Kersten Wealth Management Group - Money Sense 5-10-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to Money Cent.

Speaker 2 (00:02):
You're listening to the advisors of Kirsten Wealth Manager Group,
Kevin Kirsten and Brad Kirston.

Speaker 1 (00:05):
Happy to be with you today.

Speaker 2 (00:07):
We are on the one month anniversary Brad of well Deck.
What looks like the market low at the moment? I mean,
I certainly don't think that you can completely say that
that we're out of the woods. There is some precedent
for going back down and retesting, although not recently. We've
had many, many more V shaped bottoms on the chart

(00:27):
in the last five or six years than in the past.
I often hear on TV He's like, no, no market
ever bottoms with a V. That's not true. No, it's
not true. And yes, there are examples of a market
retesting or having a bottom on the chart that kind
of looks more like a W, but not always and
certainly not after a certain period of time. One of

(00:50):
the most classic W shaped bottoms is in nineteen ninety eight,
when we had some sort of Asian financial crisis. I
don't know I'd be pretending if I knew exactly what
it was in nineteen ninety eight, but I do remember
that wha bottom on the chart and it kind of
traced out in the summer and rallied for a month
and then sold off for a month. So that was

(01:11):
five or six weeks between bottoms, okay, and we're four
weeks here.

Speaker 1 (01:18):
So if the market.

Speaker 2 (01:19):
Keeps tracing out lower highs, excuse me, low, higher lows,
and higher highs, it's gonna be hard to ignore what
we're seeing. And off this bottom, you have had two
different very long consistent every single day up during this
one month. Just in the last ten days, we had

(01:40):
one down day I think it was on Monday of
this week, in the middle of nine straight up days
or nine out of ten up days, and so it's
been pretty consistent. And yeah, if you're talking about these
the larger twenty percent saw us in eighteen it was
V down and straight back up. COVID was V down
and straight back up. And you really could look at

(02:02):
the twenty two period, which was a more classic bear market,
where it took ten months and you went down twenty
two percent in June, you went up fifteen percent and
then back down to be down twenty six percent in October.
That was more of a of a retest of that bottom.
But if you're looking at sort of the technical analysis
of the various bottoms that you see, and that's where

(02:24):
you say this more of a classic bear market because
it did last a little bit longer. But that on
the chart in twenty twenty two looks like a bowl.
It doesn't look like up, down, WV whatever. We're gonna
exactly exactly so, and we've had more examples of this
sort of V shaped bottom. Even though many people say

(02:44):
never happens, Well, it has happened, So I'm not saying
this time is completely different. Who who knows. I mean,
we definitely could could have something happen in trade back low.

Speaker 1 (02:55):
If it took negative news to move us down. We
definitely have a lot of positive news that starting, and
a lot of positive news at pending the new pope
today that was not one of the market movers, but
the one market mover today was that we did get
our first trade deal with the UK and the real
you know a lot of people are saying this is
nothing because we didn't really tack tariffs on them, but

(03:18):
we're keeping ten percent tariffs on their terriffts are going
from an average of five point one down to one
point eight. Several products that had tariffs are going to zero.
We're doing very few zero terriffs with them, and there's
going to be agreements. The estimate is that it's it's
an additional five billion of exports and we're going to
have additional five billion of exports that go out and

(03:40):
an additional five six billion of UK tariffs that we're
going to be charging for their imports. So the positive
that comes from today with the UK is more, is
this the blueprint?

Speaker 2 (03:51):
Is this the blueprint? And if this is the blueprint
for other countries, that's a good set.

Speaker 1 (03:54):
Now we come down to ten and you guys give
a little and then for the UK and this is
the blueprint, I think that matters is their agreements to
buy more from us, especially with for them liquid natural gas.
That's that's gonna be the big push for them and
some of our agricultural products. Is what the first agreement's

(04:15):
going to be. There's a little bit on jet engines
and an announcement. I think that Boeing's going to have
on some new agreements that we're getting pushed back in
the past. But if this is the blueprint and we're
one down in one hundred and ninety nine to go,
that's a lot of momentum where you have deal days,
and a lot of them may be coming in the
next sixty days, So deal days, tax deal day. You

(04:39):
got a lot of things that could push this to
be a classic V bottom.

Speaker 2 (04:43):
When I look at this market in the last two months,
even Brad, it's one of the least surprising markets I
think I've ever seen. But they were saying it's unprecedented. Well,
and here's why it's. I think it's the least surprising market. Typically,
when I'm looking at charts and I'm looking at sector
performance and asset class performance, typically there's always something that

(05:06):
stands out that is unusual. So wow, look at that number. Yeah, okay,
And when we look at this correction that we had,
let's let's start with the US markets. We had the
areas that went up the most, like technology sell off
the most. We had the defensive sectors like utilities and

(05:26):
staples go down.

Speaker 1 (05:28):
The least or actually be up for even at the point,
even at the low point, they were positive. You're right,
you're right in the recovery that's happened in the last month,
with the S and P up eleven point three in
a month, still down on the year, but up eleven
point three on the month. What do we have up
the least? We have the defensive.

Speaker 2 (05:46):
Sectors, healthcare, utilities, staples. What do we have up the
most technology?

Speaker 1 (05:53):
Communications services? Yeah, all of the growth areas. What did
we have.

Speaker 2 (05:57):
Happened when the market went down a month ago?

Speaker 1 (06:00):
Did well?

