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 representatives. Security is offered through Cambridge Investment Research Inc., a broker dealer, member of 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 of the month. So the program will be live, expanded to the bottom of the hour. Joining me by phone is Dave Nelson. Good morning, Dave.
David Nelson:
Good morning, Gary. I swear every time we come on, that disclosure that we have to have gets longer. It’s half the program.
Gary Determan:
It hasn’t changed. It just seems it.
David Nelson:
Okay.
Gary Determan:
Hey, before we get into money matters, of course we’ve got to talk a little sports, see where the Prince of Peace volleyball girls are doing very well. Of course, those are the same girls you’re going to have on the basketball court.
David Nelson:
Yeah. We’re hoping to season takes place. Just here prepping for this listening to Dave as far as update, as far as what’s happening out there and the sit out, or whatever they call at the University Iowa, with the, with the cases as high as they are. We hope the season takes place because these kids really have committed. They did a lot of stuff in the off seasons as far as up to this year, and even this year, a lot of other programs weren’t doing anything, these girls were on the road as far as playing some basketball. We played a lot of volleyball. They’re an outstanding volleyball group. I think they could be a outstanding basketball group. We’re hoping this year. So yeah, I’m excited about it.
David Nelson:
The best part of it, Gary, and I know you’ve been around sports enough to know that if you have an athlete that’s a great athlete but just not a good person, it really takes away from the joy of cheering for that person. I’ve got just the best group of kids this year and I’m just excited about it. Again, I’m hoping the price that we paid along the way here, as far as the, “Oh, in ’22 season that we had with five freshmen and starting lineup will pay dues this year, as far as with primarily…” Well, we’ll have all upper classmen that’ll be carrying the load. But mostly it’s going to be seniors as far as picking up the heavy lifting. So I hope we have a season.
Gary Determan:
Always win with seniors. There’s no doubt about that, as you know, in sports.
David Nelson:
Yeah.
Gary Determan:
You talked about it just briefly, the uncertainty is still there yet, isn’t it Dave?
David Nelson:
It is. We all know as far as just thinking back as far as when you’re in middle school and high school, there’s a lot of pressure and whatever, just peer pressure and just fitting in and so on and so on, and adding to it as far as the stress. It’s nobody’s fault, obviously, as far as what’s taken place, but you feel for them. I’ve got the some grandkids that are starting to come through the ranks as far as younger. The discussions you’re having with them, “Make sure to get that mask and stay away from people and so on and so on.”
David Nelson:
You think if you were that age, how are you processing this stuff? You want them to be nice human beings, but you want them to be safe as well. So this group has handled it real well. I think they acted maturely, as far as when I’ve been around them, as far as in situations like that. We haven’t had any illness to date. So that’s really, really good, but it’s a long way to go and once you to hit the cold season, it’s just going to be a real challenge as far as to try to push through and hopefully have a season.
David Nelson:
I was chatting with my daughter who… as her husband coaches in the Chicago area. Maybe you know, maybe you don’t know, but they pretty much pulled the plug on just about everything as far as over there. They’re going to run a basketball season, abbreviated basketball season early, see if they can get it in. I forget all the other particulars she said, but boy, they’re really modifying it big time as far as in Illinois. So I’m wondering if ultimately that’s going to happen as far as in the state of Iowa. Time will tell, so…
Gary Determan:
That’ll be it. Time will tell. You never know what tomorrow will bring. Speaking of you never know what tomorrow will bring, what about the markets?
David Nelson:
Yeah. For most people, it’s shocking as far as what’s continuing to take place. I’ve spent a lot of time lately, as far as… Communicating with people is crucial to try to give them a little bit of insight as far as what’s happening, as much as you can really tell. But the amount of money that the Fed has put in already and the amount of money that Congress has pumped into the marketplace… I should say President slash the House and the Senate, but we’re in the midst of a heavy discussion as we speak as far as to up the ante even more as far as to put more money in. This group thinks we need 3 trillion, this group thinks we need 1.5 trillion.
David Nelson:
Long story short, it’s a massive amount of money potentially going in and probably not even potentially going in. At least part of that is going to make its way in, and what that can do as far as to markets is pretty dramatic. Primarily where they’re targeting is the bond market. People talk about stock market, but the stock market feeds off the bond market. So we’ve got to continue to keep the bond market stable, and it has been for quite some time now. If we look at [inaudible 00:06:07] interesting, I know we’ve got a break coming up in a couple of minutes, but the importance of paying attention to what’s happening.
