Disclosure: This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Alex Mihajlov is a board member of the SPCA of Wake County. Olde Raleigh Financial Group and Advisory Services Network, LLC, are not affiliated with SPCA of Wake County.

In this episode of The Soundtrack of a Financial Advisor’s Life, Trevor Chambers and Alex Mihajlov of Olde Raleigh Financial Group sit down with Kim Janzen, President and CEO of the SPCA of Wake County. They discuss the SPCA’s groundbreaking new $27 million regional campus for pets and people, the organization’s lifesaving work across 58 North Carolina counties, and innovative programs that keep pets with the families who love them. From large-scale rescues to partnerships like Meals on Wheels for pets, this conversation highlights the transformative impact of community-driven animal welfare.

CHAMBERS:  Hey, everybody. It's Trevor Chambers from Old Raleigh Financial Group. Once again, putting another podcast out from The Soundtrack of a Financial Advisor's Life. 

As always, I have Alex Mihjlov, founder of Olde Raleigh Financial Group, here in sunny Raleigh, North Carolina. And today, we're very excited. We've got Kim Janzen. Hi Kim Janzen. How are you? 

JANZEN:   Hello.

CHAMBERS: Good to have you. You are the president and CEO of the SPCA of Wake County, and we are excited to talk. We are big fans of pets and in pets’ adoption. And – and so we just wanted to see what's going on with you guys. And big -- big things are happening. 

JANZEN:   Big things are happening. 

CHAMBERS: Yeah. Tell us about, like, what's going on. We were talking about it earlier before we started. This spring -- we've got -- we've got a big event happening and then let's talk about how this has all come about and the history of that. 

JANZEN:   Absolutely. So, this March, we will be opening North Carolina's first ever regional campus for pets and people.

CHAMBERS: Nice.

JANZEN:   It is a $27,000,000 project, a building designed by Animal Arts, an architectural firm that does nothing but veterinary clinics and animal shelters. And we are building this to both deepen the services that we are able to provide in Wake County and expand the services that we're able to provide in the 58 counties we work with in North Carolina. 

MIHAJLOV: Kim, tell us what you're not. You're not part of -- you're not a government agency.

JANZEN:   Not a government agency.

MIHAJLOV: You're not getting -- you don't get money from the government. What else don't you get money from? 

JANZEN:   We don't get money from the ASPCA. 

MIHAJLOV: So you're not part of the ASPCA? 

JANZEN:   We're not -- we're not part of the ASPCA at all. And for those of you who are unfamiliar, that's the association -- it's the American Association for the Prevention of Cruelty to Pets. And, no, we're have no affiliation. 

MIHAJLOV:  So tell us a little bit about the background of this project. How did it come on? What -- what made you decide to do this? All that. 

JANZEN:   This really came out of a strategic plan that the board approved in 2017. And we had taken a step back to look at what our community really needs and, honestly, what North Carolina needs in terms of animal welfare. And we saw an opportunity for the SPCA to really step up and fill an expanding role in saving pets from unnecessary euthanasia in North Carolina. So out of that came two really important things. One is we are expanding our services across North Carolina.  Again, we work with 58 counties transporting animals from those shelters where they're at risk for -- most at risk for euthanasia -- transporting them into our care, providing the medical care that's necessary, behavioral support that's necessary, and then adopting them out. We also expanded our services, our people facing service. We also expanded our people –

MIHAJLOV:  Because there's two ends of the leash. Right? 

JANZEN:   Well, we also we also expanded our people facing services because we know that the best possible scenario for any pet is to remain in the home where they belong with their family. So by focusing on the other end of the leash, as I like to call it, we're able to provide people, primarily those with economic need, the resources that they need to keep their beloved pets in the home. That's a win for the community, it's a win for the animal. It's a win for the pet and family, and it's a win for the community. 

MIHAJLOV: Speaking of wins, tell us -- you always have some great moments of -- of rescue. Tell -- tell us your -- your favorite moment or your most recent moment of rescue that you -- you always like to share. 

JANZEN:   Oh my goodness. So many. So on a larger scale, I'll tell the story about how we got a call one day from our friends at the Johnston County Animal Shelter. And they had, in their lobby, they had an elderly gentleman who was -- had came to them and said that he needed to relinquish all 17 of his dogs because he was unable to care for them and he needed to bring them in the next day. And their shelter was completely full. So they called us and our team scrambled around, found the space that was necessary, and we took in 17 dogs that were already at Johnston County so that they could take in his 17 dogs. It's an -- it's an awesome story of partnership and collaboration. 

MIHAJLOV: So the SPCA not only helps Raleigh, North Carolina, but you cover 58, you said, counties in the state of North Carolina. So you're kind of a North Carolina wide type organization almost. 

JANZEN:   Well, we certainly aspire to that.

MIHAJLOV: Right.

JANZEN:   Yes.

MIHAJLOV: Right. 

JANZEN:   We have public - private partnerships with 58 counties, and our vision is to deepen the services that we're providing to those counties to provide prevention services as well as the transport program that we already have in place. 

MIHAJLOV: Why do so many animals end up in shelters? What's the leading cause of an animal ending up in a shelter? 

JANZEN:   It's such a great question. And honestly, it -- it changes from decade to decade. Right now, through our pet helpline where we gather the data for what is happening in our community right this red hot second, we know that affordable veterinarian care is becoming scarcer and scarcer for people. And so many times people surrender their animals because they can no longer afford the veterinary care necessary. That's how I got my own dog from the SPCA. And also there are so many life changes that can cause a very necessary pet surrender. A person might be deployed, they might have a lifestyle change, like they have a baby, and a pet just is a little bit unmanageable, they might have a pet who has, you know, maybe chewed a couch for the fourth time, and the most frequent reason that pets end up in shelters is behavior. So one of the things that we're going to be able to do in our new facility is provide pet behavior programs that again help keep pets in homes. 

CHAMBERS: I wanted to ask you this new expansion, you're gonna be able to do a lot more spays and neutering, like a lot more.

JANZEN:   A lot more.

CHAMBERS: Which is a huge driver of keeping the population. It’s all this. Yeah. 

JANZEN:   It is. Thank you for asking that. Right now, we do about 5,000 spay and neuter surgeries a year. And because we designed the facility with two operational surgery suites, we'll be able to expand that number to about 10,000 a year. 

CHAMBERS: That's great. 

JANZEN:   That's double. Yeah. The impact of that is just tremendous.  We also have a mobile vehicle that we hope to use to take services to those rural counties. 

MIHAJLOV: And so you're providing low cost spay and neuter services to not only Wake County but a lot of other counties? 

JANZEN:   Not yet. That's our vision. 

MIHAJLOV: That's your vision? 

JANZEN:   Yes.

MIHAJLOV: Okay. Cool.

JANZEN:   I mean there people who come from surrounding counties for services because finding affordable spay and neuter is difficult. 

MIHAJLOV: Talk a little bit about -- you were talking about the Meals on Wheels program for people. Tell -- tell us about the Meals on Wheels program for pets. 

JANZEN:   So one of the things that we believe very strongly in is the power of collaborative partnerships. We can do so much more by working together than we can alone in our own little silos. In 2020, we created a partnership with Meals on Wheels of Wake County, and they have become our primary way to distribute pet food. What they were seeing from their end were families who were actually splitting their Meals on Wheels food with their pet and really not getting enough nutrition. So by providing pet food and supplies through Meals on Wheels that provides -- it increases the likelihood that pets are going to be able to stay in homes. And I can't underestimate the power of pet companionship.

CHAMBERS: Yeah.

JANZEN:   Especially for elderly folks who might be living alone. 

MIHAJLOV: You -- you were telling the story. It came about because people were splitting their meals with their animals instead of eating all their own meals 

JANZEN:   Yes. 

MIHAJLOV: Their medication and all that stuff. 

CHAMBERS: Yeah. It's crazy. So the driver’s basically for abandonment or inflation. The –

JANZEN: Uh-huh.

MIHAJLOV: Medical care.

CHAMBERS: Lack of vets in the deserts for vet care –

JANZEN:   Veterinary deserts.

CHAMBERS: -- space. That's -- and then an aging and then an aging. And just generally the aging population not being able to handle it. Yeah. So -- so there's a lack of vets in -- in --

JANZEN:   There is. We don't see that much here in in Raleigh. We see it in surrounding counties especially. 

MIHAJLOV: And you -- the other thing that always amazed me was the number of pure breed animals that end up to show -- the -- the breeders sell them. People then leave them at shelters. You wanna talk about that and just talk about the animal population? I think there's some misconceptions about the animal population at shelters. 

JANZEN:   Sure. We don't track breeds specifically, but what I can tell you is the field of animal welfare has changed significantly in the last twenty years. And the way our community perceives animal shelters has really transformed. So it used to be that we were seen as the pound or that animal shelters had, you know, pets who were, they were all abused, or they were, you know, those kinds of situations. And it's just not true. 

We have really great pets for adoption. Some of them look like pure breeds, we don't actually know that, but that is a misnomer. And also, the statistics have changed. When I first got into animal welfare twenty-two years ago, we took in about 60% dogs and about 40% cats. And now that is exactly opposite. We take in 60% cats and about 40% dogs. Wow. And here's the really awesome thing is the cats that come into our care -- cats and kittens, absolutely fly out the door. The demand for felines are -- of every age, every size is just tremendous. 

CHAMBERS: Is it just easier to take care of, lower -- lower financial –

JANZEN:   I think that’s part of it. And I think that's part of it. I mean, people are -- are working so much. They're a lot busier than they used to be ten years ago. Yeah. The vet care is slightly less expensive. And, also, I think I think dogs are more likely to be spayed or neutered. 

CHAMBERS: Yeah. You know, if you folks have not gone out there and checked it out, check it out. It's amazing. Couple things. One -- one of the things that blew me away about you, Kim, when I first met you, Alex, and I went up and toured that. It must have been about sixteen, seventeen. When you yeah --  and they merchandise these animals. Now I don't mean that in a bad way. I mean that in a good way. And it's just you guys just do it at a such a high level of the place. The place is nice. It's clean. The staff is great. I mean, it's just amazing. You guys –

JANZEN:   Well, thank you for saying that. We really wanna be a destination for our community, and we do that by not I mean, the most important thing is that we designed that facility to make every animal stay as healthy as possible and as short as possible. And what that means is an extreme focus on animal comfort and reducing stress. And so that's how our facility is designed to begin with, but it's also designed for people to make every visit a positive experience. And that makes a tremendous difference. The animals market themselves. 

MIHAJLOV: The so this campus is gonna be very, very exciting. What -- what brought you to Raleigh? 

JANZEN:   What brought me to Raleigh?

MIHAJLOV: Yeah.

CHAMBERS: Kansas girl. Right? 

JANZEN:   Kansas girl, yeah. Go Shocks. 

CHAMBERS: Yep. Woo Shocks. Very specific to Wichita State University.

JANZEN:   Wichita State University. Yes.

CHAMBERS: We did a little research. 

JANZEN:   Yes. I was the president and CEO for the Kansas Humane Society for ten years. We did a big expansion project there. After we got all settled in a couple years, I was a little bit bored. I was ready for a new challenge.  So I came to Raleigh, North Carolina. 

MIHAJLOV: But tell--  tell the story about how you found out about Raleigh, about -- about the job in Raleigh. 

JANZEN: So after I had worked for the Kansas Humane Society for a while, I knew that if I wanted to stay in animal welfare, I was going to have to think about moving. And because I'm a farm girl, moving away was on the list of things I can't possibly ever do. But I started thinking about it and the more I -- and the really significant part here is that my professional mentor retired and he and his wife moved to Hendersonville and we were very close. So I started thinking, well, maybe North Carolina would be a great place to live. And I was at an industry conference and said to a bunch of my colleagues over lunch, you know, someday I'd really like to live in North Carolina. Less than two hours later, one of those people came up and said, did you see that the SPCA of Wake County in Raleigh just posted their executive director position? And I was floored. I thought, oh my gosh, universe, that was fast. Yeah. And I applied for the position.  It -- I mean, it was just absolutely meant to be. Yep. So that was in July. And by the end of November 2013, I was here. Wouldn't go back for anything. Met my husband once I was here for a couple years. Nice. Yeah. 

CHAMBERS: Got a husband out of it. That's good. 

JANZEN:  Yes. Not bad. 

CHAMBERS: Not bad.

MIHAJLOV: You -- Wake County's lucky to have you, and S lot of animals have been saved because of your efforts, and you got a great team. And, of course, I'll -- I'll do the full disclosure. I'm on the board. That's -- you're certainly amongst my favorite charities, so I appreciate -- appreciate the work you guys do. I love the hometown aspect of the charity. 

So if you're proud of Wake County, this is a great place to give your time and treasure to. And you guys are looking for volunteers all the time. 

JANZEN:   We -- we are all the all the time. And what I'll say here is if you are interested in volunteering, supporting us in any way, making a -- a gift to either the campaign or to our operating fund, you can find all of that information at our website at spcawake.org. 

MIHAJLOV:  Along with a lot of great pictures of dogs and cats that are adoptable. 

JANZEN:   Yes.

CHAMBERS: And people specifically could be one of the 700, I think you said earlier, adoption -- kinda network people out there to adopt. Oh, not to adopt –

JANZEN:   -- to foster.

CHAMBERS: -- to foster, yeah.

JANZEN:   We're always looking for new foster homes. 

CHAMBERS: 700 different people do that. That's great. Yes. That's how you get it done. Teamwork makes a dream work. 

JANZEN:   That is exactly right. 

MIHAJLOV: What -- what percentage of fosters are foster fails? Meaning, people get the dog and go, I'm not giving this dog up. 

JANZEN:   We don't call them foster fails. I think of that as our satellite adoption program. 

CHAMBERS:  Exactly. On the margins. Right? It's all on margins. That's right. 

That's great. Awesome. Well, Kim, it's been a pleasure.

JANZEN:   Thank you.

CHAMBERS: We -- so much thank you. Thank you -- come in and let's do this again. Let's circle back and -- let's do

JANZEN:   Let’s do it once the facility opens.

CHAMBERS: Yeah. Yeah. That's right. That's right. So plus you have the furball coming up this fall. So yeah. Well, thank you for coming out. We very much appreciate it. Once again, we just completed another podcast with a soundtrack to the to a financial adviser's life here at Old Raleigh Financial Group. Thanks, folks. 

Disclosure: This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. Olde Raleigh Financial Group, Advisory Services Network, LLC are not affiliated with The Sheri Hagerty Group and Hodge & Kittrell.

Jill Rekuc of Olde Raleigh Real Estate and Sheri Hagerty of The Sheri Hagerty Group discuss many topics including the changes in the real estate market in the RDU area, what buyers are looking for in a home, where the buyers are coming from and where the housing market is headed.

CHAMBERS:  Hey everybody, this is Trevor Chambers from Old Raleigh Financial Group. And once again, we are back on the podcast train with our newest episode. We haven't had an episode in a long time, so we’re very excited about it.

MIHAJLOV: Good to see you again, Trevor.

CHAMBERS: Yeah, good to see you again. Exactly. Thank you, Alex.  Appreciate it.  Alex Mihajlov, owner –

MIHAJLOV: Owner –

CHAMBERS: -- of Olde Raleigh Financial Group.

MIHAJLOV:  We have some other owners.

CHAMBERS: Yes. Absolutely. We are so syked to have a repeat. Sheri Hagerty and Jill Rekuc are in the Luxury Real Estate market here in the lovely Raleigh and the greater R.D.U. area. Long time operators as real estate agents in that space. So, welcome you two. Thank you for coming in to The Soundtrack to a Financial Advisors Life.  So, Sheri, you’re with -- your own group, The Sheri Hagerty Group, which is part of Hodge & Kittrell.   And Jill, you have your own – you own Olde Raleigh Real Financial -- so -- Olde Raleigh Real Estate.  So, I just want to start real basic before I get caught up with you on the market. What’s going on in the Raleigh real estate market today versus one year ago, in the Luxury space.

REKUC: Very good question.

CHAMBERS: Okay, cool

REKUC: Starting off good.

CHAMBERS:  Good I like that.  Fast balls.

REKUC: Yes, fast balls.  So, maybe we can back up just one step. You said luxury market, which is what we’re here to talk about. But the -- I kind of want to talk about the definition of the luxury market because it is – it has changed over the last few years and it's a very specific term to who I'm speaking to. And for each different client, luxury means something different and for each different price point, luxury means different, areas of town, luxury means different. So, we kind of feel like sometimes it's an overused term but not if we put a little bit of parameters around it.

HAGERTY: Right. That’s for sure. I think what's interesting – we were talking about it yesterday kind of going over these questions and how much has it really changed? And like look at the last decade. When we were with you guys – it’s been – what I believe –

MIHAJLOV: Five years.

CHAMBERS: Five years ago.

HAGERTY: It was just crazy.

CHAMBERS:  Yeah, with --

HAGERTY: But if you look at how much luxury -- the term luxury and the price point of luxury has changed from five years ago even 10 years ago to now. It’s just incredible what’s happened in our market. So, it's -- while it does mean different things to different buyers and different price points and things, you know that -- that idea, I think our general market has grown so much in price point that it's just incredible to talk about. What is luxury today?

REKUC: Right. I mean, we were saying for inside the Raleigh beltline, it's probably doubled. What was -- used to be five years ago a million dollar right now, generally speaking off the top of our head, we'll go on the record saying he could easily be a $2 million dollar right now. Yeah.

HAGERTY: I use an example from the parade of homes. I did a – I used to have a lot of new construction and for example, 2015, I had three parade homes. And they were all on one street, off of Ridge Road, inside the beltline. And they were all right around a million dollars. So, 2015 to 2025, those houses we've seen resale in the last five years for sure, at like 1-7-1-8-1-9, two million. So, it's just crazy that -- what's happened here in our market and the increase in values.

CHAMBERS: Is the driver, just so many people moving here?

REKUC: That's one of them.

HAGERTY: That’s one of them for sure.

REKUC: And then it's fun worth noting that -- what Sheri just described that appreciation. That's strong and that's considerable.  But then we have examples of just crazy numbers, like our ultra-uber high-end luxury price point, really changed since five years ago. And we all would stop with a 10 million dollar home. But now we still do stop with a 10 million dollar home, but we just have more of them and more 7.5 to 10. Like, you know, there’s areas of town that are exploding with the upper high end.  Like -- I’m just going to say it, Northridge.

HAGERTY: Northridge.

REKUC: Northridge -- we’re giving a shout out to some brokers here -- but I’m telling you, they’ve got two homes on parade this year that are 6.25 and 6. 5.

CHAMBERS: Yeah.

REKUC: And my favorite home to talk about is Steve Wall, of Raleigh. Little plug, Raleigh Custom Homes.

CHAMBERS: Nice.

REKUC:  Tim Thompson, Raleigh –

CHAMBERS: We’ll link them up.

REKUC: -- Custom --

HAGERTY: Raleigh Custom Homes.

CHAMBERS: We’ll link them up in the thing.

REKUC: Raleigh Custom Homes. Tim and Steve, two guys. They have a 9.5 home listed on Barcroft Place

HAGERTY: In Northridge.

REKUC: In Northridge. And it's going to be on the parade in 2026. It's a 9.5 -- in the middle of  Northridge. And it's absolutely stunning. That lot, it's been cleared now. It's 180 degrees fairway and we may see them, tee on the green on the far end. But the pool is right down onto the course.

CHAMBERS: Yeah, I --

REKUC:  It sits up high.

CHAMBERS: Yeah.

REKUC: Oh, my gosh.

CHAMBERS:  I played a couple weeks ago and I think I saw what you’re talking about.  And just the other ones.  It’s crazy.  Yeah.

REKUC: Yeah.  So, yes, 10 million is the extreme super high. But, it’s fun. And that’s right in our backyard. And inside the beltline, right behind it.

HAGERTY: Yeah, Country Club Hills –

REKUC: Country Club Hills is right there.

HAGERTY: We just did a pre-sale with Homes By Dickerson. He’s a great builder that I've worked with many times.  6.5 million. Fires from California.

CHAMBERS: There you go.

HAGERTY: He’s retiring here. You know. And they’re a couple that’s, you know, in their – they’re baby boomers, you know. They're building an 8,000 square foot house for 6.5 million dollars. With a pool and everything you'd ever want. Because I think we'll talk about more of the trends later, but you're seeing some of this happen post pandemic. These people going  back to bigger homes.

MIHAJLOV:  And would you say people, is this room for grandkids?

HAGERTY: It is that it is that.

MIHAJLOV: People want to age in place, not go into retirement community, but stay at home. Hiring help in or whatever they need as time goes on. How are interest rates impacting people?

HAGERTY:  Okay. Interesting. It's definitely different by price range and you know, age group and that sort of thing. I would say that in 2023 when we had the big change when things were, you know, the first half of 2023 we were happy. We had great rates and then by the end it was – they basically doubled. You know that year was tricky and tough and part of 2024 was also tough because everyone had to get their expectations back in line with what they could afford. You know, they're buying power was cut in half. You could afford a million dollars, you're now looking at, you know, 550 to 600. And it was, that's tricky. That's tough. That's a big market shift that it's hard to digest for a lot. Now I would say that most people that have to move are used to what's going on and they're accepting it and just doing – you know, planning for it.

REKUC:  I think that they're -- I've got to get on with my life. I'm going to move on. I've got to pay this rate. It's not going anywhere.

HAGERTY: And then there's a lot of cash in our market.

CHAMBERS: Yeah, absolutely.  Plus the mortgage only lasts, I think it’s seven or eight years because of – all sorts of life happened.  So, including, interest rates coming down. Would you like to ask some questions?

MIHAJLOV: Yeah, so who are the majority of the buyers? Give us your typical buyer? Where are they coming from? What's important to them versus five years ago when we met last time?

REKUC: Right. Well, for me -- every broker's to practice is different, but for me personally, it's about 50, 50. I've been in the business for so long that I have a very strong referral base and a repeat clients. So, 50% of my practice is my friends, my colleague, and just...

MIHAJLOV:  So, what are your friends and colleagues looking for now than they were in the last transaction you did with them.

REKUC: Right, well because we're a little older. Walk on that gently, because we're a little older, they are looking for second homes. Like, I sold three properties at the beach because they want -- they want a second home. And some are moving up and some are moving down. And then some are just moving closer -- to be closer to their grandchildren. You know, it's all over. Alex, there's – for every person they almost have a different story.

MIHAJLOV: So, there's no trend.

HAGERTY: It's hard to detect a trend these days. I mean, we definitely have an influx of people from the West Coast and Northeast. I've noticed some from Texas, Florida coming back. I mean, we talked about that in our last podcast a long time ago. But it's kind of still the same general areas.  But I would say that I'd like -- what Jill mentioned, after being in this for as long as we have, you've got such a local base too that for us, I feel like our business is pretty equally -- checks out 50. You know, maybe not exactly 50/50. But very close to 50, 50 with local and then people coming into the state.

REKUC: Relocating. I mean, right now I can --  I can factually say it's 50, 50 for me. Yeah.

CHAMBERS: How are they finding you folks? Those folks that are coming out of the –

REKUC:  Well, we are, we are sought after.

CHAMBERS: Is it primarily -- are they looking for --

REKUC: I mean, reputation, but –

CHAMBERS: Getting online.

REKUC: There's a lot of -- lots of great brokers in town.

HAGERTY: And we were just talking about this yesterday, and I don't know if you mind if I mention this -- but for example, you have a lot of people from where your kids went to school.

REKUC:  Right.

HAGERTY: That now contact you and they're bringing people into our market starting businesses here, bringing people into the state. I think that which I think --

REKUC: -- and they are now in their mid-thirties -- close to 40, and they're looking for a second home. Their children are getting bigger and my children's friends.

CHAMBERS: Yeah, right now. It is a great place to live.

HAGERTY: And we just have fun. And this is what's cool about the difference of us. We talked about this last time too. She's gotta a very, you know, boutique firm here that’s local to Raleigh. And I'm with a big corporate firm that's all over the globe.  And I get a lot of referrals through that network, which is nice.

CHAMBERS: Which makes sense.

HAGERTY: But, yeah. Just a natural.

REKUC: No, my referrals are more from within the United States.

CHAMBERS: Yeah. It's great.

MIHAJLOV: Do you want to address the luxury home marketing group?

REKUC: -- Home Marketing Group?

MIHAJLOV: Yeah.

CHAMBERS: You might want to mention at this point, but we’re friends –

MIHAJLOV: We’re friends and business –

CHAMBERS: And disclaimer –

MIHAJLOV:  Jill's handled the last, what, eight transactions I've done, I think.

REKUC: I think so.

MIHAJLOV: Yeah.

REKUC: So, it's just a tribute that friends can absolutely do business together.

HAGERTY: Absolutely.

REKUC: Yeah. And it's all because the one thing. It’s the trust factor.

CHAMBERS: Yep.

HAGERTY: And we thank you guys, for your sponsorship.

CHAMBERS: Oh yeah.

REKUC:  The Luxury Home Marketing Group. Yes.

CHAMBERS:  Yeah, we do a little sponsorship for them.

REKUC: They're our favorite.

MIHAJLOV: Tell the listeners about what you guys do because I think it's a powerhouse.

 REKUC: Yeah, I do too.

HAGERTY: It’s a cool -- It is a great –

MIHAJLOV: -- just gives them the background.  So, this is a group of realtors from all sorts of independent firms, correct?

REKUC:  Exactly. They're –

MIHAJLOV: So, tell –

REKUC: There’s14 of us and we are coalition of the -- 14 brokers representing six to seven companies. And we are colleagues and peers and help be competitors when we need to --when we're put in that position. Happens all the time.

HAGERTY: We do compete.

REKUC: We do work fine with it. But for myself having an (inaudible) firm. It is my number one source of real estate peer professionals. Like that is -- I count on the group. And I defer to them when I need help and assistance with knowledge and answering questions and working through problems. Just feels good to have 13 top producing brokers right at my fingertip. They pick up the phone and answer it and usually –

HAGERTY: It’s a wealth of information.

REKUC: Wealth –

HAGERTY: To be connected like that. It really is.

MIHAJLOV: Very knowledgeable seasoned professionals, really.

REKUC: Yes, everybody – stays in the group. We’re 20 -- 2000 -- and we're 25 years old. No, maybe 20 years old. Anyway.

MIHAJLOV: It's a nice group.

HAGERTY: 21.

REKUC: Such a good – 21 years.

MIHAJLOV: You guys are to be congratulated on that group.

CHAMBERS: Yeah, absolutely.

HAGERTY: Thank you.

MIHAJLOV:  Tell us about inventory levels. You know, you get someone coming in from California and wants to see something. Do you have some houses to show them?

REKUC: We have some houses to show them. The inventory is kind of odd and different right now.

HAGERTY: Well, it’s definitely more than last year though. You know, when we looked at last year, it's definitely increased. So, we've got more to look at. People are selling. More people are selling.

REKUC: I think the number is six to seven months.

HAGERTY: Yeah. So, I think we're on that verge of shifting towards a very equal market buyers. Yeah, I wouldn’t say equal, that's not a good word. But like it's, we have enough active listings that it's sort of transitioning more to a buyer's market. We're trending in that direction, I would say.

REKUC: Which we’ve been in a sellers’ market –

HAGERTY: We've been in a sellers’ market since --

REKUC: -- for a long time, but now we are trending that way. We asked each other, are we in a full blown buyers market? But I think it's, I mean, you just have -- with our individual practices, it's kind of hard to just --

HAGERTY: I also think when the market is shifting, that you start the conversation, are we there yet? But you start to feel it in different areas, in different times, in different locations. And I think when you start to pick up on that and you recognize that you know, over here there's so much inventory. Well, over here we have inventory, but we're not getting as many showings. I mean, you just have to start dissecting it and you know there's a change going on.

REKUC: You know, and -- you won't know exactly when it happened until you get past it.

CHAMBERS: Right. That makes sense.

REKUC: And then you go -- like right now, I had buyers in March and April. One Saturday we looked at 13 homes. Two sold that night. And now, they're still looking. And a lot of price reductions. And they know that they don't have to come in that day at that full price.

HAGERTY: And that's like what we're saying about the – when markets start to shift and change. There's -- I was going to give an example -- when we're talking about my listing in Wake Forest. I had a -- I listed a house for 2.75 in November. And it got a lot of activity. It was just, you know, I don't mean to get into the topic of politics too hard. You know, in the election year, we have a very hard time here. So, you know, we just – it becomes kind of a frozen -- you know, six months for us at times. It can do that. So, last year I felt that it did. So, a lot of things carried over. Well, as we watch the market, we reduce the price to like 2.6 about 2 weeks ago. And we had multiple offers on it. Once it got into that sweet spot it happened and we sold it yesterday. But it's like, you know, since November, you would think we take a huge hit, but there's no rhyme or reason. We got into the right -- we looked at the market, we figured out the data, we got into the sweet spot. And then it was gone.

CHAMBERS:  It was gone. Wow.

HAGERTY: This is --

REKUC: That was a cool house.

HAGERTY:  Just being able to really zero in on your location.

REKUC: It's all about location. And from property specific.

HAGERTY: Yeah, and how much supplies and demand happening in a particular location?

MIHAJLOV:  So this is something you and I always talk about Jill, is best home selling tips -- a lot of people argue with you about – they -- about what they need to do to sell their house and I've never understood that. Can you guys -- want to run through your list of – if somebody comes to you and said they will list their house., What's the best thing they can do to get that house sold timely for a great price?

REKUC: Do what you did for me with every house you've ever sold.

HAGERTY: Listen to us.

REKUC:  You know, we feel like we're a broken record, but we know we aren't. I mean, it's true. You just have to present the house in its –

HAGERTY: Absolute best.

REKUC:  -- buying this -- best perfect condition. Cosmetically and maintenance wise.

MIHAJLOV:  And your stuff is not that interesting to other people. So get it out of the house.

REKUC:  That's right. That's right. Less is more.

HAGERTY: Yeah, and I would say that -- what's fun – fun part of what I like to do it. You can look at a house that maybe was listed prior. This is an old example but I'm going to use it. Say a home -- we had a home at one point that was listed for like right under a million dollars. We went in and we talked with the seller and it didn't sell. And so they changed agents and we got a hold of it. And we had them spend -- I mean it was a large home too. So this sounds like a big number. But it's a lot of square footage. But we put a coat of paint, maybe we painted the cabinets, we might have changed -- couple countertops in different spots. Spent 30 grand and then sold it for 1.3. So I mean that is a testament to what can really happen if you listen to somebody who really watches and knows what's going on.

REKUC:  Because we know our buyers don't want to do the work.

CHAMBERS: Yeah.

HAGERTY: And why would you if you’re selling it?

REKUC:  They want to done.

HAGERTY: Why dump 30 grand in here unless I can show you that it makes -- really good sense to do so.

REKUC:   They just want it turnkey. The buyers have gotten more -- I think we said this five years ago that the buyers have gotten more -- have higher expectations now.

HAGERTY:  We talked about the role HG TV has played in our -- you know, just the overall picture of real estate and how it's become. There's so many reality TV shows about -- about what we do.  Jill likes to watch some of them. I –

REKUC:  Some of them?

HAGERTY: I turn that off.

REKUC:  I watch every one of them.

HAGERTY: -- end of the day. But I think that's changed the expectation. You know, we used to be able to sell homes off of just house plans, and I'm not saying we don't do that anymore. But I think the buyer today really wants to get in there and feel it, see it, touch it. You know, see the four walls around them and see the finishes. It's harder to do what we do -- what we used to do, which was, you know, if you list a house and put the plan in MLS -- it would just go. I think it's -- people are about seeing what it really looks like.

REKUC:  They’re busy.

CHAMBERS: Yeah they’re busy and it’s more nuanced.

REKUC:   Everybody is busy. Yeah.

MIHAJLOV: It's funny because we -- I talk to a lot of clients about they’re going to sell their house or do renovations or whatever. And I always say, well, are you planning on selling the house -- well, maybe. And I said, well, before you spend this money on an XYZ renovation, why don’t we get a realtor in here to look at it and say, here's where you need to spend your money because this is what's going to get you.

REKUC:  The highest.

MIHAJLOV: The best bang for the buck rather than your pet project you're trying to do.

REKUC:  Exactly.

MIHAJLOV:  You and I have talked about windows, --

REKUC: Exactly.

MIHAJLOV: Windows don’t necessarily bring you back a lot of money. Nice feature for energy efficiency.

HAGERTY: That's a big -- that's a big number on most homes is to do all new windows.  And when you don't do it, it's one of the first things somebody's going to notice and point out.

REKUC:  And they’re going to want to factor it in. Well I’ve got to replace all the windows.

These big homes -- that’s significant.

HAGERTY: Very significant. Just stay on top of the maintenance. And I would say that, you know, just when your home becomes not really your home anymore and product of the market place, you have to look at it like that. You gotta let go of the reigns a little and be wiling  to listen to somebody who -- you know, sold, you know, two houses just like -- not just like that. But you know a good example they can show you this for work if you just trust me.

CHAMBERS:  Just a little disassociation please.

HAGERTY:  A little let go --

CHAMBERS: We say that -- we have, that's kind of why we have jobs. A little dissociation –

HAGERTY: Just a touch.

CHAMBERS: Just a little bit. Puts things in perspective.

REKUC:  And then I tell my clients, it’s -- a buyer does not see an outdated kitchen. As – I’ve  got to renovate it. It’s not a 1 to 1 dollar a dollar ratio. For them, it’s annoyance and --

HAGERTY:  I’ve got to live through that.

REKUC: I gotta live through that. It’s  gonna take me away from my work or, you know, it's gonna –

HAGERTY: Or I can't even move it until that’s done.

REKUC:  -- me – I can’t move in. That -- if a new kitchen costs $100,000, that is not $100,000, that the seller can say, alright, well make me an offer. In the buyer's mind, it's much more for the inconvenience.

MIHAJLOV: And then, you’ve gotta get a legitimate contractor and all that.

REKUC:  Yeah, I mean face it. If we were faced with that -- well, I feel the same way.

CHAMBERS: Yeah. Yeah. Yeah, so we covered this a little bit, but the desirability of this market, and greater Raleigh market versus other markets, obviously we're home, home, we all love, you know --

MIHAJLOV: Raleigh.

CHAMBERS:    Yeah,

HAGERTY: We love where we live.

CHAMBERS: -- it's a little inside ball, if you will, but, I guess the other way to look at it is how does it compare when you talk to other people across -- obviously through your travel, you're talking to people from all over the place.

HAGERTY: Right, right.

CHAMBERS: So what's the secret sauce or whatever?

REKUC:   You know what that answer probably has not changed. We are still just the destination.

HAGERTY: We are.

REKUC:  We are the destination. Yes, we hear web and flows of you know maybe losing a company or putting it on hold or whatever. But I mean, all we got to do is look around us. Look what's happened in the Lenovo Center. Unbelievable.

HAGERTY: It’s under development --

REKUC:  For West Raleigh. You know how excited are we for that?

CHAMBERS: And we’re just getting into that whole thing.

REKUC:   I know it's five, six seven years of something.

CHAMBERS: What’s going on? Yeah, tell us.

REKUC: Retail. And we know it’s commercial space.

HAGERTY: This is changing the whole area, you know, like the area around all of that is going to become important too.

REKUC:  More than just a sports complex.

HAGERTY: You can pull to the field and tailgate. It’s insane.

REKUC:  Just NC State and the PNC arena. But now it’s just a destination itself.

HAGERTY: It’s going to be exciting to see the changes.

REKUC: I'm just excited for all the residential around there like Wade Park.

HAGERTY: Inside the beltline.

REKUC:  Inside Wade.

HAGERTY: Wade Park.

REKUC:  Yeah, how great is that for them? 

HAGERTY: They’re already hot. So what about then they just approved 30 stories on West

Street? 30 stories over -- they started at 12 and now they're approved --

REKUC:  Is that the highest?

HAGERTY: Nine to one --

REKUC:  Am I wrong?

HAGERTY: -- to zero.

REKUC:  Is that the highest?

HAGERTY: It is.

REKUC:  Residential. That’ s exciting because I had a client that came in, relocation client from, wanna say Austin. And all they wanted was high end condo with the highest level of concierge services. They've only lived in high rise condos in big cities. Well, it only took us two hours to get to Raleigh could not accommodate their needs. They wanted every luxury.

CHAMBERS: Moving on up.

REKUC:  They wanted dog walker. They wanted -- not Uber Eats delivered. They wanted -- could the residents provide their meals you know. They wanted --

HAGERTY: Oh yeah like a catered kitchen --

MIHAJLOV: And we’re probably going to see a lot more of that.

REKUC:  Yeah.

HAGERTY: I think were going in that direction.

REKUC:  -- and so they -- they're -- we have nothing -- we do have very nice condominium complexes. But nothing with the level of what they were looking for. So, they rented the corner penthouse unit at the Eastern.

HAGERTY: In North Hills.

REKUC:  In North Hills. Do you know that one?

MIHAJLOV: The apartment complex?

HAGERTY: Yes.

REKUC:  Because everything in North Hills is for rent, can't buy any of those apartments. Any of those condos.  So, they’re renting because that is what they wanted. If that's the only way I can get it.  Then I'm just gonna rent.

CHAMBERS:  They're just gonna wait it out until somebody builds what they want.

REKUC:  Uh-huh.

CHAMBERS: That’s awesome.

REKUC:   I said, of course we’re a city, but we may not be the city that you are used to.

CHAMBERS:  Yeah.

REKUC:  Raleigh’s moving and we're getting there.

HAGERTY: Were clipping along --

REKUC:  We’re clipping along fast, but.

CHAMBERS:  Yeah, it sounds like those two maybe we just build a city around them and

other people. Yeah, good for you guys. That’s great.

MIHAJLOV:  So, I decide tomorrow morning to list my house with one of you two. Give me some tips for, you know, let's make this a smooth transaction where my life doesn't get too much disruption. What are some of the suggestions you make to your listening audience?

REKUC:  Okay well first major correction -- there's only one broker in this room that you

would list you house with.

MIHAJLOV:  That's true That's true, Jill.

HAGERTY: Or two. Hello.

MIHAJLOV: She’s very possessive.

REKUC:  I am so possessive of Alex and Trevor.

HAGERTY: Well I helped on one of Alex’s.

REKUC:   Yes I mean Sheri is my co-hort.  We do a lot of work together.  How can we make a smooth transaction. For you, Alex, I don't even really have to tell you what to do. You know.

HAGERTY: Because you listen.

REKUC:  -- everything. He knows it innately. And you know, it's really perfect when a client wants -- that is a representation of him. That’s a reflection of him.  And he wants his house to be in perfect showing condition. Yeah.

MIHAJLOV:  But what are you -- give me two, three or four tips.

CHAMBERS:  I mean, obviously, Alex is the exception

HAGERTY:  Yeah. So yeah --

MIHAJLOV: You gotta declutter.

HAGERTY:  You know, yeah, definitely all of that. I would say that you have to get your home in the most perfect condition you can get it in. And that's where you're going to win. I mean, because I would say that we all came out of a market post pandemic that was like, you put it out there. It’s gone. And you didn't have to do all of that. When you did do it, you did really well. You know, so now we're kind of back to a more balanced market that's fairly normal. Yeah. We were talking amongst my firm. And what's interesting is our two slowest months in 2024, were July and December. So we're getting to be sort of a suitcase, sleepy summer town. At times I think a lot of people leave. A lot of people travel. We have a lot of people go to the beach and Mountains. We’re in the perfect place to go either direction. So, we see a lot of that. And so, we kind of have this summer that it's normal, honestly. It goes back to  like 2019, 2018, we had normal summer markets that were slower. That's kind of where we are now. But I think a lot of people that are prepping their homes, take those slower times and get it -- make it a perfect product. Yeah, because when you do it -- that's what I say. Or pre-inspect.

REKUC:  Reinspection’s are always a good idea.

HAGERTY: Be ready for any --

REKUC:  -- it is good for the seller because there will be a surprise. Nobody can get a home inspection. You know and not have a surprise.

HAGERTY: Yeah. You always do but I would say getting that home in the best condition possible is the way to -- the smoothest transaction.

REKUC:  And the best condition is all the cosmetics. Paint, floor, carpet. And then -- if you’re not going to stage with a professional stager, then minimal. Remove --

HAGERTY: Minimize

REKUC:  Minimize. Thank you.

HAGERTY: And take advice from somebody who’s like okay, because what I always say to my clients is why your home looks gorgeous the way you live in it, in person it’s different in a photograph. And the photograph is what gets people in the door.  The photography now is just incredible. What we do. We make mini movies about houses, basically.  I mean our marketing has changed drastically too. You know, look at ten years ago. We had, you know, twenty five photos in MLS. Now we can have up to 100. Which who wants 100? But, we have that capability and we also do a ton of videos. So it’s really important and photos you can kind of hide some things sometimes. You can touch up or whatever but in a video it’s all -- I mean it’s what you see is what you get. So we really have to work at making --

CHAMBERS: What about drones? When do you -- when is it -- when are drones appropriate? What is drone appropriate house?

REKUC:  I can tell you when they’re not appropriate.

HAGERTY: When you live behind the busiest street.

REKUC:   And you have a .21 acre house.  Or .24. I don’t want to show that the houses are 10 feet --

CHAMBERS: Do you get clients that actually like, no I want drones.

REKUC:  Absolutely.

HAGERTY: You know, a drone can also get -- not be like just over the home it can be just up higher with a good vantage point.  I mean there’s a lot of things they are doing that they’re just incredible with photography.

REKUC:  For my tight homes like that, I just don’t go overhead and the sides and I might go up the front door and around from the -- around the backyard.  You know, just –-

HAGERTY: More carful where you use it, yeah. But I think the expectations of marketing are crazy.

CHAMBERS: Yeah.

HAGERTY: Which it’s fun too. Because it’s a little bit of a production.

CHAMBERS: I was just thinking -- go ahead.

MIHAJLOV: I was in a meeting with you guys when you had a builder there talking about aging in place. And they’re building a whole community around that. You want to -- you guys want to talk about that a little bit.

REKUC:  Yeah. Well, we’ve seen an increase in popularity of these assisted living communities that are very nice with every luxury amenity. And so, people might not go into the earlier but they’re going into them without any health problem. You know, really active. Active – I’ve got a client who teaches Pilates at Hayes Barton Place. Every class is full and they have to hurry up and leave at the end because they’re going somewhere. They’ve got things to do. Everybody -- you know, is moving and shaking.

HAGERTY: There’s definitely a big trend in really luxurious assisted living.

REKUC:  Assisted living.

HAGERTY: But you can start off even when you’re perfectly don’t even need to be there and just being smart and then -- and they encourage you to do that.  You know, before there’s something wrong. But they’re just incredibly nice and really, I mean, and they’re expensive.

REKUC:  Very expensive

HAGERTY: Preparing for that is real important. And you can speak to that. You guys can.

MIHAJLOV: Yeah.

HAGERTY: But --

REKUC:  I’ve got a girlfriend who’s mother just went there and two weeks ago she bought a little beach cottage.  I’m telling you, they -- you know, she’s in her 80’s and she wanted to have fun at the beach.

HAGERTY: I think also we were speaking about, you know the people that are buying even bigger than you would expect at that age too.

CHAMBERS: I was going to go back to that, actually.

HAGERTY: That’ s kind of a you know, --

CHAMBERS: Opposite of what you think.

MIHAJLOV: Plus people want to stay at home and hang out and make it their own staycation everyday.

HAGERTY: And people like space. You know, I think what happened was we --  I remember when we were -- I was listening to our podcast with you guys late yesterday and it was like we’re staying away from the 9 thousand and 8 thousand square foot homes.  You know, everything was trending towards like between 4 and 6. And really highly appointed. Well we had something happen in our world that made everybody had to stay home for a bit and everyone now wants huge outdoor space. And sometimes they want to go back to that big house because they’re staying home and they’re working more from home. And they’re – they want their family to come and stay for periods of time. And grandkids and -- it’s just almost -- it’s really interesting to watch the ages of who are buying these bigger -- I mean we’re going back like the house in Northridge we just spoke about. How big is that house? That’s --

REKUC:  Oh, the 95 --

HAGERTY: Yeah. I forget how big but it’s not small.  It’s 9. –

CHAMBERS: I didn’t’ think it would be.

REKUC:  No. It’s not.

CHAMBERS:  It looked big, but yeah.  It’s --

HAGERTY: And the house –-

REKUC:  It’s over 7,000 square feet.

HAGERTY: Yeah. It’s definitely, so. And the house I just sold in Wake Forest that I mentioned is over -- it’s almost 9,000 feet. So people are going back to it. It’s interesting to watch how -- what happens in the world effects --

CHAMBERS: Oh yeah.

HAGERTY: What -- what you want in your -- your -- home.

REKUC:  The one home for sale in Olde Raleigh is 7 -- almost 7,000 square feet.

CHAMBERS: Yeah.

MIHAJLOV: That’s a lot of space.

REKUC:  That’s a lot of space.

MIHAJLOV: That’s a lot of space.  All right, any --

HAGERTY: Maintenance.

MIHAJLOV: Any closing -- any closing thoughts, ladies? Best thoughts for the people are going to call you right now.

HAGERTY: Trust your realtor.

MIHAJLOV: That’s great -- let me-- let me actually give you a -- something I had. You and I share this conversation a lot. But if you’re going to hire a realtor and hire a professional like you all are, why -- it’s kind of like going to the doctor and the doctor says listen you need to lower your cholesterol.  If you trust your doctor, why don’t we listen to the doctor. Why don’t we listen to the realtor when we listen to financial advisor.

REKUC:  That’s right.

MIHAJLOV: You know. Otherwise, you sell it yourself.  Good luck.

REKUC:  Simple but it what’s you’re paying for -- us for.

HAGERTY: That’s right.

REKUC:  Is our knowledge. You know, and we -- we will stand behind what we say.

HAGERTY: And what -- was funny is you’ve been doing this for a while, I mean yes there’s great reward in what we do. You know what I mean. Real Estate can do really well but I would say what becomes the goal and it is the goal is that we are trying to accomplish our client’s goal and that’s when we feel good. Is we can make that really happen and make that, you know, make them have a successful you know move to the next chapter.

REKUC:  They’re just so happy when --

HAGERTY: When things work out.

REKUC:  When things are right -- I had a -- one of the members of Luxury Home Marketing Group call me Saturday night and she said, Jill, she’s been in the business 30 years. She said, “Jill, I just had something so good happen. She goes I worked hard on a home for months, got it perfect with the sellers. Got it ready and she said, “Jill, I sold it in four hours today.

CHAMBERS: Yep.

MIHAJLOV: It’s kind of anticlimactic, isn’t it?  You put all this time in and then it’s gone.

HAGERTY: We love that.

REKUC:  She’s like you know that never happens. I said well the four hours doesn’t happen but we know all day long when you work like that and you do all that prep work --

CHAMBERS: It’s the details.

HAGERTY: It is. And they’re all important. I mean they really are.

MIHAJLOV: I think the new -- the new house market has ruined the old house market --

HAGERTY: You’re right.

MIHAJLOV: -- meaning you have to have it perfect because people are going to go buy new --

REKUC:  Even if they aren’t’ looking for new construction, they’re going to pop in one -- they’ll see one -- they’re going to -- and then they -- they’re going to see that perfect. And they’re going to want to equate --

CHAMBERS: And that goes --

REKUC:  -- resell.

CHAMBERS:  -- and they’re so primed because it goes back to --

HAGERTY: To what we talked about the other --

CHAMBERS: It’s TV and non-stop on the phones like you get on Tik Tok and its like home trends.  Or whatever -- fill in the blank.

HAGERTY: It’s everywhere.  It’s everywhere to digress that.

CHAMBERS: Everybody’s primed.  Well, I thought it was --

REKUC:  Fun.

CHAMBERS: Spectacular.

MIHAJLOV: It is great to see you ladies.

CHAMBERS: We were a little nervous, you know, but we got through it.

MIHAJLOV: We’re not going to do five years again.

REKUC:  No.

MIHAJLOV: Six months.  We’re going to have you back here and catch up.

CHAMBERS: Just do a quick catch up.

HAGERTY: I think we should do that.

REKUC:  Well maybe we’ll have your listeners or somebody can give us some topics that we can talk about.

CHAMBERS: Yeah.

HAGERTY: That’d be great.

CHAMBERS: We --

REKUC:  Or we could come with some really interesting topics.

MIHAJLOV: Yeah.

CHAMBERS: Yeah.

REKUC: Like last time we all had fun talking about the fraudulent market.

HAGERTY: Oh my god, I just had a huge case of fraud.

CHAMBERS: Okay. Hold on.

MIHAJLOV: Let’s keep going.  Tell us about -- before you tell us the story, that’s the -- another reason -- that’s another layer of protection in what is the biggest transaction for lots of people.

CHAMBERS: We had something with a client, terrible.

MIHAJLOV: Yes.  We’ve had --

REKUC:  Alex, I think you need -- really need to get your real estate license.

MIHAJLOV: Yeah.

REKUC:  You are talking our language over there.

MIHAJLOV: Tell us your fraud story.

HAGERTY: So, this house that I just sold yesterday, we had someone provide a proof of funds that looked completely legitimate,.  Had a phone number to call. You know, we always ask for a verifiable proof of funds. Like we’re going to call -- we tell you we’re going to call them. So you know, we call this financial advisor that was listed and spoke to the gentleman. And it was, you know, the best I could do. I mean it was -- we really investigated it hard. We put him in a look at the background. We really check people out because we halve to protect the client, you know, who is coming in their own.

CHAMBERS: You got a little bit of liability --

HAGERTY: We got a lot of liability.

CHAMBERS: It’s like.

HAGERTY: But we also can’t, you know, it’s like once you get a clear on this financial letter and talk to somebody and it can be -- it can be very elaborate. These things can be very elaborate. Planned.

REKUC:  The white collar crime schemes.

HAGERTY: And you wonder what is -- what are they really going to get out of it because they put the home under contract. And offered full price and offered $100,000 in due diligence money. We’re all --

REKUC:  But never do it.

HAGERTY: And they never delivered the money.

REKUC:  Never could.

HAGERTY: It was just a --

MIHAJLOV: Do you think that was someone just being grandiose?

HAGERTY: You wonder what it really -- what that --

REKUC:  We spend a lot of time trying to figure out what --

HAGERTY: What is that motivation?

REKUC:  What is the motivation? We try to figure it out but each one has a different story.

CHAMBERS: Yeah.

HAGERTY: Turns out that the person -- once I talked to like a couple other people that have some really big listings, years back under a slightly different name, he had shown up. So, if you do see it reappear but it’s just.

CHAMBERS: Yeah. Well. Be careful out there kids. All right. Jill, all right? Be careful out there.

REKUC:  I will daddy Trevor.

CHAMBERS: Well, okay, cool. Once again, we are going to end another awesome segment of podcast for Olde Raleigh Financial the Soundtrack to a Financial Advisors Life. Thank you so much. We’ll see you -- we’ll have you again, for sure this year.  Well, maybe early next year. Thank ya’ll.

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

CHAMBERS: Hey everybody. It's Trevor Chambers from Olde Raleigh Financial Group, here in sunny, North Carolina -- Raleigh, North Carolina, and very excited today. I have Kevin Lewis in with us today and I'm excited. Kevin Lewis is a client portfolio manager from American Century, in Kansas City. Kevin, welcome to the Soundtrack to a Financial Advisors Life. How are you today?

LEWIS: Great, Trevor. It's good to speak with you today.

CHAMBERS: Good. Well thank you for coming on. So, it's -- it's August 10th and I was just looking, you and I spoke about a year ago and things were much different then. And I -- I just wanted to talk to you. You help us manage a -- a portfolio for clients. It's a little bit more growth oriented. And I wanted to talk about this because right now, you know, in times that we're going through right now with the markets some might say, well, I wanna (sic) get away from growth. And I just wanna (sic) talk to you about it and talk the validity of always of keeping growth in the mix. And so, but first I just wanted to -- let's talk about the Fed. Let's get right into it. What's the impact of this Fed raising regime on growth and how does that all work? You know, what -- what's the impact on -- on companies? Kind of break that down a little bit and then and then we can go from there.

LEWIS: Sure. Yeah, Trevor just like you value a bond, rental property, or other financial assets, higher rates mean a higher discounting of the cash flows of the business. In -- in other words, investors have repriced lower companies to compensate them for the higher rates and the risk of the market. Now growth companies have a longer duration of cash flows. So, it typically impacts them harder than value companies. But we believe, Trevor, that our portfolio companies will have a higher and rising long term cash flow to offset the rises in rates because of the large market opportunities that they're participating in. And again, the result of the re-pricing of -- of growth companies has been a penalty, as you mentioned, more than value in the market. The -- the Russell 1000 value index, which is an index of large value-oriented companies, as an indicator has outperformed the Russell 1000 growth index over the last 12 months, ending July by about ten percent. And -- and we have data, I think this is important. We have data from a research provider that shows the performance head went to growth-oriented companies, as we've mentioned facing the headwind. The performance headwind is now approaching a negative two standard deviation event. Let me repeat that, a negative two standard deviation event. So, Trevor statistically, it's very stretched to the downside.

CHAMBERS: Right.

LEWIS:  And we think represents an opportunity for long term investors given the -- the stretched nature of the headwind.

CHAMBERS: Got it. Yeah.  I would agree. So basically, growth is on sale.

LEWIS: You could put it that way, yes.

CHAMBERS: Yeah. Yeah. So, okay. So, I -- you kind of got into this, but why stick with growth? You know, like what role, if you're thinking about an investor in this totality, I mean, what -- why stick with it when it's getting absolutely crushed? You know, because a lot of people are saying that like, God, I don't wanna (sic) be in that, but you know, why stick with it?

LEWIS: Sure. First by looking out several years, we can take advantage of the near-term volatility, such as rising rates, which we're talking about today. And, and we can factor in -- in views that wall street isn't valuing or seeing in -- in stocks today that have pulled back.  You know, historically the markets go through periods where they're focused on transitory challenges, such as inflation, recession, geopolitical events, which have created volatility. But were actually resolved over longer-term periods. And in one study we conducted on a one-year basis the Russell 1000 growth benchmark had positive returns most of the periods, about 80% of them.  In negative returns in approximately 20% of the one-year periods. But here's the important point, over the longer five-year periods, the frequency of negative returns dropped by about half to around ten percent, Trevor. And even holding even longer, the percentage of 10-year periods with negative returns was approximately five percent. So historically by expanding the holding horizon, the frequency of loss fell, and the frequency of positive returns increase. And another thing I'd like to add is that we invest in quality businesses, run by very capable management teams to navigate, adapt, and overcome challenges, whether they be economic or competitive threats. And part of our due diligence when meeting with these companies that we invest in is to discuss the environment and their plans to grow the business over time. And Trevor, they typically have large market opportunities backed by secular shifts that are going on in our economy. So, they should be okay over the longer-term period.

CHAMBERS: So, what kind of companies do you like and what are -- what's -- what are you -- what are you following and what are in your -- what are maybe a couple of them that are in the -- and what are they going through right now? You know, if you listen to the press, everybody's getting more, you know, interested in what what's dropping to the bottom line and you know, and all that. So, I mean, or are these companies that you're in, are they just full board? Just like continue to grow, continue to grow?

LEWIS: Well, they're not completely immune to the reality of the geopolitical events or inflation, but I think the key is that they are equipped, well equipped to adapt and to overcome the challenges that are presenting themselves. And importantly, keep focused on the long-term opportunities for their innovative product or service to -- to grow over time. So, we -- we continue to see long term companies for instance, that are part of the digitization of cash, such as Square or MasterCard. Remember that overseas, cash and checks are still used pretty significantly instead of digital payment systems. But there's a large migration around the world to using electronic or digital way to pay for things, whether that be over the internet, credit or debit cards. And in fact, Trevor, we have research showing that noncash transaction volumes have grown at almost a thirteen percent annual rate from 2016 to 2020. Let me repeat that thirteen percent annual rate of noncash transaction volumes from 2016 to 2020. But the pace should pick up even more to over fifteen percent as estimated through 2020 through 2025. And that volume increase should help underpin the growth of companies like Square or MasterCard, both which we've owned for a fairly long period of time in the portfolio. And if you have time for one more, I've got another--

CHAMBERS: Yeah, please. Yeah. I'd love to hear a couple more, to be honest with you, Yeah, sure.

LEWIS: So, another area we see great potential and is, is healthcare, which is standing at the intersection of both aging global demographics and significant innovation that are bringing new treatments for large medical needs. In the aging global demographics, the percentage of people turning age 65 will continue to increase around the world over the next 30 years. And people spend about three times as much on healthcare at age 65 and over compared to their younger years. And as I said, there are significant advancements in science to treat large unmet medical needs that we are fortunately making great strides in. You know, one example, Trevor, is in the portfolio, Intuitive Surgical, which is a robotic assisted surgical platform. And it sounds like science fiction. But last year there were over one and a half million surgeries performed using the Intuitive Surgical system. And over ten million surgeries have been performed on their systems over the long-term period. And yet that's only about ten percent of all surgeries. So, we like the business long term because of the business -- because of the benefits of robotic assisted surgery and the potential for robotic assisted surgeries to increase as a percentage of all surgeries and also from the overall population of people needing them increasing. As I mentioned, the aging global demographics, unfortunately the older people get, the more they need surgeries. It's just a fact of life.

CHAMBERS: Yeah, and is there any other impacts that you see from this aging trend? Like, are there any other companies that you frame like that, that you're -- that you're watching or are invested in?  That kind of dovetail into that trend?

LEWIS:  Certainly, biotech is an area where we've made significant advancements, you know, with the human genome sequencing. You probably remember that project where now we are able to sequence and at -- at cheaper rates and identify therapeutic targets to really go after and precision-oriented means to address, you know, the genetic causes of diseases. This is something that's important to us as investors. I might also add that it's important to our company, which is partly owned by the Stowers Institute for Medical Research. That is also doing research on genes-based diseases. It's, you know, being a part owner of American century, part of our profits every year, go back to the Stowers Institute for Medical Research --

CHAMBERS: Very cool.

LEWIS: -- to help fund, you know, this innovative science that they're doing. But also, for us as investors in companies seeing benefits of -- of targeted therapies based upon, you know, genes that we've identified that could be problematic in causing, you know, diseases.

CHAMBERS:  Yeah, that's awesome. Yeah, that's absolutely -- obviously that's a huge area. What about just automation? I mean, you know, less -- less workers. Are we looking at a world of less workers? You know, what I mean? And like, I just feel like -- I don't know if you guys have any, you know, insight into this or if you're putting in, you know, but it seems like robotics and automation -- I don't know where we're gonna (sic) come up with the people to work. You know what I mean? I --

LEWIS:  Yeah.

CHAMBERS: It's -- this is a huge challenge for the global. I mean, I'll tell you what, I wouldn't wanna (sic) be in Russia or Germany or -- or certainly China based on demographics over the next 30 years.

LEWIS:  Yeah.

CHAMBERS: It doesn't look good.

LEWIS: Well, it's -- in robotics, onshoring, you know, I think one of the lessons we've learned over the last five to ten years is, you know, perhaps supply chains got too stretched too far, you know, from the -- from the supplier to the manufacturer, you know, to, you know, putting those in -- in the hands of the customer. So I think you've got businesses that are rethinking the whole supply chain. And part of that will be onshoring, you know, back in the United States, the manufacturing capability. The other part of this, Trevor, is a trend we've seen. I keep talking about and we don't invest thematically. But what we do is when we find companies who are positioned for sustained above average growth over the long-term period, and you say what's -- what's the catalyst behind that. What's the duration of that growth? Frequently, they're due to that company that we are researching and investing in having an innovative product or service that is participating in a secular shift in the economy. And the secular shift is that companies are allocating more of their budgets to technology-oriented items. We've got research that we've seen that goes back over a long period of time. And it -- it breaks down the spending between technology-oriented items and other items. And the key takeaway is that increasingly, companies are allocating more of their budgets to technology related items. Because you see technology is the force multiplier, if you will. It's the enabler to do more with less, whether that being fewer workers or fewer resources, it makes companies competitively position to deal with competition around the world, to make themselves more efficient, more productive, and again, the force multiplier to do more with less. And so, robotics and other areas of technology, we think we have companies in the portfolio that are really well positioned to help provide those solutions for companies and -- and robotics is one key area of that. Yes.

CHAMBERS: Is there any particular company you wanna (sic) talk about in that space that you kind of like, or --

LEWIS: At the moment, yeah, we do have a company in the portfolio of Cognix, which is basically think about that as the vision for companies. Now it's been challenged a little bit in it’s near-term results, but over the long term, we see a company that is positioned to grow because as you think about factory automation, one of the key areas of that is being able to see, to tell the robotics or the -- the technology, you know, what to do. And -- and so Cognex is the -- a leader in vision and automation in that area.

CHAMBERS: All right. So, this, you kind of got into it a little bit. So, in terms of your process, but do you wanna (sic) unpack a little bit like what does Kevin Lewis do in his day? Like, what's the process of a choosing -- I know you have a team. You know, we often, you know, we talk to clients like, well, how do they arrive at this portfolio? And meaning you guys that, you know, manage the -- the process if you will. So, what is the process like? Do you guys like, do you have the team, and somebody says, all right, here's -- here's an area that we're thinking about. Here's five companies. I mean, how does it work? I mean, how -- how does yeah. How -- day in a life Kevin, break it down.

LEWIS: Okay. Yeah. So, you know, first of all, we have a very defined disciplined approach to finding the opportunities in -- in the investment world. So, it starts with monitoring an investible universe. And -- and on that, Trevor, we have a ranking system that we've designed by our -- our own team. So, it's proprietary to us, proprietary to our team, that really ranks and elevates the companies we should be doing the fundamental research on. It's a productivity tool. I was in the military, and I consider it the compass in the market. Go north, don't go south or whatever direction you want to go.

CHAMBERS: Right.

LEWIS:  And do further research on these.  But really the key where the Alpha's created is then those highly ranked companies, we will do deep, rigorous, fundamental research on those companies. We're gonna (sic) strive to meet with the companies on their location. We meet with over 250 companies a year on average. Over 150 at their headquarters. And it's really in those meetings that we're meeting with multiple layers of management. What we're trying to discern from those meetings is the quality of the management team who is taking shareholder capital and growing the business. We're also trying to understand their business plan for growing the business. And by meeting multiple layers of the management team, we also get to meet with people such as the chief scientific officer. And what equips us to have that extra lens in the research process, Trevor, is that many of my teammates are former industry practitioners. And what I mean by that is that I have one of my teammates, Michael Li’s, one of the portfolio managers on focus dynamic growth. He's a former drug research scientist with Bristol Myer Squibb. He has helped bring drugs to market. He's researched companies, and so Michael is very instrumental as we're talking to biotech companies.  Not only talking to the higher levels of management but people like the chief scientific officer of that biotech company. So, he can discuss really on a very, in depth, granular basis, what are those new products in the pipeline that may not be hitting the income statement but may be doing so in three to five years ago, or three to five years in the future, what's the efficacy of the -- of the scientific approach? What are the clinical trials looking at? What's the market look like? And so, we take this information and we come back to our offices. And another differentiator from us is we build long term financial models on these companies. And that's gonna (sic) be looking over five years into the future. The benefit from that is that many people don't look long term. And so, we can look and appreciate, potentially things in a company that are gonna (sic) drive its growth, that others may not be seeing or reflecting in their valuations. And then we're gonna (sic) take that model, that thesis, pitch it to the entire team. So, this is not a single analyst pitching an idea to a single portfolio manager. This is the entire team, which averages 20 years of experience vetting that idea. We -- we believe strongly in the wisdom of the team, debating an idea to arrive at a better outcome. And lastly, a key differentiator of our process is that when we construct the portfolio, we're gonna (sic) be different from the benchmark. We wanna (sic) be active in our thinking and our portfolio approach and that driver that differentiation, Trevor, is mainly due to stock waiting decisions. We really think that our best competitive advantage is in doing deep, rigorous, fundamental research. Identifying those companies who are positioned for sustained above average growth. And investing in those, by weight to drive the differentiation instead of doing just significant sector tilting or characteristic tilting. That's what -- that's what the day in the life is like. It's -- it's not a typical business day. In fact, it -- it runs around the clock through the weekends, but we -- we love what we do. We do it with passion and we are very fortunate to have people have confidence in us like you and your investors to continue driving the results to the extent we can.

CHAMBERS: I love it. All right. The big question. What do you and I know you're not maybe, you know, an economist by training or so, or maybe are, I don't know, but what do you -- what do you see over the next six -- twelve months, really?  Eighteen months -- I mean, do you feel confident? I mean, I do. But, I mean, what do you think -- what do you think we have in store for us here? Do you think, and specifically, do you think the Fed's gonna (sic) start backing off here, you know, or -- or I don’t know if you have any thoughts on that, but -- but anyway, what -- what's your outlook? When you guys sit in your chair, I mean, what do you see?

LEWIS: Yeah, one of our advantages is we don't make macro forecasts. So --

CHAMBERS: Yeah, yeah, yeah. I love it.

LEWIS:  We -- we have a very adept fixed income team and other parts of American Century that will make macro forecasts. But what we do is we talk to companies each and every day and -- and we're getting a read on the economy and their capability to navigate by talking to them about their business plans to offset near term challenges and grow long term. From -- so far in checking in with our companies, we feel pretty confident in their ability to overcome, you know, near term challenges, whether it be inflation or geopolitical events. We feel pretty confident about their ability to grow the business long term. They adapt, they overcome and -- and again their capability is underpinned by large areas of the economy that they are bringing a new solution or an innovative solution in that underpins their capability for long term growth. So, we feel good about the companies for the most part. I mean, we don't see any significant headwinds that would overcome our optimistic thinking

CHAMBERS:  That's great to hear. Yeah. I -- I suppose that in times like this, you know, those scrappy companies that you guys put money in and you're like, yeah, like, I suppose when you look at a company, you gotta (sic) look at it from, you know, when times are good, it's great. But also, I think when the rubber really meets the road, right. Is where you say, okay, yeah, these guys are -- they're on it. You know what I mean? The -- the people that are running these companies they're on it because they're doing what they need to do. And that's the beauty. And that's why I love stocks because, you know, that's just, it, those people that run those companies get up every day.

LEWIS: Yeah.

CHAMBERS: And figure out how to be better. I mean, I -- I get up every day and I try to run my business better. I'm pretty sure you do the same thing.

LEWIS:  Right, exactly.

CHAMBERS: Right. And -- and you know, I don't know. I -- that's the -- that's the beauty of investing in stocks, especially at the level that you're doing it, so --

LEWIS: And, Trevor, these are companies, as you said, get up every day. These are management teams who have shown a record of being able to deliver, to overcome challenges. So, you know, these -- these are not people who are just startups. These are companies who, you know, we think have demonstrated the capability to, you know, formulate a -- a great business plan to adapt, to overcome, and we think will drive success of the business down the road.

CHAMBERS: Perfect. All right. Is there any other little insight or tidbits that you wanna (sic) share from your desk? I don't -- I don't, you know, I don't know -- that maybe just like that we should be looking for, or maybe I don't know. I mean, is there anything, maybe you've already said it, I don't know, but like, is there an area, one thing I -- let me even more specific. Is there an area that maybe you aren't investing in right now, but that you guys are looking at that could be that big moat of market opportunity. And I'm not asking you to give any state secrets here, but like and you don't have to say any specific companies, but, you know, is there something on the -- that's kind of percolating up that we could see ten years from now being a major impact. I know obviously digitization of currencies and this, and, you know, that's a huge area. But is there anything else that you guys because you must see -- you must get -- see stuff that's just like, wow. But is there a business case for it? Maybe not. Maybe you're -- I don’t know, but is there anything that you're -- little themes that you're seeing coming out of this era of COVID and like that?

LEWIS: Yeah, I think, you know, whether it be healthcare and it's such a broad --

CHAMBERS: Yeah, yeah.

LEWIS:  -- sector, you know, whether it be new therapies advancements, you know, you've got robotic assisted surgery. Also in technology, there just continues to be, with the information age we're in, the technology just compounding on itself. The capabilities of the technology and then bringing that to markets. People think technology, they think information technology. But perhaps even in -- in areas like finance or industrial applications or a multitude of different settings, but the compounding power of data collection information technology to utilize things like that. It's -- it's, you know, the beauty of our system is that we have a ranking model that will help elevate, you know, what are the companies to be researching today? If they're too far out in the future, we -- we may not, you know, be able to take advantage of them. But we will wait for the right time to invest in them when there's really a good line of sight on, you know, the trajectory of the business that we think will sustain over time. You know, one company that we haven't mentioned, but just as another innovation that, you know, probably ten years ago, people would not have mentioned. You know, look at electric vehicles. Tesla's a -- a large weight in the portfolio. Ten years ago, you know, if we had this conversation that might have been an over the horizon type of a -- but you know, we -- we see that the market for electric vehicles, which is around five percent continues to grow and Tesla as a leader in that space. If that five percent goes to say, ten percent, Tesla will gain its fair share of that. And -- and that could be, you know, we think another continued significant driver. So, what I'm trying to illustrate here, Trevor, is that there are shifts going on in the economy each and every day. Inflation may be up down or sideways. Interest rates up, down or sideways. But there are shifts going on and our job is to identify companies who are innovators in large segments of the economy that can underpin and fuel that sustained growth. And that's what we're trying to set out and invest in, for the benefits of our clients, who have that long term horizon to benefit from that long term appreciation potential.

CHAMBERS:   Can we just -- love it.  Can we just go back to Tesla for a second?  What are they -- tell me -- what are you reading in the EVs in terms of supply chains? Like copper, for example, lithium. Things like this are in batteries, you know, and there's -- setting up a copper mine anywhere in the world seems to be getting a lot harder. Like Chili is sitting on a ton of copper that's relatively easily accessible. But they are having a little trouble opening up new copper mines. I mean, I wouldn't want a copper mine in my backyard. I don't think you do either.

LEWIS:  Yeah. Yeah.

CHAMBERS: So is there any -- any -- there doesn't seem to be any, to your point, like I just heard of an interesting article today that Florida, a year ago had like 50,000 registered EVs and they have a hundred thousand today. And they're putting money into, you know, charging stations and, you know, and whatever. So, but there seems to be like, we gotta (sic) bring some more lithium and copper online. We probably need to recycle more. I mean, I don't know. I mean, like, so I've been actually just kind of following copper because I just think it's so interesting. You know, it's down right now, but seems to be some -- so anyway, that -- that, do you have any thoughts on that and what are they -- what are the guys managing Tesla telling you?  You know, like --

LEWIS: Yeah, you know, I'll -- I'll leave the finer details of the answer up to my teammate, Keith Lee, who follows Tesla. But I will say that, you know, again, this is a -- a really deep management team at Tesla. If anyone is equipped to navigate the challenges of supply chains, we think that they can figure it out. And they have shown the ability to do that.

CHAMBERS: Yeah.

LEWIS:  You know, Tesla, when we look at it as a business. You know, first and foremost, we wanna (sic) invest in a good business and Tesla has a number of competitive advantages, we think, Trevor. First, you know, they've designed that vehicle all electric, ground up. And -- and what that means is that it's engineered to be an electric vehicle instead of taking a combustion engine out of a vehicle and rewiring it for electrical purposes. The second thing is they have targeted certain segments of the market that they feel are very opportune in terms of growth and profitability. So, they've done that. And the third is, you know, when you buy a Tesla, you go to a showroom. You don't go to a dealer who might take part of that transaction fee. So, you're going to a Tesla showroom. You're in essence, ordering it. And then fourth is, they are a leader in many areas of higher technology going into electric vehicles. Whether it be the battery, which is a very key component. The manufacturing process and then the data that they are using and the capability of that vehicle. So, we just think it's, you know, a really well-run company. Its business model looks very strong from a competitive standpoint. And I think importantly, look at their positioning within the market. And where that could go over the next five to ten years.

CHAMBERS: Yeah.

LEWIS:  This is what gives us, you know, confidence in investing in that company. Of course, all -- we're always checking in with management, assessing what are the challenges, what are the growth opportunities, and what's the value on that company? So, we're not just gonna (sic) buy it and forget it. We're constantly checking on the valuation and making sure that we are managing the capital of the portfolio to be appropriately addressing the -- the opportunities and the risks of the portfolio.

CHAMBERS: I love it.  Well, I wanna (sic) say, I think it's awesome. You know guys, like people like Kevin, they're, you know, the capital to drive innovation has to be there. Right. And -- and guys like Kevin and his team are really, that's what these guys do. They take investments and they put them into companies that are gonna (sic) grow. And it's critical for our economy. It's critical for our economy that we grow. All right. Well, I don't really have anything other than the last question is, is that do you have any insights? Is there any -- you're in Kansas City. See, Kevin's in Kansas City and is there any favorite, barbecue spots of yours?

LEWIS:  At risk of alienating the different barbecue spots that I eat at in town. We're famous for so many you know, we could -- we could argue that Kansas City is a barbecue capital of the world. I love barbecue everywhere, first of all.

CHAMBERS: Yeah.

LEWIS:  I grew up in the Southeast, so I'm very familiar with the -- the vinegar-based barbecue. I love going to Texas and experiencing their barbecue style. I love my backyard, Kansas City style. So, there's my -- my ask is if any of your listeners come to Kansas City, to sample them all.

CHAMBERS: Yes.

LEWIS:  Because you -- and then compare and contrast that with your North Carolina. I'm not saying it's better.

CHAMBERS: Yeah.

LEWIS:  But it's just like it's experiencing just a different taste to the palette. So, we'll go about it that way.

CHAMBERS:  My father taught Latin. He was a teacher all his life, but his first gig in teaching was teaching Latin in like 1957 in upstate New York. And he -- okay. So anyway, he -- he would, when we were eating at the dinner table and somebody didn't like, or really liked something or didn't like something he would say in Latin, De gustibus non est disputandum, which means in matters of taste there can be no dispute.

LEWIS:  Ah.

CHAMBERS: Yeah, it's a good one.

LEWIS:  Very wise.

CHAMBERS: So, whenever somebody doesn't like anything, it matters, in matters of taste, there can be no dispute. I don't know if that's -- I don't know if that's the same case for picking stocks but it's a little more a little more to it, but well, Kevin, listen, I really appreciate the time. I really, really do. We'll probably do this in another year. And we'll -- we'll check back, but I so much appreciate your time. I know you're a busy guy and keep doing what you're doing, man. You guys play a huge role in our economy and growing it and we just thank, excuse me, thank you for it. So, and that's it. And we'll -- I hope maybe we'll talk before then, but certainly let's check back in a year.

LEWIS: Perfect. Listen, thank you to you and your listeners for your confidence in us.

CHAMBERS: Yeah.

LEWIS:  We take that job very seriously and strive each and every day to try to make their financial lives better through what we do every day. So, we're always working at that. So, thank you for your -- for your trust in us.

CHAMBERS: Yeah, man. Absolutely. All right, bud, hey listen, have a great rest of your week and we'll talk soon.

LEWIS:  Take care.

CHAMBERS: Thanks bud. Bye bye.

LEWIS:  Bye.

(INTERVIEW CONCLUDED)

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”  

Kevin Lewis

Kevin Lewis, CFA, CAIA, is vice president and senior client portfolio manager for American Century Investments, headquartered in Kansas City, Missouri.
Kevin is a member of the Global Growth Equity group and is responsible for communicating investment strategy and results to clients. Prior to his current role, he was a portfolio manager for two U.S. growth strategies at American Century Investments. Before joining the firm in 1995, Kevin was a senior equity portfolio manager at Virtus Capital Management. He has worked in the investment industry since 1983. In addition to his industry experience, Kevin served six years as a combat engineer officer in the Virginia National Guard and Reserve.

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal, or tax advisor for specific information pertaining to your situation.

Three Financial Planning Ideas for High Net Worth Small Business Owners 

Retirement Savings Ideas for Small Business Owners

We bring EZTPA’s founder, Adam Hunt, in to talk retirement savings ideas for small business owners.  We cover a couple of main points:

1.    Consider a 401k

2.    Consider a Cash Balance Plan

CHAMBERS: Hey everybody. It's Trevor Chambers, Olde Raleigh Financial Group here in overcast today, Raleigh, North Carolina. Welcome to the Soundtrack to a Financial Advisors Life from the lively production studios here at Olde Raleigh Group; Olde Raleigh Financial Group, where my firm helps provide wealth management consultation to high-net-worth families and business owners.  Today, I've got a special guest. This is a gentleman who heads up a firm called EZTPA. His name is Adam Hunt from the vacation capital of the world, Malvern, Pennsylvania. What's up.

HUNT:   Hey Trevor.  Thanks for having me on.

CHAMBERS:   Of course, man.  I appreciate the time. So, we tried this once and, you know, compliance said, hey guys, you gotta (sic) tighten this stuff up. So, we decided to take another crack at it. So, I appreciate you lending some time here.

HUNT: Absolutely.

CHAMBERS:  Adam is truly one of the -- he’s fabulous to work with. Adam helps companies, sole proprietors, set up retirement plans. For example, things like 401k’s and the like and even those things like cash balance plans.  Which if you haven’t heard of it, we're going to talk about it today. So, Adam, thank you so much for your coming. Hey, can you just give us a brief overview of EZTPA and yourself and then let's get into some questions?

HUNT: Yeah, absolutely. So, I launched EZTPA about four years ago. We're a small boutique firm located in Malvern, Pennsylvania, which is just an earshot to Philadelphia. We currently administer over 400 retirement plans, roughly 5,000 participants plus, about $300 million in assets under management.  And really, we help small business owners and financial advisors work on their wealth planning with their clients, in terms of designing retirement plans around, kind of really three premises. 

DESIGNING YOUR RETIREMENT PLAN

One is to help reduce current year income tax for the owners. Second is to create an income stream in retirement for the staff and the owners.  And then third is also to create a retirement program that you can use to recruit and retain employees in what is really a very difficult employment market right now. So, we've had a lot of success in helping both advisors and clients really kind of accomplish those three primary goals.

CHAMBERS:   Thank you for that.  That was a very succinct introduction, my friend.  You were working on that?

HUNT:   I -- I practiced in front of the mirror this morning, just for you.

CHAMBERS:   Thanks, man.  So, I want to talk -- so basically guys, here's -- I want to tell you just a couple of things about Adam.  Plug for Adam. Okay, so Adam has this firm.  He and his lovely wife.  And he partners with wealth advisors, like us, often times, right?  And, as a wealth advisor, we're always looking for the best professional services people to assist our clients; our high net worth clients, our business owners clients, with whatever professional services they need to better the health of their -- financial health of their company, and their personal health, right, or their personal financial health. So, but so, what I'm trying to say is we deal with a lot of vendors like Adam, and we go through -- like we talk to a lot of them, but once I had met Adam, he was over on the -- on the TPA, and here's why. He calls you back. And I want to plug in, I want to thank you again, Adam, for being responsive.  You’re one of the few people in, possibly North America that calls you back when you call so I want to thank you for that.

HUNT:   Just doing my job.

CHAMBERS:   Got it. So, we're gonna (sic) jump right into it. What is a 401k? And what is it. I'm -- I'm running a, you know, I'm a real estate or you know, a real estate agent or I'm a high net worth consultant, and I want to set up a 401k. What's a 401k, my friend? And -- tell us about it.

WHAT IS A 401K?

HUNT:  Yeah, absolutely. So, 401k kind of falls under what in a broader term, we call a defined contribution plan.  So, what that means that we're defining what the person gets today. What they get in the future is entirely predicated on how their investments perform, right? So, they are individually responsible, excuse me, for their -- the investments that they are selecting and, you know, hoping those investments perform.  So that's how you define contribution.  That's kind of the general term of it. 401k is a nomenclature that came up in the early eighties. And basically, it's the way that you can reduce your income taxes by tax sheltering some of your own money. So, if you receive a W2, you would see that as a reduction in your W2 wages, right?  Now, if you're a self-employed individual, let's say you’re, you know, a real estate agent, you can still do a 401k.  You're just going to show it as a deduction on your net schedule C. So, but basically, it's the idea that it's your own money that you're allocating into the plan. When you have a 401k, the other component piece that goes in is the employer component. This is also part of the code section under the defined contribution.  You’ve heard the term, money purchase, profit sharing, matching, a whole bunch of different terminologies for it, but it's the employer side. That's the other half of the equation. If you're a self-employed individual and you're a net schedule C you can do up to 20% of your net schedule C, not to exceed $305,000. So, if you were fortunate enough to make a million dollars, your 20% isn’t based on a million, it's based on 305.  And -- and if you're a W2, let’s say for example, you own it -- you have a business that’s an S-corp. Your K1 income is through your S-corps are considered passive. So that's why you get that tax -- preferential tax treatment. But your W2 wages is considered earned. So, if you took a $100,000 W2 wage, for example, you're 20 -- you would get a 25%, believe it or not, a little higher, based on that W2 wage. So, the aggregate though, across all of this is that the most that you can put in for 2022 is $60,500 into one of these plans, if you're under the age of 50. And $67,000, if you're over the age of 50. And these are all set by the IRS every year.  Kind of gives you a little bit of a quick ballpark on 401k.

CHAMBERS: All right. That's cool. So essentially guys, I don't know if you knew this, but if you're, you know, a sole proprietor out there, you can set up a 401k for yourself. And it acts largely right, Adam, like a 401k would in like, if you work for some big company, right. Same sort of functionality, except for you are the company.  And so there you are responsible if you are the one in the same, you and the company, right?

HUNT: Yeah.

CHAMBERS:   You are responsible for your 401k. So that's, which is a really cool thing. And by the way, what’s great is one of the biggest things is you can put away as he just said up to $61,000 into your 401k. Whereas if you're with a company you can only put in, depending on your age, 20 grand up to what, 26,5 or something like that?

HUNT:   Twenty seven, yeah.  If you’re over 50, yep.

CHAMBERS:  So, yeah, so there's a big pro right there. You can just put away, you know, America loves entrepreneurs, right, Adam?  They love them.

HUNT: Oh yeah. The tax code is geared towards entrepreneurs. If you're willing to take the risk to run a business, definitely are rewarded for that risk.  It might be helpful to kind of give you an example, I think, because I know I threw a kind of, a lot of technical stuff out there to kind of give you the -- the background. But the easy way to think about is let's say I’m a self-employed. I don't have any employees and -- and having employees is a big item.  I mean, there are different rules when you have employees, when you don't.  We can spend hours on that podcast alone, but let's just pretend I am a self-employed individual. I have no employees. And let's say I'm an S-corp, right? Most -- a lot of small businesses are S-corps these days. So, I make a hundred thousand dollars W2.  And I made 500,000 in addition as what we call K1 income, right? So, I made 600 grand. Right? So that's what I’m going to say I made in taxes. So, what would happen is I could put 20,500, because I'm under 50, in.  So, my W2 wage instead of being taxed at a hundred thousand dollars is now taxed as if I made 79,500, which is great.  Right. Then, I can also do 25% of my a hundred thousand. I don't have to net out that the 401k, so I take the hundred grand, multiply by 25%. That's $25,000. So combined between the two, I put away 40,500. Now the 25,000, that was the quote, unquote employer piece, right; profit sharing is kind of the nomenclature, that's used. That comes off my K1. So instead of showing the government that I made 500,000 K1, that I'm going to show 475. Right. So, and since it's coming off at the top of your highest marginal tax bracket, right, every dollar as your income increases, it becomes that much more valuable. If you're a 30 or 35% marginal bracket, it's obviously a lot more beneficial than if you're in a 10 or 15, right.  Just kind of straight linear math. But that's kind of a good example to think about is that you've got those two pieces. And when I combine them together, Between the two of them, if I'm under 50, I couldn't go over 60,500. And if I'm over 50, I couldn't do more than 67. So same example, I'm making $200,000 W2.  Right? My 401k is 20,500, which means my profit sharing is the lesser of 25% of 200 grand, which is 50 or the $40,000, so I can only put in 40. But you do get a tremendous amount of benefit. And the good thing with these types of plans is that they're discretionary. I mean, if you have a good year, put it in.  If you didn't have a good year, you don't have to make the contribution.

CHAMBERS: So, flexibility.

HUNT: A lot of flexibility.

CHAMBERS:   Okay, so a lot of positives. Anything you gotta (sic) look out for? I wouldn't call them cons, but is there something, oh, I'm going, I got, is there something that you, as a business owner thinking you're doing this just should ask a potential TPA partner or your wealth advisor, who then will direct you to a TPA and they better be, well, there's nobody as good as you, but is there a couple of things you've got to look out like, when can you draw the money out? When can't you? What penalties?  What does it -- and what do these things cost, roughly?  You know, like what -- so let's talk about that.

HUNT: Yeah. So, when you don't have employees, it's just yourself as the business owner, you know, there -- the -- all the liability falls entirely on you. Now it's always going to fall on you as the business owner, but when you're an owner of a business and you're the only employee, the only liability is to yourself. So, the IRS code is a lot more lenient on that piece. You know, when you're only yourself, there's no employees. The costs are fairly low. You know, it's a couple hundred bucks to set them up. It's a couple hundred bucks a year to manage them in terms of hard dollar fees, which are all deductible. Then you have the investment expenses, right.  And that's going to range depending on how the assets are managed, right. That could be anywhere from 10 basis points to, you know, 175.  It runs the gambit because again, it's just about your investment discipline and approach and what you're trying to accomplish. Right. But the, the ultimate goal of the defined contribution plan is to allow you to get reductions today in taxes.  And then, you know, your nest egg at retirement is really crepitated on, you know, how well you perform or your risk profile or any of those other fun investment related pieces. Now when you have employees, the paradigm does shift. So, with employees comes what we call fiduciary responsibility. So, you have to make sure you have a financial advisor in place. You need to have somebody who's going to be the investment fiduciary to support. You need to make sure you're monitoring the investments. You need to make sure that the participants have, you know, array of funds and then they understand them, right? So, giving them access to a thousand funds, doesn't actually help you any more than if you only gave them three, right. You got to kind of find a nice marriage between the two. You know, from a cost perspective, when you have employees, you have the investment management expenses. Kind of -- it's customary for the employee, obviously, to bear those costs. But any type of hard dollar fee, whether it's from the TPA or the record keeper, any type of that fee is customarily paid for by the employer.  That's not normal to really pass along to the staff, especially, you know, if the fee is, let's say a thousand dollars. I'm just picking a number, and there's four people that sit there and say, everyone pays $250. Well, if I only put in 500, that's pretty egregious to take half my account. So, we usually say allow the bigger balances to support the smaller ones with levelized fees across the board for everybody. And then any type of hard dollar fees have the employer bear that cost because it is a tax deductible business expense.