Speaker 2 (06:00):
That's exactly what should happen in your portfolio. Bonds were
up in that period of time, and for diversified portfolios,
especially the sixty to forty type portfolio, stock to bond,
you did great. What's happened in the last month. Bonds
aren't down, but they're relatively flat. They're down in the
last week, actually in the last month, they're relatively flat.
So when I look at the sectors that were outperforming

(06:23):
on the way down, underperforming on the way down, not
surprising at all. When I look at the sectors that
are outperforming on the way back up in the last
month and under there, this is as normal of a
correction and recovery as you're ever going to say. It's
why we were saying, even if you're not going to
change your stock to bond, it is appropriate to rebalance

(06:43):
back to where you started the year. Because everything was
so skewed. Sell a little bit of your value sectors
to buy a little of your growth, and you're doing
enough that would have been enough to adjust two to
three percent even within the sectors. Or if you're a
balanced portfolio, time to rebalance at that bottom, even if
you're not making a drastic change, because you're probably likely
going to have three to five percent come out of

(07:04):
bonds and back to stocks. Here's an interesting staff for you,
because do not sleep on international. I think it's kind
of ironic that the best performing and some of this
is as a re adult resalt of the weaker dollar,
but the best performing sectors here today are all international.
And people would think, oh, Trump is going to come
into office and he's just going to crack down hard

(07:25):
on the rest of the world. It's going to be awful. Well,
it's actually had the opposite effect. And you know what
I think it is, Brad, is Trump is actually waking
up the rest of these countries to be more growth
and capitalism, orient be more free traders. Invest in yourself, yeah,

(07:45):
invest in your country, don't rely on us, buy new planes,
invest in your infrastructure by your own defense products. Yeah exactly. Yeah,
And so that to me is I think part of
the surprise. But I think that's the the explanation is
Trump is getting these countries to wake up and just
not be savers, and not be savers and spend your

(08:06):
money and invest in your country to make the lives
of your people better. But I saw a stat on
international which was it did have a pretty significant correction
when the market corrected in April. International did. But here's
the interesting thing. International got down twenty percent from iidalo
little worse than the S and P five hundred. It

(08:27):
is the fastest minus twenty to plus twenty on the
international markets in the history of that stock market. So
when you see a market go that quickly from minus
twenty to plus twenty. And by the way, so it's
plus twenty now off the bottom, off the bottom. The
IFA International Index just hit a new fifty two week high.

Speaker 1 (08:49):
This week. Okay, hey, as of last night's close it
was up a large four and up thirteen and a
half percent on the year, And there are pockets of
the forem markets of twenty on the year. And so
here we are off of our bottom as of last
night's close, fourteen point four from our low close to
last night, and they're up twenty percent off of their bottom.

(09:11):
And that fifty two.

Speaker 2 (09:11):
Week high, Brad that I mentioned that corresponds to a
one year high, fifty two week high, but it also
corresponds to an all time high which was last hit
in two thousand and seven. When you have an area
of the world that has been stuck in the mud
for eighteen years and is now breaking out, would it
be completely unreasonable to think that it could have even

(09:35):
similar performance to the US markets which went from S
and P five hundred went from fifteen hundred to six
thousand in an eighteen year period. Could that index have
similar performance over the next fifteen, eighteen twenty years. And
so we're seeing that it's helping our portfolios out to
have that international exposure, it's helping out to have bonds.

(09:55):
But one of the things we wanted to do here
in this first segment was kind of go back becau
since we're at this one month anniversary of the low.
And remember, when you're at the low, everything you read
in here is batting down the hatches. Everything nothing you
read or hear on TV is saying this is the bottom.

(10:17):
Nobody will ever say that, And we're always saying the
bell that you hear at the bottom is maximum pessimism,
and you certainly had it a month ago. I don't
even think that you had much change on that. Even
with this one month rally. You still have a lot
of pessimism that you're hearing. But you have a few
people that look at stats.

Speaker 1 (10:35):
We always talk about the stats and what is typical,
but also the former research analyst at LPL, a Ryan Dietrich,
is always posting this on acts. Yeah, and so when
we look at.

Speaker 2 (10:47):
Some of these stats and we talk about them while
we're going through the correction in the markets, I think
a lot of times even some of our listeners might say, yeah.

Speaker 1 (10:54):
You guys always talk about that, but it's not going
to happen this time. It's not gonna You're going to
remind people that it coming true again. Right, we were
talking about it in COVID. We're talking about in twenty.

Speaker 2 (11:03):
Two, twenty two, about it against all the midterm election stats, Yes,
that we put out in twenty two, how about this
one we had some pretty big gains. We're talking about
the best days come after the worst days, and you
don't want to miss out on those best days. But
following a five percent gain. We talked about this in
early April, a month ago. The S and P five
hundred following a five percent gain averages a twenty seven

(11:25):
percent return and is up ninety two percent of the time.
One year later, the S and P five hundred is
already up fourteen point four from the low. Well this
one month says eleven point off one day, okay, so
we're already more than halfway to that twenty seven percent
average return after having one of those five percent up

(11:46):
days off of a low. Another stat that we mentioned
was the volatility index. And I know that's sort of
a index.

Speaker 1 (11:54):
What is that?

Speaker 2 (11:54):
What does that even mean? But when the when the
volatility index spikes over fifty the all time high I
was in the nineteen eighty seven crash, over one hundred
during COVID, it got into the eighties. Typically it's between
ten and twenty, just to kind of give you something
to reference. But when it goes over fifty, that signals
extreme volatility, and we've had since nineteen ninety when the

(12:16):
vic's index was even created. When it spikes above fifty,
the twelve month per turn is twenty percent on average,
and it is eighty five percent higher, eighty five percent
of the time higher with a twelve month return on
average twenty same thing. Oh yeah, right, twelve months later
is gonna be up twenty. You always say that, Well,

(12:37):
here we are one month later, up fourteen. If the
large correction is over, better times are likely coming. Since
nineteen fifty we have had. This is interesting because we
always classify a bear market as minus twenty percent brand,
and strangely enough, the market has a knack of stopping

(12:57):
right before twenty percent.

