbut crowdran Yeah, but the yabbut crowd with

(03:50):
the market SMP five hundreds up twentypercent year to date here the yabbut crowd
is yeah, but we've never spentthis much money like we did during COVID.
And you're gonna have a lot ofnumbers you're gonna talk about later in
the show, which really shows thatall the crazy up and down of spending
and inflation and everything we've had inthe last two years and then now it's
really falling down and everyone's scared aboutthat. You're just if you look at

(04:13):
the two year number or the threeyear number. We're returning to the long
term trend line. But what Iwant to talk about in terms of these
perma bears and the and the yabbutt crowd, we've never had a senile
president. Well, we probably have. We just didn't know it because there
was no media. But we probablydid because we probably had a senile president.
I mean, yes, definitely,we just didn't know about it.

(04:33):
We've never had Biden and the socialistsand Trump and this and that and the
other. And everybody says, yeah, but we've never had this and that
because they want to believe that everything'sdifferent. Right, We're looking at this
rally off the bottom, pretty typicalbear market, maybe a little bit greater

(04:53):
on the downside, twenty seven percenthide to low ten month rally of over
twenty five percent. What's a bullmark? It looked like eighty to one hundred
percent thirty six to forty two monthsis the average eighty to one hundred percent
on the upside, So you're you'rereally only approximately a third of the way
to an average bullmark. Okay,but I want to talk about I saw

(05:15):
an article in the Wall Street Journaland it goes with this back and forth
with the economic data, and okay, if you're negative on the market,
you'll use the negative part of theeconomic data. If you're positive on the
market, use the positive. Butit shouldn't matter to a typical investor because
you're gonna zero in on one thingand you're gonna make that your world.

(05:38):
Right, You're gonna make that onenegative data point, you're a world And
given that the market goes up seventythree percent of the years, okay,
it goes up ninety plus percent ofevery five year period, if you're gonna
fall on one side or the other, it's certainly better to fall on the
positive side. You mentioned a coupleof weeks back, warm buffet was a
warm buffet set. I never meta wealthy pessimist that was a buffet who

(05:59):
set it was, Yeah, itwas him, Charlie Munger, one of
these Well, I'm gonna use anotherquote, okay, to prove to make
my point here, and this quoteis from Mark Twain, and I think
that this is probably one of themost important things that you can do with
investing, especially if you're one that'sprone to major mistakes at market turning points.
The grammars that so good, Butit's Mark Twain right. It ain't

(06:20):
what you don't know that gets youinto trouble. It's what you know for
sure that just ain't so okay.So what you don't know? What does
everyone say about the market? Yeah, I just can't invest all this uncertainty.
What you don't know? There's allthis uncertainty, as if the uncertainty

(06:41):
that we feel right now is unprecedented. But that would mean that in the
past the future was more predictable,and it wasn't. It wasn't, so
here we have. It ain't whatyou don't know that gets you in trouble.
You can have uncertainty. You caninvest for fifty years through uncertainty and
you'll do just fine. But whatgets you in more trouble is what you're
one hundred percent positive is true.That isn't right. That can't be known,

(07:06):
It couldn't be known, but youthink it, you think it is.
Do you think you do know?Correct? So we can't have a
good economy and a good stock marketwith a senile president spending all this money.
We are, right, And soyou have to look at your own
personal situation to determine how to invest, not all these outside forces. And

(07:30):
I would say that the only thingreally with that is when do I need
the money? Because we just hadall of these unprecedented bads get out of
the way, and unless you needthe money in the next six to twelve
months, you need to be aninvestor in this environment. And last week's
talk of rebalance was really just broadeningout your diversification a little bit because everything
was so concentrated on what went up. And that's the reason in the last

(07:55):
two months small and mid of outperformedlarge and why the rally for the vale
side of the market is is iscatching up with growth a little bit because
they were left behind. It wasso one sided. It just means that
everything was going to move up.And you talk about the the the perma
bears and the perma bowls and andwhat the bears are looking at. When

(08:16):
it was what they said was fivestocks moving the whole market at the beginning
of the year, they were sayingthat was bad. Well, now that
we have everything else moving, theyalso say that's bad. Now it's really
overvalued. They say, so youcan't have it both ways. And there's
a lot of ha it both waysthat I want to touch on in this
show because those same people who saidfive stocks moving the market early in the

(08:37):
year that's not healthy are now sayingthose five stocks aren't moving that's also not
healthy. And James mcindosh in theWall Street Journal put an article out that
said, if you find the economyconfusing, don't worry it is. It
always is, Okay, puzzle investors, but I do like this quote.
Puzzle investors should just diversify their portfoliosand planed, just do okay in all

(09:01):
scenarios. That's not exciting, butthat's how you do well over time.
Okay. A lot of indicators inquestion seem to be prepping for both boom
and bust. If we look atit here, we have the bond market,
for example, with an inverted yieldcurve. Everyone says that predicts a
slowdown, right, but stocks areroaring to fifty two week highs. Stocks