CHAMBERS:   Got it. Okay. So, cash balance plan. Let's shift gears a little bit. Another retirement vehicle, let's define it and then a couple of, you know, again, what should we -- what should you, if you're considering it as a business owner, what should you be asking your wealth advisor and your TPA about? So, what’s a cash balance plan?  Not a lot of people know about these things.

WHAT IS A CASH BALANCE PLAN?

HUNT:  Yeah. So, I'll give you the broader strokes of what cash balance falls under. So-- so cash balance is a type of defined benefit plan. So, a defined benefit plan is basically saying that we're going to define a benefit at a specific age. The luscious age, pick age 65.  Right. And we're going to say that based on that employees or that owners length of service, compensation, age, right, that they're going to have certain dollar amounts guaranteed payable to them at specific periods in life. So, a really simple example is I, you know, Trevor, you offer a defined plan. Right. And I work for you and you say, hey Adam, great news. We're going to give you a DB. We're going to do a traditional pension. We're not going to do cash balance, we're going to do traditional pension. And we're going to say that Adam, for every year that you work for us, I'm going to give you 2% of your final years income.  So, I work for you. I worked for you for 30 years and at the end you're paying me a hundred grand. Great. So, I take the 2%, multiply it by 30 that's, 60%, right. 2%, times 30. And then I take that a hundred-thousand-dollar amount and I go take 60%. And so, Trevor, you owe me an annuity of 60,000 a year, or I can take a lump sum and let's say that lump sum is $750,000, right. Just kind of picking a number. What happens is I can either roll that out as the individual, right, in the defined benefit plan, this traditional pension. Or I can take the annuity option. Right. The benefit of a traditional pension, like I described, is if you have lots of really young employees, right.  Or if you're a sole practitioner, right, and let's say for years you were a -- you were self-employed.  So, you paid a lot in FICA taxes, right? You had many years where you're paying, you made hundreds of thousands of dollars in income. But now you switched to an S-Corp. So, you have a really low W2.  The advantage of the traditional pension that I just described is that we can use your historic three-year high watermark for three-year consecutive years of income to base the benefit on. Okay. So that means that let's say I had a couple of years ago, I was making four or 500,000 a year. And then my accountant came to me and said, hey, Adam, it's gonna (sic) be a lot more tax beneficial for you to go to this S-corp.  Now you're gonna (sic) have a W2 of a hundred grand and you’re still going to be making the 400,000, but we can't use that for calculations. Right. What I can do in the traditional pensions, I can use those old -- those old incomes to create a really high deduction today for you. Okay. So there -- there's a lot of benefit of that. Now the one that's really popular that we see is what we call cash balance. Cash balance works a little bit differently. It works where we're going to say to again, Trevor, I work for you. You're going to say, hey Adam, you work for me. I'm going to give you 10% of your pay every year into this plan. And Trevor you as the business owner, right, you're going to guarantee several things. You're going to guarantee that a, the payments are made every year. It's a liability. So, you have to make it. Now, you, when you, as an owner, when you set up these plans, one thing to remember is you have to run them for a minimum of three years. Okay. So, if you set up a plan, you ran it for one year. You said, oops, I made a mistake. That's a problem because the IRS is going to call that a windfall DB. They even have a term for it. And they're going to disqualify your plan. So can't run these things for one year. You run them for two. If you have some justified business reasons, you're shutting. I sold, hey, I got a great offer. I'm selling the business. There are plenty of reasons to do it, but generally you want to run them for three years. Okay. So, you're going to say, Adam, hey Adam, I'm going to give you this plan. You know, you're going to get it for probably three years, possibly more, but, you know, you got this benefit and I'm going to give you 10% of your income.  You're also going to guarantee the rate of return. Now we're typically assuming somewhere between 5 to 6% rate of return on these investments which, you know, obviously in this market can be, you know, it's easy and it's hard, right? So, you have to kind of think about how you're constructing the portfolio because if you have too much money, it's a problem in the future. Because you -- you're -- we're guaranteeing a benefit, right? So, what the IRS is saying, Adam based on a hundred-thousand-dollar income, at age 65, has to have 750,000. If I have more than 750, I don't get to get it. There's taxes and penalties that the company pays. And if I'm short, let's say they only have 740, the company has to make up the differential to me. Right?  As the employer. So, but the nice thing about the cash balance is that if you have, if you're taking a W2 wage or your net schedule C, if your income goes up and down, right, your benefit can go up and down, right, in terms of what you're contributing to these plans. And it also allows you, if you have business partners to create different amounts for different partners. It can allow you to create different amounts for different key employees and staff.  But the one thing that you really do need to remember is that the business itself is the one that's sponsoring it. So, the liability and the cost all falls back on the employer. So, the investment expenses, those are all a cost of managing the plan. That's born by the employer and any of the administrative costs, the legal -- the legal costs, all that stuff has to be born by the employee camp.   There's no way to pass that onto the employee. But when you're really looking at these types of plans, where they become really powerful is that as you're getting closer to retirement, if you're looking to catch up, you can tax shelter hundreds and hundreds of thousands of dollars into these predicated on really your age and your income level. So, for example, if I was, you know, 55 years old and let's just pretend I don't have any employees to make it easy. So, it's just me and let's just say, I make, say I'm a schedule C filer and I made half a million dollars. Right. I'm just kind of picking a number. At age 55, you could tax shelter into the defined benefit, whether we do the traditional right, which is that percentage formula that I described or the cash balance, where its percentage based on today. You know, you can tax shelter 200, 250,000 possibly more really, it's depends on a number of factors. Your profession does make a difference. But you're getting a huge write-off. So again, so if I was able to tax shelter 250,000 out of a $500,000 income, well then my taxable income drops line directly, the key piece is, you know, do you have the funding available? Right? Because you know, that's the key pieces, but it does allow for tremendously large tax deductions for business owners. And that's the real, one of the big reasons to do it, is large current year and then, you know, large lump sums at retirement.

CHAMBERS: So that's -- that's just it guys. I mean, if you, you know, if you're making a lot of money, you're just getting hammered on taxes. This is something to consider because, if you can, that's the biggest thing, but there are some, you know, as Adam has mentioned, there are some limitations to it. So, you gotta (sic) be aware of those too. For example, limited growth.  You know, you gotta (sic) be limited approximately between five and six percent, but that all depends on, you know, the situations of your company. They're also running a little bit more expensive, right, Adam?  These plans, the cash balance plans, to administrate these are a little bit more expensive?

HUNT: Yeah. I mean, typically, you know, a cash balance is going to run you a couple of thousand dollars to set up, you know, in that 2,500 to 5,000 range, depending on a number of factors, right. Complexity, you know, number of employees, there's a whole bunch -- of your profession, you know, we can go to the government to get a ruling on some things. So, you have some upfront costs and then your annual administrative costs can run you easily four or five, 6,000 a year. So, when you're setting these up, it's really important to look at the cost, but the -- the tax deductions that you generally receive, relative to the expense, which are all the deductible, they offset, right? I mean, they generally pay for themselves. When we counsel clients with these types of designs, really it's predicated around what you're doing over the next three years, because really it can really look in through your windows, right. And that kind of falls into that IRS rule for three years. And the reason being is that your demographics are extremely important. You know, when you're an employer and you have employees that are younger than you, these plans are very inexpensive because the employee has a long time horizon until retirement, right? When you have older employees, especially if you have employees older than you, they could -- there could be -- they can be more expensive because their time horizon is shorter. Right. So, there are some factors. So, but part of what the responsibility of a TPA is, is that if you provide a census, right, and this is just basic indicative data names, dates of birth, date of hire, compensations, there's a couple of other questions.  But no one should ever ask you for social securities or anything like that. Right. They can give you some designs. And say, hey, look at, based on information provided, here's what these deductions look like. And I would say those are all within 95% plus accuracy, right. Because you're using kind of projected incomes. But the big wild card that we always say to clients, is like, what are you doing with your business? Are you growing? Are you expanding? Or are you static? If you are an expanding business where you're going to be rapidly growing, this is probably not a great solution for you, just because your costs will go up as you add more bodies, right. More employees come in, cost you more money.  It's a great design when you have a static employee population or if you're kind of saying, hey, I'm going to be selling the business.  Maybe I’m going to, you know, start working less. I want a tax shelter more. There's a number of scenarios, but these are all conversations that we would have at the outset and kind of that counseling session, Trevor, to make sure that it's a good fit for the client and that they understand the liabilities and the benefits, right, which are tremendous, before even engaging in setting up a design like this.

CHAMBERS:  Got it. Yeah. And all that is very important. That's what Adam does really well about figuring out the best solution given the population -- your employee population and you. Because again, when you sign up for one of these things and -- and correct me if I'm wrong in this checklist, but it's -- it's pretty, it's serious.  If you've gotta (sic) (inaudible).  First of all, you're locked in, like you said, for three years. You gotta (sic) do it for three years. You also have to be responsible and make sure that -- that these cash balance plans get funded at the end because you don't want to over fund -- well, like you want to make sure your employees get what they're due and owed. So that's very important. And how are things invested to make sure that you have the funds there at the end? All those things are really important. Then of course, the costs you talked about. But it's hard look -- it's something you gotta (sic) to look at you in terms of your overall financial planning, because in the outer years, maybe your career where you're making a lot of money, it's a great way to save for retirement, and it's a great way to lower your -- your taxes. So, because you know, Adam, maybe you can chime in on this but just as another kind of real world example, but let's say, you know, you’re a baby boomer person. Right. And let's say you've been involved with real estate or even commercial real estate. Right. Okay. And you've got tens of millions of dollar, you know, whatever you got a bunch of real estate, a lot of money in real estate, but maybe you don't have a lot of exposure to the markets. Right, Adam, so here's a great way to lower your taxes, get some exposure to the market that compliments your real estate and -- and it really helps you transition to that next step of your life where maybe you're phasing it down to your point. So, I don't know if you want to, you know, comment in any of that, but I really think that what I'm trying to say is guys like Adam and good TPA’s are a huge part of the planning process.  Wouldn’t you agree, when it comes to the --

HUNT:  Yeah, one of the -- one of the things to think about too is with real estate, right, is that if you want to diversify your risk, these types of plans are protected from creditors. So, you know, if you're in the real estate business or you own property, and you're looking to diversify your risk away just from a liability perspective, the money that you sock in here can't be pierced by creditors, you know, even in the event of bankruptcy. So, and that's all federal statute, so it's a really nice -- there's some nice compliments to it. The other thing that I'll -- I'll -- I didn't mention, but I should is that the IRS changed the way that we plan for these, right? So. Right now we actually have clients on extension for their taxes right today. So, you know, corporate taxes were due yesterday, right? Personal taxes are due on the 15th of April. But we have clients going on extension because they're like, look, we want to do it. You know, the funding, right? When can we fund? And it's like, well, you have to fund these by your tax filing deadline, including extension. So, you know, let's say it's, you know, for our corporate clients it's until September 15th and they’re like well, we don't know exactly what we want to do. We're still thinking about it, you know, can you give us some rough numbers? So, we have one client, I'll give you an example, you know, he's does very well. Came to us last year, said someone showed me this. I came back and I said, well, here's some things to think about. I said, they included people here that were 1099. That was a problem. They -- which you don't include 1099 employees on here. I said, secondly is like, you didn't note that this was your son. I said, that's a big issue because he's really young. And so, when we went through, basically he came back, he goes, so when you're -- he goes the way you design is, he goes, so you're basically saying that my -- my son can only put in a 401k contribution, that's it? And I said, that's it. And you know, it's gonna (sic) cost me X for my employees and I can put in Y and I said, yeah. But one of the things that you --we have an issue with is that depending on -- you have one employee who's really young.  There's one employee who's like 23 years old, I said is literally making this entire design work. I said, if you lose her, right, and we can't use her young age as -- as a -- as a way we calculate the benefit, it will increase your cost by a hundred percent to your staff. And I said, you know, don't get me wrong. You're putting away, between you and your wife, they were putting away almost $600,000.  Really large benefits. There's someone's putting away 20,000. That's fine. But the staff, we were, because of the ages of the employees, they were only putting away about $20,000. But if this one employee left, the cost would go from 20,000 to 40, which is a massive jump. Now, if your tax sheltering 600,000 and it goes from 20,000 to 40,000, you know, you're probably still going to do it because it's still tax beneficial. Right. But it's not a surprise that anybody wants to have. Right. And nothing makes your clients more upset, or my clients more upset, when part of what they're paying us for is to anticipate the problems that are going to come down the road and give them the option, so they have a full understanding of what they're actually going into. And I have found in my experience that a lot of -- of shops will throw out a number, put an illustration together without doing the consultative and I don't understand, to me that's like going to a doctor and the doctor's go here, here's Percocet. And you're like, yeah, but I got a broken toe. Oh, all right, let me examine you now.  Doesn’t help anybody.

CHAMBERS:  And this is -- this goes back to the -- to the scope of these things, right, Adam?  So what he just described was you got to really kind of look at your staff when you're setting these up and go, you know, I run this small business and it's a family, you know, and everything good, but are these guys are going to stick around. So, this is what he's saying. Like, you are responsible -- if you set these things up and like, you know, you got a young, you know, person in the firm and then they jet and go onto, well, that's -- that's going to jam you up, but guess what, you’re locked for three years, right?

HUNT: You are locked in for three years.

CHAMBERS: So it --

HUNT: -- and that can be --

CHAMBERS: Yeah, go ahead.

HUNT: -- expensive.

CHAMBERS:  I was just going to say, it makes you really assess who's your team because in an age where labor is a real problem, right, these can be extremely great ways; 401ks, cash balance plans, to retain people. And this is a huge problem for all of us.  But this is sometimes when you need to look at these things that you may overlook as tools that are going to help them retire better, help you, you know. But there's responsibilities. So, it's really important that you understand these.

HUNT:  Correct. Correct. Yeah. Because we've, you know, we've not had a situation yet where a client has set this up without being kind of fully informed. But we have plenty of clients like during COVID, I mean, we had clients where they came to us and said, my business revenues are down 50 percent. What do I do? I -- I just set this up a year and a half ago. I didn't see COVID coming.  Now, the good news is, is like anything else in the world, everything is very manageable, right? There are plenty of things that we can do. We helped all of our clients through them. Actually, none of our clients terminated their DBs. But we were also always the -- you know, the -- the kind of the motto I always operate under is, I hope for the best by I always plan for the worst, right, for all my clients. So, I hope that their businesses do well. I hope that they make all the money in the world that they can. But I -- my job is to plan that what if it doesn’t, right? That's one of the things you're really paying us for is to go, what happens if it all goes wrong for our client? And they've got this now benefit that almost becomes a liability. Like how do we help them address that, so that they're protected right. Protected from making mistakes, they're protected from incurring the wrath of the IRS, or the department of labor. Right. And those are the -- those are the most important pieces with the team you have, like the financial advisor, like me working with you guys, Trevor. That's where it becomes really important because, you know, it's -- everyone's always happy when things go well, but you know, things go bad it's -- if as long as we have a plan, we're always in good shape.

CHAMBERS: Exactly.  Managing smiles is very easy.

HUNT: Yes.

CHAMBERS:  We manage smiles all day long. Yeah. Yeah. But that's -- all right. That's cool. Well, I think, Adam, that was more well-rounded interview regarding 401k and --

HUNT: Yeah.

CHAMBERS: -- and your cash balance.  Hey, by the way, real quick, and I know you gotta (sic) run to a nooner -- a noon meeting here and it’s 11:56 here.  But you can actually slap, you can -- you can do, you can take your cash balance plan and add it on, add on a 401k and put away --

HUNT: Correct

CHAMBERS:  -- a ton of money.

HUNT:  Yeah. So --

CHAMBERS:   That’s like -- wrap it up with that and, you know.

HUNT:  Yeah, yeah, that’s -- so good Segway.  Right to the end, right --

CHAMBERS: I just (inaudible).

HUNT: -- leave everyone wanting, hoping for more. But yes, so normally what we would do is we would pair the defined contribution with the DB plan, right. So, we call them DBDC combos and that's really prevalent. So, when you're -- when we're designing these types of plans, yeah, you're going to see really kind of, all right if I build it as a pyramid for you, right? You're going to have the 401k kind of at the bottom. The 401k is most likely going to be designated a Safe Harbor 401k. And we can go into that at another time.

CHAMBERS: I’ll link to that definition.

HUNT: Yep, down the road but everyone can Google Safe Harbor 401k.  It’s a, you know. But we'll do that, and then we'll have a profit sharing on top. And then the capstone is really the -- the defined benefit plan. And whether we're choosing the traditional pension formula or we're using a cash balance formula, the fun part is this. They both end up with the same lump sum number. It's just how you get there and what the business needs, and the conditions are of the business. What's the best way to approach getting to that number? So, whether I'm in a traditional pension format or the cash balance, if I’m -- unless I'm a sole employer, my final number is the same. Let's say it's my lump sum is 3 million. It doesn't matter what formula I utilize. The way that we get there is a little bit different. The way that it's treated at retirement is a little bit different in terms of the rules. But they are, we have clients that are kind of split between the 2, 50, 50.  But, almost -- I don't have a client without a 401k that has the defined benefit plan. It is -- it is an absolute must sidecar to the DB plan.

CHAMBERS: So, check that out guys because it might be the right fit for you, may not, but make sure that you're at least looking at it. You're making a lot of money and you're a sole proprietor, or you're like say, you know, a doctor's office with -- with -- or, you know, older partners and you've got younger partners or younger staff. These solutions could be -- could be a good fit for you. So, it's all of that. So, and, you know, that kind of a little segway perfectly to another podcast for us. We'd be focused next time -- maybe we can just focus on like a medical practice. That might be cool. So, well, listen, I’ve run up against it.

HUNT:  You have. You took your time to the 10th second.  It’s fantastic.

CHAMBERS: I love it.  I love it.  All right. Adam, we'll talk again obviously, and I wish you nothing but well, and that the Cowboys absolutely destroy you in the coming season inside of your own stadium? Sorry, (inaudible).

HUNT: We got jail and hurt. It's all good, man.  We'll be just fine. We'll be -- we're just going to spend all of our draft picks on defense this year. It'll be great.

CHAMBERS: You guys even have -- I don't even know who that is. You guys have a team up there?  Okay, anyway.

HUNT:  We did. We went out -- we did win a super bowl a couple of years ago. You might remember that one.

CHAMBERS:   Actually, I'm very (inaudible).  But anyway, I’m a fly by night Cowboy fan, whatever. Thank you for the time.  Say hello to Mrs. EZTPA for us.

HUNT: Will do, my friend.  And we'll talk to you soon.  Thanks, Trevor.

CHAMBERS: Thank you so much, Adam. I appreciate it.

HUNT: You’re welcome.  Bye-bye.

(INTERVIEW CONCLUDED.)

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”  

Adam Hunt

Adam has more than 25 years of retirement and investment industry experience. Prior to launching EZTPA, Adam held institutional sales roles for several prominent investment banks and global insurance companies. In 1997, Adam received his Bachelor of Science in Finance from the Bartley Business School at Villanova University. In 2003, Adam received his accreditation as a Certified Financial Planner (CFP ® ). In 2011, Adam received his Master of Business Administration in International Economics from the Gabelli Business School at Fordham University

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Financial Planning and Selling Your Business

We bring Erik Sullivan and Jonah Pollone from MidStreet Mergers & Acquisitions in to talk about the process of selling a business.  We cover several main points:

1.    Who do you call when you’re ready to sell your business? Who is your who?

2.    Exit strategy and Exit Plan.

3.    What are the markets like?

4.    Evaluations and Strategies.

5.    Fee Structure.

6.    Marketing and Listing your business.

CHAMBERS:   Hey, everybody. It's Trevor Chambers from Olde Raleigh Financial Group and the riveting Soundtrack to a Financial Advisors Life. It's a riveting podcast. And today it just gets -- we're going to go off the chart’s gentlemen, all right. I mean we're -- sorry, I’m spitting on you already here. All right, I got a little intro. It's all jacked up with Google keywords. So just give me a minute here. Financial Planning, people in Raleigh and financial planning, people in Durham and in Cary and all over the triangle. All right. Have you ever asked yourself, is there a financial advisor or a financial planner in Raleigh, let's just say, who can help me get clarity on how to sell my business? Is there a financial planner near me? How about those Google words right there?

SULLIVAN:  Right. 

CHAMBERS:   Okay.

SULLIVAN:   In Raleigh.

CHAMBERS:   Oh yeah. Who -- who is networked in the business community? All right. To me, and who is vetted by the way, and who knows personally, and who has interacted with on a business level, business brokers. People who help you do mergers and acquisitions; help you sell your business. Because if you're a business owner in Raleigh or Durham or in Cary or in Chapel Hill, and the greater triangle and you have a business and you want to start thinking about financial planning and retiring. You have an asset, but you got to figure out how to sell it and get top dollar for it. So, I have some guys for you. So, the resounding answer is yes, there is a financial planner, a wealth advisor, who can help you. I'd like to introduce Jonah Pollone and Erik Sullivan from MidStreet Mergers and Acquisitions. Guys --

POLLONE:   There you go.

CHAMBERS:   -- how are you today?

POLLONE:   Nice.

SULLIVAN:  Good. It's a mouthful, isn’t it?  MidStreet Mergers and Acquisitions. Yeah. It takes some training. It really does.

CHAMBERS:   Well, you guys are in a new digs here. I'll just, they'll tell you all about it, but I've been invited in to do a little podcast. We're going remote on the Soundtrack today. So, tell me about you guys. Erik, we'll start with you and then and we'll go to Jonah and then if you guys could just tell us about the company and get just -- just start rocking.

WHO DO I CALL WHEN I’M READY TO SELL MY BUSINESS?

SULLIVAN: Yeah. Yeah. Let's -- let's jump into it. Well, my name is Erik Sullivan. I am the chief operating officer here at MidStreet. MidStreet is a lower middle market M&A company, which is a fancy way of saying we help business owners that do between one and 25 million in revenue, sell their companies.  And that's really kind of the meat and potatoes of what we do. We don't really service buyers all that much. You know, we don't do capital raises anything like that, but if you are a business owner and you own a company and you're ready to cash out, sell for whatever reason, we're here to help.

CHAMBERS:   Fabulous. Tell me, where are you from?

SULLIVAN:   I'm from the triangle area. So, I've actually been in North Carolina for pretty much my entire life. We moved here when I was two years old. I say, we like, I was part of the move.

CHAMBERS: Yeah. You had nothing to do with it.

SULLIVAN:  Like I was driving in the U-Haul.

CHAMBERS:   Yeah, you wrote all the checks, Erik.

SULLIVAN:    Yeah, that's right. That's right. But when I was two years old, we moved here to Raleigh and I bounced around Charlotte, Cary, Durham, Raleigh that whole time.

CHAMBERS:   So, you know the area?

SULLIVAN:   Oh, yeah, very well.

CHAMBERS:   All right.  Mr. Pollone, Jonah Pollone.

POLLONE:   I’m going to slide this mic over. So, Jonah Pollone. I work with Erik. I'm training to be the -- I'm a young Erik right now. I'm Erik two, three years ago. So, I'm training to be in his position. I help out with a lot of the deals we do. I do a lot of client facing work. I interact with a lot of the buyers that come into our process. So, Erik mentioned we don't work directly with buyers. We don't advise buyers, but as part of selling companies, we deal with them all the time. So that’s a big part of my responsibilities and I also have a podcast that's called Owner Operated and Trevor’s been featured on that. So go check it out. 

CHAMBERS: Let's just say it probably wasn't one of the better ones.  I mean, you were awesome. But I'm sure I’m brought it down.

POLLONE:   No, it was great, man.  It was good.

CHAMBERS:   But thank you. Yes, I had a ball. Guys, check out this, check out Jonah’s Owner Operator podcast. It's on all the major platforms. It is well worth it.

POLLONE:   Quick plug.

CHAMBERS:   Yeah. Yeah, no, it's great. I love it.  I love it. Now, just one thing about your team, you guys are young guys, but I believe that this MidStreet has a senior person or senior people in it.

SULLIVAN:   Correct.

CHAMBERS:   Can -- it's just important because you know, a lot of people that are maybe exiting the business or say are getting in their sixties and fifties, a little older. So --

SULLIVAN:   Yeah.

CHAMBERS:   -- which is good. Don't get me wrong.

SULLIVAN: Oh, no, no.

CHAMBERS:   But --

SULLIVAN:   Trust me.

CHAMBERS:   Because he’s a secret sauce and we -- you know, I want to give shakes to the old guy, you know what I mean?

SULLIVAN:  To the president.

CHAMBERS:   Yeah, yeah.

SULLIVAN:   To the senior leadership, right? Yeah. You don't -- don't go too hard on the senior when you talk to him.

CHAMBERS:   I wouldn’t. 

SULLIVAN:   So, Jeffrey Baxter, the president of MidStreet, is a huge part of the firm. He oversees all of the work that we do here. He's kind of like a north star for us as a company.

CHAMBERS:   Yep.

SULLIVAN:   So, when we run into things in a deal that we've never seen before, or we are having some sort of issue or if it's just direction. And sort of helping us set the course for where the company is heading. He's the person that we go to --

CHAMBERS:   Yep.

SULLIVAN:   -- for those things. And he's part of the firm. He's here every day and is a huge help to us.

CHAMBERS:   Oh, yeah.

SULLIVAN:   He's been in the M&A world for over 25 years. So just a wealth of knowledge.

CHAMBERS:   And I've been in climbing's with Jeff and these guys, and it's just polished, man. The other thing I want to point out about this scenario is these guys have, this company, MidStreet Mergers and Acquisitions, at 590 Waverly Place, Suite 210 --

POLLONE:  There you go.

SULLIVAN:    Cary, North Carolina.

CHAMBERS:  Cary, North Carolina. These guys have a succession plan, so they have a process. They have mapped it out, these guys, and the next generation.  Jeff has vetted these guys. He loves these guys. Jeff Baxter, the guy, you know, so this leads us perfectly into, small business owners, what's your plan? You're going to have to sell your business. It's a huge asset. So, these guys let's talk about exit strategy, exit planning from your small business. Go, what do we gotta (sic) to do? I want to do that. How do I do it?

EXIT STRATEGY, EXIT PLANNING FROM YOUR SMALL BUSINESS.

SULLIVAN: That's a good question. The best, I mean the first thing to say is, if you're a business owner and you know you want to sell the company, one day, you need to start three years in advance, at a minimum. And the reason is, you know, I had a client come to us probably two years ago and they said, hey guys, I'm ready to sell today. I'm ready to be done. I want to get out of here. And we said, great. You know, send us your books. We'll get the valuation complete. And we'll start taking a look at everything. Well, about a week later, he got all the information over to us. We sat down, took a look at things and unfortunately, he had run an entire beach condo through the financials of his company.

CHAMBERS:   Makes sense.  What could possibly go wrong?

SULLIVAN:  What could go wrong? And -- and it happens all the time. To be honest with you, we see this a lot, but when you do that, you really hinder the company's ability to sell to the largest buyer pool -- the largest buyer pools available. And ultimately, we had to have this guy go and resubmit his tax returns because if you sit down and you take a look at those financials and you can't prove where that money is going, it's going to be tough to get someone to pay you for it.  And so, in that scenario, what actually happened is he came to us, we looked at the numbers. We said, look, you're really not ready to sell based on the way that you've run things. And he had to run the company for two more years before he was really ready to get out. And in his case, everything worked out well. I mean, it was a good transaction ultimately, but a lot can happen in two years, as we've learned specifically in the last two weeks. And you never know what's coming down the pipeline for you when you own a business.

CHAMBERS: What's happened in the last two weeks. I haven't been paying attention.

SULLIVAN: Well --

CHAMBERS:   Yeah, tell me how is that -- so in all seriousness guys, obviously the world changed a couple of weeks ago with our friend Vladimir Putin being well, not being friendly for whatever reason there. And so yeah, what's -- what's the market like, so yeah, what's the market like?

WHAT ARE THE MARKETS LIKE?

SULLIVAN:  Not being friendly. Understatement of the year, right?

CHAMBERS:   Yeah.

SULLIVAN:   Yeah, it's -- nothing has really transpired today is what I'll say. It again, it's been about two weeks since the initial invasion. And as of right now, we're not seeing a slowdown from buyers. Everything seems to be kind of moving along at a regular pace, but it's a red flag, I guess, is what I'll say in the market. And if it continues, I think it will begin to soften the resolve and some of the sentiment in the market about how great things are going. And it could get a lot worse, I guess, is what I would say. Nobody's got a crystal ball, no one knows where it's headed, but it's been a very long time since there has been a ground war between two established countries where you have their actual military fighting one another and not, you know, a military fighting a terrorist presence, I guess is what I'd say.  So, it's a different kind of war. Hopefully it slows down,

CHAMBERS:  But you, to your point, you never know what's going to happen. And like, if you gotta (sic) get to a liquidity event sooner than later the point is you've got to get tuned up.

SULLIVAN: That's right.  And to tie it all back in, if you're a business owner, the reason we tell you to get prepared or to start speaking with us or any other M&A advisor out there in the market early is these are the kinds of things that we can catch and make adjustments early on in the process so that you can sell on your timeline.  You can sell in accordance with your goals because sometimes people come to us and they're just not ready.

CHAMBERS: Yeah.  Would you like to add anything on the process side?

POLLONE: Well, just to that last point, I guess I'd like to say, you know, we've in the last couple of weeks, we've experienced some of the most interest from -- from clients that than we've ever experienced in the past.  And I think, you know, just to Erik's point it really affirms the fact that we're kind of in unchartered waters and -- and sellers are concerned, and they don't really know what's next. So, you know, we've talked about this internally. I think that we're personally, I think that we're headed towards more of a buyer’s market where buyers get to control and dictate a little bit more of the process than in previous years, you know. Typically, you know, when selling companies, the sellers hold a lot of the cards. They have a lot of leverage.  But when things are really uncertain, like we saw with -- with the, you know, special word right there, you know, the last two -- two years, you know, buyers gain a little bit more leverage in the -- in the process and ability to control, you know, just how they can, you know, prices that they can offer and all that sort of stuff. So, I think that that's going to get potentially even worse, like to Erik’s point, if things, you know, continue to get bad. So, we'll see what happens, but I'm anticipating more of a buyer’s market as -- as years go by. Not right now, certainly, but maybe -- maybe in a year. Maybe in six months. Who knows?

CHAMBERS:   Yeah, and, you know, I don't like -- I don't like the idea of selling into chaos, obviously, you know, and it may rejigger your thinking people out there. Maybe I'll just let this thing settle out before I pull the trigger, to your point. I'm hopeful. I'll just leave it at that. I'm hopeful.   So, let's talk about evaluations because, and strategies that people who own small businesses, let's talk about that. What do we need to do to –

EVALUATIONS AND STRATEGIES-EXIT PLAN

SULLIVAN:  And I'll kind of tie that whole thing into exit planning too. Because it is -- it is related. So, when we say get started three years in advance, we're not saying you need to list your company, or you need to start the process of selling at three years in advance. We're really talking about, making relationship with an M&A advisor and getting an evaluation. That's the number one step. So, in the process before, you know, people always ask us, how long does this whole thing take.  You know, from the moment you sign a listing agreement, it takes roughly six to eight months. But most people started planning three plus years in advance, or at least one year in advance. So, for exit planning, number one step, start early.  And get an evaluation. Understand what your company is worth and understand how companies are valued.

CHAMBERS:   I like it. That's sound advice right there. Jonah, do you have any additions to that right there?

POLLONE:  One topic that comes up a lot is who should do my business evaluation. Should it be my CPA? Should it be my M&A advisor? My business broker, whatever you want to call it. And it really, you know, my opinion and what I've seen at the firm, it depends on really the specific individual. Number one question I would have for whoever's talking about valuing your businesses is, do they have experience selling companies? Have they sold companies before and or are they active in the M&A space? So, if it's a CPA, if they've done this a lot and it's one of their specialties, then, you know, I think that makes potential sense, but, you know, we come across a lot of professional advisors who may or may not have experience in the M&A space. And if they don't, it -- it often is to the detriment of their client. And I don't think a lot of people realize that. It's something we -- we run into very regularly. You know, my -- my particular advice is go with someone who's actively selling companies in the market because the market changes from a -- from a day-to-day perspective, as we're seeing with the news right now. That's the only thing I would add.

CHAMBERS:  Do a lot of small business owners just do it on their own and what’s the pitfalls of that?

SULLIVAN: We see that a lot. And it, you know, it really depends on the size of your company too, right? The smaller, more mainstream type deals, you know, if you're doing less than a million in revenue, typically maybe less than 750,000, a lot of those folks will try to do it on their own.  And, you know, it's tough to say, right? For some -- some industries are easier to calculate than others. It really depends on your books. It depends, number one, honestly, on your background. Do you have a financial background? Have you valued companies before? Like if you're someone who has, you know, three years of M&A experience working at an investment bank, or even an M&A company, mergers and acquisitions company, maybe it makes sense for you to do it yourself. But if you've never valued a business before, if you've never sold a business before, it would be kind of, you know, not ideal to sell it yourself. You know, you're dealing with, and a lot of times sophisticated buyers who have done this multiple times over. If they're an individual, they've probably done a lot more research on the buying process.  They probably talked to brokers and sellers in the market multiple times in the past, maybe even delivered offers, right? Some individuals we've talked to they've delivered five to ten offers before talking with our seller. So, you know, your kind of going up against a really difficult situation when you don't have the experience or the knowledge behind it.  That’s one of the reasons why we always recommend sellers use a deal team, right? So, you know, M&A advisor or business broker, depending on the size of your company. You know, transaction attorney, some, or maybe just an attorney who's experienced in mergers and acquisitions. You want to have a wealth advisor on your team. Ideally more years in advance, but you know, you're going to sell your company.  There's going to be a huge liquidation event after that. You need to be prepared for that step in the process. And where does the money going to go? Are you going to put it in the market? Are you going to use some of it to 1031 your real estate? What's that strategy look like? And then obviously a CPA.  That -- that is one of the more underrated roles, in my opinion. A lot of times we'll see sellers who have grown over the years, we're dealing with the deal, right now. Large company, and, you know, they have a CPA that they've been using for -- for many -- many years, since they started the business. And it's, they've sort of outgrown their CPA role. And what we did was we brought in a -- an experienced CPA who's more experienced in the mergers and acquisitions side, and that person is working alongside their CPA as part of their, again, deal team. So, you know, think about when you're going to sell, think about things in terms of your deal team. You've got a team of people that you're using to help you in the process. And it's -- it's really underrated for a lot of folks.

POLLONE:   And Trevor, you asked about people doing the valuation on their own. Absolutely. You can -- you can do that. But the mistakes, when the numbers get big can be pretty detrimental. And if you've got someone who contacts you out of the blue, they make you an offer on your business.  You don't know if that offer is a good offer or not, and you try and do your own valuation. You could either vastly underestimate the value of your own business or miss a good offer because you think it's worth way more than it really is. Just work with a professional. It's worth the five, $10,000, even, some people charge that.  We do them for free. And there are a lot of good M&A companies out there that will do them for free. But it, even if you do have to pay for it, it's worth the $10,000 to save you losing out on hundreds of thousands of dollars.

CHAMBERS: Okay. So, I'm going to say just one thing on that to add to that. The other piece that these guys didn't mention, but I know when I say this, they're going to be like, oh yeah. Emotions, because like, you know, we do financial planning at Olde Raleigh Financial Group, we do the buys and sells. And the reason you -- we get paid to do that is because we deal with that stuff every day. And we keep our -- we get paid to keep our emotions in check, so you guys don't have to worry about it. So, emotions are a big part of -- I've worked 30 years at this business. I got to get top dollar. Well, sir, you're running, your whole, your -- all your personal expenses through it. And so, it's not worth that.  Is my, you know what I mean?

SULLIVAN:  That’s right.

CHAMBERS:   The other thing I want to ask, what's really not statement is, can you talk to me about the fee structure and how that works with you guys just so these guys know. It doesn't have to be a deep discussion, but roughly how does it work?

FEE STRUCTURE

SULLIVAN:   Absolutely. If you look around online, you might have some trouble finding what M&A advisors cost and what, you know, what they charge. Our fee structure at MidStreet is generally this; 10% commission on the first million in sale price.  8% commission on the second million in sale price. 6% on the third, 4% on the fourth, 2% on anything thereafter. Now the next question most people ask is, is that negotiable? Is that your fee every single time? It is negotiable and it is not our fee every single time. It really does depend for us as a firm on the size of the company that we're working with and a lot of the other factors of the company. And the only reason I say that is we deal with companies of a pretty wide size range. You know, we might be dealing with a $2 million in sale transaction size company one day and then a $10 million in sale -- sale price the next. And so, it doesn't always make sense to give the same pricing structure for both companies.  And you may have real estate involved. There's a lot of factors, but generally that's our structure.

CHAMBERS:   Got it. Did you want to add something?

POLLONE: It might make sense to talk about the range of companies we typically help out. And -- and to Erik's point, it's typically going to be greater than a million in sale price. We will go all the way up to maybe 50 million just depending on the -- on the structure of the deal and if it makes sense for us. And like Erik said, we're -- at the end of the day, so another thing to bring up, a lot of business brokers out there, we operate at what we would call the nexus of MainStreet and the middle market. Okay. So, a lot of business brokers are mostly selling companies doing less than a million in terms of their sale price.  We're kind of in between that and 50 million, which would typically be in between a business broker and an M&A advisor. And so, because of that, we operate at this weird little nexus point where some of our deals and, you know, that are less than $5 million in purchase price are going to go most likely through the SBA 7a loan process, which I'd be happy to explain. And over that, it's likely that the deals are going to sell to private equity or strategics. So just something to point out, we're a little bit different. We're structured as a team. We work on all our deals together. We've got Jeffrey Baxter Jr. here. He does a lot of the financial analysis and due diligence for us. Erik already talked about his role. I talked about mine and, and Jeff Sr. as a part of our team as well. We also have a big content team folks who help us market the companies. So, you know.

CHAMBERS:  Yeah, that’s a big role with the -- yeah tell, just give us the once over on that, because I think you guys do an exceptional job because, you know, folks listen, they're gonna (sic), you know, what these guys do, and I'm sure there's other people, peers in your space that do this too, but I think what these guys do really, really well is the marketing end of it. So yeah. Erik, tell us about that because it's not just like put it up on a listing. It's a lot more than that.

MARKETING AND LISTING

SULLIVAN: Yeah. So, we'll tie that into the process discussion too. Like I said before, once you sign a listing agreement, the process generally takes six to eight months. The first step in that process is usually the business valuation. And that's already done by the time you signed the listing agreement, because we all have to come to an agreement on what's the price going to be? What do you, you know, what do you want to sell for? Once you start, for the next three to four weeks, MidStreet's going to be working on your marketing materials.  And what that looks like for us is a 40 plus page write up. We call that the CIM, which stands for confidential information memorandum, and then a marketing video. The video scares a lot of people when they first hear about it. Because they think well how -- how the heck are you going to do a video with all my employees in the building?  Everyone's going to know what's going on. And it's a valid concern. Before I tell you how we do it, we've done this for many, many years. We've never had an issue with confidentiality. And the reason is we go into the business under the guise of we're here today, doing a marketing video. Again, no issues with confidentiality, but you may be asking why do we do it?  The big reason we do the marketing video is as a client, your company is going to be out in front of the buyers in the market and up against companies from all over the country that are also being represented by M&A advisors. And to date, we are one, probably the only company in our size range; there's one other company in the country that does this, but in our size range, we’re the only company that produces one of these videos for our clients.  So, for you, as the business owner, that means when somebody gets your marketing materials and compares them with the other business opportunities that are in the market, it looks way different. Way more attractive. And we get comments all the time from lenders, from buyers; these videos make a huge difference for us.  We can see into the business; we really get a chance to see the owner. Understand the opportunity and it makes a big difference in the sale price, too. It's all about driving that competition.

CHAMBERS:   Absolutely. Do you have anything to add?

POLLONE: Yeah, so just to go back to the process, you know, say we start the process of the marketing materials.  When we go live with a listing, we will go live with what we would call a blind ad on several different listing sites. And we will do buyer outreach as well. And that blind ad describes your company at very high level to gain interest from the buyers without revealing any of the confidential information. So, what happens is buyers come across the listing. They inquire on it and express their interest. And then we reach out to them. We talk with them for 15, 20, 30 minutes, depending on the type of deal. We vet them, we qualify them. And then after that conversation, we'll send them an NDA and a questionnaire.  Or request -- we're a little bit unusual.  We're, you know, we like to put ourselves in the seller's shoes and think if we were selling our company, and we were advertising on the market, you know, what would we be comfortable with? Some brokers, and this sounds crazy, but it's true, some brokers put the listing out online, they receive inquiries and then they send an NDA out and the buyers sign the NDA and then they get access to all the confidential information without ever speaking to anyone on the phone or confirming their identity.  And to us, that's just not how we do business. That's -- that's not right. If you're selling your company, you're going to, you know, the CIM is going to have financials in it, very sensitive information that you don't want to get out there. And so, we found the best way to do that is to thoroughly interview the candidates and -- and receive a lot of information.  And we put them through a big questionnaire. We asked for their personal financial statement, we asked for their driver's license and it's -- it's kind of a hefty ask, but the rationale there is we're sending a lot of confidential information. So, I just want to make sure, that's clear. We don't just send these videos out.  You know, they're very sensitive pieces of content, but we don't just send these out to whoever inquires. Right. We, we qualify the buyers pretty thoroughly and that's a very big, important part of the process.

CHAMBERS:   Yeah, absolutely. All right, so we touched on the market a little bit. Do you, I don't know if you guys wanted to just get into like, you know, I mean, you know, the sense of valuations right now.  Let's see, I know, just pick some categories of companies.  Maybe service providers or something like that. And then I have a follow up question that’s kind of specific, but you know, like I'm running a, you fill it in, I don't know. Tell me like a, what are valuations at and where's the money coming from and --

SULLIVAN: We'll do a landscape company.

CHAMBERS:   Yeah, that’d be perfect.

SULLIVAN:  Yeah. So, landscape companies. Interesting market right now for landscaping. If you are running a landscape company of any kind. Maintenance is your best friend, whether you are mostly focused on commercial or mostly focused on residential, the maintenance aspect of your business, as in going out to people's homes or to their places of business and maintaining the grounds, that is an integral part of having a valuable landscaping company. The install work that landscape companies do is also very valuable. But if it isn't paired with the maintenance, people see it as a massive risk.

CHAMBERS:   Cashflows --

SULLIVAN: Correct.

CHAMBERS:   Reoccurring cashflow.

POLLONE:  Reoccurring --

SULLIVAN:  That reoccurring cash flow, correct. Now between residential and commercial, there is also some distinction there. So commercial is going to be more valuable in the eyes of the buyers in the market today than residential. There is a little bit of a growing wave of residential investment because the commercial side is getting more consolidated. There's so many players going after that side, but still to date, if you own a landscaping company and you are on the commercial side, you can expect a higher multiple for your business, especially if there is maintenance involved and on the residential side, still a good amount of interest, but less so and a little bit softer from a multiple perspective.

CHAMBERS:   Cool. So roughly, it's a clean business, doing a million in revenue, dropping whatever to the bottom line. I don't know what those are. I mean, not just -- what are the multiples, roughly?  Based on, by the way, what are they based on?  The cash flows, right?

SULLIVAN:  Cash flows, right? So, let's say it's a, it's a million in revenue and we're clearing $350,000 in what we call seller's discretionary earnings, which there's a ton of info on our website about how to calculate that. I would recommend going there.  But. $350,000, seller's discretionary earnings, you're probably looking at a multiple, within a range of 2.8 to 3.5, highly dependent on the area that the company is located in. That's another big factor. If you are located in a strong market area, that's growing; Raleigh, Cary, Wilmington, Charlotte, then your company is going to be a little bit more valuable.  If you're located in one of the outer markets, Winston Salem, sorry guys, Greensboro, sorry guys, Fayetteville. These markets are not growing quite as fast as some of the other markets in North Carolina. And it's not that your multiples going to be dramatically less, but it does have an impact.

CHAMBERS:  Right, right. Okay. All right. I have a follow up question to that. If -- if you have a company that is safe, like a flooring carpeting company. Okay. And you have 12, 15 guys in your crew, people on your crew. They're all 1099. And you're; basically, what you do is you drive around and make sure all the jobs are getting done, but you're just phone work, you know, you're -- you're having stuff sent through -- is there value there? I mean, basically you're a phone and a computer, right. And then you've got 1099 guy or people working for you.

SULLIVAN:  Sub-contractors.

CHAMBERS:   Yeah. Which is, by the way, a great way to do business. I'm not --

SULLIVAN:  Awesome way.

CHAMBERS:   But is there value there? Is there a sellable thing? And I'm giving you guys a little bit of a softball quite -- I mean not, a curve ball question, or maybe I'm not because you're awesome.  I don't know. But yeah. Is there a -- is there a value there that somebody could trade on?

SULLIVAN: So tough to say without a little bit more info on the company. So, I'll give you a sort of a qualified answer. If the company has a brand wherein the people are calling for, you know, XYZ flooring company rather than to talk to Brad or, you know, is Charlie there, right?  If you've got a brand and the company doesn't completely rely on you as the owner from a sales perspective specifically. Then yes, there is some value there. If you are the only sales guy and everyone knows to call you and has your personal cell phone number. It's going to be a little bit more tough to drive a lot of value.

CHAMBERS:   Yeah, and this is kind of what I wanted to bring up because there's a lot of people that think more grinch, more grungier than there could be, yes. And I think you guys and your firm and my firm, we deal in reality. This is reality. It may be tough, but this is reality.

SULLIVAN:  And reality serves you.

CHAMBERS:  Yeah.

SULLIVAN:  I mean, to live in fantasy land does not serve you.

CHAMBERS:   No.

SULLIVAN: And -- and it’s a, not an easy conversation, but I have it with people all the time

CHAMBERS:  And all you young people out there that have businesses, right? Think about what these guys are saying to you, right? Because you have to think about future self. There's not just, you know, all you guys out there that are making a living like you guys meet well, we're fine. You, mergers and acquisition people, and wealth advisor people, we help people get to future self, which is an important person you got to think about because they're going to have needs and desires and that you have to fuel, right? So, building a brand and that 1-800 number that everybody knows and on the, and the web listings and all that intrinsic value; be building that stuff into your model, so you can get more value. Because to your point, like, oh yeah, this -- this installer of floors and rugs, they got a really good reputation. There's something to trade on, there.

SULLIVAN: And they've got really great employees and salespeople who are dedicated to the company who have been there for many, many years. They have relationships across, you know, all different sectors in our market, whether it be residential or commercial. Those are the types of things that really are going to drive the value. But one thing that you said that I -- I really want to touch on is, so we talked about dealing in reality. And part of the reason people rarely want to deal in reality is that it's really painful to see in black and white where you're at. And for a lot of business owners, you know, kinda (sic) to tie it back to the beginning, the reason that they never begin planning is because it's not comfortable. Planning is not comfortable because there's so many things that you have to confront. You have to confront the fact that you're not going to be in the business forever. You have to confront the fact that one day you're going to have to make this change. And unfortunately, the brass taxes you're going to have to confront that one day, you're going to die.  And that’s uncomfortable for all of us. For all of us. But it's the truth. And it's the most important thing that you can do to improve the quality of the rest of the life that you have left because none of us are going to be here forever. And you guys, I'm sure you deal in this all the time.

CHAMBERS:  It's just part of it.  But anyway, I think the points taken. No, my friend?

POLLONE:  I’d like to add –

CHAMBERS:   Yeah.

POLLONE:   So, you know, at a basic level, if you're looking at, you know, how do I make my company more valuable? You know, I'm listening to this multiples, cashflow, et cetera. One of the biggest takeaways for me, whenever I'm looking at opportunities or whenever we're evaluating opportunities, the more of your business -- you got to put yourself in the buyer's shoes at the end of the day. The biggest question is, you know, the question of value; what we're really talking about is, what is someone willing to pay for my company? It's not this sort of abstract, oh, what's the true value blah, blah, blah. It's really, you know, if I were to market this business, what could I get for it on the marketplace? And the marketplace is going to bring buyers to me that will be interested. And we deal at a really micro level of this because we're talking about negotiations with individuals, private equity, strategics, but that's really how it's done. So, when I say, you know, you need to get a valuation and a really good way to do that is to go with someone whose doing deals. That's why I say that. That's kind of point one.  Point two is repeatability. When you're a buyer, again put yourself in their shoes, if you're a buyer and you're looking at buying your company that you have, right. What are the -- what are the things you're most scared of? Number one is business going to continue in the future?  What's one of the best ways you can ensure that business is going to continue in the future? Repeat -- repeatability of the business, right, of the revenue. So, we talk about landscape companies. We talk about maintenance, but even if you have a retail store, right, the repeat customers that come in, maybe. Maybe you can service them again. Maybe you have a customer list that you can upsell to. Whatever that looks like for your business. There's a ton of different industries we've served over the years. Whatever it looks like, as much repeatability as you can get, the better. The companies that have the lowest multiples are typically the companies that are only doing things like new installs, new construction, you know, one-off sales that they can't upsell into. The companies with the highest multiples are always have the most potential for repeatability and automatic, you know, structure. Right? So online businesses, you might hear crazy multiples. Maybe you've listened to podcasts before, you know, some of these online businesses sell for crazy multiples. Why is that? They're re ridiculously scalable and they're really repeatable. So, I just like to make that point, because I think it's one of the fundamental, you know, backbones of our business. And when you're talking about valuing your company.

CHAMBERS:  Yeah, and also your business model, what's your business model? Like, are you, could there be things that you could be doing better to increase that, you know? Cool. Is there any other things you gentlemen would like to finish with maybe? Who knows?

PROCESS OF SELLING A BUSINESS.

SULLIVAN:    Yeah, we didn't talk too specifically about the process, so it might be good to just cover it. We've talked about a couple of different pieces, but never the full thing.  So, starting out, you've got the marketing process. Once you decide to get started. Three to four weeks after that is complete, then you go out to market. And unfortunately, that's the least predictable part of the entire process because it's all hinging on when you're going to find the right buyer. So usually, I'd say one to three months is the maximum period of time that it takes to find a buyer. Sometimes it can go longer. And if it does, there are things that you can do to attract more buyers. But assuming that we get it under contract within two months, then you're at about three months, total for timeline. From their due diligence, generally 60 to 90 days and another 30 days to closing. So, you're getting close to that six-month mark.  That is a good case scenario. I wouldn't say it's the best case scenario. It can go a little bit faster. Can take a little bit longer.

CHAMBERS:  Right. Okay, cool. That's great guys. And I will kind of break that out on the transcript of this recording because that's key.

POLLONE:  And we've got blogs on that, Trevor, so maybe we can link to some of our blogs.

CHAMBERS:   Perfect.

POLLONE:  We've got guides on all that stuff.

CHAMBERS:   I love it.  I figured – I was hoping you were going to say that.  All right.

SULLIVAN:  Any more keywords we should stuff in here?

CHAMBERS:   No. Yeah. Tell me your websites.

SULLIVAN:   Our websites www.midstreet.com. That's M I D S T R E E T.com.

CHAMBERS: Cool. And these guys have the corporate headquarters here at Waverley Place up in Cary.

SULLIVAN:   The international headquarters.

CHAMBERS:   Yes.  The -- in Cary, the vacation capital of the world.

SULLIVAN:   That’s right.

CHAMBERS:   Yes.  Absolutely. Well, gentlemen, thank you so much for this. I really appreciate it. You guys are just a great resource for any of you people out there that want to do -- want to sell your company. And -- and the sale of that company is important to you and important to your future. Give these guys a call.  So, thanks for coming to the soundtrack. Erik, Jonah, thank you so much. Have a wonderful weekend in sunny Raleigh, North Carolina. I mean --

SULLIVAN:   Let’s go –

CHAMBERS:   -- I don't know, man, does it even rain here anymore?

POLLONE:  Gosh I don’t know.

CHAMBERS:   I mean what is going on?

SULLIVAN:   Never.  It’s always 70 degrees, sunny.

CHAMBERS:   Yeah.  And also, these guys gave me a JUST water, which is, I mean, this thing is like --

POLLONE:   We’re fancy.

CHAMBERS:  (Inaudible) pack. I like it.  It's like full of, like, I feel -- I'm just bouncing off the wall.

SULLIVAN:   That’s M&A water right there.

CHAMBERS:   I think it has a New York State thing. I like it anyway. So, I'll give the plug to this thing, so. All right.

POLLONE:   Well, thank you, Trevor.

CHAMBERS:   You guys. Thanks a lot.   I love it.  All right. Yeah.

POLLONE:   Where are we going to lunch?

CHAMBERS:   I don’t know.  Where are -- where do you go to lunch around here?  Good point.

SULLIVAN:  There's all kinds of places right behind us.

CHAMBERS:   Is there any particular place you want to give a plug to, that’s locally owned?  Come on, I should have brought this up.  I always bring this up.  I forgot.  

SULLIVAN:  Locally owned is a really good question.

CHAMBERS:   Well, it doesn’t even have to be nearby.  I mean, where do you guys go? Where did he take your hot dates?

SULLIVAN:  Is Jose and Sons locally owned?

POLLONE:   I don't know. That's a good question. I think it is.

SULLIVAN:   I think Jose and Sons is locally owned --

CHAMBERS:   Yeah, I think it is.

SULLIVAN:   -- and I believe they have a location right behind us.

POLLONE:    I feel like we should be recommending a barbecue place because we're in North Carolina, though.

SULLIVAN:   Well --

CHAMBERS:   Where do you take a date?

POLLONE:   Glenwood South.  The Hibernian. Got to go there.

CHAMBERS:   Nice.  Oh, that’s right.  Well, he took me there. So, it's a hell a date, right there. And where do you take? Where -- where you going, you know, when you got to take somebody out?  I don’t know --

SULLIVAN:  Morgan Street Food Hall.

POLLONE:   Oh yeah.

SULLIVAN:   There's nothing but options there.

CHAMBERS:   Yeah.

POLLONE:   Good point.

SULLIVAN:   Gotta (sic) have options.

CHAMBERS:   Yeah, see, I mean he kinda (sic), he got you on that one. Yeah. I actually just -- Namu in Durham.

SULLIVAN:   Namu is so good.

POLLONE:   Delicious.

POLLONE:  That is the secret date place.

CHAMBERS:  Jammer.

SULLIVAN:   Love that place.

CHAMBERS:   And then, I got another one that I’ll have to circle back on and throw in the transcript. Do you guys get any place like that -- any Asian place like that that’s killer?

POLLONE:   Garland.

CHAMBERS:   Oh yeah.

POLLONE:   In downtown Raleigh.

CHAMBERS:   Garland.  I mean, yeah.

POLLONE:   So good.

CHAMBERS:   Jammer.

SULLIVAN:   So good. Have you ever been to Bittersweet?

CHAMBERS:   Yes. I have been a Bittersweet. It was a long time ago, but yeah, it's -- Blake Paro is a partner with me. He loves that place. Yeah, that place is cool.

SULLIVAN:  It's right across from Garland too. So, it's a good one to hit.

CHAMBERS:  I wonder what their multiples are.

POLLONE:   Oh, let's not talk about restaurants and bars.

SULLIVAN:   After 2020.

CHAMBERS: Yeah, exactly. All right, you guys? Thanks a lot. Thanks for those plugs. Appreciate it. Have a wonderful day.

SULLIVAN:   Thank you, Trevor.

CHAMBERS:   You too, bye.

(INTERVIEW CONCLUDED.)

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”  

Erik Sullivan

Erik is an award-winning photographer, videographer and content writer with years of experience in the field of digital and print marketing. Erik holds a Bachelor of Arts in Sociology & Technical Writing from the University of North Carolina at Charlotte, as well as an active North Carolina Real Estate License.

Jonah Pollone

Jonah graduated from UNC-Chapel Hill’s Kenan-Flagler Business School. He holds an active North Carolina Real Estate License as a full broker and is working on several other professional designations. During his time at Carolina, he was the co-president of the school’s undergraduate real estate club and fostered a community for real estate networking and investing on campus. 

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Mutual Funds Are Great in Your IRA’s and 401K’s but Not in Investment Accounts

CHAMBERS:  Hey, everybody. This is Trevor Chambers from Olde Raleigh Financial Group in, currently a little overcast Raleigh day. And I have -- I have with me a really special guest today.

MIHAJLOV:  Very special.

CHAMBERS:    Mr. Alex, I just want to say, your deep voice today just sounds fabulous.

MIHAJLOV:  Yes.

WHY DO ADVISORS PUT MUTUAL FUNDS INTO TAXABLE ACCOUNTS?

CHAMBERS:    Okay. In all seriousness, we want to talk about something. Alex, one of your pet peeves, I've worked with you now for going on seven years. And one of the things that I've learned from you is a little pet peeve, a thing called mutual funds in taxable accounts. Now let's talk about mutual funds for a second. What is it? What are some pros? What are some cons? And then what's our problem with finding mutual funds in taxable accounts.

MIHAJLOV:  Good morning, Trevor.  It's always good --

CHAMBERS:   Alex, we haven't done this in a long time.

MIHAJLOV:  -- to see you.  It's always good to be with you, even though we're next-door neighbors in the office. We don't -- we talk much to seldom.

CHAMBERS:   Let's just start there.

MIHAJLOV:  Let's talk about mutual funds. Let's talk about what's going on. Everybody's calling in and going, I paid a lot in taxes last year, paid a lot in taxes. My capital gains were high and while last year was a great year for capital gains. There are some capital gains that are controllable. One of those ways is controlling what mutual funds and why you would own a mutual fund in a taxable account.

CHAMBERS:   Right.

MIHAJLOV:  Let's talk about what's good about mutual funds.

CHAMBERS:   Well, what’s a mutual fund?

MIHAJLOV:  Basically, a mutual fund lets your investor, every investor be -- have the advantages of being a big investor while being a small investor.  They get diversification basically at every dollar level. The investment expenses are spread out over the whole pool of the mutual fund. You get the, you know, the economies of scale and operational efficiencies of having a big pool of money.  You can certainly invest in specialized sectors and areas through mutual funds. They are easily accessible and tracked. It is simplified portfolio management. It is easy to switch among mutual funds in a family. You know, it does give you access to professional money managers. And certainly, the trading costs involved in mutual funds tend to be lower than the individual trading costs on buying individual stocks, et cetera.  So that's kind of gone away as well.

CHAMBERS:   And it's really helped so many people who -- to access the market, right? I mean, it's been -- nothing wrong with mutual funds. That's not what we're saying.

MIHAJLOV:  It's a great diversification tool for someone that’s starting out.

CHAMBERS:   However.

MIHAJLOV:  However, what I'm seeing a lot of from my competition is people are buying mutual funds in their taxable accounts.  And what's wrong with that? Well, the problem with owning a mutual fund in a taxable account is come every November and December, and sometimes in the middle of the year, if they're having a really good year, they tally up they're winners versus losers in their portfolio and they cash out. They might cash out a winner.  And what they -- what that winner does is creates a capital gain for you that you really had no idea about and no control over. And it might've been a stock that they've held for 20 years and you've had the fun for three weeks. So, it's not controllable by you. So, I really am not wild about mutual funds in taxable accounts. And I think it's, you know, one of our friendly CPAs sent me a statement on another client's account at another firm where they just had a slew of capital gains fall out of their mutual funds in their taxable accounts, despite this gentleman making a whole lot of money and really needing to control their capital gains.

CHAMBERS:   So why would an advisor here in Raleigh or in the triangle, put somebody -- take a taxable account and put a mutual fund in it? And why would they do that?

MIHAJLOV:  Probably because they either don't know or are not confident in what the alternatives are to that type of process. You can still invest and you can still invest in equities in taxable accounts. I just think there's much more tax efficient ways of doing that.

CHAMBERS:   All right. So, let's get into that. Like, ETF, singled --

MIHAJLOV:  You know, there's two other primary ways you can certainly buy individual stocks or have a pool of managed individual stocks and you can also use exchange traded funds, which basically you really don't create capital gains unless the fund is bought or sold, which you are in control of. So that -- I think those are two avenues that make a lot more sense for people in taxable accounts. Now, when you're inside an IRA or some other qualified plan, this argument certainly goes away. But in an account that I'm paying tax on every year, I'd like to keep as much of that return if I can, after tax as possible.

DO CLIENTS FORGET ABOUT TAXES AND TOTAL RETURNS?

CHAMBERS:   Yeah. And that's really kind of important because I think sometimes clients don't remember that in their strategy. Right?  They only remember it when they have to pay the tax bill. But they're not thinking about in terms of, okay, well what -- what -- why am I, you know? Right?  It's --

MIHAJLOV:  I mean, you know --

CHAMBERS:   It’s part of your return.

MIHAJLOV:  -- short term capital gains are basically somebody's income tax, right. And long-term gains at the high side are 20%. They could be lower depending on your income.  But I think it's -- the great thing about investing is you want to keep as much of your return as possible. So that's why I've never been a fan of using mutual funds in taxable accounts.

CHAMBERS:   One other thing about mutual funds, can you just talk about their -- their costs? Like, so we're an independent registered advisor. We're a fully independent shop.

A SHARES CLASS VS INSTITUTIONAL CLASS SHARES.

MIHAJLOV: You know, we use institutional share class mutual funds. When we use them, they tend to be of lower expenses than your typical A and C shares or whatever my competition is selling these days with no front end or back-end charges associated with them. So, they tend to be, they, again, they give you the advantages of being a big institution while not necessarily being a big institution.

CHAMBERS:   Right.

MIHAJLOV:  Tend to like those better.  They tend to work better for the average investor. So that's why I use them. But it is frustrating. It's frustrating to see a client give away returns to taxes when they could probably easily avoid doing that.

CHAMBERS:   And fees.

MIHAJLOV:  Yes.

CHAMBERS:   That you don't -- nebulous fees that you don't need.

MIHAJLOV:  Right.  Correct.

CHAMBERS:   Well, my friends, I think what we're saying for is, you know, strive for transparency. You know, if your advisor is not giving you the transparency you need, maybe you should reconsider those services. Well, Mr. Alex, is there anything else you'd like to add is fine pile of awesome google keywords?

MIHAJLOV:  Trevor, I would just like it to warm up.

CHAMBERS:   Yes.

MIHAJLOV:  And, and let's go ahead and bring spring on and shut the cold weather off.

CHAMBERS: Yeah, we are -- we're kind of done, by the way, what's going on in the markets today? What's shaking? How --

MIHAJLOV:  Every day is a good day in the market.

CHAMBERS:    Every day.

MIHAJLOV: Every day is a good day in --

CHAMBERS:   No, actually you can’t say that. 

MIHAJLOV:  Every day is a good day in the market, Trevor.

CHAMBERS:   Alright, well, thank you for your time. We appreciate it. And we will check back. Thanks for joining the Soundtrack to Financial Advisors Life. We appreciate it.

MIHAJLOV:  See ya.

CHAMBERS:   Bye-bye.

(INTERVIEW CONCLUDED.)

 Alex Mihajlov

The arch of his career has now landed his firm, Olde Raleigh Financial, to become a fee-based, Independent Advisory firm. Prior to that Mr. Mihajlov was a branch manager at A.G. Edwards, Wells Fargo and Raymond James. His career has been an evolution and, in turn, his perspective on service has evolved.  “My team and I have experienced the large brokerage houses and banks. While they have carved out their spot in the marketplace, I can say it is not for us. We have evolved and we tend to attract those who have evolved away from cookie cutter to a world of customization. They want collaboration. They wanted to be listened too. They want a relationship and we want them to be excited about our relationship.”   

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”  

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

— 

We had a fun, meandering conversation with Matt Klein from The Overshoot.  Love this guy. Smart as heck.

There is a lot of talk about China’s huge consumer potential and yes 1.6 billion gets the attention of S&P 500 companies. The challenge is very little of China’s GDP is controlled by the consumer because most is controlled by the state. In addition, China’s population is old - check out this podcast we did on China’s ageing population.  So what does huge ageing population with little extra money to spend have to say about the global demand trends and Chinese role in the world?  Throw in a $500 Billion gap in U.S. current accounts and a couple of stories about Mao acting crazy and boom – we got another episode of the Soundtrack to a Financial Advisor’s Life.

• Trade Wars are Class War’s

• Interest Rates Relation to Asset Prices and What it means to Household Income

• China’s Household Savings Rate is 30%. U.S. Household Savings Rate is 7%. Why?

• China’s Household Don’t Have A Safety Net and Have to Save not Spend

• The Consumer in China Has Very Little of China’s GDP and that Isn’t Changing Anytime Soon

• Interest Rates Relation to Asset Prices and What it means to Household Income

• What $500 Billion Gap in the U.S. Current Account Deficit Has to do with Companies Spending More on CapEx

• The Digital Yuan

• COVID Killed Consumer Spending in China? Not really. The Consumer never was spending in the first place.

• China is Getting Richer, but it is Still Really Poor

• Supply Chains – Good News, Rental Car Companies Have Rebuilt Their Fleets

• Mao killed a bunch of sparrows in China and 60 million people starved

• Mao told farmers in China to plant seeds a particular way and 60 million people starved

CHAMBERS:  Hey, everybody. This is Trevor Chambers from Olde Raleigh Financial, and unfortunately, I cannot say that it's sunny Raleigh, North Carolina. We're a little overcast, here. I don't know. Matt, how's things out in San Francisco? What do you got?  You got some sun there or what?

KLEIN:  Yeah, perfect blue skies, you know, 60 degrees.

CHAMBERS:  Nice.

KLEIN:   Can’t complain.

CHAMBERS:   All right, I'm going to throw you a curve ball. I got a bunch of questions to ask you, but I didn't bring this one up. This is not anything to do with your subject matter. But, where -- besides -- when you and your lovely wife want a cup of coffee in your neighborhood, is there any place that you guys go to get a nice cup of coffee that I might be able to shout out to in my blog, here?

KLEIN: Oh, Farley's.

CHAMBERS:   Nice.

KLEIN:  Definitely recommended that.

CHAMBERS:   Farley's. All right. I ask people like where do they go lunch, where they get their coffee? And that's right around -- that's in the hood?

KLEIN:  Yeah. It's a few blocks.

CHAMBERS:   Nice. So, they -- they know the -- they know the Klein family.

KLEIN:  Well, I don't know about that, but we know them.

CHAMBERS:   I got it.  They know your Amex card or whatever, right? Yeah, absolutely. So today folks, we're going to be not just talking about Farley's coffee shop and someplace in San Francisco, but we're going to be talking China and all the fun stuff that's going on with China. And we're going to be talking more specifically about trade imbalances that the United States and, really largely the world, has with China and kind of what are the ramifications on our society here in the United States, as well as China's society.  And I've got no better person than Mr. Matt Klein. How are you, Matt?

KLEIN: Doing great.  How are you?

CHAMBERS:  Awesome, man. So, Matt you're, you're an alumnus, you were on a year or so ago, and I really appreciate your time. You were quite a distinguished person. I've just looking at your -- tell me about The Overshoot.co.  Tell me a little bit about that because you did not have this, I'm sure this was germinating the last time we spoke. And I certainly can butcher your background a little bit, but maybe you can do a heck of a lot better job than that. Matt, who are you? And what's The Overshoot?

Trade Wars are Class War’s- Household Savings and Household Spending are not Culturally Driven Societal Factors

KLEIN:   Sure. So, The Overshoot is a subscription research service about the global economy, financial markets, and public policy. It's available, anyone can purchase an individual subscription.  Also, there's some institutional customers that buy in bulk and that also provides the option of, you know, one-on-one conversations with me. It's really in-depth analysis of the global economy, the US economy, Chinese economy, Europe and it's really just trying to take kind of in a very, you know, detailed, but also, you know, very sophisticated level, looking at what is going on in the world?  What can we see in the data? How should, you know, we understand what's happening? And it’s sort of falling onto the work I've done before when I was at -- I was at Barron's and The Financial Times, and also very much related -- if you liked the book that I wrote with Michael Pettis; Trade Wars Are Class Wars, which is what we -- I talked about last time I was on -- on the show with you. I think you'll like this and really, you know, we have some -- I'm very pleased. If you, you can go to the website and see some of the testimonials.

CHAMBERS:   Yep.

KLEIN:   There's some really very impressive readers and subscribers who are fans. So, you know, feel free to check it out and join them.

CHAMBERS:   Yeah, for sure. And we will, obviously include a link in the transcription of this. So, I'm excited for you, man. This is, and how's it going?  Is it going well?

KLEIN:   Yeah, it’s going pretty well. I mean, you know, obviously there's always room for further growth, but I mean, where I'm looking at right now in terms of the gross annualized revenue based on subscribers so far, I -- I'm very pleased and yeah, it's -- it's going nicely and, you know, signing up some more, you know, corporate customers and yeah, it's great. 

CHAMBERS:  Good for you, man.  I'm excited for you. You deserve it.  You work hard and it's great.

KLEIN:   Thank you.

CHAMBERS:   Yeah. I mean, I understand sticking your neck out and straight, you know, putting your own business up and doing -- it's challenging and it's --and the good days is great. And on the bad days, you know, and I don't know, it could be a little bit of a brown liquor or vodka. I got it. All right, my man, let's get right into this. So, this -- you know a lot about the status of child -- China's household savings rate and why that is so important. So, I want to kind of rehash what we talked about before, because I just want to get an update from you on what's going on with this.  And why is savings rates in China -- what effect does that have on us? And by the way, the first time you explained this to me, because I'm not that smart. I was like, what the hell is he -- I mean, this sounds interesting, but after I kind of like digested it, I was like, oh.  Interesting. So, anyway.

KLEIN: All right, so I'm gonna (sic) try it again.

CHAMBERS:   Try it again.

KLEIN:   I'll just break it down.

CHAMBERS:   It will take me a third time, man.

KLEIN:   Yeah. Maybe. I mean, it took me a long time to wrap my head around this too. It's not like I just, one day woke up and understood this.

CHAMBERS:   Yeah.

China’s Household Savings Rate is 30%. U.S. Household Savings Rate is 7%. Why?

KLEIN:    I guess the first thing to start with is saving is -- is not a thing itself, right? But the thing itself is you have income and then you spend your money and savings whatever's leftover.  So, people might try to target a particular savings rate, but at the end of the day, it's the saving is what they can't -- they can't control their savings. They can -- they can control how much they spend and to a little bit extent they control what they earn, but really, you know, the -- the adjustment mechanism is what they spend.  And so, when we talk about someone having a high savings rate, in practice, what it means is that whatever they make, they don't spend a lot of it relative to someone else. So, in China, the household savings rate, that's around, you know, 30% or so, which is definitely higher than in the US, which is around, you know, 7%, but it's not crazy high compared to some other societies in Asia or for that matter in parts of Europe.  The thing that is distinctive for China, when thinking about it as the macro economy is that the household sector is only one part of the broader economy. So, household saving a lot, you see that in places -- I mean, Italy households save actually a very large share of their income. But that's offset by other sectors of the economy that don't save as much, whether it's, you know, companies that are borrowing a lot of government -- and you see this in a lot of countries. It balances out in different ways. What's unusual in China is that the high household savings rate is matched by very high levels of corporate saving, in addition. And so that ends up and -- and government borrowing is relatively low in China. It's not, you know, zero, but it's -- it's relatively low. And so, the net effect there in -- in China is that the sort of national savings rate is extraordinarily high. The other way of looking at this, which is like, what is saving, right. It basically means that of all the stuff that's produced in China, all the goods and services and everything that businesses are putting out, relatively little of it is actually consumed by Chinese households and enjoyed as goods and services that people want. And so that leaves the question again, where does it all go? Well, a bunch of it's exported and then a bunch of it goes into, you know, building infrastructure projects or housing or things like that, you know, essentially industrial products that are not for consumers.  And the proportion of the Chinese economy that either is going to, you know, net exports or to, you know, the sort of heavy investment stuff is something on the order of like 50% of the Chinese economy.  It’s extraordinarily high. And again, this is not -- there is really no precedent for this outside of basically like, you know, Soviet Union in the 1930s. And that ends up, you know, because China is such a large economy, you have this very unusual composition of, you know, the mix between production consumption there.  It has a lot of effects that spill over to the rest of the world. In particular that, you know, people there aren't buying what other people -- other countries, other businesses are producing. And that creates a lot of challenges in terms of, you know, trade and balances and -- and weak consumer -- weak income growth abroad that then, you know, as we explain a lot more detail in the book, Trade Wars are Class Wars that, you know, has all sorts of problems. It might lead to, you know, higher debt, financial crises, lots of, you know, higher unemployment, lots of problems for the rest of the world. And it's also bad for people in China.  I should be clear because they're effectively living far below their means because of the low level of [00:09:00] consumption relative to income -- relative production I should say.

China’s Household Don’t Have A Safety Net and Have to Save not Spend 

CHAMBERS:  What role does the environment or the, you know, the -- what role does the Chinese environment play in that? I mean I did, I don't know if you and I talked about this before, but after we spoke, I remember reading or something that, you know, one of the things that the average Chinese person has to kind of reconsider is that their environment isn't very great and they very well could be sick as they grow older.  So, they have to save a little bit more, keeping that in mind. Do you have any thoughts on that?

KLEIN:   Yeah, I think that's actually something we mentioned the book. This is a point that Michael Pettis has made; my coauthor on the book in the -- in the past. And part of the reason why the household savings rate in China is high, you know, a lot of people talk about cultural or whatever, and like, maybe that's part of it. But the simple reason is because there isn't much of a government welfare state, social security system to protect people. And so, they have to save. If you don't save, you're going to, you know, starve and, you know, if anything bad happens to you, you'll have no money.  You retire, you stop working, you have no money. So, there have been improvements over the years in terms of, you know, things like expanding access to healthcare coverage and so forth, but it's still a very, very bare bones, kind of welfare state compared to what you'd have in many other societies.  And so, one of the ways that people try to provision for this is basically saving themselves, you know, save as much as they can to cover their own costs. One of the other things that happens, there’s a lot of -- so, in addition to the savings rate, being high, the thing that I think is actually more important and this relates to the corporate savings side I was mentioning is that the share of income that goes to households is very low.  So, household savings rate is high, but that's not really why consumption in China is as low as it is. The reason consumption is as low as it is because households just aren't making that much money in the first place. If household income share were higher, even with a high savings rate or a relatively high savings rate, they'd spend more but so much -- they don't have a lot of income. And one of the ways that income is transferred is through the mechanism you're talking about. And this is a kind of thing where it doesn't show up in like, you know, a tax or spending government budget. But it is a real thing, which is that you're effectively privileging companies and the owners of companies.  Those might not be Chinese people by the way, but they're owners of companies operating in China through environmental regulations that then end up harming consumers in China by making them sick. That's one thing you can do. Another thing that happened a lot in the past, it's less of an issue now, but like it had been a big issue in the nineties and the two thousand was the government essentially seizing land that people had been living on. Giving them very low in compensation, then essentially gifting it to, you know, companies that were coming in and bringing in investment. You have things like preferential access to electricity and other utilities, which again, those particular things aren't necessarily as much of an issue now, but they -- they are part of a, you know, overall piece of mechanisms that transfer income and consuming power from, you know, ordinary people in China to companies. And that ends up having all sorts of knock-on effects. Again, it's bad for people in China and it also is bad, you know, for people in the rest of the world, because if someone is in China and they're, you know, an ordinary person who they'd like to have more things and have a nicer life they are -- they feel compelled to save money and not spend.  And by not spending, they end up depriving people and the rest of the world, of income. And, you know, the people who would sell things to people in China, aren't able to, because the Chinese consumers are, you know, held back. And so that, you know, it's -- everyone is worse off, or almost everyone's worse off, as a consequence of this.

CHAMBERS:  Yeah. The other thing, I don't know if you have some comments on this, but I think that you guys also said in the book that a lot of -- a lot of money gets chewed up by local governments. So again, that's just more GDP not getting into the hands of the consumer. So basically, what you're saying is, they're just getting taxed to hell, basically.  I mean that’s –

The Consumer in China Has Very Little of China’s GDP

KLEIN:  Yeah, effectively. I mean, the question of like what's a tax versus what's -- yeah. I mean, right. It's not a tax that shows up on a tax statement. Like officially tax rates in China are actually pretty low. In fact, they don't really have much of an income tax. They don't have property taxes. So, in fact there's like a controversy now about the possibility of introducing a property tax. Probably is not going to happen because a lot of people -- that's a -- that's a story we can get into separately. But -- but the -- the issue is that like the sort of overall social economic system is -- is structured in a way to transfer income and spending power away from ordinary people. And you know, where it goes, you know, people talk about like different things. State owned enterprises or, you know, companies like -- I think that's actually kind of a waste of time, like talking about like the private sector versus State owned enterprise.  Like everything in China, there's a -- there's a great book that came out. I think it was like 2009 called, The Party by Richard McGregor. And he talked about this, I think really convincing other people, made some of this point, which is that the way the communist party operates in China. And it has a very sort of old-school Leninist approach, which is that you don't want to have any kind of alternative centers of power, whatever they are. That's why the Chinese government's been, you know, so, you know, adamant about prosecuting, or persecuting, you know, religions because they don't like -- they didn’t at that time, an alternative source legitimacy. And it's also why, you know, economically they, you know, the -- the idea of like a private company, isn't really a thing. Like you always have communist party, you know, representatives in there, the government regulators will -- will push people to do things. So, whether or not it's officially a state-owned enterprise or not, it's kind of the same system that applies to everyone. And so again, and this also applies like the local government point you're making as well, like the local governments own most of the state-owned enterprises --

CHAMBERS:   Right.

KLEIN:   -- and the local government officials will also through various means have their own, you know, hooks into, you know, extensively private companies.  So, you know, the distinctions there in terms of, you know, who -- who exactly has been -- and it's all, I mean, in the book, we generally use sort of the catch all phrase, elites, because, you know, who these people are, you know, it -- it kind of -- you don't want to get too caught up in semantics and distinctions when, you know, it’s sort of a broader point here about how the society is structured and it was structured this way, I think very deliberately, you know, in terms of the political priorities of the party.

CHAMBERS:  Wow.  So, essentially Americans don't save because we -- we can just buy cheap stuff, and so we do, and we're just a very active consumer.

 KLEIN: Well, I'm not sure I’d quite put it that way.

CHAMBERS:   Okay.

KLEIN:   I mean, there's an element of that, but I think a lot of it is, you know, it's a function of, right -- it's a function of incomes and it’s a function of -- of consuming.  And so, one of the points we make in the book, if you talk about, you know, the pre financial crisis period.  You know, the 2000’s in particular, which is when everyone, you know, it was easiest kind of to point to this stuff. Consumer spending did not grow particularly rapidly in the United States. In fact, if anything, it was a little slower than sort of the long-term pre 2000 trend. The thing that was unique and distinct about that period is that income growth was really weak. And that's really what happened. And you can see that in, you know, manufacturing production basically flatlined, and, you know, a lot of people lost jobs and it was business investment kind of cratered after the -- the tech bust and never really recovered until after the financial crisis.  And so those are the kinds of things, and then, so basically what could -- there are two options that could have happened given that backdrop. Either consumer spending would have sort of fallen with that. We would have had sort of a global depression. You know, the post 2000 world would have been a lot like the post 2008 world. Or what did happen, which is that consumers basically maintained the spending that they would have had more or less, even though incomes and employment were a lot worse.  And they did that by borrowing. And that borrowing was accommodated by the global financial system partly, you know, and, you know, there's a whole lot of mechanisms that are involved. A lot of other, you know, we -- we wrote about it. Other people have written about like, what exactly happened. How that worked, what the linkages were, but essentially that's -- that's how everything played out.  And so, it's not so much that American consumers just didn't feel like they needed to save. It's more that they wanted to maintain sort of a certain standard of consumption and the only way they could do that, given the weakness of income growth, was by borrowing. I would also note that it's not really true anymore.  It really stopped being that way after the financial crisis and basically ever since then. I mean, the savings rate in the US -- household savings rate has been much higher. Not, you know, 30 percent like in China, but definitely, you know, higher than it had been really until the 1990s. So, or rather I should say, the 1990s and 2000s, it was low and now it's back, sort of, to where it was before then.  So, in that sense, we sort of had a bit of a normalization there. Not -- coincidentally you've also had a lot slower growth in consumer spending after the financial crisis. It was not like there was an income boom. But, you know, that -- that, I think sort of gives you a sense -- it's not like -- I don't think that sort of cultural explanations -- I'm sure there's some role there, but I think it's very easy to overstate it.  I mean, Michael Pettis, likes to talk about how, you know, you go back and read what people are writing about, you know, China and Japan and stuff, you know, say before World War II or whatever, they say, oh, you know, Confucianism makes people indigent and lazy and they don't save anything. And then people look later on, Confucian values means that they're hardworking and thrifty.  And it's like, okay, well they can't both be -- like, the answer is probably neither. Right? Essentially it has nothing to do with these things. And people just respond to all sorts of other, you know, stimuli. But yeah, I -- I think it's very easy to overweight cultural explanations for stuff when these kinds of things -- when they're usually other, I mean, I'm not saying culture has no role, but I think it's, you know, we should be very careful before, you know, assuming that’s --

CHAMBERS:   Yeah.

KLEIN:   -- that's what's behind it.

CHAMBERS:  Yeah, well thank God for guys like you and Pettis that kind of break these things out for us. So, by the way, how did you -- how did you end up just getting into this area that you're in and like knowing so much?  I mean, what drew you to this subject matter that you -- that you, you know, I mean, not everybody -- I mean, this is -- it's just such -- so interesting.  How did you end up -- like did you stumble into it or just your studies kind of brought you here or --

KLEIN:  Oh yeah, definitely stumbling. I mean it really, I guess, started with like, you know, if we go back, I hadn't, you know, when I was in college, I didn't really know what I wanted to do when I grew up as it were.  And I was fortunate that I ended up managing to get an internship and then a job offer at a macro hedge fund. And they -- they had the very broad-minded view that I wouldn't know anything. I couldn't have learned anything in college that was useful to them anyway. So therefore, it didn't matter that I hadn't learned anything in college that was useful to them.

CHAMBERS:   Right.

KLEIN:   And they taught me a bunch and I got very interested. This was right around just before and during the financial crisis. So that -- that was definitely time to get, you know, realize how interesting and invaluable understanding this stuff is. And while I was there, I mean, I -- I ended up learning and reading about the work of Michael Pettis actually, and following that stuff.  And -- and, you know, and kept being, you know, seeing how -- what happened with the financial crisis and, you know, the -- the fallout and the reactions to it and how, you know, having this sort of global framework and, you know, balance of payments thinking, is very helpful for understanding it, even for stuff that doesn't seem like it's, you know, trade specific. 

CHAMBERS:   Right.

KLEIN:   And so that really got interesting to me and I just spent a lot of time. I mean, it's -- the good news is that even if it's, you know, not intuitive, there's a lot of material out there that's really good and that's free, in fact.  I mean, like it's -- it's dry, but like the International Monetary Fund publishes a manual for how to understand the balance of payments.  So, you know --

CHAMBERS:   Yeah.

KLEIN:   -- I mean -- you’d read it.

CHAMBERS:   Yeah.

KLEIN:   It’s -- I mean, I wouldn't, you know, necessarily recommend it to someone who's not interested, but I mean, I think quite frankly, our book does a more engaging job of explaining --

CHAMBERS:   Oh, yeah.

KLEIN:   -- these concepts in a shorter time. But, like it's there for you if you want. I mean, that's like, I definitely, you know, went back and looked at it when we were writing some passages there just to make sure, you know, to say like, you know, be precise with the terminology and everything.  And I mean, it's -- it's all laid out and then these -- these frameworks. And so, there's a lot of, and there's, you know, other, I said like Michael's work and the books before, and, you know, and this book, I think, you know, you can pick it up over time. And as I said, it's a really powerful tool for understanding, you know, what's going on and thinking through, and, you know, putting data into context.  Which is a lot of what I do now with the Overshoot is, you know. We, you know, some -- some numbers will come out and you say like, okay, well, what does it actually mean?  How does it fit into things; you know? Stepping back and remembering that everything that happens in the global economy is connected and it all fits together. And so, you can't look at any individual piece of it in isolation. You have to think about how everything, you know, what the ramifications are and how everything flows through with everything else.  And, you know, a lot of people don't do that because they don't, you know, it's not necessarily intuitive and you know, but it's --

CHAMBERS:   Right.

KLEIN:   -- I think very useful. So, I try to do in the day job.

CHAMBERS:  Let me tell you, that point of view is very important when you're -- when you're investing somebodies -- for somebody who's on a 30-year timeline and actually be considered, at least for our clients largely.  You know, we always found most of our clients have -- are fortunate to have pretty high net worth. [00:22:00] And a lot of times this money is their grandchildren's money. So, you have to think, okay, really just you have to think broadly, like, wow, I've got a good guidance for this because, you know, I've been a good steward of my money.  I've instilled good stewardship of my money to my children. And so, I can only extrapolate that to actually, this is my grandchildren's money, you know what I mean? Very few clients are going to call and say, I need a half million dollars, send it over because I'm blindfolded in the middle of like Venezuela being, you know, I -- I got -- I got captured. Nobody calls up and says, I need a half million dollars. You know what I mean? So that's, I mean, it just doesn't happen. Meaning like this money is invested for the long term. So that's why I love talking to you guys, to people like you, because I think it sets a stage for people's retirement. It’s like, okay, you know, what's going on and what can we expect? Now that being said, just to hone back here, can you talk to me about the role inequality plays in maintaining like a low inflation, low price regime that we're in and maybe coming out of.  And then I want to talk about supply chains.

KLEIN:  Sure. So, I mean, the thing that I think is really interesting from the framework of, you know, the sort of systematic balance of payments framework and income distribution stuff, is that it can be presented in a very dry way.  What we tried to do with Trade Wars or Class Wars is to show that actually these have really important consequences.  They are -- there are real-world consequences that actually matter to a lot of people, and in fact, it can be very provocatively.  I picked a title that is provocative to highlight this.

CHAMBERS:   Yep.

KLEIN:   And the reason I say this is because the distribution of income -- changes the distribution of income.  You can call it inequality and call it income concentration, whatever.  They've all sorts of macro-economic ramifications. And we talk about a bunch of them in the book. I think the sort of most simple, basic point is that people at the very top of the income distribution, they are not going to spend as much on, you know, consumer goods and services as a share of their income, as other people.  And so, if more income and more spending power goes to those people at the very top, relative to everyone else, you're going to have a shift in how much, you know, it's going to have all sorts of interesting consequences. One consequence could be just lower consumer spending overall. But realistically, that wouldn't be the case.  That can't be, right? That's an example. Yeah. That's like the first order implication, but it can't be because then how are the people at the top making money, right? You have, the only way you make money is if someone else is spending money.  So if they have more money at the top, they're spending, you know, you have lower -- in theory of lower consumer spending, but what's -- somethings making up the difference.  You have to have more borrowing from people lower down, more borrowing from the rest of the world. That's a big argument that we make in the book. Is that the reason why income and inequality in parts of Europe and in China and so forth, didn't have the kinds of consequences one might've expected in those countries is because they were able to offload the costs or some of the costs to [00:25:00] other countries like the United States. In terms of inflation and consumer spending, I think that's sort of a piece of it. And so, I would phrase it this way, which is, you know, what -- why does inflation happen in sort of the macro level?

