0:51

Welcome back everyone to another episode of the Internal

0:53

Use Only podcast . I'm Dan Sullivan

0:55

. I am joined today with Brian Jordan . He's

0:57

a former economist and member of the portfolio

0:59

management team at Nationwide Insurance , where

1:02

he co-developed the firm's macro-driven framework , which

1:05

was used to set the investment agenda for more

1:07

than $100 billion in assets under management . Brian

1:10

is also a member of the CFA Institute , the

1:12

Ohio Governor's Council of Economic Advisors and

1:15

Mensa , and you can find his research in Barons

1:17

and Blue Chip Financial Forecasts . You

1:20

can also find him as the co-founder of Cycle

1:22

Framework Insights . So , brian , thanks so much for being on the

1:24

show . Welcome . How

1:27

are you today ? My ?

1:28

pleasure . Thank you , Dan . Thank you for having me .

1:31

How'd you like the live-in show ? That's one of the first ones I've done , so

1:33

I appreciate you bearing with me through that Beautiful

1:36

Work . Great , your career has

1:38

intertwined with the audience here

1:40

, which is mostly wholesalers . So I know that you've spent

1:43

time on the road with advisors

1:45

and with wholesalers and

1:47

I wanted to ask because you have managed money in the past

1:50

and you manage that money

1:52

on behalf of a general account for

1:54

an insurance pool how would you say

1:56

that allocating capital or managing

1:58

money impacted the conversations

2:00

that you had with financial advisors while

2:02

you were working alongside wholesalers ?

2:04

I think the biggest thing that managing

2:06

money did is gave

2:09

me a sense of nuance and a sense

2:11

of uncertainty and a sense of humility . The

2:14

future is inherently uncertain

2:16

. It's very easy to make a forecast

2:19

. Anybody can make a forecast . I could

2:21

say that Kansas City is going to win

2:23

by two touchdowns this weekend . I could

2:25

say that San Francisco is going to win by

2:28

two touchdowns this weekend . Anybody

2:31

can throw out something about the

2:33

future and , of course , what happens

2:35

so often is as soon as that future

2:38

event happens we tend

2:40

to forget those forecasts and just go on

2:42

to the next one . Okay , I

2:44

missed that one . Well , here's what's going to happen

2:46

in March . Madness , I missed that one . Well

2:48

, here's who's going to win the World Series . So

2:51

you just go on to the

2:53

next forecast . When

2:55

you're managing money , you realize very

2:57

, very quickly that you live in a world of uncertainty

3:00

and you're trying to look at the balance

3:02

of risks , not just a

3:04

point forecast . Gdp is

3:06

going to do this next year

3:09

, the inflation rate is going to do this

3:11

next month , the unemployment rate is going to

3:13

go here or there . And

3:15

then you just simply move on to the next forecast

3:17

when you get to the next period

3:19

. But you realize that the future is

3:22

inherently uncertain and

3:24

that you deal with a world of

3:27

risks and you have to figure out where

3:29

that balance of risks is . What

3:31

has the market priced in and where are the

3:33

risks relative to what the

3:36

market has priced in . And

3:38

so I think that really helped enable

3:41

those conversations to move in a more fruitful

3:43

direction . Not just

3:45

this is going to happen , this

3:48

is going to happen tomorrow , this is going

3:50

to happen next year , this is going to happen over

3:52

the next 10 years , but

3:54

here's where the market is set up , here is how

3:56

the market is set up and here's where

3:58

the risks are relative to how the market

4:01

is set up . So it enabled a more

4:03

nuanced discussion , which I think was

4:05

helpful for the wholesalers

4:07

as well as the advisors .

4:10

When you think about your career , investing

4:12

and managing that money . Do you have any examples

4:14

of some of those risks that you can recall

4:17

, that were really laid out , where you would say

4:19

here's the risk , here's

4:21

what we are factoring in and here's how

4:23

we're making this investment , or why we're making

4:25

this investment ? Based on that , like any specific

4:28

examples that you might be able to share with the audience ?

4:30

Our framework is very much a backward

4:32

looking framework and

4:35

it takes the economic cycle and divides it into

4:37

four phases . We

4:40

have three phases that are generally risk

4:42

on phases and we have one phase that's

4:44

a risk off phase where

4:47

the framework tells us to be

4:49

more defensive . In

4:51

2019

4:54

, we got that phase

4:56

four signal and

4:58

this was a time when the market was generally doing

5:00

well and when the outlook for

5:03

the future was , from most quarters

5:05

, generally positive . The

5:08

Fed had started cutting rates again after

5:10

a very gradual rate hike cycle

5:12

from 2015 to

5:14

2018 . Earnings

5:17

were still growing , the labor market

5:19

was still in expansion , the

5:21

unemployment rate was still in

5:23

decline , still very , very low . Confidence

5:26

was relatively high , but

5:29

our signals told us that we

5:31

should be in a more defensive posture

5:33

and history told us that we should

5:36

adopt a more defensive posture

5:38

at that time . This

5:41

was one of those cases and there are numerous

5:43

examples along these lines where the market

5:45

was pricing in one thing and

5:48

our framework is telling us something very different

5:50

. We never pounded the table

5:52

and said absolutely , we're going to

5:54

have a bear market tomorrow or next month

5:57

or next quarter . Absolutely , we're

5:59

going to have a recession tomorrow , next month

6:01

or next quarter , but that the risks

6:03

relative to what the market had

6:05

priced in were greater . The downside

6:08

risks were greater than what the market had

6:10

priced in . The story was very

6:12

similar for us in 2007

6:15

, and the story

6:17

is very similar for us today . The

6:21

market is adopting a very bullish

6:23

posture at the moment . Confidence is very

6:25

high , the labor market is very strong

6:27

. Our signals are saying , however

6:30

the risks are elevated , the downside

6:32

risks are elevated . So these are

6:34

opportunities . We

6:36

don't know for certain that a recession is

6:38

coming . We don't know with 100%

6:41

certainty that a bear market is

6:43

coming , but we can tell

6:45

that the risks are higher than what the market is priced

6:47

in , and that happens

6:49

regularly from cycle to cycle

6:51

.

