Kersten Wealth Management Group - Money Sense 11-08-25

Episode Transcript

Speaker 1 (00:00):
Hello, and welcome to Money Central, listening to the advisors
of Kirsten Wealth Management Group, Kevin Kirsten and Brad Kurston.

Speaker 2 (00:05):
Happy to be with you today, Brad.

Speaker 1 (00:07):
As the market continues through the fourth quarter, here, we're
seeing some earnings reports. Finally, we don't have much news
coming out of the government, so certainly we have to
rely on the earnings reports that have come out, so
we're going to recap that a little bit. We are
also turning the calendar on October and going into what
is historically the best six months of the year, so
we'll talk a little bit about that. But we have

(00:29):
a little bit of a lack of information, especially on jobs,
because the government is in its shutdown mode, so we
don't really have much of that. We do have some
private job information, but we don't have a ton of
information on jobs. And right now we have the Supreme
Court debating Trump's tariffs and whether or not they will
be legal or not. We did a piece on that

(00:52):
in September, and I kind of want to reiterate some
of the things that we talked about. Even if it
gets shut down, Trump does have other options, which I'm
sure you will pursue. So it doesn't necessarily mean up
Supreme Court says no refund everything, because that's what everyone
was talking about.

Speaker 2 (01:07):
I think well, based on the questions that the Supreme
Court justice were saying asking, it seems like they're leaning
towards They're asking questions like, now, how do we repay everybody? Okay,
why are you even asking that question? And talking about
the logistics of repayment? And if you think about.

Speaker 1 (01:24):
How a tariff is going to work, I mean, when
something's getting shipped in for Nike, for example, I don't
even know the mechanism of how it does Nike negotiate
with So it comes to the port, Yeah, okay, tariff
has to be paid.

Speaker 2 (01:43):
Yeah, the importer pays it. Does Nike just pay it?

Speaker 1 (01:47):
Or has Nike already reached out to the exporter and said, hey, listen,
when this gets here, I have a tariff. Yeah, so
you're gonna need to lower your price if that's the case,
because there's some sort of shared agreement, right, right, right right?
I mean I think on most of these tariffs there
was some sort of shared agreement. So I feel like
the interesting thing is you're really gonna if there was

(02:09):
a shared agreement to split it.

Speaker 2 (02:12):
Yeah, you're gonna have a nightmare on that. If you're repaying,
you're gonna have a people the exporter is really angry,
right because they're gonna say, well, we split this tariff, Nike,
and now you just pocketed the reef. How about this?
How about on these where we negotiated, Hey, we'll go
to we're gonna go to fifteen and you guys are
gonna go to ten and now we're just gonna be zero.

(02:37):
I mean, we had an agreement that was in our favor, right,
and now now the other country just gets a tear
of us and we don't have anything. Right, You're absolutely right.
So we have all these other things that have happened.
It's not just the tariff. We have negotiated trade deals
based on it. So it it. I just feel like

(02:58):
maybe these questions from the Supreme Court justices are them
probing a little bit to realize logistically it is so
much of a nightmare that why why even why even
bother opening up the box? Oh, they don't care about that.
They don't care about that. Yeah, they let somebody else
figure it out. They are.

Speaker 1 (03:15):
Yes, though these you have to understand the ego of
somebody who's a Supreme Court justice.

Speaker 2 (03:21):
That's true.

Speaker 1 (03:22):
Okay, they look at their job as above everyone else.
And I'm a Supreme Court justice and I'm going to
do no matter what other factors are involved. I'm going
to base my decision based.

Speaker 2 (03:34):
On the law.

Speaker 1 (03:36):
Well, that's why I thought, and a question, they're chaos
that might come after that's your problem.

Speaker 2 (03:41):
That's your problem. But that's why I thought the questions
were odd because it is not part of your your
decision making process, shouldn't be how difficult it's going to be,
and yet they're asking all these logistics questions. Is it
constitutional or not? Is it a a within the law
or not? And why are you asking these other questions.
There's been a few things this week where, you know,
we try not to fall into this. The markets down

(04:01):
because of this, but the longer we go on the shutdown,
and now we have press conferences that say we're gonna
cut down forty different airports ten percent of their of
their flights, and the market goes down kind of on
that press conference. It does kind of feel like the
government shut down at this point now entering it's what
are we five weeks? It does feel like it's waning

(04:24):
a little bit, and I think the market was fine
with it until we got post election, and when we
got post election, and we still don't have any votes
on it, that look like we're moving the needle at all.
I feel like the market's getting a little nervous. But
the silver lining is a couple different things. Anything that
is a headwind with this will eventually be a tailwe
when we open, And like you were talking to me
about earlier, the silver lining also is if you want

(04:47):
a Fed rake cut, this government shutdown is likely helping it.
And it looks like we thought a week ago it
looked like less than a coin flip, and now when
you look at where the market is favoring it, it's
pretty likely that the market is expecting a rate cut
in December, and therefore the Fed is likely to not
want to disappoint and you're going to get one war
this year.

Speaker 1 (05:07):
Going back to the tariffs really quick, and this was
our a piece we did in the research blog back
in September, Brad. The backup plan on the tariffs takes
a couple of different forms. They can be put back
in place even if the Supreme Court rules they are illegal.
Delays would occur, and rebates back to the companies that
pay them could be required. But in the end, most

(05:30):
of these tariffs will probably stick. And here's a likely path.
Use section one twenty two to put the tariffs back
temporarily while an investigation takes place to enable the use
of a couple other laws, Section three oh one, which
section one twenty two requires large trade deficits, but can
only be employed for one hundred and fifty eight. So
there's some sort of one hundred and fifty day like

(05:50):
emergency order that he can do that allows the trade
representatives to conduct multi month investigation to look at the tariffs.

