#50 | 2024 Mid-Year Review Part 2

Guest Profile

Jason Hosler holds Series 7 and 66 FINRA securities registrations. He brings a technological edge to our firm and helps many of our clients stay current in the fast-moving age of the internet.

Transcript

Protecting and Preserving Wealth – 2024 Mid-Year Review Part 2

Speakers: Jon Gay, Bruce Hosler, & Jason Hosler

[Music Playing]

Jon Gay (00:06):

Welcome to Protecting and Preserving Wealth, I’m Jon Jag Gay. Joined as always by Bruce Hosler, Jason Hosler of Hosler Wealth Management. Good to be back with both of you.

Bruce Hosler (00:13):

Welcome folks. Jon, it’s great to be with you. Thanks for being with us today.

Jason Hosler (00:17):

Great to be back again.

Jon Gay (00:18):

And you say “again,” this is part two of our two-part series related to looking at the economy and the markets, and all of the above as we sit halfway through 2024. It’s our mid-year review.

I would encourage our listeners, if you haven’t listened to our previous episode that came out a couple weeks ago, we dive into some really important topics.

And where we left off was inflation and interest rates and where we sit. Let’s pick up at that point today, Bruce and Jason, as far as interest rates, and the Fed, and what we might be looking at going forward in the back half of 2024 and beyond.

Bruce Hosler (00:48):

Well, it’s great for the public to follow the Federal Reserve, but the other interest rate that’s really followed, Jon, is the 10-year treasury. We see the 10-year treasury has now picked up to 4.44%, and it could go higher because this interest rate is not controlled by the Federal Reserve, it is controlled by the market.

And so, the market will think and look at what they need as far as liquidity, what they need as far as safety, and we have an inverted yield curve. The two-year, the seven-year, the five-year, those are all higher than the 10-year treasury.

And so, at some point, this is going to revert back to normalcy, and at that point, we can expect to see a little bit of difference that’s going on. What would cause that to happen? Well, that may be the coming recession that everybody’s predicting.

We don’t really feel like we’re going to see that recession this year, but the interest rates are kind of at an interesting inflection point right now. There’s probably going to be a lot of pressure on the Federal Reserve to lower interest rates in September to try and help the election.

I don’t know if they do or they don’t, but they have pressure on them both ways, and these higher interest rates are certainly making it harder for real estate and real estate professionals. And if you look at the number of houses that are being sold, there’s not very many on the market, and yet those prices have not come down.

That is a big effect on the inflation that we’re seeing because the standard of living is people’s ability to have a house, rent a house, and have a roof over their heads. And those prices, even though they haven’t had high velocity, that is, there’s not a lot of houses selling, the prices have remained level over the last couple of years.

Jason Hosler (02:45):

The Fed is trying to walk the edge of a knife, too, between those inflationary pressures on one side, and the needs of the businesses and the economy with the interest rates on the other side. And trying to navigate that has always been difficult for them.

And when they’re trying to look at the data, they always have to look backwards at the data and figure out where it’s going. And so, they always seem to be a little reactive rather than proactive. And as we’re going forward, our view for the last bit is that we’re going to probably see interest rates higher for longer.

So, as they start to come down, whether it’s in September, end of the year, beginning of next year, I think they’re going to probably try to start cutting them over time. And it might take a couple of years for them to come back down to something that feels more normal.

Because if we look at where interest rates were in 2010, 2015 when they started going up into 2017 and ‘18, got cut back down again, we were used to much lower interest rates than this. And so, people are going to need to adjust to a higher interest rate environment for longer than they’ve probably expected in the past.

Jon Gay (03:57):

I made this point in our previous episode guys, that if you look short-term, these interest rates are extremely high. Once you zoom out, look back to say the ‘80s or the ‘90s or even the ‘70s, it’s really still low, comparatively speaking, as you look at a wider timeline.

Bruce Hosler (04:14):

Yeah, historically, you’re absolutely right, Jon.

Jon Gay (04:17):

So, you mentioned treasury bonds, that’s a public thing. What about public versus private equity? Where do we sit in terms of that at this point?

Bruce Hosler (04:25):

Well, it’s interesting, if we look at the number of listed companies, there’s actually less than 6,000 publicly listed companies according to the JPMorgan guide to the markets. And the market cap has just been going up and up and up on those listed companies.

Now, when we look at companies in the private sector where they have employees, there’s probably close to 6 million of those. So, 6,000 public companies, 6 million private companies. Obviously, there is an opportunity to invest in private companies given the right opportunity.

So, we see that as a place where clients and our listeners may want to explore looking and trying to find a space where they can allocate some of their money to private equity. Private equity has done very well in the last few years, has a great track record, and that’s a different allocation that will perhaps move differently than the public markets.

Jason Hosler (05:30):

Yeah, that’s one of the things we really like about a private equity allocation, is that it’s not going to necessarily follow the ups and downs of the S&P 500, these companies are at different stages of their growth cycle.

The private equity companies who are investing in them often will have an edge of some type, a discount, a management team that they’re bringing in – some way that they can take this company to the next level.

And so, those opportunities and their timing don’t necessarily align. So, that non-correlation of investment performance is very important to portfolios.

Jon Gay (06:09):

It’s interesting, I think as an average guy investor who has been learning a lot in this podcast with the two of you, I think about “investments” as those public companies, the companies on those stock markets.

But it is really interesting to hear that there’s opportunity in companies that are not listed on the exchanges, those private companies, and there could be a lot of upside there.

Bruce Hosler (06:28):

Absolutely. And when we’re talking about investment, investment principles, we want to talk about the market and how it’s returning around this Fed hiking cycle that we’re going through right now.

