Kersten Wealth Management Group - Money Sense 6-14-25

Episode Transcript

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

Speaker 2 (00:01):
You're listening to the advisors of Kirsten Wealth Manager Group,
Kevin Kirsten and Brad Kirsten. Happy to be with you today. Brad,
is the market this week continues to move higher?

Speaker 1 (00:11):
Really?

Speaker 2 (00:11):
I mean, if you look at the last week, the
S and P five hundred is up nine tenths of
a percent. We have had a couple of down days
mixed in there, but the market continues to stair step
higher and make a series of higher lows and higher highs.
Holding above the two hundred day moving average, which we
talked about in previous weeks being a very very important level,

(00:32):
and certainly staying above that two hundred day moving average
for a prolonged period of time is an encouraging development.
We talked about the continued out performance of large cap Forum,
which still is there eighteen point eight percent on large
cap FORIM for the year. In the last two weeks,
emerging markets have caught up to large cap foreign in

(00:52):
a big way. I remember we just did a show.
Even last week, I think merging markets was running around
eight percent year today now it's at fourteen, So a
really good week for emerging markets. Three point two percent
a little that's news related. You did have a little
bit of lift off with China, especially with some positive
developments with Trump and his team making a deal that

(01:16):
the headlines say Trump makes tiny deal. I saw that
several times, so that everyone's using the word tiny in
their headline. And the deal, if agreed upon, is them
to charge us ten and us to charge them fifty
five on tariffs. Are stuff going in ten, They're stuff
coming in fifty five, and they're calling that a tiny deal.

(01:38):
They're never going to be happy with the deal, so
you're never going to get a headline that says Trump
nailed it. Anything that's better than what we have is
a good deal. And all of these were going to
come out on the other end charging them more than
we were, and they're going to be charging us less
than they were for our stuff going there. So I
think they're all positive developments. That's the emerging market news.

(01:58):
The other news of the week why we had a
little bit of disruption was just some overseas maybe disruption
with oil, oil pipelines and a little bit of turmoil.
This used to cause kind of months long disruption for
oil spikes and oil prices. You'd see oil go up
thirty dollars. When this happens, there's so much domestic production,

(02:18):
it's almost a non story. And you had a kind
of a one day blip with oil in the middle
of the week, shot up to about seventy and kind
of right back down and kind of trending down now again.
So that's why you see energy stocks up about five
percent of the week. But again you just a little
bit of fits and starts when you look under the hood.
But like you said, the trend is up. You have

(02:40):
all eleven sectors above their fifty day moving average. That's bullish.
And I think we're in this news cycle now where
you had all these major economists, all these broker dealers
and heads of banks all lower their expectations for the
year in the midst of all the trade turmoil, and
now going to have to talk that as long as

(03:02):
they can, hoping that they were right. They predicted up
ten percent of the year. Then they predict out down
ten percent of the year, and now they're going to
have to keep talking about all the negativity that they
find out there, even if it's not true. And one
of them I saw earlier this week was Wells Fargo
saying that the breath is weak. Well, it's not. All

(03:27):
eleven sectors are up. All eleven sectors are up above
their fifty day moving average. The breath is strong. But
they're just gonna say whatever they want to say because
they lowered expectations, and you're seeing that across the board.
Everyone's still giving you this fear talk of recession, fear
talk of what Trump's doing, or that they're not going
to make the tax deal, all these things that you

(03:48):
should worry about to stay out. But the reason they're
doing it is because they panicked in April and said, nope,
we're going to have a negative year, and they're hoping
now that they were right. And it's just one more
example of the air quote. Experts don't really know anything.

Speaker 1 (04:05):
It doesn't matter.

Speaker 2 (04:05):
Where they're from if they're making a call like that
and not looking at what's normal. What we had this
year was very normal. You talked about how precedented, not unprecedented.
A lot of these things were. How precedented it was
that the volatility we got. We had a whole year
last year where we didn't get a big sell off,

(04:25):
so this year was going to give us a big one,
and we got it, it might even give us another
bigger one, and that would also be normal. So we're
in the cycle of a very normal market that people
are telling you is abnormal, and it's really not.

Speaker 1 (04:40):
That's right.

Speaker 2 (04:41):
And so the longer you hold above these different levels
that we talk about, that's really kind of what we're
looking for and what we're seeing in terms of will
this market continue to move higher? And we keep ticking
the boxes brad of different things that have occurred. Eighty
percent off the bottom was another one, and we recently

(05:02):
got to that very very bullish for the next twelve months,
was trying to get I was actually trying to get
to that number because I had it up there for
a second and then it went away on me. But
and does that mean we're going to get another twenty
percent in the next two months?

Speaker 1 (05:18):
Of course not, of course not.

Speaker 2 (05:20):
And this is the danger of the folks who panic
and bail out the first twenty percent. I don't want
to say that's the easy move, but it when you
look at historical charts and you look at rallies off
the bottom, yes, they typically have a big rally early
and even if you remain positive on stocks in the

(05:41):
months and years to come, and a lot of these
stats tell you three, six, twelve months out the numbers
are still pretty good. You can see the leveling off.
You can see that the returns kind of returned to
a little bit more normalcy after that twenty percent thrust
off the bottom. Yeah, but you do have to kind
of through all this fake news because there were so
many people that turned negative and you're just going to

(06:05):
be fed this constant negativity. Remember this one. The fake
news that was revolving around the nine day winning streak
about a month ago, and the fake news was that
that only happens during recessions. That's a signal of recession.
Well it doesn't, is that true, But it's not. Three
out of the twenty nine occurrences where we had a
nine day winning streak for the market were during a recession.

