Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged, and cannot be invested into directly.
Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member, FINRA, SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated. A registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice.
Now here’s today’s financial focus program.
Gary Determan:
First Wednesday of the month, we get to visit with Dave Nelson for the next half hour. Dave, summer’s still here.
David Nelson:
Summer’s still here. I’m excited to be here this morning, Gary. I know that. I came up the hill and the weather’s tolerable right now. I think it’s going to be a little warmer this afternoon, it sounds like.
Gary Determan:
So you get the bike ride in early though?
David Nelson:
I got the bike right in early. Yeah. Yeah. I get that. Typically try to get out by 5:30, quarter to six, and have the headlight on when appropriate.
Gary Determan:
I was going to say, it’s dark then.
David Nelson:
Yeah. And the taillights flashing. But yeah, it’s a warm one, and we’ve got a few people. I feel for the people that are outdoors working as far as today, just down the hill here by our office in a lot, we’ve got the guys trying to patch it up after the new, I don’t know if you call it a bike trail or whatever they’re defining this thing as, but a wide sidewalk that’s going through our property and they’re trying to patch it up so we can get the people out to redo our sprinkler system. So it just got all ripped up with all this stuff.
But anyway, nice improvement for the area, having that option available for people to walk on it and ride their bikes and whatever and kind of a safe path. So anyway, but yeah, warm temperatures today.
Gary Determan:
Oh, so much going on. There’s no doubt about the South Bluff Boulevard project and everything that’s going on right now. It makes it a little inconvenient at times.
David Nelson:
It does. And my wife brings up, “I wish they’d just finish one before we move on to the next,” but you understand how these people work is that I come in for the front end and then somebody’s behind me and then somebody else is behind… So it’s tough to coordinate, but it’ll be nice when it’s done. And I don’t know when that’ll be, but it’ll be nice as far as when it’s all taken care of.
I know even on my bike, I can go on sidewalks, I can go on the road, so I can maneuver around some of those big equipment out there. But it’s still, yes, it’s a pain, but I think it’s worth it.
One of the people in the office, Val used to have this microphone on a regular basis here, years ago. She made a comment one day, I was whining about something. She says, “You know, people whine about the bumps and how bad it is. And then when they are repairing it, they’re whining yet.” Okay. That was a slap in the face to me because I was whining. So anyway, so she was right. Yes. Somebody has to do it. It’s going to be an inconvenience for a period of time.
Gary Determan:
But you got to feel for the business owners, especially like downtown Fulton, so much construction’s going on down there. And of course you guys kind of got your start in downtown Fulton.
David Nelson:
Yeah, we sure did. And you look at it as far as, as you say, last year they got, I guess the sidewalks and part of it done, but the funding, that they didn’t have all the funding, so they couldn’t do the main road. Well, the main road is being done as we speak. And I went over there, the Mexican restaurant, I like stopping over, nice couple that owns it that I like.
And anyway, the rock is probably 15 feet in the air. I mean, literally that’s a massive pile that’s sitting over there. And I just asked them, I said, “How long is it going to be?”
He said, “Well, about two months.”
I said, “I hope it’s two months and you can get up and running.” Because as you say, I think two or three businesses literally closed during that period of time. And boy, it’s hard to… Small business, I mean, they’re dependent upon ease in getting there, and a pretty consistent flow as far as… Because they’re not typically making a whole lot of money. And then when you blow that up, it’s a death sentence as far as, and I think we’ve witnessed that as far as some in Clinton as well as in years past, as well as over in Fulton now.
Gary Determan:
Ken visiting with Dave Nelson on the financial focus. We go to the bottom of the hour. You’ve been doing this for some time now. Is this one of the most tumultuous times you’ve noticed?
David Nelson:
It really is for many reasons. Politically, there’s just a lot of things happening. And again, doesn’t seem like things are coming to a conclusion. And so, the main topic I know I’m going to chat a fair amount of time on in the second half of the program today, but it’s interest rates and how important they are, and the trajectory that they’re going right now and what it’s going to mean ultimately as far as to the economy.
But yeah, right now we’re in a very unusual period. People say with all the chaos and whatever, but yet the market has gone up this year and it’s up pretty substantially, double digits. How can that happen? And I said one of the things that’s hard for people to relate to is that earnings have continued just to explode as far as for many of the big companies out there.
I’ll reference the S&P 500, which is an index and you can invest in it as our opening references. But if you can visualize this particular index, and again, it’s 500 companies, and you can make this trade and put your money into that. That’s a lot of really, really big companies from, primarily the US. But at the end of the day, that group, as a whole, has been just crushing it as far as profit margins are concerned.