CHAMBERS:   Yeah.

KLEIN:   And the -- I think correct, but sort of difficult to quantify is there's -- there's more nominal spending power, however we define what that is, relative to the real value of goods and services that people want to buy.  And, you know, that's tricky to actually turn into like an investment strategy because like what -- what is the real value of stuff (inaudible)?

CHAMBERS:   Yeah.

KLEIN:   What is that capacity? What does nominal spending power actually mean?  Because it's not -- it's not the money supply. Right. It's any so, whatever that is. So yeah, it's tricky.  I mean, I think it's right when I say it that way. I mean, --

CHAMBERS:   Yeah.

KLEIN:   -- I'm not sure how useful it is, but -- but so you think about what this means in the context of, you know, the income distribution. If you have, you know, more, you know, income going to people at the very top, less income going to people lower down, that in principle means, you know, unless there's some offsetting, you know, credit expansion, which there, you know, at some level there kind of has to be, but you know, there has to be somewhere, then, you know, that means less consumer spending, less pressure to buy stuff.  And that would therefore put down prices. Now again, though, like it wouldn't actually have less consumer spending because then people at the top wouldn’t be making more money. So, there's usually, there may be the government's borrowing more, you know, maybe you have a government budget deficit that then has welfare spending to make up the difference.  Right? I mean, that's effectively what happens in much of the world or you have consumers borrowing against, you know, houses or whatever to make up the difference. Right. I mean, that's generally how these things happen. And historically it’ll sort of offset this.  But those aren't -- that's not a sustainable arrangement.  So that in of itself makes me think that inequality, you know, globally, it wouldn't necessarily have an impact on inflation either way -- like it's the growth, it's how much growth flows through inflation, right? Like you could have either the -- the nominal income -- nominal spending power wouldn't necessarily change the way, because you might have less income, but you have more credit, for example.

CHAMBERS:   Right.

KLEIN:   And so, I think what makes it tricky to kind of figure out the answer, I think what might be sort of the clue to the answer is if -- if the income that people have, you know, it -- it lowers the -- they can still spend as much, you know, in theory. Because if there's credit or whatever, but if that -- but if employers aren't necessarily paying that as a cost in the -- in the goods that they're produce -- services they are selling, then that might lead to lower prices potentially that otherwise would be the case.  And then, you know, people are kind of making it up for it and then like it shows up some other way in like taxes or something, I don't know. But that's, to be honest, I'm not entirely sure how it would play out. I mean, we can think of examples of societies that have, you know, relatively more egalitarian, less egalitarian and then how their -- what their inflation tracker has been.  It's not really clear to me, there's a pattern either way. So, I would be sort of wary of -- of making that point. I mean, the thing that I think is clear is what it shows up in interest rates. And this is a piece I wrote about, we mentioned this in the book and I wrote about it more extensively back -- back in August, actually for the Overshoot and, you know, because interest rates, you know, there's an inflation component. But there's also the real rate component. And, you know, the real rate, you know, who knows what -- there's all sorts of things can affect that. But I mean, a very simple level. If you have a big group of people that want to buy financial assets and other people who, you know, maybe they’ll be issuing -- maybe they're borrowing it or, but they don't, you know, it's not, it's not like they're going out and saying, I really want to borrow.  It's more like, well, I just want to keep from spending a certain amount or whatever. That's going to be potentially lead to some kind of mismatch and lead to a drop in interest rates. I think that, you know, like I explained in more detail, but essentially like, it makes sense that you would have interest rates keep going down in a world where income concentration is going up because, you know, you could think there are a lot of ways of thinking about, but one simple way is like, if central banks are trying to maintain, you know, the -- the main way of, you know, sort of keeping employment full or whatever. And you know, they would want it -- they'd have to keep [00:29:00] lowering interest rates to sort of offset the impact of -- of, you know, generating the credit and the borrowing that would be necessary to offset the concentration of income at the top.  You know, the only way to do that as you lower rates. And so, you have that sort of, that's -- which is what we saw, basically or have seen. So, you know how that, again, how it translates to inflation, I think is -- is, you know, not obvious to me, but I think it translates into interest rates pretty clearly.

Interest Rates Relation to Asset Prices and What it means to Household Income

CHAMBERS: Yeah.  Interest rates have certainly been long for, I mean, low for a historical basis for a long time. And to your point, if -- if you're in a low interest rate regime, if you have assets; real estate, financial, okay, your home, you're doing, you know, you're doing well. Right?

KLEIN:   Right.

CHAMBERS:  You're doing well. If you don't, which is by the way, a majority of us, it's not so -- it in the long run, yeah, you can borrow a little more whenever you can.  But I don't think that's so good. And -- and I -- and I think it's stressing, you know, inequality and Phil's point was, you know, it's kind of a populous cause. And -- and so he, you know, some people think that this is -- this is gonna (sic) create, you know, it's creating political problems and it's adding to this polarity and in the -- in our country. I don't know, you know, if that's true or not, but it seems as though, like I said, by the way, if you have assets you're doing well because interest rates are low.  If not, I think it's kinda (sic) throwing gas on them.

KLEIN:  I guess I’d put a little slightly different languages. If you had assets, when interest rates were high, now that interest rates are low, you've done very well.

CHAMBERS:   Yes.

KLEIN:   But if you -- as you get assets now, you're not. So, it's -- it's more -- it's, you know, it's a timing thing. Like, you know, the perspective returns are lower now, which actually, so it's bad if you're going to, I mean, that's sort of why interest -- that's sort of the mechanism then how it's supposed to be, right.  If -- if people are -- if you know, it's a signal that there is too much desire to be acute buying financial assets, and so the returns on those assets keep going -- the forward, looking returns, keep going down. Doesn't seem to be having the impact that, you know, the theory is supposed to have of people buying fewer stuff -- fewer assets and more stuff.  But that's, I mean, that's how it's supposed to work.  And that's why, you know, central banks try to accommodate this process. But that's -- that's -- I do think that you would expect that if you had kind of a more egalitarian shift in the distribution of income that interest rates might go back up. I mean, the flip side of that is that you'd also have, you know, how it would flow through demand for your borrowing is tricky.  I mean, people who are borrowing; governments that are borrowing, would have less need to do so, because there’d be more income.  But on the other hand, there's also less, you know, spare income to invest, you know, to use, to buy these financial assets. So, you know, how that nets out is, is tricky. But I guess I would -- I would suspect that in that kind of world you'd have interest rates going up and, you know, with growth expectations going up as well.  But you know, we haven't seen that. I think it's kind of telling that, you know, that hasn't -- hasn't, that has not happened yet. I think there was a brief moment, you know, sort of spring of 2021 and people thought that might happen. But not really since then. That kind of faded.

What $500 Billion Gap in the U.S. Current Account Deficit Has to do with Companies Spending More on CapEx

CHAMBERS:  Well, I am seeing more and more articles on corporate CapEx spending.

KLEIN:   Yep.

CHAMBERS:   So maybe that'll help the cause.

KLEIN:  Yeah.  For sure.

CHAMBERS:  All right.  I probably should have asked you this prior to getting into that, but I'm going back, here. You just wrote an article for The Financial Times. Tell us about that.

KLEIN:  Yeah. So, you know, this is all again, looking at sort of the holistic, systematic view of the world.  Everything has to add up. One thing that I was looking at, which is something, a lot of people don't look at, because it's kind of obscure, but the current account deficit in the United States, you know, there's sort of the standard way of measuring this, which is you look at the balance of payments data and then say, okay, well what's the trade deficit.  What's the difference between, you know, what Americans are earning on their foreign assets versus what foreigners are earning on their US assets? You know, what are remittance flows. You add that up, and you say, okay, well it looks like Americans overall are spending about 800 billion dollars or more per year than, you know, we're earning.  That's what the current current account deficit says, balance payments. There's another way of looking at this, that in principle, should give you the exact same number, and this is okay. The national current account deficit should be the sum of the current account balances of the major sectors of the US economy.  So, the government, businesses, and households. So, okay well, we know what household income is.  We know what household spending is. Okay. So, we can get -- we can figure out like the savings and investments that we know what households spend on, you know, housing and, you know, remodeling, and things like that. We know what the government budget balance is, both for the federal government and for state and local governments.  We know how much of that is, you know, current consumption versus how much was investment spending, taxes and all that. That's pretty straightforward. We know what businesses make extensively. We know what profits are. We have a reasonably good sense of what profits are. We know what businesses spend on cap ex.  If you add those things up, you should get the same  number, $800 billion difference.  But it turns out that if you do this, you do not get that number. You get 300 hundred billion. So, there's a $500 billion dollar gap. Now the government knows about it.  This is not a secret. I mean, they publish it. And in fact, there's a line item in the -- in the national income and product accounts and they call it the statistical discrepancy; which is the gap between these two numbers.  That gap also shows up if you compare gross domestic income with gross domestic product.  It's the same exact discrepancy. Income is basically, okay, well we know how much people are paid. We're going to add that up. That should be equivalent to the value of everything that's produced. And that's based, you know, so GDP is, you know, right, it's consumer spending and government spending and -- and the trade balance and -- and corporate investment. Income is things like wage income, profits, you know, small business income, stuff like that. Those numbers should add up, but they don't. I mean, they're close, but they're not -- there’s statistical discrepancy. So, the statistical discrepancy between GDP and GDI is the same as between these two measures of current account deficit.  And it's large. As I said, 500 billion dollars in 2021 is about two and a half percent of GDP, which is the biggest that it’s been in that -- in that direction ever. I mean, the data go back to, I guess, 1960, I think, and that's as far, you know, is a very large difference. So, the question is why? And if you look at all the components, the government basically varies the statistical discrepancy or not varies, attributes -- attributes the statistical discrepancy to the business sector.  So, it's basically some combination of corporate profits after dividends, which is what they call corporate saving. And Cap ex and specifically either cap ex before after depreciation. You know, if you -- if you take depreciation out of cap ex and you add to, you know, then you, you know, the -- if you're -- if you include, never mind. We'll skip that part.  So basically, so then the question is, okay, so which of these things is wrong, right? Is it that profits are too high? Is it that investment is too low?  Or are we going to assume, I think less reasonably that the current account balance is -- the balance of payments data are wrong by a lot. I think the balance payments data are not wrong. This is why the fiscal discrepancy, they generally assume, you know, the other side of the things that's -- that's -- that's different.  But like, I guess it's possible, but that would be kind of weird, right? If the balance of payments data were off by that much, the current account balance worth 300 hundred something billion as opposed to 800 hundred billion. It's a huge difference. The trade data, there's no way that would be, I mean, you'd have to have some, it's not like people are dramatically overstating imports.  So, they're either a ton of hidden exports, which is extremely unlikely. It's possible, there's some foreign investment income that's being missed, but again, you talking the percentage difference to kind of reconcile would be enormous. So, I find that very unlikely. And then the governments have a very good track record of getting this right.  So, it's probably not that. The government agency that is in charge of putting these numbers together, the bureau of economic analysis, they --

KLEIN:  So, the statistical discrepancy, the government agency that compiles all these numbers, the Bureau of Economic Analysis, they attribute it all to the business sector. Which means that it's either that their estimate of profits after taxes and dividends is too high, or that their estimate of corporate investment is too low. Now in general, what they -- they're sort of house view and they've written papers on this, is that they think that the issue is often with profits. That they -- that profits are sometimes being overestimated. You know, capital gains are being counted as income when it shouldn't be. Things like that, which maybe is true, although bear in mind that if we look at the size of the statistical discrepancy,

 which is about 500 billion dollars in 2021, and we look at the size of profits after tax and dividends, which they say is a little over a trillion dollars, that would imply their estimate of profits, you know, is off by like half, which seems, you know, they effectively doubled it from what it should be, which I think is probably not right.  And I also think it's, you know, worth noting that if you look at their estimate of profits with dividends, which is not for the balance payments, but, you know, relevant for this, it's basically gone up the same as, you know, what S&P earnings have. So, it seems like it's, you know, what their reporting is pretty consistent.  Or what they're measuring is pretty consistent with what companies are reporting. So, I think that's probably right. It might be off by a little bit, but not enough to nearly explain the statistical discrepancy that we -- that we see in the data. And so that leaves business investment. And, you know, for it to be off by 500 billion dollars would not be, I mean, that's like basically, you know, ten, fifteen percent, which is, you know, meaningful. But it's a lot smaller than, you know, what -- the kind of areas that would have to be -- we have to think would be going on if the balance of payments data are wrong, or if the data on profits are wrong. And I also think that there, you know, another reason we can -- we think that the -- I think that the capital investment data might be understated. And there's a precedent for this. In fact, there are a lot of precedents for it where the government, over time adjust their methodology to incorporate kinds of business spending that they didn't have before and the GDP data. And that generally end up closing some of the gap that in the past has shown up between, you know, gross domestic product and gross domestic income. So, for example, you can, I mean, I have a sort of a little list of this in -- in -- in the FT column here, but like in 1986 they decide, you know, up until 1986, they basically assumed that the prices of computers had, you know, no -- there was -- there was no price change at all.  Which, if you think about the improvement in computer quality, even if there was no price change in, you know, the dollar value of charge would really understate, you know, what companies were getting. And so, then in 1986, they published some, you know, document explaining, well, we, you know, consulted with IBM. We did some of our own tests and we concluded that instead of being 0 percent a year from 1972 to 1986, that it’s actually negative fourteen percent. That was, you know, the prices were falling that much. And that obviously has a really big impact because computers aren't, you know, that much of business spending in that point in time. But it's enough that overall business spending suddenly ended up growing a lot more as a consequence of that methodological change. In 1999, they decide that business spending on software should be counted as investment.  It wasn't before. It was originally just counted as an expense. Like it's equivalent to like, you know, you pay your electric bill which is not, I think, you know, clearly, they realized that was not right. So, they changed that 1999. That had to change. In 2013, they made a change saying, well, actually, you know, business spending on R&D should be counted as investment spending. And so like, there are all these other, you know, in 2018, they changed how they do depreciation and like that all these things kind of cumulatively end up meaning that more and more investment -- more and more spending is being measured as being investment.  You know, whether or not the government captures it in its measure of CapEx like it's still, I mean, it's happening, right? It's either happening or it's not happening. But the question is, are they -- are they measuring it? So, I think that would be very consistent with -- with the data. And also, one point that I make as well, and I think is important here, is that the high level of investment also helps explain why corporate profits have gone up as much as they have. Because if you have a situation where the trade deficit is as big as it is in rising, your situation where household saving was falling, but just sort of, you know, stop falling. And the government budget deficit is -- is contracting pretty quickly. How is it that corporate profits are rising so much and like the basic explanation that makes sense, is like, because the business are investing. If businesses, you know, the great thing about investment is, you know, the company that invests, they get an asset on the balance sheet. They depreciate it over time. But they basically get an asset so that doesn't cost them anything. And the company that sold them the thing, they get revenue immediately. So that's -- that's essentially where corporate profits come from at the very basic level is like investment is what is where corporate profits come from?  And so, I think it's -- I'm not saying like this is definitively what's happened, but it is definitely an explanation that fits and helps explain what is otherwise a very weird puzzle that’s showing up in the data. So that's, you know, that's what I wrote about.  You know, I wrote about it, you know, I started looking at this actually back in January for a piece I did for the Overshoot.  And then, you know, I got a chance to write about the specific angle for -- for the FT. But I think -- I think this could potentially be an interesting theme for, you know, I mean, you were talking about how, you know, companies are investing more and I think that they are and that, but it hasn't yet shown up in -- in sort of the macro-economic data.  And I think, you know, maybe it will.  Maybe it already -- maybe -- maybe it already has happened and we haven't seen it.  You know, it just hasn’t been out, yet.

CHAMBERS:  Right.  Well, the other thing is, is a big difference, you know, over the past, my lifetime and your lifetime is and Bill and I talked about this, there's a lot of more intangible assets on balance sheets of fortune 500 than there were prior to the Silicon chip.

KLEIN:   Right.

CHAMBERS:   I mean --

KLEIN:  And that's what's hard to count.

CHAMBERS:  Yeah. So, there's a counting --

KLEIN:  Yeah. Right?

CHAMBERS:   I get it.

KLEIN:   So, like basically the government can count construction spending very easily. They can count, you know, if you order like a finished capital good, like you order a truck or a plane or a computer, like you can count that. The thing that's tricky and where -- and this is like, there's some academic research suggesting that this is what, including by people of the FED that suggest this is what's being missed right now is like, if a company buys a bunch of spare computer parts and builds their own server, that's investment. But it's not counted that way because the assumption is that the parts, you know, if you're only buy like a random part you're just going to, you know, put it in something and sell it. So that's a cost of goods, sold. It's not CapEx. But that would be wrong in this case. Another example would be like, you know, so like you buy those parts for example, or like your, you know, how are, you know, people when they purchase, you know, cloud computing services, is that, how is that being captured?  So, there's -- there's, that's like another example. So, these are the kinds of things and then the intangibles. I mean, we’ve seen how they've, you know, software and then research and development stuff? And so, yeah, I think that if there is missing investment, it's probably these kinds of things, not, you know, trucks or planes or, you know, machine tools or whatever.  But I think that it's definitely possible. That's where some of this is showing up and that would explain a lot of the, you know, why they've had trouble capturing it.

CHAMBERS:  Is that good or bad for the economy by not capturing it, do you think?

KLEIN:  Well, I don't think it makes it, you know, for the economy, I mean, the economy is just, you know, it is what it is.  I mean, it's more like, are we -- are we getting a good picture of it from the official government data? So, I mean, as a -- as a consumer and interpreter of the data, I think it's, you know, it's bad for me personally. Or maybe it's good for me, if I can kind of, you know, come up with these arguments like this, that get people interested, but --

CHAMBERS:   Oh yeah, no you generate revenue from that argument.  I like it.

KLEIN:  But yeah, no, in general, I think more information is better.  So ideally a more comprehensive, you know, measure, but I'm sure they'll figure it out eventually. I mean, they're very good at doing what they do and they always eventually, you know, they'll -- they'll be revisions or -- or maybe the statistical discrepancy will be close some other way. I don't know, but I mean, we'll see how that plays out.

The Digital Yuan

CHAMBERS:  Well, either way what it shows is that the economy is constantly evolving and more so, and it's just speeding up, especially with this little thing called Silicon chips. It's just, right. So, even more reason why you need a wealth advisor to keep your act straight here, people. All right. I'm going to go back to, oh, hey, I sent this to you prior, like a couple of weeks ago. Matt and I had a little -- we were scheduled and then had some things happen.  You know, that’s how life goes.  And so, I don’t know if you remember this, but do you remember, do you know a woman named Rebecca Patterson? She's at -- she's at your former, the -- the hedge fund that you used to intern for, there, at Bridgewater.  And she, Ms. -- Bridgewater, that's where you were at, right? Yeah. And she said, this goes back to China and I know I’m bouncing around a little bit, but I just want to know if you have any comment on this, but so China's doing the digital Yuan and she said that there's rumors, they might experiment -- and so they're rolling that out. And so, I don't know if you have any comments on that, but they're rolling that out and they've got a bunch of digital wallets in consumers' hands, and she said there could be a test. This relates back to spending, the consumer spending. There could be a test where people will get money put into their digital yuan wallet, that they have to spend in a certain way, or it goes away.  So, you've got 90 days to spend it. And I was -- I immediately thought it because I was just like, oh, does Matt know about this? I mean, this is kind of interesting because so, basically going back and so the -- the -- the Chinese consumers aren't spending enough for all the reasons we said, and what an interesting concept of getting them to spend more.  I don't know if it's it, you know, apparently this test hasn't happened and again, I'm hitting you with this little bit of a curve ball, but they're really embracing -- they really kind of gotten out there on that -- in this digital currency earlier than us. And I just wonder, you know, that's kind of an interesting concept.

KLEIN:  Yeah. So, a couple of things. One is that the idea of giving people money that expires if you don't spend it, is actually a very old idea.

CHAMBERS:   Okay.

KLEIN:    I think it at least goes back to the great depression, if not earlier, but the concept of, you know, back then, of course it was just like paper money with a special stamp on it or whatever.

CHAMBERS:   Right.

KLEIN:   But I mean, that was -- that was -- and it made sense in that way of like, okay, you can think back about the conversation of interest rates, right? Like the point of interest rates is to, you know, either, you know, if interest rates are high and that's what the -- if that's what's good for the economy, then it’s because you -- you don't want a situation where people are spending a lot right now, for whatever reason you want to restrain demand and change that balance between production and consumption. Interest rates are low, it's the opposite, right. People aren't spending enough. And so how do you get interest rates way below zero is, you have money that expires, right? That's effectively an extremely negative interest rate is essentially the way to think about that.  And, you know, it never really took off, I think for a lot of reasons. I mean, I think usually the way it played out in the -- in that period was, you know, maybe some local town council to create some special money you could only use in that town. But I think in the Chinese case, if we're looking at that in this, like, would that work, the question that I would have is that, I mean, in general, the reason why consumption is low in China is because incomes are low.

CHAMBERS:   Right.

KLEIN:  It's not because consumers are like weirdly thrifty. It's not like there's some kind of mental illness, you have to break people of. That's not -- that's not the situation.  So, if you are just going to -- habits that people have money that goes away. I mean, if you're giving them more money and then as a condition of giving them more money, you know, the money that you give them has to get spent, that might have an impact. If it’s enough.

CHAMBERS:   Yeah and that’s -- that was what I think she was implying.

KLEIN:  Right. But I guess it's the question of how much, you know, I mean, you could also just give them more money and not have it expire and it would still have this -- I mean, because the fundamental issue is that there isn't enough, you know, household -- ordinary households, aren't earning enough.  Like that's the -- the main problem.

CHAMBERS:   Yeah.

COVID Killed Consumer Spending in China? Not really. The Consumer never was spending in the first place.

KLEIN:  You could also just have a social safety net that's better. Right? I mean, one thing that's really striking, if you look at the pandemic, what happened in China, when the pandemic first hit and the economy, you know, they -- they shut down a lot of things. You did not have an increase in the unemployment rate, or the registered unemployment rate. And the reason you didn't have an increase in the registered unemployment rate is because most people in China are not eligible for unemployment.  And so, the people who lost their -- including predominantly the people who lost their jobs.  The people who lost their jobs, because it wasn't as if unemployment didn't go up.  Unemployment went up tremendously. You had tens of millions of people lose their jobs, but they didn't have any unemployment insurance. So, what do they do?  They went -- they were -- these were internal migrants who came from the countryside to the city. They were not eligible for those benefits in the city because they didn't have the right household registration. So, they went home. They went home to become subsistence farmers, tens of millions of people. I think many of those people have since gone back, you know, as the economy is recovered or what have you, but I mean, that's -- that was what happened.  And, you know, that's obviously very different from what happened in the U S, what happened in Europe, what happened in Japan, what happened in many other countries, including countries that are not rich, right? I mean, China is much poorer than those countries. But even in many poor countries, they had a, you know, more of a system for maintaining consumption of people who lost their jobs.  So that just reflects a very different kind of system, different set of priorities.  And people -- and people, you know, people know that, right. That's why they -- they know that, that's how it works, that it's not, you know, they don't have that kind of safety net. So, you know, if you fix that, then people wouldn't feel the need to save as much on their own.  And in fact, not only would they not feel the need, but you know, they'd just be better off and you'd have all sorts of -- there'd be a lot of improvements. The fact that consumer spending in China fell much more than it did -

CHAMBERS:   Oh, yeah.

KLEIN:   -- I mean, not only much more. In the US, consumer spending did not fall in the aggregate in 2020.

CHAMBERS:   Right.

KLEIN:   I mean, consumer spending on services fell a lot, but that was compensated for the fact that, you know, so people, you know, essentially the government response worked in the sense that people had enough money to keep spending stuff. They just switched what they bought.  In China, they did not get more money. So, they just -- they cut their spending very dramatically. And so, it's really striking, and people talked about like, oh, China's economy handled COVID so much better. It did not really. Not from the perspective like the average person. Like the average person was much -- did not have an improved, you know, response.

CHAMBERS:   Yeah.

KLEIN:   They were poorer, and they got less stuff. Which is the opposite of what happened in the US.

CHAMBERS:  And what you just said was -- and in fact, left the city, went back to mom and dad who were in the country, right, and -- and went back to that, probably not great life, for at least --

KLEIN:   No.

CHAMBERS:  -- a little while.

KLEIN:   No, yeah.  Exactly.

China is Getting Richer, but it is Still Really Poor

CHAMBERS:  Yeah.  You know, people that don't appreciate -- I heard an interview with a woman, a Chinese born woman who's here. She was on a Bloomberg's Odd Lot podcast, which, you know, those guys are awesome.

KLEIN:   Yeah.

CHAMBERS:  Anyway, she was talking -- she was saying that in 30 years, so she's about 30, so when she was born, okay, her town that her parents grew up in, basically didn't have paved roads, 30 years ago.  They didn't have anything. And now she's in New York. Grandma is in this rural setting out in China and they FaceTime each other, in 30 years. I mean, that -- that's like, people -- so people don't appreciate how --

KLEIN:  That’s definitely true. Although I would push back a little bit in so far as rural China is still extremely poor.  There's a book that came out. It's a -- it's a book I wish -- I wish it had come out earlier because I would've loved to cited it in our book. But it came after our book. It's called Invisible China and it's all about the, you know, extent of rural poverty in China. Even now it is extremely, extremely underdeveloped.

CHAMBERS:   Yeah.

KLEIN:   In fact, like it's actually striking how, you know, even compared to other poor countries. So, China's overall average GDP per capita is about same as Mexico.  But if you look at things like access to education, literacy rates, public health for a lot of people, it's actually much worse. So, you have, I mean, a lot of the international stats, people compare like Chinese schools or whatever. They're looking at like a few really good schools in Shanghai, which is one of the richest cities and it's not really comparable. It's like, okay, yes, if you compare, you know, Stuyvesant to like --

CHAMBERS:   Yeah, exactly.

KLEIN:   -- obviously like America’s would look great too, but it's like, it's not really representative of the country as a whole.  So, like that's a big issue. There's like all these sorts of preventable diseases that kids are getting -- like they can't -- they don't get glasses. I mean, like, you know, sort of like ringworm infection, I mean, it's like really, really bad stuff. And it -- it's, you know, we talk about in our book, like, there's a tradeoff between, oh, this focus on investment and exports versus consumer spending.  Like it can be abstract, like what that means, but in practice, a lot of it is like, yeah, you build all these housing complexes that people don't want. They're buying them literally because it's like the only way to save money in China is to buy a house. They -- it's like essentially, it's an asset class, not anything else. When people -- so that's why most people own a house own more than one.  It's not like they need to live in it. Right. So, you're building all this and at the same time you have like hundreds of millions of people in the countryside living in extremely, extremely low levels of standard of living. And, you know, that's clearly, you know, is bad for them and you know, as -- as we make in the book, it's bad for -- it's bad for a lot of other people too.  It's bad for everyone. So that, I think is just, you know -- that’s why everything needs to be appreciated.

CHAMBERS:  Yeah.  And I don't mean to cut you out, but let me put a finer point on that for going back to investing.  Going back just really I think sums it up. If these people in China don't get more cut of the pie to spend, that's less stuff that the United States can sell to them.

KLEIN:   Right.

CHAMBERS:   You said that earlier and that -- because of the, you know what -- you know, Matt what the biggest -- what's -- what's the scarcest thing in a global economy? Demand. Got to have it.

KLEIN:  That -- that -- is what we said at the, yeah. I mean --

CHAMBERS:   Gotta (sic) have it.

KLEIN:   Yeah.

CHAMBERS:   I know. I stole it from you guys. I'm not that smart. I just --

KLEIN:   A customer.  Everyone wants customers.

CHAMBERS:  Yeah. You gotta (sic) have demand. And so, if these -- these guys, and same could be said for probably Africa and other markets, you know, they -- they've got to get on board and I -- I -- God forbid, I don't know what that's going to do to the environment, but. Yeah. I mean, it's -- it's a problem because we need demand in the United States.  They need it. We need it.  Everybody needs it. So, it's important that 1.6 billion people get their act together. You know, the other thing is the thing about China is like people -- people, you know, the headline is that they're going to take over the world or whatever, at least they're moving towards being a regional power.  They are a power. I'm not saying they're not, but my God, trying to run 1.6 billion people, that's a problem right there. How do you do that? How do you do that? So, I don’t know. They got a lot of challenges.

Supply Chains – Good News, Rental Car Companies Have Rebuilt Their Fleets

CHAMBERS:  Alright. I've taken up so much of your time and I just want to ask you just one or two other questions here.  Any thoughts on the supply chain, my man?

KLEIN:  I got a lot. I mean, one of the things I've been covering a lot at The Overshoot has been inflation. What's been driving inflation and there are obviously a lot of different stories here about that. And I think the thing that I think is really striking is it's not the only reason, but many of the --much of the excess inflation and if you look at just like, why hasn't the price level grown more than, you know, sort of it had been before the pandemic, at that pace?  Much of that excess is attributable to a relatively small group of categories that we can all tell a very clear story about how supply has been constrained as a response to the pandemic.  The most obvious one is cars, motor vehicles. But also, like oil and some other -- some other categories like meat and all these things are really interesting because there's obviously a lot of other stuff happening as well. And I -- I'm not going to say that it's also a function of the fact that people have more money to spend and what have you, but it's really striking, I think. You know, people need to put this in perspective. The reason why car prices, not just new cars and used cars, but also like car rental and stuff are so much higher now than they were before the pandemic is because the number of cars and trucks that were made, just collapsed. In the early months of the pandemic motor, and then manufacturers never tried to make up the difference.  So even before you had the situation with the chip shortage emerging at the end of 2020, even before then, the number of US light motor vehicle assemblies, so the federal reserve tracks this every month. You know, how many cars and trucks and by different category are made -- finished in this country. You know, between February 2020 and December 2020, there was a shortfall relative to, you know, the prior trend about 2 million vehicles.  Since December, 2020, so then once the chip shortage started getting -- kicking in, that shortfall has grown to 3.7 million vehicles. So, it's not surprising given that --

CHAMBERS:   And that's just the US?  That's just US?

KLEIN:    That's just the US.  That’s right.  That just -- motor vehicles assembled in the US, right. Obviously like there are imports and stuff as well. Right? So, this is -- it's not surprising that -- that you have a lot of pressure on, you know, car prices, one way or another.  And initially it was kind of masked in the [01:05:00] US in the first months of pandemic, because there were fewer new cars being built, but you had car rental companies basically selling tons of stuff into the market. And so, for the consumer's perspective, it wasn't as much of a big deal. The reason everything started becoming very inflationary is because that turned around very rapidly where the rental car companies, A, they needed to raise the prices because they didn't have enough cars and B, that they started to buy as many cars as possible. I think the good news is that, and we're going to see this, I think when the earnings for Hertz and Avis Budget come out, but they've basically rebuilt their fleets, the rental car company.  So, they're three big -- basically all the rental cars in the US come from three companies, Enterprise, which is privately held. So, we don't have high-frequency data on their fleet size. And then Hertz and then Avis Budget. And they all -- all the brands like underneath, basically are owned by those three. And so, if you look at Hertz and Avis Budget, which represent a big chunk of the total together with all their brands, their fleets fell a huge amount between, you know, first quarter of 2020, and first quarter 2021. They’ve since rebounded mostly.  As I said we’re going to get in the next couple weeks, I think we’re going to find out what they had by the end of 21. And they'll be basically back, I think, to where, you know, they were, which is -- which should reduce a lot of the pressure on things like used car prices and rental car. I mean, rental car prices have already come down from the peak of what they were over the summer. Used car prices that had been going up still, but I mean, hopefully that'll put some downward pressures and, you know, I mean the real trick is like, will then we see more production come up as, as the chip shortages is reconciled? But, you know, who knows.  But that's been like a lot of, you know, that is partly due to the fact that the chips that the car makers need are not the high-end chips.  They're not profitable. They're not the kinds that chip makers like to make because they're not profitable, not like, you know, Apple and Ones or whatever.

CHAMBERS:   Yeah.

KLEIN:   And they cancel all their orders, you know, in early 2020. And by the time they realized that that was a mistake, like they got lost in line and so like, you know, the toaster makers, whoever got in front of me. They're like, that's essentially the problem.  And so, it's just amazing. Like, these are very specific stories we can tell about supply being constrained and like, it actually explains an enormous amount of where, like inflation's come from the United States. Oil is another huge story where, you know, total oil production, crude oil production is still substantially lower than it was before the pandemic. Like ten percent or so. Demand is -- is not.  So, like, that -- that creates a problem. Right. And a lot of it is like, okay, you had it in the beginning of pandemic, like shale producers basically either went bankrupt or had to shut down or whatever, because the negative, you know, WTI or whatever --

CHAMBERS:   Right.

KLEIN:   -- claiming this a catastrophe for them. And then they've, you know, they've come back sort of, but they're not willing to produce the same extent.  I mean, if you look at the, sort of the track record before the pandemic, where prices are right now, they'd be pumping like crazy. But they're not because, you know, they have new set of investors and creditors who don't want, you know, to have this rebound, but that's a new thing, right? That's a new thing. That's in part, a function of -- essentially supply constraint imposed by the pandemic.  Again, that's a huge explanation for the why inflation has been high. You know, a smaller, but I think also relevant one is like meat, right? I mean, I remember writing about this back in the spring of 2020, you had meat packing plants are like probably one of the highest risk places to be working and if you have a respiratory pandemic.  And so, a lot of people got sick. A lot of people died. A lot of plants either shut down because they just couldn't get workers or they had to -- or, you know, they -- they -- they created a lot of new safety mechanisms to try to, you know, make it less risky, but that reduced the rate at which they could process meat.  So, what that meant is that the ranchers and the farmers and stuff who grow the hogs and the cattle, they couldn't sell as much. And again, this is also partly a function of the fact that like the restaurant sector got hammered. And so like, you know, certain cuts of meat, but that's just like another, it's they got -- they were getting hit from two sides.  And so, what'd, they do, they called their herds. Which is exactly what you'd expect. Right. So then like we get to 2021, 2022 now, right? Like people are now -- things are better, but like, oh, it turns out the cattle herd is, you know, several percent smaller than it was. And the hog herd is several percent smaller than it was.  And like, if demand is not smaller, but the herds smaller, like you have to figure out the way to balance that. And so higher prices. I mean, that's like, so this is like, I think these are the kinds of stories that, I mean, hopefully, I mean, I like to think that these are temporary phenomenon. Like there's no reason why this is a permanent condition.  You know, you can -- you can raise, you know, once you -- the breeding cycle, especially for hogs is pretty short. So, if you -- if you want to have more, you can have more.  You know, for cars, again, like in theory, there is like spare capacity. Like once they have chips and in fact production has not really picked up, but I mean, there -- there's -- there's scope for doing that.  Also demand for cars is somewhat come down, although it’s -- that's partly, I think dealers telling people just not to buy anything. But like, these are the kinds of things that will hopefully, you know, lead to reversal. I mean, there's other forces going on in inflation that I think are not -- that are much slower moving and not going to reverse, but like the really big spike we had, you know, seven and a half percent year over year.  Right?

CHAMBERS:   Yeah.

KLEIN:   Most of that is due to this kind of stuff.

CHAMBERS:   Right.

KLEIN:   Or it's like, look at year over year, as opposed to sort of, I prefer to look at the cumulative change since like February 2020, but like, you know, if you're looking at year over year, a lot of it's just like stuff went down, it went back up, like clothing prices, right?  Like nobody needed to buy any clothes because they were staying at home and then like they do. So, the price of apparel went like this as the V-shape -- as a V-shape recovery; hotels, and you know, things like that. So, you know how that all adds up to inflation going forward is going to be interesting, but I think a lot of the stuff we saw is really driven by the sort of weird supply constraint issues and will, hopefully be resolved.

CHAMBERS:   Yeah.

KLEIN:   I don’t know when but that’s --

Mao killed a bunch of sparrows and 60 Million people starved

CHAMBERS:   Yeah. I, you know, the -- you probably know more about this than me, but you know, lumber was insane. That, you know, obviously people were home. Low interest rates. Let's redo the back room. Let's move, if you can't find something, right. And then we had to re -- we gotta (sic) redo that, whatever. And then you get Canada with forest fires and some bug that kills off a huge bunch of things.  So now they're all jammed up and it's again, it’s one of these, you know, but I -- I'm, you know, a lot of people are -- again, the consumer sees the year-over-year number, the headline number, and sorry about that. And we're just live and crazy here and -- and they think, oh my God, the world's shit, you know, the world's coming to an end, but I don't think it is. I think things will get straightened out.  There will be -- I will say though that the labor number, that's going to be the interesting numbers to work out. So that's a whole another -- all right. One more thing. This is kind of a -- going back to China. Going back to China. This story, I just want to see if you just have any comments. So, Mao way back in fifties or sixties and wherever this was, Mao’s running China, right? And he -- his -- his like -- his people around him, say, hey stupid sparrows, birds, they're going around eating up our wheat and they're eating up our crops, I mean, we -- Mao what -- what are you going to do about that? So, Mao says, let me -- army guy, come in here. Tell me what to do with all these sparrows that are eating up crops.  And --and, you know, hurting people's livelihood, eating the food that we're trying to, you know, what are we going to do? Well, I'll tell you what. Why don't we go out and kill all the sparrows? We'll get the people out on the -- on the countryside but we'll kill all the sparrows. How's that sound? And they -- and they go and do it.  The problem is the sparrow -- the sparrows were eating the locusts. Well, no more sparrows, now locus rise up and eat all the wheat. And you studied China for a long time. And to me, that's sort of like -- it's sort of like a combination of like, you know, one person running the show for 1.6 billion people. I don't know how they do it.  And not that, again, not that we haven’t in Western society made major mistakes in policy.  Believe me, we have.  You got any comments on this story?

KLEIN:  So, I guess a couple of things.  One is that I mean, just for a little more context here, that -- that episode was part of The Great Leap Forward. And so, it was part of a broader campaign that Mao had to rapidly modernize the entire country. You know, at that point in time, and in fact, until quite recently, China was predominantly a poor agricultural society. It was not an urbanized society. I mean, Mao -- Mao’s whole thing, in fact, if you were going to distinguish whether, you know, Mao's version of communism versus say what the Russians were doing was that it wasn't based on the industrial proletariat, it was based on the peasants.

CHAMBERS:   Right.

KLEIN:   Which made sense, because of course it was predominantly a peasant country. There wasn't an industrial, which in fact, incidentally is the reason why the Soviets initially did not support the Chinese communists because they thought they were, you know, getting in the way of the historical order and they supported the nationalists because they thought they were necessary to, you know, first modernize the country before the industrial. Anyhow --

CHAMBERS:   Yeah. (Inaudible.)

Mao told farmers in China to plant seeds a particular way and 60 million people starved

KLEIN:   That was several -- yeah, that's the past. Right? So, we're now in like 1958 and so this is the -- one of the five-year plan they come up with and they -- they basically, okay. How are they going to modernize the country as quickly as possible?  They know that in principle it's by becoming less agricultural and more industrial. So, the question is, how do you do that when your country is very agricultural to begin with? Now, the way it's generally been done in -- in every other society that’s done this is you increase agricultural productivity.  So, you have fewer -- you have less need for people and less need for, you know, since you have machines, working on farms and producing food. And so those people can be doing other things. That's what happened in, you know, the original industrial revolution in England and -- and all sorts of other places. So, okay, that's a reasonable starting point. And then the question is, okay, how do you -- how do you -- how -- what kinds of things can -- could China do in 1958? So, it's not clear what they actually could have done, but what they did do is they basically came up with a whole suite of things, including this idea of getting rid of pests and sparrows were considered a pest, in order to increase agricultural productivity.  The other big thing that they wanted to do, and this is -- there was a great book about this. It's a very depressing book. I would definitely not recommend trying to read too much of it in any one sitting because it's a real, incredible downer. It's very -- it's definitely worth reading. It's the kind of thing people should know more about, but.  It's called Tombstone by a Yang Jisheng. And it's -- it's a history of -- of the -- the great leap forward and the famine that resulted from this. But one of the -- one of the things that was done in the -- in the beginning was in addition to the sparrows and the other pests that they were going after, was this idea that if you -- some -- I don't know where they got this idea from exactly.  But if somehow, they -- they -- they became convinced that if you change the way that you put seeds together, like the spacing of them or something, that you can dramatically increase output. Somehow Mao got this -- this idea in his head. And when he said that everyone else was like, well, it has to be true. So, we basically, no one really wanted to push back against this.  And so, it then became very -- so whenever it was asked -- so it was a very strange thing. So, like he said that he thought it would be true or something. And so, then when they asked for evidence of it, people like kind of created these wildly over optimistic estimates of what the impact would be. And so, he was like, okay, everyone’s telling me this is -- this, this is good.  So, it must actually be good. Of course, he's also, you know, the implicit thing is like, if you -- if you disagree with him, then you know, something very bad happens to you. So, but anyhow, so this happens. And so, then the assumption -- then along -- then the government is like, well, if we are able to increase agricultural productivity as much as, you know, these studies say that we are, these studies are done by people who've, you know, trying to show how much they agree with you.  Then we can move all these people out of farming and into industry and infrastructure investment. And so, they do that. So, you have all these people who had been working on farms. They're moved into like these big products. That's when you build like the Three Gorges Dam and stuff like that. So, this is around this period, all sorts of big, heavy construction projects.  And -- and trying to move them into manufacturing.  The idea is like, oh, you also probably don't need to have as much farm equipment. So, they said there's metal in like your -- your hose and your rakes and stuff. You can bring that down, melt it down, we'll use it for something else. It turns out of course, that agricultural productivity had not increased by the amount, you know, from the seed spacing mechanism.  And also, there's the issues you mentioned with the sparrows and stuff. And so then what ends up happening is that agriculture output falls pretty significantly because they don't have farmers to harvest. They don't have farmers to plant. They don't have the implements that they used to have. And there's a massive famine and something like 60 million people die.

CHAMBERS:   Yep.

KLEIN:   Which, you know, an enormous percentage of, you know, shared population relative, you know, I mean, this is one of the worst famines in history. And for it to occur in peace time was essentially unprecedented. So that is really sort of the broader context for this, this episode. And it's yeah, I mean, it's -- it's -- it's a testament to the challenge or the problems of having, you know, one man rule and -- and a system that doesn't provide feedback to -- I mean, it's definitely not unique to China. It's -- it's an extreme case, but other societies certainly had kind of these collective madness as well.

CHAMBERS:   It’s 60 million people.

KLEIN:   Sixty.

CHAMBERS:   Yeah.

KLEIN:  Sixty million people, yeah. 

 CHAMBERS:  Sixty million people. I mean like -- yeah. It's -- it’s -- it's just unfathomable. I mean, you know, to think, but anyway.  Yeah.

KLEIN:  It's pretty horrific, but I would definitely recommend the book if you want -- for anyone that wants to learn more.

CHAMBERS:   Yeah. I wrote it down. I wrote it down. If it's on audible. See, I'm not, again, I'm not that bright. So, I don't really read. I just, if it's on audible I’m in.  If it's not, you know what I mean? I -- I don't know. I -- it doesn't exist to me apparently. I don't know, but I will look it up. That sounds -- I love books like that. You kidding me?  I think -- I think I got through it all and, you know, and I think I got through it all, man. I think I covered it all. Well, Matt, it is such a pleasure to have you.  You know, you guys, this guy he -- he's just -- check out his site. If you're in the business like me or not, check out the Overshoot.  It could be of good value, a great value to you.  And I just appreciate your time and your -- your knowledge is on this -- in the spaces that you cover is just super deep. And -- and I just love talking to people about this stuff. And I also love how -- how you tie it into how we should look at the world and how we should invest or at least think about these things when we invest, because everything is so intertwined.  Well, man, is there anything else? Any closing, any parting words?

KLEIN:   Yeah, I mean, I -- first of all, thank you for having me.  I appreciate it. You know, please, everyone who is listening, check out, if you have not already, Trade Wars are Class Wars and you know, check out the Overshoot.  I think, you know, hopefully you will find it valuable.

CHAMBERS:  And for -- what was the name of the article in -- the in the Financial Times?

KLEIN:  What was the name of the article?  That's a great question. It is -- the headline online, I don't know about in print but online, it's Are the US GDP Data Missing a Capital Spending Boom. It's in the market’s insight section.

CHAMBERS:  Yes.  Okay, cool. All right. So, look for that. What an interesting topic that is.  That's very, yeah, I hope there's a big spending boom. I really do. I think it's happening. You know, because that would help the cause for sure. All right, my man. Well keep trucking. I know that you got a two year old there, you gotta (sic) get to and I appreciate it and let's -- let's roll this back maybe in a year or so like that. But let's stay in touch and I do appreciate it.  So, for everybody, this has been the Soundtrack to a Financial Advisor's Life. We call it the Soundtrack and today some -- some Google keywords were China, the Sparrow incident in China, and there's a couple of keywords that I'll get to later, but thanks Matt. I really, really appreciate it and have a wonderful day in San Francisco.

KLEIN:   Thank you.  You too.

CHAMBERS:   All right, bud.  I'll talk to you soon. Thanks man.

(INTERVIEW CONCLUDED.)

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”  

Matthew Klein

Klein has over a decade of experience studying the intersection of economics, public policy, and financial markets. He has written for the Economist, Bloomberg, the Financial Times, and Barron’s, where he was the Economics Commentator. He now runs The Overshoot, a premium subscription research service dedicated to tracking the global economy.  At the beginning of his career, Klein worked in global macro investment research at Bridgewater Associates. Following this, he was a Research Associate in international economic and financial history at the Council on Foreign Relations.

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index. 

Bill O’Grady is Chief Market Strategist for Confluence Investment Management, a professional asset manager based in St. Louis.

In that role Mr. O’Grady performs market, economic and geopolitical research for the firm.  Investment and securities planning requires an asset allocation strategy that is discipline.  While technical analysis of the market is critical, so is a macro view of the world. Mr. O’Grady takes us through a broad array of topics that will impact high net worth clients. 

Topics Include:

China and Russia and U.S. 

• China and Russia are not natural allies - combo attack on US; not likely.

• China’s entire army is living “Saving Private Ryan.”

• The Finlandization of Ukraine or Russia is Defenseless.

• China must secure raw material flows.

Labor Markets 

• The Great Resignation – Boomers calling it quits.

• Automation Everywhere - A kiosk’s will take your order now.

• Entrepreneurialism Is Exploding - I am not working for the Man!

• Upward Wage Spiral?

• Low levels of regulation allow for flexibility. Not so much in the 1950’s/60’s when labor unions ruled.

S&P 500 Earnings Strength 

• Corporate Profit Margins are Strong - passing along higher prices.

• S&P 500 vs Nominal GDP.

• Intangible asset’s role on the balance sheets of companies.

• Rethinking Supply Chains - Francis Fukuyama

Monetary Policy and the Economic Triangle                                

• Did The Fed Over Cook the economy? Maybe.

• We don’t know what Quantitative Easing does.

• What the heck is the Minsk Hypothesis?

• Lots of Liquidity - Most of it in a small number of U.S. households.

• Assuming the Fed tightens will stock buy back be affected? How the rich react to inflation.

• Consumer price levels and inequality.

• Are we moving toward an Equality Cycle and away from Capital?                                                                                

Stranded Assets in the Age of Decarbonization

• We are not getting a “supply response” from oil anymore.

• More EV vehicles are being produced - Ford 150 Lightening.

• Stranded assets - Jeff Curry at Goldman Sachs

• What assets do you own during the EV Revolution?

• Managing an energy company today.

The Changing Landscape of Private Wealth Management

• The advisor represents him/herself - not the firm they are part of.

CHAMBERS:  Hey everybody. This is Trevor Chambers from Olde Raleigh Financial Group. Once again, we're here at the Soundtrack -- Soundtrack to the Financial Advisors Life, and I'm very excited to have Bill O'Grady.  Bill, how are you today?

O'GRADY:  I’m good. Thank you.

CHAMBERS:   Bill, you've been on a few times with us. We're longtime fans of your firm's advice.  And we always like hearing from what's going on with you. So, we do appreciate you coming in again. So just for those who don't know, Bill O’Grady is the chief market strategist for Confluence Investments Management and they’re professional asset managers or St. Louis. And he has been working with our firm in one way or the other for a really long time.  So, we -- we respect you guys' opinion and specifically your opinions. So, I'm not gonna (sic) -- I'm not gonna (sic) mess around. I'm just going to get right into it, Bill. I know you're a busy man. This question -- what we're going to do is cover today macro issues largely, about the economy and maybe things that are going on in the world.  So, I want to start with a hot, hot question that to Alex, my partner in crime, one of my partners – sorry, excuse me, one of the partners here at the firm said -- asked me to ask you.  China and Russia, lots going on there. Any chance that those two could get together and maybe do a combo attack on us, in some way or form.

O'GRADY:   It's possible, but not likely. And even if it did occur, it may not necessarily be coordinated. 

CHAMBERS:   Right.

O'GRADY:   China and Russia are kind of in two completely different places geopolitically.  China's borders are secure.  It is really facing the same geopolitical problem that Imperial Japan faced, which is that they've become a -- a power dependent upon inputs from outside their country. And so, they need to secure those inputs. And what they've discovered is they're completely at the mercy of the United States Navy. So, there are two island chains that surround China.  Taiwan is -- is integral to that first island chain. And so that's kind of where the fight is now.  But China views its situation as having time on its side, not completely, but -- but to some extent.  Their demographics are starting to deteriorate, but they still are probably about 10 or 15 years away from where they really start to have a negative effect.  It doesn't mean we couldn't stumble into a conflict.  If Taiwan declared its independence, China would probably have chairman or general secretary, she would probably be -- be forced to -- to react. But barring something that aggressive, China is probably gonna (sic) buy it's time here. There's another very important thing to remember about China and that is that China, you know, has had this one child policy for around five decades now. And so, they have a whole family structure of only children. Now, some of your listeners might remember the movie Saving Private Ryan where a private suddenly became the last remaining male heir of a family. And so, he had to be pulled out of combat. Well, that is the entire People's Liberation Army are – are -- are only children.  And the thought of sending your child to war and having your only hope of virginity erased is going to make going to war much more difficult than I think people imagine. It doesn't mean they won't do it doesn't mean it can't happen. But I think China will be very cautious. Russia on the other hand is -- is in a kind of a different spot. So, Russia has had to decide throughout its history. Does it want to be an empire? Doesn't want to be a democracy. And it is always chosen empire. And so how does it, what is the primary goal of its empire and its primary goal is to subjugate enough countries and its near abroad to force invaders to move great distances and extend supply lines and then hope winter comes. It worked against the French, Napoleon. It worked against Adolf Hitler. And, so the loss of Eastern Europe and especially Ukraine, forced the -- the Russian government to make a choice. Well, either we're going to give up on empire, and trust that the west won't try to destroy us or we're going to have to rebuild the old band. And Yeltsin's gamble was that the west would treat them kindly and -- and that the, you know, that they could become a democracy. And the narrative as it's evolved during the 1990’s was the west was hostile. And the moves that we made, we did not consider hostile.  When we allowed the Baltic states, for example, to enter NATO, we didn't view that as trying to, you know, undermine Russia. We viewed that as these are freedom loving people looking to -- to bolster their freedom.  And the Russians didn't see it that way. When Putin took power, his whole goal has been to reconstitute those near abroad areas. And Ukraine is absolutely critical to that. If -- if Ukraine is a western leaning country in NATO, Russia is indefensible as an empire. It's not indefensible as a country, but it is absolutely indefensible as an empire. And so, for Russia, they have decided that they have to actually make this -- they have to make this move and they have to make it soon. Now, that doesn't mean they invade.  They would prefer to see the Finlandization of -- of Ukraine.  For those who don't know what that term means; during the cold war, Finland was forced to be neutral.  It could not join NATO.  Its border was considered a non-hostile border for the Soviet Union.  They couldn't, you know, engage in any treaty organizations or anything like that.  And that's -- that's I think what Putin would settle for.  One of the more interesting developments on this front has been that Finland and Sweden are now starting to think maybe they should join NATO.  Ukraine and NATO is a problem. Finland and NATO is fatal.  And -- and so, this is an area we are watching with great interest. The -- the trick is that Russia may be in a situation where it has bitten off more than it can chew.  And the problem it’s – it’s sudden problems that have developed in Kazakhstan may end up tempering Putin's order to try to resolve this Ukraine issue.  Because ultimately Putin's goal is to make Eastern Europe like it was during the cold war. That's what he wants. He wants -- he wants all those Eastern European countries to be in his sphere of influence and not necessarily directly controlled, but non-hostile and, you know, those Eastern European countries have no interest in that.  So, this is going to be an area of contention going forward.  And, yes, China and Russia are, you know, increasing their trade and – and, you know, seeming to make nice. But the reality is, during the 1960s, they almost went to war and they had numerous border skirmishes that got very close to an absolute open conflict.  So, these are not natural allies and they are allied right now because they have common interests. But, so I -- I – to -- to answer the question, at long last, I don't think they would work together. It is possible we could have a dual conflict, but the conflict in Europe is a much higher probability than the conflict in the far east.

CHAMBERS:   Well, my friend, I would agree with you on that. Especially, you know, back to your point about China – China. China has -- can you imagine trying to run one point -- what is it, 1.6 billion people inside your -- I mean -- how do you think that a lot plus -- yeah, I -- I don't -- I don't really buy the full like, those guys dominating the world anytime soon.  But you're thinking like maybe 15 years they could be ready to be what, like regional?

O'GRADY:   They intend to be a regional power because they really -- they have to be able to secure flows of raw materials –

CHAMBERS:   Yeah.

O'GRADY:   -- from at least Africa to -- to China.  And right now, we -- we could stop any of that. That's why the -- the nuclear deal with -- with the Australians was what really caught their attention.

CHAMBERS:   Yeah.

O'GRADY:   And -- and even bigger, watch US Naval relations with India. Because the US can not only develop relations with India, but base there encourage the Indians to build their Naval capacity, which -- which they've been reluctant to do because they view their primary security threat is Pakistan. Then no matter what China does, it -- it really is going to be at the mercy of others for the availability of oil and minerals and so forth.

CHAMBERS:   Yep.

O'GRADY:   And, I don't think it's a, you know, I don't think it's a resolvable problem for them. But that's what they're trying to do. And it's very similar to what Imperial Japan tried to do.  And if it hadn't been for the Battle of Midway, you know, Imperial, Japan may have lasted quite a bit longer. After Japan lost Midway, it became a war of attrition and they were not going to win that war.  But, that -- that is – that’s -- China's geopolitical imperative is that, you know, it -- it does not want to be at the mercy of the United States for, you know, security of supply.  And, the US is more than willing to provide that security of supply if China, you know, basically plays according to US rules and, you know, China would prefer not to do that.  I mean, my -- my view on chairman Xi is that the direction he's going makes a lot of sense. He's probably too brazen with it and he probably is too early to try it.

CHAMBERS:   Yeah. Well, I don't want to beleaguer it, but your viewpoint about the demographics doesn't -- and Russia's not so great either. Also, the Chinese household doesn't really spend.  They save.  It's a big problem, right?  

O'GRADY:   Yep.

CHAMBERS:   I mean, that's a big -- that's how. But that may be for another topic.

O'GRADY:   Yep.

CHAMBERS:   I do like that topic though.  The Trade Wars are Class Wars.  The co-author -- one of the co-authors, or at least Matt Klein and I, have become friends and I've interviewed him a few times and we've gotten pretty deep into that -- that particular concept, which I'm going to leave to him. Because we're going to talk a little bit more on another -- on another episode here in a couple of weeks, but anyway, very, very cool.  And by the way, your book, there was another book about China, Japan, and Russia that you recommended on your list.   And everybody, their -- their list of reading books to readers.  Awesome.  At confluence, by the way.  I'm going to do a little plug in that, but I can't -- oh, Asia's Reckoning.

O'GRADY:   Yes.

CHAMBERS:    Real good.  I just started, but anyway, thank you for that recommendation. All right, let's get onto the other thrilling questions here.

O'GRADY:   Okay.

CHAMBERS:   Labor markets, boomers, retiring, spades. We're all hearing about it. What's – what’s – tell me, Bill, could the great resignation, is it – what’s your thoughts on all that?

O'GRADY:   Well, the -- honestly, we -- we don't know for sure.  But all the indications that we have in front of us suggests that those older boomers who have retired, don't look like they're coming back. It looks like they -- they have decided to -- to check out.  And -- and I think the checkout goes two directions. One is that, you know, a lot of boomers after 2008 were like, oh my God, I'll never be able to retire and if they were fortunate enough to have money in the equity and bond markets, they've seen a dramatic recovery and home prices have also recovered. And so, their -- their financial position has improved dramatically. I was looking at net worth to GDP and -- and it has improved dramatically from 2000 -- 2008. In fact, it's recovered to levels we haven't seen since the early seventies.  So, a lot of debt has been taken off the balance sheets. A lot of assets have gone up in value. There's the other flip side to it is, I'm not sure a lot of employers want them back. You know, one of the things that, you know, is starting to happen is that we are seeing a restructuring of a lot of American businesses and that restructuring was likely going to occur anyway, but the pandemic has accelerated it significantly.  We were talking about this yesterday. We held our first meeting for our asset allocation rebalance that we do this month, and, you know, the question came up, well, how are businesses going to cope with, you know, rapidly rising wages? And, and as I told them, I said, you know, I'm old enough to remember that when you pulled into a gas station, that somebody came out and filled your car.  And, you know, if you'd have told Americans in the sixties and seventies that, you know, in about another 10 or 15 years, you're going to fill your own car up. They’d have thought, oh my God, you know.  Why would I do that, you know? 

CHAMBERS:   Yeah, I remember those days.  Yeah.

O'GRADY:   And, and I could easily see a situation where if you decide you're going to go out to have a dinner at a restaurant that you would preorder.  You know, that you would be required to go on -- on the restaurant's website, place your order, tell them when you're going to show up. And then when you show up your tables there. But it would require less wait staff.  And you're going to see these kinds of changes throughout the economy. One of my local grocery stores has pretty much eliminated the need for baggers. The -- the checkout person does most of the bagging and they're slowly but surely expanding the self-checkouts. Businesses are -- will adapt to this. They'll need less labor. And, but they're going to need nimbler and -- and probably younger labor. And so there -- it's a two-way street. The boomers want to quit and the business owners don't necessarily want the back.  Now the other big thing that we're still getting our arms around and -- and we don't have this completely worked out yet, but we seem to be seeing just an absolute explosion of entrepreneurship. You might, if you look at the data, the December data for, you know, unemployment, non-farm payrolls, and all that, you know, non-farm payroll data was pretty anemic. Under 200,000 increase in jobs.  The household survey suggests that it was around 600,000, I think. And we've been seeing this pattern now for a while. And those numbers usually didn't diverge by this kind of level. Now the employment survey is a survey of employers. So, they would send a survey to a company like mine and say, how many people work for you?  But if you're out there, you know, got your own Etsy business and you -- you've got another little sideline going on and, you know, there's – we -- we do podcasts as well.  And my sound engineer is a freelancer. And he's been with me for a couple years now. And, you know, I – I -- every once in a while, I'll kind of ask him, you know, you still like the freelance life and he, I don't think I could hire him. He’s pretty happy with it. He likes doing it and I don't think the establishment survey is picking up these workers.  But the household survey number is, and this is, you know, it -- it's sort of like, I think there's an attitude developing and I think the pandemic accelerated it, that I just don't want to work for the man.  If I have to work for the man, I'd rather be the man myself and, you know, technology, helps you do that. And, and so, you know, some futurists have been arguing for a while that this was the direction we were heading. And I think that they're right and that the -- that the pandemic really pushed it forward.  And -- and so, that's kind of what we're in and the boomer exit is -- is part of that. That -- as these workers leave. And, you know, if you look at where the labor force is relative to pre pandemic, you know, my forecasting suggests we may not get back to there until the middle of 2024, if we get back there at all.  And if we don't get back there, that means that, you know, the -- unless we see a huge wave of immigration, which -- which looks unlikely in the current political environment, you're -- you're -- you're just going to have tight labor markets as a matter of course and businesses are going to have to adjust.

CHAMBERS:   So, robots and higher labor costs sounds like it's coming down the pipe. I'm going to go back to one thing he said about restaurants, because I have a little experience in restaurants. I think that the places that offer or the expectation is higher level of service, you're going to get it, but you're going to pay a lot more for it.  So, if you want to open up a bottle of wine and do the whole shebang, it's just going to cost more, that's it? Otherwise, yeah, you're right. You're either going up to a kiosk, and you're dealing with, or you're running, essentially, you're running through, you know, a robot, either that in the form of your desktop computer, your -- your handheld, or you're going up to a kiosk and that's where the world's going.  And if you don't have that built into your plan as a -- as an operator, I don't know. But, all right. Very interesting. Thank you for that. I appreciate it. Are we seeing any upward wage spiral, any evidence of that? I read some, you know, some of the podcasts that you and I actually watched together There's some sense of that.  Are you seeing any –

O'GRADY:   You know –

CHAMBERS:   -- you know, Amazon, the standard is 15 bucks now it seems.

O'GRADY:   I would argue you're not seeing it yet.

CHAMBERS:   Okay.

O'GRADY:   What -- what people, I don't think quite understand, is that the wage price spirals that we saw in the seventies were in part because we had a much higher level of organized labor. And –

CHAMBERS:   Of organized labor?

O'GRADY:   Of organized labor.

CHAMBERS:   Okay.

O'GRADY:    -- and – and -- and you had cost of living adjustments that were built in.  And, so it was, you know, there was a pretty much a direct line of costs went up, you know, you had to pay people more. Now that doesn't mean that wages are not going up. They clearly are. Walmart and Amazon are kind of setting the price. And if you're not one of those companies, and you're trying to hire somebody below $15, you're -- you're probably getting candidates that can't get hired in those places.  And I do think the -- the, you know, that is going to become the -- $15 -- you're not going to need legislation to get there. The market's going to take you there. But it also means that you're going to have a lot more technology and a lot more automation tied to that worker. You -- it is just going to be how it works and you -- you can -- you can see this in how retailers are encouraging people to order online and they're doing everything they can to streamline the process.  Restaurant's doing the same thing. It's not that you can't pay people more. It's just that you can't pay people more and do a lot of the stuff that you used to do.  You're going to force your -- basically you're going to force your customer to do more of the work.  And where you can't do that, you're going to, you know, encourage your customer to shop in such a way that streamlines the process for the -- for the -- for the store or for the restaurant.  Doesn't mean it's going to happen everywhere, but that that's kind of where we're heading and it's not the worst of all outcomes. You know, people are going to get paid more and that's not a bad thing. But it – it -- it's not going to be, I think what there is a general lack of appreciation of when you have a pretty low level of regulation that, you know, the market adjusts.  And that was -- that was one of the big differences in the -- in the fifties through the seventies, was we had very high levels of regulation and there were just things you just couldn't do. As I tried to explain to some -- one of my younger colleagues the other day, if -- if Uber would have come out in the, you know, in the sixties, those guys all gotten beaten up, you know. Organized labor would -- would have quashed that in a heartbeat and they would have had –

CHAMBERS:   (Inaudible).

O'GRADY:   Yeah.  And they would have had help from the government to do so. And -- and that's just not the case now. And will we get back to that someday? We could. But we're clearly not there now. So yes, you are seeing higher costs, but you'll notice. Profit margins to date have not really been adversely affected.  You know, profit margins have held up remarkably well. And one of the things that, you know, anecdotally you'll hear on pretty much every company earnings call is that yeah, we feel pretty confident.  We'll be able to, you know, protect our margins by passing along higher prices. They won't be able to do that definitely. But in the meantime, where they can't do that, there'll be streamlining, you know, will be figuring out how to do it cheaper.

CHAMBERS:   All right, well that actually pivots me. I'm going to skip ahead because you just opened up that Pandora's box with the idea of the S and P and the earnings.  Yeah, very strong. And, you know, just talk a little bit more about that.  You know, the S&P is such an interesting thing to look at. You know, I asked you some – I sent you some questions earlier about intangible assets and impacts of that. And then, you know, are there any -- are there any early indications of contraction that you guys watch?  That's sort of a separate question, but talk to me a little bit more about the earnings of the S & P and -- and the companies that you invest in.  Go in that a little bit deeper because that's a -- that's a point that I think a lot of people are missing.

O'GRADY:   Yeah.  I'm very much the top-down guy at our firm.  I'm surrounded by bottom-up people. And, so when I look at earnings, what I'm looking at is, what are S & P earnings relative to GDP. So, GDP, nominal GDP becomes my -- my topline.  And so, what I'm looking at is, well, what's -- what's the -- what's the percentage?  How -- how much are the S & P companies getting of -- of nominal GDP?  And up until the 1990s, it was generally around three to four percent.  We are currently above seven percent.  That's an all-time record.

CHAMBERS:   Hold no, stop right there. Stop right there. Did you just say seven percent?

O'GRADY:    It's actually above that. It's about seven and three quarters right now. And I -- and I expect that to come down to around probably high sixes, like 6.8, 6.7 –

CHAMBERS:   Okay.

O'GRADY:   -- in quarters, but –

CHAMBERS:   Thank you.

O'GRADY:   -- that is still really, really elevated and those intangible assets that you you discussed are -- are part of that.  You know, the -- unfortunately I have no information on the S & P share of it, but the economies share of it, I think it's about 30% of a total investment is considered –

CHAMBERS:   Can I -- I didn't mean to interrupt, but –

O'GRADY:   Oh, sure.

CHAMBERS:   -- when we're talking about tangible assets, can you -- can you just describe that a little bit and then –

O'GRADY:   Yes. It's things like patents, its procedures, software, brands, in other words, things that contribute to your bottom line that don't necessarily require a piece of physical equipment. And intangible assets have, you know, really unique characteristics. They're almost like public goods in that, if I come up with a new idea, if I share that idea with you, it -- it really doesn't diminish my idea at all. Now I may have an incentive to try to keep that idea away from you. But it's probably not going to be able to be -- you really probably not gonna (sic) be able to do that over time. It's too easy to get ahold of it.  It's too easy to figure it out or reverse engineer it or whatever. And, so as -- as what -- kind of the way to think about it is intangible assets make everything a lot more efficient. They never wear out. You don't really have to amortize them. It's not like when you put up a piece of plant and, you know, in 20 years you're going to have to tear it down and start over. Now some intangible assets, you know, become obsolete, you know. I'm sure you've saw the story of the Blackberry going dark right after the first of the year. And for any of us –

CHAMBERS:   Yeah.  Yeah.

O'GRADY:   -- who were, you know, holders of smartphones prior to the advent of – of the apple –

CHAMBERS:    Oh, back in the day you were dominating the world with your Blackberry, I’m imagining.

O'GRADY:   You were kind of a big -- and there were –

CHAMBERS:   We can build a world in with that Blackberry. Everybody knew what was going down, you know what I mean?

O'GRADY:   That's right. No, you -- you were made – that was kind of a sign you were a made man, you know.  If you were on the plane and you pulled out your Blackberry, everybody's kind of like, oh –

CHAMBERS:   Oh, that guys sketch.

O'GRADY:   He may not be C-suite, but he’s certainly headed there.

CHAMBERS:   He’s a hitter.

O'GRADY:   Yeah.  That’s right.  And, you know, now it's -- it's, you know, pretty much a museum piece. In fact, people are -- we're converting them to NFTs by taking pictures of them in frames and stuff like that. So -- so they -- they do go obsolete.  You know, they -- they, in that regard, they don't last forever.  But, you know, again a lot of -- one of the things I think that is underappreciated about intangibles is intangibles do require a pretty open regulatory environment. In other words, a lot of technology that exploded seemed to explode in the late seventies, early eighties, exploded because it had been around for a long time. You know, Xerox created the computer mouse in the late sixties and couldn't do anything with it because there was no personal computer.  And then, you know, kind of the rest is history on that. But the other thing that is important about intangibles is that it -- it's techniques too.  You know, if a farmer figures out, well, how -- how do I, you know, how do I plant my crops in such a way that I can use less fertilizer, less pesticide, get more yield?  That may be something as simple as irrigation pattern. That's an intangible asset. You know, that's a piece of knowledge that -- that you got that -- and if he tells us, you know, he may have an incentive not to tell his neighbor.  But his neighbor is going to watch him and he's going to figure out, you know, what he's doing and he's doing that.  I'm going to do that too. And, pretty soon, you know, everybody's doing it. And, it is -- it is an element. It's not the only thing, but it's a key element in how these margins have gotten big. Now, I think there are other elements of it too.  Globalizations played a big role in these margins.  We, in fact, as we, you know, began to look at the semiconductor issue and its relations to Taiwan. And it kind of struck us, you know, Mark Keller and Patrick Ferron and myself, was like, boy, you had to be really confident in globalization to do that. You know, because you're -- you're putting really the most cutting-edge semiconductor foundries within striking distance of, you know, the mainland China.  And, as long as everything's peaceful, that's a great idea. As soon as it's not, then it's like, holy smoke, what have we done here? But, that -- that's a big part of it too.

CHAMBERS:   Yeah. What could possibly go wrong in that scenario? I suppose you look, everybody's going to look back and go, yeah, that wasn't too bright.  But we’ll see.  We’ll see.

O'GRADY:   Well, it was – you want -- it's pretty easy to understand the thought process.

CHAMBERS:   Yeah, of course.  Yeah.

O'GRADY:   If you make assumptions that, you know, if you look at the assumptions that people were making at the end of the cold war that Francis Fukuyama's argument that, you know, history is ended, but it ended differently than Carl Marx thought it would.  It ended up with the capitalist winning.

CHAMBERS:   Right.

O'GRADY:   Then the idea that, well no one's going to post, you know, open markets and democracy. It works and it's turned out that it's not true, but -- but that's what was thought. 

CHAMBERS:   Well, I like it. Those Taiwanese certainly know how to make chips and masks.  It's unbelievable. Well, thank you for that talk about intangibles. I think that, you know, the average person street doesn't really follow these things like you and I do, but it is interesting how intangibles have played a bigger role in companies’ earnings and balance sheet and S & P so, it's just something watch.  Did the fed over cook the economy?  Boom. Look at that.  Coming in hot.

O'GRADY:    Yeah, I don't think it was the fed by itself. The -- and again, you have to give policymakers some benefit of the doubt because we hadn't had a pandemic of this magnitude since 1918. We -- no one was around, you know, at that -- we have no adults from 1918 that could really explain to us what was going on.  So, you know, we were doing this from narratives, from history and, you know, we -- we didn't really have vaccines then. And, so they -- policymakers looked at their situation and said, well, gosh, let's just -- let's just shove money at this thing. And, that's what they did. And you know, that last one was probably a bridge too far.  The other thing that the fed, you know, this is a debate we have in our shop and it's a debate you see out in -- in the economic literature. We honestly, really don't know what QED.  And the fed doesn't know either. They say they think they do, but honestly, I -- I've looked at the studies where they try to claim it's, you know, it's the functional equivalent of X amount of cuts and rates and stuff, and it’s pretty shoddy work.  I -- so we honestly don't know what QED does, but the most important thing that the fed did in March of 2020 was all the backstop programs. Because when they came in and they said, okay, look, we're going to make a market corporate debt at this level. That meant that there was a market. And if you look at the way the markets were spiraling in early March of 2020, it was a clear situation where people were selling the best stuff in their portfolio, because that was easiest to sell.  And so, the fed had to basically create a market for the other stuff. And, you know, at the time they did it, everybody was like, oh, this is the fed is going to be buying junk bonds. Well, if you look at actually what they bought, they didn't buy very much. And that's because all they needed to do was go out and say, hey look, we're a buyer here and a seller here.  And, you know, that used to be the role of the market maker. In -- in the old equity markets, we used to have market makers and the market maker, you know, was given the task of creating a market, and they could, you know, let it -- let the spread get pretty wide. And, you know, we joke about it now, but, you know, remember spreads were in eighths. So, they were getting roughly about 12 and a half cents. There was about a 12 and a half cents spread between the bid and the ask. I mean, the only thing he got a 12 and a half spread now on the bid (inaudible) cause a pink sheet. You know, we're trading stuff, sub penny now. And those markets are really great until they get under stress.  And then all of a sudden, they go from trading at under a penny to, there is no way to trade it. And that’s because what we -- what we've done in the financial markets is equivalent to a -- a community going in and saying, you know, these damn firemen, they just sit around all day eating chili and washing the damn truck.  And yeah, every once in a while, there's a fire and they put on their suits and they hop in the truck and they race out. But the rest of the time they ain't doing shit.  Let's just -- let's just shut the fire thing down and then we'll call them when we need them. Surely, they'll come. And, you know, what we found out is that they don't.  So when, when everything's going fine, we have extremely efficient functioning financial markets and extremely tight spreads. I mean, it's really pretty great except when it's not. And when it's not, it goes from being really good to virtually no market available. So, what the fed did, is they stepped in and they said, okay, look, we're going to make a market.  It's not going to be cheap, but if you want to trade it, we will -- we'll backstop it. That's probably all they needed to do. Everything else they did, we still didn't know if it really worked. And, so did the fed keep rates too low for too long?  Yeah, we have been looking -- there's a chart we do where we look at the fed funds, less inflation in each expansion.  And so, if you look through the sixties during that long expansion from 61 to 70, the average rate was positive and then it steadily became more negative. And then Volker came in and went way positive again. And it's been steadily getting negative each business cycle. And the problem that the fed has now is that when you have interest rates this low, you create fragility in financial markets. The famous heterodox economist by the name of Hyman Minsky who had what he called the instability hypothesis, which is that the more -- the longer things remain stable, the greater the potential for future instability. It's kind of like if there are no forest fires, eventually you end up with a big one.  And, you know, the fed has two official mandates, you know, full employment, you know, controlled inflation. But it has an unofficial mandate that every central bank has. In fact, the whole reason we created central banking, which is, you know, functioning financial markets and the trouble is, is that now the fed has kept rates low for so long, not just in this cycle, but in previous cycles, that you've -- you've created a great amount of fragility in the financial markets.  And the trouble is we don't know where that fragility is until something goes bad.

CHAMBERS:   Yeah. As always people, you just, you don't -- you don't know.  You know, bad stuff happens. It's not -- it doesn't always go up. That's for sure. Well thank you for that. I appreciate it. I've got one more area that I want to talk to you.  Oh, just real quick. If the fed tightens, what does that do to stock buybacks, typically?

O'GRADY:    Well, we would expect it to slow down a bit. But the one really interesting thing that we have in the economy right now, and I can't find any other period that resembles this at all, is there is just an enormous amount of liquidity in the, in the economy.  And that's probably the one thing that keeps me from getting really nervous about equities is that, you know, not only is there a lot of liquidity, but under conditions of high inequality, a lot of that liquidity is, basically in a small number of households. One of the things that back early, early in my career, I was a country risk analyst at a bank.  I was -- I was part of the effort, a very small part, but part of the effort of winding down the Latin American debt crisis in the 1980s. And one of the things I discovered is that, you know, there's a famous line from F Scott Fitzgerald that the rich are different, to which Ernest Hemingway retorted, yeah, that's because they have money.  But one of the ways the rich are different is how they react to inflation. So, if you look at how the working class, the lower income brackets react to inflation is they convert their money into stuff as fast as they can. So, if you get your paycheck, you immediately run to the store to buy all the stuff you're going to need because in a week or two, it's going to be more expensive.  So, when I was observing Brazil and Argentina in the late eighties and they had some horrific inflation, you know.  Brazil was refunding its entire government debt every 24 hours because no one would lend them money past 24 hours. We noted that the poor, as soon as they got money would try to go to the store and buy stuff.  But the rich didn't behave that way. The rich would take their money and convert it to dollars D marks. And so, because there is this qualitative difference in how households react to inflation. If you're wealthy, your reaction to inflation is different. It has to be because you can't go out and buy 10 cars.  There's just, there's no point to it. But what you can do is you can look to put your money in the assets that will, you know, if the store value, function of money becomes corrupted because of inflation, you can use other assets that perform that function. And what we have created now, and especially if you compare it to the seventies, which I think is, is so often overlooked.  You know, we had fixed commission rates back in the seventies. We had that, you know, 12 and a half cents spread when you bought it, but you were paying sometimes four to 5 cents a share to transact, you know, a hundred share order. It was still illegal to own bullion gold until 1975.  If you wanted to go into the futures market, there were no pooled futures program.   CTAs were, were really not around yet. And, you had limited contracts, you could engage it. And it was pretty much just agriculture contracts. We didn't get T-bond futures until the late seventies and oil futures until almost 1980. And compare that to today.  You know, you have this absolute open universe of things you can put money in.  Virtually at no commission.  You know, you can buy stocks with zero commission and you can buy bonds at zero commission. You can buy ETFs that invest in commodities. You can buy ETFs that do all sorts of specialty stuff. You know, you can buy precious metals in a myriad of ways.  You can buy cryptocurrencies, which were completely unheard of, back in the seventies. And so, if you're wealthy, you're going to be more inclined to try to find a financial asset that will provide that store of value function of money better than money is in a rising price environment. And, you know, what that means is that we end up with inflation, but a lot of times it's asset inflation.  And, we don't think of that as a price level issue. But it kind of is.  And, you know, do I think inequality will remain at these levels?  No, I think that's one of the big changes we will see over the next couple of decades. Is that right now, depending upon which major you use, the top 10% of households capture somewhere between 48 to 51% of national income?  Back in the seventies, it was about 36 to 38 percent.  That is going to change over time.  It – we have growing populism on the left and the right, and at some point, you're going to get a real populist in power and it -- and it's going to happen. And I think most people in our industry think it's going to come from the left. I actually think it's going to come from the right.  But from the perspective of somebody in the top 10, it's not going to matter. It's going to be higher taxes and more regulation.  That's not something that's happening imminently, but it is something where we are steadily marching toward.  And that's when inflation becomes a really serious problem.  There is a general lack of appreciation of how important high levels of inequality are to keeping price levels at -- at what levels that we think are manageable.  It is -- it's something that people don't talk about (inaudible) company, but that is a factor. In fact, you should bring that up with Matt Klein when you -- when you talk to him.  It'd be fascinating to see how he would react to that.

CHAMBERS:   So, to state for the record, Matt Klein, here's what I want to know. Ask that question because I will -- I'll put it in the transcript and I'll ask him.

O'GRADY:   Yeah. You just ask him --

CHAMBERS:   (Inaudible). 

O'GRADY:   -- what is the role of –

CHAMBERS:   Really interesting.

O'GRADY:   -- inequality with maintaining low inflation?

CHAMBERS:   Yeah. Yeah. All right, cool. I'll -- I'll get back to you on that.  It sounds -- that doesn't sound too enticing Bill.

O'GRADY:   Well, it is not, but it is in the data.  And if you -- if you map it out, it makes a lot of sense. And it's not just -- here's another way of thinking about it.   When you're trying -- when we slayed inflation, you know, Paul Volcker gets a lot of credit because basically what he did was he gave money, credibility again.  People, you know, when you don't have a gold standard, you have to come up with another way of giving people confidence in money. And so, what we have kind of gravitated toward is central bank independence and inflation targeting. And it's actually worked pretty well.  It's, you know, you're always going to have hard money types out there.  They're going to be like, no, no, no, it's not good enough. But for most of us, this works all right. But the real heavy lifting on bringing inflation down was deregulation and globalization. And if you look at patent issuance, for example, relative to the highest marginal tax rate. Reagan cut the highest marginal tax rate. Patent applications, absolutely soared and, you know, just step back.  I mean, it's like one of the jokes I used to make when I used to give, you know, presentations on this was, you know, the, the man of every woman's dream in the 1950s worked for a Fortune 500 company and wore a suit to work. And now the, you know, the man of every woman's dream, you know, works in Silicon Valley and wears a hoodie.  It's -- what we did was we -- if you had a brilliant idea that would make you a billion dollars in the 1950s, what was the point? You know, because there were, there was a period where the highest marginal tax rate on income over $5 million is 90%. So, a cushy life working for a multinational firm where you got to play golf every Friday afternoon and, you know, drive a nice car.  And that was kind of all you needed because frankly, there wasn't a lot of reason to get extremely rich because the tax rate kept it. Then we knocked that highest marginal tax rate below 50%. Suddenly the calculus changed. Now going out, starting a business and becoming a multiple millionaire made sense because you had to keep most of it.  And we needed to do that in the late seventies, early 1980s, because we had severe supply constraints. And it was that policy that got rid of the supply constraints.  But the cost to society from that is that you have higher inequality and there's -- there is going to eventually be a level of inequality that gets too high to be politically sustainable.  And that's kind of where we are right now. And I have postulated that United States and major industrialized countries go through efficiency, inequality cycles and we are at -- we are in the waning years of -- of the efficiency cycle that began in the late seventies. And we are steadily moving toward the next equality cycle.  Now, every cycle has little differences to it. That's the problem. When you're looking at a cycle that lasts anywhere from 30 to 60 years. They happen with such great infrequency that it's hard to, you know, you don't have enough of them to where you can make any, you know, any definitive statistical analysis.  But, you know, you can do qualitative historical analysis that gives you a pretty good feel for the most likely direction of travel.

CHAMBERS:   Taxes, going up. Equality -- efficiency, going down. Quality, going up over my kid’s lifetime.

O'GRADY:   That's probably true.

CHAMBERS:    Okay. Heard it here, folks. All right, one more. I'm going -- it's Friday. Is this like the last thing you gotta (sic) do on a Friday? What do you got going on this weekend?

O'GRADY:   Oh, I'm a big Chiefs fan. So, I've got my Saturday -- Saturday tied up with the Kansas City/ Denver, but –

CHAMBERS:   Yes.

O'GRADY:   -- but the -- and then tonight the Blues play the -- play the Capitals, so we’ll see what they do.

CHAMBERS:   Oh, nice.  Right.  Okay, cool.  Yeah, you're in to St. Louis. Yeah. By the way, nobody's going to-- Bill you look great.  You do.  I like it.

O'GRADY:   Thank you.

CHAMBERS:   You look good. And I like to see that.  I like the guy that's helping manage -- manage some of our client's money. I like to see you looking good. You know what I'm saying? Healthy. Keep you healthy.  But all right.  Awkwardly moving to the next question.

O'GRADY:    Okay.

CHAMBERS:   Stranded assets.

O'GRADY:   Oh.

CHAMBERS:   This is the last thing.   I just –

O'GRADY:   Yeah.

CHAMBERS:   -- I want to talk about – okay.   So, we're going through this energy transition, right? You guys talk about it a lot. I think it's absolutely fascinating. I'm actually doing a series on energy. You contributed to that actually one time. But, when these things happen in history, you get, you might have some stranded assets and mean meaning kind of as an example, that thing -- that factory over there that you built, you know, whenever, you know, two decades ago.  Yeah. It's gone. Bye-bye.

O'GRADY:   Yep.

CHAMBERS:   Don't need it. And that's just going to hit your balance sheet and, you know, that's -- that's not so great. So yeah, I digress. Go ahead.

O'GRADY:   This is probably one of, well let me kind of frame this for your listeners. I started in this industry in 1986 and have spent most of it in the -- basically I spent from 19, a couple of years in, in that in 86.  And then from 89 to 2005, I was directly involved in the futures market and there was an old adage in the futures market that nothing cures high prices like high prices.

CHAMBERS:   Yeah.

O'GRADY:   And, it's pretty simple.  High -- what do high prices do? Well, they send signals. They tell producers, hey, make more. And they tell consumers use less. And, all my career, that -- that has been a, you know, something that you could rely on. We know, back in the mid-nineties, we began to notice that we were seeing capacity constraints in natural gas, for example. And I remember sitting around with a bunch of equity analysts at AG Edwards in the late nineties. And at one time, I said, you know, you're going to end up with five or $6, an MCF, natural gas.  And kind of looking at me like, you know, if I could only have half what you're taking in the morning. And I said, but no, think about it. You're -- you're going to hit.  Demand's going to go up some winter into a vertical supply curve.  You know, the market is going to become nothing but a rationing instrument. You know, the molecule is going to go to the highest bidder.  That is exactly what happened in like 98, 99. And then everybody in the industry is like, well, gosh, I guess we're going to have these high prices forever. And we had them for about eight years.  And then shale oil came and associated natural gas came with it. And all of a sudden, we took natural gas prices down to about a buck, an MCF, sometimes below a buck, because it was, you know, it was an ancillary asset that came from from oil and you had to do something with it. And then you had people like, well, gosh, I guess natural gas prices are never going to go up.  And then now of course, we've -- back in the -- in the late nineties, we were building an LNG industry to accept LNG. And if you'd have told people, me included, in the late nineties that, you know, by 2020, we would be a net exporter. And, you know, we'd be selling LNG to the Chinese, you know.  But that's kind of how commodity markets work is that, you know, the price goes up, you get a supply response, you get a demand response.  What we're seeing in oil we've -- we've already seen it in coal, but what we're, what we're starting to see in oil is that you don't get the supply response when you have high prices. And that's because the industry looks at its future and says, you know, every car manufacturer is electrified. Tesla is the most, you know, it's the most – has the highest market cap of any auto maker, by scads. Ford comes out this week and says, you know what, we're going to double the capacity of the F-150 lightning and their stock price goes up. The market is signaling to the automakers that you -- you're going to –

CHAMBERS:   Bill, I’m sorry, can you say that last anecdote again about Ford? I didn't quite catch that. Say that. That’s really interesting.

O'GRADY:   Well, Ford came out this week and said that they were going to expand capacity of its F-150 lightening, which is their electric –

CHAMBERS:   Yes.  Yeah, yeah, right.

O'GRADY:   -- F-150, which they actually, I don't think they've actually sold one yet.  This is all, you know, future.

CHAMBERS:   It's America. Why -- you don't? Nah, no big deal. 