6:53

And this framework was that you're applying

6:55

here to some of these risks , especially like the 2019

6:58

into 2020 . Those were , with

7:00

the nationwide team , right in the general

7:02

account there .

7:03

Absolutely . This was the framework we used

7:06

to manage the general account at

7:08

nationwide and it's the framework we use now

7:10

with our clients at Cycle

7:12

Framework Insights .

7:14

Yeah , and I feel like that's often

7:16

lost in how maybe

7:18

financial media and some of the outlooks get

7:20

forecasted today , and we're going

7:22

to touch on that in a little bit here . But really all

7:24

the team is trying to do is use

7:26

information and data points and indicators

7:29

to your advantage and price

7:31

in what are the upside and downside risks , right ? So

7:33

it's like maybe you're not here to be doom and gloom

7:35

everything's changing tomorrow but

7:38

percentages or what the relative

7:40

to what the market is factoring in . Maybe here's where

7:42

we think a portfolio should

7:44

or could be positioned over short term

7:46

, medium and long term horizons , and that might be different

7:48

for each person depending on what factors or indicators

7:51

they're considering .

7:53

Absolutely . It's based on their risk tolerance

7:55

, their time horizon and , again , it's done

7:57

in a balance of risks framework

8:00

. There is never any table

8:02

pounding call that a recession for

8:04

sure is coming , that a

8:06

bear market for sure is coming

8:09

, but rather that the risks of an event

8:11

like that may be higher than what the

8:13

market is priced in . And , alternatively , there

8:15

are going to be times when the risks of a more

8:17

constructive outlook , a

8:19

more constructive outcome , are

8:22

higher than what the market has

8:24

priced in . So it's very backward

8:26

looking and this is something

8:28

that maybe doesn't sound so good on

8:31

marketing material , because

8:33

, as an economist , you always

8:35

want to present an image of being forward

8:37

looking . You have a crystal ball

8:39

. You can see the future . We all know

8:41

nobody can see the future . There is no

8:43

crystal ball . We look

8:45

backward and look at what

8:47

environment we are in now

8:49

, based on key economic and

8:52

financial market indicators . What

8:54

do these indicators tell us about the environment

8:56

today ? What can we say is

8:58

true based on what has

9:00

happened in the economy , based on what the Fed

9:02

has done and what's happened in the financial markets

9:04

? What can we say is true about

9:07

what that means for markets going

9:09

forward ? The past very much dictates

9:11

the future and very much dictates

9:14

the balance of risks going forward . And

9:17

that's where we come in . Where are the balance of

9:19

risks relative to what the market

9:21

is priced in ?

9:22

If we all had a crystal ball , everybody would have shorted

9:24

the housing market in 2007

9:26

, would have bought Bitcoin in 2009

9:29

and everyone would be filthy rich

9:31

. All together , right .

9:33

We'd all have our own island , and

9:35

it's amazing that these economists

9:38

who claim , or at least

9:40

imply , that they have a crystal

9:42

ball don't have their own island

9:44

.

9:45

So , speaking of crystal balls or

9:47

maybe , in this case , shattered glass

9:49

, what are some of the more egregious

9:51

examples of either bad

9:54

financial prediction or bad advice that you can

9:56

recall from your career ?

9:58

Well . So the obvious one

10:00

in my career was

10:02

in the late 1990s , when

10:05

the famous book Dow 36,000

10:07

, was released by Hassett

10:10

and Glassman , and the

10:12

idea was that we were in a new world

10:14

, new technologies . The Dow

10:16

Jones industrial average was going to hit 36,000

10:19

by 2004 . Now

10:23

, of course , this prediction came just before

10:25

the very deep bear market that

10:28

took hold in 2000 and lasted

10:30

until late in 2002

10:32

. And of course , it would take more than

10:35

two decades before we finally

10:37

reached Dow 36,000

10:40

. So that's one of the more egregious examples

10:43

. But those examples abound

10:45

. We see them all over the place , Even

10:48

in advertisements . There was an ad that ran on

10:50

CNBC for a long

10:52

time that made the point that

10:54

gold prices had more

10:56

than doubled over the course of the

10:58

previous few years . So

11:01

therefore you should buy

11:03

gold now . And it's said in big , bold letters

11:05

gold prices have doubled by

11:08

gold now . So

11:10

somebody didn't get the memo that the idea

11:13

in investing is to buy low

11:15

and sell high , and not buy

11:17

high and perhaps sell

11:19

low . So there are examples all

11:22

over the place , but perhaps Dow 36,000

11:24

is the most glaring example

11:26

in my career .

11:29

Was there ever ? Was there a celebration or an announcement

11:31

20 years later when that achievement , when the Dow

11:33

did pass that number ? I think it was 3600?

11:35

, I think there ?

11:37

I believe there was at least an acknowledgement

11:40

that we finally got there . Now

11:43

, of course , the economy always

11:45

grows , or in most cases grows . The

11:47

market in most cases

11:49

goes higher , so we were going

11:51

to get there eventually . Eventually

11:54

we're going to get to Dow 100,000

11:56

or Dow 360,000

11:58

. So perhaps I should write a book and

12:01

just put out a huge number and one day

12:03

it'll come true .

12:05

Yeah yeah , you can do a financial

12:07

media book . I'll write a book about how

12:09

one day , the sun's going to explode

12:11

and we'll all be gone , and I'll be the person that predicted

12:14

that one . How about that ?

12:15

Exactly , and one day you'll be right . Yeah

12:18

, one day Hopefully in the meantime , you'll

12:20

sell a lot of books .

12:21

I mean , it's just a sad truth .

12:25

I was just going to say . It's a sad truth that a

12:27

book with the title Dow 36,000

12:30

is going to sell a lot more

12:32

copies than a book with the title

12:34

. The risks are balanced

12:36

to the upside over the next 10 to 20

12:38

years and we made more likely see

12:40

higher stock prices than lower stock

12:42

prices . That book's not going to sell many copies

12:45

but it's a more honest book

12:47

than Dow 36,000 .

