Kersten Wealth Management Group - Money Sense 5-24-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to Money Sense. You're listening to the
advisors of Kirsten Wealth Manager Group, Kevin Kirsten and Brad Kirsten.
Happy to be with you today, Brad, as the market
had one a historic rally from the April ninth lows,
kind of taking a breather this week and a couple
different day selloffs, both kind of around the same news story,

(00:20):
which a little bit of an increase in the ten
year treasury in particular. I don't think it's anything dramatic,
but the market is responding with a little bit of
a two day pullback. Makes a lot of sense. I mean,
if you look technically at the overall market, I was
kind of studying those numbers this morning. You have a
market that rallied tremendously from the April ninth lows, nearly

(00:43):
a twenty percent rally from the April ninth lows. On
the S and P five hundred, got above almost every
technical level you'd want to get above the fifty day
moving average, the two hundred day moving average, and now
we're pulling back, and it definitely would be a logical
pullback zone to go back to where the market was

(01:03):
because we shot right through the Liberation Day.

Speaker 2 (01:06):
I hate the title Liberation Day, but.

Speaker 1 (01:08):
I hate a lot of the titles. I hate the
new tax bills title. Yeah, April second was the Liberation
Day level, and shot right through that recently and now
we're pulling back a little bit. And the two hundred
day moving average, which in an upmarket typically is support,
and that level right before Trump came out with all

(01:28):
the tariffs sits right between fifty seven to fifty and
fifty eight hundred. That's somewhere in anything under fifty eight hundred.
But you can look at the two hundred day, which changes.
The reason I give a range is because the two
HUNDREDA changes every single day. But if you look at
that level, depending on the day, somewhere between fifty seven
fifty and fifty eight hundred.

Speaker 2 (01:48):
I think that's the.

Speaker 1 (01:49):
Logical stopping point until the market starts to make another
leg higher.

Speaker 2 (01:54):
Yeah.

Speaker 1 (01:55):
If you zoom in on the market in any given
month or year, you do a little bit of this
chopping around for a while. Even on the way up,
you're kind of chopping around. You're you know, you're you're
a day or two up, you're a day down. Uh right, now,
you know we're probably gonna do.

Speaker 2 (02:10):
That for a while.

Speaker 1 (02:11):
We're gonna we're gonna maybe maybe make some slightly higher
highs and then you'll come back down a little bit.
It won't just be this straight up like we saw
for thirty straight days off off of that low from
April eighth. Uh So, all that's pretty normal. And what's
what's somewhat annoying is when we have to backfill every
one day sell off in the market with what's the

(02:34):
new story today? This must be the reason why? And
you get this nothing of a new story with uh,
the the US debt getting downgraded by the ratings agencies
that failed every one in two thousand and eight. I mean, honestly,
how are they even in business anymore? And how is
it even a new story? But if you get any
kind of sell off around that time, it'll be the

(02:54):
story will be, well, this must be the reason why.
Well this happens on Sunday night, everyone's talking about Monday
being the next Black Monday because the US deck got downgraded,
and we're gonna look at the week and they're gonna say, well,
that's the reason we were down this week. Well, no,
because on Monday the market was up, So it had
nothing to do with it, because if it was gonna happen,

(03:16):
it would have happened right away. And by ten o'clock
in the morning on Monday, the market was up, and
it finished up on Monday. So we get to Wednesday
and Thursday and we have some sell off days. I
can completely dismiss anyone saying it's because of the raiding
agencies downgrade, and we'll do a little history of what
that has looked like, because we've had three this is
the third one. But the whole ratings agency was never there,

(03:40):
was never revamped after two thousand and eight, like other
parts of the financial industry were revamped. Dodd Frank took
care of a lot of things that were conflicts of interest,
but the ratings agencies still look the same, and there's
a complete conflict of interest with all of that. It
shouldn't even be a business anymore. No, there's definitely a
story there that goes back a few days to what

(04:03):
happened over the weekend with a so called downgrade, and
we'll get into that maybe in the next segment here
Brad in the last couple of days, though, it's really
been the story, and I agree with what you said,
which is, there's always a narrative on any given day
that the market is up today because of this, or

(04:23):
the market is up down today because of this, and
nobody knows, they're just saying it. But the last two
days has been they passed the tax bill. Oh, they're
going to blow out the deficit, and so investors are
spooked and selling treasuries, causing rates to go higher. That's

(04:44):
at least the narrative. But you know, when you look
at the last couple of years, in particular on the
ten year treasury, I think it's the same place it
was two years ago, exactly the same place it was
two years ago. So one time when the market was
selling off a couple of weeks ago, we got under
four percent, But it's been between four and a quarter

(05:04):
and four seventy five very consistently for multiple years. Yeah,
for two years. So, and we didn't have we didn't
have a new tax bill then and everything. Most things
with this tax bill are exactly the same as they were.
I mean, ninety five percent of all all that affects consumers, taxpayers,

(05:24):
and the economy are are unchanged. And that's that's the
good news for individual taxpayers and the economy is that
we got an extension. And there's a few things that
are changing that might have as part of the bill
that aren't part of the tax plan that we'll talk about.
That we'll have people maybe have a little more skin

(05:45):
in the game instead of freebies out there. And there's
a and there's a few nuances to maybe middle income
people where you could pay a little bit less, older
people where you could pay a little bit less, and
on the high end maybe pay a little bit more.
So that's getting it done and and and having the
tax cuts be extended is the biggest hurdle for the

(06:08):
for the market. Uh, if we got to the end
of the year, and if we get to the end
of the year.

Speaker 2 (06:12):
And it's not fully done.