Speaker 1 (13:00):
A lot of nineteens. I mean, the one was a
nineteen as well in twenty eighteen was a nineteen percenter.
There's so many, there's eight between eighteen and twenty. It
never got to twenty. Okay, there's eight of them.

Speaker 2 (13:12):
So if we do have one of those corrections that
is in that eighteen to twenty range, there's been eight
of them since nineteen fifty.

Speaker 1 (13:20):
Uh, and that's so far. That's exactly what we had.
Same thing.

Speaker 2 (13:24):
If we would have pointed this out a month ago,
people would have said, you know, you're always saying that,
but it feels terrible.

Speaker 1 (13:30):
I feel terrible right now. Well, the yeah butt crowd
from some clients, but also the media is yeah, but
I think there's going to be a recession.

Speaker 2 (13:38):
So this is one of the most amazing of all
these charts. Eight times since nineteen fifty the market stopped
before twenty percent down. There's not a single negative on
this chart one month, three month, six month, or twelve months,
not one negative. The average one month is seven point
six or fourteen. The average three month is fifty or

(14:00):
at fourteen. The average six month is twenty six percent,
and the average one year is thirty point three percent,
and the batting average is one hundred percent. And the
worst one year out of that thirty point three average
is twenty eight point eight. That's the worst one year.

Speaker 1 (14:18):
Yeah. So if we have eleven months yet, because the
bottom is in the worst of those, is still pretty
good from here. So I think a lot of people
would say, yeah, but we're up too much, or yeah,
but I think there's gonna be a recession. I think
that's the problem with the media right now is bringing
on an expert that says that this recovery is nice,
but I think we're gonna have a recession. The question

(14:40):
they should be asking is if we're gonna have a recession,
Even if I agree with you. When does the market
go down. Is it go down before the recession, during
the recession, or after recession, And most people wouldn't know,
And the answer is before. And so if the recession
is in the future, fine, the average sell off six
months before recession, it's not that bad. When you look

(15:01):
at all averages, it's about two and a half percent.
The average during the recession is positive three point eight percent,
and the average one year after the start of a
recession is twenty one percent. So I'll give you that
we're going to have a recession, but we already had
the correction that signifies we're going to have a recession,
because that's when they come. The market is forward looking.

(15:22):
It sells off before. And if we were not going
to get a recession, if we don't get any any
change to employment, you're not going to get a recession
if you don't lose jobs and people stop spending. And
why right now we don't have any change in employment. Well,
on the point of all.

Speaker 2 (15:35):
These stats, including the ones that we pull out when
the market's at its most volatile and down the most
the last month, should end the conversation about ever being
nervous about the market. Could it have gotten worse, Sure,
But the problem is if you missed out on the
last month, even if you had a good average on

(15:55):
your return over the last decade going into it, you
just blew up maybe your entire retirement plan because there's
a chance that there's no recovering that no recovering that
I mean, that's basically a year flushed down the drain. Right,
A fourteen percent return is a year flushed down the drain.
So you have to focus on the long term. That's

(16:19):
the only way to invest. That's the only way to invest.
Warren Buffett just announced his retirement that he just said
that if you're not willing to look at your portfolio
and accept a twenty percent loss, it's not that you
should change your portfolio, you shouldn't be invested at all.

Speaker 1 (16:35):
Okay.

Speaker 2 (16:35):
And so it's good to go back to these things
because we're only one month later and virtually all those
charts that we spewed out a month ago are coming true.

Speaker 1 (16:45):
Right right. It's the reason to talk about the history
is you have to lean on something to know what
to expect, both with downturns like we were talking about
the beginning of the year, we haven't had a big
downturn in a few years. Expect a little bit more
than the normal, and that's what we got. But now
you move on. That's it. We got a little bit
more than normal. The market priced in a recession, whether

(17:07):
one comes or not, that's it. Twenty two we were
pricing in a recession and it didn't end up coming.
But what more were you waiting for? Once you've priced
it in, Once the market's priced into the recession, you
move on. That's where we are. Let's take our first
pause to come back talk a few more stats and
a little bit more of the news that's going on.
You're listening to advisors of Cersonal Wealth Management Group. We'll
be right back and welcome back. You're listening to advisors

(17:29):
a Cursion and Wealth Manager Group brand and Kevin here
with this morning. Kevin. I saw a stat today. I
mentioned that the new pope, American pope, actually first one
was and people were doing stats on when the pope
gets announced, how's the market due? And you see all
these nonsensical ones like the super Bowl one. Yeah, it's
like is it better during conclave or after conclave? And

(17:51):
I saw a bunch of others where yes or no,
and the market performance is drastically different groundhout day if
they see the shadow or not. It's seven percent different.
World Series if it's an American League or National League.
The next twelve months are six percent different. Leapiers versus
non Leapier's three percent different. If there's a Friday the

(18:12):
thirteenth in October, yes or no. Six percent different on performance.
But you know the one that's on my chart here
that's no different. It is er point two percent different
if you have a Democratic or a Republican president. So
all these other ones that actually give you something different
that are pretty much meaningless, the only one that's truly
meaningless is whether you have a Democratic or Republican president.

(18:34):
And this we have precedent going all the way back
to the start of the of the stock market. And
still the performance difference is identical. And even Biden Biden
versus Trump's first term performance difference is pretty much exactly
the same. And so of all these things that really
don't matter, where the performance difference is there the one

(18:57):
that might matter that people think matters, no performance difference.

Speaker 2 (19:01):
So you're talking about twenty sixteen to twenty twenty versus
twenty twenty to twenty twenty.

Speaker 1 (19:05):
Four for Biden and Trump. Yeah, yeah, yeah, they were
almost they were almost exactly seventy five percent each. Yeah. Right,
And when you look back, ultra left say it also
doesn't matter.