(09:24):
have been rallying pretty much consistently sinceOctober and really took another leg higher starting
in May. Okay, the SMPfive hundreds up twenty percent, more than
twenty percent of the October low.And you can look into everybody wants to
quibble with it and say, oh, it's just the big tech names.
But like you just mentioned it's broadeningout fairly recently. So, and you

(09:45):
look at this back and forth.Okay, the split in the economy shows
up as manufacturing and trouble while servicingservices are booming. Okay, that isn't
a problem. There ares always winnersor losers. But manufacturing people always say
this is early warning site, exceptif we're not a manufacturing economy anymore.
Okay. If you look at thesetwo surveys, the gap has never been

(10:07):
wider between manufacturing and services. Serviceswould be people working in tech, people
working in finance, people working inlegal, those types of things. Constructions
also divided. New housing permits andhousing starts had fallen, had fallen at
a speed rarely seen outside recessions ashigher interest rates started to bite, although
it's rebounded a bit recently. Yetoverall construction spending is at an all time

(10:31):
high, okay, helped by aseventy six percent leap in new factories widely
attributed to the inflation Reduction Acts subsidies. The measurement of these divides itself depending
on whether the numbers come from softsentiment or hard data. Figures compiled by
City Roots show the hard data hasbeen coming in well above expectations all year.
We just had one today and we'lltalk about it later. The GDP.

(10:56):
Right, no one saw that twopoint four percent increase coming. I
just saw somebody just last night postingabout how the pendulum is about to be
swinging any globbed onto some some pointand it had something to do with the
overall economy. And here we arethis morning with an exceeding expectations GDP.
And so one day later that's provento be wrong. We can't glob onto

(11:18):
these one data points from a singlemonth or even a quarter and and glean
anything forward about how we're going toinvest. Right, So diversify your portfolio
across all these sectors. Have somelarge cap, have small cap, have
international, have a little bit ofbond, and then don't worry about the
thing that you read on the internetthat scares you, okay, And that's

(11:41):
that's that's the key with any market. I know it sounds oversimplified, but
people want to drill down and belike, well, no, because of
what's going on here. I knowX is going to happen and you've seen
it a million times, Brad,Okay, the thing that you expected to
happen could pan out and the reactionin the market is completely different. Same,
Yeah, it's not what the reactionisn't what you think. Or the

(12:03):
market was forward looking and you didn'trealize it, and now it's forward looking
beyond that it was already planning onthat. The real news story of this
week. I think what we've heardover and over and I even hear it
on the nightly news, and itis the move of the DOAO. Now
that now hasn't had that big uma move. It's still lagging the SMP.

(12:24):
It's extremely lagging the Nasdaq this year. However, in the last two
weeks and really the last six weekshad a pretty good move. It was
actually in April still negative on theyear, and so it's gotten back to
positive ground. But it's done ithere with at the time of the taping
of this show, fourteen straight updays kind of unprecedented. Actually, even

(12:45):
twelve days positive is pretty unprecedented thatit only happened five times in history.
And when it started to be aten day rally, eleven day rally,
twelve day rally, the bears wouldget on TV and say, well,
this can't keep going. This isa reason to sell and the bulls would
be looking at actual history and say, if every time it's happened for twelve
straight times, those other five times, the three month return was this,

(13:09):
the six month return was this,the twelve month return was this? Oh,
by the way, one hundred percentpositive all those periods of time when
it happened thirteen times? What andthat was on Wednesday. It hadn't happened
since nineteen eighty seven. Well,everybody, here's nineteen eighty seven and says,
wow, then we're going to havea big crash. Problem is it
happened in January of nineteen eighty seven, and the market rallied thirty percent before

(13:33):
that ultimate crash, And so thebears would say nineteen eighty seven bad,
even though it's a positive ear.And the bulls would point out that the
market rallied after that point for sixmonths of thirty percent, had its sell
off, and then rallied again andfinished that twelve month period still positive.
But here we are, it's fourteenstraight days and now it's the longest since

(13:56):
eighteen ninety seven. The dall wascreated in eighteen ninety six, so the
whole history of the Dow, it'sonly happened one time. If we have
a positive day on Friday, it'llbe the longest streak ever, so it
would be unprecedented. We won't knowwhat the history would bring. Well,
certainly gonna be the longest streak withan index that's only up seven or eight
percent on the year, and theDow has dramatically lagged the SMP five hundred,

(14:20):
not only this year. It didoutperform it last year, but it
dramatically lagged the SSP so far thisyear, and the five year number is
not even close as well. TheSMP five hundred has done much much better
than the Dow jones. I knowpeople like to follow the Dow Jones because
we all have the numbers in ourhead. We all know the milestones.
Most people don't even know where thecurrent SMP five hundred level is. But

