Kersten Wealth Management Group - Money Sense 7-26-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to money Sence. You're listening to the
advisors of Kirsten Wealth Management Group, Kevin Kirsten and Brad Kirsten.
Happy to be with you today, Brad. As we get
very close to the point where we're closing out to July,
I think there's was there one trading day next week,
one or two trading two trading days next week, and
July has turned out to be an excellent month. We
talked a couple of weeks ago how June and July

(00:23):
are kind of attached at the hip. When when When
June's positive, July tends to be positive. When June is negative,
July tends to be a rough month as well. And
so I think you have some push and pull in
this market. Markets at an all time high. I think
I just saw here it made its thirteenth all time
high of the year, and I definitely think you could

(00:44):
be a little bit more shorter term cautious, and we
are shorter term cautious. We made a move several moves
this week to pull some money out of equities take
the profits. I'm looking at the three month returns on
some indexes and the S and P five hundred is
up greater than twenty five percent from the April lows.

(01:04):
There's some other more growth orient and indexes that are
up even more. And so when you have this kind
of three run, three turn, and I understand if it
goes down twenty and then it goes up twenty five,
it's not as unbelievable as a return. I think a
lot of people are seeing that in their year to
date performance. It's a pretty modest gain I'm seeing when
I run reviews. I'm seeing returns high single digits, low

(01:27):
double digits on the whole portfolio. And you wouldn't get
terribly excited about that. But also at the same time,
when you look at it, you would say, given what
we've gone through, very pleased with that. Now. I want
to talk about this a little bit because the moves
that we're always making tend to be contrarian to what
most people would do. We're selling our position in nearly

(01:51):
every portfolio that is up the most, and I think
most people will look and they would. You hear this
comment a lot. Why would we sell that it's doing
so well well? If the market is up? What is
the market up now eight point nine percent? I think
through yesterday and you've got positions that are up more
than double that, that's the one that you have to
be considering. If you're up more than twenty percent and

(02:15):
your one year return is seventy five percent, have we
gone too far? If the market sells off five, is
this what's selling off ten? If it sells off ten,
is this what's selling off twenty? Because under the hood,
it's the things that have moved up the most. That's
what you need to be considering. If it's a short term,
get more cautious adjustment, you certainly want to be considering

(02:37):
the things that have moved the most. Now. Longer term
markets trend higher and momentum works. So if you're a
long term investor, you don't need to be doing anything
with those positions. But if you're thinking short term volatility,
or I'm putting new dollars to work, maybe the thing
that I hold off on is the thing that's up
twenty five percent in the last three months. That's reasonable

(02:59):
and that's really all we're doing. So let's look at
let's go to both ways. Because we are mentioning that
we reduce risk. Now we added risk. We added to
large cap growth in March and April. So part of
what we're doing is just simply taking back, just retrace
and retracing and going back to the allocations that we
had at the beginning of the year. But let's talk short,

(03:21):
short to intermediate term, and then once we're done with that,
let's talk a little bit longer term. We've had a
historic rally in the last three months, up over twenty
five percent on the S and P five hundred, similar
to other more extreme periods of time like post COVID,
but the market dropped a whole lot more. And then
also in two thousand and eight, going into March of

(03:42):
two thousand and nine, March of two thousand and nine
to June of two thousand and nine, there was a
similar rally, but same thing, Brad, that market was down
fifty seven percent before it finally did its hit its
rally mode. So quite a bit different from the standpoint
of how far the market went down, but not any
different in terms of the rally. And so when you
look short to intermediate term, I saw a stat from

(04:05):
Ryan Dietrich that said the S and P five hundred
has not traded below its twenty day average in sixty
three training days. That's a long stretch. Now, what would
it take to go under the twenty day moving average?
About a one and a half percent sell off is all.
So even if just on that metric alone, just to
have a day or two where you would have a

(04:27):
little bit of a correction, But also looking bigger picture,
your average year has multiple three to five percent sell offs.
We had our big one. Every year on average has
a ten to fifteen percent sell off. We went even
further and it was nearly twenty it was nineteen percent
in by by April eighth, So we had our bigger one.

(04:49):
But every year has on average has multiple three to
five percent sell offs, which we've had. If we even
had one, we haven't had one. Even on the way
back we had well three we might have had. I
think we did move higher for about a month and
then maybe give up three percent, I'd have to look,
but not five and the risk reward isn't is exciting.
So when we talk about taking back a trade that

(05:10):
we made in March and April, it's not necessarily oh
I'm negative on the market. It's just simply part of
it's just a rebalance. H let's get client allocation adding
to something because it's down fifteen percent and from its peak,
which large gross peak was back in December. From its peak,
it was down twenty by mid March, thirty by April eighth.