Speaker 2 (19:15):
Ultra left wing will say how bad the Trump presidency was,
an ultra right wing will say how bad Yeah, the
Biden presidency.

Speaker 1 (19:21):
Yes, so yeah, it's not something. Now. What matters more
is what you have coming into it. I mean, Obama
had a the largest downturn prior to coming in, so
he's got the wind at his back a little bit.
You're already priced for it. You have if you were
becoming president the start of two thousand, you have the
greatest bull run we've ever had. You kind of have

(19:43):
the win in your face a little bit. That's what
matters more than who's actually in office. And right now
we got a little bit of turmoil with what we're
trying to do with these trade deals. But in the end,
if you come out with a little bit more free
trade and tariffs coming down for all these countries, you're
going to have a lot of people say, yeah, that
ended up that's better, But it's going to end up
being that that great. Look, if their tariffs go down

(20:06):
and some go to zero and the trade barriers are
significantly better, that is a win no matter how you
slice it. Now, Trump's gonna come out and say it's
the greatest deal ever, and people are gonna on the
other side are going to say it's not the greatest
deal ever. It's better, but it's it's not great. If
it's better, and it's better times one hundred countries, then
it's better. If our markets are able to sell them too,

(20:29):
their markets a little more freely than our country. Our
companies get helped if if taxes are lower, if you
do business here and more businesses come here, then our
economy is going to grow. And so even if you
don't agree, you have to acknowledge the fact that the
that the US market is going to benefit from that,
and and and the foreign markets are too because we're

(20:51):
we're going to be able to export to them, They're
gonna be able to buy, they're gonna be able to
export to us, and we'll be able to buy a
little bit more freely. It is it will be a
better situation. There's just gonna be a little bit of
temporary pain here. You're probably gonna not get all all
the deals done you want before the ninety day reprieve
is up, and some of those larger terroists might even
go into place to get these countries to go a

(21:11):
little quicker on making a deal and not having it
drag out. So the next forty five days is gonna
be pretty exciting for the market if you start to
get a series of deals. And even this weekend they're
going to negotiate for two days with China and Switzerland.
Ahead of that, I think they're going to India to
talk about finalizing a deal like they just did with

(21:33):
the UK. We could have a deal or two a
week now coming up. Well see, I mean.

Speaker 2 (21:40):
I'm a little bit skeptical because two weeks ago they
said we're gonna have deals announced by the end of
the week. And that was two weeks ago. And now,
I mean they were talking about Japan, they were talking
about India, they were talking about South Korea, and none
of those of what they did mention that there's.

Speaker 1 (21:55):
One of the countries that we're done with. This has
to get it a proof through of their parliament. And
the speculation is that that's India and that deal is
done and everyone thought that was going to be the
deal they announced on Thursday, and it ended up being
the UK. So that was a little bit of the
as Trump grandstands, it says it's going to be the
greatest deal ever, and then it ends up being UK
that we didn't really we didn't put large tariffs on
in the first place. Everybody says, is it really the

(22:16):
greatest deal ever? Or is this just Trump grandstanding?

Speaker 2 (22:19):
So yeah, and I'm sort of long for the days
where we could just go back to talking about companies
and what they earn as opposed to the politics part
being such a big part of the market movements from
day to day. This will never happen, but I kind
of wish some of these negotiations were a little bit
more behind the scenes instead of right out in front.

Speaker 1 (22:41):
Well, everybody has to say that they got it done
and that they you know, both sides of the country,
you know, whether it's say it's US and UK wants
to say, look how great this is.

Speaker 2 (22:53):
And maybe that's not right because there was so much
cloak and dagger with the Biden administration not telling the
American people anything. Some of it is the transparency, Yeah,
the transparency of the Trump administration is unlike anybody I
think anyone's ever seen. But it's kind of like you
know someone who's open and honest with you, and you're like, yeah,

(23:13):
that's too honest, Like yeah, yeah, right, careful what you
wish it?

Speaker 1 (23:16):
Right? Well. I The one thing that I'm starting to hear, though,
as the experts come on TV and the news media
is trying to say, wait a second, here's the pump
the brakes that I'm finally hearing the media say is
we start the year with let's talk about the S
and B five hundred fifty eight eighty one on the
SMP we got four and a half percent. We go
down nineteen percent from from February nineteenth to April eighth,

(23:40):
and in that period we had tariffs get lopped on
that we're five times higher than anybody thought they were
going to be. Trump seems like he's digging in and
never going to give. And then we go up fourteen
and a half percent and we have our first trade deal,
we have a pause on tariffs, and nothing bad has
happened to the econom me. Spending is up, employment is down,

(24:02):
and unemployment is down, and employment numbers are not shrinking
like everyone thought. So the FED hasn't needed to cut,
but they will. And so what's there to be upset
about if you're looking at this market and you're looking
about the prospects of what's coming. And I'm starting to
hear a little bit of that as they challenge the

(24:23):
experts who say, I think recession therefore were bearish on
this market until we get it out of the way. Well,
by the time they announced, recession started and recession ended
this market and historically markets are significantly higher, maybe fifty
percent higher, from where the worry about recession started. And

(24:46):
so we're a long way from where we were on
April second, when the first announcement happened for the call
it Liberation Day, and no one seems to be acknowledging
that except for us and a few select people in
the meta you that say, hey, things are already looking better,
if they're going to keep getting better, what are Why
are we worried about how bad they were on April second?

(25:08):
Did we want April second to happen? No, not really,
But we're a lot, We're we're a long way from
April second.

Speaker 2 (25:13):
Now let's take our next pause, Brad, where we get
back from the break, let's get a little bit more
into some financial planning issues and some investment things that
I think people should pay attention to. You're listening to
Money Cents Kevin and Brad Kurston.