Speaker 2 (05:58):
While it's not been difficult.

Speaker 1 (06:00):
While that has been not been difficult to prove in
the case of the Chinese terriffs, it won't be easy
for broader tariffs across dozens of countries, and so his
statutory authority to impose tariffs. The big question that's going
on right now is is an emergency. That's the only
question the Supreme Court is facing because Trump put the
tariffs in under one of the laws, basically saying that

(06:21):
our trade deficit was an economic emergency.

Speaker 2 (06:24):
I thought there was also parts of it that said
that it was to cut down and to negotiate trade
deals to cut down fentanyl imports and import bible.

Speaker 1 (06:32):
That was part of the emergency part of it too.
It was the fentanyl was the fentanyl emergency. So certainly
going to Congress is another option, and at least right
now does have the majority ball though I don't know
if he has a ton of support among Republicans for
tariffs as well. So there's some stop gaps, there's some
pauses that can be put in place where it won't

(06:53):
happen immediately in terms of Okay, we just got to
refund all this money, and what it's the mechanism to
do that. So you know, we took a look at that,
and it's going to be a much more long drawn
out process than the Supreme Court deciding probably sometime in January,
and then if they decide against Trump, it's just over with.

Speaker 2 (07:11):
Yeah, So I mean, yeah, you might have a down
market day because of it, but yeah, it's the next
news story will be what's next for all of it. So,
you know, you were mentioning early about the only jobs
numbers that we're getting are the private and this ADP
is somewhat volatile always it was a beat a couple
of weeks ago. It was a disappointment this week. And

(07:34):
I think that anyone falling victim to the headlines on
some of these things that are so volatile or are
leading and lagging indicators and you don't know which one
it is, are doing a detriment to their investment decisions.
One of the headlines I saw was worst layoffs since,
and one of them went back twenty two years to

(07:54):
two thousand and three, and the other one was the
worst October. Of course they're going to cherry pick just
the worst October, the worst you know, fourth week of October.
We're going to pick off in since the end of
twenty eighteen, I'm sorry, the two thousand and eight. So
the two that they had in this article on the
worst jobs number since were March of twenty three, I'm sorry,

(08:18):
March of two thousand and three and December of eight.
So we do have to realize when I'm seeing something
that says this is the worst since and you're picking
off one of the best times to be an investor,
oh eight o three, then it has to be a
contrarian indicator or you don't know what the market did

(08:39):
during those periods of time, and certainly the people reading
the articles don't because it's all written in a way
to say look out below, when in fact you're pointing
out periods of time that we're a backup the truck,
invest every dollar in stocks period of time, and that's
what these jobs numbers are going to tell you. The
job numbers get weakest at the bottom. And here we've
had this volatile somewhat week in the last couple of

(09:02):
weeks jobs numbers. But we're also at a point where
the market is up a lot over the last three
years and a lot this year. This is not a
typical time to have bad jobs numbers that are going
to be sustainable. You have a growing economy.

Speaker 1 (09:15):
So I I was looking at a job's chart a
couple different things, talking about the job openings for starters,
and after COVID we had a huge uptick in job
opening and when looking at it, it was twelve million
at the peak. Over twelve million, we've basically returned to
the pre COVID level. Now, I will say, the one

(09:37):
thing that maybe gives me some concern just looking at
this chart by itself is over time, this job opening's
number just goes up.

Speaker 2 (09:45):
Because we have more people. You have more people, we
have more jobs in general, so the number of openings
should tick up.

Speaker 1 (09:51):
You know, if you look at job openings in you know,
let's do pre recession job openings, Okay in nineteen In
nineteen ninety it was four million, okay, and then it
dropped to two million. That was that was a recession, yep.

Speaker 2 (10:06):
Okay.

Speaker 1 (10:07):
In two thousand it was six million job openings roughly,
and it dropped to about three million job open well,
higher high and a higher low. Right, just like the
market in oh eight, it didn't recover all the way
to the two thousand levels. It was about five million
job openings, went all the way down to two million
job openings, then all the way up till twenty twenty.

(10:27):
Of COVID, the job openings got to about seven and
a half million. Right after COVID they went down to
four million and then went to twelve million. But over
time you're like you said, higher highs, higher lows, and
so we've returned to the pre COVID levels, right, And
on one hand, you say, now we're just gonna you know,

(10:49):
return to that pre COVID level. We've worked off that
excess finally, So that's that's something to pay attention to.
I'm not sure it's concerning like in previous instances on
this chart when there was a big drop, it coincided
with the recession.

Speaker 2 (11:03):
It did. And I was looking in this chart myself
a couple of weeks ago, and would you agree that
that seven million where we currently sit does kind of
seem like a line in the sand where I would
want to see that tick higher and h and start
to create a higher high if we're going to have
a growing economy.

Speaker 1 (11:17):
The quit rate, and I think that that's valuable because
when you look at people having the confidence to quit,
and a.

Speaker 2 (11:24):
Lot of times they quit for a higher wage too,
so that's healthy.

