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 Inc., 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 in the month and of course we go to the bottom of the hour. Pleasure to have Dave Nelson in studio with us. So you didn’t have to, well, the wind would’ve pushed you.
David Nelson:
Exactly. It’s been incredible, hasn’t it?
Gary Determan:
Yeah.
David Nelson:
I want to get out on my bike. I know you enjoy getting outdoors and getting a good run, what have you in, and it’s just tough. I mean you go into that sucker. And to me, going in is one thing. People always talk about that, but I’m out on towards Valley Oaks as far as the country club, so I’m on Second Avenue South and you get one of those gusts that hits from the side, you’re pretty close to being in the ditches. So I said, well, we’re probably better hanging up for a day or two. So I Can’t wait today, tonight, give or take after work, hopefully we’ll be out on the road.
Gary Determan:
You of course live near Valley Oaks.
David Nelson:
Yeah.
Gary Determan:
And the golf courses, it’s been a tough spring for them. I mean they had one week where we had temperatures in the eighties.
David Nelson:
Yes, exactly.
Gary Determan:
And then I think we got some snow after that.
David Nelson:
Exactly.
Gary Determan:
So I mean it’s been difficult for those who enjoy outdoor sports.
David Nelson:
Absolutely. Kind of parallels what took place several years ago with the snow, the skiing as far as the ability to do that. And some of those years just got wiped out as far as the places around here. And certainly as far as the golf course. There’s some diehards that have been out there shockingly as far as the last couple days. I go home and I see people on the course. I thought, you better better keep that ball really low because it’s going to end up in the woods otherwise. But yeah, today it’s just so gorgeous. It was wonderful. Got out early this morning, brought the dog for the normal routine walk as far as in the morning and almost didn’t need a jacket. I mean it said 40 degrees or 38 or whatever the heck it was, but sure felt a lot more comfortable than that. So maybe the body’s adjusting I guess.
Gary Determan:
There you go. Again, visiting with Dave Nelson. Well Dave, there’s a lot to talk about because there is so much going on in the world of finances.
David Nelson:
Yeah, there really is. I mean the debt ceiling has people’s attention. The banks, as far as the number of institutions that have been taken over and bought out, I guess I need to make that distinction. These haven’t been government bailouts. This has been the FDIC insurance pool and then finding a matching up with a buyer. JP Morgan took out the last bank. But yeah, it’s crazy. And on top of it, you have inflation that’s still, today the Fed is meeting and the question is are they going to increase interest rates again? A lot of people are lobbying for not doing it with the idea that, again, it’s putting extra pressure on some of these mid-size banks. These mid-size banks are the ones that are really suffering right now because they’ve got a lot of commercial real estate in their portfolios, which is basically suffering because we have this COVID crisis and you got less and less people that are working at facilities like that and places like that.
They’re doing it from home. So yeah, it’s a tough environment. And again, not getting into politics at all. This isn’t, again, I try to emphasize this all the time, it depends on what side a person’s on. All this chaos is just the last 10 minutes that Biden’s been in office some will say. And then others will say, this is this mess that Trump created. It’s a mess that we’ve all created. And it started back in 07 and 08 with the global financial crisis that we had back then. And essentially what took place then that we’re feeling now the repercussions of is that we are basically trying to stimulate the economy and the way you stimulate the economy, you should try to drive down interest rates. So the government basically stepped in and started issuing more bonds than buying the bonds to try to drive down rates, which was very successful.
And we had people that were borrowing money at 2% and 3%. And my first loan, I don’t know about yours, but my first loan was 11 and a quarter percent. People pass out hearing numbers like that today. But reality is set in. And now we’ve got this mess. And again, this mess was created by Democrats and Republicans. And I’m sure there’s plenty of people out there that are throwing something at the radio right now as far as what’s coming out of my mouth. But look at the facts, folks. The facts are that this started in 07, 08. And we had Democrats and Republicans basically there trying to correct the situation that was underway. And that was this crisis that we found ourself in. So we were doling out money like crazy. And the conclusion is we created a bubble. The bubble somewhat burst so far. We don’t know if it’s totally burst, but it’s somewhat burst and now we’re dealing with it.
And so again, rather than whining about it, which is again a fair amount of what you hear as far as on TV, it’s better to approach it with an open mind. And the open mind essentially says today, don’t panic. We’ve had a lot of people come in and say, are the banks all going kaputzi? And the answer is no, they’re not all going to go under. But the mid-size banks and the smaller banks are under a lot of stress right now. And so again, the FDIC, they’re talking about the changes that are going to take place there about the insurance backing FDIC accounts at various institutions. We’ll see as far as what comes out of it. But yeah, it’s difficult times. But we’ve had them before. We’ll get through this just like we have before. The world’s not coming to an end. But the bad news I guess for most people is that they’re hoping that this would be over by now. And we’ve got months probably, if not even a year or two possibly as far as to deal with some of the issues that are on the front burner right now.
