Kersten Wealth Management Group - Money Sense 8-12-23

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Episode Transcript

(00:00):
Good morning and welcome to money.Since you're listening to the advisors of Kursten
Wealth Manager Group, Kevin Kurston andBrad Kurston. Happy to be with you
this morning, Brad, as themarket has really started a little bit of
a consolidation phase. We talked lastweek about the little bit of a correction
that's happening. Not even gotten tothree percent at this point, but I

(00:20):
definitely like the way the market isconsolidating. Uh, we're kind of have
these back and forth up and downdays which works off some of the excess
and sometimes the excesses worked off overtime, sort of a choppy sideways action.
Sometimes excess, a little bit ofexcess in the market has worked worked
off through a quick sell off.This kind of sell off, to me

(00:41):
is much more encouraging. We're notseeing areas of the market completely melt down,
especially as we go through earning season. We're not seeing these one off
reports where especially big tech or thebig the big holders of the SMP five
hundred, the big holdings of theSMP five hundred, you didn't see these
five six percent post earning drops,which says that the market is rightly or

(01:03):
correctly pricing the current levels of manyof these stocks, So that's a good
thing. I mean, up ordown one percent post earnings is nothing dramatic.
Now, Amazon had a really goodreport and went up significantly after their
earnings, and even Apple was kindof read as being so so, and
I think it was down like threequarters of one percent after earnings. So

(01:25):
the earnings have been encouraging, andI think this consolidation has been encouraging as
well, and so you get someof those overbought readings that we follow in
the market's kind of worked off overtime. I think the other encouraging thing
is that good news is good newsagain. If things were getting too overheated
six months ago or a year ago, the fear was that the Fed was

(01:46):
going to have to go too far. Well they went pretty far so that
it was probably justified. But nowwe're not worried about really the only thing
that the market would be worried aboutis inflation being too hot. And so
this was an inflation week. Wegot the CPI report on Thursday. The
the pc reports that that the Feddoes look at are going to come out

(02:07):
tomorrow. But the one that wassupposed to be even hotter than expected.
That the Cleveland Fed had it predictedat point four two on a monthly,
which would have brought the UH theannual inflation rate up to probably be at
three point four was a half thatit was point two on the monthly,
and so here we are at threepoint two on the annual. And now
the projection for the September FED meetingis that they're not going to raise.

(02:31):
And for a while it was abouta fifty fifty coin flip and now it's
about ten percent is what is projectedthat would say they're going to raise.
So pretty pretty safe bet that nowin September the Fed won't have to do
anything. The market doesn't expect themto do anything, and they've been on
this mode of not wanting to surprisethe market. So I think that's what
we're going to get. And thenby the time we get into later in

(02:53):
the year, we're going to haveenough CPI reports that are lower that the
FED talk will finally be over.We did have if you look under the
hood, we did have finally someUH some things that were that were hotter
than expected, and energy was notexpected to be UH in the in this
month's report expected to be as hotas it was, but it was uh

(03:15):
the one increase after about six straightmonths of decreases, UH for energy related
UH electricity was the one thing thatwas had continued down. But everything else
just kind of moderating and uh theonly real negatives in here, we're the
home electricity and new and used vehicles. Everything else, it's just kind of

(03:35):
flatlining at point one point two oneach month. That's what the Fed kind
of wants to see. It's whatthe market wants to see, knowing the
Fed wants to see it, andso now we can kind of get past
that. And if things like jobnumbers come out a little hotter than expected,
that's normally a good thing, butthe market didn't want to see it
for the last year, and solow unemployment, pickups, high jobs numbers,

(03:59):
high jobs, uh openings will allbe a good thing from here to
the end of the year. Imean, the economy is picking back up
and not getting overheated, but justpicking back up, and that's a healthy
sign. I saw a pretty goodthread on on Twitter up X. It's
called X Now. It's okay.It's it's a lazy name, I think,
but it's okay. Yeah, Imean I think the the the the

(04:23):
symbol of the X for Twitter.It looks better than cool. It's pretty
cool. Uh. On on coreinflation, uh, you mentioned some of
the numbers. I think when wewhen we look at some of the more
because the headline number is always twelvemonths, right, but the twelve months,
that's what's going on right now,right, that's I think. So

(04:43):
I saw somebody post the three monthnumber. Okay, the headline three month
is one point nine. Okay,okay, one point nine annualized. The
headline core, uh, excluding foodand energy is three point one. That's
the lowest in September of twenty one. So interesting there core inflation on the
soft side for a couple of monthsnow. Use cars minus one point three

(05:04):
in July, but I was actuallyin the market for a used car for
one of my kids, and Ithink the prices are still ridiculous on used
cars. You might you might bedown one percent in July, but I
think, well, here, letme take you back on that one point
three in July, point half apercent in June, four point four positive
in May, four point four positivein April. So you only have to

(05:26):
go back to April, and youadd it all up, and you're still
five percent higher than you are today. Yeah, I mean it's just anecdotal.
But looking for a simple vehicle foryou know, a kid who's just
gotten a license, and you're lookingfor something with fifty sixty thousand miles and
they want twenty grand for it orone hundred thousand miles. I mean I
saw cars one hundred and twenty fivethousand miles which used to be like that