David Nelson:
So if you look at February and March, the dollar just imploded on the upside, and everybody wanted the dollar because we had no clue as far as what was going to take place. It’s the flight to safety, as they call it, as far as you want to find the… those points in time globally now, you want to find the same assets. So the dollar is where the money made a mad rush to get to.
David Nelson:
Since then, the dollar’s pretty much gone straight down. That is going to be really interesting as far as to tell, as far as if that trend continues. Many people argue that’s good because it’ll help us be more competitive globally. But when people aren’t aware of or don’t think it’s about is the impact that has as far as on the dollar being the currency of the world. We see now, and this has never happened, commodities are traded… No matter where you are, they’re traded in dollars.
David Nelson:
Well, China and Russia, a couple of years, started doing some transactions just between the two countries and voided the dollar asset. We live a pretty good life in the United States because the dollar is the currency of the world. We don’t have the whipsaws that many other places do. Take emerging markets. When the dollar strong, emerging markets just get slammed. Now, when it starts dropping, it makes it more difficult. I should follow up with that, makes it much more difficult for these other countries as far as to pay down debt. When it swings the other direction, that makes it easier for them. So there’s not a perfect answer as far as do you want a strong dollar weak dollar?
David Nelson:
There’s certainly an important variable when we talk about a stock markets going up or down, and it’s a very important variable when we talk about the bond market and the importance of the bond market. Not too long ago, the bond market was… A 10 year bond in the United States was the high yielding bond market in the world. That was the case 2% rate of return on a 10 year bond. That 2% is long gone. We’re now at 0.7% as of this morning. That 0.7% people say, “Why has it dropped so much?” I said, “Because of the massive deficits that we have,” and that’s going to bite us down the road, folks, if you don’t already know.
David Nelson:
But in addition to that, it’s essentially a promise by the Federal Reserve. They’re not going to screw with interest rates for quite some time. So the goal is now determined that inflation probably isn’t a major concern. It’s more deflation. Subsequently, we’re at 0.7% as far as on a 10 year bond. You can put money into a bond, a 30 year bond, and get a little over 1%. Just think about that 1% per year for 30 years. Holy cow, who would have thought? So anyway, I’ll cut it off there, Gary. I know we’ve got a break coming up here shortly.
Gary Determan:
All right. Very good. Thanks as much. Again, visiting with Dave Nelson will continue to the bottom of the hour. A check of the weather now presented by Awesome Carwash.
Eric Sorensen:
Today will be the warmest day we have for some time. A big cooling pattern coming our way as we look toward next week. Good to be with you. As we look at mostly sunny skies this afternoon, highs of 85. Tonight, down to 63. It’s going to be a breezy day on Thursday, 81. Upper 70s to mid 80s as we look toward our labor day weekend, however let’s plan for some rain on Sunday. Drier, cooler as we look toward next week. Labor Day is a high of 72. We may have some days next week with highs in the 60s. Weather continues now wqad.com. I’m storm tracking meteorologist, Eric Sorensen.
Gary Determan:
Thanks so much, Eric. Starting to see the sun, now a few clouds. 67 degrees, our west wind is at about 10 miles per hour. Again, a high today in the mid 80s. Right now is 67. Our update brought to you by Awesome Carwash.
Tom:
Hello, this is Tom, the owner of Awesome Carwash at 2215 Manufacturing Drive in Clinton. I am proud to announce the expansion of our facility with our new express tunnel wash. We also have created a wash club that enables you to wash your car for less than a dollar a day. Come visit our awesome facility. We offer free vacuums for all of our car wash customers. At our new express tunnel wash, we have the ability to wash over a hundred cars per hour, so come and try us out. Awesome Carwash featuring our new express tunnel wash. Get in, get clean, get out.
Gary Determan:
First Wednesday of the month, so we continue to the bottom of the hour with Dave Nelson of NelsonCorp Wealth Management. Dave, listening to you talking about the bond market, what do you specifically look at to see how things are going? There’s seems to be so many variables out there, Dave.
David Nelson:
There are, and this is the real challenge, is that do you want low rates? This is so client-specific as far as do you want higher yields or do you want lower yields? Now, if I’m younger and I’m borrowing money, obviously I want lower rates. I talked to my kids as far as the first mortgage that we ever got, Mom and I. This was back in the ’80s, and we were paying 12 plus percent, and they just fall on the floor. They can’t believe it. When I started back in 1981, ’82, I remember having discussions, most of which were veterans back then, and veterans got a special deal. The government cut them a deal as far as on their mortgages. I was salivating listen to these rates that they were paying. The ballpark was roughly 4% as far as back then.