Speaker 1 (06:14):
At this point, it's past the House as of Thursday morning,
it's going to go to the Senate. The Senate's going
to look at it in June, and if they have
to send it back to the House, if they don't
change too much, it'll just get past and it'll be
on the President's deck best before July fourth, which is
the goal for everyone. And that way. Part of this
is to increase the debt ceiling and you know all

(06:35):
of that, that's the that's the deadlines now coming up
the But the numbers that came out for the tax
bill in terms of the debt and the depth sit
and I want to get into later on how ridiculous
those assumptions are a lot of times. But that spooked
the bond markets a little bit. But still when you
look at the numbers, and to me as a financial advisor, honestly,

(06:57):
I want higher rates. It helps people. Okay, No, nobody
wants to be forced to be sixty five years old
and be one hundred percent equities because you can't earn
anything in anything else. You can't earn anything in anything
else exactly. And you know, you got the one year
T bill four point one, the two year T bill
four even the ten year T bill four fifty nine.

(07:19):
One of the things that spooked the markets yesterday was
the fact that the twenty year treasury the government had
to pay more money than they expected on the twenty
year treasury. Well, we're gonna have to pay a higher
yield for investors who want to buy the twenty year treasury. Well,
I'm sorry, it's five point one. Who the heck wants
to tie up their money for twenty years and get

(07:41):
four four and a half. Right, of course you're gonna
have to pay more. That that only makes sense. And
by the way, those longer term rates will not change
if the FED cuts rates, No, they will not. So,
but to me as a financial advisor, people need that
buffer and they haven't been able to get that buffer
that treasuries provide for quite some time. So you know,

(08:05):
if you can have a bond market that gives retired
investors five percent, a couple things happen. Number one. It
helps on downturns. Number two, and this is another danger
I think that's out there in the financial advising world.
Low rates cause people to do make poor decisions with
their money. From the standpoint of this, Brad, if you

(08:28):
can go out there and buy a boring old treasury
for four and a half five wherever we land, yeah, okay,
you're not as susceptible to the sales pitch of this
annuity or some alternative investment that ties your money up.

Speaker 2 (08:46):
You're not as.

Speaker 1 (08:46):
Suscessor to the bank and have to say to you,
I have an alternative to the CD. The red flag
should go up that they're about to sell you something
that's going to tie you up or it's not what
you think.

Speaker 2 (08:56):
But low rates do that.

Speaker 1 (08:58):
Low rates do that because you're frustrated by the fact
that you can't get a yield on your CD and
treasury and money market rates were one and a half
two and you're out there thinking that you're getting the
same as a CD and it's paying you four and
a half. We had a lot of investors would have
had not known at the time that if it's paying

(09:20):
your four and a half or five, it's not what
you think. But now we're in an environment where you
can get four and a half on a treasury and
it is what you think it is. It's exactly that rate,
or the CD is exactly that rate, and that's good.
Think about what your situation is. You shouldn't care about
higher rates if you either have no debt or you're
going to have no new debt and your old debt

(09:41):
is locked in at these lower rates, and the only
thing that's going to affect you with rates is that
you might earn a little bit on your savings account,
your money market or any kind of fixed income that
you want to have over the next ten years. Don't
be upset by these higher rates. So even with the
pullback in the last couple of days, I think we're
still I think the market still is on prety solid footing, Brad.

(10:02):
And as I look at portfolios that we manage, most
people are up in the low single digits year to date.
And you know, you look at the S and P
five hundred down to tenth and the reason why is
diversifications working this year. How about large four and up
seventeen point three year to date, Emerging markets up ten
point four year to date, with the SMP slightly down,

(10:24):
and you're all the dividend paying sectors up. I think
utilities is leading, the are leading the way. Industrials are
up there, and industrials biggest component of that. Aerospace and
defense had a huge month off the bottom, especially with
the Saudi Arabian news, and then consumer staples, that whole
value dividend paying side doing well all possible. Look at
your to date here, look at this combo. This is

(10:45):
a combo that I don't think that typically you'd come
into a year and I'm going to look at asset
classes instead of sectors here. I don't think this is
a combo that you'd want to own almost any time
in the last decade. Okay, large value and mid growth
on the side of things. Okay, large foreign and emerging.
You come in on January first this year and be like,

(11:05):
here's what we're gonna do. Large value, mid growth, not
mid value. Mid value is actually down large value, mid
growth and all foreign. Well, think about the holdings there, right,
Mid growth is a couple different things. There's a lot
of industrials there. Yeah, but you also have all the
tech that got left behind is in that mid growth.
So the the non MAG seven tech would be down

(11:29):
in that. In some of those mid growth and those
are having a tremendous year because they kind of you know,
they did okay in twenty three and twenty four, but
they didn't participate like the MAG seven mid values. Regional banks.
It's some areas that maybe had a good year last
year and are are not doing as well this year.
And then mid value it's it's just those larger, larger

(11:50):
dividend paying sock sectors that really some of those were
never negative even even after April. April second, and then
you see the US Agria bond market up one point
two and treasury is up one point four. You put
that all together in a diversified portfolio, and you have
a positive return when the S and P five hundred
is down. The other thing I want to point out, too, Brad,

(12:11):
is I just looked at our earning season dashboard, and
no matter what all the talk is about tariffs and
all these other things, this is what it really boils
down to. We're coming pretty much to the end of
earning season here, four hundred and sixty five out of
five hundred S and P five hundred companies haven't reported.
How about thirteen point seven percent earnings growth, seventy eight
percent of companies beat their earnings on revenue, four point

(12:35):
seven percent growth, sixty two percent of companies beating, and
the forward earnings number now is two hundred and seventy
per share on the S and P. I mean, that
still makes the SMP, you know, historically expensive on a
pe ratio. However, when you look at other previous peaks,
we're not as high as where we were at the