(05:51):
car was dead last light. Soit's like, I mean, I know
the cars are are they've made they'remade better these days. One hundred and
twenty five thousand isn't what it usedto. But I mean even one hundred
thousand miles used to be taken tothe junkyard, wasn't it. Yeah I
remember it any time, Yes,absolutely. But anyway, so those prices
have a long way to go.Still shelters the big one because it makes

(06:14):
up such a large percentage of inflation. From June of twenty two to February
of twenty three. Okay, Junetwenty two it was almost eight to ten
percent consistently. Then from March toMay, so March April May it was
six and a half and from Juneand June and July it was five and

(06:34):
a half. So on one hand, it's still going up, right,
You're not You're not going back towhere you were, but it is slowing
down. Shelter ran before the pandemicthree to three and a half percent for
over ten years, so that issignificantly higher than than pre pandemic. Still

(06:55):
disinflation even outside vehicles and shelter foodaway from home over the past three months
four point two versus seven and ahalf in December. Household furnishings down four
point one three months. This isthe three months. Apparel up two point
three, pet services point six,daycare point nine percent. So some things

(07:20):
will go back down. They will, but some things won't. And it's
all a supplied demand problem. Andif you think about how that will make
its way into earnings. If youhave companies that are charging double what they
were a few years ago and theirinput costs level off or go down,
think of housing with the input costsgoing down, but they're still able to

(07:40):
charge as much as they are becausethey only have so many hours in the
day to build houses. And they'resaying, I have somebody that will pay
this, so I'm not lowering myprices. That all goes to the bottom
line. Think about a hotel usedto be able to get one hundred dollar
hotel room. You look anymore ifit's a if you're going something to a
city that has any kind of event, you're paying four hundred or more for

(08:01):
a hotel that would have cost youone hundred hundred and fifty before you're paying
triple. And so I'll do thislater in the show, but there's a
blog about the Taylor Swift effect insome of these cities on hotels. So
is a positive for earnings there theydon't have They have a little bit more
an input costs for wage labor,and but that's about it. And so

(08:22):
once the wage labor levels off,it's not the wage labor isn't triple.
The wage labor might be up fiftypercent. But if you're getting three times
more on average for your hotel roomsand you're getting it because of the demand,
so you're fully booked that these stocksare not up that much, and
so earnings are going to reflect that. And so even stocks that are high

(08:43):
multiple, it's going to be justifiedbecause of the prices that they're able to
get simply because of the demand that'sout there for a lot of the consumer
related items, and so anyone waitingfor a recession still, you know,
the recession you got was in anearnings recession at the tail end of last
year and in a little bit ofa GDP recession at the beginning of last

(09:05):
year, and that's it. Theconsumer is still strong enough with wage increases
and cash on that that they're justspending that you're not going to get your
recession, and so everyone's heading tohave to push it off to the next
crisis. Interesting in the last week, when we have had a little bit
of a down period of a coupleof percent in the S and P five
hundred, energies up over three percentin that week. Healthcare is up one

(09:30):
point one. I think healthcare isan interesting area there because of how much
it's lagged behind. I mean,the one year return on healthcare is only
four versus ten for the S ANDP. So that's that's interesting to see.
Yeah, the energy had to lookat some of the consumer discretionaries up in
the last week with the S ANDPdown, so that's interesting too. That
was partially led by hand. Alot of that's earnings related, but yeah,

(09:50):
you're you're two big sectors last yearwere energy and utilities, but healthcare
just lagged the whole time. Soa lot of these are just undervalue going
into this period. And so whenwhen people are looking for or investors are
looking for what's under value, they'remaking this flight to quality, if you
will, or flight to cheapness adjustmentin the portfolio. Yeah, and UH

(10:13):
utilities down two point eight in thelast week. That's interesting. Usually that's
a defensive sector that holds up prettywell that when the S and P pulls
back a little bit. Yeah,So that's that's a little bit of a
whipsaw with the actual prices. Ifyou're not you know, if you're looking
at your own electricity bill, you'regonna see it going down. But you
can actually go back and go outand shop it again and get some lower
utility costs for your own home.And kind of a story in the Wall

(10:35):
Street Journal this week that we cantouch on later, but it's it's about
how all of these electricity utility costshave gone down over the last three months,
but that it's protected to be prettytemporary. And even Elon must is
saying that the that the demand isgoing to triple by twenty forty five,
and that is that dwarfs the estimatesby the US government. So it's private,

(10:58):
private citizens, private copies putting ininfrastructure and building up the anticipated demand
because of what the government's forcing everyoneto do with electric vehicles and all of
the green energy stuff, where wedon't have enough out there. The last
couple of months also tough for fixedincome, and the aggregate bond indext brand
including interest is only up one pointsix percent on the years, as the

(11:18):
market starts to absorb the idea thatthe endpoint for FED funds is higher than
they thought. And that goes backto you know, folks saying that the
number one investment this year would notbe stocks, would be bonds, and
that's not proving to be true.I mean, in fact, one of
the slam dunk investments folks talked aboutat the beginning of the year that we

(11:41):
referenced was the two year treasury.The two year treasuries now four point eight
three, yeah, I think peakingout about five point one, So it
was four and a quarter four anda quarters to start there. Okay,
Now, if you bought four anda quarter and you hold it for two
years. Okay, you you'll geteight a half, you'll you'll you'll get
that back. But if you endthe year with a four point eight three

