20 Episode results for "Investment Analyst"

The Food Revolution

Monocle 24: The Bulletin with UBS

18:15 min | 2 years ago

The Food Revolution

"Hello and welcome to the bulletin with U._P._S.. Monocle twenty four each week we hear from the sharpest minds and freshest thing in the world of finance keep you on the numbers in the hype and getting to the heart of the big issues of the day this week time for the food revolution we're talking into a new U._B._S.. Report exploring current practices in agriculture and food production around the world and hearing why a lack of sustainability in these sectors makes them ripe for disruption and Innovation Panel from U._B._S.. We'll explain the challenges ahead. The types of solutions required to address them and highlight areas of opportunity for investors and entrepreneurs alike who McCain to drive change assistant currently sees one third food produced globally wasted every year. We'll also be joined by one of these entrepreneurs. He's grasped the nettle and helps run a business committed to changing the way the hospitality sector manages it food resources we start though with the authors of the Peace Wayne Gordon Senior Investment Analyst U._B._S. Global Wealth Management C._I._O.. In Singapore and John Gordon in Hong Kong strategist and U._B._S. Wealth Management C._I._O.. Before we delve into the reports Wang Gordon how can start with you. How hard is it to even gauge to quantify the problem of this lack of sustainability in agriculture in food production? How did you and your colleagues start? The process we started down the road of thinking about the fact that agriculture was leased digitized of all sectors you know including travel including other services obviously relative to things fien topic and so on and so as as we sort of looked down the curve as it would be we looked at agriculture is the least digitized and so we saw an enormous opportunity for agriculture little it's similar to how Tesla adopted you know taste though didn't invent the electric car eat refined it it gave an experience to consumers that they hadn't had before and we saw some of the technologies like facial recognition the Internet of things robotics high grade senses the clouds all these things we saw that this could be quite easily translated waited through into something like agriculture which from a production point of view is facing the imperative of warming climate which it's somewhat responsible support for the warming climate itself. Dan Leads to lower ground water supplies. Let's river water etc agriculture's heavy user of freshwater on a global vice bet seventy percent fresh. Water is used in agriculture so the imperative to be more efficient the imperative to drive the cost down the imperative to spread these more broadly to developing countries because the Agriculture's cultures such a centerpiece of communities particularly in developing countries so we saw this is a technology catch up story but as we began to righted we realized that actually when we think about the sustainable development goals that as a bank we want to increase their focus to investing in areas which you know improve people's lives improve health lst improve prosperity while improving biodiversity and and helping environments so we all of a sudden realise food was the centerpiece of the sustainable development goals in fact every part of the food production the food supply chain and the food consumption sought such a zero waste such as protecting <hes> Equa resources this all comes back to one interface which is food you talking about imperatives. They're describing the global nature of the problems on alluding to some of the technological solutions and perhaps John Gordon if I could jump over to you given the nature of the complexities of that challenge in the scale of it as Wayne describes it there presumably early then enduring solutions to those problems require huge huge rethink which will be struck drilling character almost ideological in character as well. I think the ideology behind combating climate change nothing new. I mean we've all we all are starting to understand the scale of the problem in fact it's the scale that caused some of the the reticence to finding a solution to fighting wars solution. I think what this report does is. It breaks down some of the solutions to much more scale gives you the sense that okay. Maybe the the big problem miscarry this is. The scale of the problem is scary but if you look at this particular side whether it's consumption of my based foods or or if it's on the inputs which Wayne alluded to earlier there are solutions that are both achievable and their investable label well. Let's continue down that course of being slightly more granular analytical and Wayne if I jump back to you can you talk to us a little bit about some of the findings of the report in terms of where we should look for those exciting disruptive areas obviously these appeal because they can deliver solutions quickly but also they appeal are of interest to to investors which is obviously also at the heart of this torch was a bit about disruption and where where we should expect the most exciting disruption. If you like to come from I guess when we we sort of tried to bring it all together to the various segments of the supply chain which effectively is how we sort of with that why map that way through this we started at the front end. Into the supply chain or the upstream and moved to the downstream clearly seed science and see treatment <hes> very exciting opportunities not just from a production standpoint but also from a consumer standpoint because we are now sort of moving from producing seeds because they have high yields to not so much just looking at that productivity side but also looking at the benefits that that those new crop varieties can offer people such as being the CSI Australia's an example as variety of canola which is high in a me three now that not only introduces that die of people which is very desirable from a health perspective but it also takes the pressure off Al Akwa resources or fish stocks. We have been the traditional providers of data make it three so it has the sort of holistic benefits and then and as we were for the downstream we've caused have the technologies of all team farming and the such as the Internet of things and blockchain which is incredibly important for not only trading commodities and being more transparent about that but but also rebuilding trust in the food system such that consumers can feel as if they know with food is come from this at Providence of food and at the same time they know the cold chain or the the the goodness we've seen that food is being maintained from the paddock to their plight and then as we move further down the chain we have the online food delivery and something that John has worked on in Iraq expertise is the plot base meets weights as well as potentially sill clean meat produced in a laboratory and so on we'll. Let's hear next next from James Pacelle in Global Investment Office of U._B._S.. Wealth Management in Zurich James has been a regular voice on this program on issues around sustainability and sustainable investing James for so. What are what might be pops better? What should be the primary? We disrupted Zenon in this space. Maybe you could talk a little bit about why some of those areas particularly exciting so one area that I would focus on is virtual foreign and vertical farming is exciting for a number of reasons so this is when you are farming in potentially buildings that are close to the city so the great thing about vertical farm and is it clearly uses less space in terms of square footage on the ground because the problems go into the air within spread across the land. The second thing is because you can farm in unhealthy urban settings you can actually reduce the distance of the food has to travel as well and that therefore has consequences for juice in the C._o.. Two the other element around vertical farm and is as we continue to. Improve energy efficiency. We continue to bring down the cost of vertical farming so energy is about seventy percents of the cost of goods sold currently with vertical farms announce the number of course four overtime energy efficiency increases U._B._S. working talking with a lady Sonia Low. She is in the process of building the world's largest but farm she's one of our U._B._S.. Global visionaries and she's doing some inspiring work and in terms of actually progressing vertical farm and into the mainstream some exciting and disruptive innovations. You've mentioned Ginette James. What's the investor position? We often like to come back to that on this program. Obviously where are the key opportunities is looking at exciting new businesses entrepreneurs in spaces like vertical farming or is there a much wider opportunity here across the whole of the agriculture space opportunities the way across the agricultural spice so from new ways of juicing foods such as but who farm and it's been talked about there's also of course new ways of saving food and you mentioned <hes> winnow and Mark Who's one of our global visionaries. The food waste is perhaps one of the greatest opportunities of one third of Boo food in the world is currently wasted now. That kind of wastage rate is inconceivable for any other business model that you would waste one Eddie your potential inputs nevertheless that is the common status quo and not wasted food also accounts for eight percents of all G._H._G.. Emissions Company and on disruption in particular in the digital realm is interesting here. Can you give us the numbers James Vessel that speak to that so until recently digital penetration and shops in agriculture has liked pretty much all other industries in the world. The digital penetration in agriculture was about North Point three percents in two thousand eighteen. You compare that to financial's two and a half percent and of course V child where we've seen huge disruption which is now running about twelve percents so there was a giant opportunity for even pre existing technologies to come into the agricultural space ice and really changed how has been operating for disruption is occurring in many many sectors but one of the biggest potential disruptions is still agriculture still to come on the bulletin with U._B._S.. We'll meet a U._B._S.. Global Visionary Determined to play a central role in the food revolution. Mock Zorn's is one of the founders of Winnow Mark Looks after client development client success and new product development mark. Thanks for being on the program. Can you tell us about the role that technology plays and explain how that technology might be most impactful in reducing food waste the reason we use technology and and for me the technology had to be a part of the solution because I think it's really clear that the capability that tack has to drive enormous change at a global scale at speed is really something. Something that we need to unlock to solve this problem at the speed that we need to address it and so the question for me wasn't should technology be a solution it is how is the best way to apply technology to solve this problem at a global scale and so we found that winnow as a for profit business basically venture backed tech business because we wanted to put all of those forces together that if we could build a business this model that made money by solving this problem and the metric that we as a business care about is how much food waste were preventing every single year and we demonstrated that business model we could attract capital that capital would allow us to invest further in the technology and salt more food waste which would allow us to attract more capital to scale faster and saw more food waste today winnow works in over forty countries around the world's. We're saving our clients about thirty five million dollars. A year in food costs costs that is the one number that we as business track for success. We feel that if we grow the amount of food that we are saving that is both the environmental benefit in the social benefit but frankly it's the economic benefit that we're delivering our clients maximizing that number maximize the growth of our business us our target is to save one billion dollars. A year in food costs by twenty twenty five. I certainly hope we get there sooner but it's an ambition that we've set now that we have winnow vision as technology to be able to really make a big dent in the problem. How does own official intelligence work in this space mark you mentioned when I vision? How does the tech help to realize your goals very ambitious goals like saving a billion dollars a year in food waste by twenty twenty five when we started winnow we actually wanted to build a system that was computer vision enabled and this was in Iran twenty thirteen? We realized that it just wasn't possible but the other thing that we learned in building the initial prototypes of the system that having just a simple tracking system where staff identified the food through a touchscreen interface that they were throwing away still made a lot of impact and so in the beginning we scaled that and we waited until the technology to catch up the impact that artificial intelligence in the area that we use mostly is computer vision teaching computers how to see identify things things that will have on our business is it will remove a vast majority of the adoption barriers that exist to this technology kitchens are very busy places when you're trying to roll a program out to thousands thousands of hotels or thousands of locations you need something that is foolproof in working and having a system that literally is the been that you throw the food into the system will automatically identify. What's being wasted takes makes the data collection challenge away makes it virtually automatic and allows you to focus on the solution which is now that I have this data? How do I solve that problem? What it also does is it allows US drive additional insights on what's being wasted because picture will? Two thousand words and we can gather a lot more information with that it allows us to really offer a distinctive value proposition to our customers that no one else can because we're already at a large scale we can collect so much data so quickly to make the system very accurate grant that we very challenging for anyone else to sort of follow and the last thing is honestly. It's it's Kinda cool that the systems can do this and you go from having a system in the kitchen which is a tool that people want to due to save cost to actually have an actual application of of of artificial intelligence. That's real. I throw food away in the system identifies what it is. I've never seen a system do that before right. I've got it how it's making my life easier as a chef and when we see clients like a Kia who are really adopting innovation now the pride that their co workers have in having this state of the art technology and their kitchen is really strong and that's an important factor as well mock zones from winnow finally on this program. What about some takeaways from this report for Clients Wayne Gordon if we come back to you could you just give her a real succinct headline takeaway for investors? Obviously it's always interesting to look at the investor position. What's the kind of nature of the opportunity and I I presume cl clients of the bank come to you and they're super excited about this space or is it a question of saying? No you need to look again agriculture and food this is maybe more dynamic than perhaps he thought yeah. I think the key thing for me. Is that came from the report. Is this idea that we need to sort of bust these lingering miss the technology is the enemy of natural abundant affordable food and in doing that. We need to communicate indicate with each other. We need to ask questions. We need to receive answers from those questions. Let me think about the sector as a whole we see it growing it about fifteen percent per annum and at the moment the revenue opportunity goes from about one hundred thirty five billion across all the segments. We discussed to about seven hundred billion now that he's as we move up that digitized could that we talked about earlier. This is one of the few are you sick at least from technology standpoint where you can get in early. It's not too late and not only that but you through your investment you are contributing to a more sustainable society and that's Wayne Gordon bring us to the end of this two hundred and fifty first edition of the bulletin with U._B._S. setting the agenda and the fast moving world of finance each week here on Monaco twenty four you can hit an in depth interview and discussion with U._B._S.. I Global Visionary Mark Zones from Winnow in a few weeks time in the latest in our special series of shows on the global visionaries program if you want to find out more about winnow and others like them head to U._B._S. dot com now and search global visionaries.

Wayne Gordon John Gordon Singapore McCain Hong Kong Wang Gordon Investment Analyst Tesla Global Investment Office Zurich James Dan
The best of Capital Ideas, vol. 2

Capital Ideas Investing Podcast

44:58 min | 1 year ago

The best of Capital Ideas, vol. 2

"The investments are not FDIC insured nor are they deposits of or guaranteed by a bank or any other entity so they may lose value. American funds are not available outside the US. The following is not intended as an offer to purchase or distribute American funds outside the US. I'm Matt Miller. This is capital ideas. Your connection to the minds and insight shaping the world of investments. Maybe it's the lure of Hollywood awards season or the pent-up Nostalgia around the capital ideas studio. Is we approached the three year. Mark of our small but mighty podcast. Whatever the case. We're back with another edition of the best of capital ideas. We rated R. Archives to find the truly outstanding moments our guests have shared with us. What makes for an outstanding moment? I is it inciteful for investors next. Does it offer a key long-term perspective on our times and finally is it memorable? Did we think you? Our listeners would appreciate hearing it while more time in short. Is it a capital idea? You're in for a treat. Your they are the best of the best. We kick things off with portfolio manager. Joyce Gordon a forty four year veteran of capital group back in March of two thousand nineteen when concerns about the next recession. Were starting to run. Hi My colleague will McKenna. Joyce how her? Experience of past recessions informed her current thinking about the markets. Hughes will let me follow up and talk a little bit about two thousand eight the great recession. I think still very much on the minds of our audience. You know when we look the questions that we get it. People were really so scarred by that. That's the anchor of the framework. They bring to thinking about recessions. Today you live through that you invested through that. What lessons did you pull out of that? You were talking about companies you know. There was nowhere to hide so to speak. But there were a handful of companies. You know Amgen Hasbro. Mcdonald's Walmart those types of companies that were positive that year. What lessons did you pull from that period in particular? And did you learn any even going back to the nineteen eighty-seven big decline in the market? What was true of both of those timeframes was you wanted to avoid companies with a lot of leverage companies with a lot of debt service that they have to deal with our subject to problems of outside influences of credit rating agencies that force their hand and make them cut their dividend so that they can maintain investment grade and that would hurt the stock price if they cut the dividend. At a time. When you're going through the problems that was one big thing. I learned another thing I learned was to really pay attention to what people are doing. And you know going into the great recession. We had the Sandler's who owned Golden West financial in California. And this was their baby. This was their savings and loan company that they built and I thought they would never sell it right before the peak they sold it to a bank and I should have paid more attention to that that they were nervous about mortgages and they were nervous about the state of the bank and another thing. That happened back then was Washington mutual savings bank based in Seattle they issued a proxy proposal that would change the management bonus structure and take out any loan losses from the impact from the management incentive. Plan so that they were being incentivised by volume not quality and that was another telltale. Sign that something horrible was coming and so as I look around now. I don't see a lot of those types of things going on but what I do see is some companies that have typically increase their dividend every single year over this last year have not and the ones that have not are the ones with a lot of leverage and so they're kind of worried about paying down their debt and not increasing the dividend. And we're seeing that with some of the food companies and so that confirms that were in the later stages of the cycle and that sales growth is tougher and that companies are focusing on paying down. Debt you listen to someone like Joyce Gordon. It just reminds me the kind of experience we have someone with four decades plus of investing at Capital Group and the wisdom and the eye for warning signs the pattern recognition that develops from having been through so many market cycles and the kind of insight and prudence that she brings to the assets where stewarding for so many families. Just a great moment. That reminds you of that kind of sensibility. That informs everything that capital investors do next when I spoke recently with investment analysts has Cinco Hernandez who's covered the oil industry for capital for the past nineteen years. I asked as I often do. If he had any favorite stories he'd like to share from his travels visiting with companies. I certainly didn't expect this one. We're lucky to be capital. I've been covering this business for almost twenty years now. And that's unusual at other firms in other firms you move on to do other things you rotate between industries or it's stepping stone but we really have people who spend their careers following industries and then you get to develop really interesting and deep relationships. Some of the companies that own their large cap companies. I might have invested in their IPO or pre IPO when they were small cap companies and those relationships are deep. So one thing on my fortieth birthday party a few years ago one of the companies that I had invested in for eleven years They named a well after me and presented to me on my birthday which was kind of Nice and as a goodwill to within a crummy. Well it was really quite a boomer. So it's the Hustle Hernandez Hasina Forty H so has seen Tau for May the forty for being forty in H. It's horizontal well and then there's a series of numbers said the naming convention. Yes because it will be the forty V if it were vertical well but vertical. Well you WANNA could on horizontal. Visit your namesake. Well from time to time ever visited the well bad. I have to that I have not. But that's a good idea to get a little plaque or something. I will sign in my office. It's like a real. They duplicate of the sign. Every well site will have a sign. You need to have a scientist say who the operator is named of the whale. And it's stamped like a licensed pipe but it's much much larger with the oil sector obviously gets so much negative press in their legitimate concerns about climate and the evolution there but it is also in kind of technological marvel what happens in the oil business. Have you spent much time on oil rigs or offshore rigs absolutely? I mean that's par for the course you say a word about back. I've never been on an oil rig. I don't know people who've been on oil rigs except for folks like you haven't really heard you talk about it. I mean it's it seemed like a kind of unbelievable achievement that you can do these things when you go to offshore platform and it's almost like a mid rise building that's floating in ten thousand feet of water and the guys mostly men there occasionally when but most guys that are on these platforms two on two weeks off. They lived there for two weeks and they're twelve hours on twelve hours off. They were twelve hour days often sharing a room with one of their buddies. I think it's much better now in the Internet age where you actually can get streaming data. They can talk to their families. You know I think twenty thirty years ago. The most important thing on that platform was the chef. You're not gonNA keep good people if you have bad food. These guys eat The dangerous job and you know you helicopter in helicopter out the logistics of even getting their super complicated and it's like an industrial manufacturing side of the top levels. And then it's like a really low ran cruise ship on the bottom levels. They're kind of a family. These guys it's dangerous work. A lot of them might not have a finger or might have a cousin and often. It's a family business but these are exceptionally well paying jobs. These guys are very happy to have these jobs and with a high school education. You can make a lot of money. It's so great listening to hoc- talk this way because it's just emblematic of the on the ground research that capital group analysts and portfolio managers. Do in the insights that you get that are really granular when it comes to understanding what drives a business in a way. That's just well. Beyond the balance sheet in the income statement in the cash flows which obviously have to be studied? But it's a real tactile understanding of businesses that I think one of the distinctive things the capital brings in that hocine. Great story exemplifies now on the eve of Great Britain's former exit from the European Union on January thirty first of this year economists Talaqan and economist. Robert Lynn were both based in London. Spoke with my colleague. Michael Utley about the looming decision and parliament here from what's next for Brexit. They discussed the implications beyond Britain shores. Taller starts us off so I think what we seeing not only in the UK but broadly in Europe is the continuing realignment of mainstream political parties of the centre-left and centre-right clearly. If we can this broader this discussion to Europe what we've seen over the last five years in particular is Continuing fragmentation of the mainstream parties into a more diverse set of political parties entering the fray. And therefore you know new coalitions being formed. Which didn't exist before you. Can broadly bucket. This under the umbrella of off populism But what it really is a response to it. As a sense of disaffection from the average voter with the status quo so in other words the Post Wall majorities that the center left and center right todd and which sort of responded to and provided full the issues of the day no longer seem to be providing people with answers that they seek because either they think The system is unfair or they think on economic issues in particular that there's too much inequality has not as you mentioned but also their issues of culture and identity and the politics of place where people are wondering. How do they respond to the growing sense of insecurity that they have in a world that is increasingly globalised where there is automation eating away at the livelihoods and the jobs that they were guaranteed in the post effectively? The social welfare system that they were used to is no longer available as a backstop in the same way that it once was before and so politics is in a state of flux the brexit moment if you will was the result of many of these issues coming to ahead and a variety of people voted for Brexit for a variety of different reasons. It wasn't exactly for the same reason. And that's why it's taken this country so long and arguably will take a lot longer to try and figure out what it wants to do with Brexit and I liked the phrase you use that politics is in a state of flux it certainly seems that way many parallels with the election of Donald Trump and the United States. This is such a big question. Robert What do you think about? The wider implications of brexit either from a political standpoint or economic standpoint sort of the divide between the industrial areas of England versus the more financially focused areas like London. What are your thoughts on this? I think there is still a launch debates yet to come in the UK about what brexit actually means in the referendum campaign in two thousand sixteen. We didn't really discuss the detail of what brexit means and over the last three years. We've not really got any closer to working out. We'll brexit means I think there is inherently within the UK. Attention here between a relationship. That's very close to the EU and stays very close to the EU cost will constrain the ability that the government here has to change economic policy But of course that will also minimize economic disruption. Alternatively the government here could see Komo distant relationship with the EU. We could seek to move away from the regulatory single-market away from the Customs Union. Obviously give it much greater scope to influence domestic policy but of course that would come with quite considerable cost in terms of economic disruption. You know there are many many companies not just UK companies but companies across the e U Which have subsidiaries plants factories officers in the UK as part of their global supply? Chain and of grace if the UK starts to move away from the EU regular in any kind of regulatory way or in any trade relationship than that is only going to increase the cost of doing business for many companies which have to. They happen to be in. And I do varies. This broader sort of politically and something that comes out of talents description of the people who voted the Boris Johnson. This election Boris Johnson won support among typically Labor voters in some of the old industrial heartlands of the UK. These people used to have jobs in the steel industry and the coal mining industry. Those jobs gum and clearly the government is now trying to think how best to address the economic and social concerns of this particular group of people on those problems very deep. I'm very well established. They've been happening for many. Many decades goes a long time. I think for any government to get to grips with the full implications of that. You know what's wonderful about that? Conversation with Robert and talent is while people know capital groups. Bread and butter is fundamental bottom up company research and that's how capital group in American funds do security selection is part of the team. There are folks like Tyler and Robert who integrate into the portfolio decision making process a deep understanding of these underlying economic and political trends. Where we're seeing the tectonic plates shifting across the world on issues like populism the revolt against some elites on all sides. The just was mentioned in that discussion in. It's the ability to bring that kind of thoughtful insight to bear. On the specific context of how portfolio managers are actually choosing which companies to align our investors as partners with in their growth. That is a piece of the special sauce. I think they'd capital brings and that conversation helps to reflect next. We'll stay on that side of the pond but hop over to the world of fixed income. I asked london-based portfolio manager Mark Brett. Just over a year ago about his outlook for Global Bonds in twenty nineteen bracing for a response steeped in bond math from this forty one year veteran. I-instead got this answer. I don't have a strong view about twenty nine thousand nine what I really have. A big view out. Is this kind of three things. Going on the money tightening. Something really structural about the profit share the economy and the Labour share. Say More about that. So that's really going back to the political events that you've talked a lot about we've learned from me about Matt in the US or the UK with Brexit or easily with Internet party all the right wing parties in France and Germany. The lavish share of the economy very low. Around the time of the crisis I think in all these countries many working people are saying my kids are going to be poor than I am and poor them. My grandparents. Something's wrong. The profit share has been rising for twenty or thirty years the labor she has been going down and the public. Say Hang on a minute. I want my share and voting politicians is so we're going to change this now. Don't clear the position is going to get this right but it is clear that I think the public saying on. I want to go up. And that gives you a different kind of macro environment where companies need to respond is disruptive environment And then of course in human behavior and there's one or two red flags out there about human behavior only in the market that I can see a month. Let's unpack a couple of those things these three forces at work. You're talking about or money. Tightening the labor and profit share and human behavior as a so one of the things that brings to mind just first of all I think people often think of Baden investing or bond market says this kind of dry mathematical exercise and a lot of watching of central banks. Yeah but just the way you describe. What's top of mind for you as you think about the outlook? It really includes the deepest questions of Political Economy. The deepest questions of psychology. When you get into how you think the market will process or human behavior will process by the human behavior. You mean market participants. Yes that they not supposed to do. In the textbooks and monetary tightening. That's central bank choices and decision making. I think people understand that but sale little more about how these other things like the question of labor versus profit share how that translates into what you're trying to decide to do right and stewarding our clients fultz Really Fuzzy. So really fuzzy on it's about saying. I don't want to know the weather next Tuesday account. No the weather next Tuesday. Just want to know what's season we're in well sort of environment. We and the weather next Tuesday is unknown. It's noble it's largely random on on a day-to-day vive markets a lousy random on a day-to-day to day view. That probably random on a month to month view. That's very tough message to say that. But it's probably true. What I want to know about is the general environment we're in and what is the bond market offering me as an investor. What's priced in where I disagree with it? I feel strongly about it all where I don't have a view so I didn't take of you. And those things feed into a kind of environmental view and and disagreement so clear disagreeing with the what's price. Dan Is the source of superior. Long run returns that Am. I think it is yeah. It's disagreeing with the market in two ways. One is where the price of something just doesn't seem to tie up with what I think the pressure. So it's very much like Eric. See colleagues saying is the price of this. Stop the peace too. Low for this company is a great growth company. It shouldn't be on a P twelve. It should be on twentieth deserves to be on higher rating. And so there's a degree of that in fixed income with saying when I look at the dry maths of what is priced into right heights. You can calculate it's a maths problem. Not a human problem and then I got to say on the other side. Well what is everybody else doing about this? So really good example of that at the moment is there's a lot of concern about rate rises on. GonNa lose a load of money and bond funds and yet when you look at human behavior. They've clearly taken that on board. To such an extent they've rushed away from taking interest rate risk into taking credit risk. So in the middle meaning the rest of the mark rest of the market is doing that in the middle. There was a little thing that happened. Very Few people noticed the leveraged loan market in the US finally exceeded in size the traditional high yield bond markets trillion of quarter now in leverage loans was the significance of that. The Senate consists this has been the market. That's been on fire. It retail investors in America. Said I'm really worried about rates going up when and they were right when rates were nothing rates. Were going to go up now. They've been going up. Well they've been doing is rushing from bond funds got interest rate risk into bond funds. Got Lots of credit risk. In place of interest rate risk people want income. They want yield some instead of taking yield associated with rate risk. They've been taking yield Societa with credit risk. Now there's nothing wrong with leverage loans. We buy all the time. We buy an high-heeled funds because there are subsidy for but we don't buy them in short term high grade bond funds. The problem is that's where most of them are. The profession were in is so driven to deliver income. It's delivering something. That's correlated with equities and that to me is the only behavioral. Red Flag off guard at the moment and it bothers me. What's so wonderful about talking to a portfolio manager like Mark Bread? Is You expect it to be about interest rates and duration and credit in all the classic components of the bond market equation but very quickly. It gets into almost philosophy and watching how someone like. Who's been successful for decades? And obviously as a master of all the core ingredients of bond math and bond returns and how to think about that the role that these other non quantifiable factors play in his outlook and how he then makes portfolio decisions. I find fascinating. We love hearing from our listeners. So keep those reviews coming. Tell us how we're doing by reviewing capital ideas. On from time to time we like to feature guest from outside capital group typically academics from disciplines other than investing these authors offer unique perspectives. They can influence how our audience thinks about markets. I can think of no more articulate and forceful voice in this regard then power Khanna a global strategy advisor and author of the future is Asian in his book. Power argues that while today's western investors are obsessed with China's every move a fourth wave of Asian growth essentially the rest of Asia is poised to become a much bigger story. Here's a key part of our discussion one of the things. I found intriguing and again some of this may be challenging to Western ears. But it's important because if you're right that the future is Asian people in the US and investors who are thinking globally. Have to understand this. You talk about the Western narrative of history and it's blind spots versus what history looks like from the Asian point of view. Can you give kind of a high level sketch of those two things? And what you think is important for folks to understand the differences and I should say for anyone who ever wants to undertake writing. Book don't try to summarize seven thousand years of Asian history in thirty pages. It's a grotesquely difficult exercise. Yes but there you go. It's a public service now. Now you can pop realize that right so going back to colonialism and the color for thousands of years prior to colonialism Asians had a lot more to do with each other than with the rest of the world so when we talk about the Silk Roads and that's a very popular expression these days. Silk Roads Connotes superior or periods of history when Asians really had tons of commercial and cultural interactions with each other with no reference whatsoever to the West. Right it's only with colonialism. The Industrial Revolution that Europe in particular became a ascendant so I wanted to emphasize that in this relates to the whole idea of the reinforcing waves of growth from Japan to the Tigers China and so forth. That's Asian history. Looks like it's this learning process of Asian sharing language script religion and Ideas Technologies and business and so forth right and today. If you fast forward we are rekindling. This process again. We Are Asians. Have such tremendous complimentarities? If you look at Asian today you see your financial centers like Singapore and Hong Kong. You've got factory floors like Thailand and the Philippines Vietnam China. Obviously you have agriculturally rich countries you have commodities providers you have a labor surplus countries and labor shortage countries. So it's extremely important to remember that when we talk about Asia it's not just China and it's not India is the new China or something like that. It's all of them at the same time because you cannot explain China without understanding Japan and what Japan has done in China and four China. You can understand Pakistan without looking what China is doing for Pakistan. You can't understand ozzy. On without looking at the Chinese and Japanese companies that are offshoring Their production into Southeast Asia so history history of Asia in particular is full of these complimentarities in which sides mutually enrich each other. And this is so important today because Matt as you know the trade wars kind of the dominant political issue of the day and that gives you this impression that economics is this. Totally zero-sum enterprise right and all of Asian history quite frankly all of global history you know proves otherwise and so we really have to think about how these complementarities are playing by following those supply chains following those trade flows following investment in capital flows. We can start to make some pretty robust predictions. What the next growth markets. You know. It was such a delight to interview Parag Khanna and just listening to that reminds me of how the full interview. He's full of such energy and such deep knowledge of a set of markets. They're going to play such a central role to investing as well as just global political economy in the next thirty forty fifty years and his focus to keep reminding us the deep integration of the region. And how it's just a much bigger story than China alone as big as China is was a really helpful reminder for our capital ideas listeners in US automakers signal lane change I spoke with investment analysts. Caitlyn Murphy about investing in an industry on the cusp of major technological disruption our inevitably turned to one disruptive maker and. It's rather eccentric. Ceo Do you cover Tesla I do? What's the kind of headline about what the impact of that firm and Elon? Musk's the kind of visionary entrepreneur who's been in driving the industry in your view. I think he woke up the industry when Tesla came to market at the time where I lifted them. I probably visited close to a dozen private electric vehicle companies companies trying to do that. There are a lot of incentives around the time coming out of the downturn. There were a lot of battery. Maker's there's a lot of hope around. We're battery costs could go Tesla decided to go with a different form factor than what others were used to. They lower the cost that way and they said the product has to be compelling. We can't give people golf carts that feel unsafe and don't have the range. It has to have compelling range it has to be a beautiful product and you have to be able to do everything you can do in a normal car. I mean that doesn't seem revolutionary right now but it was at the time And they just thought about everything on just a different plane than all the other. Oem's and so if come to market. They've had a lot of success in the ultra luxury segments where they've taken some share and really put pressure on some of the German. Oem's in particular. So what's he la? Musk like you make research trips part of the fun of working capital the excitement and also what we do on. Capitol ideas is your view tales from the field. I will say he is an incredible visionary I was not new analysts but newer. And so we're going to meet your lawn. For the first time I had met him before but taking pm's that have never met him before and he obviously has a phenomenal reputation from predisposes. Learn so we sit in a meeting with him and I'm like you analyst. Ho The PM like this guy. And he starts to talk about ramping up production for model last we're going into some of the technicalities and again. I think he was sleeping on the factory floor way back then and then he stops and says can I honest with you. We'll tell us there's a ninety five percent chance earth will be all right but there's a five percent chance that we may need to colonize Mars and I'm like Oh. I'm looking at the board bully marriages next to me. This is the guy we want to invest but he went on to kind of connect the two things in why Tesla was such a mission for him because I really think electric vehicles our mission. He's an advocate for that and I think it ended up resonating with but it was just one of those moments says. A newer analyst were really okay. Such a great story and Just again another snapshot of what the kind of investment life is on the ground to capital group where analysts are engaging with everything from run of the mill. Ceos and leaders to these kind of extraordinary once in a generation entrepreneurs likey llamas. And how we help calibrate that in terms of the assets we steward for millions of families now continuing with Caitlin. I ventured to question that was on my mind and I can only assume on the minds of many of our listeners. Now investing and the automotive industry in particular tend to be traditionally male dominated industries. Talk a little bit about has been a woman been an advantage a disadvantage at times. You know there is a study that came out over the summer. I think it was funded by Bloomberg. I don't remember the actual name of the people that did the study but it looked at earnings conference calls for the last twenty years and found that only eight percent of the words spoken or spoken by women and it linked to other studies done at Byu that said if women are twenty percent which is kind of we're hoping to get to in the investment management industry twenty percent of the population in a room. We're in a meeting. They ten percent of the words and it's not until woman have a majority where they actually able to influence the conversation and by the way when that happens it can lead to better outcomes for businesses better investment results. So we know that. I'm super grateful to be here We don't talk about a lot. I hope we do going forward because I think we have more female. Investors here and more assets managed by females thinks it would rival anyone else in the world. Talk about that but it's important senior. Women Veterans Tons of people to Mentor. And even as important as that. We have a lot of what we call. Allies and people are really champion. The analyst process and as part of that champion. You as a female and that's very important because just alluded to earlier. It's about finding your voice in a space that can be crowded and it's important that we have a choice because that's how we influence investment outcomes and so I think capitals very thoughtful about that and I'm grateful for that where I see it in the intersection between the industry and autos GM had an investor day last month and it was great. I mean they brought up a lot of good points about a lot of transformation. Gm has a female CEO and CFO. They are one of three companies and the S. and P. Five hundred and two in the fortune five hundred of a female CEO and CFO. Mind Boggling so here we are talking about all the changes that they've made whereas I think you about strategy. They put out a vicious earnings targets Ito Creek Day. Look around the room. Hundreds of investors. I can count on one. Hand the number of female investors and two of them were associates from Capitol Myself and a portfolio manager from another side of Capitol. Here are these great female leaders that I get to work with because of my coverage which is rare and the people are going to allocate capital to them are all very different. That's not always going to be the case I think this job on the surface can turn a lot of females away Because we have impressions of like a Macho Culture. The work life balance a number of other things. But it's important for us to show up because one day this and p. five hundred is going to look very different and there has to be other people allocating capital two different businesses. So great to hear. Kaitlyn talk about that. It's an issue that it's really part of the fabric of capitals culture. The diversity viewpoint the diversity of views which means diversity not just of gender among our investment group but geographies People from all over the world analysts portfolio managers part of a global team including what Katy points out. Is The work that we've done to try and remedy the underrepresentation of women in some of these roles and the very different outlook and perspective that that brings to the table which is obviously essential to get the best input and ultimately the best decision so Kudos to Katie. For calling out all those issues regular listeners will know that memorable research visits like the one that Caitlyn Murphy described with Elon. Musk figure prominently on our podcasts. When I interviewed Portfolio Manager Alan Wilson a thirty five year industry veteran and former engineer. I recalled worried about his unusual approach to meeting with company management. So I asked him about it. Say a word about how you think about management because that's another one of the Special sauces too much of a cliche but one of the one of the things that long-term investors like apple get to do is really focus on. Who's running the company and the quality of those folks and have relationships with them over long periods of time and I I recall being one investment. Meeting where you had mentioned once that you had like this little personal rule that there was one manager. Who's General Presentation You Roy? So impressed with that. You had a rule like wait two days or forty eight hours after you were with that person because you didn't want to just react in the moment Because you knew kind of behaviorally. That was the way you reacted to this person. Just talk a little bit about how you think about. Manage management is an adult like if we talk about capital management capitals management is a whole cadre of people doing multiple things to make this whole place work and so. I think the first thing is to not to let myself just speak for myself not to let myself get overly persuaded by one person. One way or the other right because in fact. Typically the people that arisen to the top are extraordinarily good. Ed being persuasive and telling the story and by the way they believe the stuff that they're saying right but inevitably when we're trying to invest in a company or we're trying to do is invest about what it's going to be that what it was or even what it is but when it's going to be and there are no future facts so what I need to do. In fact sometimes some of my best investments have been where I have believed in something. That's different than what? The Management Team believes right. I believe sort of an outlook for an industry. I believe that these people will have the capabilities to execute well if that outlook happens but they might not even as convict so To me that the real question is does the management in aggregate do its capabilities fit with what the task is going to be for the company. But it's not. Is this person really smart or she really persuasive or are they really kind to me or mean to me for that matter because the other thing I learned is that you know I used to follow some companies in the solid waste business etc and I would sit down and the farmer analyst would come in and he would talk about how this is this? Is You know? Sometimes a business is about sort of getting the trucks out on time. The trash picked up and stuffed in a whole different skill set. So it's not even could have imagined this person sitting across from me at school. It's about are you the right person for the right job. What strikes me as I remember that conversation is the real self-awareness. Allan has about his own behavioral biases. And how he processes own interactions with senior management and leaders that our team is assessing every day. It's the ability to be self aware and sensitive to those human dynamics and also not to be bamboozled by the kind of fancy corporate environment obviously but through experience and wisdom to know that it's really the ability to get the trains to run on time that often makes a successful business different from one. That's not quite so successful now. Sometimes a best of moment isn't a bad investing at all we end our episode with Gregg went a portfolio manager an investment analyst. Who spent his entire thirty two year. Investment career with capital group. Greg once took a year long hiatus away from the firm as a favor to a friend. My colleague Michael Lovely takes it from there another question I have and I hope you don't mind me asking you this but You were a friend and adviser to Senator John McCain who sadly passed away recently Can you share some of your your memories of the Senator? John was just an extraordinary man. who again through luck I built up a friendship with And how did that happen? Initially I read a book called Nightingale Song and was sort of embarrassed I'd never heard of Senator John McCain and I mailed him a letter is crazy sounds and six months later I got a phone call asking me to go to a fundraiser. That night in San Francisco as their guest which I'll give you a hint meant. The fundraiser was not going well Let's see what year was this Ninety eight tar went to the fundraiser in literally and I should use quotes fundraiser. Right There were seven of us. There it was known John Now so well was a painful our but he stuck there for an hour and we had a good chat and as we were leaving John grabbed me and my then date now wife and said they got me coming back next week for another fundraiser That's not going to happen. Do you WanNa have dinner right. And so it was a political friendship for John at that point and Lisa my wife now wife and I were very involved in his two thousand campaign I got an introduction to politics when you lose so after John Lost. Many folks who were his visible supporters moved onto President Bush's team. I just stayed with John. I mean I met him. I admired him and we build a friendship through the years in. Oh Eight After he won New Hampshire I was asked would I take a year off from Capitol and travel with him for that year And so often is the is on the airplane with him seven days a week right often. Is the first guy to seem that In the morning last guy to see midnight him. And it was a bonding adventure It was a great experience. I wouldn't trade for anything In John's just became a very close friend. Right right and your role was senior advisor to the campaign. They gave me title of senior adviser. But you know. What does that entail? What would what does it mean somedays? I did economic policy some days Iran got starbucks. You know you you do everything particularly if you know the candidate well And what you're trying to do is be as helpful to him that days. He can write and you can help sort of translate what's going on in the markets are business road. Those were turbulent months. You can sorta make sure that that day. We've got some levity in the in on the plane and we're having fun doing something just Running for president. Awfully hard in whichever you can do to make it easier for the guy yet. Do Right or gal guy or Gal right and obviously in two thousand eight. We were in some very difficult. Financial Times right in the middle of the financial crisis. Did you discuss with him? Oh Yeah No. We ain't going to happen. Yeah I I mean we had some long discussions We certainly broaden many many people that were helpful in trying to Provide John some insight right and you know I would sure. Help facilitate those discussions. But you know we didn't win And John as you said just passed but I thought the outpouring for this nation was a great recognition for his role his service in the fact that he really is a guide star in terms of how he approached public service. Well that's another best of capital ideas in the tank. Thanks for listening. I hope you enjoyed reliving these memorable moments as much as I did. Can we make a deal? We'll get back to work making new podcast memories. You keep right on listening and we'll all get together and do this again before you know it. We're always trying to get better. So if you have any feedback including topics you'd like to see addressed in future episodes. Shoot US an email to capitol ideas at Cap Group. Dot Com for capital ideas. This is Matt Miller reminding you that the most valuable asset is a long term perspective. Investors should carefully consider investment objectives risks charges and expenses. 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Don't Make Fear-Based Decisions When Investing (Hour 3)

The Dave Ramsey Show

40:50 min | 1 year ago

Don't Make Fear-Based Decisions When Investing (Hour 3)

"Yeah live from the headquarters of Ramsey solutions. It shouldn't broadcasting from the dollar car rental studios. That's the Dave Ramsey show were dad is dumb. Cash is king the paid off home mortgage has taken the place of the BMW as the status symbol of choice. I'm Dave Ramsey your host. Thank you for joining US America. We are so glad you you are here. The phone number is triple eight eight to five five to five. That's triple eight eight. Two five five two to five Julianne starts off this hour in California. Hi Julianne how are you. I'm good trying to live the dream. How can I help well? I got an investment broker and I invested two hundred and fifty two thousand into American funds and I just keep hearing that the stock market is going to be volatile next year. I was wondering if I should keep it in there and take it out. Did you invest it for one year or for twenty years for until I was I'm fifty two you and I we invested it until I'm sixty five so wanting to but you're not gonna even take it out. All when you're sixty five you would just take an income off of it okay and so you're going to you're you're. You're investing for fifteen or twenty years right thirty years forty forty years whatever yeah it's not for five years for one year okay and on based on that then you you found out that the stock market was is predicted to be volatile next year yeah shocking you can buy stock market's always volatile. Well wouldn't win your investment broker since you the letter of since everybody is saying that you know it's Kim predicted that it's going to be extremely volatile almost one of the most that they've seen had it scares me okay well. You ought to call a guy and ask him if he's suggesting thing to pull money out of the stock market because he believes his too volatile if he is suggesting that he should have never put you into tap a typical mutual fund and you need a new broker eleven wasn't it was in the Forbes five hundred magazine and then they just the brokerage just sent out the articles who do all of that I know. Why did he send you article to scare the crap out of you know? I don't know I don't either. I'm worried about this because let me tell you. Let me tell you what I'm doing England. My Mutual Fund investments next year. That's nothing nothing and you know how often I read. Forbes never yeah it's a journalism student with student loan debt that wrote that article. It's not an investment analyst or an economist and even if it is a supposedly economist economists are like weather forecasters. They're the only people can be wrong most of the time. It's still keep their job which let me tell you what I know about the American economy. I'm fifty a fifty nine years old and think of it Anita remember how old I am and so I'm I'm old older new all right. Here's what I know about the American economy it goes up and it goes down but overall investing into American businesses made people wealthy and so I- invest in mutual funds with the mindset that I'm going to leave it there for a very long time and no one gets hurt on a roller coaster except those that jump off in the middle of the ride yeah and I'd be jumping wouldn't they be jumping based on in a room or from a journalism student with student loan debt that writes for Forbes and isn't a real expert so the difference in me is I'm not any smarter. The only thing I know is I don't look at the short term. Play I always look at the long-term play and you know a group of stocks in the American funds. Which American American Fund are you in well? It's American balanced funds American high income of America okay. You're in very conservative. You've type mutual funds then and so you got some bonds. You've got some some large cap stocks. which is your high income idea there? Okay okay now. What that means is? You're asking yourself are companies like General Motors. McDonald's Dell Microsoft twenty years from I'm now going to as a group in general p big companies like that twenty years from now. Are they going to be worth more or less more if they're not it'd be the first time in the history of the United States right that they're not worth more twenty years later regardless of what next year does so if the journalism student for Forbes's right and next year's bad whoopie. I'm not taking it out next year anyway. That's just part of the roller coaster ride. I'm betting on a twenty year bet. I'm not betting on a twelve month bat right and I think you may need a new broker a new adviser someone that didn't send in crap in the mail to scare you. I don't know what he's trying to do with trying to turn your account or whether he's just a panic anik person himself boy was careful with that okay so yeah you just need to you need to you need to have people on your corner that Talk You off the ledge not talk you onto the ledge when it comes to long-term investing. That's what I do personally. It's what I do. It's what our smartvestor pros will do. You're not working the smartvestor pros doing that if he's trying to scare you into short-term investing in a long term investment because the mutual funds that you're in are Uber Conservative if you go back and look go pull all charts up online on all three of those counts all three of those funds and see how many times in the last thirty years how many times they've lost money out of a given year out of twenty five year span. You'RE GONNA find less than five times. They've Lost Money Twenty Times. They made money five times. They lost money and what's the net result over twenty five years. They made a bunch of money for twenty five years ago today way freaking up and that's that's what you're betting on. 'cause you're only fifty to twenty years from day. You'll be seventy two twenty five years. You're seventy seven and your still be eating office. Nest Egg says money will still will be invested US pulling some of the income off of it and so that's the com- Tom Horizon you've got in the funder or not volatile funds matter of fact they should have a Beta a volatility less than the overall market with Avenger describe to me so go back and look at the track records on them and say how many times I lost twenty five five years of they lost money. And how much more are they worth now than they were twenty five years ago and I think you'll find that it's very very calm very calm. American funds has a classical fund fidelity has Magellan. It's the big dog right. Fidelity Magellan is a classic known Mutual Fund. You can go look at it. It's interesting to read the history on it. It's a huge mammoth fund. American funds has one of the oldest funds out there. It's almost eighty years old called IC- a investment company of America and you can go pull that one up on the Internet. I'm not recommending funds but it's just an interesting study ready for all of us who get scared by these idiots in the news I mean these reporters in the news and so you look at the sea and go over almost eighty years. Here's how many times does it actually lost money. And how much more is it worth today than it was eighty years ago. That's pretty strong track record and yeah just kind of gives you a feel for what the stock market's about on the long plane you should never be invested in mutual funds on a short flight ever under any circumstances. This is the Dave Ramsey show years ago. I became obsessed with my Scottish heritage. I want to discover a story so that I could pass acid onto my kids and my grandkids thanks to ancestry. I did ancestor. DNA gives you so much more than just the places you're from ancestry connects you to the places is in the world where your story started using precise geographic detail and clear cut historical insights pass your story on go to ancestry DOT COM. Tom Slash Dave today for twenty percent off your ancestry. DNA Kit that's ancestry dot com slash Dave for twenty percent off your ancestry. DNA KIT ANCESTRY ANCESTRY DOT com slash Dave. Thank you for joining US America. We're glad you're with us. This is common sense for your dollars cents. Only we've figured out like you have the common sense and Benjamin Franklin said this is not so common anymore. It was a matter of fact there's ten million of you tuning in on radio and another seven million. Oh you love you tuning in on podcast today. Thank you for hanging out with us. You've made us the top one percent of Youtube broadcasters in the world thank you we appreciate you hanging out with us and it's really simple formula round here. We figured out that our mission is to help you and if we can help you with your life. The Ken Coleman Show can help you with your career. Chris Hogan can help you become coming every day. Millionaire Anthony Oneal can help you get a debt free degree. Rachel Cruze can help you make sure you got your every dollar. Budget dialed in an old Davis here to tell you the truth about whatever it is you ask him yeah. It's your but out of that Christie writes their Christie's right there right is there to walk with the ladies especially those that are willing to start and operate at their our own businesses and we're here to help you a whole team of people here at Ramsey solutions. We got your back. We got your six. We're here for you do and it's worked out pretty well for us and we're glad you're there open phones at triple eight eight. Two five five two two five Sean is with in Illinois. Hey Sean welcome to the Dave Ramsey show. Hi Dave thank you for taking my call sure I don't call him because last year I I took out a loan against Marzel One K. of my old job so my daughter for her to get her senior year in college and I I took out sixteen thousand ended up paying off two thousand but I ended up getting another job and then pay the balance now nervous about that because they said it will go tossed my income with a penalty yeah so you have the ability to borrow. Do you have the ability to borrow twelve fourteen thousand dollars. No you can't go the bank and borough fourteen thousand dollars probably do but I'm I'm already ready set that Mojo. You're already dad yeah fourteen thousand right now and what they're getting ready to do right now is they're getting ready to charge you six thirty dollars in penalties and taxes for the screw up if you don't go get a loan and pay it off with that loan and then you're not GonNa get charged six thousand dollars as for the screw up you get charged a ten percent penalty pleasure tax rate for not repaying a 401k loan within sixty days as of leaving your company. This is why we tell people to never borrow on their 401K's launch so if I were go borrow fourteen thousand dollars at the Credit Union that's GonNa save you about six grand. Now you still owe fourteen fourteen now otherwise otherwise you're about to turn fourteen eighteen into eight and that eight is GonNa get you know your 401k's. I assume is why there's more than that in your 401k so they're I'm just GONNA cash out enough out of your 401k and pay this loan office what they're gonNA do they still have my 401k getting ready to take the money out of that and pay this loan off and and charge you the penalties Okay Charlie works so yeah what I would do is borrow the fourteen thousand repay that to the bank and roll your 401k out of there into an into an IRA and that will save you six thousand dollars otherwise they're going to cash enough out of your 401k to pay off the fourteen thousand dollar loan and pay. Hey the penalties and taxes so they're gonNA take about twenty grand out of your 401k. That's what they're GONNA do to pay fourteen thousand so this turned into into a fifty five percent interest rate or something by the time we're done here yeah. It's a bad plan. I'm sorry Kiddo. I wish you hadn't done that but the cy you get out of it. You know you just gotTa Roller Sleeves and clean up the mess. We've all done stupid stuff on e. R. At Emily's with US in North Carolina Hi Emily how are you hi good Dave. How are you deserve? What's up so we're Newark Two following you so thank you for all the information but we're working on baby? Step two paying off some debt and it's in the in the form of a family alone we should have that paid off in January but we also have payment on a truck on on that we bought in two thousand seventeen and that truck sits in our driveway. My husband gets a take home car for work and so we're just paying on a truck that just sits there in the driveway and so we're we obviously feel like we need to sell it but we're like crunching the numbers trying to figure out if it's worth it we owe eleven thousand on it and and we're feeling like my husband feels like we could maybe get like twenty thousand four it but that's just kind of a guesstimate and we need a car for him end because when he's off on he needs to be able to get around so let's let's play your ten. Let's play pretend for a second you go to Kelley Blue Book K B B Hum Dot Com and you look at private sale on the struck with the attributes the extras the add on's of the truck has has in the mileage that the truck has the actual right you put it in and whatever you think the condition is making one worse and if and if that is twenty twenty thousand dollars when that up that you can sell your truck for and you only eleven sell it okay. I'm by a car out of the nine thousand dollars right and that's pretty possible right. I'm sorry it's pretty possible to buy nine nine thousand dollar car for cash. I'm not a car person name. Okay okay but it's it is very very possible all right down to two thousand and we won't have to worry about like maintenance and stuff but I mean in all the way we don't have to worry about maintenance. It doesn't get driven except once on the weekends to make sure it's still starts right. It's not a bit you know. 'cause what what you've got is. You've got something sitting in the driveway. That's eating insurance and tags and you know you gotta keep it up for environmental garbage and all that stuff hand and it's going down in value it sits there in the driveway yeah exactly so you're about to turn a twenty thousand dollar truck into a nine thousand dollars or eight thousand out of truck just while it sits there in the driveway it's go down in value or you put a five or seven seven thousand dollars truck in the driveway and it's going to go down in value too but not as much because it's cheaper and it doesn't cost as much put tags aren't because cheaper and most states most of them done based on value and it doesn't cost how should much to insurance insure it because it's lower value half the value of the insurance cost. You're just coming out around here. Yeah this is just so smart years or so so smart. How smart yards unbelievable now you gotta do this all right Daniels this Daniels in Texas? Hey Daniel how are you. I'm hot dave. I'm moving and Sun the sun. I'M GONNA move North Yeah. I'm I'm thinking about it. How can I well question for you? Today is is actually from my fiance. he works for a big time real estate agent doing all the contracts for or her and she's moving on and she's going to start our own business doing just being a contract coordinator on her own cool and we got to talking last night and she has a lot of anxiety and frankly she's scared to do it and and where she has a very impressive resume with her stats on how much you know her her history and how many dollars she's done and transactions. She's she's done. She's still very very very nervous to to take the leap and so I'm just wondering from Y'all from the ranger group will she needs to go to business boutique man. I'll give her a couple couple. Tickets at daughter bring a friend weather Kristie Rights Doing Business Boutique in November and I'm GonNa send you a copy of Christie's book for as well the best selling book equipping women to make money doing what they love and that's what this is in half of it is overcoming fear for all of us. Even ladies hold on Madison. I'll pick up. We'll get you a couple of tickets to the business boutique event in November still a few up and we'll get you a copy of the book. This is the Dave Ramsey show raisins study showed that over fifty percent of people think that the cost of term life insurance durance is triple what it actually costs. This must be why so many people still don't take care of this crucial responsibility trust me term life rates are just is plain cheap and it costs nothing to get a quote. The only place I trust and personal use Zander insurance call eight hundred three five six forty two eighty two or visit is ZANDER DOT com. It's more affordable than you think and you need to get this done. That's ZANDER DOT com in the lobby of Ramsey solutions on debt free. Stay Orlando and Emma our weather's. Hey guys how are you it'd be great. Welcome welcome. Where do you guys live Houston Texas? Welcome to Nash Bell and all the way up here to do debt free scream. I love it how much that'd be paid off so we paid off one hundred sixty eight thousand nine hundred and ninety three dollars. Oh love it way to go man and how long did this take twenty eight months good job and your range of income during that time started at a hundred and fifty three hundred and fifty and then we got up to about two hundred and forty wow what do you guys do for a living. I I am a lawyer made public defender for Harris County which is in Houston and I'm a business development manager at a food service marketing company very cool very cool. Also how does your income go up a hundred grand and twenty eight months so we were both blessed with new jobs shortly. After we started financial peace there you go and my job up came the opportunity for overtime and then towards the end of the process the beginning of this year. I picked up a job waiting tables as well for about four months. WHOA you you make a quarter million dollars a year and you're waiting tables Ding? Dang look at you man get after it. I love it. What kind of debt was one hundred sixty nine thousand so about one hundred I'm forty of it was student loans thanks to the attorney and then I had an MBA in there as well so I'm not GonNa okay come on that? She contributed to that and we also had one vehicle twenty grand and then we had eight grand credit cards so you're kind of normal. It's normal normal plus. Let's remind attorney. NBA Right yeah but yeah very cool shallow. You guys been married five years. We haven't celebrating anniversaries since being in this process. Okay lost count is five years okay very good so about halfway through your marriage though twenty eight months ago you know a couple years. There's into your marriage anyway you look up and you go. We're going to have to do something different. What happened what was the catalyst that spurred this along yes so you actually came to our church second baptists and you got up there and you pitched? FPU In part of that was your illustrating borrower being slave commend the lender with the chain and we went home. I was a little skeptical at first. I figured I'd always be paying off my student loans since mine was about ninety grant and but we realized that we had to do something about it we had our daughter who was is about to be one and you know I said we we can't be paying these student loans in pain her college at the same time we decided decided take. FPU Very cool so you went through the clash and that reset some things from the NBA draining resent the idea the lawyers always gonna be in debt right and you you decide get after it yeah we did in that part of that training was I got real. Indepth analysis on spreadsheets guys looked at the numbers we sat down and at first we looked at it was it's GonNa take about six years but then we started looking at you know cutting back in the areas. We got the everydollar APP. Hey look at all our money's go before it was spreadsheets and it was more of an expense expense report at the end of the month instead of budget ooh that's a good distinction and we started doing it right. We started budgeting sticking to it. our food going out was about eight hundred ars a month. We said we got a real that we got a few months in that where we had zero dollars restaurants because we were that serious very good very cool so you payoff a hundred and sixty nine thousand dollars older you too. I just turned thirty one. Wow and I'm thirty three wow. I'm I'm sorry I just turned thirty to thirty two. Wow you'd be allowed to me this whole time. She's thirty times. Remember the anniversary back off the way to go. You Guys WanNa go. How does it feel to get rid of one hundred and sixty nine thousand dollars in debt very freeing very you know go into the process? There was some times where it was. It was hard. We were like man. This is missing out on a lot of things with friends. We said no a lot got to this process. During this process it's not going to birthday parties not going out going on vacations with our family and stuff like that but you know we we we we we got in those ruts it was there's a goal and we know that when we're done with that it's going to be so freeing and we are at that point now too where we don't have to worry about owing money to anybody else yeah very comfortable. Obviously we have future goals but it's a very comfortable place to be knowing that we're doing what we can. you know securitywise outs yeah. You've set up a whole different thing changed your family tree. So what do you tell people. The key to getting out of debt is for me. I it was just remembering. Why why we're doing this? What is the benefit What am I trying to accomplish by becoming debt free that was not an end of itself? It was a means to an end to show Oh that absolutely and so just remembering that daily and having a reminder that you look at daily of Your Y and also your progress progress and so we had these charts on refrigerator and also a Bible verse that just reminded us the reason why I wanna be debt free and that's we're called to live in freedom so we can love one another for me. It was again it was originally originally I because we follow you. It was like Oh we're going to be millionaires after we do this right so originally it was that but then it changed to the giving component being able to help change other people's lives whether it's helping friends in need or through the church or whatever it is and that in itself is so much more fun I think is being able to give to folks. Actually what's GONNA end up happening. Is You're going to both the you're going to be outrageously generous and you'll be everyday millionaires because the process is unfolding right in front of me. I'm looking at it. Well well. Do you guys thank you very well or your biggest cheerleaders and they're actually here but it was each of our parents. Everybody came party in Nashville a shrill I love it and refund and we also had a lot of friends who were very supportive. understood why we were saying no they didn't push us to do certain the things that we said no to so that was a great encouragement and also some of my co workers who I was always at work doing overtime and they would just keep encouraging encouraging me and ask him about my progress actually did about one hundred shifts of overtime last year. They were asking her if she was okay and they had to tell them to go home sometimes because I worried about about her but again like I said it was knowing what the end goal was. They're not afraid of hard work. No I love it very cool and you brought the Kiddos with you to celebrate to one other names and ages. We have come me La. She is three and then we have junior and he is one. He's about to be to have the third on the way wins number three do in December so all right very good family very pretty love it well that right. There is a good why I'm looking at them. You guys are beautiful beautiful. People thank you so much for sharing your story with us very very very well all right it's Relondo and Emma aw one hundred sixty nine thousand dollars paid off in twenty eight months Megan one hundred fifty two to forty counted down. Let's Surro- debt free scream three two weird love it. That's fine are debt free screams today. All of them were very very serious three hundred eight thousand one hundred and eighty three thousand nine hundred sixty nine thousand all done and in five years and three years two and a half years and all increase their income during the time that they were getting out of debt and and all had a transformational spiritual experience while they were doing it were they learned that they did not need as much as society told the told them they needed to live the good life. We all know this somewhere in the back of our mind signed that we all spend ridiculous amounts of money to buy things that we don't even really like to to impress people we don't even really like and then we get into debt. We have to get the mess cleaned up and how you clean the mess up you reverse the process. You cut the freaking spending with acting like you're in Congress. You're not it's time to get control and then you get to be one of these heroes like that couple. They're heroes changed their lives that has changed their family. Tree and people like them are changing changing America. This is the Dave Ramsey show our the scripture of the day the second chronicles seven fourteen that my people who are called by my name will humble themselves and pray and seek my face and turn from in their wicked ways then I will hear from heaven and I will forgive their sin and will heal their Land Andrew Murray says pride must die in you or nothing of heaven can live in you. That's a good one financial peace. University is our nine week class that now over six million people have been through. It's no longer a question of if it works. The only question is are you going to do the stuff that that we teach in there. You're going to bother to learn the stuff that we teach and then actually do it. The typical person that goes through the class pays off fifty three hundred dollars in debt and saves twenty seven nine hundred dollars. That's a eight thousand dollar change in just the first ninety days on a budget they learn to work with their spouse. Elsa start thinking about how to invest for retirement when they do get out of debt. They're in a community of people in a small group discussing winning with money instead the hanging out with their broke friends or things off just by that. You're always gonNA have a payment. If you hang around with losers you know what Zhu become right loser you become who you hang around with so sometimes you need to set your peer group up to cause a change Johny different than that right there so financial peace university. There's about ten thousand classes available for you to join right now and and you can even do the digital online version if you want just go to Daveramsey DOT COM or call us at triple eight twenty two peace when you buy our overall membership you get financial peace university free you get the smart money smart kids class. Ask Free you get the connectivity with everydollar to your bank free. We run our live events streamed to members free free. I mean you get a bazillion dollars worth of stuff as a part of your membership and the way you start your membership is in the clash and we're going to you know walk with you. As long as you let us walk with walk with you all the way into everyday millionaire status and coach you every step of way along the way and you'll be communities of people plugged in that are doing exactly the same thing financial peace university. Check it out at Daveramsey DOT com. Tim is in Montana Hi tim welcome to the Dave Ramsey. Show thank you hi Dave. Hey what's up so and of course my wife and I have just recently made some life transitions who are and what the position we're we're in right now as I have about ten thousand and twenty one thousand dollars in debt twelve thousand of that is some student loans from completing two masters degrees and then I have nine thousand in industry credit card right now that expires Nick September so I got twelve months to get rid of that before I accrue any interest or penalties anything like that so it started to look at your strategy and and my question is some ten thousand dollars and in just sitting there and savings. It's a cash right now and I'm wondering don't throw it all at the loan but you know what do I do and I and the Hiccup for Burmese reason I'm not just doing that is because my new career that I've changed from a nonprofit industry to four profit to make a little more earnings I'm in sales and so the last since April when I started has been very good but I don't know what the next you know I mean there's always a question mark for me and so just a a little nervous about depleting too much okay not in terms of calm the fact that you're on a commission but in terms of the actual logical the facts of what you're selling. Is there a real reason to expect your income to go backwards. No Okay so you don't sell a seasonal product. You don't sell a product that you've just gotten lucky for ninety days or its structural integrity of homes. It was a were I'm a construction company. That does non cosmetic stuff where structural integrity so your foundation assailing we fix it so you don't lose your investment your help Gotcha Okay and you're selling your selling the the work you're going in and giving an estimate on and closing the clothes in the in the team comes in and does the work correct yeah yeah. I don't see any reason. Is there any reason to think that it would go backward. I can't hear any I think so no in that case I you know here's automatically were only alternately. We are all on straight commission. You people that are on salary. Don't think you're on commission tra- not going to work for a while she if they keep sending your money okay you work. You get paid. You don't work you don't get paid. That's straight commission right and A. and so we all ultimately straight commission so the only difference here is is that it's you know you went from stable low paying job to a less predictable high paying job right yeah okay for the most part yeah so. Does your wife work outside the home. She's not she's home with three kids. Gotcha cool all right well. What we teach in your environment then is that it is scary and we understand and that but we want a we have found that people would go completely laser focused on the debt and we start with one thousand dollars only an account any amount that you have above that that is not in a retirement account any investments you have that are not in a retirement account liquidated pay off debt and you pay off all your debts smallest to largest so you have twenty thousand dollars in debt ten thousand dollars in income our ten thousand savings nine thousand of that's available because we're going to be one thousand thousand sitting there and we're gonNA knock out the smallest nine thousand dollars worth of debts immediately It sounds like that's a car in this no pace the nine thousand dollars secretary job. We had to move cross country so no no no no. What is your small bats? I have nine thousand dollars on a on a credit card but it was you know an interest free credit card credit card and you had a student loans you just loans student loans at varying different percentages of all increased and I was wondering if I should pay off some of those yeah so it gets a little a complicated pay off some of the higher interest loan no just less than less than smallest balanced two largest and it's not a category as an actual loan and so a bunch of those six six are GonNa be gone with this nine thousand dollars. It's available and then you're going to get to the credit card because he what's your household income when you making. I what what else have been doing this for since April. This is September. What do you make an I should right around fifty five okay thousand this year okay? We need eleven thousand dollars by September in a year. It's thousand dollars a month. You're GonNa do that or your lame. You're hundred percent debt free before this time next year. Follow me at that sounds Nice. I I mean you got. You Got Twenty thousand dollars in debt. You have nine thousand dollars in savings that we're going to use that leaves eleven thousand dollars one thousand dollars a month for eleven months makes you debt free doesn't it it correct that man. You better do more than that. I mean you need to cut your budget. You need to get on a budget got it more than that. I'd really like free be debt free Bob Baton and that means no vacations and no you don't see the inside of a restaurant unless you're working there. Is your extra job so you shelf so much stuff. The kids think they're next and so on we're gonNA live on scorched earth here baby and you'll knock this thing out. That's the program we teach and the reason we keep keep teaching is is it keeps working. It's funny you can wander into debt but it's really tough to wander out you. GotTa lay your ears back and get after it man you. You got skied them. You gotta go for it. That's how you get out of debt and you can do this. You call me back if you need more help. I'm here for you man. I trust you I believe in you. I'm proud of you. You can do it that puts this hour of the Dave Ramsey show in the bucks. We'll be back with you before you know it. In the meantime remember there's ultimately the only one way to financial peace and that's to walk daily with the Prince of Peace Christ Jesus Hey it's Kelly associate producer and phone screener for the Dave Ramsey show. If you would like to be your debt free scream live on the show sure you visit Daveramsey dot com slash show in registered we would love for you to come to Nashville and tell your story. Money isn't the only thing we talk about around here. Get life changing advice on your career for my good friend and career expert Ken Kalman all my Ken Coleman show according to a recent Gallup poll nearly seventy percent of Americans are disengaged at work if you dread going into work every the Monday morning and you're just trying to make it to the weekend. The Ken Coleman Show is for you. Everyone has a sweet spot. Your sweet spot is at the intersection of your greatest talent in greatest passion. We will help you discover what it is you were born to do and then we'll help you create a plan to make your dream job a reality you matter sadder and you have what it takes. Join the conversation on the Ken Coleman show hear more from the Ramsey network including the Ken Coleman. Show where ever you listen podcast. Hey James producer of the Dave Ramsey show this episode is over but check the episode