(05:34):
It's pretty attractive. And now it's up twenty one percent
on the year and well passed it. It's all time high,
it's not as attractive. So all we're doing is kind
of stepping aside and saying, let's just tap the brakes
a little get back to where we started. You see
the volatility index trending down to fourteen right now, which

(05:54):
historically that's not the lowest level you would see before.
You might see a little bit of a correction. Sometimes
we've seen it get to eleven or twelve. So in
the short intermediate term, I think there's some risk. Then
you start pulling out the chart spread of what happens
one and two years out after we've had a rally
like this, what happens one or two years out if

(06:18):
you're buying an all time high, it's it's pretty compelling
on the on the longer term to be bullish, to
be bullish exactly, Yeah, I think that's really what you
have to be looking at. That the the number of
times that you're up. I think it's what matters. When
you start to get seventy five to eighty five percent

(06:41):
of the time you're positive, then it's compelling. And that's
where you get six months out and a year out.
When you're trading at all time highs, you're better than
the long term average. And so but over the over
the one month, over the three month, one month, you're
you're just a little bit better than a flip. And
that's why we're saying. If the mark you're referring to

(07:04):
when you buy the market, that's at an all time
at an all time high, and that's where we are.
But I think most investors would assume sell the all
time high. No, sell the all time high, because the
performance would be worse. You can trim risk at an
all time high, but buying at an all time high.
If you're looking at a at a one year return
is positive eighty two point four percent of the time,

(07:24):
which is Bad's better than the long term average for
all times yea. And so if and the return is
better at eleven points, you're thinking I need money in
the next three to six months. Fine, now is as
good a time as any. But if you're saying, no,
these are dollars I'm putting away maybe forever I'm never
going to touch, or it's my retirement investing, or it's
my four to one k investing I'm doing every month.

(07:45):
You don't change your strategy of anything. It is a
when do I invest if I don't need the money
in more than a year, whenever you have it. The
answer is whenever you have it, especially when the market's
at an all time high. So the only prudent thing
to do right now is to be a little bit
more short to intermediate term cautious and looking at the numbers,

(08:06):
you still have to be long term bullish. And then
you add to the fact that we are going into seasonally,
what is the most volatile time of year doesn't always
play out. September of twenty twenty four was a great month,
even though September is historically the worst month of the year.
How about this twenty five percent rally in three months, Brad,
I said this to you before the show. It has
only happened six times since nineteen fifty, So six times

(08:29):
in seventy five years have we had a twenty five
percent rally in three months. It happened in nineteen seventy five,
it happened in nineteen eighty five, it happened in nineteen
right at the tail end in nineteen ninety eight, after
the big sell off in nineteen ninety eight, there was
a twenty five percent rally in three months. The market

(08:50):
did not peak for another fifteen months after that nineteen
ninety eight rally. So even if you're making that dot
com bubble burst comparison, even after the twenty five percent
rally off the nineteen ninety eight lows market didn't peak
for another fifteen months two thousand and nine, twenty and
twenty and today. So six times every single time three months,

(09:15):
six months, and twelve months out the market was positive.
The one month return not always positive, but there's only
six data points here, and the one year average return
is twenty one point four percent from after a twenty
five percent in three months, and so that's where we are.
We've had twenty five percent three months. The one year

(09:37):
return is positive one hundred percent of the time. When
that the six times that happened, and the return is
better than than double the long term average. So it
is a good time to be an investor. But seasonally
and after a long, big run up, we're in a
period of time not quite there. We're coming into a
period of time that would be seasonally a little bit

(09:58):
weak even I think this is where advisors get it wrong.
Though they're saying, they're not saying to them, to themselves
or their clients. I think we're in a seasonably weaker
period of time and we had a big run up.
Let's just get through it. Pull risk back. Most advisors
make the mistake of saying, I think there's going to
be a pullback in the market, and I'll wait for that.
That's not that's not what we're waiting for. Look at

(10:20):
last year we got we got more cautious at the
end of July, and immediately a selloff occurred. But we
were getting more cautious because prior to an election you
typically have this seasonably week period of time. Now, the
low point ended up being one month later, in the
middle of August, and we moved up consistently right into
the election. We made our adjustment post election based on

(10:43):
who won the election to we took ten off, we
put five back on, and we did it no matter
what was going to be happening. And then we put
the other five back on after the downturn happened this year.
But most advisors are just waiting for the downturn. When
is the downturn going to happen? And if the downturn
doesn't happen, like in twenty seventeen where we had fifteen

(11:04):
straight positive months, they don't know what to do. They're
shell shocked and never get back in, and or they're
always waiting for something larger. Oh five is not enough,
I'll buy when it's at ten. Oh we got twenty.
We got nineteen point two this year. But this time
it's different. I think it's gonna be the really really
big one. I'll wait even longer. And we heard that
from financial advisors when we were at the April eighth,

(11:26):
nineteen point two down. It still wasn't good enough. An
economists saying the same thing. We ready yet, No, not yet.
We went, this is the really really big one. We
want this one to be thirty. Oh well thirty didn't come.
We'll keep waiting. Well, now we're up more than twenty
five percent. What are you waiting for? Right? Another stat
longer term that indicates you should be bullish for the

(11:48):
longer term is the advance to decline line. We're gonna
talk about small caps a little later on in the show,
but the advanced decline line tells you that more stocks
are participating in this rally. Is not just in Nvidia,
not a recommendation of by or Cell, but it is
not just the megacap tech names. The advanced decline line

(12:08):
has just reached a new all time high, which tells
you more advancers than decliners. That's the advanced decline line,
and it also tells you that it's a more broad
based market rally than maybe we've seen in the past,
particularly in twenty twenty one, when the market hit its peak,
it was not a very broad broad based rally. Have
you noticed the media in this last month? For a

(12:30):
year and a half, For two years, it was well,
how can the megacap seven are the only thing going up?
How can we have a market with such tight breath?
And now that the breath is and more sectors and
more companies are advancing, now the narrative is, well, the
market leaders aren't leading anymore. Isn't that bad? Well it is.
It is good that you're rotating sectors, you're finding new leadership.