(12:05):
or maybe higher, you are underwaterin terms of your principle. If you
want to sell today, yeah,you got your yield, but you're underwater
on the on the principle because ofwhere the yields went. Correct, I
mean the yield is up six tenthsof a percent. Uh, maybe we're
at the break. We'll do thatmath. Say if you had bought the
two year at the beinn of theyear, what is your return because many
would say, well, if Ibought the two year at the at the

(12:26):
beginning of the year, which thatwas one of the things on our list
that was consensus that we said wouldbe wrong. And the reason we were
writing it down is to say,how many of these consensus items are going
to be wrong? Correct? Yeah? Correct? The most census was so.
So six tenths of a percent increasemeans your investment in that two year
treasury is probably underwater at this point. And so you know that was something

(12:48):
at the beginning of year that everyonesaid it was the year of bonds.
Why wouldn't why wouldn't I just takethis for four and a quarter percent.
It was the year of bonds,And the market never makes it that simple,
right, just about when bonds lookgood, stocks look even better.
Right, That's that's what the marketdoes. I often say to people,
even when we go back to aperiod of time when people said, remember
when treasuries were six and seven percent, if I could just get that again,

(13:11):
I jump all over And I said, and they said, when do
you think that will ever happen?They say, when you don't want it.
That's when that's when those yields willbe there, is when you don't
want it and so and the don'twant it comes with stocks doing twenty percent
for ten years, and then you'reand you think, why would I want
that that low six percent yield whenI can get twenty That's what people said

(13:31):
in the year two thousand, tenyear treasure was over six percent. You
could have had it, and nobodywanted it. So that goes to the
consumer sentiment for all aspects of it. So let's take our first break.
When we come back. I wantto talk touch on something we talked about
over a year ago, which wasthis low point for consumer sentiment and then
kind of track where it is todayand how consumer sentiment can be a great

(13:52):
barometer for contrarian investors. And itreally almost without fail. I mean,
you're gonna have some highs and low, but let's see where it is.
We able to add a historic lowlast June. Let's see where consumer sentiment
is today. You're listening to Moneysince the advisors are cursed and Wealth Manager
Group, we'll be right back andwelcome back. You're listening to advisors are
Kurstan Wealth Manager Group, Brad andKevin here with you this morning. Kevin,

(14:15):
we're talking about I'm talking about interestrates and what it takes for them
to go up, and it takeslack of demand because now price goes down
and yields go up. That's kindof in the weeds. But the point
of that and the point of beingcontrarian is and knowing what some of these
contrarian signals are. Once a month, the University of Michigan puts out a
consumer Sentiment Index survey and gives ita number to say, are consumers confident

(14:41):
or not confident in the prospects fora lot of different things. There's a
lot of different questions, but basically, do you feel good about the stock
market? Do you feel good aboutthe economy for the next twelve months?
Most of these questions in the surveyare revolving around the next twelve months,
invariably when it's at peaks and offs. The news media, especially business news

(15:01):
media, supposed to be smart people. They don't know that it's a contrarian
indicator, and so a year agowe were seeing in June when it was
its lowest indicator ever, they'd beposting it and saying, oh, isn't
this terrible? Well, not historically, and when it's at a peak,
they're, oh, wow, isn'tthis great? Everyone feels great about the

(15:22):
economy. Everybody feels great about thestock market. No, it's not.
If you know history and know whatthis is really telling you, you would
be buying when everybody is fearful andselling when everybody is euphoric. And if
any of our listeners want to followalong, or if you're listening on the
podcast you want to hit pause afteryou can go find this. JP Morgan
puts out this Consumer's Confidence Survey anddoes it in a good way where you're

(15:43):
looking at the performance twelve months laterafter these peaks and troughs. And if
you just google JP Morgan Guide tothe Markets, and the current one will
be the PDF that you can find, and it's on page twenty seven of
seventy one. But a year agowe were talking about it when this was
at its lowest point ever. Theonly time that even marked even close to
the low point that we were atfor consumer confidence was May of nineteen eighty,

(16:08):
when we had inflation at a similarlevel. But when consumer confidence is
at a trough, and on thischart they're showing the eight tross, the
average performance twelve months later is almosttwenty five percent, twenty four point nine,
and the worst one of those eighttross is fourteen point two, and
most of them are north of twentyand giving you that twenty four point nine

(16:32):
average when everyone is confident and consumerconfidence is at its peaks, and if
you look at the eight peaks goingall the way back to nineteen seventy,
the performance from those eight peaks andconfidence twelve months later is four point one
percent. All we care about iswhat's going to happen in the next twelve
months, not the prior twelve months. We wouldn't be making adjustments to say

(16:52):
Hey, everybody feels great about whathappened in the past. Therefore, let's
make an adjustment to to account forthat. That would be a foolish way
to invest. And so when youlook at these peaks in confidence, you
know they come at you know,right before COVID. They come in January
of oh seven, They come atJanuary of two thousand, right before the

(17:15):
drop and the troughs come going backwardshere last June. They come right after
COVID shutdowns. They come right afterthat got downgraded in two eleven. They
come in November of two thousand andeight, they come in March of two
thousand and three. And in thoseperiods, no one's confident about the economy,
no one's confident about the stock marketsprospects, and that's when you get