(12:58):
end of twenty twenty one, okay on the on the valuations,
so there's still room to go there if you're using
that metric, nowhere near where we were in March of
two thousand at thirty five times earnings. And I don't
know when it started, Brad, but all of a sudden,
the priced earnings ratio that everyone looked at always used
to be the forward. We don't look at twenty twenty five,

(13:20):
that's already baked into the cake. We're looking at twenty
twenty six. But all of a sudden, I see all
these people on CNBC. They use the the trailing trailing.
There are no current earnings. There's trailing and there's forward. Yeah,
nobody's doing current, No one's doing the forward earnings anymore
on their valuations to come up with their number. But
when you look at two seventy and I mean even

(13:42):
if you use what twenty five times earnings, that's sixty
seven to fifty at twenty five times earnings, I don't
think that is an unreasonable figure to look at to
at the whatever.

Speaker 2 (13:53):
What's everyone doing now?

Speaker 1 (13:54):
Oh well it's two to fifty. Uh, you know, ten
times times earnings is twenty five hundred? Like what are
you doing?

Speaker 2 (14:02):
Yeah? I really don't understand that.

Speaker 1 (14:04):
So so positive this quarter, you know, really good numbers
that I think surprised a lot of investors. Yeah, well,
when there's all this recession talk and all this negative
GDP talk. Of course that's going to surprise. But the
thing that when we're talking about this and people who
have missed out will get on TV and say, yeah,
these the market's too rich. They're forgetting the fact that

(14:27):
we just had a twenty percent downturn in the market
and you had you had certain companies down thirty forty
percent over this period we're just coming off of twenty
twenty two is not that far away two and a
half years ago for the bottom of the market there,
and you had companies down sixty seventy eighty percent that
were somewhat inflated in especially in the tech space. You're

(14:50):
coming off of these huge downturns, and yet you'll have
people get on and say, ah, I think the I
think the markets do for a crash. We already had
two large crashes and we're on the tail end of that,
and people are still calling for it because I don't
know what they were. They not paying attention to what
happened in April or what happened in twenty twenty two.
Those were historic sell offs. Twenty twenty two was the

(15:13):
fifth worst calendar year of all time. And we didn't
even finish at the low of the year, And yet
people are thinking that we need to have some sort
of historic downturn. Four to twenty percent sell offs since
twenty eighteen in a seven year period is actually a record.
Going back to nineteen fifty, four to twenty percent, we
only average one to twenty percent sell off every it's

(15:34):
about four years. That if you go way back, it's
about every four years, and here we had four and
six years. You could go two decades without it again
and it wouldn't be and then you'd be back on average.
You know, this reversion to the mean can work the
other way too. We could have investors buying every five
and ten percent dip in the market for the next
twenty years and it wouldn't be surprising. It shouldn't be,
and it doesn't mean US stocks are straight up. We

(15:56):
could be looking at a two thousand to two thousand,
thousand and two to two thousand and seven period where
you get double digit gains on international and you and
that was not a It was a good period for
US stocks, but it wasn't a tremendous period for US stocks.
Seven eight percent annualized, while the rest of the world
is in the double digit RAS. I would not put

(16:18):
that out of the realm of the possibility for the
next five years either. But that still brings back to
what we're saying, diversified portfolios outperforming, and I think that
that certainly could continue. There was a a chart i'll
point out later on in the show on international. Well,
maybe i'll just do it right now before we wrap
up here. I was looking at two different portfolios that
we use. A large cap growth portfolio so that's going

(16:39):
to be your your your big cap US tech and
a broad international portfolio that I was looking at, and
I was showing a client and I was saying, you know,
you look at this year to date, and the next
logical question was, boy, it seems like bail out of
that now. If you look at the year to date numbers,
the international portfolio is up over eighteen percent and the
large cap growth portfolio is up too. Actually pretty good

(17:00):
for large cap growth, so sixteen percent difference the ten
year numbers on the large cap four in portfolio. The
ten year number was five percent, while the ten year
number on the large cap growth portfolio was fourteen. So
even though there's a sixteen percent difference year to date,
there's a nine percent per year difference over a ten

(17:22):
year old including oh, by the way, this current year,
and that shows you how much longer this would have
to go To balance that performance. For the twenty year
number to be the same, you'd have to outperform by
nine percent a year for the next ten right, and
so if that happened.

Speaker 2 (17:39):
I'd be surprised if that happened.

Speaker 1 (17:40):
But I definitely think that large cap International can close
the gap by half, and that's that'd be a tremendous
out performance for a five to six year period. Let's
take our first pause. You're listening to Money Cents Kevin
and Brad Kirsten. We'll be right back. Welcome back to
the show. You're listening to the advisors of Kirsten Wealth
Management Group. Kevin Kirsten and Brad Kurston. Happy to be
with you today. As a reminder, we are professional financial

(18:02):
advisors and our offices are in Perrysburg. Give us a
call throughout the week if you want to sit down
and have a consultation to review your financial plan. Whether
you're just getting started, well on your way to retirement,
or already in retirement. We'd be happy to sit down
with you four one nine eight seven to two zero
zero sixty seven or check us out online at kirstenwealth
dot com.

Speaker 2 (18:22):
Brad.

