Episode Transcript
[00:00:02] Speaker A: There might be a distinction between spending and consumption, though, because we are spending more to buy the same stuff because the stuff's just more expensive. We don't mean to spend more.
[00:00:12] Speaker B: It's not. We just don't have a choice. Right, Right.
[00:00:15] Speaker A: Yeah.
[00:00:15] Speaker B: That's interesting.
[00:00:16] Speaker A: I hadn't heard that before. That's an interesting way of looking at it.
Welcome back to Lancepedia. I'm Garrett Lail with Lance Browning of Income Solutions Wealth Management, Tyler, Texas. I had heard of Tyler, Texas, Lance, until you and I started working together. And now I feel like I see it all over the place. I saw a football player from there the other day. I heard somebody refer to Tyler in a show the other day. I was like, man, where is. I didn't know Tyler was even on the map. And now I find out it's. It's legit.
[00:00:45] Speaker B: You're.
[00:00:46] Speaker A: It's a real place.
[00:00:47] Speaker B: Lot. Lot of football players around here. Earl Campbell's from Tyler. Patrick Mahomes grew up about seven miles south of Tyler.
So who else you would know?
Jam Miller, the starting running back for Alabama, is from Tyler. A lot. A lot of Tyler kids. We're famous people, man. We got it going on down here.
Absolutely. Absolutely. Well, happy New Year, man.
[00:01:10] Speaker A: Happy New Year to you. Good to. Good to see you. What are we going to be talking? I'm kind of jumping ahead here, looking through the slides that we're going to present, and I see Sesame street on slide two. So what are we going to be talking about?
[00:01:22] Speaker B: This should be good.
Yeah. So welcome back. Happy New Year, everybody. Lance Browning coming to you live from troopcom, your diet in Tyler, Texas. So, yeah, we're gonna be talking about something you may or may not have heard this term, but I think as we get further and further into the political cycle, as we get closer to the elections in November, I think you're gonna hear this term maybe more. So I kind of want to get a little jump on it and kind of give you an idea of what we're talking about here. Okay, so we're talking about something called a K shaped recovery. K shaped recovery, the letter K. All right, Just kind of disclosure disclaimer just to kind of set the stage for everybody. Okay, so the Dow Jones is up against bumping 50,000 points, Garrett. And I don't think either one of us ever thought we would live long enough to see that happen, but here we are.
[00:02:15] Speaker A: And I mean, I remember crashing. I remember breaking. Breaking back through 10 for the first time.
Not that. I mean, well, I guess it has been that long ago, but it doesn't feel that long ago.
[00:02:26] Speaker B: I remember six and I just got in the business in the mid-90s and we had a yellow lunch where a product vendor came in, bought lunch, did a little dog and pony show as younger guy. And he had his national sales manager who was a much older guy. And the sales manager gets up there on the board and he's drawing all the stuff.
He said, guys, we're going to have a 50,000 point Dow. And I was like, you were at Woodstock, weren't you? You know, and here we are. He was right. It took him about 30 years, but he was right. So better late than never, I guess. But one of the conversations we'll have just to start off with as we move into 2026 markets are at very, very high levels. Okay, we closed our halftime report with this particular slide. And just understanding that it is very, very, very normal for the market to have a 5 to 15% drop somewhere during the course of the year, sometimes in multiple times cases. Okay, that is not abnormal. The world is not ending. That is just normal. And when you have a market as high as we are, you're still going to have that. But a 5% move on a 50,000 point Dow is going to feel a lot more significant than it really, really is. And so you're looking at annual returns and inter year declines and you're seeing these years, okay, but the thing you've got to keep in mind on this slide is those red dots down below in the bottom half of that chart are entry year declines. So for instance, in 2020 down there you're going to see a dot and a negative 34. So during the peak of that Covid drop, that Covid crash, and that was over about six weeks, that was scary.
So the world was ending. Middle of March 2020, the world was ending. We're doomed. We're doomed.
By the end of 2020, the market was up 16%. You see there above in that black bar. So the world seemed like it was ending and we still had a good year. Last year during the tariff tantrum, February, March and April, the market dropped S and p dropped about 20%. And yet we still finished the year pretty strongly. So just keep in mind, just because the market does what it always does, on average there at the top of that chart, you're going to see an average entry or sometime during the year decline of 14.2%.
That is normal. Don't freak out if when that happens. Okay? So moving on along to our sesame street reference. Okay. And you know, Garrett, we've got to make fun of ourselves every chance we get. And so if you remember the old Sesame street, this episode brought to you by the letter K. So this episode of Lance Obedient brought to you by the letter K.
Millennials and Gen Z's are going to be watching this, going what? Sesame street, right?
[00:05:22] Speaker A: Yeah, exactly.