(17:38):
your best performance. So I'm mentioningit because here we are coming off this
bottom and where are we today today, and as we're looking at this Chart's
kind of hard to describe, butthe chart goes from really it's it's it
should be one hundred down to fifty. But we've had to expand it because
of a couple different periods of time, like last year. The low points

(17:59):
really are right around fifty, thehigh points are a little north of one
hundred, and the average for consumerconfidence is right about eighty five. If
you're below the line, the prospectsare pretty good for the next twelve months
for stock market performance. If you'reabove the line and certainly north of one
hundred, the prospects are not verygood. So looking at the chart,
you should be a buyer under reallyeighty, you should be a holder from

(18:22):
eighty to ninety, and you shouldthink about taking risk off when it's at
ninety. So today this goes tothe skepticism that we still see in this
market rally, absolutely, because herewe've had this huge rally off the bottom,
and we went from fifty on thischart to seventy one last month,
and it's been this slow grind higher. In fact, the last month saw
the biggest increase in a one andtwo month period. Of the entire period,

(18:45):
it had been up, down,up, down, just kind of
creeping around sixty on the chart.So if we look at the average for
the troughs, and we certainly hadone last June, the average performance twelve
months later is twenty four point nine. The skepticism is, like you mentioned,
kind of goes to the numbers thatwe got off of that bottom.
From last June. Last June thirtiethto June thirtieth of this year, the

(19:08):
stock market performance is measured by theSMP five hundred, was seventeen point six
percent positive. If we measure itfrom the June low, which was June
sixteenth, to the following June sixteenth, it was a little bit better.
The performance was twenty one percent positive, so still kind of under the average
and under what we probably should havegotten since we had such a dramatic bottoming

(19:30):
in the consumer confidence last June,we've still just been creeping forward. And
so anyone thinking that we're extremely overvaluedis is not really looking at the entire
market, because there's pockets that areovervalued compared to earnings, but those were
the earnings are picking up the most, and we're certainly not. We don't
have any screaming singles of euphoria,and this consumer confidence would certainly be one

(19:53):
of those that would be screaming euphoria, and we're not even close. Well,
you mentioned earnings and earnings being apart, you know, of what
goat would go into someone's decision tobe positive or negative. On the overall
market, and we're closing out earningseason still negative, better than expected.
And I'm gonna compare the SMP fivehundred here to the and I'm not going

(20:14):
to do COVID is sort of aunique earnings went away because we forcibly shut
down the economy. I'm gonna goand look the two previous times before that
and what the market did both duringand after the SMP five hundred. Because
we started this earnings decline with fourthquarter earnings, Okay, fourth quarter earnings,
so that would be it started onOctober one, twenty two, and

(20:40):
it looks like will probably be positivein this quarter, but it's going to
be very slight. So we'll seeif this quarter ends the earnings decline and
the actuals versus the estimates. Obviously, the earnings climb was not near what
people had had thought. Five pointeight in the fourth quarter, down one
point one. This is earnings,not the market. This is earnings and

(21:03):
coming in at five point five forthis quarter when going in it was expected
to be minus seven. Okay,it looks like next quarter may or may
not be positive slightly, But let'slook at a couple of previous times where
I bring up the SMP five hundredon your phone. There the last earnings.
Let's go to twenty fourteen, becausethat was a pretty significant earnings decline.
The peak for earnings was the thirdquarter of twenty fourteen, so September

(21:30):
thirtieth, twenty fourteen was the peakfor earnings on the SMP five hundred.
The trough was the end of thefollowing year, the end of fifteen.
So what did what did this marketdo from peak to trough? There?
If I look at the highest pointin September, just do September thirtieth to
the end of the end of twentyfifteen k So September thirtieth of fourteen,

(21:52):
the SMP five nineteen seventy two,yep. And one year later, is
that what you're looking for? Oneyear later, the end of fifteen,
Oh, the end of fifteen.Take me a second to get here.
I want to say earnings. Quarterlyearnings at that point in time went from
just to put it in perspective,twenty seven point four per share down to
eighteen point seven, so pretty significant. About a third twenty twenty forty four

(22:17):
is where the SMP five hundred wasat that point. It's pretty flat,
pretty flat. I guess you're up. You're up about two percent. You
would have collected about two percent dividends, about a four percent increase. Okay,
So yeah, so fairly flat marketfor a year and a quarter.
Okay, Uh, twenty eighteen.I'm not going to do COVID. Uh
twenty eighteen. The peak of earnings. Uh, it was one quarter.

(22:40):
It was September thirtieth through the Itwas that quarter only. And we know
what the market did in the fourthquarter of twenty eighteen. It was down
twenty percent. But then when thenext quarter rebounded, so did the SMP
five hundred. Yeah, it's it'sit's And by the way, if you
could anticipate that the the surprises,not the decline, that's that that would

(23:00):
be more meaning, what do theSMP five hundred d from the level of
two thousand until the next time earningsdecline, which was September of eighteen,
I believe it was up a thousandpoints roughly. Yeah, So we were
at September of eighteen where you're you'realmost exactly right, twenty nine oh eight,
and so yeah, you were,you were nine hundred from that trough

(23:22):
of earnings to the next peak almostfifty percent, almost exactly. Now we
look currently, okay, we uhit was the fourth quarter. Uh So
it's interesting that the sell off herehappened prior to earnings rolling over. Okay,
But here we are this year withthe market up significantly. Earnings have