(14:41):
you remember when the Dow hit tenthousand. Ye, you remember when the
Dow hit thirty thousand, So thosemilestones in your head. But the reality
is the Dow's only thirty stocks.So it's a It's a nice streak to
follow, but it's not as meaningfulto your overall portfolio as you might think.
In fact, in the last fourteen trading days, you might have
seen some strange phenomena on a diversifiedportfolio where you had multiple days in the

(15:05):
middle there where you were down becausesmall caps, midcaps, the NASDAC were
all down even though the Dow wasup the last couple of days, if
you were diversified, you actually didoutperform because the NASDAC, while the Dow
was up a little bit, theNASDAC tech heavy was up even more.
An international for the last five dayshas had really the best rally they've had

(15:26):
all year, and so that's reallyhelped portfolios a couple days here. And
this really has to do a stimulusaround the world and what the other countries
are doing to kind of say thisis our last raid hike and be more
bold about it than the US isUK really pretty much dug their line in
the sand and said this is ourlast raid hike of the year already.

(15:48):
And so those markets are starting tomove because they know that they're not going
to have as much pressure from theirversion of our their FED. So we
get back from the break, let'sdo a quick breakdown. Since it is
headline in the news, the streakof the Dow Jones Let's do a quick
breakdown of the Dow versus the SNPand why the Dow probably isn't your best
index for for your retirement portfolio tobenchmark off of, at least for the

(16:08):
equity part of your retirement portfolio.You're listening to money since Kevin and Brad
Kirsten. We'll be right back andwelcome back. You're listening to the advisors
A Kursten Wealth Management Group. Bradand Kevin here with you this morning.
A lot of talk this week aboutthe Dow because it made its eleven,
twelve, thirteenth, and fourteenth positiveday in a row, and that's kind
of historic. THEO was started ineighteen ninety six, and when it was

(16:33):
started, it was actually only twelvestocks. It's now that Dow Jones thirty.
In nineteen twenty eight it became thirtystocks, but prior to that,
it was supposed to mark an indexthat would be representative of the entire US
economy, of the US stock market, and these twelve stocks American cotton oil,
American sugar, American tobacco, ChicagoGas Distilling, and Cattle Feeding.

(16:56):
GE was one of the original doos. Another gas company National Led just a
company named North America, UH,Tennessee coal and iron, US leather,
and US rubber. Those were thetwelve. At the end of every day,
they divide those prices by twelve andthey would give you the the amount
that it moved and give you aprice, and that price, I think

(17:18):
for the Dow started at one,and here we are at we're thirty six
thousand. I think now today we'renot We're not quite back there. I
think that's the Uh. The highpoint of the of the last was the
high point actually was No, you'reonly thirty Uh actually dials down back down
a little bit today, so itlooks like the streak might end today,
but thirty five three, So no, we were okay, thirty five three,

(17:41):
so the high was over. Sothen in eighteen ninety seven, with
the same twelve stocks as the Dow, we did have a streak that was
fourteen days in a row. Andthat's what all the talk has been this
week. So I actually went throughwhat was happening in eighteen ninety seven,
just we get some perspective here,because a lot of people are saying,
oh, well, let's look toeighteen ninety seven. What happened after that?
I think anybody going back more thanhonestly twenty years for any kind of

(18:06):
history and looking at actual news eventsis missing the point that our economy today
is. The SMB five hundred isthe measure of what the large cap us
market is is twenty eight point threeto six percent technology, eight point one
three percent in communications services. Soyou're talking about an economy that is over
a third of it is technology,and you could even say that technology is

(18:30):
even more than that because of howit has its tentacles and other things.
The first Tao and even the Taothat became the Dow thirty didn't have any
technology companies. So you can't looktoo far back. And I do see
some of these perma bears look atsome stat from nineteen forty and say,
that's what I'm looking at. Thisis what happened the last time that happened,
And you're going too far back inan economy that doesn't look anything like

(18:52):
ours. So in eighteen ninety seven, here's some of the news stories.
First auto policy was issued by travelers, William McKinley was inaugurated. So here
we're gonna look at eighteen ninety sevento try to compare anything. We have
William McKinley as our president. Here'sone for the Ohio listeners. Cleveland Indians.
Fans started calling them the Cleveland Indians. They were actually the Cleveland Spiders

(19:12):
until nineteen fifteen, but the fanswere calling them the Indians because they had
the first Indian player. They hadtheir first Indian player, and actually I
think they had the first, secondand third Indian player in a Native American
player in the Major League Baseball.So that's why they became known as the
Indians, and they adopted that namein nineteen fifteen. Japan goes on the

(19:33):
gold Standard. Inspired by the eighteenninety six Marathon and the Olympics, Boston
Marathon holds its inaugural marathon. We'recoming up on one hundred and fiftieth Kentucky
Derby. Back in eighteen ninety seven, they had their twenty third Kentucky Derby.
Dal Chemicals founded that year. Wehad our first successful submarine launched.

