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 of 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:
I’m going to have Dave Nelson in studio to the bottom of the hour. Dave, interesting times right now.
David Nelson:
Boy, it really is. I thought we’d talk weather for about an hour.
Gary Determan:
Yes.
David Nelson:
No, no, we got to talk about what’s happening around the globe and it’s been… Again, a couple months ago we started yapping about it as far as the volatility is going to pick up, why has it picked up, and it’s going to probably for an extended period of time. One of the things we’ve chatted about, which I don’t think an average person pays that close attention to, but if you look at it as far as the people that have pulled the trigger as far as buying and selling stocks, bonds, whatever, it’s heavily as far as Wall Street.
In other words, it’s out east. And August is a big big month for going to the beach. And so a lot of these people as far as leading up to school coming back in, they’re off on vacations. And so you can take a small gyration when there’s not the volume in the market and it can turn into a big gyration. So that’s to some degree what we’ve seen. There’s all kinds of other things. I mean, I can put people to sleep as far as why this happened and why that happened, but at the end of the day, we’re at a pretty tippy point as far as markets are concerned.
A lot of the tools that we use basically try to put things in historical perspective and try to make some sense out of what’s taken place. We’ve been yapping for quite some time saying U.S. stocks in particular are overpriced. The AI craze that people are justifying these enormous premiums as far as on stocks because the effect that AI is going to have. And again, maybe we’ll be wrong as far as on that. I think it’s going to certainly impact things and certainly going to make companies long-term more profitable as far as…
Unfortunately, the side effect of that’s going to be unemployment is going to go up because I no longer need 10 people, I only need three people because AI is going to step in to do all this other stuff. But the reality is it’s not coming as quickly as people had thought. And once you get people kind of excited about some of this stuff, again, they start bidding up the prices. This company, and I can’t get into too much, but it’s probably the most visible company now on Wall Street.
And this particular company, the stock last year I think was up 238% to be exact. This year was up like 150%. And this was the company that used to build chips for gamers, people that played the games on your computer. And all of a sudden, they had this vehicle that did the AI type processes and now it can be applied in a lot of other ways. So the stock is absolutely gone off the charts. Everybody and their brother wants those chips to make their stuff better. And the bottom line, the stock has exploded.
So we’ll see. As I remind people, leading into the year 2000, so the ’90s primarily, we had the internet that’s now up and running and changing everything for forever, and it has, but you had stock prices that went up just unbelievable levels. And you have many of those companies that went out of business back during that era. Those that survived today, again, if I could state that… Trust me when I say one of the biggest ones at that point in time is today roughly a third of the value it was in the year 2000.
So we’re talking about 20 plus years later and it’s still worth a ton less than it used to be. So some of these companies today will be just… That will take place as well. The challenge for us, the challenge for anybody out there is to try to sort through those that are going to survive and those that don’t, and to be very disciplined as far as on the buy side, as far as when do I buy and when don’t I buy, and then I better have a sell discipline.
And as Peter Lynch, one of the all-time great investors, I was very blessed to be able to spend time, with Peter Lynch basically spelled it out, and it’s a lengthy explanation, but the meat of it was when you buy something, you better have a sell discipline in place. That when it hits that number, you’re out. And what if it doesn’t hit that number? Are you still going to stay in there for another two years, five years, 10 years, 30 years? So you have to be very disciplined on it.
And what we find is that we’ll have people that’ll come in and say, “What do you think of this stock? We’re thinking about buying it,” and then we’ve got to go through this exercise and say, “Okay, if it doubles tomorrow, are you going to sell? If it gets cut in half tomorrow, are you going to buy an additional big block?” And all of a sudden, people are taken back by that because they haven’t thought about it.
They’re going to buy this stock like the olden days when people own the Ma Bell type stocks and they kept the stock certificate in the drawer and they clipped the coupon, and that was an era that’s totally different than now. You could in theory hold on to stuff for extended periods of time and clip the coupon and make a decent rate of return. Today with the advent of this computer that has changed the world, the speed that stuff can take place, the size of these investment pools that are out there.
401(k)s, it’s no longer a disciplined approach with a pension plan. It’s 401(k)s. It is a different world and people need to adjust. And if they don’t adjust, they’re going to get smoked. And certainly the objective of this type of forum as far as me coming on here is not to have all the answers, it’s basically to keep reminding people of being reasonable in using their logical head, not their emotional instincts as far as pertaining to the buy side or the sell side.