(23:44):
gone from the peak, which isthe fourth quarter thirty forty eight a share.
So look at these numbers. Two. You go back to twenty fifteen,
the quarterly earnings were eighteen. Thisyear, now we're talking forty eight.
Yeah, so this is what drivesreturns, folks. Okay, the
s and P five hundred, thewhole index. It's it's almost a triple

(24:07):
in earnings power in that eight yearperiod. Now we're still talking about a
decline. But people say, howcan it be at four thousand, five
hundred, Well, companies are makingtriple what they made eight years ago.
It's pretty simple. This is notrocket science. So but my point is
we're coming out of that trough.We already had our downturn. Twenty fourteen
and fifteen had their downturn, Okay, and each time when you got to

(24:33):
the next peak, that also correspondedwith significant SMP five hundred returns. So
let's just recap the takeaways from earningseason really quick because we're almost done,
and it is it is going totrack more like five percent down as opposed
to seven. Okay, So ifyou look at some of the companies that
are that are doing better and doingworse, you certainly saw Energy is a

(24:59):
big lagger in earnings in this currentthis year. Yeah, absolutely, I
mean that's just coming off of ahigh point. In fact, if you
take energy out of the equation,this last quarter, we actually have positive
earnings because energy is coming off ofa yearly comparison that's almost impossible to Yeah,
you're comparing year over You're just likewe do with inflation, so it's
hard to beat, right. Soyou you certainly saw that communication services led

(25:22):
by Facebook and Google, none recommendationbuy or sell, but that was the
standout too. Earnings growth of eighteenpoint six percent for communications services, while
I mentioned energy, Energy was downfifty two point six So guidance, guidance
is key. Guidance is actually movingup. So we're looking at the quarterly
guidance moving up. People wonder whyyou can have negative current earnings and the

(25:47):
market still hold its own. Well, the market doesn't care about what happened
last quarter. Quite frankly, ifthe guidance is moving higher and hanging in
there, then you're going to seestock gains. That's just that's what happened
every time the market is forward looking. So uh so when we're looking at
that each time. This quarter,even this year, excuse me, we
had quarterly results where you had adown draft and earnings at five point five

(26:15):
point eight in the fourth quarter,one point one down in the first quarter,
and now five this quarter. Eachone was better than expectations. But
that also goes to the sentiment thatyou talked about. Yeah, right,
the sentiment is so negative that alot of bad was already baked in already
the market last year, but alsoearnings numbers, Well, think about who's
putting out guidance. It's individuals,just like the individuals that are that are

(26:38):
in this consumer sentiment survey, right. I know, we like to think
that the people are running the companiesare some all knowing they're they're they're human,
right, They're they're being cautious intheir guidance. They're being they're they're
being nervous about everything. They goto the store and buy things too.

(26:59):
They think inflation is going to bemore rampant than it is too. They're
they're they're they're human when they're puttingout their guidance. Therefore, they're they're
putting out negative guidance to not justget it out of the way. They're
not doing it because they're so smart. They're doing it because they're falling victim
to the same thing. Oh,inflation is up and it's never gonna come
down. Well it did. Oh, I guess we made a lot more
money than because of that, right, Well, it doesn't feel like it.

(27:22):
Well, I would agree it withthat, because many people will use
that. It doesn't feel like anargument. That's because if inflation goes from
nine to three, prices are stillgoing up. People want prices to go
back to where they were. That'sgonna be much harder. And I don't
know that we want that, becausewhen you have deflation and prices are falling
like a rock, that's because youhave no demand. Yeah, that's that's

(27:42):
a that's a tough place to beas well. We're gonna take our next
pause. You're listening to money sinceKevin and Brad Kurston will be right back
and welcome back to the show you'relistening to the advisors of Kurston Wealth Manager
Group, Kevin Kurston and Brad Kurston. We talked a lot of that last
segment Brad about earnings that a lotof that information we talked about can be
found in our Weekly Market Commentary,which can be found on our website Kristenwealth

(28:04):
dot com under the publication section.Weekly Market Commentary is the title we're looking
The title is key Earning Season takeawayson that particular one, so check it
out online at Kurstenwealth dot com.That brings me to my second reminder.
We are professional financial advisors and ouroffices are in Perrysburg. If you want
to give us a call throughout theweek to set up a consultation, review

(28:26):
your own financial plane eight seven twozero zero six seven Brad. One of
the things we look at for clientsis there four oh one K's article titled
how retirement plans should protect employees fromthemselves. Anytime I see anything about people
protecting people from themselves, I loveit because I'm a big fan of market
psychology and investor psychology, and peoplesay, how do you want why don't

(28:49):
you protect you from myself? Igot to look out for all these scams.
You guys talk last week in theshow about scams and everything. Actually
know your biggest enemy and most mistakes, and you should look out for scams.
You should. But most mistakes thatpeople make that I see that are
the most major mistakes that they couldmake in their financial life, are self
inflicted wounds. I mean, lookwhat we're talking about in the last segment.