(06:27):
So twenty six out of twenty nine were not during
a recession. So that's what they were telling you. Doesn't
happen very often that you had a nine day winning streak,
But it's typically a bullish sign. Typically it is happening
after a pretty significant selloff as you're recovering, But it
is during the recovery that you get those, and that's
what we got, and that's what led to this big

(06:48):
May that we got and kind of this continued push
higher is it's just this movement above kind of out
of the danger zone into the comfort. So I found
the twenty percent charged here, Brad that it has happened
six times twenty percent in two months nineteen seventy five,
nineteen eighty two, December of ninety eight, April of nine,

(07:13):
May of twenty twenty, and just recently. And alls are
such significant starts to bull markets, all of those that
you mentioned, every single one of them that you need
to know your history to know that even if you
get some volidle days, you've got the wind at your
back here. So the twenty percent threshold was reached on

(07:34):
June ninth. Not really sure where the market was at
that point in time. If you look at the last
six occurrences, average return all positive eight point two percent.
One month later, three months later, average return twelve point five.
So certainly a leveling off there, all positive. Y.

Speaker 1 (07:52):
So you said the.

Speaker 2 (07:53):
First month was eight yeah, yeah, So think about that.
You're talking about the leveling off eight and then two
and two, and then the six month is sixteen point
three all positive, even more leveling off about one and
a half now all positive, and the twelve month number
is thirty point eight all positive, with the worst one
being eighteen point six percent return twelve months later. So,

(08:17):
but yet somebody will get on TV and say things
like this are negative even when they're not, and you
have no one calling them on it. They'll say this
is a sign of a recession, even when it's not,
and no one calling them on it. So you do
have to know what is normal for the market. What
is the history of the market. We're getting the same
thing revolving around tax cuts. We're getting the same thing

(08:37):
revolving around earnings earnings. There's this perpetual cycle of everyone
telling you that we're trading it too high of multiple.
We are a different market than nineteen fifty, where Exxon
Mobile or an industrial plant had to be built and
there was all this capital that had to get spent,
and now you can start a company and have nothing.
What's the overhead for Airbnb? What's their the overhead for

(09:00):
tech companies like Uber or even Apple that outsources everything. Okay,
they don't belong in the same category as a nineteen
fifty blue chip and the multiple should be exponentially higher
than those companies. Yeah, and even looking I was looking
at some fact sheets this week, just kind of studying things,
and of course a lot of these numbers that we

(09:20):
look at, if you look at the five year, the
five year is just you don't almost have to throw
it away. Yeah, but you're but it's it's good to
point out because these five year numbers are a little
skewed because of the starting point. We're right at that
COVID time and even some of the days here that
we have, remember we had the COVID rally off the
bottom and then we had a ten percent two day

(09:41):
sell off right at the start of June, so we
had some days where you're coming off a significant, kind
of brief low point. And so you'll have people get
on TV and say, while look at this five year number,
we can't keep this up. It's positive fifteen sixteen percent
on a five year. Yeah, well, the starting point if
we go back or forward a week won't look the same.

(10:02):
And so you do have to know what it is.
A three years a better look, or even a six
or seven year is a better look. And so don't
let anybody convention that the market's overvalue because of one
data point. You have to know where that starting point
is on that five year well, and I was trying
to find and I probably could track this down for
later on in the show, but I was trying to
find the fact sheet on the SMP at the end

(10:25):
of the year because the number I want to zero
in on is the three year number. And the reason
I want to focus on that three year number because
if we were looking at December of twenty twenty four
and you go back three years, people talk, oh, they
might listen to us and think, oh, you're always positive.

Speaker 1 (10:40):
Well, my point is this, I believe, and I.

Speaker 2 (10:44):
Gotta double check this number because as of the end
of March, the three year number on the SMP was
nine nine point zero three per year. But I believe
at the end of the year because you're going back
to a previous high. And this is my point is
this is you buy a high point. At the end
of twenty twenty one. The narrative was we've run up

(11:04):
too much. You know, nineteen was unbelievable, twenty twenty even
it was COVID year was still finished, very positive, and
twenty twenty one was a rip roaring year higher. So
we got to the end of twenty one. The narrative
was similar to what we saw here recently before the
recent selloff, which was market's way overvalued, the p the
ration shows are too high. All this earnings talk, and

(11:27):
you might have been nervous on January first, twenty twenty two,
buying and what were you rewarded with. Well, you went
right smack dab in the middle of a twenty seven
percent sell off. But my point is the three year number,
if you held for three years, was six or seven
percent annualized, a little bit below average. But the point

(11:50):
is the same, which is, if you had just a
three year time horizon, just three years, you did go
through it being the worst day. You went through a
little bit of pain in twenty two, twenty two, But
if you just had a three year time horizon, you
still made much more money than any fixed income saving
account CD treasury bond, no matter.

Speaker 1 (12:11):
I think about.

Speaker 2 (12:11):
That's a period of time we hadn't even had the
FED raise rates yet, It's a period of time where
your two year treasury probably paid you two Now you
flash forward one year after the FED raises rates all
the way up and you can get five percent on
a two year And all the talk after twenty twenty two,
after the selloff was well, why wouldn't you just do

(12:33):
a two year treasury? That was one of our our
our certainties that everyone was saying that proved to be false,
which was why wouldn't you want to lock in five
percent for two years? Because the market gave you fifty
and that's ten years worth of that return, and so
it doesn't matter. It does not matter going forward here

(12:54):
these valuations, I'm sorry, they're not going to matter. We
are a completely different market. We're going to be a
tech market, and it is going to be a market
where unless you're looking at a ten year PE or
a five year PE as a comparison, anyone looking back
further than that is only trying to talk their negativity
into the market. It is. It is an unrealistic thing

(13:17):
to compare to. And you see this all the time
where you'll have two charts laid over each other and
you really have to look at the axes to realize
where how they got it to look so bad. And
that's what we're seeing now with all this earnings talk.
Is the only way you can get our current market
to look over valued is to compare it to nineteen
fifty or nineteen seventy, and we're just not the same.