Gary Determan:
Yeah, and visiting with Dave Nelson. Excuse me. We were talking just before we on air the volatility right now and how the world encompasses what is taking place in the United States and with our market.
David Nelson:
Yeah, we hope it stays that way. The concern for years was Japan is going to take us over. This was back in the ’70s and the ’80s, and we saw what happened there. And then in recent times we’ve seen it as far as China, they’re going to be the second-largest economy in the world. Well, they got there and their markets are so dynamic in comparison. The growth rate in China is just off the charts.
Well, if you look at what took place as far as over the last week or so, give or take, when we were getting blown up as far as Japan and the U.S. and Europe exchanges, when they were… I used the term blow up. I apologize. I should have said when they dropped significantly, you saw that China didn’t. So there’s a disconnection there now that is quite interesting. The last couple years, as people may or may not know, Chinese market as a whole has done miserably, and the U.S. and the global markets have actually done quite well.
Well, fast-forward to the last month or so as far as the volatilities picked up, et cetera, et cetera, we’ve had these enormous moves gyrations up and down, mostly down, during the period of time. And the Chinese market has barely moved in comparison. So it’s what people would view as normal, but it’s not normal. And what people don’t know is when markets start selling off, they sell off in unison and the U.S. is typically the one that people look to around the globe.
And when the U.S. markets really start feeling the pressure and start nose diving, you’re going to see the ripple effect around the globe. Just briefly, I’ll hit on Japan because that got a lot of headlines. The Japanese market dropped 12% now it’s I think three days ago. It was a substantial move, obviously, 12% in a day. It’s the biggest move since 1987 when we had the 25% move down in the United States, which, again, people forget about. That stuff does happen.
Well, they had a 12% day, and then the following day was up significantly. And again, we’re in this period of time, folks, where you really have to know what you own and you have to know why you own what you own. And again, you have to be very disciplined. And people say, “Well, you can’t sell because things are down.” Things are down, what, five or 10% worst case scenario, depending on, again, what index you’re looking at.
So there’s times you need to sell or should be selling, I should say, as far as to try to preserve some of your capital. I don’t know if this is the one. We’ll try to do the best we can as far as to share insight as far as here and help a lot of you out there that, again, we don’t currently work with, but you better know what you own. And bonds that have been just nasty for so long all of a sudden have value.
So again, it depends on the type of bond, et cetera, et cetera. Obviously this is an investment advice. This is basically talking in very generic terms. But at the end of the day, keep an open mind because the rules have changed a little bit and I think they’re going to be changed for not another week or two, but probably for months. So you need to know what you own.
Gary Determan:
Again, visiting with Dave Nelson. We go to the bottom of the hour, a check of the weather now brought to you by Midas.
Andrew Stutzky:
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Gary Determan:
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Gary Determan:
First Wednesday, so we get to go to the bottom of the hour with Dave Nelson. And boy, we got a lot to talk about. There’s a lot to digest. There’s no doubt about that. My head’s spinning already, Dave.
David Nelson:
I’m trying not to have that happen. I apologize. But there’s a lot happening out there. And again, we have people walking the door and they say, “I know we’re not even close to your average client size, but this is really important.” And my response is always the same, and that is, if it’s important to you, it’s important to me and we’re going to do the best we can.
And again, I think everybody knows, I’ve brought this up time and time again, we are committed to this area. We want to make a difference. Back in 2007, 2008, in this venue here, I was talking about how rough things were going to get, in our opinion, were going to get. And that’s exactly what took place. Hopefully we made a difference and helped people avoid some of the catastrophe that took place as far as during that period of time.
This one, again, is kind of built around unemployment and it’s built around potential cuts as far as from the Federal Reserve. So the unemployment, I’ll hit that one first. The unemployment rate, as people may or may not know, has been at all-time lows for quite some time now. We talk about the economy is so terrible. We’ve never had unemployment stay this low for this long. So again, there’s just so much bad information out there.
Our job is we tell clients, and I probably brought it up on this venue as well, is that we view ourselves as filters, trying to filter through what matters and what doesn’t matter. And there’s all kinds of talking heads out there that yap about things that, again, at the end of the day are either tainted as far as from a particular viewpoint, as far as usually political, and/or it’s tainted from the standpoint of what they would like to see.