Speaker 1 (11:26):
So the quit rate, and if you look at it
total non farm payrolls seasonally adjusted, three million people were
quitting in the year two thousand and that was certainly
a peak, and then it dropped another back back to
three million before the eight financial crisis, and then it dropped,
so it coincided with the recession. The quit rate peaked

(11:47):
it let's see here over four million, over four million
in August of twenty five and is now back to
three million. So it's back to, you know, lower than
where it was pre COVID. People are quitting at a
less at a less rate than they were pre COVID.
And then the other thing on here is just the
the layoff numbers, which have ticked up very slightly. But

(12:11):
if you look at this long term chart, obviously the
layoffs dramatically spike during a recession, and then the layoffs
remain very very stable. If I'm looking at two thousand
and twenty twenty five, a twenty five year period, yere Brand,
and when we're not in a recession, it's just up
and down around two million all the time.

Speaker 2 (12:28):
Okay, we're still under that.

Speaker 1 (12:31):
So even though it's off the bottom, and I think
this is kind of some of the things that you
like to point out on the show. Depending on how
you zoom in this chart, credit card delinquencies are another one.
Is it off the bottom, sure, but it's nowhere near
the long term average. Yeah, So zoom in and show
me a six month and it looks like it's spiking
or declining.

Speaker 2 (12:50):
But we zoom out farther and it's going nowhere. It's
it's in a track or a trend line that seems
very stable. I mean, we.

Speaker 1 (12:57):
Discussed in a previous show trying to look at compare
Grrison's especially on debt and leverage and things like that
compared to eight and see where we were, See where
we are and where we were, and the jobs numbers
are one thing you want to compare. I'm looking at
household debt service ratio, which is debt payments as a
percentage of income. So if I zoomed in on twenty

(13:19):
twenty to today, it looks like a huge spike. It's
eleven point three percent is the average debt service that
someone has in this country. And if you zoom out,
you're at a forty five year low, which and basically
you're returning to pre COVID.

Speaker 2 (13:36):
Yeah, if you exclude the prior four years, you're at
the lowest point forty five.

Speaker 1 (13:42):
Years I mean, and consistently was right around little under
twelve percent household debt service. To put it in context,
at the peak of the debt crisis of eight, right
before the drop, sixteen percent was the number sixteen percent
debt service when we had all those crazy mortgages and
people were borrowing money hand over fist.

Speaker 2 (14:01):
So we're nowhere near that early delinquencies.

Speaker 1 (14:04):
We did have an uptick from twenty twenty one to
twenty twenty four in these categories on delinquencies auto loans,
credit cards, and even mortgages, but actually brand in the
last year and a half they've come back down. Okay,
And even if you look at these delinquencies and let's
let's use credit cards for example, at the peak in

(14:28):
eight it was it was fifteen percent. The uptick we've
had recently has it still at around seven percent on
those delinquencies, So we're nowhere near that. We've actually seen
this huge uptick in the delinquencies of student loan debts.
But I think that that is just the the Biden.

Speaker 2 (14:46):
Yeah, that's it. That's the what if Biden wins? What
if Kamala Harris wins.

Speaker 1 (14:49):
I don't want to pay off my well there was
a big deferral, Yes, big deferral. They were allowed to
do too, because the delinquencies dropped when Biden took office.

Speaker 2 (14:57):
What did he do?

Speaker 1 (14:57):
Did he I don't even know for sure what he did,
but did he let people just not make any payments
for a while?

Speaker 2 (15:03):
There might have been that, but there was this we're
going to do this loan forgiveness, and it actually got
an acted and then immediately taken off for kind of
being unconstitutional, And so I think I don't know how
it was gonna compute on those numbers as a delinquency
or a non payment. So I think the underlying numbers
are when you look at risk to the economy, okay,

(15:24):
and you look at jobs and you and you try
to find whether or not we could be approaching a recession.
Even if those numbers are uptaking a little bit, we're
certainly nowhere near what we saw in two thousand and eight,
and even on the valuation metrics, we're nowhere near what
we saw at the peak of the dot com bubble,
which would lead you to believe that even if we
had a downturn, it would be more mild than either

(15:46):
of those period But also not surprising that the Fed
has kind of shifted their gears on being worried about
inflation instead of being worried about employment. It has deteriorated
a little bit, and they don't want to see it
go worse, so they're just they're talking. They're talking about
it in terms of, you know, we need to do
a little bit so things don't get worse because we
are seeing things go down. It's obvious in the numbers,
and I think that's why they're likely to cut here

(16:08):
in December.

Speaker 1 (16:09):
If I had to put my prediction cap on, which
I hate to do, but on the FED, I think
they're going to be stuck and they're gonna have to
cut in December just because of the expectations. I think
that's Jerome Pole's last cut. Jerome Powell's last cut. Yeah, Okay,
the moment Trump, whoever he chooses, Trump's nominee comes in,
they're gonna start cutting it again. So I think you're

(16:30):
gonna get a five to six month hiatus there. On
the cuts. There's a couple of cuts in there that
haven't worked their way into the system, so I still
think it's stimulative. Let's close this segment with a couple
stats here, Brad, we are approaching the best six months
of the year. It hasn't necessarily worked out the last
the best six months of the year November to April.
Worse six months of the year are made of October,

(16:52):
but May October recently has been pretty good. But if
you go all the way back to nineteen fifty, November
to April averages seven point one percent with a seventy
seven percent win rate made October, which is the worst,
is only one point eight percent on average.

Speaker 2 (17:09):
You put that together, you get the.

Speaker 1 (17:10):
Total annual return and it only is up sixty five
percent at the time.

Speaker 2 (17:15):
So, but these last two years have been gangbusters in
the entire time. And if anybody that listens to this
show watches Bloomberg in the morning, one of their tickers
that comes through sometimes when they go to commercial shows
the monthly returns five years back, and you can see
these monthly returns for the S and P, the Dow,
and the Nasdaq, and you'll notice that the last two
years are the outlier on that May through October period

(17:37):
because they're all positive. Even last year, we had that
big period of time late July and early August that
was a negative. July finished positive and August finished positive,
even though the end of July and early August gave
you that big woosh down eight point three percent last year.