Speaker 1 (18:22):
We're talking about the rating agencies. So we had some
volatility in the market here the last couple of days,
really just one day now. The market's back up today.
Overnight volatility on Sunday because which agency Fitch. It was
Fitch I believe that came in and downgraded the US
debt unsolicited. Uh and we'll talk about what I mean

(18:44):
by that unsolicited downgrading the US debt overnight on Sunday.
They're actually the last rating agency to have downgraded the
US debt from triple A to double A or not
even triple A to double A. Was there's one one
in between. It was actually it was actually Moodies Fitch,
which was the second so s to be first in
twenty eleven, Fich in twenty thirteen, and now Moody. So

(19:05):
it's happened with the other rating agencies as well. First
of all, it's meaningless for a couple different reasons. Number one,
it's meaningless because the US government is not going to default.
It will never default, right, you know, our compliance gets
after US because we can't be definitive. It will never happen. Okay, now,

(19:29):
will the value of the US dollar change? Will our
interest rates change? Absolutely? But our ability to print money.
You know, everyone's like, well, that's what's so scary. I
understand that, But our ability to print money will never change.
The rating agencies rating countries is the dumbest thing ever,

(19:49):
because a country, when you have debt as a country,
they shouldn't even call it debt. It shouldn't be called
debt because debt everyone when they thin think of debt, Brad,
they think of personal debt. I have a loan, I
have to pay it back. Only there's only one way
to pay that loan back, which is I pay it off.

Speaker 2 (20:09):
I have to pay it off with my money. Same
thing with a.

Speaker 1 (20:11):
Corporation who is doing bond a debt, and they'll call
the debt or they'll pay it off and then they
won't have that debt. For a corporation or a state
or a city, it's debt. It's not debt. For a country,
it isn't. I'm sorry. I will argue this to everyone.
It is not debt because we can print money. It
should have another name. Okay, But so to downgrade the

(20:35):
US debt to say, oh, there's now a higher risk
of default, what would a default be? What would a
default be? The definition of a default would be we
have all these treasury bonds and we don't pay the interest.
That's impossible. Well, the technical definition of a default is
also a delayed payment. So maybe they're saying government shut

(20:57):
down or we don't really lead to it. Yeah, would
lead to a delayed payment. That's technically that's a technical default, right, right, right, right,
letter of the law. Technology, But it is silly. But
then the other part of this, in addition to the
whole thing being silly, because it's meaningless. Okay, The other
part of this is the credibility that you're going to
talk about with these agencies and how bad they are

(21:19):
at their job. The only economic team that is worse,
that we're going to talk about later in the show,
that might be worse at predicting things is the Congressional
Budget Office that scores all these these bills. I'll give
you a third one. We can just make this the
rest of the show. Consumers are also when projecting future inflation,

(21:41):
future spending, even of their own spending or future spending
of businesses. All of those are asked in the University
of Michigan Consumer Sentiment Survey. How do you think the
state of business in the economy is? Is what they
ask individual consumers that could be twenty five years old.
Oh yeah, how do you think that business across the
street is doing today? Or how do you think that

(22:03):
business in Columbus, Ohio doing? Or that one in California.
We're gonna let's ask some consumer. Let's stick with the
rating agencies here, Brad. But the rating agencies have a
have a terrible track record. They're about as good as
mel kiper Is at picking draft picks in the NFL,
especially this year with his love of Shador Shador Sanders.
But let's first go back a little bit at some

(22:24):
of the huge mistakes. Let's let's first talk about about
why there's conflict of interest, why it shouldn't even exist.
It is a issuer paid business. Okay, I am a
get away from the countries. Then get away from get
away for the countries I'm paying you. There's three rating agency.
I'm gonna pay one of them to go do a

(22:45):
credit rating for my new bond issue. So so you're
Let's say you're Brad Kirsten business business. You're the Brad Kurston.
I'm gonna choose to do SMP because I know a
guy over there, and instead of doing Moodies or Fitch,
I'll do SMP because I trust that they're gonna give
me so show them how works. You're going to issue
a bond to fund the Brad Kirsten. It's gonna cost

(23:05):
me four percent if I get the highest rating. It's
going to cost me five if I get a medium,
and six if I get a terrible one. Well, I'm
gonna go to hold on, slow down a little bit.
A bond is alone, Okay, when a company issues a
bond that's effectively alone, they're they're going to the consumer
and it's like they're looking at my credit you know,
my credit score different and you're my credit score is

(23:27):
gonna affect what I have to pay out to the
people who are buying my bond. Well S and P
is gonna give me a four a tie rating, and
it's gonna cost me less. I'm gonna keep doing business
with that spy. Hal things. Two things. It will cost
you less if you get a higher rating from S
and P. But also some especially institutions, cannot buy your

(23:49):
bond unless it has a rated. And as it has
a rating, or it has a high rating, so it
expands who can purchase your bond as well? But go
to the conflict. So let's so, what if I go
to SMP and they don't give me the rating I want, Well,
guess what, I'm gonna shop this around to Fitch. Then
the next time I have a bondish I'm not doing
business with you anymore. Oh okay, Well we'll be good

(24:12):
next time. I'll give you a high rating if you
want to keep our business. Oh okay. Well that's a
bit of a conflict. And that happens over and over
and over again, and then we have two thousand and
eight happened, Wow, And everybody has these miraculously good ratings,
and even in the middle of it, does anything get
down graded? No, because what are we doing putting ourselves
out of business. What they should have done is downgrade
everyone and give everybody terrible ratings because they were all

(24:34):
over extended. But if we do that at SMP, all
the business is going to Moody. And if we do
it at Moody, all the business is going to Fitch
and SMB and Moodies will be out of business. So
they're in the business of giving everybody inflatedly high ratings
or unrealistic ratings, similar to what was happening in the
appraisal business in two thousand and seven and eight. If

(24:55):
your house was worth eight hundred thousand, but somebody bought
it for a million, the loan company would say, hey,
you know appraisal company that we do business with, Hey,
if you want to keep our business, and I'm going
to keep funneling business towards your appraisal business. This guy
bought it for a put a bit in for a million.
Make sure it comes back in a million so we
can do the loan. Oh, yeah, no problem. Guess what,