And so the reality is unemployment has been at extremely low levels for a long time, one. Number two, it’s starting to go up. We’ve seen it locally here as far as down the Quad Cities. The big employer down there that everybody really loves as far as the importance of having them as far as in our area, but they’ve been taking out a fair amount of people, and some local and some as far as on a global basis.
So this unemployment, they’re not alone, we’re not seeing massive moves yet as far as my businesses. But incrementally, you’re starting to see it go up. And so like I chatted with somebody yesterday, extremely bright client that I work with, it was a 0.1% move. So I think it went from 4.2% unemployment to 4.3 and the world freaks out. Now we’ve got a recession tomorrow that’s going to happen.
I mean, we extrapolate this stuff forward. And as he brought up, he says these are best guesses as far as… I mean, people are looking at the data. They’re compiling it. But at the end of the day, it could be awful a little bit here or there. And for a 0.1% move we have this type of panic that ensues. Again, I’m in the camp of recessions are going to happen whether people like it or not.
We probably have one that’ll be starting before too long. But recessions are normal. They’re a cleansing process. It’s a really important part of the business cycle. And so again, it’s not a catastrophe. The world’s not coming to an end with a recession, but the reality is they happen and it’s probably going to happen as far as in the foreseeable future here. So a 0.1% move should not move the market this much.
So that should tell everybody out there, why did it move that much? And I think the conclusion you can come to is that things are at a tipping point as far as stock prices prior to this. And so this was just a good excuse for individuals that wanted to sell. This was the triggering event. And then, but on top of that, it takes place in August and September, which has historically or extremely volatile months.
Put it all together and you have a situation where you can see the markets have big moves. And typically the big moves, when you have a market that’s quite expensive, the moves are pretty big and they’re pretty big typically on the downside.
Gary Determan:
Something that caught my ear is a recession is a cleansing process.
David Nelson:
Yep.
Gary Determan:
Talk about that.
David Nelson:
Yeah, it really is. Markets can’t go up. The analogy in our business is trees don’t grow to the sky forever. Again, there’s some point that things basically need to refresh. And so the refreshing process is basically businesses will go through a cycle where things are really good. And again, the employer that I’m referencing down in the Quad Cities is one that’s been in the tractor business for quite some time, and their tractor sales were exploding for a five-year period of time.
The stock price was exploding for a five-year period of time. And now what we’ve seen over the last year and a half, two years is that sales are starting to pitter out a little bit. And Brazil just being one example, they’ve been selling a lot of product as far as down in Brazil. Brazil’s purchases have dropped by almost 50%. Well, you do the math. When something happens like that, again, that ripple effect, now some of the stuff that they buy from other entities, they’re now buying less, et cetera, et cetera.
You get the idea. This is a ripple effect. And so what takes place is that cycle has the crescendo and then they start pittering out a little bit. That’s that recession where things slow down, what have you. And then we go through another period of time as far as where things start picking up, maybe as far as in the U.S., maybe as far as outside the U.S., maybe there’s new technology that is so much better than AI. You have that cleansing process that takes place. And again, if a person is disciplined enough, that can be a really nice opportunity as far as for folks.
Gary Determan:
I know visiting with you on this program, you talked about August-September being a volatile time, and it’s amazing how things fall in line.
David Nelson:
Yes, yes, exactly, year after year. And you think, well, how can these patterns continue? And they don’t continue to the penny, folks. There’s a saying, I think it was Mark Twain, that history doesn’t repeat itself exactly, but it rhymes. And so again, I think we find ourselves in that position today. The other big part of this equation centers around rate cuts. And so people out there are just screaming that they want interest rates as far as to be cut.
The Fed needs to cut interest rates. Well, for many of the listeners out there that we work with, that are 50, 60, 70 years old that have a little money, they’re not begging for a rate cut because they realize the rate cut translates into they’re going to be being paid less as far as on the bonds that they own, the CDs that they’re buying, et cetera, et cetera. So they’re not overly excited about that. But if you’re a borrower, you would love to see the interest rates cut.
But again, here’s the point I guess I want to make to try to drive home, the big money was betting, this is going back a week ago and prior, the big money was betting that there would be a quarter percent cut by the Fed in September. Maybe an additional one as far as in November. But the politics of it is that the Federal Reserve probably doesn’t want to jump into that water and be accused of trying to push the scale a little bit in one direction or the other.
