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:
Well, it is not the first Wednesday of the month, but we are going to go live and expand to the bottom of the hour with Dave Nelson. Good morning, Dave.
David Nelson:
Good morning, Gary. How you doing today?
Gary Determan:
Real good. More importantly, how are you doing?
David Nelson:
I’m doing better. Every day seems to be a little improvement. I’ve got months ahead as far as dealing with this. Probably the biggest one now, the hurdle is I’ve got a shoulder that with all of the flipping of my arm, the involuntary flipping of my arm. We’ve got a wrecked shoulder, so I’ve got to have a shoulder replacement. That’s going to be several months as far as dealing with that. But most of the big stuff I think is behind. And again, I’m looking forward, not backwards as far as at this point. I’m just glad to be here and be able to be around my family, be around clients, what have you. And certainly as far as from the standpoint of just being alive and being a viable individual out there where I’m not confined like so many people as far as they have had terrible illnesses. They have huge limitations, and I’m in the category of not having too many of those. I’m blessed as far as that regard.
Gary Determan:
Well, great to hear. And of course you’re still mentally sharp. Right David?
David Nelson:
That’s the part that they’re most concerned with. Val this morning that used to be working up there and spending some time as far as with you. She says, “I just can’t believe it as far as in a short period of time, as far as you seem to be back a 100%.” I said, “Well, I hope so.” But I made a couple jokes that I think all the medication I was on kind of scrubbed that brain, and it cleaned out some of the bad stuff and allowed me to think better and remember better. I hope that that’s the case, and I think it is as bizarre as that sounds.
Gary Determan:
That is good to hear because you know what? It is amazing how many people actually you do affect and how many people depend upon what you and NelsonCorp Wealth Management have to offer for them, Dave.
David Nelson:
Yeah, it’s a privilege and an honor, and it’s a huge commitment as far as that we made as far as to the area. I kept reminding that I did it in a nice way, but the physicians out there. When I came around, which I shared a couple of weeks back, there was three weeks that I was not functioning at all as far as the brain, and I have medication and they had me out. But once I started coming around and starting to have a clue as far as what was taking place, I shared with them that, again, I got a lot more to do as far as on this planet before I depart. And they need to make sure they’re on their game as far as when they’re working with me, and just brilliant people.
David Nelson:
I mean, the quality of the care that I’ve had locally here down on the Quad Cities and ultimately out in Iowa City, it’s just been second to none. And so thankful as far as that we have the talent in striking distance. Honestly, these people out in Iowa City, they’re compared to the best of the best as far as in the state, as far as in the neurology department and I guess the top guy as far as out there just happened by accident. Just so lucky as far as to have him. He pieced the puzzle back together and has me alive today, and I’m so thankful for that to say the very least.
Gary Determan:
That is amazing. Hey, before we get into business, it’s not going to be long. They’re going to be playing ballpark down at NelsonCorp Field once again. It’s the prospect league. It’s a wooden college bat league, but there’s going to be good talent. And my goodness, it’s going to be great to be able to get together with the folks down at the ballpark.
David Nelson:
Can’t wait. We’re excited about it. I’ve had a couple of conversations with Ted as far as leading into this, and explaining as far as what’s taking place and what to expect and what have you. And again, our partnership we created with the Lumber Kings was basically a commitment that we made as far as for the area. Wasn’t the top of our list of things that we wanted to do, another financial commitment. It’s a big number, and we decided to do it. Nobody else stepped forward as far as to take that on. And each year, we have the discussion as far as you guys in, as far as for this upcoming year. And we’re going to commit as long as we can. And I think as long as we can translates into a long, long time, and we’re excited about it.
David Nelson:
And as you say, I watch a lot in the Cubs games, and there’s two or three teams that we’ve played so far this year. And when they were making reference to a good player as far on the other team, that they came out of the prospect league. Those individuals that are doubting that none of these guys will ever make it to the big league are probably wrong. Not many make it. I don’t want to imply that, but just like not many make it from 1A as far as the prior program that we had. We’ll see. I’m excited about it and can’t wait to sit down and see things again as far as the ballpark. There’s a ERCB event this Friday. I’ll be down there, and that’ll be my first time in the park in a long, long time.
