Kersten Wealth Management Group - Money Sense 9-20-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to Money Center. You're listening to the
advisors of Kristen Wealth Management Group, Kevin Kristen and Brad
Kirsten here with you on Fed rate cut week. As
we're taping the show, the FED just announced it's cutting
interest rates by a quarter of a percent, or twenty
five basis points as expected, Brad, a little bit more
of a consensus. Yeah, only one dissenter and quite a

(00:23):
shift here in the last two FED meetings from uh
from one one dissenter that they weren't cutting, and then
we had two dissenters that they were cutting, and now
we have one dessenter. I just saw this call across
my phone. There was two there were two dissents. Oh
there were two okay, yeah. It was Trump's appointee dissented
because he wanted a half Oh okay, okay, I mean

(00:47):
really yeah, Like you guy's gonna come right in and
be like, well, I'm surprised he didn't say one. Well
that's that's somebody trying to get the to be the
next FED chair, is trying to get on Trump's good side.
I mean, Trump say he thought it should be three
percent cut. Oh, I don't I don't even know. I
thought I heard trumpet was just get it out of
the way, just get it out of the way. But

(01:08):
there were two dissenters, one in one direction, one in
the other. So that's kind of interesting to see, but
as expected. I think that really has been the the
mo for the FED for many many years now is
get out ahead, months and months in advance in terms
of the expectations. Do you remember a rate cut where

(01:31):
there was a surprise where, especially when the market was
pricing it in at ninety percent plus, where they didn't
do it. I mean no, I mean most of them,
by the end, are not surprises in the last say
six years, five years counting COVID, and I think the
last time that we've had surprises is when you have
to do these intra meeting cuts. You know, the cuts

(01:53):
during COVID were a little bit of a surprise. Go
back to the green Span era, you had all these
intra meeting cuts because as the market needed it. So
I think that they've they've learned their lessons to telegraph
it a little bit. So it'll be interesting what the
market's reaction is to kind of the rhetoric over the
next month, because I think the market's kind of baking

(02:14):
in now. A few cuts, more cuts this year, two
more this year is what's kind of being priced in
by this huge move in rates. Last year, prior to
the FED rate cuts, you saw rates to all their
movement to up until the day before the first rate cut,
and then rates started to move up because the Fed's
rhetoric changed sort of right away. They kept cutting a

(02:36):
few more times, but they basically said this is we're
not in a rate cutting cycle. We're going to cut
a few times and then we're gonna be data depended
or wait and see. This time around, they're probably going
to do the same thing. But here we have, on
Fed rate cut day, rates moving down even further, with
the ten year going below four percent in mortgages starting
to move to they've been by the way, that wasn't
a guarantee now on Fed rate cut day that rates

(02:58):
would go down, right. That's how that wasn't a guarantee.
It's happening. No, But if it was, if the playbook
was the same as last year, the lowest rates would
have been would have been the day of the FED
rate cut, or maybe even the day before. But they
have continued to go down. Here's just in the last
week going down another tenth of a percent, and finally
mortgages coming down with them. Mortgages were a little bit

(03:20):
in a stalemate there kind of disbelieving that long rates
were coming down. But now we see the fifteen year
at about five and a half, and you see about
six and a quarter to six and three eighths on
the thirty year. So some bigger drops here in the
last ten days with mortgages, and I think they're going
to continue to fall well. And you can kind of
see the part of the treasury yield curve that had

(03:42):
it priced in and the part of the treasury yield
curve that didn't have it priced in. Okay, because you
have the for example, you have the two year treasury
actually basically flat, So the two year treasury is at
three and a half. That kind of is a little
bit of the long the more intermediate term where the

(04:04):
Fed funds rate is going to end up. We're gonna
end up maybe not in two years, but where's it
going to end up in a year, and that would
be three more rate cuts yep. So that's really not
moving very much. The tenure is moving the most it's
it's down, well, it was down a little bit more
now it's actually relatively flat. But the tenure is basically
at four percent even at the moment, and that would

(04:26):
indicate lower mortgage rates. But where you'll see it even
more quickly, I mean basically, overnight savings accounts, money markets
CDs rates go down immediately, Home equity lines of credit yep,
that's an immediate move with a FED rate cut. But
you know, going back to the language a little bit,
I mean, I do think that it is a little

(04:47):
bit more and just kind of get into the weeds,
is it is a little bit more dubvish, which just
for the lay person out there, when you're talking about
the FED being more dubbish, that means they're leaning more
towards cutting hawkish. That means they're leaning more towards increasing
the rates. And here's why I think so Bram. The
FED also signaled two more rate cuts are on the
way before the end of the year. I don't think

(05:09):
that that third rate cut was higher than about sixty percent,
if I'm not mistaken right. The second one was still
ninety percent plus. I don't think that third rate cut
was baked in the cake, so that that leans a
little bit more dubbish in my opinion, What do you think? Yeah,
I think that's maybe why rates have continued to fall
is there wasn't that anticipation like last year. I think

(05:32):
last year the anticipation was, once we start cutting, we're
just going to keep going until we don't stop. And
so the FED as acting differently than they have in
past cycles. And so, yeah, if we got three this year,
it could be it the market's pricing in one more
early next year. I don't know, we'll see. Yeah, three
takes you to three point seven five. If that happens,

(05:56):
I wouldn't expect more than one or two next year.
Here's the post meeting statement, Brad. The committee again characterized
economic activity as has moderated, added the language saying that
job gains have slowed. So they added language talking about
how job gains have slowed. They have also noted that
inflation has moved up but remains somewhat elevated. Lower job