[00:05:23] Speaker B: K is in K shaped recovery. And this is from the Wall Street Journal. And this is pretty recent, Garrett. This is a couple months ago. This is From November of 25 towards the end of last year. And they talk about Wall street warns of. Here's the headline, a quote unquote, K shaped economy.
Here's what to know and we'll talk about what that K shaped kind of means. Okay. What is a K shaped recovery, by the way? This is from Investopedia, not Lansopedia, but Investopedia. Okay.
[00:05:52] Speaker A: Not quite as reputable, but they're out there.
[00:05:54] Speaker B: A Lancapedia is better. Just put that out there. Okay, something A K shaped recovery. And this is where I'm going to differ a little bit. So a K shaped recovery according to Vesopedia and is when following a recession. Talk about that. Different parts of the economy recover at different rates, times or magnitudes. Now, and we've lamented over this the last three or four years, we haven't seen that recession. Even at 22, when the Fed went nuts raising interest rates, we haven't seen that recession yet. So I think that the recession component of this is missing, but I think the rest of it still kind of holds true. Okay, so it's called a K shaped recovery because the path of different parts of the economy, when charted together, may diverge.
Here you go.
Resembling two of the arms of the letter K.
So in a K shaped recovery, the performance of different parts of the economy and different people in the economy diverges, or some may experience some really strong growth while others kind of decline in struggle. And the meaning of a K shaped recovery depends on the choice of how to disaggregate data across the economy. It's very, very interesting and we talked about this in the halftime report. But if you look at consumer confidence, consumer confidence and the stock market historically, not right now, but historically, track very, very closely. Very, very high correlation between that emotion of confidence and when and how people invest their money.
Very, very strong correlation historically. But that's detached right now. Not really. You hear, and you're gonna see the next slide. Consumer confidence is really low, Garrett. It's at about a 10 year low. All right, so we don't feel good. Okay, but if you go to the mall, go to a restaurant, it's full of people. You go to the movie theater, full of people, we don't feel good. We're worried about our economic future. So let's go to Outback.
[00:07:53] Speaker A: Right.
[00:07:53] Speaker B: It's just kind of a dichotomy there. But so here's spend it while you got it. There you go. Yeah. So consumers power, Strongest US economic growth in two years. So third quarter gdp. We've talked about gdp, Garrett. Gross domestic product, the bottom line report card on the economy. Third quarter GDP was 4.3%. That's strong.
We'll take that all day long. As far as a growth rate, I saw a projection this morning driving in that fourth quarter may be as high as 5.1. That is smoking. That's really good. We'll take that all day long. But different people, different parts of the economy, different people in the economy are gonna feel differently and have a different experience with this growth rate and with the market. All right, here's something. And you can kind of see a lot about what's going on here. So consumer confidence and the market. When consumers feel confident, when they feel good, okay, the market historically has gone up. You see a big diversion there towards the end of last year of 25, where consumers didn't feel good, but the market's hitting all time highs every other day. It's kind of weird. So when the markets rise, people feel optimistic and spend more. And when markets fall, people don't feel as good in confidence. Consumer confidence slips. And this is, this is kind of being explained by what Alan Greenspan, Fed Chair emeritus Alan Greenspan used to call the wealth effect. Okay. So he coined this term basically that higher asset prices. So right now, Garrett, that's going to be stocks, that's going to be gold, that's going to be silver, real estate, asset, tangible asset and financial asset prices are higher.
When people feel richer, they're more willing to spend. Back to that confidence field. Okay, Back to that confidence deal. So you're seeing a divergence though, between the market, what the market's doing, what consumers are doing with their money, and how they claim that they feel. So a little bit of a difference there.
I thought this was really, really interesting from the Financial Times. So, and we're going to read this and it's going to make a lot of sense to us though. So the top 10% of wage earners, of course they have more disposable income, right? The top 2% of top 10% rather of wage earners account for nearly half of all consumer spending.
And they tend to have the propensity and the ability to buy higher ticket items, cars, houses, whatever that is going to kind of disproportionately affect that. But the bottom 80% of consumers do less than, do just a little more than 35% of all spending. So you really see that in our chart here. We talk about the bottom 80% account for a shrinking share and you see those declining, you see that red line with the top 10 going up, blue line, bottom 80 going down. Okay.
And just as a share of total consumption in this imbalance reinforces this idea of a K shaped economy. Right. This really, really illustrates it Well, I think for spending power is increasingly concentrated at the top.