David Nelson:
Again, the going rate was double digit. So it was fantastic for individuals that had CD-type investments, because they were getting double digits, 10, 12, 15%. Those borrowers back then were paying double digits as well. Today, it’s basically flip flopped, and what we see is that if you are a saver and you put your money into CDs and money markets and things of that nature, you might as well say you’re getting 0% because it’s so darn close to zero, you can’t even hardly see it. However, you have people like my son the other day that refinanced as far as his home. A 30 year mortgage, he’s under 3%. It’s just hard to fathom as far as 3% for a 30 year mortgage.
David Nelson:
So what do we look at? The biggest thing, again, is if the United States’s dollar and bond market continue to be the safe haven, we’re going to be okay as far as not seeing interest rates spike. Here’s the real concern, Gary. If you just stop and think about if interest rates were to go off 1%, with the trillions and trillions and trillions of dollars of debt that we have on the books, what is that going to mean as far as to the budget? The amount of money that we pay in interest alone, the estimates are right now, at current rate, in a period of five years will be a third of the budget. Just paying interest as far as on the debt.
David Nelson:
One other set statistics that’s worth noting, and again, I wish I had a nice visual for this, but I’ll try to explain it as simply as I can. If you look at the debt load that we have and you compare it to the GDP, which is a fancy way of saying for the economy as a whole. It’s gross domestic product, which again is the economy. So if we put those and we look back in the ’60s, what you saw is a ratio of roughly 30%. You had the economy for simple math at, let’s say, a hundred bucks. At that point in time, the whole economy was 100 bucks. You had a debt load of 30 bucks. So, again, high number, but manageable.
David Nelson:
Today, it’s about 130% instead of the 30 to 100. In other words, we have a debt load greater than our entire economy. Now, again, what does that mean? Well, if countries around the world are willing to buy our debt, it’s not a problem per se, at least in the short term. But what happens if people start questioning as far as whether they are comfortable putting that kind of money into our bond market that maybe the US government can’t back it up? Now we have to raise interest rates in order to attract money to keep us going at the rate that we’re going today. We’ve got a real problem.
David Nelson:
Now, 1% increase would be massive, let alone three or four or 5%. If it’s a 10 year bond, went back to 5%, I don’t know what would happen. I would have to believe our currency in a very short period of time would almost become worthless. So what bugs me, and again, I’ll probably step on some toes saying this, and I, to some degree, apologize, but I want to make people think a little bit. That is it used to be… and I’m talking in very general terms, now. It used to be that, again, general terms, that Republicans were a little more cautious as far as financially and the Democrats wanted to more or less go out and help more people and have various programs and whatever that cost money. That’s the way it was for a long, long time in very general terms.
David Nelson:
If you look the last two to three years, both parties can’t spend the money quickly enough. I’m just here to say, and it’s a stupid analogy, but I think people get it. If you go out and get drunk and expect you’re not going to have a price to pay tomorrow, you’re crazy. So we’re in a drunk fest right now. We are spending money like crazy. Money that we don’t have and we’re borrowing and we’re printing. At some point, it has to be paid back or our currency becomes worthless. If it becomes worthless, we’re all broke. We’re all in really bad shape at that point in time. So we can’t let that it happens. That’s why, again, I’ll never run for office. People say, “Well, you ought to.” I say, “Well, you can’t if you truly tell the truth.”
David Nelson:
The truth is that what we are doing on both sides, as far as Democrats and Republicans, is spending money we don’t have. Yes, we’ve said this for years. Yes, this has been taking place for years, is most people’s arguments, which is a really silly or stupid argument to say, “Well, we did it yesterday, so we can do it today and there will be no ramification.” It’s crazy. So at some point, this is going to weigh heavily. We’ve been telling our clients two years down the road, I don’t care who’s in the White House, we’re going to have some serious problems to deal with as far as trying to address some of this issue.
David Nelson:
Go back to the ’80s. We had a huge ramp up as far as in the debt loads. The ’90s, we started paying it down. It was the first time in literally over 50 years that we started going the other direction. Then we hit 2007, 2008, that crises. The government printed money like crazy. Now we’ve had this last crises. We’ve been printing money like crazy. We’re not done printing money like crazy. I know people need some of this. I get it. I’m not trying to ignore that fact and this guy has no heart. It isn’t that. It’s just I care about this country, and we have to make some rational decisions as far as how to address some of these issues.
David Nelson:
Everybody wants lower taxes, and everybody wants more benefits. It just can’t happen. So we’re on our soap box trying to talk logically to people and say let’s start addressing this issue and let’s not be so partisan as far as, “Hey, I’m a lefty, I’m a righty.” I’m neither. I’m down the middle, and I vote for the human being and I vote for the human being that I think has the best chance of helping this country get back to that level that we were, not a week ago or a year ago, but years ago when we were the envy of the world, when we had very little debt as a country and things were better and we’re not taking so much of the national budget, the money that comes in the door, just to cover interest. You can’t do that forever, folks.