Gary Determan:
That is good to hear. And it looks like, well, weather-wise, today’s pretty nice. Now, what about business? What are we talking about today, Dave?
David Nelson:
I think the main thing that I want to spend some time on is the topic that I think people are hearing a lot more about and that’s inflation and the impact. What does it mean to the average person out there? Should I be concerned with this, et cetera? And I can break it down. We did a little segment on TV as far as on this. And I really think it’s a topic that people need to be aware of and the significance of it and the impact that it can have on them.
Gary Determan:
All right. Before we get real heavily into that, we’re going to be taking a break for the weather shortly. But what are some of the key points that you’re going to be talking about concerning inflation, Dave?
David Nelson:
Well, I think the big thing, Gary, probably centers around the impact that it can have as far as an individual. Inflation has been under 2% for a long, long time. That just in a fancy way is pretty much saying that these goods that we buy, whether it be the milk, whether it be bread or whatever, if you combine it all. Inflation prices have gone up roughly 2% per year over the last decade or two.
David Nelson:
That is no longer the case. We are looking at much higher inflation. Translation, much higher prices. What does that mean as far as your investments are concerned? We’re seeing that play out as far as the markets over the last couple of weeks, because the markets are anticipating higher inflation. That translates into that’s going to really, really be difficult as far as having a lot of growth type stock, and they aren’t fairing too well. Many of them are down 20 and 30, some even 40% as far as over the last month.
Gary Determan:
All right, we’ll be getting into that shortly. Let’s take our break for the weather right now. It’s brought to you by the Joe Leonard Agency.
Eric Sorensen:
Good to be with you here on a Wednesday. We’re halfway through the week. We’ve got a little bit more clarity in what’s going to happen this upcoming weekend as well. Hey, today, mostly sunny, 64. Tonight down to 40. 66 on Thursday. 70, partly cloudy on Friday. There will be some showers and storms around this weekend. High temperatures only around 70 to 72. I mean, that’s still near normal for this time of year. We’ll fine tune the showers and storms. Right now it looks like Saturday, into Saturday afternoon, best opportunity. Temperatures warming up next week. Our weather coverage continues right now on the News 8 app I’m storm track eight meteorologist Eric Sorensen.
Gary Determan:
Beautiful right now. Sunshine, 48 degrees. Our winds light out of the north. Our update brought to you by Joe Leonard.
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Gary Determan:
15 minutes past the hour. We continue to the bottom of the hour now with Dave Nelson of NelsonCorp Wealth Management on Financial Focus. Dave, you were mentioning inflation, the markets, of course cost of living, the economy. It’s amazing how it all ties together, doesn’t it?
David Nelson:
It is. And so crucial. I like to share with clients, I have these discussions with as far as when we are talking to inflation, and I bring them back to the ’80s, in particular in the early ’80s, as far as which is when I started, 1981. You would walk into a bank back then and you could get 15, 16% on a CD. People are borrowing money back then. Farmers in particular were borrowing money back then at 21% interest. And so again, to think back to the high levels of where we are relatively low levels over the last several years.
David Nelson:
Now, we’re starting to see things pick up some. Fancy way of saying going up. And the question is, how high are they going to go up? Will this thing turn back down? Again, there’s advantages to both directions. The key is just to understand. Inflation for growth stock, and growth stocks are the area over last probably two decades. But then the place to be Microsoft of the world is, through that period, the Amazon. I mean, he made a fortune as far as investing in those. Those type of companies now as far as with the expectation, that inflation is probably going to be coming back and no longer are we going to be talking about 1% or 2% inflation, but maybe three, maybe four, maybe 5% inflation.
David Nelson:
This becomes a big, big obstacle as far as for growth stocks, as far as to overcome. When you buy a stock, basically what you’re buying is what is perceived as the future cash flow. And so with growth stocks, the potential for heavy cashflow is not that great. You’re primarily betting on the future as far as with those companies are going to be able to continue to sell their product, and hopefully the stock rights respond. And again, historically that’s been the case. And again, most of us, as far as that are probably listening, remember the early ’80s as far as when interest rates were high. And again, if you look at the stock market during that period of time, it wasn’t doing very well.