(25:18):
I think it's worth a million. Great, we can do
the loan, and my next appraisal for the next business
is coming your way. What if he comes in at
eight hundred thousand, Well, then we can't do the loan.
And guess what, none of us are in business and
I'm not sending any more money your way. DoD Frank
fixed that now. Regulations a lot of it's just computerized.
It's going off of actual comps and there's not a

(25:40):
lot of ambiguity and what gets spit out of an appraisal.
Now they went way too conservative for a while, and
we're looking at rear view mirror instead of windshield, at
what we think prices are going to be. And now
that's that's calmed down a little bit. But now appraisals
are accurate. You might have some that come under if
you overpay and you just have to come to the
table with more money. But nothing got fixed with the

(26:02):
credit agencies. Everything is exactly the same it was in
two thousand and seven and eight, and it needs to
be fixed.

Speaker 2 (26:09):
Contect.

Speaker 1 (26:10):
Now these businesses are obsolete, talking about AI making something
obsolutely nothing. Yeah, I don't think it needs to be fixed.
I think these businesses need to be closed, just go away.
I mean, if you want to have a business that's
run on AI that just can spit out the rating
based on all these different factors that we plug well,
and I think it's gradually getting that way, but it
should be more. And and here's why. If anyone ever

(26:34):
looks at a fact sheet for a bond portfolio, or
you could even look inside of a pension fund, to
more and more firms when they're buying bonds, are electing
to forego the rating, and they're using their own in
house due diligence, and because issuers know they're doing that
before they go to the ratings agencies, they will just

(26:54):
go to the largest one or two or the largest
four or five and say do you want it? And
I know you're going to do your own in house anyway,
and if so, we won't pay for the cost of
a rating. And you'll see this non rated sleeve. It
used to be about two percent, then it was about
five percent, and then after two thousand and eight it
jumped and it keeps going up. We'll see munibond portfolios

(27:16):
with twenty seven to thirty percent of non rated. That
doesn't mean low rated. It means that either the issue
was small enough that they could buy the whole thing
and they did their own rating, or the issue was
good enough that why pay for a triple A rating
when XYZ mutual fund family will just buy the whole
thing because they know us, or they're looking at it,
or they're doing their own. So here we are with

(27:38):
what used to be about two percent of the market.
It's now I'll do the sports analogy. Brad It's like
the athlete that is so good that he doesn't need
to attend the NFL Combine. The NFL Combine is a
rating system to determine whether someone is good enough. But
when you're so good, and you know what, you're a

(27:58):
top rated athlete, you forego the count even need to
make the trip. You're already projected number one. You're gonna
gone well. The same thing is true with bond issuers.
If you're so good, why would you fork over the
check to SMP, Moody's and Fitch to have them rate
you good when you're already good okay, And so that's
happening more and more, especially with the credibility of these

(28:21):
these firms going completely out the window. And yet Sunday
night rolls around and everybody acts like it's going to
be a big deal that they decided to downgrade the
US debt. Now everybody said it was gonna be black Monday.
Monday ended up being a point one percent positive day.
At one point it was up about a half a percent.
It as soon as we opened in the morning, it

(28:42):
was down a half a percent. So it goes down
a half, up a half, finishes slightly up well, it
must be the next day. Well, the next day was
slightly down down point two. Uh, Wednesday and Thursday. We're
a little rock here, but we're already two full days,
three full days actually, I accounts Sunday past any of it.
Same thing on the interest rates. In twenty eleven, everyone

(29:02):
said there was this warning for a month, SMP's going
to downgrade the US debt. What will happen to interest rate?
They're gonna spike? Well, we started the year with the
ten year treasury at three point sixty four. When the
warnings came out, the ten year went to two point nine,
but dip below three. Well, what's gonna happen when they
actually do it? Well, it went down below two. The

(29:22):
low point was November, about two months after the downgrade,
and rates went to one point nine. Now, how are
rates going down? It means people are buying those bonds.
So what happened was the exact opposite to the experts
thought in twenty eleven, if the ratings agencies downgrade the debt,
nobody will want to buy it.

Speaker 2 (29:39):
What happened.

Speaker 1 (29:40):
Everybody came to buy it, and it drove interest rates down.
What happened in twenty thirteen when Fitch did it the
exact same thing. Why what mattered what was happening in
the market, not what SMP Moodies in Fitch seth. I
just can't believe that these companies are one of the
major reasons the two thousand and eight fine crisis happened.

(30:01):
They they they were rating, they were rating things triple
A that were nowhere near triple A, and people trusted
that what they were doing was right, that there were
triple A things in there, and it was wrong. And
yet when we get through the financial crisis, any other

(30:22):
company in a similar situation who got it this wrong
would have been fired. In this case, in my opinion,
these companies should have been fired through the whole country.
Everybody in the cost should just stop using it, stop
using it. And yet we're right back to the well
using them all over again because well, I have to
have my triple A now. I think, like like you said,
with the non rated more and more firms are foregoing

(30:43):
it because the other part of it that that that
people miss is on corporate bonds in particular, you're not
going to get a difference in there. There's no cost
associated with their rating of the United States Government by
the way, Okay, if you're a corporation or a state
or a city and you need a muni bond or
corporate bond rated, you pay for that. The funny thing

(31:04):
about the country rating is they just do it unsolicited. Yeah,
we didn't ask you to do it, we didn't pay
it to do it, and they're just doing just doing it,
and they're just doing it. But on the other ones,
like you said, you're seeing more and more companies say, well,
wait a minute, if we have to shell out millions
of dollars to get this rating, but I could go