Dave Ramsey US America Ramsey solutions Ken Coleman Forbes Mutual Fund Nashville BMW Christie Julianne investment analyst Kim Anita England General Motors NBA
As Seltzer Sales Explode, Leader LaCroix Slayed by Scandals

Business Wars Daily

05:28 min | 2 years ago

As Seltzer Sales Explode, Leader LaCroix Slayed by Scandals

"This episode of business wars daily is brought to you by sent pro online from pitney bowes shipping and mailing from your desk is never been simpler than with sent pro online from pitney leabeau's. Try it free for thirty days and get a free ten pounds scale when you visit p._b._a. Dot com slash b w daily they uh from wondering i'm david brown and this is business words daily on this tuesday august sixth the market for seltzer answer has never been bubbler so does suffering from its obesity causing reputation so much so that many dieters feel that giving into a single can as a slip of i say overeaters anonymous proportions so does dangerous reputation has been carefully cultivated by public health experts alarmed at the ballooning size of america's because kids at the same time many of us became concerned about the chemicals in diet soda leaving many wondering where to turn for fizzy fix well where else but to carbonated low or zero calorie water seltzer is now so trendy that the new york times dubbed it the drink of summer twenty eighteen nineteen so you'd think that market leader lacroix would be enjoying our new found mania not so the fizz has suddenly gone flat for the thirty year old company as a host of competitors rise to the top. If you're not familiar with lacroix you may have seen it's lemon lime and grapefruit flavored beverages in the grocery store in encasing cans almost neon in color just a year ago new york magazine reported that with thirty percent of the two billion dollar market. There's little doubt that lacroix has won on the seltzer wars now. Wait a minute not so fast since then one scandal after another has plagued national beverage corporation the brands owner i it's eighty-three-year-old c._e._o. Was accused of sexual assault. He denied the allegations then last october. A consumer filed a class action suit against lacroix claiming blaming its natural ingredients are natural at all and that the seltzer contained some chemicals that are also used in get this cockroach poison lacroix of course i in is these allegations to for the record the scary ingredient called lines'll is a common when found in sixty three different spices popular or science magazine debunks not just the claims about linda lual but the rest of the lawsuit is well but still the damage was done and lacroix's headaches worsened person in june of former employees filed another lawsuit alleging lacroix had intended to claim its cans were b._p._a. Free before they actually were and that he was fired for protesting the plans. The bad press has been so toxic that an investment analyst recently described lacroix's trajectory going from from bad to worse to disastrous in the meantime a little massachusetts company called spin drift after the mist created by waves and the wind he is gaining traction funded by venture capitalists spin drift uses no artificial or even so-called natural ingredients instead it squeezes actual actual fruit into it seltzer and purposely displays whatever calories the fruit ads from three calories for lemon to seventeen for grapefruit claiming those calories orissa's part of its marketing plan which stresses how real the beverage is chemicals have no calories but fruit does although tiny in comparison to lacroix oy spin drift is zooming ahead according to the new york times it predicts revenues of one hundred million dollars within a year up from only thirty three million in two thousand seventeen gene why because it has tapped into our growing obsession with clean eating and drinking reports aptly named vox writer rachel sugar sugar <unk> went so far as to call the spin drift nutrition label a twelve ounce raspberry lime flavored reflection of our changing values. Well in one form or or another seltzer has been around for centuries. Its popularity has attracted so many rivals. The market is overcrowded which means someone maybe lacroix you will soon. Have all of its bubbles burst brahmachari. This is business wars halos. Do us a favor and tell us more about yourself. Just visit wondering dot com slash surp- we appreciate we really do. I'm david brown back with you tomorrow. This episode is brought to you by central online online from pitney bowes shipping and mailing from your desk has never been simpler than with sunpro online from pitney bowes with simple online is just click send spend and save for as low as four dollars ninety nine cents. That's right four dollars. Ninety nine cents a month. Send envelopes flats and packages right right from your p._c. And you were back to business in no time. Try for free for thirty days and get a free ten pounds scale but only when you visit p._b. Dot com slash b w daily that's p._b. Dot com slash b w daily.

lacroix pitney bowes new york times david brown pitney leabeau national beverage corporation new york magazine obesity assault america massachusetts headaches investment analyst rachel sugar linda lual science magazine writer four dollars
TSP078 - New Year, New Self: I resolve.

The Sill - Perspectives on Art

28:02 min | 2 years ago

TSP078 - New Year, New Self: I resolve.

"I don't see any sort of sense of things are not quite right in the world. Where can I speak about that? How can I create something that will address that? I don't get that sense in. Maybe it's because we're too affluent. Don't you get the feeling that something has to crack not because you wanted to crack or because you want bad things to happen. But because we've become too complacent. Absolutely. We sit here waiting oboe that will they? You're listening to the podcast perspectives on art and technology with Peter Noce, and Harry pose ner. Episode seventy eight new year new self I resolve. Being. You must understand the whole of life. Not just one little part of it. That is why you must greed that is why you must look at the skies. That is why you must sing and dance and write poems and suffer and understand for all that as life. Well, that's the end of the podcast books. That's all we wanted to say today. No. But seriously, it's a great quote from a wise spiritual teacher who passed away around nineteen ninety name was Jiddu Krishnamurti. Right. And he was discovered by the fists and groom to be the world teacher, but he took his own path. He became his own self and jettison, the whole idea of being guru or a world teacher anything like that and proceeded for the next sixty years to spread the same message, which is basically you are your own guru. It's up to you to learn to be and to understand what it means to be alive in the world. No guru can do it for your no priest. No system north authority NADA. Mike myers. Really understood that Mike Myers. I'm curious now, what did Mike say that the movie guru? Oh, that's the love guru. This is the first podcast of the new year. So were bit lighthearted about it. And we're looking kind of a head, but not so much specifically to try to predict what the future will bring just that. We know the future will bring they changes as it always does the next year. Bring changes in politics in economics, in culture, all kinds of things are going to go down, which are large movements where individuals were little selves in a big giant maelstrom of change energy. And these large movements of energy cannot help but affect who we are as individuals and how we see the world. So this podcast. We're going to talk about what it is that you need to do to find your true self in the midst of all of these changes that are going to come at us. So for example, you deal in technology big time, right? And one of the biggest influences on our lives around the world will continue to be technology can only grow. So the question is how can we as individual people as selves as persons kind of withstand that onslaught keep our humanity intact and grow into who he really are individuals in terms of how you begin change change has come at the individual level. That's my belief and soul the changing of self is instrumental to begin to deal with these changes. So first thing you have to do is you have to have knowledge that you have some position in that. And that you also have some power in that despite your infinitesimal size to the big picture. Yeah. But how do you sort of fight against the usual impulse to kind of cocoon yourself? Offend yourself and stay the same even more in the face of these things into not change because change is danger change is uncertain. Sure. Well, for me, the first thing I would try to do is not take a defensive posture. I would look at myself as being part of the change that I want to occur. So the change you want to be I guess point a cliche phrase. So I look at it as yes, you can look at it as an onslaught which in itself, the word onslaught already puts you kind of on a defensive in the sense that you're already -ticipant this avalanche. As opposed to just accepting that something is coming. And then asking yourself what you can do for yourself in order to be able to better deal with that. And then that ripples out my attitude toward it would not be I'm in the inferior position. And they're attacking me there for got a defend because if you do that. It right away your whole viewpoint and at a to changes because you respond differently. When you're retreating zone for me. It's more. It's more of a let's get in sync with what's happening. So the first thing is acknowledged that it's there and don't deny that these things are actually happening, which sometimes people do then for me is about educating yourself as much as you can and feeling good about yourself because it's very very difficult to make decisions. Right. That are constructive. When you're a running scared, be feeling overwhelmed. And so on I'm not saying that I have the answer. Or I know what the answer is to that. I'm just talking in terms of how I wanna position myself to begin dealing with it. Well, let's an interesting approach it safe in the sense that a to educate myself, I'm gonna prepare myself. I'm not going to treat it as some overwhelming thing and cut a gradually absorb in work with the change in be my own self in the process, and then there are other. Ways of approaching that too. Which is that to make a real change? You take a risk. Smoked dope on a podcast. I was Joe Rogan's podcast these tweeting. Som. Angry comments about the media cetera. He had to step down or he chose to step down under pressure as CEO. But here's a guy who remains true to himself by taking risks by putting himself out there and risking the fire that could command them from society, and he has gotten heavy criticism in last year or so right? But what do you notice those common denominator for a lot of these so-called risk-takers, generally, they feel fairly certain about their position. They're pretty passionate about what they do. They're convinced. Yeah. From the average person's perspective, it's highly risky because they may not share their belief system. And so they'd be primarily concerned with the response of society at large the on acceptance that this like, whereas I think individuals like along musk and again, I'm speculating because I don't know him. I'm not in his head. But I suspect that part of it is driven by his passion and his belief. Yeah. Like a Steve Jobs or on Einstein. We could name any number of people people who really believe based on their experience on what they're learning. It doesn't necessarily mean that they're right all the time. No part of taking a risk that you could be terribly wrong. Exactly. And I would say that. We learn more from our mistakes than we do from our successes is certainly do a lot of people would probably agree with that. You know, who have done a lot of the stuff. They also think of this is a strange example may be, but I think of someone like Mother Teresa. Wherever she is now oven, and how her dedication to this notion of compassion for all human beings dominated her life. And in a sense turned her into a Saint. Yup. And talk about risk every day going into the world of people have cholera and leprosy and all of these horrible illnesses and poverty, putting yourself at risk physically day by day by day because of her compassion see to me, that's a real example of someone true to themselves just who follows their heart who takes chances, and isn't example, as a result of that what you exudes to you in terms of knowing self and the depth of it because in comparison to the average person there's enough things that you mentioned there that would scare them off from even knew what she does. I couldn't go there to her. The opposite would be worse. What will I experience if I don't follow this? Yeah. I think that's what a lot of people. Don't get when they see individuals like this. Yeah. People don't ask themselves that question enough in the face of what we may see in the next year. There may be times when we're called upon as individuals as cultures to stand up and speak out, even though it may be frowned upon and be our true selves in that way. Are they we're going through that right now, I think people who are putting their hopes in governments and institutions to get us out of the current situation that we are in with all populist movement is on I don't think that's going to resolve the problem. I think the problem will be resolved by individuals who will take chances and who will step outside the box because I think that's what it takes. Because you have to understand that the people who are running. Things are also like you. And I only they have more money more power, but they too are driven by their fears. Yeah, sure, we live in a fear driven society. Yeah. And consequently the result of that is that we toll the line we become quote, unquote, well adjusted and here's a great quote by Christian Murdy who said it has no measure of health to be well adjusted to a profoundly six society. Right. That's heavy state another Krishnamurti coat, and it's so appropriate that this whole idea of being well adjusted is looked upon a some ideal. Well, maybe we don't need to be well adjusted maybe we need to be always kind of questioning everything. But even if you go to the wall adjusted who determines the definition of well-adjusted. Well, there's something called, quote, unquote, community standards who invented that. I wonder, but I think community standards, I think if you travelled in different communities, you would get different standard. Goose determining the community standard within those communities. Is it some sort of mystical majority these things voted upon? Well, no, they're not typically, right? I think in any system alternately, the prevailing thought or the prevailing actions tend to dominate and create the standard, sober example out of people would say right now. Well, no way look what we've got happening. No. But you are supporting that in one way or another whether it's by not voting whether it's by while it doesn't affect me, the others will make sure that this works out. You're either involved in it or you're not either way you're making a choice, right risk-takers? Essentially, what they say is that's nice that you have those standards. But guess what what I want to achieve or what I think it can't be guided by those standards because it doesn't work his it. Other example, of of someone who was to self back in the nineteen eighties. When I knew him. Seamless credit kalani he's passed away. Now, and he was a writer who was formerly an investment analyst. He may in somebody and he gave that up because he wanted to live the life of a writer, and he ended up struggling mightily financially, and he ended up selling his books on the street. Young street in Toronto with the sign hanging around his neck saying stuff, like scummy, Canadian literature, and he'd had his book. They're hanging remnants neck and people come up and vise book for two bucks. They did that for good decade on the streets of Toronto summer and winter during ideology would sales just he managed to keep a roof over his head. But not a lot more than that. And he basically got very very crushingly towards the end and have had a hate on for the people who pass by and wouldn't even wouldn't even acknowledge that this man was on the street with literature in his hand. And. Etc. Anyway, not always right? It's not always glory and success that comes with being your true self. But he did what he had to do. Another individual. I would cite as being so untrue to themselves in very wonderful way. Who's Terence McKenna passed away in nineteen ninety nine? We have a clip of him actually was part of this podcast. Bucks locks. So what's your story? Global society is coming into being a global society made out of information that was not intended to be hours, but which is ours through the mistaken invention and distribution of small computers. The printing press all of this stuff information is power and information has been spilled by the clumsy handling of cybernetic revolution by the dominator coacher in. So that it is everywhere. Never has the situation been more fluid. Never have the opportunities for infiltration insurrection and hell raising thin more present at hand. But we have to seize the opportunity if we continue as we have been we're doom and the judgment of some higher power. Power on that will be thing. Didn't even struggle. Bucks. Okay. So here's another example. I saw a friend today before coming here. And I said, what do you think's going to be the big technological deal in the new year coming when this new year, and he said five G, it's the five joyless wireless where there's going to be small satellites towers dotting the landscape all over the place. So that everything will be connected, and there's never a time when you'll be out of service range at cetera et cetera. And he was saying that there are studies that show that whatever it has electro-magnetic radiation coming from these things can actually affect one's health. Sure. And so magic now that these things are now dotting the whole landscape of your life. Are you as an individual going to be able to stand up and do anything about this say anything about this? If it's already. They're given to you in your midst. That's tough call. But there are individuals who will know this is going to sound kooky. But they'll run to the mountains. Well, that's where it's going to say that one option is to run away from it. Let me rephrase that run to the mountains like a scared bunny choosing to go to the knock. Eric and funny because knows what he wants because you want to adopt a different way of living. Okay. So you're a bunny that runs away from the problem to live in a different environment. But that doesn't solve the problem. That's right people who are in that. But what do you do when you're faced with a problem that you cannot move or change? You have to do something to me. It's the death of which you feel that matters. Some people will only cross so many lines that go, well, I'll do this. But then my family won't like me. My friends will. Yes, sometimes there is no kind of soft way. It's a commitment. You have to be willing. To accept that. It's not going to be accepted. Okay. So have you got an example safe from your own life experience where that happened part of it? I'm living. I put myself in a situation where cost me a great deal financially to pursue something which I wanted to pursue even to the point where it didn't go over very well with most of the people, I know, but those are the people that have said something, I know there's a lot of people that don't say anything who think. Boy, he he was nuts doing. Well. Not was not you still isn't that? Yeah. It may be. But to me, there's a certain point honest with myself, but there's always the questions because you're facing a lot of resistance and resistance doesn't have to be in your face comes in many different ways, you experience it because when you're trying to do something that only a few people are on board with. It tends to limit the possibilities within the system that we live in. So for example, money is a reality in our society, which if you live in an urban center, and you live in a certain way, it's an assessing. Now, if you choose to get rid of that and go and live in a Caribbean island and build boats on a beach, sell bananas, so bananas and know that you'll never own home or have two cars, whatever. It's doable. Maybe I'm being too vague about a not an easy topic to discuss in in two or three minutes. No. But you have a leap you just gone still taking a leap you still in the leap leap. Yeah. I know I have a lot of things going against it. But I also know that I feel better. I feel like I'm being myself. And therefore, I find myself, I was always a fairly kind person. Anyway, but I'm even kinder now. I even see other points of view with a more open mind Rijkaard's. I know what it takes to some degree to go against the grain. Yeah. In order to make any sort of leap like the one you did and are doing, and I'll give you an example of what I've done in that way too. But in order to do that you have to do something that again going back to Krishnamurti allot here does really tuning into him recently again, but he's talked about how to really be in the world, you need to jettison, the idea of thority, ROY whether it's external thority in the form of priests or politicians or whoever experts so called experts gurus and also your internal thority, which is based upon well my past experience. Says my learned doing this this this in the past that this is how life is that that's an authority to that. You have to jettison that authority. Sure. And before you go on there's one thing. I want to what I was saying first of all I don't think that what I'm doing is that big elite because there's a lot of people to take much larger leaves. Oh, sure. I have to also acknowledge that I live with people who've also in some ways helped make that possible. Even if it's been a tug of war. So my fundamental belief is also that deep down I believe in short term pain for long-term gain. And that's really the way I see this. So the people who are more fearful than I am. They tend to focus more on the short term losses. The immediacy because you feel that right away, especially if you're with a group of friends, or you've had social connections, all your life that have all been in the same line inside somebody's that side of that. There are a lot of changes that occur. But then I always ask myself when I get up in the morning. How do I feel my desirous to continue my day or do? I wanna go back under the covers. If I have been a moment where I wanna go back under the covers I say something is not right here, unless I'm ill or hurting. So that's how I measure. Right simple as that sounds. That's a good way to measure good way to measure, my kind of example of a leap will there several, but one that was kind of the major leap was really in university. When I determined that I probably would not be a career type individual where I would not be in one job sector than the my entire working life and ended up. Up really being a freelancer and going where my heart said goal learning photography and becoming a photographer going into acting and learning about voice and stage presence, and all of that going into film and then studying martial arts and just sort of moving where I felt was important to move to. Now, that's not short term pain, that's long-term pain because I've never actually had money to burn like a lot of people do. However, I will say I've had a similar pattern. Okay. Maybe not in the same field. But similar I've done a lot of different things and continue to a little bit more focused now than I've ever been. But I've had that history too. Yep. But the one thing I will say about what you just expressed. Because again, you brought it back down to money, which is largely how we measure success in our society, not totally but in large measure, you're also willing to have less of things in order. To pursue those things that you described. You've never alluded yourself to believing that doing what you're doing that. You're going to own four thousand square foot home have three cars and traveled three times a year in many ways, you've accepted your lot. Yes. Of course. Right. So that's a very important distinction. I know even people listening to this podcast would probably say well, easy for you say that just do what you want while you're partners or your family members support you or soda soda to that. I would say yes, there's truth to that. But I in turn him going to give them more in ways. They don't even recognize because I'd be miserable. Son of a B which case you'd have other kinds of suffering. Right. So it depends on what the trade off is. Also think that a person who wants to kind of be true to themselves needs to look at the things they take for granted. And that includes Salou how they speak in how they talk language fi tend to say, for example with all due respect. Peter. I think your idiot with all due respect. Madam. I really think that you're fat serve turns of phrase that I may use that are tired or presumptuous really are era. The or whatever to be aware of how I speak in the world. I remember sure the expression killing two birds with one stone. And I kept thinking about going Tessa, violent horrible thought, I use that expression law. Sure. And I change the to feeding to birds with one seed, which basically is the same thing. I have to tell you that what you did mention to words of stone the image. I used to get as a young kid hearing that phrase was the law city of the stone. Okay. Okay. Tomago to Mason, more violent. Yeah. Then you think about it? It doesn't take a lot to consider that goal. You know, what all say that differently? I won't say that expression, I'll do something different Europe. And if you express yourself differently in the world in terms of your language, it reflects back into who you are as being up salute. And you begin to change that way. I would say that even this podcast. We do is a way of retraining your thoughts in terms of the way, we communicate absolutely. The point of speaking out is not the change other people's minds, but to reinforce my own understanding of the way things are into grow through that and to be in the world into engage the world through my expression. Right. Do you not see some of these things happening? You know, what I go to a Starbucks, and I sit in have my coffee and talk to my friend, and I'm watching the people coming in and out of the shop. And I don't see any sort of sense of things are not quite right in the world. Where can I speak about that? How can I create something that will address that? I don't get that sense in. Maybe it's because we're too affluent. Don't you get the feeling that something has to crack not because you wanted to crack or because you want bad things to happen. But because we've become too complacent. Absolutely. We sit here waiting over our lot as we're kind of in a waiting. Because someone else will do it. That's the whole thing about it. Not some thority. We'll see that. There's a problem here, and they'll tackle it. It's not enough emphasis on personal responsibility. No, that's it. And I think that has the change and the individual has to be a bit more courageous in themselves and decide to really be in the world for a change the part. I would like to emphasize his stand by your beliefs without feeling that you have to crush everything around you in order to attain it. Yeah. Right. Yeah. If you're not confident enough in who you are. Then you start to lash out when you lash out it kind of defeats the purpose of the the self-development exactly because that's exactly what you don't want to do is you want to get to the point where you're not lashing out. But you are clear and confident, and you exhibit an exemplify the behavior that you would like to be around. Be the change you want to see from the middle of better than marijuana. So Harry, do you think this podcast is helped you become more of yourself or not? Yeah. In a way, because every topic we explore it forces me back into my own belief systems about that topic trying to loosen them up and explore them a bit and not take anything for granted in some ways. Almost makes you accountable for your words. Absolutely. Because I'm not taking him back there being recorded digitally, and that's it folks forever and ever I'm in on the shell Harry Chao Chow. The sill podcast perspectives on art and technology is connecting media production. Available at the sill podcast dot com.

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Shaping the Future: Three Top Technology Trends

The CIBC Private Wealth Podcast

08:48 min | 1 year ago

Shaping the Future: Three Top Technology Trends

"Welcome to the Advisor Magazine podcast presented by CIBC private wealth innovation in technology is moving forward at remarkable workable speed. Just a few short years ago. The average person simply couldn't conceive of Three D. printed houses zero carbon natural guests brain computer computer interfaces or swallow medical devices. Now things have changed still not all tech. Investment opportunities are as amazing as a three three D. printed house. Some are as ordinary looking as a metal box delightful like with the promise of bringing about one of the biggest communication transformations. We've seen in this episode. We discussed three top technology trends. Artificial intelligence the fifth generation wireless network and battery innovation for clean energy to start. Here's senior investment analyst. John Tomorrow from kind of a ten thousand foot view. Technology is now entered into every sector of investing that we look at regardless. If you're looking at something as obvious as technology and healthcare sectors but also and everything from financial to utility sectors you know there. It's it's just part of everyday life now and what technology is being used for across the board board is greater efficiency and and that greater efficiency is leading to positives that maybe somewhere unintended ended for example in agriculture. Now they use drones to help better identify. What's going on with their crops? You know these massive crops crops and instead of just kind of walking through it which could take all day. They've drones can do it in an hour and they might be able to identify certain inefficiencies. And she's had her going on with the crop or you know they have systems now that tell them where the best sean is. And where the best. But the best time is to plant their see when it comes to artificial intelligence there is a broad range of applications and definitions. We spoke with senior investment analyst. Lowering sleep a lot. Let Things at eight I in jail out wasn't over people at scale even the transcription of this call. Here's you know nine or ten. I Hey I Howard commercial services out there that you can log into on your browser and a extent permitted to have this call transcribed. That causes come down. I'm probably five or ten X to a worldwide all by which has made it possible for US troops. He's action income surveillance really high security blazes had is on him. And now you can remove the need for the human human I monitoring mongering or all of the most complex and have a much much cheaper and much more scalable solution there so the ability to make tasks scalable is one crucial benefit of AI. And what kind of tasks might this apply to. Senior Investment Manager Fred Weiss shares. Some potential applications in the medical industry are rules about best practices. Have Medical School in. Your doctor is a little different. Everybody knows you should always do X. Y.. And before you start your surgery and this doc do complications you're hiring sections are higher You know that it doesn't get feedback reserves during actions and five percent higher than shoot. I'm doing I'm doing it faster. Cheaper doctors you're GONNA have have a lot a we should do. I which they do second. What else might be paying the person in Phoenix surgeon as well worried about about new replacement and the cartilage and the other and you got something else is going on? There's five live in you that you never tested for that. The way you really got a problem with the true mature house in your the name that has nothing to do the cartilage that I've seen this is going to ask questions on the specialist not now general practitioner new problem but you said three questions because medicine has gotten so so complicated and social specialized. They don't know what they should ask. There's an example where I will start to steer us in to a better Outcome and hopefully do Greg Dot com the first time you know. Another emerging trend is five G. wireless technology. Today's Today's wireless system is being overwhelmed by the need for more data to go through cellular networks. The new five G. Architecture well offer much faster speed a lower cost per gigabyte of data and lower latency. Here's Fred Weiss again. ATTRIBUTES IS GONNA be gastro speed which means you download information. The movie is going to happen less time and the second thing is going to be architect for lower latency and lower latency is less delay between I ask for something and I get it. I need somebody needs to know exactly where I am and doesn't take fifteen seconds. It takes a very short fraction of the time nine most applications. We don't care about that today but that application talking about lower latency is very important. When you're talking about China Miss Driving which is the big application at all of a sudden? I need to know the vehicle in front of me is slowing down or speeding up or something Changing lanes and I can't wait for seconds to find that out. I eat instantaneously. That is the big. I'M GONNA CALL IT application. It is going to be enhanced by five key. Finally the last a trend. Where discussing in this episode is battery innovation for Clean Energy in two thousand? Eighteen global new investment in clean energy was over two hundred and eighty billion dollars far exceeding the financial backing for new fossil fuel clean energies continued. Growth is largely due to remarkable advances in energy storage specifically batteries. Here's same Jaffe. CEO OF CAIRN Energy Research Advisors Transformation on the grid is really the emergence of renewable as has the least cost form of energy out solar power and wind. Power are cheaper than any other form of energy to took produced. And that's that's a dramatic change from where we were five ten years ago but you still have. The issue of variability in the sun is in shining or the wind isn't blowing you which is quite often you You need some. You know you need to to produce our some other way so oh really. I think where the batteries are going to play. A role is in enabling that high penetration. Renewables we will be entering entering and hero where wind solar plus batteries which essentially means twenty four hours of renewable energy. Every day will be cheaper than any other choice. We have to make whether it's coal or natural gas or nuclear all of those are are you know are are going to be more expensive so we're in a very high growth period today but the thing is that that growth doesn't look like it's GonNa tail off anytime in the next ten years we're going to still have the -nificant compound annual growth each year over the next ten years for more on this and other topics check out the latest edition of the adviser at wealthed dot. US Dot C.. Dot Com CNBC. Private Wealth Management includes the National Trust Company. CNBC Delaware Trust Company and CNBC. Private Wealth Advisors Incorporated all of which are wholly owned subsidiaries of CIBC Private Wealth Group LLC and the Division of CNBC BANK USA. All of these entities are wholly owned subsidiaries of Canadian Imperial Bank of Commerce. This podcast is intended for informational. Purposes is only in the material. Presented should not be construed as an offer or recommendation to buy or sell any security contents expressed or current data this publication and may change without notice.

investment analyst CNBC Fred Weiss CNBC Delaware Trust Company Advisor Magazine CIBC Private Wealth Advisors Incorp Senior Investment Manager CIBC Private Wealth Group LLC Private Wealth Management wealthed dot Greg Dot CAIRN Energy Research Advisors John Tomorrow Canadian Imperial Bank of Comm
AMBAL manager on his outlook and markets

Capital Ideas Investing Podcast

33:55 min | 2 years ago

AMBAL manager on his outlook and markets

"Investments are not FDIC, insured worthy deposits of organic by Bank or any other entity. So they may lose value. American funds are not available outside the US. The following is not intended as an offer to purchase or distribute American funds outside the US. I'm Matt Miller, MRs capital ideas, your connection to the minds and insight shaping the world of investments after a setback in December of last year. Growth, stocks have come roaring back to lead the equity market. But for portfolio manager, Greg Johnson higher they go in this momentum driven market, the more cautious. He becomes this principle investment officer of American balanced fund Craig says he seen value in select stocks of less favoured sectors, such as energy healthcare, and financials. Greg sat down recently with my colleague opposite sick booth to talk about industry trends, and why he starting to add to fixed income in American balanced, so listen and learn why dividend oriented stocks may offer better value in today's market. What draws Greg to companies run by CEO's like Warren Buffett and John Malone. And why the political uncertainty of healthcare is giving rise to some attractive opportunities now here is. Apu's conversation with Greg. We're here with Gregory Johnson portfolio manager at capital group and the principle investment officer of American balanced fund. Greg has twenty five years of investment experience or with capital group early in his career as an equity investment analyst, he covered US much in dicing, retail restaurant and footwear companies, he holds an MBA from Columbia business school in a bachelor's degree in political science from the university of California, Los Angeles. Gregg, welcome to the capital, ideas podcast. Thank you, Greg. Let's start with your thoughts on the markets. How will you thinking about the market today as it stands both in the near term and in the medium term? Sure we'll say it was pleased to see the the decline of twenty percent from October December last year. That was peak to trough there was picked to Trow but I think it was long overdue and it did afford us. The ability to put some money to work. Which I think has been beneficial shareholders now that we've come off the bottom, proxima lead, twenty five percent the market fills a little over extended to be again. And I think that, you know, if you looked at the overall, valuation levels at proximity seventeen times a pretty healthy earnings, number, I think, versus history. That would be, you know, reasonable comment. You know, after remember that we bought him in March of, of nine at I believe it was, you know, in the mid six hundreds. So we've, we've had quite a bull run here. And we've had quite a move since the recent December low. So I would air war on the side of a little bit of caution right now. Let's pivot to American balanced fund, and your I need to remind international listeners that the American funds are not available to investors outside the US ask the PO of American balanced or Ambala as we call it here at capital. How will you think? About the balance between stocks and bonds today in terms where we are today last year at the beginning of the year, the various elements grew increasingly cautious and the equity percent got down to the thigh fifties fifty seven fifty eight percent and then in October through December the equity market was down about twenty percent. And we reallocated money from fixed income to equities really the hallway down and it's impossible. Always pick the exact bottom. But I think we did a pretty good job of reallocating money to equities and between that reallocate. And obviously the bounce of the equity markets of twenty five percent off the bottom were around sixty three percents right now. And the equity managers hold about five percent cash. This interview was recorded on April twenty four two thousand nineteen as result of the strong rebound. A starting very recent. We've decided to move one hundred percent of the fund flows that we get each week into fixed income, and that's still a pretty significant amount of money every week. So the impact of that will be to reduce the equity percent over time. I would personally like to see it somewhere in the sixty forty range going forward. So I think that's where you will see us head. And what is your thinking to bring it to that sixty forty range, right? Well, it should happen, organically through the weekly flows, everything else being equal in terms of the results on both equity and fixed income. So I think over time that will happen, organically, and hopefully here, you know, the not so distant future, we will work that percentage down. And if the equity markets continue to be very strong and that equity percentage boosts up. You say the mid sixties, I think there'd be a strong possibility that we would do reallocated for MEK. We did a fixed income. So we will try to get it back down to that sixty forty range, which I think is appropriate given mile with regard to what we can expect from equity and fixed income markets, results, wise going forward. You saying the higher the equity market goes you'll inclination is to lean into it. Yes. And I think if that's the way things continue to move so to speak. I think we will gradually do a reallocating back to fixed income just as we did when the equity markets were in decline from October to December last year. What is your view, Greg of the role that a balanced fund plays in an investor's portfolio? The bells fund concept goes back to the late twenties early thirties. And I think if properly executed. Basically can make people wealthier over time without his Icee scaring the heck out of them in between. If folks get scared when markets go down equity markets primarily, and they take their money out a lot of them, don't get back in so part of the of the goal here is to keep people in the market so that they get the benefit of compounding over long. Periods of time in, I think a fixed income portfolio if properly executed, really helps dampen the volatility in addition, we make the asset allocation decision between equity and fixed income for them. So I think the combination of those two things makes a balanced fund a great investment vehicle for a lot of people investing in equity and fixed income markets. You think that the behavioral aspect of it is important that it helps to mitigate the impact of that on the portfolio? Yes, as I mentioned, people can get scared and withdraw their. Money at the wrong time. And if they own a product that can grow their wealth, over time and damp that volatility, so that they don't get scared out of the market. So to speak. I think that is a good vehicle for a lot of oaks. They're looking to grow their wealth over time. Why is it important for you? The fund protect on the downside. Well, I think for the very recent I just mentioned in the first three words of the perspectives are conservation of capital in that, something that we, we take very seriously. That's why we've stork Louis and somewhat of a bias toward stocks with with lower p ratios and, and higher dividend yields. Because it, it helps dampen that volatility on the equity side, and I think it is very important to perform well on a relative basis in down markets, so that we keep people in the market, and they get the benefit of the compounding, which typically happens over long periods of time. What role does fixed incomplete in combatants from it plays, a very, very important role, especially as I mentioned in terms of dampening the volatility on the downside and versus two thousand eight two thousand nine we probably owned a little too much in the way of. Corporate debt of these treasuries. In this fund, we've also made it just moments there were were holding more treasuries in less corporate debt, which corporate debt in times of trouble. The spreads tend to Dwight and in treasuries, or a nice way to mitigate that risk. So not only has it stork. We played a very important role in damping volatility. It's also increasingly serving that role in this fund, which also is more flexibility on the equity side to maybe take a little bit more risk. And I think that's been a nice evolution. How we've banished as fun to accomplish the goals that I mentioned has the decision to hold high-quality fixed income in and take the risk and equities worked in American violence fund from your point of view. It really has if you look at the, the performance on the equity side, the last ten eleven years. There's a relative to the market and relative to a lot of our competitors. We've done quite well. And in those periods where we've had corrections in the equity market greater than ten percent. The fixed income portfolio has really served the purpose that we asked them to serve, and I, I've been really pleased with that, even though the market is up considerably since March of oh nine there have been significant periods of volatility, and the fixed income portfolio has done its job. And the combination of those two have been pretty powerful, the last ten or so years, is that the approach that the fund would always take does it depend on the market environment. I think conceptually that's the right approach will we make adjustments. Yes. For example, if I look at the equity portfolio versus ten or eleven years ago, it's a perfect example to prove my point, I would say that we've made a number of very good decisions with quote, unquote gross stocks and. You probably wouldn't have seen those type of securities in the portfolio maybe even ten fifteen years ago. And the irony of this is that we bought a lot of those investments, when they were actually value stocks, but I think what we've done a very good job with is continuing to invest with these companies over a prolonged period of time. And I think that's been a nice evolution in how we manage money on the equity side. So I think we have a no pun intended, a nice balance in the equity portfolio, now, between growth and value and also between the equity and the fixed income what opportunities are you excited about as you look out? Well growth stock investing has done significantly better than valued investing last ten years. And, and fortunately, we made a lot of very good decisions with regard to owning a number of those growth, oriented companies. And sticking with them. But at this point, there are significant pockets of the market, I would say financials oil part of the healthcare sector that look increasingly attractive from both a longer term fundamental and valuation perspective to where I think there's probably if the stock selection has good, a reasonable chance that a basket of those securities will do better than the three to five percent per annum returns that I mentioned, so I think it's important, they have a healthy balance between growth and value at this point. It's talk about each of those sectors that you mentioned that so energy fuss. You know, with seeing oil, swing up and down, but the energy stocks have been a little bit under shadow. Do you see that continuing do see a little bit of the rebound? And what has to happen for the sentiment to change. First of all, if you look at oil stocks as a present should he hasn't p five. Hundred the low over the last fair period of time has been five percent in that is where we are currently the range last ten fifteen years has been five percent on the low as I mentioned up to fifteen percent on the high. So I think that gives you some context for how out of favor the oil group is, and I think there are some significant pockets of value, in the oil sector, and with the rebound in the oil price to, you know, the low to mid seventies, on Brent the stocks, do not reflect that oil price. So if for whatever reason, and I'm not quite sure, what's going to change the sentiment on this group. It's very out of favor in a stork Lee, you have to be extraordinarily patient. But it's been my historical experience that eventually, it will happen. And if the stocks even start to fairly. Reflect that oil price than if you combine that with the fact that a lot of these least the major companies have significant dividend yields. I think that's a pretty good combination for the future. Plus, what I've always liked about the oil sector's. There are a lot of material risk in the world we live in. And if you have significant geopolitical dislocations for whatever reason the oil sector, historically, has been a good place to, you know, conserve capital, so for Reidy reasons, primarily valuation, I think the oil sector over a period of time, we'll, we'll do okay to pretty good great. You mentioned five percent of fifteen percent as that ranges of want. Oh, the S and P five hundred day percentage wait in the S and P five hundred dollars on it. Let's come to financials, so Heidi drag elated low interest rate environment again. Has been a little bit out of favour, although I think it varies stock by stock backed by Bank. What are your thoughts there? Oh, I think where I start they're similar to the oil sector is the fact that the valuations are highly reasonable of for example, you can buy J, P Morgan. It'll ten eleven times earnings with a bay healthy dividend yield versus the market, and I think investors to a large extent fight the last war. And, and last period, you know, two thousand eight and two thousand nine was very unkind financials for, for the right reasons and their dividends were cut and you know, I think that period still sticks and investors minds. And I think we are reasonably confident to very confident that the dividends are safe this time and the capital levels are substantially higher than they were in oh eight nine and in a down, period they. Should do reasonably well, financially when you combine that with valuations that are highly reasonable, and it is an out of favour group. That's why the valuations are where they are that if you're a patient investor, you can probably do, pretty well, owning a basket of financial securities over a period of time. How'd you think about the regional banks versus the large national banks? There are some very good regional banks. But I think is a general statement scale really matters in the banking business and the J P Morgan's the Bank of America's the world have some significant competitive advantages because of scale the amount of money that those institutions spent on technology every year is a lot of money and you need to have significant size breath of product portfolio, etc. In order to do that. So I think the gap so to speak between the money center, banks and the regionals has expanded. It does doesn't mean that there are aren't good regional banks out there. US Bancorp has enough scale to be able to compete in as a very, very good Bank. But as a general statement size, does matter. You're listening to capitalize is brought to you by capital group. Let's come to healthcare. So bit of a political overhand, what may happen regulation. The healthcare stocks valuations again. A seem reasonable. What are you thinking there? And what are we seeing in the fund? Sure, I think there are some significant values and investment opportunities in the healthcare sector right now, as a result of the overhang that you mentioned, and we've seen periods like this in the past, and I am pretty confident that this period will pass like it has and that the valuations in the underlying fundamentals, which as a general statement are quite good. Will prove to be the more important point. And there's probably some significant money that can be made with healthcare stocks. If you are patient, inauguration aside, in terms of the pipeline innovation, you know, does tend to move in cycles, too. Biotechs discoveries. There is another area within healthcare Dula big pharma 's interest. You is it more the healthcare providers like a United Healthcare a? How do you think about that? Sure. Well, we do have significant investments in the pharma, and biotech sector for me, personally, I don't have the medical background and I don't have any specific insights beyond what average person, so to speak would have with regard to product by blinds. So I don't tend to focus on the farm sector, but I think we've made a number of intelligent investments along those lines. That's just not something that I'm personally comfortable with where I'm more comfortable is with the managed care stocks, the United health of the world with a, you know, a significant amount of recurring revenue than I think, a United health, for example, is a significant part of the healthcare sector and that's not going to change anytime. I'm soon also, if you look at United health today versus you know back when we had our last scare probably ten years ago, give or take fifty percent of the United health is not even regulated. Now they have a business called Optum, which is a service oriented business in is not regulated. And United health is even more of a significant part of the healthcare plumbing that it was even ten years ago, and it sells at a very reasonable valuation. And it's well managed. So do you wanna talk about semiconductors a little bit? That's another area where I see little bit of a conviction on the investment. What's the thinking there? We've done quite well with the semiconductor sector this cycle hand in the middle to late last year. It was becoming increasingly obvious that as typically happens in semiconductor cycles, that there was too much inventory at the end user and the industry. As a general statement would go through. Hey, slower sales pattern and that's more or less would happen. And after being very good investments, a number of the semiconductor stocks had pretty healthy declines, which provided some opportunities for us to either increase positions or established new positions. And the overall waiting went up the semi conductor stocks as a general statement of done quite well this year. So I think that was a good decision. How will you thinking about opening owning still, you mentioned the market at around seventeen times if you take out the fangs devaluation, see more reasonable, what are your thoughts? Well, I think your statement is factually. True. And as I mentioned, I think there are significant pockets of the markets where the valuations are highly reasonable to extremely attractive. But what I continue to be a little bit more concerned about, and I focus a lot on his just corporate profits, as a percentage of gross national. Product. And if you look at it, including financials, and also look at it excluding financials versus history word, very healthy corporate profit levels. So if you're selling an historically, high PE ratio and prophets are definitely not depressed. Then you start to do a calculation in a sense if you're starting at a very high level than probably the best you can hope for in terms of overall profit growth is essentially a wet nominal GDP growth will be, which should be somewhere in the three to five percent areas. So that's how I get to my more or less. A bottom line in terms of what we can expect investment, return wise, over the next five years is probably what nominal GDP growth is a profit, growth of three to five percent and probably flattish PE ratio. Now, some sectors should do better. But as an overall statement, I think that's a reasonable way to think about things. It's come to your own investment style, Greg. You tend to hold a very concentrated portfolio of fifteen to twenty stalks wise that I think it's important to point out that I've evolved to being comfortable with this vestment approach when I started as a portfolio manager twenty years ago, I had roughly thirty five investments and I, I have just felt over time as I got to know more about, you know, each one of the companies in the sectors that I was investing in that. If you have roughly fifteen well-chosen securities in your portfolio that, that is an appropriate amount of diversification. And you really don't need any more of that. Plus, if you think about the number of portfolio managers, the multi portfolio manager system, it should lead people individually toward investing, or they have high conviction. I mean that's ideally, how the system should work because have a number of other portfolio managers American balanced fund that work on the fun in her terrific, and how different backgrounds and different interests. And that's ideal how the system should work. We should focus on her high conviction ideas, based on our background and our interest, and then collectively, that's a great way to put a portfolio together. We pay a lot of attention to the styles and the background to the, the mix of portfolio managers in a given fun with which is an important. Part of the secret sauce. And so a combination of becoming more comfortable with owning fewer names that I have very high conviction in in. No, extremely will plus the capital system allows me to do that. Right. Then he continued that it still has to meet to make it to your portfolio. Great. I've evolved over time to thanking pretty strongly that the number one most important thing for any company is the CEO. And I think if you go through my portfolio will see that my investments are with people that I have a confidence in and be or good human beings. So I, I'd say my number one criteria is I have to be with these people, and I want to get to know, them and sort of what, you know, makes them tick with their interest are, and why they're going to produce a period results over time. And you know, it's it it's. Pretty rare defined the Warren Buffett's and the John Malone's and, and the Jeff Bezos of the world. So I, I'd say that's my number one. Most important criteria crate John Malone. You mentioned what company was. He most associated with Johns had several things. He's been associated with the, the most recent is Liberty Media in liberty global. But John Malone was really back at the, the beginning of the, the cable business in the United States. He did quite well, in that business, and then that eventually God to sold to another entity. And then he evolved to doing Liberty Media and liberty global great. What do you think of the most challenging issues in the markets today? That you what he about a think about. Well, I worry that after a ten year plus bull market run. Even though there's been a fair bit of all. Attila the, the overall return of have been above average. My primary is complacency. And it's probably been a significant amount of time since we had, you know, a significant dislocation, and they do happen. You know, the two thousand period is a good example, two thousand eight two thousand nine is a good example these periods do happen. And that's what I worry about the probably the most is complacency. And as John Lovelace us to say if you starting from high valuation levels, and high profit levels, you don't know exactly what's going to knock the market down. But in most cases, it's something you never thought of, and I would suspect that will happen again, where something will come out of the blue it will change people's opinions. And I, I worry when you combine that with complacency about, you know, fact markets do go down. Creeping and is probably the thing I worry about the most you've talked about how you think. About momentum investing and the role that program trading his thing, there talk about that a little bit. Sure. I think this period is someone at kin to the late nineties where the index phenomena really was was gaining steam. And if you think about an SNP five hundred index is the ultimate momentum investment vehicle in the sense that each incremental dollars, essentially going to what's worked, so more you become a percent of the S and P, five hundred the bore, you know, that dollar gets allocated to, you know, your company investment wise. So it has a, a MO and to mass back to it. That's pretty significant, this period fills, very akin to that. And obviously we have these things called ETF's. Now there is a lot more money in passive investing than there, even was in, in that period that I referred to. So it feels to me like the momentum. Investing essentially buying what has worked price wise is a significant part of the market that we're in. I would state at a different way, which is on a given day's trading. The active business has less of a share than it. Did ten twenty years ago and more of it is driven off, you know, pure momentum or price changes over the last six or twelve months. And I think that gets to the, the complacency part in that's something I worry about also say that may be capital is not being allocated in the most efficiently possible. Well, I think that would be a reasonable conclusion, I still strongly feel that active managers over a period of time, we'll do better than an index and ironically, I guess you can make the argument, if the active part of the market is going down, then you're potentially creating even more opportunity for active management, not less. Presumably. Only if you know what you're doing in terms of investing in quality companies for the long term. And I, I think we're really setting up for a period, where active management can do quite well as a result of the backdrop, that, that we're talking about great just coming back to what you said about our stopped makes it to your portfolio. You mentioned the CEO. I would imagine the other factor that you mentioned where it is in the business. The valuation in just the regular criteria that any investor uses, I think the value that I had to your point is number one, the assessment of the CEO, and the number two is the assessment of, of the business in terms of truly understanding why it's a superior entity that will add value over time. And the valuation is obviously an important part of that. But I think the first two criteria are the most important is long as you didn't pay a silly price for that type of entity and you're willing to own it. Over time you will do very well, if you're right about the underlying economic. So the business, plus with a CEO like Warren Buffett or John Malone. You have that option -ality. I mean, I think John Malone is proven that numerous times where he will do things over time that folks haven't thought of that will add shareholder value. So I think when you throw those ingredients together you end up with a pretty good outcome. Greg johnson. Thank you, thanks. They'll be going to capitalize. Thank you. We love hearing from our listeners. So tell us our doing, please review capital ideas on, I tunes, or if you prefer to send us your feedback including any topics, she liked to see address shoot us an Email to capitol ID's at Kef group dot com. You might just find your idea, discussed you're on a future podcast for capital ideas. This is Matt Miller, reminding you that the most valuable asset for some long term perspective. 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Tech Stock Bubbles In the 17th Century