(12:56):
And even even if it's short term. It's healthy for
the areas of the market that have led the way
to take a pause. And even though they're up over
the last week, you're seeing tech be the worst performer
over the last week, and utilities, real estate materials, even
consumer discretionary up until today when Tesla's falling, have been

(13:18):
the leaders in this last week. And that's a little
more healthy that you're getting this broad, broad base rally
instead of just one sector. Yeah, and even if you're
narrow it down you said the last couple of weeks,
but the last month, in the last month, it's really
been Tech's up there at the top. But industrial stocks
have had a great year of brad defense sectors in

(13:42):
that industrial space and the aerospace and defense sectors. One
of the big things that Trump is out there pushing
and making other countries invest in, and a lot of
these components and parts makers for everything that's going into
data centers, not just chips, but we got a power
of the data centers, so it's everything that's going into them.
There's this g E spinoff that's there. Companies like Siemens

(14:02):
making turbines and generators and all the even if they're
going in and just building a new electric power center there.
All that takes parts that these mid sized industrial companies
will be providing, and a lot of them are blowing
their earnings off the door, even though the expectations are high.
And that's one of the reasons that we're seeing the

(14:23):
industrial sector up as much as it is over the
last week. It's earnings related. And don't look now, because
we've been waiting for this for quite some time. But
in the last month you're seeing the leadership in the
small cap space up seven point two compared to the
SMP at five point six. So certainly small caps is
now in the positive column, not quite catching back up

(14:44):
to the SMP five hundred, but in the last month
it has made made up a lot of ground, and
International still tremendous on the year. Emerging markets at twenty
percent large cap four and at twenty one point eight.
We're seeing a lot of active managers up even more
than that. Yeah, we added to it with a couple
of different rebalances last year and we have not touched it,

(15:05):
even though it's the leading part of the portfolio and
a bigger part than it was two years ago. There's
a long way to go. For international. So each one
of our adjustments that we're making to models that you
hear us talk about or not touching it. Let's maybe
take our first pose we come back. We talked about
the short term and being short term a little more
cautious after being quite for four months since the April low,

(15:28):
being very bullish, more risk gone, and now we're just
back to where we started the year with most of
our models. But let's talk about the longer term and
about some of the things we're going to start to
hear with a market at an all time high, to
kind of warn people about to not believe the bearest
sentiment that is constantly out there in the news. Let's

(15:48):
talk about long term bullish. When we come back from
the break. You're listening to advisors of Churston Wealth Management Group.
We'll be right back and welcome back. You're listening to
the advisors of Christon Wealth Management, Brad and Kevin here
with you this morning. Kevin, there's a couple things that
you know. Sometimes it's blatant when you turn on the
news or you see something, read something where there's this
this bear sentiment all the time because bad news sells.

(16:11):
But then there's some things that I think clients think
are new that are not new, And one of those
I'm starting to see this week, which is laying a
chart of the market over another pastime. Hey, look, look,
they're so similar. And sometimes the axi ces are you
have to skew them to make this market look like
the Great Depression, and sometimes that you can lay them
right over, and if it's a short enough period of time,

(16:33):
a rally will look like another rally, and then they'll say, oh,
and look what happened next. Well, the chart I saw
this week was a chart that starts January of twenty three.
So you got this two and a half year period
from January twenty three through today for the Nasdaq, and
let's lay it over nineteen ninety five through July of

(16:56):
nineteen ninety seven's Nasdaq, and they look pretty similar. Where
sell offs occur. There's some seasonality to sell offs. There's
some we go up this much, we come down, and
then we keep going up, and then you have some
extended rallies and they look pretty similar. But that's where
the chart ended July of ninety seven. And most people
don't really remember what you know, it's a dot com bubble.

(17:18):
At some point, but when did it happen. Well, the
let's just talk the ninety five through the July of
ninety seven, the market return was almost exactly one hundred percent.
Today's the nasdak return. You have to go back to
twenty The low point December twenty eighth of twenty two
through the start of last week was one hundred and

(17:39):
four percent, So you're ending almost at the same spot.
Here's the problem with saying, oh, I'm going to get
more conservative because these charts look similar, and I know
a selloff occurred at some point. If you don't know history,
you don't know that from July of ninety seven through
the end of the year, the mark the nastdek was
up another ten percent. In nineteen ninety eight, even with

(18:01):
a twenty percent sell left during that year, the nasaq
was up forty percent. Nineteen ninety nine, the Nastaq was
up eighty five percent, and from January first of ninety
nine or January first of two thousand through March nineteenth,
the nasaq was up twenty four percent, so you were
up one hundred percent, but it peaked out being up
five hundred and forty percent, So let's look at this

(18:25):
chart and know what happened next, and it's not overvalued yet.
It was overvalued after it went up another four hundred
percent at this point, where at July of nineteen ninety seven,
if that chart, if everything became the same, and we're
a long way away from an overvalued period of time,
because in this market you have the Nasdaq going up

(18:46):
because earnings are actually there, and even if their speculation
that the earnings can keep growing the way they are,
that's fine. You at least have earnings. The Nasdak of
the late nineties was going on pure speculation, was going
on two hundred and three hundred pes, not pees that
are in the fifties. For some companies that are actually
growing by one hundred percent and the pees only fifty.