(31:25):
to X y Z bond fund and they'll they've looked
at our numbers and they don't need the rating. Well
guess what, I get a lower rate. The company gets
a lower rate because you don't have to pay as much, right, Okay.
So that cost, when it gets eliminated, helps it helps

(31:45):
both sides. It helps both sides to eliminate that cost.
And so that's why you're seeing more and more firms
do their own in house rating. So this story that
came out Sunday night, it's it's one of those classic
you know, the people in there jama pants trading overnight
and it's very thinly trading, so the futures go down,
but it doesn't mean anything. It has happened before, it

(32:09):
doesn't have anything to do with the claim spanning ability
of the US government. And they're doing it leading into
this tax plan. They're doing that downgrade leading into this
tax plan. So we get back for the Blake. Let's
go into the tax plan and some of the ridiculous assumptions.
They did pass it in the House. It'll go to
the Senate, there'll be some adjustments, they'll be a back
and forth until it gets to the President's desk. But

(32:30):
one of the things I want to talk about is
these ridiculous assumptions. And I'm starting to believe that it's
more and more political, Brad. It's becoming more and more political.
I'm starting to believe that about the Federal Reserve, but
I'm starting to believe that about the Congressional Budget Office
as well. You're listening to Money Sense Kevin and Brad
Kirsten will be right back, Welcome back to the show.
You're listening to the advisors of Kristen Wealth Manager Group,

(32:50):
Kevin Kirsten and Brad Kirsten. Brad, we're talking before the
break leading in here. The Rating agency downgrade of the
US dead I think definitely had something to do with
the negotiations regarding the tax plan going into it, because
of course, oh, we're gonna extend these tax cuts. That
means we're going to blow out the budget. And the
House did pass the what they're calling the megabill. I

(33:14):
don't think you no, no, they're calling the official name
is the Big Beautiful Bill. The Big Beautiful Bill. What
a horrible name. They're gonna make me say big beautiful.
It's like going to McDonald's or Wendy's, and Wendy's makes
you say biggie, I want to take the large fry. No,
we don't have a large fry. We have a biggie.
You want to say biggie. It's or Starbucks. It's so childlike.
So I mean, Trump, this is the most significant piece

(33:36):
of legislation that will ever be signed in the history
of our country. It's like settled down, all right, It's like,
come on, it's a tax cut. It's not even a
tax cut, it's a tax extension. It's a tax extension.
So extending the Trump tax cuts, the bulk of which
would have been would come by extending the twenty seventeen
changes to the rates the tax cuts were set to expire.

(33:58):
Additional things, no tax on tips. The bill includes temporary
changes designed A lot of these campaign promises that he
wants to fulfill are in there. But what's interesting is
they're all going to expire in four years, but he
just wants to be able to say, I promise you that.

Speaker 2 (34:14):
I go and I don't.

Speaker 1 (34:15):
A lot of times people weren't paying, especially on cash tips.
People weren't paying tax on those tips anyway. But no
tax on overtime earn in twenty six through twenty eight,
no tax on tips in twenty six through twenty eight.
Includes deducting interest on car loans, but only if the
cars made in the US. Increases the child tax credit
until twenty twenty eight. So a lot of short term things,

(34:37):
but the extensions those were longer, were they not. I
haven't heard if they're permanent or if it's another ten Yeah. Yeah,
let me see. I think there's a few things that
are now made permanent. I know the stuff on the
state taxes is now permanent, so the extension don't. I
don't see that here, But we'll get to that. Later
on the state and local tax deduction. Oh sorry, hold

(35:00):
on a second, we have the Social Security benefits. It
allows an extra four thousand dollars deduction for people over
the age of sixty five, so he doesn't really get
to no tax on Social Security. But that's the reason
they're throwing in the extra standard deduction there is, right right, so,
and it phases out anyone people at higher incomes state
and local tax deduction only if you itemize. And the

(35:24):
deduction is usually important to some GOP lawmakers in blue
states like California and New York because they have higher
taxes to twenty seventeen cap that deduction at ten thousand.
But of course the standard deduction was is almost thirty now,
so you'd have to have state and local tax and
twenty five. It's actually over thirty and if you're over
sixty five, you're talking about another thirty three thousand, and

(35:48):
this extra four is and then you're talking about thirty
seven thousand of standard.

Speaker 2 (35:51):
Deductions, right right.

Speaker 1 (35:52):
It's interesting they call it state and local tax deduction. Well,
there is a state, there's local there's property that's part
of that. She'ld be like peace salt. It's not really
including everything, but the House plan lifted that cap to
forty thousand for people with incomes up to five hundred thousand. So,
I mean, it's a it's interesting because the salt issue

(36:15):
was holding a lot of this up. It was holding
a lot of this up. But it's such a narrow
group of people in my opinion, Brad, because you know,
look at somebody. Okay, you make two hundred thousand, married couple,
you make two hundred thousand. Okay, let's look around here.
For example, you're probably paying what you're probably paying eight

(36:36):
grand in state, five grand in local, something like that,
maybe somewhere in that range. So that's thirteen. You're paying
another ten grand in property it's twenty three, So that's
twenty three. Yeah, you're standard deduction thirty thirty.

Speaker 2 (36:55):
Yeah.

Speaker 1 (36:56):
So it's just such a narrow group of people who
may less than five hundred but then has these huge
property tax The only people that have huge property tax
bills are the people.

Speaker 2 (37:07):
That make two three four million.

Speaker 1 (37:09):
Yeah, otherwise you can't afford the house.

Speaker 2 (37:11):
Otherwise you can't afford the house. Yeah.

Speaker 1 (37:13):
So it was strange that it was they just want
a headline because it doesn't really affect that many people work.
Requirements for Medicaid bill include seven pros changes to Medicaid.