Odd Lots

33:04 min | 2 years ago

Tech Stock Bubbles In the 17th Century

"The. Hello. And welcome to another episode of the thoughts podcast time, Tracy Alloway. Joe weisenthal? So Joe, you know, just recorded that podcast with Lee drogue in where we were talking about tech stocks and earnings, right? I really like that one and is another one of one of our podcasts. And they're kind of rare for what we do. We actually talk about markets right now as we're going as are happening because we often sorta talk about SO teric stuff that doesn't directly involve the day today. So I liked that we got a chance to actually talk about what's happening right now. Give the listener something useful. I really dispute the notion that we talk about Esa teric stuff. But as I say that I realized that I'm about to start talking about Esa Tarik stuff, well that podcast, Tracy judo. The do you know, what our podcast is called thoughts. But that's about bond trading. Okay. Yeah. But we all know. Okay. That episode about tech stocks got me thinking about I guess companies and company earnings throughout history, and I was sort of thinking on very medal level almost every company is at tech stock right because winners throughout history are companies that have either invented new technology or used it to the best affect right? And I think Lee made that point as well that really were not seeing an emergence of tech stocks per se what we're seeing is an incredible use of technology across a range of industries that allows essentially capital to have incredible leverage over labor, and what we called tech stocks like your Netflix is in your Facebook are really the companies that are the most extreme and of being able to get incredible amounts of output without that much that many people working. For them. Exactly. So after I started thinking about that. I started thinking about what a, you know, tech stock per se would look like say one hundred or two hundred or three hundred years ago. Like, would it be a company that I don't know was inventing new methods of producing railroad spikes or something like that with that be considered a technology company and would investors react to it in a similar way that they would to a Facebook or an Amazon now luckily for us there's someone out there who thinks a lot about this. So that we don't have to and his name is Jamie Catherwood, a lot of people might know him as finance history guy. Yeah. He's on Twitter who's on medium. And he's always producing these amazing articles about incredible episodes from financial history. I saw he tweeted something I think it was just yesterday about the. I Pio of the Guiness beer company. And how people talked about that. And how oversubscribed it was. And that was in the eighteen hundred and so looking back at financial history. You really do. It's it's sort of confirms. I think what is one of our general themes that to some extent nothing ever changes and so- mania is about what we call tech stocks today, presumably have many echoes in the past as well. Exactly. And so we're gonna talk about exactly those echoes, and I should say that Jamie has also been a multiple listener request for an odd. Lots interviews. So I'm glad we're finally making it happen. Jamie Catherwood, aka finance history guy. His real life job is an analyst over at Arthur, J Gallagher and company, Jamie. It's so good to have you on. Thank you so much for having me. So I guess just to begin with. I'd be really curious to get some insight into how you became finance history guy, and what exactly piqued your interest in. Going back to stories from the sixteen hundreds and even earlier to talk about finance and investing. Yes. So I've always been a history. Not I did history as my major at canes College London, and I became interested in finance. And after joining Twitter saw that ton of people were putting out content related, you know, just to invest in finance in general, but no one had kind of focused on history itself and just financial history. So I figured I can't compete with the people who have been doing finance for decades investing, you know, much smarter than I am. But I can bring the history aspect because that's what I kind of know. So it was just kind of finding my own nation. I'm lucky that no one else was doing it. Because if they were I'm sure wouldn't've worked out well for me because there's some really good writers out there on Twitter. This this goes to buy theory of life L foe of the idea of finding some profitable niche to exploit that other people aren't doing. And sort of put yourself out there, and yeah making, hey, in a way that others aren't very comparable to investing elva. Do you find that it benefits you to study history in your day to day career as an analyst as an observer of the market today? Certainly, I mean, it's I even I get tired of hearing it. But, you know, people say the more things change more. They stay the same. But it is true. It's I mean, we'll talk about today. The kind of tech hype in the sixteen ninety s it's kind of good reminder to knock get caught up with the latest fad and think that whatever everyone's talking about is going to be the next big thing because when you study history, and you're looking at I mean, I did one article on active investing in the room and empire, you can kind of see that these fats quickly go away. And so don't change what your overall strategy is just because there's some hot new. Stock or sector more technology because odds are that's just going to be something that someone's gonna write about in two hundred years the next finance history guy on medium, right or on Twitter. So jamie. Let's talk about what what they're posting on a wire it directly to our brains more likely. Download it. Yeah. So jamie. Let's talk about what a tech stock might have looked like in say, this Ecksteen, hundreds I sort of alluded to it in the intro, but I guess to some extent every company's sort of about technological innovation, but in the sixteen hundreds technological innovation with look very different to what we think about today. Yes. So the sixteen ninety s was kind of known as a IPO bubble in London on the London stock exchange, some people call the tech bubble some people, I mean, nerdy, financial historians. And basically what spurred this kind of hype around tech stocks that? Day was there's two factors. One was the nine years war was going on which restricted trade with other nations. And so any capital that investors wanted to deploy they kind of had to turn in inward and invest within Britain. So when they're looking for new opportunities they stumbled upon new joint stock companies that were starting to form more quickly than before. And there's one quote from guy who started writing a by weekly financial markets review who said a great many stocks of arisen since this war with France for trade being obstructed at sea. Few that have money were willing to lie. Idle and a great many found that they could implode their money more easily and joint stock companies than in laying out the same lands houses or commodities. So I thought that was kind of interesting that he was pointing out that it's easier to invest in these new tech stocks than other asset classes, but what really set off the hype was. The success of treasure hunt by Sir, William Phipps. He was actually eventually the first governor of the Massachusetts bay colony kind of interesting he oversaw the Salem witch trials, but he went out and convinced a Duke in England he could kind of think of as a VC firm in the modern day to invest in his voyage to go. Find some treasure and the first time he failed. But then he came back got more financing went back out, and he had just heard rumors of some sunken treasure ship in the Caribbean. And he goes out finds it, and he hauls up thirty two tons of treasure, which I can't even begin to kind of wrap my head around and brings it back and the investors received a ten thousand percent return, which is just. Unbelievable. And soon as that happened that kind of sparked menia because dozens of new company started forming to either provide the technology to retrieve treasure. So that was the kind of high tech stock of the day was diving companies that had either suits or other diving apparatus, and you just have to look up the drawings of these because they're insane. There's one was like the Edmond Halley bell. And it was this. We're contraption where they would lower you down into the water and like this bell but trap air. So that divers could stay down longer and search for treasure. And so all these companies formed, basically, promising investors and one of the prospectuses for this one of these companies actually put in the perspectives, we promise one hundred percent return to investor's and their whole pitch was, you know. Oh, look at that guy. You know, who may ten thousand percent on the fifth treasure hunt. This technology will do even better just the same. And so investors just poured money into these stocks. And it didn't it didn't end up. So well, but there is yeah. Is just crazy there from sixteen seventy two to sixteen eighty nine there were five patents related to dive in technology. And then in just two years from sixteen ninety one to sixteen ninety three there seventeen patents filed and it was twenty percent of all patents filed in those two years. So the kind of hype was clear, I already love this story so much first of all it would just have never occurred to me that in the sixteen hundred they had any technology. No matter how rudimentary that could get lower someone to the bottom of the sea for log enough to dig up. I would have just assumed than the sixteen hundred. There was no way to do this. So the fact that they invented various ways to do that that already blows my mind would the returns like. Obviously, I don't you know. I don't think I'm going out on a limb. Much to magin that most of these endeavors did not produce ten thousand percent return and prime many of them didn't return anything like that. Is there a distribution of returns though, that like that one can collate that sort of resemble? If you talk about you you compared the initial funding to kind of like, a VC funding and VC's sort of they famously are willing to take losses on a lot of their investments to hit the occasional run or a mega home run. Like if you have a portfolio that has Facebook and then fifty losers. You're totally fine. So is that was there are sort of power law distribution like that to the companies that were able to successfully dig up or find sunken treasure. So obviously, we're kinda restricted by what has survived since sixteen ninety in terms of sources others to good. There's not a good data set. Exactly. And so. From what I've read there is a nineteenth century historian who wrote a really intricate detailing of all the joint stock companies of that day. And he wrote a quote that none of the companies or expeditions because an addition to just the diving technology companies there were a lot of groups of actual treasure hunters who would set up like the Jamie Catherwood exploration company, and they were just dedicated to treasure hunting. But this nineteenth century historian said that none of these companies are expeditions were successful. Indeed, the only fines consisted of a few cannons at the bottom of the sea. So it doesn't sound like any of them really worked out. And so I wish there was more optimistic but sounds like Phipps kinda got the job done. And then knowing to replicate his success another fault question that I have related to this. So you talked about the mania you talked about the the surgeon patents that were associated with the treasure hunting, diving technology, one of the things that we see in modern bubbles and even tech. Is you start with something like okay few VC's invest in tech companies. And then a few years later. I'm getting ads on my iphone on Instagram, the invest in tech startups for as little as ten dollars a month and people find a way to democratize what had been this sort of very exclusive and difficult way to invest talk to me about the mass participation and the degree to which this extended beyond the VC's and the dukes to normal. People who just wanted to put some money down in search of massive returns. Yes. So it definitely was a wider spread investment than just these. VC's as we're calling them because these companies are formed as joint stock companies. And so the average investor was able to put their money into these companies, obviously that probably wasn't necessarily benefit in hindsight once the crash came. But yeah, it was definitely a widespread sort of speculative mania, and there were an there was an account later of the treasury the British treasury starting a lottery system because that's how the did a lot of their financing in the day because they wanted to kind of pull the money away from these special of joint stocks into funds that would benefit the government. And there is an analysis done that showed that. Eighty seven percent of the money that in your average investor had been putting into these joint-stock tech companies then went to these lotteries. And I thought that was interesting because it was kind of just proving that investors didn't have a specific, you know, dedication to these tech stocks. They were just going wherever offered the higher return. So as soon as these lotteries offered a better chance at that. They ditched the joint stock companies and kind of forgot about him. So Jamie, the natural route for a lot of companies and tech companies in particular is that you're a start up and you get started out of someone's garage. And then you got venture capital of funds. And then you eventually do a listing a big IPO, and then you have public investors. You wrote a really interesting post. I think it was back in October about how a lot of the companies that happen IPO ING in the US over the past year. Have basically never produced a profit. And a lot of those companies would be tech companies that investors are just sort of betting on on the off chance that they will get a big payoff. Eventually, what's the historic parallel to those sorts of IPO's that you're looking at. Yes. So in the early nineteen hundreds there was a rubber boom, if you can believe it, and essentially these rubber plantations in Malaysia war, they're the largest plantation. I believe is in Malaysia there's one in Brazil. So I might botched which one it was but closed down which meant that the supply of rubber was going down and prices were shooting up. And so as investors saw that they did what they always do and kind of flocked to rubber as their new hot a hot fad and a lot of companies in England, interestingly, not Malaysia were setting up rubber plantations, or at least claiming that they were in Malaysia to take advantage of this rubber boom and investors just poured money into it and companies were listing their shares on the market without even actually having a plantation yet. There was one company that put in their prospectus that they would basically offer the secrets of the company in exchange for direct buy out of the whole company. So I wouldn't say that was reassuring if you were just investing that the founders were looking to get out so quickly. But yeah, there's some guy he went to Malaysia. And basically said they're just like these stubs of rubber tree whatever the tree is that they're planting on these plantations. And there was nothing even growing and the perspectives back home in England, we're saying that they had these really. High yielding plantations and everything was going great. But in reality there was nothing even set up in Malaysia. So yeah, it was a case of kind of just listing a prospectus to raise money or just you know, wine your pockets before doing any actual work, and no one was doing real due-diligence. So what for a while? I'm curious about that. Because you're talking about the perspective of this rubber company. You mentioned the perspectives of this the companies that the sunken treasure I mentioned in the intro. You tweeted about the perspectives and the initial subscri- subscribers over subscription of the Guinness IPO any when we think about perspective today and companies file s one filings, and they're all very regulated. And they're very sort of strict patterns about you talk about this. And then you lay out the balance sheet, and then you lay out the income statements, which there any sort of common approach to laying out a perspective. Or was it in those days? Basically, just write whatever you want. I'm not an expert on this. But from what I've seen it kind of. I mean, I can't imagine a government that was regulating perspective would let someone say I'll give you the secrets to the company if you buy me out, and I wouldn't say that looking at various perspectives. There seemed. To be kinda common format or approach. So it certainly didn't seem to me that there is any regulation of it. But I could read something that proves proves me wrong. So what are some of your other favorite finance stories, especially anything related to sort of tech or mania which seems to be what we're what we're discussing here. I gotta say you referenced the Guinness example, that's probably one of my favorite examples kind of mania in history because it was just insane. The sources describing what went down on the actual day of the IPO in eighteen eighty six. I mean, the economists said something like it's a day that witnesses will never forget and then another newspaper tunnel. The spectator said that the scene that took place on Saturday outside of Barings Bank is enough. To show that a speculative mania exists or something along those lines. And as you mentioned tweeted all these takes at the time but analysts or, you know, writers at the economist, and this other newspaper kind of taken their different views of the valuation of the company because. A lot of investors were getting hyped up around Guinness's ramped up production and their desks new technology to bring it back to tech that was allowing them to produce more at a lower cost. But then some analysts were saying those really just because the materials had gotten cheaper. And so that was interesting, but. In terms of mania, when the Guinness IPO actually took place, the Barings Bank, basically came out and said that it would be open for thirty six hours and investors who wanted to get in on the action had to come with their subscription form and deliver it to the Bank all signed and everything and the Bank ended up being opened for three hours because there is such a mad rush, and they had to call in a special police brigade to police the area because investors were going crazy. They had to barricade the doors. So they couldn't let anyone in. But people still wanted to get their shares in. But obviously this was way before anything electron. So they still had to deliver their subscription form so seen as there was police line in the perimeter and the doors were barricaded investors started tying their subscription forms to rocks and literally throwing them. So. At the opportunity by launching these rocks with their subscription forms, like the windows of Barings Bank in order to get their shares in. So that is I don't know to me. That's one of the craziest stories because you just imagine some peo- today, investors and love sitting in Manhattan somewhere just launching rocks through banks windows and buy shares reminded me, Tracy. Remember when we did the episode about the housing bubble in Florida honored years ago, and we talked about the binder boys out on the street in Florida who just had these binders full of properties for sale, and these mania is in essential in the days before electron ick trading when things had to be done physically when you head these mania people together in one place in the case of Miami. It was just sort of gathering out on the street. The are actually like all kinds of traffic, traffic, jams and other stuff like that. Because a sense. -cially everyone was out in the street trying to buy property, and so very much reminds me of that that sometimes these things get so intense that they start to break down the physical infrastructure of the place where transactions are done. Yeah. It makes you think a lot about like whether current mania is more difficult to spot because they don't happen in some physical capacity. You don't have a bunch of people standing out in new York Stock Exchange. Hurling rocks in order to get their share. Subscriptions. What I, but I did think of that that the the analogy would be remember in late twenty seventeen when all the crypto currency exchanges. Couldn't handle the traffic load and start going down. Right. And they would have these crashes and people complain that their trades weren't going through. So even though it's digital. I do think that there's some interesting analogies. Get such a rush. And that case it was digital infrastructure that they were just buckling under the load. Yeah. So maybe when demands. Starts to overload the market infrastructure. That's a bad sign. But we're we're speaking over, Jamie. So I feel bad, Jamie. There's one thing that you pointed out in your your post about Guinness, which was that, you know, when this all was happening in the late eighteen hundreds there were bunch of commentators. Who were watching this from afar and going? Oh, yeah. This is crazy, and it's definitely a speculative mania. And yet it's still happened. Why was that? That was the craziest part to me is that were, you know, arm writing today, you know, all high and mighty look at these. It's launching rocks through windows, but people were saying the same thing at the time, which was kinda depressing, but also fascinating depressing in the sense that we're still having the same sorts of mania in different ways today. But also just that we kind of always assume that in the past when these minions happened. Everyone was caught up in the mania. But there were people who sound just like I would write today saying that this is absolutely ridiculous. You know, there's no guarantee that this company's going to be a success and its valuation is ridiculous. And so that just really that particular spectator article really stood out to me because the guy had some really good quotes about how the public will public will never listen to someone talking about fraud. When returns are good just as a soldier will never listened a thirsty soldier will never listen to someone talk about poisoned water, something along those lines base. You know, it falls on deaf ears because if there's returns you're gonna go for it. If you're some Parche soldier in the middle of a desert, you're going to drink the water. No matter what someone tells you definitely the idea of nobody wanting to hear about fraud in good times. It definitely falls that category of the more things change the more things. Stay the same Jamie before we go. I do think are probably a lot of listeners that are interested in economic history and probably people are sorry financial history. And people have read a lot of books, but do you have any favorite re source material for what you learn that? Maybe people haven't heard about that. They should check up the easiest way would be plug my own own account and follow me, but I'll side of that archive dot org is just under real resource that I've kind of recently stumbled upon you can search what stock market and then. When do sort by date published and they have a rich source material archived from literally sixteen hundred seventeen hundreds and just full PDF's that you can look at it and go through. So if that sounds interesting to you, then that would be my recommendation, but there's probably a lot of people. Who won't do that? That same to say. Yeah. But I find that stuff fascinating. That's where I find a lot of these kind of interesting stories and quotes is just from reading the stuff written at the time. All right. But the best way is for people to follow you on Twitter. Right. Yeah. That would be my recommendation, but I'm bias. All right. Jamie Catherwood, aka finance history guy. Thank you so much for coming on. Finally, I'm glad we could make it happen. Thank you so much. So Joe I found that conversation really really great. And I just love the notion that you know, we're sat here in the year twenty nineteen I had to think about that for a second. It is twenty nineteen and we're talking about technology like social media, and you know, microchips and things like that. But in the sixteen hundreds there were a bunch of people sitting around tables in London thinking about technology as a diving bell that with let them go underwater and search for sunken treasure. The first thing I'm going to do after I get out of the studio. Here is go Google images bell because I still find it almost unfathomable that in the sixteen hundreds they created ways for people to get to the bottom of the sea and be able to breathe. So that's I wonder how many people died you have to wonder in those endeavors. But anyway, because that's the first thing I'm curious about because I still almost find it impossible to believe. But there are I mean, there's the sort of thing that seems to happen in all these instances of big technology breakthroughs, which is you get maybe, you know, one person who innovates, and I think Jamie has made this point on his on his medium page, but you get one innovator then you get a bunch of imitators. And then inevitably you get a bunch of fraudsters who just sort of mess up the whole space and make a lot more dangerous for all investors, and they're sort of an oversupply, and it becomes very very difficult for investors to pick out who is actually doing something substan-. In the space. It really does seem to be the classic pattern of history in so many ways I mean, again, not to just keep going back to the crypto bubble. But you couldn't have a more perfect sort of description of what happened there some people earlier early on tinkerers computer, scientists sort of radical anarchists and then by the end essentially like pure scammers and fraudsters. And just as the mania grew and the demand for supply goes up or celebrates people just put up any sort of paper or coins 'cause they know there will be thirst for it. Yeah. Star bucks. What was that? Sorry. We did an episode that. We were we were among the early crowd. Just you know, we were not in it for the money. We we were not scammers fraudsters for the technology. Okay. On a serious note, though. I thought you good news. The good news is stored bucks. Never. They they never acquired any money that monetary value. Really? So the good news is known lost. Okay. Until I want to say, okay. I wanted to pay you compliment and say that I thought your observation about market mania is and how you know again going back to crypto. But when we saw a lot of the blockchain and the exchanges being sort of overwhelmed by demand that might have been a good indication of basically speculative mania taking place, and I think I think you're onto something because I think if the existing infrastructure can't handle demand for particular security, then it's usually a good sign that something is out of balance in the market. Yeah. I mean, you see this. Petr pattern repeat and ninety nine two thousand a lot of the online. Brokerage is the people using Detroit tech stocks had regular outages. You can go back and look at those going back to the Florida bubble. Just even the trains to get into Florida started getting too crowded because so many people are traveling down there. So whether digital in person or people throwing rocks into a window because they can't get into the Bank. I do think that it's one of those telltale signs that a mania is afoot. All right. This has been a nother episode of the lots podcast, I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Weisenthal. You can follow me on Twitter at the stalwart. And you should definitely follow our guest today on Twitter because keep referencing. How great his Twitter account is as medium account, Jamie Catherwood. He's J F C under or three wonder score. Check him out on Twitter, and you should never leave follow our producer toe for four Hayes. He's at for his T as well. As the Bloomberg head of podcast Francesca Levy at Francesca today. Thanks for listening. Indepth analysis concise reporting deed to know, global business news around the world and across the markets. Bloomberg connect the dots for decision-makers. Subscribe today to the global standard for business reporting. Get it all at Bloomberg dot com slash subscribe.

Jamie Catherwood Twitter Tracy Alloway Malaysia Facebook Barings Bank Joe Weisenthal analyst Florida William Phipps London England Bank Lee drogue Joe Caribbean Netflix
Best of The Program | Guests: Jeff Brown & Clarice Schillinger | 3/8/21

The Glenn Beck Program

41:17 min | 5 months ago

Best of The Program | Guests: Jeff Brown & Clarice Schillinger | 3/8/21

"Hello america crisis on the border. Hey joe mansion is completely trustworthy. We talk a little bit about non fungible assets. Not even sure exactly what that was. But it's a new way to make all kinds of money. Beanie babies these are the beanie babies of the future. Also we talk a little bit about andrew cuomo. It comes as a shock me that two more people have come out against him. Yeah parallelly they want you to believe he's quite the ladies man in the hands only talking about zooms cut. She's got such big presumes by all today's podcast missing team phrase join us. Hello pat hello. Glenn beck ray of course from the podcast. Pat gray unleashed where you can get Even listen to him every day either blaze radio network live before this program. I just came from there. I just came from there. Wow yeah it's quite a commute from studio to you. What a journey it's bad. it's so pat. What do you have today. I've got some mask. Nazis that They're pretty much showing up everywhere. Really mask nazis. This was an interesting one. I thought at a at a drive through location The woman wasn't wearing a mask and So here seeing her car in her car cars. What happened now. I don't want you can give me one giving sale. You can hand me a mask but you can't drink without a mask to wear masks. How does that make any sense outerwear. That's what that's what. Can you hand me a mass. Can't you just hand me. The drink denied you so he can hand me a mask but he can't hand me. Drink makes perfect sense right. Can you imagine they're trying to tell us in our cars now that we have to wear a mask to be sir. why won't you listen to the authorities. Why won't you listen to the science. You follow the science and listen to the authorities that are working the drive through window at right at your local fast food blades. Because who knows better exactly right so fast there on the front live through person. I do worry a little bit about the stock of google. Though if masks go away there will be no content on youtube. The all content on youtube is related to masks. It's even like every one of these mass pretty much tends to happen when someone is pointing a phone at themselves which is really amazing. There's more anger that comes into these or what. She probably went through before or friend. Gophers sharing this time. Yes it is a completely ridiculous standard. It makes absolutely no sense to wear the money handed to you to at some level you feel kinda bad for the employees who now obviously didn't come up with the policy is say that's policy. He didn't say company policy even as it is the mass living if it is company policy it's ridiculous and in i'm sorry teach people just to follow orders all but if you want your shop at a restaurant policy right you want to keep your job. I understand that also is something to be said on. We should probably put this Pull this weed out by. Its roots when something makes no sense whatsoever since you should probably not do it when you're trampling on people's rights land that makes no sense as a person who may or may not go through the taco bell drive-thru fourteen times a week. I've noticed they have a policy at least at the one the several that i frequent that they put the bag in a been to hand to me like touch the bag to your sliding the bid out so that i have to grab the bag. The same bag you touch with my hands and pull out of the been your dallas. I guess i've never taking right through. Employees got no andrew cuomo to you. But you can't give them the covid that would be bad they can give it to. Yes but you can't reciprocate. Yes but how. Would i give it to them in normal. They've no they've made it so you can't drive through transaction. how would i give them. Covert zooming. You're giving them credit card. Assuming you're wearing a mask you are not. Oh my gosh hands you a mask. Still you know what. You're a bad person. I just decided i don't like that summarizes is well. Does it does. But i could help if you. Maybe you don't want to wear a full mask. What about wearing a nosy. Have you seen the not yet coughs or so. We're going to say great. These are still afraid because look what it does there. A a little teeny device fits over only your nose and an accident hep filter and carbon filter. And if you if you're watching on tv you can see just how stupid they look on people just based on that. I'm going to say. I'm a pass on the nosy cost. Ninety dollars bucks for a nosy. It can't be real real guy. Thinks so ridiculous looks so ridiculous. Let me tell you know what it looks like. What do you remember the opera. The nose oh my gosh like the nose and the nose was the was the. I don't even know what that them opera was about. My daughter was like go to his operas. Gin gray reviews. And i'm like no not another opera. It's gonna be great fun. I'm like no. It's not it's really not and we went. And we mocked it the whole time people were very angry with us but we mocked it the whole time it was a giant nose with feet and it looked like the nosy knows with fee. Yet it saying. I don't even know what it was because it was in another language but it was knows that would come out and it would walk around the stage law. I know who's in like okay. Whatever convinced i'm convinced that that opera was just someone saying watch. How stupid these opera people are To either they'll buy this and then they'll all flock to it in pay all kinds of money to watch the no votes. He and i think that's what the nosy is. I think that is somebody saying. Look how stupid everyone has become. They will wear these and they'll pay ninety dollars a piece for him. So i wonder i wonder if you could actually buy them all right. Are there legitimate product. Go to we went to the to the websites. You buy no bye bye bye. Bye bye okay. That would be a fun show to do a show with the nosy. And that's by three of them one for you one for. I don't want the white one. Whatever else colors they have. I just don't wanna white one. I want to black one. I want a black one is. I had done to fi- as a person with around one because my nose is about the entirety of my native american ancestry. I have more native american ancestry then elizabeth warren. Yeah so i wear a brown nose or a red knows it does seem to be a kickstarter so maiden not actually available to pacers on the way of you. Put your money into that kickstarter. Those people are probably in russia. Only two hundred and seventeen backers a really good considering the amount of press it's received that has good number. Well let's go to do better now because it was a great glasses and black furry eyebrows above the glasses. Let me give you. Let me give you this. This is from the washington post. This is an editorial living in dallas. Texas right now feels like an exercise in survival. Doesn't it really does at a mexican restaurant in lubbock this week going. She's living in dallas. Governor greg abbott. No he was. Okay got governor greg. Abbott proclaimed that he would issue an executive order to open texas up one hundred percent starting next week including as he told a cheering crowd ending the statewide mask. Mandate people and businesses. Don't need the state telling them how to operate. He said it was ironic that abbott made his announcements on texas independence. Day was furry was that ironically. I mean it is. I mean he's saying that we can be independent and we don't have to have the government telling us everything so it was actually kind of appropriate more than ironic for many of us. Texans that we That what we desperately need is to be free from. Gop leadership that has put our safety last at every turn since his pandemic began abbott's decision to lift. Occupancy limits on businesses and other restrictions is reckless and premature. So i i went to I went to a restaurant on friday. And i was out with a bunch of friends and my wife just gave me the dirtiest look. She was already there. And i walked all the way through the restaurant. Saying with my mask on. I mask so i'm safe. I mask so i'm safe. I mask i'm safe i- mass. Oem safe. I mask so i'm safe then. I pulled a chair out. I mask so i'm safe. I sat down. I don't need the mask anymore because there are no germs at this level. Yeah cayenne kobe's ice nuts. Cova is no little people have covert kids. Don't get co because it alter loads above us foot three right. So the texas gop. This gordon washington post the texas. Gop's nacro politics. Mike meaning politics of death have been on full display pandemic year last march lieutenant governor. Dan patrick said grandparents in in texas would be willing to sacrifice their lives for the sake of the state's economy. The i said that too. When abbot reopen the state and in may the move quickly resulted in a spike of cases and he was forced to backtrack. I've never backtrack on any of The i believe that People my age are perfectly willing to go into work. Not everybody not everybody. But there's a lot of us were like Yeah open it back up now. Texas has thrust. Texans back into the reopen rodeo. Show so here. We go again impressed on his avenue impressed on his listeners. At the end of the mass mandates does not end personal responsibility. What of the responsibility of government. Whatever that one of the responsibility to not tell us what to do in every aspect of our lives yeah. Responsibility of the government really ends On the rights and responsibilities of the citizen yeah when they interfere with the rights of the citizen. The government has no place there. This guy is making the argument. That that yes i do need government to tell me whether or not i should wear a mask enough to figure that no on my is he is and his friends but everybody else is texas or too stupid to do it. Yeah so you might have a. I don't know an ego issue. I'm just saying that if you think that your the smart one and you pay attention to science i would like to point out a couple of real quick. A couple of things about science First of all the latest from the cdc mask mandates and restaurant restrictions have very small impact on corona virus Japan their supercomputer just has shown that doubling masks offers little to no help. Just if you're following the science you should read those articles and maybe put depend down On your walk or writing to the washington post. Although i don't know if anybody actually exists at the washington post except people members of the dnc with the with the headlines that they wrote about biden this weekend i- biden maybe working at the washington. Post that's why he doesn't have time for press conference. This is the best of the glenn beck program. The old saying is what goes up. Must come down And that is with inflation as well as you just keep increasing the money supply The way we have we've we've printed twenty six percent more dollars in the last year and introduced them into the system in the last twelve months that no no other year except nineteen forty four. Did the united states of america do that and there were things to invest in nineteen Forty four we were. We were building The nuclear bombs. We were building airplanes. We were building factories And we needed to spend the money. That's we did it. And then we pulled that money all back in this kind of of the amount of money that we now have in the system. We've never had anything close to this out in the system and when you print money it's bad unless there's what's called no velocity velocity just means. Is that bill being spent so somebody gets a loan from the bank. They build a factory. Those those dollars that they got from the bank they pay to mechanics or Contractor the contractor pays for the the structure and pays the electricity the electricity take that and they buy groceries and then they take some of it and they spend it at a movie theater velocity is. How many times has that dollar bill bend spent before it goes back to the bank. We have very low velocity right now and people are looking for places to put their money At least people. I guess who have just a ton of money. 'cause i don't even understand this new sounds to me like a scam but i wanted to get jeff brown on the phone. Hi jeff good morning. Go ahead jeff is the founder and chief investment analysts at brownstone research and editor of the bleeding edge He's a bigwig in high tech. The tell me what in. Ft's are okay so And fte's are non fungible tokens and probably the simplest place to start is to understand what fungible means. Because it's it's really not a word that we use on a day-to-day basis Let's take the us dollar if you wanted to borrow from me One hundred dollars bill. and then you wanted to pay me back. You wouldn't have to pay me back with exactly the same one dollar bill that i gave you right One hundred dollars. Bill is equal to one hundred dollar. Bill they're completely fungible. They're interchangeable they're even divisible and so that's the concept of Fungibility on non fungible object is Something that isn't divisible and can't be exchanged for just something else Simple example would be Your website glennbeck dot com or dot com These are actually non fungible assets. They're not interchangeable with another website at all so soon it so like a stamp would be fungible but a collector stamp with the upside down airplane. That's non fungible as long as there's only one of them okay and that's the that's the nuance okay so. Nfp's non non fungible tokens. every single. token is unique in. Its own right. There's nothing else like it nor nor can there be and so. Let me give you the start of this story and you explain this october. Twenty twenty just a few months ago. Miami based art collector pablo rodriguez frail spent almost sixty seven thousand dollars online on a ten second video artwork that he could have watched for free online last week. He sold for six point six million dollars. That sounds crazy can you. And it is. It's crazy okay. But it's only crazy when We kind of Get sucked into the concept of. Okay this was a digital piece of art but If we think about the value of of picasso Those have sold for six point. Six million dollars and What's happening right now. In the non fungible token space the most popular areas of non. Fo- non fungible tokens right now or in collectibles for example Nba basketball Kind of like trading cards We have artwork digital art work. Which can be a static so just an image or video. Clips are very popular and If we kind of understand that in twenty twenty was a breakout. Your it's really when the concept of nfc's Became very well known in the technology industry by two quarter of a billion dollars worth of transactions took place last year. But we're going to have a multibillion dollar year this year and it's because people see the art and collectibles industry shifting from physical goods to digital assets And each one being unique an individual and rare. Okay so wait a minute. I can understand if it's an artwork because then you would buy the rights to printed and sell it right and you can. That's precisely the point a apollo than walk the rights to that piece of arts. You can sell it okay. Six point six because it was a one of a kind so then tell me exactly what You would be buying a clip online of like sports. Because i understand that people are buying the nba is into this. Are they are. They selling the clips of sports games. And could you not just get that online or would would that clip of that game belong to you and if nbc wanted to play it they would have to pay you for it. That's right so i mean at the nba has been incredibly progressive again last year There was only a quarter of a billion dollars worth of revenue to date Nba top shot has is literally had the highest level of transaction volume More than three hundred million Cherry unusual that you'd have kind of a legacy industry like nba being very aggressive in a very progressive space and monetize their assets and so they can carve out. You know we can imagine how many Hundreds of thousands of hours of video that they have digital rights to they can cut these things up and carve them up and create interactive trading cards. Each and every one of which is Is a one of a kind and confer the rights contractually onto a blockchain It's like transferring of intellectual property or patent to anyone that buys it and then they own it and you're you're exactly right the owner of the of the trading card or the clip Could license it out on a one off basis on a continuous basis or they can just sell it to To another Another individual who's willing to pay more for the asset so desist sound to you little like pets dot com. You know it. It doesn't and tell you why because it's inevitable especially as i look at kids that are growing up today. really Kids as young as eight All the way up to people in their twenties and thirties they just don't value physical assets the same way that they valued digital assets. And if we think about even video games most people don't know this but the video game industry is larger than the entire motion picture industry and one of the biggest revenue sources in video. Games is virtual goods so people are buying a magical sword or shield My soon my son took some of his money last summer after he was working and he was like. I wanna buy this sword. Dad and i'm like buy a sword and you don't really have it. No i use it in the game and you're going to pay for it and i just could not get my arms around it but the thought that was the greatest thing ever it is how they Feel cool How they play better in a game how they're seen by their peers. Who also play in that game. This is more than a hundred billion dollar business virtual goods right now in twenty twenty one. It'll be more than one hundred fifty billion dollars by twenty twenty five. And so when i look at a business. That's that large one of the biggest problem with virtual goods in video games. She can't transfer them to other places. Only exist in this kind of single game and this walled garden but non fungible tokens enable you to actually acquire these things. Have something that none of your friends have. So it's unique design that can have different powers and capabilities and you get to keep it and you can actually sell it for a profit somewhere down. The road Somewhere somewhere right now is somebody that has a closet full of beanie babies that were told exactly the same thing when the beanie baby craze going. It's it's just like the art and collectibles market. You know they have. Here's where certain sectors just on fire and they look like through a bobble. So how do you know how do you know what to buy. I mean i guess it's like art. You buy what you like and good luck to you. Well i think You know this is where kind of normal people actually have an advantage. Let's say it's You know you're a big nba fan and you've been following The nba for three decades. You actually would have kind of this intrinsic inherent feel for the value of certain moments in. Nba history And and what they might be working whether or not they're going to increase in value over time I can tell you that this industry the the nfc industry within a few years. We'll be worth more than one hundred billion dollars. This is literally a transference From one kind of physical objects market into A digital asset market space. And just like. I think When i think about the investing world you know every year there are sectors that be Hotter and more exciting or technological advancement is happening more quickly And they tend to appreciate in value than other sectors. If i wanted to see if i wanted to buy let's say the lou. Gehrig the luckiest man. Luckiest man on earth on earth. Could i buy that now or an. How would you buy it or yeah so The owners of the current assets would would have to basically packaged product ties and create A nonsensical okay And by doing so they actually create a contract of ownership so indebted within a non fungible token or is all the data about what makes it rare and special as well as what we've referred to as a smart contract which is what enables one company or person to transfer the rights of ownership to another individual and so once that's offered up to whoever owns those rights. You could buy and hold it for as long as you want it and do with it all right. One last question I was sued for the lower case. G by garth brooks when i first went over to Cnn it's the typewriter lower case g and he sued me and he had sued everyone who used the lower case g in a logo Claiming ownership of it You know he took a copyright. I think out on it and And so owned it and he fought it and after ten years if you fight and win every case and he had the money to do it you own that letter but you have to as in anything you have to defend it all the time so if you have a famous clip don't you have to also have a bunch of attorneys to make sure that people know that that clip asked to be removed from youtube and everywhere else. Don't you have to fight it all the time. Yes you know tr. Traditionally that would be true The difference with With with blockchain technology. I mean of course if somebody is just simply capturing a clip from. Let's just say a youtube video or an old video. That's actually different than the non fungible token itself the non fungible token would not just include the video clip but Typically what we're seeing is there's other things that make it unique other attributes To the clip that make it a special and You know it's official. It's like having a licensed and authorized product rather than you know. Knock up a knockoff. Jersey that You know you just by the vendor off the street and so that's where rarity comes you're definitely right You could pursue those things. It's kinda crazy how you could claim a letter from the alphabet. I know i'll be right. I thought for sure that it was madness. But it wasn't and he now owns it. Jeff thank you so much for talking to us. Jeff brown and you can find jeff and follow jeff with his website. Jeff brown letter dot com or brownstone research. This is the best of the glenn beck program and don't forget us on i two claris schillinger She is a mom. Just like you might be She has kids in school or should be in school and she has a started. A new pack called keeping kids in school She was has been just like you really upset about the school closure. She said that she had an idea that the teachers unions were involved. And then something happened and she said i received the evidence. Clarence is with us. Now look calories. Hi glen i. I heard you slipping not hello A real it's a real pleasure to be with you today. yes so i filed this right to know. Got an email back from the teachers union. President crazy right. What is the right to know. Is that like freedom of information. Act kind of thing that's correct. Yeah that's exactly what it is. And you file that. With whom so i filed. That was my specific school district. Tapper worship in the state of pennsylvania But we have hundreds all over the seat of pennsylvania trying to prove the union. Strong arming okay and use. You wrote to them and said what i wanna know what. I want all correspondence between the superintendent and all the union officials so correspondence. I laid it out. Emails text messages Any conversation memo between which is this. Union rep is. Brian moore and our superintendent. Every school has a union representative. So i encourage everyone to file. These rights knows okay that is. I didn't even know you could do that. That's fantastic fantastic. All right so you filed it in. What did you get back. What did you find so I got about seventy emails back And what i put in there was. I want all emails. Between march twenty twenty and march twenty twenty one that include in person return or cova. Did i put some keywords in there. And i received this email back and it's so so disturbing. He the president of the teachers union notes. We are not a childcare center. I fear babysitting drove parents to demand. An in amount of in person instruction that is gut wrenching. Not just for parents. But also for teachers he is totally disregarded the importance and how essential our teachers are. They're not babysitters are educators. So wait a minute. So that was in the memo from a union boss to the teachers. This is an email from brian. more Teachers union president for him happier awash. School district sent directly to our superintendent encouraging him to keep the schools closed because he was trying to open them. He says for the record. And i can't stress this enough. I do not believe it's the correct decision to keep moving ahead with the plan. Return for high school students. As i pointed out yesterday bringing those students back just to return them to remote instruction is plainly illogical. Additionally hybrid instruction is poor and unsupported by empirical evidence for effective curricular instruction perhaps it has some social and emotional benefits but it's not a better option than remote instruction. We're not a childcare center. And i fear babysitting grove parents to demand. An amount of in person instruction is as we've set along all along the way we need to follow the science and i completely agree the scientists telling us we should not have students in school and decisions are being made to appease political needs rather than doing. What's best for the kids. So he's accusing this superintendent of bowing to political needs. Is that correct yes. Are you ready for the icing on the cake. Sure brian moore president of teachers. Union sends his daughter ever since august. Five days a week in person instruction to a catholic school How could he do that if he finds it to be really dangerous. I would love to know that question. And i would love to know that answer. I mean i would love to speak to him. Face to face at this point You know our children are really suffering at the greatest extent. I mean really truly i know you know the anxiety. The depression the failing rates i mean what about the people that can't afford that option like he chose catholic school. Were already paying so much money in school taxes. And then here. He's sending his child. Just it's just so heartbreaking. Our kids have not been in school for a year clinton year. I know my daughter hasn't been in school for a year. My son you can opt you can opt in or out and my son has opted in to go into school but he's still a couple times a week you know he's doing the hybrid hybrid thing And and when he goes to school it is like some sort of. I don't know Scientific know boy in a bubble kind of atmosphere where everybody is behind plexiglass. And you can't leave your desk and you have to eat at your desk for lunch. It's i mean it doesn't even sound like school. And it's affecting him and his His depression level. And it's really not good. So what are you what is going to happen in the school. District with with brian moore. Well what he says hybrids not good right. He says it's poor and unsupportive unsupported. So i'm pushing for full return. I mean you're you the one. That's he's the one that said it you know it's four and unsupported so i'm hoping That they this and open our schools. Five days Just as they should just as many scientists and doctors recommend for the welfare of our children. But i will also note i do believe and i hate to get this to even be political but i believe that people have to show up at the polls and start really knowing their candidate of who. They're voting for school boards. And whose own union and who's not. Oh yeah i would I would completely agree with you on that now seeing that the cdc has come out and said mask. Mandates and restaurant restrictions have small impact on the corona virus cases. I would assume that would be the same for schools. And the american pediatrics has come out and said you've got to put kids back into school was science. Is he talking about that. suggests that the teachers have to stay home. He does refer to the pennsylvania department of health but that Yeah i i know i mean we. We know who was running that he's She's now she's now. The biden administration. That's right doctor levin. Okay so it's troubling. I appreciate the time the bring light to this because our kids and just like your son and daughter need this so much. Every single child needs us. We have children that with keeping kids in school. That have contacted us their parents that are experiencing homelessness and they use school for much more than school right. We cannot continue. This has to end. We have kids that are going to gun violence drug drugs. I mean it. it has to end. We're giving our children no outlet or giving them no no road or path to succeed. So clarisse the You know the the argument that as conservatives. I can't believe were were demanding. These schools open up. There's a story out today that says in in kindergarten. They're going to start talking about Sexual identification and even anal sacs five year olds. I mean what are we doing. Why isn't there part of you. That says i don't want these schools to open backup It's a great fear by. Maybe we should start looking stronger at school choice. I mean maybe we should. Because i know that i know many parents that cannot afford the option. You know of private institution or whatever that is but maybe maybe the answer is school choice. And i gotta tell you. I always been an advocate for public schools. I always have. And i thought that they were cornerstones of our community. But with the email that i shared from you with union strong arming and then you telling me about the curriculum changes. How can we. How can we allow our children to to experience this kind that that it's disturbing look there's something else we must so if anybody wants to get a hold of you and and join your your movement you have keeping kids in school dot com. What will you find their. That's right Keeping kids in school dot com. We if you join our movement we can provide you with all the information on how to Do the right to know request. We have templates that help people. You know file them in their own district In the state of pennsylvania. You'll see the candidates of who were endorsing but we can also help create other packs. We helped Organ create a pack. We help new york city create a pack For really start getting people out of the polls and knowing the candidates that they're voting for and understanding what platform that candidate stands for instead of just walking into the polls and voting. Well i i hope you get lots of calls from texas and all around the country Because i think what you're doing is really important. If we are not involved at the local level we lose everything. And it's it's it's possibly more important for all of us to be involved in our school boards than even the presidential or senate races keeping agree more keeping kids in school dot. Com is the address to go. Thanks calories appreciate it. Thank you bye-bye.