Speaker 1 (25:26):
We'll be right back. Welcome back to the show.

Speaker 2 (25:28):
You're listening to the advisors of Kirsten Wealth Manager Group,
Kevin Kirsten and Brad Kirsten. As a reminder, we are
professional financial advisors and our offices are in Perrysburg. Give
us a call throughout the week if you want to
set up a consultation or review your plan. Whether you're
just getting started, well on your way, or already in retirement,
we'd be happy to sit down and review things with
you four one nine eight seven to two zero zero

(25:49):
sixty seven or check us out online at Kirstenwealth dot com.
One thing on Kirstenwealth dot Com this week is our
weekly market commentary. Brad talks about tax free municipal bonds,
A little bit of a boring subject, but it is important,
so I want to touch on it a little bit.
Because you think, oh my gosh, we're gonna talk about
tax reminisial bonds.

Speaker 1 (26:09):
I want to fall asleep, but here's the thing.

Speaker 2 (26:11):
Interest rates starting in twenty twenty two went up significantly,
and everyone got excited about these higher interest rates. Okay,
it's great, make more on your CDs, make more on
your savings accounts. Short term treasuries got what's what was
the peak if a on a one to three month
I think you could get five and a half five
and a half percent on a short term treasury. This
is all great, but then you don't play those taxes

(26:34):
right away. You wait till the year's up, you get
your ten ninety nine. It's good and bad. I have
all this extra interest, but I also have all this
extra interest that I owe tax on. Yeah, and I
also have all this extra interest that might put me
into another bracket that I wasn't expecting because I'm not
used to having that interest. I did all my planning
based on my IRA required distribution and my pension and

(26:55):
my Social Security. Now I have an extra fifteen or
twenty thousand dollars of interest that I wasn't plan and some.

Speaker 1 (27:00):
Of this if it's interest, it's ordinary income.

Speaker 2 (27:02):
And it's ordinary income. So one of the things you
can do is shift to tax free interest through municipal bonds.
Now it's not perfect because when you look at a
savings account or a CD, let's start with that that's
as conservative as it gets.

Speaker 1 (27:19):
Or a money mark or a money or a money
market that you're getting daily accrual of your interests.

Speaker 2 (27:23):
Okay, hit, So you get two things with that. It's
as conservative as it gets. It's one hundred percent taxable.

Speaker 1 (27:29):
Okay.

Speaker 2 (27:30):
Now, we talked to a lot of people about maybe
using short term treasure because at least you don't have
to pay state tax on the short term treasury interest,
where you do pay state tax on saving accounts and CDs.
But the other thing is they're very sensitive to the
Fed funds RaSE. So as the Fed started cutting rates,
those rates, CDs, savings accounts and treasuries take the hit
first right away. But I've had people talk to me.

(27:52):
Even one person said I even went above and I
had to pay more on my Medicare premiums because of
that interest. Now, the tax free municipal bonds won't help
you there because those do that interest does get added back,
so it's just the federal income tax tax free part,
So that won't help you on that front, However, will
help you on your overall tax bill alone, and so

(28:15):
when you look at it and you start to see
the Fed cutting rates, and we've seen municipal bond yields kind.

Speaker 1 (28:21):
Of stay kind of stay elevated. Yeah, And so even
when we were using money markets and short term treasuries,
there was a point where unless you were in the
highest bracket, the the tax equivalent yield on the municipal
bonds was lower than what the money markets and CDs
and treasuries were. But now we're now they're not once

(28:42):
the Fed cut and they're going to continue to cut
this year, even if they delayed till July, they're going
to get two or three cuts in and so those
those those other instruments are going to continue to come down,
and probably at a quicker pace than muni bond interest is. Therefore,
it's already a little bit better unless you're in the
bottom bracket. Uh. But if you're not in the bottom bracket,
the tax equivalent yield is already better and it's just

(29:04):
gonna keep getting better. So it's gonna be something that
for your non retirement dollars. I think needs to be
the first option for anything that's not in the stock
market now and probably always should be, but there was
kind of this unusual period when the Fed raise rates
where you had other instruments that looked a little better.

Speaker 2 (29:21):
The higher you are, the more tax you pay, the
higher income you have, the more valuable this investment is
to you in a tax reuminouscible bond, but they're marked
to market, meaning they have a value and they trade daily.
Whether you're in a single issue or a portfolio of bonds,
they're they're going to be more volatile.

Speaker 1 (29:40):
You know.

Speaker 2 (29:41):
Volatility is a is a sliding scale, Okay, And when
you look at CDs, money markets and savings accounts, the
price never moves and you get the yield. Even a
treasury bond though that moves. Will immuni bond move more
than a treasury yes? Will immuni bond move more than
a high junk bond? No, Well it move more than
a stock, of course not so. The volatility is relative

(30:04):
to other investments, but you will have to accept some
level of additional volatility compared to a savings account of recid.

Speaker 1 (30:11):
If you're looking at a ruler of volatility or a
ruler of risk, and the money market savings accounts a
sea zero to one hundred are at the at the
zero level, and one hundred is tech stocks or I
don't know, something exotic like bitcoins. Volatility the most aggressive
of the municipal bonds. High U municipal bonds are still

(30:32):
going to be If we're saying A one through ten,
are still going to be in that two and a
half to three. On the volatility risk, I think you'd
say it's.

Speaker 2 (30:39):
A little higher. I mean, in fact, there are risk scores.
There are risk scores that we do, and a lot
of companies do risk score portfolios. I mean, my estimate
would be a little bit higher, Brad, don't you think
I mean, do you think more like a ten to
fifteen out of one hundred?