(19:08):
It is an entirely different period of time, and that's
a long time ago. You were just showing me a
productivity productivity chart that goes back almost that far, and
how much more all companies are getting out of each worker,
and so a higher PE is justified when you have
more output per worker and more output per dollar invested

(19:31):
in the company revenue per worker. The chart you're referring
to has gone from approximately twelve cents per worker to
twenty one cents per worker since nineteen eighty five, so
you're getting more. A higher PE is justified. Today's Nasdaq
is not the same as nineteen ninety seven. Is nagas
deck for a lot of different reasons. Look no further

(19:52):
than the growth rates of the companies in them, and
the current pe versus that pe is not close either.
But I think a lot of times the valuation discussion
and whether it's expensive or whether it looks like this
period of time, it's the wrong discussion to have because
over time markets go up. It's a controversial thing, but

(20:14):
over time markets go up. But there are periods of
time where if you're buying at a slightly elevated valuation,
there's a chance there's a possibility or a higher probability
that you could buy right smack dab in the middle
of a sell off or a correction, and there's a
possibility that you might need to hold those shares that

(20:36):
that index for three years, four years, five years to
make a decent profit. And then there's other times when
you're buying after a market has dipped, where you have
a higher probability where you have a higher probability that
you only need to own the shares of that index
for six months or a year to make a profit.

(20:56):
So I really wish when talking about valuations people on
TV would talk more in terms of probabilities. And Okay,
you could buy the Nasdaq right now, you could buy
that index, and thirty years from now you're gonna make money. Okay,
you will, you always have, you always have. Okay, But
there's times when those odds increase. Right now people are

(21:19):
trying to lay the Nasdaq over top of the nineties market.
It's not as extreme, it is not as extreme, but
you can't argue that's as it's as good of a
buy as it was in April of this year or
in December of twenty two. Of course not, of course,
not so. Your odds and your probability at that time

(21:40):
that you were gonna make a double digit return in
one year, three year, five years was much higher than today.
And so we're somewhere in between. Okay, we're somewhere in between.
Could we go three years right now and not make
any money in the Nasdaq, And it's possible, It is
definitely possible. Could we Could you have somebody that buys
the Nasdaq today and by the end of the year
has lost twenty Yeah, of course, definitely possible. Of course.

(22:03):
So but is that your time frame? And so that's
the difference is if your time frame is short to intermediate,
you probably don't want to load up on equities. I mean,
I can't tell you the number of people that call
us with short term money that we tell no. Right, Oh,
I just sold this house. I'm gonna buy another house
in six months, okay. And I hear the markets doing well? Yes,

(22:25):
can you just give me some of that doing well stuff?
To me? All this talk about expensive or cheap it's irrelevant.
It's about you. It's about the investor, and when you
need the money is the most important question. Valuation wise,
it's you know, expensive cheap. Sometimes the expensive markets get

(22:46):
more expensive, sometimes the cheap markets get cheaper. I mean
that's been happening until this year. In international, it's been
happening for however many years in a row. In small
caps since what so it's two thousands. So you start
to see the comparisons to the nineties or the price
to earnings ratio charts. It's not they're interesting, but they're

(23:07):
not going to help you. It's just not something new.
I think it's the point. I think when somebody sees
it for the first time, they think, oh wow, somebody
found something that is very useful. Here. No, give it
three months, they're going to show you another chart, laid
over another chart, and every one of them, except for
this one where they didn't show you the end, which
was the end, was straight up. Every time they're gonna

(23:28):
tell you this is the top, this is the top,
and you should be selling it, never getting back in.
There was a period of time where from two thousand
to two thousand and eight the market was trending straight down.
And to illustrate this point about how people massage these charts,
I think it was Jeffrey Klein Top was with LBL
at that point in time, and he laid a chart
of the s and P five hundred over top of

(23:52):
CD sales. Okay, because CD sales started dropping and you're
not talking about certificates of deposit, you're talking about a
compact a compact disc. And he was trying to illustrate
the point is, if you looked at this, you would say, well,
the market's not going to turn higher until CD sales
turn higher, right, Yeah, ce details are declining at the
same rate of stock prices. These must be correlated, yes,

(24:12):
And that's what people do with all of these charts,
whether they're trying to correlate to the nineties or like
you said, so many people try to correlate to the
Great Depression, which is so ridiculous. When we had I
don't even know how many stocks were even in the market.
There was no electronic trading. It was all steel and
railroads and textiles. It just is not the same market.