David Nelson:
Bonds were terrific. CDs were terrific, of which both of those categories really stunk it up for the last several years. And the torch has been carried as far as by primarily stocks and more specifically growth stocks. Again, those trends don’t last forever. And so what we’re trying to do is to try to make people aware. Again, there’s no crystal ball. Nobody’s going to ring a bell as far as the day that this stuff switches, but it appears that it’s underway as we speak. And again, it’s just a reminder to folks that every situation is different, but being aware of the impact that this can have as far as on the mix of investments that you have.
David Nelson:
Too often Gary, people look in the rear view mirror, and we just extrapolate that and assume that that’s going to continue as far as in the future. And that’s not always the case. I think we’re at one of those inflection points as far as where the growth stocks are probably going to struggle a lot more. Value stocks, which again is kind of a fancy way of saying stocks that haven’t done as well. And so the price that they’re going for isn’t really that expensive. They’re probably going to do okay. Bonds, it’s anybody’s guess. Interest rates could go up and if they do go up, you’re going to lose money as far as on bonds.
David Nelson:
And as far as money market type stuff, again, a little bump in interest rates would certainly be welcome news for folks with CDs and money markets and things of that nature. It’s not an easy fix. It’s not an easy answer. It’s not gloom and doom necessarily. It’s just making people aware, and inflation in the early stages can be really, really expensive, or investments that you may own. And expensive in a bad way. In other words, you’re going to give back a fair amount of gain if inflation takes place and it’s lasting. And then that’s the fear as far as we have as far as in our office and trying to make people aware of it. Again, don’t predict anything here. Just try to make people aware and trying to, again, help individuals make good decision as far as for their particular situation.
Gary Determan:
Again, visiting with Dave Nelson of NelsonCorp Wealth Management here on Financial Focus. Dave, you took us back to the early ’80s when you were talking about those interest rates. How did they get from there to where we’re at right now?
David Nelson:
Yeah, it’s interesting. Isn’t it? When you think about it, 15% in a CD, basically down to pretty close to zero. Maybe about three, four months ago, probably at the all time low. They pick up a little better or gone up interest rates slightly over the last few months. But essentially what’s taken place, and it can be viewed a couple of different ways. I know the way that I view that is that if you look around the globe, we’re still in positive territory as bizarre as that sounds. I’ll explain a little bit here. If you were investing in Germany today in a 10-year government bond, your rate of return literally is under 0%. It’s negative rate of return. Last time I looked, which was about a week or so ago, it was negative 0.3. If you put a $1 in today, 10 years from now, you’re guaranteed to get back less than $1. That’s ignoring any happenings as far as interest rates moving up or down. That’s just reality as far as what’s going to take place.
David Nelson:
In the United States, that same 10-year bond from the United States, you’re getting a whopping 1.6%. That’s considerably higher than it was a year ago. How did we get to this level? Typically when interest rates are dropping, it’s a concern that markets have as far as we might be going into a deflationary environment. Not inflation, but deflation. And so again, are we in that? We haven’t, then no. But the concern is that we might be.
David Nelson:
The other part of it, which is probably the easier one for people to relate to and understand is if you have money and in the United States, you can buy a 10-year government bond. Let’s go back a few years ago, and you could get 3%. Or you can put your money into a Japanese 10-year bond, that at that point in time was paying probably literally zero. Which would you rather do? The stock market, the bond market is kind of a … one way of thinking about it is supply and demand. In other words, when you have a lot of demand, as far as for your particular bonds, that drives down interest rates. And so we were a high yielding country as far as interest rates are concerned, where many of the other countries were either getting zero or maybe negative rates of return. We’re probably going to go back up to some level, Gary, but I don’t see it happening.
David Nelson:
I think most of the inflation has been stripped out of the economy through the internet. If you think about it as far as today, I can shop maybe 20 locations as far as the buy some product and get the cheapest price. Where in the old days, you had to physically go to some of these facilities, et cetera, et cetera. It’s just such a different environment. A lot of the middleman expenses and costs have been stripped out of it. The best example, and this is probably now 10 years old, was Ford Motors and their purchase of tires. And I don’t remember the exact numbers, but if you just imagine how much they must spend as far as on tires. Again, years ago, you’d have the sales guy come in and say, “I’ll give them to you at this price.” With the internet, they can now go out and shop at hundreds of places and find as far as the vendor that will give it to them cheaper.