(13:38):
And the only comparison is is maybe maybe going back
five ten years, I couldn't find the average ANUAR term.
We could do the calculation, but it was twenty three
percent even in three years from January of twenty twenty
two to January of twenty twenty five. I mean, even
with compounding, you're more like your level. Yeah, you're less
than eight, you're lessoning, you're probably more like seven with compounding,

(14:01):
and we can run that number at the break, But
still twenty three percent three years when you bought the
absolute top. So does that mean today's the absolute top?
Who knows.

Speaker 1 (14:13):
That's not the point. The point is it doesn't matter.

Speaker 2 (14:14):
It doesn't matter because in that scenario, and not every
scenario is exactly the same, but even in that scenario,
you still made a twenty three percent return for three years.
I was even going through earlier this week with somebody
talking about all the different times that what if, what
if now is a bad time? What if now's a
bad time? Okay, Well, one of the worst times was

(14:35):
November of two thousand and seven. November of two thousand
and seven, the S and P five hundred was at
fifteen fifteen sixty. Okay, you had to see your portfolio
get cut in half. But today it's over six thousand.
So without dividends, you've made four times your money in

(14:55):
a seventeen year period of time. So a million dollars
is four million excluding dividends, from the peak in two
thousand and seven to today. Now that's a long time
to wait seventeen years, but the point is still the same.
Many investors who bought the top, who stayed the course,
did very well. I don't care if you bought the

(15:15):
top in eighty seven when the S and P was
at three hundred that's where it was in nineteen eighty seven,
or if you bought the top in seven, investors had
stayed the course. Even smarter investors who added a little
bit money when the market went down, whether they're doing
it in their four oh one k or they just
put money in, did even better. We're talking a lot

(15:37):
about market correcting here. It doesn't have to. You know, though,
you're buying a top in nineteen ninety six and a
year later you were a new top. And a year
later you were to a new top. And so there
are a lot of market spends a lot of time
at the all time hot.

Speaker 1 (15:52):
It's a fool's game when people start trying to do this.

Speaker 2 (15:55):
Yeah, I'm just gonna wait for I'm just gonna wait
for a little bit of a dip. No, you won't
because when the dip happens, you'll think this is the
big one, and then if it goes down a little further,
you still won't buy because you think it's.

Speaker 1 (16:05):
Going to go down a little further.

Speaker 2 (16:06):
And your point is valid too, because whether I talk
about the top in nineteen eighty seven or the top
in nineteen ninety nine, folks have to remember that there
was a peak in the market in eighty four, eighty five,
eighty six, huh, and then finally the one that you
wanted to avoid, same thing in the nineties. The market
was way up in ninety five, ninety six, ninety seven.

(16:27):
So no matter where it is, when it returns to
that point, Okay, when it returns to that point, it's
still more than likely going to be higher than where
you got out.

Speaker 1 (16:37):
They all have one characteristic.

Speaker 2 (16:39):
Okay, those tops that you wanted to avoid you ask yourself,
if we're in this market in eighty seven, no one.
The reason that you have one or two people that
people say, oh, they called it is because those are
the perma bears or the one person that maybe changed.
Ninety nine percent of everyone that was going on TV
or writing articles said it was it was a great

(16:59):
time to buy the peak in ninety nine, everybody except
for Warren Buffett was saying you got to just pile
in same thing when housing was going crazy. In o seven, hey,
maybe you should have a little bit more housing. Same thing,
same thing prior to COVID, same thing before the FED was.

Speaker 1 (17:18):
Doing all this stuff.

Speaker 2 (17:19):
In twenty twenty two, the sign of maybe one you
want to avoid is maximum optimism. Ask yourself if we're
at maximum optimism or more pessimism than optimism. I don't
think we're at maximum pessimism. I think you're having a
few people change their tune. But we have more pessimism
than optimism. That is not the characteristic of a market peaking.

(17:42):
Let's take our first pause. Talk about a few other
news stories this week. We had a new CPI report
talk about the experts getting this wrong three months in
a row, when we come back.

Speaker 1 (17:52):
Welcome back to the show.

Speaker 2 (17:53):
You're listening to the advisors of Kristen Wealth Manager Group,
Kevin Kirsten and Brad Kirsten. As a reminder, we are
professional financial advisors. In our offices are in Perrysburg. Give
us a call throughout the week if you would like
to set up a consultation to review your financial plan.
Whether you're just getting started on your journey, well on
your way, or already in retirement, we'd be happy to
sit down and review things with you four one nine

(18:13):
eight seven two zero zero sixty seven or check us
out online at Kirstenwealth dot com. Let's look at CPI
Consumer Price Index, the most widely followed inflation measure measure
UH for the general public. The Fed follows what's called PCE.
Some people follow PPI. This is the big one, This

(18:35):
is the big one that everybody follows. And it came
in below expectations for the fourth consecutive month since we
started talking about tariffs. Everyone said, this is the big one,
this is the one that's gonna spike.

Speaker 1 (18:47):
Now.