(24:34):
But the market is not as cyclical as it used
to be, and you just can't go that far back
and make any comparisons at all. We're always saying that
whenever I see a chart that goes back or a
timeframe that goes back, I don't even know. It's got
to be posts. Even two thousand and eight to today is
to me a more similar market and not before. Let's

(24:54):
look at the small cap space. We talked about that earlier.
With the broadening out of the rally from April, with
the advanced decline line, small caps still have not kept
up with their large cap counterparts, and over the last
ten years it's been even worse. When you look at
the last decade since the beginning of twenty fourteen, the

(25:14):
S ANDP five hundred grew through the end of twenty
four at thirteen point two annualized, and the Russell was
at seven point two. I'm actually surprised it was actually
that good, Brad. Yeah, like it hasn't made it anymore right.
So far this year, investors have pulled twelve billion out
of small cap indexes, according to Factset, and added one
hundred and fifty billion to large cap indexes. Money always

(25:37):
chases performance. That will never change. Big stocks have all
the momentum right now with the artificial intelligence boom. But
if you look at AI, maybe it might not meet
our expectations, or at very least, just like the Internet,
maybe it won't meet our expectations as quickly just that alone.
I mean, the Internet turned out to be what we

(25:58):
thought it was, but maybe it took a little longer.
That's why we have the dot com bubble bursts. So
investors who don't give up on smaller stocks may be rewarded.
So if you look at the small stocks and how
they've fallen out of favor, the market value of the
five biggest companies in the SMP is five times the
market value of the entire small cap index Russell two thousand.

(26:20):
So the top five S and P five hundred names
are bigger than the entire Russell two thousand names. That's unbelievable.
So in Vidia alone, at Rees's recent market value of
four point two trillion is two thirds of the Russell
two thousand. All the stocks in the Russell two thousand.
Six point six annualized gain for uh excuse me, seven

(26:43):
point two percent annualized gain for small stocks over the
last year obviously trails large caps stocks by by quite
a big margin. In fact, it's the widest gap going
all the way back to nineteen thirty five. Haven't had
a wider gap in a ten year number since nineteen
thirty five. If you look at that under formats, it
certainly comes from the under under exposure in small caps

(27:05):
to technology. You've also brought up the fact that many
small caps that used to IPO are now private. One
of the reasons there's so few small caps in or
so few tech in the small caps is the venture
capital will gobble them up and not take them public
until they're at least mid and most times large companies.
The small cap in next is only thirteen percent technology,
while the SMP five hundred is thirty four. Financial stocks

(27:28):
are the biggest sector in small caps at about nineteen percent.
So investors obvious rightly so have been pulling money out
of small But when you look at stretching this rubber band,
just like we talked internationally, that rubber band has stretched
and stretched and finally started to snap back this year
in terms of valuation. That's that's certainly changing a little

(27:49):
bit international this year, and it might might come, you know,
come to fruition for small caps in future years. So
SMP five hundred large excuse me, megacap. So this is
the are just twenty five percent of the s and
P five hundred thirty one times earnings. The Russell two
thousand trades at eighteen times earnings at the moment, and

(28:12):
actually if you look at the small cap six hundred,
which eliminates a lot of the unprofitables, it's even lower.
So big tech companies have a lot of speculation built
into them at the moment. So from but when you
lay that chart over recently when the dot com bubble burst,
and one thing you didn't mention is if you looked
at that collapse and that collapse, maybe not a full

(28:35):
blown collapse like it was in that period of time,
but that correction. During that period of time, it paid
to own small caps. From two thousand to two thousand
and two, when we had the bear market and the
Internet bust, the SMP lost thirty seven point six percent,
while the small caps six hundred made a cumulative two
percent in that three year, positive in two of the

(28:55):
three years, and positive over that period of time. And
then another period of time where the thing that moved
up the most, the NASDAK was down the most. It
was down eighty five percent after being up five hundred
and forty percent. Right, So it's been a struggle. It's
been a frustrating asset class to own. But if you
if you look at how far the valuations are stretched,

(29:17):
I think do you see a lot of similarities with
international stocks that have turned the corner this year? Does
that mean go up, go and sell all your large
caps and buy and put them into small Absolutely not.
But I do think we are starting a period of time,
Brad where it's going to pay to diversify once again,
and you can really throw mid in the in that category.
Two and one of the things that we've done, and

(29:38):
I don't think it's as necessary anymore. But when we
wanted to have small caps in midcaps in international, I'm sorry.
When we wanted to have small and midcaps and make
sure we weren't making a sector bet, we were doing
it with equal weighted tech and making sure that we
had some of the smaller tech companies in there so
that you didn't have just the megacap tech. Same thing

(29:59):
we were doing International, we were adding to it. Over
the last two years. We had we had to use
managers because the indexes have so little tech in their indexes,
and so we had to have managers that were overweighting
to technology, and so the same here. For for the
last year, it was using equal weight technology sectors to
get that exposure. But now you've got small and mid

(30:20):
have industrials that I think are going to do fine.
They've got regional banks in there that have lagged and
just now started to pick up. So I don't think
the sexual exposure that you're generally going to get in
small caps and mid caps is going to be that
detrimental in the short term. If we go out a
year from now, I think you probably need to consider
a little bit of that equal weight tech to get

(30:41):
the right exposure. Let's take our next pause, Brad. When
we get back from the break, let's talk interest rates
specifically as it pertains to the housing market and mortgages
and how that is affecting things both right now and
in the next year or two. You're listening to money sents,
Kevin and Brad Kristen will be right back. Welcome back
to the show. You'll listening to the advisors of Kirsten
Wealth Manager Group. Kevin Kirsten and Brad Kirston happy to

(31:04):
be with you today. As a reminder, we are professional
financial advisors and our offices are in Perrysburg. Give us
a call throughout the week if you want to set
up time to review your financial plan. Whether you're just
getting started in life, well on your way, or already
in retirement, we'd be happy to sit down and review
things with you four one nine eight seven to two
zero zero sixty seven or check us out online at