Now again, I don’t know what that says about the average person out there as far as inflation is concerned, what have you. But my point with this is as earnings have gone up, stock prices haven’t gone up as fast. And that’s the shocker I think to most people are saying, “This just can’t continue. The market just keeps going up, up, up.” Well, the market goes up based on earnings being the main variable, and earnings are going up more rapidly than the actual stock price, which is just stunning.
It hasn’t happened a lot, folks. I mean, if we look at, one of the things I brought up on a previous program as far as on the TV segments that we do, was illustrating that the six months period of time, as far as it was represented by a blue dot, and then we had this red dot. And the red dot was kind of by itself up in the left-hand corner, where normally when the markets are going up, it’s the right-hand corner is where you find things. You have valuations that basically are going up, and you have earnings that are going up.
That’s not the case right now. We have valuations that are actually going down and we have earnings that are going up. It’s a very unusual period of time. I’m not saying it’s a bad thing. It’s actually a pretty good thing. But again, that’s just one piece of the puzzle.
The other stuff is the Federal Reserve, what are they going to do? We’ll chat about that a little bit later. We’ll talk about interest rates and how the bond market is reacting to what’s taken place as well. So it’s as complicated as a period as I’ve probably seen, as far as in 40 plus years. And so, again, as I shared with Gary before we got started here, it’s kind of a bizarre period and not a period to be a hero, I guess is the easiest way of saying it. Things are probably, if the interest rates are [inaudible 00:07:51] to move in the direction they are, things could get a lot choppier than what we’ve seen so far this year.
Gary Determan:
So when you’re trying to help someone along and you’ve never really been involved in something like this before in your career, how do you help?
David Nelson:
It’s tough, because again, you go back to basics as far as most people it’s put your money, invest your money, and then over a period of time you can take a snapshot, but you shouldn’t judge it based on three months, six months, even a year for that matter. That’s true. That’s all true.
But I think where the uncertainty comes into play, for many individuals out there, is that this is so bizarre and what they’re hearing and seeing on a regular basis. One of the wonderful things is the ability to get data as far as from a lot of different places. One of the bad things is the data. People just get overwhelmed by so much and it just, what do you think of this and what do you think of this? And so, at the end of the day, the more of that people can block out, the better.
Our job is to do the worrying for them. And at the end of the day, again, the world’s not going to totally come unglued, but we’re going to have some bumpier days ahead, several months, probably, the way it looks right now. And we don’t think that the bottom’s falling out. I’m not implying that, but it is going to get bumpier and it’s not going to be as pleasant as what people would typically like to see, as far as take place.
Gary Determan:
And you know what is the amazing aspect to me about it is we talk certainly about the United States, but this is kind of like a worldwide effect as well.
David Nelson:
It is. And when you look at interest rates as far as across the globe, we’re hitting levels that we haven’t seen in 20 years for many countries. And so, increase in interest rates to a lot of the folks that are out there is actually for them selfishly, for their CDs and things of that nature, it’s actually really good news, because rates are going to continue to probably trend up here in the foreseeable future.
The bad news is that it has a ripple effect as far as inflation is concerned. And again, you look at the companies as far as if their profits start tailing off, in other words, going down from where it is, stock prices are going to drop as well. So it is a period of time that people need to pay attention, and we’ll do our best as far as to try to bring as much of this information to the table as we can, and try to simplify it as best we can.
Gary Determan:
And he does a good job of it too. Let’s take a break for the weather. It is brought to you by SKelly’s design.
Andrew Stutzke:
A weather impact alert day continues for your Wednesday, as we see even more heat work in, and humidity that will yield temperatures back in the mid 90s and the heat index up to 110 degrees at times. Not much relief tonight either. Mostly clear skies continue and will only drop to the mid 70s. With your Storm Track 8 weather impact forecast, I’m meteorologist Andrew Stutzke.
Gary Determan:
79 degrees. South winds light at five miles an hour. Relative humidity is 78%. Haven’t put up a heat index as of yet, but that’ll get up over 100 today. Our update brought to you by SKelly’s Designs.
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Gary Determan:
First Wednesday of the month, so we get to continue to the bottom of the hour with Dave Nelson. So Dave, this bottom of the hour segment, how interesting is it going to be?
David Nelson:
Won’t be interesting, but it’s important. It’s really important as far as for folks. Again, oversimplified, I’ll do the best I can, folks, to try to explain, I guess, what we kind of view today as and maybe what tomorrow might look like, but it all starts with interest rates. And again, I don’t think people realize as far as how Wall Street views interest rates, and the positives or the negatives attached to it.