Speaker 2 (18:48):
The expectation came down from point four to point two
on a monthly and it came at point one. The
number came in at point one. The expectation was theation.
So we have had four consecutive months where the expectation
was a tenth or two tenths higher than what ended
up coming in. Our quarterly average is point five to seven.

(19:09):
Our four month average is point one seven. So one
point five to seven and one point seven are our
three and five and four month average. Since all the
trade stuff started, we started talking about it that the
real time report trueflation has stayed below two percent for
this entire time. So looking forward, we're going to have

(19:29):
another point one or point two. It's going to continue
to be in this range of below two percent. But
here's another one where we're we always call it talking
your book, you know. I you'll hear somebody like Jeffrey
Gunlock or Bill Gross used to be on and they say, oh,
I think the stock market's going to go down.

Speaker 1 (19:45):
Oh no kidding.

Speaker 2 (19:45):
They're bond managers, Okay, But bond manager comes on TV
and thinks the stock market is going to go down.
They're talking their book. They want you to buy bonds.
Same thing here you have all these Inflation is going
to be rampant because of what Trump's doing. P out
there and they're all hoping and wishing that it's going
to be higher, and they're saying next one's going to
be the big one. For four straight months, guess what,

(20:08):
we haven't had it. It's not coming well. And if
you just look at the long term average of the
Fed funds rate over CPI is two excuse me, the
long term average is one percent above one percent. The
long term average of the Fed funds over CPI is
one percent. We're currently two full percentage points above CPI

(20:31):
when the long term average of what the Fed funds,
So the Fed is one full percentage point to tighter,
four cuts behind than any average period since nineteen fifty.
This this chart goes back to nineteen fifty. Now were
there times where the Fed was tighter than it is now? Yeah,
there were, brad For most of the early early to

(20:52):
mid eighties, the Fed had a much bigger spread in
terms of In the eighties, you had all this worry
of this extent inflation that they had from from half
a decade prior, so I get it. And much of
the late much of the late nineties as well, the
FED sat at three to four percent above CPI. For
much of the late nineties as well. The last time

(21:15):
we were this tight, and tightness being defined by the
FED way above inflation was six and seven. We haven't
been we haven't had a FED this tight since two
thousand and six and two thousand and seven. Uh, when
you're looking at inflation, and I said this to you
the other day in twenty twenty two, we had runaway inflation.

(21:38):
The FED always says, we just look at the data.
We don't look at anything else. They were in denial,
then we're not we're not political. We just look at
the numbers. And yet it was so obvious because we
opened the fire hose of money during COVID.

Speaker 1 (21:52):
We didn't want to shut it off during Biden.

Speaker 2 (21:54):
And what do you think is going to happen to
the cost of goods and services when people have unlimited
funds from the federal government. It was obvious, but they
said it's temporary. It's temporary, it's temporary. Don't worry. We
don't have to raise rates. And they did have to
raise rates because it wasn't temporary. And they finally raised
for the first time when CPI was seven point five.

Speaker 1 (22:13):
That's their first raise.

Speaker 2 (22:14):
Okay, now we're it two and they're saying the low
inflation numbers that we have are temporary.

Speaker 1 (22:22):
Are temporary.

Speaker 2 (22:22):
Yeah, they're making the same temporary argument that they made
three years ago. That was a massive mistake, YEP. So
what's the danger, Well, the danger is when they keep
rates too low and inflation's high and they claim it's temporary,
the danger is inflation's just not going to come down.
On the other side, when they keep rates too high,

(22:44):
the danger is you'll eventually hit the economy. You'll eventually
slow down the economy. Yeah, like they didn't six and seven. Yeah, okay,
so that's the danger. The danger is I think there's
two kind of dangers out there right now for the
broad market. I think we kind of gotten through this
tara phase. We're seeing diminishing anytime we see a headline

(23:07):
on tariffs. We're not seeing as much volatility as a
result of it. The two big risks are Congress not
getting the tax plan through yep and and dragging their
feet till the last minute, and that will create some volatility,
and the Fed refusing to cut rates to a reasonable level.
By the way, I am not calling and I don't
think Trump is calling for Jerome Pile to cut rates

(23:30):
back to zero like what we had. No, no, just
make us bring it back to neutral, make us competitive
with rates around the world we have. We have European
central banks cutting seven to nine times already to our
to our four. So we're way behind, and we're gonna

(23:51):
We're gonna have to endure two more months until the
Fed cuts for the first time, until the tax cut
deal is done. To hear the air quote experts, and
this is so here we have to listen to your
own pow because he's the expert. But they've been wrong
before and we're gonna have to hear. Well, this Yale
economist thinks that your tax plan is going to raise

(24:13):
the debt by ten trillion. Oh, this Harvard economists thinks this. Oh,
the scoring agency that gets it wrong every time thinks this.
And I just heard this in one of the congressions.
The way I researched this last couple of days, you
realize there is no requirement. There is no requirement to
listen to the Congressional Budget Office on the scoring. I

(24:34):
know it's a little bit of a sidebar, but well,
I was always assuming that they had to be within
certain parameters. Yeah, there's no requirements since they're wrong. I
just heard a congressional hearing where they were grilling Best
at you know Best was on I think it was
wednes Tuesday or Wednesday this week, and of course it's
it's ninety percent of the five minutes is a congressman talking.