(29:10):
It's it's about being contrarian and don'tfalling victim too when you feel bad
about things, pulling your money outand doing the opposite. The design of
certain four oh one ks and otherretirement savings plans too often lead to employees
making financial harmful mistakes. And itdoesn't have to be that way. When
it comes to four oh one Kplans, employees are often their own worst
enemies. The problem, as we'velearned from studying portfolios of thousands employees in

(29:33):
a large institutional plan, is twofold. First, many employees put their portfolios
at risk by failing to diversify.Second, many choose investment options that may
have high fees that enter that eatinto their returns. Overall estimates. Estimates
are ten percent of plan participants fellprey to both both the advisor. Both

(29:55):
the advisors administrators of the plan helpcraft the menus, as well as the
lawyers that offer the plans, andthey are often enablers for poor investment choices.
I don't think it's happening quite asmuch now, maybe some smaller companies.
Certainly the large companies have gone toall low cost ETFs and target date
funds and that's really all you have, and they've limited how much you can

(30:17):
put in an individual stock. Imean, I don't think a company stock
should even be part of it ever, because you're already levered to that company's
success by your job being in place. But most companies limit that now.
That used to be the big thebig fallback or the problem was too much
in one company stock and the encouragementto buy the company stock. Yeah,
but I've seen with larger corporations it'starget date funds and low cost indexes and

(30:44):
maybe a few actively managed mutual funds, but not as many choices as it
used to be. And then certainlythe higher cost choices, you know,
a shares with big twelve B onefees and things like that, probably reserved
from what I've seen in the smallercompany as well. So one interesting stad
here, brad Uh. You lookedat plans that offered gold as an investment

(31:08):
to their employees, the option ofinvesting in a fund that tracks the price
of gold. Of the planned participants, you look at all plan participants,
it represented less than five percent oftheir of their portfolio. That seems reasonable,
SEMs reasonable, not a troubling signfor those you don't want to put
too many eggs in one basket.And you know, if you're in a

(31:30):
diversified portfolio stocks and bonds beyond that, that'd be fine. But here's the
problem. If you looked at justthe people who own gold and excluded the
people who didn't own gold at all, Okay, they had more than half
their money in it. So ifyou liked gold, you really like gold.
Yeah, And so that five percentwas an aggregate of everybody in this

(31:55):
plan study, so certainly far toomuch for a narrowly focused fun But actually,
after I read that said, Iwasn't very surprised by it, because
when I see people with gold andprecious metals, it's usually the world's coming
to an end, so I needall my money. They're not. I'm
gonna put five or ten percent inthere as a diversification tool. Yeah,
they're not using it properly. AndI would say that's the same thing with

(32:15):
individual stock. You probably have threequarters of people not using it at all,
and the ones that do have toomuch, and it's a growing number,
and they never want to sell it. If it's doing well, they
don't want to sell it. Ifit's not doing well, I'll wait till
it gets back there. And goldwould be the same way. Look how
well it's doing, I don't wantto sell it. I'll look how bad
it's doing. I'll wait until itdoes better. Nearly twenty two percent of

(32:38):
all participants who own any sector specificfun and this would include gold, had
more than half their portfolio in it. So the failure diversified sufficiently wasn't limited
to the gold bugs. It's thesepeople thinking that this is the area,
this is the place I'm gonna putmore than If you're put more than half
your money in something, you shouldbe putting it in like the S and

(32:59):
P five right, something very broadlydiversified, not one specific area, but
anyone's sec selecting anyone's sector specific inthis four old one case study had more
than half their money in it.Yeah, it's just just crazy. I
mean, even if you were doinga single position that was something like the
SMP five hundred, really what youhave is you have five hundred stocks and

(33:21):
your biggest positions Apple, and it'snot that big of the of the total.
So it doesn't even though it's onlyone position, it's not one position
like an individual stock or gold.And folks have to be careful too,
because although there's all these committees nowto make sure that this fiduciary responsibility that
the employers and the administrators of theplan have in terms of what they offer

(33:44):
you, that doesn't mean you stillcan't do bad things with your portfolio.
Oh, they've already looked at everythingin there. I should be fine.
They've done their due diligence. No, that's that's not the type of due
diligence they're doing. I mean,they have a requirement that if they're going
to offer you something like say theSMP five hundred, it needs to be
the cheapest version available. But ifthey offer you something like gold, they're

(34:07):
not giving you a recommend that's nota recommendation for goals just because it's offered.
So there's no financial incentive to providesuch an allocation recommendation for somebody or
design plans in a way that wouldtend to reduce those mistakes. A lot
of times. What are we evenseeing recently cryptocurrency popping up as being an

(34:27):
offering. That's not a recommendation ifyou see it in there right. So,
and even the advisor on the advisoron those plans is the advisor for
the plan, not for you.Now, if you call, they will
talk to you, but their fiduciaryduty is to the employer, not the
employees. They are not taking discretionon your accounts. You are on your

(34:49):
own to make those adjustments. Andso just because it's there doesn't mean you
should use it, and it definitelydoesn't mean you should be overallocated to it.
Yeah. In fact, they weregoing through some examples of four one
K plans that got rid of thisone plan they looked at in twenty sixteen
eliminated more than two hundred funds fromtheir menu, including the Gold Fund,

(35:09):
and just mapped everyone into the targetdate fund as a result, which maybe
for some people because when you whenyou offer those things these this this broad
menu and sector funds and all thesethings. The biggest problem, the great
thing about it is also the biggestproblem. People tend to use it and
use it too much. So certainlyin plans like that where maybe you don't

(35:32):
even have those offerings that might bea good thing. So so it's just
interesting to see, Uh, youknow, sometimes having a huge, broad
based offering might not be the bestthing for the average investor. And that's
why, you know, we've railedagainst target date funds alat brand. But
given the alternative, given the alternativeof either not participating or throwing it into