(19:56):
In eighteen ninety seven, Bram Stoker'sDracula was published. The first ship carrying
gold from the Yukon landed in Seattle, and Jack London one month later headed
off for the Klondike Old's Motor VehicleCompany had its first vehicle. It later
became Osmobile. Edison patented the kinetoscopethat became the first motion pictures from that

(20:23):
kinetoscope, and Boston had its firstsubway launched in eighteen ninety seven. So
here we are with all these oldthings. And the point is anybody looking
at what we have going on withhistory now and saying, well, let's
look at the last time this happened. And we have one other instance,
I think is anytime you have asampling that is too small, I don't

(20:44):
think you can you can get anythingfrom it. And even what we're talking
about with a ten day, elevenday, twelve day streak of the Dow,
which is so rare and you're onlytalking about three to five instances,
pretty tough to look at. Sometimeswe get that when we look at the
presidential cycles, we don't have thatbase of a sample to say this is
definitely what's going to happen. Andso a lot of these things streaks in

(21:06):
the DOO presidential cycles. It isa let's get diversified type of scenario because
we can't know well, and Ithink over the last couple of weeks,
because we've seen some divergences with theDOO and in particular the NASDAC where tech
stocks were struggling a little bit moreand now they're making a comeback. Is
to see a portfolio that would youwould think, well, the Dow is

(21:26):
on this big streak and I hada couple of days mixed in that I
saw my portfolio down. It's justnot the best index. Now you might
look at it in the last twelvedays and think it's the best index,
but look at the performance. Wementioned it's only up seven percent year to
date, with the SMP up twenty. But even look further out, look
at the look at the last fiveyears, the SMP is up ten point
nine annualized and the Dow Jones ona five year is eight point three.

(21:52):
So be careful what you wish for. You might want to, yeah,
cherry you're gonna cherry pick the Dowthe last couple of weeks. You would
have cost yourself two and a halfsent per year over the last five years.
And that's because you look at theDow, it's thirty stocks, not
necessarily the thirty largest stocks in theUS for market cap in the US,
just thirty stocks that the people atDow Jones feel are representative of the overall

(22:15):
US economy. The SP five hundredis the largest five hundred stocks. Okay,
you have approximately three thousand, sevenor eight hundred stocks the United States,
so you have mixed in there afterthe SMP five hundred. You of
course, you have the MidCap fourhundred, you have the Russell two thousand,
there's even some microcap indexes on topof that. Then if you're going

(22:38):
to add international brod, there's overtwelve thousand stocks internationally. So if you
haven't even broader diversified portfolio that includesinternational, simply looking at thirty stocks in
the Dow Jones probably isn't your bestmeasure in terms of benchmarking your overall portfolio.
But let's look at the holdings.Okay, the SMP five hundred.

(23:00):
Let's start with sectors. Top fivesectors in order, Tech twenty eight percent,
healthcare thirteen, financials twelve, consumerdiscretionary that would be like Amazon Walmart
that'd be ten, and industrial stockseight. Okay, switch over to the
Dow twenty percent. Financials number onesector for the DOO. So when we

(23:25):
had our bank issues back in March, we had the Dow, dropping banks
weren't doing very well as stocks,and we had the NASDAC doing well in
the SMP five hundred doing well becauseit was twenty eight percent. In the
case of the NASDAC over forty percent. Technology healthcare is number two at eighteen
for the Dow, thirteen percent inthe SMP. Tech is eighteen for the
Dow, twenty eight percent in theSNP. Industrials are fourteen percent in the

(23:51):
Dow. It is the Dow JonesIndustrial average, so you would think industrials
be there only eight percent in theSMP. And then rounding out the top
five of the DOO, consumer discretionarythat is the fifth one, excuse me,
thirteen point six percent. There's evensome sectors that aren't represented at all.
I believe here, what are wemissing? There are no utility stocks

(24:12):
in the DOO at all. There'sonly one materials company, communication services,
energy staples, no real estate inthe Dow. So there's even some sectors
that aren't represented at all. Howabout the top holdings in terms of their
waiting, in terms of how theyaffect the movement, because I think that's
another thing. So the SMP ismarket cap weighted, so the larger the
stock, the more of the waiting. So it's Apple and Microsoft, Google,

(24:34):
Amazon, Tesla are gonna be yourtop video because they are the biggest
and not a recommendation of buyer sellany of those names. You switch to
the Dow and it's price weighted,right, So, so the bigger the
price regardless of the size of thecompany. So Microsoft is in the DOO,
but it's not the number one holding, even though it's got the biggest