Speaker 1 (17:52):
I'll close with close this segment with one contrarian signal.
I love contrarian signals, and you look at this and
it's kind of shocking. I mean, you meant, we always
talk about a good market's climbing a wall of worry. Well,
we have in the AI Bulls minus Bears survey, we
still have a negative eleven percent spread, meaning eleven percent

(18:15):
more people who define themselves as bearish than bullish. And
when you look at this chart and put it into context, Okay,
going back forty years, we had more bears than bulls
in nineteen ninety that was a recession and there was
a pretty big downdraft. Then for eight straight years we

(18:39):
had more bulls than bears, pretty significantly, anywhere from fifteen
to twenty five percent more bulls than bears. Then in
two thousand, it's almost like people didn't believe it. Two thousand,
two thousand and one, two thousand and two, the market
dropped in those three years forty four percent. And yet
in all three years bulls out numbered bears. That's amazing

(19:00):
to me. We did not have bulls out bears out
number bulls. That is, bears being the people that are
negative on the market, bowls being the people that are positive.

Speaker 2 (19:10):
And on that survey, the one of the most common
questions is the likelihood that the market is up or
down over the next twelve months. If you say up
you're a bull. If you say down, you're a bear.
For all three years when the market went down combined
forty four percent from two thousand to two thousand and two,
there were more bulls than were more bullish then than today. Amazing.

Speaker 1 (19:27):
We are at eleven point one right now negative. We
were at eleven point one negative in eight, meaning in
this survey people are as negative as they were in
two thousand and eight. During that financial crisis two thousand
and nine, investors were still negative. Then we had five
straight years of positive. Only other years where investors were
negative were was twenty sixteen, but it was just slightly negative,

(19:50):
just one percent. Twenty twenty during COVID it was minus five.
The bears out numbered the bulls twenty twenty two, minus
twenty two. People were twice yes, as bearish in twenty
twenty two than in eight on this survey, and now
it's eleven point one.

Speaker 2 (20:06):
Now let's explain why it's it's contrario. If you're bearish
and you're answering that survey that you think the market
is gonna be negative, how are you invested? Are you
fully invested? No? So these are the people that are
dry powder to come in when the market drops a
little bit, they're they're they're coming in and supporting the
market with new buys. Because if you're if you're bullish,

(20:27):
you're already invested. We're always most people aren't. We're always
looking for the signals.

Speaker 1 (20:30):
Yeah, and when I see so much negativity, and I
think part of it is it's we have more social media,
we have business news. And we've mentioned this before in
the show. It's exciting for someone to be negative and
predict a big market downturn. Yes, everyone thinks, oh, you're so,
what's this person going to say? Yes, And so there's
a little bit of that. But when I see this

(20:51):
much negativity, that is the future fuel for the next run. Absolutely,
let's take our first pause. You're listening to Money Cents
Brad and Kevin Kirsten.

Speaker 2 (20:59):
We'll be right back and welcome back. You're listening to
advisors of Kurse and Wealth Mans for Group. Brad and
Kevin here with you this morning. Kevin, we've had a
couple interesting down days in the last couple of weeks.
Where to me, when you look under the hood of
these down days, the market is telling you exactly how
to be conservative when the time comes. We've been talking
about this roadmap for early next year to get conservative

(21:21):
on down days. Sectors that are not up a lot
are up on these down days. Conservative, low volatility, more
defensive sectors are up on down days, even big down days.
Down days were that the small caps and tech are
down a percent and a half, you have sectors up

(21:42):
a half a percent, and so I think that's telling
you a little bit of how to tweak the portfolio
when the time comes, because it will be those things
that hold up. Twenty twenty two gave us a perfect example.
The way to get conservative was not to go stock
to bond. It was actually to go more aggressive growthier
things that have run up stocks to more conservative stocks,
and just make sure you're overweighted to those sectors. Two

(22:05):
thousand through two thousand and two was that same thing,
positive in two of those years and slightly negative in
two thousand and three. But the other thing you're seeing
on these negative days is that US markets can sell
off but not the international markets. China was up today.
Today's a down day for the US market, and broad
international markets and emerging markets last week on our biggest

(22:26):
down day were up. I think it tells you a
lot about how to be diversified in twenty twenty six,
so we're talking a lot about how to be invested
this year, and international has done great, and I think
it's a little bit telling on these down days on
what the market is telling you where it's seeing undervalued
things because of how things are reacting and not everything

(22:47):
is selling off, and I think it's healthy.

Speaker 1 (22:50):
Let's have a quick discussion on how you would define
a lower risk in the equity markets, Brad, And some
of it just makes some intuitive sense. Historically, it's not perfect.
We've had periods of time where some of these areas
have sold off, so this is not perfect. But when

(23:10):
you look at something, for example, like the low Volatility index,
and there's a exchange rate of fund for the low volatility,
and there's a couple different ways to look at low volatility,
but typically you're going to see the highest sector allocations
would be consumer staples, utilities, and healthcare. Okay, so why

(23:33):
would that be Why would those be lower volatility? Well,
you could just think logically about it. When you think
about consumer staples. It's right in the title, these are
your staples of life. Yep, Okay, this is your earnings
aren't volatile. Stock prices aren't volatile, so that's why they're
in a low ball and they're not going to have
big growth. And over time, the average per year return

(23:54):
on this index is not even close to the large
cap growth in no there are times where it's half,
but the volatility is much less. And if you if
we already have three excellent years in a row for
the broad markets, especially growth, do you want to have
an allocation to these lower volatility areas. So consumer staples,

(24:15):
how what's examples? This is not a recommendation to buy
or sell any of these names. Procter and Gambles the
number one holding they make, tied and toilet paper. These
are things you're going to buy no matter what. And
you'll see other names in their waste management, the garbage company.