(31:24):
Kirstenwealth dot com. Interest rates Brad specifically, you know we
talk a lot on this show about the investing side
of interest rates, bonds, fixed income, what about mortgages, I
think it's been a tough go for a lot of
people in the last few years, and I think we're
gradually breaking the addiction. I think many investors assumed that

(31:49):
they could buy a place and they would be able
to refinance at three percent. Again, let me lock in
seven and I'll just do it for a short period
of time, and then I'll get three. I think they're
gradually coming to a realization that that's not going to happen,
and I don't believe it will. And also the problem
might be is if you built that into your budget,

(32:12):
and you built that into your plan, well, this is
really expensive at this high interest rate. Won't be able
to afford this forever. But don't worry, We'll be able
to refinance in a couple of years. And that doesn't happen.
There's some people that are getting themselves in trouble. There's
a Wall Street Journal article talking about this where people
are having lists their houses for sale because they can't
afford the mortgage payment because they never got the opportunity

(32:33):
to reforces. Really a regionalized thing. We'll really only have
five states that have a decline year over year in
home prices, and not surprisingly it's Florida, Texas, Louisiana, Arizona,
and Colorado. Florida has about half of their forty two
major markets that are negative year over year. Texas has
about a quarter, and the rest of those have about

(32:57):
ten percent of their markets that are negative. And most
of the ones that are the most negative over the
last year are in the Florida area, and so Point
of Gorda negative nine percent over the last year. Fort
Myer's negative seven, Sarasota negative seven, Naples, Marco, Wiland negative six,
Panama City negative four. Kind of on down the list,

(33:18):
it's all Florida. Then you get a few Texas and Louisiana,
but in California is in the top twenty five of negatives.
Kind of in general some of the some of their markets.
But I was told it was DC in Virginia because
of all the cuts, that there's gonna be a bunch
of people having to sell their house and they were
gonna have to just take whatever they can get. Neither

(33:39):
one of those markets cracked the top forty two markets
that are negative. If they're negative at all. In DC,
I don't see anywhere on this list. So it's it's
really been where the run ups were that you see
the run downs in prices because everyone assumed not only
can I REFI, but I also maybe even to cash
out because of course my house is going to go up.
In Rice, it went it went up eight five percent

(34:02):
post COVID. Yeah, I wouldn't it can. So this addiction
to well a couple different things that whatever it went
up in the last five years, I'm guaranteed that in
the next five years. And also this addiction to and
and falling in love with whatever Zillo says. Yeah, well,
Zillo says it's worth this. It's Zillo is. They're they're

(34:24):
trying to make an educated guess, but it's not you're
not guaranteed that value. I feel like people list what
do their list price based on Zillo as if somehow
that Zillo rate they're entitled to. Yeah, but if you
take one hundred thousand less, you know what Zillo says
the next day it says one hundred thousand less, but
the day before it's at one hundred thousand more. Right,

(34:46):
It's it's it's just a it's just a computer program.
They're doing the best they can, but you're not guaranteed
that that number. And you look at this example you
mentioned Florida. This particular person bought a townhouse in Ponovidra Beach,
Florida in twenty twenty three seven point six percent mortgage.
And they looked at it and they said, oh, don't worry,
I won't be able to refinance or so only it

(35:07):
will only be at this rate for a couple of years.
Will it never happened And they haven't been able to refine,
so they're not there. They're selling the house. Many real
estate agents and lenders advise that if buyers can afford
a mortgage payment at the current rate, they should buy
while there is less competition and plan to refinance later.
But what people what they miss because many real estate agents,
I've also heard this old adage marry the house, date

(35:29):
the rate, but you should Okay, fine, date the rate,
but the interest rate. But you should also in the
back of your mind if you're gonna use the dating analogy,
you might be stuck marrying that rate. And if you're
stuck marrying that rate, do the numbers still work? Okay?

(35:49):
You can't just say, well, this is really pushing it
at seven percent? Well, I assume you have to say,
could I do this for ten years, could I do
this for fifteen at that rate? And that's where people
get themselves in trouble. Certainly, rates have not dropped below
six percent since September of twenty twenty two, and it
doesn't look like you know, Trump is talking about this,

(36:11):
brad Oh, we need to get rates down so people
can afford houses better. There is no guarantee that if
the Fed cuts rates three four times that mortgage rates
will come down. I don't know why Trump is saying
we haven't cut this year and they've already come down.
They could cut and it goes up. That's exactly what
happened last year. Last fall, rates came down throughout the
whole summer, and then the second that that cut for

(36:33):
the first time, that was the bottom. They went up
from there. So it is all of the markets that
are most guilty of being lenient on the homes are
where the home prices go up the most. And it
is amazing that the program doesn't say if it goes
up a lot, maybe the next year it comes down,
or if it goes up a lot for five years,
maybe we're gonna go flat for five years. But it doesn't,

(36:55):
and they are more lenient on giving the loans without
the right the right income because these markets have experienced
always experienced this high growth, or have at least since
two thousand. You've got ten markets in the United States
that have had eighty percent or greater since the first
quarter of twenty twenty, and those are the ones. Six

(37:18):
of those are the ones that are down over the
last year, and the other ones are just flat on
the last over the last year, whereas markets like I
mentioned DC, I just looked it up. DC is basically
flat over the last five years, and it's actually up
over the eight percent year over year. So if you
don't go up much, you're not gonna go down. And
if you go up a lot, you're probably gonna have