(24:56):
market cap in the Dow. Numberone holding is United health Group, and
it's even more concentrated. We thinkthe S and P is concentrated at seven
percent Apple, seven percent Microsoft,three percent Amazon. Okay, the Dow
is nine point one percent United healthGroup, six percent Microsoft, six percent
Goldman Sachs six percent, Home Depotfive percent McDonald's. And this is not

(25:21):
because those who run the Dow thinkthat should be the waiting. It is
just because it's price weighted. Sowhatever the price is United health Group,
not a recommendation to buy or sell. Once again, is four or five
hundred dollars a share? Yeah,so's so if United health Group decides to
do a three for one split,it will be cut by a third.
Or two thirds to a three percentwaiting not because the Dow thinks it,

(25:44):
but just because that's what happened withthe stock, not because it's the right
time to be selling it. Infact, most times after a split there's
a little bit of a knee jerkreaction to buy those stocks and so,
but the Dow would inherently own lessof it at the time post split,
when historically you have a little bitof a run on a stock like that.
So it's not really representative of theeconomy anymore, but it's the oldest

(26:07):
eighteen ninety six is when it wasfounded, so it's the one everybody knows
and looks at. I would sayit's still probably the most important for everybody
to look at, simply because itis the one that everyone knows. When
banks and healthcare are doing well,the Dow's going to outperform the SMP.
When tech and consumer discretionary are doingwell, think about it, growth versus

(26:29):
value. When growth is outperforming,the SMP is going to beat the DOO.
When value is outperforming, the Dow'sprobably going to do a little bit
better than the SMP. So wehaven't had a lot of years where values
outperform growth here in recent memory otherthan last year, and last year was
a year where the Dow did notgo down as much as the SMP quite
frankly, the last really two decades. You can look at value and growth

(26:55):
the way we used to look atstocks and bonds. When you have a
bowl market cycle, it is growthoutperforming almost every single year. And so
what do we have Last year youhad a down year and you had value
up drastically outperforming growth. And thecycles of a bear market, the market
going down by twenty percent or havinga negative year, they don't last very

(27:15):
long. Just over a year isthe average. But the bull market cycles,
the market going up by more thantwenty and then staying up without going
down by more than twenty last almostseven years six point seven on average.
The median, like you mentioned,is a little bit less than that.
But also the not just the lengthof time, and the length of time

(27:36):
is important because it's how quickly youneed to buy the dip versus the length
of time up this extended period offour to seven years of the up,
how long you need to stay withit before you sell the rally. One
is quick buying the dip, theother historically has been long. You need
market gets overvalued and then keeps gettingovervalued, and then earnings pick up and
the overvalued is justified, and thenthings heap moving. That's a normal cycle

(28:02):
for the market. But I thinkmost perma bears would find any period of
time that the market moves up tofind a reason for it to sell it
well. And one of the thingsthat's been going on for more than a
year now is the Fed hiking interestrate we get back from the break,
let's look at previous times the Fedhas both hiked and cut because it seems
to be the consensus that the Fedhikes rates, market never does well in

(28:22):
those periods of time, and thereare some significant periods of time where that
did not happen, And I thinka lot of people are neglecting to say
that. If we go back alittle bit further than the two thousand and
eight financial crisis, you'll see manyFed rate hikes cycles where the market rallied
in spite of what the Fed isdoing. You're listening to money since Kevin
and Brad Kurston will be right backand welcome back to the show. You're

(28:45):
listening to the advisors of Kurston WealthManagement Group, 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
week if you want to set upa consultation to review your own financial plan.
Whether you're just getting started, you'rewell on your way to retirement,
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(29:07):
ideas, give you a second opinion, or or get you going on the
right track. FO seven two zerozero six seven or check us out online
at Kurstenwealth dot com. Brad Iwanted to look at FED rate hike cycles.
There was you know, don't fightthe Fed. People say don't fight
the Fed. They mean don't fightthe Fed with your investments, right,
do not fight the Fed, becausethat that will that when the Fed starts

(29:29):
raising race and badly for stock investorsyou need. I'd like to point before
you get to this, the FEDstarted raising last March or April. The
market is up from that point theirfirst rate hike to today. The market
is up. So don't fight theFed. You can't wait too long.
You can't wait till they're completely done. They haven't even said they're done yet,
right, and you're gonna try totime it up too. I mean,

(29:52):
even even if you'd argue that don'tfight the FED work last year,
well they were still hiking this year, so you just just hike this.
We wants to go back to myoriginal quote. You were certain something was
going to happen. That was thedangerous thing, not the uncertainty of what
happens when the FED either cuts ratesor raises rates. Because someone who rode
all the way through is now higherthan before the FED started hiking rates.