(06:20):
growth and higher inflation are in conflict with their twin mandate.
Another quote here, uncertainty about the economic outlook remains elevated,
so that that leads more dubvish the committee is attentive
to the risk on both sides of the dual mandate
and judges that downside risk to employment have risen. Officials
in their closely watched plot of individual expectations pointing to

(06:43):
two more cuts before the end of the year for
three total, it showed a wide level of disparity with Miron,
who's the new trumpetpointee, pointing to a total of one
and a quarter between now and the end of the year.
The plot has done andonymously with one dot for each participant,
but Miron has been an advocate for much lower rates

(07:05):
and looking at it. So when one official did not
want any cuts out of the out of the eleven,
so just thinking logically, let me give you my prediction,
then we're gonna get two more of the rest of
the year. There's too much fight not to do it.
And it looks like the jobs, the jobs reports, which
have been relatively weak, especially on the revisions, need it.
So I think we're gonna get the two next this year,

(07:25):
you're gonna get none in the early part of next year.
They're gonna replace Powell in I think it's May of
next year, and then you're gonna get two more rapid
fire after that, because whoever they put in place is
going to be campaigning on more rate cuts. So you're
gonna get uh three and two next year five and
so that's what we're gonna end up this time next year.

(07:46):
And I don't I don't see us doing anything then
for a while. And I think a lot of it
depends on the stock market. I mean, I know they
say that their mandate is inflation and unemployment, but if
the stock market goes up, you know, before Powell leaves office,
if the stock market goes up another fifteen percent, Paul
might say, no, I'm not gonna We're not gonna do
any But then you're right. I think when Trump's guy

(08:06):
gets in there, they're gonna start it back up. Especially
you know we've mentioned before on this show, Brad, midterm
election years bring more volatility. Historically, not guarantee that it's
gonna be a down year, but typically you have bigger
corrections in midterm years if you see the market have
some sort of major correction and that coincides with that
May June timeframe, whether the new trunk chiefs, I mean,

(08:28):
you're definitely gonna see a cut. And oh, by the way,
it's a midterm election year. Therefore, Trump is not gonna
want to see any drop in the market, and he's
gonna want to do whatever it takes to stimulate. So yeah,
maybe even you get a new FED chief in there
and they do an intra meeting cut just to get
things going. I wouldn't put it pass it neither, judging

(08:51):
by the way this mirran is going in there right now.
I mean, if it's somebody thinking along those lines, the
moment you get any kind of market turmoil, okay, or
even market correction, say ten percent, even you're gonna see
Trump's guy come in there and cut like crazy. So
I hear you saying by the dip, But the question

(09:12):
is always how what's the size of the diptermal election,
do your dips are bigger? So it's it's if you
have the backstop of the FED and you get a
ten percent dip, if they've already changed the Fed chief,
It's hard to think you're gonna get much more than that.
But we'll see and buy the dip too. You know this,
this isn't perfect, This is just speculation, But do you

(09:36):
buy the dip in March? In April, Will will Powell
support cuts or probably not right, So there there's a
little bit of that too, right, right, Yeah, you could
get an early ten percent drop that doesn't end until
the FED Fed governor changes. Does that proverbial FED put
as they call it, or that FED backstop, does that
not come in until May? I don't think it exists

(09:56):
till May. Yeah, exactly. Let's look at some other stats here, Brad,
looking at something that Ryan Dietrich put out. Uh, the
FED has cut You know, I've heard a lot of
people talk about the markets at an all time high.
This is unprecedented. It's actually not unprecedented. The FED has
cut near all time highs and it has been positive
for the overall stock market. Uh. There are how many

(10:18):
instances here, I'm not going to add them up. It's
it's about a half a dozen instances where the FED
has cut when the market excuse me, it's about twenty
instances where the FED is cut when the market is
within two percent of an all time high. That was
the cutoff for this chart, within two percent of an
all time high. And in looking at it, is it bullish, Well,

(10:40):
in these particular periods of time, it's not really that bullish.
In the short to intermediate term. The numbers for one,
three and six months are point two, two to two
and three point four positive. Okay, one three and six months. Yeah,
so the short to intermediate term, when the Fed cuts
rates ify kind of iffy. Then you go three and

(11:01):
six months out, you're kind of right on long term returns.
But look at the number at the one year point
fourteen percent positive and one hundred percent of the time
the market was positive. You have roughly twenty instances where
we're cutting ad or near an all time high, and
the one year return is better than the than the
long term market return fourteen versus ten, and every single

(11:23):
one of them are positive returns. So that's kind of
where you are September of next one year. So even
though it's a midterm election year, and I don't know
if you can thumb through there to see a couple
other midterm election year, you know, prior to a midterm
election year that ends in a midterm election year. It's
one more reason why if you get any kind of
weakness in the early part of next year in the summer,

(11:44):
that it would bode well for a buying opportunity. It's
twenty three for twenty three since nineteen eighty when the
FED cuts near an all time high, and the average
return is thirteen excuse me, fourteen percent. Yeah. Look at
let's look at a midterm election year. So then you'd
be looking at twenty twenty one, No, twenty seventeen, no,

(12:07):
twenty thirteen, just going through this, yeah, because you're looking
for the year before, so that ends on the midterm election.
You're kind of the cycle that we're on right now.
I'm just looking at it. Yeah, ninety six, here we go. Well,
ninety six wasn't none, No, you need ninety seven to
be your midterm. Yeah. Ninety seven Well, no, the cut
was in ninety six, but ninety seven was ninety term. Yeah. Ye,