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U.S. automakers signal a lane change

Capital Ideas Investing Podcast

39:14 min | 2 years ago

U.S. automakers signal a lane change

"Investments are not FDIC insured or are they deposits of or guaranteed by Bank or any other entity? So they may lose value. American funds are not available outside the US. The following is not intended as an offer to purchase or distribute American funds outside the US. I'm mad Miller. Mrs capital ideas. Your connection to the minds and insight shaping the world of investments. The US auto industry may have landed on its feet after a steep decline following the global financial crisis. But the road ahead is anything but stable advances an electric autonomous technologies are forcing automakers to make tough decisions in order to remain viable in shifting competitive landscape investment analysts. Caitlyn Murphy who spent fourteen years covering American cars for capital group. Join me recently to map out the most probable scenarios for the industry. So listen and learn why the recent rebound in US auto sales had little to do with the cars what Detroit needs to do in order to compete with tesla. And why the industry could see more change over the next five years, and it has in the last fifty now here's my conversation with Caitlyn. Caitlyn Murphy is an equity investment analyst to capital group with research responsibility for US automobile and components manufacturers chemicals manufacturers as well as u s and Canadian railroads, she has fourteen years of investment experience all with capital Caitlyn began her capital career is a participant in the associate's program a two year series of work assignments in various areas of the organization, she holds a bachelor's degree in organizational studies from Brown University in his based here in Los Angeles that welcomed a capital ideas may call you, Katie. That's what we call you around the office. I'm great to have you here. So much to talk about when it comes to this, very, vibrant and classically American sector. Now US auto says let's start with that they'd done quite well in the past few years. What's your big picture outlook for the industry both near term? And then if you look out on a longer even five or ten year horizon. How should we think about that? You know, I think what we've been seeing is. What the auto companies would have called it a couple years ago, a plateauing of auto sales at very high rates of sales closer to seventeen million units and beyond that for the last couple of years, and what's driving not as pent up demand. We had a garage destocking in the downturn. And we're coming back on that. And we see household formation improve. And as you see that expand it usually correlates well with car ownership and car sales. There's some demographic tailwinds that have been helpful the car park has been very old. It's getting older kind of every year. And so the refreshment cycle associated with that has been additive, and it's been withstanding some of the cyclical factors. I think the market's been worried about for the last couple of years rising rates falling used car values, and the things that tend to be more disruptive of this point of the cycle. If you look out five it's very dangerous for cyclical analysts, and it's really hard to invest around that. But there's a couple of different things that play the one you have that. Geographic tailwind of millennials and car ownership and homeownership, and you have this underlying idea of household formation combined or scrappage in a relatively healthy income growth environment. Scrappage is when your car's no longer work, or they get total the average car in the US can last fifteen years. Now, it does support kind of like fifteen sixteen million unit Sar with the economy SARS your sales rate for auto seasonally adjusted, and so you get a little boost beyond that depending on the health of the economy and a boost below that depending on how worried consumers are. But that's kind of what you can think of this trendline offsetting that are maybe adding to that is the technology revolution. That's happening in autos associated with Thomas and to a certain extent sharing. We don't have any of the answers of what that's going to look like. But if you look at you know, what the auto companies are talking about some of the technology companies in the space, this idea of shared robo taxi autonomous vehicle fleet that gets deployed and some of the core markets, some of the top cities in the world some believe that that's going to be detrimental to auto sales. Sales on that longer term time horizon, and that's perfectly. Okay. But if you think about this model, and what's required. It's kind of a long technology roadmap to get to what would be inflection point in cost for consumers of a dollar in operating costs per mile. And if we get there, it does open up the dense urban environment. How many vehicles are in that denser have been environment driven by consumers today fifteen million out of park of two hundred seventy million. So it could be a headwind or it could be additive or it could just be the safety revolution. That enhances the way we drive and how we get around from place to place. There's a lot there. I want to. There's a lot there. I want to. As we look ahead. Take us back for one second. Because just when you talk about the aggregate figure today of sixteen or seventeen million cars being sold in the US during the big financial crisis. What did it dipped at this is when the auto companies were needed to be bailed out there was concern about the whole auto supply chain. Collapsing was the the low point in terms of auto sales just to give folks frame around a seasonally adjusted rate, we drop down below ten and so it went from below ten now back to sixteen or seventeen. So just a huge rebound previous peaks. Exactly, which was scary. I guess for the industry the number of years to get there again do that garage destocking and just the balance sheet impairments at the household level. It took a while to get, you know, aside from that cash for clunkers scheme on that helped to drive sales and really help the auto industry recover from very very difficult place. It took a number of years to get out of that low teens figure. Auto sales too, much healthier more reflective level of auto sales. Relative to trendline seems to have been kind of a renaissance in American autos. There was a time few decades ago. People would laugh or it was maybe an snobbish way. Think will American cars they're not as good as these foreign cars what change to account for. What seems like a revival and the American auto is way to put it. Yeah. I wanna associate with cars though, for the most part driving an American car. Still gets you a second book, I would associate that revival with trucks that's been the core in the lifeblood of the D three for some time. If you look at the most the through the Detroit three though GM Ford and Fiat Chrysler, I'm going to try and on Patty. What if you look at the most profitable vehicle programs in history? It's the F one fifty and GMC truck platform, and that's more profitable than a tesla. That's far more profitable than any of the luxury OEM's, and you know, the DC three the Detroit three on ninety percent. Share drive the truck market and very high levels of share in the largest UV market. And so what's been interesting and that downturn that we just discussed there was this massive mix shift really impaired the profitability of the three because they just don't have the same marketshare presence and small cars leading into that downturn gas prices were high. We did have this shifted mix. So you had this volume offset, and you had this huge mix offset as we've gone deeper into the cycle consumers at experimented with that small car. Driving around a Ford Fiesta on the highways of California sided actually, no I like SUV's and was also. Is that the fuel economy improvements in SUV's and SUV have gotten that much better? So we've had a little bit of a mix shifts that might be more economically driven might be driven by gas prices. But certainly how secular underpinnings which has translated into far better profitability for the three. How do you think about what the biggest challenges are for the US automakers today in your view? It's multifold GMC. Oh, Mary Barra. Likes to say, you know, over the next five years ten years. They're going to be more change in the auto industry over that time horizon than there has been the last fifty and I think that quote kind of defines it even five years ago, the auto companies were still turning up their noses somewhat at tesla Tesla's made a lot of market share in rose, particularly in the luxury segments in the market seems to like them because they have a larger market cats than some of the traditional OEM's far lower volumes. And so you have OEM's like Volkswagen talking about you know, twenty five percent of their sales being. Electric vehicles. That's very costly. Now, if you think your average electric vehicle loses the OEM between ten and fifteen thousand dollars because of the cost associated with the battery that will come down, and we'll get you a parody with the internal combustion engine. The cars were used to driving right now over time maybe by mid next decade, but until that period of time they're going to be losing money. So that's interesting because I I've never understood that that on every electric vehicle today the losing a ton of money, and that's because they have to price it at something that is a market consumer acceptable price. But the battery technology is still at a level where the cost per car is just very hot. You can bring it to market for. Yeah. If you're running these companies, how do you think about that? I think if you're thinking like a long-term owner of the business you see the past a battery costs coming down, and you think about scaling a platform. And you say, yes, I'm gonna lose money today. But as that platform scales, I'm gonna lose less, and this is a Mark. That I need to participate in a need to be there. And if I can get my cost profile lower than others that's going to be an advantage. And that's kind of what we've seen with tesla today, they building their consumer brand as an electric vehicle for the other brands is that part of the relation of management in terms of that it's a GM electric vehicle afford electric vehicle at cetera. Yeah. I mean GM's taken in an interesting direction, you know, the Chevy volt was one of the first electric vehicles offered in the US, and it was actually more of kind of a hybrid because it had the the internal combustion backup engine associated within. But it was unprofitable. And so as part of GM's transformation to not investing in businesses or products that lose money they've canceled that vehicle and their relaunching an entire electric vehicle platform associated with Cadillac. So why would you do that? What tesla did really? Well, we're kind of learning from that is rela. To all the other OEM's that had electric vehicle products. They came out with not only a lower cost pass to the battery pack in the battery soul costs, which was important. But a product people really liked such that they could sell it at a price point that offered profitability for tesla. And so I think the first wave that will seriously see over the next few years, they're going to be on the luxury vehicle segment. That's where we've seen the share lost to tesla. And that's where the OEM's can offset the higher power train costs with higher price points. So the big three automakers GM Ford and Fiat Chrysler, which one in your view is best positioned for the future in a rapidly changing industry. We just talked about vs, but beyond that, there's massive things happening in product share shifts designing cars for emerging markets, and how that's changing Atanas the investments, which are going to cost. If you're serious about it. One two three billion a year. Again, these are. Things that were barely profitable just a few years ago. So that's massive relative to underlining earnings power. So when I think about what a company needs to really be successful. I would frame all the changes in autos as being like who will be the survivor almost there's that big the stakes are that high. And I think starting point it's a strong balance sheet. That's just a nonstarter not an advantage. It's just a need to have. I think you need to have a mercenary approach to any business. That's losing money any regions. That's a losing money and be willing to take action around that and that's painful, but they really have to lower their break evens and invest in higher return segments. I think as we look out over the next five ten years, we'll likely see consolidation in regions. We'll see OEM's exit regions will seem new partnerships are merge, and you need a strength of those partnerships needed them working. Okay. Well, you need a profit center. Some kind of large-scale vehicle platform that as you're investing in all these changes is going to fund it. So it's like trucks for the DC three be some of the luxury vehicle markets, some of the companies that do the scale platforms really, well like Toyota and a relentless focus on technology. I think for so long the auto industry has kinda like all looked around the room at each other and said, well, I'm better than the guy next to me that was particularly the case for the d three over a number of years. And then they brought in their scope like, oh, I'm I'm getting closer to the metrics. They need to be in manufacturing, relative, the Japanese or our products are getting most of the metrics we need for the Europeans. But you have to force yourself to look outside the traditional ecosystem in leadership. I mean, who's got the management team that's willing to make these investments. Take the short the headlines the tweets associated with it. And really be able to have this relief. Unless pursuit of this five to ten year, focus, really complex these challenges incredibly complex. You've talked a little bit about this. But just tease had a little more. What attributes you're looking for an auto makers that make them potentially attractive investments, obviously, without we don't make recommendations on capitol ideas. But speaking broadly, what are the things you're looking for. So traditionally the auto OEM's have not been the greatest place to invest it's a high fixed costs in competitive industry that doesn't typically earn high multiples where there significant balance sheet risk at a downturn. And you know, they pay very attractive dividends. The dividends are always at risk at a downturn. Because the auto companies have to protect the Finco taking goes the financing on. Hopes the car and everything. Because it's your Billy to sell and sorry, Mark money. And so as an investor if you were just keeping things simple easy for yourself. You'd say you want to invest coming out of a downturn Lor into a product cycle that you're very enthusiastic about. There's many many aspects of a virtuous cycle of a product cycle and autos where you have improving residuals falling incentives. Maybe some new volumes and you get this kind of profitability push from time to time. There have been massive restructuring transformative efforts in autos that have rewarded shareholders. And relatives solid changes. Probably a time to think about what some of those opportunities look like, but it can be a challenging space to invest in. I can hear that. Now. Let's talk more we've touched on this. But the electric vehicles are growing in importance. There's the rise of autonomous at some point that you've talked about our colleague Marquette eighty was on the podcast not long ago talking about driverless cars, and he'll talk endlessly about the potential impact of that. How disruptive do you think that's all going to be over what timeframe and how does that influence the way you look at auto and do you deal with our colleagues who are covering AI and all these other intersecting industries in ways that help amplify your own perspective on this? I think one of them more kind of interesting pieces for analysis last year for me was looking directly at cruise versus Waymo, which will be enough of Google one day rain. Yeah. The dialogue that we have between the tech game A-List and myself and some of the other auto analyst is pretty dynamic around. All these changes just a frame Thomas driving. No. This is going to be the most difficult technology. Problem and potentially the most transformative that we've ever encountered and not only is it about getting the technology. Right. It's about industrializing the technology some of the specs an auto and the requirements and auto because you need the technology to last for a number of years over a number of miles. So there needs to be a -bility is really difficult and on the path to getting to those, you know, true autonomous streams, unfortunately, more relief. People are going to be hurt. Sure people are going to die. And so there's this moral issue that overlays everything that we're trying to do. So just to level set. It. What's exciting about him for me as an investor is if you take US auto sales and the value associated with that today, it's probably three quarters of a trillion dollars. And then you take the market cap of the entire US industry, a US OEM's and suppliers. It probably comes up to like Q hundred fifty billion. And I think the. Dynamic is similar if you do that mask globally. So that's thirty percent price to sales if you think market cap versus the the sales associated with that. If I look at the market size for robo taxi fleet operating in the top fifty cities, the sweet spots for this an eight to ten percent of those miles driven, and I think of an operating cost per mile getting below that dollar which would facilitate that and value that markets is I get kind of close to three hundred fifty billion. So it's only eight to ten percent of miles driven and the top fifty cities. So that's less than five percent of total miles driven in the US is a bigger market. And so the question is who's going to dominate that market. I mean, look at some of the valuations today it's rumored that Ford in VW Ford's been this is getting valued at four billion GM's cruise has been valued at fourteen and a half billion Aurora. Just at around a funding evaluated at close to two billion. Some people think Waymo is worth one hundred seventy billion. So that alone that's close to two hundred million right there, and he's companies aren't producing a drop of revenue Trent GM kind of as it's fascinating to think about identifying where we are in the hype cycle near term relative to the long term potential can be more challenging. You're listening to capitalize ideas brought to you by capital group. That was really interesting. The numbers are using on a scenario where five percent of miles driven in the US under an autonomous scenario in big cities has what looks like a bigger market cap than the current auto industry. If it means that people need fewer cars because you're sharing or you using it on demand is my intuition off that it would be what makes it a bigger market cap potential. Yeah. I mean, I think yours too dumb question. Not at all. I think you're looking at a business if you look at the robo taxi fleet model. Okay. So your traditional auto AM has a gross margin of fifteen percent. Maybe twenty percent, right. And then a ton of other fixed costs costs associated with that a robot taxi fleet model when operating at high levels of utilization, and as costs come down could be fifty percent gross margin are higher some of the. Business models associated with may have very tech like gross margins. And so the free cash flow associated with the fleet and probably how you'd value. It would be more significant. Yeah. Different. Yeah. Six years away twenty years away. It's hard to look I think as an investor looking at the milestones around that. And I think we'll get some important data points in terms of how far we are long in the technology for GM and Waymo in particular this year in terms of where they launched their fleet when they take out the driver the safety driver from their anonymous testing, fleets a human. Yeah. What the requirements are going to be from Tele ops perspective, we're going to have a lot of milestones to that. I think over the next few years that will tell us if it's going to be something that's very limited near-term, or if we can really get to the top fifty city potential or whatever it looks like. Regulation come into this because it's going to be a big complicated. Endeavour at some point to all the auto folks want there to be some kind of federal framework. So there's not, you know, a million different state rules on this stuff. Yeah. There are and not only do you need a federal framework. That's kind of beyond what we have today. An in needs altering right now, the companies can really only produce twenty five hundred vehicles per the exemption and the vehicle safety standards. And so that requires a legislative action, obviously has very busy. So we'll see how that develops that. Who ultimately is responsible for accidents? There's been some development on that in Europe. And we need a legal framework for these companies to be able to operate in for now, they're dealing states state municipality by municipality, and that's difficult. When you think about building a a scaled business that's already highly complex you keep bridge. Interesting articles that are kind of philosophical about. Well, if if it's the car is completely autonomous. How's it program to it has to make a choice between running down a grandmother or going off the curb and two children or three animals are how will it choose or? Are going to be brand differentiations based on, you know, the moral choices that your car is going to make on your behalf. It's really morbid thinking about that philosophically. There is something out of MIT called the moral machine. Where you're giving these scenarios like should the car swerved to avoid grandma. What if grandma is male executive what if grandma's pushing a baby stroller? What if grandma's jaywalking? And so they've done a lot of studies. And it's it's really interesting how the studies differ, depending on what geography and culture, you're based in kind of what lives are are valued. So you can go deep down does moral philosophy path when you talk about some of the stuff, but you know, there's different perspective we've demonstrated comfort with these ambiguities over time. I mean, if we wanted no deaths from driving no accidents ever every car. We drive ten miles per hour who we're comfortable with the tradeoff higher speeds. And and so I think we'll get there over time. But it's just going to be. Data information public outreach testing in the big pictures that isn't it? The expert view is that fatalities or injuries from driving. If we're in a Autan Humous world are going to be much much lower arch. Older will look back and say how could you ever like humans drive these things I'm hoping for my children? I won't have to teach them how to drive imagine at some sense to imagine which interesting to me more in the near term is that you can get eighty percent of the safety benefits at twenty percent of the cost some of these intermediary systems, what we've referred to as level two or level three systems where the drivers still involved, but we're we're helping them we're monitoring how they drive where measuring the cognitive load of a driver in the cars intervening when it has to. And so I think we can make massive strikes on the safety side before even think about a true Thomas world where you can go fully driverless. So that's pretty exciting to do you cover tesla? I do what's the kind of headline about what the impact of. Of that firm and allow musk is the kind of visionary entrepreneurs has been in driving the industry in your view. I think he woke up the industry when test like came to market at the time where I looked at them. I probably visited close to a dozen private electric vehicle companies all companies trying to do that. There are a lot of incentives around the time coming out of the downturn. There were a lot of battery maker's there's a lot of hope around. We're battery costs could go, but tesla decided to go with a different form factor than what others were used to. They lower the cost that way, and they said the product has to be compelling. We can't keep people golf carts that feel unsafe. And don't have the range. It has to have compelling range. It has to be a beautiful product. And you have to be able to do everything you can do in a normal car. I mean that doesn't seem revolutionary right now. But it was at the time, and they just thought about everything on just a different plane than all the other OEM's. And so if come to market they've had a lot of success in the ultra luxury segments where they've. Taken some share and really put pressure on some of the German OEM's in particular, so worried about they've also disrupted the distribution model. Right because it's kind of a classic American thing that their car dealerships everywhere, our fall in every major town, they're politically very powerful. How has that worked? The fact that tesla rethought that model entirely? You know, if you think about an electric vehicle and the associated maintenance with it expected is a lot lower. I mean, you don't need oil changes charging your battery. Tesla can you over the air updates for glitches and bugs a lot of the mechanical parts that wear down just aren't in the vehicle when you think about a typical vehicle dealer where do they make money Parsons service? Tesla had the luxury of not having the sink about how you create a dealer model that exists off the profitability of Parsons service. I think anyone that's owned. Tesla knows that the actual service experiences pretty different. They're still not at the build quality. Or some of the reliability things you'd expect from a traditional OEM all auto owners are enthusiastic in spite of that speaks to the brand and kind of the product that they built. So what's musk like you make research trips part of the fun of of working capital and the excitement and also? We get to do on capitol ideas is here. Few tales from the field. I'll say he is an incredible visionary. I was not an new analyst, but newer, and so we're going to meet Ilan for the first time I had met him before. But I'm taking PM's that have never met him before. And he obviously has a phenomenal reputation from predestined. And so we sit in a meeting with him. And I'm like, you analyst hopes the PM's like this guy, and he starts to talk about ramping up production for model ass, and we're into some of the technicalities. And again, I think he was sleeping on the factory floor way back then. And then he stops and says, can I be honest with you. We'll extra tell us. Mystics? There's a ninety five percent chance earth will be all right. But there's a five percent chance that we may need to colonize Mars and a Mike. Oh. I'm looking at the portfolio managers next to this is the guy we want to invest. But he went on to kind of connect the two things and why tesla was such a mission for him because I really think the electric vehicles our mission. He's an advocate for that. And I think it ended up resonating with them. But it was just one of those moments says a newer analyst. We were like, okay. Yes, EEO meetings. So how did you get interested in investing? You a kid who was looking at stock tables and talking around the table about investing, or what was your path to this definitely not the daughter of a bricklayer and a nurse since. Then there wasn't a lot of stock conversation. Where'd you grow full Massachusetts anything my early knowledge of interest rates like when interest rates are rising work became more difficult for my father construction slowed down. And so I made that connection early on. But didn't really study it any applicable way ended up going to Brown again, not known for hard business. I great university is one of the greatest, of course, I think we both know that studied organizational studies public policy sociology abroad liberal arts degree, ended up doing my Cesis on corporate governance and quasi public corporations. So that kind of attracted me to board and organizational. Behavior. How companies are run I worked fulltime through college. And I ran Brown dining. The students side we had four hundred students and manage interactions with their union counterparts and scheduled manage all those people a huge management role for a young person. Ally I worked with incredible people. And so I got to get that insight early on. And then this tap program came up at explaining rotational program. Two years, you know, six to eight four month long rotations in a variety of departments of capital and a variety of roles and offices. Do they do show up on campus to on campus? I thought I was going to go and study sociology goes study those corporate governance and quasi public corporations and do a PHD in sociology and that was my pass. And then again, a summer of doing research in addition to the other jobs. I don't know if this is I love research, but this doesn't seem very impactful and then capital just came. They just landed on campus with this incredible rotational opportunity for someone that didn't know much about what the world outside of their own little microcosm. Look like, it seemed like a great way to learn about it people were phenomenal. I think I met with twenty eight people as part of the process of interviewing as an undergrad. So you can only imagine. And it's still rings true is about the people and the curiosity and the passion for learning. And I think that's what I expected coming in. And that's what's been the case. So far. Now, investing and the automotive industry in particular tend to be traditionally kind of male dominated industries talk a little bit about has been a woman been an advantage a disadvantage both at times. Now, there is a study that came out over the summer. I think it was funded by Bloomberg. I don't remember the actual name of the people that did the study. But it looked at earnings conference calls for the last twenty years and found that only eight percent of the words spoken or spoken by woman, and it linked to other studies than at BYU that said if women are twenty percent, which is kind of where we're hoping to get to the investment management industry twenty percent of the population room. We're in a meeting they say ten percent of the words, and it's not until women have a majority where they actually able to influence the conversation. And by the way, when that happens it can lead to better outcomes for businesses better investment results. So we know that I'm super grateful to be here. We don't talk about a lot. I hope we do going forward. Because I think we have more female investors here and more assets managed by females thinks it would rival anyone else in the world. Don't talk about that. But it's important. Very senior women investment sin tons of people mentor and even as important as that we have a lot of what we'd call allies and people that really champion the analyst process, and is part of that champion you as a female, and that's very important because just what the looted too early. It's about finding your voice in a space that can be crowded, and it's important that we have a voice because that's how we influence investment outcomes. And so I think is very thoughtful about that. And I'm grateful for that where I see it in the intersection between the industry and autos GM had an investor day last month, and it was great. I mean, they brought a lot of good points as well about lot of transformation GM has a female CEO and CFO they are one of three companies and the S and P five hundred and two in the fortune five hundred that of a female, CEO and CFO mind boggling, so here, we are talking about all the changes that they've made. Whereas I thinking about strategy. They put out a bishop's earnings targets ITO create day. Look around the room, hundreds of investors, I can count on one hand, the number of female, investors, and two of them were associates from Catholic myself and a portfolio manager from another side of capitol in here, these great female leaders that I get to work with because of my coverage, which is rare and the people are going to allocate capital to them are all very different. That's not always going to be the case. I think this job on the surface can turn a lot of females away because we have impressions of like macho culture, the work life balance a number of other things, but it's important for us to show up because one day this P five hundred is going to look very different. And there has to be other people allocating capital, two different businesses. What advice would you give to young person who's looking to build a career in investing like you have? Yeah. Well, obviously, I didn't go the traditional route. So that's an option. I think curiosity. He is the most important factor in all this. Do you really wanna keep turning over rocks? Can you get thrown into industries that, you know, don't naturally seem exciting to the outsiders and really just want understand things that are really deep level? There's a lot of ways you can build that expertise. I'd argue like a liberal arts education is one way to do that. I think the traditional advice of just doing it. There's a lot of emotional and behavioral aspects of this business that you don't know you're blind spots until you're invested in the stock and you have to take action around it. You don't know how you're going to react to being wrong until you've been wrong. And so just get out and do it and build a small portfolio and learn about what you don't know and iterative that process over time, even if it's a very small scale small level and importantly, if you can't do that because of financial means or whatever it might be put yourself out on a limb like was great abode. Investing is there's a humility too. And there's a million too. Because to be a great investor. You have to be right. Sixty percent of the time. So you're wrong forty percent of the time. And I think, you know, as a young successful person that kind of comes up through the traditional routes. You don't get to be unsuccessful. You have to have the great great point average test scores. You have to write the best you don't get to fail. And so do something that puts you on a limb. Whether it's like taking that hard chemistry class because you love chemistry, even if it could lower your GPA or like submitting short story that you might get rejected. But you're going to do it because you're passionate about it. And I think there's a lot of different dimensions to that looks differently for everyone. But then idea of putting yourself on a limb going after something where there's a high level of uncertainty, and then dealing with that and building the resilience off that because a lot of that ties into how we shape and develop ourselves as investors. That's so interesting and thoughtful Caitlyn Murphy, We could go on all day. We're going to have to leave it there. Thanks so much for joining us on capital ideas. Thank you, get to see you. We love hearing from our listeners. So tell us our doing please review capital ideas on itunes, or if you prefer to send us your feedback, including any topics you like to see address shoot us an Email to capitalize ideas at cath group dot com. You might just find your idea discussed here on a future podcast for capital ideas. This is Matt Miller reminding you that the most valuable asset is a long-term perspective. Investors should carefully consider investment objectives risks charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained for financial professional. It should be read carefully before besting. Securities offered through American funds distributors, inC, investing outside the United States involves risks such as currency fluctuations. Periods of quitting price volatility as more fully described describing the perspective. 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Chip off the old block: The semiconductor comes of age

Capital Ideas Investing Podcast

40:38 min | 2 years ago

Chip off the old block: The semiconductor comes of age

"Investments are not FDIC insured worthy deposits of organic tea by a Bank or any other entity. So they may lose value. American funds are not available outside the US. The following is not intended as an offer to purchase or distribute American funds outside the US. I'm Matt Miller. This is capital ideas. Your connection to the minds and inside shaping the world of investments, perhaps nowhere does the adage big things come in small packages resonate more clearly in the semiconductor industry, even his high tech companies continue to evolve and disrupt the mighty microchip ushered in the digital age. Some fifty years ago has shown no signs of losing steam or conductivity if you want to get technical investment analysts Isaac suited, a twenty year industry veteran sat down recently with my colleague, Mike utley to talk about semiconductors and the companies that make them so listen and learn where the semiconductor business cycle is situated today, why the new five G cellular technology could be a boon for chipmakers and what your best position to apps and try in an era of circuit overload. Now, here's my conversation with ice. Today, we're talking with Isaac suit it and equity investment analyst at capital group Isaac covers the semiconductor industry in the US and Europe as well as global semiconductor equipment companies. He has twenty years of investment experience thirteen with capital Isaac spent much of his youth studying physics, and we'll ask him about that a little bit later. He holds a PHD in physics from the university of Wisconsin, Madison a bachelor's degree in physics from Emory University and an MBA from Stanford Isaac. Welcome to capitalizes. Thank you. Glad to be here. Let's jump right in and start with your big picture overview of the semiconductor industry who are the major players, what drives share prices and after a fairly difficult two thousand eighteen what's your brought outlook for the sector in two thousand nineteen and beyond. Sure. Big fan of history. So let me just put things. Aluminum perspective, when I think of eletronics, it's a fifty year old revolution that we have had scenes probably the invention of the integrated circuit, we can go back even farther with any mentioned the trustees from the nineteen fifties and these revolutionize comparable in terms of magnitude and scale to the industrial revolution as distorted in England and then propagated through the world. So you know, semiconductors are drivers of these revolution. The has changed. The world has changed the way we leave having proved lives or humanity. Fifty sixty years is a long time. And they industry is maturing. They industry husky slowly quite a bit both individuality and actually geographically in the US we have Intel as probably the name that most people are familiar with semiconductors still major player. We have Texas Easter meant which is also one of the founding members of this conduct revolution global. Early in Asia, we have Taiwan Semiconductor, which is the largest manufacturer of semiconductors into world in Korea. We have some soon electron IX which besides being a smartphone. Supplier is also a major manufacturer of semiconductors Europe used to be a very large center of semiconductor design and manufacturing has declined over the last say twenty five years, but he has several key Compania that provide equipment for the manufacture semiconductors. One of them is a SNL right in Holand mainland. China is trying to become a major participant in the semiconductor industry. So far, I think that we have not seen a major semiconductor company coming over China breath. He's just a matter of time for them to be significant players. Can you give us a little bit of your opinion on short-term where you see this market going, and then your long term? And year view. You know, this is a very secret the industry under two reasons why it's a secret industry. One of them is because significant portions of the industry are commodities on therefore, we can expect quite a bit of supply the mining balances do pricing on other recently is because the length of time they takes to bring significant manufacturing capacity online is measuring years, right? And of course, given the length of time, it's no unreasonable to expecting balances again and supply demand. So these are copy only tests and being the streets with long lead times from an factoring capacity to be out of it. Tends to be a recipe for cyclicality. So we are now entering the digestion period, we have been we calling investment community over earning periods. The industry had running rather hot for maybe a couple of years. And now we're going to just kind of cool down things although bitch too, much capacity out it the end of the cycle which was last year on there for now we're going to win a downturn. Now, the magnitude of the downturn is up for these questions on my analysis through we'll say the last twenty years such as that these downturn is going to be milder than most people expect stay industries and much better health. And he has a couple of decades on its more close untreated. So I think when I look at the red flags that suggest a sequel downturn Dev race, but very timidly. So I don't expect a downturn to either last long or be a very deep. What's your longer term view? What do you think? The catalysts are for growth. In the years ahead. I'm very optimistic about the sustainability of growth in the semiconductor industry albeit slower growth than we have seen over the last twenty years semiconductors are their neighbors of many of the industries are in every ice mind. We think of great companies like Facebook, like Google like Amazon like Microsoft like by and tencent, China and Alibaba swell on these are companies that are monetize seeing our daily lives in different ways than we used to some of them are replacing always of how our live was being monetize and semiconductors. The drivers of that day quip meant that allows these companies to search to provide advertising to provide recommendations to display images sounds video to keep track where we are to provide information eastern Tena. Disley all that is an able by semi conductors. So that will continue the second thing. I think will be a driver of growth will be penetration of semiconductors on areas that have not had historically such a high exposure to the technology as say personal computers. Right. We're seeing that you know to motive, but there's quite a bit of room to go to motive believe it or not sure medical is another area where there is a lag between what can be done and what's being done out. Of course, that makes sense. He's a fairly regulated industry is an industry where failure has tremendous consequences. So these steaks law in this type of industry outmoded, by the way is another similar industry. Regulated were faded. There has consequences DC this we stick longer for semiconductors to penetrate fully, but that is going to happen. Right. Right. We've all read about this theme of the internet of things. Right. Where eventually we're going to have chips in. And they're already in many places that you wouldn't expect to washing machines and refrigerators, and is that a long term trend that you see continuing to play out. It's a long term trend. However is another rebel loose number. Then able Lucien IBM witnessing internet of things for twenty years. What is what are you seem to know things any is of functionality daddy's enabling them device without the need for human interacts. Right. Okay. So they give you an example, you mentioned washers and dryers and refrigerators the fact that you can push about on washer, and the worser will basically turn itself on for some amount of time and thirty of off that's kind of internal things it's already happening right thermostats, which controlled temperature in a houses are already internal things. There is a chip there that you know, the termines at temperatures too hot to call. I need to do something. And he does it without human interaction. Right. So we have had international things for a long time. But there's going to be. A need of increased functionality on these devices, we can now at functionality which were cost prohibitive in the past the price of semi-conductors, the price of memory, the price of communication wirelessly have dropped two point that we can now implement these functionalities add them to the internet of things that we already have give you an example. Let's say you have in liable that can be din either house we had them for a while. But now, we cannot additional functionality. What if the liable can be control your phone, right or one of these as which is really happening, actually, whether you live I will have functionally that can listen to your voice, right unconcerned on and off by voice recognition these incremental functionality that because of cost power performance all this is now being enable it's not that we couldn't do before. It was just basically caused. Prohibited. All right. Well, another obviously big news story has been global trade disputes certainly has affected this industry. Is that a big headwind if the US and China can't come to an agreement? We've also seen Europe involved quite a bit in that situation. How does this new environment of global trade disputes impact semiconductor companies, which are probably among the most global companies in the marketplace, they are so term long term issues. Right. And and the way to think about is semiconductors are like oil oil view as a geopolitical issue in the seventies actually much earlier bike into the forefront in the seventies and eighties. We went through an embargo in the late seventy s and I think people realize that this is a commodity has implications globally. And that's how semiconductors are semiconductors are not only drivers of industries are drivers of military applications. We're seeing national security. So you should know come as a surprise that. This is going to be part of our trade disputes, China has you as an acceptable. The fact that it depends on other countries for semiconductors needs. And he has for many many years tried to correct the situation the Chinese leadership clearly wants to be billable semiconductor industry. And they've you these as of national importance, and they will do. So it's going to take several years probably decades during that period. I suspect that the Chinese economy is going to become closer and closer unless open to companies from the US. And I think that eventually no matter how much we argue where did intellectual property come from the realities on the ground will determine how we maintain a relationship, and eventually they'll have a semiconductor industry, and we'll have to accept it in some way, shape or form. These will take many many many years, but I. Think that over the next several years if not decades, we should expect some kind of adversary elation ship between us on China regarding semiconductors, it will be something that probably will depress growth on something that I think he will be temporarily, but he will be clouding the industry for many years to come. So this is not a dispute that you see being resolved amicably really soon. I think that he will be resolved soon in the media, and there will be an understanding but in terms of business practices. I think that there will be underlying tension that will take many many years to ease to a new equity room when you're coming from an equity room that existed that was perceived as an equally room, which truly was unacceptable to governments in the west. Right. But it was by the public as an equilibrium. A now. Now, we're going to head to another equally room. But in that transition period, I think he's going to be somewhat is rob you talked a little bit earlier about consolidation in the semiconductor industry. That's obviously been a big trend for years. Now. What's driving that in your view? I think that there are two reasons why we have seen consolidation. One has been following the financial crisis certain segments of the industry found themselves in very challenging Nommik environment. When that happens first of all some companies, go bankrupt. And we saw that sake on companies find at scale provides them a better path to perfectibility so companies decided to combine they wanna get bigger. That's right. So that was one reason why we saw consolidation. The second reason is that as growth rates how often the readjustment to the internet bubble. Bursting. Do we have seen changes in management teams to more pragmatic approaches to slower growth? Firemen's right on a sausage. Some monitoring teams have taking advantage of this environment on acquired companies that were poorly managed on investors were more than happy to encourage that and to accept it. Right. Because quite a bit of value was being unlocked by these emanate TV's. So those two combine have led to the industry being consolidated right another area. That has been slowing recently is the demand for smartphones apple reported recently that they're seeing a bit of a slow down. So I'm curious on your own research. Are you seeing that and what are the investment implications going forward up -solutely? So the way to think about smartphones is in two parts one has the technology penetrated. It's a dreadful market right on the answer. Is yet most people in this world half as our phone. You know, we sell about one point eight billion smartphones ear that's quite a bit. So. So then the next thing that we have to ask ourselves is is they're incremental functionality coming out of their smartphones that will lead to above average growth right on intuitively. I think that we're all pretty happy for smartphones. We wish battery was left longer. But right screens, look great. We don't really have to wait that long for those web pages to load out quality of the phone calls are fine. These were big issues of your years ago. But now these improvements seem to be incremental, right? So intuitively inex- sense does the industry will slow down on indeed slowing though on I see my companies because their suppliers of the components are going to smartphones. How to fix the chip makers if there aren't as many phones being sold obviously we've seen this before. I mean, we see that. No that long ago PC's the industry used to sell about three hundred fifty million PC's here on PC's. We're the largest consumer of semi. Conductors before smartphones. And now we're selling about two hundred seventy two hundred and eighty million PC's a year. Right. So we've seen this movie before I mean for us. I followed that the industries we expect these the question is is there something that is going to happen in the smartphone industry that will revitalize growth, right? I don't think there's anything imminent virtual reality has been talked about over mental reality has been talked about. And I think that this could help. But I don't think in the intermediate term we should expect that reacceleration be unit. You're listening to capitalize ideas brought to you by capital group talking about one thing that has been discussed as a potential catalyst lot of talk about five G. So maybe I tell us what five G is. And then what do you think the impact could be on mobile communications? Sure. So five stands for fifth-generation. A it's a new. New settler communications standard that is being deployed as we speak, and he promises several things, of course, every new generation of solar standards improves. The transmission speed, right. Okay. So five will definitely do that. But five G will do things that we haven't seen yet. So again after four G we as I said improve. The transmission speeds and particularly for data. Of course, how much faster are we talking about? We're talking about the factor of ten to one hundred times faster. Wow. So it's a big improvement, really noticeable. Yes. Interesting. And so presumably that's going to mean a lot more demand for more powerful. Chip. Remember that the way this alert technologies work is by using the frequency spectrum that the government licenses right? It's going to allow for the use of frequency spectrum that we're not currently using and therefore is going to require different set of chips. But even more interesting he has another functionality that allows for the communication of devices to each other and between us and those vices right now, why could we do that before? Because there was a latency issue in the previous generation for g now you may ask why the big deal. Let me give you an example, let's say that you have factory and you have a rubble is very large inside. And Robert is being controlled wirelessly these technologies, and you a semiconductor analyst, you are very curious very excited and you're walking through the factory without pay too much attention. Accidentally you're going to get in the path of the robot as it's moving a big piece of equipment, right? Okay. You will like the robot to react to your presence. And that requires communication between the robot and say, another computer, right? Okay. So there's amount of time that he takes for. The robot to communicate with four G that time was long enough for you to be killed by the robot before the robot country act right five Jan Nabil's that time to be compressed very very small quantities. So now, we can have this interaction of robots and humans in the same place. So this is called agencies the latency the time it takes for the robot receive a signal has been reduced considerably. So long term. That's hopefully going to be a positive. It's going to add to the growth. There are many areas are maturing in in growth under areas. Going to accelerate growth, we should expect probably meet single digit growth for the entire industry going forward. Right. Let's talk a bit about chip equipment makers still part of the semiconductor industry, but a little bit of a different animal. So maybe give us an overview of what's the difference between a chip maker and a traditional chip company like Intel, and then let's talk a little bit about. I mean. There's companies like ASL in Europe that a lot of people may not have heard about but have been a very interesting part of this whole story. So chip equipment makers are another layer of the supply chain of semiconductors. We have the semiconductors, and we have these Aigner's of semiconductors Intel Texas east German drought comb, this companies that these signs conductors, right? And then we need to make it on. These are the semiconductor equipment makers, and the names there are Applied Materials lamb research, Kelly tanker, and you mentioned a SNL on many functions that this equipment makers for by. But to make a semiconductor device is a process of pulling materials on and taking materials out, and repeating these several hundreds of times on we do it in silicon, and we're transferring patterns, and that pattern is really the chip AML is. The company that produces the technology that makes equipment that allows us to transfer patterns on the silicone to make the okay now, why are they successful the funny company based in a town hall on-call vowel Holman and they've been around for a while. And many of you might remember the comp- in the Phillips Churchill lips may TV's radios and in the nineteen fifties and sixties there were several companies are on Europe and the US that became electronics companies. But they said, you know, what we're making an tunics let's make chips too. So they start making chips, and they say, you know, what let's make the women to make chips and parts of the Phillips organization was a company was making a woman. Okay. And that was a SNL. Okay. And I got spun off those were the origin. That's orient. Now. Why are they successful like many things in history there accidents in the particular area that they SNL partic-? Bait Japanese companies were the dominant players, and they smell was the distant third and in the nine hundred ninety s when there was a change in technologies. Here's smell happened. We have a better mousetrap and the Japanese because they were becoming very conservative. They were too late for though, these mousetrap I'm by the time that opted a SNL will staking the lion's share of the distri, but they were also incredible operators. They understood that they have to be good operators with the business, and they were very fast and the Japanese for historical reasons where much lower. So as smell was able to grab the ball and just run with it. And they never looked back right on. Now. They are the main supplier of the quick men for this particular stage in the manufacturing process, and they make the equipment that makes some of the most advanced chips. Exactly, right. That's what they do. You want to make an advance conduct with vice unit by their quick, right? This equipment, by the way. The latest version, of course, one hundred million dollars while it requires three point seven for seven to be transported. The equipment has to be broken into pieces on sending seven four seven to the customer. This is how large these things are right. Fewer buying equipment from SNL. You're not a small player yourself. Right. They're not selling to the mom and pop, right? This is one of the reasons why you were asking about wising this reconsolidate, right? We'll think about this is one piece of equipment of many hundreds of equipment on each of them one hundred million dollars. Yeah. So this requires amount of copied dole that smaller players cannot afford right right now. Another thing I find fascinating about SM L is that as you mentioned it's based in Holland, yes. Which just a lot of us don't necessarily think about as a hotbed of technological innovation. Right. The big tech companies people tend to think of them as being largely based in the US, except for a few examples, but there's a lot of really good examples of companies that are outside the US. Follow is Taiwan. Semiconductor? That's actually followed by a colleague of mine, but one that I follow closely as its competitor of some of my companies, but go that's right because you US and Europe, but you're familiar with Taiwan. So tell us the story how did Taiwan semi become such a big influence or in this industry when the industry started companies were vertically integrated was I me they were designed of semiconductors and there were manufacturer of semiconductors all at once. Right, right. And one of the challenges is that the manufacturing processes very expensive. So if you wanted to being the industry you had to have enough capital to afford them on a factoring, even though your experiences in design so Taiwan semiconductors in the seventies realized that if they can create a manufacturing company only manufacturer, they can amortize expenditure of building factories. I'm on. Multiple customers that our designers. Right. So rather than have one captive designer? I can then go to you a new, and you and say you guys don't need to build factories. I will build the factories. You bring me your designs. I'll make the chips for you. So then this is a win win. Right. And the second thing that they realize is that if your design is not successful. You just build a factory that you cannot Phil Davies high is like we are going to be arms dealers. We are going to make factories. We don't care who wins and design, right? And actually will be insulated from the risk of failing in design because while this customary may either that successful designer this year next year, maybe this customer, but it doesn't matter to me. They're both my customers right on the integrated companies thought that this was never going to work because the Taiwan Semiconductor was manufacturing. Broadly for everybody there always going to like technologically. Okay. But that's okay. They don't have to be the leaders all the time. Right. It's an incredibly profitable business. So I love that analogy the arms dealers to the technology industry. So who are their big customers who some names that we would know intellectually use them. Okay. Takes us Easter meant uses them as well. Broadcom uses them Qualcomm uses than envy, the ah uses then they literally have everybody as a customer. Right, right. Sounds like a great businessman business. What are some other companies in the semiconductor space that you think are well positioned for growth in the years ahead. Well, I mentioned the Intel on I think that this is a company that has attractive growth prospects because their supplier of the chips are going to most servers that are used by Amazon and Facebook on Microsoft and Google all right? So they are also kind of arms dealers think about it. It takes us seems to mess is another company even though they're short and challenges describing the cycle. These a company that is going to be a key player on one of the fees that you mentioned, which is the international things as more. Cindy, conductor content is added to all kinds of devices in all those healthcare industry, Texas instrument is a major supplier tweets obligations, uncompetitive it, right? A SNL really mentioned broadcom is another company if he will do very well. This is a company that provides chips for connectivity. The wireless be wired doesn't really matter. Right. They are the ones supplying that. These are companies. I think until very well on hopefully by good returns for clients. So let's learn about you Isaac you've been here for thirteen years. Yes. Right. So that's pretty good ten year. But you have this background in physics. How did you wind up going from the physics rolled or at least studying a lot about the physics? World to joining one of the biggest investment firms in the world. Boy. So I'm I'm originally from Peru, South America on I came here to finish my grad studies, and after I finished, my guess is a went to grad school, and I became a physicist, and I actually work in the on the working in industry for a while. Okay. And after several years of doing research, I decided that I wanted to the more product development, and as I did that the company I was working for it suggested that I an MBA, and they suggest I do it a at night on near the plant as long as I could meet to stay with them for five years afterwards. I decided that that point that was the most flexible venue to an NBA in because he didn't give me a choice. Where was I going to get an MBA? Right. And it also time into the company afterwards. So I did something crazy. I actually quit and apply to MBA, bro. Uh-huh. And I was like enough to get into Stanford. And at the time I had two kids. One of them was very very very young. She hated sleeping. She used to keep me up at night at first year. And this is a particular fateful Wednesday. The she kept me up all night iden- have anything else to do that Wednesday. We didn't have classes that we have a career for and I went to Korea for early morning right to the investment management presentation. It was the first person Dacian in the morning. We're only a few of us in the room. And there was a civil percenters capital was one of them. And I had never heard of them. Never never never never really miss me management. Right. And actually Martine Romo was presenting. And legendary names of gets right? So I was very impressed with him. He sounded like an interesting person remember correctly. He described his on as an architect. And I thought this is interesting. This is somebody with a very diverse background similar to me. Right. So I went to talk to him. And I I really like Martin he made me being treatable the company he was working for and I did some investigation and the more I read about capitol than more impress. I was with it. And I learn more about the job itself on I thought that I can do these. I mean, I've been doing research for a number of years in a totally from field. But I kind of knew the process of research, right? And I found the market to be very interesting as well. So I apply for a summer job some are internship job between my first and second year in business school. This is nine thousand nine hundred eighty eight right on to my surprise. I got some interesting job, and I became somebody entered. And unfortunately into a good job. I was not asked to come back. So. I got a job in a rival investment firm in Los Angeles. And after six years, I heard the capital was looking for semiconductor on this. Yep. And at the time in those six years, I never even interviewed anybody else. Okay. I was perfectly happy where I was. But I always thought if I were to change jobs. The only other company will work for will be capital. And sure enough the opportunity came up on deco of capital, I was interviewed for an entire year. Right. Any many many many hours and likely for me was over a job in two thousand and five and I took it. Right. So I fail but then succeeded in coming bags so talk about being stubborn. But that's how it got copied. So unlike a lot of people at capital who spend their entire career is company you've worked elsewhere. Yes. Everyone says capitals are unique place, but tell us why as somebody who's worked at other big well-known investment firms. What's different about capital group? Also came from other companies we. We have some level of appreciation of the uniqueness of the company. And again, I need to make clear that I didn't join copy because I had to actually took a pay cut to come to capitol. I thought this was the best place for me. No one makes capital unique is its obsession with providing spearing vestment results for clients most other firms my experience has been that they sell products. I talk about wizards and approaches to sell widgets, right? We don't sell widgets we aim to provide superior investment results. And when you think of any business a business has to have a vision in business has to have culture to support the vision, a business has to hire the right people to support that vision right on the has to compensate those people to kind of reach the vision, chirp aligning, those four is very difficult, and they pick greed. Gets on the way of their lineman. One of the reasons copy succeed is because it allies those four elements, right? There's a certain intellectual honesty of copy told the don't see as being prevalent in other firms investors in other firms share their successes very publicly by the failures, very privately, and that's human nature. Right. Unfortunately, it investments just like in baseball. The times that we fail is larger than the times that we succeed. Of course, we want to succeed much larger imaginative you than therefore welfare clients, but there's a low of information in the failures right at copy dole. We wear successes and failures very publicly on there's no way to scape either of them, right gay. So that intellectual honesty allows us to learn from the mistakes chasta's much as learn from this existing right? The final element thing is truly not appreciate particularly by the young associates that find themselves. On the first job. A capital is how much does they're gonna say shit wants me to succeed. Right. It's an inevitable that investors will go through a bad patch. And as we say sure capital really wants me to succeed, and I've gone through some of those rough patches or the company has been there to receive me to encourage me and to see me through the tunnel to the other side on hopefully, become a better investment the other side so that sort of a longer term approach. It's exactly very good point. Because we have the long term. You know, we won an associates to grow with the business. We will help them go through it. Right. And hopefully, they will be better investors at the end, I'm hopefully, they will deliver even better investment results. So I think that that's also something unique other than his Asian. So is what advice would you give to somebody fresh out of college who is looking to follow in your footsteps and become a successful investor? So. So somebody has to be intellectually curious, that's number one sake on a thing is necessary to be an independent thinker. Unfortunately to be a good investor. I think it's a combination of contradicting qualities one has to be incredibly self confidence. Because most of the time the way to make a low of money on behalf of clients. Investing is to have a differentiator view one has to be somewhat Aragon to be able to say I am going to be definitive or I am differentiated at the same time. One has to be humble to say, I am not finish it or I'm no longer difference shit or I'm wrong. So one has to balance those two and it's not for everybody. Right. Investing is very much an open ended profession is never over while. I mean by that that it's first of all it's independent either the term in my own schedule, I determine how to do things. And while I might recommend to buy a stock or sell a stock at any given time I recommend to the opposite years later. So if I recommend that we sell stoke eggs today and disgusted with a stalk. We should sell it in. He doesn't end there. Right. I need to keep being engaged on the stalled because five years from now, you might be a great opportunity to buy as so it's not a kind of job that ends. I think that people should have a competitive streak in them because we want to be the market right on. We actually went to beat each other little bit. You know, there's a Meese understanding that capital is not competitive, we're very competitive -ture. But my success. He's also complimentary to my colleague success vice versa. So there's a difference between being competitive a not being collaborative, and we're both definitely I think that also one has to be a good administrator of wants time. Time is limited. And we have to be able to manage multiple tasks at the same time. Nobody is going to tell us how to manage her time. So those are things that call it though, make investor copy sounds like good advice, really fascinating discussion Isaac. Thank you very much for joining us on the show. Thank you for having me, we love hearing from our listeners. So tell us our doing please review capital ideas on I tunes, or if you prefer to send us your feedback, including any topics. She liked to see addressed shoot us an Email to capitalize Via's that cap group dot com. You might just find your idea discussed here on a future podcast for capital ideas. This is Matt Miller reminding you that the most valuable asset is a long term perspective. Investors should carefully consider investment objectives risks charges and expenses. This and other important information contained in the front prospectuses and summary prospectuses, which can be obtained from financial professional and should be read carefully before invest in. Securities offered through American distributors investing outside the United States involves risks such as currency fluctuations. Periods of illiquidity and price volatility as more fully described in the prospectus. 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The big-picture outlook for small-cap stocks