Speaker 1 (30:55):
I think no, out of one hundred, yes, okay, I'm
saying out of a one to ten, and I would
put high missiles. I would put high higher. I didn't
know you were doing one to ten. Yeah, And I
would put dividend paying stocks or the conservative stock categories
just above that, uh, utility say at a you know,
call it a four or a five, and I would

(31:16):
put large the S and P five hundred at a
seven and a half or eight, and small companies at
an eight and a half. Or a nine, and then
you know up from there, but you're you're still you know,
a very conservative portfolio. If you want to have it
be very conservative. Uh, you just go to the shorter
end of the duration, ultra short and short, and now

(31:37):
you're going to be at a one or a two,
but you're you're yielding more, and you're definitely yielding more
after tax.

Speaker 2 (31:43):
And if you look at the highest tax bracket, and
there's even some proposals that the highest tax bracket's.

Speaker 1 (31:48):
Going even higher.

Speaker 2 (31:49):
If you look at the Bloomberg Municipal Bond Index high
Quality municipal bonding, so this is even high yield, this
is just high quality. The current taxable equivalently yield is
the highest level it's been in fifteen years at seven
percent seven percent on the Bloomberg. If you're in the
high high quality, high quality municipal bond in the next meaning,

(32:09):
you would have to find an equivalent taxable bond of
seven percent or more to be more than the current yield.

Speaker 1 (32:17):
And then you're talking, you're not gonna find it in treasuries.
You're not going to find it even in long dated treasuries.
So now you're gonna have to go to the junkiest
of the junk. The default rates. For there are times
where high quality municipal bonds go an entire year with
no defaults. High high yield municipal bonds might only have one,
one to five defaults in the entire year, and you're

(32:37):
talking about thousands of issues. So the default rates for
municipal bonds are are very very low, even lower than
their high quality corporate bond counterparts.

Speaker 2 (32:48):
Yeah, so it plays a role, especially in a non
retirement portfolio. In a retirement portfolio, playing tax just on
the withdrawals, So it doesn't make a ton of sense.
There's been environments where we've added munis to retirement portfolios
because of how cheap they were, but not at the moment.
It really is focused on someone in a higher bracket

(33:09):
and also in your non retirement accounts. So if you
look at it, I mean, it was even volatile in
the last month for MUNI, so you definitely have to
select your managers and your portfolios carefully, Brad. But let's
just kind of look at this conclusion in the weekly
market commentary. We've had higher yields and wider spreads typically

(33:30):
translate to better future returns, which what we've seen, municipal
bond market currently presents an attractive buying opportunity for strategic investors.

Speaker 1 (33:37):
What should you look out for? Be careful of duration.
Let's start with that.

Speaker 2 (33:42):
More duration brings more volatility in any bond portfolio, and
a lot of munis, especially in the high yield space,
can have really long duration. Duration is how long till
the bond when the bond matures? Okay, so be careful
of that. Make sure you look at the credit quality.
Credit fundamentals remain solid across them muning landscape, but you
may want to make if you want to dip your

(34:03):
toe in the muni waters, you might want to focus
on A or double A rated issuers or above, so
you got to be careful there. You can always dollar
cost average if you're a little bit concerned with the
volatility in the last month, that's certainly a good option
as well. And as we believe in all fixed income spaces, Brad.

Speaker 1 (34:22):
Got to use an active manager. Yeah, there's so much
advantage there because a lot of the especially muni bond market,
never comes to market. It goes to the managers first.
Some buy all or most of an issue, and so
it's not in the index, and it certainly is not
going to make its way to the individual market where you,
as the individual, could buy it. You're looking at all
of the crap quite frankly, that the managers didn't want,

(34:44):
and you're looking at everything else.

Speaker 2 (34:46):
So it's a big city or you know, a state
that is going to issue a big muni bond, They're
probably not going to go to the individual investors of
the city or the state or the country. They're going
to call up one of the big money managers and say,
do you want to buy this whole thing?

Speaker 1 (35:00):
Yeah, And so where you'll see that is if you
look at a portfolio, you'll see it listed as the
non rated portion of the portfolio. They don't pay S
and P or Moody to do a rating on it
because they don't need to. They can just call one
of the big call them five mutual fund firms that
are the largest, and can buy the whole thing and
they don't need to go do the rating.

Speaker 2 (35:19):
And that's why you need an active manager in fixed
income in general. In general, I mean you probably in treasuries.
If you're looking at a portfolio that is one hundred
percent treasuries hard to create a lot of value right
in the active management space, and where we bought traving corporate,
we bought an index, We bought an ETF for treasuries
because there is there's not a lot of value, but

(35:40):
in corporate and also in tax free municipal bonds, you
want to do that. And if you're in your non
retirement account and you you got your ten ninety nine
from the bank, or you're even your ten ninety nine
free brokerage firm and you had a taxable bond in there,
you might want to consider making that shift if you
can accept a little bit more volatility than what your
CD or what your taxable bond was giving you. Take

(36:01):
our next pause. You're listening to Money Cents, Kevin and
Brad Kirsten. We'll be right back and welcome back. You're
listening to advisors of Christen Wealth Management Group. Brad and
Kevin here with you this morning. Kevin, it was FED
meeting week this week and the Fed, as expected, did
not raise rates. And it's all about the language and
how the language changes. And the headline was that the
FED changes languages and is worried about stagflation. I don't

(36:24):
even know if you knew the word stagflation was not
in the FED. The Fed's minutes, they didn't mention stagflation
at all. That was everyone's interpretation of what the FED
is worried about. They're worried about inflation and they're worried
about employment, and everyone's interpreting that to say that the Fed's.