David Nelson:
Again, what did that do? That basically took some of the costs out and that’s the deflationary type event, causing interest rates again to go down some. Don’t know if it’s going to continue, Gary. We’ve bet in this since ’81. It went from 15 essentially to zero. Now we’re back at one-sixth. Will it continue? We don’t know exactly, but our best guess is that it’s probably, interest rates are probably trending up for a while now. I don’t know what a while means, but probably over a year, maybe even over two years we might see this trend continue.
Gary Determan:
Again, visiting with Dave Nelson of NelsonCorp Wealth Management. I don’t know if I’m going to get this correct, but is it buy in May and go away?
David Nelson:
Yeah, that’s pretty close, Gary.
Gary Determan:
Okay. Does that still hold true?
Gary Determan:
Yeah, we went through the statistics. Essentially, the idea is that you sell in May and go away and you come back sometime around September, October. And so what we went through as far as on the TV segment that we did, and we actually looked at the numbers. And they could be a little misleading, but here’s the big picture idea. If you look at May through September, you’re looking at the stock markets, and this is over a 20-year period of time, have averaged around 2%. For that period, roughly 2%. If you take the balance of the year, so we’re going October, essentially through April, those returns have been double digit and basically around 12%. Significant difference as far as the two.
Gary Determan:
If you stop and think about it, the other example we used was you look at natural gas. Some of these patterns have existed for quite some time, and they don’t work every year. We again throw all the disclaimers in there to try to tell people that there’s no assurance that this is going to happen this year. But the reality is, is that if you look at natural gas, natural gas has a big, big run that takes place as far as when usage is up. Again, when we’re heading into winter, almost every go around, I want to emphasize almost, the prices go up. The other scenario in our backyard here is if you look at the price of corn and soybean. Historically during a harvest time, the price has dropped pretty significantly. Again, these are some opportunities, and these are variables that should be weighed in as far as your decision-making, as far as what might make sense as far as in your particular situation.
Gary Determan:
We think that the sell in May and go away concept is if you look at the numbers again, 12% versus 2% is again I said earlier, a little misleading. That is we had September 11th came about as far as when the towers were hit. If you take that out of the equation, that really changes those numbers. You’ve got the financial crisis that took place. Lehman Brothers went caput, which was a big investment firm. That set off the crises in ’07, ’08. If you were to take that out, all of a sudden these two or three big events, wipe those out, take them out of the equation, and the numbers aren’t as severe as far as the gap from 2% to 12. It’s going to be much closer. Point being again, we don’t want people to totally rely upon this.
Gary Determan:
We would certainly advocate that people weigh in on that and keep that in the back of their head. But for most individuals, again that we come across out there, they invest their money, they put it in, and again, at the end of the day, they’re hoping that things are going to work out. That’s not our style, and that’s not our approach, but many people out there, that’s theirs. And again, it’s been a little costly as far as in the rear view mirror, but that’s no guarantee as far as going forward that that trend is going to continue.
Gary Determan:
Sell in May, not buy in May. No wonder I don’t have any money, Dave.
David Nelson:
Sell in May, go away.
Gary Determan:
I was doing it backwards. We got about a minute or two left in the program. What do you want to finish things up with today, Dave?
David Nelson:
I think the big thing is just to keep emphasizing to folks that the traditional approaches oftentimes aren’t going to continue to work as far as if we come into a rising interest rate environment. It’s literally almost impossible as far as to make money when interest rates are going up as far as if you own bonds. They’re going to catch their lunch as far as in that environment.
David Nelson:
Again, if interest rates go up, that’s going to be tough. Interest rates will be very, very welcomed news as far as for savers. Interest rates going up for certain stocks will be good news, but for most stocks, not going to be good news. Again, it’s not that the sky falling in. It’s just to say if you have any questions about your situation, seek out a financial advisor. If you have somebody currently that you’re working with, talk to them. Bring this up that it’s a concern of yours. And see, as far as some ideas and recommendations that might be appropriate for your particular situation.
Gary Determan:
All right, Dave. We’ll see you down at the ballpark and continued good health to you. Okay?
David Nelson:
Thank you. Thank you, Gary. I appreciate it.
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 representatives, 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.