So September was probably a safe bet as far as for a quarter percent cut. Go back a year ago, people were saying there would be six rate cuts this year. So it tells you the experts as far as how accurate they could be at times. So at the end of the day, we’re not going to see six rate cuts. We’re probably going to see a quarter percent cut in September.
But because of this volatility that we’ve had this last week or so, you’ve got a whole bunch of people out there that are saying the Fed needs to intervene and they need to cut and they need to cut now and not wait. And so they would have a cut prior to their scheduled meeting as far as in September. Well, that’s a double-edged sword, folks, just so you know.
If the Fed were to intervene and people are calling a 50% cut, so in other words, a 0.5%, a half a percent cut as far as for the Fed, if that were to happen, we were asked, and I did this interview as far as two days ago, three days ago as far as on TV, I was asked about that and I said, “Here’s the response. Here’s pretty much exactly what would take place, the market would sell off massively.”
And the reason for that is that the Fed must know something that they’re not telling us about. The market, the economy must be worse than what we anticipated. And so the bottom line is they’re cutting because they’re afraid that this thing is going to get out of control. That’s not what we want. What we want is some peace and stability as far as in the marketplace.
The Fed’s been pretty vocal as far as what they’re thinking at various points in time, and they’ve tried to basically put that out there as far as to the investing public. So I’m comfortable saying a quarter percent cut is coming in September, and I’m comfortable saying there’s probably a good chance maybe another quarter point cut this year. That’s probably going to be the extent of it.
Gary Determan:
I think I can be comfortable in saying that the majority of our listeners are probably blue collar, people who go to work day in, day out, do things along those lines. What do you say to these people?
David Nelson:
Keep a level head certainly in a period of time like now. Doing something irrational doesn’t make any sense at all. If you have some cash as far as on the sidelines… Again, there’s terminology in our business. I try to make it as plain Jane as I possibly can. But if you’re sitting around with cash in some form, maybe you’re going to get a good buying opportunity here as far as in the foreseeable future. I don’t think the stock market is going to go away. I don’t think all these companies one day people say, “Could we lose it all?”
That used to come up a fair amount, and the reality is you’d have to have all these major companies go broke one day. So I don’t think they’re going to go away, and I think the U.S. is going to continue to be the leader. I would be thinking about potentially buying as far as in my 401(k), and I would be thinking about potentially getting a little bit more aggressive depending on your timeline. Again, this is an investment advice.
What it is is we think the market’s probably going to have more corrections that are going to be coming in the foreseeable future here, and it may create a nice buying opportunity for folks out there that are in a position where they’ve got either some bonds that they could potentially unload or CDs that they could potentially unload and maybe buy into some big U.S. companies. And over a period of time, I think they’d be in pretty good shape.
Gary Determan:
Again, we thank you so much for your time. I know how busy you must be, especially with the way things are going right now. But in 90 days there is going to be the general election, so I would imagine you see things not calming down any over the next three months.
David Nelson:
That’s true. Now, I know we’re limiting out on time here, so I’ll try to be brief, but you’re going to have to play along with me, folks, as far as out there. I’m going to give you a visual, and this visual is if you put money in, I think the year was 1957, into the S&… Well, geez, I can’t even say that, into the market. Today you’ve got well over a million bucks. I mean, well over a million bucks. And that same 10 grand, if you would’ve said, “Hey, I don’t like this party, so I’m going to just…”
Again, I’m going to be objective here. I don’t like the Democrats. And so whenever the Democrats are in the White House, I’m not going to invest. Today, you have something south of 100 grand. And just reverse it now. What did I say? I don’t like the Republicans. I’m only going to invest when the Democrats are in the White House, that person has like 150 grand. So we’re talking about massive differences, folks.
The point of this explanation is the person in the White House has very little impact, very little impact, write that down, very little impact as far as on what the stock market does. If you want to look at one of the bodies, look at the Senate. The Senate, if you look historically, that’s had more impact on where the market goes than the presidency does. So do not let it, “Oh, I can’t stand that dude. I’m going to take my money all out and bury it in the backyard.” Don’t do that. It’s a huge mistake if you do.
Gary Determan:
Interesting. Thank you so much for your time.
David Nelson:
Thanks, Gary.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the 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 of 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 or legal advice. For more information, visit our website at www.nelsoncorp.com.