(30:17):
But a lot of parallels out there. How about the parallel for nineteen ninety
nineteen ninety five, And while I'mreading this, why don't you bring it
up? The FED started hiking ratesat three percent, was three percent February
first, nineteen ninety four. Okay, okay, look at that period of
time. You're saying, yeah,they went all the way. And I

(30:37):
know in nineteen ninety four the highto low is only like seven percent,
so not nearly as dramatic as lastyear. But they went all the way
till February first of ninety five,so one full year of rate hikes got
them all the way to six percent, so three percent, six percent.
What was the most recent increase herewas five and a quarter or five and
a half. Well, it's therange. It's five or two five and

(31:00):
a half, so it's essentially fiveand a quarters our rate. Okay,
so we went, but we cameoff of what was essentially zero right this
nineteen ninety nineteen ninety five period,we were coming off of three percent,
so at doubling as opposed to somethingmuch more dramatic five times. However,
I mean that's you've got the SMPat that time, you're talking about ninety
four at about four hundred and fifty. And when were they done cutting exactly

(31:25):
one year later? Okay, Soone year later we were up one hundred
and ten SMP points on four fifty, so twenty five percent five percent one
year later through that rate hike cycle. And by the way, you went
from four hundred to five hundred,and then five years later the SMP five
hundred was at fifteen hundred, triplingfrom that fed rate hike cycle. Now

(31:49):
in the middle of that, innineteen ninety eight, they did a job
excuse me not let me before Iget back to nineteen ninety eight, okay,
when FED increased to six and lookslike inflation was leveling off at that
point. In nineties mid ninety fivethrough early ninety six, they cut seventy

(32:10):
five bases points. And that's whatthe Fed is indicated today, is that
they're going to go up. They'regoing to keep it there for a time
period. In the nineteen ninety fourand nineteen ninety five time period when they
got to their peak, six monthsafter they stopped, they started cutting.
And I think that that is ifyou look at the FEDS dot plot,
that's exactly what they're indicating here.Okay. And what a lot of especially

(32:35):
bears, are not saying is theythink the bears think they're going to have
to cut because the market's going totank. Well, that's not what happened
in nineteen ninety five. The marketdid not tank, You started going up.
What happened was what's probably likely tohappen here, is that you had
deflation happening. You had inflation thatwas that was tanking, and they were
doing it to stabilize inflation on thedownside. And so in all likelihood,

(32:58):
that's what we're going to have comingup is inflation is going to continue to
fall, and especially with import xMoore prices being affected by it, you
could have inflation that gets down belowtwo and continues to head down, and
that's the reason that they cut.It'd be a very bullish sign for the
market. So if you looked atthat, they paused. Six months later

(33:22):
they cut three times, okay,went back down twenty five twenty five point
two five percent. Then in nineteenninety seven they randomly increase rates by point
two five percent again to get tofive and a half. You could see,
you know, we're writing that rangeright now. And then in nineteen
ninety eight there was there was anemerging markets crisis. I can't remember what

(33:44):
it was. In the summer ofninety eight, they cut three times again.
Then after five straight years of economicexpansion in the stock market tripling,
they started raising rates in June ofninety nine. Okay, So I'm not
saying history repeats itself, but itoften rhymes. And when you look at

(34:04):
what the FED did in the nineteennineties, I see some similarities. Here.
See a FED that's going to raiserates, then they're gonna level off,
possibly cut back to a level ofequilibrium two three four cuts after they
get to say five and a halfpercent on the Fed funds rate, going
back down to maybe four and ahalf to five for a period of time,
Okay, and then if we getin nineteen nineties style expansion, Yeah,

(34:29):
they might start raising again. Thatwould be the time, after a
three or four year run inequities.Yes, that would be the time to
really reduce risks. Yeah, Andyou can and you can't say you can't
pinpoint say that nineteen ninety nine raiseand say that's what's that's what's going to
happen, because ten months later wehad the peak of the market. Because
when they started raising rates in nineteenninety nine, you went ten months where

(34:50):
the market went up another fifty percentbefore it peaked, and they and they
did it gradually. Here we didn'thave that. We had them raising rates
upidly and the market going down fromhigh to low twenty six point two percent.
So you cannot compare the two.This is not nineteen ninety nine.
This is more like other periods wheretheir rate increase started to slow down the

(35:12):
economy and slow down the stock market. And now they're at the tail end
of that. So nineteen ninety nineis not your comparison because the stock market
and the economy, we're still thrivingin that period of time, and they
needed to keep raising to try toslow things down, right, And one
I've heard people even say, well, even in the nineteen nineties, the
Fed eventually broke the market, theVET eventually broke something, and we have

(35:32):
the dot com bubble burst after fiveyears of market performance. Guess when the
SMP started at four hundred and endedat fifteen hundred. Yeah, so that's
fine, I'll be fine with themarket tripling. And then we have a
little bit of a sell off.But we're not there, right, We're
up. We're up twenty seven percentfrom the bottom, not three hundred.