Speaker 2 (24:31):
You'll see.

Speaker 1 (24:34):
Companies in the grocery space because you're gonna have to
go to the grocery store no matter what. You're going
to see a lot of names where these and you
define it, I think, and an easy way to define
it is needs versus Once the things that you want,
those stocks might go down a little bit more if
we have a correction the things you need, they might
hold up a little bit better. Another need would be

(24:57):
your utility bill, right, so that's also something that's in
the lower lower volatility category. Now utilities have actually had
a great run because there is an alternative intelligence play
there and the demand is going to go up tremendously
in the coming years. But in general, if you let's
just take the alternative intelligence part out of it, that's why.

Speaker 2 (25:17):
Those have held other consisteners. Most of these sectors pay dividends,
so that's a little bit of support to the overall performance.
And so if you're the reason we're bringing it up
is not because we're already going there, but it might
be part of the roadmap for twenty twenty six. But
if you're saying to yourself, I'm up way more than
I thought, I think the market's overvalued. Maybe, but four

(25:38):
of the sectors since the election are negative, and three
of those are low vall sectors, and so not everything
is up. If you're up a lot, that's because you're
weighted correctly. If it makes you nervous how much you're up,
you don't have to just call and take all your
money out and put it under the mattress until there's
a big down turn, there are ways to invest more
conservatively and into things that are under valued right now

(26:01):
that are traditionally low vall sectors. And it's the reason
we're going to keep talking about it, because the answer
does not have to be get me completely out.

Speaker 1 (26:08):
And the third one would be healthcare. Brad, you certainly
are going to need your health care whether we're in
an economic boom or you're in a recession.

Speaker 2 (26:15):
So that's the air.

Speaker 1 (26:17):
And I think healthcare is the ultimate conturrion play because
it's had a bad couple of years. Healthcare is one
of the worst performers this year, is one of the
worst performers last year. Part of it is we mentioned
this back last November. Under Republicans, healthcare historically has not
been the best sector to own, so that I think

(26:37):
there's a political component that too. I mean they're arguing
about the ACA credits right now. But over time health care,
we have an aging population, AI might improve the the
the performance there because of even the advancements and new
drugs and maybe R and D prices or costs go down.
So there's there's we don't know what we don't know yet,

(27:00):
and they are a pretty consistent sector even though, so
we mentioned low volatility. One of the ways to play
it is by those low volatility sectors. By the way,
just really quick, even within each sector, within technology, within financials,
we can go in and you can actually pick a
low volatility index that just picks the lowest volatility tech name,

(27:21):
or the lowest volatility financial or the lowest volatility consumer name.
So if someone wants lower volatility but doesn't want to
just make a call on sect sectors, you can actually
do it where you have a similar weighting to the
S and P five hundred and you're just in a
little bit different Yeah, a lot of the portfolios would
be called minvol in that case, and that's the difference

(27:42):
between the two menvol versus low ball. Yeah, minimum volatility
versus low volatility sort of the quick definition.

Speaker 2 (27:48):
So leading into the next discussion, we talk about how
the S and P five hundred is kind of shifted
in how big tech is in the portfolio because the
performance has all been there. So tech has become thirty
four percent of the toll and you know tech all
the tech the other tech related sectors or take it
over fifty percent, and that's unusual. We've had the same

(28:09):
thing happen over the last forty years with the makeup
of countries. You know, the US is the biggest investing
market in the world. Didn't always it was not always
the case, and so when we look at different I
want to maybe take our pause and talk a little
bit about international investing. We've been there, we've added more

(28:29):
to it, if we've if we've taken risk down it
all over the last eighteen months, we have not taken
it down an international and it's really helped performance this
year because it really was an undervalued place to be
for the last year and it's not over yet. And
I want to talk a little bit about how it's
changed over time and where if there are managers that

(28:50):
have a decision to make how they are investing, are
they investing more or less in international if they have
the choice to make it. And I think that's a
little bit of a tell of what's to come in
twenty six Let's take our next pause. You're listening to
the advisors of Kurston Wealth Management Group. We'll be right
back and welcome back. You're listening to the advisors of
Kerston Wealth managemer Group. Brad and Kevin here with you.
If you're listening on the podcast or on Ihearten, didn't

(29:12):
hear any of our ads. We are professional financial advisors
in Perrysburg, Ohio. Give us a call any time if
you want a second opinion on what you're doing, or
if you have a major financial decision to make, like retirement, divorce,
or death. That's where we a lot of times come
in to help people out with those major decisions. Numbers
four one, nine, eight, seven to two zero zero sixty seven. Kevin,

(29:32):
we're talking about international investing and kind of how it's
changed over time. One of the unusual things if I
look at some of the varying indexes that are kind
of the all world indexes. The MSCI All World right
now has seventy three percent. I'm just going to talk
about the amount that's in the US seventy three percent US.
The Global index that includes a few more countries and

(29:55):
would allow a little bit more an emerging market has
sixty two percent in the UA US that global I'm
going to come back to in a little while. But
number two on the MSCI All World is Japan at
five percent. Now. One of the things that changes over time,
like we mentioned, is the sector waitings and sometimes it's
a little sticky. This is amazing how over the last

(30:17):
thirty years this has changed for the US being this
big of a portion of the overall world market. It
was not always the case.