Gary Determan:
Again, visiting with Dave Nelson of NelsonCorp Wealth Management. I would imagine there are people in the banking industry who are clients of yours.
David Nelson:
Yes.
Gary Determan:
So what are you saying to them? What are they saying to you?
David Nelson:
Probably what they’re saying to us is, again, what is the data that you guys … We spend a gazillion dollars as far as in research and try to buy it from the smartest people on the planet. And what they are saying is that this crisis, people don’t have to necessarily worry about getting their money back, but what is still a concern is who’s next? It’s not if there’ll be a next, but who’s next? So the entity so far, people have probably seen the names and just kind of blown it off because again, they’re not in our backyard. These are mid-sized institutions. They’re not the gorillas like the JP Morgans and Chase, they’re the mid-size. But mid-size is still massive in comparison to the institutions that we have in our area. There will be more. There’s been two banks in particular that stock price the last couple days has really gotten hammered.
And by hammered, I’m not talking about 3%, 5%, I’m talking about 20%, 30%, 40% in a matter of a couple days. And so these are two institutions that seem to be probably on the firing lines as well. What’s happening, and it’s a deep conversation and unfortunately it’s too heavy for probably this type of forum to go through. But what’s basically taking place is the bigger, getting bigger or the biggest are getting bigger I should say. And that that’s not a good healthy economy because the lion share of the loans that are being made as far as a local loan, commercial type local loans, are being made by the local institutions and these mid-size banks that are out there, of which again, many of them are under tremendous stress as far as right now. So what happened, again, if folks aren’t aware, the last bank, which is the second largest bank ever to go under, bottom line, that institution was gobbled up by JP Morgan.
And so the biggest bank just got bigger yet. And so did they get a good deal? They got a good deal. The FDIC feels like they got a good deal because they’re a able to offload it quickly. But at the end of the day, this is probably not healthy for the economy. Think back, and I know we’re pushing up against a break here, but if you think back to 07, 08, 09 it was the biggest banks that were the troublemakers then. So they implemented and put in some new regulations as far as for them for solvency purposes as far as they had to have more cash on hand, but that wasn’t implemented at the mid-level and the lower level, it was only for the biggest of the big banks. And so now again, that’s kind of coming home to roost.
And again, that’s not a political statement, folks, that was Democrats and Republicans that participated in that decision that we’re just going to make sure that these largest institutions, we don’t have this down the road. Well, we don’t have that, but we now have a mid-level crises as far as that we’re dealing with today.
Gary Determan:
You know, take a look at this, Dave, is it primarily on the coast, the west coast and the east coast? Is it affecting like the Chicago St. Louis, Minneapolis banks?
David Nelson:
To date, no. It’s just as far as on the coast. And the first one was a big bank that was in basically with a lot of the technology companies, they took loans. And again, I guess I should qualify this too. Most of this is not theft that we know of at this point in time. It’s mismanagement. It was a mismanagement from the standpoint, the first bank that went out of business, they basically took in your money, they put it into long-term government bonds, and as a secure investment thinking that that’s the strategy. Well, many of those institutions, those technology companies, decided we need a fair amount of that money coming back because the economy’s starting to slow. We need that money back. Well, they had it in long-term government bonds. That long-term government bonds that people remember last year were down north of 30%.
So now you come and watch your money back, I have to sell one of these long-term government bonds at a 30% discount. Oh man. And I got to give you real money. I mean, I’m giving you millions of dollars back and this is costing me. Every transaction here, I have to dip into my own pocket. It was a bad scenario and now it’s kind of built from there. A lot of this has stemmed from how quickly we increased interest rates. And again, that’s become a political football as well, people. Well, that’s because the knuckleheads there. No, it’s because of all these knuckleheads as far as in Washington that have created this environment and now we’re dealing with it.
Gary Determan:
We talked earlier about the debt ceiling. And it always seems like the government, when they’re involved, they always wait till the 11th hour before to get anything done. And it’s kind of looking like that’s what this is going to be.