12:49

I know , and that's the world that we are in

12:51

today , where everything

12:55

grabbing the attention and headlines that's

12:57

translating into some of this financial media

12:59

advice , where it has to be

13:01

either sensationalized or maybe

13:04

just captivating enough , and

13:06

then you realize the things that make people successful

13:08

. Investors are typically the complete opposite

13:10

of that . It's like buying

13:13

low , not doing much over a long period of time

13:15

. That's really the opposite of how

13:17

most information ends up being presented

13:19

today .

13:20

Absolutely . I

13:22

mean , unfortunately . There is a get rich

13:24

quick mentality among

13:27

some cohorts and

13:29

there is a supply of financial advice

13:31

to feed into that mentality here

13:34

. Do this if you want to get rich

13:36

quick . I think we all know that

13:38

there is no get rich quick

13:40

or except in very rare

13:42

circumstances , there is no get rich

13:44

quick . It's about the long term

13:46

. But again , the long term is not going to

13:49

sell books , it's not going to attract

13:51

eyeballs to websites or TV programs

13:54

.

13:55

How would you say that ? Examples

13:57

like the Bitcoin surge and

14:00

even like the GameStop shorting

14:02

situation where very , very

14:05

small percentages of

14:07

investors , very small percentage of the total investable

14:09

market , but they are outlier

14:12

examples of when high speculation actually

14:14

would pay off in a short period of time , like

14:17

how do you reconcile

14:19

that amongst the 99.9%

14:22

of other investing , which is

14:24

how most people become successful ? But there are these little

14:26

little pockets of examples where there is that

14:29

high risk speculation , big payout .

14:32

Well , I think it's inevitable . There has

14:34

to be a Bitcoin , there

14:36

has to be a GameStop . The

14:38

market is enormous . We have so

14:42

many stocks , we have so many ETFs

14:44

. Now we have so many cryptocurrencies

14:46

. There is some investment

14:49

. Even in the worst of markets , the worst

14:51

of broader markets , there is always some

14:53

investment that's going to do really , really

14:55

well , just as in the best of times

14:57

, there are some investments that are going

14:59

to do very poorly . We

15:02

can look at the past year or so , when

15:04

the market has done quite well . There

15:06

are investments that have fared very poorly over

15:09

the course of the last 12 months . So

15:12

there are always outliers . There

15:17

are enough potential securities

15:20

that some are going to do very , very well . Unfortunately

15:23

, that feeds into this mentality

15:25

. We see that it can happen

15:27

and so , because it

15:29

can happen , we're encouraged

15:33

to look for the next thing that is going

15:35

to happen . The same thing happened in the late 1990s

15:38

. There were individual stocks that , for

15:41

a time , performed incredibly

15:43

well . We saw these amazing moves

15:45

especially in the technology sector

15:47

in the late 1990s and the first

15:50

few months of 2000

15:52

. That encouraged more investors into

15:54

these speculative vehicles . For

15:57

some of them , they paid off . The

15:59

investments in Amazoncom

16:01

, for example , which was a darling

16:03

in the late 1990s . If you held on

16:05

through the choppiness of the

16:07

early 2000s , you performed very , very

16:09

well . Google you performed very , very

16:11

well , but , as we know , there were many that fell

16:14

by the wayside and you

16:16

didn't just perform poorly , but you may have lost

16:18

everything in

16:20

those vehicles . It's

16:23

inevitable that we're going to have

16:27

individual assets and sometimes

16:29

asset classes that return

16:32

outsized numbers , that give us

16:34

outsized returns for

16:36

a time . Sadly , those

16:38

returns are simply going to encourage more

16:40

speculative investments and more financial

16:43

advice , encouraging investment

16:46

into speculative vehicles .

16:48

How can somebody today distinguish

16:51

between what is good advice

16:53

and what is bad advice ? Our audience

16:55

we have a combination of wholesalers

16:57

. They interact with advisors . Advisors make their

16:59

life and their practice on helping

17:02

with financial planning and offering financial advice

17:04

. How

17:06

can we distinguish between what's good and bad advice

17:08

today ?