Speaker 1 (30:26):
Yeah, we're always looking for those contrarian signals from time
to time too, and those are a little bit longer
term signals. But if you're looking for something to shift,
we're certainly at a peak for the percentage of the
world equity market that the US sits at now. It's
for good reason. Yeah, we have more earnings. Yeah, I mean,

(30:46):
there's a reason why it happened.

Speaker 2 (30:47):
Well, part of the reason of the growth of it
in general is is how many companies come here to
be on our stock exchange and don't even bother to
be somewhere else. That's part of it. They're domiciled here.

Speaker 1 (30:58):
Because of that time, we had a cycle that went
the other way was certainly two thousand and two to
two thousand and seven, and also coincided with week dollar policy,
which we talked about on last week's show, and the
US went from approximately fifty five percent of the global
market down to forty. But a couple of the shocking
numbers I saw on here, Brad, you mentioned Japan being

(31:19):
five percent in nineteen eighty seven. At the height of Japan,
I mean, it was all japan talk at that time.
I mean you remember, probably the peak was when they
bought Pebble Beach golf course, right, the Japanese did, and
everyone was up in arms. About forty four percent of
the global market was Japan and the US was only thirty. Yeah,

(31:43):
So the Japanese equity market was what thirty percent larger
than the US equity market at that time, Yeah, and
then had its thirty year It also went thirty years
where it didn't go anywhere, right, So if you look
at that, emerging market really was nothing category in the

(32:05):
nineteen eighties in terms of size. Merging market's been much
more stable, Brad. The peak was two thousand and seven,
and it was really maybe thirteen or fourteen percent. I'm
looking at a chart, but it's it's not that much
different than it was at the peak. About eleven percent.
Emerging markets at the moment, we're eleven percent. Europe XUK.

(32:25):
The peak for Europe x UK was nineteen ninety eight,
and that was approximately twenty three twenty four percent.

Speaker 2 (32:32):
And we're about eleven today as well. Correct.

Speaker 1 (32:34):
Yeah, So one of the things I pulled out the
two surprising things is how big Japan was at nineteen
eighty seven, and also how stable emerging markets has been
as a percentage of the total. So with these things
you and I are talking about, at what point does
the individual investor wake up? We've had really good performance
this year, not just for developed international, but emerging markets
as well, even small company international and emerging market, great performance,

(32:59):
in some cases double the US market. I think when
you get to calendar year two, people start to wake up.
But let's take a look at funds. I want to
define something for everyone first before we get into this.
An international fund invest just in international stocks, foreign stocks.
A global fund can invest anywhere US and non US,
but most times they're going to benchmark to what we

(33:20):
are referring to this endice, that is sixty five percent
US and eleven percent Developed Europe and then eleven percent
emerging market. But how are they invested today? A lot
of these funds over the last five years were overweight
to the US more than sixty five percent. But I
pulled out one that I would call kind of middle
of the road growth of value one that's growth and

(33:41):
one that's that's a more of a value global fund.
So three global funds, and let's just take a look
under the hood today with a benchmark of sixty five
percent US, the one that I would call middle of
the road, not like a blend growth to value is
forty eight percent US. It is seventeen percent Developed Europe,
and it is eighteen percent emerging market, so it is

(34:02):
seven percent overweight emerging, seven percent overweight Developed, and all
the other categories UK and Japan also overweight. And whereas
an underweight, it's underweight US. So the active managers are
making the shift. They're making the shift. They're not waiting
for that second calendar year like we're talking about maybe
with individual investors. Let's take a look at what I
would call the growth year of these a manager that

(34:25):
tends to always buy a little bit more of the
growth names in their portfolios, even in the internationals. Still global, yeah,
but still global, and it is sorry, where's my page?

Speaker 2 (34:35):
Sorry, I'm I'm gonna have to skip that one for
a second, but it was a very similar one. And
then let's look at the value and here on the value,
same thing we're benching to the same thing, and we
have the US at forty four percent, not sixty five.
We have just they do their emerging markets as Asia
they have it as thirty three percent, and then Europe
they have as sixteen percent. So again where they have

(34:57):
the ability to make a call, they are are making
the call to underweight roughly twenty percent US, where they
have been overweight about ten percent US. And the bigger
overweighting is in the value manager overweighting emerging markets. The
broad blend manager is overweighting emerging markets, but only by

(35:19):
about seven percent the value manager. And part of this
is because a lot of these emerging markets do have
a lot of domestic for them, domestic banks and insurance companies,
and the value manager will tend to do that. If
we look at the sector waitings, financials are the largest
holding for this manager, and you're going to find that
in the emerging markets you're mentioning the global growth it's

(35:40):
fifty four percent US. Okay, so not as big of
an underweight to US, but still an underweight eleven percent underweight.
The benchmarket is sixty five. They're fifty four, right, yep, right,
So it looks like most of these managers are underweight.
If they're in the global space where theyre their benchmark
is that sixty five percent US thirty five percent the

(36:01):
rest of the world. Most of those managers are already
underweighting the US. Let's look at one more and this
is one of the largest sometimes it is the largest
head fund in the world, and how they're managed currently
they have they're currently a sixty. There are forty three
percent in stocks. Okay, the sixty is not just bonds,
it's it's about it's about half of the other and

(36:22):
then you have commodities and some other things. But of that,
one third of their choices they're making on the on
the stock side is US. Two thirds is international. So
if you just look at that, a manager that can
go anywhere for any investment is currently underweight significantly the
US to go to international. That's where they're seeing things

(36:44):
are undervalued. And so I think a lot of people
aren't waking up to it if they're making their own decisions,
to say, in the in their four to one k
or on their own investment decisions, mainly because they've probably
hit out in tech and it's done well, especially off
this most recent bottom. But don't don't forget about the
internationals as a way to diversify, especially when we get
into a vollatble period next year.