David Nelson:
Yep. It’s all the public dancing that takes place. You listen to some of these people. And I’ve been, again, very fortunate as far as to have contact with some of these individuals that are in these positions of tremendous power. And what you hear from them is that some of the loud mouths as far as that you see on TV shooting off their mouth about these extreme positions, really behind the scenes, aren’t that individual. I think we saw it in your line of work as far as media, some of these individuals that are no longer working, that they’re unemployed. They took these extreme positions, none of which they believed. But the bottom line is they made a fortune as far as touting some of this stuff. Well today, again, as far as in the world that we exist in, as far as trying to get this ceiling resolved, it’ll get resolved.
Probably what’s going to take place right now is they’re going to kick the can down the road. We’re going to put in a temporary fix and then the bottom line we’ll have this to deal with in another six months, give or take. And so it’s just kind of crazy. And again, to me folks out there, I know most individuals call themself a moderate, but they have a hard leaning tendency as far as what the polls say as far as the average person. But I’m truly somebody that doesn’t care whether it’s a D or an R. And so I feel very comfortable speaking out and basically slamming both as far as when the time is appropriate. And the time is appropriate right now. We have as a country, a real problem. And this hasn’t come about in the last 10 minutes either. Barack got thrown under the bus as far as all the spending. Trump got thrown under the bus as far as all the spending, Biden’s now getting thrown under the bus.
We used to have some conservatives out there. Those conservatives who no longer care, everybody’s jumped on the bandwagon, were spending money like crazy. And at the pace we’re going, and I don’t have the exact year, but I’m going to give you the concept. The concept is in a very short period of time, a third of all tax revenue is going to go just to cover interest. I mean, just stop and think about that as far as we’re fighting over whether we have to cut defense spending, we’re fighting over whether we should address social security, we’re fighting over Medicare, we’re fighting over all this stuff. And at the end of the day, if we learned to, like a household needs to do spend only what comes in the door, bottom line, we wouldn’t have these problems. And oh, by the way, these problems go back literally almost a hundred years when we start running deficits.
So again, depending on who you talk to, we like to taint this thing and slant this thing depending on who I want to be the next president. The reality is we’ve had this issue for quite some time. There’s been periods of stress where it’s been magnified. Like WW2 is probably one of the best examples. The spending was off the charts, but I think most reasonable people would assume that that was probably a time that we wanted to spend whatever we needed to spend as far as to win that. Now we fast-forward to COVID, some believe in COVID, some don’t believe in COVID. The reality is we had millions of people die as far as from this. The end result is that we had to do something dramatic. We had to spend a fair amount of money. Again, this was in Democratic hand and Republican hands when this money was being spent.
So again, probably the best recommendation I can make is let’s forget that stuff. Let’s look at tomorrow’s, and tomorrow say that we have got to get more money in the door and we’ve got to stop spending so much money. And the interest alone is going to just absolutely destroy this country if we don’t put on our big boy pants and big girl pants and address this issue and stop bickering about stuff that really doesn’t matter, which is the tendency in Washington these days. Crazy ideas, name-calling, I mean I’ve never seen anything like it. It’s like a junior high for crying out loud. And people aren’t upset over it. It’s just, again, as you can tell, I probably am a little more upset than most people. Let’s grow up and let’s do what’s right.
Gary Determan:
Again, visiting with Dave Nelson. Got about 10 more minutes left in the program. Okay, so all this is going on. What about the average Joe and Jane? I mean they’re just trying to make a living, trying to have something. At the end of those working days, what do you say to them, David?
David Nelson:
It’s really tough because right now. Again, the big concern is if interest rates continue to go up. So let me backpedal for a second. Last year if people don’t remember, you had the Nasdaq, which was down over 30% last year. You had a 20-year US guaranteed government bond that was down close to 30% last year. You had real estate, publicly traded real estate that got thumped as well, 20, 30% as well. So pretty much the three big areas. Unless you put everything in commodities last year he had a pretty tough year. So that that was last year. So you would think with that much destruction that this year would be a pretty good year. And if we look at it as far as year to date, as far as stocks, and I’ll use the S&Pp 500, which is a pretty good proxy as far as for stocks in the US. It’s up yesterday, got thumped a little bit, but I think we’re still up give or take 6% as far as year to date.
If you look at an ag bond, which is a fancy way of saying it’s an aggregate bond of a lot of big bonds from big, big companies, private companies. And most of it’s going to be in US government bonds, combination of long-term bonds, short-term bonds, et cetera, et cetera. That’s also up year to date, give or take about 3%. So again, the backdrop is actually, okay. Real estate’s still kind of flat and that that’s probably a big question mark right now, what’s going to happen there. So the average person today is looking at account balance and they’re unlike last year that they saw tremendous destruction take place, this year they’re up marginally. So looking forward as far as is always the challenge as far as what can we expect going forward. And a lot of this is predicated on inflation.