O'GRADY:   But again, if you're -- if you're in the oil business and you're looking at this and you're like, well, yeah, we're selling quite a bit of oil, gasoline now. But, you know, in another decade, how much are we going to be selling. And so, when you're looking at projects, you have to look at it and say, well, let's say it takes me two or three years to develop it.  And I intend to, you know, deplete that, well, let's say in five years. I may not have a window there. And so, the investment doesn't happen. And, you know, we -- Jeff Curry over at Goldman Sachs has done a great job on -- on kind of walking people through this process and he's dead right? We -- we’ve seen a number of things occur. First off, we've -- we've seen the oil industry, you know, pretty much go from burning free cashflow to make more to now actually rewarding investors.  We've seen -- we are seeing this transition from oil and coal to minerals. So, if we're going to electrify the transportation sector, we're going to need a lot more aluminum. We're going to need a lot more copper. We're going to need, you know, just a lot more of that stuff. We -- Mark Keller and I run a hard asset portfolio and we have been working on this theme.  We've under invested in energy and it's hurt us this year.  But longer term, what we want to own is things like copper and lithium and uranium, because we – we’re big fans of -- of nuclear power. We think, you know, I watch the social discussion on nuclear power, pretty closely. You are starting to see the environmental movement, reluctantly, realize that you're going to need nuclear power.  It's, you're -- you're going to need clean baseload that will be there day in and day out. And then you can -- you can work wind and solar around it. But again, all these things, if you're in -- in the oil and gas business, is that, well, this kind of means that somewhere out there, it could be five years could be 15 years.  There's going to be a cliff where all of a sudden, my product isn't going to be needed or not going to be needed to the same extent. And you have to start preparing for that. I mean, I -- I've always been fascinated by watching people manage the end of growth. You know, managing and growth is something that every -- everybody talks about in business school, you know.  Well, you're growing X percent a year and you have to do this.  You have to do that in. And you know, it takes some management skill to manage a growing -- growing company or growing industry. I think it takes a lot more skill to manage one that's doing just the opposite because you have to think so differently. You know, you have to look at, can this project make me money in the window that presents itself to me. And it's a window that may be uncertain. And, you know, adoption of new technologies is, you know, it's one of the things we have noted over the past 30 years, the adoption of new technologies can happen really, really fast. You know, I mean, if you just look at what's happened with, I mean we -- they tried to sell us Palm pilots, you know.  Everybody looked at it and said well, why wouldn't I just use a calendar book. I've used these for years. And then when it gets integrated into your phone and into the games that you play suddenly, like why in the hell would I have a paper calendar? It's kind of the same thing. And that's what we, like I said, we have already seen this in the coal industry.  So right now, coal has had a great year. Natural gas prices shot up because of all the turmoil in Europe and US L&G has become a big deal. And so as natural gas prices have gone up, it's created an umbrella of profitability for the coal industry.  But you're not seeing anybody go out, open up new mines.  They're just, you know, they're -- they're basically trying to take what they've got to, you know, monetize those assets, you know, sorta (sic) like making hay while the sun shines. I had a young man who worked for me back at Edwards and after Edwards got bought by Wachovia and the futures department was closed.  He -- he went to work for Peabody coal for a number of years. And, it was -- it was pretty fun talking to him because, you know, when he went there, they were growing like crazy. And within about five years, he's watching every department go from 10 people to seven people, to three people, to one guy.  And, you know, you'd go into the part of the firm where you were working and nothing but empty desks. You know, one guy in a corner in, you know, 15,000 feet of office space.  And, you know, he held on for a long time and then finally they came for him.  This is -- this is a very different way of managing and that's – so, you know, for people who've been in the commodity business for a long time, when they see what's going on in energy, they're like, well, yeah, they're going to -- these guys are gonna (sic) start producing again. It's like, no, probably they're not.  You'll see enough production to kind of keep production at a fairly -- fairly stable level. But, under previous circumstances, these kinds of prices, we'd probably be seeing US oil production making new records. And we're producing at about 11.8, 11.9 million barrels a day. But our peak was over 13 and I don't think we'll ever see that peak again.

CHAMBERS:   All right. So –

O'GRADY:   One last thing, I'll leave you with –

CHAMBERS:   Yeah, go ahead.

O'GRADY:   -- on this. And I've -- I've only started to do preliminary research on it. So, it it's still too early to say anything definitive.  But I got kind of fascinated by the whale oil industry. You know, we used to light our lamps with whale oil.

CHAMBERS:   Right.

O'GRADY:   So, I've done a little bit of research on well, what happened?  And it kind of looks like what happened was it wasn't that we ran out of whales. We ran out of whales that we could harvest at prices that were economic -- that we could sell this stuff at. And -- but this one anecdote -- we went from like 600 whaling vessels to 200 in a period of about four or five years.  In other words, when the end comes, it tends to come really fast and you're only harvesting the stuff that you can make money on. And, you know, imagine down the road, if, you know, virtually every vehicle out there is either a hybrid or electric.  You know, we'll have gas stations, but it'll be hard to find them.  I mean, meanwhile charging stations will be everywhere.

CHAMBERS:   Yeah. And those countries that are producing oil on the margins on the high end, I mean, they're the ones that maybe end up finally -- I think you and I talked about this, it's basically like, I don't know where Russia lies in this because we can produce it really cheap and middle east can produce it really cheap.  And maybe I'm off on base because you are the energy guy, of course, but it further puts it – am I off on this?   I mean, we –

O'GRADY:   No.

CHAMBERS:   -- we make it pretty cheap. So that puts further pressure on Russia because their whole deal is oil and timber and some minerals and a demographic that's getting aging, like, you know, is aging dramatically.  It just doesn't look good for Russia.

O'GRADY:   It -- it really doesn't.

CHAMBERS:   Yeah.

O'GRADY:   It doesn't look good for a lot of the middle east producers.  You know, the Saudis are desperately trying to move fast to, you know, to try to diversify their economy. It's just hard to do so when you've been used to being the single, you know, commodity –

CHAMBERS:   Yep.

O'GRADY:   -- producer for so many years.  But it – and -- and it, you know, from an economic point of view, you look at it and you say, well, you've really got one of two choices either you try to maximize revenue, or you try to get every barrel out you can before they don't want it anymore.  And you make a really good argument for saying no, you know what? You'd be better off trying to drive the price down as low as you can so it makes it really hard for consumers to give it up. But the trouble is that if -- if the demand is going to fall anyway, it's a lot easier to maintain your revenue in a falling demand environment if prices are going up, not down.  And so, there is a real incentive to keep the price elevated, even though it will probably to some extent accelerate the transition. If the transition is going to happen anyway, you probably are just as well off trying to maximize your revenue and -- and work like hell to diversify.  Which frankly that's the hard part.

CHAMBERS:   Yeah, of course. Yeah. Well, I think that we closed it out, Bill. I mean, we just crushed it right there. How long did we do? We’re about an hour?

O'GRADY:   Yeah.

CHAMBERS:    That's pretty good. I like it. And now you can get on with your life.

O'GRADY:   Yep.

CHAMBERS:   Thank you. I really appreciate it. It was wonderful.  And I'd love to do this again.  Are you guys -- are you guys getting out and traveling a little bit here and there as a team or are you pretty much locked down in St. Louis?

O'GRADY:   Well, I don't travel anymore.

CHAMBERS:   Okay. Cool.

O'GRADY:   Yeah, I had some health issues in 2018 and, you know, so –

CHAMBERS:   Yeah.

O'GRADY:   -- I pretty much stay home.  Patrick Fearon, who will eventually be me.  He -- he's our -- he's our road guy.

CHAMBERS:   Yep.

O'GRADY:   And we're not doing a lot of traveling these days. Some -- we're starting. You know, it's just real spotty.

CHAMBERS:   Yeah.

O'GRADY:    Some firms are encouraging it. Some firms are not, you know.  It's a -- plus, you know, St. Louis is not a hub city and –

CHAMBERS:   Yeah.

O'GRADY:   -- we have -- we have a pretty big presence.  Southwest airlines has a pretty big presence here, but, you know, it -- if you're -- it's a hard city to do -- you're connecting all the time.

CHAMBERS:   Yeah.

O'GRADY:    And, you know, when you're seeing flights get canceled, like they're currently getting canceled, you know, the last thing we want to do is send somebody out, you know, and they get -- they get stuck somewhere –

CHAMBERS:   Yeah.

O'GRADY:   -- you know, they're driving 600 miles to get home.  I mean, it –

CHAMBERS:   Plus, the power of zoom.

O'GRADY:    Well, it, you know, and we've -- we've been exploiting that more as well.  And, you know, the other thing that's happened on your side of the industry is that, as you guys have done and gone independent, a lot more, you know, advisors are doing the same thing and it, you know, the zoom and teleconferencing lends itself some respect better than actually being out somewhere. You know, it used to be that you're like, okay, we're going to go visit, you know, four or five branches at these – at two or three platforms.  And that would work.   Well, now you're talking about, well, we've got this platform business but we've also got this RA business. And it's a different way of doing it and the RAs are much more spread out.  Not everyone of them.  But a lot of them are.  You know, they're working in smaller cities and smaller offices and sometimes it's just not economical to send somebody out to them because they're not around anybody else.

CHAMBERS:   Yeah.  Yeah, so what – this is -- I don't mean a stretch this out, man –

O'GRADY:   Okay.

CHAMBERS:   -- but what Bill's talking about I think is really important. We're at Olde Raleigh Financial Group, we are actually an independent registered advisor, but we're in that RIA, you know, general space. We're fully independent. We own the firm.  You know, we decide all the things, that we do.  And yeah, to your point, it is a very scattered group and it's growing.  It's by nowhere near the dominant player. But it's a different -- it's a different gig, Bill, right? I mean, it’s a different animal. You guys sell.  It's a different way to sell into it from your guys' point of view. And from our point of view, it's a different -- I think we attract a different type of client. You know what I mean? O'GRADY:   That’s probably true.  Yeah.

CHAMBERS:   Yeah.

O'GRADY:   It, to me, it makes a lot of sense because most advisors, you know, it's not like somebody comes in and says, hey, I'm -- I want to be here because you're with X firm. That used to be true. If anything, with a lot of platforms, now that might actually be a negative.  And, you know, they’re there because they like what you're doing. Not necessarily what a firm is doing.

CHAMBERS:   Yeah.  It’s – yeah.

O'GRADY:   And, you know, that's a constant battle.  You know, the major broker dealer platforms want the advisor to represent the firm and the way it actually works, is the advisor represents himself, and the firm is a platform for him. And that's -- that's the difference.

CHAMBERS:    Well said.  Well -- I couldn't really said it any better than that.  I mean, I could have said it, but I don't think compliance would've gotten – they would have gotten on me. All right, Bill. See, I'm making you laugh at the end. That's good. I -- you know, I don't know. It felt like sometimes I talk to you, I'm a complete disaster, like a babbling idiot over here. But anyway, hey, listen, I appreciate it.  I really, really do. I enjoy the time.   You know, you're a philosophy guy, right? You, you have a philosophy background.

O'GRADY:    I have a (inaudible).  But I've got about 42 hours of undergraduate and graduate level philosophy.

CHAMBERS:   Well, I may have said this to you before.   I -- my dad was almost a Catholic priest.

O'GRADY:   Oh. Okay.

CHAMBERS:   And went on and taught philosophy, religion, all like Emmanuel Kahn stuff and all that stuff. So, he's since passed, but he did that for like 43 years. And, you -- you guys, you two would've gotten along great. You would've been like cutting it up about God knows what are you guys talking about, you know.  But, anyway.  I tend to think sometimes I have a little bit of a philosophical in me, so I do enjoy these conversations.  So, I really do. But anyway, listen, Bill, thanks for coming on a soundtrack, again. We'll certainly do it again. I hope you're making it through the winter out there and let's hope for spring and spring ball.  Right?

O'GRADY:   Yeah, well, you know, they've got to start talking to each other at some point, so.

CHAMBERS:   Yeah.  Exactly. I tell you what, we'll talk -- we'll talk in the spring and hopefully we'll get past this. And -- and I hope to hear good reports out of you and how you're drinking beers in the stands out there. And that’s literally what I want to know, you know what I mean?

O'GRADY:   Well, yeah, we’ll see.  It's -- I don't know. I -- to me, it, you know, they're doing, baseball's actually doing pretty well. And yeah, there's lots of worry about, you know, the game has gotten boring and the games take too long and the specialists hurt and all that, but you know, there's like one of the tweaks, you know, the national league is gonna (sic) get the DH.  Within our office. We've got some hardliners that, you know, just think the DH is, you know, an anathema, but as I tell people, it's hard to pay $60 to go watch a pitcher hit. You know, it's -- every once in a while, some, you know, you've got some out there like Madison Bumgarner that are actually, you know, (inaudible).  They're legitimate hitters.  Most of these guys are terrible. But, one of the things I –

CHAMBERS:   Not many of those guys can – that’s not what they’re getting paid to do.

O'GRADY:   But one of the things I would like to see, you know, baseball do with the DH is allow you to only use a DH as long as your starter is in. And when you pull your starter, then your pitcher has to hit. Now, if your starter takes you six innings, and that means you're just going to pitch it for him. But it would, you know, it would get rid of this foolishness of having an opener.  It would make starting pitching a thing again. And, you know, I think that's something that baseball needs to foster. And it gives a manager another decision point, you know? Well, do I pull a guy who's doing really well, you know, under the -- under national league rules, it's like, well, I want this guy to hit.  I want to hitter up there.  Where the decision point would then change to, I think this guy's running out of gas, but gosh, you know, I really want my DH to hit.  So, it would -- it would change, it would encourage managers to keep starters in, number one. And it would encourage teams to actually focus on starting pitching again, as opposed to, you know, looking for, let's give me six guys in the bullpen that can throw a hundred miles an hour and I'll be fine.  Which is true. You'd still want some of that, but, there -- I think baseball would be better if we had pitchers that had to see the lineup a third time.

CHAMBERS:   Interesting. Well, that's pretty philosophical and now we're getting into the philosophical.    Well, you guys have seen -- anybody who has like a pro team in their town, right, that they grew up with or whatever. Yeah. You guys, it's deep. So, and I love how you refer to the purists or the fundamentalists in your firm talking about his.  It’s hilarious. I love – fundamental investors, fundamental in the rules.  I love it.

O'GRADY:   Well, and the other thing we, you know, Mark and I were talking about the other day is if you think of Moneyball.  Moneyball only works in cities that have terrible fan basis.  So, it can work for Oakland and it can work for Tampa Bay because, you know, -- the thing I'm always amazed at when you -- when you watch a Tampa Bay game and let's say they're playing Boston, there's more people in there cheering for Boston. That's because very few people are from Tampa Bay. Everybody's from somewhere else.  With Oakland, you know, you're probably a giant’s fan.  And, you know, Oakland is just the other team there.  So, you don't have to hold on to a player that everybody loves because nobody's showing up anyway. And, so you can -- you can play Whitey, you know, you can play Moneyball. You can -- I look at the people that -- I know Tampa, you know, the Rays get rid of.  And I'm like St. Louis or Kansas City could never do that because their fan bases would just rebel.  They like these people, you know.  We -- the Cardinal fans want to see out of your Yadier Molina go out there on crutches and catch.  And, you know, because he's beloved. And if the DH comes through, I would be shocked if the Cardinals don't get poo holes for one more year.  Being able to trot him out as DH.  I mean, God, you can just see this, you know, it'd be SRO every night.

CHAMBERS:   Yep.

O'GRADY:   You know, having the old band back together for a season.  Gosh, it would be, it would be just electric.  

CHAMBERS:   Yeah.  It would be cool.  Well, it’s baseball and spring.  There’s always hope, right?

O'GRADY:    That's right. That's all right.

CHAMBERS:   All right.

O'GRADY:   All right.  Take care.

CHAMBERS:    Well, listen again, thank you so much for coming on a Soundtrack to a Financial Advisors Life.  Appreciate it very much.  We will do this again.  Have a wonderful winter, my friend. Stay warm.

O'GRADY:   All right. Take care of yourself.

CHAMBERS:   All right, buddy. Peace.  Thanks Bill.

O'GRADY:    Bye bye.

CHAMBERS:   Bye bye.

(INTERVIEW CONCLUDED)

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”  

Bill O’Grady

As Chief Market Strategist, Bill O’Grady performs market, economic and geopolitical research for the firm, and is a member of the investment committees for the Asset Allocation strategies and International Equity strategies. Bill also co-manages Confluence’s Global Hard Assets portfolio, which focuses on tangible commodities investments.  Additionally, Bill writes numerous reports for the firm, which can be found under Research & News, in which he provides insights on various economic and geopolitical topics and discusses market effects.  In all, Bill has more than 30 years of experience following the energy, foreign exchange and futures markets and is frequently quoted by such national media outlets as The Wall Street Journal and Bloomberg News. Bill earned a master’s degree in economics from St. Louis University and has undergraduate degrees in history and public administration from Avila College.

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Tax Law and Policy Updates with Sandra Clark, Tax Attorney at RDU-based Manning, Fulton & Skinner, P.A.

Self-described tax policy geek and tax attorney Sandra Clark fills us in on what’s going on with tax laws and how it might affect high net worth clients

A top notch RDU-based tax attorney reviews the Trump-era tax changes, the Biden administration tax proposals and what Congress might actually pass. In addition, we covered when Trusts are appropriate, the end of the “stretch IRA” and her favorite places to go for business lunches. 

Topics:

• Tax Policy Update and Outlook.

• Review of 2017 Tax Reforms?

• When is a Trust appropriate? When is it not needed?

• What’s probate specifically in NC and what is a typical scenario where it comes into play?

• Over your career, what have you personally gotten better at and what has your firm gotten better at during your tenure?

• What makes Manning, Fulton & Skinner stand out?

• What is Sandy reading, streaming or are you listening to a particular podcast?

• Cheap date tip: ACC Wrestling at Reynolds Coliseum.

• Favorite Biz Lunch?

• Prince’s Estate Debacle.

CHAMBERS:   Hey everybody.  This is Trevor Chambers, from Olde Raleigh Financial Group in, actually sunny, would you say it’s sunny?  I believe –

CLARK:   It’s fairly sunny --

CHAMBERS:   -- yeah.

CLARK:   -- and fairly warm.

CHAMBERS:   Yeah.  Raleigh, North Carolina and we love it here in Raleigh, North Carolina. And I gotta (sic) – I gotta (sic) a really – I gotta (sic) a great podcast.  First of all, I’m doing this remote.  I’m doing this in the offices of Manning, Fulton Attorneys at Law, here in Raleigh, North Carolina.  And I’m, which is great, I love doing these remote.  And – and we’re going to do a podcast with Sandra Clark, who is – has practiced law since 1994.  And is a partner here at Manning, Fulton, Skinner.  Excuse me, Manning, Fulton, Skinner.  Sorry about that.  Didn’t mean to forget the Skinner, here in Raleigh.  And Sandy deals with tax law.  We’re going to talk about tax law policy changes and we’re going to talk about trusts and estate planning.  We’re actually – today’s podcast, Sandy is going to be brought to you by several google keywords and phrases including estate planning –

CLARK:   Okay.

CHAMBERS:   -- business tax planning, gifting, tax planning when it comes to family trusts, tax savings for wealth transfer and generational wealth transfer and things like that.  So, that’s what we’re going to be talking about today.  So, I’d like to welcome Sandra Clark to –

CLARK:   Thank you.

CHAMBERS:   -- the Soundtrack to the Financial Advisors Life podcast.  Thank you for having me come into your office.

CLARK:   Thanks for having me.

CHAMBERS:   It is lovely.

CLARK:   All those key words get me very excited.

CHAMBERS:   Yes.

CLARK:   I don’t know about our audience but I get very excited over those key words.

CHAMBERS:   Sandy, the roof is going to come off this place, okay.

CLARK:   Very exciting.

CHAMBERS:   I mean, you know, people, honestly if -- if – if you’ve – if at this point you were like I’m not talking – I’m not listening to anyone talk about taxes, you’re going to be missing big information.

CLARK:   Right.

CHAMBERS:   This is –

CLARK:   We’ll make it –

CHAMBERS:   -- stimulating content.  Yes, absolutely.  Alright, so tell me about you.  You’ve been at this since 1994.

CLARK:   I was born, raised, grew up, went to Cary High School –

CHAMBERS:   Oh, nice.

CLARK:   -- lived here forever.  I still live in Cary.  Not the same house.

CHAMBERS:   Why leave?

CLARK:   But married.  I have two kids that are grown now in their twenties.  I have lived here my whole life and most of my client base is right here.

CHAMBERS:   Yeah.

CLARK:   In Wake County.  It works well.  Some of them are cooperate owners but most of them are from right around here and they’ve lived here, grew up here, and need estate planning or tax planning advice to either help preserve what they have or get it to the next generation.

CHAMBERS:   Yeah.  Huge role in somebodies’ financial health is what you –

CLARK:   Right.

CHAMBERS:   Absolutely.

CLARK:   It truly – it’s – it’s a gift you give to your family so to have a good plan in place, is a gift you can give to them after your gone because it can make life simpler for them.  It can make – preserve assets in a way for the next generation and generations after that.  So, it’s – it’s kind of, in my mind, it’s the adulting thing to do for your family.

CHAMBERS:   And you know it’s daunting.

CLARK:   It is.

CHAMBERS:   A lot of people, right –

CLARK:   And people don’t want to do it.

CHAMBERS:   Right.

CLARK:   It’s – it’s not something you want to do.

CHAMBERS:   No.

CLARK:   And you don’t want to do it when you’re under stress if you had a medical crisis.

CHAMBERS:   Yes.

CLARK:   But it’s just something you gotta (sic) check off that list.

CHAMBERS:   Yep.

CLARK:   It’s – it’s –

CHAMBERS:   Yeah.

CLARK:   -- what you need to do for your family.

CHAMBERS:   Well, this is why I want to have this conversation because I think we just share a lot of similar – we do a lot of similar motions when it comes to clients.  So, but all that said here, I want to get into the meat – on of the – let’s talk about tax policy.  Because there’s tons –

CLARK:   So, we, yeah –

CHAMBERS:   -- of stuff going on and this is – this is probably going to be the apex of excitement of this conversation.

CLARK:   We are – the last couple years have been kind of – over – maybe overwhelming is the right word.  But even the last twelve months.  So even after the election last year, clients were anticipating big changes.  Democrats were now controlling the house and had the presidency and there was this tie in the senate that they thought, there’s going to big tax changes.  Biden had run on a policy that would have implemented many changes and they thought that was just going to get pushed through with no questions at all.  And it kind of shows a little bit that our system works.  No one person can control all legislation and all taxes.  So, his proposal that he put out in January did not go through.  We are closing in towards the end of the year where there has been a Ways and Means proposal that came out January 13th that would have put big changes in.  And again, that’s already been redrafted several times by the house and senate.  And we’re kinda (sic) in this wait and hold.  Are we going to have tax changes?  Because some of the changes were pretty dramatic at first for both personal income tax and estate planning and those now have already been paired down a little bit by the drafts in the house and senate.  And we’re in this a little bit of wait and see so this is December 2nd today.  I don’t know if many people know and follow this stuff like I do but tomorrow our budget actually expires.  So, there’s going to be something that comes out tomorrow.  It may not have any tax law changes.  It’s mainly just a budget proposal.  And it might be they just extend it so it expired in October.  They extended it until December 3rd.  But I don’t think they’re going to let the government shut down.  I think that would add in our situation right now with pending inflation and our COVID pandemic is still going.

CHAMBERS:   Yeah.

CLARK:   I don’t think they’re going to let the government shut down.  So, I think we’ll have some – a budget bill passed tomorrow or an extension of it.  We’ve got proposals for a domestic bill that’s, some people call it the social program.  That’s a 3.5 trillion policy that was proposed that’s going to get pared down, I think.  And whether that gets passed or not.  And then of course, we’ve got this tax proposal that could or could not pass. So, we’ve got an interesting time.

CHAMBERS:   You know, and I think administrations have about 18 months of political capital to get stuff done.  And so, we’re well beyond that and so, you know, now we’re getting in the midterms and, I don’t know if you have comment on that, but yeah.  It’s going to be very interesting to see what actually gets done here.

CLARK:   Right.  So, you would think somethings going to happen within the next six months.  That’s why the next 30 days could be important or even the next 60 days.  Especially for tax law because after that –

CHAMBERS:   Yeah.

CLARK:   -- they start worrying about the next election.

CHAMBERS:   Next term, exactly.

CLARK:   And, a lot of times they want tax laws to be on a yearly basis.  They have passed a couple things in January but they’ve been at the very beginning of January.  They’ve kind of – usually our retroactive tax bill is – most people would consider unconstitutional.  It’s not been done.  At least in my practice time so I don’t think they would pass a bill in March that would be retroactive to January.  So, a lot could happen in the next 30 days.  We’ll see.

CHAMBERS:   Taxes, though, on a historical basis for the personal – personal taxes.  I just want to highlight that because, you know, that’s what we do with personal wealth.  I know you do businesses and stuff, but they’re not anywhere near, on a historical basis, they’re still pretty low.

CLARK:   Right, compared to –

CHAMBERS:   Compared to –

CLARK:   -- right, exactly.

CHAMBERS:   Yeah.  Yeah, and it’s – I’m just saying, but they are going to be going – I can’t imagine there’s going to be a framework here in the future where we’re going to see taxes not go –

CLARK:   You would think so and again, the economists, the supply chain issues and the economists believe that – I’m hoping there’s not a dramatic inflation but we’ll – we should all see it in the grocery stores.  You all see it every time you go out to eat.  It’s – we’ve got some inflation going on now and there’s some supply chain issues going on that there could be some price increases which includes spending in the government.  Which means they need more money.  So, a couple things that they’re proposing is – is some income tax increases for what they would consider the wealthy and some people, you know, where that line is, will see.  The one – the last proposal on capital gain tax, which effects a lot of my clients, would go from 20 to 25 percent but it’s only after individuals have adjusted gross income of about half million dollars.  The reason why that one’s important to me is that I have a lot of clients as part of their estate plan or inheritance, maybe they sell a piece of family property.  So, one time in their lifetime, they’re going to make over millions of dollars—

CHAMBERS:   Big income, yeah.

CLARK:   -- and – I’m concerned for them that they may pay out even the five percent higher tax rate on those type sales if those happen. Now, Biden had proposed that after a million dollars, the capital gain rate would just go to the highest tax bracket which would be a 36 percent tax.  So, now, it’s, you know, at least they palled all that down to 25 percent tax increase. They’ve also implemented at least under the last draft, there would be an increase in corporate tax for corporations that make over, I think in that case it was five million, so.  Most people, you know, in the medium tax brackets, I don’t think are going to see dramatic changes.  But there certainly probably looks like there going to be some tax increases.  And they’re doing it in some other ways too.  We will talk about the retirement account taxation –

CHAMBERS:   Yeah.

CLARK:   -- that could affect everybody.  But certainly, for the high wealth clients, I think there’s an expectation that, accelerate income in 2021 because next year’s taxes could be higher. 

CHAMBERS:   Yeah.  Exactly.

CLARK:   Yeah.

CHAMBERS:   And that’s what we’re seeing –

CLARK:   And the future taxes.

CHAMBERS:   Yeah.

CLARK:   You know, if you’ve got –

CHAMBERS:   Yeah.

CLARK:   -- something to sell, maybe sell it as soon as possible.

CHAMBERS:   Hey, there’s – and there’s so much – if you’re thinking about selling your business, I mean it’s – Sandy, there’s so much capital --

CLARK:   Yeah.

CHAMBERS:   -- looking for opportunities –

CLARK:   Exactly.

CHAMBERS:   -- in businesses.  So, you know, given that mix it’s a good – it may be something you want to consider.  We can talk about – that may be a whole separate podcast –

CLARK:   Yeah.

CHAMBERS:   -- right there. 

CLARK:   Exactly.

CHAMBERS:   I mean, you know.  I just want to real quick, go back to the Trump tax cuts, the (inaudible).  What’s your thoughts on it now that we kind of, you know, gotten years on it and we’re looking back on it and also like from business people’s point of view.  If you want anything going that --

CLARK:   Right.  So –

CHAMBERS:   Let’s go personal and business.

CLARK:   Yeah.  So, some of those changes helped a lot of individuals and you could argue the long-term effects may have not been positive.  But short term certainly – cutting taxes increases your economic value because people are willing to buy and spend.  Some would argue long term is not a great policy and that just depends usually on your –

CHAMBERS:   Your point of view.

CLARK:   -- political opinions on those.  You know, cutting environmental issues, cutting regulations, all that short term increases your economy but long term, some people would argue that that is not a good policy going forward.  He made some dramatic cuts as far as personal income tax and even estate tax.  At that time, he went from Obama’s plan was, at that time, index and inflation about a six-million-dollar exemption for – which means you can either gift or die during your lifetime and anything below that exemption amount would go income tax free.  He doubled that, so we’re now at 11.7 million that you can die with and give it to non-spouses and or non-charities and you would pay no estate tax on.  So, it really changed quite a bit of the income tax and estate tax planning for a lot of our clients when that – that change was made, so.  I think some of those could be abolished if there was new tax law put in place but right now, I think the Senate and house and the president too is – they’re reluctant to do anything that would harm families and I think if they do any tax increases it appears to be they’re targeting what they consider high wealth.

CHAMBERS:   Yeah.

CLARK:   And, you know, the question is where is that and for corporations it’s been about a five-million-dollar figure.  Now Biden proposed a tax change for anybody over a million dollars and that appears that that’s even going to be higher and more like a one and a half million-dollar threshold before tax changes come in to play, so.  Again, we’ll see what they pass but – but, you know, short term, I think Trump wanted to spur the economy and it did.

CHAMBERS:   Oh, yeah.

CLARK:   And the downside is long term as it put us in a budget crisis.  And depending on what you think about, how tax policies work, some would say that that’s now why we have such a budget problem.  And others, you know, who could have predicted in 2017 that we’d have this pandemic that the stimulus again, people would argue the stimulus package is why we’re having these inflation issues and some would say, oh, can you imagine if we didn’t have it.  So again, depending on where your political opinion falls.  Some would say that all the stimulus work went so that we curved or slowed down the crisis that we knew would happen.  Especially considering how long this pandemics going on.  Others would argue well that’s why, you know, you can’t give money away and –

CHAMBERS:   Right.

CLARK:   -- that’s why we –

CHAMBERS:   Yeah.

CLARK:   -- are having the issues we’re having now or believe we’re going to have now.  I don’t think we’ve hit the crisis situation yet but some people –

CHAMBERS:   Yeah.

CLARK:   -- some people are worried about that.

CHAMBERS:   You know, well we can wax and wane on that but there’s always crisis.  There’s always going to be something.  I mean, you know, nobody saw this –

CLARK:   Yeah.

CHAMBERS:   -- nobody saw this.

CLARK:   No one. 

CHAMBERS:   The COVID coming.  I actually think, not to go deep, I think one of the bigger kind of economic issues, macroeconomic is these low interest rates.

CLARK:   Yes.

CHAMBERS:   You know, we’re lucky enough that you and I, we have assets.  Our – the people we work with have assets and everything.  And if you have these low interest rate environments, it’s great for assets.

CLARK:   Yeah.

CHAMBERS:   You know what I mean?  Houses right now, but there’s some long-term things that we, you know, so the fed, I can’t – they have to go up.

CLARK:   Yes.

CHAMBERS:   They – it can’t go any lower.

CLARK:   Yeah.  You –

CHAMBERS:   They have to go up.

CLARK:   -- would think if they’ve inched up but they really haven’t.  If you want to borrow money, there’s money out there.

CHAMBERS:   Oh yeah.

CLARK:   Yeah.

CHAMBERS:   Yeah.

CLARK:   And particularly, like you said, if you have assets that can be used as collateral, there’s a lender out there that’s going to lend money at very low rates.

CHAMBERS:   Yeah.  And I’m not – I don’t think you or I are suggesting getting levered up.

CLARK:   No.

CHAMBERS:   Because I have – anyway, you go.  Okay.

CLARK:   Yeah.

CHAMBERS:   Anyway.  This is good though.  I like it.  Do you want to move on to estate planning?

CLARK:   Well, yeah –

CHAMBERS:   Or do you just want – what do you want to talk about?

CLARK:   -- let me –

CHAMBERS:   Yeah, yeah.

CLARK:   -- I’m going to head on off another – the Secure Act kinda (sic) had a big impact on a lot of changes, so that was a little bit later.  That wasn’t at the very beginning of Trumps administration.

CHAMBERS:   Okay.

CLARK:   That passed in 2019.

CHAMBERS:   Yep.

CLARK:   And that changed a lot particularly in retirement planning.  So, this effected almost all our clients because retirement assets appear to be one of the biggest assets most of my clients have.

CHAMBERS:   Yeah.

CLARK:   Maybe you too, Trevor.  But the house and retirement assets are – are usually your first assets that build up and then hopefully you can supplement them with other assets but the big thing that changed in retirement assets is if you gave your retirement or named a beneficiary that wasn’t your spouse, wasn’t a minor child or any of these, what they call, eligible beneficiaries, you had to pay them out within ten years.  And the idea of being, and I understand the policy completely because people put retirement accounts in.  They give it to their grandkids.  They’re paying one percent out a year.  You could stretch those things out –

CHAMBERS:   Yeah.

CLARK:  -- then when that person dies, they can name it to a young beneficiary.  And you just almost never tax the IRA accounts. And they’re growing, and growing, and growing.  And they’re becoming significant assets and they’ve done what they are supposed to do.  People are using them for retirement because Social Security’s not enough.  So, they – they serve their purpose but the IRS and you know our government’s not getting taxation on those at a very rapid rate.  So, now the idea is they still protected the spouse.  They protected minor children or disabled beneficiaries but any other beneficiary, you give it to your adult children or you give it to your best friend, or your aunt and your uncle.  Those assets all have to be paid out within ten years.  So, you have a big IRA account.  A couple million dollars.  You gotta (sic) pay it out within ten years.  The beneficiary can decide whether to wait until the tenth year or pay it all out in year one or pay 1/10th each year.  You have a couple options.  But that changed completely some of our planning for our clients because the idea used to be how slow can we take these out.  Name a young beneficiary.  Maybe even don’t name the spouse.  Maybe name, grandchildren instead of children and those changes now are in place and so a lot of our clients have changed their beneficiary designations on those accounts.  The other thing, it affects a few of our clients is, you used to have to take retired – minimum distributions at age 70 ½, now they’ve changed that to age 72.  So, a couple little changes the Secure Act had for our clients. Mostly with environmental matters.

CHAMBERS:   Yeah.

CLARK:   I mean, retirement matters.  Sorry.

CHAMBERS:   Yeah.  So, to kind of reiterate, sometimes what Sandy’s, Sandra is talking about is, and you mentioned the phrase, the stretch.  The stretch is – the stretch IRA –

CLARK:   Yes.

CHAMBERS:   -- is gone.

CLARK:   Yeah.

CHAMBERS:   So, let me just layer on what that means for our friends, especially the baby boomers.  But it’s – is that what we see and I’m sure you see the same thing is, is that you pass this IRA down to the kids, let’s just say, right?  The kids have to – the kids have made a bunch of money.  Okay.  And then they’re going to inherit mom and dads.  So, they’re – so now the kids if they have the traditional IRAs, they gotta (sic) empty their own IRAs out and then they have mom and dads to empty out in ten years.  The taxation monsoon, Sandra –

CLARK:   Yes.

CHAMBERS:   -- that’s coming over –

CLARK:   Yeah.

CHAMBERS:   -- the next twenty years, if not more, guys is insane, if you think about it.  It’s so much taxes is going to be coming over the bow that we’re all going to have to pay.  And that’s fine.  Whatever.  But you have – this is what you have to start thinking about.  And Roth, huge.

CLARK:   Right.  And their allowing some conversions.  Some of those proposals on the Roth conversion, are penciled in to go away under this tax legislation.  So, if you have – if you are thinking about converting a Roth, now might be the time to do it.

CHAMBERS:   Yeah.

CLARK:   In 2021, rather than wait.  And again, we don’t know what’s going to be --

CHAMBERS:   Yeah.

CLARK:   -- the final version but that’s something to think about.  A couple other things with retirement planning, so we talk to clients a lot and we’re like, you know, what’s the tax on this?  I’m like, oh they had a big life insurance.  They have a house.  They gotta (sic) a savings account.  You’re under this exemption amount again which is currently 11.6 million dollars.  No, no taxation.  And then we get to the retirement account.  I’m like, okay.  Mom and dad or whoever never paid income tax on this if it’s not a Roth.  Yes, there’s income tax on this.  And that’s sometimes a shocker to clients.

CHAMBERS:   Yeah.

CLARK:   And not only, you know, if it’s again, mom and dad, not only is it a shocker you gotta (sic) pay income tax but also now that you have to pay it out within ten years.  You can’t slow it down.

CHAMBERS:   Yeah.  That – when you do the – you know, we do financial planning for people and we show them the RMD, just their – let me just say that if you’re in Raleigh, if you’re in Raleigh or really anywhere in the world, but let’s say, Raleigh, North Carolina, RDU, and you have a pretty much paid for 700, let’s say 750,000-dollar house.  Nice house.  You’re in, you know, North Raleigh and you got maybe a hundred grand left on it, right, or it’s paid off.  And you’ve got a three million in, you know, IRAs between you and your spouse and maybe another, you know, whatever half million in taxable accounts and your 63 or whatever.  Like, when you start modeling all that out, the RMD – the required mandatory distribution column and your out of years of your retirement, meaning into your late 70s and 80s, become massive.  And that doesn’t even account for anything that you would inherit.

CLARK:   Right.

CHAMBERS:   So, that’s what we’re talking about.

CLARK:   Yeah.  You can stay in the tax bracket or even increase your tax bracket after you retire.

CHAMBERS:   People are like I’m in the highest tax bracket I’ve ever been in and I’m going to be in my 80s.  What are you talking about?  Well, this is what we’re talking about.

CLARK:   Yeah.  And that leads me into, Trevor, one item that – there’s not much ways to avoid taxation on those IRA accounts.  They do have one charitable opportunity for anyone that’s over 70 ½ and that is to allow them to make gifts straight from the IRA account to the charity.  So, if you’ve got a charity in mind that you were going to give a sizable gift to, you can give up to 100,000 from your IRA account. It doesn’t count – it counts towards your minimum distribution but doesn’t count as, you know, it’s not a charitable deduction but you could say, okay instead of taking my 100,000-dollar required minimum distribution, I’m 72 years old, I’m going to say, go to my favorite charity and as long as it’s a qualified charity, they can do that.  That provision is set to expire, it’s been extended a couple times.  I think it will be extended again.  It’s in all the proposals that I’ve read, it would be extended. So, that – that’s probably something in this budget proposal that we hope passes tomorrow but more likely maybe passes sometime in the near future.  That would probably be extended, I would think.  But certainly, if you’re doing year end planning and about to take your required minimum distribution.  And also have a charity in mind – you could – you could avoid the income tax on it.

CHAMBERS:   Yep.  Exactly.

CLARK:   So, it might be a good end of the year plan, for you.

CHAMBERS:   That’s 100,000-dollar limit?

CLARK:   Yes.

CHAMBERS:   Okay.  I thought it was a little more than that, but that’s okay. 

CLARK:   Yeah.

CHAMBERS:   All right, cool.  Good.  Anything else on that topic?

CLARK:   I think we’re good on the taxation and again a lot is going to happen.  I think in the next, what are we 29 days –

CHAMBERS:   Yeah.

CLARK:   -- in addition to a lot of holiday eating, we’ll be reading about some tax changes, I suspect.

CHAMBERS:   Well, you know what we should do?  We should maybe do this like once a quarter and just come back and revisit the tape.

CLARK:   Yeah.

CHAMBERS:   All right.  Good.  I’ve got her committed, people.

CLARK:   Yeah.

CHAMBERS:   Yes.

CLARK:   Yeah, we’ll see.

CHAMBERS:   I know.  Yeah, this –

CLARK:   You know what’s funny, so like last year, this time last year, we were doing some dramatic planning because a lot of our clients –

CHAMBERS:   Yeah.

CLARK:   -- Biden was elected.  This is the world’s ending.  Gift everything away.  And so, everyone went and then he came out with a proposal in January and it was similar to what he had run on.  And again, people were oh my gosh, this is going to be terrible.  And then, you know, eight months went by and nothing happened. 

CHAMBERS:   Yeah, yeah, yeah.

CLARK:   And then September 13the, the Ways and Means committee sent a proposal and again, our listservs blew up with oh my gosh, this is terrible.  Tax increase.  And then they’ve rewritten it three times, now.

CHAMBERS:   Right.

CLARK:   So, I try not to get too excited.

CHAMBERS:   Right.

CLARK:   Until I see something in black and white that’s been signed but it’s hard not to jump on the bandwagon. Oh my gosh, what’s happening?

CHAMBERS:   Right.

CLARK:   So, yeah.

CHAMBERS:   We should – you guys can see the smile on her face. 

CLARK:   Yeah.

CHAMBERS:   I mean this with all due respect, but you’re a tax law nerd.  I love it.

CLARK:   I am.  My family –

CHAMBERS:   Wonky.

CLARK:   -- hates it.

CHAMBERS:   I love wonky.

CLARK:   No one will talk to me about it.  I talk to myself about it a lot.

CHAMBERS:   That’s awesome.  All right. Cool

CLARK:   I’m glad it’s entertaining for you.

CHAMBERS:   No, I love it.  I mean that.

CLARK:   I actually really do.

CHAMBERS:   Listen, wait, nobody’s talking bout this.

CLARK:   Yeah.

CHAMBERS:   See like that -- that little 100,000 dollar – nobody’s talking about that guys.

CLARK:   Yeah.

CHAMBERS:   So that’s why we’re talking about it because it’s important because like, I don’t know about you but like how – your business clients, especially the ones that are here locally.  You know, the small, medium size, how they doing?  Doing pretty – is everybody doing pretty good?

CLARK:   Most of the clients are doing pretty well.

CHAMBERS:   Yeah.

CLARK:   I – and even – okay, again, back when pandemic happened –

CHAMBERS:   Yep.

CLARK:   -- every restaurant owner, including law firms, like Manning Fulton –

CHAMBERS:   Yeah.

CLARK:   -- what’s going to happen?

CHAMBERS:   Yeah, I know.

CLARK:   We’re going to shut down?

CHAMBERS:   Scarry.

CLARK:   Everybody went home.

CHAMBERS:   Crazy.

CLARK:   Most of our restaurants survived.

CHAMBERS:   Yeah.

CLARK:   They did okay.  Their doing okay.  The biggest complaint we hear is that it’s hard to hire people.

CHAMBERS:   Yep.

CLARK:   Particularly construction, retail, restaurants.  It’s hard to hire people.  And everybody’s; increased rates.   I don’t think anyone –

CHAMBERS:   No.

CLARK:   -- even knows what minimum wage is anymore because you’re not paying anything close to that.

CHAMBERS:   No.  Everybody’s had it’s 15 dollars an hour, now.  That’s it.

CLARK:   Yeah.  But it’s difficult for some of our clients that –

CHAMBERS:   Oh yeah.

CLARK:   -- I think it’s – the labors impacted all of our clients.  And the supply and demand.  Supply chain issues.  I’m a little worried that that –

CHAMBERS:   Yeah.

CLARK:   -- in six months might be a real big issue, you know.  I know everybody can’t get their favorite Christmas toy, but more important things, like can you not buy any cars at all.  Because there’s no chips anywhere.  You can’t buy a computer.  Those things would be very difficult to (inaudible).
CHAMBERS:   Yeah.

CLARK:   And I’m hoping they all clear up.

CHAMBERS:   I think – I will say just from my – I think I’m – I’m going to say I’m a little more hopeful on that.  And I think things – I think things will be better for the most part. I think there’s going to be secular areas that are going to be just jacked up for a while.  But let’s see. Like I said, we’ll come back –

CLARK:   Well, most of my clients, I think are – are doing pretty well.  And –

CHAMBERS:   Yeah, that’s what I’m hearing.

CLARK:   -- most of the individuals I know are doing okay and –

CHAMBERS:   I mean, you’re busy.

CLARK:   Yeah.

CHAMBERS:   I’m busy.

CLARK:   We’re Very busy and we’ve survived what hopefully is our once in a lifetime pandemic.

CHAMBERS:   Yeah.

CLARK:   That still hasn’t ended and it’s changed –

CHAMBERS:   No.

CLARK:   -- the way we do business.

CHAMBERS:   No.

CLARK:   And we’ve adapted.

CHAMBERS:   Yeah, and it’s really – it’s changed the labor – I think the labor market thing is just – we can go on on that but man the labor market thing is, I think the biggest change.  I think the supply chain stuff will get worked out but the labor part.  As I said, 15 dollar an hour is – that’s what everybody’s just targets.  I’ve got a – I’ve got a brother-in-law and sister-in-law in the restaurant business and that’s what it is.

CLARK:   Yeah.  It is.

CHAMBERS:   You can’t – anyway but, okay.  If you want to talk about estate planning?

CLARK:   Let’s start talking about estate planning.

CHAMBERS:   Riveting topics.

CLARK:   Yeah.  Yeah.  I love it.  It’s what I do.  So, again, we talked about everybody probably needs the basic plan.  And that would include even as most basic, a will.

CHAMBERS:   Yeah.  Yeah.  Yeah.

CLARK:   That says any assets would go to a certain person or how they would go.  Who’d be your executor.  Healthcare Power of Attorney, now.

CHAMBERS:   POA.

CLARK:   The doctors aren’t going to talk to any, you know, sister, brother, sometimes they’re pretty open to spouses, but really you need a healthcare document that says who the doctors are to communicate with, if you can’t.  And then in that, within that document, we have the living will provisions that a lot of people want to sign that say, what would happen if they were in this terminal, incurable situation?  And then a financial power of attorney. I’m sure you see those every day.  Where if something happened and you couldn’t handle your financial affairs, and it can be that you’re out of the country or got hit in the head or I have dementia.  Any of those factors.  Who – how would we make sure lights are kept on, the mortgage is paid?  Anything, tax returns are filed.  All those items could be covered in your financial –

CHAMBERS:   Yeah.

CLARK:   -- power of attorney.

CHAMBERS:   That’s – yeah.  And it – do it while you can.

CLARK:   Yeah, do it –

CHAMBERS:   I’m sure we’ve all seen people scrambling, you know.

CLARK:   Right.

CHAMBERS:   It’s not good.  And, but critical.  Let’s talk about trusts.  When is a trust appropriate?  Let me – can you give me some examples of it.  And the reason why we want to go down this – this particular topic is we – we personally see a lot of trusts where there – at that stage in people’s lives, probably is not necessary and actually could complicate things.  However, there are plenty of areas where they are important.  So, let’s talk about trust.

CLARK:   Right.  If you had a trust drafted ten years or more and even really eight years or longer, it has trust provisions in there that you do not need and probably complications in there you don’t need.  One thing that changed under Obama’s administration was the ability to share assets and exemptions amount with the husband and wife.  All our old trust, way back over ten years ago, we called them AB trusts because they give some amount to the spouse and some amount to the kids.  And they were really generated for tax purposes. Now our tax exemptions a lot higher and doesn’t impact nearly as many people.  Even if we lower it down to the six-million-dollar threshold, that Biden had proposed, it would not impact a lot of our clients, so any old trust should probably be reviewed.  Trusts are definitely needed for certain reasons.  But a lot of times, our clients come in and say, how can I simplify things if I were to pass away.  So, our goal is to fulfil their goal which if the simplification is the strongest, you know, issue they have, and they know they’re probably going to avoid.

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CLARK:   So, our clients that want simplification, they may not need a trust.  Trusts provide a lot of benefits so some of the benefits that are provided include, if you have a minor child, you’re going to need a trust.  If you have a special needs, you’re going to need a trust.  If you have a spend thrift problems and, in that regard, it might be that you have such amount that you don’t want your 22-year-old, she’s an adult or he’s an adult but maybe they can’t handle millions of dollars in inheritance.  Or maybe they’re about to marry into what you consider not the best marital situation.  So, trusts provide asset protection to the next generation.  Again, for divorces, for kids maybe doing what kids do and not spending and investing money how you’d like them to do, you could put certain controls in place.  So, all those would be reasons to have trusts.  They’re also confidential.  If you have complicated assets, closely held businesses, sometimes trusts are needed to continue the operation of those even if the beneficiary maybe is not running that business.  So, maybe the trust is appropriate for that.  So, it’s not an automatic thing that we used to do when our exemption amounts were so low, where everyone had a trust.  But we try to fit the needs for the client.  So, some of our clients, and I don’t know what percentage, but a lot of our clients still have trusts in place.  I think the balancing thing is to decide whether you want simplification, which could include your large investment account having named beneficiaries.  If you have adult children that are all responsible and just as good at investing as you are, naming them as the named beneficiary, if you were to pass away is the simplest way to get assets to them.  They show the death certificate, it’s there.  You don’t go through probate.  Anything with a named beneficiary follows that contract arrangement and doesn’t even go under the will or through probate.  So, again simplification is one goal and some people have other goals that maybe make it not simple because they, again they have –

CHAMBERS:   Yeah.

CLARK:   -- a family situation that would not match up with that.

CHAMBERS:   Yeah.  They’re absolutely essential in certain circumstances but sometimes as life changes, to your point, you know, if your family is solid and you trust everybody, it may not be a necessary item, you know.  And meaning like, it’s just a stable situation.  And you know that your children are going to take care of the assets in a responsible manner, then it’s not necessarily a great place for a trust.  So, but I’m so glad you covered it because it’s really, really important.  And by the way, beneficiaries, guys.  Double – call your advisor or pull the forms out or whatever and double check your beneficiaries.

CLARK:   Exactly.  That’s –

CHAMBERS:   It’s – it’s a huge miss.  I mean, if your advisor isn’t doing it and double checking everyone.  Doing and audit on that, I mean, right?

CLARK:   If you haven’t checked in a while, that’s usually one of my first questions.

CHAMBERS:   I’d start.  Yeah.

CLARK:   They’re like I don’t know.  I was married to another person at that time.

CHAMBERS:   Yeah.

CLARK:   Or I think I named my mother because my kids were –

CHAMBERS:   Or my brother and I’m now married.

CLARK:   -- I didn’t have kids at the time.

CHAMBERS:   Yeah, I mean –

CLARK:   And sometimes that’s no worked out well –

CHAMBERS:   No.

CLARK:   -- for my clients. 

CHAMBERS:   No.

CLARK:   And they’re – they’re not living anymore to be fussed at but they’re –

CHAMBERS:   Yeah.

CLARK:   -- you know, you don’t look at those forms until you pass away.

CHAMBERS:   Yep.

CLARK:   The same thing, your old will, you don’t really look at it until you pass away and that is too late.

CHAMBERS:   What’s the trust tax rate?  What’s the deal with trusts and the tax rate?  Yeah, what’s that deal?

CLARK:   So, trusts, if you just have a revocable trust, it’s taxed and let’s say you put your investment account in Sandy’s revocable trust, that’s just taxed under my tax return.

CHAMBERS:   Okay.

CLARK:   Even though it’s titled in the name of my trust, it’s revokable.  It’s taxed as – as my trust.  If I set up a trust that’s irrevocable, I put – I’ve given up the – the rights to it and I’ve given it to my children, that trust pays tax as if it’s a separate entity, which it is.  So, if I have Hay Children’s trust that’s an irrevocable transfer to this trust, it – it files its own tax return.  They have the same highest tax bracket as individuals.  The problem is they’re compressed.  They’re tax brackets are compressed.  Currently anything, if you get up to like eighteen thousand, they’re going to be paying the highest tax rate.  So, you have trade off again.

CHAMBERS:   Right.

CLARK:   What’s your most important thing?  Is it taxes or is it, I want to make a permanent gift to my kids?

CHAMBERS:   Yeah.

CLARK:   Because I’m trying to avoid estate tax –

CHAMBERS:   Right.

CLARK:   -- so again you weigh those – those options but – but they do pay.  In theory they have the same tax – tax rates.  It’s just their brackets are very compressed and get to the highest rate pretty quick.

CHAMBERS:   That’s great stuff.  I just love talking to smart people, like you.

CLARK:   Yeah.

CHAMBERS:   I gotta (sic) be honest with you.  I love it.

CLARK:   Well –

CHAMBERS:   I’m not that smart.  And so, you come in --

CLARK:   You don’t want me on your trivia team.  I’ve been told.

CHAMBERS:   I don’t know about that.

CLARK:   But if you get outside of this area, I’m not too good.

CHAMBERS:   You know, you lawyers sometimes get a bad rap but I do like you guys.  I mean I really do because you guys, your knowledge base is so deep.  Especially since you’ve been doing it for so long –

CLARK:   Yeah, I’ve been doing it a long time.

CHAMBERS:   -- so it’s really just, you know, it’s ten thousand hours, Sandra.

CLARK:   Yeah.

CHAMBERS:   And I love talking to people with that masters of – you know, it’s master level.  Can we move to, slightly more, what do you call it, personal question?  Business practices.  I ask this question because, you know, you’re doing business here in Raleigh.  You do business with a lot of business people.  We’re all trying to get better.  Is there anything over your career that you feel you’ve honed that you may have identified at some point in your career as like this is an area I need to get better at.  And then – and then that same question say for Manning Fulton.  Then I’d like to lead into talk – Manning, Fulton, Skinner – I’d like to talk a little bit about the firm a little bit more and so anyway, I – that’s kind of what I wanted to ask you.  You know, like what are you better at today –

CLARK:   Yeah.  I think I’ve been –

CHAMBERS:   -- than you were ten years ago.

CLARK:   -- better at able to identify particularly on high wealth clients, strategies they might want to use for gifting or for transferring or restructuring because I have the tax background and the estate background.  And also, some corporate background.  Sometimes I can come up with plans like oh I didn’t know that.  Just – we mentioned the charitable giving that if they knew they had a large charitable gift they wanted to put in their will, we talk about maybe that should go in your IRA and be a beneficiary of your IRA.  No one pays income tax on that.  So, I think I’ve been able, with experience to identify situations that might help save families tax or, you know, be a simpler way.  We’ve got some complicated tax structures we can do with trusts and you know, transferring assets to Defective Grantor Trusts and charitable planning and charitable trusts.  And we use those some so I think I’ve been able to – that’s probably my biggest increase in business experience that now I’ve done things multiple times that I made the –

CHAMBERS:   It worked.

CLARK:   Yeah.

CHAMBERS:   Like this worked out perfect and we’re –

CLARK:   This worked out.

CHAMBERS:   -- going to do the same thing.

CLARK:   We saved a lot of money.

CHAMBERS:   Yeah.

CLARK:   Let’s – you’re a similar fact pattern.  Would this work for your family?

CHAMBERS:   It’s called adding value.  I know that sounds really corny but it’s – that’s where –

CLARK:   Yeah.

CHAMBERS:   -- you really add value.

CLARK:   Yeah, so I think – I think that and of course it’s ever changing because our tax laws are changing and some of the strategies change some. But I enjoy what I do and I think it’s just kinda (sic) refining your craft as you would say.

CHAMBERS:   Well, the other thing I’m – just sitting with you, you take a great deal of responsibility and proud of staying on top of what’s going on.  And staying contemporary to what is going on in Washington on estate level, whatever.  When it comes to tax policy.

CLARK:   Right.

CHAMBERS:   It’s huge.

CLARK:   Yeah.  I am in several groups that –

CHAMBERS:   Yeah.

CLARK:   -- we – we do meet and I follow listserv –

CHAMBERS:   Really?

CLARK:   -- again, I guess I’m a tax nerd.

CHAMBERS:   No.  I like it though. 

CLARK:   Maybe – maybe that’s true.

CHAMBERS:   No.  I mean, somebody has to be and you seem to be the first that --

CLARK:   Right.

CHAMBERS:   -- likes to do it.  So, I’m –

CLARK:   And I enjoy it, you know.

CHAMBERS:   Yeah.

CLARK:   Somebody said why do you work so hard?  Why do you work, you know, do what you do and I’m like, I kinda (sic) like it.

CHAMBERS:   Yeah.

CLARK:   You know?  It gives me pride and gives me purpose and I enjoy it.

CHAMBERS:   Well good.  I like that.  I like, okay, so that leads me perfectly, so Manning, Fulton, Skinner, where – like how are you guys better than you guys were ten years ago?  Where were you ten – I mean talk to me about that.

CLARK:   Yeah, so I’ve been here 22 years now.  I had to do the math a little bit.

CHAMBERS:   Nice.

CLARK:   We’ve been around 67ish years.

CHAMBERS:   A long time.  Yeah guys.

CLARK:   So, it’s been forever and Mr. Skinner was one of my mentors back when I first came –

CHAMBERS:   Oh, okay, cool.

CLARK:   -- and he, because he practiced in the practice of estate planning and trust and did everything with his pencil and green pad and taught me, you know, the details that you’d want to know to – to get into this area.  I think we’ve done a great job at serving our clients and adding value to them.  So, some firms are big and they throw multiple attorneys at you and maybe by the time you get your bill, you wonder if you’ve gotten value.  I don’t know that we do anything here that we don’t feel we’ve added value.  So, certainly we charge for what we do.  That’s how we make our living but at the same time, we try to do it in a manner that – that really adds value to your situation.  Whether it’s estate planning, cooperate merger, litigation, purchasing real estate, any of those items – we’re a full-service law firm with the exception we don’t do criminal work.  But I think we’re the best at everything we do.

CHAMBERS:   Yeah.

CLARK:   So, I’m a little bit – I’ve got some pride in it.

CHAMBERS:   Yeah.

CLARK:   I think we’re the best cooperate attorneys.  I think we’re the best estate planning. 

CHAMBERS:   Yeah.

CLARK:   I think our real estates the best.  Our litigation groups the best.  So, and I think it’s our culture here that we have a lot of hard-working people that are passionate at what they do.  Similar to what I am and they’re practice area is what they’ve strived to be.  We’re not so big that we have huge overhead.  And that we have international offices or even interstate offices that – that add a lot to what has to be invoiced. But we’re also not small enough that we don’t have people that specialize. So, if you came to me with a real estate question or you have a large venture capital matter, I don’t have the experience of that but I can get you the right person, so.

CHAMBERS:   Yeah.

CLARK:   I think that’s what Manning, Fulton’s done well and I think that’s what made us survive so long is that we’ve – we’ve got our niche, I call it the mid-market niche, that we –

CHAMBERS:   Yeah.

CLARK:   -- and a lot of our clients are your neighbors and the people down the road.

CHAMBERS:   Yep.

CLARK:   This area has been a great area for us to grow in and thrive in and we – we thrive as our clients thrive.

CHAMBERS:   Yeah, I just want to brag on you guys a little bit.  So, one of my jobs – my job, personally at Olde Raleigh Financial Group is to – I do business development and I go out and do strategic development and partner – you know, meeting people like you and other people in your firm and so what basically I do is, you know, I’m always looking for the best referral network tree.  It’s absolutely critical, right?  And, I’ve – we’ve sent people your way.  It’s been absolutely bang-up job.  You guys are not the most expensive.  You’re not the cheapest in town.  You’ve been around for a long time and here’s another thing about you guys.  You’re local.  You got an office here.  You got an office in Durham.

CLARK:   Right.

CHAMBERS:   A great office in Durham.  Not that this isn’t beautiful. This is a great office and I’ll tell you, one of the underrated things about the office here in Raleigh, especially is easy parking.

CLARK:   Easy parking.

CHAMBERS:   Very important. 

CLARK:   We thought about moving downtown –

CHAMBERS:   No.

CLARK:   -- at one point and –

CHAMBERS:   No.

CLARK:   -- that’s our clients want to be able to park.

CHAMBERS:   Right.

CLARK:   And walk right in.

CHAMBERS:   And you’re locally owned.

CLARK:   Yep.

CHAMBERS:   And you’re locally owned, right?

CLARK:   Right.  Oh yeah.

CHAMBERS:   Because a lot of firms with your capabilities are these huge –

CLARK:   Oh no, we’re –

CHAMBERS:   Yeah.

CLARK:   -- we all live right here in the triangle.

CHAMBERS:   And god love those guys.  You know what I mean?  And all those people.  I mean, that’s great but I – I what I like about you is you’re a local firm and no big vent – nobody’s come in and bought you from out of state, right?

CLARK:   Right.

CHAMBERS:   I like it.  It’s important.  Not that there’s anything wrong with that but I just – that’s what I think, so.  There was one other thing I was going to ask you about the firm but I – we’ll leave that to next time.  Okay, here we go.  What are you reading, streaming, listening to or podcasting?

CLARK:   You’ve already picked up – you’ve already picked up that I do read a lot of tax stuff.  So, when I’m not reading tax stuff –

CHAMBERS:   Yes.

CLARK:   -- and I do kind of enjoy it but –

CHAMBERS:   Yeah.

CLARK:   -- I do have other interests, so. 

CHAMBERS:   Wait, let me ask you this.  Do you like read books on like tax history?  Do you do that?

CLARK:   I used to do that a lot and read some constitutional stuff.

CHAMBERS:   Yeah.

CLARK:   I have not done that in the last little bit.

CHAMBERS:   All right.

CLARK:   I think when I had -- the kids were younger, I kinda (sic) quit doing that but pre-children –

CHAMBERS:   I see.  I got it.

CLARK:   -- I was really big into constitutionality and Supreme Court cases and even, you know, --

CHAMBERS:   Interesting.

CLARK:   -- how law was made.

CHAMBERS:   Oh yeah.

CLARK:   I was kind of into that.  Now, I think when the kids kinda (sic) came through, time became such a – I didn’t do a lot of leisure reading and it was –

CHAMBERS:   How many kids you got?

CLARK:   I’ve got two.

CHAMBERS:   Okay.

CLARK:   So, now they’re in their twenties, so –

CHAMBERS:   Oh, okay, yeah.

CLARK:   I’m coasting right now.

CHAMBERS:   Nice.

CLARK:   But, back in the day, it was –

CHAMBERS:   Oh, I know.  Yeah, believe me.

CLARK:   -- you know, keep your head above water.

CHAMBERS:   I get it.  Yeah.

CLARK:   So, but I do have some interests.  One of my big interests is, I’m kind of an NC State fanatic --

CHAMBERS:   Oh, okay.  Cool.

CLARK:   -- all sports –

CHAMBERS:   Nice.

CLARK:   -- so I mean, or like Olympics too, like –

CHAMBERS:   Oh.  Okay.  Yeah. Cool.

CLARK:   -- if it’s badminton, I am –

CHAMBERS:   Yeah, you’re in.

CLARK:   -- USA, USA cheering.

CHAMBERS:   Oh, yeah, yeah.  I got it.

CLARK:   State, which you know we had the big win over Carolina last weekend.

CHAMBERS:   Yes, you guys did.

CLARK:   And four-time overtime.  Basketball win last night, so we go to a lot of NC State events.

CHAMBERS:   Good.

CLARK:   And –

CHAMBERS:   That’s awesome.

CLARK:   -- my son wrestled at State and so we follow the, you know, --

CHAMBERS:   Yes.

CLARK:   -- the nonrevenue sports like wrestling.  I love watching swimming.  You know, the events of swimming.  So, I’m – I’m all sports –

CHAMBERS:   Good.

CLARK:   -- kind of person.

CHAMBERS:   Did you go to wresting over in – at Reynolds?  Is that where you guys –

CLARK:   Yeah.  Reynolds.

CHAMBERS:   Okay.  I’ve heard – somebody – I was talking with somebody last night that’s the wrestling is awesome.

CLARK:   Okay, here’s my plug for NC State wrestling –

CHAMBERS:   Go.

CLARK:   -- and really all wrestling, but –

CHAMBERS:   Right.

CLARK:   -- because I am – I was a wrestling mom.  My son wrestled all through, you know, school.  But you want to have some fun?  Go to an ACC wrestling match and they’re at Reynolds.  It’s like four bucks to get in.

CHAMBERS:   Yeah.

CLARK:   It’s nothing to get in and the crowds all in there, particularly the NC State, Carolina or NC State, Virginia Tech, which those are the big rivalries.  That crowd is going to be fanatic.

CHAMBERS:   Whooped up.

CLARK:   And they got the band there.  They got some cheerleaders there.  It’s kind of a –

CHAMBERS:   Yeah.

CLARK:   -- and it’s all -- Reynolds packs them in so closely.

CHAMBERS:   Yeah.

CLARK:   It’s a great environment.

CHAMBERS:   Yeah.  Everybody sweating on everybody, yeah.

CLARK:   Yeah.

CHAMBERS:   That’s the way it should be, but you know.

CLARK:   And you may not know all the rules but you’ll be –

CHAMBERS:   Yeah.

CLARK:   -- cheering and yelling.

CHAMBERS:   Well, that’s a – what a great like – what a cheap date?

CLARK:   Yeah.

CHAMBERS:   What a cheap date, you know what I mean?

CLARK:   Exactly.

CHAMBERS:   Yeah.  That’s great.  Okay, cool.  That – I love that stuff.

CLARK:   But I do read – I read some other stuff, you know, so I’m usually into the feel-good podcasts.  The Oprah or Brene Brown or –

CHAMBERS:   Right.

CLARK:   My daughter has me on some of these murder mysteries, really not the mystery cases.

CHAMBERS:   Got it.

CLARK:   So, if we go on a long drive, she’ll pop in something on her phone about a –

CHAMBERS:   Yeah.  A story – yeah.

CLARK:   -- solving the mystery.  But those are probably – I usually do some feel good.

CHAMBERS:   Yeah.

CLARK:   On a podcast if I’m working out or doing something around the house, I’ll try to do something –

CHAMBERS:   Cool.

CLARK:   -- a little bit lighter than heavy tax law.

CHAMBERS:   Yeah, I get it.  Yeah.  Yeah.  I wonder if there is like a podcast out there on like tax law and everything that has to do.  There’s gotta (sic) be.

CLARK:   Oh, yeah. 

CHAMBERS:   There’s gotta (sic) be, right?  I mean, all right.  I want one.  You gotta (sic) send me one –

CLARK:   Absolutely.

CHAMBERS:   -- and we’ll link it in, all right?  I mean we’ll link it in.  Hey, okay, where’s your – do you have a favorite place locally here to take people for business lunches?  Or dinners?  Or whatever?

CLARK:   So, if I have a business lunch, we are – while we have great parking, we do not have a walkable place to go eat.

CHAMBERS:   Give us your location.  Where’s your location?

CLARK:   So, we’re on Glenwood Avenue.  3605 Glenwood Avenue.

CHAMBERS:   Right, just inside the beltline.

CLARK:   Just inside the beltline.  Easy to get to, easy to get off and on the beltline.  But we drive to –

CHAMBERS:   Sure.

CLARK:   -- you know, Crabtree or to North Hills is real popular, now.  Probably if you said, hey let’s go grab a bite to eat, Glenwood Grill is kind of where I go to.

CHAMBERS:   Yeah.  Oh yeah.  I was going to say, that’s a go to.

CLARK:   Because you can get in there and out of there –

CHAMBERS:   Right.

CLARK:   -- quick.  And of course, the food is great.

CHAMBERS:   Yeah.

CLARK:   So that’s mine and the easiest.

CHAMBERS:   Good.  What about around the house?  Like where’s your – where’s your – like where’s your pizza joint?  Or where’s your like, you know what I mean?

CLARK:   I’m in Cary, so Waverly’s got some great places.

CHAMBERS:   Oh, yeah, yeah, yeah.  There’s a little Italian joint in that place too.  Or I think there was, at least.

CLARK:   But now, if you haven’t – this is my other plug, if you haven’t been to downtown Cary lately –

CHAMBERS:   Yeah, my wife works down there.  It’s awesome.

CLARK:   Yeah.  They are really thriving –

CHAMBERS:   Yeah.

CLARK:   -- and some restaurants and stuff.

CHAMBERS:   Yeah.

CLARK:   They’ve got the – I just ate at the hotel, is it Midland?

CHAMBERS:   Yeah, yeah.  Was it good?

CLARK:  That’s not the name.  It was very good.  Very good.

CHAMBERS:   Oh good.  It’s really cute down there, isn’t it?  Especially at Christmas.

CLARK:   They’ve got two new restaurants downtown Cary that I want to go to.  There’s a pizza place and then there’s an Italian place.

CHAMBERS:   Yes.

CLARK:   Yeah.

CHAMBERS:   I have – so my wife is a children’s – she runs the children’s library – the children’s department at the new downtown Cary library, which is beautiful.

CLARK:   That’s awesome.  Yeah, very cool.

CHAMBERS:   Isn’t that beautiful?

CLARK:   Yes.

CHAMBERS:   Yeah, so that’s – she – shout to Ms. Chambers.

CLARK:   Yeah, if you’ve ever been to a library.  It’s like, you know, you expect to go into a dungeon kind of place with old books.

CHAMBERS:   No, not playing around guys.

CLARK:   This place is great.

CHAMBERS:   This is like – like exposed beam stuff and like lots of glass and then they’re building a park out and then all those condos.  It’s insane.

CLARK:   And they’ll have it decorated for Christmas so again, you’re plug, walk around downtown Cary, you’ll have a great time.

CHAMBERS:   It’s really, really, really cool.  So, if you haven’t been to downtown Cary, it’s great.

CLARK:   Yeah, so that’s – that’s probably my – my local –

CHAMBERS:   Good.

CLARK:   -- at home.  As I try to eat somewhere really cool.

CHAMBERS:   Nice.  Hey, I gotta (sic) go back to – well, thanks for that but I gotta (sic) – I’m going to give you and everybody else a suggestion, a listening suggestion.  A book, Ron Chernow, Titan.  It’s about, okay, I was going back to that because you’re, you know, you guys do a lot of corporate law and – and you talk about John D Rockefeller, born about 35 miles actually from my hometown of Richard, New York.  He – absolutely fascinating, fascinating character.  So, this book Titan, I would highly suggest it.  But this guy drove so much law because he -- I mean, you know, they broke up the trust and all of the lawyering that he did – that he didn’t do, that his lawyers did around his business.  I can only imagine still reverberates, I mean, he – guys he was like one of the first like international conglomerates.  I mean, these guys were huge footprint on this.

CLARK:   That stuff does fascinate me and –

CHAMBERS:   On our world.

CLARK:   Yeah.

CHAMBERS:   Huge imprint.

CLARK:   And I love reading kind of the rich and famous case law, like Prince.  You know, he didn’t have a will.  What is the world is up with that?  Or you can read about Michael Jacksons been in this long-term trust and estate tax case –

CHAMBERS:   That’s kind of cool.

CLARK:   -- and the big thing of question is the value of Michael Jacksons image at the time he died.  Because, you know, at the time he died he was not sought after.  He was considered doing funny business at his –

CHAMBERS:   Oh yeah.

CLARK:   -- what do you call his Ranch.  You know, he wasn’t –

CHAMBERS:   No.

CLARK:   You weren’t wearing Michael Jackson t-shirts.

CHAMBERS:   The PR wasn’t great.

CLARK:   Then he passes away and it’s, you know nonstop Michael Jackson music.

CHAMBERS:   Of course.

CLARK:   Tributes and everything else.  So, the questions was what’s the value of his life as an image which skyrocketed after he passed.

CHAMBERS:   Right.

CLARK:   So, of course the court case hinged on the value at death which was a lot lower value.  But like I read, so when you say do I read history, I do read some history about court cases, so.

CHAMBERS:   Yeah.  Well, now you know we’re going to have hologram – we have holograms and so like all these people that died, there’s a whole like estate planning thing around that now, you know what I mean.  Just the likenesses and images to your point.  Yeah, that’s crazy.  But, all right well –

CLARK:   That fascinates a tax nerd like me.  Maybe – maybe not anyone else, but, for me.

CHAMBERS:   Yes, and on that note, on Michael Jackson and John D Rockefeller and Prince and also Aretha, I think.  Here thing was a mess too, I think.

CLARK:   Yes.

CHAMBERS:   Which is so sad.

CLARK:   Yeah, you would think people that had access to money and to attorneys –

CHAMBERS:   Yeah.

CLARK:   -- you know, what, Prince probably had to talk to his attorney once a week, you know.  Right?

CHAMBERS:   Well, you know, but these people like Prince and obviously Aretha, these artists, these guys, they’re not like – I don’t know if you guys know this but Prince was not from this planet.

CLARK:   Yeah.

CHAMBERS:   You know what I mean?  I mean, you know, like I think in ’07 he did the Superbowl halftime show and if you want any evidence that, that guy was from, some other planet, just watch that halftime show.

CLARK:   Yeah.

CHAMBERS:   Because it was just like he was conjuring, I mean every possible thing that you could, you know, it’s a great – actually google it.  It’s a great story, anyway, but.  Anyway, but, Sandra – is it Sandy or Sandra?  What would you –

CLARK:   So, my dad called me Sandra.  Some people call me Sandra.  I usually introduce myself as Sandy.

CHAMBERS:   Sandy, okay.  I’m going to go with Sandy, although –

CLARK:   But if I’m writing my name I put Sandra, so you call me –

CHAMBERS:   Well, I was looking up your profile and it was Sandra, so –

CLARK:   Yes.

CHAMBERS:   -- that’s the professional but as a – you and I are friends now, so it’s Sandy.

CLARK:   Yes.

CHAMBERS:   Okay, good.  Well, Sandra Clark, I want to thank you for allowing me to come to Manning, Fulton and I cannot forget Mr. Skinner, of course, here in Raleigh, North Carolina.  Also, offices in Durham.  Go check it out.  They’re right in the baseball – you look out on the baseball field.

CLARK:   Yeah.

CHAMBERS:   Yeah.

CLARK:   The Durham office overlooks the baseball field. 

CHAMBERS:   Yeah.

CLARK:   I’m a little jealous.  Now they can eat wherever they want.

CHAMBERS:   Yeah, they’ve got some food over there.

CLARK:   Yeah.  They’re walking distance.

CHAMBERS:   And M Sushi and M Kokko, Dashi, a Raman place, I mean I could go on and on and on.

CLARK:   Yeah.

CHAMBERS:   But I really want to thank – I actually would love to do this again with you. 

CLARK:   Okay.

CHAMBERS:   And especially because next year as we get in I –

CLARK:   Let’s follow up.  There’s –

CHAMBERS:   Yeah.

CLARK:   -- going to be some changes –

CHAMBERS:   Yeah.  So, let’s do it.  And its’ good information and people need it and again I want to thank you and I want to thank you for allowing me to come in.  I’m really surprised you guys let me in here, to be honest with you.

CLARK:   We will.

CHAMBERS:   Thanks for the free coffee and water.  I mean I may be charged on the way out; I don’t know.  But, anyway.

CLARK:   Yeah.  I appreciate it.  This was fun, Trevor.

CHAMBERS:   Yeah, thank you and have a great holiday season.

CLARK:   Okay, you too.

CHAMBERS:   All right.  Thank you.

CLARK:   Thank you.

CHAMBERS:   Appreciate it. Bye.

(INTERVIEW CONCLUDED.)

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”  

Sandra Clark

Sandra Clark has practiced law since 1994 and is a partner with Manning, Fulton & Skinner P.A. in Raleigh, North Carolina.  Sandy has a diversified tax practice advising clients on a wide range of business, estate and gift tax planning matters, family trust planning and works on the settlement of large and complex estates.  Representing individuals, businesses, and charitable organizations, she helps clients plan for the orderly and tax-saving transfer of wealth, keeping current on the constantly changing federal and state tax laws.  Sandy represents numerous privately-held corporations and partnerships.  She has extensive experience in corporate and business transactional matters and routinely provides counsel regarding business plans, mergers and acquisitions, reorganizations, tax accounting issues, and a broad range of tax planning strategies

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A Member of Advisory Services Network and should not be construed as a recommendation or investment advice. Nasdaq Dorsey Wright is an independent company, unaffiliated with Olde Raleigh Financial Group, A Member of Advisory Services Network. There is no form of legal partnership, agency affiliation, or similar relationship between Advisory Services Network, LLC and Nasdaq Dorsey Wright, nor is such a relationship created or implied by the information herein. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  Investing involves risk including the loss of principal. All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC.

Asset Allocation Roundup with Andy Hyer of NASDAQ Dorsey Wright for December 2021

CHAMBERS:   Hey everybody.  This is Trevor Chambers, from Olde Raleigh Financial Group.  Once again, I am happy to have my friend, Andy Hyer, from NASDAQ/Dorsey Wright.  He’s a guy who looks at the markets through a momentum, more technical look.  And we love Dorsey Wright and we follow their – their research.  Andy, how are you doing today?  Is it sunny in Pasadena, brother?

HYER:   You know, it has been so cold.

CHAMBERS:   Really?

HYER:   We’ve been down – we actually dipped below 40, which is pretty cold for Southern California.  So, it’s feeling like Christmas out here.

CHAMBERS:   Okay, well, there you go.  It is in fact Christmas; you know what I mean?  So that’s what happened there.  But, --

HYER:   It’s great to be with you again.

CHAMBERS:   Good.  I’m so happy.  So, this is the Soundtrack to a Financial Advisors Life.  We call it the Soundtrack and it’s a podcast we put out here at Olde Raleigh, in sunny old Raleigh.  And I asked – I’ve been -- this is the second time we’ve done this.  So, thank you for doing this.  And it’s a little bit of a series.  I’m really excited about it.  But basic gurus kinda (sic) like doing a round up through more of like an allocation lens, if you will of the market. And we’re bringing in one of the best guys out there, especially to look at the market from a technical point of view with Andy.  And, basically, right, Andy, we’re just going to kinda (sic) look at every month or so, maybe twice a month but at least once a month, we’re going to look at the markets and we’re going – we’re just kind of going to see what it looks like through your eyes.  And this is research that we use to make some decisions about your investments.  And so, I – we just thought we’d kinda (sic) share some perspective, so.  So, Andy, you have control of this zoom call, okay.  You control the thing. So, sir, is there some things that you would like to show us and if you would, please start with the – before you show – as you show it, could you just give us a brief sort of overview of what people are looking at?

HYER:   Sure.  I’m happy to do it, so.

CHAMBERS:   Thank you.

HYER:   I will start with – with DALI.  It stands for dynamic asset level investing. 

The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value. Past performance is no guarantee of future returns. Potential for profits is accompanied by possibility of loss.

This is our main asset allocation tool at Dorsey Wright.  What this is and what you’re looking at is a ranking. So, we take six different asset classes; US stocks, commodities, international stocks, fixed income, cash and currencies.  And we rank them top to bottom.  So, we can see at any one point or currently, you know, where – where’s the strength, where’s the weakness?  And if you look at, you know, number one, domestic equities, that’s been number one for most of the last decade.  And that’s true today.  They’re strong.  They’re stronger than the other asset classes and so that continues to be the case and, you know, what is this momentum ranking all about?  It’s really about measuring the performance of these different asset classes over an intermediate time frame.  So, think of approximately the last six to twelve months, how these different asset classes had performed.  And this is just telling you where the strength is, where the weakness is.  You know, something that has changed a bit over the years, you know, there have been times over the last decade where commodities were near the bottom.  So, they’ve moved up certainly and I think that speaks to, you know, some of the inflation that is – that is dominating the headlines and it’s certainly been, you know, the topic of conversation but US equities have just been a power house.  They continue to be very, very strong.  There’s been a ton of rotation underneath the hood, so, you know, different sectors have changed leadership.  Different style boxes have changed leadership.  But US equities have continued to be good and I think that’s a great thing for investors.

CHAMBERS:   Well, we touched on this pregame but what’s the – do you have any macro comment on why the US/domestic equities are in the lead?

HYER:   Yeah, so, you know, one thing about this is, you know, it’s a purely technical reason.  So, it doesn’t answer the questions of why.  Why is it –

CHAMBERS:   Yeah.

HYER:   -- this – why is it that US stocks are stronger than international stocks?  You know, we can certainly guess at that.  You know, and there’s –

CHAMBERS:   Right.

HYER:   -- a million different opinions.  There have been some massive problems in some – some different parts of, you know, China in particular, that has certainly hurt international stocks as an asset class.  But I think for all the problems and we tend to see all the problems, is the problems that dominate the headlines.  But, for all the problems that there’s so many great things about the US.  And there’s so many great things about what companies are doing here and the, you know, the profits are strong.  And you know, people can criticize the fed and they do. But they – they stepped in, in a major way and they’ve taken action that has certainly buoyed the US equity markets.  What does that say about the future?  What does that – it doesn’t guarantee anything.  It does not guarantee that, you know, any of this.  But our view is that by simply measuring what is happening in the market, we can – we can make decisions about portfolios and asset allocations that are going to be intelligent.  You know, or that are going to be informed decisions about where we want to be overweight and where we want to be underweight.

CHAMBERS:   Yeah, so that’s, you know, so guys this is what’s interesting about this is that, you know, we – we run – our equity portfolios that we run here, you know, we – we do two kinds of styles. One is a more fundamentally researched, you know, portfolios combined with the research that we get out of you guys, which is more momentum based.  And that’s how we do this.  And you know this.  You and I have talked about this. But guys, it’s a really different way to look at how to structure your portfolios.  What Andy’s talking about is just much more – just people buying more of something versus something else.  And right now, people feel the market, Mrs. Market, I like to call her Mrs. Market, right, feels that domestic equities should be in first place because that’s what most people are buying.  And so, it’s a – it’s – just that’s all this is.  That’s all really at the end of the day, right?  That’s kind of all what this is and what this is telling us.  And so, this is where the confidence is in this order.  So, this is a great chart and we’ll look at this every – interestingly enough, talk about the bottom of that.  So, you got cash.  And then currencies.  You got fixed income could be a little bit problem moving forward with rising interest rates. 

HYER:   Yeah and, you know, I think it – what this ranking does not say is it does not say you should not own anything at the bottom.

CHAMBERS:   Right.

HYER:   You know, that – that – that’s not what we’re saying.

CHAMBERS:   Yeah.

HYER:   But, it – but it’s suggesting maybe some tilts that you make in your asset allocation to take advantage of those asset classes that are in secular bull markets versus those that are in secular bear markets. 

CHAMBERS:   Right.

HYER:   And, you know, this also is just a looking at really passive, from a passive approach. For example, someone might look at fixed income and say, okay from a broad asset class perspective, fixed income is not ranked. But if what if you have more of an active strategy.  Can you do better than a passive?  Yes.  Could you do worse?  Yes, you could as well.  So, but – but this is simply meant to be a starting point for the conversation.  It’s simply meant to be a way to – to cut through all the noise.  You know, if you listen to CNBC all day long, and look I’m not saying that there’s not great people –

CHAMBERS:   Yeah.

HYER:   -- that go on CNBC.

CHAMBERS:   Yeah.

HYER:   And I’m not saying that there’s great – not great information.  There can be great.  But if you listen to CNBC 24/7 for a week, you’re going to be so confused about what’s actually going on.

CHAMBERS:   Yeah.

HYER:   Because everyone’s got different opinions and, you know, where we really focus is what’s actually happening in the market?  Not what we think should happen, not what we think might happen.  You know, it’s what is actually happening in the market. And it’s crazy how often what is actually happening in the market is different than, you know, maybe what your favorite pundit is saying, so.

CHAMBERS:   Yeah.  We have to keep in mind – it’s funny you’re bringing this up because we talk about this all the time. The influence of the media on people. And we have – you gotta (sic) understand people that CNBC, they sell ads. 

HYER:   That’s right.

CHAMBERS:   That – that’s what they do. They sell ads.  Everything else is secondary to that and if you think otherwise, so.  This is more just like an adult looking at the situation is what I like to think, you know.  So, anyway.  Andy, other nifty charts that you would like to show us?

HYER:   Yeah.  Let’s go through some other things.

CHAMBERS:   Okay, cool.

HYER:   So, something else that we might take a look at, and this is visually and it’s going to be a little bit hard to see it on this, but visually, this is something that I like to look at and this is simply the sector – we refer to it as the sector bell curve.  And what we are looking at is on a bell curve, we’re taking 40 different sectors.  So, we’re basically saying we’re going to categorize all US stocks into 40 different sectors.  Leisure, machinery and tools, media, oil, oil services and so on.  We’re going to categorize all US stocks into these 40 different sectors and then this looks at the bullish percent chart of each of those sectors. What is bullish percent? It’s a short-term measure of trend. So, if for example, the bullish percent for the oil sector was 100 percent, that would mean that 100 percent of oil stocks are trending positively in the short run. 

The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value. Past performance is no guarantee of future returns. Potential for profits is accompanied by possibility of loss.

CHAMBERS:   Right.

HYER:  If the measure was zero it would mean that none of them are – they’re all in a negative trend – a short-term negative trend.  And what this does is looks at the percentage of stocks in a positive trend, or a short-term bullish configuration in each of these sectors. And so, and then it puts all these 40 on a bell curve.  What are you looking at?  So, on the right-hand side of the bell curve, you see like banking, savings and loan.  The majority, you know, between 68 and 72 percent of stocks in those sectors are on a point and figure buy signal, just meaning they’re short-term trend is positive.  But what I think is interesting, if you look up here, the BP average, 38 percent.  This is to me just a gauge of okay how overbought or how oversold is the market?  Sometimes you’ll get this – you’ll get this thing up to like 70 percent and you’ll see these sectors really skewed to the far right inside of the bell curve.  And that’s an environment where, you know, everything is going up.  All boats are rising. Everything is doing great.  You might ask yourself and say, you know, the S&P’s up, you know, over 20 percent, year to date.  Why is it that the average bullish percent for the sectors only 38 percent?  And to me, that’s just a reflection of the fact that the mega caps, Apple, Microsoft, you know, Facebook, you know, you name it, the big mega cap names are – are generally and have generally been doing really, really well.  But a lot of the smaller cap names, mid cap names have not been doing as well.  The bullish percent of a lot of these sectors is – is pretty – pretty washed out.  To me, I like looking at this visual.  It gives me a sense again how overbought or how oversold the market is.  How would you use this?  You know, I don’t know that I would use this as a market timing indicator or anything like that. But what I do think is, you know, the – when the market gets overbought it can stay that way for longer periods of time.  It’s not a, you know, if it gets over – if this thing gets 60/70 percent, to me that’s not an indication, okay, I need to get bearish.  However, when this thing gets washed out, when you get this below 40 percent, if it gets below 30 percent, to me, that’s usually when sentiment in the market tends to be pretty negative.  There’s a lot of talk about hey, there’s a lot of stocks that are not doing well.  You know, you tend to get a lot of bearish sentiment.  That also can be a great entry point for new money.  So, to me that is how I use this. I don’t – this is not a short-term timing indicator. This is not – this is not a market timing indicator at all.  But it does – when this gets washed out and it does every couple years, it gets washed out.  When it gets washed out, it gets skewed to the left-hand side, to me, that’s – it’s just an indication that hey, you might – if you got some cash on the sidelines, putting some into the market right now, might not be such a bad idea. 

The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value. Past performance is no guarantee of future returns. Potential for profits is accompanied by possibility of loss.

CHAMBERS:   Yeah.  Macy’s – I don’t know if you heard, Macy’s just picking that out, you know, but like Amazon, it doesn’t matter, they sometimes put on sales, right?  And people just run over there and they say, hey I’ll take the sheets.  I’ll take the sheets, 25 percent off all day long.  It’s funny, people – they look at the market and they see – and they run in the other direction.