Speaker 2 (37:23):
This to me, this is good.

Speaker 1 (37:24):
The joint federal State and healthcare healthcare program for low income,
elderly and disabled maybe one of the most diversive, divisive issues.
Beginning at the end of twenty six, childless adults without
disabilities were required to work eighty hours per month to
get metter. Just to briefly hear on what the headlines
are going to be here, they're going to say eight
million people losing their Medicaid, okay. Two million of those

(37:47):
are undocumented immigrants that are currently on Medicaid. Okay, because
part of the requirement is that you have to fill
out additional paperwork to prove your citizenship residency. And if
even if you're an immigrant, you have to be a
documented immigrant. You can't just be an undocumented immigrant. And
beyond that's two million of the eight The other six
are are people who could likely get free or as

(38:09):
low as one hundred dollars a month Affordable Care Act
insurance if they just moved over from Medicaid to the
Affordable Care Act plans, which are better plans anyway. All
of your doctors will accept it, but want to be
on Medicaid. For someone who's here here illegally to get
on something like that, oh sure, yeah, that would be
a little more difficult maybe, But I'm talking about the
other six million, not including the eight that's going to

(38:30):
be the headline that could just switch over to another plan.
You're not taking away their insurance. You're just shifting them
from Medicaid to Affordable Care Act. And in many cases,
if they're above the thresholds for Medicaid and are working,
they're going to be below the Affordable Care Act thresholds
that where you'd have to pay anything in the first place.

Speaker 2 (38:48):
So you're just moving over.

Speaker 1 (38:49):
To the plan that was established long ago that you
should have already been on, and it would be still
free or close to free if you're paying, if you're working,
and your health insurance has only cost you fifty hours
a month. Okay, I think this is a pretty good
deal for you. So Medicaid spending has just gone through
the roof in the last decade too. I mean we're

(39:09):
approaching a trillion dollars per year on Medicaid spending. That
number when Trump was in office was six hundred billion.
That number in ten years ago, a decade ago was
four hundred and fifty six billion. In two thousand and seven,
medicaiand spending was three hundred and thirty billion dollars. Incidentally,

(39:30):
in nineteen ninety five was one hundred and fifty billion dollars.
So it's gone through the roof. I mean, nearly a
trillion dollars to medicane. Every everyone's always going to the well,
the single mother. That's not who they're cutting. No, No,
they're cutting everybody that shouldn't be on it. In the
first place was a lot. It was a lot of illegals. Yeah,
and that's why the numbers have ballooned. And Democrats don't

(39:51):
want to talk about that. Yeah, when you google it
a lot of times, you'll get these estimates from twenty
twenty one, twenty two, and they're saying, oh, it's only
five hundred thousand undocumented. The number for this year is
two million is estimated as on Medicaid that are undocumented immigrants. Now,
will they be able to dig through and find some
of course, demmer, they will find somebody who's a single mother.

(40:14):
They'll find one. But that's not the point. Why did
it go from six hundred billion to a trillion in
four years. Had maybe it had something to do with
what was going on at the border. I think it
had something to do what was going.

Speaker 2 (40:27):
On at the border.

Speaker 1 (40:27):
I don't know, maybe maybe, I mean, you've got to
be kidding me. So that's there's been the work requirement there,
trying to eliminate some of the waste fraud abuse. There,
changes to SNAP the Supplemental Nutrition program, increases the amount
of state's contribute to the program, and mandates work requirements
for able bodied SNAP and roll ease, and also lifted

(40:48):
the debt ceiling. The debt ceiling has to be lifted.
There's no way around that. So let's talk about the
main thing here. Maybe we go into let's take a
break here, then we'll do that in the last second.
And the main thing here for the last second is
why you can't make some of this stuff permanent, the
ridiculous scoring of it to figure out if it's going
to raise or lower the debt when they have no

(41:09):
idea because of what they're factoring in on this stuff.
Let's talk about what they were factoring in in twenty
sixteen seventeen, when the last time we did.

Speaker 2 (41:17):
It and see if they were right.

Speaker 1 (41:18):
Let's just see if the most recent time they were
right at all. All the numbers to determine, you know,
because the headlines that come out in terms of, oh yeah,
GOP passes, the bill blows, the deficit swelling bill as
it was the first headline I saw.

Speaker 2 (41:34):
Why should it accurate?

Speaker 1 (41:35):
It should be said, and it's to me, it's an
incorrect estimate. It is estimated by the Congressional Budget Office
that the deficit will sweat.

Speaker 2 (41:47):
They don't know how about.

Speaker 1 (41:48):
The the The egregiously inaccurate Congressional Budget Office assumes that
we're going to increase the debt. But they are wrong repeatedly,
which should be the headlines. That's just like SMP and Moody's.
But yeah, here we are again. We're relying on something
that's historically always wrong to determine what we should do
on taxes.

Speaker 2 (42:08):
All right, we're going we'll take care of that. We
get back from the break.

Speaker 1 (42:11):
You're listening to my since Kevin and Bradhurston will be
right back and welcome back. You're listening to the advisors
of christ And Wealth Management Group, Brad and Kevin here
with you.

Speaker 2 (42:17):
Ken.

Speaker 1 (42:18):
We're talking about the new tax plan that just passed
the House, and what was the headline again, The headline
was deficit swelling bill passes the House. And I just
want to talk about these assumptions of deficit swelling and
these assumptions of revenue reduction.

Speaker 2 (42:33):
They'll call it. How are we going to pay for it?