Gary Determan:
Here with Dave Nelson. Dave, I love it. When you get on your soap box. That’s all right.
David Nelson:
Yeah.
Gary Determan:
You’re good. You’re all good. Hey-
David Nelson:
Yeah. Well, it’s just we have a different vantage point than most people, and we have access to lots of information. You’re bringing up what are some of the things to look at as far as the bond market, the stock market. The answer is… We use the term all the time. It’s the weight of the evidence. We’re looking at a lot of different variables to try to make decisions. Again, I have, at this point, nine grandchildren. I have five children. I have another grandchild that will be born at about two to three months. So I care about this, just like I think a lot of people out there care about this. All I’m asking people to do as far as when I have these types of discussions is just to put on your rational brain cap and let’s talk rationally.
David Nelson:
Get the politicians out of the equation and say, “Okay, if you have a dollar coming in the door, how much can you spend? You shouldn’t spend over a dollar, but that’s exactly what we’re doing and we have been doing for a long, long time. So this has been a Johnny come lately type discussion. Again, the two that are in the final hunt here are, “We’re going to cut this, we’re going to add this. We’re going to this. We’re going to that.” Net, net, net. It all comes back to we need more money as far as to give out to people. Again, I want to be passionate and… Well, I want to be…
David Nelson:
Myself, I believe in being compassionate. But the reality is we, as a country, don’t have enough money and it becomes a problem as far as down the road here. It already is, but it’s going to get even worse. So again, from the stock market perspective, bringing it back to that as far as what we were talking about earlier, how does the stock market continue to go up like it has? The only justification for it is more money being pumped into the system.
David Nelson:
When you look at the Amazons of the world, the companies like that, they’re making money. But you still have over 20% of the stock market, the S&P 500, that those stocks of those companies are negative over 20%. Yep. That’s right. Not all stocks have gone up. So if you didn’t your money in Amazon and some of the high flyers, you really haven’t done much. So what it’s saying is we’re in a different economy and what have you. We’ve got to be selective as far as what we put our money into, but you also need to be aware of the risks that are growing every single day with those big companies, justifying…
David Nelson:
Tesla. People have heard of Tesla, the car company, and they do a lot of other things too. But most people realize they have cars. That stock alone is up over 500% so far this year. It’s just incredible. One day it’s worth this. The next day, it’s worth 500% more, and you can’t justify it. So you got to be really, really careful at this point in time.
Gary Determan:
Dave, the half hour has flown by, as it always does. You’ve got a couple of minutes left in the program. What’s on your mind to close things out?
David Nelson:
Well, for us, it comes back to just folks understanding what they own. I talk about that a lot. I don’t think a lot of people out there probably understand what they own. Understand if you have your money in bonds, and interest rates go down from here, which people keep saying they can’t go further. It might, but if it goes lower, it’s going to help you as far as the bonds that you own. Now, if they go up and David to some degree is wrong in saying that interest rates actually went up 1%, you’re going to look at your account balance and you’re going to be sick to your stomach as far as how much money has disappeared from your current account balance. So that’s really important.
David Nelson:
Then on the stock side of it, people need to understand as far as that the risks in stocks have grown dramatically in the technology space, primarily. That stuff has just gone up, just off the charts going up. You’re looking at indexes that are up, in other words, markets that are up 30, 40, 50% as far as in that space. Be very careful there.
David Nelson:
The other area, this will be the last, Gary, is gold. Gold, we get a lot of questions about gold. We’ve owned gold for clients over the years. But the bottom line is gold has had a huge run because of all the debt that’s being issued out there. So just be careful because gold could turn around on a dime. It has the last week or so. It’s dropped up a decent amount, but it’s up a lot for the year. So be very careful, most areas.
David Nelson:
Our whole focus is risk managers. That’s our job. Risk managers. Trying to identify the risks. Where are the risks? Where are the rewards? Again, understanding that is crucial, and unfortunately, I don’t think a lot of people understand that as far as out there that have investments.
Gary Determan:
Hey, great information as always. Dave, you have a safe month and hopefully someday we’ll get you back in studio. How’s that sound?
David Nelson:
I look forward to it, Gary. Thank you. You too.
Gary Determan:
Thank you.
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. Security is offered through Cambridge Investment Research Inc., a broker dealer, member of 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. For more information, visit our website at www.NelsonCorp.com.