17:09

no-transcript . Well , so the first part

17:11

of my answer is going to seem self-serving

17:14

, and maybe it is self-serving , but

17:16

one aspect is

17:18

to look at the experience of the person

17:20

giving the advice . There

17:23

is no LeBron James in the financial advice

17:26

business . I mean , there's nobody

17:28

who's great at this at the age of 18

17:30

or 22 . There is

17:32

a certain wisdom that's required . There's

17:34

a certain amount of experience that's required

17:36

to provide good financial

17:39

advice , at least in my

17:41

view . Look at the credentials

17:43

of the person giving the advice

17:46

. Do they have a CFA ? Do they have a CFP

17:48

? Have

17:51

they been doing it for quite some time ? So

17:53

I think that's important . There are many

17:55

, many people who are offering advice online

17:57

these days . Look at where that

18:00

advice is coming from . Look

18:02

at the experience and the credentials that have

18:04

gone into producing that

18:06

advice . Perhaps more broadly

18:08

, it's important to look at the advice

18:11

itself . Is it nuanced

18:13

or is it table-pounding

18:16

? Is it hyperbolic

18:18

? We see again so much

18:20

of this and unfortunately the internet allows

18:23

this abets this . There

18:25

are so many pop-up ads now from

18:28

certain quarters that are promoting

18:31

a 90%

18:33

crash in stock prices , 70%

18:36

crash in home prices , 300%

18:39

increase in gold prices . Whatever it may

18:41

be offering the

18:43

most aggressive , hyperbolic

18:46

opinions and

18:49

offering them with much certainty

18:51

. Not that this may happen

18:54

. This could happen . There's a risk . This might

18:56

happen , but this is going to happen

18:58

. We've all seen the ads , the banner ads

19:00

Wall Street Expert predicts

19:02

85% crash in 2024

19:05

. And when it doesn't happen in

19:07

2024 , that same

19:09

firm is going to be sending out a banner

19:11

ad in 12 months that says Wall

19:13

Street Expert predicts 85%

19:16

crash in 2025 . So

19:18

these certain extreme

19:21

forecasts always should be taken

19:23

with a major , major grain

19:25

of salt . A good forecast

19:27

, a good outlook , good advice

19:29

is nuanced . Again , the future

19:32

is uncertain . We don't know exactly

19:34

what's going to happen tomorrow . We know

19:36

the environment that we're in today . A

19:39

forecast and outlook , a prediction

19:41

, should be balanced along those

19:43

lines . Here are the upside risks

19:45

, here are the downside risks , here

19:48

is what the market has priced in

19:50

and here's where the balance of

19:52

risk is relative to what the

19:55

market has priced in . Good advice

19:57

is nuanced . Bad

20:01

advice , bad prediction , is hyperbolic

20:03

and very , very sure of itself .

20:06

When you were I'm curious about this when you were

20:08

interacting with some of the advisors and you

20:10

were making some of these risks

20:12

and the forecast and factoring

20:15

in various inputs for a much larger

20:17

pool of long-term capital

20:19

. Having that amount of money

20:21

on an insurance general account makes

20:24

some of the risk tolerance and time

20:26

horizon a lot different than , let's say , your 65-year-old

20:29

, with more to lose if there

20:31

is a market drawdown and things like that . So

20:34

I'm wondering how , in your shoes , were

20:36

you balancing , or maybe how to

20:38

CFI ? That is probably a good chance for your team

20:40

to explain how you're doing this . How are

20:42

you factoring that in with individual

20:44

advice relative to some of these major institutions

20:46

that have very different considerations

20:49

when it comes to how they can deploy capital and

20:51

what their risk tolerance is ?

20:51

Absolutely . It's

20:54

a great question , and so

20:57

for some individuals they're going

20:59

to be more risk loving than Midwestern

21:02

Insurance Company is . But

21:05

there's a great advantage in coming

21:07

from that world and that , because

21:09

we developed this framework at

21:12

a solid Midwestern

21:14

Insurance Company , it

21:17

was and is a

21:19

conservative way of looking at

21:21

the market . It's not an attempt to

21:23

capture every last basis point

21:25

. It's not an attempt to capture every

21:28

last percentage point in

21:31

terms of the market's upside

21:33

and downside , and so

21:35

our signals are meant to be early . They're

21:38

meant to give investors time to

21:42

move from a risk on to a risk

21:44

off posture or vice versa

21:47

, and we acknowledge that with all of our

21:49

clients . We're not trying to tell

21:51

you March 29th is the day

21:53

Okay , we see it coming Again

21:56

, we have the crystal ball . March 29th is the

21:58

day the market is going to turn . That's

22:00

when you want to get out , and then , on the other side

22:02

, december 11th is the day . That's

22:05

when you want to put the money back back to

22:07

work . This is a process

22:09

, and we stress

22:11

that we're in a risk on environment

22:14

, we're in a risk off environment and

22:16

as we transition between the two

22:18

, we have time to

22:20

adjust portfolios accordingly

22:23

. And , again , it's always couched

22:25

in terms of the clients , risk tolerance

22:27

and time horizon . Some clients

22:30

are more risk loving , some more

22:32

risk averse , some have longer time horizon

22:35

, some have shorter time horizon

22:37

. Those are all taken

22:39

into consideration , and especially for those

22:41

clients that have longer time

22:43

horizons , then the discussion can

22:45

turn a little bit more to the structural factors

22:48

rather than the cyclical factors . Okay

22:50

, we can stomach a

22:52

downturn , we can stomach a cyclical downturn

22:55

, but what does the longterm hold ? What does

22:57

the next 10 , 20 , 30 years

22:59

look like ? What's priced in for the longterm

23:01

and where is the balance of risks over

23:04

that longterm relative to what's priced

23:06

in ? So those things are always taken into consideration

23:08

.

23:10

When you said before about some of the advice

23:12

for people saying to make a decision by this point

23:15

or by March 29th , there'll be X

23:17

, y and Z market occurrence . I

23:20

think it was earlier this calendar or it might have been the end of 2023

23:23

. I'm going to forget the guy's name , but

23:25

did you see the author of

23:27

the Rich Dad , poor Dad book who tweeted

23:29

out how he was like largest

23:32

levels of something I don't know if it was loaned to

23:34

the Linguistics or everybody put out this tweet and he was like everybody

23:37

should be selling . It was either like their mortgage or something

23:39

else . It was like the most ridiculous comment forecasting

23:41

what was going to happen , which obviously did not happen whatsoever

23:44

. But that guy has a following of

23:47

investors because of this book he put out . It's just a

23:49

strange world we live in now where that stuff happens .

23:52

I think that's true , and it's unfortunately true . The

23:54

loudest voices are the ones that

23:56

often get the most attention

23:59

. There's an old saying Truth doesn't make a noise

24:01

. That's

24:03

really true . Truth is nuance , truth is uncertain

24:06

. Truth is in the balance

24:08

, not in the certainty . But

24:10

it's that certainty Sell today

24:13

, buy today , do everything

24:15

you can . Back up the truck today . Sell

24:17

it all tomorrow . That attracts attention

24:20

, unfortunately , so it encourages

24:22

more of these characters to make calls like this

24:24

.

24:25

I feel like it's also so easy and in

24:27

some ways , cheap , just for a lot of these . Use

24:31

whatever term you want , like fin influencers

24:33

, people use . Anyone can create

24:35

a social media account and then issue

24:38

quote unquote like finance tips . That's

24:40

a lot different than , I think , true advice

24:43

and assistance . So , really like

24:45

in a world where there is virtually access

24:47

to unlimited information , what

24:50

would you say is actually that case for

24:52

professional financial advice and assistance

24:54

? Why will that be so much more important ? On

24:56

a go forward basis .