(35:52):
So here's here's the funny thing forthe people that weighed around because of uncertainty.
Okay, if you had been negativeon the market at four hundred nineteen
ninety four, okay, and thenyou sat there and waited and waited and
waited and said, okay, nowdot com bubble bursts, I'm going to
get in. Okay, you're gettingin. Point would have been eight hundred

(36:16):
on the SMP. Because the SMPwent from fifteen hundred to eight hundred.
Whoops, where'd you get out fourhundred? So you waited all that time
for the final bear market to hitand you got it right, mister Wilson
at Morgan Stanley. And now you'regonna tell people to get in, and

(36:37):
yet people need to fact check whereyou tell them to get out. And
that's where we are now, right. I mean, even if you got
a five or ten percent pullback,you're only erasing two months worth of performance
because the market has moved so much. And so do I think that five
or ten could happen this year andstill we move highway for the end?
Absolutely, but look where the markethas has has moved two in the last

(37:00):
one month, two months, threemonths, It doesn't really matter. You
don't need to pinpoint and this isgoing to be the high point for the
next two month. I would stillsay, Brad taking the SMP five hundred
out of the equation. You lookat the chart of the SEP, Yeah,
it looks like a great rally,even though it's not nearly back to
the all time highs MidCap and SmallCapindexes and international indexes look like they're just

(37:22):
getting started on the charts. Sothat's something very important to pan out.
It was. It was set atthe beginning of the year of Brad that
this year was the year of fixedincome. And although we thought it would
be a better year, it couldhard to not be better than last year
for fixed income, but it wouldbe a solid year for fixed income.
With the aggregate bond index up twopoint five percent two point four percent through

(37:43):
the first seven months of the year, that's a pretty good year for fixed
income. This is not the yearof fixed income. It's the year of
equity expansion, and that's what we'reseeing. And if you had some fixed
income, certainly didn't hurt, especiallylike it did last year. But that
was one of the predictions at thebeginning of the year. It is going
to be the year of fixed Incomer. Take our last pause. You're listening
to Money Sense Kevin and Brad Kurston. We'll be right back and welcome back

(38:07):
to the show. You're listening tothe advisors at Kursten Wealth Manager Group,
Kevin Kurston and Brad Kurston. We'reon our last segment here, Brad and
you were glancing through Ryan Dietrich's midyearoutlook twenty twenty three. He is no
longer with LPL Financial. We usedto follow him pretty closely when he was
a strategist with LPL, now withanother firm, but great Frankly still does
a really good outlook, mid yearoutlook, and a lot of great commentary

(38:30):
on Twitter as well. So it'salways pulling a good charts and it's a
it's easy to follow, and it'salso it's not perma bowl, perma bear
it. It's just the facts,okay. And what the facts are telling
you with a lot of things rightnow are that if we don't look at
a two year chart on things ora three year going back to the pandemic,

(38:53):
a lot of metrics would say thatwe're still healthier than pre pandemic,
even though you have this unreasonable upand down, down and up depending on
what you're looking at. And you'realso right back on trend lines for some
other things. So pick your metric. You know people are saying consumer spending
US slowing down, it's slowing downfrom a two years ago. Well let's

(39:15):
take them one by one here,bro Okay, start with household debt services,
interest rates her up. You're seeingall these people doing these side by
side, three hundred thousand dollar.Hoss house cost you this much two years
ago, now it costs you thismuch today. There's there's one. There's
a couple of problems with that.One. People are paying cash for more
houses, and the amount of downpayment is higher than normal. So the

(39:38):
actual debt service on a household orcredit card is well below pre pandemic and
well before below long term averages.If you look at all of your debt
payments as a percentage of your personalincome. Okay, the peak was two
thousand and seven over thirteen percent.The low was right after COVID at eight

(40:02):
point two percent, and today we'reat nine point seven. The forty year
forty five year average is eleven.So we are still one point five percentage
points below the forty five year averageon household debt. Now here's something I
think by the way, household debNo I heard that we have more debt
than ever we do, But doesdo dollars matter? We also are making

(40:25):
more money. You had to doit as a percentage of income. Yeah,
And so anyone who wants to cherrypick that and make it say it's
bad is looking at dollars and anybodywho is sensible one is not looking at
a three year average, but islooking at a long term because you can
compare this long term, because youcan say, what were people making in
the eighties or nineties or two thousandsas compared to the amount of debt they

(40:46):
have, and it's a more reasonablefigure. Here we're just barely off the
bottom. So have we moved up, yes, but it's very low.
How about consumer spending? You mentionedconsumer spending. It was you look at
the start right on a trend linebefore the pandemic, approximately thirteen point four
trillion dollars, okay, and movingup slightly every year, went down to

(41:10):
eleven trillion at the low of thepandemic. That erased almost ten years worth
of consuming a consumer spending okay,has since it returned back to its back
to its high point in twenty twentyone thirteen point four trillion and is now
at fourteen point four trillion, Soa trillion dollars of consumer spending more than