Oh, by the way, 2026, we just thought we got out of there. 2026 is an election year, Garrett. This is going, this always is. But this is going to be a political talking point between now and early November. I promise you this term will come up about a disparate disparity. A lot of people will talk about haves and haves nots. That's what they're talking about. That's what they're going to be referring to. Okay, we'll close with consumer confidence and the stock market. Okay. And maybe we can do these bullets individually here, Garrett, but your first one, the wealth effect. US stock markets will post their third maybe 20 plus percent increase in a row. So you've had some, some good markets here. All right, Another thing, so that's going to help the higher end people, your higher income people who have more propensity to invest in stocks, real estate, gold, silver, whatever, those assets are going up, they feel better, they consume more non discretionary spending. And here's one of the things I think that maybe is holding up consumer spending and keeping it relatively high.
So the mix of spending is leaning towards more what we call non discretionary items. So stuff we gotta have, Garrett, these aren't wants, these tend to be needs. For instance, spending on housing, of course, healthcare, insurance, travel.
That's increasing as a share of total spending. Now many of these expenditures, like we talked, you gotta have them, they're unavoidable beyond any choice and they're not confidence driven impulse purchases. I go to the grocery store, I buy milk and bread and eggs. Those aren't, those aren't impulsive. I'm hungry and those are stuff I need in my house. For example, health care spending accounted, this is scary for nearly 20% of consumption. That's a big number.
And if you look at the demographics this country, it's going to make a ton of sense is the boomers are all hitting the system and aging at the same time. That would make total sense. All right, big one, credit.
Got a rising use of credit cards.
President Trump is talking about credit card interest right now.
That's the conversation being had. But the rising use of credit cards, the buy now, pay later, that American consumer, our culture and unfortunately our government, an ear or two home equity loans are boosting spending, at least in the short term. All right, so savings, looking at savings, real personal income, relatively, has been relatively flat. Thank you, Inflation. Thus consumers are using up savings. All right, so to, to buy what they need and what they want. If they don't have that, that, that free cash flow, that excess income, disposable income, they're doing it on credit and they're using savings to fund those purchases, to fund that stuff. Okay.
[00:14:16] Speaker A: Yes, sir, Can I ask a question here, please? This slide as we're going through here, is this referring to the entire economy as opposed to that top 10% versus bottom 80%. Okay. It's not one or the other.
[00:14:30] Speaker B: Yeah. And so this is maybe a why on the consumer confidence. And like I say, you see a big, big chasm between confidence and how people feel and spending.
Right. So even the K line that's doing this, they're still spending, they're still increasing their spending. But there's maybe some reasons why, and it may not be because of the wealth effect for that particular consumer, and it may be just some things going on there that below the surface that maybe don't tell the whole story. So, hey, consumer spending's up. Oh, great. But why?
Why? Is it because they're going to buying stuff or because costs are going up? You know, so you've seen real, okay, real personal incoming, real being that of inflation. Personal income's been flat. It's been flat for a while. Particularly if you're in the bottom rung, bottom, bottom part of that K that really is going to affect you more. And I think that concerns me a little bit is that the credit and the savings, and that's not sustainable. Those are finite numbers. You're going to have a credit limit on your credit card and you've got a finite amount of savings there to consume with. And I think that's going to kind of go back to confidence. This is going to be a big deal. This is one of my big, big gripes and disagreements with the Fed. Okay. I'm concerned about the job market. The Fed kind of has this moral dilemma between jobs and inflation. They're trying to have full, quote, unquote, full employment while keeping inflation under control.
I saw a print this morning on CPI on inflation. Garrett. 2.7%.
Pretty good. That's doable. Average historically is about three. We'll take 2.7. But the Fed is saying, no, no, no, we've got to get that below 2%.
Now in the course of doing that, though, they're really putting a strain on the job market. You are not seeing job creation going on in the economy at all. A lot of the jobs we thought we had created, all of those got kind of got revised away and taken off, offline last year, towards the end of last year, we got told all those jobs we thought we had, no, those didn't exist. We were wrong. And they had to rescind and revise a lot of that data. So you're not seeing job growth? Well, no job growth, less wages. You kind of see where this is going. And one of my big grips with the Fed is they are so determined to get us below 3%. Really? Their goal is actually 2% on inflation. They're so determined to do that that it's affecting the job market. If people don't have jobs, it's going to be really, really hard to buy stuff. Okay? That's when you really get on the bottom part of that K. All right, so we talked about just a second ago, but inflation. All right, so inflation is coming down. We're all going to be excited. We're all going to cheer a 2.7% inflation print this morning. That's great. That's wonderful. Prices are not going down, okay? That's the thing. Inflation's better. It's a lot better than it was in 2022, 2023, but prices are still going up. Okay? They're just not going up as quickly. If prices continue to go up, you've got that compounding effect of inflation, just like compound interest.