24:58

I think those two things really feed into each

25:00

other . The fact that there is unlimited

25:02

financial advice , unlimited financial

25:05

information , today means

25:08

that there's a lot of bad information , unfortunately

25:11

, and

25:13

that , in and of itself , creates more volatility

25:16

in financial markets . We saw

25:18

that with the Reddit influence

25:21

when the market was running up in 2020

25:24

and 2021 . And

25:27

I think we're going to see it more going forward . That

25:31

influence is only going to grow , for better

25:33

or worse , and it does

25:35

introduce another layer of volatility

25:38

. I think , for structural reasons

25:40

, we have moved into an era

25:42

of greater volatility . Anyway

25:44

, the Federal Reserve

25:47

has done a pretty good job over time

25:49

of taming the business cycle not conquering

25:52

the business cycle , but taming

25:54

the business cycle such that we

25:56

now have longer expansions and

25:59

, in general , shorter recessions

26:01

, although not always , but we have

26:03

longer expansions . We go for

26:05

longer periods in

26:07

between economic downturns

26:10

. That's a good thing in general

26:12

, but it also allows for bubbles to build

26:14

in financial markets . It allows for

26:16

financial markets to

26:19

reach valuation levels that they

26:21

wouldn't have or didn't in

26:23

an era when expansions

26:25

were generally three , four or five

26:27

years in length , but now

26:30

that we often see expansions of eight

26:32

, nine , 10 years or longer

26:34

, that potential

26:37

is there , that we can see much higher

26:39

prices across asset classes

26:41

, see much richer asset classes

26:43

. And that means when the turns do

26:46

come , when we finally do fall into

26:48

recession just as happened , for example

26:50

, in 2001 or

26:52

in 2007 , when we finally

26:55

get that turn , it's a big

26:57

turn and it's a painful turn and

26:59

it's a long , lasting turn , and

27:03

those turns are tough and take a

27:05

long time to recover from . And

27:07

so there is a great case to be made

27:10

for sound financial advice

27:12

. Because the highs are higher

27:14

structurally in

27:16

recent decades , but because

27:18

the highs are higher , the downturns

27:21

are more painful , the downturns are

27:23

deeper . And so to have good

27:25

financial advice to help you manage that

27:28

, to help you move through , that , I

27:30

think , is increasingly valuable . Good

27:33

financial advice has always been valuable

27:35

. I think it's increasingly valuable

27:38

given these structural changes and

27:40

some of these changes in terms of

27:42

the supply of financial advice

27:44

itself . That by itself

27:47

injects even more volatility .

27:49

What are some of those long term

27:51

structural trends that you're seeing when

27:53

it comes to the actual supply and

27:55

demand of financial advice in the future ?

27:59

So obviously , the drop

28:01

in the barrier to entry is probably

28:03

the biggest structural

28:05

change , that anybody can give

28:07

financial advice online

28:09

now . Anybody can set up shop , anybody

28:12

can put it , set up a website , anybody can

28:14

set up a Twitter account and

28:16

simply just start giving , doling

28:19

out , financial advice . The

28:22

supply is unlimited and , of course , this is

28:24

true in every walk of life . The supply

28:26

of travel

28:29

advice is now unlimited . The

28:31

supply of cooking advice is

28:33

now unlimited . The supply of health

28:35

advice or beauty advice is

28:38

now unlimited . So

28:41

that's the big structural

28:43

change . I think the other change

28:45

is what we hinted at earlier

28:47

, in that the Fed has really

28:49

changed the nature of the business

28:52

cycle and so we don't

28:54

spend a few years in expansion , a few

28:56

years in recession , and we don't have that cleansing

28:59

process every few

29:01

years . The cleansing process might come once

29:03

a decade . Now there's a case

29:05

to be made that if it weren't for COVID

29:08

, that expansion that

29:10

began in 2009 might

29:12

still be going Now I think

29:14

there's a strong case on the other side that we would have

29:16

had a recession in 2020 anyway

29:19

, but we don't know that for sure . That

29:21

expansion already , even when

29:23

COVID hit , was

29:27

an 11-year expansion . I

29:30

mean , it was the longest expansion in US history

29:32

when it finally came to an end in

29:34

2020 , nearly an 11-year

29:37

expansion , and it wasn't that

29:39

long ago that we had a 10-year expansion from

29:41

91 to

29:44

01 . So we have these very

29:46

long cycles now and

29:48

a lot of imbalances can build in the financial

29:50

markets over these long cycles

29:53

and that can mean that you see

29:55

more time for

29:57

bubbles to build . You see more interest

29:59

in some of the more fringe areas of

30:02

the market . But that also means

30:04

that when we finally do get the downturn

30:07

, it can be a painful downturn . That

30:09

turn that was 10 years

30:11

and coming , 12 years and coming maybe in the future

30:14

, 15 years and coming . When it

30:16

finally does hit , it could be very , very painful

30:18

.

30:20

Yeah , I would need some more data to probably back

30:22

this one up . But people don't necessarily

30:24

come to this podcast for all of the fancy stats

30:26

. There's plenty of podcasts that have that . But I

30:28

get the sense that some of the pockets of

30:31

commercial real estate are almost in

30:33

that mega downturn

30:35

phase and I think there were some factors fueling from COVID

30:37

. But it seems like it's a

30:39

tough go right now for all those commercial assets

30:41

that are not really being occupied because basically

30:44

the labor force is not going back to the office and

30:46

now , in what used to be your

30:49

class A real estate property is

30:51

now at class

30:53

C prices and it's not going to necessarily

30:55

change anytime soon .