So in a nutshell, I go back to, and I tell clients this, I started in 1981, and in 1981 you could walk in and you could buy a CD, as far as at the bank, for 16%. It’s hard to imagine, isn’t it folks? 16%. People were borrowing money, farmers were borrowing money at 21%. And so, these were really, really tough times. We had runaway inflation. I mean, what we’re dealing with right now is nothing.
People talk about interest rates now and homes at six and 7%, and they’re whining about it. I don’t know about you, but my first one was 11 and a quarter percent, and you just dealt with it. So not saying it was pleasant, but at the end of the day, that was reality as far as going back to that period of time.
So today, where are interest rates? Well, we went from 16%. And as I tell clients, if I would’ve told you that 16%, in a period of give or take 20 years, that’ll be pretty close to zero. They would’ve laughed at me, probably thrown stones at me. I don’t know what they would’ve done, but the bottom line is there’s no way something like that’s going to happen, but it did.
And if you understand how bonds work, when interest rates are dropping, the value of the bond goes up. It increases. Your bond becomes more valuable. I have a bond at 10% and interest rates are currently at 3%. My bond that I own for the next 20 years is very, very valuable.
So, as interest rates drop, just think about it as a teeter-totter, folks. Excuse me. As rates drop, the one side drops, the other side goes up, and vice versa. And that’s where we are today.
If you look at bonds and you owned a bond, you bought a bond five years ago, today you pretty much, you’ve broken even. If you’re lucky, you’ve broken even. I mean, that’s hard to imagine because people view bonds as a safe guaranteed investment. Well, the market price is dictated by current rates. And again, if your bond was bought, and you’re getting 3% of your bond and current interest rates are 4%, who the heck wants your bond? I’ll just buy a brand new bond at 4%. I don’t want your stupid 3% bond.
So understanding that is really crucial, and understanding that a quarter percent, half a percent difference in interest can be magnified in a massive way again on Wall Street. And so, if interest rates go up and the big talk, and probably everybody’s aware of it, the Federal Reserve was meeting as far as recently here, literally days ago, and the speculation was, are they going to increase interest rates? Are they going to decrease interest rates? The beginning of the year, the market was basically factoring in at least two, if not three, reductions in interest rates. And so the market loved that. That’s wonderful news for the market, but that hasn’t happened.
And basically now the discussion is, how many increases are we going to have, because we have this inflation problem. And again, folks out there understand you go to the grocery store, you’re not paying what you were paying a year or two years ago, you’re paying more. Inflation is up.
So what do you do? Well, one of the counters to that, and this is where the Fed is struggling right now, is you increase interest rates to try to slow down the economy and try to get control of inflation. Well, that type of approach doesn’t really do a very good job factoring in tariffs. Tariffs are a whole different animal. And so,trying to factor that stuff into that equation is tough.
And so, when we look at it, again, somebody brought this up the other day, again, I don’t want to get into politics here, but tariffs, by some, is not an increase as far as inflation is concerned. Then, I was listening to, and I was talking to a person, this is my exciting life on Sunday morning. I got the Farmers whatever, whatever. It comes on at 5:00 AM. I forget the name of the program, but anyway, it’s primarily talking to farmers. And I’m listening to that and they had cattle ranchers that were on, and they said, “Why is it that if tariffs aren’t a tax to Americans, then why is it that we’re going to bring this beef in from afar, and we’re going to waive tariffs to try to encourage it to come?” So I thought, “Boy, that’s hitting the nail on the head.”
All of this stuff is inflationary, and it’s not good as far as your pocketbook is concerned, the people out there that hopefully are listening right now.
So piecing all this together is really important. And again, I know it’s boring and you’ve probably fallen asleep basically in the last five minutes here. I apologize, but it’s crucial to understand how to protect your money as far as going forward. If interest rates continue to go up and you own bonds, you’re losing money. And people say, “Well, but that’s short-lived. Maybe over time, go up.”
And my response is always, “Maybe.” And I don’t like maybe. I don’t know if you like maybe folks, but I don’t like maybe. So bottom line, you need to understand the pros and the cons, where is this thing going? And nobody knows for sure. So we’re all trying to read the tea leaves to make decisions as far as what tomorrow’s going to look like.
What I believe tomorrow’s going to look like, is interest rates are going to stay at these so-called elevated levels. Bonds don’t like that. Stock markets eventually will say, enough’s enough. And people probably start running for the hills. And when they run for the hills, with all this wonderful technology that everybody has, with a click of a button, we could have basically trillions of dollars that could be traded instantly. And when that happens, if I’m sitting there quietly on the sidelines hoping that things work out, it’s probably not going to be a very, very pleasant experience.
So again, we try to stay ahead of this stuff. We try to think ahead, what’s tomorrow going to look like? And as clients always ask me, “What if you’re wrong?”