And you don't have the wage growth, you don't have the income increases to compensate for it. So even if inflation's normalizing the higher prices of goods and services, that weighs on the consumer psyche on how they feel again, confidence in turn making their sentiment worse. They feel pretty good. They go to the grocery store, stuff costs more than they thought it should. They came home, they took their consumer confidence survey, and lo and behold, it was lousy. Go figure. Right?
And so, you know, that inflation component, I'm wondering how much that's affecting things. Now on the bright side, let's focus on some positives here. Okay. You're going to see Treasury's already anticipating much higher tax refunds due to the big beautiful bill. So you retroactively change tax rates towards the end of 2025.
All right. When everybody was doing tax withholding and payroll withholding and deduction W4 from 2024. So people were probably particularly on the lower end of that wage scale that k I keep doing that.
People on that end were probably withholding a lot more than they needed to. So those refunds are going to be larger. Hopefully that helps spending. I think it will hopefully maybe with some folks that's going to replenish their savings and or reduce their credit card use, reduce their debt. So hopefully they'll pay down some debt with that. But payroll withholdings in 25 were probably quite a bit too large because they were under old tax rules pre bvb.
[00:19:30] Speaker A: So that ends up creating an unexpected cash. And I don't know if windfalls, it might be a windfall for some, but it's money you didn't expect to have and that's money that goes into the economy. Interesting point that you made there about the spending though. So spending is up. There might be a distinction between spending and consumption though because we are spending more to buy the same stuff because the stuff just more expensive. We don't mean to spend more.
[00:19:53] Speaker B: It's not. We just don't have a choice.
Right.
[00:19:56] Speaker A: Yeah. That's interesting. I hadn't heard that before and that's an interesting way of looking at it. But I would be interested in talking more about that. The chart that you.
The slides seven. I guess the. If I'm looking at that chart of the top 10% earners versus the bottom 80, that's a pretty long term trend of seeing the top 10 increase as a, as a. I mean I'm going back to, you know, the mid-90s. From the mid-90s that number has been growing as a share. So that's not something.
[00:20:25] Speaker B: Yeah, that's not a new phenomenon, Garrett. At all.
[00:20:28] Speaker A: Yeah, yeah, that's. Yeah, that's. But at some point does that ever reverse course or what are the implications of that? And that's not something to get into today. I'm just kind of throwing it. Maybe that's something we do on a later episode kind of dive into a little bit because that's just an interesting thing that I had not heard and that's a very long term trend like you Said it's not a new thing. This is something that's been going on for, you know, 30 years, I guess. So is that sustainable? And what does it mean if it is or is not just curious about that. But.
[00:20:55] Speaker B: Well, interesting. And you got to wonder. Absolutely. And you got to wonder about, you know, like I said, we have these conversations about the political. Obviously politicians in the media, they're going to latch onto this. I mean, they see the same data we do. Right. And so they're all going to latch onto this. And big part of the debate is how do we, how do we correct this wage gap, this income gap here. And I think, and if you look at that table, that chart, you're going back over several congressional, you know, congressional classes, different congressional classes, several presidential administration from both parties. This phenomenon has continued for Democrat presidents and Republican presidents. Okay.
[00:21:41] Speaker A: Yeah.
[00:21:41] Speaker B: So before anybody out there goes to pointing fingers, okay, this isn't new. This has been going on and you know, I think it goes back to, you know, lower income people typically are not going to be big investors.
Well, yeah, well, you know, you don't, you don't have, if you didn't invest money and your money didn't grow, you don't have as much money to spend. Makes total sense.
[00:22:05] Speaker A: Yeah, yeah, it does.
Well, thank you as always, man. Always a pleasure for listeners, viewers.
The Lancapedia and all the other shows on the Wealth Partners network are. We're here for entertainment and amusement purposes and maybe a little education along the way.
But if you, if you would like to speak with. Well, first of all, don't take our advice. You should seek a financial professional. But if you do not have a financial professional, I'm sure Lance would be love to raise his hand and let you know how, how can I get in touch with you?
[00:22:40] Speaker B: I may know a guy that knows the guy. Garrett? Yeah. Direct line. Direct line phone on my desk here by the ring light. 9037-8789-1690-3787-8916. Or come see us at Troop Calm here on Troop Highway, Tyler, Texas.
[00:22:59] Speaker A: Awesome stuff, Lance. Well, appreciate it, brother. Good to see you and hope you have a great rest of your day and keep your head above water.
[00:23:06] Speaker B: You too, man. All right, catch you next time. Thanks.
[00:23:12] Speaker A: Lancepedia is for entertainment and educational purposes only. The views and opinions expressed in the show are that of Lance Browning and are not guaranteed to come to fruition. If you have questions about your investments or your financial plan, you should seek a financial professional or give Lance a call at 903-787-8916 we thank you again for watching or listening to the podcast. We'll see you next time.