Speaker 1 (36:40):
Worried about stagflation. Well, they're worried about both those things.
Even though employment is very strong and getting stronger, and
even though inflation has been high going down and continues
to go down, and even the Fed's expectation for what
the next two months are for inflation are lower than
the prior month. I'm not sure what we're doing here.

(37:03):
I mean, the two things they're worried about don't Kurnel exist,
And the two things they're worried about their own expectations
for the next two months show nothing. But what we're
all worried about is what if we don't make any
trade deals in the tariffs stay in place forever. Well,
I'm not sure why we're pricing in a forever on
something that is currently at a pause and is currently

(37:26):
now we've made one trade deal. At what point do
we stop worrying about that when we've we have all
the trade deals inked. I'm not sure. But even that,
even if it's ten percent tariffs, that ten percent is
a one off and not a It's not a compounding thing.
So I don't know why we.

Speaker 2 (37:42):
All have to play this game of pretend, Brad, because
we all pretend like the stock market doesn't affect our
own thoughts on the FED or the Fed or the Fed.

Speaker 1 (37:52):
Yeah, I mean, I hate if we didn't have the recovery,
they would have cut this week.

Speaker 2 (37:56):
I mean, we've been ripping on your own pole. But
if the S and P rallies back to sixty five hundred,
do you care that interest rates are.

Speaker 1 (38:03):
A four percent? Not really, I don't have much data.

Speaker 2 (38:07):
Right, And are the rates so constrictive at four percent
that you're worried that four percent is really hurting the economy?

Speaker 1 (38:16):
Yeah? I mean, well, actually it's just it's so dumb.

Speaker 2 (38:21):
Yeah, we sit there and talk about we're so careful
and the FED and we and we're we're we look
at all this data and the only data point is
that matters is the S and P five hundred. Yeah, well,
the only thing that really probably matters. Also, we're talking
about all these other countries. You know, EU just got
done with their seventh cut, and so we're behind, they say,

(38:44):
But if the EU cuts all the way back down
to zero, guess where our rates are going. They're going
down because you'll have foreign buyers looking at our four
and a half percent ten year treasury and saying, Wow,
what a deal. I'll take that, And so they're gonna
push it down. And that's what happened years ago too.
And really I still worry about housing and the runaway

(39:05):
cost of housing and the affordability of housing. Now obviously
higher rates hurts that as well, but let's face it,
until just recently, people have been really stubborn to lower
the price of their house on a listing, and now
we're finally starting to see it. And I just fear
that if we take rates back down to one or

(39:25):
two percent on the Fed funds, that that's not going
to continue to moderate for people.

Speaker 1 (39:30):
It wouldn't it be nice in northwest Ohio if we
had a little bit of that runaway price inflation, because
it got here, it got here a little bit a little.
But you look at some of these other markets in
vacation areas or the coasts, and and they're up two
hundred percent to our fifty percent in ten.

Speaker 2 (39:44):
I mean, I think that there's a lot of people
would go around town and see even new builds and
see what eight hundred thousand dollars buys you these days,
because that's a lot of what these new builds are in,
you know, Perrysburg, O Higer or where we are, and
you kind of look at it like that's eight hundred thousand.
I think more so than the run up into two
thousand and eight, I don't think Northwest Ohio participated in

(40:06):
any of that.

Speaker 1 (40:07):
I don't either, but the recent one post COVID, I
do think there was some run well because there's no inventory,
nobody wants to sell, and also with work from home,
I think we got a lot more people move into
the area because it was so reasonable, and so those
people were selling in a more expensive place and just
had more money in their pocket. Yeah, so they're paying,
they're not negotiating, they're just getting it while they can

(40:28):
and is driving price up a little bit, But which
is just up until that point post COVID, we had
none of it. So I think it would be healthy
for the overall market for prices to come in a
little bit and hopefully stay there for the next five years.
And you're probably not going to get that if the
Fed just starts aggressively cutting rates. So and I think
if the S and P five hundred, because earnings are

(40:50):
holding in there pretty well, Brad, if the S and
P five hundred holds in there and even recovers it
has a positive year, the Fed is going to cut
two to four times over the next year. Yeah, but
then they're gonna hit the pause button again. Yeah.

Speaker 2 (41:04):
I mean if you look at the feds dot plot,
which basically says where they're going to be on FED
funds in the next one year, two year, three year,
I think they show just about one percent down from
where we are today and then stopping right yeah, yeah,
and that would I mean, what do you think that
does to mortgage rates at that point if they if

(41:25):
they go down about one percent and stop, I think
you think it's a one for one on mortgage rates
or is there any kind of compression with the historical
norm of the ten year treasury?

Speaker 1 (41:34):
No, that's already started to drop a little bit. So,
I mean, wor's the ten year today four to three?
Four to three, and you got, you got, they're getting
a little bit more competitive where you're in the low sixes,
and it's usually about one and a half percent different,
and so one and a half would be under six
and you're not quite seeing that on a thirty year,
but you you're definitely under six on a fifteen year.

Speaker 2 (41:54):
So yeah, mid threes on FED funds by the middle
of twenty six is the current dot plot in terms
of what they're expecting your en twenty seven slightly lower,
three percent flat, so three percent flat. Typically the two
year treasury goes along with that, but what's the average.

(42:15):
But here's the thing is the ten year treasury, which
is what is most sensitive to mortgage rates? Is it
already where it would be?

Speaker 1 (42:23):
Right? Right? Is it not move anymore? Right? That's that's true. Right,
So even if the short rates go down, are mortgages
coming down? Well, just to justice just to fill that, yeah,
adjustable could go down now, but just to fill that
that widespread that we had for a five year period
where you had, you know, mortgages at eight and the
ten year at five, and it was unreasonably wide because

(42:45):
nobody knew how far the FED was going to go.