I said, “If we’re wrong in what we do, and that is try to anticipate as best we can, read the tea leaves. If we’re wrong and the market goes up 10% and we’re sitting on the sidelines, is your life going to change?” And most people’s response is, “No, it won’t change.”
On the other hand, if we’re asleep at the wheel, you don’t take our advice, you stay deployed because somebody told you 50 years ago, buy and hold it and over time you’ll be okay. In that scenario, the market rolls over and we were right, but you didn’t take our advice, and you’re down 20 or 30%, and the thing doesn’t snap back in the next 10 minutes, but it stays down for a year, two years, three years, five years, 10 years. Bottom line, could your life change?
And everybody says the same thing, “You’re darn right it could.” I said, “Exactly. That’s why we do what we do. We try our best to get people moving forward, maybe not as rapidly as they’d like sometimes, but moving forward and not having these big drawdowns. A big drawdown translates in 20, 30, 40% drops. And oh yes, by the way, folks, they happen on average every seven, eight years. And when they happen, it’s very unpleasant. And most people are, “Oh God, what do we do now?” Well, it’s too dang late at that point in time.
Gary Determan:
Listening to you, what struck me is the responsibility that you and your people have. I mean, it’s got to be sometimes somewhat thrilling, I suppose, but also somewhat taxing on you as well.
David Nelson:
It is. It’s thrilling the last three years. Our job’s been, I won’t say easy, but I would say a lot easier. But going forward, yes. And I know I have the client, which I know I brought up in this program, but for those that haven’t heard this or those that have, just to reinforce it, this one client likes to refer to me as, “What are we going to talk about today, Negative Nelly?”
And my response is always the same. There’s a difference between being negative and telling the truth. And we’re in an industry that’s obsessed with telling people: just put your money in and leave it alone and over time you’ll be fine. Well, that’s easy for our industry to tell you that, but our industry, the people that are basically running it, don’t do that, but yet it’s okay for you. Why is that? I mean, this doesn’t make sense.
And so then you hear the term, well, you can’t time the market. No, nobody can to the day. No, nobody can to the week or the month. But if you can get a quarter correctly, if you can get even six months correctly, bottom line, that can help you make a whole bunch of additional money and/or avoid, more importantly for most people out there, avoiding the big hit.
And so again, that’s what people hire us to do. Our job is to try to figure that out. And yes, as far as with all of the, and I hate to use this term, but I have to because it’s appropriate, with all the chaos out there, bottom line, it’s a very difficult task for us. And as far as the investing public is concerned, probably very taxing as far as for them as well.
Gary Determan:
So, we’re into September. You’ll be here the first Wednesday in October. We’ll be entering the final quarter of the year. Just, what do you think?
David Nelson:
Yeah. We’re hoping that we finish the year somewhere in the vicinity where we are now. Again, our tools, and again, folks, there’s no way to predict this stuff, so I want to get all the wonderful disclaimers in, but at the end of the day, historically, this period that we find ourself in now, this quarter that we find ourself in now, historically has been a pretty tough quarter.
So again, be patient. This is generally pretty tough. And again, listen to, hopefully you have an advisor that kind of guides you through a lot of this stuff and makes adjustments as needed. But history also says that generally the final quarter, and even going into the early part of the following year, is generally pretty good.
Now, having said all of that, we’re in a period of time. There’s patterns that take place as far as in Wall Street. They’re not predictable to the day or to the week or whatever, but history says that things kind of rhyme, not exactly, but they kind of rhyme. If that’s the case, this typically is an okay year, and next year, historically, is a pretty tough year.
So again, just keep that in mind. And again, talk to your people. Don’t just buy into the idea as far as somebody that off the cuff comment, “Just forget about this stuff,” and blah, blah, blah, blah, blah. Well, that’s fine maybe for them, but if you like to sleep at night and know that your money, a third of it hasn’t or half of it hasn’t disappeared, you may need to be proactive. And again, if you need a second opinion, go get a second opinion as far as from somebody else that has a similar mindset to what you do, versus this robot type approach of put it in, fall asleep and life will be okay. Because it isn’t always okay.
And again, I know I brought this up before, but there’s been periods of time in the United States where people have been in the market on a 10-year, even a 20-year period of time where they were below water from what they had 10 years ago to what they have now. It does happen occasionally, folks, and you don’t want to be one of those individuals that blindly ends up in that bad situation.
Gary Determan:
As always, great to have you in studio. Enjoy the day.
David Nelson:
Thanks, Gary. You too.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only, and are not intended to provide specific advice or recommendations for any individual.
Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member FINRA, SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated.
Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.