30:58

Sure , there are big structural changes like

31:00

that and that also means

31:02

that you don't have to live near the center

31:04

of a city anymore . You don't necessarily

31:07

have to be close to your job anymore

31:09

. You don't have to live close to your job anymore

31:12

. That has big implications for the housing

31:14

market . So that's a big structural

31:16

change that has a direct influence

31:19

on the investing landscape . And

31:21

, of course , there are many like that that are

31:23

in various

31:25

varying degrees of train right

31:28

now the aging of the population

31:31

, the fertility crisis , which

31:34

continues to worsen across

31:36

much of the world . What does that

31:38

mean for where we take risks going

31:40

forward and where we find growth going

31:43

forward in a world where potential

31:46

economic growth , structural

31:49

economic growth in much of the

31:51

world is slowing , when do we find

31:53

that growth ? I think there's a case be made that many

31:55

investors will go further

31:57

out the risk reward spectrum when

32:01

growth in many developed countries

32:04

again continues to structurally

32:06

slow . So there are some longstanding

32:09

changes , long term

32:11

structural changes . They're going to have big , big

32:13

impacts on the investing world in the years to

32:16

come .

32:18

Some of the ones you mentioned , with the not

32:20

needing to be near the city , which impacts the

32:22

residential real estate . I feel like , for

32:24

someone who's kind of like my age and

32:26

I experienced that , so that was

32:29

the first large

32:31

trend that I've actually seen play out

32:33

in my day to day and in how

32:35

my peers and people around my age have made

32:37

decisions . So this

32:40

is interesting . I'd like to ask you this question Of

32:42

all of the larger scale

32:44

structural changes that you're seeing

32:47

purely from the investment standpoint , are

32:49

there any that you're observing

32:52

or experiencing in your

32:54

day to day that you kind of , just when

32:56

you think about it , you're like here's on paper all these structural

32:58

changes . We could always talk about that but you're actually seeing

33:01

this day to day , whether it's maybe the aging

33:03

population or some of this residential

33:05

real estate and how that impacts . Are there any that you're

33:07

seeing in your life more than others ?

33:10

Well , the real estate market

33:13

is an obvious one . What's

33:16

happening there is an obvious one because

33:18

we're seeing it in prices , and

33:22

so you know I've been a

33:24

home shopper

33:26

from time to time over the last

33:28

few years and have seen

33:31

some amazing moves

33:33

in some markets that

33:36

I've been following . Some markets have

33:38

gone up very , very slowly , but some have skyrocketed

33:41

in just the last few years , and

33:43

it's a direct consequence of the ability

33:45

to work remotely and

33:48

the diminished need to be tied

33:50

to a job location . The

33:53

other thing that's tied

33:56

somewhat to that , that

33:58

, I think , is an important structural

34:01

change , and perhaps a sustainable

34:03

structural change . This

34:06

is the structural tightness in the labor market

34:08

. So it's an often

34:10

reported statistic , but even after some

34:12

slowdown in the last couple of years

34:14

, it's still true . There are more

34:16

job openings today , still more

34:19

job openings today than there are unemployed

34:21

people in the US

34:23

, or at least officially classified

34:25

unemployed people in

34:28

the US . Job

34:31

growth has slowed over the last year , so

34:33

job openings have come down

34:36

. Typically in this environment , you would have expected

34:38

layoffs to pick up , layoff

34:40

announcements and actual layoffs to pick

34:42

up , unemployment claims to pick

34:44

up . We haven't seen that , and in fact a

34:46

few weeks ago we got close

34:48

to our lowest level of unemployment claims

34:51

since the 1960s

34:53

, when , of course , the labor market was quite a bit smaller

34:55

than it is today . So the labor

34:57

market is structurally tight

34:59

. We've moved into an era of structural

35:01

tightness in the labor

35:03

market and I think that's probably

35:06

influencing risk taking

35:08

to a significant degree . The

35:12

YOLO dynamic

35:15

of the past few years . Part of that

35:17

is fueled by the fact that there is a backstop

35:19

, or at least I think for many people

35:21

. They feel a backstop . They feel confident

35:23

that if it doesn't work out , I

35:26

can just simply fall back and find

35:28

a job because there are so many jobs , jobs

35:30

are so readily available and

35:34

I don't have to worry about a job

35:36

not being there If my investment

35:39

in this cryptocurrency doesn't work out

35:41

or this venture that I'm trying

35:43

doesn't work out , whatever it may be , I

35:45

think it bets a

35:48

greater risk taking , and

35:50

we've seen that over the last few years

35:52

in financial markets

35:54

. So yet I mean to answer your question directly

35:57

. I see these structural changes

35:59

in home prices in different

36:01

markets . I mean you can see

36:03

down the road there will be some pullback

36:06

. I mean we'll see the headlines

36:09

that say the recovery of the cities . There

36:12

will be some move back into offices

36:14

, maybe very slowly over

36:16

time , but I think we both know , and everybody

36:18

listening to this podcast knows

36:20

, we're not going to go back to 2019

36:23

. That world is gone

36:25

and probably gone forever , yeah .

36:28

Maybe the buildings themselves get repurposed

36:30

or they're kind of more of like a mixed-use

36:33

facility versus pure commercial . But yeah , that'll

36:35

definitely change . Here in Boston they just opened

36:37

up one of the newer office buildings

36:39

which obviously was Construction Post , COVID

36:41

. I think the first two floors

36:43

are like dining . It's

36:45

like a mix and match of

36:47

popular restaurants , so it's kind of like a food court of

36:49

things , and I think there's one floor residential

36:52

, then another one of commercial . So it's like all these mixed-use

36:54

properties now which hopefully will have the high

36:56

occupancy rates and get tenants .

36:59

Sure , I mean , there's still a case to be made for

37:01

the cities and

37:04

I think one of many other

37:06

structural changes over the last few

37:08

years is the move towards services

37:11

and away from good spending . That ebbs

37:13

and flows , but we've seen it really move

37:15

sharply over the past couple of years

37:18

and you see that evidenced in tickets

37:21

for sporting events , tickets for concerts

37:23

. Those have skyrocketed

37:26

over the last few years . So

37:28

there's still something to be said for the energy

37:31

of the city , for the amenities available

37:33

in the city . If you like going to sporting

37:35

events , if you like going to the theater , you

37:38

like going to concerts , those opportunities

37:40

are available in big ways

37:42

still in the city , much more so

37:44

than in the suburbs . So there's

37:46

still a case to be made and again , you can see

37:48

down

37:51

the road that there will be a

37:54

trend back into

37:56

cities . We're just not going to

37:58

be working there like we were before .