(35:54):
the money market, it's better thanthat. Yeah, I think that if
you're if you have more than tenyears to retirement, you can do better
than a target date fund. That'sprobably putting too much in bonds. But
it's certainly better than you trying topick a sector and thinking you're going to
get it right. Yeah. Imean, most as if somebody's gonna pick
that sector, they're gonna pick whatjust did well in the past twelve months,

(36:15):
So they would have been picking energyat the end of this year,
and right now they'd be picking takeyour pick on specific tech sectors that have
been doing well. And most peopleare not going in the opposite direction the
analogy that's said at the end ofthis article in the Wall Street Journal,
and these are two Yale law professorswho wrote this for the Wall Street Journal.
Another way to look at it isthis, imagine a product manufacturer that

(36:38):
has ready access to information that customersare injuring themselves and misusing their product,
like in a four oh one K, and they have a ready, ready
means of reducing the probability they wouldharm themselves, like taking crypto and gold
and these things out. Okay,wouldn't they have a legal duty to redesign

(37:00):
that product if it was manufacturing andpeople were harming themselves because they were misusing
it. Of course they would.But plan providers have taken on the legal
duty, the fiduciary duty, butthat's not necessarily always going to go hand
in hand with it. Is weirdhow the fiduciary duty of a four one
K has morphed into my only dutyis to provide you the cheapest version of

(37:23):
everything, right, And I don'tknow how that is salt that is that
that equates to you have accomplished yourduty right and jumping on bandwagons like crypto.
No One ever said maybe you shouldn'tdo this because people might do silly
things with it. It's always aftera nice run in the nineties. At
the at the end of the ninetiesrun, you saw the munder netnet fund

(37:45):
in every four one k just becauseby popular demand. Hey, look everyone,
it's up up fifty percent every singleyear. Go ahead and use it,
and then two years later it's outof every four right. So yeah,
I think a lot of times whenI when we sit down with some
one who's still working and we're lookingat options and things like that, if
they end up at a target datefund because that's where they start, and

(38:06):
they fill out a survey, that'sfine, that's fine. Although I do
think, especially on those surveys,bad people tend to answer a little bit
more conservatively yea than they really are. It's like a political survey, right,
kind of answering the way I knowI'm supposed to answer right, not
necessarily how, I actually just don't. One of the main questions they put
in those things is how would youfeel if you lost twenty percent of your

(38:27):
money? Good? Bad, indifferent? Look, well, who's gonna say
good? Right? It's a ridiculousquestion. They don't ask the question,
if the market's up twenty percent,you're only up five how are you gonna
feel? They don't ask that it'sonly the down questions that no one's gonna
feel good about it, So peopletend to answer those a little bit more
conservatively. But I certainly think giventhat we've never had a fifteen year period

(38:49):
where stocks have lost money, youcould at least start with that. If
you're more than fifteen years or toretirement, probably shouldn't even be in a
target date fund. Should be ina broadly diversified portfolio of either indexes or
broadly diverse to FID funds, dependingon what's stock funds stock funds exactly.
Take our next pause. You're listeningto Money since Kevin and Brad Kurston.
We'll be right back and welcome backto the show. You're listening to the
advisors of Kursten Wealth Manager Group,Kevin Kurston and Brad Kurston. Here got

(39:13):
one segment here you had mentioned hotelrooms. We got a couple of minutes
left here and you had mentioned hotelrooms cost. Hotel rooms you know,
going up and if they come backdown, certainly not going back down.
To where they used to be.Airline flights talk about AI and the ability
of companies to really see supply anddemand in real time. Look at thirty

(39:34):
years ago, companies were guessing.You think you know people have this idea.
Probably I think they do that whenyou go on Delta and the price
goes from four hundred to six hundred, that there's some evil CEO like click,
I need to go on vacation.No, it's completely algorithmics and AI

(39:58):
and didn't used to be. Ifyou're it used to be a guest.
If you're getting on a plane andyou're going with a group, and everybody's
individually buying tickets, and say there'seight people, first two might get the
one price, the next two aregoing to get a slightly higher price.
The next two are gonna get aslightly higher price. Every seat that gets
taken, the price changes. Samewith hotels. Used to say, oh,

(40:19):
I know I might go to uhyou and I used to do this.
Let me let me let Maybe we'llgo to one of the Browns Games
to stay overnight. I'll book everyoneand will cancel it later. Well,
they know they know the Browns Gamesare the High State Games, be the
same way. I just looked Imight go down for the Ohio State Penn
State game. I'm trying to lookfor a hotel everything in the entire city.
I don't care if you're at Eastonaround campus, or you're down in

(40:43):
Short North or downtown. Everything's fourhundred fifty dollars. Why they all know,
They all know we're gonna fill everyhotel room. I don't care if
it's one week before, not evena vey. There's not a vey that
all know. The computers know,Yeah, the computers know. And you
know. This is why kind ofwhy prop margins and price to earnings ray
shows can go up over time becausecompanies have the ability to do things with

(41:07):
technology that they've never been able todo in the past, and they can
increase their profit margins as a result. How about take Taylor Swift as an
example. Brad Taylor Swift had onehundred and seventeen concerts worldwide. It's projected
to add up to five to fivebillion to the add five billion to the
global economy. The Swifties, asthey are called them, the folks that