(24:56):
Then they give him about one minute to talk, and
he says to face up to the facts, the words
it worth, facts, the facts that this is going to
raise a debt by a ten trillion eleven trillion because
this person says it's going to okay. That person's opinion
is not a fact. And Jome Powell's opinion about what

(25:18):
the tariffs are going to do is not a fact.
A fact is what they're actually doing. A fact is
the actual CPI report. A fact is the two days
later the PPI report, which is a little more forward
looking at it's what producer prices are paying, which came
in at point one and they were expecting point two.
The facts are the actual data. And you have congressmen

(25:39):
and the Fed talking about opinions and saying that they're facts,
the Scoring Office people saying that the Scoring Office saying
it's going to do this and saying it's a fact
is wrong. It's an opinion that that's what's going to happen.
The fact is what actually happens. And the last time
that we had a tax cut, it is a fact

(26:00):
that it didn't raised it did not raise debt because
we brought in more dollars the next year and grew
the economy by more. Therefore, it wasn't a fact that
even though the Budget Office thought it was going to
raise debt, it didn't. Now, shortly thereafter we blew the
whole budget out with spending, and they're going to look
at that and say, oh, we took we took our

(26:22):
debt up by two trillion if you look at like
a three year because they want to go into COVID years. Well,
that's misconstruing the actual fact that a year later and
two years later twenty eighteen and nineteen, we actually lower
debt because we brought in more dollars because tax cuts
grow the economy.

Speaker 1 (26:38):
Right right, And.

Speaker 2 (26:41):
Powell's running out of excuses, Yeah, when it comes to
these numbers, because they keep saying that the tariffs are
going to cause inflation and it has yet to show up.
So it took some of the numbers here, No go ahead,
it's the annual here. I'm just going to warn people, Okay,
don't fall for this either. How the CPI works are
showing you a monthly number and then they show you
this annualized number. Okay, you drop off one from a

(27:03):
year prior. So the current one was point one, and
inflation on an annualized went from point two point three
to two point four. Well, guess what what do we
drop off? You can do the math. We dropped off
a zero. Well, next month, we're dropping off a negative
point one. Okay, so unless it's also negative point one,
which is not going to be CPI on an annualized

(27:25):
is going up. I think it's gonna be point two,
could be point one, but I think it's gonna be
point two. You're dropping off a negative point one, so
you're gonna go from two point four to two point seven,
and then we're gonna be on a straight down trajectory
below two for the rest of the year. So this
is the only one for the year where we're dropping
off a negative, and it's the only one that I
think will go up and call it significantly two point

(27:46):
four to two point seven one month from now. It's
coming and the headline will be thanks a lot, Trump,
Your tariffs just made it two point four to two
point seven.

Speaker 1 (27:54):
No, they didn't.

Speaker 2 (27:55):
You're only because of the math of dropping off a
point one from a year prior.

Speaker 1 (27:59):
That's it.

Speaker 2 (28:01):
If you look at the numbers for this month, new
and used vehicle prices declined in May, despite many expecting
an increase in prices because of tariffs. Course, services excluding
housing was unchanged, and that annual rate is around three percent.
Prices for apparel and autos, both highly sensitive to trade conditions,
declined in May. Apparel prices also declined in April, indicating
these companies likely absorbed the tariff costs and looking at it.

(28:25):
So remember the fact that tariffs are passed on to
the consumer. That was also a fact, right right. That
was a fact they told us, right right. So you know,
we'll have the uncertainty. Stocks have brushed it off, especially
with the recovery we've since April. We certainly have the
agreement that you talked about from China. It's not an

(28:46):
official agreement, right, This is just it's essentially an outline.
They haven't put pen to paper, so we'll have to
see what happens when they eventually do. And certainly there's
always the risk that China's just saying okay, yeah, yeah,
we'll do that, and they're just slow walking basically until
Trump's fourty years is over with. So that's that's important
to look at. Talk let's talk about record highs Brad.

(29:07):
This is in our our daily commentary from LPL. But
I think that this is a good thing. So the
chart of the day SMP has historically performed after posting
a new record high. We're not quite there yet, but
the scatterplot compares the number of trading days between record
highs and the indexes performance twelve months after the high.
So we're about right now. We're about two percent away

(29:28):
from the high. Sixty one forty four is the number.
And we were just talking about this, right, sell the high,
Sell the high. You look at the chart that we
have here, Momentum tends to continue following a new high.
The index averages nine point seven percent returns in a
twelve month period, with seventy five percent of those periods

(29:50):
being higher, so kind of right on the average average,
right on the average. So you get to a high
and then you're just back to normal, and really you're
just back to normal. That's the point. From the high
you should expect normal returns. Yeah, from the lows, that's
where you get above average, right right, So you don't
have to panic when the market recovers, you're just gonna
go back to average.

Speaker 1 (30:10):
Like we said, there's a plateau, and that plateau takes
you back to.

Speaker 2 (30:13):
So what's an investor to do if even if you
didn't say you didn't dial up risk at all when
you get back to the high. Take a look, did
I start the year at eighty twenty and I rebalanced
at the bottom and now I'm ninety ten. You can
rebalance when you get back there, because now you're back
to normalized returns. The rebalancing is really all that you

(30:34):
need to do to smooth out your returns and make
sure that you're not more aggressive. Maybe you sold bonds
over the last four months, if you were doing withdrawals,
and now that you're back to highs, maybe you're a
little out of whack. Maybe you're eighty five to fifteen,
maybe you're ninety ten. Maybe you need to refill the
short term bucket just in case. There's some things to do,
and especially if it's you're in withdrawal mode, and you

(30:57):
only took from things that were not down. Maybe when
we get to that all time high, it's appropriate to rebalance,
but it's not appropriate to bailout.

Speaker 1 (31:04):
That's right.