(12:30):
ninety seven is not the mid term. Ninety eight was
in the midterm. You're right, right, So that's you're keeping
you out. Yeah, yeah, we got it back to the ninety
four same as the Winter Olympics. Can't you do it
that way? There you go? Yeah, ninety so eighty nine
and ninety Okay, Interestingly enough, on this chart, those are
some of the more moderate gains, only four percent to
twelve month period, so you'd have to go all the

(12:52):
way back to eighty nine to ninety to find one
that was kind of right in line with what you
expect for a midterm election year. Right, if you're going
to pick out a couple of years, that wouldn't the
one that ends a year later in a midterm election
year is going to be the one with the most
volatility' that's the cycles that were on. It's been more pronounced.
There's a lot of fighting numbers here. You go to
eighty six, the return is thirty three percent one year
later or so. It's not perfect, but anytime I see

(13:14):
a twenty three out of twenty three, that's a pretty
decent sized data set in terms of positivity. So that's
you know that, that's to me is interesting to see.
How about long waits when the FED weights to cut,
so they cut, then they stopped. Yeah, we have about
a nine month hold here, right, So when the FED
weights between six and twelve months to cut again, this

(13:36):
particular data set is three, six, nine, twelve. When the
FED weights, it is eleven out of twelve. One year
later when they would returned positive returns thirteen percent return.
The only negative when the FED weights to cut is
January of two thousand and one, and they cut again
right after nine to eleven. That to me is a

(13:58):
little bit of a data point than yeah, you can.
I don't want to say ignore, but yeah, it's pretty unique.
I mean two thousands of two and twenty and two,
you really had two different recessions there. You had the
Internet bubble bursting and then you had the nine to
eleven call it recession, and so they really were two
back to back, so that one instance where you didn't
have positive returns was kind of not the environment that

(14:22):
we're in right now. So what does the playbook change
at all with this Brad For what we've been talking
about between now and say a year from now, I
think there's a lot of talk that we won't know
if it's if it's going to happen or not. There's
so much talk that small caps needed lower rates. Well,
you and I were talking earlier today that if small

(14:45):
caps liked lower rates, why didn't they do well when
we had zero rates? And you really only had two
out of ten years when we had near zero rates,
and over that decade, you had two out of ten
years where small caps outperformed. So I'm not so sold.
I still think that the small cap and international underperformance
is a sector makeup of those of those asset classes

(15:06):
and not the asset class themselves. Small caps have less tech,
internationalized less tech. That is more of the underperformance that
we've seen. The other thing with rates is just and
I think your most skeptical on this is when rates
go down, how much will it help real estate or
will it even help at all? There has been a
lot of pent up demand for people wanting to move

(15:28):
but not wanting to move. If they had to walk
off of their low mortgage and double the mortgage that
they have to go to. If you see, you know,
somebody with a three and a half that has to
go to a five and a half, maybe they finally
sell their house and move, whether it's downsize or just
want to or even get a bigger home. So do
you get a little bit of real estate movement? And

(15:52):
is that helpful to the financials and helpful to a
lot of different industries that benefit from from REFI and
benefit from from just the movement of real estate. You know,
I think if we are in a cycle of refis
for the next eighteen months, there is going to be
this slow stimulus that happens in the economy you have

(16:15):
people saving five hundred or one thousand dollars a month
because they're refining off of something that they bought two
years ago, and they're going down by two percent. That
money in their pocket maybe doesn't get spent right away,
but month after month after month, they're spending a little
bit more, and so are millions of other people who
are refined. That money gets some of it gets saved
and put in the stock market. That could be stimulative

(16:36):
to the stock market, some of it gets spent, and
it's stimulative to the companies that we all invest in.
So I think with rate cuts at this level, I
think they will be stimulative over a longer period of
time as people save money. Yeah, and I think looking
at trying to handicap a little bit in the short
intermediate term, which is very difficult to do obviously, But

(16:58):
I still think we're a little bit overdue for a
little bit of a correction this period of time. Right
after the FED rate cuts. We're in a little bit
of a lull for news right now. Economic news. We
are going to have some jobs data coming out here
in the next few weeks and along with more and
Trump's still making trade deals and while it's not being
market movers. There's pretty big trade deals. Yeah, but we're

(17:19):
also going to have a little bit more inflation data too,
and so I think we're in a little bit of
a period of time where we could have a little
bit of an air pocket three to five percent on
the downside. When you look at history, though, when the
market is up this much going into September, very rarely
do you give up all those gains. So I certainly
think that if we do get that three to five

(17:39):
percent correction, that should be bought and then going in
next year, if I could lay it out perfectly, it's
a midterm year. Maybe you have some sort of first
quarter top that you want to maybe sell into and
wait and see what kind of correction you get. It
might be a little bit bigger at that point. I
think that's a good playbook. And I think we need
to talk here and the rest of this show about

(18:00):
some of the other kind of warning signs that are
out there, not yet, but you kind of have to
be prepared and be mentally prepared for a good run
to the end of the year, a good run first
quarter of next year, and if that happens, kind of
where are you going, and how are you reducing risk
and portfolios because we'll have then had three huge years

(18:21):
in a row and you started a typically violatile season
off with good returns, and so there's a lot of
a lot of spending that's happening in the economy that's
driving earnings and driving things forward. So there is some
wind at the back of the market. But let's not
be blind to kind of how far we've moved. So
let's take our first break and talk about a few