The Fed started hiking a number of months ago, and when we look at how that has performed historically, that is the stock market compared to other periods, it seems to be doing really quite well even in spite of these higher interest rates caused by the Fed’s tightening cycle, this go-around.

Jason Hosler (07:04):

And as the Federal Reserve starts lowering interest rates, a part of that is going to be in response to the economic conditions. And as we get closer to the next recession, whenever that turns out to be, companies are going to have to make changes in their businesses to make sure that they can remain profitable and continue to do business during a downturn in the economy.

Bruce Hosler (07:29):

Well, just see what we have going on. Think about all the tech companies that have cut employees recently that we’ve heard about this spring, all through the country where they’ve cut employees back, they already see the writing on the wall and things are getting tighter.

You look at the companies that had all these employees working from home, and they’re now forcing them to come back into the office or consider being fired. And so, the belt tightening is already going on ahead of any future recession that we may see.

Jon Gay (08:00):

And the media company part really rings true for me as somebody who worked in media, previously. In my previous career, I worked in radio. I have a lot of friends that work in radio and television. Even here in Detroit, some 30-year reporters have been offered buyouts and their choice is: take your buyout or stay on and take your chances that you don’t get laid off next year. So, it’s a scary time for sure.

Bruce Hosler (08:21):

Absolutely. So, that leads to all the workers out there being concerned about their jobs. They’re getting crushed by inflation, and the wages are not being raised necessarily as fast as the inflation. And so, that affects the consumer’s confidence.

Now, three quarters of our economy is the consumer out there, the American consumer spending. And when we look at consumer confidence, that definitely has dropped. And because we’re in a political year this year with the election going on, there is some difference between the parties on how they feel looking forward and how they feel about the economy right now.

Jon Gay (09:02):

Well, let me ask you Bruce, because that was something I was weighing whether or not to ask the two of you in this conversation. So, we can finish on this note here: given that it is an election year and we’re recording this July 2nd, essentially, four months out from the election.

And again, we’re not going to get political here in terms of ideology, but just looking at the hard numbers, what do you see in consumer confidence difference by political affiliation?

Bruce Hosler (09:24):

Well, certainly, those that are on the kind of a conservative bent should we say, they see a lot of problems. They are concerned, they see the government spending, and all the cost that’s being incurred because of the immigrants that are coming into our country and all the problems like that, whereas some of the people that lean more to the left, they’re not near as concerned.

Jason Hosler (09:50):

Yeah. And if you look back historically, during previous administrations, you see this switching effect. When the Republicans have control of the White House, those who lean conservative tend to feel better about the economy and vice versa. When the Democrats have control of the White House, the Democrats tend to feel better about the economy.

During the recovery from 2008, both Democrats and Republican voters felt that the economy was recovering, and when COVID happened, both saw a big drop off. We’re seeing a trend now in both, where they’re moving more positive. It’ll be very interesting to see after the election if that historical trend continues and whichever party wins the White House, if their constituents feel more positive about the economy.

Jon Gay (10:41):

That’s a really good point Jason. You answered the question that I was going to ask, which is, you talk about how people feel about the economy, and obviously, conservatives and liberals have different ideas about government spending.

But I’ve got to imagine there’s a little bit of this “Team Red, Team Blue,” where if your man or your woman is in the White House, there’s a little bit of confirmation bias that you might be more likely to think things are going well if your team has the ball, so to speak, in football terms.

Jason Hosler (11:05):

That’s definitely going on in the data. It’s very clear to see that there’s some team ball going on.

Bruce Hosler (11:12):

I just look at the overall trends though, because of COVID, everybody’s confidence was dropped and now, we’re starting to improve, but not at a rate that makes it to all-time highs. Overall, the conservatives tend to be pretty pessimistic still, and we’ll see how that affects consumer confidence and spending going forward.

And certainly, the recovery then coming out of this COVID situation that we’ve had over the last four years, and where the economy goes relative to the recession that’s been prognosticated by our inverse yield curve on the 10-year versus the shorter-term interest rates right now.

Jon Gay (11:56):

We’ve covered a lot of ground in these two episodes. Bruce, any final thoughts to kind of summarize everything we’ve discussed?

Bruce Hosler (12:02):

So, overall, Jon, I think the markets are in a good place. We still think if between today and the end of the year, that the end of the year ends up higher, even though we think we could see some volatility this year.

We like the fact that the AI rush – I’m going to call it the AI Oklahoma land rush, is causing a lot of these big companies to spend money in big ways, and they’re figuring out ways to try and make money, but that has only begun.

We have great expectations for the future and how that will affect us, and thank you for your participation today and assisting us in this mid-year market update and conversation with our listeners.

Jon Gay (12:46):

I do want to say we have covered a lot of ground in these two episodes, and all of the voices that you hear from Bruce, Jason, and myself, I can promise you they are real voices. They are not generated by AI. We are actually people having this conversation.

And if our listeners want to talk to the actual people at Hosler Wealth Management – not a bot, not an AI, but actual people, that can discuss their financial future and how to best individualize a plan for them, how do they find the people at Hosler Wealth Management?

Jason Hosler (13:12):

You can find us on our website at https://hoslerwm.com. You can call us in Prescott at (928) 778-7666, or in Scottsdale at (480) 994-7342.

Jon Gay (13:30):

Comprehensive analysis again in both of these two episodes. Thank you both so much for the insight. We’ll talk soon.

Bruce Hosler (13:35):

Thanks, Jon.

Jason Hosler (13:35):

Thanks Jon.

[Music Playing]

Jon Gay (13:36):

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