(41:35):
before the print pandemic. And bythe way, it returned right to that
gravity line, which is the trendpre pandemic. That's like, you know,
two or three percent increased spending peryear. You're right on that trend
line now the bear would say,oh, look how much it's slowing down.
A year ago is increasing by onehundred percent. Now it's only increasing
by two percent. And the sensibleperson would say, we're right back on

(41:58):
trend line. That makes sense thatwe would level off here. Yes,
but I read that credit card balanceshave increased dramatically over the last year.
Well, it depends on what yourdefinition of dramatically is okay credit utilization rate
what percentage of people's available balance arethey using Okay? At the low after
the pandemic, it was thirty sevenpercent. Now it is thirty eight percent,

(42:24):
and the twenty five year average isfifty one percent. So the twenty
five year average was half of theavailable balance being used on credit cards.
It is now thirty eight percent,up from thirty seven percent. That thirty
seven to thirty eight percent is theincrease that folks are citing. And you'll
hear that. You'll hear people say, oh, the credit card utilization rate

(42:45):
is starting to spike. Yeah,spike from a all time low. Definitely
cherry picking to find something negative inthat figure. You can see the same
thing in delinquencies for houses, barelyoff the bottom and still lower than two
thousand and three, four, five, six, seven delinquencies. All delinquencies

(43:07):
combine were over twelve percent at thelow of the financial crisis in two thousand
and eight. They are at twopercent today. Okay, any kind of
delinquency would be you know, froma full blown default to delayed payment days
late. Yeah, that's right.So you know, you look at every
one of these numbers, and ifyou look at the last year, you're

(43:30):
bouncing off an all time low.So it seems like this big increase.
I've heard a lot about money supply. Now that's sort of a in the
weeds number, but a lot ofpeople like to cite the drop in money
supply. We're down like six hundredbillion dollars from the peak, but we're
still five trillion higher than pre COVID. Yes, so just citing it as

(43:50):
a were the FETE is tightening thingsand therefore the economy is going to slow.
It's still historically loose because of everythingthat they during COVID and so rolling
off some of the debt is somewhatmeaningless when you look at a long term
average on where money supply has been. Right, So the bottom line is

(44:12):
people can call you what you want. We have a two point four percent
gross domestic product today. The textbooksays you have to start with two consecutive
quarters of negative and then you couldadd some other extras to determine if you
add a recession. We did havetwo consecutive quarters last year, but it
also was in a period of timewhere we added a million and a half
jobs, so you couldn't call itthat without the job loss to go with

(44:35):
it. So recessions aren't just theGDP number, But at two point four
percent, you're not even close toa negative number. So you're seeing a
lot of these perma bears pushing thatrecession talk out, well, it'll just
be next year, it'll be twentyfour, it'll be twenty twenty five.
They just keep pushing it off andeventually they'll be able to say that they're
right. But also, a stopclock is right twice a day, so

(44:58):
the people won't remember where they started. Anybody who's missed out and wants to
give us a call, there areplenty of areas in the market that are
below long term average for price toearnings ratios, that haven't moved this much
this year that we are as we'rerebalancing, making sure we're adding a few
percentage points back to because it isgoing to be a fits and starts market

(45:20):
where you have different leaders for amonth or two. You don't have to
be concentrated and therefore more aggressive market. Ten months ago, it's a jump
in the water with both feet market. Yeah okay. That doesn't mean today
it's get out at all costs.No, today it's put one foot in
the water market. Yeah okay,because now all of a sudden, the

(45:42):
risk and reward You're not going toget another twenty five percent in the next
ten months, so the risk rewardisn't as enticing. Doesn't mean that you
can't put together a solid portfolio that'sgoing to do well over the next two,
three, four or five years.You're not going to have the kind
of performance you see off market lows. But guess what the market averages eight
or nine percent annualized per year.Yes, you won't get those market low

(46:06):
numbers that typically give people above averagereturns, but the market can still provide
a great inflation heade much better inflationheads than fixed income no matter what people
say. Even though we are ata lower inflation number, so you still
want to do all the same thingsthat we've always advised on this show.
Be diversified, spread your assets around, and be able to weather any type

(46:29):
of market regardless of the uncertainty thatyou may see out there. Thanks for
listening, everybody. We'll talk toyou next week. You've been listening to
Money since brought to you each weekby Kristen Wealth Management Group. To contact
Dennis brad or Kevin professionally called fourone nine eight seven two zero zero six
seven or eight hundred eight seven fiveseventeen eighty six. Their email address is

(46:53):
Kristen Wealth at LPO dot com andtheir website is Kristen Wealth dot com.
Opinion voiced in this show or forgeneral information only, and are not intended
to provide specific advice or recommendations forany individual. To determine which investments may
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