Speaker 1 (37:03):
If the Fed cuts rates one more time and then pauses,
that'll be your entry point opportunity for these names because
the dollar will get stronger during that period of time. Briefly,
so it'll be the first four or five months of
the year. If you haven't allocated to international, you're gonna
get an I think you're probably even going to get
a better opportunity to allocate internationally because the moment the

(37:23):
Fed pauses, the dollar is going to get stronger, and
those names are going to struggle. But certainly when Trump
gets his person in there, guy or girl, whoever it is,
they're going to hit the road, hit the ground running
with week dollar policy. And I'm sometime in May, is
it not, Yeah.

Speaker 2 (37:42):
I think it's late May. Yeah, So we'll.

Speaker 1 (37:44):
Have to pay very close attention to who he ends
up nominating because that's going to dictate allocations and where
the performance is in twenty twenty six. Let's take our
last pause. You're listening to Money Cents. Kevin and Brad
Kurston will be right.

Speaker 2 (37:56):
Back and welcome back. You're listening to the advisors of
Kirsten Wealth Manage Group, Brad and Kevin here with you
this morning. Kevin, we're talking about international investing. Maybe talk
a little bit more about how it applies to somebody's portfolio,
maybe what the proper allocation is if somebody wanted to
have one third of their portfolio in international investing. There's
a couple of things I want to point out. Okay,
so if you're if you're an eighty twenty investor and

(38:18):
you're one third international, that means twenty six percent of
your total is international. Just doing the math here, a
sixty to forty person would have twenty percent in international,
and a forty sixty person would have thirteen percent in international.
But keep in mind this, when we invest in the US,
we do growth, we do value, We do large, we
do mid, we do small. We you know, it's a

(38:39):
large enough portfolio. You might have several in each of
these categories. Bare minimum, you've got six eight funds. What
do we do in international? Sometimes, especially somebody in their
four one k eh, just give me the one fund.
That's fine. Well, it doesn't have to be that way.
There are growth and value international, there are emerging markets
and non emerging market funds there are small and quite frankly,

(39:02):
the international small cap area is one of the least
volatile international areas, mainly because it is insiders in the
companies and it is professional managers and not a lot
of individual investors in that market. So when the market's folltle,
that tends to be less follible. And so if you're
going to put together a proper allocation, it's what we've done,

(39:22):
even over the last couple of years, even on our
conservative portfolios that might only have ten percent there, we
still have a developed international fund, we have an emerging market,
and we have a small company and which would include
some mid caps as well international fund. So it doesn't
have to just be one position. Let's get diversified on
an international two especially if you're talking about adding more

(39:42):
to it, you need more funds. You don't want to
really make a call if you're going to use indices,
know what the sector makeup is. You're trying to make
a call for international. You're not trying to make a
call on sectors. So if it means you're underweight tech
when you made the move, you better layer on either
a manager that's investing in it or put a little
bit more tech on your US side where you can,

(40:03):
so you're not making that sector call.

Speaker 1 (40:05):
What's interesting is in the US markets, the moment you
start to diversify your portfolio into small caps and mid caps,
you end up with a significant call on tech. You're
under your way underweight tech. But an international the if
you buy the index, it's it's a value index. The
US index is a growth index, okay, the S and

(40:27):
P five hundred is it has shifted to be growth,
so you need to if you start pulling out of there,
you need to supplement it with more growth.

Speaker 2 (40:37):
Okay.

Speaker 1 (40:37):
But in international, if you're indexing, you need to supplement
that because the international index is a value index, so you.

Speaker 2 (40:46):
Have to offset it.

Speaker 1 (40:47):
You can't just say, well, this index is down the
middle growth and value, because that's the way indexes work.
That's not how that's not what it is.

Speaker 2 (40:54):
Yeah, So do you need to look at the sector
makeup and look under the hood, especially if you're gonna choose.
If you're gonna choose cheap because it's cheap, know what
you own and you might have to do a little
bit more work to find a more balanced.

Speaker 1 (41:05):
Well even Emerging Markets complements in the Developed International index
well because emerging markets has more tech and developed international
doesnt just close out here, Brad, we have our weekly
market commentary looking at market moving data. We mentioned at
the beginning of the show we don't have any data
from the government, so we had to rely on things
like earnings.

Speaker 2 (41:24):
Which is a good thing.

Speaker 1 (41:26):
Three hundred and eighteen companies have reported, by the way,
this can be found on our website Kirstenweal dot com.
Three hundred eighteen companies have reported eighty three percent beat
rate on earnings, so that's pretty good, notably above the
seventy five percent average for the last ten years, so
eight percent better on earnings beat rates. Growth has been
supported by strong margins, which are running at thirteen percent

(41:48):
this quarter. Much of the attention in last week was
from the big cap tech names, and when we look
at the stories of the big cap tech names, certainly
is what are they going to spend on the alternative
in elligence infrastructure. It's estimated to be four hundred ninety
four billion dollars next year five hundred and sixty three
billion dollars across all the big seven names in twenty

(42:11):
twenty seven. So certainly that spending is there. But I
think some of the reactions to earnings are important to watch.
And well, you had a lot of beats where the
stocks go down. Then that is what you have to
pay attention to. People will say I thought that earnings
number looked great, Well, what is priced in? We saw
Facebook Meta for example, not a recommendation by or sell,

(42:32):
but it said we're gonna have notably larger investments in
capital expenditures for AI in twenty six and twenty five.
Total expenses will grow fast, significantly faster. And it shifted
a little bit during this conference call from well this
is really exciting. You're spending a lot of money to
grow your business to well, this might need to eat

(42:53):
into profits. And so the shares dropped significantly the next day.
So something you pay attention to is when do a
good amount of spending and stimulus in the economy become
too much spending for that particular company.