HYER:   Yep.

CHAMBERS:   So, they’re like oh my god, the sky is falling.  But, --

HYER:   Yeah.  No, this, you know, the market, it really does and we’re all wired essentially the same way.  We all get more bullish when things get stronger in the markets.  We all feel more confident about putting money to work.  When things are selling off, we project that in the future.  We’re like, oh the markets down over ten percent over the last two months.  I think it’s going to be down ten percent, you know, every month from here forward.

CHAMBERS:   Yeah.

HYER:   And it’s, you know, intuitively that’s just how we feel. That’s how we’re wired, you know. 

CHAMBERS:   Yeah.

HYER:   And that’s part of the reason that I think having these objective technical tools can be pretty good and, you know, having – and one thing just to, you know, one thing about our analysts here at Dorsey Wright, that I think is fantastic. We got some people on our team that do just some incredible research and they will look at these indicators backwards, forwards, they will do just some amazing research on, okay, what happens when these indicators do X, Y, or Z?  What’s – what are the forward returns look like or what did they look like historically.  And so, you know, through that research, you end up getting a pretty good feel for, okay, these tools – here’s how I can use them and here’s how I can use them to counteract maybe our own worst instincts.  You’re wired a certain way; I’m wired a certain way.  Left unchecked, I would – I would do things that are really foolish for my personal portfolio, you know.  So, it’s –

CHAMBERS:   Yeah.

HYER:   -- you know, you have to have that.

CHAMBERS:   Yeah, and especially today in this hyper financialized world. I had someone tell me and a very nice person but just, this is just an – this is what’s going on out there.  This person said, I have X number of a lot of money for this person, a lot of money.  But a lot of money by any standards, okay. Say I have this money saved up for college. The kids are nine and twelve.  I’m thinking about putting it in bitcoin or something – or – this is the world we’re in right now, right?  And it’s scary.  And I said, I’m not going to say what I said, but it wasn’t like yes, I think you should do that.  Let’s put it that way.  Okay. But it was more like something else.  So, anyway, yes this is to your point, this is a really great kinda (sic) clean cut way to look at things.  A cleaner cut way, I should say of looking at things. That’s for sure.

HYER:   Yeah, you know, it’s – you were talking before about some fundamental sources that you go to for –

CHAMBERS:   Yep.

HYER:   -- research and I think that’s great. I mean, they’re various fundamental sources that I read and I do it because I’m interested in the markets.  I do it because I want to – I genuinely want to understand things.  I try to understand – gain a better understanding of the financial markets overtime.  I generally am interested in the reasons why.  But, you know, the – the technical side of it, you know, what it is and it’s – it’s just important to react to what the markets actually doing.  I mean there’s so many things – I’m going to jump, you know, I’m going to jump – I almost want to jump the gun to – I know one of the questions you were going to ask is what’s –

CHAMBERS:   Yeah, man.  Hey, Andy this is your show too brother.  You do whatever you want.  I don’t care.  I mean, guys, he’s in charge.  I’m honestly, I don’t know what I’m talking about so, go ahead.

HYER:   No – so I’m going to jump – I’m going to jump to a couple things that, you know, you were asking what is it that surprises me?

CHAMBERS:   Yes.  No, no hold on.  Before we get into this, I just, this is a new section that we’re doing, Andy. This is called – and I – I’m going to – what’s surprising Andy Hyer now?  Now, what I want you to know is that hopefully when this gets edited there’s going to be some lovely your own theme music rolling right now, okay.  I just want you to know that’s going to happen and so, anyway.  For the first time ever, I’d like to introduce What’s Surprising Andy Hyer?

HYER:   Yeah, no this is great.  It’s like when I roll into the office every day, what do I see in the market when I’m like, I did not expect that.  There are – there are a couple things that I think are just interesting.  One, you know, the last couple CPI numbers have been, you know, what over five percent.  I think the last one was over six percent.  Inflation is here.  We’ve got some serious inflation going on.  And – and yet gold is doing very poorly.  And so –

CHAMBERS:   Yeah.

HYER:   -- that is one thing that surprises me.  Does that mean gold can’t do well over the next – maybe it will over the next – I’m just saying, we’ve had some pretty serious inflation building.  Gold is not doing well. And in theory, you know, in theory gold should be somewhat of an inflation hedge but it’s not doing so well lately.  What are your thoughts on that?

CHAMBERS:   Well, can I just – and I could be way off base on this because a lot of people are noticing this. Because I listen to, don’t know about you, but I listen to a ton of podcasts over the weekend on this stuff and I sometimes listen to the same one a couple of times but anyway, I’m just a nut about this stuff but is some of the money that would normally go in gold, going into digital assets?

HYER:   Could very well be the case.  Yep, that’s a good point. That could very well be a case – the case. And you know, to be fair, I don’t have the date in front of me to look and say every time inflation has been raging in the past hundred years, what did gold do?  So, maybe this is not anomalous but –

CHAMBERS:   Right.

HYER:   -- it’s just interesting to me that, you know, that’s not doing as well.  The other thing that, you know, another thing that surprises me is again, this is back to the inflation thing.  You know, inflation is here.  It’s higher than it’s been in the last forty years and the ten-year treasury yield index, this morning was 1.42 percent. So –

CHAMBERS:   Yeah.

HYER:   -- inflation, you know, we’re coming up on approximately forty-year highs and yet, interest rates, you know, the ten-year treasury yield index, not at forty-year highs and so what does that mean?  Well, you know, to me, I just take it as, look the markets going to do what it’s going to do.  You better follow this stuff from a technical perspective and react to what’s actually happening in the market as opposed to say oh, we got high inflation, therefore interest rates are going to go through the roof.  They may or they may not.  But they’re not right now.  And then, you know, the last thing I was going to mention is, you know, something that, you know, is just the strength of large cap growth, it’s been strong for years.  It continues to be strong.  You know, small caps have underperformed large caps in four of the last five years.  If you look at like the five-year annualized return between large cap and small cap, there’s about a five percent gap and that is a – that’s a very large gap and, you know, historically very wide gap.  Which just tells you large caps have been doing incredibly well, so why does that surprise me?  I don’t know that that one – it – it’s just interesting to me.  It – to me suggests be ready for potential reversion to the mean.  You know, what – what happens if some of the smaller cap names, you know, come roaring back.  So those are – those are three things, Trevor, that surprise me.  So, I thought I’d throw those out.

CHAMBERS:   Yeah, the small cap thing is a theme that I’ve heard now twice in the past week from smarty pants people like you.  So, I – I’m just putting it out there.  I don’t know.  But, yes.  That right there, Andy, we just concluded our first formal, What’s Surprising Andy Hyer, okay.  I mean, I don’t know what we’re going to call it.  That’s what I call it.  You want to come up with something else, that’s what I’m going to call it, right.  That’s my – that’s as hot as it gets.

HYER:   I think it’s – I think it’s – this will be fun.  You know, the – why do people that work in the financial markets, why are we – why do we gravitate – why – you know, there are a million reasons.  But at the end of the day, like one of the reasons for me, financial markets are interesting.  You know.

CHAMBERS:   Yeah.

HYER:   They are just interesting and there’s, you know, everything factors into the financial markets.  Everything impacts the financial markets.  And there’s lots of things that are just surprising.  I mean, you will hear, you have to be very careful about being too dogmatic in this industry because you know, you come up with a set of – the market behaves these twenty ways and this is like written in stone and this is how it’s always going to be.  Maybe not, you know.  And the markets are pretty good at humiliating people who are extremely dogmatic in how they think.  And, you know, the way that we approach things, the way that we look at the markets is, you know, yes, I have my views on what the markets going to do.  Yes, I have my views on all kinds of things.  But I better invest based on what’s actually happening. 

CHAMBERS:   Yeah.  Well said, brother.  And, the other thing is, something bad is going to happen.  To run through, I mean do you think – do you think that the people that are running the companies that are in, for example, the S&P 500.  Do you think -- they plan for good days but where they really make their money when they plan for bad days which they know are going to come. Fill in the blank.  I don’t know what’s going to happen.  But surely something will happen.

HYER:   Right.

CHAMBERS:   And, what happens is markets often times over, right?  Just like they go bananas.  Great time to buy, if you can.  So, back to your point about cash, let me just go back to one thing and then I’ll let you go.  The bullish percent, can you go back to that chart?  When – yeah, so here’s the bullish percent guys.  So, when the bullish percent – you used the word washed out when you were looking at the – so would you look at this bullish percent, that’s washed out. Is there risk?  Is there more risk actually in the market at this point or less risk?

HYER:   So, let me explain what this is first.

CHAMBERS:   Yeah, please.  Thank you.

HYER:   And then I’ll answer. So, this chart, what you’re looking at, it’s the percentage of stocks that trade on the NYSE that are – that are on a point and figure buy signal.  What is a point and figure buy signal?  It’s a short-term measure of trend. So, right now, this is saying, you know, about 48 percent of stocks are on a short term buy signal. So, about half are, half aren’t.  So, right now, this is not extremely – this particular chart is, you know, and particular indicators is not washed out. But what it is, you know, it’s right kind of in the middle of the field –

CHAMBERS:   Of the field.  It’s kind of in the middle of the field.

HYER:   Yeah.  If you go back to like March 2020. So, this is right when COVID was breaking loose in the world.  We got down to six percent, meaning only six percent of stocks that traded on the NYSE are in a short-term positive trend.  Meaning, you know, 94 percent are not.  They’re in a negative –

CHAMBERS:   Right.

HYER:   -- short term negative trend. If you think about what the market did following this period of time, it did extremely well.  I – I would – I would suggest that this indicator also is not something that anyone should use as a market timing indicator.

CHAMBERS:   Of course not, you know.

HYER:   The way that I look at this is when this gets oversold, you know, below, down in this range.  Thirty, you know, below thirty percent, it suggests to me, based on the data that I’ve looked at, you probably should start thinking about being bullish.  You know, you feel terrible – you feel terrible down here. This is where, you know, you’re wondering if – if the virus is going to just destroy the economy forever.  You know, I mean this – and we’re not there right now. 

CHAMBERS:   Yeah.

HYER:   But it is – and again someone might ask, well don’t you just have a bullish bias.  Like why – why not get bearish when it’s up here, you know?  Up in the 80’s.  And again, the reason to not get bearish up there is the market – this is a much better oversold indicator than it is an overbought indicator.  The market can get overbought and stay that way for an extended period of time.  So, if you get up here and get bearish or get bearish when this gets up above 70 percent, you might miss out on a three-year run, you know.

CHAMBERS:   Right.

HYER:   And so, that’s just something to be aware of.  If it gets washed out, these tend to be shorter, sharper reversals and again, the way I consider this is, you know, there’s no way to mitigate, to lose all – I mean that’s – you hope to build a good asset allocation that you can live with.  You’ve got some conservative things.  You’ve got bonds.  You’ve got cash.  You’ve got stocks.  You know, you try to build an allocation that people can live with.  But, when that gets oversold and gets really washed out, to me the – it’s a good indication to say, man do I have a couple hundred thousand laying somewhere that I want to – that it might make sense to put back in the market or something.  That to me is the way to look at that. 

CHAMBERS:   Yeah.  Okay.  Well, and so right now, it’s sorta (sic) in the middle of the field.  You’re – you know, I – you know, a lot of – I also think that right now there’s a lot of tax laws harvesting going on, you know.  At the end of the year there’s a lot of people – because of the tax laws changing, they’re taking chips off the table.  You know, there’s a lot of that going on right now. 

HYER:   Yep.

CHAMBERS:   You know.

HYER:   Yep.

CHAMBERS:   NASDAQ is down.

HYER:   Yeah.  No, it’s been a volatile – you know, we went for a good chunk of this year, it was pretty boring in a good way.  The market just –

CHAMBERS:   Yeah.

HYER:   -- kind of grind – it’s gotten volatile the last little while.  And so –

CHAMBERS:   Yeah.

HYER:   -- you know, it’s – the markets are always interesting.  If they’re boring, they’re not boring for long.  And there’s going to be plenty of opportunity and, you know, it’s – but generally speaking, 2021 has been a – a good year --

CHAMBERS:   Oh yeah.

HYER:   -- for equities and that continues to be the case as we move into 2022.  There’s – there’s plenty of back and forth.  There’s plenty of chop.  There’s days where it looks pretty ugly but that’s where I come back to DALI.  I come back to, you know, that long term asset class ranking, so. 

CHAMBERS:   Yep.

HYER:   Anyway.  Just a couple – couple thoughts.

CHAMBERS:   Yeah, that’s cool.  You know what we gotta (sic) talk about next time?  New Year, New Us.  You know what I mean?  That’s what it’s – what we’re going to talk about is the importance of using something like either, that your advisor helps you with your 401k allocation.  We gotta (sic) talk about that, right?  Because looking at your 401k allocation is really important.  Because guess what, it’s – your 401k is really, really important.  And some of us have huge 401k’s, right?  And a lot of us don’t know what we’re doing and don’t know what – so we should talk about that next time.  The importance of that and you know, just indexing in general.  I’d like to talk a little bit about that.  I’ll probably forget what I just told you, and move on.  I don’t know.  So, maybe you could write that down since it’s your show, Andy.

HYER:   Well, yeah.  Who knows where we’ll end up but it was great to join you.  I appreciate the invitation.

CHAMBERS:   Yeah, man.  Before you go, what’s going on for Christmas? What’s going on for – what’s shaking out there?  What’s going on for the holidays?  What – when is the Andy Hyer brood of wife and five children have going on?

HYER:   Yeah, so we’re doing Christmas at our house and then we’re actually going to get in the car and drive up to Idaho and spend a week up there.  We’re going to go skiing one day. Going to do some – and actually they just had a pretty good snow storm, so. 

CHAMBERS:   Good.

HYER:   Hopefully, they’ll have some snow on the ground.  How about yourself?  What are your – what are your plans?

CHAMBERS:   Well, before – back to you real quick.  How long are you going for?  A week?

HYER:   Just a – we’re just going to be up there a week.  Yeah.

CHAMBERS:   Okay.  I need you to come back with Andy Hyer’s best restaurant experience in wherever you are. Either to go or – I need a restaurant out of you and wherever the hell you are in Idaho.  I don’t – is Idaho – is that part of the lower United States?  Where is that?  I don’t even know.  What the hell.  Anyway.

HYER:   I can do that.  I can do that.

CHAMBERS:   I don’t know.  What am I doing?  Andy, what do I always do?  I just – I don’t know.  At Christmas time it’s great.  I don’t know.  I fall asleep hopefully early in the, you know what I mean.  I’m getting old.  Hopefully I’ll be asleep by 9:00.  (Inaudible).  Nah.  I can’t.  We just got a dog.  We might be getting another so, you know.  That’s where we’re at.  We -- first Christmas in – we bought a home this year so we’re in this house for the first time this, you know, and it’s exciting.

HYER:   That’s great.

CHAMBERS:   We’re – yeah you got your tree up?

HYER:   We do.

CHAMBERS:   Nice. All right.

HYER:   Yeah, we’re ready, so.  Well, Happy Holidays to you and Happy Holidays to –

CHAMBERS:   Yeah brother.  Hey man, we’ll do this next – we’ll do this in about a month and see what’s – I really appreciate it.  Happy holidays.  Merry Christmas.  Enjoy your family and thank you very much.

HYER:   Thank you, Trevor.

CHAMBERS:   All right.

HYER:   All right. Take care.

CHAMBERS:   All right, bud.

HYER:   Bye.

(INTERVIEW CONCLUDED).

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”   He also wrote the theme song to this podcast. 

Andy Hyer

Andy is a member of the portfolio management team at Nasdaq Dorsey Wright and is responsible for sales and service of investment strategies across Dorsey Wright’s funds, ETFs and SMA accounts.  Since joining Dorsey Wright in 2004, he has authored original research on the subject of technical analysis and speaks and writes regularly on the topic of momentum investing. He is a Certified Financial Planner, Certified Investment Management Analyst, and a Chartered Market Technician.  He holds a B.S. from Utah State University with a dual degree in Finance and Economics.

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A Member of Advisory Services Network and should not be construed as a recommendation or investment advice. Nasdaq Dorsey Wright is an independent company, unaffiliated with Olde Raleigh Financial Group, A Member of Advisory Services Network. There is no form of legal partnership, agency affiliation, or similar relationship between Advisory Services Network, LLC and Nasdaq Dorsey Wright, nor is such a relationship created or implied by the information herein. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  Investing involves risk including the loss of principal. All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC.

Asset Allocation Roundup with Andy Hyer of NASDAQ Dorsey Wright for November 2021

CHAMBERS:  Hey everybody.  This is Trevor Chambers from Olde Raleigh Financial Group here in, actually, sunny Raleigh North Carolina, today. Super pumped today.  I’m doing a little bit of – working on a new series with my buddy Andy.  And I’m going to have Andy introduce himself here in a second but what we’re gong to do is we’re going to do this kinda (sic) allocation round up.  And we’re going to talk about the markets and asset allocation.  And I’m really excited about it.  I’m really hoping this gets through compliance, right Andy?

HYER:   That’s the hope.

CHAMBERS:   Exactly.  That’s the hope.  Okay, so we’re going to steer, you know, you know what I mean – okay anyway, Andy Hyer, it is so – I – I – you were just in town a couple of weeks ago.  You were talking to our clients at the Carolina Exotic Car Club.  Big shout out to them.  How cool was that place?

HYER:   It was fantastic.  What a cool place.

CHAMBERS:   I mean – you’re just starting to get our and talk to clients and everything right, and so what a way to kick off the getting out and seeing the client swing, huh?

HYER:   Yeah, no.  It was great.  Both from the perspective of just being able to shake hands and see people in person.  Have a – have a great event but also that venue is something else.  Just beautiful place.

CHAMBERS:   Yeah, man.  Hey, I want to just say, you’re – whatever’s going on behind you is absolutely spectacular man.  That – where the hell – are you – where are you?  On some sort of spaceship?

HYER:   In the office.  Just, you know, I thought it’s better than the hostage look with just a blank wall behind me, so. 

CHAMBERS:   That looks absolutely spectacular.  I mean, I get a lot of guests, you know what I mean, and none of them have backgrounds like that.  So, I just wanted to congratulate.

HYER:   Well, thank you.

CHAMBERS:   Andy, so we’re going to talk about allocation.  Maybe a little allocation strategy and so to that I – you’re a subject matter expert on this.  Could you please introduce yourself and tell us what you do?  You’re some sort of allocation superhero so I’d like to talk to you about that.  Go ahead.

HYER:   No, I appreciate it and I appreciate the – the invitation.  You know, so Andy Hyer.  I’ve been with Dorsey Wright and Associates for, what almost 20 years now.  I guess over 17 years.  A firm that you and your team know very, very well.  But just a little bit about us, you know, we’re a technical research and money management firm.  We have an office closer to – to your neck of the woods in Richmond, Virginia and also, I’m here in Pasadena, California, so.  We’re a NASDAQ company and you know, we do some things that I think are interesting and will hopefully be of – of value to – to your listeners.

CHAMBERS:   All right.  Fabulous.  And you’re in – you’re in – it’s tough living in Pasadena.

HYER:   It’s a good place.  I like it.

CHAMBERS:   Yeah, I can see.  It’s like – it’s kinda (sic) sunny here compared to your guys is all I’m saying, you know what I mean, but.  Anyway.

HYER:   Pasadena’s a great place with the Rose Bowl and, you know, it’s –

CHAMBERS:   Yeah.

HYER:   -- a great – great part of LA.

CHAMBERS:  I’ve – I kinda (sic) drove through it one time.  I didn’t have – they didn’t let me in.  Basically, they didn’t let me in, you know what I mean.  They were like nah, not you.  You’re, you know, but anyway.  But it looked pretty going by.  I can tell you that.  So, Andrew, what’s going on in the markets?  And take – let’s take a kind of a month back.  You know, what’s been going on, or, you know, however.  You know what, it’s your show, man.  You tell me what’s going on and what you want to say.

HYER:   You know, what a great time to be an investor.  The markets have been so rewarding to – to risk on investments and, you know, one way to look at it, and this is a way that we – we look at it at Dorsey Wright, is we will look at a whole bunch of different asset classes and measure their strength so that we can see what’s strong, what’s weak and if you look at what has been strong and this has been true for years and years, you know, US equities have just been a power house and so for – for, you know, investors, it has been a very rewarding time to – to be in the markets.  They’re have been a lot of contributing factors and I think a lot of people would be very shocked given all the things we’ve gone through.  COVID and – and just to see the types of returns the equity investors have been able to achieve.  So, it’s been a great time to be an investor.  We – we – we know that there’s plenty of risk in the markets and I’m not – I certainly am not saying that there won’t be bumps in the road but when we rank – when we rank asset classes from strong to weak, you know, US equities is right at the top.  You know, you’ve got commodities, international equities, fixed income, currencies and cash down towards the bottom.  So, risk on is – is very much in favor.  Risk off, you know, very conservative asset classes are not as in favor.  And that doesn’t mean in any way shape of form that people shouldn’t have conservative investments as part of what they do.  But it’s been, you know, risk has been rewarded very well this year and the last couple of years. 

CHAMBERS:   Why?

HYER:   Yeah, there are a lot of reasons.  You know, I think corporate earnings have been so strong.  You know, it’s certainly in a number of sectors so corporate earnings have been very very strong.  Obviously monetary policy, the federal reserve does matter.  And what they – they do does impact the markets.  Them, you know, keeping so much liquidity in the markets, keeping interest rates as low as they have, at zero.  And, you know, that favors risk on asset classes.  It favors equities and so there have been a whole bunch of things that have really, really helped.  I think you look at kind of how – how we handled the last eighteen months, and by we, I mean like the federal reserve and, you know, fiscal policy as well, compared to how it was handled in the financial crisis of 2008, 2009.  It seems to me that one of the lessons learned is throw the kitchen sink at the problem at I think that’s what they did and, you know, the markets have responded very favorably to that.

CHAMBERS:   Cool.  So, I don’t know if you can talk to this but what – this year, what’s been the strong sectors?  How many sectors are there, by the way?

HYER:   You know, you can either break it down the ten broad economic sectors or sometimes eleven depending on the classification. 

CHAMBERS:   Okay.

HYER:   If you include real estate as a sector, but, you know, industrials, energy, healthcare, technology, utilities, consumer staples and so on.  And so, there are a number of ways to break down this – the broad sectors of the economy and the, you know for there have been some that have been stable.  Something like technology has been a dominant sector for years.  I mean this is not new.  You know, technology has just been a power house.  What is new is, you know, this year there have been – the leadership has kind of broadened out.  It’s not just a one area.  There are areas that have been out of favor for years.  Something like energy or financials that, you know, in years – the last couple of years have not been as strong.  But 2021 has been a great year for those sectors and the other thing that I think is interesting to me is large cap stocks have done so much better than mid-caps and small caps for most of the last five years.  That has – large caps are still doing well.  But man, small caps and mid-caps have really come on strong this year.

CHAMBERS:   And that kind of was – did that kind of start happening around – did that turn happen around COVID or no?

HYER:   You know, I’d have to go back and look at the exact –

CHAMBERS:   Okay.

HYER:   -- (inaudible).  It seems to me that early in the year, small caps came in with a vengeance and were doing incredibly well.  Then they –

CHAMBERS:   Earlie this year?

HYER:   -- this year.

CHAMBERS:   Earlier this year?

HYER:   2021.

CHAMBERS:   Okay.

HYER:   And then they’ve – there has been some pull backs along the way but if you look at trailing twelve month returns, small caps have outperformed.  Mids – mid caps have outperformed large. And large have done well so it just tells you it’s a broad based, it’s been broad based participation.  The areas of the market that maybe have not done as well, you can take some sectors like utilities have not done well, consumer staples have not done as well.  So, you know, there – healthcare may not have done as well. So, there, you know, when I look at the breakdown, technology, financials, energy have been among the leaders. Some of those others have been among the laggers.

CHAMBERS:   Can you talk to me about maybe, the number one, what influence are you seeing of inflation and are you seeing inflation rippling through in some strength areas of weaknesses in the markets?  And the same thing for the supply chain, which may be, you know, it’s tied together so I don’t know if you want to, but, what do you think of that zippy little question? I don’t think it was that good, to be honest with you.

HYER:   No –

CHAMBERS:   Goa ahead.

HYER:   I think it’s a question that’s on everyone’s mind.  You know, we’ve gone decade, just decades with CPI with consumer price index running between, you know, zero and three percent and –

CHAMBERS:   Yeah.

HYER:   -- then all of a sudden, we’re putting, you know, month after month of, you know, readings around six percent.  You know, over five percent.  So, it’s a – inflation is here.  You know, for – for a lot of reasons but it is here.  How long does it stay?  That’s the debate of the day?  You know, how long does it stay.  But it’s here for now and, you know, there are companies that benefit in an inflationary environment and there are companies that really struggle.  Some of the companies that have strong pricing power that can really pass on that cost to their customers.  You know, there are certain companies, trucking companies and there are shipping companies, you know, there are some companies that this is a fantastic environment for them.  There are other companies that are really going to struggle to survive in this type of environment and it’s for – for people who own assets, whether it’s real estate, equities.  Inflation, you know, it – it can be beneficial.  You know, if you don’t own assets, inflations a killer. 

CHAMBERS:   Yeah.  Yeah, that’s well said.  What’s going on with – so typically what happens in a inflationary environment from an asset point of view, like what’s the tell, tell, like, well you know when this happens, this happens.  I mean, or – historically speaking.

HYER:   You know, I think one tell tell, one signal is just when you look at the strength of commodities. 

CHAMBERS:   Okay.

HYER:   For, you know, commodities, if you look at like 2000 and 2009.  They did extremely well.  The dollar was weak. Commodities were a very strong performing asset class.  And then if you look at 2009 to up until about a year ago or so, commodities were just very, very weak.  They did very, very poorly.  All of the sudden over the last twelve months, you’ve seen commodities really pick up. Crude oil has really gone through the roof.  But, you know, base metal, precious metals, they’re have been – there’s been a broad pick up in commodities.  That’s just one – and also, you know, real estate.  Real estate, you see real estate prices going up.  Real estate REITs doing extremely well.  So, those are just some signals that you see when inflations, you know.

CHAMBERS:   Just money – just money.  Right?

HYER:   Yeah.

CHAMBERS:   Yeah.  All right, now hold on.  Let’s talk about you more specifically.  What you do.  You talk strength.  Okay.  What do you – what the heck do you mean when you say strength?  Or for that matter, what do you mean by weakness?  I mean, the way I understand it is are more people buying it?  Or are more people selling it?  Is it in supply or in demand?  And then it just – because, you know, can you conceptualize it a little bit more for me because I’m not that smart.

HYER:   So, the, you know, there are a lot of ways – there’s a million ways to analyze the financial markets.  And analyze investments.

CHAMBERS:   Yeah.

HYER:   Where Dorsey Wright has really hung our hat is we basically said we’re going to keep this at econ 101 level.  We’re going to keep it with supply and demand. And we’re going to evaluate securities based on the supply and demand for the security itself.  So, for us, rather than evaluate financial statements, look at income statements and balance sheets and talk to company management and do those types of fundamental analytics.  We look at the markets from a technical perspective and we basically say, we’re going to evaluate investments based on the strength or weakness of the security itself.  So, it’s kind of rather than going around, you know, looking at all these tangential factors.  We’re going to go straight to the security price itself. We’re going to measure the security price relative to others and we’re going to use that as a means of identifying leadership.  Now, it – that only is beneficial if there is follow through in the trend. In other words, if you identify securities that are relatively stronger than other securities, if that tells you nothing about the future, then that’s a pointless exercise but what if there’s momentum in the financial markets?  What if securities that are strong today tend to continue to be strong in the future.  And what if securities that are weak tend to be continue to be weak?  And it’s that basic trend following concept that we base our investment approach on and it’s – it’s, you now, there is just all kinds of evidence and research that has been don’t that suggests that yes, there’s absolutely momentum in the financial markets.  And so, to us, you know, the goal for – for what we’re trying to do, we want to identify the leadership.  We want to identify strong asset classes, strong sectors, strong securities.  We want to invest in those securities and then we want to ride that trend as long as we can stay with it.  And hopefully we can stay with those positions for years and that’s where we tend to make the most money.  So, it’s, you know, looking at things from the lens of strength is critical to, you know, the way that we look at the financial markets.  And it’s – it also has the advantage of being extremely pragmatic.  In other words, you know, there’s so many investors who they live in a world of this is how the world should be, this is how the markets should be and based on my analysis the markets are eventually going to come around to my way of thinking.  For us, at Dorsey Wright, it’s not that at all.  We’re basically saying, how is the world?  And we’re going to invest in the world as it is, not as we want it to be and, you know, when something is – goes from strong to weak, we’re going to – going to react and we’re going to take the necessary action in the portfolio.

CHAMBERS:   And it’s not fool proof?

HYER:   No, it is not.

CHAMBERS:   It – this isn’t – folks, you know what I mean.  All right, this is not a fool proof by any means.  Sometimes this works, sometimes it doesn’t.  You know, and I don’t think there’s’ one answer when it comes to investing.  It’s what you’re comfortable with and what you can – what you can kind of get an resonate.  And but it, you know, but momentum does pretty good.  I mean, I call it momentum.  I mean, I don’t know if that - am I splicing it some other way?  I mean relative strength, momentum, I mean –

HYER:   We use those terms synonymously.

CHAMBERS:   Okay.

HYER:   So, whether it’s (inaudible). 

CHAMBERS:   So there’s not that much of nuance between them?

HYER:   No, I mean it’s – there’s a whole bundh of – you can – if I say momentum.  There’s, you know, there’s a hundred different ways of calculating momentum or –

CHAMBERS:   Sure.

HYER:   -- more.  But it’s – but at the end of the day, when we say momentum or when we say relative strength, we’re not referring to how strong is the security been over the last week or couple weeks or last month.  For us, were saying more intermediate terms.  So, over the last year approximately, how strong is the security been relative to everything else?  And I think what you said is very well put, which is it’s not fool proof.  There – we know very, very well that a percentage of the time, when we buy a strong security in a strong sector, there’s not going to be follow through in that trend.  We may sell that position at a loss.  But to me, you know, and to us that’s not the end of the world.  What’s important is to have a process in place that allows us to, you know, stack the odds in our favor.  Identify leadership.  Be able to stay with those winners as long as they remain strong.  The positions that don’t work out have a – a concise process for rotating those positions out of the portfolio when they deteriorate sufficiently.  And so, there’s nothing about perfection in the financial markets.  Anyone who –

CHAMBERS:   Nope.

HYER:   -- approaches this thinking, they’re going to get every trade right –

CHAMBERS:   Nope.

HYER:   -- not going to happen.  But, --

CHAMBERS:   Nope.

HYER:   -- you know, --

CHAMBERS:   Exactly.

HYER:   -- if you lock onto to some of those big multiyear winners, man it really covers a multitude of sins.

CHAMBERS:   Yeah.  Yes. Smiling, you know, I worked in the restaurant business for a long time and but, my family’s restaurant and I did that for about twelve years.  Smiling, anybody can handle smiling.  Smiling is like -- managing smiling.  I can do it all day. There’s – I could do it all day long in my sleep.  Anybody can, so when people are happy, that’s wonderful.  You’re making money, it’s great.  On the downside, but it’s just the way it works, right.  And so, you gotta (sic) – but it’s a process.  And that’s the key with investing.  You know, what’s your process, so.  Well, what else – I mean is there anything other things that we should, I mean that we should be talking about at this point?  I mean is there anything kind of interesting that’s been going on in the past, say month?

HYER:   You know, there’s –

CHAMBERS:   That’s surprising you, maybe, or something like that?

HYER:   You know, I think the market continues to surprise the upside.  I think that’s what’s surprising people.

CHAMBERS:   Okay.

HYER:   Is that, you know, it surprised to the upside.  There are, you know, and I don’t mean to overstate this but look it’s been a great year for equity investors.  It’s been a great year for the financial markets.  And, you know, no one is saying this is going to continue at this pace forever.  That’s not what we’re saying.  It’s just that, you know, sometimes when things are good, you just, you know, it’s nice.  You take it.  You know, this is what – why we invest. We know that the rough times, they will come.  But –

CHAMBERS:   Oh yeah.

HYER:   -- you know, but this has been a great year and, you know, it’s you just keep plugging away.

CHAMBERS:   Yeah.  And, when those good times come, your process helps you mitigate downside.

HYER:   It can.  You know, depending on the strategy and you know, --

CHAMBERS:   How could?

HYER:   -- there – there’s –

CHAMBERS:   I should say could.  Could help.

HYER:   Yeah, I mean there – we run a range of strategies and there are a range of things – ways to invest and some of our strategies are more volatile and tend to have deeper drawdowns in the market and others tend to be more conservative and have – have different mechanisms for playing – playing defense.  But you know, I think what is – what’s important is know what you own.  Know why you own it and know where it fits in an asset allocation.  That’s where, you know, you and your team have a, you know, sit down and be able to construct the right asset allocation that someone can live with.  And what – what’s the right asset allocation for one person may very well not be the right allocation for someone else. 

CHAMBERS:   Most definitely.  You know, you don’t want to put anybody at risk.  You know, it’s – people underestimate risks, right?  Isn’t it amazing how we just like, just waltz through the world completely – but in investing, these good times are great, you know what I mean?  But don’t – don’t kid yourself.  There’s risks.

HYER:   Yep.  For sure.

CHAMBERS:   We didn’t see COVID.

HYER:   No.

CHAMBERS:   Didn’t see it.

HYER:   Nope.  There will be losses.  Most definitely there will be losses in the future and it’s just making sure that you got the right mix so that when those losses in the equity markets come, you’ve got the right balance and you can whether the storm.  But, you know, financial – love the financial markets.  Everything in the world is connected. 

CHAMBERS:   Yeah.

HYER:   You know, politics, economics, everything is filtered in and factored into the markets.  It’s, you know, it’s exciting.  Every single day is interesting and there’s, you know, it’s a great industry and a great, great place to be and it’s – we’re very fortunate to be able to work with clients and – and look to serve them and meet their needs.

CHAMBERS:   Fabulous.  Well, my friend.  Thank you.  This is the first ever asset allocation Friday roundup.  I don’t know if any of that made sense to anybody but I thought, Andrew, definitely made sense.  I don’t know what I made sense of, but.  No, no, no, I’m only kidding.  Actually, man, in all truth on this, it’s a – we live in a highly financialized world.  And people underestimate the great potential value of advice.  Because there’s just too much, right?  And we all are trying to live our lives and, you know, I’m sick, I go see a doctor.  You know what I mean.  And, so it’s just a super financialized world that we live in.  I think you would know that.  You know, and – and it just there’s so much topography to manage, would you not agree?

HYER:   Absolutely.  It’s, you know, the challenges, how do you make sense of it all?  And how do you bring it –

CHAMBERS:   Yep.

HYER:   -- down to a level that is – that you can apply it and make specific choices for that particular client and that’s – that’s the challenge.  Because there’s so much information.  It’s that old adage, you know, drinking from a fire hose and it’s without – without a process.

CHAMBERS:   Yeah.

HYER:   A way to synthesize it all, to make sense of it and to apply it to anyone –

CHAMBERS:   Right.

HYER:  -- individual investors needs.  You know, it’s overwhelming.  They’re plenty of people who – who love the markets and they’re going to do it all in their own but they’re many people who feel like the need financial advice.

CHAMBERS:   Well, the thing about it is, you know, there’s – there’s, you know, as you – you and I, we do it – we do what we do, right?  You guys are sort of the – one of the engines to the plan.  My job as the advisor is to take what you do, show it to the client, get them to understand it.  But that part, asset allocation and all that, that’s just – that’s sort of like I consider – that’s one engine.  But then the plan is this whole thing, you know what I mean.  And integrating it all together and saying hey, this is why we do this because, you know, the plan says that this makes sense.  Because it’s within your risk profile and that’s what I love – and again, you know, from our point of view, you guys are one aspect, one part of the investment process for us at Olde Raleigh Financial.  We couple it with other things to make it make sense for the client and from the risk profile and all that stuff, right.  So, but I will say when we do use NASDAQ/Dorsey Wright and it’s – and show them the graphs and the charts as we say, it’s – it really helps people on a – it really helps people.  I mean, I can’t – I can’t think of how many times that you know we’d be discussing particular stock that they had like an emotional attachment to and you show them the chart and it’s like, hey man, that’s a great story but it’s just a story. I don’t see it.  Right?

HYER:   It is.  You know, --

CHAMBERS:   It’s so helpful, man.

HYER:   -- there’s this picture –

CHAMBERS:   It’s so helpful/

HYER:   -- a pictures worth a thousand words.  It really does put it in context when you can look at a chart of something.  It speaks and it tells you, you may think that everything’s perfectly rosy just like you said with a given company.  You may think the outlook is – is fantastic. If the chart looks horrible, then you – at a minimum –

CHAMBERS:   Minimum.

HYER:   At a minimum, you should stop and think about it.

CHAMBERS:   Yeah.  Yeah, it – exactly.  Exactly.  Exactly, so.  Well, anyway, we can wax and wane about that.  All right, but listen, I want to thank you, man.  I really appreciate it.  I – I’m hoping this gets through and we’re able to do it.  And we’re going to make more of these.  And, no, but I really think this is helpful.  I mean, I really think the people – they’re yearning for this type of information and I just think it helps people.  Again, it kinda (sic) helps them make sense.  We’ll watch it.  You and I will watch it for you, right.  But when you want to come in once or twice a year to talk about it, I think Andy and his team are really helpful and help us do that.  So, Andy, I want to thank you and I hope that this is going to become a long series that we do.  So, what’s going on this week and what are you doing?  You got five kids.  I’m definitely thinking it’s going to be involving kids.

HYER:  So, we got – we got some – some soccer games on Saturday.  I’m actually taking – I’m taking my girls to the Harry Styles concert on –

CHAMBERS:   Right on –

HYER:  -- Saturday night.

CHAMBERS:   -- cool dad.

HYER:  Yeah, no that’s –

CHAMBERS:   My girls, so – my girls caught – my oldest caught that – caught that tour here in Raleigh.

HYER:  Okay.

CHAMBERS:   Knocked – he’s amazing.

HYER:  Well, that’s good to hear.  I’m looking forward to it.  So, we’ll have a good time.

CHAMBERS:   I tell you what, man, are you – his band, okay it’s pop stuff.  Okay, all right.  But it’s well done.  You know, he’s definitely a fan of the Beetles, for sure.  And so, you might catch some stuff that kinda (sic) reminds you of that.  And also, he’s got like hints of, in my opinion, Pink Floyd.  He’s got a little of that in there.  But I will tell you what he is a showman.  He’s a great dresser.  He’s -- my kids – my girls talk about it all the time as I’m sure yours.  And then, his band is sick.  They are really, really good, so I expect a guitar player and that drummer and that bass player ripping your face off on that one, brother, so.   Where are you guys going to see him?

HYER:  It’s at the – the Forum in L.A.

CHAMBERS:   I mean, Andy, it’s a tough life you got.

HYER:  I’m looking forward to it.  So, I appreciate the, you know, the endorsement of the concert.  It’s – looking forward to it, so.

CHAMBERS:   No, man it’s cool.

HYER:  I hope you – I hope you and yours enjoy the weekend and get ready for Thanksgiving.

CHAMBERS:   Yeah, man we actually have the Syracuse/NC State game tomorrow and so I’m from Binghamton, New York and I actually went to the school right around the Syracuse campus so were going to be doing some tailgating with my partner Blake.  My business partner, Blake and I, so.  All right brother.

HYER:  Sounds good.

CHAMBERS:   Thank you so much.  All right you guys.  Thanks for tuning into the – what the hell’s the name of this?  The Soundtrack to a Financial Advisors Life.  The Soundtrack to a Financial Advisors Life at Olde Raleigh Financial Group.  All right brother, thanks a lot.  Have a good weekend. I’ll talk to you soon.

HYER:  You as well.  Take care.

CHAMBERS:   Bye.

(INTERVIEW CONCLUDED.)

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”  

Andy Hyer

Andy is a member of the portfolio management team at Nasdaq Dorsey Wright and is responsible for sales and service of investment strategies across Dorsey Wright’s funds, ETFs and SMA accounts.  Since joining Dorsey Wright in 2004, he has authored original research on the subject of technical analysis and speaks and writes regularly on the topic of momentum investing. He is a Certified Financial Planner, Certified Investment Management Analyst, and a Chartered Market Technician.  He holds a B.S. from Utah State University with a dual degree in Finance and Economics.

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

The World Dominated by Batteries: Can we meet the demand and not crush the environment? A conversation with battery researcher and nanotechnologist Mitch Ball.

Our ongoing series of podcasts regarding the energy sector has led us to batteries. If the U.S. fleet of cars and trucks goes “green” over the next couple of decades, batteries will likely be one of the main power sources. So, we thought it prudent to talk to someone who lives, eats and breathes this stuff. Beyond being a nice young man, Mitch works the Jeff Dahn Research Group where he and his colleagues work with researchers from all over to push the boundaries of battery tech. This was a fascinating conversation that centered largely on understanding what it takes to put in a battery and what happens after the battery is spent.  We focused quite a bit of time on car batteries but according to our guy Mitch storage of energy in batteries is big and will grow exponentially as things progress. 

So why would a financial advisor in Raleigh, North Carolina care about batteries?  In an ESG world where fewer and fewer asset allocation strategies include fossil fuels-based companies one must ask where will the funds for “energy” investments flow? The likely short answer is “clean energies” that will include batteries. My question is, just how “clean” are batteries and what big technological breakthroughs needed to really make the mobility sector switch to all electric? Here are some other areas we covered:

What do you need to make a battery for a car and what is the life cycle of that battery?
Where do all the ingredients for a battery come from?
What is the state of the art in batteries these days?
What makes Lithium so special?
Can we make batteries efficient enough to give acceptable range distances?
Can we charge batteries quicker?
Fake News in the land of battery startups?

We hope you enjoy this one. 

CHAMBERS:   Hey everybody.  This is Trevor Chambers with Olde Raleigh Financial Group.  Once again, we’re going to record another track on The Soundtrack to a Financial Advisors Life, here in Raleigh North Carolina.  And today, I’d like to look behind me and say, Mitch, can you see the sun behind – can you see the sun behind me here?  I mean we got sun --

BALL:   It is quite sunny.

CHAMBERS:   Yeah man.  So, Mitch, I’m going – I didn’t pregame this in our discussion prior to hitting record here but I gotta (sic) ask you a question, man.  You’re in Nova Scotia, right?

BALL:   Uh huh (yes).

CHAMBERS:   So, where – just for the silly Americans that don’t – that maybe generally don’t know exactly where that is.  Can you just tell me exactly where Nova Scotia is?

BALL:   So, you go to Maine and then you just keep on going.

CHAMBERS:   You just keep on going.  Yes.  I pulled it out on a map and I still had to be like, okay, that’s where it is.  But, you – that is a cool – that’s a cool little area and – and you guys (inaudible).  This is the question I want to ask.  When you go out to lunch, where do you go?  Where’s the cool place that you go?  I didn’t mean to spring this on you.  It’s a big question.  And I want you to shout it out and I’m going to write it down and I’m going to do a little link to them in my – in this podcast because I just like – I like food, you know.  What can I tell you?

BALL:   All right.  This probably – this probably is a little bit of my bias from my background but there is a place called Charger Burger, pretty close to the University.  And I work with batteries so like it’s called charger, right.

CHAMBERS:   Yeah.

BALL:   That’s why I referenced that.

CHAMBERS:   Oh, nice.  Charger Burger. 

BALL:   Yeah.

CHAMBERS:   Okay, we’ll put a link into that.  So, anyway guys, today we’re going to talk energy.  We’ve done several podcasts about energy and I got this guy, Mitch Ball, with me and he’s going to introduce himself here in a second.  But, the thing – this is – this whole thing today is going to be about batteries.  Energy, obviously is like a big deal, right now.  You’re hearing about all sorts of crazy stuff going on with energy.  You know, like China is scrambling to get enough, you know, source of energy to get through the winter.  You know, England is under pressure right now with – with – with, you know, energy issues and lack thereof.  And so, I’ve been talking to a lot of people about energy, Mitch, so.  Let me – let me just introduce you.  So, Mitch Ball.  I found Mitch Ball, I was searching for battery researchers and Mitch works for The Jeff Dahn Research Group up in Nova Scotia.  And, what I’m going to do is I’m going to do just a brief couple sentences on him and then Mitch, you can take over.  So, Mitch is a researcher and he is – specializes in nickel rich positive electrode – electrode materials.  Okay, so this guy’s kind of a material, science guy and he – and he studied chemistry and specific nanotechnology engineering.  So, what we like to say is that I went to school with a bunch of engineering people in chemistry myself, so we’ve – we’ve got ourself a smarty pants.  It’s a smarty pants alert right now on this guy and he’s put a lot of time – he’s a young guy.  And you – is this your first full time gig up there?

BALL:   In Halifax, yeah. 

CHAMBERS:   Yeah.

BALL:   I mean, yeah, I’ve done a little bit during my undergrads I took a number of internships.  It was kind of like a half study, half co-op deal. 

CHAMBERS:   Yeah.

BALL:   So, extra-long undergrad.

CHAMBERS:   Nice.  Nice.  So – so – so give me – so, Mitch Ball, so where are you from?  And then, yeah, where did you go to school?  Like tell me, just give me the brief background and then we can jump into questions.

BALL:   Sure.  Sure.  So, I was born in Toronto, Canada.  Although, I moved around quite a bit as a kid throughout the northeastern part of the states.  And, yeah, after I graduated high school, I went to the University of Waterloo, back in Ontario.  And, I spent five years there getting my undergrad done with internships in between.  And there I discovered the wonderful world of batteries and it’s – it’s – I didn’t know I was going to get into batteries when I started UNI but now it’s – it’s definitely my passion.  Yeah.

CHAMBERS:   Yeah, why batteries?  I mean, you know, you can get into – what was the –

BALL:   Yeah, so one of the big things for me, I really care about climate change, right?

CHAMBERS:   Uh huh (yes).

BALL:   And that means if we’re going to solve climate change, we need to really do quite a bit about changing our energy infrastructure.  So, my degree, nanotech engineering, it’s just a fancy word for chemistry.

CHAMBERS:   Right.

BALL:   It – there’s a number of technologies that are associated with solving climate change.  Batteries are part of it.  I was also interested in like solar panels as well.  That’s something I could have gotten into but I, yeah, I kinda (sic) fell into batteries and it’s just very important both for replacing our gas vehicles with electric vehicles as well as giving us grid storage, electrical grid storage.  Because a lot of our renewable energies are not consistent.  You only get sunlight during the day, you know.

CHAMBERS:   Yeah, exactly.  That’s – that’s, you know, that type of – that’s what England is facing right now.  They just didn’t have the bumper crop of wind apparently among other things and I know there’s lots of other factors to it.  I’m actually talking to a guy next week from London about all this stuff, so, who kind of follows this – really follows the politics.  I’ve interviewed him before.  But anyway, yeah, so it’s – it’s a great time and I really want to focus on batteries because of a lot of reasons.  So, because I just think it – it’s obviously going to be a part of it but let’s peel it back.  I want to – I want to – okay, so let me jump into this here.  And I might be jumping around a little bit on our – what we, you know, on our questions here.  At least, the schedule here.  But I actually just like to say, let’s talk about a battery.  Let’s talk about the nuts and bolts of a battery.  And I know you don’t work on Tesla’s battery but in general, okay, can you just take me through what’s in a – like the lifecycle of a battery from the time that it’s, you know, stuffs sourced out of the ground, you know, like and then put into the battery.  What’s that process like and then how long does a battery last, like a Tesla battery, you know?  I think – and I only want to say that because – I only want to use that as a reference point, Mitch because so many people know that brand and know what, you know, they’re driving obviously a lot of this stuff, you know what I mean.  But anyways, so can you kinda (sic) just talk to me about that a little bit?  Talk to us a little bit about that?

BALL:   Yeah.  I mean, yeah there’s a lot of different types of batteries and yet I can’t speak specifically –

CHAMBERS:   Yes.

BALL:   -- about what Tesla does.  But I can speak about the general market.

CHAMBERS:   Yeah.

BALL:   And also, just a small disclaimer, any sort of numbers I give out are not from my own person.  They’re from articles that I just found reputable, right.

CHAMBERS:   Right.  Exactly.  Exactly.

BALL:   But, yeah, there’s, you know, there’s two major types of batteries when we’re talking about electrical vehicles and looking forwards to the future, electrical vehicles are going to be where most batteries go.  Just simply because we have phone batteries, right?  But phones are small.  They don’t take that much energy compared to a car which is a giant hunk of steel, you know.  So, in the future, most batteries by mass will be in cars.  And there’s – there’s two kinds of major battery technologies that you’ll find in cars.  They are NMC and LFP.  So, NMC stands for nickel, manganese and cobalt.  And this is pretty high density. This is state of the art.  It’s, you know, most commonly used within the electrical vehicles you’ll find nowadays.  Now traditionally, these batteries used to be just cobalt alone.  But nickel and manganese have been added over time.  And it improves performance and reduces cost.  But they’re just harder to make.  And people really want to get cobalt out now because cobalt is quite rare.  It’s expensive and most of it actually comes from the democratic, Republic of Congo, where there’s a lot of human rights concerns over it because it’s mined underground.  There’s a lot of child labor.  They’ll be using hand tools and it’s very damaging to the health of the people around it.  And also, you know, like diamonds in that area funded some pretty terrible wars like the second Congo war, which not a lot of people know but was actually the deadliest war after WW II. 

CHAMBERS:   Not good.  So, that’s – so that’s cobalt?

BALL:   Yeah.

CHAMBERS:   That’s cobalt?

BALL:   Yeah.

CHAMBERS:   So –

BALL:   People are trying to get off cobalt. 

CHAMBERS:   So, lithium?  So where – yeah, so that and moving -- okay so, and where does – where do we get a lot of that lithium?  I think China, or where are we at with that?

BALL:   Yeah, so I think right now, most – I’m sorry, not most lithium, but the plurality of lithium comes from Australia and open pit mining.  But there’s also a lot of lithium coming from Southern South America in a place called the lithium triangle.  So, this is countries like Argentina, Bolivia and Chile.  And it’s mined there through an uncommon mining technique called chryno evaporation.  So, you’ll actually have water, very briny water, salty water, come out of the ground and then they evaporate it and then, you know, dig up the evaporated bits and then they process that.  And, you know, lithium, very, very soluble in water.  It dissolves in water very easily.  So, you don’t actually have to dig up the entire, the level of mountain, you can just, you know, let water flow in.  Dry it up.  Dig up what’s dried up and then let more water flow in. 

CHAMBERS:   So, what – so what – so, you know, lithium ion, but what else is in there?  Like, what else is in a battery?  Okay, so you get the – get the lithium and then what do you do with it?

BALL:   Yeah, so, typically a battery is made up of four major parts.  You’ve got the cathode which is the positive side.  And that’s – that’s where the NMC is stored.  Then you have the anode which is the negative side and that’s typically just carbon, graphite, you know, the kind of stuff that you have in a pencil. 

CHAMBERS:   Okay.

BALL:   And as well you have the separator which is very thin piece that sits between those two that allows the lithium to move from cathode to anode to anode to cathode.  But it doesn’t allow electricity to move, so it only allows the lithium to move through it.  And then lastly you have the electrolyte which is just a liquid that all of this sits in. 

CHAMBERS:   Okay.

BALL:   So, it’s all kind of wet.  It’s not water.  But it is a liquid.

CHAMBERS:   Okay, okay, okay. 

BALL:   Yeah.

CHAMBERS:   And then is there – is there copper in that type of battery as well or is there copper – there’s copper in batteries in general, right?

BALL:   Yeah.  Copper is often used as the element that conducts electricity so –

CHAMBERS:   Got it.

BALL:   -- you will coat some of your anode or cathode material on copper.  It’s not always copper.  Sometimes it is copper.

CHAMBERS:   Okay.

BALL:   Yeah.

CHAMBERS:   Okay.  And there’s – what’s the deal with copper?  Do you have any sense of – I mean, so like a – a battery that would be used in a car that would have quite a bit of lithium in it and copper in it and all that stuff, so.  Do you have any sense of where we’re at with copper and supply chains and where that’s coming – is that again coming out of that triangle or is there – what’s the deal with copper?  Because here’s why I ask these questions.  Because I just don’t know – is there enough accessible copper or, you know, or what implications is that going to be if there isn’t on the global supply, I mean on the, you know, on those places that do have it.

BALL:   Right.  I don’t think there’s that much concern over copper –

CHAMBERS:   Okay.

BALL:   -- because it doesn’t make up as much of the battery as other things.

CHAMBERS:   Okay.

BALL:   And typically, a lot of these things, you need exactly this much of this, this much of this.  It’s like bacon, right.

CHAMBERS:   Okay.

BALL:   You can’t just accidently put in two cups of flour when you need one.

CHAMBERS:   Right.

BALL:   So that means that you’re always going to have one element that your limiting factor that’s bottle necking you.

CHAMBERS:   Yeah.

BALL:   Right now, people are saying it’s mostly cobalt and it’s you know, it’s just the most expensive rarest part of the battery right now.  People think maybe it’s lithium in the future.  Other people think maybe it’s nickel, right.  Nickel is – nickel – we have a decent amount of that as well.  But you know in the future, as more and more batteries need to get made, we might have less nickel.  And it’s – it’s also interesting because it’s not the kind of mineral that we typically have dedicated mines for.  Sometimes there are dedicated mines for it but it’s very often dug up with other minerals and it’s a biproduct that we process as well along with the other minerals that we dig up.

CHAMBERS:   Is – what is – does China produce – I know China does rare earths and is big into that world. And I know Australia is, so obviously we have a lot of static going on with China.  So, I would assume that those supply chains will just – seems like, you know, people are reconsidering supply chains in some areas out of China, pretty, you know.  So, we could see that?

BALL:   Yeah –

CHAMBERS:   Or are you guys seeing that at all, or what?

BALL:   I don’t think -- China of course has some nickel.  A lot of places have nickel.

CHAMBERS:   Right.

BALL:   I don’t think it’s one of the places where nickel is most centralized though.

CHAMBERS:   Okay.

BALL:   You’ll find it in mostly Australia, Brazil, Russia and a little fun fact, New Caledonia.  Which you’re like, okay where is New Caledonia?

CHAMBERS:   Yeah, no, yeah, go ahead.  Yeah, this is interesting.  Go ahead.

BALL:   So New Caledonia is – it’s a series of very small islands off of Australia.  It’s owned by France and they actually have more nickel than nearly every other country on earth.  The only countries that have more nickel are Australia, Brazil and Russia.  But this small series of islands, more nickel there than there is in the US. More nickel there than there is in Canada.

CHAMBERS:   Wow.

BALL:   Yeah.  Like it’s tiny but it’s just tons and tons of nickel, yeah.

CHAMBERS:   So, we’re going long on Caledonia, is what you’re telling me.  They’re going to have a future.  That kid could have a future down there.

BALL:   Well, I know there is nickel mining there and I know they have been subject to some boom-and-bust periods.

CHAMBERS:   Right.

BALL:   I’m not sure what the futures going to look like for them, I mean I hope well for them, you know.  You hope well –

CHAMBERS:   Yeah.

BALL:   -- for everyone, right.

CHAMBERS:   Yeah.

BALL:   Yeah.

CHAMBERS:   So, this kind of – so let’s pivot to this.  And I think I know the answer from your point of view, but, and I pose this to you, you know, earlier is like, net net -- will going to batteries create more of an environmental – because we didn’t talk about the, you know, what do we do with the battery after it’s lived its life, right?  Like what happens?  And that, so net net, you know, what possible damage could we – could we do worse damage?  Could we be replacing one environmental issue with another and that happens.  We – you and I discussed this earlier, like it happens.  There’s plenty of times in history where things – you just – you take one thing away and then you put in another and then it’s just as – the thing that you put in is just as bad as the – you know what I mean?  And that’s one of the things that as we go to this, because, you know, there’s a lot of resistance politically to moving off hydrocarbons.  It’s probably going to happen and I’m not saying it shouldn’t but are we – that’s the – I’m just – one of the things I wanted to flesh out is, okay, so we do all these batteries and at the end of the day, you know, fifty years from now, we’re left with a pile of batteries everywhere on the planet, like – is that – you know, so could you comment on that?

BALL:   Yeah.  Yeah, so I mean this is like a valid concern and people will often argue against electric vehicles with this in mind.  But I’m going to refer to a really, really big statistical model from Argon National Laboratories, which is the US department of energies like big flagship lab.  In my field, if you work there, that’s like – that’s quite a brag, you know.  And, from their model, we can look at two cars that are, you know, fairly similar.  Tesla Model 3 versus Toyota Corolla and the model 3 will pollute, in terms of hydrocarbon pollution, less than Toyota Corolla after 13,500 miles.  Which isn’t that much.  You could probably get through that in a year, right?

CHAMBERS:   Yeah.  That’s a year.  Yeah.

BALL:   Yeah.  And then, well, I mean if that’s a year, then five years later it pollutes half as much.  And this is just because EVs, electric vehicles, are a bit more energy intensive in terms of their production.  So, their initial cost to the environment is more, it’s about 50 percent more, according to this model.  But over time as they’re used, they’re a lot a lot less pollutive.  And this is just simply because they are a lot more energy efficient.  So, an electric vehicle might be around 75 percent efficient in converting energy from the grid in the form of electricity to mechanical energy of driving your car.  Whereas a gas vehicle, it’s going to max out at 30 percent probably less than that.

CHAMBERS:   Wow.

BALL:   Yeah.  And you should consider the energy efficiency of, you know, fueling the grid as well.  So, like a natural gas plant, it will be like 60 percent efficient.  But even then, electric vehicles are just a lot more energy efficient.

CHAMBERS:   So, 70 percent versus 30 net on net?  That’s pretty significant.  Roughly?

BALL:   Yeah.  I – I’d bring it down to like -- you should consider the – how to power the electrical grid as well, so all –

CHAMBERS:   Yeah.  Right.

BALL:   -- I’d bring that down to 50 versus –

CHAMBERS:   Yeah.

BALL:   -- 25, 20, you know.

CHAMBERS:   Got it.

BALL:   Yeah.

CHAMBERS:   That’s still pretty significant.

BALL:   It’s significant, regardless.  The exact numbers aren’t that --

CHAMBERS:   Right.  Got it.  Okay.  So, then the Tesla 3, we, you know, first of all, you know, how long does those batteries last and then the big question is what happens to them?  Can you recycle them?  Or what the hell happens to those things?

BALL:   Yeah.  So, hopefully they last as long as possible and that’s a big part about battery researchers making sure your battery lasts very long.  It’s also one of the more difficult parts to research because the only way to really make sure your battery lasts long is to test it for as long as possible.

CHAMBERS:   Right.

BALL:   So, it takes a lot of time.  And there’s ways you can kind of get around that, that I won’t go into.  But after you’re done making, you know, after the battery is all used up, and used up is kinda (sic) a strong word.  It’s just the battery is not as good as it used to be.

CHAMBERS:   Right.

BALL:   But at some point, yeah –

CHAMBERS:   Okay.

BALL:   -- even a car, you need to take it apart, right? 

CHAMBERS:   Yeah.

BALL:   And then you can recycle the battery because it does have, you know, a few toxic elements to it.

CHAMBERS:   Oh yeah.

BALL:   But it’s also got a lot of valuable materials, so people do want to recycle this and there are companies that are focused on recycling batteries.  There’s kinda (sic) three major processes in which you would recycle a battery.  There is the first two which are kinda (sic) similar, pyrometallurgical and hydrometallurgical and pyro stands for fire.  That means you heat it up as hot as possible until you’ve got everything burnt off and separated.

CHAMBERS:   Okay.

BALL:   And hydrometallurgical means that you dissolve it in some sort of solvents, maybe like sulfuric acid.

CHAMBERS:   Right.

BALL:   And both of these can be fairly energy intensive to do.  Now companies are clearly, you know, investing these technologies because they think that in the end, they’ll end up making more money, right?  So, it’s still a net positive but the third way which I think we should probably lean more towards.  It’s a bit more difficult but it’s direct recycling and this means rather than taking a whole bunch of batteries, just miscellaneous batteries, grinding them up and then processing them, you instead take the batteries and because you know what they are, you know what’s inside them, you take them apart into their individual pieces and then you process those pieces.  But you need to know exactly what kind of battery you’re working with there, so –

CHAMBERS:   Right.  Right.

BALL:   -- the hope is is that the companies that make these batteries will also recycle them or have a very, very close relationship with the companies that do recycle them in order to –

CHAMBERS:   Right.

BALL:   -- make this possible.  But there’s just a lot of work that needs to be done to make this like a well-developed system.

CHAMBERS:   Right.

BALL:   You know, close (inaudible).

CHAMBERS:   So, all that stuff is still in -- getting figured out.

BALL:   Yeah.

CHAMBERS:   That back end.  Because the back end is, I mean, that’s super important.  I mean, you certainly don’t want to – I hear what you’re saying about the – it’s going to be dissolved in – some of this is going to get dissolved out in hydrochloric, you know, and then where does all that stuff go?  You know what I mean, like, I’m sure that there’s – because there’s – I mean, that – that – the chemistry of that can be really good but it can also be very detrimental to the environment, for sure.  So, and that’s kinda (sic) why I was, you know, getting at.  Like the full cycle of it, but the bottom line is they can recycle pretty – they can really do, if we focus on it, they can do quite a bit of – quite a good job of recycling those batteries and getting as much out of them as possible, okay.

BALL:   Yeah.  Yeah.

CHAMBERS:   All right, just out of curiosity, what – one of the things that we – why we went to oil was it, you know, the oil density – the energy density in oil is pretty impressive.  I don’t know exactly what the numbers are but, and that’s why we went to it, right?  So, in a gallon of oil, you can get X, whatever amount of energy out of it to do whatever.  Comparatively speaking, where are we at with batteries and where are we going to be in five years or ten years?  And how much better do we gotta (sic) be?  You know what I mean, like to really – to move the needle.

BALL:   Right.  Yeah, so you are correct that energy stored in like your typical gasoline is more energy dense than your typical battery and energy density has been something that people are working on.  It’s one of those things like, the total lifetime that people are trying to improve.  Right now, when we look at like a, you know, standard NMC battery off the market and compare it to the theoretical limit of how good it could be.  Like the – at a certain point it’s impossible to put more energy into it.  But theoretically you could get to 99 percent of that.  It looks like we might have like 30 percent more energy density if we really hit that ideal limit and that’s very broad number.  It totally depends on what battery you’re looking at.

CHAMBERS:   Yeah.

BALL:   That’s just the cathode side though.  On the anode side, we have graphite that’s usually the material.  But some companies are looking at using silicone instead.  I actually worked for one of these companies and I will say, here, again, none of my experience there informs these numbers.  I’m just reading off a tech --

CHAMBERS:   Yeah, I got you.

BALL:   -- (inaudible).

CHAMBERS:   I got you.  I got you.

BALL:   But yeah, they recently released a product and they claim it’s a 17 percent improvement in energy density on the anode side.  So, we can keep expanding the energy density.  Now the question is do we really need it?  It could be very useful for things like air travel because jet fuel is very, very energy dense.  It’s one of the most energy dense hydrocarbon fuels, out there.  But in terms of electric vehicles, we can see that range has improved quite a bit.  Even just the last five years.

CHAMBERS:   Yeah.

BALL:   For example, the first Nissan Leaf five years ago had a range of about 70 to 80 miles.

CHAMBERS:   Really?

BALL:   Yeah, and now, with the new Nissan Leaf the second generation can go over 200 miles.  And although that range is due to energy density, some of it’s just due to better architecture for storing the batteries.  So, you can put bigger batteries within your vehicle but it’s becoming to the point now where range isn’t as big as a concern as it used to be.  So, one of the things that is also still a concern that people want to improve in order to encourage people to buy, more electric vehicles is the rate at which you charge the vehicle.

CHAMBERS:   Yeah. I wanted you to get to that.  Thank you for bringing that up.

BALL:   Yeah, so gas vehicles you just – you go to a gas station, you fill it up, and it doesn’t take much time at all whereas charging an electric vehicle, you know, it might take a long time and people charge them up at home so, or like they’ll have a charger at work, hopefully.  You know, more and more chargers are getting built.

CHAMBERS:   Yep.

BALL:   But, and it’s – it’s totally fine if you’re just, you know, letting the car sit and you’re not using it.  But sometimes people want to take long trips and so they want to charge as quickly as possible and so the speed at which we charge is another area that people are looking to improve with the batteries.

CHAMBERS:   What’s the – are we basically going to have to go out and either, I mean, do you think that the charging stations will just attach to the gas stations for a while?  I mean, like how do – how’s that going to – I know that Tesla like has whole – their whole network and all that.  I mean, is GM going to have to build out their network?  Or, I mean – how – do you have any sense of how they’re going to do these charging stations?

BALL:   My hope is –

CHAMBERS:   And – and also, I didn’t mean – no -- and there’s that and also before I forget, like what’s the big like – do we need to get a big – is there a huge breakthrough that has to happen that’s way off on the horizon to get that charging time down and, or is there any other like way out, you know, event that’s got that, you know, we have to get over technical?  So, then the first question is charging stations, how – do you have any – and then also what’s the big breakthrough that we gotta (sic) make?  Like what’s the hang up right now, in your world?

BALL:   So, I’d say, in terms of improving charging rate, I don’t think there’s going to be like one big movement.  It’s probably a lot of incremental –

CHAMBERS:   Okay.

BALL:   -- adjustments over time that will –

CHAMBERS:   Okay.

BALL:   -- just keep improving.  In terms of charging stations, I would hope that every car would be able to have the same plug, right? 

CHAMBERS:   Yeah.

BALL:   We know that’s like, you know, charging your phone.  That’s not always the case, right?

CHAMBERS:   Right.

BALL:   Some phones have different plugs than others.  In terms of building the network though, I can say that building a charging station is a lot less intensive than building a gas station.

CHAMBERS:   Yeah.

BALL:   So, we have a lot of gas stations everywhere.  We’ve spent a lot of time building gas stations.

CHAMBERS:   Yeah.

BALL:   They’re where we need them at this point.  But, yeah charging stations, you have to – people are building them up very quickly because they haven’t traditionally been around.  And yeah, I would hope you’d have one at every gas station.  It might be – you can also put them at like a parking lot, say because they just take up a lot less space.

CHAMBERS:   Yeah.

BALL:   You know, perhaps in the future, you’ll go to the grocery store and they’ll be some spots that are also charging spots and you can plug your car in there --

CHAMBERS:   Right.

BALL:   -- and pay like cash or credit card.

CHAMBERS:   You’re seeing that.

BALL:   Yeah.  Yeah.

CHAMBERS:   Yeah.  You just have a credit card and – wonder what that would cost to fill up?

BALL:   Very, variable on the cost of energy.

CHAMBERS:   Yeah.

BALL:   And we’ll see where the cost of energy goes in the future as well, right?

CHAMBERS:   Well, that is exactly why I’m having you on because all this is the cost of energy and we have to have energy to make the modern world and the economy run which is relevant to all of us as investors.  And this is my point of doing this stuff because energy is the – I mean it just – it’s the base track, I like to say of the economy.  And I know that’s this really big, stupid, general idea but I just don’t – I think that, I mean, England is a perfect example.  Those guys are really – and China, I mean they really got their kinda (sic) backs to the wall on energy.  And you know, if you think about it, if I can set up – if I’m looking at setting up shop in England at a factory versus setting up shop someplace else, I’ve got to start thinking, like well, are they going to have enough freaking energy for me to run my manufacturing?  You know what I mean?  Like, this is what we’re talking about.  And that cuts into efficiency and all that stuff, you know what I mean.  And it’s really, really, really important that we keep an eye on these things and that’s why I want to talk to you about it. By the way, like, how long has, and this is just kind of a curious (sic), like the history of batteries, like the, like a battery – I mean when I would think of batteries, okay, I think back.  I was born in 1970 and about 1977 I got like a remote control, like a Camaro remote control car and it took – the remote took at least a nine volt and then the others took the little skinny ones, whatever those – AAs.  You know what I mean?

BALL:   There’s AAs and AAAs, yeah.

CHAMBERS:   Yeah, and I remember like, you know, god we’d go through batteries like crazy in that thing and I still have it, actually.  It’s, you know, it’s pretty cool but like when did that, that type of battery arrive on the scene?  Was that like a WWII thing?  Or – do you have any idea about that?

BALL:   I will say that it’s before 1977 because you told –

CHAMBERS:   Yeah, of course.

BALL:   -- me.  I actually don’t know.  I think –

CHAMBERS:   Let’s look that up.  If you – go ahead.

BALL:   Yeah.  The invention of the AA.

CHAMBERS:   I mean, just like batteries that you use like in a household, you know what I mean, like I wonder like, you know, like – it’s it’s a tangential thing and it’s not really that important to our conversation but I just kinda (sic), you know, like that’s what people think of, is batteries, you know what I mean.  And now we got to start thinking about them and putting them in cars, you know what I mean.  And how long is this, you know, obviously this chemistry has been around a long time and you can make simple batteries out of simple stuff, right.  I mean it’s just an electrical charge.  It’s not like it’s, you know – but –

BALL:   Yeah, you can make a battery out of a penny, a dime –

CHAMBERS:   Yeah.

BALL:   -- and some paper and some salty water.

CHAMBERS:   Yeah.  It must have been so cool to study this stuff when you were coming up.  I mean, you know what I mean.  It’s just interesting to me.  Now, that being said, that kind of leads me – and we’ll come back to the history of batteries.  We’ll figure it out.  I know you’ll find something with your big brain up there and you’ll send it to me, so (inaudible).

BALL:   Well, I’ve got the number on the screen right now.

CHAMBERS:   Yeah, there you go.  Yeah, all right.  What is it?

BALL:   It’s 1959.

CHAMBERS:   Okay.

BALL:   Eveready developed the first commercially viable, cylindrical alkaline battery.

CHAMBERS:   Got it.

BALL:   So, post war.

CHAMBERS:   Post war.  Okay, got it.  Okay, cool.

BALL:   Now, that leads me perfectly.  What – what’s happening in battery culture, you know, that you’re finding to be interesting and, you know, what’s coming to the globe in terms of – are we going to look at something and not recognize something as a battery in the near future?  Like, what’s – is it size, is it, what’s going on that you’re kinda (sic) interested in from a battery culture point of view without giving up too many secrets.  You mentioned a company called Sila?

BALL:   Yeah, Sila, yeah.  Sila was the company I worked at, you know, in California and they’re working on the silicone anode.  The actual material inside the battery doesn’t really have that much impact upon what the battery looks like.  Sometimes they come in cylinders like what people think of in terms of your AA battery.  Sometimes they’re more rectangular, you know a lot of the times, they exist in products and you don’t see the physical battery, you know.  Like I know I’ve taken my laptop apart and it’s got a really thin long rectangular battery.  But I wouldn’t know that unless I took it apart.

CHAMBERS:   Right.

BALL:   Yeah.

CHAMBERS:   So, the – yeah, go ahead.

BALL:   Oh, I mean, I guess you also mentioned battery culture. 

CHAMBERS:   Yeah, that’s what I mean, like, yeah.  Like, what’s cool that you, see?  Even if you’re not working on it, maybe there’s some other team that’s working on it.  You know, something.  That’s really cool.  I mean, and the implications of that, you know.

BALL:   Well, I think the fact that there even is a battery culture is kind of interesting.  Because they’re definitely is.

CHAMBERS:   Yeah.

BALL:   And honestly, I don’t participate much in it.  There’s a lot of like social media talk, right?  It – so I will say, like battery technology right now, there’s a lot of research, it’s very fast paced.  And if you really want to keep up with it, you need to kinda (sic) do it like a very dedicated hobby, right.

CHAMBERS:   Yeah.

BALL:   And you also need to be very cautious of misinformation.  So, what will happen is people will, you know, be on twitter.  A lot of times researchers like to post their articles on twitter so they get more people looking at them and you’ll have dedicated accounts that are just focused on like, maybe Green Technology as a whole but maybe just batteries as well.  And there’s a lot of people who are very excited about this.  Yeah, misinformation when we think about misinformation, it’s political.  That’s what people, you know, when they hear misinformation, they think political nowadays.  That’s part of it.  But a lot of it is just people who are very excited about this technology and they’ll be – they’ll have like their favorite type of battery technology and they’re really like hoping that that’s the one that takes off.  So, it’s kind of a horse race and people picked their horses and sometimes people can be a little blinded by which horse they want to win, you know. 

CHAMBERS:   Yeah.

BALL:   The other thing is there’s a lot of money going into battery technology.  A lot of startups coming and these are funded by venture capitalists who might have some technical background –

CHAMBERS:   Yeah.

BALL:   -- but maybe not as much and so you’ll have companies that have some pretty like wild claims and they’ll get a lot of funding.  A, because maybe the investor doesn’t know too much about technology but B, also because, you know, even if it is a wild claim, if it’s true, that’s incredible.  And if you invest in enough wild claims, if one of them turns out to be true, you’ll still make money, right?

CHAMBERS:   Right.

BALL:   Yeah, and then the other thing is a lot of – there’s a lot of blogs and tech journalists out there and, you know, because everyone is so excited, they want to get as many clicks as possible on their articles.  And the more incredible that that headline is, the more attention they’re going to end up getting.  So, they – they’re – they’re encouraged to exaggerate a little bit.  And so, I mean, it’s also like, they’re excited to be publishing the stuff.  They can sometimes make mistakes, right?

CHAMBERS:   Right.

BALL:   I’ve seen milliamps confused with milliamp hours, which are two totally different –

CHAMBERS:   Right.

BALL:   -- units of energy.

CHAMBERS:   Got it.

BALL:   Not energy, it’s currents and charge. And current is charge per second.  Like completely –

CHAMBERS:   Yeah.

BALL:   -- different units.

CHAMBERS:   Yeah, I get it.

BALL:   It’s a different thing, yeah.

CHAMBERS:   Yeah.  And that just happened, yeah with people getting excited.

BALL:   Yeah.

CHAMBERS:   And in a world, by the way, where there’s just absolutely just so much cash chasing opportunities.  You know what I mean?  And so, it’s a classic time right now especially with – we talk about this all the time but low interest rates in the world and just the way the demography, particularly of western developed economies, aging, there’s just a ton of cash.  And it’s – and there’s not enough opportunities, frankly, for all the cash to find.  And so, when they do find something, yeah, it can get a little bit frothy, they say, so.  Well, that’s cool.  And by the way, so you really focus on lithium ion as you’re – that’s the type – at the Richard Dahn Research group, is that what you guys kinda (sic) – kinda (sic) going back to battery culture.  Is that what you guys focus on?  Can you talk about that a little bit? 

BALL:   Yeah, so –

CHAMBERS:   What do you guys do?

BALL:   Yeah, most of the papers from that lab are lithium ion.  I know other labs are – you know, they’ll do like sodium ion, I’ve seen.  And, you know, different battery has different properties, might be used for different applications.  But I’d say, it’s fair to say, and this is an inexact opinion that lithium ion has really taken over in the last 20 years.  It’s the major battery that everyone’s interested in and it’s just because lithium is such a strange material that makes it very well suited for batteries.

CHAMBERS:   What’s strange about it?

BALL:   So, it’s number three on the periodic table.  So, there are two elements that have less atomic mass in it.  Hydrogen and helium.  We all know how light weight helium is and hydrogen is even a little more lightweight.  So, it’s this tiny, tiny little atom and the fact that it can hold a charge but it’s so tiny makes it perfect to be the counter charge to the electron which is actually what goes through your wires.

CHAMBERS:   Right.  Exactly.  So that’s what you guys – and I think I may have said Richard Dahn, but it’s Jeff Dahn –

BALL:   Yeah, Jeff Dahn.

CHAMBERS:   -- and he’s a big hitter in that world.  I mean this guy is like, because I was looking up top researchers and like a bunch in China, and – so he’s – he’s a pretty – that must be a great opportunity for a young guy like you to get under a guy like that, or person like that.

BALL:   Yeah, it – it is a great opportunity.  And yeah, that’s part of it. Like battery culture, we do have our celebrities, right.  I’m (inaudible) --

CHAMBERS:   Oh, yeah – yeah.

BALL:   -- don’t want people to see because, you know, but, yeah, he’s a bit of a --

CHAMBERS:   Can you please –

BALL:   -- celebrity.

CHAMBERS:   Yeah, can you send me a – I’d like a headshot of him with him signing it please after this if you could send it over, that’d be great.  Tell him I – tell him I said thank you.

BALL:   Yeah.

CHAMBERS:   That’s awesome.  Nice.  From charger burger.  I want a big charger burger in that guy’s mug.  That’s the headshot I want of him and he can sign that.  Tell him I said that.  I need that on my desk by next week.  Speaking of China, and we were talking about it earlier.  A lot of research coming out of there, huh?

BALL:   Yeah.  Yeah, I mean, yeah, we’ve read research papers.  You know, you write research papers, we also read research papers.

CHAMBERS:   Yeah.

BALL:   A lot of them come from China right now.  I mean, it’s a – it’s a big country, right?  So, expect a lot of research to come from there just because there’s so many people.   It’s really an international effort, I’d say.  You know, people that I’ve worked with have come from all over the globe, you know.

CHAMBERS:   Yeah.

BALL:   And people move around quite a bit.  Like I was in California last year, now I’m in Nova Scotia.  And yeah, it’s still North America but yeah, people in my lab, every continent.  I mean, other than Antarctica, you know.

CHAMBERS:   Yeah.  Well, it’s a global problem that we’ve gotta (sic) solve, right?  And yeah, we – the other -- we do a lot of discussion with China about you know, here.  I have another series on China and because again, it kinda – there’s a lot of – there’s a lot of information.  There’s a lot of misinformation.  And, you know, people are really scared that they’re technologically out in front of us at some levels.  So, I want, you know, and is that the case with batteries?  But it doesn’t sound like it.  It sounds like everybody’s kinda (sic) working on their own little thing.

BALL:   Yeah, I mean, I know that, you know, countries are concerned about, you know, who’s ahead in terms of technology.  To be honest, I’m not actually very much an expert on which country is ahead of which –

CHAMBERS:   Yeah.

BALL:   -- you know. 

CHAMBERS:   Yeah.

BALL:   Yeah.  It really depends on the specific technology.

CHAMBERS:   Specific space, yeah.  Exactly.

BALL:   Yeah.

CHAMBERS:   Because you can only – there’s only 24 hours in a day so what are you going to focus on, but, their definitely an incredibly talented industrious country.  I mean there’s no doubt – now the policy that’s – some of the policies that the government runs and you could say that for every country but is a, maybe a little bit off, you know, off base.  To say the least, but, you know, that’s a whole other thing, but, yeah, but definitely going to, you know, play a role and going to play a huge role in batteries and in obviously in solar panels, which you mentioned earlier.  Those guys have a huge place in the globe on that, so.  But, kinda (sic) talk about science and this is kinda (sic) one of the more macro than one of our last questions.  Science in general, you’re an engineering guy.  You’re involved with science.  We talked about Sabine Hossenfelder.  And for those who don’t know her, Sabine is German.  She’s a particle physicist.  I know you’re a fan and she wrote a book.  A really pretty seminal book.  I don’t know if you’ve read it.  Did you read it?

BALL:   No.  No, I haven’t.

CHAMBERS:   Okay.

BALL:   But I know about it, yeah.

CHAMBERS:   Yeah.  I think everybody – I think that follows science in anyway might.  But it’s called Lost in Math and for those that don’t know about it, I’ll put a link up to it.  I’ve listened to it on audible a couple times.  But basically, there’s a crisis in her opinion.  And it’s just her opinion but I don’t think it’s that far off base, in particle science.  And you say, well, what’s the big deal?  You know, why – why is that so important?  Well, and I’m sure you as a scientist or an engineering person can understand -- can elaborate on this but basically there’s a crisis because we’re not making progress.  And it may be just biased.  There’s a lot of factors as we said, you know.  There’s professors and their tenure and there’s lots of papers that don’t get – that have no impact whatsoever and lots of stuff.  So, you know, I don’t – are you seeing – what – do you have any comments on that?  On the scientific process and where we are and it seems like batteries are moving along really nicely.  But, you know, other materials science kinda (sic) walls that we’re at right now because of these – not making – not being able to make breakthroughs on the core, core basic, you know, rudiments of science, practical science.

BALL:   Yeah, I mean, so Sabine’s take is that, you know, a lot of theoretical physicists, and that’s her area –

CHAMBERS:   Yeah.

BALL:   -- they’re very, very eager to find elegant, simple solutions and sometimes, you know, the solution – the truth of the matter, it’s not so simple and it’s not so elegant.  And, yeah, I think it’s her opinion on theoretical physicist has not been moving as much as it has previously.  But I mean, like all -- here’s, what’s the word for it, a little story –

CHAMBERS:   Yeah, I love stories.

BALL:   Yeah, Max Planck, so he’s a very famous scientist –

CHAMBERS:   Yes.

BALL:   -- you know, did a lot of his research in the early 20th century.  And he was told by his supervisor at one point in time, that physics had mostly been figured out.  You know, there’s a few – a few things we could learn but it’s mostly a mature field and, you know, there’s not going to be any big discoveries.  And then later on he worked with people like Marie Curie and Albert Einstein to discover quantum physics and radioactivity.  And we found out, okay, there’s actually a lot more we can know, you know. 

CHAMBERS:   Right.

BALL:   So, in general, certain fields of science have, you know, big boom moments and certain fields have, you know, lulls.  Right now, I’d say yeah, batteries, you know, it’s kind of a boom moment.  It’s also because there’s so much interest in researching it.  And it’s not necessarily that we’re discovering batteries, we’re also kind of creating batteries, right?  But, it – it’s a little in between the two.  You know, you invent something by trying something and seeing how well it works.  Yeah, in regards to like, yeah there are papers which don’t really get cited too much.  And, you know, I’ve read papers where I’m like, ooh, I’m not so certain if that’s quite the claim that –

CHAMBERS:   Yeah.

BALL:   -- you think it is.  You know, where –

CHAMBERS:   Yeah.

BALL:   -- like, you know, yes.  Science, there will be mistakes and, you know, very often people are want (sic) to publish a paper and it may not come out perfect.  And regards to the tenure.  I know that that’s somewhat of a tenuous topic and, you know, yeah, it’s got good and bad elements.  But I don’t think it’s really relevant when it comes to bad science and published papers.  Because whether or not the university has a – that professor tenured or not, doesn’t really matter in terms or whether that paper gets published.  Because I think that limits whether a paper gets published or not is the peer review process where some researchers, you know, they put out a manuscript, you know, this is what I want to publish.  And then other researchers from around the globe read it and say, this should get published or this should get published with a few corrections.  And, I mean if a bad paper comes out, it’s because, you know, there was I guess bad peer review as well.  And it –

CHAMBERS:   Yeah.

BALL:   -- it totally depends on what journal it’s being printed in as well.  There’s some –

CHAMBERS:   Yeah.

BALL:   -- journals that are known for being very reputable.  Others that are known for, you know, publishing as much as they can, right?

CHAMBERS:   Right.  Yeah, yeah.  There’s – there’s politics and all sorts of stuff, you know what I mean, that we don’t know about.  But, well, I’m going to be continue to kinda (sic) watch this sentiment because kind of going back to the economy, like particle physics are the core, core, core, core right, of pretty much like all of science, right?  I mean at the end of the day, I mean like you kinda (sic) like, I mean you – we all learned that core, you know, physics, like if you’re going to go higher in science, you gotta (sic) take physics.  And it’s the, you know, it’s the building block.  So, it’s kind of – I – you know, it’s just – it’s a – it’s a – just her point of view on it, I just find kinda (sic) catching.  I was like, oh wow that’s – hadn’t really thought about that.  Because you take the stuff for granted.  You just assume – like, for me, from my point of view which is the most lay people, and we look at you guys doing these incredible breakthrough things.  We just assume you’re going to continue to do it and everybody knows what they’re doing and everything’s going to turn out great.  Well, you know, maybe that’s not the case.  You know, maybe we’re just taking these things for granted and in our lifetime maybe we’re going to be stuck up against some sort of wall and not be able to – and the reason why I bring that up is because it’s so important for our economy.  Again, going back to the economy.  It’s so important that we continue to be dynamic as a global economy and continue to grow and make breakthroughs.  And so, when you read a book like Lost in Math it just kinda (sic) is like, oh man.  Are we – is it even going to be cool for my children and my grandchildren type thing, or are we going to be jammed up here, you know, by – and that’s why I wanted to talk to you about it?  I don’t know if you have any comments on that, but, or maybe we’ve covered it.

BALL:   I mean, yeah, it’s – we’re talking about like what the future holds like, yeah, we can’t rely on these fossil fuels forever and –

CHAMBERS:   Yeah.

BALL:   -- you know, looking towards the projections people have for the climate.  It’s like this looks really, really –

CHAMBERS:   Yeah.

BALL:   -- you know, a dark and upsetting.  But, you know, like the one thing that also is growing exponentially though is our technological innovation.  And yes, you know, its perhaps right now, particle physics aren’t growing at the speed that some would hope but a lot of other technologies are, you know.

CHAMBERS:   Yeah.

BALL:   Yeah, like offhand, I’ll say, and this is definitely like a hot take, you know –

CHAMBERS:   Right, I got you.

BALL:   -- but –

CHAMBERS:   I love your hot takes, Mitch.

BALL:   -- (inaudible). 

CHAMBERS:   Yeah, go ahead.

BALL:   Biotechnology, I think is something that isn’t blowing up huge right now but I think it’s – it’s got little indications that maybe 10, 20 years, it’s going to be a really, really big field and we’ll be discovering things and creating things that we didn’t think were possible before.

CHAMBERS:   Yeah.

BALL:   So, a lot of it is just like wait and see but also, you know, let’s – let’s put as much as possible into trying out every possible solution for this one huge problem that we’re up against right now.

CHAMBERS:   Yeah.  Yeah.

BALL:   Yeah.

CHAMBERS:   Well, I gotta (sic) tell you, man this has been really cool.  I think the conclusion, you know, I like to – I think I’m making is is it sounds like we’re in good – in a good space in terms of battery research.  It sounds like batteries are going to be able to do what they need to do to power the fleet, right?  The transportation fleet.  It’s – we’re going to have trucks with these things and cars with these things and in your opinion, in 20 – what do you think, 20 years, most of the – in 10 years, I don’t know but my next car in the future is going to be a battery powered car and that’s the way this thing is going to go.  I mean that’s pretty much what you’re saying which is – which is good.  I gotta (sic) – do you think we could see a day in our lifetime where you could power a, legitimately power a plane with a battery?