38:01

Yep , 100% . I agree on that . You

38:04

also gave me a great idea before with your comments

38:07

that we should start the internal

38:09

use-only podcast , the YOLO

38:11

indicator of

38:13

young individuals with speculative risks and how they

38:15

play out over time . Absolutely

38:18

.

38:19

And you know I mean it's happening

38:21

like clockwork . So every

38:23

there was the old line from Paul Simon

38:25

every generation sends a hero up the

38:27

pop charts . Every generation

38:29

also blows a bubble in the financial market

38:32

. So we had the bubble of the 1920s

38:35

. We had a sort of bubble in the 1960s

38:37

with the Nifty 50 . We had the

38:39

bubble in technology stocks in the

38:41

1990s . We're due

38:43

here in the 2020s and it seems like we're

38:46

getting it . And it's this new generation

38:48

, the YOLO generation , that's

38:51

spending time or at least some

38:53

of them are spending time , or we're spending time on

38:55

Wall Street bets , spending time on

38:58

Robinhood trading , cryptocurrencies

39:00

, trading , meme stocks , and

39:02

this doesn't get washed out until

39:05

there is a deep , deep and

39:07

extended turn in

39:09

the markets themselves . Some

39:12

of us remember the buy the dip mentality

39:14

in the 1990s . There was some big volatility

39:16

in the 1990s . We had

39:19

a near bear market . In

39:21

1998 , after

39:23

the emerging markets crisis , we

39:25

had a correction in 1999

39:28

. We had a correction in 1997

39:30

. And it was a buy the dip mentality

39:33

. Those corrections , those

39:35

deep corrections , were not enough to

39:38

change the mentality , and

39:40

what we had in 2022 , I don't think is

39:42

nearly enough a mild bear

39:44

market in 2022 , not nearly

39:46

enough to wash this out . So

39:49

I think there is some big

39:51

upside risk in markets

39:53

over the next five years or so

39:55

because you have

39:57

this mentality and there is nothing

39:59

yet to push back

40:01

against this mentality , to stop this mentality

40:05

, this YOLO mentality

40:08

that developed a few years ago .

40:09

Thank you , Well , this has all been fantastic

40:12

perspective on some of the structural factors

40:14

that are out there and what it means , or

40:16

the impacts of some of these forecasts . So , brian

40:18

, I certainly appreciate this . I got

40:20

a couple more questions for you that I want to make a part of

40:22

our closing segment and then we'll send you off

40:25

here to the rest of your Friday . Sure , all

40:28

right . So I did want to ask this because you've spent a

40:31

significant amount of time working in partnership

40:33

with the wholesalers out there , so

40:35

probably facing off with advisors , having good conversations

40:38

with advisors traveling . Can you

40:40

recall any memorable experiences

40:43

that either maybe

40:45

an advisor like pushed back or was just kind of like totally

40:47

off their rocker , or maybe any just

40:50

like wacky circumstances that happened in

40:52

a meeting from all of that time as

40:54

you partnered with your wholesalers out there ? Because I think the wholesalers

40:56

love the stories , so I'd like to see if you got

40:58

any that you recall of fond memories while you have been

41:00

on the road or traveling together .

41:02

Well , yeah . So I mean , there are many , many stories

41:05

, many , many great trips with

41:08

so many great wholesalers , all

41:10

night drives through Tennessee , all

41:13

night drives through Kentucky . But

41:16

the most memorable story maybe I don't

41:18

recall it so fondly , but with

41:21

some distance , of course , I recall it fondly now

41:23

. So I went to Omaha once to

41:26

meet a wholesaler and

41:29

before the meetings he called me and said

41:31

look , we're going to be meeting in a number of different places

41:34

, so why don't you just stay with me

41:36

instead of getting a hotel ? I

41:38

said , fine , that makes a lot of sense . So

41:41

he picked me up at the airport and we drove

41:43

to his house and

41:46

I knew something was amiss immediately

41:48

, because he was going at

41:50

least 90 miles an hour , weaving

41:53

in and out of traffic while

41:55

looking at me directly the entire

41:58

time . Oh no , he was making

42:00

great eye contact during our

42:02

conversation . We were just kind of getting to know you

42:04

. But he was weaving in and out

42:06

of traffic at a very high rate of

42:08

speed and wasn't looking at

42:10

the road at all , maybe glancing at

42:13

it every now and now and again , but

42:15

his eyes were focused on me so

42:19

I was a little shaken . So

42:21

I got to his house near

42:24

downtown Omaha and

42:27

I got out of the car and he said wait here . So

42:30

I was already a little

42:32

shaken up and I was already questioning my

42:34

decision to stay at his

42:36

house after this harrowing drive

42:38

from the airport . And

42:40

so after a minute I see

42:42

him coming out of the garage with an angry

42:45

look on his face and a shotgun

42:47

in his hand . Now we're

42:49

in the middle of , or very close to , downtown

42:52

Omaha and I see this guy coming at me

42:54

who I already think may be crazy , and

42:56

he's got a gun in his hand . So

43:00

I dive like behind the car . You

43:03

know I thought , oh my god , this guy called me here to kill

43:05

me . Then I hear

43:08

a couple of shots and

43:10

hear a few birds

43:12

flying away and I hear him grumble

43:14

while he's damn pigeons . The only way

43:16

I can get rid of them is to shoot them . So

43:19

I breathe a big sigh of relief

43:21

and walk

43:23

into the house and after a few

43:26

hours was able to compose myself . So

43:28

that was one of the more memorable

43:31

trips I've had with

43:33

the whole sailing community .

43:35

I have so many questions on this . So

43:37

first , no heads up to you . Did he give you a heads up that he was going

43:39

to go blast some pigeons with a shotgun

43:42

? And then I guess . Second , I guess that doesn't make up

43:44

for the speed chase between the airport

43:46

and the house , unless he was rushing it back to the pigeons .