(18:41):
of those things and a few of the other stories
that are happening in the stock market with individual stocks
that were big market movers over the last five trading days.
When we come back from the break and welcome back.
You're listening to the advisors of Kirsten Wealth Management Group,
Brad and Kevin Kursten here with you this morning, and
if you're listening to the podcast, it won't be in
the morning. But mentioned before the break there, it seems

(19:03):
like every news that is market movers is AI related,
AI spend related, AI related in general, and the last
week is kind of no different. No recommendation to buy
or sell any of these stocks. But had you had
Alphabet moving above three trillion and some of these you
don't know why they're moving, and then a week later

(19:24):
you see the new story. Then this week you see
the new story that Weimo is getting approved in more cities.
San Francisco is the latest. Actually, I'm sorry time might
have been San Antonio because they were already in San Francisco.
But Waimo, the driverless cars from Alphabet Google getting approved
in more Citi is going to be a kind of

(19:44):
the first of the driverless vehicles that people are probably
going to experience. Last week, on Wednesday, we had a
day where Oracle, one of the largest companies in the world,
moved up forty percent. Now, the initial news was their
cloud revenue was what had increased. Well, then we find
out this week that the US China deal with TikTok

(20:06):
and the agreements on TikTok, one of those is that
Oracle can continue to host TikTok, so they are kind
of the maybe just for the US, TikTok, the exclusive
cloud host for that. So that that's one of the
reasons it was up forty percent in a single day.
It's given up a little of those gains, but up
forty down ten. I think most people were invested there
would take it. And Vidia had news that took it

(20:27):
down a little bit on the Chinese governments saying they
don't want anyone any of their companies to be buying
in Vidia chips and to be buying the Chinese competitors
for those chips. So got hit a little bit, but
Nvidia never stays down very long. And the last big
stock was Tesla had a huge move over the last
five days, and the main new story there is that

(20:47):
Elon Musk was going in and disclosed that he was
buying a billion dollars worth of shares himself, and the
stock moved up about twenty five percent in a week.
So you just had these huge movers and they all
seem like they're tech or tech related, and so kind
of leads us into the next discussion, which is how
far can tech go? And how far has it gone

(21:08):
in the past. You can't look at any kind of
short term We've had a big move since April, probably
a little too short to really take a look at
past and see how far it would move. But we've
had these periods of time where if we look at
the last three years, five years, ten years, or even longer,
and we look at this huge move for technology, how
does it correspond with past big moves for technology? And

(21:31):
I think that's important to put it into context because
on these longer runs is where you can kind of
get yourself to be really overvalued and you lose sight
of how overvalud you are because of how long things
have moved up. Yeah, and I think one of the
things you and I always like to do is you
need to read a lot of ideas that you don't
agree with. I think that's true in politics. I think

(21:52):
it's true in investing. And this is a manager who
put out a piece. It's a fifteen page piece talking
about how today and the headline is this is the
dot com era on steroids and when the odds appear
stacked against you, don't invest that. Don't invest in that area.
And this is a particular manager that has an unbelievable

(22:14):
track record. And so I think it's important to read
this kind of stuff because you can get yourself into
a box on your ideas. And it's interesting that you
mention all these stocks going up on their potential investment
and how much money they're investing, because one of the
bullet points in this piece talks about how in previous cycles,
that's what caused the bubble is over investment, and then

(22:35):
that investment goes away and the bubble bursting on the
companies that we're doing the overinvestment, not the ones that
we're benefiting from it, not the ones that were kind
of the secondary industries to all that spend, but the
ones that we're saying we're gonna just keep spending after
spending after spending because we think that the growth will
be there and the earnings will be there and it'll
all justify it. And that's that's where it kind of

(22:57):
leads into a little bit of trouble. Yeah, so this
is not really necessarily something we completely agree with, but
like I said, it's important to get that opposing viewpoint,
whether it be bullish to barish or bearish to bullish
on any area of the market or the market. Well,
let's point out this is a manager that we added
to the international space because two years ago when we

(23:18):
wanted to add to international, we wanted to make sure
that that international portfolio had a very large weighting to technology.
The international markets, if we look at the broad developed
markets are twelve percent, international emerging markets are less. This
manager at the time had over thirty percent in tech.
It was the largest holding of all the international funds
we were looking at, and only now has he reduced it,

(23:41):
and he's reduced it pretty far, and now the portfolio
doesn't look anything like it did two years ago. So
let's just start with the key takeaways. Today's market, particularly
the tech sector, is hibits Dot Com era overvaluation with
lofty multiples, earnings growth that is slowing, and weaker macroeconomic backdrops.
In our view, this tech sector no longer presentpts a

(24:01):
forward looking quality due to decelerating revenue growth, collapsing free
cash flow, and increase competition. We see better opportunities outside
the tech sector offering similar potential returns at lower risk.
Since the OI financial crisis, the tech sector has led
the way to find the concerns of value investors over
steep valuation. So this has been going on for quite

(24:22):
some time. Brad. If I look at the period of
time from the two thousand and nine bottom to today,
I got so many pieces of paper. From two thousand
and nine's bottom today, the nastic was about thirteen hundred
and now it's a twenty two thousand. So in that
same period of time. If you looked at thirteen hundred

(24:44):
to twenty two thousand, well, thirteen hundred to thirteen thousand
is one thousand percent, so you're just shy of two
thousand percent on that gain from nineteen ninety to the
peak in two thousand, the Nasdaq went from three hundred
to five thousand, so a similar just slightly less performance number.