Speaker 1 (42:35):
They'll say, Well, the most recent time was the Trump
uh tax plan from twenty sixteen seventeen, and the estimate
on a static basis, all analysts agreed. All of them
agreed that it would reduce federal revenue. Now, the following year,
federal tax receipts were higher, but their estimate was that
over a decade. Of course they have to do it
over decades. We get a big number on a static

(42:56):
basis if we just have everything be the same and
static growth, four point four trillion to five point nine
trillion of of reduction of revenue. So we're gonna increase
the debt by that much. On a dynamic basis, factoring
in some economic growth, the estimate was two point six
to three point nine trillion over a ten year period. Well,
we're not at the ten year yet, but you know

(43:18):
what tax receipts are and and well revenue, which would
include a little bit more than dynamic revenue.

Speaker 2 (43:25):
Yeah, yeah, revenue.

Speaker 1 (43:27):
Tax receipts have actually gone up by three point seven
trillion over a nine year period since this past So
we were figuring it to be a two point six
to three trillion dollar reduction because if I lower taxes
and nothing else gonna happen, I'm gonna get less. But
that's just not the way it works, because tax cuts
are stimulative. We stimulate the economy and it grows, so

(43:48):
you have a much bigger pie that you're slicing off
your piece. And what ended up happening over the last
nine years was three point seven trillion increase in tax receipts.
No one was factoring that in the most generous estimate
was a two point six trillion dollar reduction. And so
here we are relying on the same Congressional Budget Office
that was only wrong by about six trillion over a

(44:10):
nine year period. It'll end up being about six and
a half trillion. We're when we're done with the decade,
so wrong by six and a half trillion. But let's
rely on you to dictate if we can have a
tax cut or not. This time around, so they look
part of what that reduction in the tax receipts they're
looking at is based on the growth of the economy
that they assume. Okay, the economy grows by x, and

(44:33):
then it grows by more.

Speaker 2 (44:34):
Obviously people make more money.

Speaker 1 (44:35):
Stat is, everything's the same, and I take less will
have less coming in. So this isn't political though, this
is an unbiased, non political agency. Brad in the current
estimates from twenty twenty five to twenty thirty five, okay,
they're assuming GDP growth, which is just the overall economy
growth GDP growth this year of one nine, then next

(44:58):
year one point eight, twenty seven to one point eight,
and then an average from twenty thirty or for twenty
twenty eight to twenty thirty five of one point eight.
I wonder why the estimates are that the deficit was swelling.
Is it because you're using growth of the economy. Now,

(45:19):
let's look at the growth of the economy last year
was two point eight, So we're just dramatically going to
go from two point eight to one point nine, and
we're gonna have the same taxes. If I don't look
at COVID because of the one off things that happened
during COVID. There's not a single year in the last
seventeen years where we had GDP of one point eight

(45:42):
or lower eight GDP contracted. Excuse you, Oh, nine was
actually the year GDP contracted. Soh eight, less than one
point eight COVID less than one point eight. Let's go
back to two thousand and seven. Not a single year
less than one point eight except two thousand and one
when we had a recession. Okay, that and then in

(46:04):
the nineties nowhere near one point So we're assuming this
one point eight forever. Now, if you say so, we
could look at periods of time where we lower taxes.
You know, throughout the eighties we lowered taxes. In twenty
seventeen and eighteen we had lower taxes.

Speaker 2 (46:18):
Tell us of that.

Speaker 1 (46:19):
The long term growth rate of the US economy GDP
is over three percent. And yeah, that's the average annual return. Yeah,
we assumed that that it's going to be one point
eight forever. Well, if if it's a Republican bill, we do. Okay,
but let's look back in two thousand and nine. Obama
took office and he's doing all of his big spending

(46:41):
and tax bills. What sort of benefit of the doubt
did he get from the Congressional Budget Office when he
was putting in his big spending plans? Right, big spending plans,
how do they score?

Speaker 2 (46:51):
Well? They looked a lot better.

Speaker 1 (46:52):
Why Well, the Congressional Budget Office when Obama put his
plans in assumed growth rates in twenty eleven four seven
six point zero six point one five point six five
four point four four point two going all the way
to the end of his presidency in twenty sixteen. But

(47:13):
what actually happened under Obama? Okay, in twenty eleven when
he did his big spending plans, they assumed four point
seven We got one point six twenty twelve Congressional Budget Office.

Speaker 2 (47:27):
So once again, this this.

Speaker 1 (47:29):
These assumptions are what allowed Obama to pass all out
of his plans. But they're on by Obama got the
benefit for every plan he put in place of a
Congressional Budget Office assuming almost a five percent annualized GDP.
And what actually happened twenty twelve they assumed six we

(47:50):
got two to two twenty thirteen Congressional Budget Office, to
assume six point one we got two to one twenty
fourteen five point six, We got two five, GDP was
growing at half of what they say. It's either political
or it's stupid, because if you raise taxes, it has
the opposite effect of lowering taxes. I don't want to know.

(48:12):
We could talk about one or the other. You're either
stupid or you're political, and both are bad. I don't
even want to get into it. It should be a
baseline three percent and then call it a day so
we don't need the budget. Where do you get off
doing one point eight in Trump's current plan when the
long term average is over three? And then where do
you get off allowing Obama to assume five, five, and
six and we only end up getting two and no

(48:34):
one talks about it. Yeah, and then we keep relying
on it. You realize how this would score if we
did five. If we did five, you'd have you could
make them all permanent, you'd be balancing the budget.

Speaker 2 (48:45):
Yeah.

Speaker 1 (48:46):
So we'll talk more and the next show. But it's
just so insulting to me that just on GDP. There's
a lot of other assumptions that go in, but just
on GDP they use one point eight percent. Thanks for listening, everyone,
We'll talk to you next week. You've been listening to
Money since, brought to you each week by Kirsten Wealth
Management Group. To contact Dennis Brad or Kevin professionally, call

(49:09):
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(49:30):
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