Speaker 2 (31:05):
Let's take our next pause here. Listen to Money Sense
Kevin and Brad Kursten. We'll be right back. Welcome back
to the show. You're listening to the advisors of Kirsten
Wealth Management, Kevin Kirsten and Brad Kirsten. Brad real quick,
because this is coming up for me in a lot
of different meetings, especially with people with new money inherited money,
and I'm gonna focus on that and also going to

(31:26):
talk to any existing clients that are listening to about
pros and cons and why you maybe can't necessarily make
the switch to this.

Speaker 1 (31:34):
Type of investment.

Speaker 2 (31:35):
And that's something called direct indexing. But also the added
layer of tax lost harvesting. People have probably heard of
tax lost harvesting, and this is something that we've always
done in client portfolios throughout the year. You look at
two months ago, for example, when the market hit its
low point, we're in their tax lost harvesting. You go
into a similar investment, so you don't create a wash

(31:56):
sale rule, you get a tax loss and then you
get a gain on the other side that you don't
have to realize, and so you're left with a better
tax situation, but still the same amount of money because
the market has still recovered well. With direct indexing, let's
just define it first, okay, okay, So direct indexing means
that we are either using sectors to illustrate or to

(32:18):
express the same positions as the overall market. Take the
SMP five hundred for instance. If we're using sectors to
do it, you're gonna have eleven sectors. The biggest one
is gonna be text. It's gonna be roughly thirty two
percent of your portfolio. But you can also do with
individual stocks, and you can represent the S and P
five hundred with seventy five to one hundred stocks and

(32:39):
get the same exposure sector wise. And if you're doing
it with individual stocks instead of sectors, you get the
added ability that for probably five or six years, you
can get the market performance and throughout the year be
tax lost harvesting and actually capture losses even in a
portfolio with gains eventually investment gains, investment gains, tax loss,

(33:02):
tax losses.

Speaker 1 (33:03):
So you can.

Speaker 2 (33:05):
You can do it in a none you want to
do it in a non retirement account and an IRA.
It's it's irrelevant, but you also want to do it.
Maybe think about doing it one with new dollars, especially
if you're inheriting dollars or you're getting new dollars for
any reason and you're still working in a high tax
bracket if you're retired and you have a lot of
sources that aren't taxed or aren't fully taxed, like Social Security.

(33:27):
Maybe it's not as important if you're in the ten
or twelve bracket. But when you're peak earning years, especially
if your peak earning years and now you're inheriting a
big chunk these this could could offset your your taxes
a little bit and actually benefit you for for the
bracket you're in, maybe pulling you down a bracket even
that's right. So so what you do and this is

(33:47):
a fairly new thing. This is a fairly new thing.
A lot of it. Technology has made it a lot easier.
Technology has made it easier. I mean, people could create
a direct index on their own, but boy, that would
have been the advisors would have had to charge half
a percent more than they're charging now that it's just
before the jump up in technology and the financial services industry.

(34:08):
I don't even know if it would have been feasible.
I mean, it would have been literally a full time
job for one person to monitor this direct index. And
now you create a program and you put the direct
index in there, you put the tax sauce harvesting in there,
and it happens on almost a weekly or monthly basis.
And so here's what happens. First of all, let's take

(34:30):
the SMP five hundred as an example of a direct index.
You would own, Okay, you're going to own the individual stocks,
but not all because if you own the S and
P five hundred, you just own the S and P
five hundred. You have no levers to pull. It goes up,
it goes down. You're getting market performance. You're getting market performance.
You performance wise, you'll do fine, but you won't get

(34:50):
any tax benefits because you just have one investment. But
we all know the S and P five hundred is
made up of five hundred of the largest stocks in
the United States, largest companies in states. Now, you don't
have to buy all five hundred. That would be a
little bit tedious. But you can get very close plus
or minus one percent of the S and P five hundred,
owning in my estimation, one hundred to one hundred and

(35:12):
fifty stocks. Okay, you can get the full performance of
the SMP five hundred. Now, we all know some days
technology goes up. Some days energy goes up and technology
goes down. Some days energy goes down and technology goes up.
And that is true for staples, communications services, real estate,
you name the sector, healthcare, financials. On any given days,
certain stocks in certain categories go up and certain stocks

(35:35):
go down. You're still going to get the performance of
the SMP. But what's going on under the hood is
stocks are going up and stocks are going down. So
you have the exposure to the index. Now, when you
add the layer of tax lost harvesting on top of it.
If the first day you're in there, and a lot
of times it's not daily, but i'll use the first
day you're in there, Apple goes down, not a recommendation

(35:57):
to buy or sell Apple, but Apple goes down, you
would sell Apple. You would put that money because you
can't go right back into Apple. There's something called the
wash sale rule. If you buy back into Apple in
thirty days or less, you do not get the benefit
of the tax loss. So what's one to do you
want the performance, you would, for example, go into the

(36:17):
Tech sector index, which is a big chunk of it's
in Apple. Or you would simply just go into the
S and P five hundred index for thirty days, and
then after the thirty days is up, you go back
into Apple. And so this is going to happen hundreds
of times in this direct index throughout the year. You

(36:39):
could have a year potentially where the S and P
five hundred has good, solid up performance. We have a
couple people in this right now, Brad. They're up on
the year. It's about twelve percent losses because we had
a twenty percent self. We have twenty percent self. So
even though from January first to today they're up, they're
overall va how you of their portfolio went up. They

(37:02):
were able to get tax losses throughout the year. That's
going to help them April fifteenth next year when they
come to do their taxes. So now, so you get
the market performance and the added bonus of reducing your
overall taxes. Correct, So it's it's if we're adding all
of that benefit up you're beating the market because of
the tax benefits. So when you look at kind of