BALL:   Maybe.  Maybe not.  And it’s – it’s because the jet fuel limit is hard to reach.

CHAMBERS:   Yeah.

BALL:   But that’s not saying that there isn’t a greenway to power a plane with jet fuel.

CHAMBERS:   Right.

BALL:   So, yeah, I’m not – I’m not convinced that we’re going to completely get rid of hydrocarbons in total.

CHAMBERS:   Yeah.

BALL:   But, you know, there is technologies, if you look at catalysis, people are looking at ways to create low carbon fuel.  And what that means is that they create fuel from carbon that isn’t found in the ground.  It isn’t found from, you know, a tree or any sort of bio –

CHAMBERS:   Right.

BALL:   -- thing.  They’ll actually take it directly out of the air and then process it and make it into a fuel and if you can make it very efficient, we could power planes with this low carbon fuel and, you know, that might be – that might be the energy future.  People even think we might do long term storage with chemical energy still.  I’ve read people say, you know, Australia, not a huge amount of people but a lot of potential for solar power.  It’s very sunny, not very cloudy in many parts.  And they think what we could do is have a ton of solar power out there and then that would power putting energy into chemicals like fossil – not fossil fuels but like hydrocarbons and like ammonia, for instance.  That’s something that we get right now through fossil fuels and something called the Haber-Bosch process.  But if we can make it just out of the nitrogen in the air and we need it for making food.  We definitely need ammonia.

CHAMBERS:   Oh, yeah.  Yeah.

BALL:   What might actually happen is that during half of the year, all these solar panels will be used to sort all of this energy and the chemicals that we use throughout the globe on mass and then, you know, at the other part of the year, where you don’t get as much sun, you can then use these chemicals until, you know, the next year comes around.

CHAMBERS:   Got it.  Wow.  Yeah, I also heard some – someone mention an author, I can’t remember the name of the book but, collect the suns energy in space, beam the energy down in microwaves.

BALL:   Yeah, I’ve heard that one too.

CHAMBERS:   Yeah.

BALL:   I’m less big on that one, I think.  I think that one’s probably less likely.

CHAMBERS:   Because of just – first of all you can be – you can – you can send microwaves and retain that energy and send it down and collect it and then put it on the grid?  Is that even – is that even possible to do that?

BALL:   So, you –

CHAMBERS:   I don’t know.

BALL:   -- you can.  The efficiency is kind of the concern there.

CHAMBERS:   Yeah.

BALL:   As well – it’s kind of hard to maintain a lot of solar panels when they’re all out in space, you know.

CHAMBERS:   Yeah.

BALL:   If it is a thing, it’s probably a very, very far into the future thing --

CHAMBERS:   Yeah.

BALL:   -- you know.

CHAMBERS:   Way out.

BALL:   Yeah.

CHAMBERS:   Yeah.  And then hydrogen, you know is – I think – you know the thing about it is I don’t think it’s one answer.  I think it’s a lot of answers because it’s always a lot of answers when you’re talking about, you know, in terms of where are we going to get energy?  It’s not one place.  It never is.  You know what I mean, so but again back to my point, energy’s, you know, keeping an eye on things and also looking for opportunities, you know what I mean.  To your, you know, startups turn into bigger startups which turn into this and then the big, you know, public companies come along and buy them.  And, you know, looking for, you know, where – where’s the growth trend?  Where can we see growth?  So, all this stuff is really important and I really appreciate you taking the time to come talk to us today.  I – I’d like to maybe in a year, follow up with you and just kinda (sic) see what’s going on or stay in touch, of course.  But I always like to bring people back and just kinda (sic) review the tape and say, hey, what are you doing?  What’s new, you know what I mean.  And its good stuff so, but Mitch Ball, I really appreciate it, you taking the time on a Friday.  Is it – what’s the weather up there in – what you got there?

BALL:   You know, we’ve kinda (sic) been going in between like nicer sunny days and a little colder days.

CHAMBERS:   Got it.

BALL:   I think we’re leading on nice and sunny right now, so.

CHAMBERS:   Nice.  Have the trees – are the trees – have the colors turned on the oaks and all that stuff up there, or are we passed it?

BALL:   Yeah.  The colors have changed, yeah.

CHAMBERS:   Or where are we at?

BALL:   They’re not all off the trees but it’s definitely –

CHAMBERS:   But it’s passed.

BALL:   -- the weather is turning.

CHAMBERS:   Yeah.  So winter is – winter is coming, but, you know, I lived in Binghamton, New York for a while.  I grew up there so, I understand that whole scene and I get it.  I actually see a bunch of people are posting on social that the area that I grew up in has been quite nice the past couple of days.  Like mid 70s and just the leaves are all out, so.  And Binghamton is a little south, you know, south of you.  So, a little bit, a little bit behind, probably a week or two behind your color up there on the trees, so.  Well, my man.  Thank you so much for the time.  I really appreciate it.  And have a great weekend and we will talk to you soon.  All right.

BALL:   Yeah, all right.  See you.

CHAMBERS:   Thanks, Mitch. 

BALL:   No problem.

CHAMBERS:   Later, bud.  Yeah man. 

(INTERVIEW CONCLUDED) 

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”  

Mitch Ball

Mitch graduated from the University of Waterloo with a degree in Nanotechnology Engineering. As part of his degree, he took a couple of internships at Sila Nanotechnologies with a focus on incorporating silicon material into anodes. Mitch works at the Jeff Dahn Research Group in Nova Scotia where he can expand his knowledge beyond silicon anodes and contribute to the solution to climate change.

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. Fidelity investments is an independent company, unaffiliated with Olde Raleigh Financial Group. Fidelity Investments is a service provider to Advisory Services Network, LLC. There is no form of legal partnership, agency affiliation, or similar relationship between your advisor and Fidelity, nor is such a relationship created or implied by the information herein.

Donor Advised Funds and Financial & Tax Planning in Raleigh, Durham, Chapel Hill or Cary 

Donor Advised Funds (DAF’s) help you fund your charities and manage taxes. You want to do good in the world. Tax management is a central part of your financial plan and Donor Advised Funds are some basic blocking and tackling in wealth the management process and the doing good. 

To be honest, on the surface, DAF’s are kinda (sic) boring. Harrison Miller, CAP®   Vice President, Charitable Planning Consultant at Fidelity Charitable is awesome and made it fun. Harrison is such a nice guy and put up with my meandering conversation. We started with his favorite coffee joint in his hometown of Atlanta and eventually got to his favorite charitable organizations. What are your favorite charities in Raleigh, Cary, Durham and Chapel Hill? 

 If you have never heard of Donor Advised Funds or need a refresher, please listen in. If you don’t use them, you are being underserved in your wealth advice. Let’s talk. 919.861.8212.  

 Here are some of the points we covered: 

·      Definition of DAF – how it works or at least how do you see it working best for clients? What is the history of this type of structure?

·      What role do they play in a wealth plan?

• Can you give me some example DAF’s in action?

• What can you put in a DAF?

• One receipt - your CPA will love you.

• https://www.fidelitycharitable.org/articles/how-potential-tax-reform-could-affect-your-charitable-giving.html

• Fidelity Charitable and the State of Giving.

• What’s CAP?

CHAMBERS:   Hey everybody.  It’s Trevor Chambers with Olde Raleigh Financial Group here in, I mean, it’s currently – I do see blue skies, so I’m going to say it’s sunny.  Okay, I do look outside here in my office here at 30 – 3110 Edwards Mill Road in Northwest Raleigh.  Every time I do one of these I look out and most of the time lately, it has in fact been sunny, so.  But anyway, Harrison, how you doing buddy?  What’s going on today?  How you doing?

MILLER:   I’m doing well, Trevor.  It’s – we don’t have quite the weather you do down in Atlanta.  It’s been mostly rainy today unfortunately. 

CHAMBERS:   It’s been rainy?  I heard that weathers coming our way, so.  Before I ask you – before I introduce you, the esteemed, Harrison Miller.  Before I do that, I have a huge, perhaps emotional and maybe even penetrating question.  Do you like coffee?

MILLER:   I love coffee.

CHAMBERS:  (Inaudible).

MILLER:   Absolutely love it. 

CHAMBERS:   Perfect.  Where do you go to get coffee in Hotlanta (sic)?

MILLER:   Well as with that, I saw the other day that it was national coffee day.  I’m not sure if that was last week but, yeah, pretty timely.  I – so I’m in Buckhead.

CHAMBERS:   Got it.

MILLER:   Which -- a lot of different places, but there’s the Atlanta History Center right next to me and there’s what’s called a Brash Coffee within the Atlanta History Center.  So, it’s really – it’s one of those fun places like you can go, like get a cup – get a coffee or two.  Do some work and you kinda (sic) feel like you’re in a library.  It’s – it’s fun.

CHAMBERS:   Oh, nice.

MILLER:  It’s a cool little spot.  About a mile from me.

CHAMBERS:   So, just for the record because I’m looking up Brash Coffee.  Brash Coffee in Atlanta.  All right people, if you’re going to Atlanta, or if you’re in Atlanta, we have a Brash Coffee.  I see it.  Okay, so there’s – oh wow.  Very cool.  Maybe even a couple of them.  All right, duly noted.

MILLER:   Yeah.

CHAMBERS:   I’ll throw one out.  I love Sola.  I meet people at Sola up on Leadmine here in Raleigh, North Carolina a lot.  I also like Cup A Joe.  I met a person – met a guy at Cup A Joe the other day and I’ll be honest with you, I do like Caribou.  I mean, they’re nice people and they’re right around the corner, so.  That’s coffee. We’ve covered coffee.  If anything, we have covered coffee, Harrison. So, now I’m going to move on to the introduction part of this whole thing.  So, once again, we add another episode, another song, if you will, to our podcast called A Soundtrack to a Financial Advisors Life.  Today we are recording a tax track.  I say that because we’re going to talk about donor advised funds and you know, we like to say to people, you know, Mr. Market or Mrs. Market – I don’t know why they call it Mr. Market, but I think it could be Mrs. Market too, you know.  Market’s going to do whatever he or she is going to do but one thing that remains constant is taxes.  And tax planning when it comes to your finances, and estate planning and all this stuff, so it’s pretty important.  And today, again, I wanted to bring in somebody who knows a lot about a thing called Donor Advised Funds or what we’re going to call DAFs.  Harrison Miller is vice president of Charitable Planning and he’s a consultant at Fidelity Charitable. Great company.  And he’s with Fidelity Charitable and he is a – he’s a cap.  First of all, you have a CAP certification.  A CAP certification.  What is that?  It’s very official.

MILLER:   Yeah, it stands for Chartered Advisor and Philanthropy and it’s, I want to say it was three separate tests that I took through the American College for Financial Services and I think one of the coolest things about it, I guess, I’m kind of jumping right to it, I’m actually in it.  Which is kind of cool. 

CHAMBERS:   What do you mean you’re in it?  What do you mean you’re in it?

MILLER:   Well, so on the third test there’s a case study on, I think it was pretty significant, you know, a family of wealth, 50 million dollars or so being allotted towards the charitable giving and it was like a panel of advisors, you know, accountants, attorneys, what have you, sharing their opinions on the way that this family should be thinking about giving given their background, their philanthropic goals et cetera.  But yeah, I was – it was great to be included in that.  I’ve actually – I’ve met the creator of CAP a few times at conferences here and there.  And I really enjoyed the program, when I did it.

CHAMBERS:   Excellent. I’m going to need that person’s name and because I’m going to have to probably take this whole thing to a higher power, if you know what I mean.  You know what I’m saying?  No, I’m just kidding, man.  Anyways, moving on.  Now that I have perhaps insulted you, I don’t know.  Anyway.  We’re going to talk about DAFs.  Okay. So, and I love having smart people on like you because mostly I just babble and then I ask smart people a question and they tell me smart – a smart answer.  So, I have a question for you.  What the heck is a donor advised fund?  How does it work?  And what – what role does it play in somebody’s wealth plan?  And then I have a couple follow on questions.

MILLER:   Yeah, that’s a great question.  So, if I was in, you know, an elevator with somebody and I only had a minute or so to explain a DAF to somebody, I would say that it’s a – it’s a vehicle for giving in the year that it makes the most sense to.  You’re then able to grow what you give, tax free within the vehicle and then when you’re able – when you’re ready to start making gifts to end charities, we help facilitate that for you.  So, what does that look like for a lot of folks between now and year end, it’s folks that are figuring out their financial picture for the year.  You know, maybe it’s a high-income year, maybe there’s a liquidity event about to happen or maybe someone’s right on the cusp of retirement and they want to take advantage of one of their last high-income years to prefund some – some future giving.  So, between now and year end, you have up until 12/31 to get a full fair market value tax deduction for 2021.  You can fund a donor advised fund with cash, but we also try to get people to think about other assets to give like long term appreciated securities, low basis stocks, bonds, mutual funds, etcetera.  And then we have a lot of capabilities around accepting non publicly traded assets too.  So, like if a client was selling a business, you – in the right scenario you’re able to donate a portion of that business ahead of the sale that – that might be happening down the horizon.  So, you know, let’s say you put 50 thousand dollars or 100 thousand dollars into a donor advised fund, any growth in the vehicle is just more that you’re going to be able to give out to end charities.  So, if you put 50 thousand in, you know, hopefully well above and beyond 50 thousand is what you’re able to give out to, you know, the favorite – your favorite 501c3 public charities that you like to support.

CHAMBERS:   Okay.  So, take me back, let’s unwrap this a little bit more because I, as an advisor, have seen this work and I understood everything you said but I think the best way to explain this is through a story.  Can you tell us a story, just of an – you know, just somebody just – doesn’t have to be an illustrious story.  But tell us a story about a client and how the mechanics work through the story so that people understand.

MILLER:   Well, yeah.  So, I would say that, you know, jumping right to it, like our median account holder is someone who’s 62 years old and is funding a DAF for $22,000.  And you – a DAF just as a side, really can be available for anyone at any dollar amount.  We have no minimum but we have programs for folks that where advisors can manage the DAF when it’s over two million dollars.  We have a program for folks where when the DAFs over three million dollars, they have a dedicated relationship manager.   But the primary story is an individual that is – that’s funding the giving they know they want to make in retirement.  That 62-year-old, so.  Let’s say it’s one of the last high-income years of putting aside maybe ten years’ worth of giving but they know they want to be supporting, you know, let’s say the University of North Carolina, their alma mater, the local soup kitchen down the street, what have you.  And for ten years, let’s say, and again this is like a typical profile.  They’re going to their donor advised fund to make the gift out of there and they again funded the account right before retirement in a high-income year.  And then maybe once the individual gets to 72, their taking advantage of utilizing the DAF for future gifts out to end charities or current gift that to end charity and then a combination of that, minimum required distributions once you hit 72.  So that’s kinda (sic) the median profile.

CHAMBERS:   Okay, so let me just follow up.  So, let me – let me – this is what we see a lot.  Just kind of a scenario.  A couple, okay, again to your point, 62 years old.  They have an inherited a low-cost basis stock, which of course they get the step up but, they – or let’s say they – no, better yet, they’ve had a stock for a really long time.  They didn’t inherit it.  They’ve had a stock for a really long time.  I don’t know they bought Home Depot fifteen years ago and it’s just this low-cost basis thing, right.  What we advise is give that away.  So, you want to give away stocks.  You want to give away assets and then if you want to take – if you were going to give away cash, I think what a lot of advisors say is give the advisor the cash and give away stocks through the donor advised fund.  But you could also do – can you – you can do land, you can do – can you do a company?  Can you do, like stuff like that too?  I think that’s what – okay.

MILLER:   Yep.  Yeah, you can.  So, yeah, privately held business interests, S corporation stocks, C corporation stocks, are – we have four attorneys on staff that help us with those.  So, you know, ultimately, we have to review each time.  A number of factors but the big ones are the – the transferability of the assets.  So, is it ahead of the legally binding sale?  And then also, what’s our exit as a charity.  But what you just mentioned, Trevor, I would say is like a pretty common scenario.  Take that Home Depot stock, like you mentioned –

CHAMBERS:   Right.

MILLER:   -- and donating the stock away and then let’s say that that’s a stock that, you know, the individual really likes, really cares about, would love to have more of that in the portfolio.  Sometimes what you see is people donate the stock away and then purchase more shares of it so it’s reestablishing the cost basis that you have and then that can create a cycle of how that individual gives.  So, they – as soon as the stock is over a year old, it’s eligible for our fair market value deduction when it’s given away.  When that stock is given away at that later date and, you know, really there’s the two-sided benefit of giving the Home Depot stock versus the cash.  You get the deduction and then your also eliminating the capital gains taxes on what you gave away as well and that, not to jump around but, that – that’s actually a pretty timely conversation right now because, you know, one of the big potential tax changes out there is Capital Gains taxes going up so the value in donating the Home Depot stock versus giving the cash away, you know, potentially it’s going to become that much more as capital gains taxes do go up like it looks like they could.

CHAMBERS:   Yeah.  Perfect segway.  I was on Fidelity Charitable site and there’s this article about how potential tax reform in ’21 could affect your charitable giving.  Like, people again, Mr. and Mrs. Market’s going to do what it wants but it’s pretty – I think we’re pretty sure that we’re going to have – taxes are going up so.  Is there anything, yeah, along those lines?  What are you hearing?  I know you guys listen to what’s coming out of Washington, pretty closely.  Is there any insight you might be able to add to that like, I don’t know if you saw this article but, you know, there’s – there’s – it looks like the brackets are going to move around and stuff like that are – maybe not the brackets but just the taxes – the levels are going to go up for sure across very specific areas.  So, is there anything you want to talk about with that?

MILLER:   Well, I would say the big two and yeah.  But, you know, really that the overarching, what I – so in my role I spend a lot of time talking to, you know, advisors, attorneys, accountants and it’s always good to get good insight from those folks.  It’s just a matter of how much.  You know, the initial proposal was for it to double, which would have been very significant.  It feels like it’s probably going to be less than that but we’ll just have to see there.  And then, you know, the other big piece in the charitable world that, I think is a potentially significant planning opportunity is the estate tax exemptions potentially going down.  So, your initial proposal was for it to come from a little over eleven down to three and a half.  And now it seems like it could be somewhere in the middle.  So, I mean for those less familiar with the estate tax exemption, so if you make a charitable gift before passing, you have the ability to minimize the overall amount that the – your estate is exposed to tax.  So, if the exemption is to come down significantly, you have more and more folks that would be above and beyond the threshold, whether its three and a half or five million dollars.  And having that estate tax exposure, so.  A charitable gift would be a way that to offset that.  So those are the two most prevalent ones and, you know, unofficially going back to capital gains taxes for a second.  Just seeing a lot of folks call us about business sales.  So, you know, this potentially could be, with the tax changes a really significant time to sell the business.  So, for folks that were thinking about selling it, you know, a few years down the road, with the, you know, potential for the capital gains to go up, you know, maybe that business sale gets moved up a few years.  And for folks that are doing the pre planning on charitable giving, you know, assigning a portion of the business ahead of the sale to eliminate the capital gains taxes, also get the deduction, but eliminate the capital gains taxes on what’s given ahead of the sale.  I’m getting a lot of calls on that right now.  So, those are the two big ones.  The ones I’m hearing about the most.

CHAMBERS:   That’s huge.  And you know just how it works here.  You know, we clear – Olde Raleigh Financial Group here, you know, we – our custodian is Fidelity and so, you know, we get access to people like Harrison to, you know, sort out these more complex situations so it’s a – and it’s a really, really great resource.  All right, that’s cool.  Yeah, but again, taxes are going up, guys, unfortunately.  The other thing that’s kind of cool about a DAF, it’s one receipt so your CPAs going to love you.  So, right?  I mean, you know, right now, you know – let’s back up, sorry.  If you don’t have a DAF, then what are you doing, right?  At the end of the year, or whenever, you’re writing checks and you’re sending it out and you send it out, you know, your four or five checks to your, whatever, one to church, this one to that and that one to that.  And you get all those receipts.  And then you gotta (sic) give all those to the – with all your other receipts, you gotta (sic) give them to the CPA.  With this, if I remember correctly, the magic, through the magic, you get one receipt.

MILLER:   Yeah, you get one receipt.  And then on top of that too, you know, let’s say you’re making, yeah let’s say you’re actually writing fifteen or twenty checks to charity each year, which is pretty common.  And all the while you probably have some low basis stock that you can be giving instead.  It’s just one receipt come tax time.  And then also, you know, let’s say a few of those gifts that you’re making are very specific.  They’re very specific.  Contacts at the organization, specific campaigns, it’s just – it’s kind of a shift in mindset to making the gift out of the DAF but once you do it once, you have all that information about each specific gift saved. 

CHAMBERS:   Yeah.

MILLER:   So, if you know you want to go in there and do it again next year, or if you want to make, you know, some sort of recurring gift, like a quarterly gift to one of your favorite charities.  You can set it up so that they go out, you know, as long as there are assets in the account, that they’ll go out on that recurring basis, if that’s what you would like to do, as well.

CHAMBERS:   So, it’s just – it’s just so easy.  It’s just such a logical thing to do.  And by the way, you can name – you can name it, you know, whatever – I assume like in the future if not right now, you probably have the Harrison Miller Charitable whatever, right?  Handing money out?

MILLER:   I do have my own.  I think I went with the Miller Charitable Fund which is (inaudible).

CHAMBERS:   You went with the Miller?  You didn’t go with the first name?  I mean, you’re – dude.  All right. 

MILLER:  That’s --

CHAMBERS:   Can we put –

MILLER:   -- some people really like that.

CHAMBERS:   Yeah.  How about coffee?  Can you give away coffee?

MILLER:   Yeah.  I’m sure – I’m sure there are some charities out there that – that are passing around coffee.  I’d have to – and, you know, kind of along those lines are – I don’t know if this is where you were going but, you know, we do rely on a lot of databases.  So, we’ve given to 330,000 charities life to date.

CHAMBERS:   Wow.

MILLER:   You can do lots of great research on those websites to find – to find your favorite charities and see what they’re up to.

CHAMBERS:   Right.

MILLER:   -- before you give.

CHAMBERS:   Yeah, and it has to be, you know, guys it has to be a 503c (sic).  I mean it has to be.  It can’t be just like, you know, Jim and Nelly’s Charitable thing that – you know it has to be like, you know, some documentation there, you know.  Right?

MILLER:   It does need to be a 501c3 in good standing, yep.

CHAMBERS:   Yeah.  And there’s plenty of those out there so anyway, you know, at the end, you know, we’re laughing and kidding but to be honest with you, I hate that phrase.  The sum total of it is, there’s a lot of giving – there’s a lot of places to give in the world, right?  And, so this is just a – just a smart way to do it.  It’s just a really smart way to do it because you’re going to do it anyway.  Do it like this because it really adds benefit to the charity, obviously.  And then it also adds great benefit to you.  So, think about those things.  Is there anything that you want to talk about with Fidelity Charitable?  Do you want to plug?

MILLER:   Well, you know, I think just specifically with us, I mean it’s been – it’s been a really, you know, you think about the last year and a half during the, you know, the height of the pandemic.  It’s been really like a great story for donor advised funds.  So, you know, right at the height of the pandemic when the stock market was down very significantly.  Down 30 percent, you know, whatever it ended up going all the way down to, a lot of folks turned to their donor advised fund to fund their favorite causes and give that to end charities because they had set aside those dollars in the years that it had made sense to and it was – it had been growing tax free for quite some time.  And then, you know, it’s still a great year for philanthropy overall last year.  You know, coming back from March, April of 2020 all the way to year end and there was some strong stock performance – stock market performance so, you know, funding donor advised funds in a lot of ways was at an all-time high as well.  So, you know, that was really like 2020 in a nut shell.  And, you know, right now with the tax changes that are out there, particularly those two that we talked about.  There’s a lot of pro planning opportunities for considering donor advised funds as a part of, you know, clients overall philanthropic picture.

CHAMBERS:   Do you – I just want to go back on one thing.  Is like donation of a privately held business, is that, I mean, fairly common or what?

MILLER:   I would say it should be more common.  You know, we –

CHAMBERS:   Yeah.

MILLER:   -- we have a – so in a given year, roughly like ten to fifteen percent of what comes in is non publicly traded.  Last year, we did about 600 transactions.  I think it was somewhere around 1.8 billion of what came in last year.  So, you know, very significant.  But what I will say with that is that, you know, we still get so many calls to our home office where the first, you know, (inaudible) says hey, I just sold my business and now I’m ready to open a donor advised fund.  And we’re happy to help but, you know, the real – the real value in the pre planning –

CHAMBERS:   There you go.

MILLER:   -- was on the way in.  Yeah, so.

CHAMBERS:   Yeah.

MILLER:   So, I would say – I would say, you know, we hope to hear about it more.  Just for the sake of, you know, not only saving folks on taxes but giving that person the ability to give, you know, that much more to charity on what, you know, they wouldn’t have been paying in taxes there.

CHAMBERS:   Yeah.  And, you know, and also kinda (sic) and I think you’ll concur with this.  And this may be an obvious statement but to be honest with you, sometimes it isn’t to people who own businesses but like, if you want to sell your business, it’s a big thought process and it’s just not something you just do overnight.  And it has to be thought through on so many levels.  And you can also, if you want to sell it in – if you want to sell a business, you’re out there right now and you’re listening and you want to sell a business that you’ve worked at for 25, 30 years, okay.  A small privately held family business, okay.  And you want to sell the thing in ’22, at the end of ’22, you’re already behind the eight ball.  I’m sorry, you are.  You have to be ahead of these things because it’s nuances like this that could mean a lot of -- number one a lot of good in the world and number two, tax savings.  And there’s so many other things, I’m not going to get too deep into it, but wouldn’t you agree with that?  I mean it’s like there’s so much out there to just consider and it’s really, you know, our job – Harrison and I, you know, to help clients do that, you know.  And kind of, you know, a lot of baby boomers are retiring.  They’re considering these things, right?  And they’re in that stage in their life where they, okay what am I doing?  And like selling a business is a major part of your wealth plan.  So, if you can do something like this to help mitigate some taxes, especially with changes at foot, I think what Mr. Harrison with the CAP certification, is consider it.  Consider it.  And call, and you can call Fidelity directly, right?  You got your own – what do you put your personal number up there on the website for them, or what?

MILLER:   Yeah.  I have – my phone number – my phone number is on the website but I would say exactly what Trevor is saying, it’s never too early to talk about that.  But it can be too late, so.

CHAMBERS:   Yeah.

MILLER:   One of the big stipulations on giving a privately held business interest is that generally speaking, it’s got to be ahead of the legally binding purchase and sell agreement. So, you know, every once and a while, have the not so fun conversation where it’s too late.

CHAMBERS:   Yeah.

MILLER:   If company A is already legally bound to selling to company B, you know in the eyes of the IRS, that’s already assigned income, so it’s an after-tax contribution.  So, you know, the earlier the better.  If there’s a letter of intent out there, that’s usually fine.  You know, there’s still time there, but, you know, even earlier than that.  So, we’re always happy at Fidelity Charitable to talk through any, you know, potential future client scenarios just so that you have everything in a row for when it’s starting to happen.

CHAMBERS:   That’s awesome.  Well, it’s been – this has been – this has been great.  And I hope that despite my babbling that we got some good content out of this.  And that people can really, you know, provide value.  Because, Harrison at the end of the day, I think that you and I, we’re just trying to provide value.  You know what I mean? 

MILLER:   That’s it.  And drink some good coffee.

CHAMBERS:   Drink some good, yeah.  Buy low, sell high.  Get the value, you know what I mean.  That’s what this is all about.  So, well, Harrison, I’d like to make this a bit of a series.  So, what I’m going to do, at least sometime in the next like twelve months, at the very least, we’re going to check back with Harrison Miller, CAP certification.  We’re going to check in with you and I want – I want every time we check in, I just want some riveting content out of you, you know what I mean.

MILLER:   Sounds good.

CHAMBERS:   But Charitable giving is fun, man. This is funs stuff.

MILLER:   (Inaudible).  Yeah, no would be happy to do it.  And you guys at Olde Raleigh have been great to work with.

CHAMBERS:   Yeah.  Thank you.

MILLER:   And, yeah.  You know there’s always something new and interesting to be talking about.  In the ten and a half years that I’ve been at Fidelity Charitable, so that sounds really good to me.

CHAMBERS:   Awesome.  Just one last one.  I may be catching you a little – I’m throwing an impromptu thing in here.  Is there any charity that you want to shout out to maybe in the greater Atlanta area?

MILLER:   Yeah, so I do a little bit of board work for two charities in Atlanta and, yeah, really, you know, the Atlanta Community Food Bank, actually like my grandfather was on one of the – he was on the founding board so it’s kind of one of these things that runs in the family.  So, love doing work for them.  Always been passionate about volunteering there and just, you know, helping with food and security, anyway that I can.  And then the Atlanta Ronald McDonald House charity is a really –

CHAMBERS:   Oh, nice.

MILLER:   -- cool subset of Atlanta – Ronald McDonald House charities that I got involved with a few years ago and that’s been great working with them as well.  In both capacities it’s really fun.  Like I do like utilize parts of my current role to, you know, help establish connections between donor advised funds and 501c3 public charities. 

CHAMBERS:   Oh, wow.

MILLER:   But doing anything volunteering wise for the both of them is great too.

CHAMBERS:   Oh, that’s super cool.  So, somebody could – a client could call you up and say hey, what do you got, you know.  I got some money and, you know, I’m doing this, that, and other things around here and now you know I’m connected but like what else is going on?  You know, like I like water.  Oh, okay well we have, you know, like of all these things that are doing water, you know what I mean.  So, like that type of thing?  Or whatever.

MILLER:   Oh, well, you know, I would say like from more – I think the big thing that whether it’s Ronald McDonald or the Food Bank or what have you, is just helping make charities aware of the capabilities of donor advised funds.

CHAMBERS:   Got it.

MILLER:   We’ve been giving, you know, I think a lot of times, and understandably so, like there’s always the – there’s always the pressure to get that, you know, immediate gift from a potential donor, so you know, sliding a check across the table.  But what I spend a lot of time, you know, helping those organizations out with is, hey, you know, let’s say you do have a Home Depot executive as a donor.  You know, they’re probably going to have restricted stock that might be a really good gift to give instead.  Or a business owner –

CHAMBERS:   I see.

MILLER:   -- that’s about to sell his business.

CHAMBERS:   Okay.

MILLER:   So, kinda (sic) just like establishing those connections –

CHAMBERS:   I see.

MILLER:   -- and making sure they’re aware of what, you know, if we can help going to the donor advised fund, and then making it easier for that charity to just receive cash.  That’s going to be the easiest for everybody.

CHAMBERS:   I see.  So don’t call Harrison and say, Harrison, I need an idea for water or anything.  Water charity.  Don’t do that.  But you can call him for things like, for example, where is his favorite coffee place and stuff like that.  But anyway.

MILLER:   That’s right.

CHAMBERS:   Exactly.  Well, I do want to say Harrison, this guy, guys, this guy is good.  He’s really good and your energy is great and you are very knowledgeable in what you’re doing.  So, if you have any questions, you know, want to get a little deeper with it, Harrison Miller and his team at Fidelity Charitable is a wonderful asset, so.  There’s a big plug for you right there.  You like that?

MILLER:   I did.  Thank you so much.  And, you know, I would say this.  You know, a lot of times, like this is when people are thinking about it.  You know, for us, like 60 percent of the whole year, in terms of donations, happens in the final six weeks, so. 

CHAMBERS:   Yep.

MILLER:   You know, to the degree that it comes up and, you know, obviously, call Trevor first.  We’re happy to help here at Fidelity Charitable.

CHAMBERS:   Thank you.  Yeah, you know, it’s got to be part of your year-end planning, you know, meeting.  And if you’re not meeting with your advisor, maybe a good reason why you’re not, but if you are, you know, bring it up.  And if he says I have no idea what you’re talking about or can’t do it.  You just call me directly or call Harrison.  But either way.  Thank you, brother.  I appreciate it.  I really, really do.  This has been fun and again like I said, we’ll do it again and if anything comes up, just reach out.  We’d love – you know, if you’re like hey man, I got a topic.  Sure.  Send it to me.  We’d love to do it and this is – just such valuable information for people and they just, you know, again, this is blocking.  Just basic blocking and tackling, so.  All right, brother.  Listen, I’m going to let you roll.  I’m sorry it’s raining in Atlanta but I do – I really appreciate e the time and thank you for this interview.

MILLER:   Yeah, well that’s what, you know, days like this where the coffee is the most important, right.

CHAMBERS:   Yeah. 

MILLER:   I got mine this morning.

CHAMBERS:   Yeah, and then maybe around 5:00 you have yourself a nice microbrew or something like that, you know what I mean.  Right?  Yeah.  Yeah.  I got it.  All right, well listen, keep trucking brother.  Thank you so much for your time and this has been Soundtrack to a Financial Advisors Life with Trevor Chambers from Olde Raleigh Financial Group, here in sunny Raleigh North Carolina.  Keep trucking man.  Thanks a lot.  Peace.

(INTERVIEW CONCLUDED.)

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”  

Harrison Miller

Harrison Miller, CAP is Vice President and Charitable Planning Consultant for Fidelity Charitable.  Harrison is a premier resource for charitable planning in the Southeast region.  He is responsible for building relationships with advisors, enhancing their understanding of Fidelity Charitable donor-advised fund program and discussing ways to incorporate charitable giving into clients’ overall financial and wealth management plans. 

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A Member of Advisory Services Network and should not be construed as a recommendation or investment advice. Investing involves risk including the loss of principal. Integrity Viking Funds is an independent company, unaffiliated with Olde Raleigh Financial Group, A Member of Advisory Services Network. There is no form of legal partnership, agency affiliation, or similar relationship between Advisory Services Network, LLC and Integrity Viking Funds, nor is such a relationship created or implied by the information herein. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC.

A Conversation with North Dakota-based Investor Mike Morey about the Energy Markets

This was a fun romp with someone who spends his professional time looking at companies in the energy field. Mike Morey is Chief Investment Officer for Viking Fund Management in Minot, North Dakota – right in the heart of the Bakken Shale Formation zone. Recent energy events have prompted us to do a series of podcasts on energy with more to come. Domestic energy poor Britain and China are among many other nations struggling to meet their countryman energy needs and with winter coming inventories of natural gas and other fuel sources are running thin. With that backdrop we thought talking to a guy like Mike would be timely.

Key points: 

• The advantage of being in North Dakota as a researcher of energy companies?

• What is an exploration & production (E&P) company?

• Macro implications of U.S. shale.

• Cost structure of producing gas from shale vs gas from other parts of the world.

• Why do you guys own the companies you own in the American Resources Fund? Do you have some energy commodities and if not why not?

• Are batteries and their supply chain actually more disruptive to global stability and increase overall net pollution than petroleum-based energy?

• Carbon capture - turns out you can bury the stuff.

• The energy sector response to environmental policy specific to global warming?

CHAMBERS:   Hey everybody.  This is Trevor Chambers with Olde Raleigh Financial Group here in, let me turn around and look, yes, actually, sunny Raleigh, North Carolina.  And Mike, how you doing today? 

MOREY:   I’m doing great.  How about yourself, Trevor?

CHAMBERS:   Good man. Good.  Hey, before I introduce you, I gotta (sic) big, big emotional question for you.  I just had sushi at a place down the street called Waraji and the crew here at Olde Raleigh, we love that place.  What are you – I know you’re out in North Dakota?  Where do you like to go to lunch like – I don’t know if you went today, but, where do you like to go?

MOREY:   Well, there’s this place off of Broadway owned by Angie and Shannon.  A great little pizza joint called Sammy’s Pizza –

CHAMBERS:   Nice.

MOREY:   -- and very, very family friendly place that I like to take the family or even sneak out and just grab a meal by myself. 

CHAMBERS:   Well, I always like to give shoutouts out to local restaurants so Sammy’s it is.  And we’ll talk about where you’re from a little bit but I’m feeling the sushi right now, so.  But anyway, once again, we are adding another episode, another song, if you will, to our podcast called A Soundtrack to a Financial Advisors Life.  And today we’re recording – I like to say kinda (sic) a base track.  In this case the base track is the base of our economy, the world economy really, and energy.  A story of energy is important as ever.  And today my hope is we dig deep or we pull back the curtains and take another level and understanding in what’s going on in that world.  I’d like to introduce my guest, Mike Morey.  He is a – he’s with Viking.  He’s a CIO actually.  Chief Investment Officer for Viking Fund Management out in North Dakota.  And I’m going to let you – I can babble through, you know, who you are and what that, but rest assured people, this guy has put his 10,000 hours in and he is what we call a master, I would say, in information about the energy markets.  So, Mike Morey, very nice to have you here.  Thanks for calling.  I haven’t talked to many people from North Dakota lately so how’s things out there, brother?

MOREY:   They are wonderful.  We’re actually going through quite a hot spell here lately.  Very abnormal temperatures for this time of year, here in North Dakota.

CHAMBERS:   Okay.

MOREY:   The weathers been great.  You know, the markets have been acting up pretty decent holding in there and –

CHAMBERS:   Yeah.

MOREY:   -- you know, just trying to – trying to keep a, you know, a balanced life.

CHAMBERS:   Yeah.  All right, well I really want to thank you for doing this because I just think, you know, one of the areas I’ve been researching when it comes to these podcasts is energy.  It’s just so important and obviously lately, I mean there’s been some interesting things going on over in Britain, when it comes to energy.  I don’t know if you have any comments on that but, tell me about – tell me brief background on you.  Who you’re with, what you do and then we’ll jump into some questions?

MOREY:   Yes, I’m married with three kids.  Graduated from Minot State University.  That’s in North Dakota as well.

CHAMBERS:   Now, where is that in North Dakota in relationship to, like give me a, you know, where we at out there?

MOREY:   It’d be north central.

CHAMBERS:   North central.  Okay.

MOREY:   Just north of the capital, Bismarck.

CHAMBERS:   God, it’s gotta (sic) just be beautiful out there.  It really has to be.  It has to be incredible.

MOREY:   Yes, it is.

CHAMBERS:   Yeah awesome.  And tell me about Viking Fund Management.

MOREY:   Yes, we are a unique mutual fund company, you know, that has different mutual funds, you know, whether it’s a municipal bond fund attached to a single state.  We have a high-income fund that is sub advised by JP Morgan that has an excellent track record.  We have our integrity dividend harvest fund that is, you know, our kind of a safety dividend, equity approach that allows, you know, our clients to invest in the equity side of the market without taking on excessive risks all while getting a far better dividend yield than you’re going to get from, you know, either bonds or the S&P 500.  We have an integrity ESG growth and income fund that focuses on sustainability.  The portfolio team there, Trey Welstad and Josh Larson have done an incredible job of managing that particular portfolio.  And the fund that we’re, I guess going to be overlapping a little bit with the topic today is our integrity Mid-North American Resources Fund, which, you know, focuses on US shale, as well as, you know, the all – all of the above approach when it comes to energy so including some renewable exposure there as well.

CHAMBERS:   I just want to – so, yeah let’s focus on that – that area for sure.  And I kinda (sic) – before we started, I said to you, you know, you guys are in North Dakota.  Like, there’s gotta (sic) be some advantage of being where you are given that focus of research that you guys do.  Can you talk about that a little bit?  Because I think that’s kinda (sic) interesting.

MOREY:   Yeah.  Absolutely.  And, you know the fund was absolutely developed by a, you know, a former portfolio manager, Bob Walstead (sic) on the idea of what was occurring here in the Bakken and it was an absolute boom and we’ve created this fund as an investment opportunity for share, our shareholders, you know, to partake in that massive growth that we were witnessing in the Bakken.  You know, so when I started as a research analyst for this fund back in 2010, you know we would frequent the field.  We would head out into the Bakken and talk with companies and see what’s going on.  You know, we feel – truly feel that gave us an upper hand and advantage when investing in energy. 

CHAMBERS:   Yeah, I would imagine.  Especially compared to everybody else in the country, especially on the coast so that’s fabulous.  That sounds like it’s in your blood.  I know you wanted to talk about – I would like to go back to the shale thing.  But first I know one area you wanted to talk about was exploration in production business model – the E&P companies business models.  You want to talk about that a little bit?

MOREY:   Yeah.  So there has been a remarkable evolution within expiration and production companies, how they are running their business.  So, let me go back to the early days of shale, you know call it circa 2009 through 2014.  It was kinda (sic) a grow at all costs kind of a business model that they were taking.  And their shareholders were loving it.  I mean, they were seeking out to the expiration production companies with the, you know, the best wells and the highest growth rates and they were getting their rewarded via their share price.  What occurred though, is there was a prolonged period of overinvestment that caused the global supply inventories to swell, be way over supplied and that’s what caused the significant pull back in crude oil prices, you know, back in 2014 –

CHAMBERS:   Right.

MOREY:   -- where OPEC elected no to cut and we saw a significant pullback in crude oil prices which in a sense sent a message to these expiration production companies that in a sense burned investors multiple times in a row to change the way that they run their business.  So, what has happened is these expiration, production companies have gone to a much more shareholder friendly focused approach where instead of like back in the day spending one hundred plus percent of their free cash flow, you know back into the drilling programs.  You know, they’re now maybe spending maybe 40 to 50 percent of their free cash flow and returning the remainder to their shareholders.  And this is – its’ definitely a better approach.  They are no longer destroying capital.  They’re creating capital.  Investors are, you know, kind of forcing it upon them and actually these companies are getting rewarded.  So, a good example would be Devon Energy.  They were the first mover in what I’d call the variable dividend approach.  You know, where they highlighted, they’re going to maintain their, you know, their traditional dividend but they’re also going to implement a variable annual dividend which actually they’re paying on a quarterly basis of 50 percent of their free cash flow.  You know, so, you know looking at this here, that could, you know, equate to a possibly six, seven percent dividend yield by the end of this year and –

CHAMBERS:   Wow.

MOREY:   -- possibly double it – double digit dividend yield by next year.  You know, other companies like Pioneer Natural Resources (inaudible) have followed suit, so.  You know, this is a very powerful move because it provides stability to production.  You know, as well as capital being returned to shareholders.

CHAMBERS:   Kind of the perfect storm.  It’s kind of what you’ve been waiting – this is why you’ve been – so it’s maturing, it’s a maturing situation now and it’s getting a little bit more less, you know, wild west, if you will.

MOREY:   Absolutely and, you know, on a positive front, you know this – it’s kind of like they’re in a prove it moment and I think they’re proving it right now as crude oil prices have climbed dramatically but their capital budgets have remained stagnant.  So that’s telling me they’re not chasing crude oil prices anymore.  They’re committed to this capital discipline.  And that’s going to draw back investors and allow further upside for their stocks.

CHAMBERS:   So, let’s stay on the subject of stocks.  Like, I’m starting to get the impression of what you guys look for but, why do you guys own the companies you do own in the American Resources Fund?  Like what’s you’re discipline?  What’s your – what are you looking for and also I’d – do you actually own any of the actual commodities – do you have a commodities sleeve in that mix or is it all 100 percent just companies, equities in the fund?

MOREY:   Yeah, 100 percent equities in the fund.

CHAMBERS:   Okay.

MOREY:   And what it comes to investing, you know, in the energy sector, you know we like to keep our portfolio well diversified across the different industries within the energy sector.  And what we do is we’re trying to seek out companies that we consider best in class within the respective industry.  You know, so our portfolio is predominantly – it predominantly owns conventional energy but we have begun to diversify, probably over about the last year and a half, two years into some renewable energy stocks.  And we feel this is appropriate, given that, you know, the United States is on the verge of a decade long path to electrification and the growth prospects within renewables are going to be fairly robust but by owning, at the same time, looking back at conventional energy, the backdrop for conventional energy right now is looking very promising as, you know, it appears as if we’re kinda (sic) going through a period of time where the markets trying to absorb the OPEC barrels that were cut during the pandemic but, you know once that’s absorbed, the capital budgets that we’ve seen across the world, you know, are far too light to meet the longer dated demand growth figures of the world.  Kind of went on a little bit of a tangent there, but kind of gave you back – getting back to our portfolio and what we invest in.  You know, right now our favorite industry is expiration production companies based off of, you know, what we’ve discussed with their capital discipline and their strong free cash flow.  But we do also like refiners as well.  Right now, they’re benefiting – they’ve seen some pretty – very good performance recently on the heels of the mandates set forth by the renewable fuel standards.  They reduce the level of blending required, you know, which is certainly going to help their margins.  On the EMP front, I kind of highlighted Devon Energy.  You know, and Pioneer and ConocoPhillips.  One thing we like about ConocoPhillips, is their taking a little bit different approach than Devon Energy.  Instead of having a variable dividend, they’re planning to pay out thirty percent of their cash flow from operations which, you know is a little different than free cash flow because it comes before a couple line items.  But it does kind of true up capital discipline even more, in the fact that it is coming directly out of the cash flow from operations.  And they said that at 30 percent payout is what they’re going to come in at and likely, possibly take that to 40 percent.  I was just on a call with them last week and you know, that’s kind of what they were highlighting.  You know, but their dividend approach is strictly fixed, not variable.  And, you know, I think that’s much more sustainable in the longer term.

CHAMBERS:   Nice.  And by the way Mike, I like when you go on tangents.  You know what I’m saying?

MOREY:   I can.

CHAMBERS:   I like it because you’re engineering nerd out – out there.  You know what I mean?  I mean, like I said, you’re the – I love it.  It’s very cool.  Well, it sounds like – essentially you sound like a classic investor in the sense that you love good stewardship of funds.  I mean it’s like when you have cash coming into the business, what are we doing with it?  When we have an investment coming in, what are we doing it and are we good stewards of it and that’s a critical piece.

MOREY:   Yes.

CHAMBERS:   Sounds like you’re looking for that.  Yeah.

MOREY:   Yes, absolutely and that’s kind of part of the reason why I wanted – when we were constructing this portfolio, having that healthy balance between conventional energy and renewables, you know, kind of provides a different flare for our portfolio that you’re not going to see in a lot of energy portfolios that are strictly conventional.  You know, but on the conventional front, we’re looking for, you know companies with high ESP standards and you can find that in their pitch books and their, you know, their quarterly earnings clause that they (inaudible) can really truly get a sense for, you know, what these guys are doing to improve, you know, their carbon footprint.  You know, whether it’s carbon capture and storage.  You know more emphasis on reducing flaring, use of electric frac fleets.  Carbon offset projects like those windmills and forestation.  You know, these are all things that are going to allow them to, you know, be better stewards of the environment. 

CHAMBERS:   Yeah, so that kind of segways me perfect.  I was going through your site and it’s – and there’s some great information, man.  You know, especially about our energy – the US energy production and like shale.  And I’d love for you to talk about it.  You’ve got a great slide and I think, if I can, compliance allowing and if you guys are cool with it, I might even link to it, you know, within this post when it gets up, but tell me about shale.  Because I think it’s something that people are underappreciating and there’s some misinformation about like we are a massive energy producer and like I think in 2018 we became a net largest exporter of energy or something like that.  But this is your world so you tell me – I guess what I’m trying to ask here is, big macro question.  We got this shale revolution.  Tell me about it from your perspective and where does it help the US line up in the world from a strategic point of view?

MOREY:   Right, so prior to the shale revolution the United States was in a perpetual decline of oil production as well as natural gas too.  You know, so when the shale revolution first got kicked off, it was predominantly targeting natural gas.  You know, and that – what happened it basically caused our natural gas prices in the United States to go from double digits – well into the double digits to sub three dollars.  You know, granted we’re seeing a little bit of a bump here recently but that’s just because of the demand uptick primarily due to weather.  But it created, you know, much more affordable natural gas and we saw a lot of coal to natural gas switching.  You know, so it’s positive for the consumers and it’s positive for the environment because gas is significantly less, you know, has a significantly less carbon footprint than (inaudible).  So, that’s, you know, the initial benefit.  What happened then was a couple operators, EOG and Continental Resources, you know decided they were going to utilize the technique of fracking which includes horizontal drilling – the combination of horizontal drilling and hydraulic fracture and they were going to do that to Bakken.  And it just set off a frenzy of land acquisitions and because of the huge success.  You know, so what hydraulic fracturing has done for our country is significantly reduce the strain on the consumer and made our country much more energy independent.   You know, our natural gas production is absolutely skyrocketed over the last fifteen years and same with the oil production, you know.  From 2009 to you know, 2016 we added millions and millions of barrels to our production which ultimately got us to, you know, a net exporter of energy.

CHAMBERS:   Can I ask you a question about the actual oil coming out of the shale?  Is that pretty heavily processed, like what – what’s its cost structure versus say something coming out of Russia versus something coming out of the Middle East?  Because I understand the Middle East is the purest of oil and requires the least refinement to actually then be allowed into your tank.  Is that true?  I don’t know if that’s –

MOREY:   I would say it’s opposite.

CHAMBERS:   Oh, okay.

MOREY:   It has, yeah so as OPEC’s production, you know, continues to mature, their oil declines the specific gravity of the oil continues to decline and the sulfur content continues to increase.  Which makes oil technically dirtier.

CHAMBERS:   Right.

MOREY:   What we get from shale is high specific gravity oil that is very, very low of sulfur which is much easier to process and refine.  It’s also being on the lighter side, you know, that once it goes through a refinery you get a higher gasoline and diesel cut than, well I guess more predominantly, jet fuel and gasoline cut than you’re going to get from heavier barrels of oil. And also, from that standpoint it’s kind of a pro, it’s kind of a con because some refiners do like the heavier oil because the diesel demand has been, you know, holding out fairly strong compared to gasoline demand here, recently due to the pandemic.  But you know overall shale barrels are highly desirable.

CHAMBERS:   Interesting.  Okay.  I thought – okay.  So, it’s pretty, relatively speaking, it’s not the – it’s kind of cheap to turn shale into gas that you can put into your cars.  Is that what you’re saying?

MOREY:   Well, it goes through the standard refining process, you know, --

CHAMBERS:   Okay.

MOREY:   -- and it depends on you know, the affordability, you know on the consumer front is going to depend on, you know, where crude oil prices are and if they’re refining cracks, spreads are running.

CHAMBERS:   Got it.  Okay.  All right, cool.  I appreciate that clarity because I’ve often wondered that, you know.  I’ve heard different things, so, all right.  That’s awesome.  And again, a guy like you would know, you know.  So, let me ask you something, we talked – you just mentioned electrification.  Do you think it’s going to take ten years?  I think it’s kind of longer than that, don’t you think?

MOREY:   Yeah.  I mean simply put, the policies in place towards electrification have to be balanced.  We can’t allow runaway energy prices.  We’re seeing it over in Europe, you know, and their policies are a direct cause of that.

CHAMBERS:   Yeah.  I want to talk about that a little bit.  Sorry, go ahead.

MOREY:   So, they’re – they’re dealing with, you know, some outages of their North Sea windmills. You know, as well as, you know, weather issues that have impacted demands it’s looking like they’re going to enter this year about 17 to 20 percent underneath five-year averages of natural gas which is a very bad setup and that’s why we’ve seen, you know, their natural gas prices skyrocket at one point into the thirties per MCF.  So, the policies have to be balanced.  You know, and what it’s going to allow, you know, is basically conventionals, you know will be filling the void as technology continues to improve and allow renewable to be more competitive.  So, I think the current administration and, you know, democrats will continue to push aggressively towards a faster pace of electrification.  But I certainly think there needs to be balance and if they push too far and energy prices go up, the consumers they’re going to tell them to pump the brakes. Because you know, one thing is for sure.  Higher energy prices effect the lower and middle class far more than they do the upper class.

CHAMBERS:   Like, I interviewed a guy about a month and a half ago.  A guy from London.  He’s a business strategist.  He consults, you know, big publicly traded companies, whatever.  And he talks about ESG and he talk – you know, this guy, but it’s funny – I’m actually reached out to him just this morning because teeing up this podcast because he was kind of calling what was going to happen.  Like this whole issue that England is having, he called it.  Like this was coming.  He knew this was coming, you know what I mean.  And he saying, you know, it’s it really strikes an economic disadvantage – we’re really economically disadvantaged over here because of our – the way things are set up.  So, I mean how do they get out of that?  I mean, other than just CapEx.  A ton of CapEx into energy, right?  London has, right? 

MOREY:   Yeah, perhaps put a little bit of revisions on their policies in place –

CHAMBERS:   Okay.

MOREY:   -- such as the carbon tax.  You know, when it starts weighing on the consumer, you know that’s a really bad thing for your economy.  And high natural gas prices, high energy prices are just a start there.  You know, if they are sustained higher, everything else gets more expensive.

CHAMBERS:   Yeah.

MOREY:   You know, and then you have runaway inflation that makes it even harder to control.  And also making exceptions for certain policies is certainly one way they can address the issue at hand right now.

CHAMBERS:   We’re very lucky in this country to have that shale.

MOREY:   Yes, we are.

CHAMBERS:   It’s just like people just don’t get it.  I mean, it’s just like it’s unreal that we, you know, and the ingenuity of the American engineers.  I mean it’s just, you know, to push it over.  What’s your thoughts on batteries?  I mean, I posed the question, where are we going to get all the materials to put into these batteries?  Like there seems to be – there’s going to be a lot of investment in trying to find all the stuff that goes into batteries as well as technical innovations too.  I mean, do you have any thoughts on that whole thing?

MOREY:   Right.  So, you know on the United States fronts, we’re certainly not nearly as blessed when it comes to rare earth metals than we are on the conventional side.  However, expiration, you know, is underway and they are finding rare earth mines all across the country.  You know, it’s yet to be determined the economic feasibility of them but as it sits right now, most of the rare earth metals are over in Asia.  So, you know, that’s going to be important for the United States to, you know, have legitimate access to rare earth metals so they are competitive on that front.  You know, because the world is going that direction.  You know, so just as we want to be energy independent on the conventional side, we’re going to want to have the same thing in place when it comes to rare earth metals.  You know, as far as your question on batteries.  Ultimately, since the lithium-ion batteries have not come along ways – they have seen some modest improvements but I think it’s going to take another technological breakthrough in order for, you know, EV’s and battery adoption to, you know, truly, truly start to take market share.

CHAMBERS:   Yeah.  I guess so.  Was it Ford just put like six or seven billion into batteries?  I don’t know the details of that deal but that’s a lot of money.

MOREY:   Yeah, they – I don’t have the exact figure but they made their largest investment ever as a company, you know, for batteries and electric vehicle manufacturing.

CHAMBERS:   Now, I just have to wonder like, you got these batteries right.  I mean, like to my point going back to like how we’re going to source all this stuff.  I mean, I have to step back and say to myself, are batteries actually like net actually worse for the environment?  I mean I don’t know.  I mean – I mean obviously we gotta (sic) cut greenhouse gasses.  I understand that but those batteries are not, I mean, that’s a lot of bad stuff that happens between getting the stuff out of the earth, making it, disposing of it.  You know, I just, I don’t know.  I wonder.  I wonder.  Yeah, go ahead.

MOREY:   I agree with you on that.  I would agree with you on that.  That batteries are far from clean.  You know, but they are a step in the right direction.  And technology will continue to improve and help lower the carbon footprint of the extraction of the metals and minerals that are required for batteries.  Also, recycling is coming a long way which will also, I mean add additional reduction to the carbon footprint of the extraction front as if you recycle you no longer have to extract additional ones.  But that is yet to be determined the true feasibility of recycling and reuse.

CHAMBERS:   I was talking to another, a portfolio manager, a colleague of yours out there in portfolio management world and his – he also is an energy guy or at least part of what he looks at is energy, kinda (sic) like you.  And, he said, you know, don’t get – don’t discount the hydrogen as a potential fuel for moving people around in cars, so who knows. You know, I think, but it’s going to be interesting to watch for the next 20 or 30 years.  Because I think that’s what it plays out.  It’s a decades long thing.  It’s never going to end. 

MOREY:   Yeah, hydrogen is certainly going to be, you know, the fuel of the future but right now the economics of it are – it’s far too expensive.

CHAMBERS:   Yeah.  Yeah, exactly, so.  All right.  Well, that’s good.  That was great, man.  Thank you for that.  I appreciate it.  That was a very – was a very – but a little bit wonky discussion we went into right there about all that stuff, so.  Which I like.  Do you – what’s your thoughts on the energy sectors?  You touched on this earlier but the energy sectors response to environmental policy, specific to global warming, I mean, you know, not everybody agrees that global warming is going on and to be honest with you, I don’t know.  I mean, but, yes.  But how do you think – is it genuine and I – it sounds like it is.  I mean, they’re putting their money where their mouth is and, you know, what do -- where do you see this going?

MOREY:   Yeah.  Yeah, so I’ve lumped that into ESG, you know, on the E side, the environmental side.  It is not just important.  It’s a necessity for these energy companies to adopt ESG standards, you know, to lower their carbon footprint to become, you know, better citizens.  And it’s happening.  It is very tough to find an energy company that mentioned ESG in their investor presentations five years ago and now you can’t find one without it.  It’s important to investors and it’s important for them, you know, to be much more responsible and, like I mentioned earlier, they’re taking on a lot of tasks.  These major oil companies, you know, like Exxon, are implementing carbon capture and storage programs, basically capturing the carbon, you know, out of the air and depositing it under ground.  One interesting thing is once you inject carbon into the ground, it compresses significantly once it reaches a depth of, I believe it was 1,000 feet to the point where these underground caverns or beds can hold a significant amount of carbon and actually, you know, be, you know, a solid storage way.

CHAMBERS:   Really?

MOREY:   Yeah.

CHAMBERS:   So, you put it 1,000 feet below the surface and it just starts to compress and then you – the it – wow.

MOREY:   Yes, correct.  You know, so other things these companies are doing, you know, I mentioned the flaring has, you know, significantly reduced and that is coming a long way.  You know, these expiration production companies are using a new technology called electric frac fleets.  You know, so that helps them lower their carbon footprint if they’re using an electric frac fleets versus a diesel operated one.

CHAMBERS:   Right.

MOREY:   And then I think I mentioned carbon offset projects so that would include windmills and (inaudible) has made progressive stuff there on their windfarms as well as forestation.

CHAMBERS:   Do – what do you think of the carbon offsets and like, do you think we’re going to get to like what a carbon credit costs?  I mean are we at the – I mean – does that, you know, have to be kind of a government mandated thing?  I mean, what – do you have any thoughts on that?

MOREY:   Yeah, I think it’s probably going to have to come from the government if there’s any, you know, mandates on what a ton of carbon costs.

CHAMBERS:   Yeah.

MOREY:   You know, I think there’s – I think there’s a lot of research that needs to go into that to kind of get a better understanding.

CHAMBERS:   Yeah.  Yeah.  All right.  Very, very cool.  All right, well I – go ahead.  No, go ahead, please.

MOREY:   Yeah, you know, but like getting into the carbon offsets, you know, the number one best way, you know, to offset the, you know, your carbon footprint is hands down, forestation.

CHAMBERS:   Yeah.

MOREY:   There’s also other ways.  I mean, carbon credits are out there.  When people can use those to, you know, hypothetically offset.  So basically, you buy a – buy a credit and let it expire and that in a sense is a lowering your emissions.  So, you’re taking that carbon hypothetically out of the environment.

CHAMBERS:   Yeah.  Yeah, you gotta (sic) love trees.

MOREY:   Absolutely.

CHAMBERS:   You gotta (sic) love trees.  We have a lot of – we’re actually called the Oak City, here in Raleigh, North Carolina and so we’ve got oaks all over the place and, yeah.  North Dakota – do you guys – is – how’s the fishing out there?  Do you guys – is it hunting, like where you are?  Is it more hunting or mor fishing or both or what’s going on out there?

MOREY:   I’d say it’s pretty balanced.  You know, I’m not an avid fisher but we have a lake, Lake Sakakawea, that’s nationwide known for, you know, solid wildlife fishing.

CHAMBERS:   Really?

MOREY:   But I’m more of an avid hunter.

CHAMBERS:   You are, okay?  What do you like to – what do you guys – caribou?  What the hell do you guys have out there?  You guys have massive things I imagine.

MOREY:   Well, we have white tail deer.

CHAMBERS:   Okay.

MOREY:   But my favorites pheasant hunting.

CHAMBERS:   Oh, all right.  Cool.

MOREY:   Beautiful birds.  Very thrilling to hunt.  Absolutely delicious.

CHAMBERS:   Yeah, nice.  Now do you got like the hunting dog and everything and that whole deal or what’s up?

MOREY:   Yes, we do.

CHAMBERS:   Nice.  What kind of dog is that?  Is that a pointer?  Or what the hell is that?  What do you got?

MOREY:   Surprisingly, it’s a golden doodle.

CHAMBERS:   Get out of here. 

MOREY:   And I didn’t –

CHAMBERS:   You can teach that –

MOREY:   -- I didn’t have much expectations for how good of a hunter he would be because they’re not known for it.  But poodle breeds are pretty smart and last year was his second-year hunting.  Kind of his first full year –

CHAMBERS:   Nice.

MOREY:   -- and he did exceptional.   He did absolutely exceptional.  He was able to pick up a lot of birds that we would have likely walked by.

CHAMBERS:   Nice.  Cool.  Yeah, I am not – I’m a guitar player, myself.  So that’s my kind of hobby, you know, among – and golf and stuff.  After all, I’m a wealth advisor in Raleigh, North Carolina so you gotta (sic) play golf, you know what I mean.  So –

MOREY:   Yep.  Absolutely.

CHAMBERS:   -- if you can’t – yeah, yeah.

MOREY:    One thing I’ve found with golf though, is lack of repetitions does real harm to one’s handicap.

CHAMBERS:   Yes.  You have to – you have to get all your bad swings out, Mike.  That’s what you have to do.  You have to focus on getting all your bad swings out so, yeah, you gotta (sic) swing it a lot to get it going, so.  Well, is there any other words of wisdom that you would like to bestow upon us here?  Any final comments?

MOREY:   Well, I think, you know, when it comes to investing, in particular the energy sector, you have to be disciplined and calculated with how you do it.  And, you know looking at, you know the cyclicality of the energy industry over the past several decades, you know, you can make a lot of money or get burnt.  You know, so we feel the approach that we have taken is going to kinda (sic) take a little bit of that cyclicality out of it.  You know, as we’re investing in, you know, the highest quality companies, you know, that have proven track records, that are good stewards of the – at least progressing to become better stewards for the environment.  You know, being the energy sector, you know it’s imperative that you take steps there and also, you know, when it comes to carbon reduction there’s not one single industry that has the potential to do what the energy sector has when it comes to reduction of their carbon footprint.  Because they are the largest pollutants, you know. 

CHAMBERS:   Yeah.

MOREY:   So, you know, they have the potential to make the biggest impact, you know when it comes to the overall carbon footprint of the world.

CHAMBERS:   Yeah.

MOREY:   You know, but getting back to investment in energy and how we do it, you know, our balance approach, you know, with a blend of conventionals and renewables, you know, will likely, I think provide us with an edge over our competitors and as this progress and renewable technology continues to improve, I would assume that renewables would become a larger portion of the portfolio as time goes by.

CHAMBERS:   Yeah.  Well, I’m – it’s going to be interesting to see it play out.  I’m – I have a feeling you’re right on that and this is great, man.  I would love to do this again, you know. Maybe we can review the tape, you know, after a year or something like that and come back and do this again and see what’s going on with you guys. But, Mike, I really appreciate the time.  I really do and I appreciate the introduction to your company and I’m sure my listeners—our listeners here at Olde Raleigh are going to dig it.  So, you know, energy’s a big deal and we, you know, I call this A Soundtrack to a Financial Advisors Life. And what that’s basically about is, Mike is, I’d like to get insight to our clients and our potential clients on what we listen to.  What does a wealth advisor listen to and one of the things you gotta (sic) pay attention to is energy?  It’s such a huge, you know, it runs the whole deal, right.  So, this has been right up that alley and I totally appreciate the time.  So, listen keep trucking.  It’s Thursday.  Okay, it’s Thursday.  Only one – wait basically you got the – a couple more house and then you got the Friday and then you’re rolling into the weekend and I’m sure that’s going to be awesome so, thank you.  Let’s stay in touch.  And I appreciate the time.

MOREY:   Absolutely and thank you for having me, Trevor.

CHAMBERS:   you got it bud.  All right.  Thanks a lot.

(INTERVIEW CONCLUDED)

CHAMBERS:   That was a fun one with Mike Morey. That was great about energy.  One more addition to the podcast to A Financial Advisors Life.  If you live in Raleigh or Durham or Chapel Hill or Cary and your google searches are things – lately have been things like financial advisor near me or financial planner near me or financial – fee only financial advisor near me, maybe you just want to circumvent all that searching and just put in olderaleighfinacnial.com.  That’s Olde with an E at the end.  We’re actually not old, but we do love things like old school human connections through conversations.  Because conversations are the root of every long-term relationship.  So, keep trucking out there.  Thank you for listening and we’ll see you soon.

Trevor Chambers

Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”  

Mike Morey

Mike joined Integrity Viking Funds in 2009. He had been a research analyst for Viking Fund Management, LLC prior to being named Co-Portfolio Manager for various funds managed by Viking Fund Management, LLC.  Mike received a Bachelor of Science degree in Finance from Minot State University. In addition to Co-Portfolio Manager of various funds, Mr. Morey is Chief Investment Officer for Viking Fund Management, LLC.

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

A conversation with Cary, North Carolina based mortgage broker Sherry Riano

In a world flush with cash, 30-year fixed mortgages below 3% are the norm and home prices are elevated. It is certainly a sellers’ market in Raleigh, Cary, Durham and Chapel Hill but the challenge is finding a place to move to. Housing inventory is tight while labor and materials are in short supply. The likes of Apple and Bandwidth.com are setting up research centers stocked with well paid workers who will all need places to live. With all that going on at once we decided to talk to a mortgage broker and get their perspective on the real estate market.   

With over 20 years of experience in the mortgage industry, Sherry Riano exudes a deep passion for helping families in the Triangle financially obtain their dream home. The energy of this interview was great. Sherry has seen the ups and downs of the business cycles over the years and is no doubt a leader in her industry.  If you are thinking about buying a home please listen. Lots of insights into the RDU real estate market.  Here are some of the topics we discussed. 

Key Points

• Mortgage industry landscape

• Local market update – what are you seeing, hearing, etc

• Any thoughts on the Fed’s eventual tightening?

• What are you most optimistic about and what do you see as challenges for our market?

• What advice do you give first time homeowners?

• Differences and impacts of a 15yr vs a 30yr mortgage? In your view, what role does a home play in someone’s personal balance sheet? VA Loans and the pleasure of serving our military families.

Hey everybody.  It’s Trevor Chambers from Olde Raleigh Financial Group.  We are putting one more stack, one more piece to the stack on The Soundtrack to an Advisors Life and we call this – that’s the name of our podcast here.  And, you know, I like to say that we’re building the soundtracks.  So, one more album and what album are we going to talk about today.  We’re going to talk about the broad topic of mortgages which is a pretty huge part of our – when we talk about people and their net worth, we talk about mortgages and let me tell you something.  It’s a process.  It’s a big deal for our finances and it’s a dynamic market you’re dealing with with homes and, you know, Raleigh, Durham and Chapel, there are not enough homes.  We’re going to talk to somebody about that today.  And so, and we’re going to talk about mortgage rates which are just – I just find to be in the history of mortgage rates I think are just interesting we’re in a period now where they’re very, very low.  And what happens is, in the low interest rate environments, risk assets, defined as real estate and equities go up in value.  Riskless assets, i.e., treasury bonds, go down.  So, we’re in that period right now where we’ve had this long run, three years, and at some point, you know, that might change.  And so, I think that’s an interesting world.  But what happens is, your home values go up and now I’m going to segway into Sherry Riano.  Sherry, please – who are you?  What do you do?  And who do you love?

RIANO:   Well –

CHAMBERS:   Was that pretty good?  How’d I do?

RIANO:   You did really good.  That was smooth.

CHAMBERS:   I mean, was that smooth?

RIANO:   That was very smooth.

CHAMBERS:   I bobbled it a little bit on the transition but we’re going to get it.

RIANO:   But I love it.

CHAMBERS:   Okay, cool.

RIANO:   Love it.  Love it.  Love it.  So real.  So, Sherry Riano.  I’m a mortgage lender.  Been one for a little over 22 years in this area.  I love my family and I also love the ability to get other families into homes, so.

CHAMBERS:   Yeah, that’s fun.

RIANO:   Yeah, it’s great to see somebody get their piece.  From a first-time homebuyer from, you know, people that are moving up because it’s their second, third home or, you know, people that are downsizing.  It’s still a great day.

CHAMBERS:   It’s transitions.

RIANO:   Yes.  And we all have transitions.

CHAMBERS:   What about renters?  Do you get into that?  Like do you sell to renters?  No, no, no.

RIANO:   No.  No rental.  I’m always happy to help people that are renting.

CHAMBERS:   Yeah.

RIANO:   — to qualify for the mortgage.

CHAMBERS:   Okay.

RIANO:   But the rental piece is not something that I deal with.

CHAMBERS:   Yeah, okay.  Cool.

RIANO:   Strictly mortgage lending.

CHAMBERS:   Yeah, got it.  Okay, cool.  So, 20 years’ experience.  Twenty-two years of experience.  So, you know we like google, right.  And so, we’re going to talk about some very specific things like google.  Because this is what our potential clients are talking about.

RIANO:   Right.  Exactly.  Google –

CHAMBERS:   Okay, so I want to talk about – well, let me open it up.  What’s the – what’s your big message right now in the market when it comes to consumer?  What should the consumer, first and foremost be looking for when it comes to looking for a partner in –

RIANO:   In the mortgage?

CHAMBERS:   Yeah.

RIANO:   Local.  Use the word local.  And the reason I say that is that we have partners that we’ve worked with for 22 years, you know.  Whether that is somebody in your seat, someone in the insurance seat, someone in an appraisal seat.  There’s a lot of pieces that you have to think about.  Realtor side.  I mean, there are so many potentials so you want somebody that you can depend on.  Not somebody that sits eight states over and has no idea what’s going on in our market.  

CHAMBERS:   Yeah.  Yeah.

RIANO:   It’s not – I know some people think oh my gosh it’s a – you’re getting – you’re costing me a 1/8th more in rate.  Maybe I am but the amount of service that will be delivered and getting an appraisal that may not come in short because I have local appraisals on a local panel versus having somebody again a state away that comes into our market and goes I don’t understand.  I don’t know how to justify these – this appraisal.  It could cost you a lot of money.

CHAMBERS:   Yeah.

RIANO:   All of a sudden that 1/8th saved you a lot of money.

CHAMBERS:   Yeah.

RIANO:   And we’ve been doing that a lot lately.  I have been saving deals from online lenders left and right and that – and I mean some of the appraisals will come in a 100,000 short.  My appraisers go out and somehow, we make the number.  Well, the appraisers have to report to the appraisal board so it’s not like it’s some magical thing we can do but they understand the trends and the dynamic of our market.  

CHAMBERS:   Yeah, and take us through the problem when it doesn’t appraise.  What’s – what kind of horror stories –

RIANO:   Well, sometimes people don’t have money to gap the difference and if they’ve signed an appraisal gap in the contract, that’s a problem. They’ve lost their due diligence.  The seller’s not willing – I mean the sellers sitting here thinking well, I had 17 offers so I can just go back on the market.  Right, so they don’t have to reduce the price of the house.  So, we lend off one of two things.  The lesser of the two.  The purchase price or the appraised value. Okay, so if you want to put 80 percent down, that’s what we agreed, on the contract but then the appraisal comes in $20,000 less.  You’ve gotta (sic) gap that difference.

CHAMBERS:   Yeah, that’s a problem.

RIANO:   Now, there’s ways to do that.

CHAMBERS:   Yeah.

RIANO:   I can do it.  You may have a little bit of mortgage insurance and I was having a conversation with somebody, I think it was yesterday, it could cost you $37 dollars more a month but you wouldn’t have to give up the additional $20,000 dollars.

CHAMBERS:   Is that for the – is that for the life of the mortgage?  The $27 –

RIANO:   No, it’s the PMI and based off that —

CHAMBERS:   So, it wears off? 

RIANO:   — dynamic, you’re looking at it would probably be on there for five years.

CHAMBERS:   Yeah, okay.  But it wears off, okay.

RIANO:   It does. It comes off.

CHAMBERS:   Yeah.

RIANO:   So, you know that makes sense.

CHAMBERS:   Yeah.

RIANO:   Especially when you’ve got – maybe that $20,000 dollars you’ve got sitting extra in an investment with you, maybe that’s making five to eight percent.

CHAMBERS:   I like that idea.

RIANO:   I talk about that with clients all the time.  It makes sense, right?

CHAMBERS:   Why does it make sense?  Oh, Sherry Riano, tell me why?  I like this.

RIANO:   Oh, it’s so easy.  If I – if the mortgage you have is three percent but the money, you’re investing is making five to eight or whatever it may make as I – that’s not my wheelhouse, right?

CHAMBERS:   Right.

RIANO:   I just know how lucky I am to have people like yourself making me this kind of money with my money.

CHAMBERS:   Yeah, okay.

RIANO:   IS why would you want to invest it in a property where you can make more money?  Let your money work –

CHAMBERS:   Elsewhere.  And not necessarily in equities but something —

RIANO:   Something else, yeah.  There’s – and that’s where we need a specialist as much as yourself.

CHAMBERS:   Thank you.

RIANO:   But it just makes sense.

CHAMBERS:   Yeah.  So that kind of leads me to this and they we’re – I have some more specific questions about the mechanics –

RIANO:   Sure.

CHAMBERS:   — on different types of loans.  I do want to talk about that.  Like VA loans and all that stuff but what role then, when you net it all out do you think a home plays in someone’s wealth plan?  And maybe I’m getting a little outside by asking you – what –

RIANO:   I talk to people about it all the time.

CHAMBERS:   Yeah, and what value does it actually bring?  The home you live in?  I’m talking about the home you live in other than, of course, the warmth and all that.

RIANO:   Yeah, and the family love.  We all get that.  But let’s just talk about dollar, cents and financial security is first and foremost, right?  Secondly, while you’re paying down your mortgage so you’re constantly building equity.  Never mind the equity that is going around in our market escalated by the income of all these new companies coming in, right?

CHAMBERS:   Yeah.

RIANO:   Our values are escalating at such a high rate.  It used to be in North Carolina, we are about three percent depreciation, you could count on it.  I mean right now we’re just way over.  I mean, I’m getting contracts that people are offering on homes for 100,000 dollars more.  It’s crazy.

CHAMBERS:   Yeah, so let me ask you something about that three percent and now, so what’s it eight?  What did you just say?  It’s now – it usually is three and we are –

RIANO:   We are roughly about; I think we are at 25 percent right now.  

CHAMBERS:   No.  Twenty five percent?

RIANO:   We are.

CHAMBERS:   Wait our national average is three – did you say growth?

RIANO:   Our national average for us is three percent.

CHAMBERS:   But we’re 25?

RIANO:   Uh-huh (yes).  Think about that.

CHAMBERS:   That’s insane.

RIANO:   Yes.

CHAMBERS:   Annualized?

RIANO:   Annualized, yes.

CHAMBERS:   So that’s not going to continue forever.

RIANO:   It won’t continue forever, you’re right.  But I was having this discussion –

CHAMBERS:   Because over time, you have –

RIANO:   It’s going to do that.  Up and down.

CHAMBERS:   Yeah, and then it nets out and then they put – that’s the other questions I wanted – so finish that statement, then I have another thing.  I interrupted.

RIANO:   That’s okay. My point being –

CHAMBERS:   And I haven’t even had wine yet.

RIANO:   I know, right.

CHAMBERS:   We’re getting rowdy over here, I mean.

RIANO:   And we haven’t even had a glass of wine.

CHAMBERS:   I mean we will, okay.  It’s the prize at the end.

RIANO:   I know.  I love the prize at the end.  Anybody who knows me, knows I love that prize.  Anyway, you know –

CHAMBERS:   We gotta (sic) talk about that –

RIANO:   — I know my point being though, if you go back and look at where we were in 2008, okay, in this market and appreciation.  Just in general, okay.  When the rest of the country was really, really hurting, all right, we had pockets that felt the loss, right, of when everything melted down.  Values went down but we were still having some appreciation of anywhere between one to two and a half percent.

CHAMBERS:   Yeah.

RIANO:   — in this market.  Right, so this little gem never quits shining.

CHAMBERS:   Yeah.

RIANO:   Right?  Because we had not been so overheated.  Now people perceive right now that we’re overheated but then you have to step back and look, are we really?  With driving forces of Apple and Amazon and Google and all the other companies that are coming to make us the new little mini silicon valley.  Is that –

CHAMBERS:   I mean –

RIANO:   That’s what I’m hearing. 

CHAMBERS:   Yeah, yeah that’s good.

RIANO:   And so there’s no reason to believe that – will they flatten out?  They simply have to, right?  It’s like anything.  When people talk about the stock market, they have to.

CHAMBERS:   Yeah.

RIANO:   And I apologize that was my phone, but –

CHAMBERS:   No, no, it’s all good.

RIANO:   Speaking of an appraisal issue.

CHAMBERS:   Let me tell you something about this person right here.  She is responsive.  She is on it.

RIANO:   I try to be.

CHAMBERS:   Yeah.

RIANO:   I like to be there for my clients.

CHAMBERS:   Yep.  Man, it’s huge.

RIANO:   You know, I –

CHAMBERS:   And you – yeah –

RIANO:   — want to be there when they need me.

CHAMBERS:   No, no.  That’s important, so.  Anyway.

RIANO:   Ten minutes later, won’t be good, but, you know, it will.  It will even out.

CHAMBERS:   Yeah.

RIANO:   You know what I’m saying?  Because going back to stock market, right, everybody’s oh, you know, we’re due for correction.  I think everybody believes we’re due.  Now what does that correction look like?  I don’t know.  I think we all wish we had that magical crystal ball we could rub and go boom; this is when it’s going to happen and this is how much it’s going to be.  We don’t.  But we know it will happen.

CHAMBERS:   Yeah.

RIANO:   And so, just like with the stock market, the appraised values are going to do a little correction.  We’ll get back to a normal three and five percent.

CHAMBERS:   Yeah.

RIANO:   I don’t know exactly, what day that will be but it’s coming.

CHAMBERS:   Yeah.  And 25 is probably – yeah, but –

RIANO:   I mean, yeah, that’s hot, right?

CHAMBERS:   But it’s still – I mean, I could see it being – I could see it being the steady – on average maybe six, seven over the loan.  Now, that’s net of paying for the roof and paying for –

RIANO:   Right.  

CHAMBERS:   So, there’s that.  And so, you know, to me, I think the home represents, to your kind of point, it’s the nest egg because the growth at the end when you net it all out on the expenses, you gotta (sic) take that out.  You gotta (sic) take the taxes out.  You gotta (sic) take the mortgage and –

RIANO:   Yeah, and all that stuff has to come out.

CHAMBERS:   Funding the mortgage and all that stuff piles up so then what do you net?  You know.  But it’s a storer of wealth.

RIANO:   It is.

CHAMBERS:   And you need that as a componentry of your plan – of your wealth plan.

RIANO:   Right.  I agree with you totally.

CHAMBERS:  (Inaudible).

RIANO:   We’re on the same plane.

CHAMBERS:   Did we – we say it’s all about the conversation here in Raleigh, Durham and Chapel Hill.  That’s more SEO awards right there. 

RIANO:   There you go.

CHAMBERS:   I like that.  Okay, good.  Okay, so where do you, a couple things here, well let’s talk about VA loans.  I know that’s something that you guys wanted to talk about and then you’re licensed in a couple more states including Florida.

RIANO:   I am.

CHAMBERS:   Nice.  So, and then jumbos.  

RIANO:   Okay.

CHAMBERS:   So whatever order you want to talk –

RIANO:   Well, let’s get on VA.

CHAMBERS:   Okay.

RIANO:   Okay.

CHAMBERS:   Let’s get it done.  Because we love our veterans.

RIANO:   I love my veterans.  

CHAMBERS:   Yeah.  That’s so cool.

RIANO:   I mean, you know, people say this all the time and I don’t know if they say and they hear it and they really understand it but freedom is not free.  Okay.  I can’t speak for you.  I don’t know if you’ve served.  I’ve not, okay.  But I will tell you is I don’t know I have what it takes to pick up a gun and go to Iraq, go to all these places that people go to protect our freedom.  Hands down.  Whatever they need, and for me I’m very passionate about it.  

CHAMBERS:   Good.

RIANO:   My father served, my grandfather served, my uncle served, my grandfather – one of my grandfathers was in Pearl Harbor so I mean it’s very important, you know.  And I appreciate what they do for me.  I mean, if I see somebody that is in uniform, I always just walk up and just say – now I don’t care what uniform.  Police, emergency, naval, I don’t care who you are.  If you’re wearing a uniform, I always walk up to you and say thank you.  I don’t want anything; I just want to say thank you because I could not do those things.

CHAMBERS:   Yeah, no, no, no.  I – number one I barely can tie my shoes and I’m sort of scared of, you know, things so I definitely have not – yeah, those people that do that stuff, we all – yeah.  

RIANO:   Yeah.

CHAMBERS:   So, opening that up, like what special things should we be — so those people in those positions, tell me about VA loans and what –

RIANO:   Yeah, well VA loans allows a veteran buy a home at 100 percent financing which we go back to the money and having the – because they don’t have as much money.

CHAMBERS:   No.  And they’re –

RIANO:   They’re well undercompensated.

CHAMBERS:   That is one area that – I’m glad – I don’t mean to interject but they don’t get access to this really good, I think, they’re underserved.

RIANO:   Yep.  Yep.  I agree.  They are well underserved.

CHAMBERS:   On all — and it’s sad.

RIANO:   And in this market, you know, a lot of times realtors because they don’t, and not all realtors, there’s a lot of great realtors but there are some realtors that are brand new don’t understand and they think, well I don’t want to take a VA loan because you know, the appraisal might do this or the – but then, what are you saying?  What are you saying?  I mean, if the veterans made a strong offer and the only reason, you’re turning it down is because it’s a VA loan.  Think about that.  Go home tonight and think about that.

CHAMBERS:   Yeah, I got you.

RIANO:   It’s not right.  But you need to educate yourself if you’re going to be in real estate on the realtor side is to understand the variables and the difference between a conventional and a VA loan and FHA loan and by the way if you don’t know, please call me.  My office number is 919-234-7415.

CHAMBERS:   There you go.

RIANO:   I am – I’m happy to spend that time with you because it’s something you need to understand, right.

CHAMBERS:   Yeah.  Education does not stop.

RIANO:   Oh gosh no.  When you stop learning you just die.

CHAMBERS:   Yeah, and it doesn’t.  In our business and obviously there’s just continuing education that goes on that we have to do in our businesses but, you know, if you – I don’t think you can ever stop learning and you know, in running a business.  It’s a crazy time running a business right now.  Talent, right?  Finding talent is –

RIANO:   Very difficult.  To find the right talent, the right – and talent is also the right drive.  The right desire.  The right ability to sit at this table and connect.  Like I could bring my team in here and we are seamless.  And though I am the name of the team, we talk about it all the time, without them, there is no team, there – that name is just another name in a book.  And every person on my team is invaluable to what they do.  And I have worked for years to find this right team, so blessed to have them all.

CHAMBERS:   Yeah.  That’s twenty years of work right there.  That’s twenty years of like blood, sweat and tears and like, you know, there’s great days and then –

RIANO:   There’s not so great days.

CHAMBERS:   — there’s bad days.  And bad days –

RIANO:   Can be bad.

CHAMBERS:   Yeah, they’re bad.  You know what I mean?  Cash flow and stuff like that.  Just little stuff.

RIANO:   Yeah, just little stuff.  Are we meeting payroll?

CHAMBERS:   Honey, you know what –

RIANO:   Oh boy.

CHAMBERS:   We’re going to meet payroll but guess what, tuna is on the menu.

RIANO:   Yeah.  Exactly.

CHAMBERS:   I understand.  I have – yeah, I’ve cried in my soup many times.  So, recently licensed in a few new states.

RIANO:   Yeah, let’s talk about that.

CHAMBERS:   What’s shaking with that?

RIANO:   So, we’re growing exponentially.  It’s something I’m very passionate about is to grow my team in other states.  I want other people in other states to enjoy the Sherry Riano experience.

CHAMBERS:   I mean, why not?

RIANO:   So, we have been licensed in Florida, Tennessee, South Carolina.  I have applied for my license in Alabama.  I will be applying –

CHAMBERS:   Wow.

RIANO:   — for two other states here that I have to keep under wraps.

CHAMBERS:   I understand.

RIANO:   — because of my social media person.

CHAMBERS:   Nice.  Nice.

RIANO:   She – she holds me back but we’re going to continue.

CHAMBERS:   Your handler.

RIANO:   Yeah. She – she’s going to keep me straight.  But yeah, we are going to continue to grow.  I mean it’s important to us.

CHAMBERS:   There’s enough business out there to take, yeah. 

RIANO:   Absolutely. Yeah.  

CHAMBERS:   So why Alabama?

RIANO:   It’s another state that –

CHAMBERS:   Is it just investment, I mean, what do they have —

RIANO:   Yeah, people are investing in Alabama.

CHAMBERS:   Yeah.  And, I mean, South Carolina obviously it’s near.   

RIANO:   Yeah.  It’s right here.

CHAMBERS:   Florida, obviously investments down there.

RIANO:   A lot and I have a lot of contacts down there so it’s good.

CHAMBERS:   And Tennessee?

RIANO:   And then Tennessee.

CHAMBERS:   so these are just hot markets you gotta (sic) be in and whatnot.

RIANO:   Yeah.  I mean Nashville’s one of the hottest.

CHAMBERS:   Right.

RIANO:   Then you look at our Asheville and you look here where we are, so there, you know, it only makes sense to invest time there.

CHAMBERS:   Are you – and it’s going to be Sherry – it is the Sherry Riano —

RIANO:   It will be the Sherry Riano Team at First Heritage.

CHAMBERS:   Yeah, okay.

RIANO:   Yep.

CHAMBERS:   Yeah, that’s super cool.  Jumbos.

RIANO:   I love Jumbos.

CHAMBERS:   Now I’m taking – I think I’m directing – I asked you to go ahead, I’m sorry.  The pace of this thing.  The Jumbos.  What are we talking about next?  We gotta (sic) stay on point.  I’m just like taking over is ridiculous.  Go ahead.

RIANO:   Jumbo loans.  Love them but they are complex.  

CHAMBERS:   Okay.

RIANO:   You know, they get a good rate on a jumbo loan.  You gotta (sic) be looking at every bit of –

CHAMBERS:   Now what is a jumbo loan?  What’s the definition?