(25:05):
But if you look at go a little bit farther back,
if we're going to match up sixteen or seventeen year periods,
you go from nine to twenty five. That's sixteen years, well,
eighty four to two thousand. The Nasdaq went from two
hundred and fifty to five thousand, which is also exactly
two thousand. So here we are today up two thousand
percent in a sixteen year period for the NaSTA for
the tech weighted INDASSY, and that same tech weighted INDASCY, which, oh,

(25:29):
by the way, at the end of that run also
had very similar concentration, with its top five and top
ten making up a bigger portion than it did a
decade prior. So here we are sixteen years on our
current run, two thousand percent, sixteen years on that run
two thousand percent, So it is worth a look. It
is worth worth a look at why bubbles do burst.

(25:52):
One of those is that earnings and valuations don't justify themselves.
It's a little different this time around because these companies
actually do have earned that are growing. At the end
of the ninety nine two thousand run, you had a
lot of speculation on companies that weren't making any money.
The ones at the top actually were, but they ended
up not being able to justify the stock growth with

(26:13):
earnings growth. Here today, you kind of have that the
companies actually are growing their earnings by a greater percentage
than even their stocks are growing. And Video is a
perfect example of that, where their earnings have grown faster
than their stock price. Even though their stock price is
up one hundred percent over a set period of time,
their earnings are up one hundred and twenty five, so

(26:33):
they've actually gotten cheaper over this timeframe. But it's something
you have to watch. If earnings slow down, you're going
to have these stock prices fall, and so if they
don't keep up with expectations, if they don't keep up
with the prior year, that's when things are going to
slow down. And if they it really starts to drop off,
and it could if chips sales slow because we don't

(26:54):
need as many because we've already built all the AI
data centers, then you could have that the timing is
the issue. When will that happen? GQG goes on to
say they look at the current valuations of the tech
sector as backward looking quality. They say many of the
large technology companies today, particularly those with meaningful roles in AI,

(27:16):
represent backward looking quality. For much of the past fifteen years,
investors who compared the exuberant periods of the tech sector
to the dot com era have been proven wrong. But
on our view, the consequences of the AI boom could
could be the same or worse than dot Com era.
At its scale relative to the economy, tech sector is
a far higher percentage. He goes on to say, the

(27:37):
AI poster child, Sam Altman, recently said this Sam Altman
is open AI GPT correct. Okay, when bubbles happen, smart
people get over excited about the smallest kernels of truth.
Are we in a phase where investors as a whole
are over excited about AI and its prospects. My opinion
is yes, this is Sam Altman, This is Sam Altman

(27:59):
is saying this, okay, And so you look at the
similarities between the nineteen nineties and today. We just mentioned
the sixteen year period from eighty four to two thousand
is very similar. If you look at the ten year
period from twenty fifteen to twenty twenty five, not quite.
The nasdak's only up about four hundred percent, whereas in

(28:19):
the nineteen nineties the Nasdaq would was up fifteen hundred percent.
So if you're comparing sixteen year periods, performance is very close.
If you're comparing ten year periods, the NASDAK would need
to more than double from here to get that over
And I think that is important. It's not cherry picking
because what happens at the end, and it's what happened

(28:40):
at the end of the nineteen ninety nine ending in
March of two thousand bubble, is you get this whoosh up,
you get this parabolic move up, and we have not
had that parabolic move. You could look at the April
to today move it's not even near the parabolic move
that happened in the six months prior to the bubble
bursting in two thousand. So that's tipically the rallies don't

(29:00):
typically fade. If it's going to be something significant of
a downturn, it usually is this big move up and
everyone is blind to it. We just have not had
quite that move yet. So they go on to say
the dot com and today the similarities US is exceptional
compared to the rest of the world. The AI boom
has been fueled by the belief that in technology, American

(29:21):
has economic dominance. In nineteen ninety nine, the US had
similar characteristics compared to the rest of the world. We
had just come out of the emerging markets collapsing in
nineteen ninety eight in the Asian Financial crisis, and it
has actually been mentioned as the American Age of affluence
in that period. A similar narrative today underpins the AI rally,
where investors say, well, there's no alternative, and that's why

(29:44):
all the capital is going to the US and the
US tech sector, because we're the best at it. How
about this. This goes back to something we say on
the show all the time, revolutionary technology. The idea is right,
the investment is wrong. A key element of prior bubbles
is a new technology that excites investors like AI today.
The nineties gave birth to the Internet, a new technology

(30:04):
that would eventually change the world. Given the fast growth
and profitability, companies like Microsoft, Dell, Oracle were perceived as
obvious winners in the late nineties, thereby justifying their high multiples.
So the idea of the Internet did change the world,
but the investment was wrong because the Nasdaq went down
eighty percent after two thousand. Even with companies that are
in the top of that Nasdaq still being around today

(30:26):
and being some of the best companies in this current run,
they still had this big round trip that was avoidable.
Here's a quote from IBM at the peak of the
dot com bubble. The Internet revolution has arrived. I mean
I think you could. I hate to say it, Brad,
I mean, like you said, I'm we're certainly not as
bullish as we used to be, but we've been a
little bit more bullish on technology, and it's good to