43:49

No , no , not at all . So there was no warning

43:51

whatsoever . He simply said wait here

43:53

, and then went back

43:56

into the house and the next thing I

43:58

knew he was walking

44:00

towards me with

44:02

a very angry look on his face and

44:04

a shotgun . So

44:08

no warning whatsoever . It

44:11

was for at least a few

44:13

seconds . I had my life flashing

44:16

before my eyes and

44:20

, to answer your second question , it

44:22

at least helped me to forget the harrowing

44:25

car ride from the airport to his house

44:27

.

44:29

And all lost in all of this , the fact that you're just going

44:31

to now be staying at this individual's house

44:33

for the next couple of nights . You're like , wow , what a great introduction

44:35

to the beginning of this trip for us .

44:37

Exactly so , as you can imagine , I didn't get much

44:39

sleep those few

44:41

nights . He

44:44

was a very nice guy . He

44:47

left a copy of the Economist

44:49

and a roll of Mentos

44:52

on my pillow the

44:54

first night , so he made me

44:56

feel very much at home after

44:59

scaring the daylights out of me in

45:03

the first few moments .

45:05

We've officially documented a funny story where

45:07

there's been a blending of traveling

45:10

economics , economists , wholesalers

45:12

and firearms . So that

45:14

is wild , but thank you for sharing that .

45:17

Absolutely , and we live to tell the tale .

45:19

That's right , all right . So

45:21

my last question here Merriam had

45:23

given me a heads up that you are a

45:26

sports fanatic , with some

45:28

stats and just errors of different

45:31

teams and different sports , and I know you've made

45:33

some sports references today . Are

45:36

there ? Do you have any one specific

45:38

sports stat or sports moment

45:40

throughout the history of sports that stands

45:43

out to you amongst the rest , as far as just an incredible

45:45

, either like negative information or

45:47

like statistic that maybe goes overlooked

45:50

?

45:52

Oh , wow . So that's a great question . Well

45:54

, you know , I'm a Steelers fan and

45:59

so much of my as

46:01

some of my friends know , so much

46:03

of my sports trivia revolves around

46:06

the Steelers or the Pirates

46:08

or the Penguins . But much

46:10

has been made , of course , of Mike

46:12

Tomlin's streak . He

46:15

just finished his 17th season

46:17

as head coach of the Steelers

46:19

and he has never had a losing record

46:21

and , of course , not even Bill Belichick

46:24

can say that it's an amazing streak

46:26

. But maybe one thing that's overlooked in

46:28

that streak is that since he

46:30

became head coach in

46:33

2007 , he's

46:35

coached almost 300 games

46:37

with the Steelers and the

46:39

NFL . He has only

46:41

coached one game . He

46:43

has only gone into one game over

46:46

those 17 seasons , almost 300

46:48

games , only coached one game where

46:50

he went into the game eliminated

46:53

from playoff contention . So the

46:55

Steelers haven't always made the playoffs , of course

46:57

, but they've always been in the mix up

46:59

until the last week , other than

47:01

one year in one game . Pretty

47:04

amazing statistic .

47:06

Yeah , that is Wow , and especially as a fan

47:08

. Right Like when all you want as a fan

47:10

is hope that you can get into the playoffs

47:13

, right Like , no matter what I mean . Obviously you have different

47:15

expectations depending on how your team is doing . Some

47:17

groups are demanding a Super Bowl , but like collectively

47:20

as a fan base , to have that hope that the ball

47:22

is in our hands , we can control our destiny

47:25

. And the fact that there was only one game where

47:27

they were mathematically eliminated from playoffs

47:29

over 17 seasons I

47:31

don't know if I've heard that one before that's pretty spectacular .

47:34

Exactly , it's nice , we're always in it . I

47:36

mean , we had a guy named Duck Hodges

47:39

playing quarterback a few years

47:41

ago and he's somehow

47:43

rang an eight and eight season out

47:45

of this guy . So

47:48

a lot of Steeler fans are calling

47:51

for Tomlin to step down , calling

47:53

for his firing . I think we can

47:55

do a whole lot worse . I'm glad he's our coach

47:57

.

47:58

He's been a fixture , at least for like when I've

48:00

been following the NFL . He's just been one of

48:02

those like staple coaches , like whenever

48:04

he stops , that'll be like a

48:07

generational coach gone . So nothing

48:09

, I'm a Steeler's fan , nor do I have any skin in the game , but

48:11

it's one of those familiar faces on the NFL coaching

48:13

ranks that I always like to see , year in and year out

48:15

.

48:16

Absolutely so . A standard that

48:19

makes you feel connected to the past . You know

48:21

, I mean the Steelers have had three coaches since

48:23

1969

48:25

. So it is they've been the model

48:27

of continuity and , yeah , for some of us that's

48:29

great to see .

48:32

Are there any others that stand out , or should you close it on that

48:34

? I feel like that was a great one .

48:36

That's a good one . That heading into the

48:38

Super Bowl , that's a good one to close it on .

48:40

Absolutely yeah . This episode will probably

48:42

launch shortly after the Super Bowl

48:45

too , so we'll make sure we get that out .

48:46

Absolutely Sounds good .

48:47

Okay , terrific . Well , brian , thank you

48:49

so much for joining . This was a pleasure . It's

48:52

fun to be able to speak to someone who's got such

48:55

a great understanding and background of some of the

48:57

structural factors that impact

48:59

investors . So thank you for bringing this

49:01

to a level that's going to make sense for individual

49:03

investors and then for those of us that work

49:06

in the industry that get access to some of the information

49:08

about forecasts and about some

49:10

of these macro backdrops . It's

49:13

great for us to blend these two together . So thank

49:15

you for spending time with us today .

49:16

Great Thank you , Dan . It's my pleasure .

49:18

Thanks for listening . Find

49:21

us on Instagram at internal use only

49:23

podcast or email us at

49:25

internal use only podcast at

49:27

gmailcom . Fans of Canvas coffee

49:35

events are generally focal continued .