RIANO:   Anything that’s over $548,250, which is a conforming loan limit set by Fannie and Freddie.

CHAMBERS:   Okay.

RIANO:   Okay, so if you go over one dollar, you’re in a jumbo loan.

CHAMBERS:   Okay.

RIANO:   And those just require a lot more of documentation.  They want to look into your bank statements more.  They’re going to analyze your income more than they will on Fannie and Freddie, so, you know, sometimes it makes sense to really kinda (sic) look at – you’ll see me set up loan programs differently to get people out of jumbos.  Maybe, you know have a conventional first and maybe a second on a home equity line or a fixed second, depending on what they’re dynamic is.  I have one local bank that does phenomenal business in jumbo.  Their rates today on a 7/1, we’d be looking at probably 2.625.  And they’re common – and they’re common sense.

CHAMBERS:   Yeah.

RIANO:   If you’re a strong client, you’ve got a good portfolio behind you, they will buy you all day long and they’re really buying you as a client so that they do a good job.

CHAMBERS:   (Inaudible). 

RIANO:   They service it.

CHAMBERS:   Oh cool.  Is it a local bank?

RIANO:   It is.  

CHAMBERS:   Okay.

RIANO:   I’m not going to – I don’t want to give them up but –

CHAMBERS:   No, that’s fine.

RIANO:   — they’re local out of Greensboro.

CHAMBERS:   After we stop, I want their name and number.

RIANO:   Okay.  We can do that.

CHAMBERS:   Thank you.  So, that kind of leads me into a couple things like if you’re a new home buyer or if you – actually back up.  If you’re going through the jumbo for the first time.  Actually, let’s start there.  If you’re going through the jumbo for the first time, how far like – we’re in a – we’re recording this thing at the Carolina Exotic Car Club.

RIANO:   Yes.

CHAMBERS:   How – which is a beautiful space.  It’s basically a space dedicated to transportation, all things transportation it seems.  But they have a lot of nice cars here, so how far under the hood, like how – like is it – does the jumbo – can the jumbo just be a pretty intrusive?  You just said that, right?

RIANO:   Yes, so I think –

CHAMBERS:   So, get ready.

RIANO:   — it’s a great example.  

CHAMBERS:   Yeah.

RIANO:   Let’s lift up the hood and lets break the engine down.

CHAMBERS:   Did you see that transition we just did.

RIANO:   I did.  I love that.  We did a good job.  Yeah, we’re going to break it down.  I mean, just – we’re going to lift the engine up with the – we’re pulling that baby out.

CHAMBERS:   Get out.

RIANO:   Yes.

CHAMBERS:   Are you kidding me?  We’re taking pipes off.

RIANO:   That’s it.

CHAMBERS:   I have no idea what I’m talking about.

RIANO:   Yeah, but you’re – but that is how it feels.

CHAMBERS:   Carburetors.

RIANO:   Yeah.

CHAMBERS:   I guess, I don’t know.

RIANO:   you know, I’ll have somebody say, hey I’ve got this credit score.  I’ve got – and I hear you.

CHAMBERS:   Right.

RIANO:   But you also are asking someone for a million dollars.

CHAMBERS:   Yeah.

RIANO:   Which, let me go back.  You should so you keep your money in investments.  There’s a two prong – but you’ve got to be calm and you’ve got to be cool and collected and say okay, I can provide you this information.

CHAMBERS:   Yeah, because guess what?  It’s a pain in the ass.

RIANO:   It is.

CHAMBERS:   We can say it like it is, right?  I mean, it’s like so, you know, just – just get it together people.  Because it – I can only imagine that in your business your herding cats.

RIANO:   That’s what it’s like somedays. 

CHAMBERS:   A lot.  It’s a lot of herding of cats.

RIANO:   It is.

CHAMBERS:   And the other thing is when you – you hand select the attorneys you work with typically, yeah.  Because that’s a huge part of it and all that stuff is – makes a difference and shows up in the 22 years.

RIANO:   Yeah.

CHAMBERS:   — that you’ve been doing it.

RIANO:   Having some good —

CHAMBERS:   And that’s why —

RIANO:   — relationships.

CHAMBERS:   — go with experience.

RIANO:   Yeah.

CHAMBERS:   Because I think in this – so that leads me to the market today and what you’re seeing and like because in this market you gotta (sic) do some dancing and you gotta (sic) and you gotta (sic) come up with some cash.  And if you’re lucky enough to get a private sale –

RIANO:   Yeah.

CHAMBERS:   — which happens. 

RIANO:   It does happen.

CHAMBERS:   Yeah, and so we are in Raleigh North Carolina people and we’re in the triangle.  It’s banana pants.  She just announced it.  Twenty five percent of (inaudible), not net but (inaudible) —

RIANO:   Yeah.

CHAMBERS:   — of course, so whatever that nets out to be.  But have you ever – could you ever –

RIANO:   I would have – no.

CHAMBERS:   I gotta (sic) tell you, it’s nuts.

RIANO:   If I’d of thought about – if I’d have known five years ago this was going to be happening, I’d have made some different moves.

CHAMBERS:   Well, now by the way, we are in the risk asset business.

RIANO:   We are.

CHAMBERS:   And things can go sideways as we have seen with said pandemic.  Who knows, Apple, I’m sure is committed but you just don’t know, right.

RIANO:   Right.

CHAMBERS:   But it does seem to be — Bandwidth.com, did you hear this?

RIANO:   Uh huh (yes).

CHAMBERS:   Yeah.  For those of you that don’t know, Bandwidth.com setting up, just down the street from our office on Edwards Mill, and a thousand, like eleven hundred people –

RIANO:   Uh huh (yes).

CHAMBERS:   Okay, I don’t – that’s going to make – Sherry, let me ask you.  That’s going to mess up my commute.  That’s – I hate to be that –

RIANO:   Guy.

CHAMBERS:   — but –

RIANO:   It’s going to happen.

CHAMBERS:   I’m going to be that guy but and that’s fine and I mean, whatever.  It’s kind of a sport but the point is that we’re – it’s just – you’ve gotta (sic) be like, I am so glad I’m in this business.

RIANO:   Yes.  Oh, I was happy to be in this business prior to this and now I’m even more happier.

CHAMBERS:   Yeah.

RIANO:   Right?

CHAMBERS:   Yeah, because it’s just like –

RIANO:   Yeah.

CHAMBERS:   — yeah.

RIANO:   Yeah, I mean it’s, again it comes back to helping people get into their homes.  You know, when people call and talk to me, I don’t talk to them about just ok, here’s your vanilla product, walk with me and go down the road.  Let me just give you the best road.  The best road I have.  I don’t do that.

CHAMBERS:   Yeah.

RIANO:   I want it to be a long-term relationship.  I work with some of my clients for easily 20 years.  I have seen their kids grow up.  I’ve helped them buy beach houses, retirements, I’ve done it all, right.  And they still come back to me.

CHAMBERS:   Yes.  You’re sticky.  It’s sticky.

RIANO:   Right.  You know –

CHAMBERS:   The process is sticky.

RIANO:   — we give them the love.  We give them the attention they deserve.  We answer the questions.

CHAMBERS:   Yep.

RIANO:   We just do the right thing at the end of the day.  

CHAMBERS:   Yeah.

RIANO:   And so, when I talk to anybody, I want them to know, this is not a one and done transaction.  I am not a transaction person.  There are plenty of people in town that are and I wish you the best with them.  It’s just not my style.  You know, I want to talk to you about, well where do you think you’re going to be in three years.  Well, what about five years?  Is this going to be a hey, I’m flipping this over.  Maybe this will be an investment property after we buy a new house.  And so, I dig in, much like you guys, right?  You go in and you ask a billion questions just so you can advise us in the right way to go.  And I do that just a little bit differently than most.

CHAMBERS:   You’re trying to build – you’re laying tract for it.  Because if it’s like a new home owner – I’m thinking in your mind from somebody that’s been in the business for 22 years is going to be in the business for a while more, right?

RIANO:   Uh huh (yes).

CHAMBERS:   If you’ve got a new home buyer, in particular, you’re like, I want this person on the next house and then next house and the –

RIANO:   And the next house.

CHAMBERS:   — and whatever and the rental property or whatever.  You know what I mean?

RIANO:   Yeah, absolutely.

CHAMBERS:   Like you want, this is a relationship.  Yeah.  And that’s – and I – and that’s it.  You know, at the end of the day when – because especially when you’re trying to close on properties in the really hot market like this.  Because you’re hearing things.

RIANO:   Right.

CHAMBERS:   You’re tapped in.  So, it’s not just folks.  It’s like when you get in – when you get into a relationship with, in a tight market like Raleigh and the Durham area, and you get into a relationship with someone like Sherry, you’re getting a lot more than just, I’m just running your numbers.  I’m on the lookout.  I’m on a hunt.  We’re going to – you know what I mean?

RIANO:   Uh huh (yes).  Oh absolutely.  Yeah, it makes a huge world of difference.

CHAMBERS:   Because –

RIANO:   — of who I know and who I can connect you with.

CHAMBERS:   Yeah.  Exactly.

RIANO:   Right?  On many levels.

CHAMBERS:   Just another set of ears.

RIANO:   Right.  Right.

CHAMBERS:   And you’re not – and you’re point is a 1-800 number in God knows where (inaudible) or whatever –

RIANO:   Wherever they are.

CHAMBERS:   (Inaudible). 

RIANO:   Yeah.

CHAMBERS:   Do they – no they don’t.  They don’t.

RIANO:   They’re transaction based.

CHAMBERS:   And that’s their challenge so that leads me to this.  Like, on the landscape of brokers, kinda (sic) where, you know, can – is there any other anecdotes you might be able to offer on a local level.  Like, how are you a little different on a local level and nuance?

RIANO:   Sure.  So, on a local level, I –

CHAMBERS:   Because (inaudible).

RIANO:   Yeah.

CHAMBERS:   There’s a lot of competition.  You know what I mean?

RIANO:   And there’s a lot of great loan officers –

CHAMBERS:   Sure.

RIANO:   — in this business, in our area.  But I will tell you what I’ve done different that I’m proud of.  Is I’ve taken the last 22 years and built a team out.  Last night I was having dinner with one of the top realtors in our area and we were just talking about it and she agreed, one of the things I’ve done differently is I’ve built a team.  

CHAMBERS:   Yeah.

RIANO:   I can’t be everywhere.  I’d love to be and I am pretty dogon good –

CHAMBERS:   You are.

RIANO:   — and like you have noticed –

CHAMBERS:   You cover – you cover.

RIANO:   — I will pick up a phone in a minute.  But at the same time, I need support.   I have three loan officer assistants.  I have one gentleman that’s been with me for almost ten years.  He is my right hand.  I trust him explicitly with everything I have and he’s probably a better loan officer most days than me.  Just because of how he thinks and I think a little bit different.

CHAMBERS:   Exactly.  As it should be, by the way.  So, you can go on and do more other things –

RIANO:   Yes, exactly.

CHAMBERS:   — which you’re – exactly.  That’s running a business.

RIANO:   So, then I also have an inside sales person.  I have a social media person.  I have an executive assistant, another person who keeps me straight.  You know, so we continue to grow.  I have my own processor.  So, I mean a lot of this matters.  Build your own team.  Some people are shortsighted and we were – this is what we were talking about last night.  The realtor I was sitting with, she was like, you know, for a while I would do it all.  I did it all.  And then she went out and built her mega team but she’s like I wasn’t trying to be greedy but I just felt like I could do it all.  I wanted to be that power house.

CHAMBERS:   And that’s good experience.

RIANO:   Yeah.

CHAMBERS:   You gotta (sic) kinda (sic) know everybody’s role a little bit.  I got it.  But if you really want to scale –

RIANO:   There’s a point where –

CHAMBERS:   Yeah.

RIANO:   — how much money do you need?  Because that’s really what it – I want freedom and time.  And I want my team to have that but I want us to continue to be a force in this area.  So, when you ask me, you know, what’s different than somebody who is in a local big bank behind a chair?  I got seven other people behind me.  You know, we – we pick up the phone on the weekends.  We pick up the phone at night.  You know, you need a (inaudible), your realtor can reach me anytime on the weekends.

CHAMBERS:   Yeah.  Well, the other thing that you know, and I can say this for our firm as well, you know, when you – when you own the firm, right, you make all the decisions and including tech pack.  Like what is your – what is your technology, you know.  Stuff like that.  Like, just I’m in charge – I’m in charge of the licensing, I am in charge of, you know, the nuts and bolts and –

RIANO:   Yep.

CHAMBERS:   — do you want to – do you – and I continuously work on my business so do you want to be in business with somebody like that or do you want to be in business – and if you want to be in business with the alternative, that’s fine.  

RIANO:   Yeah.

CHAMBERS:   But that’s who I am so if we resonate –

RIANO:   Yeah, absolutely, right?

CHAMBERS:   Right, you know.

RIANO:   And so, and I just want to be very clear that I work for First Heritage Mortgage out of Fairfax, Virginia.  

CHAMBERS:   Okay.

RIANO:   I – they let me build a team.

CHAMBERS:   Yes.

RIANO:   They trust me.

CHAMBERS:   That’s what I mean.

RIANO:   And they, you know, they have – and I want to tell you that I’ve got to say that they have and they are a wonderful company.  They get it.

CHAMBERS:   Okay.

RIANO:   And they love supporting their loan officers which I have been at other companies and not felt that same kind —

CHAMBERS:   Good.

RIANO:   — of support.  So, I just want to – I want to give a shout out to First Heritage Mortgage, always.

CHAMBERS:   Good, that’s cool.

RIANO:   And by the way if you are a loan officer out there and you’re not happy maybe where you are —

CHAMBERS:   Yeah, yeah.

RIANO:   — you should hit me up and maybe we go have coffee.

CHAMBERS:   Yeah.  Check it out.

RIANO:   Love – you know, I’m still growing my team as well as First Heritage is growing theirs so I’d love to sit down and have a conversation about it.

CHAMBERS:   Cool.  Yeah, you know, one of the things you do when you’re in – when you’re in businesses like a wealth management or mortgage, anything like that, you know, this type of a service is that we see the entirety of the market and we can hand pick like what we want.

RIANO:   Yeah.

CHAMBERS:   Like our partners.

RIANO:   Right.

CHAMBERS:   To get back to your point including that, you know, the undercarers (sic).  They take care of the plumbing.

RIANO:   Yes.

CHAMBERS:   They take care of — so, by the way figure out which partner to choose to do the plumbing.

RIANO:   Uh huh (yes).

CHAMBERS:   Huge.  And it takes 22 years to get there, you know, right?

RIANO:   It does.

CHAMBERS:   Because like, you know, you think about your lives, guys.  Like, you know, you have to make – there’s you know, choice selection sometimes is overwhelming.  That’s why you come to a Sherry because she’s made those choices and got it down to this is the best of the best, guys.  Right?

RIANO:   Correct.

CHAMBERS:   Exactly and that’s – that’s really our role, I think in the –

RIANO:   Advisor scene.

CHAMBERS:   — local economy.

RIANO:   Yes.  In our –

CHAMBERS:   In the local economy.

RIANO:   — advisor seat as well.

CHAMBERS:   Yeah.  It’s huge.

RIANO:   Right?  

CHAMBERS:   Yeah exactly.  All right, I’m going to just a couple more things.

RIANO:   Yeah.

CHAMBERS:   And then we’re just going to blast out of here and –

RIANO:   Go have that wine you promised me?

CHAMBERS:   We’re going to have – what’s your favorite – what do you –

RIANO:   Actually, I’m going to tell you right now.  We’re not going for wine.

CHAMBERS:   What are you doing?

RIANO:   Well –

CHAMBERS:   Are you going bourbon on me?

RIANO:   I’m going bourbon.

CHAMBERS:   That’s fine so, all right.  Wait, wait.  We have an an all-kids member.  He’s getting a little unruly.  Hey listen, settle down okay.  No, no, no.  hold on.  So, we might be going somewhere – well, that’s great because we have bourbon.

RIANO:   Good.

CHAMBERS:   So, I mean it’s not a problem.

RIANO:   Bourbon and fun cars.  That’s all I need.

CHAMBERS:   Yeah, exactly.  I love it.  So, real quick, fifteen or thirty.  What do you like more for —

RIANO:   Depends on the various position in life.

CHAMBERS:   Okay.

RIANO:   Where are they going?  It goes – dwells down again into looking at the whole piece of the pie.

CHAMBERS:   Right. I got it.

RIANO:   From Liberty Direct.

CHAMBERS:   What if they’re high net worth, i.e., they’re in Raleigh and they’ve got, you know, maybe they’ve got maybe they don’t know this but maybe they got three, four million dollars.  They’re fine.

RIANO:   Yeah.

CHAMBERS:   What would you choose for them?  What makes more sense?

RIANO:   I mean obviously, what mathematically always makes the most sense is fifteen years.

CHAMBERS:   Fifteen?

RIANO:   I’d do the fifteen.

CHAMBERS:   so, you think fifteen?

RIANO:   I do.

CHAMBERS:   So, get it done earlier?  Knock it out earlier.

RIANO:   Knock it out.  Now, it depends on what you want to do with your money.

CHAMBERS:   Yeah.

RIANO:   Like, if you want more money to play with –

CHAMBERS:   Yeah.

RIANO:   — even though, I mean look, I don’t care if you have three, four, five, ten million dollars.  It’s always wise to invest your money in the right way.  And again, when the rates go back up –

CHAMBERS:   Yeah.

RIANO:   — then okay, then let’s get into the fifteen year.  

CHAMBERS:   Right.

RIANO:   Right now, it would get like – I have my stuff on thirties.

CHAMBERS:   Okay, yeah me too.

RIANO:   Just because I’m dumping everything, you know.

CHAMBERS:   Yeah, yeah.

RIANO:   Everywhere else.

CHAMBERS:   So, it depends.

RIANO:   Yeah.

CHAMBERS:   It just depends on – yeah, okay.

RIANO:   Snap of the market.  Where are we today?

CHAMBERS:   Yeah.

RIANO:   Where are we going?  Where do you think we’re going?

CHAMBERS:   Right.  Okay.  New home owner.  First time home owner.

RIANO:   Thirty years.

CHAMBERS:   Thirty years.   All day long, yeah.

RIANO:   And never, do not put yourself in an arm product.  You do not know enough.  What you don’t know can hurt you.

CHAMBERS:   Oh my god.  2008, 2009 people.

RIANO:   Don’t ever want to go back.

CHAMBERS:   Okay.  I’m going to wrap it all up.

RIANO:   Allrighty (sic).

CHAMBERS:   And just to – we kinda (sic) covered the mortgage things – the mortgage rate things, so that’s cool.  What are you most optimistic about and what do you see as some of the biggest challenges in the Raleigh, Durham, Chapel Hill markets?

RIANO:   I’m most optimistic about our growth and that we’re going to continue to grow.  I believe that in Raleigh, Durham, Chapel Hill, Cary, Holly Springs, you name it, you definitely want – I mean these guys are thinking long term and they’re looking in development.  They’re trying to develop our cities in the right way.  They’ve seen other cities grow and blow up.  And so, I think that, you know, the heads of these particular cities, they’re developing and thinking that long term and I’m very optimistic that we’re still going to have the same beautiful state that we have.  We’re just going to be able to let more people enjoy it.

CHAMBERS:   Yeah, totally.

RIANO:   We live here, you know.  So, for me, I’m very optimistic about that.

CHAMBERS:   Good.  What do you think the biggest challenges are, though?

RIANO:   The biggest challenge is for us –

CHAMBERS:   Inventory?

RIANO:   — is going to be and for a long time, inventory.  It really is.

CHAMBERS:   A really long time.

RIANO:   Yeah.

CHAMBERS:   Yeah.

RIANO:   You know when you look at the scenario that right now, we’ve kind of – we’re landlocked, I mean we just don’t have a lot of land right now, right?  I mean, you’ve got one off spaces, but you don’t have a lot of land until you come out to Harnett.  Until you come out to Johnston.  Until you, you know, you go out to Lee.  I mean, that’s where the land is right now.  And so, that’s my only concern and my one other true concern about all of this is our first-time homebuyers.  And I’m going to say this, is that they don’t have the money right now to compete with someone like us that at our age, if we want to go after a property, whether we want to do an investment or primary or however you want to set it up.  You know, we’ve got the ability to write a due diligence check of, you know, 20 to, some people are writing $100,000 and yes people, I said $100,000.  

CHAMBERS:   Yeah.

RIANO:   They don’t have that and so they lose out.  And I’m seeing a lot of first-time home buyers kinda (sic) get broken because they don’t have the ability –

CHAMBERS:   Yeah, so what – what does that mean?  Like, what – I mean, like what do you think—

RIANO:   They’re under —

CHAMBERS:   — they’re delaying and – think about that.  The ramifications of this because –

RIANO:   Well, they’re delaying because they haven’t had the money.

CHAMBERS:   There’s that –

RIANO:   And part of them, you know again, that whole millennial – they’ve done things totally different.

CHAMBERS:   Yeah.

RIANO:   You know, and –

CHAMBERS:   A lot of student debt.

RIANO:   Ton of it, right?  Still have it.

CHAMBERS:   Yeah.

RIANO:   Promises made, not delivered.  I’m going to let that be, I’m just saying that –

CHAMBERS:   Yeah.

RIANO:   — that’s out there, you know.  And, you know, we grew up, we raised our kids to say hey, what do you do?  You go to college.

CHAMBERS:   Yeah.

RIANO:   No one knew they were going to come out with $100,000 worth of student debt –

CHAMBERS:   Yes.

RIANO:   — and then go over to, no offense, because I love teachers but they go and they make $30,000 and have $100,000 student debt.  You’re a financial person.  How do you come out of that?

CHAMBERS:   Yeah, it’s tough but –

RIANO:   Yeah, and that’s hard.  So those are the people that I think for, pray for and want to find a solution for.  Because everybody deserves a home.  Everybody. 

CHAMBERS:   Yeah.

RIANO:   You know.  So that’s the one thing I think is our bigger challenge here.  If we can get that done along with the inventory and figure out how to service that market.  

CHAMBERS:   Yeah.

RIANO:   I think we’ll have the perfect scenario for a great place to live.

CHAMBERS:   Yeah.  I mean, and also you gotta (sic) be patient.

RIANO:   Uh huh (yes).

CHAMBERS:   I mean, you know, you’re on your own.  Everybody’s got their timeline is, you know, and also, you know, for the new – new home – you know, young people in general like, you know, it takes so much to do to get even – we were challenged when we were coming up, right?  I mean, we faced tons of challenges.

RIANO:   Yeah, we did.  We did.

CHAMBERS:   Okay, ’08, ’09.  Hello.  Not great.

RIANO:   I know.

CHAMBERS:   So these things don’t happen overnight but have the faith.  You guys are a lot smarter than we are.  They are just –

RIANO:   They have –

CHAMBERS:   — the technology and all that.

RIANO:   Yeah.  They’ve got a lot of things different.

CHAMBERS:   Yeah.

RIANO:   Than we had and I think they’re going to be just fine.

CHAMBERS:   Oh, yeah.

RIANO:   I just think we have to keep an eye on it.  It’s like anything, right?

CHAMBERS:   Yeah.

RIANO:   Just keep an eye.  But otherwise, yeah, I think we’re doing well.

CHAMBERS:   And I do think that these interest rates – I don’t know, I think that –

RIANO:   I believe we’re going to see them and I’m going to say this and let’s see.  I’ll come back to you in 2022, 2023.  Okay?

CHAMBERS:   Here we go.

RIANO:   Here we go.  We know we’re going into a recession.  We know we are.

CHAMBERS:   Okay.

RIANO:   And so that drives interest rates down so I see (inaudible) —

CHAMBERS:   You’re calling the R word.  Okay.

RIANO:   And I see once we get into there –

CHAMBERS:   Okay.

RIANO:   — with the inflation, guess what’s going to happen?

CHAMBERS:   Okay.

RIANO:   Rates are going to drop.  We’ll see.  I’ll come back – if rates drop, we’ll have an emergency podcast.

CHAMBERS:   Okay.  Okay.  I think they’re going to be very accommodating.  The fed – I think the fed’s going to be very accommodating for a while.

RIANO:   I do too.

CHAMBERS:   Okay.

RIANO:   I think they have to find a way to unwind what they’ve done too.

CHAMBERS:   Yeah, I just – here’s what I think and this is, you know, now we’re getting deep.  I’m going to have to —

RIANO:   We’re going to have to jump out of here.

CHAMBERS:   — save this for another –

RIANO:   Another podcast.

CHAMBERS:   — but, you know, you and I have assets.  And we talked about this earlier so now in this lower interest rate environment they’re going — but if you don’t have assets, i.e., the people you’re talking about, that can’t get into homes.

RIANO:   Right.

CHAMBERS:   That’s not great.  And that’s a lot of people and that’s a political — and so I don’t know – sometimes I think, are they going to have to raise them, just politically.  It’s just becomes politically unattainable that has to have – I don’t know.

RIANO:   Yeah.  I wish I could tell you.

CHAMBERS:   It could be a driving point but we will revisit this in at least a year.  I’m sure you and I will talk.

RIANO:   Talk again.

CHAMBERS:   At least.  I had a really good question for you but that’s going to have to wait.  I had something but I’ll – I’ll – we’ll do it again.  It’ll be (inaudible), but listen, I really enjoyed it.

RIANO:   Thank you.  I did too.

CHAMBERS:   I really appreciate you coming in and doing these things.  I love doing them and I love to talk to business owners.

RIANO:   Yeah.

CHAMBERS:   And you run a great business.

RIANO:   Thank you.

CHAMBERS:   And you really do.

RIANO:   Well, you guys do too. 

CHAMBERS:   You’ve got a great website, by the way.

RIANO:   Thank you.

CHAMBERS:   Yeah, I really – it’s simple and yeah, the technology’s good.  It flows.  It’s good, so that’s important.

RIANO:   Thank you.

CHAMBERS:   All right people.  Anything else you want to say?  You want to try to push the website?

RIANO:   Yeah.  If you guys are –

CHAMBERS:   Phone number?

RIANO:   — in the business of looking for a mortgage or wanting somebody just to analyze your current mortgage.  When you reach out to us you can call us at 919-234-7415 or you can email us @thesherryrianoteam.com.  

CHAMBERS:   Awesome.  All right.

RIANO:   Thank you.

CHAMBERS:   Well, guys listen, you know, in summary and I really appreciate you coming in to talk.  I have not interviewed anybody in your position and what you do and, you know, it’s – the mortgage process is super important. I promise you, get a relationship going with somebody when you’re thinking about doing – get teed up, especially in a tight market.  Get your acts together.  Get her the statements.  Get a relationship going.  Go have coffees.  And also, meet them, you know.  Another thing, by the way, when you’re looking at somebody like a wealth advisor or – you gotta (sic) – and you’re looking to make – you gotta (sic) meet with a couple of them. 

RIANO:   Yep.

CHAMBERS:   And figure out the one you want to work with.

RIANO:   Because we are all not the same.

CHAMBERS:   Because you’re not all the same.

RIANO:   Everybody doesn’t work well.  I believe that totally.  You may come in and love me –

CHAMBERS:   Yeah.

RIANO:   — or you may come in and go that lady is just not for me.  And look, no hard feelings.  I want you to be comfortable, happy, doing this transaction because it is complicated.

CHAMBERS:   Yes, it is.

RIANO:   Go with somebody –

CHAMBERS:   Yes, it is.

RIANO:   — you know and trust.

CHAMBERS:   Yes, exactly.  All right, on to wine.  Oh, that’s what I was going to ask you.  What’s your favorite grape?  What do you like to drink?  When you drink wine, what do you –

RIANO:   Let’s see.  What about –

CHAMBERS:   Are you a chardonnay girl, are you a merlot girl, are you a cabernet.  California cabernets?

RIANO:   I love a lot of Spanish wines.

CHAMBERS:  Brisas and (inaudible), really?

RIANO:   Yes.

CHAMBERS:   Nice

RIANO:   Riano is Spanish.

CHAMBERS:   Oh, that’s right.  What does that mean?  What does Riano – does it mean – do you know?

RIANO:   I do not know exactly what it means.  I’ve become – I’ve been a Riano for 22 years, I don’t know what it means.

CHAMBERS:   Wait a second.  Maybe – here’s what I’m picturing.

RIANO:   Yes.

CHAMBERS:   Think of this, you know, is that you own like a country – like a part of a valley with a nice small river and like just the grapes growing up the side.

RIANO:   That’s nice.

CHAMBERS:   I think that’s what you own now.  Really.  Is that your maiden name?

RIANO:   No, no.  Nope.

CHAMBERS:   I don’t care but is that your maiden –

RIANO:   No, it is my married name.

CHAMBERS:   It’s your married name.

RIANO:   Yes, my husband –

CHAMBERS:   So, I made that all up.

RIANO:   — was originally from Columbia.

CHAMBERS:   Oh, I see.

RIANO:   Locatel.

CHAMBERS:   It’s a beautiful name.

RIANO:   Yeah and –

CHAMBERS:   Sherry Riano, by the way, just runs off the – it’s just beautiful.

RIANO:   Thank you.  Nice.

CHAMBERS:   I’m telling you.

RIANO:   We haven’t even had a bourbon yet.

CHAMBERS:   No, I’m serious.

RIANO:   Or a wine.  It’s going to be a great day for Sherry Riano.

CHAMBERS:   I’m telling – it does.  It rolls off and it’s rememberable.  It really – and –

RIANO:   Thank you.

CHAMBERS:   — that stuffs important.  I mean, you know.  But anyway.  So, he’s a nice guy.

RIANO:   Yeah, he’s a great guy.

CHAMBERS:   How long have you guys been married?

RIANO:   We’ve been married a little over seventeen years.

CHAMBERS:   That’s a lot of husband —

RIANO:   We’ve been together – yeah, he’s a good man.

CHAMBERS:   — that’s a lot of husband training. 

RIANO:   You know, I think sometimes it’s more him training me, than me training him.

CHAMBERS:   Okay, is that what the situation is?  Yeah.

RIANO:   Yeah.  He’s so – he’s so good.  He’s so good to our kids and our grandkids and –

CHAMBERS:   Okay.  Good.

RIANO:   I’m lucky.  

CHAMBERS:   Grandchildren?

RIANO:   Yeah, we have three.

CHAMBERS:   Oh, nice.

RIANO:   Yeah, yeah, we have an eight-year-old, a six-year-old and the other one will be two in October.

CHAMBERS:   Oh, that’s so much fun.

RIANO:   Yeah.  We are so blessed.  And we have a grand puppy.  We have it all.  We have it all.

CHAMBERS:   Yes.  Well, that’s good.

RIANO:   Can’t ask for —

CHAMBERS:   (Inaudible) like how much more do you need?  Like when once you get to this point it’s like –

RIANO:   It just – yeah.

CHAMBERS:   It just rolls, right.

RIANO:   Yes, and to me, what I’m doing it for now is more to really help my clients.

CHAMBERS:   Exactly.

RIANO:   You know, the side bar is yes, I have a nice income.  But it’s more important to help my clients.

CHAMBERS:   Yeah, and that’s the truth, actually.

RIANO:   Yes.

CHAMBERS:   That is actually the truth.

RIANO:   That’s it.

CHAMBERS:   It’s true because there is a lot of nonsense out there and people can get jacked up.

RIANO:   Real easy.

CHAMBERS:   Easy.

RIANO:   Easy.

CHAMBERS:   Oh, that’s what I was going to –

RIANO:   Go, go on.  We got one more.

CHAMBERS:   One more second before the – this is such good content.  Fraud.  Fraud.

RIANO:   It exists.

CHAMBERS:   Okay, so like can you tell –

RIANO:   Wire fraud.

CHAMBERS:   Yeah.  Like give me – give me – give everybody the one bad like tip that like –

RIANO:   Okay, very easy.

CHAMBERS:   Because I have one but maybe you’re going to cover it, I don’t know.  This is –

RIANO:   This is what I want you to do.

CHAMBERS:   Drumroll.

RIANO:   Yeah right.  If you are purchasing a house, okay.

CHAMBERS:   Yeah.

RIANO:   You must typically wire your money to the attorney.

CHAMBERS:   Yes.

RIANO:   First and foremost, your lender is not going to give you wiring instructions and quite frankly don’t take them from them, right?

CHAMBERS:   Yeah.  Big. Big.  Got it.

RIANO:   Another legal liability.  I don’t want to be involved.

CHAMBERS:   Yep.

RIANO:   But you should always contact by phone the paralegal or the attorney you’re going to wire and have them send you the information.  Then once you’re at the bank, you call them again and verify the account numbers because people are smart.  They know how to get in these emails.  Alter, it makes you think it’s from the attorney, but it’s not and I’ve seen people lose thousands of dollars and I’ve –

CHAMBERS:   So, —

RIANO:   We have not had that problem.

CHAMBERS:   — morning of the closing, let’s say you got an 11:00 –

RIANO:   Yeah.

CHAMBERS:   — closing.

RIANO:   Yeah.

CHAMBERS:   Call the bank and have them –

RIANO:   You go to the bank.  Usually, they make you go or even if you call, okay.

CHAMBERS:   Go to the bank.

RIANO:   You still call the attorney.  Speak to the paralegal and say, hey, you emailed me these wiring instructions –

CHAMBERS:   Yeah, I’m at the bank.

RIANO:   — I want to make sure this is your routing number.

CHAMBERS:   Yeah.  Got it.

RIANO:   Is this your account number?

CHAMBERS:   Okay.

RIANO:   And as long as they say yes, rock and roll.

CHAMBERS:   Good.  Okay.

RIANO:   But you’ll be amazed – you really would be amazed how many people have lost their money and there’s no way to get it back.

CHAMBERS:   Okay.

RIANO:   So, if you lose your down payment, it’s just a devastating day.

CHAMBERS:   Yeah.  Guys, I don’t mean to press a point or anything but this is not joking around anymore.  Like they shut a pipeline down.

RIANO:   Yeah.

CHAMBERS:   Okay, it’s like –

RIANO:   They know what they’re doing.

CHAMBERS:   Okay, this is, you know, okay.  So, and they like being paid in cryptocurrencies.  Which is probably, you know, it’s not good.

RIANO:   It’s not good.

CHAMBERS:   No.  So, it’s like, you know, —

RIANO:   So be wise and pay attention.

CHAMBERS:   Be wise and just be – you know, I thought go to the lawyer’s office.  I could be insane for thinking this but go to the lawyer’s office and just be like this is what you sent me.  Is this what you sent me?  

RIANO:   And you could do that.

CHAMBERS:   And then call the bank –

RIANO:   Absolutely.

CHAMBERS:   — and then, you know, do that.

RIANO:   That’s an option.

CHAMBERS:   Yeah.

RIANO:   You can absolutely do that if you want to but –

CHAMBERS:   But the bank – maybe doing it the banks way, okay.  All right.

RIANO:   Yeah.  Because you usually need to get it there 24 hours before so when you’ve got to have wire time and you want to make sure you get your keys so you want –

CHAMBERS:   Yeah.

RIANO:   — to make sure you’re a little bit ahead of the game.

CHAMBERS:   An ID.  You gotta (sic) have an ID.

RIANO:   Oh, absolutely, you need your ID.

CHAMBERS:   Yeah of course.  But I mean do they require a couple different forms?

RIANO:   They do at the bank and I don’t – every bank is different.  They all have their –

CHAMBERS:   But at the closing?

RIANO:   The closing, you’re always going to want to see your driver’s license and it needs to be –

CHAMBERS:   Current.

RIANO:   — current.

CHAMBERS:   So just the driver’s license or driver’s license and anything else.  Okay.

RIANO:   They just have to have their driver’s license.

CHAMBERS:   Okay, cool.

RIANO:   Because at that point, they’re vetting me too because I’ve come through and been through the transaction with you so it’s –

CHAMBERS:   It’s good stuff.  Because if people don’t know, I mean –

RIANO:   They don’t know because they don’t do it every day.

CHAMBERS:   They don’t do it every day.  You know what I mean, so.  Some people – I talked to another guy actually, and he’s like I got seventeen houses over the course of my life and I’m like seventeen houses?  What are you talking about?

RIANO:   Right.

CHAMBERS:   And he’s like I just moved a lot.  You know.

RIANO:   But I don’t want to move that much.  Oh god.

CHAMBERS:   We like – yeah.  Can you imagine?

RIANO:   No.  I would not be a happy camper

CHAMBERS:   No.  Again, I can barely tie my shoes.  Okay.  We gotta (sic) go.  Thank you.  

RIANO:   Thank you.

CHAMBERS:   That was really fun.  Guys –

RIANO:   It was a pleasure.

CHAMBERS:   Yeah.  That was a lot of fun.

RIANO:   I appreciate you having us.

CHAMBERS:   Yes, of course I appreciate it.  And guys be wise in your financial choices especially when it comes to mortgages.  All right.  Peace out everybody.  Bye.

Background Information:

Sherry Riano – Full Bio
With over 20 years of experience in the mortgage industry, Sherry Riano exudes a deep passion for helping families in the Triangle financially obtain their dream home. With a burning desire to ensure her clients and business partners are top priority, Sherry always takes into consideration each customer’s needs and goals in order to build a lifelong relationship. With a specialized approach to self-employed borrowers, first time homebuyers, jumbo loans, and VA loans, Sherry is a knowledgeable advocate for any customer she partners with. Noted as a top producer in the country, including being nationally published, Sherry is the rockstar every future homeowner needs on their side!

Trevor Chambers – Full Bio
Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.” 

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Is the U.S. giving up some economic advantage, some leadership and stability by jettisoning carbon from the energy mix?

Most of us who live in Raleigh, NC take our energy for granted. We go about our day effortlessly, clicking on light switches, cell phones and TV’s rarely contemplating the complexities that fuel all of it. Only recently we were reminded that the wonder that is reliable energy can be scuttled by the world outside Raleigh when the Colonial Pipeline Ransomware Attack caused panic buying shortages up and down the east coast. Steady supplies of energy help companies forecast, innovate and create shareholder value. So, by extension, steady energy must be in place to fuel your retirement lifestyle and financial plans.

Olde Raleigh Financial is exploring the realities of changing the U.S. energy mix and this interview with Rupert Darwall is number two in a series on this really important topic - check out this interview with Bill O’Grady from Confluence Investments. Regardless of where one stands on their beliefs on global warming, it would seem the trend towards decarbonizing the U.S. economy and culture is gaining tracking both in corporate boardrooms and politically. Mr. Darwall is a London-based business strategy consultant and policy analyst who takes a more critical view of global warming and the costs of decarbonization.

British Experience w/Green Economy. Acceleration of British Industrialization decline? The German Greens and what they say about Europe Energy Outlook The Effects Renewables of Economics of the Grid. What will be the costs and effects of decarbonizations on a global scale? Is decarbonization a U.S./Western Europe issue and not really an issue for the rest of the world? Are we giving up our cheap energy advantage to China and the developing world by decarbonizing? Are batteries and their supply chain actually a net environmental threat and may more importantly be more disruptive to global wealth distribution and pollution than oil? What’s going on with Rare Earths?

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Soundtrack to a Financial Advisor's Life – The drive to decarbonize complicates corporate calculations on investment 

The decarbonization trend will be litigated and played out next few decades. For now, decarbonization is not a sure bet. Expensive technical issues are abound including matching the energy density of oil. However, humans have a tendency figure out hard, technical things. The global politics of this type of shift is a whole other set of pitfalls and possibilities. Regardless of how it all turns out, this trend will impact your future in Raleigh, NC. The energy markets have their own set of goals, aspirations and driving forces that can impact your investments. Olde Raleigh Financial Group loves to keep eye on that horizon with conversations around geopolitical trends and how those trends might affect investment decisions. Please enjoy this interview with Confluence Investments analyst Bill O’Grady. Topics include: The future of energy, a carbon price, electric vehicles, ransomware and the chances The St. Louis Cardinals have of winning the pennant. Enjoy and keep trucking! Trev

Key Points

• What is a carbon price and why do energy companies want one

• Update on the Nord Stream 2 Pipeline and why this is about the long-standing tension between Germany and Russia. The Biden administration has changed the U.S. Policy around it and we explore the implications

• On the margins: the price of Russian Oil vs U.S. Oil vs Middle East Oil and the dilemma of stranded investments in oil production

• The state of state-run oil companies and what does the depreciation of their currency play in the future of energy

• Colonial Pipeline Ransomware Attack, Uninsurable Risks and why it might hinder Bitcoin’s and Ransomware’s future

• Electric Vehicles, Fuel Cells, Nuclear Energy and the history of technical fixes to big problems

• Baseball

Hey everybody. This is Trevor Chambers at Olde Raleigh Financial Group here in, actually, sunny Raleigh, North Carolina and thank you for listening. We move on, one more episode to the Meet the Masters series as part of our podcast Soundtrack to an Advisors Life. And I have an advisor with us today. One Bill O’Grady. How are you, Bill?

BILL O’GRADY: Good, Trevor. Thanks for having me.

CHAMBERS: Absolutely. Bill is a chief market strategist for Confluence Investment Management and they are professional asset managers based out of St. Louis. And in that role, Mr. Grady performs market and economic and geopolitical research for the firm, among other things. He is the founder and he is one of our favorite opinions to catch on the world and helps us manage money for our clientele. So, welcome back. This is you – your second appearance. We talked about a year ago and had a nice conversation and today I want to focus on energy. It’s an area that I know that you research quite heavily and talk about and write about. And it’s an interesting space. As you know, we’re just coming off or in the midst of or the end of the midst of a hack of a pipeline here in the east coast. And as a result, I have really bad gas in my tank of my car and – because I had to get a lower grade. But I wanted to talk about this beyond the pipeline hack, it’s just a really dynamic market that we’re watching and it’s going to be extremely impactful, obviously for the foreseeable future. So, Bill I just – I just, let me just kinda (sic) get right into it, here. The premises of my call core is this, we seem to be moving to a green, more green outlook on the economy. Not only in the US but the world but we still gotta (sic) get there and we gotta (sic) use fossil fuels to do it. Which, there hasn’t been a lot of investment apparently in – in the space of actually getting the fossil fuels out of the ground and there’s a capacity issue, apparently. So, but, the same token, you don’t want to invest too much because we have this green future coming, right, so. Where are we at? And there’s so much wrapped up to politics wrapped up in this thing. But –and I’m not asking for a specific market recommendation, but if I ever, and again, I’m – I don’t know that much about it but like, it would seem that gas and oil is going to become in shortage in some way. Because we’re not investing in it and – so are we – are we actually bullish on gas here for the next ten years or so, or what, you know. So, anyway, I just kind of want to start there.

BILL O’GRADY: Sure.

CHAMBERS: We’re at this pivot point. What do you think?

BILL O’GRADY: Well, this is something that we started wrestling with probably about a year ago. We run a whole series of different portfolios. If you go to our website http://www.confluenceinvestment.com and yes that is a shameless plug.

CHAMBERS: Yes, it is. It’s alright. I love it. No, that’s fine.

BILL O’GRADY: We run a whole group of portfolios and one of them is a hard asset portfolio. By hard asset, we mean a commodity that takes longer than a year to effect supply. So, we purposely don’t do direct agriculture because, you know, agriculture is about every six months you get a new supply of it, either from South America or from the United States and we don’t do much with livestock either for the same reason. Although, beef have a longer gestational cycle than a year. Pigs are about nine months and chickens are about every 30 days. So, it’s mainly oil, gas, base metals, precious metals. We also don’t own the intermediaries so we will own a oil company but not a refiner. That’s the thesis behind it. And the reason we developed the portfolio was the answer to if the worlds in big trouble what should I own. And that’s where that comes from. So, we were looking at this portfolio about a year ago and Mark Keller and I run the portfolio and I started developing this idea that if you’re an oil company and you’re looking at a long-term project, your fear is that it will become a stranded investment. That you make the investment. It takes you four or five years to get it fully developed and then ten years from now, suddenly the demand for your product falls off a cliff, it becomes very difficult to make that investment. And so, what we were – there were two things that came out of that discussion. First was that we were going to focus on oil as a commodity rather than oil from companies. And so, we held less – we were inclined to hold commodity exchange traded products that would give us exposure to oil and we dramatically curtailed our investment in – or our allocations toward energy companies toward oil and gas companies. We saw something very similar to this in coal. You know, over the past six or seven years, coal has just been devastated and we think oil and gas are heading toward a very similar future. Now with coal, the coal price never recovered because natural gas basically, you know, took away it’s – or supplied that demand from utilities that coal lost. But this time around it is going to be different because as you appropriately say, we’re still going to need stuff. We’re still going to be driving. We’re still going to be heating our homes but private sector companies are going to be disinclined to make the investment because they just don’t know what the futures going to look like. In fact, one of the real interesting changes you’ve seen recently is the oil and gas companies are clamoring for a carbon price which is a dramatic change from their policies before but they can’t discount any investment without a carbon price.

CHAMBERS: Define a carbon price.

BILL O’GRADY: That’s where you establish a price for the carbon that you’re emitting. So, let’s say it’s a hundred dollars a ton. If you’re a coal producer that means that you have to add 100 dollars per ton for the carbon dioxide that you generate and so what that does is it’s similar to a tax based upon how carbon intensive the fuel is. Coal is probably our most carbon intensive fuel and so the price would then adjust upward. And so, if you’re an oil and gas company you – at this point you want that price so you can look at a project and say well this is going to generate either natural gas or light sweet or heavy sour crude and that will help me determine whether that investment is viable. So, what – so we’ve prat along here for a bit, where does this take us? Well, where this take us is two directions. One is is that in the portfolios we want to – if we’re going to own oil, we want to own oil. We don’t want to own oil and gas and frankly for almost all of my career, if you were long crude oil, you could pretty much go long a basket of, you know, of energy stocks and pretty much do the same thing. And you can’t do that anymore. Now energies had a great year so far this year but if you look –

CHAMBERS: Yeah.

BILL O’GRADY: — at energies before (inaudible) relative to the S&P and oil prices, they hadn’t really gone anywhere. And you’re really better off just owning oil. The second thing is, we are seeing a shift from drilling to mining. So, as we electrify the transportation system, we’re going to use a lot more copper and cobalt and lithium and so if you look at our hard asset portfolio, there’s very little energy exposure. We treat energy exposure as opportunistic. So, if there’s a big sell off in energy stocks, we will take a flyer on a couple and then when we get to rally, we don’t stay. So, we view energy companies now as rentals, as far as investment goes. In our asset allocation portfolios, we have added a broad-based commodity exposure that does have a biased toward oil and oil products. And that’s how we’re getting our energy exposure. And we have not overweighted energy stocks but we have overweighted basic materials for example, again, based on this theme that you want to own basic metals and you don’t want to own the companies that produce oil and gas because of the uncertainty about their value of future investment.

CHAMBERS: Okay. That’s – alright. Well, that – I mean, that makes sense to me. Okay, let me move on to another topic here. Nord Stream 2. Can you give a little background on that? What’s going on and what’s the implications for, not only us, Western Europe and Russia?

BILL O’GRADY: Well, let’s start with the basics. Germany has always had a mixed relationship with Russia.

CHAMBERS: You said it. Yeah, that’s an understatement.

BILL O’GRADY: If you look at the long history of the relations between imperial Russia and Germany and imperial Russia and what proceeded Germany, the Prussians and various little principalities in what became Germany, the Germans wanted to have good relations with the Russians because they held so many natural resources that Germany wanted to get its hands on. But it also had an underlying fear of Russia because, you know, it never knew how far Russia would go in creating its buffer zones. Let’s back up a little bit and talk about Russian geopolitics. The problem for Russia is that the Russian – Russia’s principal cities sit on what’s referred to as the Great Northern European Plane. So, there’s this long flat expanse that runs from basically the Pyrenees all the way to the Urals and that means that there are really no significant barriers to an invading army going into what is Russia. So, Russia’s defense policy, time eternal has been to control as far — as much as they can of Eastern Europe, the Balkans and the, you know, the Armenia/Turkey zone. They want to push out as far as they can to force an invading army to march a long way and then wait for winter. And history shows it’s a bloody policy but it’s been pretty successful. It beat Nazi Germany and it beat Napoleonic France. And so, if you’re Germany, you’re always kind of wondering well, how far are they going to come to create this buffer? And so, there’s always been this tension. Geopolitical fear that the Russians are going to encroach but the economic goal of getting, you know, access to all that Russian raw material. So, as the cold war ended, one of the problems that has hit Russia, you know, pretty obviously is they’ve lost that buffer. You know, there are NATO countries now in the Baltics so from the Russian perspective this is absolutely terrifying development. And explains to a great extent why they have behaved the way they have with relation to Ukraine. Ukraine is – if Ukraine joins NATO, Russia really cannot defend itself. Braginsky made this point before he died, you know. We should have Finlanized (sic) Ukraine all along because the Russians are not going to tolerate this. This is something they’ll go to the mattresses over. Now, as this has evolved, Germany gets a lot of natural gas from Russia but the pipelines all run through the Ukraine. And so, these tensions with the Ukraine mean that on occasion that gas gets cut off plus the Ukrainians want to earn transit fees and the Germans finally decided, you know, this was under the social democrats in the – before Merkel took power to do this Nord Stream pipeline so they could put pipelines underneath the Baltic Sea and bypass the Ukraine. Now the US is opposed Nord Stream 1 and opposed Nord Stream 2. It didn’t stop the building of Nord Stream 1 but there was a serious pushback to Nord Stream 2 because the more capacity you create, the more Ukraine gets bypassed and the greater dependence, the Germans have on Russian gas. The Trump administration was vehemently opposed to Nord Stream 2, threatening all sorts of sanctions and pushing very hard on the Germans to suspend the project which is almost near completion. You know, you can kind of see the pipe sitting there, is kind of the way to think about it. And recently this week, the Biden administration backed away and pretty much put some meaningless sanctions on a few figures within the company of that are – companies that are involved in this and sanctioning the actual ships doing the pipelaying with the company – not the companies involved. It’s kinda (sic) baffling. It looks to me ostensively that Angela Merkel really wanted this and so she – she leaned on the administration to allow the project to come to completion. But what’s surprising is that Merkel’s a lame duck. You know, she’ll be –

CHAMBERS: Yeah.

BILL O’GRADY: — out of office in September and if the current poles can be trusted, the greens are likely going to, you know, dominate the government and the greens oppose this project. So, all the administration had to do was wait, you know, until fall and just keep stiff arming this thing and then they’d have pretty much gotten what they wanted. This looks like, to me, based on what I can tell here, you know, in the middle of the country that this was an administration own goal that they just kind of messed this one up. And there’s – you – whenever you see something like this, you’re always looking for what was the quid pro quo? What did we get for going along with this? It hadn’t shown up yet and I’m kind of baffled by it. Even more baffling is that it looks like the Secretary of State, Anthony Blinkin was a vehemently opposed to it as Pompeo was. And it looks like he was overruled by the president and I’m not sure for what reason.

CHAMBERS: Okay well thank you for that. It’s a complicated world out there, Bill. It’s incredible. So, just real quickly, and you can confirm this or clarify but I look at Russia and I look at – okay so we make a – the United States makes a lot of oil and gas. Middle East obviously makes a lot and they’re kind of what I gather, the products that we make here in the US are on the more expensive side and the Middle East is on the cheap but Russia’s sort of in the middle, in terms of what it cost to make, you know, a barrel of oil, let’s say. Are we increasingly moving towards a world where it’s on the margins? You’re either going to buy the most expensive or the cheapest and where does that leave Russia?

BILL O’GRADY: That’s interesting. This week the Russians came out and said we think we’re going to increase investment –

CHAMBERS: Yeah.

BILL O’GRADY: — you know, and so I started thinking about this. If you’re a private sector oil company that needs to make profits and needs to take care of shareholders you have a different agenda than a state-owned oil company.

CHAMBERS: Right.

BILL O’GRADY: So, for Russia, one of the failures that they have had is outside of creating hacking software and defense goods, they really don’t produce anything anybody wants.

CHAMBERS: Right.

BILL O’GRADY: Outside of raw materials. You know, nickel, big producer in nickel. The, you know, palladium, platinum –

CHAMBERS: Timber.

BILL O’GRADY: — timber –

CHAMBERS: Yeah.

BILL O’GRADY: — and oil and gas.

CHAMBERS: Right.

BILL O’GRADY: Now they’re looking at their oil and gas reserves and saying oh these are going to be stranded assets pretty soon. You know, within 20 years, there’s a great old line by the late Sheikh Yamani when he stated, and this was back in the ‘70s, “well someday the age of oil will end.” And somebody asked him, “well, does that mean that we’d run out of oil?” And he says, “well, no.” He said, “the stone age ended but we still have stones.” You know, we’re still going to have oil in the ground, it’s just nobody is going to want it.

CHAMBERS: Right.

BILL O’GRADY: And so, if your Russia, it becomes kind of a – and this is true of the state oil companies in general. It becomes a use it or lose it problem.

CHAMBERS: Yep.

BILL O’GRADY: And, you know, that scenario we painted at the beginning of the presentation was probably going to have higher oil prices. However, one way we would not is if you’re the Saudi’s and you look up and say, you know what, we still have got reserves here and if we don’t get them out of the ground now, in 20 years we’re never going to get them out. So maybe we should just pedal to the metal and if price drops to ten dollars a barrel, that makes it harder for people to electrify.

CHAMBERS: Yeah.

BILL O’GRADY: Now, there’s a risk to that policy and the risk is that if you’re a western government and you really want to push, you know, the electrification, you put a carbon price on it to the point that it doesn’t matter how cheap crude oil gets. You’re still going to be able to use it. But that’s something that we’re watching very – that’s kind of a new development. You know, because up to now OPEC has been clearly trying to keep the price propped up. And my suspicion is that the Saudis want to keep that price up to fund all these other projects that the crown princes is trying to do, which he thinks will diversify their economy away from oil. It’s an enormous gamble because if it doesn’t work, I don’t know what plan B would possibly be. But, you know, sometimes the only bet you have is black or red. You hope something comes up and so that’s kind of one of the things – let me kind of put it this way. One of the secrets of being a market analyst is that you have to try to overcome something known as conformation bias. You develop a narrative about how you think things are going to work. Then you have to figure out when you’re wrong and the problem with confirmation bias is that you’re constantly looking for things that make you feel like you were right. I got this from a book – one of the early writings of George Sorrows where he said, “I come up with a market position and then I seek out things that make me look stupid.”

CHAMBERS: Yeah.

BILL O’GRADY: It’s hard to do psychologically because it makes you feel really uncomfortable. But it’s kind of what you have to do and if there is a fly in the ointment of the higher oil price scenario it is – it’s a state oil companies. Private sector oil companies won’t do it but the state oil companies are looking at it wasting asset, may decide, you know, a dollar now is better than nothing ten years from now.

CHAMBERS: Yep.

BILL O’GRADY: And the other thing that the Russians have going for them, and this is something that is rarely taken into account. But if you’re the Russian, if you’re a Russian oil company, you’re paying your workers in rubles. But you’re earing dollars. And so, one way you can lower your cost of capital is to encourage your government to depreciate your currency. And the Saudis have tended to avoid that. They have, you know, they peg their currency and they rarely let it move, you know, and that’s because it’s a rent here state. And, you know, they have lots of princes they have to keep happy and

CHAMBERS: Yeah.

BILL O’GRADY: — depreciating the, you know, the Riyal doesn’t get them there.

CHAMBERS: Right.

BILL O’GRADY: But they Russians have no compunction of that. In fact, most wealthy Russians don’t keep — they keep as little money in rubles as they possibly can.

CHAMBERS: Right. Yeah, they Russians do have like a history of treating their people not so great. That’s for sure. It’s like guys listen, for the next two years we’re going to have you eat snow. Okay, you guys happy with that? Great. Move forward. So, yeah that’s not surprising. Okay, so that kind of leads me to this. Well, actually, let me go back to one thing. Can you give me a couple minutes, your thoughts on this hack, or this pipeline? Just real brief. I’d be really interested to hear because I just don’t think this – this is not ending. This is not ending. This is just a taste, I believe.

BILL O’GRADY: Yeah, I’m in the process of writing – we put out a publication called the Weekly Geopolitical Report and I’ve been writing this since my days at Edwards in 2006. But it’s an outgrowth of a daily comment on energy I used to write when I was an energy futures analyst. What I started doing in 1989. So, been looking at geopolitics for a long time and I’m actually doing a write up on this. And it’s actually pretty fascinating because there are a whole basket of, you know, threads that run through it. First off, ransomware is, you know, it’s become a big business. Darkside which was said to be behind this, actually has, it franchises its software. It has a customer service department that if they lock up your data, you know, you can work with their customer service department to pay them and then they’ll help you release your data, you know.

CHAMBERS: Did you ever believe you’d be in a world like that? I mean, come on. Yeah, it’s amazing. I’m sorry, go ahead.

BILL O’GRADY: Well, and it actually kind of gets to the whole nature of criminal behavior.

CHAMBERS: Right.

O’GRADY: Criminality kind of breaks into two directions. One direction is that criminals will provide products that polite society thinks shouldn’t be provided. So, if you think back to prohibition. Well, we shouldn’t let people drink. Well, people like to drink. So, government was preventing people from buying alcohol and organized crime, you know –

CHAMBERS: Stepped in.

BILL O’GRADY: — who supplied the service.

CHAMBERS: Right.

BILL O’GRADY: And we see that in all sorts of things. Illicit drugs, prostitution, loan sharking, these are all things that, you know, again society thinks really shouldn’t be allowed to happen and but there’s a demand for it. Somebodies gotta (sic) fill it. Organized crime does. And it has all of its problems. If you think back to the movie Good Fellas. One of the key insights that the lead character discovered was is that, you know, if you’re in this business and somebody does – basically hoses you, you can’t go to the courts to, you know, get it taken care of. And that is the role of, you know, the crime family had or, you know, the higher ups is to adjudicate. They really are adjudicators of alright who – you did this, you weren’t supposed to do this. This is your penalty. That’s one element of organized crime. The other element of organized crime is parasitic. You know, it takes – and what’s – what is the goal of a parasite? It’s to get resources from your host but do it in such a way that you don’t kill them. So, you know, one of the things that these ransomware guys – and ransomware kind of falls into the parasitic side. So, one of the things that the ransomware guys have figured out is they investigate companies they want to target with the same rigor as a, you know, equity analyst would do. How much can you pay? You know, how good is your software? Do you have insurance? How good is your insurance? And they size it all up and kind of figure out this is about what these people can pay. And then they hack the firm and they get paid. And this was a terrible mistake because they never intended for this to shut down, you know, eastern seaboard energy supply. That was not the goal of this. Their goal of this was to capture these guys data and make them pay. And they figured they’d pay it quickly. Here’s where they screwed up. They did not attack the command-and-control software of Colonial Pipeline. They attacked the business software, the billing software. What they failed to understand was the billing software was tied to the command-and-control software. And so, when they attacked the business software, colonial lost its ability to know what to bill people and who’d been shipped what, so they had to shut everything down. And the hackers did not anticipate that and the minute, of course, that shut down it went from being a parasitic criminal activity to a geopolitical problem.

CHAMBERS: Yeah.

BILL O’GRADY: And so, it looks to me like there’s a couple of fall outs from this. One is now ransomware has become – it’s come to the clear attention of the government – of governments.

CHAMBERS: Yeah.

BILL O’GRADY: And their starting to take it very seriously and one of the things I anticipates going to happen is the government is going to require that if you get hit with ransomware you’ve got to tell them.

CHAMBERS: Right.

BILL O’GRADY: The second thing, I think we’re going to see out of this is that it’s going to become an uninsurable risk. What makes insurance work is uncorrelated risk. When a risk becomes correlated, you can’t insure it.

CHAMBERS: Right.

BILL O’GRADY: That’s why – that’s why (inaudible) there is no flood insurance and there is no hurricane insurance for the –

CHAMBERS: Right.

BILL O’GRADY: — most parts of the country. There’s no flood insurance because it’s not an uncorrelated risk. If you live in a flood plain, you’re going to get washed out at some point.

CHAMBERS: Right.

BILL O’GRADY: And so, the government becomes the only provider of it. Well, the government – if the – if it becomes an uninsurable risk, then that eliminates the moral hazard. What was the moral hazard of software developers? You’re not rewarded for security. You’re rewarded for getting it out. Being the first mover.

CHAMBERS: Right.

BILL O’GRADY: Once, you know, MS-DOS was not the best operating system. CP/M was by far the better operating system but once IBM picked DOS for the PC, it dominated. So, what the lesson learned for software developers was, get it out there fast and be number one and if you’re waiting to make it really secure, you’re not going to win.

CHAMBERS: Right.

BILL O’GRADY: The other guys going to win. So, you have to change the incentive structure to where who becomes liable if you get hacked and if it starts becoming the software developers, low and behold, software’s going to get a lot better.

CHAMBERS: Yep.

BILL O’GRADY: The final element that I think you really gotta (sic) watch is that this event highlighted clearly that cryptocurrency has become the payment of choice for organized crime.

CHAMBERS: Yep.

BILL O’GRADY: Cryptocurrency exists because governments allow it. And you’re starting to see a crackdown. Wallstreet Journal article today –

CHAMBERS: Yep.

BILL O’GRADY: — you know, comes out and says the IRS is really going to start looking at crypto holdings. You know, and one of the things we have noticed is that cryptocurrency behaves a lot like gold. If you look at the past seven or eight years where crypto really started working, and you can correlate it to the price of gold, price of bitcoin, the price of gold correlates at about 66/67 percent for the past several years. But if you look at the relationship between bitcoin and gold, since last summer, since like last July, there actually adversely correlated at almost 90 percent. So, bitcoin has now reached the point where people are starting to view it as an alternative to gold.

CHAMBERS: Right.

BILL O’GRADY: And the criminal element could use gold but, you know, if you’re actually going to take delivery of gold, you’ve got these big chunks of metal.

CHAMBERS: Yeah.

BILL O’GRADY: — and people can see you moving them. And you gotta (sic) be a big fella to move a suitcase full of it. Where bitcoin weighs nothing. Perfect for this role.

CHAMBERS: Right.

BILL O’GRADY: If we start to see governments crack down on crypto, you’re probably going to see the people who are buying crypto as a debasement hedge start to gravitate back towards gold.

CHAMBERS: Yep. It makes sense

BILL O’GRADY: So, there’s a lot of working pieces to this thing. But kind of the bottom line here is that this was an epic error in judgement by whoever did this. Because the last thing they wanted to do – this is a bit like chopping off the head of the golden goose. They were making a great living on this stuff and now they’ve raised it to a threat level where it’s caught the attention of government. And that will probably lead to a response that makes ransomware a lot less attractive as a criminal enterprise.

CHAMBERS: Let’s hope so. Very interesting insights, Bill. I appreciate that. Alright, I’m going to move to another subject. I’ve only got you for another 15 or so, so want to talk about alternative energy and EV’s and cement production and steel production. We talk about EV’s. You know, we gotta (sic) get to EV’s. We just – Ford just released F-150, the electric 150 which is great. And all that but – and it’s very, you know, we all drive cars, right. So, it’s a big deal. Transportation, huge. Generates a ton of carbon. But so does steel and so does cement production. So, a lot going on but anyway. What’s your view of EV’s and where we’re going? How realistic, you know, the timeline. The thing that I’m stuck on is I think this is going to take longer than we all want it to. And again, it goes back to our conversation about the end of oil or supposably the end of oil. And then, you know, do you have any insight on other industries that produce a tremendous carbon footprint like oil and steel and kinda (sic) where are we at with that and where are we going? So, there’s a lot of questions in there but anyway.

BILL O’GRADY: Yeah. And one of the things I like to do with questions like this is try to look for some kind of unifying theme.

CHAMBERS: Perfect.

BILL O’GRADY: And the unifying theme in all this is, what is the direction of environmentalism? And I – I have concluded that environmentalism really has two poles – two Seminole figures in its history that really kind of encompass what the tension is within the environmental movement. One of them is Buckminster Fuller and the other is Thomas Malthus.

CHAMBERS: Okay.

BILL O’GRADY: So, Thomas Malthus as a reminder was the 17th century cleric who actually kind of made people define economics as a dismal science because you say, you know what, left to peoples own devices, they’ll overconsume, they’ll have too many children, they’ll live in destitution all their lives. And the environmental movement really has an element of that in it. Yeah, you can do all this stuff but eventually you’re going to make things so dirty that you can’t live in the world that you’ve created. The Buckminster Fuller element of this is that we can use technology to address the problems that development causes. And it’s a much more optimistic view. Now, when you first lay it out like that, it kinda (sic) looks like you create a strawman. Well, wealth is clearly lost. But it reminds me of a keen insight from one of the greatest movies ever made, The Simpsons Movie, where Bart got caught skateboarding naked and he was chastised for it and he tells Homer this is the worst day of my life. His dad says, “no son, it’s the worst day of your life, so far.”

CHAMBERS: Right.

BILL O’GRADY: The history of the past 250 years says Malthus has been wrong. And wrong almost consistently. You know, we’ve always come up with a technology that fixed it whether it’s the, you know, the food revolution, you know, we’ve fixed acid rain. I mean, we’ve always been able to fix things with new technology. But there was a French philosopher with the name of Jacques Ellul who always said, well you know, when you do that, yeah you fix that one but then you create a new one. And so, the technology fix, the Buckminster Fuller fix to these kinds of problems is always a treadmill. Because yeah, you fix one but you know what, you create another and you gotta (sic) fix that one too.

CHAMBERS: Yeah.

BILL O’GRADY: I mean, remember going to cars at first seemed like an environmental victory because, you know, the country was choking on horse shit.

CHAMBERS: Right.

BILL O’GRADY: And, you know –

CHAMBERS: Yeah, truly. Yeah.

BILL O’GRADY: Yeah, we really were.

CHAMBERS: People don’t remember that.

BILL O’GRADY: And, you know New York City was producing so much horse manure that they couldn’t figure out how to get rid of all of it.

CHAMBERS: Oh, they just take horses that died and just leave them out on the streets. Pigs and –causing pestilence on people. Yeah, yeah, right.

BILL O’GRADY: So, you know, when –

CHAMBERS: Yeah.

BILL O’GRADY: — the car first came out people were like this is going to be great.

CHAMBERS: Yeah.

BILL O’GRADY: You know and that fixed the horse problem but then it caused another one. And, you know, the problem is Malthus may end up actually winning at some point but the human race is going to do everything it can to try to push that day off a little further. So, that’s kind of a background of this. So, what are we dealing with? Well, the car has clearly created this carbon problem and we have to come up with the technology to fix it. Now EV’s are one answer to that. There are others. Hydrogen is a potential as well. In fact, I’ve followed the fuel cell industry for years and it reminds me of Brazil. You know, Brazil is always said to be the country of the future and always will be. Hydrogen kind of falls into that. But you are seeing some strides made on hydrogen so I wouldn’t necessarily say that electric vehicles are going to win because the fuel cell vehicle may at some point actually winning this thing. Especially if we come up with new ways of creating hydrogen from water that turn out to be, you know, more efficient. Right now, it’s still pretty dirty. We get most of our hydrogen from natural gas. But anyone whose taken high school chemistry knows you can get oxygen and hydrogen out of water through electrolysis.

CHAMBERS: Right.

BILL O’GRADY: Nuclear is another area that, you know, has been sold short. We like nuclear a lot.

CHAMBERS: Yep.

BILL O’GRADY: Because – and one of the things that has surprised me is that we are starting to see people within the environmental movement when they sit back and look at this, they look at this as there really is no way we can get around this.

CHAMBERS: Yep.

BILL O’GRADY: Without nuclear. The issues with steel and cement are technological issues.

CHAMBERS: Yeah.

BILL O’GRADY: And they do create a lot but you know what if you properly price carbon, people will come up with new ways of doing things that will reduce less of it. But you have to create incentive and that’s why you are starting to see this carbon price argument bubbling up. Now, politically it is – it’s still really tough.

CHAMBERS: Yeah.

BILL O’GRADY: But any economist will tell you, step one is putting a price on carbon and trying to get it as close to accurate as you can. And, you know, the thing that is always surprised me is that when you talk to people in steel, you talk to people in cement or frankly of any industry, there will always be a whole string of other alternative ways of producing the product that are available. They just don’t get exploited because their too expensive. But once you change the pricing incentives, then all the sudden, oh yeah, we can do it that way and it will be less dirty. The other thing, I always mention when I get on this topic is that there is nothing humans do that doesn’t have some dirtiness to it. So, if we go to EVs, when you start looking at the production of metals, man it’s disruptive.

CHAMBERS: It’s not good.

BILL O’GRADY: And there’s really kinda (sic) no way of getting around it –

CHAMBERS: Yeah.

BILL O’GRADY: — and so it’s kind of a pick your poison problem and you know this is always difficult for people who want to do environmentally the right thing to rappel with because ultimately nothing that you do is pristine.

CHAMBERS: Do you think they’re politically speaking we’re going to be on this – I know that there’s a timeline that’s globally kind of being set like, hey we gotta (sic) really get on these guys in the next 20, 30 years. But politically speaking, at least in this country it seems like this is going to be a tough road given the polarization to get – right? I mean – Biden will come in and do stuff and then, you know, it’ll get reversed by the next, right? I mean, it’s just –

BILL O’GRADY: The thing you have to always remember is politics is always hard.

CHAMBERS: And long.

BILL O’GRADY: And long. And, you know, because you’re building, I mean in democracies you have to build consensus.

CHAMBERS: Yeah.

BILL O’GRADY: You know, authoritarian regimes, you have to build consensus among the leadership and then you can only go so far.

CHAMBERS: Yeah.

BILL O’GRADY: You can go further but the risk is that you, in democracies, you have a better chance of seeing the breaking point. When I look at the current political turmoil, what that tells me is, is that we are trying to figure out a new social consensus. We’re just not there yet.

CHAMBERS: Yep.

BILL O’GRADY: If you look at American history, we go through this about every 50, 60 years.

CHAMBERS: Yep.

BILL O’GRADY: And we’re kind of due and so, you know, in terms of what are we going to do politically about climate change? Well, one thing I think you have to look at is the whole notion of mitigation. You know, I live at the, you know, at the confluence of the Illinois, Missouri and Mississippi Rivers and so flooding is a pretty normal occurrence around here. I mean, it doesn’t happen every spring but about every third spring you get some flooding activity. You know, one simple solution is you don’t build – you don’t put anybody’s houses on a flood plain. You know, you can do some building. May become great for things like soccer parks, you know, little league baseball –

CHAMBERS: Right.

BILL O’GRADY: — and, you know things like that. You just have to go in every three or four years and kind of clean them up after the flood waters recede. But, you know, on the coast as sea levels rise, you know, you’re going to have to mitigate and that may mean that you don’t put stuff on Manhattan. You know, you start building stuff in New Jersey.

CHAMBERS: Yep.

BILL O’GRADY: And I – one of the things I have been kind of amazed at is how fast the West grows. And I lived in Denver for a couple years. I love the Rocky Mountains but every time I go to Denver, I’m like I don’t know where these people are going to get water to drink.

CHAMBERS: Yeah. Yeah.

BILL O’GRADY: You know, it’s –

CHAMBERS: It’s crazy.

BILL O’GRADY: — and so, again, a lot of things ultimately – one of the key core elements of economics is getting the price right. And that’s where a lot of this comes down to.

CHAMBERS: Yep. That’s a great theme and one for us to watch. Well listen, I really appreciate it. I’ve just got one other thing. Have you read any of Daniel Kahneman’s stuff and his new book Noise. Have you heard about this? I was just thinking of you –

BILL O’GRADY: I’ve heard of it.

CHAMBERS: Yeah. Have you read any of his stuff?

BILL O’GRADY: I have. I think it’s really good.

CHAMBERS: Yeah, he’s incredible.

BILL O’GRADY: The – I’m an avid podcast listener.

CHAMBERS: Yeah.

BILL O’GRADY: Not only do I create my own but I listen too, and there was a recent podcast I listened to reviewing, you know, him and his book and –

CHAMBERS: Okay.

BILL O’GRADY: — you know, it – what I like about Kahneman and really the whole behavioral economics guys, Bob Shiller got a book out now called Narrative Economics, which –

CHAMBERS: Yep.

BILL O’GRADY: — gosh, it dovetails into everything I’ve experienced –

CHAMBERS: Yeah.

BILL O’GRADY: — in, you know, 35 years of doing this kind of work.

CHAMBERS: Yep.

BILL O’GRADY: You know, it’s – we are in the business of storytelling.

CHAMBERS: Yeah, for sure. Well, Kahneman, he’s been interviewed a bunch, but Barry Ritholtz interviewed him and that was – he’s interviewed them I think a few times. It’s just fascinating. And by the way I think you turned me on to Odd Lots. How incredible. Isn’t that just a gem of a podcast?

BILL O’GRADY: Yeah.

CHAMBERS: Those two are – I mean, it’s just – the whole thing on like, you know, shipping containers and microchips, you know. And by the way, who knew that microchips took up – I mean it’s obvious but took up so much water and now Taiwan’s in a drought. So right back to the environmental thing, you know. It’s just so –

BILL O’GRADY: They – they do an exceptionally good job –

CHAMBERS: Of topic picking.

BILL O’GRADY: Yeah.

CHAMBERS: That’s the thing. You know what I mean. It’s just like wow.

BILL O’GRADY: Yeah, they do and they’ve got a little bit of an element of getting ahead of the puck which –

CHAMBERS: Yep.

BILL O’GRADY: — I was listening to the most recent one which was really frustrating because it’s so deep in the weeds on crypto and I’m too old to understand –

CHAMBERS: Yeah.

BILL O’GRADY: — a lot of it. I joke to people, I’m out walking around getting my exercise listening to these podcasts, they’ll say something and I’ll be like yelling, you’re asking the wrong question. This is the question you have to ask.

CHAMBERS: Yeah.

BILL O’GRADY: I think people think I have turrets but it was really interesting. I haven’t finished the latest one. I have about ten minutes of it left but you know right at about the mark where there’s a bout ten minutes left this guy’s talking about with the difference between bitcoin and what Ethereum is going to. So, bitcoin works on a thing called proof of work.

CHAMBERS: Yeah.

BILL O’GRADY: So, you get to post a transaction on the blockchain if you solve this puzzle.

CHAMBERS: Right.

BILL O’GRADY: That’s the proof of work. And of course, we all know the story of how complex these puzzles are getting and how much energy they are generating —

CHAMBERS: Yeah.

BILL O’GRADY: — to fix this. Ethereum and according to the guy they interviewed, on July 15th, Ethereum is shifting to something to proof of stake.

CHAMBERS: Yep.

BILL O’GRADY: Which means that you get to put stuff on the blockchain based upon how many of the Ethereum coins that you pledge and then there’s a lottery. So, if you pledge half the existing Ethereum for example, there’s a one in two chance that you’re going to get to post the transaction on blockchain, you’re going to have a fee for that. Start thinking about it as I’m walking around. It’s like, well gosh, if this replaces proof of work, all these server farms that have developed to generate all this – to crack all these puzzles, suddenly aren’t necessary. And, you know, are we going to suddenly find a glut of available server capacity that had been tied up –

CHAMBERS: Interesting.

BILL O’GRADY: — doing bitcoin.

CHAMBERS: Yep.

BILL O’GRADY: I don’t know who provides all that but that can be really a bad outcome if that’s how it plays out, so. Yeah, Odd Lots is – it’s my favorite.

CHAMBERS: Yeah, it’s good.

BILL O’GRADY: I think they do a really bang-up job.

CHAMBERS: Yeah. I think that gentleman coined it yield farming.

BILL O’GRADY: Yes.

CHAMBERS: Yeah, yield farming which is so interesting.

BILL O’GRADY: Well and the question I was screaming is whose paying 80 percent annual, you know? They never address that. They like money, just money kind of falls from heaven. It’s like wait a minute. Somebody’s paying this.

CHAMBERS: Yeah.

BILL O’GRADY: Who’s the clown that’s paying this?

CHAMBERS: Well, you know what, there was parts of that that guy didn’t even know what – he was like, honestly, I’m trying to figure it out myself, you know. So, there you go. This is the world we live in, Bill.

BILL O’GRADY: Yeah.

CHAMBERS: Never-ending. To your point. Well, listen, I really appreciate it. How’s St. Louis doing in the race for pennant? How we doing this year? What’s going on out there?

BILL O’GRADY: They’re leading the league.

CHAMBERS: Good.

BILL O’GRADY: You know, they’re – it’s kind of a weak division.

CHAMBERS: Okay.

BILL O’GRADY: The Brewers can’t hit. They’ve got fantastic pitching staff but they’re – Yelich has been hurt so they’ve been struggling.

CHAMBERS: Okay.

BILL O’GRADY: Pittsburgh is just a, you know, a dumpster fire. The Cubs are, they’re in –

CHAMBERS: The Cubs.

BILL O’GRADY: — well, you know, they had their run and now I think they’ve kind of concluded that they need to rebuild and so they’re kind of selling off parts and –

CHAMBERS: Okay.

BILL O’GRADY: — you know, so the – and the Reds frankly should be better than they are. But they can’t seem to make up their mind if they’re in a rebuild or not so, you know the Cardinals are kind of the last team standing and they got Nolan Arenado over the winter and gosh he’s just crushing it. And the problem for the Cardinals is that there has been a lot of injuries with starting pitching.

CHAMBERS: Okay.

BILL O’GRADY: They have one really exceptional starter, Jack Flaherty. And then everybody else, I mean they trot Wainwright out there. I think he’s 98 years old now and he pitches really well at home and he gets shelled on the road. And they’ve had a couple guys hurt and so it’s been kind of a hodgepodge in the starting rotation. But they got a couple guys that are coming back from rehab and if the starting pitching improves, they’re probably going to win the Central. I don’t know if anybody’s going to win whoever – beat whoever comes out of the West, however. You know, the Dodgers.

CHAMBERS: Yeah.

BILL O’GRADY: San Francisco and San Diego. I mean the Cardinals got swept by San Diego and it really wasn’t close.

CHAMBERS: Yeah.

BILL O’GRADY: You know, so it that’s kind of the thing you look at.

CHAMBERS: Right.

BILL O’GRADY: You know, getting into the playoffs is important but –

CHAMBERS: Yeah.

BILL O’GRADY: — you know, gosh those teams out there look really tight.

CHAMBERS: Yeah. It’s run into a (inaudible) yeah. Well, I always love it when we end with baseball. And I really – I didn’t know you were a pitcher at one time so that’s very cool.

BILL O’GRADY: Yeah. You know, I probably need both elbow and shoulder surgery but in my current life, it kind of doesn’t matter but when I used to coach Little League, you know, I – by the times the kids got to be about 12 years old, they’re like gosh you kind of throw like a girl. Well, nothing wrong with that.

CHAMBERS: Nothing wrong with that. Girls throw hard, man. They throw it hard, believe me.

BILL O’GRADY: But no, I kind of throw like an old guy whose arm is shot and –

CHAMBERS: Right.

BILL O’GRADY: — but yeah, I have – my shoulder will fall out of socket if I’m not watching what I’m doing.

CHAMBERS: Yeah, don’t do that.

BILL O’GRADY: That’s just, you know, that’s a rotator cuff that needs to get fixed and –

CHAMBERS: Yep.

BILL O’GRADY: — is not going to get fixed.

CHAMBERS: Yep. I got it. Yeah, man, don’t mess with shoulders. Anyway, alright, well listen. It’s been great. Thank you so much. I always love your perspective and your team’s perspective on things and we totally appreciate it. And have a wonderful weekend. Until next time, Bill. Thank you so much.

BILL O’GRADY: Okay. Thanks, Trevor.

CHAMBERS: Alright, Bud.

Background Information:

Bill O’Grady – Full Bio
As Chief Market Strategist, Bill O’Grady performs market, economic and geopolitical research for the firm, and is a member of the investment committees for the Asset Allocation strategies and International Equity strategies. Bill also co-manages Confluence’s Global Hard Assets portfolio, which focuses on tangible commodities investments. Additionally, Bill writes numerous reports for the firm, which can be found under Research & News, in which he provides insights on various economic and geopolitical topics and discusses market effects. In all, Bill has more than 30 years of experience following the energy, foreign exchange and futures markets and is frequently quoted by such national media outlets as The Wall Street Journal and Bloomberg News. Bill earned a master’s degree in economics from St. Louis University and has undergraduate degrees in history and public administration from Avila College.

Trevor Chambers – Full Bio
Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.” 

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Soundtrack to a Financial Advisor's Life Episode 7

Addressing the Issue of Aging Parents – the most important and emotional relationship shift that you can have in your life. Alex Mihajlov and Trevor Chambers from Olde Raleigh Financial Group, in Raleigh, North Carolina, discuss the difficult topic of the role reversal of children becoming the parents.

Topics Include:

Activities of daily living (ADLs)

• Bathing – ability to clean oneself, get in and out of shower or bath, and perform other activities of personal hygiene such as shaving or brushing one’s teeth.

• Eating – feeding oneself by getting food into the body from a receptacle such as a plate, cup, or table, by a feeding tube, or intravenously.

• Dressing – ability to put on clothes, and not struggle significantly with common clothing accessories such as buttons or zippers. This also includes putting on and taking off all items of clothing and any necessary braces, fasteners, or artificial limbs.

• Transferring – ability to walk and get in and out of bed, or chair.

• Toileting – ability to use and get on and off the toilet and performing associated personal hygiene.

• Continence – ability to control one’s bladder and bowel functions, or, when unable to maintain control of bowel or bladder function, the ability to perform associated personal hygiene, including caring for a catheter or colostomy bag.

  OR

• Cognitive impairment.

Cognitive impairment in the elderly is most commonly caused by Alzheimer’s disease or other forms of dementia. Though medication may slow progression, there is no cure for these neurodegenerative diseases. Besides Alzheimer’s and other forms of dementia, cognitive impairment may result from a stroke, traumatic brain injury, and other causes.

Hey everybody.  This is Trevor Chambers from Olde Raleigh Financial and Alex Mihajlov as well, joining me today.  How are you today, Alex?

MIHAJLOV:   I’m very good, Trevor.  It’s always good to see you on —

CHAMBERS:   Yes.

MIHAJLOV:   — Fridays.

CHAMBERS:   Another sunny day.  A Friday.  We’re very excited.

MIHAJLOV:   It’s a beautiful day in Raleigh, North Carolina.

CHAMBERS:   Yes.

MIHAJLOV:   And spending a little time with you on Friday.

CHAMBERS:   Yes.  Instead of calling clients, we’re doing this.

MIHAJLOV:   Yes.

CHAMBERS:   Well, I want to – we want to put out a post today on a very important topic.  As the baby boomers move through their cycle of life, we – they’re entering a stage where they’re becoming parents to the parents.  Meaning that they’re aging parents are getting to a stage where maybe, they’re having to step in and take over finances.  And this is something that is increasingly becoming more apparent in our practice here at Olde Raleigh Financial Group in Northwest Raleigh.  And I – so we got together here and we decided we wanted to talk about it.  So, Mr. Mihajlov, with all your years of experience –

MIHAJLOV:   Yes.

CHAMBERS:   — in this business, could you please talk to us a little bit about some of the challenges that people in this situation are facing and what we might – how do we guide people through this process and what are they seeing?

MIHAJLOV:   Well, this is a really important topic and it’s probably one of the most difficult topics in financial planning, there is because it forces children of parents to truly start to become a parent – parents of their parents, which is a very difficult role reversal and quite frankly a lot of people can’t ever do it.  But I think it’s one of the most important relationship shifts that you can have in your life and probably almost essential to do at some point. 

CHAMBERS:   And it’s very emotional.

MIHAJLOV:   It’s very emotional and it’s very, you know, we’re not used to telling our parents what to do.  We expect them to be all together, et cetera, et cetera.  I think the biggest problem people have with their parents is they don’t see them aging.

CHAMBERS:   Uh-huh (yes).

MIHAJLOV:   They don’t see realistically how they’re aging like maybe other people do.  You know, one of the things that we do is if we have a client that’s over 70 or 75 years old, we’re going to get a child to have either Power of Attorney or some sort of contact with us so they know what their parents are doing and so we have a second set of eyes watching the relationship et cetera, etcetera. 

CHAMBERS:   And a power of attorney, that can be set up obviously through a lawyer and is there anything in particular that you look in there for with that power of attorney?

MIHAJLOV:   Well, power of attorney just gives the child, should the parent be unable to make decisions or become unable to make decisions, say stroke or illness or whatever it is, the child can step in and help handle finances.

CHAMBERS:   Alright, so there’s – lets kind of go through a little bit of a checklist here.  If your faced with this situation, what are some of the things that we like to express to clients and what they kind of need to do.  What’s, you know, some of the things they’ll need to do?

MIHAJLOV:   I tell children, I say do you know who your parents’ financial advisor is?  Do you have a relationship with them?  Have you been looking over the – what your parents are doing?  And it’s never too early to start the conversation.  A lot of times parents, you know, don’t want their children poking around.  I’m not at the point where I want my children –

CHAMBERS:   Right.

MIHAJLOV:   — poking around in my finances.

CHAMBERS:   Right.

MIHAJLOV:   But, it’s a good thing to have the conversation so children can help.  Usually, you have one parent that has handled the vast majority of finances.  Maybe the other parent is not as astute in them and a third set of eyes is never a bad thing.  

CHAMBERS:   Yeah, and it’s a great platform which, you know, as financial advisors we can be that sort of go between, you know.  Because we can bring a pretty – just like okay, not emotional point of view to these things so it’s a great – it’s a great thing to – if you can incorporate either their financial advisor or your financial advisor into the conversation, it helps – I think it helps facilitate these things.  Some of the other things we look at like does mom and dad have long term care?

MIHAJLOV:   Right.  That’s a huge, I mean this is a four-podcast topic.  But long term care, if something happened to your parents and they could not do one of the five daily activities, which is toilet and transferring, talking, I don’t know what the other two are but they’re strong.

CHAMBERS:   Yeah.

MIHAJLOV:   Anyway, you know can they afford to hire someone to help them accomplish those things?  What if they start with dementia or Alzheimer’s?  What is the plan for that?

CHAMBERS:   Yep.  And also, just like basic things like where are they banking.  Where is the financial records?  If there’s log ins, you know, what are they because, you know, it’s just getting things organized and having those kinds of adult conversations about that, so.

MIHAJLOV:   And if you have a really elderly parent – I was talking to a client the other day whose father had in excess of $100,000 in his checking account and I was suggesting to him that he separate his father from his money.  And he said, “what do you mean?”  And I said, “I would minimize the amount of money he had in checking account to something he’s comfortable about to where there’s a two step process for the other money to be moved because it’s much too easy to get scammed out of a check or a checking account number, et cetera, et cetera.  Make it a little more difficult for money to be moved or a couple more questions have to be asked before money can be moved.