(30:47):
read stuff like this to be a little bit more skeptical.
IBM in nineteen ninety nine said, the Internet revolution has arrived,
and like I said, you could substitute AI for Internet
here with stunning speed. It has swept us into a
new kind of economy and a new kind of society.
It's the first question. This is IBM talking that I
get from any of our customers on any part of
the world. What must I do to survive in this

(31:09):
new world? It's a tidal wave sweeping everything before it. Okay,
so differences in myths dot com to today. You know,
certainly we have a little bit higher quality of earnings.
We have a little bit higher quality of companies, not
of reoccurring revenue that didn't exist before, right right, So
not only that, but these companies don't aren't debt latent.
They don't have a ton of debt. When you look

(31:31):
at the big megacap tech names, capital expenditure sprad as
a percentage of revenues are equally as high as they
were in the nineteen ninety So that's the amount of
money that the companies are spending. You couple that with
you couple that with increased competition. I mentioned this all

(31:52):
the time with Nvidia. They we talk about Nvidia's margins, Well,
Minia's margins are that good. Other companies is gonna say,
wait a minute, we can make that kind of money
and the competition brings in more squeezed margins. That's happening
in international markets. It's going to have also happen in
the US. I mean, broadcamps had better performance this year
than Nvidia, and part of that is them just taking
a little bit of market share and not allowing Nvidia

(32:14):
to have the pricing power that they've had for the
last couple of years. So we look at all this
money that's getting spent, and certainly in the intermediate term,
this is a great thing. This is a boost to
the overall economy. And these companies are spending as much
money as we spent when we did the Tart bailout
package in two thousand and eight, and that was from
the government. This is private but big cap tech capital

(32:35):
expenditures as a percent percentage of earnings before interest, taxes
depreciation IBADA as they call it, is at seventy percent
at and T at the peak of the telecom boom
was seventy two percent. Capital expenditures on that buildout Exon
Mobile at the peak of the twenty fourteen shale boom
in North or South Dakota wherever that was, I both

(32:56):
was sixty five percent of IBADAD and we all know
how it ended for both of those companies. Yeah, So
it's it's we're gonna be talking about it for a while,
but I think what you need to be doing now
is take a look at the portfolio that you have.
The S and P five hundred is thirty three percent technology,

(33:17):
eight and a half percent communication services, communicate a consumer
discretionary or Amazon and Tesla are half of the index
are about ten percent of the market's call it fifty
percent tech and tech related. If you look under the
hood at your portfolio and you're sixty seventy eighty percent,
the first thing you can do is be market weighted,
and then as the market rallies and you want to

(33:38):
reduce risk. It has been for about five cycles in
a row the sectors that are up the most sell
off the most, and the most recent one that ended
April eighth, tech was off thirty when the market was
off twenty. So now the next step would be, if
we want to reduce risk, let's get our our tech
and tech related from fifty to forty. Let's get our
pure tech from thirty three to Let's start to reduce

(34:02):
the most volatile part of your portfolio at the right time,
and that comes at the end of these runs. Now,
we said at the beginning of the show. We think
we're probably six months away from that, but you have
to kind of lay the groundwork so you're ready to
do it and know what the plan is. There's a
lot of areas of the market that have not participated,
and you still have kind of a bond market that's

(34:22):
behaving a little bit better. When the market sells off,
even on individual days, bonds are rallying at stocks are
selling off. And we had that same thing happen back
in March and April. Well, and I think the big
question is, and I've heard this debate, is it nineteen
ninety five or is it nineteen ninety nine in terms
of where we are? And it's very difficult to pick

(34:42):
the top. It's almost impossible, but I don't think anybody
can would also say that it's the bottom. I mean,
the argument is between, if you're using the baseball analogy,
are we in the seventh inning or the ninth inning? Okay,
we're not in the first inning. No one thinks we're
in the first inning, So I think for most people,
and when you look at what happened after the dot

(35:03):
com bubble burst, Brad, if you missed that last blowoff
top and in the case of nineteen ninety nine, it
was October of ninety nine to March of two thousand
the Nasdaq went up another thirty five percent. Is that
the end of the world. I don't think so, because
given the amount of money that investors have made in
the last whether you look from twenty twenty two in
the last three years, or you look from twenty twenty

(35:24):
in the last five years, I think that if you
on that last blowoff top, if you go up fifteen
while the NASDAK goes up thirty five, I think that's okay. Well,
and that's the think that's it, and that's the point
all you're all we're talking about is what if you
reduced your tech exposure on one of these run ups
in the market, but cut it in half. Okay, You're
still going to be performing. Even if you eliminated technology.

(35:47):
Other things are going to be moving. At the end
of that run in the late nineties, other stocks were moving, Uh,
you just weren't moving as much as megacap tech like
we have in this current rally. And I think there's
some things you can do to buffer on the down side. Obviously, diversified,
diversify away from tech. That's you know, you can look
at some of these other areas of the market that
have underperformed, whether it be international or financials or healthcare

(36:10):
which is really underperformed. But maybe even in your tech exposure.
We have new products available that we didn't have in
nineteen ninety nine, anything with a buffer that you could say, Okay,
i still want exposure to the Nasdaq, but I'm going
to do something with a buffer, a little bit of protection,
a little bit of protection on the downside that can
be done once. It don't have to be done in
an annuity. We can do it right in your portfolio

(36:30):
and put a little protection on there. ETFs that even
have that. So there's a lot of different things that
have kind of with very low costs kind of been
invented for you to be able to hedge the risk.
One more thing I want to mention at the end
of the segment, because you mentioned that confirmation bias. That's
what our newsletter going out to all clients is really
talking about that not not following victim to confirmation bias