(37:41):
some negative periods of time because you're way over trend.
And especially if you're forced to sell because you can't
afford it, or you can't assume your parents low interest
rate mortgage when they die, and you're just gonna sell
it anything because the bank is gonna say, hey, you
got to pay the loan off. And I looked at
the treadline for thetional median home price, and I know

(38:01):
it's all regionalized. I get it. But the national median
home price is down over six percent from the peak. Okay,
it's not over six percent from the peak. It needs
to drop another eight percent to get to the pre
COVID trend another eight percent. So whatever drops we've already
seen nationwide, we basically need to double up on those
drops to get back to the pre COVID trend. And
I would not be surprised by that. But the problem

(38:23):
is these folks that you know, in many cases probably
were promised by their real estate agent, Oh, don't worry,
you'll be able to refinance. Eight million people in this
country have a mortgage over six and a half percent.
And so and here's another it's not a scam, but
I think it was probably over sold. The example here
is Nashville, Tennessee, new new home purchase, new construction. Okay, well,

(38:45):
in a lot of cases, the builders want to get
somebody into a house, so they bought down the rate
for the first two years and help help with the
points to buy down the rate. But it's not permanent.
So an example here in Nashville, Tennessee new home construction,
they were originally at six and three quarters and the
builder got it down to four and three quarters for

(39:06):
year one, and five and three quarters for year two.
I didn't even know you could do that. You could
buy it down for just a shorter period of time, right,
just to get them in the house. Because if you
don't worry, if you were thirty year you're buying down
a point. It costs you one percent of the total
amount of the loan. But I wonder if you're only
doing it for a year, it must cost you one
thirtieth of one percent. And so now the builder has

(39:26):
their money. But in this example, this is now year
three and there four seven five, which went to five
seven five is now going to six point seventy five
percent permanently. So you know, there's some there's history doesn't
always repeat, but it often rhymes. There's some rhyming there
to the two thousand and eight financial crisis. The biggest
difference is it's it's just not that many people. It's

(39:47):
eight eight million homeowners. So it can bring the overall
prices down, and it's unfortunate for these individual stories, but
it certainly isn't as big of a chunk of the
overall housing market as it was in two thousand eight.
This family was expecting to refinance before their rate rows
to six point seventy five. That adds three hundred dollars
a month to their monthly payments and reduces the amount

(40:10):
that they can put into their four oh one k
they state, So you know, you need to be really
careful and look at the fine print when you're doing
some of these more exotic terms that are changing every
couple of years as well. So, Brad, where do you
think it's going to go? Many people are expecting this
big boom when if interest rates faul if interest faceful,

(40:31):
not when, because the Fed's going to lower rates, but
it might not translate to mortgages. People are expecting this
big boom. Okay, we're going to have all these people
that can afford houses, and so that means the prices
are going to start going back up just like they
were before. Don't count on it, because you have an
equal number of people, in my opinion, who are waiting

(40:52):
to sell. You have a lot of people who are
waiting to buy. I'm waiting to buy. Rates go down,
I can afford it. I think you have an equal
number of people who are waiting to sell, who say
I'm ready to sell and move into something else, And
I'm not gonna list my house and give up my
three percent mortgage until I can get five for myself.
Correct Now, I think maybe people gradually have given up

(41:13):
the three percent mortgage idea. It just takes time. I
think it's more five and a half or just sub
six percent that will get people off the fence. But
don't assume that the prices are gonna start going right
back up, because supply and demand rules the day. And
if millions of houses get listed, even if you have

(41:34):
a lot more people that can afford those houses, you
might not see you're not getting list price if your
market is flooded with other options. Correct. Correct, So I
think if I had to plan it out, I think
rates will come down a little bit. It's not gonna
be anywhere near where it was three years ago. I
think there's gonna be a lot more listings. And the
other thing you forget about listings too, especially in a

(41:56):
place like Florida, is people who die. An older population
and people die, what ends up happening is the family
members end up selling the home. They're not they don't
have any skin in that, they're not married to that
Zilo price. Now the owner of the home might have
been like, oh, I got to get this Zillo price
when the family is going through it and they're just liquidating. Yeah,

(42:16):
they're not married to that Zillo price. They don't know
the neighbor across the street. They got a great value
a year ago, right. So I think that's another reason
why Florida is weaker than most of the other states
in the country. So I think that it's going to
be a decent housing market. But I definitely think that
people if you thought you were going to buy in

(42:36):
a five hundred thousand dollars house and two years later
you're gonna sell it for six hundred and two years
after that was going to be eight hundred, those days
are gone. That's not gonna happen. I'm looking at I
was sharing with you the ones that have gone down
this year and the ones that went up the most
over the first four and a half years of that
post COVID trend. There's a few that have kept going

(42:57):
in order. I don't know where Heinz Heinzville, Georgia is,
but that's that's the top. Over ninety percent kept going.
Even over the last six months, Pinehurst kept going over
the last six months up another six percent of the
last six months. And Knoxville, Tennessee is another one. So
there's some areas that have not experienced that that downturn.