CHAMBERS:   We hear about fraud –

MIHAJLOV:   Constantly.

CHAMBERS:    My mother’s 83.  She gets peppered with calls.  I’m sure your parents out there are having the same issue.  And they’re vulnerable.  You know, especially if they enter into a situation where the Alzheimer’s may be kicking in or dementia or something like that.  We’ve heard stories of people just doing, you know, out of character moves with their money under those circumstances, so.  Alright, well is there anything else in summary that we need to talk about?

MIHAJLOV:   I mean, I think we need to do three or four of these and go through this topic in great depth.  But I think if people’s advisors are not addressing this with their families, then they ought to be looking for a different advisor because I think it’s really, really important and I think it’s the most difficult relationship change you will have.  You know it comes with all the other changes.  Should your parents still be driving?  Are they, you know, are they getting good medical care?  All these things that becoming a parent again is – and becoming a parent to probably one of the most difficult relationships you can have is a real challenge at a time when baby boomers are already stressed with their own lives and raising their own kids, et cetera, et cetera.

CHAMBERS:   And looking at their own retirements.  You know what I mean, right?

MIHAJLOV:   Exactly.  But if anybody needs help or wants ideas, we’re glad to chat with them.

CHAMBERS:   Yep. We are – if you are familiar with the Char Grill on Edwards Mill in Northwest Raleigh, we’re right across the street.  Grab a burger and come on over.

MIHAJLOV:   Yes.

CHAMBERS:  So, well thank you Mr. Mihajlov for this insightful and we will be back.  We will break down some of these points that we were talking about in further details in podcasts to come, so.  Well, have a great week and thank you for the time and enjoy your holiday weekend.

MIHAJLOV:   You too, Trevor.

CHAMBERS:   Alright, buddy.  Alright, thanks guys.  Talk to you soon.

Background Information:

Alex Mihajlov – Full Bio
The arch of his career has now landed his firm, Olde Raleigh Financial, to become a fee-based, Independent Advisory firm. Prior to that Mr. Mihajlov was a branch manager at A.G. Edwards, Wells Fargo and Raymond James. His career has been an evolution and, in turn, his perspective on service has evolved.  “My team and I have experienced the large brokerage houses and banks. While they have carved out their spot in the marketplace, I can say it is not for us. We have evolved and we tend to attract those who have evolved away from cookie cutter to a world of customization. They want collaboration. They wanted to be listened too. They want a relationship and we want them to be excited about our relationship.”   

Trevor Chambers – Full Bio
Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network, LLC and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed.  All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. Advisory Services Network, LLC and Confluence Investments are unaffiliated.

Soundtrack to a Financial Advisor's Life Episode 6

Are you planning on retiring in Raleigh, NC anytime in the next 30 years? If so, there is a complicated world out there beyond Raleigh, with its own set of goals, aspirations and driving forces that can impact your investments. Olde Raleigh Financial Group loves to keep eye on that horizon with conversations around geopolitical trends and how those trends might affect investment decisions. Please take a listen to this interview with Confluence Investments analyst Patrick Fearon-Hernandez who uses his CIA background to view the world.

This Interview Covers:

• Wolf Diplomacy? China’s more muscular role in global diplomatic organizations and policies making.

• What are China’s military capabilities with particular attention to their Navy. Did you know they have the largest Navy by number of boats in the world. The questions is are they the right boats to move from a regional power to a global power that rivals the U.S. and what’s the timeline of such expansion?

• Analysis of Chinese national interest and goals compared with US Interest and Goals

• Japan: A new president in Suga and an old, often fraught relationship with China. What next for one of the U.S.’s staunches ally as the try to help check China’s power surge?

• Taiwan’s semiconductor Industry is the global leader in microchip production and China wants it.

• Will global supply chains shorten?

• Impacts of The Aging populations on economic growth and inflation in both developed and developing worlds. Investors must pay attention to changing population demographics!

Hey everybody. This is Trevor Chambers from Olde Raleigh Financial. Once again, we log another episode of Soundtrack to an Advisors Life and the Meet the Masters Series. Today I am excited to have our guest Patrick Fearon-Hernandez. Patrick how you doing today?

PATRICK HERNANDEZ: Hey. Good, how are you?

CHAMBERS: Good. You and I just met and you’re a – you seem like a vivacious guy and so I always love having people with good energy on the blog and I appreciate it. So, I’ll get right to it. Patrick is a market strategist. He works for a firm called Confluence Investments and they manage money, long term money for individuals as well as not for profits or you guys manage money for institutions, I should say is what I meant. And been doing it a long time and you’ve been in this business a long time. And today I had you on because I wanted to talk about some big macro global level topics like China and our role with China and them and things like that. And you are a really interesting guy. You have a very interesting background and you are well suited to I think for this time in our history. So can you give us a little background and then we’ll get right into some questions.

HERNANDEZ: Well, yeah Trevor. I’m happy to share, you know, what I bring to the table with you. I’m kind of a strange bird, I think for this industry in that, you know, well first of all, for Confluence in general, we take a kind of a unique approach where we’re pretty top-down, macro, global kind of people. We pay a lot of attention to geopolitics. Everyone at the firm does. But what I bring to it in particular is the unique perspective of a former intelligence analyst at the central intelligence agency. I spent the first part of my career at the CIA. Promise, I was just an analyst. I was not a spy. But it was –

CHAMBERS: I don’t know about that. I don’t know. I gotta (sic) protect my sources on that one, buddy. But go ahead.

HERNANDEZ: But, yeah, I was at the agency back at the end of the Cold War, so late 80’s into the early 90’s. And, you know, it’s sort of interesting. First of all, I really think that’s the world’s best preparation for doing investment strategy because, you know, it teaches you to look at the big picture, to understand how history and geopolitics and, you know, demographics, economics, social changes, all those kind of things meet together to determine what your – what your world looks like and all of those things, you know, you have to keep track of them in order to understand what a global investment environment is and where it’s likely to be going in the near future. And believe it or not, my day now is structured almost exactly like it was in my days at CIA. The biggest difference is that, you know, these days I don’t have access to all of the classified sources of information but still. You know, I sort of bring the skills of CIA style strategic intelligence to the investment world. And the way I like to put it to people is, you know, if the – if the US Navy can rely on CIA style strategic intelligence to decide where to deploy an aircraft carrier battle group, why wouldn’t you use those skills to decide where to deploy your investment portfolio? So, yeah, that’s the perspective that I bring to the table and, you know, it’s sort of, you know, these days with the rise of China, it’s actually kind of a homecoming for me. You know, beginning in 2001 with the September 11th attacks, you know, the US got diverted into this sort of world of terrorism where we were dealing with asymmetric threats and, you know, it – the Soviet Union had collapsed and, you know, it just was not the kind of great power politics and competition that we had gone through for decades and that I was brought up on. But now that China is rising and the US/China competition is the key relationship around the world. It sort of feels like a homecoming to me. You know, I sort of feel like, oh yeah, I have the skillset to apply to this. And importantly a lot of the people in Washington, a lot of the policy makers, and this is something that people don’t appreciate, but, you know, a lot of today’s policy makers were brought up in that world of great power competition as well. And, you know, we know how to deal with this. And it’s all very familiar territory, so. Yeah, like I say, that’s what I bring to the table. I spend a long time applying those intelligence skills to investment strategy and I’m happy to chat about it with you.

CHAMBERS: That’s so interesting. I mean, yeah, your background is just – and it’s right on time, you know. So, let’s – let’s get right into it. Alright. A meatball, I’m going to send right – I’m going to send a heater and you’re going to knock this one out of the park. Are you ready? So, Confluence, you guys are awesome because you put out outstanding content. You guys really do. And I know you do a lot of the writing. And for those that don’t know, google Confluence Investments and jump on their newsletter. They put out a weekly. They put out a daily. And it’s just – it’s just good, you know. And you guys, and you in particular are a great writer and provide some cool insight. And so, you just put out a four-part series on China and the US relationships. Can you kinda (sic) go through on an overview of that document and tell us what’s going on through your eyes when it comes to the balance of power between our two great countries.

HERNANDEZ: Right. Right. And it’s actually is a five parter (sic).

CHAMBERS: Is it a five parter (sic)?

HERNANDEZ: Yeah.

CHAMBERS: Oh my god.

HERNANDEZ: It – it was pretty extensive but, you know –

CHAMBERS: You’re right. It was a five parter (sic). Sorry about that. Yes, go ahead. Even better.

HERNANDEZ: Yeah, it’s really a sort of deep dive. And, you know the thing was is that over the course of, especially over the course of the Trump administration, you know, we had all been sort of thinking and talking more about the US/China relationship but the focus of it had been economic and as I looked at things through my geopolitical and intelligence analyst lens, you know, I started to think it was actually a much broader competition in something that we needed to deal with and get people thinking about in a broader way and so what I do in the series is first of all, part one is an explicit analysis of Chinese national interest and goals compared with US interest and goals. And then part two is a head-to-head comparison of Chinese and US military power. The next part deals with Chinese and US economic power and then the next part deals with the relative balance of diplomatic power between the two countries and then the final part is sort of a wrap up and assessment of where we stand. And I think really the key thing is that, you know, if you look at each one of those dimensions of power separately and in depth, the military, the economic and diplomatic. China is stronger than I think a lot of Americans realized. It’s a – it’s a much closer competition then you might think. And it’s – the country is very deliberately working on developing its power in all those dimensions. And so really the key thing for me was to go the next step and do an assessment and say okay, well where do we stand? And ultimately what I came up with is that if you look at the comprehensive picture, the US is probably still the stronger party between the two. But it’s close. And in certain areas, China is our equal and maybe even our superior and very importantly in the water surrounding Taiwan. China has developed its military power to such an extent that, you know, if there were a crisis in Taiwan the US very well may be reluctant and maybe be prevented from fully engaging and fully coming to Taiwan’s defense. Economically, obviously China’s got a lot of leverage because the half of its economy and the way it’s such a large importer and probably just as important is such a large market so that gives China a lot of leverage. And then finally diplomatically they’re very deliberately developing their position in international organizations, in their improving their diplomatic outreach. So, there’s all kinds of ways in which, you know, the US and the western democracies I think now are waking up to the growing power and the growing threat from China. We’re still probably ahead overall but it’s a close situation and because it’s close that means that there’s always an increased danger that one side or the other is going to make a mistake, think they’re more powerful than they really are, take a risk that maybe they shouldn’t. And so, it’s created a situation in which there’s heightened risk geopolitically and of course those risks can potentially come back to bite investors.

CHAMBERS: Now, I think you all have spoken about this. We just assumed, the US just assumed, US leadership just assumed, right, that China would open up, the economy would be more democratized and the politics would follow and so democracy would ultimately win. That hasn’t happened.

HERNANDEZ: Right.

CHAMBERS: That’s a big – that was a bit of logic that we definitely messed up. That’s the point that I’d love to, I don’t know if you have any other thoughts on that.

HERNANDEZ: Well, you know, I know a lot of people look at it like that now as if it was a mess up or mistake or whatever. But, you know, if you — if you go back to the late 80’s into the early 90’s, especially after the Soviet Union disintegrated, you know, it was a reasonable bet to make that China would potentially democratize and liberalize as it reengaged with the world. And not only was it, I think, a reasonable bet but it was sort of hard to not make that bet because, you know, politically if you remember, you know, we had – the West had come out of the cold war with its credentials really burnished. You know, it had become pretty clear to people that Soviet style communism was deeply flawed. That liberalism and free markets and free economies, trade, all these kinds of things were pretty powerful and so, you know, it would have been really difficult to say, oh, well, you know, this population in China that’s more than a quarter of the world’s population that, you know, we’re going to relegate them to, you know, some kind of purgatory where they’re not allowed to participate in this new world. You know, politically that would have been really difficult. So, you know, politically it was something that we sort of had to try and like I say, after coming through the Cold War and basically winning the Cold War, it was a reasonable bet. Even after the Tiananmen Square crackdown in 1989, you know, it wasn’t absolutely obvious that China wouldn’t liberalize, so. And then a final thing is, you know, just remember that, you know, all along if, you know, I think there were analysts who understood that if the bet was wrong and China didn’t liberalize, you know, we could – we could respond. And there would be time to respond and deal with this new competitor. Now, if anything, I think, yeah, maybe we responded a little bit late. We, you know, we’re a little bit late in coming to terms with the idea that, okay, China isn’t really liberalizing. But never the less, you know, I think that we have. We’ve gotten there, now. And so, I don’t think it’s too late for the US and the West to respond to China. It would have been better if we could have done it earlier, yeah. But, regardless, you know, it is something that we can deal with now and, you know, it certainly has got people’s attention. I mean it’s really amazing that there’s a bipartisan consensus in Congress –

CHAMBERS: Yeah.

HERNANDEZ: — and, you know, not only is it – is there bipartisan consensus in Congress about China but, I think it’s been really instructed that the Biden administration as it has worked to bring our traditional allies into the competition, that is having pretty good success. So, you know I think that tells you that, you know, people all over the world sort of understand that China is disruptive and wants to change the global system to its benefit and that the Western democracies are going to have to respond.

CHAMBERS: How powerful is their military? Chinas?

HERNANDEZ: It is powerful regionally.

CHAMBERS: Yeah.

HERNANDEZ: So, and for China right now, that’s what counts.

CHAMBERS: Right.

HERNANDEZ: You know, especially given that so much of what the leadership wants to do is to retake control over territories that it has perceived to have lost. So, you know, you saw the crackdown on Hong Kong. You see the border skirmishes in the Himalayas along the border with India. But most important of all is Taiwan.

CHAMBERS: Right.

HERNANDEZ: Which as your listeners will know, you know, the Chinese communist party sees as a breakaway or a runaway province and they intend to bring it back. And so, China has really focused heavily on developing, especially its naval assets. It’s naval and air assets in the waters around the South China Sea, the East China Sea, and then the Taiwan straits.

CHAMBERS: Right.

HERNANDEZ: You know, Chinas navy right now is actually the biggest in the world and if you look at exactly what kind of ships that it has, you know, it has modernized to the point where, you know, if you’re thinking that the Chinese navy is a big bunch of rusting hoaxes from the 1960’s, you’re sadly mistaken. You know, these are now predominantly modern, multirole, technologically advanced ships. They tend to be smaller and more oriented toward coastal defense than the US navy. But all the same, you know, China has, currently has a couple of aircraft carriers. It’s building several more. And as they build out their own indigenous carriers, they’re going to be pretty powerful, modern vessels with, you know, catapult launch systems, complete battle groups available to project power all over the world, really. You know, beyond the carriers, they actually are now sporting some nuclear biolistic missile submarines which give them a strategic deterrent capability. You know, just it’s a very much more powerful navy than you would have thought just a few years ago. Their air forces are pretty strong. Loss of modern fighters and, you know, developing capabilities on that level but just as important, there’s a really – there’s been a really strong drive to develop the surface to air missile capability. So, missile defense, you know, very modern, S-400, S-300, air defense systems all over the coast and especially around Taiwan. So, you know, it’s a pretty powerful military and then I guess the final thing that I would emphasize is that, you know, even though when it comes to strategic defense, in other words the nuclear missiles, nuclear weapons, China only has, you know a couple hundred war heads or something like that compared with many, many hundreds available to the US. But the Chinese have taken care, not only to start deploying some of their missiles on submarines and on bombers, but the land-based missiles now are predominantly mobile. They’re on these rail systems, deep underground, deep tunnels which gives them in theory a much-enhanced survivability so that, you know, if we got into a nasty confrontation between China and the US that went nuclear, I don’t think the US can be assured that we could take out all Chinese nuclear weapons. If they have some survivability, they would in theory be able to strike back. And that’s a pretty dangerous situation to be in.

CHAMBERS: Yeah. Alright, so you mentioned – so thank you for that synopsis. And the only other thing I would say, and not to go too deep into this, is that I agree – I don’t know anything compared to you, but I would agree. It seems to me that China is a regional bear that you don’t want to poke. Also, they are traditionally a land power and, you know, they’ve got carriers in the water. There’s more on the way but they’re – we’ve got 13 or 12, at least and more on the way and theirs – for the most part we run the international waters and keep those supply – those ships that move around the globe with container ships full of Chinese made stuff. You know, we largely make that all happen with our navy. So, they’ve got a long way to go on that. There’s running a region and then there’s running the globe. At least that’s my ten cents worth, so.

HERNANDEZ: Yes. But, even though, you know, like I just said, I think the current situation is that Chinese, the Chinese military is strong mostly regionally. It is true though that over time their view of the world almost by necessity implies that they’re going to have to develop a blue water navy. They’re going to have to develop the capability of projecting power literally on a global basis. And you know they already have one naval base in Djibouti.

CHAMBERS: Yep.

HERNANDEZ: In Africa. Just as important, you know, this big global economic development program that they have called the Belt and Road initiative where they provide assistance to countries all over the world to develop their transportation infrastructure including ports. You know, all those things are designed to give them a capability of projecting power literally all over the world in the coming decades. You’re right, they’re not there yet but and they have a ways to go but that is something that they are intent on pursuing over time. And you know the thing is that even if they say oh well, you know, we just want to protect our own territorial integrity. We want to protect our own ability to trade, protect our own access to the sea lanes etcetera. You know, the thing is that when it comes to a great power, anytime you think that okay I have a — this small limited set of interests in this region. You know, by logical extension, it’s easy to say well, in order to protect this region, I need to, you know, move my defensive line a little bit further out and then once you do that you realize that protect – in order to protect that defensive line, you need a defensive line even further out. And so, the logic would be for China literally to gain power and military capability that’s as global as the US.

CHAMBERS: That’s probably a 30-to-50-year timeline.

HERNANDEZ: I would think maybe not that long.

CHAMBERS: Really?

HERNANDEZ: Something that, you know, that –

CHAMBERS: Twenty-five years?

HERNANDEZ: — the Chinese are being very deliberate. They have specific goals when they want to reach different milestones and it is true that their official goal is to have a world class military by 2049, which would be the 100-year anniversary of the founding of the Peoples Republic of China. But all signs are that by the mid 2030’s is where Shi Ping would like to have the Chinese military at a clear position with regard to the US.

CHAMBERS: Wow. Okay, thanks for that update. I – okay. Taiwan, I know you guys are going to be doing some publications about Taiwan. There’s a chip shortage. So, and Taiwan as we just discussed is right in China’s backyard and likely that will be – I think there’s going to be a little skirmish over that, myself, sooner or later, but anyway. What’s going on? What’s the – what’s shaking with that?

HERNANDEZ: Yeah. Taiwan is a – as people have started to focus on the US/China competition they – it’s becoming increasingly clear that a big part of the issue or a big part of the problem is Taiwan. In fact, I think just the – this latest issue of the economists this week, has Taiwan as it’s cover story and, you know, it’s especially important because Taiwan and Taiwan’s semiconductor manufacturing, the company in particular has become absolutely critical to the global semiconductor industry, the global semiconductor value chain. And it’s true that an awful lot of semiconductor manufacturing happens in the US or in Europe or elsewhere in Asia. But the key is that the very most advanced computer chips that come out these days are mostly made in Taiwan. In fact, mostly in a specific region of Taiwan and from Taiwan semiconductor. And these are the chips that power things like mobile telephones and super computers that do artificial intelligence and these big quantum computing projects and stuff like that. The real cutting-edge chips. And so, yeah, we’re doing a lot of work on this and looking at the risks. And, you know, first of all from China’s perspective, you know, that’s one of the real targets of one of the real reasons of why they would want Taiwan. I mean they want Taiwan politically anyway. But if China – if the mainland was able to take over Taiwan immediately, China would become this master of the most advanced microchips in the world. And it could reserve those chips for itself so if you think there’s a chip shortage now, you know, it could become a situation where China has all the chips they want and everyone else is starved and held back. From the perspective of the US, obviously, that that’s an issue and we want the opposite. We want to make sure that those chips are still available to the US and to our allies and we want to clamp down on the provision of those chips to China. So, you know, what we’re thinking is that Taiwan is a great example of how different countries and even companies worldwide now are being faced with the dilemma of having to choose between being responsive to China or being responsive to the US and its allies and it’s a very uncomfortable situation for countries and companies to be in. If, you know, one of the big risks is that if we got into a shooting war over Taiwan, you know, if China invades militarily, you know, if those manufacturing plants, the Fabs, the fabricating plants that make those chips on Taiwan, you know, if they’re damaged, that’s a major threat to literally the world economy. And so, yeah, Taiwan is a big source of rifts. Now as we’ve done our work, we think that, you know, the risks to losing those Fabs is so great that it’s probably a reason not – it’s a reason for China not to invade militarily. We actually are thinking that the more likely way that China would put pressure on Taiwan would be, say a quarantine, like a trade quarantine or a blockade or something like that. Or just a continuation of its political efforts to get countries to stop working with China – with Taiwan diplomatically etcetera. But the problem is all those kinds of activities run the risk of someone making a bad move that leads to a military confrontation. So, it’s a – it’s a big risk.

CHAMBERS: So, thank you for that update on China and Taiwan. I appreciate it. Let’s move on, I know I don’t have you forever, so I want to cover a couple more topics. One is Japan. It’s kind of staying in Asia. They got a new president. They’re a big ally of ours. They actually have a pretty good navy as well and they’re obviously a major factor in Asia. Can you give us an update on Japan and what’s going on over there?

HERNANDEZ: Well, you’re right. They have a new (inaudible) — continuity with the previous government of Prime Minister Abe. Both pretty intent on maintaining a close alliance with the US, trying hard to maintain the economic growth in Japan. Build up their military capability over time, etcetera, so. You know, that all has been a positive thing in the US/Japan relationship. Suga’s had a number of scandals, shortcomings, you know, COVID in particular has been an issue and they’re in the middle of another wave that is threatening the Tokyo Olympic games for this summer, so, you know, it’s a – it’s an evolving situation but, you know, there is a certain level of continuity with the Abe government. And Japan, you know, when it comes to geopolitics, Japan really is a lynch pin in the US strategy with regard to China and with regard to, you know, our whole policy throughout the region. And, you know, when it comes to the chips that we were just talking about, the microchips, you know, Japan in particular is pretty dependent on those advanced chips from Taiwan and so I think what we’re trying to get the message out about is that Japan is also a really big part of the US/China competition. You know, Japan even though they have a passivist constitution that limits their ability to develop their military, you know, they are feeling pretty threatened by China and its possibility of taking over Taiwan and so, you know, we sort of think that over time Japan is going to be brought ever closer into the US orbit and stick with us and it will be a big part of the future geopolitical makeup of the region.

CHAMBERS: And they, on a historic basis, they have no love loss. China and Japan. There’s a lot of static, historical static with those two, for sure.

HERNANDEZ: Right. Right. Exactly.

CHAMBERS: And that stuff just does not go away because that’s embedded in the DNA of both of the cultures.

HERNANDEZ: Yep, exactly.

CHAMBERS: Yeah. Yeah. Alright, that leads us into another kind of interesting topic that you guys are covering and it has to — Japan is kind of an interesting example of population because they have a very much an aging population. So, you guys have done some studies on population aging on a global – population aging on a global basis and inflation on a global basis. We are, you know, one of topics we’re all, you know, clients are asking about and the headline news when it comes to finances is inflation. And population is one of these things that demographics is just an area that I think sometimes it’s so slow creeping that people just don’t, you know, pay attention to it and you guys do. So, what were some of the – what’s going on and what were some of the conclusions that you guys, you and Confluence came up with or your team at Confluence came up with regards to this topic of aging and demographics and inflation?

HERNANDEZ: Yep. Yeah, no it’s a – this is an important topic and like you say, you know, demographics evolve so slowly over time it’s really easy for investors to just, you know, not focus on it and not really see the impact in current economic or financial data or whatever. But, yeah, it’s a very important topic and, you know, if you’re of a certain age, you may remember that way back in the 60’s and 70’s, you know, everyone was talking about the population bomb. You know, there’s a rapid increase in population and, you know, lots of births and things like this and what people don’t realize is that, you know, a lot of what had happened after World War II is that, and in fact even before World War II. The world went through decades where we were making all kinds of progress in terms of improved sanitation, you know, water sanitation, stuff like that. Improved medical care. We were driving down the death rate and all that happened before the birth rate changed. To change the birthrate, you know, that takes a real change in culture. And so, you know, by the 60’s and 70’s the global death rate had fallen pretty rapidly but births were pretty high and so you did see this sort of momentary spike in population growth. But what people don’t realize is that eventually societies adjust. And, you know, they adjust to factors like the need for education and just the development of the economy etcetera. And so, long story short is, we’ve gotten to the point now over the last few decades where birth rates in countries all over the world have fallen down and are starting to approach the death rate. And so over time, you know, what that means, you know, if you have a relatively smaller number of births then the average age is going to increase and the rate of population growth is going to slow. And that is happening in developed countries like Japan and Germany and the US, you know, multiple countries around the world are actually in population decline where literally the number of people is in those countries is going down. And the average age is getting older. That’s also happening in emerging markets, including in China where the population is really slowing and becoming much older and of course there you had those broader trends exacerbated by the one child policy for decades. Well, what people have to keep in mind is that there’s a lot of economic implications to a slower economic, or a slower population growth. For one thing just, you know, if you have a smaller number of people, the volume of gross domestic product is going to grow slower. But it’s even more than that. What you have to keep in mind is that especially in the developed countries as people get older, at some point they start to spend less and my work has shown that after people hit the age of about 55, after they start to approach and then finally enter into retirement, their spending goes way down and the implication of that is that there’s less demand in the economy and so the analysis that I’ve been working on recently really works to trace through how that impacts inflation and as you might expect, as the rate of demand slows, it is associated with a slowdown in the rate of price growth. Now, there’s clearly a lot of other things that can impact inflation rates in the near-term. Everything from the, you know, commodity supply disruptions to monetary policy, fiscal stimulus, etcetera. But the way that my analysis is pointing is to say that, you know, slowing population growth and population aging are really important background factors that are likely to be a headwind to inflation over the coming decades. They won’t be the only drivers but they will tend to decrease inflation and prevent inflation from getting as bad as it otherwise would over time.

CHAMBERS: So is – do you think when the – maybe it’s to short of a time but when the fed is saying that this inflation is transitory, is that kind of – I think that plays into the overall theme that you’re saying too, by the way. Because every, like I said, we speak with the – we speak with investors all the time, you know. And topic of conversation – I went out and played golf with a couple people yesterday and the talk of inflation came up, you know, so. But the fed saying hey this is transitory. So is that – I think that dovetails quite well into what you’re saying form a long term point of view.

HERNANDEZ: Yes. Although, I think the fed still is, when they’re talking about the inflation being transitory, it’s a couple of shorter term considerations that are most in their minds.

CHAMBERS: Yeah.

HERNANDEZ: One of which is simply the base effect issue where, you know, when the pandemic really took hold, literally a year ago right now –

CHAMBERS: Yeah.

HERNANDEZ: — a lot of prices actually declined and so as you compare today’s prices to their year earlier levels, you know, it makes it look bigger, you know, inflation looks like more of a problem than it will likely look ways as we get towards the end of the year –

CHAMBERS: Right.

HERNANDEZ: — because, you know, late in 2020 prices started to recover and then, you know, as the – as we move past the pandemic and the economy starts to open again and you get people spending again, you’re likely to have this situation where there’s a lot of near term demand like in the spurt in near term demand while a lot of companies are still not back to normal in terms of what they can provide, you know.

CHAMBERS: Yeah.

HERNANDEZ: Staffing level or their equipment levels or whatever and so, you know, you’re also likely to see some transitory price pressures from that alone. But yes, in the background you still have this demographic headwind for inflation that is going to mean that, you know, say if inflations going to spike to say three percent by summer, maybe without the demographic headwind, who knows. Maybe it would have gone to three and a half percent or something like that.

CHAMBERS: Yeah.

HERNANDEZ: That’s what we’re trying to say. It’s not the absolute and only determinate but it is something that is likely to hold down inflation over time. And for investors, you know, what that means is that, you know, if you’re worried about, you know, your bond portfolio or thinking well, do I need to adjust my allocation, you know, and buy more gold or tips or whatever. That’s something that you want to keep in mind. As scary as those near termed inflation dynamics might be, you need to step back for a moment and remember that there’s also these inflation headwinds out there that are going to work in the opposite direction.

CHAMBERS: And going back to China, what – from an investors point of view, where does the rubber meet the road there? I mean what’s your – what should investors, from an investor point of view, what should they be thinking about when they look at – they forementioned a relationship with Asia. Is there any comment on that?

HERNANDEZ: A couple of points. First of all, in the near term, not only is there, you know, risks of, you know, a war, some kind of military confrontation, you know, nasty geopolitical tensions. All those kinds of things that are going to be unsettling by themselves. But, you know, I think more subtly or more in the realm of the financial markets, a couple of things. First of all, that idea that I mentioned about, you know, countries and companies being forced to choose between China and US, that’s another way of saying that this world of global value change that we’re all used to is likely to be adjusted. You know, we’re going to probably be in a world where at least in some industries or some product groups, supply chains are going to be more regional.

CHAMBERS: Right.

HERNANDEZ: I’d say, things that we use to rely on China for, we’re going to produce ourselves or we’re going to get it from Mexico or Canada or –

CHAMBERS: Right.

HERNANDEZ: — among our allies etcetera. That’s going to be something that will tend to raise costs and so –

CHAMBERS: Yeah.

HERNANDEZ: — it will, that actually is something that over time could work to make inflation worse but just as important in terms of the capital flow. So not trade flows, but capital flows. One thing that we’re watching closely is how – starting with the Trump administration and now we’re seeing it continue with the Biden administration, what we’re seeing is that the US is willing to cut off China of capital flows. You know, there’ve been these different initiatives that have made it harder for Americans to invest in Chinese stocks. Say for companies that support the Chinese military or they don’t recognize US accounting standards and things like that. That’s all a risk. Especially given that, you know, Chinese equities have been on a roll at different points over the last couple of decades and, you know, if US or western investors run the risk of having those positions cut off, then, you know, obviously that’s something that is potentially going to be bad for pricing –

CHAMBERS: Yeah.

HERNANDEZ: — of those positions, so. That’s something that we’re watching pretty closely in the near term. And like I said, longer term is more of the issue of the military risks, risks to the economy, that kind of thing.

CHAMBERS: Interesting. Well, that’s – thank you for that analysis. I appreciate it. It certainly is a topic worth keeping an eye on and I know you guys are. And I appreciate that and I appreciate the insight from an investors point of view because sometimes you get into these intellectual conversations and it’s like okay, well what does that really mean? You know what I mean? So, I appreciate you talking more specifically. Alright. I’m going to –

HERNANDEZ: And by the way –

CHAMBERS: Yeah?

HERNANDEZ: — one thing I would add just to –

CHAMBERS: Yeah.

HERNANDEZ: — the end of that is that –

CHAMBERS: Please

HERNANDEZ: — you know, I’m trying very consciously to emphasize that these are risks, you know. These aren’t necessarily –

CHAMBERS: Yeah.

HERNANDEZ: — things that are absolutely going to happen. And –

CHAMBERS: Right.

HERNANDEZ: — you know, we monitor them and we’re trying to gauge when they become, you know, more eminent but, you know, you can also be hurt by responding too quickly, you know.

CHAMBERS: Yeah.

HERNANDEZ: We’re not necessarily saying that oh, you don’t want to hold any positions in Chinese stocks or anything like that. You know, we’re definitely not saying that. So, I just want to emphasize that.

CHAMBERS: Yeah. No, I get it. I – it’s – absolutely, understand that. And I’m sure our listeners do as well. Alright, I’m going to switch it up. I’m going to ask a couple more personal questions. I don’t know if you want to get in on this, but I’m hoping. What is – what is Patrick reading, streaming or podcasting these days? I’m sure you read some absolutely awesome stuff so what – what’s going on, on that front?

HERNANDEZ:   You know, that’s a great question.  I actually just finished a book called The War that Ended Peace by Margaret MacMillan.  I think it came out maybe a decade ago or so.  I don’t think it’s super new but it deals with the lead up to World War I and the reason I read it was that there’s a lot of people who, you know, as they think about the US/China competition and rivalry.  You know, people look at it in terms of the Thucydides trap.  You know the term from international relations about the risk of war being really heightened when an established hegemon is being threatened by a rising power and, you know, a lot of people look at the US/China relationship and think that well, you know, this is kinda  (sic) like the rivalry between Britain and a rising Germany at the end of the 1800’s and the early 1900’s which, you know, ultimately ended up in World War I, so.  That’s the reason I read the book and it’s pretty good.  Not the greatest book ever but certainly interesting in that, you know, it does talk a lot about how a lot of the background issues that led to World War I were the fact that this rising power in the middle of Europe, in other words Germany.  You know, saw itself as the wave of the future, you know, they recognize – they’re very self-aware that they were becoming more powerful and wanted their place in the sun and at the same time, Britain and to a lesser extent, France and other powers were frequently blocking Germanys attempt to sort of gain space, you know, as they tried to get new colonies and things like that.  So, you know, it was a useful book to understand that dynamic but just as important, you know, it’s really interesting that even when you have that dynamic it can be, you know, that just introduces certain frictions or fragilities into the international system.  But the thing that actually can spark a war can be, you know, some smaller scale subsidiary conflict like in Serbia and the Balkans as it was with the lead up to World War I, so.

CHAMBERS:   Right.

HERNANDEZ:   You know, I guess the lesson for me or whatever it reminded me about was that when you have stresses between the big powers — the bottom line is just that, you know, when you have a – an international system where you’ve got some real frictions and stresses between the great powers, you know, you have to keep in mind how smaller scale subsidiary conflicts among those – the allies of those great powers.  You know that can be a danger point and you really need to monitor that and be careful about that.

CHAMBERS:   Yeah.  For sure.  Doesn’t take much.  Another cool book is Lords of Finance.  I’m sure you’re familiar with the bankers who broke the world.  That’s a great book that kind of talks about that era as well.

HERNANDEZ:   Yep.

CHAMBERS:   That’s a great book.  I love that book.  I want to thank you so much for your time.  It’s so cool to talk to people like you about this – these topics because I just think your perspective on it is – you just don’t run across it every day so it’s absolutely fabulous to have you.  And I’m sure we’ll have you again.  I’d love to have you again, you know, as things unfold and the topics come up, I’d love to maybe have you again as a guest.  You’ve been wonderful.

HERNANDEZ:   I would love to.  This has been fun.  It’s always great to share out view point and I like to be asked questions too.  

CHAMBERS:   Yeah.

HERNANDEZ:   It keeps me – makes me think on my feet and, you know, it’s a good intellectual exercise.

CHAMBERS:   Yeah, no I love it.  Real quick though.  I know I just wanted to – another – where – any particular restaurants in your community that you want to shout out to that maybe you’ve been supporting with to go or perhaps you’re beginning even to dine in with?  I was – I’m a big food guy so I always love to ask that question.

HERNANDEZ:   Yeah.  You know, I – I don’t know, I’m sort of a Francophile —

CHAMBERS:   Oh, nice.

HERNANDEZ:   — Mediterranean cuisine and so in west St. Louis county there’s a restaurant called YaYa’s which I like quite a bit.  It’s – the one that I’ve been to most recently, so yeah.

CHAMBERS:   What kind of cuisine?

HERNANDEZ:   If you’re ever in the area, that’s where we’d have to go.

CHAMBERS:   What kind of cuisine is that?  Like Mediterranean?

HERNANDEZ:   Mediterranean, you know, sort of healthy –

CHAMBERS:   Yeah.

HERNANDEZ:   — you know, sort of French, Italian –

CHAMBERS:   Nice.

HERNANDEZ:   Yep.

CHAMBERS:   What’s your, like go to – what do you – do you get number three or what’s the – is there any particular one, like a dish that you get there?

HERNANDEZ:   I get – just about everything on the menu, I think is like —

CHAMBERS:   Equal opportunity.  I love it. I love those places. That’s great.  Well, you know, during this time, obviously I like to support restaurants.  It’s been a hard year for restaurants in particular, so.  The service industry in general and so I always – when I have guests on, I always like to shout out to their local place, so.  YaYa’s.  I like that.  That – so if you’re ever in St. Louis, you gotta (sic) go there.

HERNANDEZ:   Yep.

CHAMBERS:   Alright.  Patrick, thank you so much again.  I appreciate it.  Let’s do this again and have a great weekend and we will talk soon.

HERNANDEZ:   Alright.  Well, you too.  Thanks so much for having me.

CHAMBERS:   Yeah, of course, my friend.  Thank you so much.  We’ll talk soon.

HERNANDEZ:   Bye bye.

CHAMBERS:   Bye bye.

Background Information:

Patrick Fearon-Hernandez – Full Bio
Patrick is a Market Strategist at Confluence Investments. He analyzes financial market trends, global economics and geopolitical developments, including international security issues in order to map their implications on investment strategy. Patrick also writes various reports that lay out the firm’s geopolitical, economic and market insights. Prior to joining Confluence, Patrick worked in a wide variety of investment roles. He served as a portfolio manager at AdvisorNet Financial Partners in Arizona, a portfolio manager at Terra Nova Ventures and also an alumnus of A.G. Edwards & Sons, Inc as the firm’s international economist.

Trevor Chambers – Full Bio
Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”

This material is provided as a courtesy and for educational purposes only from Olde Raleigh Financial Group, A member of Advisory Services Network and should not be construed as investment advice. All information contained in this video is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results.  All views/opinions expressed in this video are solely those of the presenter and do not reflect the views/opinions held by Advisory Services Network, LLC. Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Soundtrack to a Financial Advisor's Life Episode 5

The relationship between the U.S. and China will impact the world’s supply chains for decades to come and therefore investors need to be aware of the dynamics. This interview with Phillip Orchard from Geopolitical Futures – a Geopolitical forecasting firm – features discussion about Taiwan’s microchip industry, the rare earth supply chain, Chinese military threats against Taiwan and its relationship with India

This Interview Covers:

• Taiwan’s is the dominant producer of broad use microchips in the world. What challenges does this create for the U.S. supply chain? Turns out the process of making microchips takes a lot of water and Taiwan is under drought conditions?

• Taiwan was once under the control of Chinese leaders and all indicators are they want it back. What are the realistic chances of China taking over Taiwan via a military action?

• Rare earths elements are crucial ingredients in computers, cell phones and the F35 fighter. China is the world leader in supply and over that past 10yrs has weaponized them in the global supply chain. Does this mean the U.S. and others are reshoring rare earth production?

• China has the largest Naval fleet in the world but what kind of military actions is it capable of? Historically, China is land power so many questions remain as to their largely untested Naval capabilities.

• What is the historic relationship between China and India?

Hey everybody.  This is Trevor Chambers with Olde Raleigh Financial. Once again, we are putting one more contribution on the world wide web from the “Soundtrack to an Advisors Life.”  And part of this is the Meet the Masters Series. So, I’m coming to you from sunny Raleigh, North Carolina but I’ve got a badass on the line.  One Phillip Orchard.  Phillip, what’s up, brother?  First of all, I love the last name.  It’s almost like a band name.  I just like it.  Where are you blasting from these days? Where are you right now?

ORCHARD:   Well, thanks.  I’m talking to you from Austin, Texas.  Also, sunny.

CHAMBERS:   Nice.  The freaking barbecue down there and all the Taquerias.  I love that place.  I’m a huge food guy, so.  Alright, man.  Thank you for coming on. I appreciate it.  Let me just give you the – just the — fifteen seconds on our man Phillip Orchard.  Phillip is an analyst.  He works for an organization or company called Geopolitical Futures.  I want to get the brief download on what that is.  This guy has lived abroad.  Specifically, all over Asia, which is super cool.  But he’s also a smarty pants.  He’s got a – he’s got a masters from the Lyndon B. Johnson School of Public Affairs.  And he knows all about, like national security, Chinese foreign intelligence and stuff like that.  So, this is going to be a cool conversation, I think.  So, Mr. Orchard, let me just bang on out the first one and get right into it.  I – you recently wrote some stuff about microchips and Taiwan and we’re all going through this — the, you know, microchips are a big issue right now.  If you’re having trouble finding a car, especially a new one, you might know about this out there, so anyway, what is going on?  You wrote a cool article about it.  Let’s get into it.

ORCHARD:   Sure.  Yeah, I mean, so between the ongoing global chip shortage it has, you know, Toyota plants and Ford plants and all over the world shutting down suddenly and then kinda (sic) throwing everything into disarray.  Between that and the US/China, you know, trade war and, as we call it, tech war, semiconductors have really come into focus over the past year, or semiconductor supply chains.  And in general, Taiwan, in particular because as it happens, Taiwan is the just dominant, dominant, dominant –

CHAMBERS:   Right.

ORCHARD:   — producer of the most advanced microchips anywhere in the world.  And it’s a really extraordinary success story for them.  In particular, TSMC, Taiwan’s semiconductor manufacturing corp.

CHAMBERS:   Right.

ORCHARD:   Their rise to just become the dominant contract chip maker really – at this point they’re a generation or two ahead of even Intel.  Basically, only then and to a lesser extent, Samsung are capable of producing the, you know, the cutting edge of the cutting-edge type chips.

CHAMBERS:   At that volume?

ORCHARD:   That volume, right.

CHAMBERS:   Yeah.

ORCHARD:   Yeah, that’s a good point.  And in most ways, it’s been a really – it’s been a good thing for the US and it’s been good for US companies in the sense that by sort of pioneering this contract chip making model where – where basically they focus solely on fabrication.  And so that allowed companies like Nvidia, Qualcomm and so forth to really, you know, come onto the scene and start innovating.  Because previously most of the chip makers like Intel were known as integrated device manufacturing companies where they do design and manufacturing.

CHAMBERS:   Right.

ORCHARD:   Manufacturing is incredibly expensive and incredibly difficult and by taking that, you know, taking that aspect off the henge of – or that model makes it really difficult for startups to break into the space and by taking care of that for – it allowed companies, you know, people with brilliant design ideas to, you know, just – it lower the startup cost and everything else.  And so that – that really fundamentally, you know, changed – changed everything in the industry.  But over the past couple years, all the sudden everyone’s kinda (sic) looking around like that’s good for Taiwan but is it a really good thing for that much of the worlds chip making capacity, especially on the high end stuff, to be concentrated in one place.  And one place that happens to be about one hundred miles from Chinese missiles and so forth.  And so –

CHAMBERS:   That’s a legitimate concern.  I mean, listen what’s a chip industry between friends?

ORCHARD:   Yeah.  Right.  I mean, yeah, and just in general also, you know, I think the past couple years the lesson in a lot of industries is like, it’s probably not good to have any critical resource concentrated in one place.  And they right now the chip making is under a threat, not just from geopolitical tension and the poor planning that everyone did back in March and April when they decided they probably wouldn’t need very many chips this year, which is what – is what a major contributor to the global shortage.  

CHAMBERS:   Yeah.

ORCHARD:   But also, just things like drought.  Taiwan’s having a huge drought right now and it’s –

CHAMBERS:   Oh wow.

ORCHARD:   — chip makers use a ton of water and they’re starting to, you know, their monsoon season is supposed to pick up in about a month or so and they’re kind of counting down the days really hoping it arrives on time because otherwise they will have to shut down.  Even in Austin, here in Austin, Samsung and a couple others have fabs for certain lower end chips and they had to shut down during the freezes that we had –

CHAMBERS:   Wow.

ORCHARD:   — a couple months ago.  And so, supply chain fragility in general, especially on this kind of stuff is, you know, on the forefront of everyone’s minds. 

CHAMBERS:   Plus, I think the automakers they just cancelled the orders, right?

ORCHARD:   Right.  But, yeah –

CHAMBERS:   After – when – like a year ago, right?  They were like oh okay, we’ll cancel orders.  Well, you just can’t, like six months later or three months later call up Taiwan and be like I need to turn that back on.  Because then it’s like – that train has – you know, I mean they schedule those things out a little bit more in advance.  Right?

ORCHARD:   Right.

CHAMBERS:   And so that furthers the problem.  Yeah.

ORCHARD:   Yeah, that and then also you had other things like, yeah, the US is actively taking aim at China’s chip industry and trying to shut that down.  

CHAMBERS:   Right.

ORCHARD:   These – these things can’t be built quickly.  There’s a, I think, like a three-year waiting list for some of the lithographic equipment that’s –

CHAMBERS:   Right.

ORCHARD:   — critical to advance manufacturing and all that kind of stuff and so, yeah, it’s –

CHAMBERS:   (Inaudible). 

ORCHARD:   — understandable if I was a, you know, a supply chain planner for GM or somebody last March to say, you’re probably not going to need that much this year.  Not expecting – anticipating the rapid bounce back in consumption or demand that we had.

CHAMBERS:   Yeah.  Can you imagine a guy running the PO’s or the lady running the PO’s over there?  The board is like, excuse me, what?  You did what?  Anyway, well that’s – well, we’re going to go back to this, if you don’t mind because like the, you know, being so close to China.  Alright, but we’ll talk about that when we get a little deeper into China.  So, one thing is, so there’s the Taiwan thing going on, alright.  That’s kind of interesting.  Also, let’s switch gears a little bit.  India and China.  They have a – there’s a border between them. There’s been skirmishes.  Do you know – what’s the historical like beef?  What’s all the – other than just being both having about one and half billion people plus or minus and next to each other.  I mean, what’s the – do you know what the deal is there?

ORCHARD:   Yeah, so, I mean, China and India, historically they’ve never been particularly friendly. 

CHAMBERS:   Okay.

ORCHARD:    And they do share the long border that’s contested and everything.  But there’s always been a limit, pretty low limit on just how bad things could get between the two of them because they can’t really threaten each other in any realistic way.  They – it’s hard to overstate how difficult waging combat through the Himalayas would be, for example.

CHAMBERS:   Yeah.

ORCHARD:   So, it’s not like – it’s not like India really fears China mounting some sort of invasion or so forth.  But what’s happened is, is China’s strategic imperative is closer to home.  It’s predictably, from China’s perspective, you know, their biggest strategic problems lie off shore to their east, in what’s known as the first island chain, stretching from Japan down to Indonesia or so.

CHAMBERS:   Right.

ORCHARD:   That creates a series of choke points that like a naval power, particularly the US, could extensively leverage to shut down Chinese vital sea lanes bringing Chinese exports to a halt, bringing their import – critical imports of energy and so forth, all that to a halt.  And so, what China’s doing, in pushing out is trying to create just gradually over time, push out a sphere of influence or a buffer zone and find alternative roots to global sea lanes.  And so, some of that is – that by sort of necessity if you follow that logic far enough.  Eventually means that they need to push into the Indian Ocean basin and so they’re – a lot of these belt and road projects that they’re doing in places like Sri Lanka, Pakistan, Myanmar, some of these small islands and so forth.  That’s starting to make India increasingly nervous.  Chinese support for Pakistan, military support for Pakistan makes India very nervous.

CHAMBERS:   Yeah.

ORCHARD:   And so that’s created – so suddenly for the first time, really in history, even though they fought the war – the brief war in the Himalayas in the 60’s, really for the first time they are – they’re course fears of influence are starting to overlap and so you’re – that’s why little things are taking on bigger significance.  And especially with China as sort of, the way they’re approaching this, they’re not particularly concerned about, I don’t know, keeping the peace or making friends or assuaging India’s worse fears.  And so, you know, our theory for like the summer when they had that clashes up in the Himalayas, the first deadly ones in a long time.  It was like, why is China doing this?  It doesn’t make – they’re not going to gain much strategic advantage from this or whatever.  But I think our theory is, like, what they’re trying to do is basically keep India focused on land-based threats and not start focusing on the ocean.  Not start putting – diverting money from the army and other needs into naval development and so forth.  And because I think China’s looking ahead a couple decades and saying like, you know, the big place that India can threaten us is our sea lanes come out of the Strait of Malacca in southeast Asia, so.

CHAMBERS:   Right. 

ORCHARD:   But everything is starting to take on, yeah, much greater political significance, strategic significance, all – and its sort of generated this nationalist backlash in India that arguably is doing more harm than good to Chinese interest but it’s sort of putting the two countries on a trajectory toward a much more robust rivalry.

CHAMBERS:   Alright, so what’s our – what’s the US’s, in your opinion, grand strategy when it comes to Asia and Indo, you know, Indopacific region and all that?  What do you think given what we just talked about?  What do you think is the –

ORCHARD:   Yeah, that’s a good question.

CHAMBERS:   You know, because — let me and this goes to an investor, you know, somebody who has to, you know, think in 20, 30-year timelines.  There are some big decisions, you know, there’s a lot of ground work that’s being laid now for what things are going to look like in 20 years and 30 years, you know.  And, so that’s – what do you think, man?  What’s –

ORCHARD:   Yeah.  That’s a good question.  Grand strategy is, well, here’s what I would say US grand strategy is.  If you trace it back, you know, through the decades of what are some common themes and you could probably boil it down, in the abstract, sort of high-level abstract to, one is to prevent the emergence of a regional hegemon.  A country that can really dominate, you know, like in the way that China, or Japan was trying to do in the 30’s and 40’s.  And what some people feared, China is trying to do now.  Two is remain the dominant naval power in the region because that gives the US an enormous amount of leverage.  And third is just to try to, I don’t know, I’m not quite sure how to say this, but generally just keep the region dependent and interested in the US designed sort of international system.  That what they call the Rules Based Trading Order.  And so, the US does that by, you know, guaranteeing freedom of navigation and critical sea lanes by opening up its markets to exports from region and so forth.  How much that actually has influenced US policy making from one administration to the next is pretty debatable.  I think in a lot of ways the US, it was so successful early on that the US basically didn’t’ have to think a whole lot about Asia.  There was no other, except for maybe the Soviets, which weren’t really a pacific power.  The US, I preferred it where it was just, sort of, just be there and not be threatened by anything and just have, you know, let the region focus on economic development, and so forth.  But and that led to, I think, in general some strategic, lack of strategic attention.  Especially in the 70’s and then the, obviously post 9/11 and so forth.  And because what happened was, well it turns out that the US doesn’t, you know, the free trading system is, it turns out that it – the boom of like globalization and loss of US manufacturing and so forth.  Well, ok well that’s bound to cause some issues at home.  And it turns out that China is – has its own needs and it’s – it’s – that are compelling it to become more and more like the regional hegemon that – that the US extensively fears and had, you know, kind of lost track of the – it’s development in ways that could really become problematic for the US.  And in just generally US, sort of in attention to the needs of its allies and so forth.  So now that’s kind of put the US in a moment where there – it’s scrambling to recalibrate it’s – trying to figure out what it actually needs from the region.  What it actually can do without becoming overcommitted.  How concerned it should actually be about China and so forth.  And, so we’re sort of in a period of, you know, maybe a decade long period of transition of trying to come to terms and rethink just how much – just how much it can live with the current trajectory and just how capable it is with altering it around US interests, if that makes sense.

CHAMBERS:   Yeah.  Let me ask you this.  Is China going to just take over Taiwan?  I mean, would it – would you be surprised in the next ten years, maybe even five, that they just pull the trigger?

ORCHARD:   I would be – so – to answer your first question.  China absolutely wants Taiwan to think it’s going to –

CHAMBERS:   Oh yeah.

ORCHARD:   — invade in the next five or ten or fifteen years.  Especially if Taiwan does something that, like it declares independence or something –

CHAMBERS:   Right.

ORCHARD:   — along those lines.  It’s really difficult, extraordinarily difficult, it’s often underappreciated how difficult it is to – for the kind of operation that would be required for China to retake Taiwan by force. 

CHAMBERS:   Yeah.

ORCHARD:   In previous landings into the teeth of Taiwanese fire power with the threat of US, Japan, and others potentially getting involved.  That would be a low probability operation that China would only undertake if it was desperate or if it felt, you know, maybe it had some sort of technological breakthrough or something that could turn the odds in their favor.  That said, China can do a lot to squeeze Taiwan and I don’t think, so I don’t think we’re going to wake up one morning and read that, oh hey there’s a Febious fleet of Chinese war ships are approaching Taiwan.  What’s going to happen, it’s going to be a steadily escalating series of events possibly starting with say with maybe, you know, Taiwan has a few outlying islands of its own.  Maybe China takes one of those just to see what Taiwan does. See if the US gets involved and so forth.  They will frame it in some sort of way that they can like –

CHAMBERS:   Right.

ORCHARD:   — crack down easily if it gets out of hand.  Then possibly some sort of blockade, you know, something again that they could frame as like, oh no this is a law enforcement thing, blah, blah, blah.

CHAMBERS:   Right.

ORCHARD:   You know, that way if it caused – if the backlash was too fierce, they couldn’t handle it, they could back down without losing face.  If they actually needed to attack or decided that for politically or strategically or whatever, to attack Taiwan, it would start with a barrage of — an enormous missile barrage aimed at — primarily at stunning the Taiwanese government into negotiating.  Only then, if things still continued to go poorly and circumstances are somehow on China’s favor, would they conceivably actually try to retake Taiwan by force and then hold it by force.  Which would be another extremely difficult thing.  And so, they want Taiwan to come willingly, if not willingly they want to make Taiwan conclude that it’s in their best interest to negotiate some sort of Hong Kong style arrangement which doesn’t, you know, that’s a poor comparison because Hong Kong doesn’t have an army and other stuff.

CHAMBERS:   Right.

ORCHARD:   But –

CHAMBERS:   Okay, yeah.

ORCHARD:   — yeah, so I think that’s the general trajectory in what we’re seeing now, you know, is there more and more incursions into Taiwanese airspace.  More and more economic pressure.  More and more exercises, flanking Taiwan on all sides.  Simulating an invasion of one of these islands and that kind of stuff.  

CHAMBERS:   Yeah.

ORCHARD:   Just to sort of gauge reaction and make clear that they – that their capabilities are growing and that they, you know, that Taiwan can’t – they want Taiwan to make – to think that it’s a matter of when, not if.

CHAMBERS:   Right.

ORCHARD:   If they don’t, you know, it they don’t start negotiating on Beijing’s terms and especially if they do something like start moving toward a declaration of Independence.

CHAMBERS:   Yeah.  Where have you – where have you lived over in Asia?

ORCHARD:   Yeah, so mostly in Thailand over the course of a couple stents, totaling about seven and a half years.  That’s actually where I got obsessed with geopolitics was the –

CHAMBERS:   Oh cool.

ORCHARD:   — first time my wife and I were – she was working for a small NGO up in a little village in Northern Thailand and Thailand was going through a period of pretty immense political instability that turned violent quite a few times.  And I just got obsessed with why.  Why are they fighting?  What’s the power – what’s really going on behind the scenes here?  What’s really at stake?  And then, yeah, that’s where I gained an interest in trying to understand like how power is fought for, how it’s wielded?  What it looks like in different societies and at the same time I was in – doing some stuff in Myanmar, which has been in the news a lot lately. 

CHAMBERS:   Yeah.

ORCHARD:   For all the disappointing reasons.

CHAMBERS:   Yeah, that’s gotta (sic) stink for you to watch, knowing that you know that country a little bit.  

ORCHARD:   Yeah, it’s disheartening.

CHAMBERS:   Yeah.

ORCHARD:   It was – the process of democratization there and they’re opening from a hermit state to –

CHAMBERS:   Yeah.

ORCHARD:   — sort of embracing the world was — seemed always seemed long odds and then, you know, and then it happened and it happened for reasons that made sense.  For good, not for purely ideological reasons or, you know, nothing pie in the sky about it.  It just made sense for the ruling junta at the time to do it and it made sense for the region and, you know, it seemed like it might actually be sustainable.  But then as we found out on February 1st, turns out it wasn’t.

CHAMBERS:   Yeah.

ORCHARD:   For those who haven’t been paying attention, there was a military coup –

CHAMBERS:   Yep.

ORCHARD:   — and now there’s violent crackdowns that just get worse and worse and worse.

CHAMBERS:   Yep.  Yeah, don’t take for granted this little thing called democracy in the United States of America, right.

ORCHARD:   Yeah.

CHAMBERS:   Well, anywhere else over there?

ORCHARD:   And then based out of Bangkok for a while and –

CHAMBERS:   Oh, cool.

ORCHARD:   — then spend quite a bit of time in Malaysia, Indonesia, you know, Vietnam.

CHAMBERS:   Okay.

ORCHARD:   Bangkok especially is just a wonderful place just to hop around the region.

CHAMBERS:   Yeah.  I’ve never – I lived in Europe for a year as an exchange student.  ’89, ’90 and I got a piece of the Berlin wall, so, you know, I have that.  I’m an old man now.   But I’ve never been to Asia.  Hey by the way, Netflix, The Serpent.  Have you checked it out?

ORCHARD:   My wife has been watching that and every time I walk through, she’s like you have to – you have to watch it.

CHAMBERS:   No, it’s badass.  No, you gotta (sic) get in it.

ORCHARD:   I’ll put it on the list.

CHAMBERS:   Yeah, it’s cool.

ORCHARD:   Top of the list.

CHAMBERS:   And it’s, for me, it’s like 1975.  And I was born in ’70 so it’s like all the fashion is just like, so like oh yeah, I remember that cat, you know.  Like the (inaudible) out of the, yeah, (inaudible) or whatever.  It’s hilarious.  The bellbottoms.  Alright, let’s keep rocking.  Alright.  Rare Earths.  What’s the deal with rare earths and are we going to start making them here, locally as in the US and, yeah?  Now first of all what are rare earths, for people that don’t know.  And then what’s going on?

ORCHARD:   Sure.  Yeah, so rare earth’s, it’s a, so the – it’s a – rare earth elements are rare earth minerals.  It’s one of the bottom rows of the periodic table.  I used to be able to – I used to be able to list them off one by one.

CHAMBERS:   I expect you to.  This is – this is nonsense if you can’t do that.  Come on, man.

ORCHARD:    Lampiminium (sic).   Uraminium (sic).  I might be making these up — 

CHAMBERS:   You are.  Don’t worry about it.

ORCHARD:   — but you will (inaudible).

CHAMBERS:   Don’t worry about it.

ORCHARD:   Yeah, so they are these elements that are used in everything.  Everything, batteries, your phone has zillions of –

CHAMBERS:   Yeah.

ORCHARD:   — you know, bits of them.  They’re critical to every, seemingly, every emerging technology or a lot of consumer electronics and as it happens F35 fighter jets.  And Ohio class submarines and so forth.  So, they’re extremely valuable.  They’re not all that rare.

CHAMBERS:   Right.

ORCHARD:   That’s one thing that almost any article you read about them will say at the top.  They – there’s an abundance of them in the earth’s crust all over the world.  There’s dozens and dozens of countries that are believed to have massive reserves including the US.  Including Australia.  Including –

CHAMBERS:   Afghanistan too.

ORCHARD:   — including Afghanistan.  Probably beneath the ice caps in Greenland.  So, keep that in mind.  It’s – so – it’s been in the news lately and from time to time, it’s a good example of one of those things where China was able to sort of just use its mass to come to dominate the industry without anyone really paying attention.  Just they very early on, realized that it might be a valuable thing to invest heavily in and to – they’re able to undercut global markets and basically cornered the market for, in the large part on both mining and processing or refining of the rare earths.  And, yeah, it’s one of those things that kinda (sic) nobody noticed or, you know, not many people noticed, at least.  And then all of a sudden, in 2000, I’m forgetting the year, well I was going to say, I’ll say 2010 plus or minus –

CHAMBERS:   I won’t look it up.  I’m not going to – I’m not going to – yep.

ORCHARD:   Let me just shuffle through my notes.  I was – we’re going to go with 2010.  That sounds nice.  

CHAMBERS:   Yeah.

ORCHARD:   They abruptly – there was a dispute between Japan and China over the disputed Senkaku Islands.  And it was one of those things that, you know, happens fairly frequently but, it became a political issue on both sides and some other stuff.  And next thing – and abruptly China announced export quotas for rare earths.  There’s actually – it’s actually debatable whether they were doing this as a punitive measure but either way, that’s the way it was perceived.  And Japan, which relies — Japan’s electronics industry and everything else, relies heavily on rare earths and was fully dependent on supplies from China.  Suddenly they went, you know, they were looking at a future where they weren’t going to be able to have that and ever since then, the questions been okay, is this something that China can actually weaponize?  By weaponize, I mean, you know, if you don’t do what we say we will cut this off and, you know, we’ll have you over a barrel.  It’s – and they’ve sort of passively or sometimes explicitly threaten to do this from time to time.  During – in 2017 when the trade war was starting to pick up steam, Chinese state media was threatening, you know, or saying like, yeah, you don’t want to see what we can with this.  But the – but it’s not – it’s not clear that they actually could.  Or cut off supplies to the rest of the world, or at least added cost that’s acceptable to them.  And for a couple reasons, one is the – what – the lesson they learned from the incident with Japan, which was that if you threaten or if you follow through with it to cut off supplies, what countries will do, you know, is – it generates incredible incentives to look elsewhere and start investing in diversifying their supply.  That’s exactly what Japan did. Within a year, they had a pretty landmark agreement with Australia to start mining projects in Australia.  Within a couple years, a processing facility was set up in Malaysia and so forth.  And so, it’s definitely it’s one of those things where, yeah, you better not be bluffing because even just threatening something starts to – the moment you threaten something like this it starts to reduce your leverage.  And more recently as – as US, China tensions have increased more broadly and as the past couple years they’ve put the spotlight firmly on supply chain issues.  Especially regarding China. There’s been a rush of investments and government funding and all sorts of plans, one after another coming out to develop both mining and processing capacity in the US, Australia and on.  And so, it’s if China was inclined to follow through, they better do it soon.  But they also, you know, but if they do then, well, they would be cutting off – they would be hurting their best customers, you know.  That’s another problem China has generally in sort of tapping into its economic leverage is, well it needs, you know, US and European consumers and so forth to buy their stuff.  And so, the more they hurt them, the more they are hurting themselves.

CHAMBERS:   Yeah.

ORCHARD:   At any rate, so it’s sort of a – overtime they’re leverage is going to decrease.  And, yeah, so I mean, I don’t know, within a five, ten-year window, I think it’s not going to be something we hear them threatening any longer.

CHAMBERS:   Yeah.  And maybe that’s also true of other industries if they want to get into it, you know.  You know, and that – I’ve had guests and I talk about this before but, kind of going back to your – the Navy.  You know, we dominate the blue water, hands down and we are – we are the ones that make sure those shipping containers get safely around the globe and that’s – you can’t underestimate that.  And, you know, I actually, what’s the name of the book, anyway, I’ll have to look – but I read a book, not this past year that’s talking about a lot of these same topics.  Geopolitics and maybe the world moving into a regional hegemon wherein we’re pulling back so essentially, you know, we facilitate a leader in the various regions and Japan, not China, Japan, they’ve got – they have more carriers and they have a lot more experience with blue water than China does, period.  Now China’s got a huge, and I think what, now by the number of actual floating vessels, I think they have the largest, but it may not be the right ones.  

ORCHARD:   Yeah.

CHAMBERS:   Especially when your economy is dependent on global trade.  I mean, they’ve got two aircraft carriers and like maybe two in the works, you know.  So –

ORCHARD:   It’s an interesting dynamic just because, yeah, as you mentioned, China has the largest navy in the world now.  Nobody knows how good they are, you know.  

CHAMBERS:   They don’t know how good they are.

ORCHARD:   And nobody really wants to find out, yeah.

CHAMBERS:   Yeah.

ORCHARD:   And, I mean in a lot of ways there hasn’t been a, you know, there hasn’t been a great power war since 1945, right?

CHAMBERS:   Right.

ORCHARD:   And there hasn’t been a conventional naval battle, you know, fleet on fleet kind of thing, since then.  There’s been a lot of technological changes.  A lot of, you know, strategic changes and so forth since then.  The US itself has had all sorts of problems lately running into cargo ships off the coast of Singapore and such.

CHAMBERS:   Oh, yeah.

ORCHARD:   That said, yeah, so the assumption is like, okay well the, you know, both in fire power and technological sophistication and doctrine training and all that kind of stuff.  The US has an incredible advantage and it has the geographic advantage.  It’s – because of what I was mentioning earlier with this being able to blockade these choke points that China relies on.  But China, you know, it’s – they have – the way they’re building their navy is – does make a lot of sense.  At least in terms of the types of capabilities that they’re focusing on.  They’re not trying to prepare for a potential war where they meet the US out in the middle of the Pacific and go toe to toe –

CHAMBERS:   Right.

ORCHARD:   — or something like that.  It’s – it’s very tailored around their specific needs and they would have a home filed advantage in the sense that they can amass an immense amount of anti-ship missiles and –

CHAMBERS:   Yeah.

ORCHARD:   — airpower and other stuff on shore which would make it very difficult for the US to operate closely and that’s a contributing factor, you know, complicating factor to the Taiwan question, right.  And so, but at the end of the day, no one knows.  

CHAMBERS:   Yeah.

ORCHARD:   And no one really wants to find out so I think you’ll see a lot of posturing and a lot of the kind of stuff we’re seeing now where different, you know, everyone’s trying to make themselves look really powerful and they may be.  But until, you know, until the – you actually go, you know, push – until push actually comes to shove and the – you get into that fog of war where things start going wrong.  Yeah, it’s hard to actually say.  So, the kind of the question, more interesting question is how does – how do perceptions of Chinese power influence state behavior on economic decisions, on political –

CHAMBERS:   Right.

ORCHARD:   — decisions, that kind of stuff.  If they believe China is really powerful – or if the US believes China is really powerful, if Taiwan believes that the PLA is capable of becoming the new, you know, regional superpower.  That obviously will affect their policy toward China and everything else and so, yeah. 

CHAMBERS:   So, are you optimistic?  I mean, meaning like ultimately are you optimistic?  We’re going to have skirmishes.  We’re going to have issues.  We’re going to have this.  Trade skirmishes, maybe actual like hot war, I mean battle stuff, I mean, but overall you’ve lived over there in the world.  I mean, like it seems to be teaming with energy, you know, so.  And not just China.  But I mean are you optimistic?  I mean, what are, you know?  Because again, you know, we deal with people who need to get – they’re 55 now, they’re going to – it’s 30 years from now, right.  They gotta (sic) get through, so, you know, I want to form an opinion here that just because you might hear one thing, it may not actually be so bad.  Because surely something hot goes off, you – I would bet that you would probably see a nice shave off the S&P temporarily.  You know what I mean?  Right? 

ORCHARD:   Yeah.

CHAMBERS:   So –

ORCHARD:   I would short that word.

CHAMBERS:   I’m trying to contextualize, yeah, I mean, now us, we would look at that as a buying opportunity because we’re such long term but, you know, the Joe Public –

ORCHARD:   Sure.

CHAMBERS:   — oh my god.  So, are you optimistic ultimately? 

ORCHARD:   I am – I’m optimistic about the US and China avoiding a cataclysmic nuclear war that, you know, I mean it’s just purely from the standpoint of like, I mean, that would be devastating.  

CHAMBERS:   Yeah, of course.

ORCHARD:   And presumably they’re going to, you know, things might get ugly and might get tense but yeah, I mean –

CHAMBERS:   Yeah.

ORCHARD:   — they’ll find ways to not destroy the earth in the process.  That said, I do think for the next – I am not optimistic about US, China relations becoming more functional or more, or any less tense anytime soon.  Quite the opposite.  I think – I think both countries are in for a ten, fifteen, twenty-year period of intensifying competition of periodic blow ups over, you know, small scale trade tensions, moves to decouple the two economies, proxy competitions for influence and so forth across the region.  And so, I think that’s the important thing to keep in mind at least from a, well at least from an investing standpoint.  Is like, that’s not going away and that could in any number different ways influence – the investment environment in third party countries obviously between China and the US.  It’ll also lead to generate a lot of opportunities.  

CHAMBERS:   Yeah.

ORCHARD:   You know, the US is just now starting to get serious about, in at least small ways, starting to counter Chinese economic influence in Southeast Asia and in other strategically foreign countries.  Like we were talking about with Taiwan, it’s – and the chips, microchips, it’s – there’s a – there’s a – and with rare earths, there’s a rush to reshore some of that stuff to build up domestic capacity and so I think what China and the US, the optimistic scenario is that they find a way to not fear each other so much.  And not – and find sort of – settle into a new equilibrium where they can understand what each other, you know, what both sides need.  What – understand how both sides threaten each other and threaten each other’s industries, threaten each other directly, indirectly and all that kind of stuff and sort of reduce their vulnerabilities to each other to the point where it takes a lot of the air out of the tensions.  And that just won’t happen quickly.

CHAMBERS:   No.

ORCHARD:   And the US tends – the US tends to like ignore problems for a long time and then –

CHAMBERS:   Yeah.

ORCHARD:   — freak out and overcorrect.

CHAMBERS:   Yeah.

ORCHARD:   And then go back – and then something else comes along.  

CHAMBERS:   Yeah.

ORCHARD:   And so, we’re – I think we’re to some extent in the freak out overcorrect phase.

CHAMBERS:   Yeah.

ORCHARD:   Although, I do think that what they’re — the main focus now over the past couple years, but especially with a lot of the new strategy documents and plans coming out, are focused on, like okay, we can’t force China to change easily.  Or at least at an acceptable cost.  But what we can do is focus on boosting US competitiveness and reducing some of these supply chain vulnerabilities and that kind of stuff.  And like, yeah, that’s – nobody can complain about that, or I mean –

CHAMBERS:   Yeah.

ORCHARD:   — you can but, that, you know, that’s a – that’s a sound way to go about, at least an aspect of the competition.

CHAMBERS:   Yeah.

ORCHARD:   Yeah, focus on yourself.  Make yourself, you know, do what you can to make the other guy matter less and –

CHAMBERS:   Yeah.

ORCHARD:   — and then you don’t have to be so upset.  But I don’t know.

CHAMBERS:   Yeah.

ORCHARD:   We’ll see.  It’s going to be, I’m not optimistic about it going smoothly.

CHAMBERS:   Yeah, and I mean, you know, and they’re – I think China has to go through their own great depression because at that load is –

ORCHARD:   Yeah.

CHAMBERS:   — you know, yeah, they’re building – they’re – they are a remarkable culture in people and they build – there’s nobody building huge infrastructure projects more or probably better, like bridges.  Those guys build bridges like, I mean, envious, right.  

ORCHARD:   Yeah.

CHAMBERS:   But, you know, they have a huge savings problem.  They over save on the consumer level.  Like that’s a big, but we under save, they over save.  And so, there’s a lot of stuff that needs to be shook out, I think so it’s going to be very – but I’m glad to hear – I kind of took that view, I think.  I personally think that the long run will be good and, you know, but there’s certainly going to be some skirmishes.  Like, what do you think of my bull behind me here, by the way?  I just kind of noticed that.

ORCHARD:   (Inaudible).

CHAMBERS:   I may need to name this guy, here, so.

ORCHARD:   You can name him Bevo.

CHAMBERS:   What’s that?

ORCHARD:   It looks like Bevo, the University of Texas – mighty —

CHAMBERS:   Oh yeah.  Oh yeah.

ORCHARD:   — mighty longhorn.  Yeah.

CHAMBERS:   Oh, there you go.  See –

ORCHARD:   A magnificent cow.

CHAMBERS:   — that’s why I put this in the background for you.  Freaking bull guys.  I like it.  Alright, —

ORCHARD:   Real quick –

CHAMBERS:   Yeah.

ORCHARD:   — to your point on China.  I think that’s critical in understanding is like what’s driving their behavior and it’s like they have – they are more confident than ever about –

CHAMBERS:   Oh yeah.

ORCHARD:   — their ability to navigate problems at the same time they are – have huge, huge internals stresses and pressures.  And it’s – creates a dangerous combination to where it’s like they increasingly feel like they have little – they don’t have the choice to do what the US wants on trade, on human rights, on whatever.

CHAMBERS:   Right.

ORCHARD:   And increasingly they also think that they don’t need to or they’re not going to pay a cost if they don’t because of their capabilities and so and because of the way that they’ve made themselves indispensable to the global system, so.

CHAMBERS:   Right.

ORCHARD:   That’s a dangerous combination and yeah, that’s – yeah, so that – I would expect that to last until there’s either some sort of financial reckoning as you mentioned or they pull through the other side and maybe become, you know, maybe a confident, just confident and not panicky China is better for everyone.  But I don’t know.

CHAMBERS:   Yeah.  Well, I mean first of all, keeping the lid on one and a half billion people.  I mean, what?  That’s a lot.  That’s the part that I think a lot of people don’t appreciate.  It’s like they got a lot of trouble just keeping the lid on the joint over there.  You know what I mean?  Keeping everybody fed.

ORCHARD:   A lot of mouths to feed.

CHAMBERS:   What do you think about that, you know?

ORCHARD:   Yeah.

CHAMBERS:   I mean, like, so.  Whatever, but.  But, let’s continue to, you know, we’ll talk again on this thing and it’ll just be so interesting to watch it evolve and but again, you know, from an investors point of view, you gotta (sic) take the long – you gotta (sic) take the long and then you gotta (sic) look for opportunities along the way.  So, and there certainly will be.  Alright, I’m going into the – I’m going into the next phase of this riveting interview that I’m giving right here.  Alright, first of all, I want to commend us both on our hair.  I mean, we have good hair, right.  You know what I mean.  I don’t know if this is going to be audio only, but you got great hair and I mean, obviously, you know, I mean my lettuce.  So, I just want to say that right there alright.

ORCHARD:   Well, thank you.

CHAMBERS:   Oh yeah.  So, okay more on a personal note.  What are you podcasting, streaming or reading?  Riveting.  Go.

ORCHARD:   I am reading, I’ll start with that.

CHAMBERS:   Yeah.

ORCHARD:   The – the Robert Caro series of biographies on the namesake of my grad school, Lyndon B. Johnson.

CHAMBERS:   Yes.

ORCHARD:   Which – are you familiar?

CHAMBERS:   I heard it’s incredible.  He always does an amazing job.  Go.  Yeah, I’m sorry.

ORCHARD:    Yeah, for those who aren’t familiar, Caro is the historians historian.  He wrote one book on Robert Moses, the most powerful guy in New York for –

CHAMBERS:   Yep.

ORCHARD:   — forty years or something.

CHAMBERS:   I was a New Yorker.  Badass.

ORCHARD:   There you go.

CHAMBERS:   Yep.

ORCHARD:   And he spent the rest of his year writing about – or the rest of his career writing about LBJ and moved to LBJ’s hometown for ten years and, it – he’s – so every ten years or so, he puts out a new volume and it’s – it’s – I think they’re fantastic just because they’re just incredible steady of power first and foremost.  Just like how, I mean, it’s funny, I always – I knew a lot about LBJ in terms of like Vietnam and that kind of stuff, right.  And I just assumed he was kind of this archetypal big swinging Texan, you know –

CHAMBERS:   Right.

ORCHARD:   — with the principled streak, you know.  

CHAMBERS:   Right.

ORCHARD:   Turns out he’s like – he’s like – first of all he was a deeply broken man.  Just a broken man.

CHAMBERS:   Oh yeah.

ORCHARD:   But that gave him this like sort of maniacal energy to pursue power in all its forms and they ways he did that.  This dude could just – he could smell power.  He could see it where no one else could and that’s why he was so successful in rising through the system and coming to dominate the Senate and everything.  And, yeah, anyways so it’s – it’s a – and Caro, he writes about it beautifully.  He also takes these wonderful hundred-page long digressions into like the history of the Senate and the history of –

CHAMBERS:   Yeah.

ORCHARD:   — Texas politics and the hill country.  And, you know, it’s just – I’m a big fan but the big – you know, Caro something, he’s 80 something years old now and he –

CHAMBERS:   Yeah.

ORCHARD:   — hasn’t put out the last volume yet and so everyone’s, you know, kind of like, come on man.  Come on man.

CHAMBERS:   Multiple volumes, okay.  Yeah.  I have heard – I have not – you know what I do along those lines.  People also need to pay attention to Lady Bird.  She was not to be trifled with and he would have never been what he was without her.  She was, because he had major bouts of depression and cheated on her and she – and she was smart and a journalist.

ORCHARD:   Yeah.

CHAMBERS:   And so, she documented, you know, she made some incredible audio diary entries right after JFK died and all this stuff.  And like there’s – I think there’s a new – there’s a new podcast or something out about Lady Bird, this woman – I just heard about.  But anyway.  So, thanks for that book –

ORCHARD:   She’s actually a –

CHAMBERS:  Yeah, go ahead.

ORCHARD:  — she was an alumni of the same student newspaper where I worked in undergrad, so.

CHAMBERS:   Oh, right.  Yeah.

ORCHARD:   She’s the patron saint of –

CHAMBERS:   Yeah.

ORCHARD:   — when LBJ was at war in the Pacific, briefly, she actually ran all his congressional stuff.

CHAMBERS:   Yeah.

ORCHARD:   This woman didn’t skip a beat.  She was great.

CHAMBERS:   Are you married?

ORCHARD:   I am.

CHAMBERS:   Yeah.  So as always, the women are smarter. 

ORCHARD:   Oh yeah.

CHAMBERS:   I think it was the Grateful Dead.  That’s right.  Okay, so that’s reading.  What are you streaming and or podcasting?

ORCHARD:   Podcast.  My favorite podcast on Asia, which I’ll, you know, recommend, is – it’s called Undiplomatic Podcasts.  It’s by a guy named Van Jackson, who is –

CHAMBERS:   Write that down.  Undiplomatic?

ORCHARD:   Undiplomatic.  Yeah.  He’s a professor.  He used to work in the Pentagon.  Anyway, it’s just – it’s very irreverent and, you know, it’s just a fresh take on how the system works and US strategy in South – or in East Asia and elsewhere.  And also, a lot of like how the foreign policy machine, you know, works and sometimes doesn’t work or eats itself or whatever.  Yeah, in – he’s got a lot of insight on that kind of stuff and it’s —

CHAMBERS:   Super cool.

ORCHARD:   — enjoyable and interesting, yeah.

CHAMBERS:   That’s right up my ally, man.  

ORCHARD:   And then –

CHAMBERS:   There’s another one – there’s another one I think out of New York, called China Power.  Kinda (sic) interesting.

ORCHARD:   Yeah, but CSIS, I think, yeah.  Very good.

CHAMBERS:   Yeah, something like that.

ORCHARD:   Yeah.

CHAMBERS:   Yeah.  Streaming.  So that’s – and then what, like what are you Netflixing (sic) or whatever?  Anything?

ORCHARD:   So, Netflix recommendation is Occupied.  I don’t know if you’ve seen it.

CHAMBERS:   Oh, yeah, yeah, yeah.

ORCHARD:   Yeah, it’s super cool.  It’s about a hypothetical, obviously, Russian takeover so to speak of Norway.  And it – it really – it’s a good way of – you think of an invasion, you think of tanks coming across the water or whatever and it’s, you know, power can be exerted in a lot of ways and sovereignty taken away in a lot of ways.  

CHAMBERS:   Yeah.

ORCHARD:   This – it’s a good imaginative, I don’t know – look at how something like that could happen.  Sort of a slippery slope invasion.

CHAMBERS:   Yes.  Yeah, I won’t say anything more on it than you just did but it’s a — thorium and stuff.  It’s cool, yeah.  I lived in Finland –

ORCHARD:   The premises is super interesting too, yeah.

CHAMBERS:   Yeah, yeah.  I lived in Finland as an exchange student and so I didn’t know – I know Scandinavian pretty well, you know.  But anyway, so, that’s kind of interesting to me to kind of look at it from those eyes, you know, so.  

ORCHARD:   Cool.

CHAMBERS:   Alright, so.  Okay, before – I got two more questions.  One is we got to get a back to the shout out to Geopolitical Futures.  Give me the two-minute, one minute, whatever on that.  What’s going on there?

ORCHARD:   Yeah, we’re forecasting – a Geopolitical forecasting firm.  We — which is a lot of fun.  We cover the globe.

CHAMBERS:   Yeah.

ORCHARD:   We tend to be — look at high, you know, every year we publish annual forecasts of here’s the things we think are going to matter most.  What we try to do is connect the dots between political issues, economic issues or forces, and military forces and show how they kind of comprehensively drive state behavior and especially with the big and most powerful states, how they drive the global system, so.

CHAMBERS:   And who, like who do you sell your –

ORCHARD:   It’s fun.

CHAMBERS:   — who do you sell your stuff to?  Like, who’s your client?

ORCHARD:   We mostly have subscribers.  Just, anyone can subscribe right from our website.

CHAMBERS:   Okay.

ORCHARD:   And occasionally we do client work for people who are trying to make decisions on supply chain investments and that kind of stuff.

CHAMBERS:   Okay.  So, I’m going to tag you guys on that when I post this guy here.  So, I ‘m sure there’s big wealth managers that probably follow you and kind of get a sense of it, so yeah.

ORCHARD:   Yeah.

CHAMBERS:   Guys – people that manage money.  It’s great.  Okay.  You ready?  This is the big emotional question.  Where – what’s one of your favorite places?  Wednesday night, let’s say you’re on your way home – well you were probably already home, I don’t know, but where are  you ordering food?  Give me the secret sauce down there, man.  Come on.  

ORCHARD:   Yeah, it’s funny.  My wife and I were talking about this.  Like, okay now that things are opening up –

CHAMBERS:   Yeah.

ORCHARD:   — what place are we really excited about eating.  And I couldn’t come up with one because Austin is blessed, as you know –

CHAMBERS:   Oh yeah.

ORCHARD:   — it’s blessed with taco trucks and food trucks and –

CHAMBERS:   Yeah.  Really good.

ORCHARD:   — and great like your big brew pubs with giant outdoor spaces.  So, we’ve been able to like go to most of that stuff.

CHAMBERS:   Yeah.

ORCHARD:   And – but what I have not been able to do is go back to Bangkok and eat at Supanniga Eating Room on the Chao Phraya River.  My favorite restraint in the world.  

CHAMBERS:   Well, you just –

ORCHARD:   It’s probably a little bit out of the way for most of your listeners.

CHAMBERS:   Yeah.

ORCHARD:   But if you happen to be in the neighborhood, Supanniga Eating Room on the Chao Phraya.

CHAMBERS:   Alright.  How do you spell that because I’d like to give a little shout out to that joint?  You know.  Alight, well send that to me.  

ORCHARD:   Trivia question.

CHAMBERS:   Because that’s – I was not expecting you to do like get to all international.  Okay.  So, Supanniga in – it’s in Bangkok?  

ORCHARD:   Uh-huh.

CHAMBERS:   Supanniga Eating Room?

ORCHARD:   Uh-huh.

CHAMBERS:   Okay, first of all.  Anything that includes the phrase eating room, you gotta (sic) figure that’s pretty – because like that’s like – that’s aggressive.  I like it.

ORCHARD:   They know they’re good. 

CHAMBERS:   What – like what’s the – what’s your jam every time you like, what do you get?

ORCHARD:   I mean the best way to do like a meal at that kind of place in Thailand is just get like a whole table full of a couple curries, a soup –

CHAMBERS:   Yeah.

ORCHARD:   — fish dish, like a really stinky fish dish.

CHAMBERS:   Yeah.

ORCHARD:   You know, something to just like really punches you in the face.  And then just keep the beers coming, one round after another to wash down the spice.  And –

CHAMBERS:   Nice.

ORCHARD:   — do it with about – do it with a good group of friends and you’ll have a good night.

CHAMBERS:   Right.  And keep your nose clean when you’re running around Thailand, right.  Because they do not mess around.  Like, you do not want to jaywalk over there.

ORCHARD:   Yeah.  It’s – you could probably get away with jaywalking but –

CHAMBERS:   I’m just saying.

ORCHARD:   — Thailand’s the kind of place it’s like – I used to describe it as like the delightfully louche.  It’s like, you know, it’s got this reputation as being seedy and it’s kind of chaotic but it’s – there’s an order to it that’s like makes sense –

CHAMBERS:   Yeah.

ORCHARD:   — once you spend some time there and –

CHAMBERS:   Okay.

ORCHARD:   — yeah, it’s just – the way it operates is unlike anywhere I’ve ever been.  It’s hard to describe so.

CHAMBERS:   Yeah.  Well, what a great way to end.  See, I know nothing about Bangkok and I’m just making that up.  I just heard – that is my – honestly.  And it’s like, my – when I think of it, one of the things I think of is like I don’t know if I’ll ever get there but I – one of the things I think is you don’t want to be in trouble there.  Doesn’t it sound like a place — but that’s because I like saw some like movie or something.

ORCHARD:   Oh yeah.

CHAMBERS:   I don’t even know what —

ORCHARD:   Every airport bookstore they have rows and rows of books about going to prison in Thailand so I – yeah – don’t smuggle in, you know, don’t show up with a bunch of heroin, you know, in your pocket.

CHAMBERS:   Yeah, don’t do that.

ORCHARD:   Unless you know a guy, then you know.

CHAMBERS:   Right and even then, we’re not advocating it.

ORCHARD:   Yeah.

CHAMBERS:   Hilarious.  Oh my god.  Well, this has been great.  The Orchard.  Phillip Orchard, I love that.  Thank you so much for the time, man.  Really interesting.  Everybody take a look at Geopolitical Futures and look at our man, Phillip Orchard, and his firm.  It’s pretty interesting.  I want to thank you.  I appreciate it and I hope that you get back to Bangkok and get to the eating room there.  And –

ORCHARD:   If I can remember how to spell it.

CHAMBERS:   — yeah.  It’s going to be so nice when we get on planes more regularly and, you know, get past this nonsense that we’re dealing with unfortunately.  But everybody’s healthy with you?

ORCHARD:   Yeah.  Can’t complain.

CHAMBERS:   Okay, good.  Awesome.  Alright, well listen man, thank you so much.  Let’s revisit the tape and once I get this up and rolling, I’ll shout it out to you there, alright?

ORCHARD:   Yeah.  Thank you.  This was a lot of fun.

CHAMBERS:   Yeah.  I appreciate it.  Thank you so much Phillip.  Have a great evening.

ORCHARD:   Yeah, you too.

CHAMBERS:   Alright, peace, man.

ORCHARD:   Peace.

CHAMBERS:   Bye.

Background Information:

Phillip Orchard – Full Bio
Phillip Orchard is an analyst at Geopolitical Futures. Prior to joining the company, Mr. Orchard spent nearly six years at Stratfor, working as an editor and writing about East Asian geopolitics. He’s spent more than six years abroad, primarily in Southeast Asia and Latin America, where he’s had formative, immersive experiences with the problems arising from mass political upheaval, civil conflict and human migration. Mr. Orchard holds a master’s degree in Security, Law and Diplomacy from the Lyndon B. Johnson School of Public Affairs, where he focused on energy and national security, Chinese foreign policy, intelligence analysis, and institutional pathologies. He also earned a bachelor’s degree in journalism from the University of Texas. He speaks Spanish and some Thai and Lao.

Trevor Chambers – Full Bio
Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing.  Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”