(36:53):
on your investments and reading some things that don't agree
with you. To kind of look at both sides, you
do have to look at it so we don't get
too overly invested in one area too, we don't fall
too in love with the things that we're invested in.
Because it is common to have sell offs, and you
kind of want to be prepared for it, even if
you don't reallocate the portfolio. Just be mentally prepared for

(37:15):
what if selloff feels like. And think about it in
terms of those dollars on your portfolio. If ten percent
of your portfolio goes away tomorrow, how about what's the
dollar amount that you go down. If that's too much
for you, then it is probably time to take risks
down now or in the near future. Let's take our
next pause, come back from the break, shift gears a
little bit and talk about a few other news stories

(37:36):
that are out there. You're listening money sensitive advisors of
christ And Wealth Management Group. We'll be right back and
welcome back. You're listening to the advisors of Kriston Wealth
Management Group. Brad and Kevin here with you this morning.
Kevin just having a just a normal review meeting with
someone who's been a client for a long time, and
at the end of the review meeting, they were asking
me about a variety of things, and one of them

(37:58):
kind of call it a kind of call it crypto related.
I guess crypto in the US government related was the
topic of the question. And I find I found myself
thinking about what I think about with a lot of
people who ask me questions about the government, which is,

(38:19):
we talk about a lot of things that never end
up happening, and we worry about a lot of things
that never ended up mattering, even if they do happen.
And I have so many clients that spend the last ten, fifteen,
twenty years of their life worrying a lot about things
that either don't affect them at all, or affect them

(38:39):
very little, or never happen. And I think one of
those topics is what happens if social Security goes away?
Or what do we do about our debt and day
or we're passing all this debt on to our children.
For one, you will be debt, so you will not care.
And two, the generation before you and the generation before
that also talked about the debt. We had the debt

(39:00):
clock in New York City in the early eighties. I
strangely enough, the tariffs are coming in on a like
a four hundred billion dollar annualized clip. Yeah, so yeah,
that is helping. Yeah, what if we eliminate the debt,
then what again, Even if we did, it won't affect you.
It won't matter. It will not matter if you're on
Social Security and you're worried about the debt taking your
SoC security away. We are worrying about something. And I

(39:21):
know people are listening to like, no, you don't understand. Well,
I just tell me when the debt's going to matter,
and I'll pay attention because they've told me that since
nineteen eighty one that it was going to matter, and
it hasn't mattered yet. So it is one of the
many things. But I don't want to talk about the debt.
I want to talk about just this concept that everybody
is worried that social security is going to go away,

(39:42):
and it is. Again, we're going to worry about this
for the next twenty five years, and somebody sixty five
and when they're ninety, they're going to die and we're
going to have worried about it and talked about it
for twenty five years for what. Okay, I don't want
to spend my last twenty five years worrying about the
government doing something to me, or the government taking something

(40:03):
away when it's not possible. Well, I mean, is it
a perfect plan? No, I mean if we were designing
social security from scratch. I mean, imagine the wealth we
would have created in this country if we designed social
security from scratch and whenever it started invested in the
stock market. But even that, that speculation is assuming that
we didn't screw the other plan up right, we have
screwed that up. You're right. Here's what would have happened,

(40:26):
was those security If we invested in social security the
moment we had an extended downturn like two thousand to
two thousand and two or two thousand robbed the bank,
they'd have sold it all. Yeah, oh, you're right. They
would have panicked at the bottom. They oh wait, this
isn't working. If this keeps going, so security a run
out of money, Well sell, Yeah, that's what they would
that's a whole plan. Yeah, we got a plan, let's

(40:48):
change it at the bottom and see it's it's an
investor behavior one oh one, what not to do? And
they would have done it. So the headline in this
article is what matters the most stocks housing, social security,
and I have like a little bit different take as
to you know, this person wrote this article for a
specific reason, but one thing I took from it was
a little bit different than his. The CBO estimates estimates,

(41:09):
that estimates, excuse me, social Security accounts for twenty percent
of household Well, so what the CBO did is they
did a net present value of people's Social Security payments
for the household and converted that to a a if
it were an asset. If it were an asset, right,
twenty percent of household wealth in the US by the
end of twenty twenty two. So if you did a
present value, how much money would I have to give

(41:31):
to an insurance company to generate my Social Security payment?
CBO did an estimate on that, and it's twenty percent
of the average Americans wealth. Yeah, and you can do
it for yourself too. If you look at your social
Security payment times your life expectancy, how much is that
For a lot of people, it's eight hundred to a
thousand to one million dollars of income that you're going
to get from Social Security. So other retirement accounts four

(41:54):
O one k's, four h three b's iras make up
twenty one percent of household wealth. So social security nationwide is
almost as valuable as all of people's retirement accounts combine.
That's eighty trillion in present value of social security and
two hundred trillion for total household wealth that includes everything
beyond stocks, including housing like housing and the stock market.