Speaker 2 (42:48):
So when you look at even where the ten year
minus the two year, because the two year is really closely,
you know, correlated to the ten year treasury and the
spread in good times, I mean the spread titans and
we have that what they call the inverted yield curve.
When there's a recession, you know, the spreads between one

(43:09):
and two percent. Okay, So if the Fed funds goes
down and they take it down to three percent in
the next two years, and the two year treasury is
three percent, that would tell you between one and two
percent that the that the ten your treasury is going
to be between four and five percent. Yeah, where is
it right now? Four three A's already there. So I
definitely could see a bond market, Brad that has a

(43:32):
lower short yield with the same tenure treasury two or
three years from now. Yeah, and you're almost there with mortgages,
Like if you're at four to three and your fifteen
year is five seventy five to six and your thirty
year is six and a half, it's where we already are.
So my point of that entire discussion is the folks

(43:52):
that are out there sitting there waiting for much better
than a high five, low six fifteen year mortgage or
much better than a six and a half. You're already
you're not going to get it. Yeah, you are not
going to get it. So, if anything, as much as
you should have locked in as much as you should

(44:14):
have locked in that long term mortgage in from twenty yeah,
basically it's well, really basically from twenty ten to twenty twenty,
for a whole decade, you should have been locking in
that long term mortgage. Prior to that, for most people,
the adjustable mortgages made more sense, and now we're going
back to that world because really what you should be

(44:38):
doing it depends. I mean, if you're going to be
in your house forever, and you know that for sure,
how long do people on average own a house three
to five years, three to seven years, So you should
be matching up how long you're going to be in
a house with your mortgage. And so now that those
shorter rates, which would be correlated to those adjustable rate mortgages,
are coming in, and that all the longer people own

(45:01):
houses anyway, that's probably should more people should be waking
up to that, to those numbers.

Speaker 1 (45:06):
Yeah, yeah, if you have to refine now, but you think, oh,
at some point I might sell this and move to Florida.
Why do a thirty year? Why do a thirty year? Right,
if you it's your first house, and you know it's
a starter home, why do a thirty year? You know,
if you can do a three or a five year
and save a full percent, that's what you should be doing.
But we just haven't had that environment for right. We've

(45:27):
been in this mentality. Lock in the thirty year rate,
lock in the thirty year rate, lock in the fifteen
year rate. And uh, you know, my first.

Speaker 2 (45:34):
Mortgage I did in two thousand, I did an adjustable
because rates were higher, and I ended up moving four
years later, so it made perfect sense. So I think
that that is maybe something that people should start looking at.
I think a lot of mortgage people would would tell
people the same thing, but people are scared of it.
If you're gonna move anyway, you shouldn't be scared of
it now. And conversely too, on the thirty year fixed

(45:58):
or the fifteen Like I said before, if you're gonna
sit around and try to wait for something, I just
don't see it happening.

Speaker 1 (46:03):
Brad.

Speaker 2 (46:03):
We just had that discussion about the ten year treasury
and where it is, and it might come in a
little just because the economy does a little bit better.
But people have this on the brain that they're gonna
go back down to that three percenter, that it's just
not going to happen. And that's where you don't want
the environment and these things are all correlated. When people

(46:26):
finally start giving up on that it's gonna go back
down to a three percent mortgage, that's when you you're
now starting to see the prices come in because there's
this realization, Okay, people can't finance this house. I'm trying
to sell and I'm gonna have to come in, and
especially when more houses at the market, prices start coming
in a little bit. But I would argue that as

(46:48):
long as it doesn't roll over into the banks and
affect the banks in a big way like the domino
effect that happened in eight, it would be healthy for
our economy for housing prices to come in a little bit. Yeah,
And I think for the banks, that's the only reason.
I think you need to have the Fed come down
a little bit so that they can come down a
little bit on mortgage rates and still be profitable. And

(47:09):
just the activity alone would pick up a little bit.
I think you're you're a little tight still, and just
coming down another one percent I think would do a lot.
We've had periods of time where housing has dropped in
value periods in the eighties and nineties, and it didn't
cascade into the economy. What was different about seven and
eight was the lending that was done leading into it.

(47:29):
The lending that's been done in last ten years doesn't
resemble what happened in eight at all. And so that's
the thing that you have to remember. That was a
lending crisis, not a housing crisis. And the problem we
had was with the lending we did. Yeah, a crisis
because of how easy the money was.

Speaker 1 (47:44):
That's right.

Speaker 2 (47:45):
Yeah, So I think that looking at interest rates, you know,
going out and looking at the Fed. You know, I'm
the same way when the market goes down, I'm like,
oh man, the Fed come in cut. But no, I think, really,
if the market has taken a deep breath in the
last month, they're gonna end up cutting at some point
in the summer and be on a very measured pace,
and that may end up being the right thing for Mark.

Speaker 1 (48:06):
The biggest news we're gonna have is not the fed
this year, it's gonna be technology advances and and that's
all aback half of the year story. We're not gonna
be talking about tariffs. We're gonna be talking about new
tech and that's that's We're gonna forget about terrorifs by
the end of wey.

Speaker 2 (48:19):
Well, I hope, I certainly hope that's the case. Thanks
for listening everyone. We'll talk to you next week.

Speaker 1 (48:27):
You've been listening to Money since brought to you each
week by Kristen Wealth Management Group. To contact Dennis Brad
or Kevin professionally, call four one nine eight seven two
zero zero six seven or eight hundred eight seven five
seventeen eighty six. Their email address is Kristen Wealth at
LPL dot com and their website is Kirstenwealth dot com.

(48:48):
Opinions voiced in this show are for general information only
and are not intended to provide specific advice or recommendations
for any individual. To determine which investments may be appropriate
for you, consult with your financial advisor prior to invent.
Securities are offered through LPL Financial member FINRA s I
PC