(43:18):
Specific areas that kind of seem like this is where
I'm going to retire to. Areas like Pinehurst, like Hilton Head,
and Florida has has the bubbles burst a little bit. Yeah,
and you still have the aging population issue, especially in
a place like Florida or hilton Head as well. So
let's take our last pause. You're listening in a money sense.
Kevin and Bradhurston will be right back. Welcome back to

(43:38):
the show. You're listening to the advisors of Kirsten Wealth
Manager Group, Kevin Kursten and Brad Kirsten Brad. In last segment,
we were talking about interest rates, mortgages, housing. In the
next few weeks or months, we're probably gonna bring somebody
on to talk about that who is in that business,
just to kind of get more in depth on interest
rates and mortgages and lending and how the market has changed.

(44:01):
So they get creative if you have to get a
mortgage now. Yeah, So stay tuned for that. Just a
couple of minutes left in in the show Tesla reported earnings,
not a recommendation of buy yourself Tesla, I have to
say that. But Elon Musk came on and he was
talking about the driverless vehicles and they're rolling that out
in Austin, Texas and other cities coming soon. And when

(44:23):
you look at it, you know, the one thing I
thought was interesting is I saw a chart of the
average cost of owning and operating an automobile in the
year two thousand, the average and of course this got
cut off for me, but the average cost for owning
an automobile was around four thousand dollars a year in
the year two thousand, four thousand dollars a year. Right

(44:46):
before COVID it was eight thousand dollars a year. So
twenty years later it's doubled. Okay, I could buy that, okay,
five years from five years from COVID, which is today
twelve thousand, four hundred ninety six dollars a year in
total car. So what happened in the last five years

(45:06):
took twenty years prior. For cost of dollar amount wise,
it's fifty percent versus one hundred percent, but dollar amount wise,
and so you're up to almost thirteen thousand. People say,
wait a minute, I don't spend thirteen thousand a year.
So what they're doing is they're taking the average price vehicle,
the average life of a vehicle on the road, So
dividing that out by however many months that is maintenance, gas, insurance, insurance,

(45:30):
your tires, your brakes, however you know, however long they last,
however long they last. Dividing it by the number of months,
and it's the total average annual cost of owning a vehicle.
Some are higher, some are the lower. Fifteen thousand miles
a year is the assumption here, and so looking at it,
it's almost thirteen thousand dollars a year to own a car.

(45:51):
And you look at Tesla's earnings and they were a
little bit negative in the short run. And the biggest
thing is going to be the driver those vehicles. Way
Mo has it with Google as well, and you start
to look at this and it becomes pretty compelling. YEA,
if you don't think that people are going to be
early adopters and quickly flock to something like this because
they're sick of what they're having to pay to have

(46:12):
two or three vehicles, you're wrong. And by the way,
you're not even factoring in because this is the cost
of owning a vehicle. Okay, you and I have kids.
We're helping them get started, We're helping them with their vehicles.
They got to learn about their cars, they got to
learn how to do things. My son just had a
flat tire. He's got to learn how to repace, replace
the repair the tire, or replace the tire. So there's

(46:32):
all these things that you are responsible for, the maintenance
schedule and everything. So what's not in this total cost
is your time, your time, your time away from work,
your time away to drive a car somewhere and drop
it off and leave it. That's not factored into here
at all. And you would not have this if you had,
for example, a driverless vehicle. But you get to this

(46:54):
point where you say, well that's ridiculous. Well, I think
it's ridiculous to spend thirteen thousand dollars a year on
a car. That seems ridiculous. So to me, I imagine a world.
And you and I talked a couple shows ago about
how we took a way mo we were out at
a conference and how great of an experience it was,
and what would the subscription phoebe that if I can
just order a car on demand and I don't need

(47:17):
to maintain it or anything. I don't think it's out
of the question that that monthly subscription fee is between
five and seven hundred dollars a month. And if it is,
even if it's to get people addicted to it, you're
going to have everyone wanting it. You're lowering your cost. Yeah,
if you're paying Tesla or a way Mo through Google,

(47:38):
not a recommendation to buy or sell either, but if
you're paying them five to seven hundred dollars a month
for car on demand, you are lowering your overall cost.
And by the way, that's an example of deflation. That's
a deflationary force in the economy. So I just saw
that stat about how expensive it is to own a car,
and we've all seen our auto insurance go up and
our repair bills, you know, go up for the price

(48:01):
of tires and brakes and everything else. But imagine a
world where you weren't ever responsible for that ever again, Yeah,
and I think that that is something anyone looking at
Tesla's earnings and they always do it and say, wow,
they shouldn't be trading at this they sell as many
cars as Forward or something like a car, not a
car company. It's one of the most important consumer tech
companies of the last ten years and of the next

(48:25):
ten years. It will be the one company that definitely
affects people in the next ten years in ways that
you didn't think. I'm glad Google has Waime out there
because competition is good for consumers, it's good for pricing.
So it's I'm glad that there's there's a competitor. Okay, well,
thanks for listening everyone. We'll talk to you next week.

(48:49):
You've been listening to Money since brought to you each
week by Kirsten Wealth Management Group. To contact Dennis S.
Braad 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 Kirstenwealth
at LPL dot com and their website is Kirstenwealth dot com.

(49:09):
Opinions voiced in this show are for general information only
and are not intended to provide specific advice or recommendations
for any individual. To determine which investments may be appropriate
for you, consult with your financial advisor prior to investing.
Securities are offered through LPL Financial member FINRA SIPC