Speaker 2 (43:07):
Yeah. Why when companies are growing, usually the market and
their stock price, even if the earnings aren't there, reflect
that growth and spending to grow. If a company doesn't
have anything to spend their money on and they start
increasing their dividend and shift from a growth to a
value company. Usually the performance is not there and it's
not what the market wants to see. So there's a

(43:28):
little bit of volatility around earnings because the market is
trying to figure out what they're saying and what they're
planning on doing. And these companies are talking about spending
a lot of money and eating into earnings. Yeah.

Speaker 1 (43:38):
And if you remember, I don't remember what year it was,
but Facebook was investing billions and billions of dollars in
the metaverse and Markus Zuckerberg was out there creating his
you know, fake avatar person or whatever he was doing.
And there was one earnings call where there was a

(43:59):
huge drop because as people were saying, what is this thing?
What's the end game here? How are we ever going
to make money?

Speaker 2 (44:04):
How are we going to make money on this?

Speaker 1 (44:06):
And they did a significant shift back to advertising, yeah,
which is their bread and butter.

Speaker 2 (44:10):
So well. It also reminds me of the of the
HBO show Silicon Valley, and they're talking about angel investing
in startups and tech and and and one of the
founders said, well, I think we need to do this
so we can make money, and the and the the
investors like, no, no earnings, that's the that's the death
of any new company.

Speaker 1 (44:27):
We can't have it. We got to keep spending. Yeah,
it's not cool, it's not cool to earn money. Well,
eventually the market twist your arm. Yes, and that's exactly
what happened to Facebook a couple of years back, and
obviously it recovered. So let's just close out Brad a
little bit. What are we looking for for the rest
of the year. We only have two months left in
the year. Big headlines, what's going to move the markets,

(44:48):
both positive and negative. We's start with the government shut down.
I think that that's probably going to wrap up, hopefully
here in the next week.

Speaker 2 (44:54):
It may be the weekend. They're talking about working through
the weekend to get it done. I think I think
we're at the point where the longer we go, the
market's going to start to react to it. These first
three four weeks up until that election, I don't think
the market cared at all because I think everybody realized
they were digging in. But post election, I think the
market wants to see some reaction here and something done
and done quickly. You shrug your shoulder, you don't think

(45:17):
it matters. I'll tell you what doesn't matter. That everyone's
saying this is the longest ever, It technically isn't. From
eighteen sixty five to nineteen ten, they stayed closed for
six to eight months, depending on the year. So do
we really need the government to be there? They take
all these recesses anyway, they're barely there in the first place,
so let's not now people getting their paychecks is a

(45:37):
little different. Shut down and we're not going to pay people.
That's what matters. The government shuts down in August every year. Yeah,
then nobody goes to work in August. So I think
the election was interesting too. You mentioned that, so I
want to bring that up. And what I take away
from that election is I don't care what anybody says.
You know, your ultra Trump people will say this something

(45:59):
has changed some Nope, it hasn't. No, Okay, one person's
going to get into office, and then when the next
round of elections come, it always swings back the other way,
swing back the other way, and then it'll swing back
the other way again.

Speaker 1 (46:11):
And each time it swings one way or the other.
The Democrats, if they win, will say there has been
a shift. This is a mandate, a seismic shift, and
then it'll go back the other way. And everyone said, oh,
you know, Trump, it's just a politician like any other politician.
And more than likely Republicans are going to lose seats

(46:34):
next to next November in the midterm election, so that
that'll be important to pay attention to it.

Speaker 2 (46:39):
But is it going to be the most important midterm
election of our lifetime? It will be, well, that's what
they'll say, one hundred percent.

Speaker 1 (46:44):
It will be the most important midterm election of our
lifetime until the next one. And so but for this year,
you know, we're wrapping up earning seasons, which turning out
to be pretty good. Once we start getting some jobs
numbers back, I think those will be some important things,
and of course the CPI inflation numbers are as important.
Then we get into December and we have to see
whether or not the Fed's going to cut rates, and

(47:05):
that will be the big news and market moving event
of December. But anything else you're looking for between now
and the end of the.

Speaker 2 (47:11):
Year, I mean, if we finish up with another plus
twenty year, I don't think you can ignore how significant
that is, with just how far. We've moved so fast
it'll make me a little nervous when we get into
the end of the first quarter with how far I
think this market can go without a sizable correction ten
to twenty percent.

Speaker 1 (47:32):
And we've discussed reducing that risk, especially going into twenty
twenty six. But I think ironically enough that move that
you're talking about and a possible sort of kind of
blow off top might be more likely if we get
a three to five percent correction, because there's a lot
of money on the sidelines. Yeah, that's right, all right,
We're at the end of the show here. Thanks for listening, everybody.

(47:53):
We'll talk to you next week.

Speaker 2 (47:58):
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 seven five
seventeen eighty six. Their email address is Kirstenwealth at LPL
dot com and their website is Kirstenwealth dot com. Opinions

(48:19):
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
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