Capital Ideas Investing Podcast

37:35 min | 3 years ago

The big-picture outlook for small-cap stocks

"Investments are not FDIC insured or the deposits of organic by Bank or any other entity. So they may lose value. American funds are not available outside the US. The following is not intended as an offer to purchase or distribute American funds outside the US. I'm Matt Miller. This is capitalized, DEA your connection to the minds and inside shaping the world of investments small-cap stocks unlike their large-cap, brethren, get little attention on Wall Street and even less on mainstream. But these small companies can be a source of big opportunity in the hands of the skilled long term investor. One such investor, capital group, portfolio manager, Greg win, sat down with my colleague Michael up late to discuss the big picture outlook for small cap stocks. One of the best performing asset classes to date in two thousand eighteen. So listen and learn what's driving the twenty eighteen rallying small caps. Why high levels of volatility are a small cap investors friend and how exactly Greg's career went from holding sweaters to picking stocks. Now, here's Michael's conversation with grip. We're here today speaking with Greg went and equity portfolio manager with more than thirty years of investment experience. Greg specializes in small capitalization companies, which by capital groups, definition are publicly traded firms valued at roughly six billion dollars or less as an analyst. Gregg also covers US casinos, leisure facilities and restaurants. He holds an MBA from Harvard Business School and a bachelor's degree in economics from the university of Chicago, Greg, thank you for joining us on capital ideas. Mike, it's real pleasure. So US small-cap stocks have delivered impressive returns in aggregate so far this year up more than eight percent. I know you focus most of your time and energy on researching individual companies, but let's talk about the macro environment for a moment. What do you think is driving this broad based rally and small cap stocks? The rally in small cap stocks. Here in the US in my mind, pretty clearly driven by the fact that the stocks are more insulated from sort of the trade wars were begin to see out there. They're much more focused on the domestic market and welcoming stocks by the way, have been on average higher tax payers than large cap stocks. So they get bigger kick from the tax cut. So I don't think it's that hard to understand, but unimportant in understand is small cap stocks around the world, have different cycles in different drivers, which sort of explains why at least as I focused on investing small-cap stocks, I tend to pick him one stock at a time and not focus too much on the macro and how sustainable do you think this rally is going forward? The real simple answers. I don't know, and I've never known. Obviously people are feeling pretty good about the market and that that worries me. But sustainability of an uptrend in the short term is something I never talk about. I think ten years. Now, the US economy in the world economy is bigger and the average company's more profitable, right? You mentioned the US economies. A lot of talk about small caps being correlated to the US economy when it's doing well, they do well. Is there truth to that? Yeah. I mean, small companies stocks by virtue of being more focused on the domestic market trade more in line with economic cycles. But again, what's an economic cycle here may not be an economic cycle in Europe. And right now, the US is the engine leading the world stocks here have gotten more and more expensive. So we can look in parts of the world where things are not so stretched valuations obviously are are fairly high right now on historical basis. Is that a concern or are you just finding pockets of opportunity where the valuations are more attractive you? I've, I've done this for over thirty years and I've never not owned a stock. There's always something in the market that's overlooked or undervalued. But I think it's very fair to say, as you look at the US market. There's lots of stocks that are stretched more big, captain small-cap them. And so yesterday was our weekly Tuesday, small call, right? And we were talking about different stocks, domestic overseas. We ran out of time discussing ideas. Wow. So here we are at close an all time peak in the market, and our analysts are finding as many ideas as we can put into a meeting, right? So another interesting aspect of small caps, at least right now is that we've seen a big increase in activity in this sector. I think it's the fastest pace since two thousand fourteen or so what do you think's behind that trend? First of all, there was a period where the market just was not letting companies come public and so that the door is open and a lot of people are racing through the door, but I actually think it's reasonably healthy. We've been in a period where the number stocks listed companies in the United States is declining and. And I are vital way to help refill the Pont and if your capital you want lots of companies out there because we have lots of analysts. And so I think it's as simple as we've had sort of a pent up demand to go public. We are going to were seeing the results of that, and I tell you the the quality of companies coming public thus far in the cycle is still reasonably good. We're not at the point where they're taking sort of the weaklings public. So right here right now, I think the IPO cycles, a positive is a lot of that activity in the biotech sector or is it. There's certainly plenty of activity in the biotech sector, but it's very broad based, and you know, as everything from remember retail supposed to be dead and BJ's wholesale club just can't public or to a just haven't looked in IPO the company that rents the little motorhomes the little trailers you park outside construction sites when DAL flick. I mean, it's a pretty broad based private equity. Is bought companies in a bunch of industries. They're trying to get those public. But biotech is really an interesting area right now and and there's certainly been a lot of IPO activity there. Right. Tell us a little bit about your investment style. How do you pick stocks in the small cap universe? I've been an analyst everyday my life, your capital at some points. The time I've had responsibilities as the portfolio manager, but I've always been an analyst and that sort of drives me as a portfolio manager. I trust our analysts. I trust research, so I picked stocks predominantly by working with our analysts, seeing what they're looking at an and what sort of fit my style. I try to find companies that are interesting that have reasonable growth prospects, but have have safety nets. And what I mean by that is you know decent balance sheets or would be an acquisition candidate if management can execute. And so we have some. Any outstanding analysts at capital looking at companies that just trailing behind them, hearing what they're hearing, understanding how they're viewing the world and working with them to understand sort of which of their convictions makes the most sense for your style that that's really my job as a portfolio manager here. That's how I do it. Do you have sort of an average holding period? My favorite holding period is forever right? And you know their stocks. I've held certainly more than ten years at a time. No, we just did a study of the stocks over the past decade that have been three baggers or more. Not one of them had that happened in one year in so sticking with a stock that's been successful can be very hard, but it's really important for returns. So for some of our younger viewers who don't know what a three Bagger is, could you give us a definition of is oppose that goes back to one of our good competitor's Peter Lynch at fidelity. His goal was ten baggers which stocks that returned ten times your initial investment. What I think is always under appreciated is how much of that return income from dividends. Even in the small cap world, people always look at the stock price. Let's not forget. Total return matters. Can you give us an example of maybe a couple small-cap investments you've made that put him is your investment approach? So one would be Texas. Roadhouse really? What's the difference between steakhouses, right? Texas. Roadhouse is CEO is just a maniacal detail guy and a remember being in the meeting with him where I'm trying to get to know him and understand operations and his philosophy for running the company. And I mentioned one of their competitors. His name is Ken Taylor. He got very worked up and he said, do you know how they treat lettuce, they've put lettuce and big bench, and do you know what that does to let us at the bottom and just compresses it? It's it's mushy. We do small tins stacked takes more time, but none of our lettuce is crushed and. And think to myself, this guy is CEO of that point. Now, couple hundred unit chain very successful at he is passionate about lettuce is any human being I've ever met and to me, you wonder what the tipping point for buying a company as you know, I'd studied the financials understood the growth rate. I think understood the competitive positioning. But when you see that sort of flash of inspiration, particularly for an owner operator because he's still a large shareholder of the company where lettuce means as much to him as anything in the world in that moment go, this is a guy I want to invest it. Right. I was recently just at their store manager annual convention. Same guy still running it with the same level, maniacal focus on customer experience. Well, it's a great example of capitals long-term approach. I'm curious what kind of stake you order when you're going, you know, I, I actually just in the side, they hand cut their stakes, which is one way they are the low cost operator. I, I get the cheap one. It's it's off. Good. The unit in Boise I go there about once a year and the store manager as now taken to recognizing me very nice. Another example, anything else you can toss out there for our audience? Well, you know, another example of a stock, but it's not small-cap is a stock I covered isn't A-List Hasbro and has rose, accompany. I've known literally for thirty years. I've covered the toy industry for thirty years, right? The toy industry used to be fifteen companies, you know, Tyco and Fisher Price and matchbox. And then of course it had the behemoth of toys r. us, which was sort of an interesting filter for how you looked at the companies by talking to that management team. It was a really interesting ecosystem, and now it's really just become too companies has Mattel, right. So has doors a company I've known for many, many years. And then in the past decade, they made an ill-fated strategic decision to do a a cable channel. It's not what they're good at. It. Provided the opportunity that and some other turmoil around that time provided the opportunity for to by fairly large piece of the stock. And at that point it was based almost on the safety, the dividend, the prospects of the company were better than the stock retelling you, but you got paid to wait while they sort of things out. Right. And so it's an example. Another great example of management matters during that time Mattel's had at least five CEO's and has rose had one, right? My son's all grown up now I'm not as familiar with their toil lineup, but what are their most popular toy products? Well, among the drivers of their earnings, sort sort of the the core stable piece of their earnings is games business, and this may seem counterintuitive, but in this period of apple iphones, the board game business is exploding, and no one controls bear percentage. The board game business than Hasbro, right in the past several weeks. Probably two weeks ago. I was up in Seattle. Seeing their sort of older game operation. They own magic, the gathering they own dungeons and dragons, and I'll tell you something. Like I said, I've been doing this a long time. It has been a long time since I've seen a group of employs more engaged, more passionate, incredibly smart and creative people as the group at wizards of the coast, doing magic and dungeons and dragons. You know, there's some profile that likes that game. Imagine being that profile and getting to work there every day and these people, they are so excited. So magic has never had a video platform of any any, not an online platform, and they're rolling out magic the arena, which is their digital offering and could be pretty interesting. We'll see what happens. Man, sounds like a fun place to work. We talked a bit about m in a earlier. One thing I'm wondering is do you specifically look for. Companies, especially in the small cap space that you think will be acquired, or does that just a happy by product? When it happens again, I consider that a safety net. If you're ranking, things that you're looking for is emanate. Target is in there somewhere. There was a period in my career as a retailing analyst were almost every sell side report of every broken stocks, you know? And if nothing else k. mart will buy them good. And you know, that's a very hard way to make money. I'd much rather invest with competent management teams or better balance sheets, an earning trajectory. That's positive. Then try to pick off the campus you're listening to capitalize is brought to you by capital. So as you know, we've had a number of capital group portfolio managers on this podcast. And one thing that we always love to hear about his stories from the road you spend so much time out there visiting companies talking to management. Can you tell us a couple of your more interesting stories and what you learn from them. Is a fair young analysts. I mean, the stories I share with our younger analysts tend to be from when I was a young analyst, right? The very first stock I ever recommended was Dillard's department store. And at that point it wasn't a well known company. It was pretty much back of the envelope company. I met with the CEO Bill Dillard and they're sort of famous for their higher inventory levels than the average department store. And I. Should oppressed and said, how do you get to the number and and how do you know you get return on all that? And he said it can't sell apples from an empty cart son, and that was his explanation and that that, but you know, Diller's was my first stock. My second stock was Carson. Pirie Scott doesn't exist. It got taken over almost as soon as we bought it. The concept was being number two in Chicago, at ten times earnings was a good deal. But my third stock was my first unmitigated disaster egghead discount software. I came within a whisker of getting the nickname Greg head and overtime. I've tried to apply the lesson of associating myself with more successful management teams all timidly. If you can invest in somebody with a proven track record that's worth paying for. That's something I've learned through the years. Then the other thing I've learned is there's real value real value in continuity of coverage. We talked about Hasbro earlier. I've covered Mattel for thirty years and the first CEO I got to know Mattel was got him. John Amerman literally got a note from him last week, and John was just an extraordinary leader for that company and taught me a lot. He liked me as a young guy. He taught me a lot about how to deal with management teams. What's inbound to ask at one point, I was talking to him about his own guiding principles, and he he pulled out of his wallet, sort of his eight principles of how to run Mattel laminated on a card, and it made a lot of sense to me. It was, you know, he'd use those talking points with me, but I is surprised it was that Cigna I asked him if I could keep the Cardi said, sure. Said he had, you know, a dozen of them. I have shown that card or shared that card with every CEO Mattel, since. Wow. And it just sorta it changes the conversation. There's a new CEO. Mattel, the last one didn't last very long in on who's the no CEO. I just had to our sit down with him and I don't think it's being unfair or boasting to say, I think you know what tell you of the analysts? He's met. I've the longest history in the most detailed knowledge of the company. I think non his serious trouble is dealing with, but at least he understands how he got where he is. Do you remember the basic gist of the messaging on the card? Yeah. Yeah. I mean, it was essentially, you know, shareholders, I, you know, ethical behavioral, that sort of stuff. But I remember the last one, the best, which is this is a toy company. We're going to have fun. Yes, and you know, that sounds obvious, but after Auermann there's not been a CEO Mattel, who was sort of toy and product driven? Yep. One was acquisitions driven. Couple were finance guys. Is who became CEO's three in a row. Then they brought in former Google executive, and now he nods immediate guy right at the end of the day. It's about making things kids wanna play with and having great fun doing it. Absolutely. So as a small cap investor, obviously, you're looking for companies that are going to grow from that smallcap world into the mid and large cap range. So I'm gonna ask you real easy question. How do you find the next Netflix. Yeah, easy question. We did a study recently and roughened up. These numbers are not exact, but over the past decade, three percent of the stocks have accounted for sixty percent of the return. Wow. And you got to find the net flicks where I mean is an and you've got to be patient and stay with them. And we talked about this study that we did about the stocks that are threefold. They're over one hundred fifty of them, and you got to invest in a mid size meeting, either they're big position in the fund or at least own a big percentage of the company. Right. And you got to stick with them and you know, now it's easy to kind of look back and say, net flicks was always going to be net flex, but there were some real gut check moments there. I think when they we always had confidence in was Reed Hastings. And so how do you find the net next. Net flicks find the next Reed Hastings, so it's all about management? Yeah, as usual and you know, a addressable market and all that sort of thing. You don't wanna be dynamic growth-oriented CEO in a dead end business, but there are lots of businesses out there that a superior executive can execute what the time you were looking at it. I mean, did you have a sense this, this whole streaming video trend was going to become as big as it is the way read hasty talks about it is, hey, guys, the name, the companies, Netflix, it wasn't discs in the mail, right? And so I mean, they had a vision they were driving for. They may have surpassed vision in all candor, right? But it was always supposed to be more than DVD's in the mail. So along those same lines, when you find a really unique small company, you invest with it, you stay with it for years. How hard is it then to let it go, sell it selling stocks. So is hard because nobody rings about the top and you either sell to early cell too late, but the discipline of selling stocks no-one if it's not an open market like in net flicks and it's a industrial company like Kurdish right understanding where they are in their product cycle really gets important. There's no magic answer. That's one reason. I like companies that are younger in their life cycle. That's one reason I've gravitated toward small-cap. Right, right. So you mentioned management and that's obviously a theme that we hear a lot on this podcast from our portfolio managers, but let me ask you about less experienced CEO's maybe at a new newly publicly traded company. How do you evaluate that type of a business leader? And are there any red flags that you look for when you go into a meeting like that, how they talked about their businesses really import and one their incentives are. And so you try. To understand why do they take the job they took, what are their incentives? It's always interesting to me to see how many the current executive team they take and how many they turn over. You know, I it just trying to put together a puzzle, but even if you're a new CEO you have a background and capital is awfully good at having connections in so many organizations in places that weaken usually get a read on a new CEO would I just find really compelling is sitting down and hearing somebody's life story and understanding. Are they trying to sell you on something, or are you having a conversation about being partners in an investment? Right. And to me, there's nothing worse than an inexperienced overly promotional CEO over promising. Sure. So in terms of other stories, it's pretty well known a capital that you had a good relationship with Sam Walton. Can you tell us a bit about that again? So I got out of business school in nineteen eighty seven part of business school. I was a department manager at what is now part of Macy's, and so my, my prowess at folding sweaters turn me into our retailing analyst. And so. The right good experience. The right of passage is still the same, which is you doing industry review and you get some some place between six and twelve months to to build this report about your industry, right know, what are the critical success factors? And most importantly, had we make money investing in it. I remember our former CEO Mike Shanahan used to say, I know who are the five best retailers are. I can tell that by their p multiples, I want to notify best retailers in ten years because it had been in retailing and I had this view than the CEO in retail being more important than the CEO and a manufacturing business, which may not be true. That was how I viewed the world to do my industry view. I spent as much time as I could with folks who had successfully built significant retail. I spent a day with Mickey Drexler who was then at the gap now at j. crew still in the business. I spent a day with les Wexner at the limit. Who amazingly enough thirty one years later still CEO the same company. Now, the longest serving CEO new York Stock Exchange, and I spent some time amazingly enough with Sam Walton in those days. If you went to bend Bill, Sam still made time for analysts, and it was pretty extrordinary. He and I went to go see some stores together. They used to assemble the store managers to do the WalMart cheer, and Sam would usually be what he called the squiggle in the middle. And he let me be the squiggle once. But you know, one of the great privileges in my job is I get to meet some extraordinary people in very seldom to the legends really measure up to their legends. Sam did Sam was just an extraordinary person in the way he treated people the store societas loved him. He cared deeply for them. We would literally drive around and Ben Ville in his red pickup truck, and he was the. Most unassuming guy you could ever want to meet. So in obviously, WalMart is one of the great successes of of the retail world and one of your favorite investments. Yeah. I mean, I was as a first person capital ever do every recommend WalMart actually recommended trip for anybody. Ben Bill is now much more than it was then Scott, a beautiful museum and crystal bridges. One of the Walden daughters is brought together amazing art collection there, but what's really great they're at, I took my kids to see it was the WalMart museum and they have SAM's office the office. I interviewed salmon, they've got it in the museum in its identical to how it was when I was there. So they recreated the whole thing. They lifted it out of the main headquarters and put it in a museum. Wow, that's pretty amazing. One last comment, a WalMart church. I don't cover it anymore. It's a big cap retailer, but I know the people there and it's an interesting challenge that they have, of course, with Amazon. And when I started. Covering retail in one thousand nine hundred seven. Sears was exactly where WalMart is largest sales volume, but with a bunch of headwinds, and there's really good book on series. I just sent it to Doug MacMillan CO WalMart, and it's I think, really important to the US economy that WalMart reestablishes itself as a serious competitor and does not go the path of Sears. Any thoughts on how they do that? You know, I, I actually think. There reasserting price leadership they are is open on digital. It's not easy. Given the headstart Amazon has, but Sears was in denial. I remember it so well, I sat with Mike Bozic the last guy who could save Sears, and he had the way to the world on his shoulders and he was trying to bounce too many constituencies, right? I think WalMart is greatly advantaged by the fact that the Walden family still owns a majority of it and they can think long-term. Right. Absolutely. I'm curious how you found your way to capital group. And then specifically, how did you wind up in this mall? Cap space? I was in my second year at Harvard Business School. I was pretty sure I was going to go trade bonds. I had a crisis of confidence, suddenly realizing that I was doing that purely for the money. I decided the last second sign up for one. Set of interviews before becoming a bond trader, and I had a number of offers there now don't ask me why given that my previous work experience was as a department manager at what is now Macy's, right? But I decided to go sign up in all the venture capital interviews in those days pre internet, it was all in notebooks, and the capital group sign up list was in the wrong notebook. That is how I ended up at capital group in the investment management industry. Wow. The mistake almost at the company may still think of it as a mistake. But yeah, it is by happenstance and I will say this there was a lot of luck involved in that. But when it came to making my final job decision in nineteen eighty seven capital group was far from the highest paying offer. I picked capital. I remember telling my parents at the time. These are the best people I've met in the interview search bar, none in there. The people I want to work with. Obviously, you have a great track record. So no one feels like that was a mistake, but I am curious. I often hear portfolio managers talk about equities were obviously their first choice and then somehow they wind up in bonds you you have the opposite experience. What was your initial interest in bonds? How did that come about? I was department manager folding sweaters, which it was hard work, the twenty four hour sale. I still remember it. Well, I wanted to go to Wall Street. I wanted to get involved in the world of finance. Yep. And I interviewed rather broadly and there was a bond guy who took a liking to me and offer me a job. And then once he I one offering, you got eight offers, right. I mean, it was talking about the herd instinct Cher Cher and then the cap us came to capitol group. What brought you to the cap universe? We talked briefly about Sears earlier in this discussion and Sears epitomized what I didn't wanna. Do. I did not want to try to parse out Sears earnings merchandise earnings from their credit card earnings from AllState from Dean Witter. And I mean, that was a bigger mess than most, but I would sit down with these folks starting exciting young companies. You know, there was a new mall concept, you know, every month then and that was just much more interesting, right? So I graduated towards the smaller companies, but we didn't have much of a home for them and then you know, I do, which is sometimes do you start your own home? So colleague named Gordon Crawford and I in nineteen eighty nine pitched Mike Shanahan and other members of management on starting smallcap fund and April of nineteen ninety. We launched and my career has been intertwined with small-cap since the day it was launched now. All right, very interesting. Another question I have and I hope you don't mind me asking you this, but. You were a friend and adviser to Senator John McCain, who sadly passed away recently. Can you share some of your your memories of the Senator? John was just an extraordinary man who, again, through luck, I built up a friendship with how did that happen. Initially, I read a book called Nightingale song and was sort of embarrassed. I'd never heard of Senator John McCain and I mailed him. A letter is crazy. The sounds and six months later I got a phone call asking me to go to fundraiser that night while in San Francisco as their guest, which I'll give you a hint meant the fundraiser was not going well. Roughly, what year was this nineteen ninety? Eight till I went to the fundraiser in literally and I I should use quotes fundraiser right there were seven of us there. It was known John. On now. So well, it was a painful our, but he stuck there for an hour and we had a good chat. And as we were leaving, John grabbed me and my then date. Now wife and said, they've got me coming back next week for another fundraiser that's not going to happen. Do you want to have dinner? Right? And so it was a political friendship for John at that point. And Lisa, my wife now, wife and I were very involved in his two thousand campaign. I got an introduction to politics when you lose. So after John lost many folks who were his visible supporters, moved onto President Bush's team. Sure. I just stayed with John. I mean, I met him. I admired him and we build a friendship through the years in, oh, eight. After he won New Hampshire, I was asked, would I take a year off from capitol and travel with him for that year. And so often I was the, you know, I was on the airplane with him seven days a week right often. I the first guy to see him. That in the morning, last guy to see midnight him and it was a bonding venture. It was a great experience. I wouldn't trade for anything in John's just be became a very close friend. Right, right. And your role was senior advisor to the campaign? They they, they gave me title senior adviser, but you know, what does that entail? What would what does it mean? Somedays I did economic falls. He some days I ran and got the Starbucks. You know, you. You do everything particularly if you know the candidate well, and what you're trying to do is, you know be as helpful to him that day as he can. Right. And you can help sort of translate what's going on in the markets or business road. Those were turbulent months. You can sort of make sure that that day we've got some levity in the in on the plane, and we're having fun doing something just running for presence awfully hard in which ever you can do to make it easier for the guy you'd do right, or gal guy or gal. Right? And obviously in two thousand eight, we were in some very difficult financial times, right in the middle of the financial crisis. Did you discuss with him? Oh, yeah. No, we ain't going to. Yeah. I mean, we had some long discussions. We certainly brought in many, many people that were helpful in trying to provide John some insight, right. And you know, I would sure help facilitate those discussion, but you know, we didn't win. And John, as you said just passed. But I thought the outpouring from this nation was a great recognition for his role, his service in ill, the fact that he really is a guide star in terms of how he approached public service. Right, right. So I wanna thank you so much for your time and really appreciate you visiting us on capitol ideas. Thank you. It's been most enjoyable. We love hearing from our listeners. So tell us our doing please review capital ideas on items, or if you prefer to send us your feedback, including any topics you'd like to see address, shoot us an Email to capitalize ideas that kept group dotcom might just find your idea discussed. 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On the ground in China

Capital Ideas Investing Podcast

41:26 min | 2 years ago

On the ground in China

"Investments are not FDIC insured worthy deposits of organic by Bank or any other entity. So they may lose value. American funds are not available outside the US. The following is not intended as an offer to purchase or distribute American funds outside the US. I'm Matt Miller. Mrs capital, ideas, your connection to the minds and insight shaping the world of investments it capital group. We've pride ourselves on conducting boots on the ground global research in pursuit of the very best opportunities for our investors wherever it may lead us well in that same spirit. I recently set my boots down in Hong Kong to discuss a topic with big implications for investors the world over China. I met with the communist, Stephen green or folio manager. Steve Watson, an investment analyst, Andrew darting all based in Hong Kong to get their perspectives on China's outlook and the implications for investors in twenty nineteen and beyond. So listen and learn whether twenty nineteen could be tough year. Economically for China is twenty eight hundred. How slowing growth in China could affect multinational companies expanding their and what forces it play could lead to a pause in U S China trade tensions finally up production in keeping with Hong Kong's fascinating blend of ancient. And modern the Sam studio we book for this conversation came a quick with a small coffee table for folding chairs and a single microphone around which the four of us punctured and gave it our capital best. So with part of what Fowler sounds like we're navigating Victoria harbor in a fifteenth century junk, you'll know why? Well, I am thrilled to welcome our audience to a special edition of capital ideas. We're we're going to do something a little unusual. We're going to feet behind the veil and give listeners a chance to listen over the shoulder of the kind of internal conversations dialogues and debates that we have with diverse viewpoints on major investment issues that we think is part of the alchemy or the secret sauce of the capital system. We've got no more important issue on the mind of our broader investment team to focus on today than China in different aspects of China's outlook two big questions. We want to tackle today. One has to do with the outlook for China's economy, or there's a debate going on in the other is the question of what's going to happen with the US China trade clash, and how might that impact? All the things that we think about for portfolios. So to help us dive into that Stephen green. Why don't we start with? You just kick us off with how you're thinking about China's economic outlook in two thousand nine hundred and beyond. Well, thanks, very simply I think we should be very cautious. I think the market right now is quite to mystic about China in two thousand nineteen valuations. Gee, I think there's a motive expectation that Beijing is going to stimulate the economy strolling, and I think the positioning for that are reasons to be cautious about that. I think Expos are going to be tough. I think properties can have up here consumer confidence wage vote that's going to slow the shoe as well. And so I'm pretty cautious. And I think we could be in for pretty. Now before bringing in Steve and Andrew say little more about the caution. You're feeling is it because you're skeptical about what the authorities may do in its effectiveness. Yeah. Never off in China. We expect Beijing to stimulate economy throw credit structure you. Property market. And if you months without results in to be Chinese food. Everyone's got used to that cycle. I think this is going to be different. I think the tools that Beijing had a disposal before of become a weekend. It's much tougher to use traditional credit pumping stimulants he's about to. In addition any focus aging that won't stimulate because they wanna push of performs. So as a result of seamless will be mates effectiveness before interesting, Steve Watson, any reactions thoughts on that basic question of how to think about the outlook for twenty nineteen wasn't what I would like to do is throw a question back to Stephen shirt because it sounds to me a little bit went. You're talking about what you expect for twenty nineteen sounds a little bit. Like, you're describing twenty eighteen we saw the government try to hold back from maybe excessive investments in infrastructure and robbery. So we've seen that attempt to rebalance the economy for a while. Now it goes back to before. Here we saw maybe at a level that surprised the Chinese government. We saw the consumer take fright with a slowdown in consumption. So those things that you expect. And I agree. We may see more of them. We have seen before. So yes, I don't think we're going to see that traditional. What has become traditional knee jerk? Reactions slowdown. But I think the Chinese government can try to offset some of the conditions that we've already seen in the economy any reaction yet. I think that's funny. Eighteen was itself yet Grossman slide down second off that. I think the tiny cycle doesn't come back and forth in six months. I think we've just stopped at neck moment cycles, any balance and usually these things loss eighteen twenty four months on best signals. I can get sense of where with done is over all credit was so how much money is lending bones. Being shooed. How much shadow banking is being done lost eighteen months credit? Both means flowing. I expected them gins in cal- early. This year hasn't yet tough. Nobody what happens is you have to wait for that critical to pay Cobb before you can even expect well Ray team plates that economy on stance growing only again. So if I'm right about that, it means that this is going to be another tough yet. And the economy should got a little bit more steam right in nineteen twenty twenty once the reason for someone who doesn't follow this as closely as you do obviously for why they're later why why are the Chinese authorities later on boosting credit? This time this time around low eighty trying to hit some very reformed goals. This the fights in Beijing within the government government, you wanna push through perform of kind of this move policy-making aging every time there's a few problems straight. Economy. And what does it do what it boosts that? But you could government then Austin hidden government that the government and it also boosts property prices. And so many cities now because it's extremely expensive. Maybe no sort of NAT nationwide bubble in many citizens feels very bubbly. And so those were forces that we have to get away from this old playbook because if we do it again with this hopefully bubble, and we're just going to run up the government's credit card. So we have to control it grows. And do cover phones we have to reform the Ansari's we have to encourage the private sector by reducing bureaucracy. All these other things the issue is that they managed to control the credit, but they haven't pushed through the reforms that they needed to do two years. It's going to be about the whammy economy sleigh credit growth, which means corpus Tiet come spending as much as it used to the same time you go to kind of hit confidence because those reforms whichever one was hoping for. Have them come. Let me bring Andrew Dorothy into the conversation share your outlook. If you would just for how you're thinking about the economy in China for twenty nineteen but feel free to react to anything. That's been said thus far. I do think that we're going to see continued slowing of economic activity for the next several quarters. I would agree with Stephen directionally where we're headed. I'm not sure I feel that the magnitude will be as challenging in that direction. Stephen suggesting because I think there's a couple of things that are different this cycle versus previous cycles. It is true that you have a depressed credit function of versus the past cycle. In the likelihood of a massive stimulus is low. But there are also other things that are more constructive in terms of the structural aspects of the economy one of which is up for the last three or four years. The Chinese government has been pushing through his vibe reform, which is reduced over capacity increase utilization rates across a lot of heavy industries. If you have better profitability in many of these industries, and so I think that means more broadly is that the Chinese economy has been evolving in a way that allows for slower growth to not turn into super negative profit cycles in in very short order and that retained earnings in profits from the last twelve to twenty four months of positive cycle. Kim sustained some of these corporates through of what could be a more difficult twenty nineteen. So I think that will provide some cushion up office, of course, will follow slowing credit that will last forever, but that that will help and I think the economy structurally isn't a healthier place in it was during the last cycle. The other thing I would say is the politics. In China factored into all of these policies, and how people in Beijing talk about and feel about stimulus for not stimulating. And I think what's positive Stevens view that which do Stephen greens are economists view that that will see more reform in maybe not as much stimulus. What's constructive, for that view is that she pains authority is stronger than it's ever been in certainly stronger than passive ministrations in terms of being able to dictate policy direction. And I think if he feels and it seems so far that he's on the on the side of being more conservative in terms of issuing ZIM Hewlett of credit that gives him the way in the ability to prevent excess again in terms of stimulus cycle on the other hand, we did see in twenty eighteen in Steve Watson alluded to this. That is as concerns around growth in the second quarter started to escalate there were a number of. Of dissenting voices in the U lead circles in Beijing policy-making another wise that suggested growth slowing much and the de leveraging ham campaign was too aggressive. And we saw holdback to some extent in D. Leveraging we also saw the pollution control measures of this winter less aggressive than the pollution control measures of the winter of twenty seventeen eighteen again acknowledging that growth has been slowing in they need to be thoughtful about the balance between reform and route. So I think it's going to be somewhat of a middle ground in terms of the policy approach. We will see continued loosening from here, it won't be as dramatic as past cycles in that leaves us in kind of a muddle through scenario where Rosal feeling comfortable for the next two or three quarters. But by the end of twenty nineteen I do think it will turn, and you know, again industries were adjusting to account for that. Steve Watson are things you agree with with what Andrew said, maybe I say the same thing in a slightly different way. Which is this is not an either or. Or situation. It's not an either or Konami like any government China is balancing objectives and trying to find a combination of strategies that comes up with long term result that will be pleasing to the country. So. Yes. Stephen green reform has not gone as far and as fast as we would have liked, but I don't think there's been no progress. And I think there will be progress. Yes, I agree with you that a knee jerk. Stimulus program is unlikely and would be unwelcomed, but stimulus there is already. We're hearing now, for example that in third tier cities in China. Local authorities are relaxing some of their restrictions on property development. Developers are being invited again to do somewhat more in terms of new project launches than they expected even month ago. So yes, we hope to see more reform alongside a a level of stimulus that gives China the growth rate, it feels it needs to keep its people happy, and how does this all play in ultimately to investment decision making when there's kind of a range. The views on what growth might be this plays into. What's consumer demand going to be for companies that sell to consumers that maybe Steve Watson? You can start us off how variations in views on this affect portfolio decision making. Well, we have capital group. Make our investment decisions company by company, and so it's not as though will be going out and looking for a basket of companies that do well. But as Stephen said earlier valuations in China are pretty attractive these days, Stephen feels that there's excessive optimism about the economy, and that may will be true. But many times we find attractive companies that are well positioned that have great products that are selling for evaluations that we wouldn't have expected a year or two ago. So there are attractive investments to be made either leave in consumer goods areas, for example in the. Internet area. I think there are a lot of interesting opportunities for us as we look to find them on a company by company basis, and we now have access not only to Chinese shares listed outside China of a shares listed on the domestic A-Shares market as well which opens up a whole new realm of possibility, and we are finding attractive investments. They're andrew. So have you? So it's interesting in his ties back to my comment about the structural illusion of China's economy there are industries where perhaps a macro outlook is challenging, but at the industry level, you're seeing Ravin consolidations of the Chinese property sectors. You just mention is one of those the government doesn't want to deal with forty thousand developers across China. It would rather deal with a more concentrated segment of developers in you're seeing Ravin consolidation in market share gains by the top fifty developers in China, many of which most of which are listed and our investment that we saw this happened in the last night. So in twenty fourteen which was really difficult year for the Chinese property sector. You had national levels sales growth that was negative territory year on year. I think it was minus eight awfully but growth of the top twenty developers for that year was double digits was awesome. Ten or fifteen percent at your. I think we'll see that. Again, this year probably see negative sales growth at the national level. But relatively strong growth amongst topless developers. So there are opportunities Steve litter to or bottom up company by company analysis and investment opportunities. Even in an economy that slowing because of things like consolidations virtual ship's industries as an answer that as an economist at a company, which investment company by company Baltimore basis, sometimes been challenged pounds of Amec reviews. An pious the Muslim prices. Zainab said through activists were even by itself cycle, the raw investment chooses their all other sectors. Where it's a really macro driven story words commodities, for instance, if you're investing in Rio volley, you need to know about what's happening with Chinese on six months, that's very important and even more boring than that. Right. If you're investing install votes now. Will these big nine US phones and twenty thirty percent of news. Now, some of these big multi nationals coming from China. So even if you think Starbucks is a great brand and is expanding in China. The Chinese side is still going to affect revenues in the next twenty four months. So even have been sending it to five percent of your vestment. You do need to understand way to think the Chinese guy in that's where different point of views on what the trajectory might be could at the margin influence investment decision making let's step back and take a look at the other question that I wanted us to talk about a little bit, which is this whole US China trade clash, obviously, this is kind of galvanized the attention of the world. What's going to happen? Where is this going? What are the stakes? How do you think about it? Steve Watson, shall we start with you? I won't claim to have a crystal ball. And I won't claim to have any deep insights into where the US administration or the Chinese administration will will push this problem. In in coming months. What I will say though, is when I look at the relationship the broad overall relationship between China, and the US it is really important, and it is known by both sides to be really important to get this fixed. Some people talk about the two countries as being linked people jokingly refer to the pair as chime Erica joined at the hip, America's trade with China is very important to America as China's trade in the other direction. I think it was Herbert Stein. Who said something like unsustainable trends tend not to continue. I think the trade dispute between the two countries is an unsustainable trend, and that gives me confidence that it gets fixed. Sometime, I'll be bold sometime in two thousand nineteen we'll see a much better situation on the trade front between China and the us. Andrew your thoughts. I think we'll see some resolution. Even in the short term some sort of a deal struck. I think there's political incentive on both sides to Steve's point. I think the deeper structural issues in the relationship won't be resolved in that deal. And I think they will continue to play the relationship and to some extent headlines and market sentiment around the US China trade headlines, but a short term deal, I think will be certainly positive for markets. Maybe people will not worry as much about the deeper issues because they're longer term, and maybe they're part to actually understand for markets. And so if you get a short term deal that could be quite positive, but let's say tariffs aren't taken away. You do start to see and you've already started to see a little bit in China employment impact in sectors related to trade American Chamber of commerce survey of companies in China has suggested that already thirty thirty five percent of them are planning to offshore some manufacturing Facetti. And or marginal investments will be made in other countries rather than China. So you're starting to see companies physician on a structural basis away from China that's impacting employment in China that of course is not on occasions consumption. So I think it will be negative ongoing impact from the US China trade issue, even if we get a short term deal that struck and I think members of the US administration are focused on solving those long term structural issues. So you'll remain replied while you're listening to capitalize ideas brought to you by capital group. It's interesting just to toss pot here myself to remind listeners I look at policy and politics for our investment team. In addition to corral and groups like this on capitol ideas. I've had the same sense that because Trump politically wants to have something to take into twenty twenty that shows progress for the tougher approach that he took after the last few presidents, and so maybe that augurs well for some version of a deal, whether it's the March deadline or sometime in the months thereafter. We are in the beginning of this whole longer geopolitical rivalry, the combination of Trump this kind of unusual figure thrown up by history who had the and his bonded about the trade relationship, which most Democrats now also would say, you know, they're going to be just as tough in terms of how they approach China head into twenty twenty and beyond and then she's on more openly declared aspirations I think for China's renaissance and its role in global affairs have combined to just totally change the. Footing. Now, the entire US policy establishment on a bipartisan basis is taking a tougher tone and perceives China as a term rival and threat in ways that really weren't quite the case even a few years ago. And clearly the the clash that unfolded in the last year really rattled markets because people have never seen a president decide to throw tariffs on. And really forced the issue nor have we had a trade rep like Robert lighthizer who's had both the experience and been his tough minded, and then empowered by like minded president who didn't want to tolerate the kind of pattern of pledges, but footdragging that China has used as a strategy for many years. And so even if there's some interim deal, my share the view there's going to be something like that. These longer term issues persist the prospect for geopolitical flare ups around Taiwan, the South China Sea, some miscalculation there's the North Korea angle, which is useful tool from the Chinese point of view and the negotiations it's complicated. And as you said Andrew it's going to go on for years. Stephen green any wisdom you'd add. Actually, I might ask you. Spent time in Beijing talking to friends when you hear from the Chinese perspective how they're thinking about this issue and with oportunities challenges day look at from this perspective. I think they'd made statements around what they're willing to do what they're not willing to do. And then let's kind of in the middle that's been gospel. And certainly they've they've made statements to the effect of feeling confident about being able to outlast the US political system in terms of patients on the issue. I don't know if you've found any conversations you've had in Beijing interesting or Saiful terms of how they're thinking about this issue. I'll tell you really one conversation that have you kind of shocked me us sleep middle size revealed where we all today have a friend who was Chinese Bank. He did his PHD in with the Chinese national. Chinese Bank, and we were talking about trade tensions. And he was vigorously critical of the US physician. He didn't think it was fad these allegations of theft. He didn't Harris who good until he thought China's sort of riot. He's sort of America was trying to contains press China's rise. And so for someone who's done his PHD. Why just assumed Don? That would be sympathetic to the US position on this. I found that incredibly interesting. I think it guys to the point that if this US western and China clash does deepen and get worse amount of Chinese people's and agencies are going to be tested list. Super there's going to be tested. They they would love to have been more liberal open. Well. Values. You know, they will say deeply Johnson. Yes. And I think that's going to be a real off challenge for both us, and as well, it's hard to know. Now, how we? Even get beyond this sense. Among Chinese that US the declining or decrepit or aging US is trying to keep rising China down. And yet on the on the US side. You know, I was at a council on foreign relations thing not long ago, and on the US side, there is just no consensus or even the beginning of I think real thoughtful strategy of what what the US is Jecht of should be ultimately geopolitically and otherwise with with a rising, China, and there's such a denial. I think among the US policy lead to even acknowledge the potential transition. We're headed into now American politician is going to stand up and say, well, you need to understand, ladies and gentlemen, were headed in the next twenty thirty years to a period where we're not going to be the biggest economy in the world anymore. And instead there's going to be an economy that's bigger than us. It is three or four times the size of our population. And by the way, is governed through a set of values that we're very worried about and they have global ambitions and have a nice day. And you know, Americans are kind of reluctant American leaders are reluctant to talk about that. And if you can't talk about it, it's hard to have a debate about what you want to do. And and I think she is a key figure in this. Because it's his, you know, if you look at what he put out at the party, congress the four hour speech, the kind of Chinese equivalent of the state of the union. I remember when I read that in translation, and it's a long document the aspirated over the next thirty forty fifty years for what China ought to accomplish is just at a different level of open declaration than I think the world has seen before. And I think that contributes to the anxiety and nervousness among US policy leaders, and this goes well beyond Trump. It's not like, even if the Chinese strategy is to wait out Trump, even if it's eight years, that's a. That's a blink in the eye of history from the Chinese point of view, the the US leadership will remain nervous about the trajectory of this. Because it's a new world. No American leadership group has has been alive at a time. When the US wasn't number one. I think it was ill advised of China to say we want to be superior to the US. I think that was a politically very sensible. But I also find it difficult to fault China for saying we want to be wealthy. We want to be advanced. We want to have strong technologies. It seems like a fairly understandable aspiration to me. And it is true that there's a strong sense among many Chinese people perhaps most that the US is trying to prevent China's rise. But this is not a new sentiment. It's something we've been hearing for many many years what I find useful to remember, though, is that the Chinese diplomatic response to America in recent months has been very Michigan. One could have expected I think most did expect that strong rhetoric from the United States would be met by very strong rhetoric throughout the Chinese administration. And yet I find the Chinese responses on trade to have been relatively measured relatively quiet and fairly professional. And that helps me be confident that cooler heads may prevail on the trade issue. That would just add it's been interesting twenty eighteen to have seen a lot of the headline policies that have been attributed. She's paying arouse debate or concern within China and there's been a little bit of pushback on early overt, but subtle pushback within the system around. They one belt one road a strategy to made in China twenty twenty five strategy, and you've seen the Chinese take a little bit of a step back on this policies or rebranding or not mention. Them in Chinese media, or you know, a variety of different ways of softening those policies that had been causing so much angst and concern with western counterparts in. So that doesn't necessarily mean they've changed reteaching tack, but they're recognizing the importance to Steve's comment just now of having a more thoughtful diplomatic and measured approach to talking about. And maybe implementing in terms of pace these policies. Let me ask another angle on all of this. You know, there's you see sometimes in the in the press or financial pundits or the discussion. And of course, in in the halls of capital group. The question of will there be some de-coupling of the two economies? There's been a big theme of economic integration between the US and China chime erica's, you refer to the phrase over the last several decades and one view you appear Shizhong ping talking about the need for self reliance on technology. The talk about a shift to consumer. Internally which is obviously going to be huge wealthier China gets. And then you hear others say, but still this is not even even when people throw around the phrase, new Cold War between US and China. It's very different when the US and Russia didn't have anything like the level of economic integration that the US and China have how do you think about where that might head? Is it a relevant question? Decoupling? How do we think about it across the investment groups do Watson take swing? It's very relevant question. And Andrew alluded a few minutes ago to a piece of it, which is the world's reliance on exports from China. Andrew mentioned that many of the companies we speak with are looking to replace China by finding productive capacity in places like Vietnam and Bangladesh Thailand, the reality is it's not so easy to do. We talked recently to one electron IX company, it's based in southern China. They have about three thousand suppliers near them, they carry virtually no. Parts inventory because parts come in constantly every day all day long. They virtually no warehouse space, and because they're in the southern part of China with a Jason to one of the world's largest container ports. They'd about the infrastructure to ship their goods all over the world. It is an aspiration for many companies to replicate that in Vietnam say the reality is that the infrastructure is not there. The skills are not there. It can be difficult in such places to get environmental permits to get actress ity to get water defined shipping infrastructure. It's defined the labor and skill sets you need. So there are many companies that would love to see if not de-coupling a lesson reliance on China. I think it's gonna take years to achieve advancement take us. But when you back China's absorption of the world's electric, supply ching, it all sorts of gifts. Again, the late tainted his will wait. Two thousands. I think for many companies Steve said at the challenges a huge, you'll use to work you China, you'll supplies Aena infrastructures great taxes pretty good as well. But once you start adding in slip things like tyrants, things like more American. Maybe even European and Japanese concerns about the security of your supply chain and once the big guys stopped moving stop transitioning to other places that will push this trend forward. So for instance, if you had a big company like apple if they thought it to move Hoffman, glacier license production to India. It will be tough challenging taking his, but it would take supply chain with them. So she sees Inc. Companies who do defines by chains beginning to move production trying to India China, Vietnam, I think that would be a big signal that the next ten twenty years. We'll be about a transitioning of at least the event joining supply chain, although to be clear. That was hypothetical scenario not not necessarily Snapple. Yes. Hypothetical just to be clear. You talked about China becoming self reliant and its consumer market is so big can do that. I don't think the self reliance is so much about relying on its own consumers to drive is economic growth. I think China will continue to be of the major export even if on the margin in new industrial capacity is being built elsewhere. So Starbucks will continue to grow in China. China can't suddenly create a domestic coffee brand that dominates the coffee mortgage. China's Starbucks is well entrenched, and you can go through the list of western brands that are in China. And I think they will have a long a long successful future there with blips perhaps occasionally driven by political events. But, but we're I think you do see that folks on self reliance in replacement from Chinese industrial policy perspective is the technology sector in particular up and down the supply chain. But particularly upstream and those. Analogies where they're embedded into the downstream consumer electronics and industrial electron IX vomits are particularly important for strategic reasons. And that's where I think you'll see China's focus really trying to accelerate the progress mental logical standpoint. So it's going to be a very sector-by-sector evolution in terms of impact on companies portfolios. And that's you know, that's why we have a big team. For example, Beijing in China spending time talking to folks cross industries and trying to understand it in a real time way, how a companies in sectors involving depending on how these policies change. So just a few minutes left in our conversation of all things China. I'm curious you're all close students of the country the economy, the geopolitics, the companies are there other big things that are top of mind that you have disagreements on or different views that you'd like to air in a dramatic way right now. And maybe I'll just tell a story we. We were told of a of an exchange between the US diplomat and his Chinese equivalent recently, and the Chinese diplomat leveled this charge of America trying to prevent China's rise and the response from the American was I've spent my entire life studying China learning the language I've spent my entire career here. And like most Americans I would like to see a strong and healthy China. We're happy to see China take its rightful place on the world stage. But we would like to see China that plays by global rules that respects law that respects the treaty that respects a technology. And I think something that I know my colleagues share is an idea as a goal, and I'd like to think that the even people in the American administration feel similarly any last words once one thing financial advisers. And others who are stewarding money on behalf of clients. And helping folks think about this something they should take away to think about in terms of China in two thousand nineteen this is longer term than twenty nine thousand nine right for me. One of the things that has become assumed about China, which wasn't necessarily the case before years ago is that the political structures have become very consolidated around sheet being in with the announcement of the possibility of extended terms for him. You know, people sort of assume that that will happen in that effectively the the current directional shift towards more concentration of power in. Beijing in worth retain is from the Chinese political system is inevitable feels that that's kind of the consensus. Now that people say, okay this direction is now set in stone. I would just remind folks that political systems which driving onomic geopolitical policy involve, and he is just as I mentioned in twenty eighteen we saw episodes of pushback within the Chinese political system around slowdown in growth or perspectives. And we saw some ebben flow of policy, according to that that will continue and actually as growth slows in China over the next five years looking at a bit longer. You may see evolution of how politics is managed in China. We saw that another East Asian authoritarian countries as you Connie slowed the political. Items changed in interesting ways. And so I think it's important not to project long-term halves for geopolitical conflict without considering the fact that these countries the US and China, for example, are they themselves changing infant ways in domestic politics. That's grant mccown. I think Andrew's ROY project the presidents of the future. At risk out there. Maine. And if we did see economies fight down and say, I'm rightness seamless doesn't would of course flies to alone on the and there is unemployment. When you Kristie Chinese state become more repressive Roth the moon liberal. And I think there are signs that is government has the most viewers shutdown areas of criticism from the public areas debate of whether it's voyeurs the media, civil rights groups intellectuals, and so I do worry. Sort of local issues that you could see a more repressive state. I think that would be a worry for China is what is investors? Well, it's been a terrific conversation. Let me thank Stephen green. Steve Watson and Andrew Dougherty. Thanks so much for joining us on capital ideas. Thank you. We love hearing from our listeners. So tell us our doing please review capital ideas on I tunes, or if you prefer to send us your feedback, including any topics. She liked to see address shoot us an Email to capitalize ideas that cat group dot com. 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Burger Kings Woke Fail | Guests: Jeff Brown & Clarice Schillinger | 3/8/21