(42:16):
The wealth is not evenly distributed. Social security matter is
a great deal to people at the lower end. CBO
broke down the average wealth over time by top ten
fifty to ninety, twenty five to fifty and bottom twenty five,
and what those values looked at. As you move down
the wealth ladder, the gap widens. For the bottom fifty percent,
social security accounts for forty percent of their assets. Okay, So,

(42:39):
and this is my point of even introducing it this
topic because you think that they can take social security away,
but for the bottom half it makes up nearly all
of their income or assets or the buyer or four,
they can't take it away. It is not possible. Well,
and think of it a little bit different in terms
of taking it away. Okay, for the bottom fifty percent,

(43:00):
it's forty percent of their financial assets. For the bottom
twenty five, it's nearly half of their assets. That bottom
fifty percent is also those are also voters. Yeah, okay,
So if you're gonna take fifty percent of voters and
tell them you're gonna take away their biggest asset, do
you think the person who presents that idea is gonna

(43:20):
win any election ever? And that's why it's been so
hard and why it's why it's why it's gone so
long without getting fixed, is because it is it would
make you unelectable if you were running on a fixed plan,
even if your fixed plan is I'm just gonna take
it from the rich, or I'm gonna take it from
people who aren't even thinking about social security. I'm gonna
take away from forty five year olds and under you

(43:41):
still won't get elected in today's society. So that's you know,
they need to do that, but they aren't doing that
because of how many people it would affect. The other
thing that this article talks about, which is a little
bit different topic, but I think it's interesting because everyone
has talked about how the rich are just getting richer. Okay,
that's always the narrative, especially on the Democrat side, the

(44:01):
rich get richer. Since nineteen eighty nine, the total wealth
held by families in the top ten percent has gone
up by three hundred percent. The wealth of fifty to
ninety so that's middle class is up two hundred and
forty five percent. It's a little bit less than the top.
But the bottom half is up two hundred and ninety
percent in wealth, so about the same. So I mean

(44:22):
within fractions here, especially when you're looking year by year,
they're all going up. About this, they're all going up.
They're very very close. But which interesting is since nineteen
eighty nine, if anyone's falling behind middle class, it's middle class. Yeah,
the lower end's doing very well, two hundred ninety percent
increase in wealth, the higher ends three hundred percent increase
in wealth, and the middle class is only two forty Yeah. Okay, yeah,

(44:42):
so the bottom fifty percent, you know, has been doing
but still social security makes up a bigger percentage of
their of their overall But if you summarize it like this,
and you look at the values of the three biggest assets,
which in this case you could, you would say the
stock market is the most important to the upper class,
the value of your house is the most important to
the middle class, and soci security is the most important

(45:04):
asset to the lower class. So certainly it's not for everyone.
The home ownership rate is only sixty five percent, and
two thirds of American households also own stocks. But it's
crucial to recognize that social security is a vital financial
asset for a large number of Americans. But like you said,
because it's such a vital financial asset, there's virtually it's

(45:24):
self fulfilling. There is no way to take it away. No, no,
And if they do, it will be just like the
nineteen eighty one or two plan where the oldest person
effected it was forty five and they had twenty years
and two months to prepare for it. So it is
is irrelevant. And the forty five year old today doesn't
even think they're gonna get any So if you said
we're going to secure it by taking away a little bit,
they're probably all for it. If they do nothing, taxes

(45:46):
will go up. Yeah, that's much more likely than a cut.
The cuts will not have you're gonna pick. It's gonna
be increasing taxes over it. So again, let's worry about
things that I actually have a chance of happening. And
it kind of goes to that confirmation bias too. If
your feed on the internet is feeding you all of
this doomsday worry about it government scenarios. We need to

(46:08):
find a new feed. Let's continue talk a little bit
more about socecurity when you come back from the break.
Got a couple more things that have changed for people
that I want to discuss. You're listening advisors a person
and Wealth Management Group. We'll be right back and welcome back.
You're listening to the advisors of Kurston Wealth Management Group,
Bret and Kevin here with you them. Just a couple
of minutes left. Talking about soci security. I want to
mention a few things. If you haven't been on the
Social Security website in a while, you might have a

(46:30):
little trouble logging on one time. It's a little bit
more verification. Now, this all started with the DOGE team
trying to make sure they cut out the maximum number
of fraud. It happened with two different things, changing bank accounts.
So they were trying to make it much much harder
to change bank accounts so that you did not lose
your Social Security benefits to somebody changing your bank account.
So the direct deposit also filing for the first time

(46:54):
required a little bit more ID check and some verifications.
But if you haven't logged on regularly, your life going
to have to do one time a little bit of
back and forth verification that takes you taking a picture
of your driver's license, taking a they send you a link,
You take a picture of yourself and send it in verification,
back and forth, back and forth on too different. One

(47:14):
of them a government site, one of them a government
link site log in dot gov, and the other one
ID dot me. They are they you're getting there from
the Social Security website. But it is, you know, something
to be prepared for. We can curse the government for it.
They are trying to do it to protect your benefits.
It's not something you can really affect or change. It's
just something you have to endure one time, and once

(47:36):
you're logged in you can take a look. The reason
I'm mentioning it is people should log in regularly and
look at these benefits so that they can prepare for retirement.
I think you're going to be surprised how the last
two three years of inflationary increases are going to have
increased your benefit estimate on your Social Security benefit statement.
So not a bad idea to nowhere you stand so
that if you're preparing for retirement, you know how much

(47:57):
that social security is going to be. That's it for
for this week. Thanks for listening. We'll talk to you
next week. You've been listening to Money since, brought to
you each week by Kirsten Wealth Management Group. To contact
Dennis Brad or Kevin professionally, call four one nine eight
seven two zero zero six seven or eight hundred eight

(48:18):
seven five seventeen eighty six. Their email address is Kirstenwealth
at LPL dot com and their website is Kirstenwealth dot com.
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.

(48:39):
Securities are offered through LPL Financial member Finra SIPC