(37:24):
where that would stand over time, you can't generate losses forever.
That doesn't make any sense, right, okay, but it will
give you, as you mentioned earlier in the segment, probably
five to seven years of losses. At that point, you're
going to have all unrealized gains and you'd have to
think about what else to do from that point forward,
but you would you would have about five to seven

(37:47):
years worth of losses to offset gains or to take
a write off of three thousand dollars per year. Now,
people say, well, you guys haven't talked to us about that,
and that's true because a lot of clients be for
the direct index with tax lost harvesting came into play,
have been investing for many, many, many years. And if
you have a five hundred thousand dollars unrealized gain in

(38:11):
your non retirement account, your trust account, your individual transfer
on death account, your joint account, if you have a
five hundred thousand dollars or one hundred thousand dollars unrealized
gain with every position being at a gain, well you
would have to realize that gain first to go into
a direct index strategy. So it makes the most sense
for a couple different people. Number one, if you're in

(38:33):
a high bracket especially, but anybody really and you're adding
new money to a non retirement account, makes makes a
lot of sense. If you have inherited money and you've
got to step up in cost basis to the point
where you're zeroed out. Now we're starting fresh, now you're
starting over, you're starting first. It makes it makes some
sense there as well. Over time, someone who has unrealized gains,
there's some things they could do. If they were in

(38:54):
ETFs or mutual funds, you could not reinvest your capital gains,
and when you've built up ann you could start doing
the direct index. So there's some things that you when
you do have an big unrealized gain, which a lot
of our clients do.

Speaker 1 (39:06):
You could talk about that, but this is really.

Speaker 2 (39:09):
A scenario for new money or an inherited money where
it makes the most sense. And the other thing is
you can't start with ten thousand dollars. No, it's not
possible to buy one hundred and fifty thousand stocks with
the portfolios that we use that direct index. Brad have
one hundred and fifty thousand dollars minimums to get started.
So and just point that out too. Yes, I mean,
we obviously have even models that have ten, twenty five

(39:32):
and fifty thousand dollars minimums, but here because there's so
many positions and it would be insignificant if we to
go down to a you know, a half a percent
one percent position with less than one hundred and fifty
that that's why that minimum is in there. I would
also saying who is it appropriate for. I also think
it's more appropriate for somebody above the twelve percent bracket.

(39:52):
I mean, you could have somebody with the same fifty
thousand dollars realized tax loss on a on the account
and they're just getting more bang for the buck when
you're in a thirty seven percent, well, twelve percent bracket
doesn't pay capital gain, Yeah that too, so you know
it's it's and the highest bracket actually pays twenty percent
in capital gains, so it's even better. Obviously in a

(40:13):
lot of these tax scenarios, the higher the bracket, the
better off you are. But you can get that exposure
to the market. Your performance shouldn't change or won't change.
Now you're still going to get good performance over time
if you invest in a broadly diversified portfolio of stocks,
which this is the biggest difference is to tax savings. Yeah,
and performance is going to be the same.

Speaker 1 (40:34):
Yeah.

Speaker 2 (40:34):
So you get the kicker of the tax savings along
with market performance, and it pretty rare that you that
you can you can achieve both. But new technology has
just made it so that you can really have an
account with the same same cost involved without added costs.
Ten years ago, it would have been so much more
added cost to do it u to be able to

(40:56):
achieve it. But now that's one of the things that
technology is making it cheap for clients. I would say
that it's a lot of things are getting cheaper for clients.
The underlying you know, kind of cost drag for a
lot of these is also come down, and so you
don't have any of that when you're using the individual
stocks you're getting, you know, you don't have the if
you use the sectors or even when you're using the

(41:18):
S and P five hundred ETFs, there is a little
bit of cost, but you're talking about two or three
hundreds of a percent where it used to be well
manyfs depending on the type of ETF, but many ETFs
are in that point one two point two five expense ratio.
Most mutual funds, they've come down, but they're you know,
zero point six point seven percent. The direct index that

(41:40):
we utilize is zero point zero seven on the cost.
Zero point zero seven is the direct index that we utilize.
So that's that's an unbelievably low cost to get exposure
to the overall market. We're gonna take our last pause.
You're listening to money sts Kevin and Bragg Hurston. We'll
be right back and welcome back. You're listening to the

(42:01):
advisors of Christen Wealth Management Group, Brad and Kevin here
with you this morning. Kevin, I, we're taping this here
on Thursday morning. And another one where the experts got
it wrong. The US Open at Oakmond is starting today
and all the experts said it was going to be
nobody under par and as of about halfway through this
first that's right. That's a big theme of this show
is experts get it wrong, experts.

Speaker 1 (42:22):
Getting it wrong.

Speaker 2 (42:22):
Well, it seems like the experts get it wrong more
than they get it right, and they're just they're just guessing.
Everyone's guessing. Nobody's really an experts. They're saying things they
can't possibly know. It was. That was another one. It
was just fact that everyone's gonna shoot over par. And
there's there's fifteen people under par right now, and I
think the leader's four under part in one round.

Speaker 1 (42:44):
So yep, yep, that was a fact.

Speaker 2 (42:46):
That was a fact that everybody was just gonna shoot
eighty at these courses.

Speaker 1 (42:50):
And so we have.

Speaker 2 (42:52):
Nine nine people under par at the moment. Now quite
it's backed off a little bit, but the leader is
still four.

Speaker 1 (42:57):
Under Yeah, so that's interesting. Yeah, but yeah.