The Glenn Beck Program

1:57:59 hr | 5 months ago

Burger Kings Woke Fail | Guests: Jeff Brown & Clarice Schillinger | 3/8/21

"Cocoon beck program. Hello america and welcome to the program. It is monday. Oh california. I know the only reason why i say it is because of california. Maybe a little bit of new york a couple of other states where they're still like. I'm locked in my house. I don't even know what day it is is the son. Does it even work anymore. Yes it does come out of your shelter. Okay you know before. I say that. I should warn you. That texas is just trying to kill everyone. Wait until you hear the latest The the latest scientific editorial coming up in just a second also who said we couldn't trust joe manchin wh when we said at times but I guess i guess there's a problem joe match. He still going to stop the filibuster from from being repealed. We'll tell you about his but not is but interest any. We'll talk about that coming up in sixty seconds burke program glenn back so if you're one of those people who live with pain would you give to get out of bb out of it Most of the pain comes from inflammation in the joints throughout the body. Now if you're leave your like i i'd i'd give you know a hundred dollars. Call me. I have a secret glenn back bag of i like to call it relief pills But if you're like that's a little much pay you know. Nineteen ninety nine to get out then. Just call relieffactor directly relieffactor dot com eight hundred five hundred eighty three eighty four eight hundred five hundred eighty three eighty four. It's relieffactor dot com. This is something that i took years ago and my wife made me try it and it is dramatically changed my life. Try relief factor. Get your life back. Get out of pain. Relief factor dot com on friday in the white house. Press conference jen psaki content sake. Inspe- asaki i refuse. I refuse the p. Has been they've tried to silence the pe- in her family for far too long. Who's with me. Do not allow her and her family for generations to look down on the p. and say silence. We need to use the verbiage of like that like trans activists say like the p. exists the p the this gen. Yeah you're so it's jen pa- sake on this program anyway. Jen psaki said that president biden hasn't held a single solo press conference during his first forty five days in office because quote. He's too busy with this historic crises. Weird is every week. Fdr gave a fireside chat of anyway. I mean he gave interview. That was kind of a historic crisis. Too i mean sure. It wasn't point zero seven infection rate of of a virus. But there was some mobile war can tend to be a big deal. Could be day deals. Yeah nazis he's dealing with nazis. That's what he's doing he's busy. He's busier than fdr so while he's too busy to talk about anything Senator democratic senator joe manchin from west. Virginia i am so glad we put all of our hopes and dreams into his bucket. It appears that he has started to shift his views on the filibusters. The filibuster remember he is not for ending the filibuster. Here's what he said. Listen declare with thirty seconds left. You would consider making it harder to invoke the filibuster so that you just don't automatically have sixty votes that you need for legislation. I'd make it harder to get rid of the filibuster. I'm supporting the filibuster. I'm going to continue to support the filibuster. I think it defines who we are as a senate make it harder to get rid of it but it should be painful if you want to use it just you should make you make sure that place works to where okay. I want to work with you way. But what if you don't wanna work with you. I mean it's not like the republicans are saying no to things like you know what We should make sure that That we you know we we just keep the economy running and And we get out of people's way now we're not gonna do that and we you know instead it's it's more like we're going to We're going to build some concentration camps for the japanese these these republicans won't work with us on anything will know we'll work on. We'll work on some things with you. Not that one. No i mean it's not like they are talking about gun legislation the the fifteen dollar minimum wage. We have real differences on that. Now i know the left would like to boil that down to. We just hate people in. Want them to starve. No we think more people especially young people are going to be hurt by a fifteen dollars minimum wage it it will destroy businesses the big businesses. You notice they're all for it You know they were all for a lot of things during the new deal as well with fdr but they put all of their competition. All of the small guys went out of business See i don't understand why you don't trust joe mansion first of all. He said multiple times. He's against that minimum wage going that high and remember when he was elected. This is a man who took a gun and shot the cap and trade bill because he is so against those things and tie. no. I believe him. I know i believe that he's really for gun rights. I know i believe he's against those immediate climate bills. That might hurt people in west virginia. Let me ask you. Something is what was where it's joe mansions position on. Es g environmental social justice and governance standards that the banks are doing now because The banks because they've chosen to do this on their own. You know right And strangely all of them have chosen to do this on their own and more and more businesses are choosing to do it on their own. Right after biden was elected since that. Weird very strange. Yeah so where is e. on On es g 'cause that's going to put the coal companies out of business haven't heard word one that maybe maybe he's got a very very detailed position. I'm sure he does well. They tend to be very very specific. Like i'm gonna make it more painful to use it. Why should why should it be more painful to us. Because he wants some of the things they're going to block that's why he what he's advocating here is an approach which allows him to get all the things he wants and gives him an opportunity to be ultra powerful in in debates like this past week where he can manipulate the the outlier sort of clauses. In these rules he can. He can play with the deadlines and play for example. Like they're like well he he. He lowered the unemployment benefit of the bonuses that they put in the bill from four hundred dollars to three hundred dollars. Because you know this guy glenn he's just hard core when it comes to spending or he so he was just like you know pay hundred dollars to three hundred dollars. A nats did you. Also though that included them extending it for a good amount of time all the way. Till i believe it's september the end of august. Yeah so what. How do you spend more money. Would you say the extra hundred dollars for a shorter period of time is is is the person who's thrifty or is the person who's lowering. Yes by one hundred dollars but then extending it for multiple weeks and months afterward. I don't think i need to answer that question. Such a hate monger such a hate monger. I like the fact that they they they delve into. How much are we going to give the american people but they didn't delve into. How much are we giving the banks. How much are we giving big businesses. Yeah how much are we giving unions. You know the states the people the people. I don't know i've never felt That the government should The pay for anything. You know the the safety net. That doesn't it doesn't work in your community or if you're in a very small community and you just don't have a biggest you know big enough safety net. The government should take care of those things but the government should not just be doling out. Money and sending peoples of sending people checks just lower. Our income taxes. Lower are are taxes are withholding taxes. That's that's the way you can make an impact. Don't send me a check and it really bothers me that they are taking all of the money and giving it to the big guys and then they're arguing about a few hundred dollars for people that need the money because they did something unconstitutional. They told the american people that they had to stay home and not go and open their doors of their business. every day. they put people into this situation. There was no argument about it. We couldn't argue so so wait a minute you you made me lose my business and i have no recourse in in all of your life. Have you ever seen anything like this. You should be able to sue. You want reparations. There's reparations that's something we can do right now because the people that were affected by it are alive today. But you'll notice that they are doing reparations. They're doing slavery reparations only black businesses will get the loans remember. That's what biden was saying. We're not really worried about the white businesses. Were going into the communities. Words black and hispanic. Wait a minute wait a minute. You put everybody re regardless of color. You put everybody into their house. Sure love separating people based on skin color for who claim. They're not racist. Oh yeah that is a fascinating. I mean to implement the amount of implied segregation. They are currently attempting to say that. You're not a racist is a fascinating development. Will now they are now. They're going to grade school. And they are separating by by race now and the things that they want to do. Is i mean. I just saw this article in the wall street journal. My awakening to the new orthodoxy began during this past summer of discontent mid june a few weeks after george floyd protests began the head of riverdale country school in new york city a private school. My wife and i entrusted with the education of our two young children sentimental memo apologizing for unspecified past wrongs we have of the responsibilities are privileged to fight for change in september the first assembly of the year instead of reciting the pledge of allegiance and singing america the beautiful longstanding stool school traditions. The head of the lower school announced the theme of this year would be ally ship. The then played a video in which the school mascot told students ages five through eleven to check each other's words and actions lower school head had earlier written that it's essential that parents and caregivers and educators acknowledged racial differences as opposed to their traditional color blind stance and offered reading recommend recommendations. Such as robin angelo's white for jilay families at riverdale are encouraged to join school sponsored affinity groups to bond with people from their ethnicity or skin color one is simply called. Poc parents of color whites need not apply. This point of the story perhaps lived experiences become relevant. I'm half mexican and yuki indigenous tribe native to the us mexican border region. I'm also half jewish. I spent the first year of my life in a commun- in berkeley california growing up. I was aware that i had darker skin than my mother. My classmates but i never was taught to define my identity by the color of my skin. My mixed background and ancestry made me feel nothing. Nothing other than feeling like a typical american. My wife came to the us as a refugee from the former soviet union. Listen to this. She spent the first five years of her life in an intolerant society. Where her group identity as a jew stamped on her passport in school she was taught caught taught to keep tabs on friends and family and after one particularly effective lesson. She was inspired to turn on her own father and turn him in for local to the local police for crimes against the state. Fortunately no harm came of it but suffice to say we're both a little allergic to force conformity when young impressionable are trained to obsess over racial differences. Be on the lookout for this so he writes about what his school is doing in how he is standing up he doesn't sound exactly like he is conservative. Maybe he is but he grew up in a commune in berkeley california people. I would like to know. I'd like to know what the difference is between putting everybody in these categories and separating and keeping everybody segregated. Does anybody remember what segregation was. Is anybody remember how bad that was. How is it going back to this in everybody's fine. Can you pull up the picture real quick and then we'll take a quick break. Pull up the picture of The grocery store in new york. Have you seen this incredible This is a grocery store in new york On the shelves all of the you know where they have the prices on the shelves of the grocery stores they have the price and then they say black owned hispanic owned. How could people think this is a good idea. I am fascinated by this idea that you should choose the food you eat based on the skin color of the owner of the company that is the most often say that it is exactly like me to say like you to say that i'm just pointing these all out for the record. Someday they'll be played in court at your prosecution. And i'll say la- laying what i said. It's just like you mr whitey. Not judging people by their skin color is a hill. I is a white man. Would say this is so you can help those struggling businesses. I wanna help struggling businesses but I'm not gonna pick them based on skin color big based on merit while. Yeah that's that's the society. I wanna live in any and if you don't live in it you think that's the wrong side. He sorry suck it the brigadier. I'm not. I'm not changing my opinion on this. I am not going to judge people and make decisions based on skin color. No not going to happen not going to do it. You're not gonna turn me around on this one. I am not making decisions based on skin color for my whole life. I thought that was universally accepted as the correct thing to do but apparently now is not so. Is that your line crossing it. I don't know it's good good. Good i'm not crossing that line i am. I'm with you one hundred percent but now let's talk about what that means in sixty seconds. I don't want to do that right. I know it's great to make that bold declaration but now what does it mean. Timeshare termination team is there. You made it on us mistake. I mean you know. It was far far far far far far. Good to be true and those words were written on every single slide of the timeshare powerpoint presentation. You sat through even though you you know you probably should have been getting up getting out. You wanted to believe it. And they made a good case at the time. Here's the thing they've done everything but take your blood and it's not what they promised. Most likely heavy used it in the last year. Have you been able to get the place that you wanted and you were promised or you had to sacrifice and be bumped down a bit call timeshare termination team get the process started. Even if it's just that it's too now you can legally get out of your timeshare in any good place is going to let you out of your timeshare. Don't keep putting it off and getting stuck with another year of timeshare that you just won't use call eight eight eight get you out eight. Get you out or visit them. Online at timeshare termination team dot com timeshare termination team dot com with a one hundred percent money back exit guarantee at timeshare termination team dot com ten seconds station. Id so now with es jeez coming in and Banks now saying that they're going to Score hugh based on your environmental footprint. We were. You're over at the house yesterday. And we were talking about solar panels. I mean we're lucky enough to be able to afford sewn solar panels but if you are just buying electricity off the grid in a few years you're not going to be able to. You're not gonna be able to get that loan. You're not going to be able to buy that house if it doesn't have solar panels or you're not planning on pudding some sort of alternative energy into it you're going to have to do it Otherwise the banks won't give you alone because you'll have a low. Es g score a World you describe here. I know and it is seemingly very well doctrine away yeah and yeah very well underway. Shell it's It's amazing to me because the s is social justice so if you're against critical race theory if you're against you know buying things based on color still you're part of the problem you'll have a low yes score on now. I kind of have a low. You might look. Efg scores gonna suck. Oh no going to be like my physics tour good. It's not going to be good. Because even if i have solar panels i say too. Many things that are against the es g mantra. I know and that will be factored in. I'm sure oh it sure will it sure will so you have to make up your mind where you're lying is and what it means is the glencoe program. It's great when you run across a product especially when the us every day that perfectly balances reasonable cost with superior design. And when you put a set of rake on earbuds in your ears and you give melissa and let me assure you you're think they're practically giving them away. The sound quality is great. They're just as good as all the high end. Competitors like apple But they cost about half of what charges whether you're looking for something to Put a good tune in your ears. Or you know or when you're supposed to be paying attention to a zoom meeting or god forbid you're the type of person that goes out jogging you just want to hear something great and you don't want them falling out a year is all the time get rake on there. The best recon offering now a fifteen percent discount off all of their products. And all you have to do is go to buy ray khan dot com slash back by ray on dot com slash. Back fifteen percent off by ray recon dot com slash beck if you don't know what you mean by. Es standards there's a great place to catch up on all that blaze tv dot com slash. Glenn the promo code glenn save ten bucks on your subscription to believes tv. This is the glenn beck program so glad that you're here back ray is joined us. Hello pat hello glen back ray. Of course from the podcast. Pat gray unleashed where you can get. You can listen to him every day. Either blaze radio network live before this program. I just came from there. I just came from there. Wow yeah it's quite a commute. For what a journey. it's bad. It's so a pat today. I got some mask. Nazis that They're pretty much showing up everywhere. Really mask nazis. This was an interesting what i thought at a at a drive through location The woman wasn't wearing a mask and so here in her car in her car. Her cars what happened know. I don't you can give me one. I don't wear masks so you can hand me a mask one. Yeah but you can't drink without a mass gotta wear a mask. How does that make any sense. That's what that's what i can. You can hand me a mask. I can't you just hand me the drink so he can hand me a mass but he can't hand me. My drink makes perfect sense right. Can you imagine they're trying to tell us in our cars now. We have to wear a mask to be sir. well why won't you listen to the authorities. Why won't you listen to the science. Follow the signs and listened to the authorities that are working the drive through window at your local fast food place because who knows better exactly right to fast as live through person right. I do worry a little bit about The stock of google though. If masks go away there will be no content on youtube. The all content on youtube is related to masks. It's even like every one of these mass conference much to happen when someone is pointing a phone at themselves which is a really no. There's more anger that comes into these are what she probably went through four or at a friend. Gophers go toward this time. It is a completely ridiculous standard. It makes no sense to wear the money need to you. Feel kinda bad for the employees who obviously didn't come up with a policy his own policy. He didn't say that's company policy even as it is company if it is company policies. It's ridiculous and i'm sorry we're not teach people just to follow orders all but if you want to keep your job at a restaurant policy right you want to keep your job. I understand that also is something to be said on. We should probably put this pull this weed out by its roots when something makes no sense whatsoever since you should probably not do it when you're trampling on people's rights land that makes no sense as a person who may or may not go through the taco bell drive-thru fourteen times a week. I've noticed they have a policy at least at the one the several that i frequent that they put the bag in a been to hand to me just like hutch the bag to put it in the bit you're sliding the bid out so that i grabbed the bag the bag you touched with my hands and pull out of the been eating them. I guess i've never taking a drive through employees andrew cuomo to you can't give them the govan that would be bad they can give it to you. Yes but you can't reciprocate. Yes but how. Would i give it to them. Any normal dave no. They've made it so you can't drive through transaction. How would i give them. Covert assuming your web giving them a credit card. Assuming you're wearing a mask and you are wearing not. Oh my gosh. I'm usually masks to you. Know you're a bad person. Thank you i i just decided that summarizes is it pretty. Well does it does. But i could help if you wanna wear a full mask. What about wearing a nosy. Have you seen the notes. All these fees are so we're gonna say great. These are so great because look what it does there. It's a. It's a little teeny device. That fits all over only your nose and it acts as a help filter and a carbon filter aung and if you if you're watching tv you can see just how stupid they look on people to just based on that. I'm going to say. I'm a pass on the nosy cost ninety dollars. How box for nosy. It can't be real real. I think so ridiculous ridiculous. Let me tell you what it looks like. What do you remember the opera the nose. Oh my gosh to looks like the nose and the nose was the was the. I don't even know what that damn opera was about. My daughter was like well. That's goethe's operas getting great reviews. And i'm like no not another operas. Grab a great fun. I'm like no. It's not it's really not and we went. And we mocked it the whole time people were very angry with us but we mocked it the whole time it was a giant nose with feet and it looked like the nosy knows with fee. Yet saying i don't even know what it was because it was in another language but it was just knows that would come out and it would walk around the stage and know who's okay whatever and i'm convinced i'm convinced that that opera was just someone saying watch. How stupid these opera. People are to their they'll buy this and then they'll all flock to it and pay all kinds of money to watch odd. No he and. I think that's what the nosy is. I think that is somebody saying. Look how stupid everyone has become. They will wear these and they'll pay ninety dollars a piece for them. So i wonder i wonder if you could actually buy them. Are there legitimate product. go to seattle. We went to the website. Did you buy no. Oh bye by walkout by gotta buy. That would be a fun show to do a show with the nosy. And that's by three of them one for you one for. I don't want the white one. Whatever else colors they have. I just don't wanna white one. I want black one. I want wanna black one. Who's identify as a person with a brown one. Because my nose is about the entirety of my native american ancestry. I have more native american ancestry than Elizabeth warren yeah so cycle. Wear a brown nose for a red knows it does seem to be a kickstarter so maybe not actually available to is on the way of you. Put your money into that kick starter. Those people are probably in russia. Only two hundred seventeen backers really or just considering the amount of press it's received that number. Wow let's go to do better now. 'cause glasses and browse above the glasses. Let me give you. Let me give you this. This is from the washington post. This is an editorial living in dallas. Texas right now feels like an exercise in survival. Wow yeah doesn't it really doesn't at a mexican restaurant in this week. She's living in dallas governor greg abbott. No he was. Okay got governor greg. Abbott proclaimed that he would issue an executive order to open texas up one hundred percent starting next week including as he told a cheering crowd ending the statewide mask. Mandate people and businesses. Don't need the state telling them how to operate. He said it was ironic. That made his announcements on texas independence. Day was it for was that ironic was it. I mean it is. I mean he's saying that we can be independent and we don't have to have the government telling us everything so it was actually kind of appropriate more than ironic for many of us. Texans that we That What we desperately need is to be free from. Gop leadership that is put our safety last at every turn since this pandemic began ads decision to lift. Occupancy limits on businesses and other restrictions is reckless and premature. So i i went to. I went to a restaurant on friday. And i was out with a bunch of friends and my wife just gave me the dirtiest look. She was already there. And i walked all the way through the restaurant. Saying with my mask on. I mask so i'm safe. I mask so. I'm safe i mass. Oem say fi mass. I'm safe i- mass. I'm safe then. I pulled a chair out. I mask so i'm safe. I sat down. I don't need the mask anymore because there are no germs at this level. Yeah go nuts. Covert is not little people have kids. Don't get kobe because it all votes above us sit down. Go bit right so so the texas. Gop corning washington post the texas gop's net caro- politics meaning politics of death have been on full display this pandemic year last march lieutenant governor. Dan patrick said grandparents in in texas would be willing to sacrifice their lives For the sake of the state's economy. The i said that to When abbot reopened the state in in may the move quickly resulted in a spike of cases and he was forced to backtrack. I've never backtrack on any of I i believe that people my age are perfectly willing to go into work. Not everybody not everybody. But there's a lot of us were like yeah open it back up now. Texas has thrust. Texans back into the reopen rodeo. Show so here. We go again impressed on his aba impressed on his listeners. At the end of the mass mandates does not end personal responsibility pot. What have the responsibility of government. Whatever that one of the the responsibility to not tell us what to do in every aspect of our lives yeah. Responsibility of the government really ends On the rights and responsibilities of the citizen yeah when they interfere with the rights of the citizen. The government has no place there. This guy is making the argument. That yes i do need government to tell me whether or not i should wear a mask smart enough to figure that no on my is. He is in his friends but everybody else is texas or too stupid to do it. Yeah so you might have a. I don't know an ego issue. I'm just saying that if you think that your the smart one and you pay attention to science i would like to point out a couple of real quick. A couple of things about science First of all the this is latest from the c. d. c. mask mandates and restaurant restrictions have very small impact on corona virus japan. Their supercomputer justice shown that doubling masks offers little to no help. Just if you're following the science you should read those articles and maybe put depend down On your walk or writing to the washington post. Although i don't know if air anybody actually exists at the washington post except people members of the dnc with the with the headlines. They wrote about biden this weekend I bided may be working at the washington post. Twenty two staff time for press conferences. Thank you pat. All right let me tell you about our sponsor this f ours. My patriot supply History has taught us a lot of things When there is a disaster you're going to need to be able to be self sustainable So what do you what do you do what do you do. What do you need. Well you need power. You need water And you need food. Those three things are things that you need and My patriot supply can help you with two out of the three. My patriot supply dot com. Get the food storage. You need if there's an emergency get the water filtration that you need the food kits ship in one to two days and arrived. Discretely at your door. Don't wait the time to prepare for. The future is right now. My patriot supply dot com. Don't wait do it now. My patriot supply dot com in october of twenty twenty. That's last october. Miami based art collector. Pablo rodriguez fridge delay. Must it's it must be from. France spent almost sixty seven thousand dollars on a ten second video artwork that he could watched online for free last week. He sold it for six point. Six million dollars What the video by digital artist beep uil. Whose real name is mike. Winkelmann was authenticated by blockchain which serves as a digital signature to verify who owns this digital artwork and that is original digital artwork. This is a new type of digital asset known as a non fungible token or nf t that has exploded in popularity during the pandemic as enthusiasts an investors scrambled spend enormous sums of money on items that exist only online. I don't think i get this other than this. Sounds like the biggest scam of all time. you know. Have you seen the people that are. They're buying artwork. But you're buying a share of the artwork. Be seeing that no yeah. They're now starting to sell artwork And you they're asking you to invest and you can buy you know two hundred and fifty dollars worth of the mona lisa or whatever artwork that is up for sale mona. Lisa's usually not up for sale. But you can buy these and it's a way for people that want the our work they'll hold it. Hold it for you. They'll hold it for you to your time sharing art your time sharing are either actually get to see it just kind of own. And if it goes up you'll get a percentage of the i mean we are finding ways to scam people out of their money every single day and this this. Nf t sounds just like that We're gonna go to jeff. Brown are our technology expert. He has a lot to say about this coming up glenn beck program the glenn beck program. Hello america this is the glenn beck program and it is monday. Wanna talked to you a little bit about the coming inflation. That is Right around the corner. It looks like the economy is beginning to pick up and we are flooding the market with dollars and when people start spending those dollars that's when inflation hits and it could be white bad this time now maybe not keep your fingers crossed but eventually it does come. So what do you do to prepare for a collapse of currency or really high inflation. We're going to begin their in sixty seconds. Let me talk to you a little bit. About relief factor. Relief factor is Is the group of people that that really helped. Diane and i get out of pain. Diane lives in california a lot of people who are in pain for different reasons in different parts of the body. That relieffactor can't help that pain in your but if you live in california might be in pain. She was one of those sorts of people like to get up and go exercise. And you know. I live in california because we can serve and we can go into the mountains and ski. And i'm like yeah just like looking at both of those things. But she's been spending more and more time in her living room chair because the aches and pains she developed over the years. We're just getting worse. And worse all the time. She finally decided to try. Relief factor in less than a week. Diane said less than a week. She was up and out and she walks four five miles again a day. Sorry about that diane. Got her life back and so can you. It's relief factor it relieffactor dot com relieffactor dot com or call eight hundred five hundred eighty three eighty four eight hundred five hundred eighty three eighty four. It's relief factor dot com till the old saying is what goes up must come down And that is with inflation as well as you just keep increasing the money supply The way we have we've had printed twenty six percent more dollars in the last year and introduced them into the system in the last twelve months that no in no other year except nineteen forty four. Did the united states of america do that And there were things to invest in in nineteen Forty four we were. We were building The nuclear bombs. We were building airplanes. We were building factories And we needed to spend the money. That's why we did it. And then we pulled that money all back in this kind of of the amount of money that we now have in the system. We've never had anything close to this out in the system and when you print money it's bad unless there's what's called no velocity velocity just means. Is that bill being spent so somebody gets a loan from the bank. They build a factory. Those those dollars that they got from the bank they pay to mechanics or Contractor the contractor pays for the the structure and pays the electricity the electricity take that and they buy groceries and then they take some of it and they spend it at a movie theater velocity is. How many times has that dollar bill. Ben spent before it goes back to the bank. We have very low velocity now and people are looking for places to put their money At least people. I guess who have just a ton of money. 'cause i don't even understand this new sounds to me like a scam but i wanna do get jeff brown on the phone. Hi jeff gordon. Jeff is the founder and chief investment analysts at brownstone research and editor of the bleeding edge. he's a big in a high tech. Tell me what an f. teaser are okay so And fte's are non fungible tokens and probably the simplest place to start is to understand what fungible means. Because it's it's really not a word that we use on a day to day basis Let's take the us dollar if you wanted to borrow from me One hundred dollar bill and then you wanted to pay me back. You wouldn't have to pay me back with exactly the same one hundred dollar bill that i gave right One hundred dollar. Bill is equal to one hundred dollar bill. They're completely fungible. They're interchangeable even divisible when that's the concept of fungibility a non fungible. Object is Something that isn't divisible and can't be exchanged for just something else Simple example would be Your website glennbeck dot com or dot com These are actually. Non fungible assets are not interchangeable with another website at all so soon it so like a stamp would be fungible a collector stamp with the upside down airplane. That's non fungible as long as there's only one of them okay and that's the that's the nuance okay. Nfc's non non fungible tokens. every single. token is unique in. Its own right. There's nothing else like it nor nor can there be and so. Let me give you the start of this story and you explain this october. Twenty twenty just a few months ago. Miami based art collector pablo rodriguez frail spent almost sixty seven thousand dollars online on a second video artwork that he could have watched for free online last week. He sold it for six point. Six million dollars. That sounds crazy and it is. It's crazy okay bud. But it's only crazy when We kind of Get sucked into the concept of. Okay this was a digital piece of art but if we think about the value of a castle Those have sold for six point. Six million dollars and What's happening right now. In the non fungible token space but the most popular areas of non. Fo- non fungible tokens right now or in collectibles for example Nba basketball Kind of like trading cards We have artwork digital artwork which can be static so just an image or video. Clips are are very popular and If we kind of understand that in twenty twenty twenty was the breakout. Your it's really when The concept of enough tease Became very well known in the technology industry but to a quarter of a billion dollars worth of transactions took place last year. But we're going to have a multibillion dollar year this year and it's because people see the the art and collectibles industry Shifting from physical objects physical goods to digital assets And each one in unique and individual and rare. Okay so wait a minute. I can understand if it's an artwork because then you would buy the rights to print it and sell it right and you can. That's precisely the point. Pablo then walk the rights that piece of arts. It sell it okay. Point six million because it was a one of a kind so then tell me exactly what You would be buying a clip on line of like sports. Because i understand that people are buying. The nba is into this are they. Are they selling clips of sports games. And could you just get that online or would would that clip of that game belong to you and if nbc wanted to play it they would have to pay you for it. That's right so i mean the nba has been incredibly progressive again last year. there was only a quarter of a billion dollars worth of revenue to date Nba top shot has is literally had the highest level of transaction volume More than three hundred million Seriously unusual that you'd have kind of legacy industry like nba being very aggressive in a very progressive space and monetize ing their assets. And so they can carve out. You know we can imagine how many Hundreds of thousands of hours of video that they have the digital rights to they can cut these things up and carve them up and create interactive trading cards. Each and every one of which is Is a one of a kind and khun further rights contractually onto a blockchain Twice transferring of intellectual property or patent to anyone that buys it and then they own it. And you're you're exactly right the owner of the of the trading card or the clip Could license it out On a one off basis on a continuous basis where they can just sell it to to another another individual who's willing to pay more for the asset. So does this sound to you. Little like pets.com. You know it. It doesn't and and i'll tell you why because it's it's inevitable especially i look at kids that are growing up today. really Kids as young as eight All the way up to the people in their twenties and thirties they just don't value physical assets the same way that they valued digital assets. And if we think about even a video game most people don't know this but the video game industry is larger than the tire motion picture industry and one of the biggest revenue sources and video games virtual goods so people are buying a magical sword. Shield my soon. My son took some of his money last summer after he was working and he was like. I wanna buy this sword dad and unlike by a sword. And you don't really have it. No i use it in the game and you're going to pay for it and i just could not get my arms around it but the thought that was the greatest thing ever it is how they feel cool How they play better and a game how they're seen by their peers. Who also play in that game. This is more than a hundred billion dollar business virtual goods right now in twenty twenty one. It'll be more than one hundred fifty billion dollars by twenty twenty five. And so when i look at a business. That's that large and one of the biggest problem with virtual goods in video games is you can't transferred to other places. They only in this kind of single game in this walled garden. But non fungible tokens and to actually acquire these. Things have something that none of your friends have. So it's unique different. It can have different powers capabilities and you get to keep it and you can actually sell it for a profit somewhere down the road somewhere somewhere right now is somebody that has a closet full of beanie babies that we're told exactly the same thing when the beanie baby craze was going it's it's just like the arctic collectibles market. You know they have. Here's where certain sectors or just on fire and they look like through a bubble. So how do you know how do you know what to buy. I mean i guess it's like art. You buy what you like and good luck to you. Well i think You know this is where kind of normal people actually have an advantage. Let's say that You know you're a pig. Nba fan and you've been following the nba for three decades. You actually would have kind of this infringement. Inherent feel for the value of certain moments in nba history And what they might be working whether or not they're going to increase in value over time. I can tell you that this industry the nfc industry within a few years will be worth more than one hundred billion dollars. This is literally a transference from one kind of physical objects market into a digital asset market space. And just like. I think When i look think about the investing world you know every year there are sectors that tend to be hotter and more exciting or technological advancement is happening more quickly And they tend to Appreciate in value Faster than other sectors. So if i wanted. If i wanted to buy let's say the lou. Gehrig the luckiest man. Luckiest van on earth on earth. Could i buy that now. Or and how would you buy it or yeah. So the owners of the current assets would would have to basically packaging products highs and create A non sensible token And by doing so they actually create contract of ownership so indebted within a non fungible token or all the about what makes it rare and special as well as what we've referred to as a smart contract which is what enables one company or person to transfer the rights of ownership to another individual and so once that's offered up to whomever owns those rights You could buy it and hold it for as long as you want it and do with it all right. You want one one last question I was sued for the lower case. G by garth brooks when i first went over to Cnn it's the typewriter lower case g and he sued me and He had sued everyone who used the lower case g in a logo s- claiming ownership of it You know he took a Copyright i think out on it and And so owned it and he fought it and after ten years if you fight and win every case and he had the money to do it you own that letter but you have to as in anything you have to defend it all the time so if you have a famous clip. Don't you have to also have a bunch of attorneys to make sure that people know that that clip has to be removed from youtube and everywhere else. Don't you have to fight it. All the time Yes you know. Traditionally that would be true. the difference with With with blockchain technology. I mean of course if somebody is just simply capturing clip from. Let's just say a youtube video or an old video. That's actually different than the non fungible token itself Fungible token would not just include the video clip but Typically what we're seeing is there's other things that make it unique other attributes To the clip that make it Special and You know it's official. It's like having a licensed in authorized products rather than you know. Knock up a knockoff. Jersey that You know you just by the vendor off the street and so that's where rarity comes. You're you're definitely right You could pursue those things. It's kinda crazy how you could claim a letter from the alphabet. I know i thought for sure that it was madness. But it wasn't and he now owns it. Jeff thank you so much for talking to us. Jeff brown and you can find jeff in follow jeff with his website. Jeff brown letter dot com or brownstone research dot com. Jeff thank you back in just a minute way more. You bet it is my patriot supply. What are your core beliefs as an american. If you're listening to this program. I would assume that one of them is That you believe that you need to be self. Reliant and self reliance is not really playing a big role in today's life anymore. Don't let the world change you. Don't ask for a handout. Don't ask for help be able to help others. Don't be a burden and don't be in a position where you have to take the deal because you're so desperate. May i recommend patriot mobile Are my patriot. Supply surrey my patriot supply. You go to my patriot. Supply right now and and get your Get your food one. You can go to my My patriot supply is by using your patriot. Mobile phone which is a great option for for many. Now you know you know the top of this house. Pay my patriot. Supply the says patriot. Mobile this one particularly. We love both companies however patriot mobile as the The is the one with here Okay so my patriot No not my patriot supply or my mobile is hatred mobile. Got it okay. All right well. I'm glad it's not confusing for us. Not at all. It's got to be even worse for you. Get your free premier activation when you Set up the phone. You'll get a special gift with the offer code beck same service lower price and the values you believe in go to patriot mobile dot com slash pack patriot mobile dot com slash back nine seven two patriot ten seconds station. Id so we have some. We have some Andrew cuomo news some more some somewhat. Yeah you're kidding me. No something new is happening with andrew. Cuomo thing well not necessarily new. But he's in trouble again Recei refusing to resign even though two more women have come out and accused andrew cuomo just the to jazz. They'll actually no it's two new ones. Yeah it's just two new ones that's all it is. That's all you know he. He's refusing to resign and and now they have actually come out one of his aides in an interview off. You know didn't give his name. But an aide gave a on the record comment at least That said they are outwardly. Trying the governor ralph northam strategy which is to say to just keep going and going and going and eventually people will forget about it. Would've it would've worked with bill clinton if he just would have you know kept going. Oh it did it did. North them is another example of this. There's been several of them. If you just don't bow down if you just say it's not a problem not a problem. What are people going to do about it. And and there's enough people that you know. Say yeah it's not a big deal you know now you have. How many five. They're all varying degrees. But yeah there's these two are kind of hugged and kissed. Her grabbed her waist. Another one says he took her to her is dimly lit hotel room in los angeles after a an event in two thousand and embraced her. And you know went for it. G said no he stopped. I don't know is that harassment. Is the glenn beck grim or is that acceptable. 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Find one near you hustler turf dot com hustler turf dot com and had to blaze tv dot com slash. Glenn the promo code is glenn you can save ten bucks off your subscription to blaze tv. Now this is the glenn beck program claris cylinder She is the mom. Just like you might be She has kids in school or should be in school and she has Started a new pack called keeping kids in school She was has been just like you really upset about the school closure. She said that she had an idea that the teachers unions were involved. And then something happened and she said i received the evidence. Claris is with us now. Hello calories hi glen. I i heard you slipping. Not hello clarisse. It's a real. It's a real pleasure to be with you today very much. yes so filed this right to know and got an email back from the teachers union president crazy right. What is the right to know. Is that like a freedom of information. Act kind of thing that's correct. Yeah that's exactly what it is. And you file that. With whom so i filed. That was my specific school district. Tapper worsham in the state of pennsylvania But we have hundreds all over the state of pennsylvania. trying prove this union. Strong arming okay and use. You wrote to them and said what i wanna know what. I want all correspondence between the superintendent and all the union officials so correspondence. I laid it out. Emails text messages Any conversation memo between which is this. Union rep is. Brian moore and our superintendent. Every school has a union representative. So i encourage to file these right to know. Okay that is. I didn't even know you could do that. That's fantastic fantastic All right so You filed in. What did you get back. What did you find so I got about seventy emails back And and what i put in there was. I want all emails between march. Twenty twenty and march twenty twenty. One that include in person return or kobe i did i put some keywords in there and i received this email back and it's so so disturbing. He the president of the teachers union notes. We are not a childcare center. I fear babysitting drove parents to demand. An end amount of in person instruction that is gut wrenching. Not just for parents. But also for teachers he is totally disregarded the importance and how essential our teachers are. They're not babysitters their educators. So wait a minute. So that was in the the memo from a a union boss to the teachers. This is an email from brian. More teachers union president for him habra worship school district sent directly to our superintendent encouraging him to keep the schools closed because he was trying to open them. He says for the record. I can't stress this enough. I do not believe it's the correct decision to keep moving ahead with the plan. Return for high school students. As i pointed out yesterday bringing those students back just to return them to remote instruction is plainly illogical. Additionally hybrid instruction is poor and unsupported by empirical evidence for effective curricular instruction perhaps it has some social and emotional benefits but it's not a better option than remote instruction not a childcare center and i fear babysitting grove parents to demand amount of in person instruction. He says as we've said along the along the way we need to follow the science. And i keep completely agree. The science is telling us we should not have. Students in school and decisions are being made to appease political needs rather than doing. What's best for the kids. So he's accusing this superintendent of bowing to political needs. Is that correct yes. Are you ready for the icing on the cake. Sure brian moore president of teachers. Union sends his daughter ever since august. Five days a week in person instruction to a catholic school How could he do that if he finds it to be really dangerous. I would love to know that question. And i would love to know that answer. I mean i would love to speak to him. Face to face at this point You know our children are really suffering at the greatest extent. I mean really truly i know you know the anxiety. The depression the failing rates i mean what about the people that can't afford that option like he chose catholic school. Were already paying so much money in school taxes. And then here he sending his child. It's just it's just so heartbreaking. Our kids have not been in school for a year. Clint year. I know my daughter hasn't been in school for year. My son you can opt you can opt in or out and my son has opted in to go into school. But he's still a couple of times a week you know he's doing the hybrid hybrid thing And and when he goes to school it is like some sort of. I don't know scientific You know boy in a bubble kind of atmosphere where everybody is behind plexiglass and you can't leave your desk and you have to eat at your desk for lunch. It's the i mean. It doesn't even sound like school and already it's affecting him and his His depression level. And it's really not good. So what do you. What is going to happen in this school. District with with brian moore. Well what he says hybrids not good right. He says it's poor and unsupportive unsupported. So i'm pushing for full return. I mean you're you're the one that's the one that said you know it's four and unsupported so i'm hoping That they take this and open our schools. Five days Just as they should just as many scientists and doctors recommend for the welfare of our children. But i will also note i do believe and i hate to get this to even be political but i believe that people have to show up at the polls and star really knowing their candidate of who. They're voting for for school boards and whose own the union who's not. Oh yeah i would I would completely agree with you on that now seeing that the cdc has come out and said mask. Mandates and restaurant restrictions have small impact on the coronavirus cases. I would assume that would be the same for schools. And the american pediatrics has come out and said you've got to put kids back into school. What science is he talking about that. suggests that the teachers have to stay home. He does refer to the pennsylvania department of health but that Yeah i i know i mean we. We know who was running that he's the she's now she's now biden administration. That's right doctor levin okay so it's troubling i mean i just i i appreciate the time the bring light to this because our kids and just like your son and daughter need this so much. Every single child needs us. We have children that with keeping kids in school. That of contacted us their parents that are experiencing homelessness and they use school for much more than school right. We cannot continue this. This has to and we have kids that are going to gun. Violence drugs drugs. I mean it it has to end. We're giving our children no outlet or giving them no no road or path to succeed so claris. What about the You know the the argument that as conservatives. I can't believe were were demanding. These schools opened up. There's a story out today that says in in kindergarten. They're gonna start talking about Sexual identification and even anal sacs five year olds. I mean what are we doing. Why isn't there part of you. That says i don't want these schools to open back up It's a great fear but maybe we should start looking stronger at school choice. I mean maybe we should. Because i know that i know many parents that cannot afford the option. You know of private institution or whatever that is but maybe maybe the answer is school choice. And i gotta tell ya i. I've always been an advocate for public schools. I always high. And i thought that they were cornerstones of our community. But with the email that i shared with the union strong arming and then you telling me about the curriculum changes. How can we. How can we allow our children to to experience this kind that it's disturbing israel's instrument look there's something else we must so If anybody wants to get a hold of you and And join your your movement you. You have keeping kids in school dot com. What will you find their. That's right Keeping kids in school dot com. We if you join our movement we can provide you with all the information on how to Were do the right to know request. We have templates that help people. You know file them in their own district In the state of pennsylvania. And you'll see the candidates who were endorsing but we can also help create other packs. We helped Oregon create a pack. We helped new york city create a pack For really start getting people out of the polls and knowing the candidates that they're voting for and understanding what platform that candidate stand for instead of just walking into the polls and voting. Well i hope you get lots of calls from texas and all around the country. Because i think what you're doing is really important. If we are not involved at the local level we lose everything. And it's a it's it's possibly more important for all of us to be involved in our school boards than even the presidential or senate races keeping more keeping kids in school dot. Com is the Address to go. Thanks cleary's appreciate it. Thank you lifelock. Well it's almost time for the big celebration you know. Get the champagne and the cigars and caviar and the obligatory cyanide pill because it's almost tax day and you're going to feel so incredibly charitable and patriotic. Don't you think too when you hit tax day. Don't you just feel like man. I feel like a combination of mother teresa. Because i'm so charitable and uncle. Sam because i'm so patriotic today and you know you're doing a lot of good and they won't just waste money amen. To that brother with the tax deadline approaching it is important to take steps to avoid being a victim of tax scams. This is This year has been a just a bonus year for cybercriminals and tax. Time is their favorite time of year. They'll do things like use your social security number to a file of fake return and then steal your refund which is genius and evil. Do yourself a favor and file early but watch for suspicious activities related to your return. It's important understand how cybercrime and identity theft works and how it's affecting our lives so you can have some peace of mind by hiring somebody to actually look for it in your case no one can prevent all identity theft or monitor all transactions at all businesses but to keep yours yours. You do need lifelock identity theft protection and you can save up to twenty five percent off your first year at lifelock dot com promo code beck. That's lifelock dot com promo code back. Go there now. Twenty five percent off. Use the promo code beck. Lifelock dot com. This is the glenn beck program. Well somebody who's just trying to do good trying to change the world trying to flex their social justice muscles and show that they are not a part of this evil white world and this male dominated world is in trouble today. Yes our friends at burger king. Uk are in trouble because they tweeted the following Women belong in the kitchen these bastards. That's it that's the tweet that was the tweet was shockingly. They got a lot of negative attention for well. I would imagine and kitchen. They were trying to do a big deal about women and women's day and all this crap. Yeah well up. Sorry to burger king. Of course obviously. The burger king burger king. Uk is not saying women should just belong in the kitchen. Right right a social media should maybe detect that there's something additional here for of course in reality. What it is is a completely pandering program. They're starting because it says women belong in the kitchen up tweet if they want to. Of course get only. Twenty percent of chefs are women. We're on a mission to change the gender ratio in the restaurant industry empowering female employees with the opportunity to pursue culinary career international women's day hashtag. We are proud to be launching a new scholarship program. Which will help female burger. King employee pursue their culinary dreams. Now i believe they only were they. This was a make good this. Oh we're in trouble because we we said women belong in the kitchen. I don't accept that from burger king. Uk and that is funny. It's funny because the their base remember. The announcement is an announcement to give money to women. That is actually what the announcement is because of their absolutely pandering view about how certain genitals should be in the kitchen helping being chefs. You have to. We have to have a split of each type of i mean it's just absolutely ridiculous. Totally pandering attempt to to win women over and they're being trashed by everyone on social media. Why not because they care. They think it's pandering which is a legitimate criticism of this instead. It's because they basically should have known that no one was going to read the up tweet. Expectations are so low that we can't believe that anyone would actually read to tweets. That's too much effort for people to actually understand the context of what they're doing. Well it couldn't happen to nicer group of be really. Don't have anything against burger king but all these corporations that pander you eventually they're going to come and eat you so i mean. The burger king character in particular might be like. Oh that's great But don't mean it that way. They're they're not gonna eat at your restaurant they they'll come and put you out of business by friends. Good lock this. Is the glenn beck program glenn beck program. So i'm just here in the governor's office. Where did everybody go. We're no one work for cuomo winning more look. I only mentioned consumes because she has enormous deserves. What's guy to do two more. Two more ladies have said yeah he did that to me too And now the staffers are resigning. We'll talk to you about that here in just a second if you've been slow to refinance your mortgage than consider this. Your wakeup call interest rates have been down for a long time but isn't gonna last forever and they're already starting to climb back upward and once they're gone they will be gone not getting the chance to take advantage of these historic low rates. Could be the least of your problems if we don't get a handle on what washington is doing to the economy. Here's what you need to do right now. Make sure that you have your finances. Rock solid take a little time out of your busy day and give the mortgage consultants over at american financing call. They understand that your time is valuable. And they're not going to waste a bunch of it all you have to do is just give him a couple of facts and they will tell you whether or not they can save you hundreds if not a thousand dollars every single month especially if you roll your credit cards into your mortgage without resetting your lone american financing. They work for you and not the bank. This is a this is a time to prepare for what is coming. Check him out today. See what they can do to help. Make your Your life a little bit. Better at american financing eight hundred nine zero twenty four forty eight hundred nine zero six twenty four forty or american financing dot net american financing. Nmls one eight two three three four www dot nmls consumeraccess. all right. so. I'm just saying as as mayor cuomo. I'm just saying that. Yes two other ladies came out and said i was being appropriate but the first one said you know. I wrapped her in my embrace. You know what i'm saying in a dimly lit los angeles hotel room. The only reason why it was dimly lip is because i am very very green and the only reason why i hit on her is because she wanted. I mean look at her last name. Hinton she wasn't just hinchey was she was wanted it. You should have seen the way. She was dressed die and he is that dumb dumb and he seems to have this this amazing ability to perplex women into thinking for some reason. Let me just tell you this. The other woman the other woman she said in twenty fourteen. I hugged and kissed her grabbed their waste. Your shoulda seen buttocks on net one. You know what. I'm saying buttocks four and only reason why i kissed her is because her name is l. i. s. s. lis-. She wanted or she wouldn't have a name that rind with kiss. Wow he's really reaching for some of these is it's almost like he didn't do any of the writing you know what i mean that he should have done over the weekend You know you look at the allegations which are piling up and none of them are harvey weinstein weinstein level. No we should note that and also of course. He deserves his due process. Well he doesn't deserve it but he gets it anyway. He doesn't deserve anything but he gets it because he's an american citizen right But he look it to you. Hey you do you just keep going. Well you know what i'm saying like. Yeah he doesn't deserve it he's earned. He's earned the due process right. He just gets it. Yes and i refuse to take it away even from the Of governor yes okay. But he is. Now listen to this. This is from one of his spokes. Two of the most ridiculous comments from the spokespeople for rendering today one time. Karen hinton as you mentioned this did not happen. She was doing more than hinton. Karen hinton is a known antagonised of the governors who is attempting to take advantage of this moment to score cheap. Political points would made up at from twenty years ago. Oh women have the right to come forward and tell their story. however it's the responsibility of the press to consider self motivation. I got i got news for you. I only say. I still say to this very day. Believe all women except for these five which they will continually increase the number of new ones. Come out about that. This is of course the right stance right. All women have the right to come forward and tell their story. Yes. however it's also the responsibility of the press to consider self-motivation that has been true since the dawn of time. It's just now only being applied by democrats when they get in trouble. Yeah which is fascinating not applied. I mean look at this. How long did we hear that. You can't say that there's a problem with muslims. No there's a problem in the muslim community. You're saying all muslims no saying there's a problem in the muslim community so you're saying all muslims. No i'm saying that those who want to blow things up to get their way and their way is. The islamic scriptures are overwriting the us law. They're called llamas. So you have a problem with islam. No they're called islamist so it's a problem with islam. No it's islamist. Remember that whole argument that we had for almost what twelve years. Why is it. We're not having the argument. So you're saying all members of the gop are right wing terrorists. Is that what you're saying because you know here's how goes so. Wait a minute because of january six. You're saying that all gop and anybody who voted for donald trump is a right wing terrorist. Yes oh okay. I mean yeah. There's no they say yes to that. They say yes to that if you voted for him. Yes you're part of the problem wait. You wouldn't do that to muslims. You wouldn't do that to anyone nor shani one. You don't judge people based on the identity group. They belong to you. Just pay you judge. People based on their merit. Which is why you don't believe all women the idea that women can't lie and don't lie about such things is completely absurd and you know who will tell you louder than anyone. Women women will say. You know all my friends from college. They lied all the time. You will hear that much more often from women than you will for men because women no women better than men do and that is that is a fact either. I can't tell you how many times i've said. I've said i believe her or i think this or you know. I don't think women would and my wife will look at me and go. Are you out of your mind so true. Yeah no i. I think they would do that. Honey no really women are like yes. Yes jami you listen to this quote. This one might be the most unbelievable of them. Although of all the accusations all the denials from cuomo throughout this particular period. Tell me if this was sings to you glenn rich as a party a senior Cuomo advisor said in a separate statement that in his eight years. In the governor's office. He never heard him use coarse language on these guys. Nine never use coarse language. Yeah about it. But i'm thinking is the f word and the s. word so i can't tell you and defend myself because i'm going to use offensive language. Fortunately the fcc us for illustrating what andrew cuomo daily basis imagine. I've never heard him use coarse language. Come on oh yeah. He's a he's a choirboy. There's abs- literally no reason to believe that that's true. The atlantic actually got a senior cuomo advisor to give quote that with the name attached to it But listen to this. Barring bursts of new allegations cuomo absolutely will not resign quote. The old resignation playbook is out and quote nicole mode adviser told me requesting anonymity discussed the private deliberations that have been going on over the past week. Very much on the minds of cuomo and his team is virginia. Governor ralph northam who refused to resign in two thousand nineteen after the discovery of an old racist yearbook page but they re today remains popular with voters quote. There's a new path and that is to wait. It out is how the adviser put it to me wait. North is popular with voters. Is this a washington post article. This isn't atlantic article they are linking to a washington post article. However say there's polling and share with a fifty six percent approval. Okay so he's not popular. He's popular with half of the voting public fifty. Six percents not bad though he was at forty three percent during the scandal and so he's raised that fifty six. Yeah because everybody stops thinking about it. When you realize there's nothing can be done if these guys just power through them. And that's that's what that's what that's what you learn remember. Everybody was calling for donald trump's resignation. Yeah they wanted him to resign. Resign resign resign and he played this. Now i'm not going to. You know he was right for doing it. i i'm i'm not as generous on the benefit of the doubt With cuomo as stu is but wait. You know the benefit of the doubt. You think i did. Not the guy would. Face i better. Wow well you giving him. You know right to fair. Hearing i i find it very important to maintain consistency whenever possible to and like i know of. It's possible at this time. Cuomo is so bad. It's very difficult for me to do. But again he doesn't he he's already had due process when it comes to the killing thousands of people in his state in nursing homes that he's had due process on that we we've seen we. He's admitted he. Hi hit those numbers. And he's apologized for it already that he that is more than enough for him to have to leave office. They should've teach him over it. Well this is a separate thing and we don't know how true the stuff is yet. You know you're missing the real problem in our society and the a few if you made if you would just give me just a just a second here. Advocating the banishment of six. Dr seuss books for apparent. Racial imagery new york times columnist charles m. blow complained that. There's something else that needs to happen. As a child i was led to believe that blackness was inferior while you had bad parents and i was not alone. The black side no. He's talking about his parents. Maybe is is the job of the parents to make sure that they don't believe that. I'm fifty i'm fifty six and i know my parents made it very clear. There's no difference between us which is wrong by the wind. the i know and You know even my grandfather. In his old timey boeing born in nineteen. Oh three you know he gets to be old unease. Like don't let anybody tell you that blacks are any different. You're like okay grandpa. Thank you bright. And that's it was actually a statement of trying to be standing up against his generation yet right because he didn't he actually used the c word can even say i'm going to say he was like. Don't let anybody jerry. A coloreds ernie different. And that was the way they spoke and the way he spoke and and that's the way they speak at the nwa cpi today. Yes it is anyway. So i was. I was raised better than that. I'm feel sorry for the blow. Family was led to believe blackness was inferior and i was not alone black society in which i was born was riddled with these beliefs It happens for children in the most inconspicuous of ways. It was related through toys dolls cartoons and children's shows fairy tales and children's books some of the first cartoons. I remember included. Pappy la- pugh. Oh no what colors. Peppy lobue. Black and white. He's black and he's got white on his back. You see what i'm saying. They're not sure you're gonna manufacturer what you're saying. The black man is white. So one of the first star cartoons i remember was peppy. La- pugh who normalized a rape culture time that we said it now. I'm glad that we have things into perspective. Now but i remember peppy la- pugh okay and I know thought rape was normal. No no really. Maybe it goes back to my parents. Or the fact that i have common sense but i always thought peppy la- pugh was a stinky skunk and You know it to be clear peppy. Lopez never raped anyone. I don't know if people are aware of this. He's not a rapist skunk really. He's a scout in fact if you watch prep you you will notice that the because a cat. He's a cat he's trying to hook the whole time. Oh yeah yeah you're right. Yeah and so but the cat is not is not running away from him. because he doesn't he doesn't she doesn't want to do the things he's doing. She's ready because he's sitting. He's a skunk. Yeah in fact in other episodes. She chases him down. Everyone in the family for generations now are going holy great minute. Yeah like she actually wants to get with him this entire time. that's that's the storyline. The cat wants to get with the skunk but the skunk smell so bad. She's like oh gosh. i can't do it. it's not that she's trying to resist rape. So i've anything that be the storyline. I'm a kid scar to if anything. Peppy la- pugh normalized. Interspecies mating Tara that is how ridiculous it is. That's how ridiculous it is. Because she wanted to do it with peppy wasn't that he was a skunk. It was that he smelled. Oh okay and pepitas just making it with anything other than skunks because he identified as a cat or expected. The cats do identify as skunks. I'm going to be a skunk today. No i doesn't work that way mr bloe. I am really sorry for your childhood. But don't heap that bull crap on me and my family. 'cause i probably grew up around the same time that you did and peppy. La- pew did not teach me that rape was good parents that taught me rape is not good all right now. Let me get in here doing this. Commercial diane rough grease listen. You gotta ask yourself one question. 'do you love your dog. Arming really really really love. Your dog like wooden. Send them to one of my nursing homes kinda love him. Well if you do need to give him a bag a rough greens. I got a couple of bags. It fell off the back of a truck. Dino i mean it's is probably going to be like the crack that i'm going to have to sell what i kicked out of office but only for dogs in healthy banner on your dog's food. They love it but just in case they don't rough. Greens will be happy to let you try it before you buy it. And if you don't like it you might get a little visit from veto. You know what i mean. The first one is free. So don't miss out on the chance now to give your dog all the vitamins and minerals antioxidants probiotics that he needs for a healthier happier lifestyle. Try out rough. Greens today in get a free bag of rough greens for your dog. Try out all. You pay is shipping. Just go to rough greens dot com slash back or call. Eight three three glenn. Thirty three eight three three g. l. e. n. n. thirty-three rough greens dot com slash back. Ten seconds station. Id above so my brother said the name. And that he says is black on the inside and the people are ripping him saying that. Say if an offensive you know what i mean black on the inside you think you think i would have a brother who was black on the inside. Of course not why they're blacks. That's is that a quote for major quavo. That's not actually a joke. That's just just what he says. It's just who the guy who i think. The guy probably is probably you know if you're this much of the andrew hall You know you're kind of probably a little like a remain gino. Well we know the true neanderthal. Thinking is letting people go and open up their businesses that the real men throw no he he may he probably will get through this because he will eventually waited out and unlike republicans will he will not be pressured out and will not be impeached and will not be targeted. In that way. I think there is a strategy here and you know you mentioned trumpets that it's funny because you think about what think of the media caricature of what donald trump is that person is andrew cuomo right like he's his fans like them. They like them because of these. Either the tough talk and the down. He talks like me right. Like that's what they like about him. Really do people's a bad yes. They do all often but all the stuff like he's a bully. He's he's been accused by people of sexual harassment. He lies all the time all these things. They accused trump is. Who cuomo is no you have you have donald trump. He said things about women that were inappropriate. He s he asked to go. That's what he was. He was a bully and said things to people and he had to go cuomo's different. He has to stay. Oh this is the glenn beck program all right let me tell you about goldline. It's almost as if the administration would like to destroy the economy as quickly as they can from the looks of it You can't ignore the warning signs and there are a lot of warning signs the number of us dollars that they are. Printing hyperinflation is real. It's mathematical and we are bury a burrowing our way underneath all good times and going deeper and deeper in towards a cliff when we come out the other side we just fall. Please consider gold or silver. Be on top of your financial game Look for things that will have value. That aren't in dollars. Stop waiting and call goldline right now. I'm going gonna talk a little bit more about this after the break. But with every tube of certified gold liberty coins. You're going to get five. Brilliant uncirculated kennedy silver half dollars at no additional charge. These are the exact coins that i buy what i buy going from a gold line. Now you can ask them what. I what i buy at eight six six eight six goldline or goldline dot com. I'm too interested in what you buy into that coming up. It's triple eight senators back as the phone number. Andrew cuomo is awful dot com is the website. This is the glenn beck program. Were glad you're here Over the weekend we did our I trial Our first study if you will With about two hundred people At the mercury Mercury one american journey center which is where our vault is and also where we teach and some of the people from here at the mercury studios and the blaze. I invited the some of the producers over this weekend to pop in and see what we were doing and they all had the same reaction they were all like. Oh my gosh. What what i mean. We didn't even know this was being built. it's a quite an amazing place And it will be open to the public and we're going to be doing a couple of more of these And hopefully the next one. We will get On tape and and posted online. But it's a free service to anybody that wants to come. And it was a three day session of of knowledge of of the history of the united states and it was just an overview. And it's what everybody needs to do. I mean we you have to take charge of your life and you have to take charge of your education and We had people people came from all over the country. And they were they all left the same way even those who had been through our museums and everything else before they left san i. I can't believe all that. I learned of a friend of mine who went said. She had She had brunch with her friends. What yesterday or day before. And she said. I was telling these stories of all the things that i learned and all the women were like wait. Wait where did you learn all of this stuff. How can we go We're gonna put it online. It's kind of like prager university except long form And you'll get the information that you need and how to learn so you can teach your kids about that but we were you know. Some people came in masks because they were part of. You know parts of the country where you have to wear masks all the time And you know they wore them. You know the whole time. Other people didn't wear masks and we were cool. Either way on on masks and i don't feel you know there's this amazing editorial in today's washington post or yesterday's washington post about how how evil texas is and it's written by a texan. Who says that this just a. It's the gop here is a death cult. It's not it's not. i mean are. We are not as bad as new york in california. And they've shut everything down. So tell me where's your. Where's your science. Now see where. Where's the science. Because i don't understand what's happening but we're not seeing a difference but there's also something else about the shutdowns that we're not seeing a difference that i also don't understand and that is there's no real difference economically in the end now between the states that open up and the states. That didn't except for unemployment right here. There's no real clear pattern. It's interesting because i'm working on a project. I do does america. We'll do it. We'll talk about it here to 'em done which is which states actually performed the best and worst through this because we all talk about a lot of different things but like if you look at the whole picture not just you know. We love South dakota right. Because they were they. They had a showed a lot of freedom but they had some really rough results at times with the actual virus. Where you look at a state like texas. How do they do how to florida to california. Do even though they had varying government programs and lack of freedom and and and such but what was the actual performance when it comes to economy and and the actual virus and so. I'm going through this and one of the things that i thought i found to be really fascinating and it was against what i believed going in was when you look at the. Gdp states how much they locked down doesn't seem to affect the gdp at all. I mean almost no difference between the states that fully locked down the entire time and states that were open the entire time. See that doesn't make sense. The only two things could make sense of that one. Is it that the big businesses that didn't have to lockdown Are the with the businesses. Are they just waited so much more than the local businesses. Do they do so much more business that it's almost a blip. I don't believe that the other would be the printing of money. That's what i think. It is because the government has given away so much money to to to shield these states against the collapse that essentially just run the economy for these blue states for these states. That have really locked down. They've just stepped in and given so much cash that they've floated the economy. Now when you look at unemployment huge difference. Big difference appears we're states. That did lockdown have much higher unemployment differences than those that did not. And that's going to be harder to write rebound from because these people are out of work. They have to fight all new jobs. New business to open and and small business in every recession seventy five percent of all job creation comes from the small businessman. Will you've in some states you've completely wipe them out in new york city. You've wiped the restaurant out. Swiped it out. Yeah so what happened. Gdp doesn't care if you're printing a bunch of money and that's why people are spending right. They don't they don't care about that what they say in the future they will. There's only two ways to go forward from here right you either. Continue the printing of money for a very long time possibly with no end in sight to maintain these states that had to go through all of this or the blue states collapsed. Blue states collapsed in the red states. Do well do you think the biden administration's gonna let that happen. Nope i don't think so. Here's the other thing that really concerns me and that is the ten percent. Gdp growth staying in the first quarter of this year ten percent growth now normally. That's great. And i i do think it's great however where is that. Gdp growth coming. Where is that money coming from is coming from the average person getting paid. And then you know growing the economy because they're spending their dollars or is it because it is coming from the federal government so you have ten percent of gdp growth in the first quarter on top of that you are printing twenty six percent more money than we ever have except in the year. Nineteen forty four. We have never printed a dollar to dollar. We've never printed this money except in the year right before the end of the war when we're building ships and nuclear weapons and everything else that money has got to go someplace and the reason why we're not having inflation. I contend that we are having inflation. You're having inflation in things like art prices in On wall street on On houses On offense of cars. You're having that inflation already. But it's only at the upper upper end because the people who have the money at the upper end in running these giant corporations. And they're like. I'll buy that piece of art for seventy million dollars they are. They're spending the money and looking for ways to invest the money because they don't necessarily trust the dollar or whatever so the rich are i mean. The mega rich are getting richer. And when it starts to trickle down to where the guy who's the mechanic can go and have some money left over for the theater. And he takes his kids out too well not a movie theater. He goes out and does something and he spends that money Once the average person begins to spend again you have the threat of real hyper inflation and it you know at this thing m one. This weekend we were talking about. You know the things that we could do at the end we went over. So where did america go wrong. And did we drift. Or was it plotted and it was a little bit of both a lot of it. Though is just the average drift that people just stop paying attention and you just forget about certain things that are really really important and we started to. We started to drift. So the first thing you need to do is learn what we really are all about. Where did america go wrong. And where did america go right. and we're conservative. Which means we conserve the good things while we work with somebody who is into progress. I hate to use the word progressive but a conservative that is not a twentieth century progressive but progressive on new ideas new technologies. That's the perfect combination. We don't throw everything away for something new. We conserve the things that made us who we are. And we keep the important things that have always worked and you have to know what those things are but also prepare for impact. Because i don't know when it's going to happen but we're in it now. We are in it now and if you plan on standing it's going to be extraordinarily difficult to stand still and i were talking about. You know solar panels yesterday. And if you don't have solar panels on your house in the future you're going to get taxed for it. You're going to get points taken off. You won't be able to sell your house or buy a house unless you agree to install solar energy on top of the roof. It's going to change. And if you say i'm not gonna do the social justice thing to do. I won't participate in all of this. Well you're going to have a harder and harder time having access to almost everything if you don't have a lot of money. His remember people who have a lot of money or looking. What do i put it in. Because i don't necessarily believe in the dollar. Where do i put it. You have to think about that on your own level and that is you have to start thinking like people who came before us in the nineteen thirties thought Especially overseas. You have to start thinking what will have value for instance. I think cigarettes are going to have great value. I think alcohol will have great value. And there's always gonna be somebody you want some food or something. There's always gonna be somebody that wants cigarettes. You know what you gimme some chicken. I'll give you this carton of cigarettes. There's always gonna be one. Somebody that wants alcohol. I mean if it really gets bad you know then it's really Worth its weight in gold. Because it's medicine you know it will help put you down if something is really really bothering you like you know your childhood or no eight. That was my problem yet. Don't do it for alcohol on that one. But it is it would be medicinal in its usage. If things were horrible you gotta think about the things that you could afford. That would be worth something to others that you can put your money into now not all of it but you put some things away and you take cigarettes and your vacuous vacuum. Seal them and you'll be able to use that as barter. What will people barter for if you're locked out of a system or if the system goes dark and we go through a real rough time. That's the way worked in germany. In the weimar republic people bought things no matter what was on the shelf. They bought it because it's all they could buy and then they got together and they bartered. You need this. I need that. How about we switch. The number is eight. Eight eight seven. Two seven b. e. c. k. More in just a second. Our sponsors real estate agents. I trust dot com. Here's the here's the thing Buying a house has become extraordinarily expensive. And you know if if if you're a builder you know some of the reasons why plywood has gone from like sixteen dollars a sheet to what thirty five thirty eight dollars. A sheet houses are becoming expensive and in places like texas extraordinarily rare. So if you are looking for a house or you're Looking to sell your house you need somebody that can weigh all the options. They know what your house is really worth what people will pay for it and long it will take or if something needs to be fixed in the house to dress it up to make it more attractive to buyers. 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Twenty-six years of sobriety no to that would be your tummy. Anyway i would you tune out audience. No one in the audience would shoot out what to say next right. He's t hey and levied things are biden. Yeah it would go and then one that one show because then there's the recovery episodes where you swim back to sanity and you have the struggle those things those things rate hugely personal struggle thing. Great so sure you'd have various organ down but that would be fascinating to the only thing i mentioned to you though is use. You've made a comment of like you know. Oh man if my maybe my last days i all forget i have any of these restrictions for awhile. I will tell you drink and fifty six drinking at thirty which is the last time. Approximately you had a drink are two different things well. I'm hope i'm not in my last days. I mean i was thinking if i make it ninety nine my next birthday is one hundred right. I think i think it would be like a big lock. I'm an alcoholic but you know family hundred years one hundred years and i have had to be around you guys for a lot of that train. Your children your children's children and they're all screaming. I don't know any other names anymore. I needed a drink. I just think you know. I just think that you know even a it would be like. I'm going to give you a chip for that ship for that. I think that's the way it works.