(41:28):
follow Taylor Swift pretty closely, spendan average of thirteen hundred dollars per show,
more than seven hundred twenty dollars moreseven or twenty dollars more than their
intended budget. And by the way, when survey, ninety one percent said
that they would do it again.And if you look, I think it
was Philadelphia. Here I have itin one of lpl's blog reports. The

(41:49):
city of Philadelphia literally saw their GDPchange. And when you looked, well,
let's just start with the recap ofthe show. It launched on March
seventeen, twenty twenty three, andyou look, you know, all sellout
crowds first twenty two shows grows threehundred million UH. For those twenty two

(42:09):
performances, one point one eight sixmillion tickets sold for an average price on
the primary market of over two hundredand fifty dollars a ticket. The average
show grows thirteen point six million andan average attendance of fifty four thousand.
So it's it's it just the Americanpart of the tours is expected to grow

(42:30):
seven hundred million dollars. And thenthere's the international side of it, so
and that's just the tickets, andthen it's it's it's those people coming into
town spending money on food and hotels. So not only is Taylor Swift herself
getting rich from this, but thecities are two where the shows are being
held. The impact of performances issignificant enough to be noted in the July

(42:52):
seven, July twelfth release of thefed's Beige Book. The FED mentioned Taylor
Swift May was the strongest month forhotel revenue in the city of Philadelphia ever,
in large part due the influx ofguests for the Taylor Swift concerts.
But Philadelphia wasn't the only city experiencingthis. When Taylor Swifts tour hit Chicago,

(43:13):
the city experienced ninety seven percent hoteloccupancy. Based on the data compiled
by a research company, they projecttwenty twenty three spending on total concert related
expenses to reach five billion as aresult just her concerts five billion. I
mentioned that earlier, So there's alarger trendit occurring across the US economy where

(43:34):
consumers have refocused spending from goods toservices. You know, especially the younger
crowd certainly seems to be valuing theexperience over buying that new couch. And
I don't think that's good. Everyonewas thinking that was going to be a
one off, you shut it downfor COVID and all you can do is
buy things, and then you movedfrom things to experiences, services, hotels,

(43:57):
airlines, concerts. It's not changing. I mean, here we are,
we're more than three years post COVID, and it's it's it's only accelerating.
And it's not just a US thing. You're seeing it overseas as well.
I mentioned the city of Stockholm anda Rhianna concert was getting mentioned in
their GDP report about three months ago. And so it is. It is.
It is consumers not slowing down spending. If you were gonna wait for

(44:21):
the recession to come, you alreadygot it. You got it in GDP
last year, and you got itin earnings this year. And that's it.
And I hate to say it,but it's the older crowd thirty five,
forty fifty, sixty years old.We wonder why do these young kids
not want to say why do theywant to go out and spend money on

(44:42):
vacations and why do they want tospend money on concerts and these experiences.
Why Because unlike us, they feellike the older group. The next virus
that comes along, we'll just takeit all away from him again. Yeah,
so they're like, well, we'regonna go out and enjoy ourselves because
who knows when we're gonna lose allthis again? Who knows lose the ability
to do it? You mean,yes, who knows when the next thing

(45:05):
rolls around and we're not going tobe able to go out and enjoy ourselves
in our younger years. Yeah,so you're gonna shut me down for another
year or two. So the olderthe older crowd can complain about the younger
generation all day one. But wedid it to him. Yeah, we
did it to him by shutting downthe economy and saying for what two years?
Could you say? It was twoyears before things were normal. I

(45:27):
mean overseas, Italy just lifted theirmask mandate on May first. Yeah,
so for two years we said tothese kids, you can't do anything.
Okay, you can't do anything.And now when we come out of it,
you're surprised that they want to doeverything. Yeah, and you're going
to complain about prices being up becauseof too much demand. Oh, you
know how you can? You canwhat you can do about it? And

(45:49):
there's too much demand? You buystocks because earnings are going to go up.
Then it's just we did it toourselves. We had the inflation as
a result. Now we're having thedrop in inflation as a result in the
FEDS raising rates, and we're complainingabout the very thing that the politicians we
elected into office did to us.And Donald Trump's included in that. Yeah.
So so the services part and peoplespending on experiences, I think that's

(46:15):
now ingrained, that is, andthat's why people will work now, they're
not going to work to you know, working to spend, not to say,
not to say, at least rightnow, and you know, who
knows when that will change, butat least right now that continues to be
the case. And you see thatnot only in concerts, but demand for
airline flights, demand for hotels iscertainly up there as well. So that

(46:37):
will support the economy though. That'sa reason you're not going to have a
recession anytime soon. That's right.So thanks for listening everyone, we'll talk
to you next week. You've beenlistening to Money since brought to you each
week by Kristen Wealth Management Group.To contact Dennis Bread or Kevin professionally called
four one nine eight seven, twozero zero six seven or eight hundred eight

(47:00):
seven, five, seventeen eighty six. Their email address is Kurstonwealth at LPL
dot com and their website is Kurstenwealthdot com. Opinions voiced in this show
are for general information only and arenot intended to provide specific advice or recommendations
for any individual. To determine whichinvestments may be appropriate for you, consult
with your financial advisor prior to investing. Securities are offered through LPL Financial member FINRA SIPC