Speaker 2 (43:00):
So remember that as we're as we're as we're getting
into the to the next couple months, because I just
think we are. We're going to have so many people
that got it wrong when the market was selling off
that have to talk their negativity into existence, and they're
not going to give up until we blow pass that
all time high again and then maybe finally, you know,

(43:22):
they'll stop talking. We mentioned some of the stats last
week how the individual investor performed in March and April,
which was quite well. We saw the money flowing in
among individual investors. Institutional and hedge fund type investors did
very poorly. Bailing out at the wrong time. How about corporations,
They did pretty well in Q one buybacks. This is
our market commentary you can find on our website Kirsten

(43:44):
Wealth dot com. Buybacks boosted stocks amid the market recovery.
That was maybe one of the catalysts that supported the market.
So companies believed in their businesses. Companies believed in their
businesses when they're doing share buybacks. That means they think
their shares are cheap m hm, when they think the
shares are going up. Certainly helped to boost the broader
market recovery from the correction lows oversold conditions fueled by

(44:06):
indiscriminate selling with washed out market breadth at a hard
reset of a little bit of a lofty valuation. First
quarter earnings came in better than feared and most companies
unexpectedly did not pull back their guidance. So when you
look at buybacks, it's when a corporation goes in and
buys its own shares on the open market. It's very simple.
They have extra cash, they can they can do a dividend.

(44:29):
When they have extra cash, they can reinvest in their business,
or they can just buy back their shares reduce the
number of shares outstanding if they think the value of
their shares are cheap. So when you look at it,
who's buying and buy how much? Corporate America has a
substantial amount of stock to repurchased, and with only a
few companies left to report this quarter, the buyback window
is nearly wide open. For the S and P five hundred.

(44:50):
There's a period of time where they can't buy back
when they're near their earnings reports. Announced buyback programs reached
seven hundred and fifty billion dollars a year to date
through January fifth. As the S and P five hundred
announced buyback chart illustrates this is on our market, our
market commentary on our website kristenwealth dot com. This is

(45:11):
the highest buy back level year to date going back
eight years. Eight years ago the buybacks were two hundred billion.
They were over seven hundred and fifty billion today. Just
give you an idea back in twenty seventeen where that
number was. The bulk of the buyback announcements have come
from communications services two hundred ten billion, financial companies two
hundred billion, and technology one hundred and ninety six billion.

(45:33):
Those are the three biggest sectors buying back. Sectors with
the lowest buybacks announced this year energy, materials, real estate,
and utilities, so the lowest vibe. Don't be surprised if
we get to a quarter or two down the road
and you're gonna have these huge beats on earnings, because
what does this do? You have less share when you're
looking at pees and you're looking at earnings per share,

(45:54):
and you have less shares out there, gonna you're gonna
have earnings going up because that earnings per share going
up because of it. And so it is for those
sectors that are doing the most of it, that's where
you should expect your beats. It's something to follow too,
because there was a research study done by SMP Global
that found over a longer time horizon buyback companies that

(46:14):
buy back their shares generate excessive returns relative to their benchmarks.
When you look at the performance of buyback companies as
highlighted by the S and P five hundred buy Back
Companies Index over the last twenty five years since two
thousand and equal weighted Buyback Index quarterly rebalanced with the
top one hundred stocks by size equally weighted, so one

(46:38):
percent each stocks has a mass of total price return
of a little over one thousand percent since the year
two thousand. This does not concluded dividends or any reinvestments
during the same time. The market cap weighted S and
P five hundred is index. It's five hundred and thirty
five hundred and thirty six percent, respectively, So.

Speaker 1 (46:57):
Just kind of interesting to look at that in the chart.

Speaker 2 (47:00):
The chart is right here in the market commentary if
you want to take a look at the buyback index
compared to the S and P and the S and
P equal weights. So as companies have more money, they
have to decide what to do with it, and you know,
buybacks are a big, big thing that they utilize as
a tool for their overall banks. Kind of a normal
cycle here where you're you're issuing more shares to grow

(47:20):
or doing a bond issue, one of the two, and
then once once you have more dollars coming in, you
start to deplete the overall share float that's out there.
And this is the window where they're doing it, because
once we get into July, then you're in the earning
season for the quarter, so there is a closed window.
So there's a lot of buybacks happening here in the
month of June. It's one of the bigger months May June,

(47:43):
of course, February and March, May and June in the
months leading up to the earnings reports. So while authorized
buyback programs that repurchase activity do remain elevated, we have
bounced bounced up so much of that buying back back
of shares. Companies are no different than individuals. They want
to go in there and buy it when it's when

(48:04):
it's down. So there there may also be a little
bit of companies looking already front and loaded it they
authorized the shares, then they kind of decide when they're
going to do it. They can back off of it,
but they have not. They have continued with all authorized buybacks,
and you have had very little announcements that they backed
off of how much. Thirty forty fifty years ago, the
biggest corporate tool was dividends. But companies are buying back

(48:28):
shares now more more than almost ever before in market history,
as using it as a tool to reduce their share count.
Thanks for listening, everyone, We'll talk to you next week.

Speaker 3 (48:41):
You've been listening to Money since brought to you each
week by Kristen Wealth Management Group to contact Dennis Spread
or Kevin professionally called four one nine eight seven to
two zero zero six seven or eight hundred eight seven
five seventeen eighty six. Their email address is kristin Wealth
at LPO dot com and their website is kristen Wealth
dot com. Opinions voiced in this show are for general

(49:03):
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 investing. Securities are offered through LPL Financial member FINRA
SIPC