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3 views on the markets in 2019

Capital Ideas Investing Podcast

36:41 min | 2 years ago

3 views on the markets in 2019

"Investments are not FDIC insured or the deposits of organic by Bank or any other entity. So they may lose value. American funds are not available outside the US. The following is not intended as an offer to purchase or distribute American funds outside the US. Miller. This is capital ideas. You can actually the minds and inside shaping the world of investments back in September. Twenty eighteen we presented three us on today's markets which allowed you to be a fly on the wall with three seminars between capital portfolio managers. You liked it so much that we decided to do it again here to offer their perspectives on twenty nine teen our equity portfolio managers, Barry profligate, and Brad freer and fixed income portfolio manager promote outlawry, so listen and learn why Barry says the current economic cycle is unlike any other since World War Two why Brad's renting with investment ideas from his latest tour of emerging markets, and why promote thinks twenty nineteen offers a perfect environment for fixed income. We kick things off with equity portfolio manager. Barry cross, wait a portfolio manager with twenty two years of investment industry experience whose portfolio responsibilities fall within a number of our US focused equity funds here taken from his opening remarks back on November eight is Berry's view of the investment landscape. Looking ahead to twenty nineteen. I'm gonna give you one equity PM's cautious few of the environment. Whenever I look at any market and make comments on screen it through four variables the fundamentals the flows and the markets the sentiment and evaluation. So I'll take you through those and I'm gonna make a big caveat before I start here. This I call that. We're going through right now is unlike anything we've gone through since World War Two and you'll read comparisons all the time of recession to this business cycles. Do this stock valuations do this at cetera et cetera et cetera this cycle, totally different. Because the cycle has four and a half trillion dollars of QE in the US twenty trillion dollar. Global QE those type of central Bank interventions in the economy haven't happened since the nineteen thirties. So this cycle is very much different. And that makes me more humble in making forecasts and more open to a wider range of scenarios as I try to think about what the future might hold and how I might wanna position for that. So we'll go into the fundamentals, and when I think about the fundamentals I think about the two biggest global drivers two biggest economies in the world, the US and China in starting with the us Antioch to you this morning about how strong and accelerating. The US economy is now and everything is great and professional. Forecasters don't see any sign of recession. Now what we know about professional. Forecasters over the last postwar years is that they have very good forecast ability and disability for about nine to twelve months. I mean, really outstanding things are close. But when you go beyond one year, there ninety percents confidence level goes to plus or minus three points of GDP. That's the history. And if you don't believe me, I'll give you one example of it. So in November of two thousand seven the professional forecasters, and this is like seventy PHD economists that the Wall Street Journal contacts and gets a forecast and rolls up a forecast their forecast for two thousand eighteen DP was two point four percent on two thousand eight I think we had minus three percent GDP was the worst year since the great depression. So the economy's an incredibly complex dynamic and changing system, and it's just hard to see beyond twelve months. So that's an typical cycle and this is the cycle with Kiwi involved. We're very strong right now, no signs of a recession. But my view is were very late. The really negative thing about this cycle. This has been the slowest growth we've had in the US economy and an expansion since the great depression two percent growth has been anemic. That's the average over the last nine years, but the good news about that is we didn't exhaust the excess capacity and the economy. So it's allowed this cycle to go on and on and on. Where and stage now where unemployment is very low so labor capacity's being exhausted and capacity limitation is rising. And you're starting to see wage increases rising starting to see more inflation, and you're starting to see the fed react to it. So the fed is raising rates into what I think is the end of a cycle here. The other thing I feel really strongly about is that we are peak growth right now for this cycle, and that's a function of the tax cuts that we put in earlier this year, the digital fiscal spending that we approved this year, and the repatriation of funds that are coming back this year, these things are all peaking approximately right now. And when we look forward, you know, over the next six to twelve to eighteen months, these are all fading. So these were big pushes and accelerated economy beyond expectations this year in a lot of companies being earnings this year because of this big push. This is all fading next year. And why does that matter? Why does it matter whether it's accelerating or it's fading still growing? It's not a recession. Is because it's a lot harder for companies in equities to beat earnings when the economy's fading in the perfect example of this is China, and we'll just transition to China right now and talk about their economy. So China's still growing excited six and a half percent. But just strong whatever it is. And the reason companies were missing in China right now, isn't because the Konami isn't strong. It's because it's decelerating in China's economy started to celebrate about twelve months ago. So when you get into an environment where the economy is decelerating, it's a tougher place for equities, and you've got to be more selective in the equities that you hold because it's going to become more of a stock pickers market. I think now the Chinese economy is decelerating right now, we don't know when it's gonna stop decelerating and the really big question for their economy is the timing and magnitude whatever stimulus they're going to put into the economy. They're very reluctant to do a big stimulus like they did in the first quarter of two thousand nine which was the bottom of that little cycle. We went through. Because of the debt levels and the economy because of the degree of financing in the shadow financing because of the level of housing prices, which they're uncomfortable about and because of the level of debt on their consumers. Their consumers were very under levered in two thousand sixteen but they cut rates and made made a favorable for consumers to take on mortgage debt in now Chinese consumers on a deta, discretionary income level have the same levels of debt as United States consumers do so they can't full a lot of these cards again. So how are they going to do this? How much are they going to stimulate? We don't now with some of what will will feed into tariffs and trades. And how that plays out? We don't know what they're going to do our group internally thinks they're going to try to go things very slowly in the Connie's don't be week there as they try to fix the financial problems in the economy. But the point I would make there's a range of scenarios here. There is no long-term for China. If there's not a stable short-term. So they'll do whatever they have to to maintain stability in the short term the one. Another thing. I want to talk about in fundamentals. In addition to the US and China is the levels of debt and a global debt to GDP so total debt governments consumers corporates was two hundred forty percent of GDP in two thousand and two thousand eight when we had the global financial crisis. We had two hundred seventy percent of global GDP this year. We're going to end up about three hundred twenty percent of global GDP. So we keep levering up globally. And we haven't had these levels of debt, you know, since the nineteen forty s in the United States, and we haven't had these levels of global debt since I don't know not modern history. So why does it matter how much debt there is? Because what we know from history looking back in stock markets is when you have recessions in economy that have excess debt those are very deep and typically long recessions now we had a deep recession in two. Thousand eight with a lot of debt. It was actually a very short recession. It was unusual that was via bottom recession, but the history of recessions with countries with a lot of debt is deeper in harder. So that's kind of how we're set up going forward. So let's talk about flows quickly a couple aspects of flows money flowing into the market money flowing out of the market. So the most important flow is of the last ten years have been the central Bank flows. Twenty trillion dollars of QE and this QE which is stimulated to a Konami. And is I think it's been stimulated to asset prices inflationary for asset prices this peaked in the first quarter of two thousand eighteen. You could see this coming and I was talking about this a year ago. And so now it's fading kind of like the economy, whether it's accelerating or decelerating, we are now decelerating the amount of Q E globally in the US cute, t it's quantitative tightening. The US has already started to tighten. But money's fungible, and it flows all over the world that you see the OJ PBC are all still in Q E and that money flows around the world, and it's still stimulated to asset prices, but we are fading now and the plan of the central banks is for that the fate zero indigo negative in for this twenty trillion of assets to start actually decreasing starting in the middle of next year. Now, central Mexican to change their mind. A we may not get to that point. But this is fading input into the picture and his offense input into asset. Prices in my opinion, the second aspect of flows that I think are important are Sherry purchases and the US stock market, and if you look at equity flows over the last twelve months or so they've been running about three hundred billion dollars. A year into the US market mostly through ET Fs. But if you look at Sherri purchases, just the last couple of years they've been running at five hundred six hundred billion dollars a year companies buying their stocks and reducing supply in the market. So the dominant flow in the US market for the last few years has been Sherry purchases, and it's been supportive of the market. What we anticipate is we're going to do about train dollars Sherry purchases chair s compared to five hundred six hundred billion in the past the big increase in the share repurchases. The biggest increases repatriation that comes from the tax Bill penetration of four dollars that's going to be done. And I think it's peaking right now this quarter, but that's going to be less next year. So this just another aspect of as we get into next year. In addition to a fading economy a fading fiscal input. We're gonna have a fading flows from Sherry purchases. Well, so let's move on to sentiment. So the good news on the economy is small, medium enterprise. And consumer sentiment is back to two thousand levels columnists is so strong right now. Which is going up people feel really good. But we know historically is when we've reached these levels of sentiment in the past within twelve to eighteen months, we've been in a recession. Always feels good at the top. Now, I want to go back to my comments about the central banks, and how this cycles different. I'm talking to you about eight years of data since the war. It can be different this time. But what informs me is. I know that when Salmond gives us good things usually get worse next point valuation. The markets on approximately sixteen times forward earnings, which is not that expensive in the grand scheme of things, but earnings are only one measure evaluation, and it really helps to look across a number of measures. I like enterprise value to sales you can look at price to book or price to tangible book, there's a whole series of them. But if you look at a whole series of valuation metrics, what you find is the markets actually, very expensive right now, whether it said fourteen times or sixteen times because the earnings levels are so high and what we know historically again is that if you bought the US stock market at this level of enterprise value to sales historically, your returns over the next ten years where low single digit now it can be different going forward. But in it could be possible that you know, world were central banks are more integrated into the financial system and playing a bigger role that financial assets can maintain a higher valuations. We don't know that it's possible that it could be, but we do know historically buying these valuations has resulted in modest returns over a decade. We don't on the path either but start point to endpoint so in summary. I think the reward in the US equity market here is the duration of the cycle goes longer. I don't think the earns can go a lot higher because they're at record levels already. And I don't think we're going to cut taxes again. So I think there's a modest upside in the market from here's my opinion, and the risk to me is larger than usual because we're starting at one hundred year high profit margins and we're starting at these really high levels of debt and we're starting at high levels evaluation. So when I look at the balance of risk and reward, it makes me cautious as a portfolio manager. Brad freer is a global equity portfolio manager with twenty eight years of investment industry experience. This portfolio responsibilities include significant exposure to the emerging markets here from December six Brad recounts to particularly fruitful research trips. He just taken one to Europe and the other to Mexico an Indian I have been involved with the emerging markets for most of my career. I took my first trip to India in nineteen Ninety-six with capital and have been fascinated with the emerging markets ever since then I have worn a lot of the pain that some of our mutual fund. Investors have felt in a number of damore EM focused funds and have seen some of the volatility over the years. It's interesting to me that base in the Los Angeles office where obviously talking a lot about US investments, and I hear my colleagues that are are looking at US company. These more often than I here are non US colleagues because of where I'm located in for many years. I have been amazed at the innovation that the United States has amazed. It the fact that they address some of their economic issues sooner and frankly, more effectively than the international counterparts, but I don't think that that's a mystery anymore. I think everyone kind of believes that. And I think it's now reflected a lot in evaluations. I would have said that though to be honest to couple of years ago, and I would have been very early on. But one thing that's happened over the last month and a half we took a big trip to Europe. And then in the last three weeks I spent a week in Mexico and week in India, do usually we'll we'll meet about twenty companies in a week in when we go to an emerging market. We really seeing a wide array of companies, and you're lucky if you come back with one good new investment idea in hopefully, you've kind of refresh your. Conviction on some of the other holdings. The yield in both of these trips was the highest I can remember in six or seven years yield. Meaning the number of new interesting investment, ideas, relative to those twenty companies that I saw, and I think it came down to a couple of things one I think expectations are sufficiently low, and I think we know that the risks are there there. Well, talked about their well known, and I actually in many cases that they're over played. But the other part is the valuations really stack up they stack up. Well, so I came back and felt actually like the there's some really interesting ideas, some that I wanted to invest in right away. And some that I wanna follow and see if the volatility that I think is going to happen over the next couple of months plays out. And there will be some great opportunities. I think plays to our strengths in that we have the capability, you know, when we were in India, we probably had about a hundred and fifty years of investment experience and probably a hundred years of experience investing in India specifically on that trip. So we're able to really dig into these companies really well, so that probably gives us a little more confidence that our analysis. Right. But I also think it's just a realization that the markets are discounting kind of a lot once you get outside of the United States. If you break it down company by company, these are big big ponds in which to fish, and all we're looking for are three four five six companies that we can invest in that really stack up. And I think it's really interesting that we're starting to see that outside of the United States more frequently than we had. The inside of the United States. Obviously there is a lot of headline risk. I mean, we can talk about China. It's something that you're interested in. I lived in Asia for twelve years. Can't you live there for twenty ish? And so we lived it for a long long time. And and there is a lot of disruption. That's going on even today. I think that's going to be a long game. But I think a lot of us that watched CNBC and read the Wall Street Journal think of China is Alibaba ten cents and a couple of publicly owned banks, and maybe a commodity company. The reality is it's one of the fastest growing markets in terms of numbers of listed companies. And so the breadth of companies the breadth of investment opportunities, there is enormous. And at some point there's going to be some great opportunity for firms that understand the forensic accounts understand corporate governance can get there on the ground in really do due diligence. And there will be some great opportunities. So we're hoping for more volatility in China. I think because we have rapidly expanding resources on the ground, and we're spending a lot of time. Trying to pick off those fewer companies that are investable there. You're listening to capitalize is brought to you by capital. Read was asked to comment on the likely severity of the next market downturn. Here's his response. It's much more dangerous trying to call the downturn and doing drastic things than trying to call an upturn the markets. You know, historically, they have gone up. And I think you all are probably aware as an investor. I am I measured on three five and eight year results. And I believe that one of the greatest advantages that you all give us is to ration- in edit time when the world is getting shorter and shorter term media sources are talking about daily moves monthly sales quarterly earnings, and we have our funds and all of that good stuff out there. Everyone's starting to spend more time focusing nine short term in where I believe the inefficiency in the stock market really is is going further and further out in investment perspective. There's all kinds of data that shows that if you can get the fundamentals right and extend the duration, that's all that matters valuation matters far less because they power of compounding works in your favor. Over many years. You all have worked with your clients and support them in downturns. And so the average shareholder depending on the fund is here with us somewhere between six and ten years and that allows us to have investment discussions and extend that duration. So what that means to me is we do need to try to think through some of these big short-term market risks. But I do think that those things provide opportunity, and that's where we need to be. So I actually spent a lot of my time in months like we've had in the last two or three months where there's tons of all Attila the walking hallways and sitting down and having quiet chats with some of our newer analysts and getting them focused on using this as an opportunity in thinking long term, the volatility can really be our friend. If we act rationally and continue to do that, which is hard hard to do because you see red screens. And if you're new at a company the last thing, you wanna do is your first impression is to be losing money for our shareholders. And so. We need to be very aware that these things are happening. We need to position our portfolios in companies that we think have more resilient earnings that their valuations might hold up better. But the thing that we really need to do is focus on finding long-term opportunities that we can take advantage of because there's so much fear for all of these people that are being assessed on quarterly results or annual results. And that's what we're trying to do. It's not perfect. It's hard. But I think it's a big differentiating factor. Finally, Brad was asked what opportunities most exciting as he looks out over the next three to five year period. If you look at our international funds, it'll be pretty darn easy for you to tell and full disclosure. I've been sipping a cool eight in these companies for a long long time. So but the Indian financials have been really beaten up in the last several months there a group of finance companies. They're called non-bank financials. And there was a high profile bankruptcy. And there was a lot of worry that the financial system was at risk this recent trip, we got lucky on had planned the strip for several months earlier. But it just happened that we were there at ground zero. When this was happening and the stocks had fallen fifteen to twenty percent in dollar terms in the prior couple of months, I feel and I think some of our colleagues felt very comfortable that this is not a risk to the system and Indian banks have an interesting situation, the private sector banks, some of the most expensive banks in the world. And in any year for the last fifteen years if you go back and you look at the two best and biggest private-sector banks every year they've looked expensive. And if you go back and you look over that fifteen year period almost every single year. They've been good stocks relative to a benchmark or whatever. And the reason is that they have this incredibly wonderfully long, secular tailwind, and that is they compete against two thirds of the banking system that is owned by the government, and they are terrible banks. And so their competition is terrible. It's the overwhelming majority of the system, and it's a highly under penetrated thanking market or credit market, and it's also under penetrated from the deposit base because Indians have tended to in the past basically hide their money either real estate or gold because it's it's hidden from the federal government, and they don't have to pay. Taxes on it. So they're now starting to go into the financial system that's causing a highly disproportionate deposit growth in the system, and these few very expensive banks can continue to grow at a sustainably high level for a long period of time. And I I think the valuation stack up so that's an area where if you've told me I only had one year fifty two weeks right to the day. I couldn't tell you. If they're going to be good stocks for that one year. But if you tell me I have to hold it for five years and T and hold it for five years. I have a lot of conviction. And that's the type of thing that we're trying to find. Promote Lurie a fixed income portfolio manager with twenty years of industry experience has responsibilities across bond, equity, income and balanced funds here from December six promote details. The portfolio adjustments the capitals fixed income group has made in anticipation of today's market weakness when we're looking at the market today, we see a lot of weakness right go back a year ago year Asiago the market was talking about logo synchronized growth Europe was starting to look better. China was due going fine. The US was strong. You had fiscal stimulus. You still had low interest rates. Everything looked great. But when we looked out at the world at that time, we thought of that is selling opportunity because we look forward a couple years, and we saw the fiscal stimulus going from a tailwind to a headwind, we saw monetary policy tightening and crying Tate of easing reversing both in the US as well as globally, in fact, global quantitative easing went. From a net buyer of assets to a net seller of assets just in this past quarter. I believe with quantitative easing. When we saw when it was going on. You had volatility declined. You saw as prices all rising across every asset class. We believe that the opposite was likely to happen. Which is as you went from easing to tightening. You're going to get global volatility increasing not sure exactly where but it was going to increase, and you're like, you leave see asset prices fall across multiple asset classes so a year ago. We went short duration we own very little credit risk. We're sniffily underway credit risk adjusted our curve positioning to benefit from volatility, and we owned a little bit of inflation protection from tips because we saw inflation pressures rising fast forward to today, and we're benefiting from all of those positions. Those positions are working at exactly as we would hope. And now as we're looking forward, we're starting to see China a weakening. First half of next year, unless they find a way to stimulate is going to look somewhat weak, and that's going to have ripple effects to every market, whether it's commodities whether it's interest rates, whether it's growth for companies. So you ask is going to go from fiscal stimulus, which is going to start to fade. I think it's still going to be a stimulus next year. But the greatest benefit has passed and growth is likely to slow going next year, and you still have at least as a couple of days ago, the fed was planning on hiking in December as well as a few times next year. And so the combination of all of those made the outlook for US to be reduced. It wasn't going to grow as fast. And then you look at Europe. And you say well Europe exports a lot to China. China's gonna Slough how is Europe going to do better, especially if the US is also getting weaker. So you now have between China Europe, and the US something like two-thirds of global GDP in a place that looks at. Best stable and parts. But most likely all of them are going to be weakening next year. That is a perfect environment for fixed income because that means interest rates are going to start to come back down. It means that we're going to be able to serve that role that we talked about which is diversification as equities, and we really wanted to focus in that type of environment. And making sure that our portfolios were really strong and robust because we can see the environment where the capital preservation and the diversification from equities is going to be really important to our clients asked about how he balances short-term with long strategy and his investment thinking promote answered this way. I sit on the portfolio strategy group and the mandate for that brew is to think about term because all of us analysts portfolio managers traitors are living in the day today. It's very easy to get lost in the day to day movements and lose sight of what is expected over the next one two three five years. So we spend a lot of time. Thinking about what are the global themes that are going on? What are things that are going to be playing out over the long term? And then when you look at that side by side with what is going on today. Right. You may have a worry that deficits are really relaxed. The US debt is very large. We're going from social security is the net pair, there's all sorts of long term problems with the US that made you think oh, well our interest rates. Go skyrocket. Are we going to all that's done sound great for treasuries? But in the short term, you got grow slowing down. You've got people worried about recession brisk coming over the fed that maybe done hiking, and maybe stable, maybe they're going to be cutting next year in that type of environment. It's going to be difficult for interest rates to sell off materially. And so in this way, we looking at both of them were very conscious of where we are. Now, if the long term matches up with short-term, great you. Take your position and take as much of a position as you want because both the short and the long term your faith when they're not aligned when the long-term says one thing in the short term says another the way we interpret that is if you're going to take your short term view, you have to moderate that risks. It cannot be even close to the size that you would if the two were completely aligned. So when we go down the list, we're looking at that. And the last piece of is there may be ways to structure a portfolio that do the same thing. If you told me that growth was slowing, and you told me that China was falling off a cliff etcetera etcetera, I could probably construct two or three or four or five different portfolios. That will alternately have a similar outcome. Maybe I used more on rates in one portfolio. Maybe I lean a little bit more on shorting credit, and the other you know, you can kind of get there. Because of that. I can now look at that long term and say, well, if they're all going to have similar comes in the short term, but one or two of them is more aligned with where we want to be long-term than maybe we moved to that portfolio. It helps us choose between different opportunities that we see in the short-term. Finally, promote was asked to comment on bond, duration and credit looking ahead to twenty nineteen. Here's what he said. I talked about where we were last year which is underway. Duration and underway. Credit? You look at the portfolios today. We actually went from underway duration overweight. Ration-? Now, we didn't do it. In one step. We moved incrementally. Because that's the way we move our portfolios but coming into the last couple of weeks, the portfolios been overweight duration, it's been focused on the five year part of the curve because we think that's the are the curve that tends to do the best when we are in a lot of volatile markets when the fat is potentially inaction. And so we actually feel pretty. Good about duration here. Having said that interest rates just fell twenty or thirty basis points. And so we're going to do a modest thinking when I get back to the office thinking about is the fed really done hiking because inflation is kind of at their target. And if this volatility doesn't derail economy, they might. But if it doesn't then all the forward-looking indicators say inflation should continue to rise. The US Konomi is growing that should be okay for tips because tips right now, our pricing in at least thirty year tips are pricing a break even Colin two percent. And if you think about the Fed's long-term goal, it's probably should be pricing in more something like two point three percent. So there is some upside there and tips. Having said that if we are about to go into recession tip just aren't going to do. Well, right now, we don't think they're going to fall off a cliff because there's only so far it's likely to go if we're not a great financial crisis again. So we own a little bit of tips, but we're much lighter in tips than we were two years ago. We've been bringing that down in preparation for a week or markets on credit because we came into this volatility, so clean. I think you're likely to see us chasing after some of our favorite credits that we had lightened up on before not because we didn't like those credits. But because we didn't like what was happening on the macro side. We are worried about volatility. So I think if things continue along the path they have been you should expect to see our duration. Maybe come down a little bit depends on when we get back to the team. We think we really are going into recession or do we think we've got spring shoots that are gonna come up in the first quarter of next year. That's gonna make things feel a little bit better. So we're going to talk about that. But I think in general you should expect to see interest rates come down a little bit here. And we're going to incrementally added credit having said that by no means is credit cheap. So why say we're getting you mentally add we're going to go from very underweight to a little less underweight. But we're still going to be underway because we still think credit has this property of getting really really cheap right before the recession when everyone knows we're in a recession, and I don't think we know that yet. Or thanks to bury bread and promoted for supplying the type of in-depth analysis and Koji inside that you are audience have come to expect from capitol ideas. 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Adapt or die: Retailers navigate the pandemic storm

Capital Ideas Investing Podcast

32:08 min | 8 months ago

Adapt or die: Retailers navigate the pandemic storm

"Investments are not fdic insured nor are they deposits of or guaranteed by a bank or any other entity so they lose value. American funds are not available outside the us. The following is not intended as an offer to purchase or distribute american funds outside the us wrapped. I'm matt miller capital ideas your connection to the mines insight shaping. The world of investments with the holidays upon us my colleague. Angela shah decided to ask capital group equity analyst. Rachel bowman for her out on the. Us retail sectors as you might imagine amid up pandemic ravaged holiday shopping season. There's a lot to unpack and if you listen closely. You may even get some valuable bargain-hunting tips along the way back now. Here's andrew conversation with rachel today. We're speaking with rachel. Bowman equity investment analysts covering the fast-changing. Us retail sector. Rachel has four years of investment industry experience the capital group earlier this year. She's a graduate of mit earning a bachelors in chemical engineering and is based out of new york for capital group. Rachel welcome to the capital ideas. Podcast for having me. Obviously this has been quite an interesting year for retailers. Many of us are still working from home of the business. Wardrobes are gathering dust in our closets. How has that impacted retailers generally speaking in. How are they coping with this student chain demand so you know this year certainly been crazy for retail most not essential retailer theirselves down anywhere from forty to fifty percent in the first half of the year pretty unprecedented disruption in terms of cova closures and while the market is recovering now. It's really been a pretty slow recovery due to a lot of the storage capacity constraints That are coming out of Distancing requirements and the like As you might expect you know. E commerce sales has grown really rapidly in this environment as a lot of people are hesitant to go to stores. and many retailers are seeing their online businesses. Grow as fast triple digits Maybe more interestingly there have been a lot of spending shifts the ball within retail. You know things like home improvement grocery and darryl merchandise has actually done quite well as people are eating at home more in investing more in their homes since they're spending all their time there At apparel to your point. I'm pretty poorly Given there's no need for closer worker holiday parties but been pearl. They've actually been bright spots Like i thought. I could peril giving people are comfortable. Wanna be comfortable while working from home. are are taking up new exercise routine so even though the retail. Broadly has been a bit distressed over the years as it's been coping with e commerce and other pressures. You are seeing kind of a divergence of some doing well in this environment and some not doing well so it's it depends on kind of what they're focused on and who they're ultimate customers are so as you know. We're headed into the crucial holiday season. Which is make or break for retailers. Even in good years It's been a terrible year. You said forty percent fifty percent decline. What are you seeing from them. As far as tactics to just try to recoup some of these sales hauer they either. Competing or cooperating with entities amazon gives us a bit of a look ahead on that too just to put it in perspective holidays. Really really important And you know for those they. Gifting businesses the fourth quarter can be thirty to forty percent of revenue and upwards of sixty or seventy percent of their profits for the year. And you know. The week of thanksgiving and christmas can each be about twenty percent of the cells for the quarter so really the big problem with covid You know as well as the economy being weak just how the retailers can still be successful holiday bill despite the fact that there are a lot of capacity trains are on the stores when all they typically consists of these really high volume periods where people are waiting in line for cried and and that sort of thing. You know the good news for retailers that they had a little bit of practice from this last year so last year's holiday season was a bit week because there were six days between thanksgiving and christmas And for the companies. That didn't really change any of their tactics. They had kind of a week season so if we think about the companies that did well last year despite the shorten calendar really companies like home depot. Who actually started their holiday promotion earlier. Call the entire week of thanksgiving verses Just black friday. And that was really a key to doing while australia so really. We've seen an even intensified version of that this year with you know if you think about amazon. Prime day was in october Delayed from july august That was really the start of the holidays. And so you know walmart and target of already been doing early black friday sales especially given consumer concerns about Shipping delays billy. Everyone is going to be starting early zero. You know we'll see whether that resonates with consumers are not you know it's easy to imagine over all that it could be weaker holiday. Since you're people are traveling and there might be blessed needs for gifts so companies will do everything they can by pushing the season earlier but at very well might not be enough given the broader economic environment. Have you noticed any creative campaigns. You mentioned some tactics. That retailers might be replaying from last year because of the fewer days in the season. Any tactics that you see them doing to bring them out even in a socially distant fashion or conversely take advantage of order online. Pick up at the store any kind of tactics that can help overcome some of the potential losses. This year i think the retailers have flexibility in terms of what they saw or really just trying to lead into the categories that are doing better So for example the operates companies like tj maxx and burlington Have really been leaning more into the home category or is enormous a lot of apparel since that's really popular right now since people are kind enough nothing and we're trying to spruce up their home offices Those that don't have as much flexibility I think there are a bit more focused on the fact that you spend on experiences down and you know maybe some of that span can get reinvested in treating yourself so actually accessory sales the better than you might think things like skin care products really you know leaning in to pick up some of that consumers plan that people aren't spending on travel and in restaurants and that sort of thing i guess the last thing i kind of say to is typically retail orders get placed six to nine months in advance So unfortunately a lot of companies. Just don't have that much flexibility in terms of Their inventories so there's a lot of excess inventory going holiday season. So you know i. I think we're unfortunately also just gonna see very promotional environment where there are a lot of Deep bargain discounting right. Yeah exactly to help the company of course move midori. And try to be well-positioned going into twenty one. I think for consumers don't actually be a great holiday season in terms of deals. Yeah that's a really good point because they did have to plan six nine months in advance and if you knew then what we know now you would have stocked up on homegoods and ken appliances and plates and sort of all these things that you just described as are sheltered from home and so they may even still out of those products more quickly than they than they might have otherwise. Yeah so. The pandemic forced growth in online sales. That would would have left. The not happened as quickly. Otherwise we're seeing a steady increase of Online shopping versus in store shopping. But this really accelerated this trend. Are there any subcategories. If you look underneath that of products that you think are still resistant online. Selling that people still need to go into the store. Are there retailers. That can still be amazon. Prove so to speak usually when. I think about amazon proof retailers. They really have one of three characteristics and those three countries. I typically think about our urgent purchases retail that's more experiential or deep value. So you know kind of going through those urgent purchases would be you know. Things like aftermarket auto parts or even home improvement where it was on fast two days in class. There are a lot of things that you can't wait two days for one of which might be fixing your car breaks down because there's really no idea there being charter hunt when you go to a tj maxx or burlington ross. Right and then you know value. You know it's it's easy to imagine that as you know something like costco where you're selling at a significant discount appears or dollar stores but in some ways put luxury in that bucket as well because you know luxury. Brands have a lot of value to their consumers consumers. Really resonate with those brands. And you're willing to pay full price no matter what Lizard the three kind of buckets. I usually think about I talked about you know. I would include off price at the value in charter haunt dollars. Ordered often and devalue. Let's a perfect segue because our next question was going to be asking you a bit about discount retailers and how they might be able to compete in this environment and that is as you're saying function of mead affliction of urgency any other attributes of those retailers that you think stand out in this climate. We have to remember that a lot of consumers still live paycheck to paycheck and value. Is a really big deal for you. Know most americans. I think people tend to forget you know because we all do use crime that you know there are a lot of people who are more than willing to drive to ross or burlington or dollar general For a great deal and that's really what what drives consumers to those business models and you know part of the reason they're amazon proof is because you know it's it's probably pretty unlikely that amazon is gonna try to match their prices or that. Those consumers have a ninety nine dollar membership and they don't have very exactly You know trying to ship a twelve dollar. I don't win the shipping costs and six or taller. You know all of a sudden your costs doubled right. So they're just a lot of those purchases to that Don't really work with E commerce economics but you know typically. These companies actually do better during recessions because You know kinda the middle poss- up trading down to the discount channel As the economy gets weaker this recession is just a little bit different just because of the store closures. So far but You know i would think as were fully reopen traffic recovers. there is a lingering economic impact. Stop those transplant. Continue and if you look back at two thousand nine actually really interesting. Because operates benefited quite a bit from the financial crisis but a lot of those middle class consumers actually just never went back to department stores. And i actually am thinking that you know this recession could be more for dollar stores because you know think about how many things have been sold out at walmart or target You know people are a lot more flexible about where they're gonna go if they can't find clorox wipes or whatever sure you know those basics that they need and you know if they go to a dollar general and realize the stores i've been remodel that It's a shopping experience. A lot of that traffic could could be sticky. So i think the dollar stores will actually benefiting from covadonga charm kind of how off rested Benefit from the financial crisis and that. Just accelerates another trend which is the sort of middle market department. Stores are losing market share to either luxury brands. Have the cachet or these these very you know the dollar stores and the targets that offer a great selection of product and price. And and so they'd rather go there. What's interesting and as you mentioned. Luxury retail Luxury bands of were very much in demand. Before the pandemic in as you say you feel like there's some stickiness there because people just want what they want and are willing to pay for it Certainly we've seen in china in. It's sort of reopening post pandemic. Those appetites are wetted again and they're resuming their buying patterns You feel like that's going to be the same here in the us in the western world and europe. Yeah so certainly. China is really important for these companies. You know. I think it's important to keep in mind that because china got covert early at recovered relatively quickly there quite a bit ahead of the rest of the world in terms of recovery. So you know. Having these businesses that are so tied to try to when china's doing better than everywhere else that it really helps. So what are your thoughts about a company like walmart. Which obviously quintessential retailer. In america around the world. But they've also been building up an online strategy. Righty store number eight and variety of other things. How successful is this. Omni channel type strategy target costco other delivery services are all trying to figure out a way to leverage their real estate but also cater to the need of what customers want which is online saudi. Think this is working for the central stores who really the challenge with omni channel. Not it's a lot less profitable for the retailer. So if you think about it. Plus weekly the traditional store sale consumers providing the labor walk around the store put all this stuff in their basket checkout. then they're delivering the goods to their house themselves right but you know when you get to honor channel sales Labor shifting back to the retailer. They're having to pick the items and and pack them and also having to deliver it right so the big problem for a lot of these retailers is really that e commerce is less profitable And so while they need to do ecommerce to compete with digitally native companies like amazon It's really really challenging for them to Get their margins to work as those businesses so you know as you look across the seas really most big public companies have been produced. It's awful lot growing their e commerce businesses even all the way down to department stores which are already selling call it thirty percent online but really the issue and the reason why we've seen so many retailers go away is because of this margin problem where you know either. You're treating sore sales for online sales or less profitable than actually. The stores. don't have enough volume anymore to kind of be viable so for the walmart and targets of the world The keys are really going to be one that buy online pick up in store. It's almost as profitable as the store sales. So that's one way that they can do on the general but so the competitive right and the second thing we've really seen with target is that you know. Even though they they talk about a drug from ecommerce over your on their margins they've managed to find other places to grow margins to help offset that so you know i think the challenge is going to be keeping margins stable. They make this transition but there's certainly ways to do it. It's just very difficult right. And i think one of the ways at least you've seen some experiments With abuse new robotics for inventory scanning and helping the humans of notify them when shelves need to be stocked in. Although i did see recently that walmart had ended a trial that it had was a robotic startup in any thoughts and how robotics and how those efforts are going in order to be a real. Viable workforce aid. Help reduce some of those costs. I certainly think walmart is probably the leader in that space and you know while we tend to buy partnerships get started. And i would say we're still early on enough that you know. That's kind of in rural part of experimentation process on some things will work some won't Over has at least one robotic dc that they've been testing So expect to see more of that going forward but we're not really at a place yet where you know. There's going to be a natural of Robotics that will really You know kind of solve the problem but they are doing as you know finding places right so you actually might have seen in your local walmart. They have robots that clean the floors for example. While you know cleaning up the floor might not seem like a big deal. It is labor hours that saved that can get reinvested elsewhere right so a day in the near term. We'd probably more c- Robotics used to solve individuals while problems Things agree talking shelves and cleaning And then longer term. We'll probably see more realistic disease. But i don't think we're that close yet and on the flip side you had amazon astrid. No at least one in new york you probably visited it And i think maybe on the west coast as well but what is the benefit of doing that having a physical presence when you are so successful as an online retailer i mean. I think it's been clear. Stores are part of the future. The question is really just. How many stories You know everyone is accepted while the us over storage especially compared to other developed markets but A lot of these digitally native brands not just amazon. But think about ann arbor lane or Glossier the strike have realized that having a presence is necessary to grow. Pass a certain point because like we were saying earlier with the experiential retail people. Just want to be able to touch and try Certain products rate so. Maybe you don't need as many stories of the legacy retailer has but some amount to people can at least check out the product. I think for traditional retailers. They're focused is really been more on. You know just making sure that they operate the consumer is they can serve a customer that wants only delivery people who buy online pick up in store People who want to shop the regular way and everything then between They don't want their channel availability to be something that it prevents people from choosing to shop there so kind of do different approaches. I you know. I i think a good benchmark you know even books and electron ex Have kind of topped out at fifty percent. Ecommerce penetration Maybe that comes up a little bit this year with cova but interesting. The tours are part of the future. But it's probably just less than we have now. Nike knows last year that it wouldn't sell directly through amazon anymore and it wants people to come to its online presence in. And that's a real story about branding. I think people know you. They want you in there. Were happy to go to you. You know where where you are How important is branding in this environment. Where seems very fractured. You know there's a lot out there. A lot of options talk a bit about other companies may be Where you see the branding is is working out for them. I think that iky example super important I think it's important here to kind of stop and talk about. How a brand like nike is a little bit different from a true retailer wal-mart rate so You know if you think about nike and adidas in athletics piece they both realize that if they fell off their own website Versus your traditional retail partner. You normally they would share part of the economics without retail partner Which can actually be as high as fifty percent so you know if they keep telling one hundred dollar pair of shoes As much as fifty dollars of that is going to meet caesar. Jc penney your whoever they were you know working with so the brands have kind of figured this out and realize you know over the long run if they have the simple their own digital ecosystems they can actually Be a lot more profitable if off their own channels So this is really a in the states and something. We're seeing a lot of brands. Try and so you know that. Beam eight athletic. Brands are really the ones that are most likely to be successful Because they are strong brands they have recognized and It's really a pull models and thought of the hottest shoes quickly You know she's a really interesting market because you know. Not every nike product. Is this way but there select drops where it might tell out on their app within thirty seconds and then next thing you know. The shoes are trading at five times. The cost on whatever. You're still marketplace us right so it makes a lot of fun for someone nike to focus more of their digital channels. Because you know people are willing to pay five times more for the product x. They're probably more than happy to sure you know. Choose a choose a different channel than where they talk about it. if that's where the product is so that's one really big trend in the industry and i would expect the athletic brands and i guess luxury would probably the second second place that this will be happening more and more just because those don't do tend to be the stronger brands and you know as you think about athletic. Nikki is created this whole digital ecosystem rather that workout apps They're shopping ass so really gives it the thought companies and opportunity to connect with the consumer consumers on a regular basis especially in a time. Like covid you know when people are starved for Bought a content. I don't know if it's nike but the idea of using a are in vr. To help you see yourself. The products perhaps actually using them you know and virtual reality in. We're thoughts about some of these tech tools. Whether it's you know makeup company showing you what the eye shadow looks like when you get it online. I know neiman. Marcus has either still has or did have Collaboration with bomani with this sort of the memory mirror where you can do makeovers in virtually. How important are these tools to beat a really help retailers move product in connected to customers. We're certainly seeing a lot of it out there in the market. So far it hasn't really meaningfully moved sales but certainly getting more and more buzz. I think is a quote obligations. I've seen that are really in the makeup space like you touched on You know both l'oreal who own a lot of the you know hired maker brands right. How all now where you can actually get your face and will recommend for you. So for example the water analysts. Say able to get my face scan. Unfortunately it told me. My fatigue recommended the best moisturizer for me Yeah your investment insights on our podcast. You'll love getting them in your inbox for industry leading articles support tools and more subscribe to capitalize ideas. Just go to get half ideas dot com. that's yes capital ideas dot com and subscribe. Today let's talk a bit about grocery stores. You know this idea the concept grocery store of the future. That's you know got a little bit of. It's almost a choice. It feels me like a throwback because there's maybe a little hardware section there's a nail salon kind of go in and get everything done lots of prepackaged food for us. I've seen covid is a little bit different. But how do you see that evolving. And what do you think that they need to do to evolve for changing consumer tastes anto. Kobe grocery was on a few areas. That will had pretty slow. E commerce penetration even though you did by whole foods a few years back You know we've been talking about how difficult E commerce is in general but when you imagine layer that in west ours feeding refrigeration and a lot of fresh food things that are full fee it gets even more difficult Cova is really been an event that has driven a lot of growth in all my grocery. I mean i think longer term. You know it'll get by for kid So today most companies that you shipping shipping for for grocery Charge quite a bit for it whether it's like walmart plus or Costco's partnership was within cart. So i think over time you know the people that can afford it And value their time will probably continue to pay a little bit more for Delivery on it and then for those who are a little more price sensitive. Bogus actually can be a great solution. Because as i touched on You know the the economics book a lot better for for pickup for the retailer. That other types of channel do So that might be the happy medium for people who don't necessarily wanna pay a lot more to do on general cursory like to ask you now about the malls as it's a kind of a perennial retail question of the last several years but their their demise the reinvention thereof. I know a mall. In austin where i went to college is now a community college. How do you especially with with with the pandemic. we can't gather yet is. This is accelerating its demise. You see any creative things. Obviously the retail bankruptcies have a knock on effect. They end up being able to make their payments to the malls. The real estate company is talk about the ecosystem there in how the mall is an emblematic of of the problems. I you know. I can't emphasize enough. How bad of the year. This is ben for retail bankruptcies. The last couple of years has been very bad versus a longer history. But you're even worse than that. I think it's a hundred if i if i have my notes correctly in a new story. It's one hundred and thirty four bankruptcies of public companies or probably firms this year. Yeah and if you think about apparel payroll specifically which obviously is not the whole industry but certainly has more and more exposure. I'm digging end up being like something like high single digit percentage of parallels in the us. So there is a really really staggering. You think about Companies like sears. Jc penney Obviously having filed recently it really becomes a bigger issue for the malls specifically when it's anchor tenants right because Anchor tenants a lot of traffic to the mall as you can imagine. There's you know less incentive for some of these smaller specialty retailers To stay in the mall for sydney we're trying to go to strip centers or something If there are no anchor tenant so issue is you know once the iger tenants or You know even someone like macy's is obviously Close doors over. the last. several years doesn't even necessarily have to be true. Bankruptcies can also be store closures on. I really put a lot of pressure on the whole ecosystem. you know so. All of these owners have to get creative in terms of solutions to this. Whether it's experiential things even busters which you know doing great for a long time. I think like gyms offices maybe even apartments or you've seen people try a lot of different things. I think you know today. We still haven't really seen a meaningful tournament transit. It's hard to imagine that you know traffic is is going to necessarily put positive but i do think that industry than a little bit out the base now justin that they're gonna lot of closures and some of the lower quality malls but then they're awful lot of Higher ed balls. The ones with the luxury stores. For example that tend to be a bit healthier and those are probably more likely to stick around so sounds like it almost but Certainly i very bad your walls dr all and and hard to imagine that you know there are some great turnaround. That's right on the horizon. We are toward the end of our discussion. So tell us a little bit of what's on your holiday season list this year gifts for you for. Yeah you know. I really wanted to get my fiance. The new playstation. But i'm very quickly realizing that. That's probably not going to be possible for six months. I guess i have to think about something else I i'm a big bargain hunters. I'm always in for some of these people could asian cells and see if i can find any kind of The only other thing. I really excited about. I love the ason harry appliances and they have a new hampshire. That's an historically those usually sell out pretty quickly tube opening as you got my hand on on the street or this year. What's the brand name dyson vacuum cleaner. Oh they have a hair. Oh interesting okay yeah they disqualify hair-curling thing last year that the amazing called the era except check it out any advice on how our listeners can cut through all online advertising noise and just get to the deals like what is your shopping strategy. Any secrets that you would like to share with the listeners. Yeah i mean you know. I think the thing that i discovered in the last year or so or are they're all these social media accounts where these people that are least spend all day every day. Just scarring the internet for gilles You know so. I like a lot of luxury brands. And the influencers who spend all day finding the coupon or whatever whatever what there is for whatever brand and under these things all out in like an hour but I enjoy following those that you know if i see something that you know it was kind of my list anyway. It takes a lot of the onus for me to kind of do google and find these things because someone else is already doing it Substantially a business for these people doing this. Because they got commissioned as long as you use their lincoln right they probably really enjoy the russian The other thing. I'd i'd say is there a lotta these ops like honey and gi by that Have have popped up Either will tell you if there's a coupon code for things that you weren't aware of it didn't use But also lookie by actually pops on amazon and a number of other websites and said hey like you know you're about to buy this but actually we found a better price for the might've on different websites so merge lot of of technology now. Yeah that will you know if you out what you want. You can probably like figure out pretty quickly whether you're the best price or not at least on that day. Excellent excellent so much for your time. This has been a great discussion appreciate it. Thank you for having me a good holiday you to. We're always trying to get better do. If you have any feedback including topics you'd like to see addressed in future. Episodes shoot us an email to capitol ideas at cap group dot com for capital ideas. This is matt. Miller reminding you that the most valuable asset is a long term perspective. Investors should carefully consider investment objectives risks charges and expenses. This and other important information contained in the fun perspectives and summary which can be a pain smut. 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amazon walmart forty percent fifty percent america Angela shah Rachel bowman Bowman equity investment nike seventy percent costco six nine months rachel Rachel china ninety nine dollar twelve dollar matt miller Righty store Omni channel
Acorns to oaks: 2 views on small-cap stocks

Capital Ideas Investing Podcast

35:16 min | 10 months ago

Acorns to oaks: 2 views on small-cap stocks

"INVESTMENTS ARE NOT FDIC insured nor are they deposits of or guaranteed by a bank or any other entity? So they lose value American. Funds are not available outside the US. The following is not intended as an offer to purchase or distribute American funds outside the US tapped. I'm Matt Miller in this capital idea your connection to the minds and insight shaping the world of investments. As the same goes big things come in small packages. That's certainly the hope of those who invest in small capitalization stocks which true to form had a volatile twenty twenty. while. This bass diverse asset class tends to be riskier than its large-cap counterparts. It also represents significant opportunity for selective investors. My colleague senior writer Ken Massa recently checked in with veteran small-cap investors, Greg went and breads fear. Shared their thoughts on this less understood asset class and the challenge of finding acorns with the potential to grow into oaks. Now here tens conversations with Gregg. Breath. We're joined today by Greg went and equity portfolio manager with more than thirty two years of investment experience. Greg specializes capitalization companies, which by capitals definition are publicly traded firms valued at roughly six billion dollars or less as an analyst Gregg also covers US casinos, leisure facilities, and restaurants. He holds an MBA from Harvard business school and a bachelor's degree in economics from the University of Chicago Gregg Welcome back to capital ideas great to be with you. When you last sat down with us about eighteen months ago, you share how back in one, thousand, nine, hundred, nine, you and your colleagues, the legendary capital investor, Gordon Crawford pitched the creation of Smallcap World Fund and you've been associated with the fund ever since its inception. Could you tell us a little bit about the story behind the fun and what was it that interested you in this asset class? I joined capital in nineteen, eighty seven as a retailing analyst, and my interest just naturally gravitated towards smaller companies. My first two recommendations were kind of obscure small retailers. One is still around today Dillard's department stores and other one was Carson Pirie Scott in Chicago. I just was much more interested in passionate about. Smaller companies. Where you could pull apart the mouse trap really get to know the management. understand, them. Add value versus for example, a sears. But I was a relatively young new analyst to capital. So fortunately, I was able to find a like-minded. Portfolio manager in Gordie, Crawford, and the two of us just became champions for the concept of Smallcap Fund. We pressed it hard. Gordie. Probably more diplomatically than me. But finally, the powers that be that. Let's do it. And April nineteen. Ninety. We launched at that point. It was the second largest mutual fund underwriting of all time. It was really driven out of the same reason I like the asset class it driven out of entrepreneurship and passion. Are there any particular lessons you learn from? Gordy in the process of working together to push the fund into its life? It's particularly small companies driven by dreamers understand their dreams, right? Gortat was the first person I ever? Heard discuss what a mobile phone was. And I remember him saying. Twenty or thirty years from now when you tell your kids, you used to go to a wall to answer a phone. They would look at you and go what do you mean by that and he was dead right? He understood the dream interested the dream of apple I'd have a connected world ecosystem where all your devices are part of the same. symphony play and so Gordon. was particularly good at seeing the big picture. So it's been a very difficult year for investing in general with the covid nineteen pandemic and government stay at home orders and large areas of the economy effectively shutting down can you give us your take on the small-cap universe in this environment today? grosses obviously been much stronger than value. That makes. Perfect sense embedded in growth. Are The companies that were succeeding. That were you know the the term today's disrupters but divided artificially growth versus value I don't think is the right way to do it. I mean it's long-term winters and long-term losers and. We are seeing the difference between companies that were on the right side of the digital divide. Among other things I've been surprised by a number of things. During this period, I'm not particularly surprised by the stocks that are doing well. Are. You finding new source of innovation among small companies that are less well understood that looked to be taking advantage today obviously. There are winners all through the market cap spectrum. Let's go through a couple of Peleton was a company that was in. Public a year ago Peleton's. A relatively large market cap and clearly received the fitness company future. They're providing a service that no one even dreamed about five years ago. And, they'll obviously become the sworn enemy the gym industry. but it's a terrific product. The CEO. Obviously, somebody we know well. Talks about. All the time as much more than just a bike. In your living room. It is a connected next generation fitness company people try to spend their companies as the big dream or. The future state of their industry but Peleton has been designing itself that way almost from day one give you talked to read hastings at net flicks. He said, we never called it video discs by mail we call it net flicks from day one, we knew where we were going an interesting little corner of the world that I look at is the casino industry, the two most important companies in the world. in terms of changing the casino industry are not. The big cap you know companies but draft kings and flutter flutter being out of the UK which. have. A huge head start on the digital side of game. and. So you can just see this happening in industry after industry. and. I will tell you the first person I recall talking about. An urgency to get on the right side of the digital divide because it would define the future. Was Howard Schultz probably over ten years ago at starbucks. And you can see starbucks on the right side of the digital divide. You had to see it to be there today you can't today say a, we need to transform our business model. It's too late you also as you mentioned, maintain some analysts responsibilities in this new, we're living in meetings and travel changed. Is there any way you're conducting your job differently than before? January. Obviously, we're all conducting. Our jobs differently you know the content of my day is different and I'm talking to you from my living room. So it's a different world. But the goal is the same which is invest in companies that will. Grow earnings overtime and reward shareholders for that, but it's it's very different dealing with companies. I would tell you. There are companies that covered for over thirty years. Those relationships are more valuable than ever. getting up to speed on newer companies. So a good example would be. draft kings. where I think it's safe to say that I build a really a good relationship with that. Very Young. Management Team. Who's had a very short window time in the public markets. But being able to have a discussion with them that focused on the long-term. Frankly, share with them some insights about the gambling industry, they might not have known. It's valuable to have tenured analyst right now. Young analysts I think are working extra to build relationships. But it's tough to do over over zoom. So I think it's A. Competitive Advantage for us. But honestly, you can't do it forever. building those relationships pigs hopping on airplanes face to face meetings. Long histories with companies and so right here right now I think capital is advantaged by the environment but. I I would hate to think that there's on for five years. As great and it's interesting to hear you say that having those long. Industry relationships that go back decades. Not, only help you understand newer companies better like draftkings as an example, but also you can share with them some insights valuable to them. With your experience covering industry. I talked. With the management of Mattel. On Friday, the CTO and I and. Literally over the weekend. I found something from A. Is is going through some notes on tell I found something that's highly relevant. From a nineteen, Eighty, eight meeting I had with Patel which I intend to send the CEO later this week. You find there are any particular characteristics make. Companies into great potential to be a cornerstone stories and do you think that's changed much since the early days of your career when the fund was first launched An obvious ingredient from acorn to oak. Is Great Management It doesn't happen. By accident, it's People investing blood sweat and tears. into an idea and a company making it happen. And so it's intensity. Its vision, it's an. Since and. That's one reason when I find a manager like that I just grabbing hang on. 'cause they're rare. And Their special. And so that that to me is. Is the critical ingredients being on a battlefield you can win. One of the things you find with these relentless entrepreneurs. Is that they find a way and even if we take a pause in. Broader, Innovation, and small company formation. The best will find a way and we will get a chance to invest with them. We don't always get every investment idea, right? Did you share an example to companies that never panned out for you? My. Personal disaster that I think of. Still quite often. Even though goes back twenty years ago. Was a company called American classic voyages. It was Sam Zell. Company Sam Zell great moneymaker. Saw A. Opportunity to disrupt hard of the maritime industry that was protected by something called the Jones Act. And all he had to do to make it work. was to build a cruise ship. In the United States that would have a monopoly rights. To sail around the Hawaiian. Islands. If you understand the tourism dynamics of Hawaii. and understand the tourism dynamics of the cruise industry. It was obvious there was a demand for that. And it was a very exciting company. They raised all the capital. Hired the Dream Team and low, it'd be old. The shipyard in Mississippi. was unable to deliver cruise ship. They had successfully built a number of military about, but to not deliver a cruise ship. Literally, just never occurred to me that you could not find the talent. To build a cruise ship in the United States the whole ended up getting. I remember it got towed over to Italy. And it was completed their but it didn't qualify under the Jones Act. And American classic voyages went to zero. So it's a stock where I learned a couple of things, which is if something's never been done before, don't just assume it could be done. And number two companies where. The thesis is based on a regulatory issue. That's not really as exciting as something where it's genuinely a better mousetrap. Insights Greg rent thanks so much for spending time with today on tap allow us. Great pleasure everybody. You want curing investment insights on our podcast. You'll love getting them in your inbox for industry leading articles, support tools, and more subscribe to Capitol ideas just go get half ideas dot com. That's yes. Capital ideas that com in subscribe today. Next up. Global Equity Portfolio Manager. Brad fear shares his experiences investing in smaller companies in emerging markets. We're joined today by Brad Freer, an equity portfolio manager with twenty seven years of investment experience. Brad has portfolio measuring possibilities with Smallcap World Fund New World Fund an American Funds Global Balance. Earlier in his career Brad was equity investment analyst covering multiple sectors as Generalissimo Australia and India heels a bachelor's degree in international relations from Connecticut College as well as the chartered financial analyst. Nation Brad Welcome to Capitol Ideas. Recorded interview can you just give us a brief overview on the CAP universe in you're seeing things unfold this year. Well as as a big, you're aware it is an unusual universe 'cause it's round twelve fourteen thousand investable companies globally. So a lot of. and a lot of different things happening it kind of speaks to how graddick the stock selection can be in in the small cap world and I think probably the biggest thing is it's exposed some really vulnerable business models, balance-sheets sectors that really don't seem to make a lot of sense in his maiden less sustainable. On the other side, you know small-cap is one of our efforts where I think the most innovation happens in you see most acutely. So it's been a great stock selection market, but one that is full of mines you've done quite a bit of traveling around the world spent a lot of time covering companies extensively in places like India and Australia. Can you talk a little bit about your experiences traveling in such places like India Today compared to what it was five or ten years ago? This is one of the fun parts of working where we work and I've for instance, if my first investment trip to India in eighteen, ninety six and vividly remember going in meeting with the power authority in having the power, go out during the meetings as the Iraq and what you really see when you go there or no is how the middle class will we would deal. The middle class has grown just exponentially almos-. In what does that mean? It means there's more two wheelers more cars there's. There were world class retail experiences whether those arrester on or or clothes shopping things like that, and that's where a lot of the disruptions me has come. They expect more from financial products I. Mean we've seen leapfrogging in Brazil China India in financial services that took a lot longer to play out in the United States because there was a different starting point one of the areas that I is finding fascinating in learning about from our US in European analyst that have been following. Financial Technology. Companies in various aspects is that that infrastructure service delivery etc in then being able to translate what it means in two companies in Brazil, in India in China that has been the most interesting thing to me. So I would say that infrastructure the ability to broaden the experience across the entire country in emerging markets is really exciting. It's made financial services in some of the benefits their. Axe available do a much wider population base whether it's real or less wealthy. You wrote a piece some time ago here about small-cap Holdings had been around in referred to them as multi baggers. Could you talk a little bit about what that means and how you think about having the patience to hold on to a particular holding and talk a little bit about what your cell disciplined might be been involved in the small caps eating for roughly twenty years now. Started there as an investor and was reunited director and. Have Been Portfolio Manager for a number of years as a particular area of passion for me. But we recently went back in and looked over the last sixteen years at every single investment that small-cap has made we've invested in around three, thousand, nine, hundred different. Over that period of time which seems like an immense number. And we wanted to look at what mistakes we made, but also were any common trends. Two of our very best investments in as you mentioned, what is a multi dire will not back her if you're an investor all of US dream of having. Investments AGO multiples of their off base. So Percents two, hundred percent so a multi backer would be. To two extra three X or four x our investments. So we went back looked uh, three, thousand, nine hundred investments is at how many of them have been three baggers or more, and it was a relatively small number out of three thousand nine hundred expects as a very successful investment and what we found there were couple of interesting on this. Verse. We have representatives from every single sector is not just software businesses or biotech misses that we've invested and. They come from more than twenty different countries. So it's not just from the United. States we've had emerging markets European. Asian of all over the world but there are some comedy actress it's the first is not one of them. Was An investment that we had for less than one year. So, one of the common areas was that we allow these two compound over many many years and I think there's a thought process here in the short term. Getting an investment right or wrong has been more around the sentiments and the valuation short-term valuation that you pay is correct relatives to the market. But the further you go out the fundamentals, the investment fundamentals are what drive the underlying share price that can be around what the business opportunity is. But most importantly, it's around what the cash flow growth does. The sales growth as the earnings growth dividends doesn't management team actually execute and the further you go out. The less the starting evaluation actually mattis if you're right when you decided to sell shares. You've got to put that money to work in respectively a number of new investment ideas. Can you talk a bit about capital's extensive research effort and how we may be particularly advantaged and finding many new small ideas around the world? So this one of the most enjoyable parts a being a smallcap world or May. Many of us know the investing case or Microsoft or apple, or or some of the bigger cities are household names, the small-cap universes so vast and we have closed under thirty best than analysts located are looking for small ideas on a daily basis or the fun. We're seeing thousands of companies a year in real number is close to forty five hundred companies are met with. Disgust in written about a year and so on a weekly call investment call, it focuses on small-cap we get somewhere between five and ten new investment ideas of eat. We are narrowing that universe down after somebody's billing financial models, doing desk research, interviewing competitors, suppliers, etc. then getting regaining conviction to invest in the company I feel like I'm a kid in a candy shoplifting or those new invest in ideas in many cases are companies that most people would never have heard of, which makes it that much more fun to learn about how they are special businesses. Would you? Mind offering just a few concrete examples of some of those less well-known innovators or companies around the world to give an example of what you're looking at these, and I'll remind our listeners that these are not invested recommendations but examples of ideas the easy default would be to go and talk about some cloud computing companies said, all our children would would know about because they use the FRY. I'm going to actually hit it a little bit and talk about some companies that maybe people haven't heard of that might be really fascinating. One of my favorites who is need in Europe. About two or three years ago, and it's a battery company which sounds really really boring right? The turns out that his company has the ability to make micro batteries really efficiently, inequality threshold is really really strong. In fact, one of their favorites lanes is that they were the battery I'd be alarmed stocks microphone made a modestly famous comment on the moon right they started use that technology to be hearing aids and that market started growing more and more in their product was more and more differentiated. Today became an industry leader in that is a great business, but it was starting to slow a little bit immature. Guests, what we are all hooked into these days. The ear buds whether they're from apple or from bose or whoever knows ear buds need these micro batteries and it's really important. One of the things we all care about is on the battery life is on us and also we don't maybe think about it but manufacturer sure does. If those batteries go wrong and there's health implication there will business is destroyed. So is company controls eighty percent of that market a huge percentage in they have just seen ridiculous grow and it just sounded like a little battery company in Germany you know then you go and you find company in Japan, it helps Japanese businesses upgrade their software infrastructure so that they can start taking advantage of cloud computing farther for US business because Japanese environment is is different, their language barriers, etc, etc. Instead, there's business there that helps build out on that infrastructure in humor by. The expertise the consultants etcetera you've mentioned a few times in our conversation today the importance of management to an investment and not only that they perhaps be you know visionary with innovation but also be disciplined and be able to execute on their vision. Could you get a good example of a leader that you've encountered through your career that proved to be one of those types of managements? It's interesting that Ori- is retiring this year. He is CEO of HDFC Bang beginning in the early two thousands when it had a market cap of less than two billion dollars. Market cap of eight billion dollars in a DJ. Quarry has been the CEO from inception. He was employee number, three Bank Win HCFC The parent company on decided to start a private bank and the thing that has struck me about each is that he obviously an early days had this really open plainfield is competing against the State Bank of India and a number of banks off about how that has been a great benefit many of these disruptive companies. In S he's grown. He's gone from three employees to now well over a hundred thousand boys. Note branches to several thousand branches and so many points during that time the complexity both in the number of people in the number of facilities in the number of products competitors has challenged him along the way and I think we forget how far that actually is to stay on top of over twenty less year career and he's sharp stage Dr. now, you can probably do the map is not a young man. In fact, the RPI Reserve Bank of India is forced to retire as it is age because of regulatory requirements. But the thing that is impressed me is here he was in the heyday of his career last three or four or five years and he was. Immensely paranoid about digital disruption we had seen what the FINTECH disruptive fintech companies like, Hey, pal and swear, and all of these businesses have done to US banking franchises. So he took many many trips with a wide array of Biz management team to Silicone Valley and spent weeks interviewing people about what the banks did did not do so that they could stay out ahead of the curve in not be disrupted India like their counterparts added another geographies to be sixty, five, sixty, eight years will hugely successful in stay that paranoid is really really impressive to me in at this point, they have one of the best fintech infrastructures of of any large bank I know because of the. Capital of Smallcap World Fund, we take a global approach to investing in smaller companies. Is there any particular advantage to that global approach as opposed to distinct US and international approaches? You can make the? Argument that being a US small-cap in Bhaskar is in a distinct advantage. In some ways, the market has been. Incredibly strong particularly in small caps two thirds of the numbers of companies that we look at our outside of the United States in if I'm responsible for only selecting. Ten Twenty thirty of those I think there's some pretty amazing investments that we've be looking away from if we chose to exclude the rest of the world, I do think it's a really distinct advantage that we've been able to see what's happening in the US in terms of innovation in terms of types of business models, risks that have been the wrong risks today. In, see that ramming in other markets in taking advantage of that when a lot of times in those marcus say Brazil or India or. Switzerland or wherever on. They have local analysts looking investors looking at those businesses that don't have the ability to see what's happened in the United States or in other geographies. We've spent so much time collaborating. We take advantage of that inefficiency in. So when you're trying to pick ones into different investment opportunities in these markets. It can be really powerful. Great Insights Brad thanks so much for joining us here today on Capitol. Ideas. Thanks you. We're always trying to get better. So if you have any feedback including topics, you'd like to see addressed in future episodes shoot us an email to capitol ideas at Cap Group dotcom. Capital ideas. This is Matt Miller reminding you that the most valuable asset is a long term. Investors should carefully consider investment objectives, risks, charges, and expenses this and other important information contained in the fun perspective and summary. 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US analyst India CEO Matt Miller Greg Brad Freer American classic voyages Gordie Switzerland equity portfolio manager Portfolio manager Australia Smallcap World Fund FDIC Harvard business school UK apple
How to Avoid the Silent Business Killer