If we could get some more reports coming out that inflation is coming under control. It’s come down pretty dramatically. We’re almost touching 10%. If we go back and I forget the months now, but let’s say give or take six months ago. Today we’re somewhere in the ballpark of 5%. And yes, for those individuals out there that like to say, do you believe those numbers because this is more the drama. Yeah, can you really believe those? Yes, you can really believe the numbers. They’re in the ballpark. They may be off a 10th of a point here or there. But the reality is most of these people behind the scenes are good human beings trying to do their job reporting. And what they’re reporting today is inflation’s come down quite a bit. Couple areas that are still painful, in other words inflation is still fairly high. But overall pretty good. So if we could get more numbers showing that inflation is really lower than what we think, the bottom line is, that takes the heat off the Federal Reserve, which will then take the heat off of I think a lot of people out there.
Because again, the bond market then could then probably start advancing a little bit more recovering of some of the losses from last year. And then as far as stocks are concerned, I think we could see some movement as far as positive movement there. But we’re not keeping our fingers crossed, hoping that this year is going to be really stable. The volatility’s going to continue at much higher levels than normal. And as far as at the end of the year, if we finish right where we are right now, I would be surprised. I think the odds are probably it being lower than it is today are still probably the odds are greater for that than they are as far as that it’s going to be higher at the end of the year.
Gary Determan:
As you and I were growing up, Disney had It’s a Small, Small, World. That world is getting smaller.
David Nelson:
Yep.
Gary Determan:
We talk about the United States certainly because that’s where we live, but how are things in the other parts of this world?
David Nelson:
So if you look inflation, the UK is probably the worst, United Kingdom for all this jargon. Sorry about that. But anyway, probably worse. As far as France, I don’t know if you’ve seen some of the upheaval there where they’re basically backing off as their equivalent of social security and moved it back two years as far as for folks, as far as when they can draw. I know people go nuts over stuff like this. And I know again, what’s about to come out of my mouth is not going to be popular. But again, it’s my rational brain now speaking, not my emotional part of my brain speaking. And that is that if you look at returns, the only way that people can pull the plug at these ages that are being quoted to us is there has to be enough money there. And if you have more people retiring, subsequently less revenue as far as for the government, you have returns that have been roughed up massively as far as stocks and bonds and real estate returns.
I don’t know how you can pull it off any other way. So again, people say, well, but we’ve had this before. We’ve had situations like this. I said, no, we haven’t had this type of thing. We are a grain society and globally we’re a grain society. There’s very few countries that have growth today as far as in their population, it’s just the exact opposite. So you have less people paying into the system and you have more people on the backend drawing from the system. You do the math folks, it’s not that complicated. We can’t sustain this. And in France it’s even more dramatic than it is in the US. Keep in mind, as far as the US, there’s only a few places in the world that people want to immigrate to and the United States is front and center. Look at the people coming across the border.
Most of them, again, good intentions, a few knuckleheads coming over, but the bottom line is we’re still a desirable country. We have issues, we have problems, but at the end of the day we have a society as far as the population is concerned, that’s not growing. Subsequently, we have some issues, and again, we have to address this with our big boy pants and our big girl pants on, and stop getting so emotional about it and looking at the facts as far as what’s best for the country. Not just your own pocketbook, but what’s best for society.
Gary Determan:
With the way the calendar is set up, we’re not going to talk to you for another five weeks.
David Nelson:
Oh, okay.
Gary Determan:
So how do you see these five weeks going?
David Nelson:
It’s going to be a mess. We got through tax season. And a lot of folks out there as far as this is a fairly traumatic time. There’s been some changes as far as in that space. I think I brought up on the prior program here, it’s 4,000 pages of new legislation that was implemented day one of this year. Again, all the deep pockets that are out there, politicians deep pockets coming from corporations deep pockets. They’ve created a mess and continue to create a mess. And so looking forward, as far as probably the biggest issue I think that is the wild car right now is the banking situation. Because this thing I think is going to get messier. And as it gets messier, the ripple effect can be pretty dramatic. So yeah, we’ll do the best we can as far as to keep people up to date.
My advice is don’t be a hero right now. I know I bring that term up a lot as far as on this program, but I certainly wouldn’t be a hero. There’s a lot of potential downside as far as this point in time in many areas of the investing world. So don’t be a hero. Keep your cash available. There will be buying opportunities ahead. We’ll try to help guide you in the right direction as far as in that regard. But again, protect your capital at this point in time.
Gary Determan:
As always, very interesting. Thank you for your time.
David Nelson:
Thank you.
Gary Determan:
You enjoy that bike ride a little bit later on today.
David Nelson:
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.