Accelerate Your Business Growth

38:34 min | 9 months ago

How to Avoid the Silent Business Killer

"The. Available Aka g thirty six speaker sound system in the Cadillac. Escalade provides three hundred sixty degrees sound. So you hear studio sound on the row. The twenty twenty, one, Cadillac Escalade never stop arriving. Welcome to accelerate your business growth with your host. Diane. helbig. Diana's a leading Small Business Development and leadership coach author and speaker who is passionate about sharing valuable ideas, tips and techniques with business professionals. Worldwide Diane brings you the world's experts and gurus in all things business whether it's sales structure social media planning or plateauing guests bring their expertise and energy to each episode. When growing your business is your focus accelerate your business growth is the show to listen to. Got a topic or guests suggestion let Diane No. The goal is to make sure you have the information you need to move your business forward. Thanks for joining US settle in and enjoy. Everybody thank you so much for joining me. Today's podcast is sponsored by audible dot com and we are offering a free trial by going to audible trial dot com slash. You can check out all of the audio content that is there and believe me when I tell you. It's more than just audiobooks knocked audio books aren't great. They are that there is so much more for you to explore. Over the years accelerate, your business growth podcast has continued to gain recognition as a great resource for. A small business owner sales, professionals, entrepreneurs, business leaders of all kinds. And that is really because of the guests, these are folks who have expertise in particular areas of business and they join me share that expertise with all of Yale. Today's no different today. My guest is Ken Wentworth. Can Mr Biz Wentworth is a strategic business partner who works at business owners to help them operate more profitably and more efficiently. In addition he is a six time world record-holder. During his corporate career Mr Biz developed a diverse skillset by working in many different roles, accountant investment analyst, operations manager. Planning and analysis director and CFO for several different businesses while rising to the top three percent in a fortune fifteen company. He's also written two bestselling books pathway to prophets and how to be a cashflow pro. Can regularly speaks to professional organization host, the Mr Biz Rio program, and founded mister big Biz solutions and exclusive platform created specifically to provide affordable business expertise for small business owners. He's often quoted and per appears as an expert on small business topics in a variety of written and online publications wells radio shows including. Forbes J. P. Morgan Chase American Express Fast Company NBC ABC Fox Business News daily and more. Thanks so much for joining me today. Ken. Yeah absolutely thanks for having me I'm looking forward to it. I am as well and I was wondering if we could start with I'm very curious about. The. Three pillars of financial success. Can you explain? Yeah. So when I start working with a company these, this is the very first place we start. So what I found in my experience over the years and my. Twenty plus years let's just call that for now. Okay no need to be specific. Found is all businesses again from Fortune fifteen companies all the way down to startups. These three particular things are the absolute family Shen The billers if you will of success of financial, as well as the rest of the businesses well, and those pillars are number one cash flow. Clearly you don't have cash don't have business so very, very important there. and then the second one is Some people are GonNa Cringe WanNa say this Diane it's The b word. No, not that be word it's budget. And I think budget the word budget and reason people cringe so much I'll tell you Mrs Biz cringes at the word budget, right? So It's important to distinguish that a budget is not necessarily. I. Think. A lot of people think of it like they think of when you hear the word. Diet. Right. All. On Diet, I'm going to drink water neat lettuce right and it's not necessarily the case You can have a diet where you're trying to gain weight and not many of us are doing that but I know back in my competitive athletic career. There were times when I was trying to put on weight move up. At CETERA, and so I was on a diet actually trying to gain weight. The same thing can be said for budget you could be in a growth mode too where it's not just pinching pennies and everything like that. You're reinvesting Biz spending money what a budget is just an absolute game changer it. So Important Diane for me that when I talk to a prospective client if they. Refuse to create a budget. Then that's a deal breaker for me because I know how powerful it is. And most businesses don't even have them in I found most don't have them because they don't even know where to start. They didn't know what the budget is, but I don't know where to even start to try to build something that's realistic that they could try to stick to. So anyway, that's the second pillar very, very, very important. I'm the third one is. Pricing. And I. Know that sounds really obvious. But and I don't mean pricing in that all Geez I'll start working with you unless you increase your prices by ten percent miss not at all. What I mean is when I've again, often times found. Again businesses of all shapes and sizes of all ages different parts of their life cycle have what I call the silent business killer. And that is they have a or many products or services that they provide that are actually unprofitable. And I called the silent business killer because most people don't realize they have it. So of course, when I mentioned that to someone they can wile would I have a product or service that I'm losing money on? Why would I do that? Will you wouldn't purposely do it. But what I found is that oftentimes most businesses have at least one of those products or services, and unfortunately a lot of times those are the products or services that are high volume. was while a lot of companies end up coming to me is they're saying Gosh word you know our sales are up but were having trouble making payroll every two weeks for example on. So why is that what the heck is going on here and that kind of thing so Those are the three again cashflow budgeting and pricing absolutely critical pricing look is one of those things where. I have a new client that we're going through this with, and he's his mind has been blown in that. If you think about it if you eliminate that that one silent business killer product or service you have, you could actually do less in sales and but make more money. Right, so less work and you actually an and that's without raising your prices so. Powerful. I'll tell you what I. So love you're talking about that because. I think so many people focus on revenue generation and they don't think about profit generation. And I totally see how it is a silent business killer. Yeah and you know unfortunately, I've seen it too. Often I mean, that's why Come up with these little terms in wive added pricing to you know those those three pillars because Gosh, you know I had a client that before I started working with him he's in the service industries service based business, and they had bid a commercial project that a bid on you bid very aggressively on the commercial project, and at the time he was doing about a million dollars a year in revenue, and this was a two hundred, twenty, thousand dollars project. So as you can imagine, it's quite excited to try to land this wall unfortunate. What happened was he bid way too aggressively. And so at the end of the year. So he bids on this he lands, the gets the contract does the work at an interim I start working with him. We get to the end of the year and I had to explain to him and again, not sound completely counterintuitive, but it's a great example of this illustration. That I had explained to him. So that job ended up costing him about two hundred, sixty thousand dollars. Oh my goodness. So he lost forty thousand dollars in job. So I had to to him that look you could have had two hundred, twenty, thousand dollars less revenue and made forty thousand dollars more net income, and of course, on the surface I sounds absolutely crazy. Can I thought you know you're talking about that. has made these sense but you know I had basically whiteboard it out form and explain it to him and he's like, Oh, my Gosh I can't believe this and so that's when you know I just started working with them and we really started diving in as we do with each of his products and services and make sure they're profitable not just profitable but at the right level of profitability mean, there's some sometimes. You need to just eliminate a product or service because maybe you can't offer it at a price that's competitive to. The market and so in case you sometimes you got cut bait in eliminate that front? Service. By. That it is so important that that is just such a big issue so. Talk to me about an proving cash flow because I feel like this is part of that. One of the things I think that happens in the reason why some businesses struggle with cat flown by the way there's no shame in that I think a lot of people it's almost like a the looking at it almost scarlet letter they don't WanNa admit if they're having some casual town does an tell you again I've seen it would businesses of all shapes and sizes and ages cash flow can creep up on you. Look this is crazy to say, but Amazon yet s that Amazon about ten or twelve years ago they rented some cash flow issues now, who would ever think that right all right for variety of reasons but the point being that can happen to anyone and I think one of the reasons I've seen is that people don't quite understand what cash vote is and so they look at it as being non ass- with prophets or getting for example, and so they don't understand if they're they're PNL, their profit and loss statement shows that They're making money, but they're having trouble paying their bills. You know just doesn't something doesn't jive their right they don't understand it in a way I sort of break it down for focuses to say think of cash flow in this way, think of more money comes into and goes out of your checking account. That is that's casual right there at the at its most basic form is it's not just went. So for example, not to get too deepened any accounting weeds, but the reason you could be showing the prophet on your PNL that. After you're working on, you have a cruel based piano. So you when you make that sale for fifty thousand dollars, it goes onto your India revenue shows US thirty, thousand dollars. Well, you've collected it yet you sent on an invoice it's net thirty a, but you haven't collected the money yet. So in that case, your your profit and loss statements showing that Hey I've got fifty thousand dollars when actually your checking account has zero, it have you ever see that money yet, and so that's where I think you really think of it as it's just the timing of when money comes into and goes out of your checking account I think that's the basic. Basis of how to think about casual I think once people really firmly grasp that then starts to that Light Bob, their head at least starts to flicker a little bit if not go on foolishly because they say, Oh, now I understand and so then you really start thinking about again, just looking at ways and every business is different but looking at ways obviously to get money into your account faster and and in some cases, delay your payments out I don't mean be late with payments but for example, and some people don't like this advice But honestly, when you net thirty dollars, you know sometimes people are too officiant for their own. Good. So they get an net thirty invoice and they paid the day, they get it. And in my opinion unless there's a discount offered, why would you pay that doesn't If. It's a net thirty. Wait until day twenty, eight or twenty, nine, pay it. You're still paying within the you know the due date you're not. You're not hosing anyone over as far as that goes and you. You've gained instead of paying on Day two if you paid on day twenty twenty eight. Let's say you gain. Four weeks of having that money in in between there, you've probably had one or two payrolls for example that could help you. As one example but that's something the way to think about it as it could help, you do that and another way to do it is. In that scenario, even the get you more runway with with money in your account again in your checking account. Is and I'm not suggesting I got a preface that so is pay at least some of your expenses with a business credit card. Now, the preface to that is I'm not suggesting that you run for credit card bounce you pay the balance every month you got to be disciplined with it. You can't just rank a bunch of money and then the money I want, you can't pay it and you have interest charges. I'm not saying that at all, that is that's not good as management. So. In that example, if you paid on Day Twenty eight and you pay with a credit card depending on your billing cycle, you, you don't have to actually take money out of your checking account to pay your credit card for another thirty to six thirty to forty five days right four to six weeks until that credit card payment is due. Now you've just held onto your cash from another let's just say month. Now you're looking at about sixty days from when you first bought, let's say the purchase you made was raw materials for the widgets you make. You've held on that. You've had that those raw materials for sixty days. I mean think about Diane you may have purchased the raw materials created your product and sold it and have money in your account way before the six days for he had enough to pay for the raw materials. So as you can imagine again, thinking about that money in and out of your checking account, you would have already got in that scenario already gotten the money into your checking account from the sales and you haven't even paid for the raw materials yet. Mean Super Super efficient use of your cash flow, you do debt approach again, you do have to be disciplined with. Again not suggesting credit card balance and not to pay it off completely defeats the whole purpose of it so. Yeah boy at so I you're talking about that and thinking wow, that is so cool because if you can really manage it properly than you. Have the money you need. You don't have to borrow to. Like flow payroll or a lot of people do. Get caught up. Well, here's a here's a little tangible benefit and and it's a huge one depending on the size of Your Business. So I had a client. So us when if you do implement that plan, make sure that your business credit card has rewards. So for example, there's a credit card out there that you can easily find I don't endorse anyone in particular, but they give it's to two percent cashback unlimited. That's another thing to catch because a lot of more limited. So they'll give you two percent for example, but only to a certain amount. So, this one is two percent in the into no annual fee credit card as well, but it's two percent cashback. So I had a business smaller model and company in Westerville, Ohio, matter of fact, and. He he purchases about four hundred, thousand dollars a year in materials. Follow. I know you're probably going to same place I I'd. Thousand dollars in two percent he gets eight thousand dollars a year of free money. Wow. Honey right and again, no interest charge no annual fee it costs you absolutely nothing. It improves your cash flow and you get a free eight thousand dollars. Now, the side note to that story that at. That particular client he let his his rewards build up over the year, and then he used it to take his wife on vacation to Hawaii while so fantastic story except for it was bad for me in one way selfishly is because I got the the ubiquitous picture of him on the beach with a beer in his hand with his feet in the sand in the ocean of in the foreground saying thanks a lot Mr Biz. Iron in Hawaii, I'm like. Bringing back a t shirt at least like. Well. Oh Gosh. Two you could use. has very important again with that limit because again, if it was a limited on fifty thousand dollars, for example. A lot of that benefit right. But some people, some of my clients would they've chosen do is they they use those rewards to invest back in the business and they they use that to fund their marketing and Advertising Yeah Wasn't becomes free because it used a reward points. Such a great idea. Is such a great idea. I never would have thought of that. Fascinating. I'm GonNa take a quick sponsor break in the nights more questions for you could. Accelerate your business growth podcast is thrilled to be sponsored by audible DOT COM. And while I'm sure you are aware that audible com has thousands of audiobook titles to choose from what you might not know is that they also have podcasts. And they have audible originals and guided meditations and so much more. And what are the benefits is that you can get all of that different kind of content on one platform so you don't have to switch between programs to get what you're looking for. So, we're thrilled to offer you A. Trial a free trial so you can check it out for yourself. Just go to audible trial DOT COM slash business growth sign up for that trial and you know what check out. Not only the audio books but the other content. That's there. At if I were going to make a suggestion, it would be the guided meditations are pretty great especially these days. So check it out yourself explore around. You'll see what I'm talking about. We're speaking with Ken. Mr. Biswas. Worth about how to avoid the silent business killer. You mentioned before we went on break that some companies take rewards that they get from their. Credit cards and use them and use that money on marketing and advertising at I'm asked this question a lot and so I'm so curious to see what your thoughts are. Around the question of how much should a company really be spending on marketing and advertising I absolutely love the asked that question I get the question often as well, and I think like when I when I start, you know what I'm talking with. Business owners. Honestly most business owners that I've come in contact with they just have a dollar amount. They say all while spend X. thousand dollars a month or X. thousand dollars a year annually. Personally I think that's a mistake and here's why I think that you should base your marketing spend on your revenue. That way as your revenue base grows. So should your marketing spend? So as to continue to fund your future growth in your business. So when you're a million dollar company compared to when you're five million dollar company in my opinion, you should be spending maybe five times as much on marketing in in that scenario and what's what I generally speak tell people is. You should spend anywhere between two and eight percent of your gross revenue on marketing and advertising. There, you can go up to fifteen percent and nine to fifteen percent range typically just short term for example, if you're opening a new location. or if you have a new product launch or something like that, or maybe one of your competitors has gone out of business and you're trying to. Pick up some additional market share. So you can go into that nine to fifteen percent In the short term, but anywhere from two to eight percent, and honestly most of the businesses I work with are in the four to five percent kind of in the middle of that range. But I also tell folks especially considering where we're at right now with the pandemic and a lot of businesses are struggling right now. Whatever you do try not to go below two percent and I know sometimes especially when you're trying to cut back on expenses, etc. It's easy to say you know what I'm just GonNa call marketing, but the problem with that occurs when if you think about it, if you're a marketing is effective, it is leading to additional business for you and the last thing you WanNa do so if you're if you're having. To cut expenses it's probably because you're revenues down. Now. If you take off a source that's providing revenue for you. So that marketing is giving you an Roi on your spending and creating revenue. Now you just made a vicious circle, right? So you cut your mark marketing out now your revenue drop, even further knife to cut expenses even further. So very important consider that is trying to below that two percent level and I have some business owners that I work with honestly Diane that are not very disciplined, and so we literally set their marketing budget month to month. In that for example, I'll say, okay in August revenue was making one hundred thousand dollars. So in September if we're at five percent, you have five thousand dollars to spend in September if the if the revenue goes up in September and it goes the two, hundred thousand now you can spend ten thousand dollars etc to try to keep them very disappointed focused on percentages. So that way as business goes upper down obviously you're spending less or more because you've got you WanNa make sure that you're continuing to fund that future growth of business. I really appreciate that. Thank you. I. It is such a tricky thing that I love the concept of. You need it to make money. So cutting back doesn't really make sense. Yeah that that's says I strive for and it's not always possible and people have also realize that and I'm not saying this from a marketing perspective. But I, guess kind of, I, am I don't do marketing but. you know you have to give a campaigns a chance to get a little feat A. Hundred said, it's not going to be day one in most cases we're GONNA. See a return to give it a little bit of time but but I strive with the goal I have for my clients is that we at three x return on our spent? So. If we spent a thousand dollars, I expect to see three thousand dollars in revenue. Very important thing that a lot of businesses that I see this is they don't measure it. They just. And an honestly some of it frankly becomes a little bit ego. So for example, I have a client who was running radio ADS. And He, his ego was getting stroke because he has friends and family say, Hey, I heard your commercial on the radio right and so that's great for branding recognition. But at the end day, it's about you know return on that investment and so how much money are you making those radio advertising brand awareness degrees north great for long term growth but are you really? Is it really driving any revenue? For you and the answer unfortunately was no. So we didn't eliminate it because it was good for brand awareness. We saw it. We get gained ground for that too long term scrape, but we cut back on it and took the money we reduced from that side and put it towards something else that was returning that we had a tangible return on investment we could see in the revenue side. Nine I had a business owner and this was only. I guess probably about three years ago I started working with him and I was tearing apart. All everything. He was spending his marketing on and I'm not kidding you even three years ago he was spending almost four thousand dollars a year on yellow page ads. Ally, goodness I said the utilized he had been in business for at that point twenty, six years. He had gotten a yellow pages, add fifteen years earlier and had been paying almost four thousand dollars a year for fifteen years. Wow. Maybe fifteen years earlier he was getting a return on that. Maybe people using or fifteen years ago. But I mean who uses a yellow pages anymore I mean my my. Doesn't use the yellow pages. Okay. Is that completely outdated method, but it's one of those things that he'd been in business. So long it's just set it and forget it and just renewed every year, and so again, we quickly eliminated that expense took that and put it towards You know another a avenue, a marketing avenue that was working for him, and then again, all of a sudden, you see this explosive growth because we eliminate that dead money that was getting, it's nothing and put it towards something we were getting a return on and all of a sudden revenue shoots up right So something very important to keep in mind as you. Have to measure this thing. So often when I talked to business almost all the time frankly WANNA start working with them they can't tell me what return they get on each piece of marking own and that's a huge mistake I mean it's it's potentially a lot of cases you're just throwing money out the door you may have fallen for some great sales pitch from someone told you whatever the market pieces and in that example you're you just set it, forget it. So you just you hit your credit card every month or you write that check for the invoice every month even think about the return getting right Oh. And is there some I find a lot of business owners really challenged with being able to measure their marketing because. They're not really given. Measurable 's by the Marketing Company like the marketing company will say we'll all day on. That's hard to Dale, it's hard to try. And sometimes they are I'll tell you there. There are a few work arounds around that and and one of the things that we've done. I've done with a few different clients is We will couple of different things. Number one, you can have a dedicated phone line. So. If you're investing a good chunk of money again, a good chunk define ends is right to depend on the size of business. But let's say, for example, the radio advertising mentioned earlier. It, let's say you're putting five thousand dollars a month in the radio advertising maybe you have on those radio advertisements, you only use a certain number that's the only place you give out that number. So you know anyone that calls in that line came to you from the radio. So you can measure that very very easily in that case, the other way to do it and much less expensive frankly is to have a dedicated website. And you don't have to have a full website. which you can do is you can buy a domain name for very inexpensively right most cases less than twenty dollars for a year and combined dedicated domain name and then. Give that domain name during whatever that piece of marketing or advertising is and then do a redirect from that domain. So you don't have to establish a website there, but you your website people can do this very easily I do all the time you do a redirect from that to your regular website, but you'll be able to measure the traffic that's coming from that particular demanding. So again if you have. any type of outsourcing could be radio could be TV, whatever it might be all these different news if you use that particular domain name that website and only that piece of. You're going to know how much is coming from. That's those are two ways we've gotten around that things are sort of difficult to you know to quantify lot cases, but those are two ways to do it. Relatively inexpensively in its very accurate. Those a lot. That's great. Now. Okay. So stay on the subject of measurement. What would you say the most important financial margins to measure? That's a great question because I get that. A lot too. Once I start working with an owner and they start to. Some of my numbers nerd mentality starts to rub off. On. Them. Is that. What I find a lot of business owner do is they focus on if they're in tune with their financials at all, they focus a lot on their gross margin. Or? Margin while my margins are extra. My Marvin's are Y. and. I find it that fall short because gross margin for those unfamiliar simply put is your revenue minus with their cost of goods sold in concert solar just. Basically materials. Anything. The expenses associated directly with producing the product or service that you provide the draw that revenue. That's what gets down your gross margin number. The problem is and a lot of people stop there and saw start working with a business earn in. They'll say well Gosh my more than seventy percent. and that sounds fantastic. Right will the problem is? All the rest of their expenses and all the rest. I mean, everything that goes under cost goods sold in administrative people call overhead. So your rent, your insurance, your marketing, and advertising. Those types of things that fall on your overhead, your administrative office staff perhaps things like that, your phone lines You can have vehicle expense, those sorts of things that might not be in your concert at Seoul. What happens is you might have a seventy percent gross margin, but then those overhead expenses eat up all that margin you end up losing money, and so again, that's what a lot of times folks go my martyr seventy percent, but I'm losing money doesn't make sense. and. That's why that that's in there laid out of what happened. So what I'd like to focus on is your net margin, which is it that gross margin minus all those overhead expenses, and then it gets you down near net more than. So your margin essentially as net income, and that's what we all care about in the day. But the the measurement I like to see is the net margin percentage and again I'm trying to get to in the weeds here for folks but. Your net margin percentages just what essentially in very basic terms, it's your net income divided by revenue. And what that shows you is that for every dollar of revenue that you bring in the door, how much of it ends it ends up in your pocket at the end of the day after everything all expenses, everything all in how much ended up in your pocket. So net margin is where it's at gross margin Y-. I can take it or leave it. Net margin is where it's at I. WanNa know how much of every dollar that we bring in the front door goes out the back door in number pocket. That's the most important one the and I will tell tell you unless you're in the food services industry, which is the margins are extremely thin. I tell people something. Berry Blunt guidance if your net margin is less than ten percent again, unless you're in the Food Industry Food Services Industry, congratulations, you have a hobby not a business. There is no excuse for having a single digit net margin for anything other than food services business. Your margin should be in the teens at a minimum for any type of business and in many businesses are much higher than that. But and that's what I. Think People don't realize is they leave a lot of money on the table because they don't look at it. From that perspective. God. That's great. At that this is so interesting and I gotTa tell you I know you you were trying to say out of the weeds and I think you did. Which I also think is so important for people because. They start thinking about this stuff and and they. Get that glazed look on their face, and then they don't even try to absorb any of it but this was. A really. I think easy. Way of understanding the stuff. Good. Why? It's taken me some time to sort of craft how I'd explain things sometimes because. You know just like anyone else my wife is a nurse right and so she starts to explain medical things to me and I get the glazed overlook because. That's not my world. I don't understand it right for her. It's just like, yes, she does every day. So it's very elementary to her. So I've learned that you know I frankly from the non verbals as you mentioned Diane. So you're you're talking with a a business owner and I start to explain this and I get too technical and I see that they are getting excited and I see I just lost them like everything's. Over. Their head. They don't understand anything. I'm talking about and and they get frustrated. So it's important for me. I don't want to think speaking to them in a condescending way or anything else WANNA make sure I'm sort of breaking it down to make it easy depending on their low their level of knowledge in their familiarity with their European out CETERA. Exactly right. Yeah. It's really important because they really do need to. Understand that they have to be able to embrace these concepts sound. Yeah it is great and I. So appreciate you joining me for this conversation to share all this with the listeners Will you tell them like how they can find you? You know when you're Mr Biz radio and everything else please. Yes. So you got first of all social media, we shared things on social media Five days a week a across between facebook you can find Mr based solutions or my Mr Biz page You can find Mr Solutions Dot com as a our primary website instagram linked in you can follow me there we have youtube channel, Mr Bid Channel Mr, Biz. We have over a hundred videos out there on a variety of topics and what I tell people all of times. If you hear me in anything I, say to you hell is helpful. I would strongly suggest go out and subscribe. To our youtube channel and not just to get me to subscribers, go out there and search because you can search within the channel and say, Gosh, I'm having trouble with marketing right and you can search just find the marketing videos that we put out there and watch and most of the user four to six minutes long. So the easily digestible, not long drawn out you know news and things like that you cash, you can search on casual and get all the cash flow videos of that and watch the. Pretty quickly. So yeah, those are the primary the ways but I would suggest that we put out a ton of free content like I said it pretty much five days a week across all different platforms twitter instagram facebook linked in looking YouTube we regular videos there. So Yeah. Definitely. Go out there a phone on social media and hopefully get some really good content that's helpful for you. Ask. Terrific, thank you. I highly encourage people to to take you up on that I. think that's a great idea. And listeners. Thank you. You are who we are doing this for in Thank our sponsor. Go pick up your free trial audible dot com at audible trial dot com slash business growth. Check out all that incredible content and. See what you think. If you're like me, you're gonNA love the ease of use and how it sort of in a strange way frees up time which I continue to find. Interesting. As always continue to prosper and be curious, and until we meet again on another episode of accelerate your business growth goodbye and good day. Regina Jean King for Cadillac Escalade. When people ask Regina do you like to compete I say bring it on. Those are the moments that drive you to achieve more and when you win, You keep reaching higher to me that's what the Cadillac Escalade represents. It's always evolving in technology and design everything because success isn't the end it's just the first step to what comes next the twenty twenty one cadillac escalade never stopped arriving. 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business owner Diane No twenty twenty Mrs Biz Escalade Mr Biz Wentworth US Ken Small Business Development mister big Biz YouTube Escalade Forbes J. P. Morgan Diane. helbig Yale Diana
The case for international equities

Capital Ideas Investing Podcast

37:56 min | 2 years ago

The case for international equities

"Investments are not FDIC insured or are they deposits of or guaranteed by Bank or any other entity? So they may lose value. American funds are not available outside the US. The following is not intended as an offer to purchase or distribute American funds outside the US. I'm Matt Miller, MRs capital ideas, your connection to the minds and insight shaping the world of investments, even though, international equities have lagged US markets in recent years. There are many compelling and unique investment opportunities outside the United States, Louie Vitale, and Gucci, for instance, remain favorite brands among Chinese consumers to discuss the opportunities in Europe. Japan, China and other markets portfolio manager Gerald amount. Wire sat down with my colleague who Sikri and made the case for why it may be in the state to shy away from non US company. So listen and land, which key investment themes are resonating in international markets. How innovative healthcare luxury goods and robotics companies are shaping the opportunity set outside the US, and why it's a good idea to invest alongside or rapidly growing base of Chinese consumers. Now, here is operatives conversation with Gerald. Joe Duman wa is an equity portfolio manager at capital group with responsibility for several of our international equity portfolios. He has twenty nine years of investment experience. Joe welcome to the Cavaliers podcast. What's your outlook for international equities for two thousand nineteen and beyond? These markets have had a nice rally this year, although they're still a gap to the US markets. They had a disappointing twenty eighteen but a nice twenty nine thousand nine so far, do you think it's a stable? It's interesting because the US market has much more technology as much more new industries, and the indices outside the US have a lot of industrials a lot of commodities a lot of banks. And so when there is uncertainty around the economic activity as we saw in the second half of twenty eight teen, what that leads to is a fear. So she hid with what could happen to the economic cycle. These companies were hurt quite a lot in stock prices in the second half of twenty eighteen what you saw in two thousand nine with the rebound of the markets is a big dispersion in the companies that did recover, and those that didn't in fact, what we saw is a combination of a reassurance around some of the economic fears, particularly coming out of China and at the same time, we saw that a lot of the dynamic industries, particularly in technology in semiconductors turned out to not be so bad. And so. What I think is exciting about going forward in twenty nine thousand nine is the stability associated with some of the themes that we've been passionate about talk a little bit more about that. The stability down certain themes, what's yours. So what you see outside the US is three buckets of possible interest. The first one is everything related to semiconductor equipment semiconductor, upstream of the internet of things if you will the nuts and bolts of the construction of the internet of things. So whether they are the Taiwan Semiconductor, or the smells, the companies that we tend to find have a technological know-how a special component to would they do that is hard to replace. Those are turning out to be pretty resilient. And in fact, both demand and profitability are turning out to be resilient. The second bucket is the whole. Of the new consumer. It's actually quite interesting in China, for example, over the last ten years consumption has grown four to five percent pretty consistently as part of the GDP formation of China. What has not grown in a stable fashion has been capital, expenditure and exports, which has been much more. Volatile. Hence the fear around the total GDP growth. So we have found that being invested alongside. The Chinese consumer has been a good area of stability and insistence of Evelyn, the third area is the evolution of healthcare and specifically new technologies around the immunotherapy and demand for better and more effective drugs, for example, as it pertains to some of the obesity issues or some of the cancer treatment aspect, we have found that the pipelines of some of these drug companies outside the US have been very exciting. It's interesting. You talk about the dip. Composition of the European Japan markets, the developed markets. And then you have the emerging markets dominated by China in the developed markets. You mentioned the banks, the industrials, the financials, and then in China, we've been investing alongside the consumer, you think about them, discreetly an invest in these companies and think about them in different parts of the portfolio words, fascinating is when one talks about the region's one worries about the economic activity associated with those regions, for example, trend growth in Europe is going to continue to be like, luster within that you have companies, you have specific creation of new entities that do quite well, Japan's bidden same in the same space where Japan itself has demographics issues. It has a fast aging population, which is a drain on public finances. But as a result, there are companies that decide to reform themselves, and reinvent their capability in being more profitable in both cases in both Europe and Japan were finding quite a few companies that are rejuvenating themselves into either penetrating new markets, so new regions or inventing new products that are more appropriate. So, for example, in European consumer goods and take Laurie Alfred example, which has now a vertically integrated distribution analytics process in China that gives it an unbelievably powerful knowledge of the Chinese consumer. So if consumption is growing six percent, Norio is growing fifteen and that's because it is answering a need that it understands very, very well in the local market. Now, if you said, oh, my goodness, you're investing in France, actually Laura's very little to do with France anymore. So that's where we're trying to find the. Entity sets the second part of your question has to do with valuation. Investing is not just about growth. It's about valuation, and in the context of what we've seen and very low interest rates, particularly in Europe and Japan companies that can grow command, a very substantial premium evaluation. So if one takes the market as one valuation, the reality is that there is enormous discrepancy between evaluation of a Bank and evaluation of Oriel, or Akins, or an SM, see in Japan, for example, tell us what kids SMC do for those that don't both key and citizens are essentially manufacturers of automation related tools that go, very directly in the manufacturing of technology related products, largely cellphones or semiconductor is directly think of it as the tip end of automation, and where. The end up. So you've got I ask is companies decide to find other areas to develop second is within the framework evaluation. In this third aspect is this issue of reform. If you're a company located in a market, that is not doing very well. There is the possibility that you're gonna restructure yourself. You're going to reduce your cost structure. You're going to be far more aggressive around how you streamline your operations and there, too, you can create earnings growth and potential for value appreciation. So in both Japan and Europe, even if local demand is in very strong. You can find ways of denting companies that actually will do very well. So again, going back to my earlier comments. If one just looks at the universe as the indices, it's pretty depressing. But the reality is within that you have incredible pockets of opportunities, and because the indices are somewhat subdued the valuation. That you can invest into is actually lower than you would in say, a US company of equal activity. So that's for the developed markets in the emerging markets obviously demand is a little more sustained, it's a little more volatile as well, because the economy's themselves have an yet completely fully formed. There are different dynamics of how the economies are stimulated obviously China has become the dominant economic power within that historically. So the last ten years or so it's been very much driven by capital formation. So the construction of stuff, whether it's plants buildings road infrastructure. And so as such China, historically was a big driver of incremental demand for commodities incremental demand for industrial goods. But that is evolving, and that is changing quite rapidly because essentially China went into overdrive. Of building out its infrastructure today. It's migrating to in some parts of China an almost developed consumption pattern. And so you have a lot of very interesting products that are in demand. So, for example, still very fast growing is infant nutrition, infant nutrition is critical in Chinese society, because people are very concerned about the quality of the food. They give their babies and the food chain it self is something people worry a lot about. So as a result, foreign brands and in particular foreign brands that are recognized of high quality are in big demand. That's an area, for example, that we have found to be very interesting to invest into, so whether it'd be an own or Mead with reckon Bank. He's, those would be some of the areas that we find interesting China is also a place where trends change very quickly. And so you have to be very nimble in. In how you associate with companies because companies can go into favor and out of favour, very quickly, and so large part of what our analysts do today is not just analyze the end demand, but almost try and foresee how demands going to evolve. That's allowed us to identify some of these companies that do very well. So if you look at technology, for example, you've had big dominant internet players within China that have provided multitude of services. But he she see how they're evolving, only Bob will get Alibaba. And tencent would be the two examples, they're constantly evolving in trying to produce and deliver a service that is the next service. So let's take ten centers. An example, started in gaming very successfully. Then quickly identified that retail was an area that was involving. Quickly. So it started a retail platform, then realized that payment is the next wave of evolution. So it started a payment platform. It is now entering a phase where it's looking at software, and particularly industrial software and the management of the cloud. And so it's constantly moving into the next phase of opportunity set. That is probably what is different between say, a more traditional Facebook like offering an attention. Tencent is constantly evolving to the next phase of demand that it sees and to a large extent it has to because, as I said, diminish fickle. And so if two years ago, the fastest growing game could be a poker online, sort of thing or a battle ground sort of thing. Today, the focus may be on something radically different than people may be spending. Share of wallet in savings products or financial products. So it's not just within the same silo of industry. It actually evolves and moves very rapidly across different spectrum of the electronic platform issue will just the regulatory and broader ecosystem that's available in the US and China differ, radically to allow a tencent and Alibaba evolve and seize the opportunities in a way that the US market does not is it the corporate culture is at the regulatory environment. Would you venture to say that the opportunity said outside the US for these national champions is greater than those in the US people always say, the US is the opportunity market for technology, and for the internet of things just from an international point of view? How would you respond to that? I would separate the internet and the cloud and. The internet of things those almost are three although they're connected there, three different opportunities. That's let me address the easy, one and leave the last one is more challenging question. The easy ones are the components the connectivity, the things that are going to talk to each other five G five G being the new Senator data transmission capability, the opportunities outside the US in companies that are providing the components and the technology is pretty high. There is tremendous knew how and there's tremendous skill set that exists around the world including outside the US for those companies and again, sometimes markets, get a little volatile, which opens the opportunity to invest in those companies, and as such make them very attractive over the long term. The second component of your question is around the internet platforms themselves, whether they're the marketplaces, or the social media everything that has to do with advertising online. It's. Tre there. It's a little more complicated. The US dominance is pretty high outside the US outside China. And if you see the growth rates of Netflix, for example, as it relates to video streaming outside the US, they're very strong as a company in the UK Ocala, which now is becoming an has become a dominant force in providing the logistics platform to grocery shoppers in Europe in his just one contract in the US with Kroger. Joe do invest equally well, in growth companies, as you do in dividend paying companies as a dividend oriented investor. How do you compare the opportunity set in the US in Europe and other markets outside the US? I like to distinguish between the growth opportunity of companies and the stock price return. And those two things are often presented in a combined way. But. They're very different. Accompany can grow extremely fast and extremely well. But the asking price that you pay for it is, already overvalued. And so the return to shareholders may actually not be that attractive equally accompany that may not be growing so fast. Maybe offered to you at an attractive current payment, which I would call the dividend and therefore provide you a fairly steady stream of stock price return over significant periods of time. So I like to start with the fundamentals of accompany, and then I try to bring it into how am I going to write the equation of the return that shareholders are going to collect within that? I will say there is an irony, which is that the US market has been very strong for quite some time now. And the markets outside the US have not yet the current prize that is offered to you. You outside the US in its dividend yield, in particular is higher outside the US and has a long tradition of dividends markets like the UK, Australia. Some parts of Europe of actually been very focused on paying cash flow, backtra shareholders. I think the difference lies in buybacks, and that is a risk to the US market. I think today there's a tremendous amount of focus on earnings per share, specifically, the growth of earnings per share, and much less focus on operating profit growth. So the way that you get from operating profit growth to earnings per share is through buyback. You basically take debt on your balance sheet, and you buy back stock, and you cancel it, and your EPS gross much faster than your operating profit that is not a tradition. That is particularly common outside the US companies do some of it. But the. They do it much less. And even when they do they sometimes don't cancel the stock. And so you can't actually counted as EPS growth. So when people compare the earnings per share growth of the US market versus markets outside the US. I often like to compare operating profit growth and actually say, well, look, it hasn't been that different. Yeah. It's growing a little bit better in the US, but it hasn't been that different was different is in fact, the earnings per share as a result. I think the use of dividend the use of how much can accompany pay to its shareholders over long periods of time. And how does it grow its dividend over long? Periods of time is almost a pure form of analysis of the cash flow. Potential of the company companies cannot constantly borough to pay dividends, whether they can do is they can take their operating cash flow and decide to pay more. And more of that, to its shareholders, generally and the cost of its reinvestment cycle. But if you have a company that is very well balanced that it actually is able to take some of its operating cash flow reapply to the needs of the business, then look at maybe some additional inorganic growth, so emanate, essentially, and whatever's left consider a stable, but growing dividend policy. Those companies tend to have very good stock price dilution over long periods of time. So that's why I try to arbitrage between the two. You're listening to capitalize ideas brought to you by capital group. Where'd you find those companies more so that corporate cultural differences, whereby you tend to find more of them in one region versus another less one region, rather than industries? There are industries, that tend to have more stable streams of growth and those industries tend to provide good shopping area if you will for dividends and growth of dividends, particularly consumer goods tend to be good areas for this some pharmaceutical companies as long as they're pipeline of new discoveries sustains their ability to continue to grow their cash flows. Interestingly technology has become a newer area of dividend providing opportunities largely because you've had the creation of these very large companies that are very low capital intensity attached to. Them. And as a result are able to free up cash flow and historically the would be doing by backs and doing aquisitions. But they've realized that there is a benefit to providing stream of income, apple was the first one really to establish itself, as evident paying company, but Microsoft has been part of that group now Intel, broadcom, SMS GMC, these are these are all companies that you associate more with pure growth companies. But actually, the fact that they're able to sustain a stream of income has made them less volatile over very long market cycles. And that's what we found to be very interesting. You're saying that those companies signal a certain discipline of management of the business and the capital structure in an optimal fashion to provide sustained shareholder value. I think this very good way to put it. Yes. How do you think about the portfolios way? Capital precipitation is an objective and a stated objective of the fund. Do try and have a mix of companies world. Kevin appreciation for us is really measured by the total return of the fund, and so it is going to favor companies that will appreciate their value through growth in pure sense of the term. But it's also revaluation of its assets. It's also the possibility of a change in philosophy of shareholder returns. Let me give you some examples of each of those pure growth would be what we talked about a new entrant any new industry or a sudden rise in big demand. So carrying which owns Gucci would be a good example of that, that has been growing three percent for the last few years because the Chinese consumers really informed with it in with Gucci in love with Gucci. Absolutely a no doubt that can change. But for now that's the case. So that would be a good example. An example of the category where you're seeing a more balanced approach to the management of the balance sheet, and how shareholders are being treated would be Nestle Nestle for a very long time, kept a very pristine, balance sheet, and if she years ago, new CEO came in and said, well, we need to be a little more nimble. We need to be a little within the context of a Swiss culture and within the context of the conservative of management style. But the announced a pretty significant change in their payout ratio and actually supported by additional buyback, so really showing that the balance sheet was an important component of how to consider the company feeding back into a greater discipline in how the brands were managed and how the business, it self has managed so that gave you the combination of the singling of the dividend. And at the same time the revalue. Of the asset, and then the third category, the pure asset story, if you will would be some real estate company. So, for example, in Germany, you've had Taghi mobile, Ian, you've had door Juvonen. Who basically our operators in the Berlin market, where it's been largely or rental market and they're taking rental dwellings and turn them into ownership. And within that are actually revaluing completed their portfolios. Great. We're going to zoom out a little bit and take a slightly wider lands. You know, you've had the IMF come out of the International Monetary Fund come out and say, expecting slow global growth. It's catching a bit of the headlines you have central banks from the Federal Reserve to the European Central Bank that are saying they're going to turn to a slightly more accommodative stance, even if it's not full on easing a you have China that has advised down its growth forecasts. And there are worries that we may be in the beginning stages of a late cycle that could lead to a recession in a euro two. How are you thinking about portfolios against that backdrop? I go back to what I was referring to earlier about the equation of return on stocks. I think there is great. Temptation to worry about markets, as a whole, but markets are composed by a combination of very different companies that very different valuations. What's intriguing to me is if I start digging. And I look at companies around the world, there are areas where you can buy very good companies for twelve thirteen fourteen times earnings that are not that excessive, but that is probably an opportunity to look around and change the structure of your portfolio. So it's not so much that I'm worried about a recession per se. But rather worried about the valuation that are associated with some of the more cyclical companies that are out there industrials in some cases look pretty expensive in some places. They've benefited from a relatively stable economic activity. There have been fears around the trade war with China, but those have recovered again, you have to be careful when you look at sixteen. Seventeen times price to earnings that your earnings are going to be there because otherwise that number is not that relevant, and I think I worry less about the pace of the comic activity, rather than its composition. I do think demand is weakening broadly, you can see it in the credit demand numbers across the world. Even if the is announced a more stimulative proposition to the banks in Europe, they're not taking it. You're seeing the announcement in the US that the fed has basically decided to go on hold at least temporarily and it's not lead to a big pickup in activity. You're seeing China stimulating. So there you're seeing some pickup. But, again, not so much on the industrial side on the consumer side. So what you're seeing is composition of demand being a little more fragile. So that informs the way that I'm looking at companies around the world. I tend to stay away for now at least from. Companies where there is a risk that slowing industrial activity leads to slower demand, which will lead to cyclical earnings turning to the negative. What do you make of Brexit? Well as a Frenchman, I look at it, and I feel sorry because I'm a European. At heart and in my beliefs. I think it's a real challenge, both from a structural point of view, an economic point of view. The structural point of view is at an it opens a whole discussion around populism around the world. But if you start reacting to legislative processes that are led by referendum, as opposed to due process of the democratic structure, that's in place in the UK it opens the possibility for very significant issues of the future. I am not very optimistic for that way of running countries are specialists assessment tends to be that a compromise of some form. We'll be found. It's a very fluid situation. I do think however, that ultimately after all the friction has gone through will end up in a newer agreement if you will that will look and feel a lot like what we had before. But it'll be called something else. In the meantime. Would you do about investments in the UK I stay away, and as much as possible from areas of the economy that could be at risk, because there are structural issues with the UK that are independent from Brexit. And so why take the risk of compounding the risk with Brexit. The UK also is very indebted. It's already at at levels that are far higher than the rest of Europe. And as such incremental demand is less buoyant by definition companies are not investing until there is clarification over the regulatory environment in which they will operate you're seeing enormous amount of capex being withheld and whatever kept takes. You saw develop in two thousand eighteen it was leftover from decisions that, we're making twenty seventeen in two thousand sixteen what I think is very interesting is the possibility that you have companies in the UK that have very little to do with the UK, so GI Joe British American Tobacco. I mentioned earlier Okada, which is a UK based company. These are companies that are really interesting and happen to be based in the UK will not be directly impacted by whatever legislation can or could be changed as a result of Brexit. And so, again, it takes more work, and that gives us an advantage because most people tend to invest by country or by region when they invest outside the US we spent a lot of time, identifying the juicing crisies of the companies in my slice of portfolios. I have some UK companies but they have very little to do with the UK. China the Asian market becoming a bigger part of financial markets. The economy growing very influential as we discussed to the future of many, many companies around the world. How do you think about that? We'll try and is going to be a very major market for all the global investors out there not just as an economy, which we already know it's either first or second, depending on what measurements, you're taking, but also as an investment opportunity, set. Now today, the relationship between market cap in GDP is still nowhere near what an Anglo-Saxon equivalent would be in the UK or the US Australia, but it's evolving quickly. There are a lot of companies going public, you know, half the economy is to run the state on enterprises. So you still investing in the state of China, that is probably going to be a hindrance to how fast the market. And how important the market can be for the rest of the world, but it's hard to ignore. It's, it's an important component of our portfolios, both in terms of direct investments that you very, well, pointed out, but also in the companies outside of China that depend on the future of China to do. Well, so we're very very cognizant of the China impact so much so that we have now invested since two thousand and eight actually very heavily, and understanding the local market itself that we have folks there and they've been very insightful in helping us. I think there's also an improvement, I think we need to recognize it. There's an improvement in the way you can invest in China. You've had the Hongkong Shanghai exchange where that's allowed more participation. You've also had the inclusion in the indices, which I think is also helping and also more transparency. I think we spent a lot of time on governance and ES g general. Is important to us and in particular, in China, we, we want to understand the VI structures very well. We want to understand the way the companies are being run in who the end decision makers, are, it's very difficult to do, if you don't have people on the ground. And if you don't actually have specialist analysts, let's come to you. How did you join capital? What was your journey like capital, very long time, almost twenty nine years now, I joined in our internal training associate program, which is a program that recruits folks from different backgrounds and during two years, you're assigned to different responsibilities within the organization at the end of which you can end up. Choosing one as long as capital keeps you one of the assignments that you've had during the process, French, I was raised partly in France, partly in the US, and I wanted to join an organization that was dynamic small. Enough and was truly global when I went into the workplace France was definitely not a global place. And so, the choices where either the UK where you had some alternate or the US, where I really wanted to participate in the potential, growth of the place and capital at the time was rather small and since then has grown tremendously. So it's been a very fun ride in last question as someone who's covered consumable goods in luxury goods. What's your own personal favorite luxury? He would say that's a tough question. It's whatever my wife wants for Christmas. That's what keeps me happy is there. But to get a product, you followed even as an analyst that you've been intrigued by. Well, I think what's been fascinating is the duration and the longevity of the movie tone, brand, and the LVMH group, the holding company that owns veto has been able to redeploy a lot of its cash flows in continuing to expand its portfolio of brands. There is a good example, to conclude that a dividend policy, which the controlling family. The family started a dozen years ago of having a progressive dividend has led to a very disciplined management of its cash flow. And as a result has been able to sustain that compounding effect. Thank you, Joe. Thank you. We love hearing from our listeners. So tell us our doing, please review capital ideas on, I tunes. Or if you prefer to send us your feedback including any topics you like to see addressed shoot us an Email to capitalize ideas at calf group dot com. You might just find your idea discussed here on a future podcast for capital ideas. This is Matt Miller, reminding you that the most valuable asset for some long term perspective, investors should carefully consider investment objectives risks charges and expenses. 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143: The Dating App That Keeps Marriages Together with Zac Stern

LifePix Relationships With ST

25:58 min | Last month

143: The Dating App That Keeps Marriages Together with Zac Stern

"Welcome to life picks relationships helping you understand end in live in your marriage through the various perspectives and experiences of others. Who found a way to prioritize. What's really important in life from new love to those that have weathered the storms. Let's get ready to take your relationships to the next level with your host s. t. He liked pictures. Hope you're having an awesome day. Are you ready for another amazing episode. Three to better understand yourself. Your partner aimed your marriage now if you enjoy this episode. Don't forget this year with your family and friends so that way they can go and have their extraordinaire relationship to while we're reaching our goal of one million dollars per episode now for today's episode. I am super excited. We have the founder and ceo of the fischel app. You know there's so many apps about dating of meeting people of getting into relationship there's just like hundreds of them not thousands but there is not many apps that really go and keep you together and that's official op is about for you to be going and keeping your relationship extraordinary and making it better each and every day. Thank you so much zacks. Turn for being here. I am super excited guys. You could get more information about the app down the app. Find out everything you want to know about it. Get official dot co. i'm gonna put the link the show notes you could go on. Find it and i really suggest you go and do this now. Zac lead. start walking. Ease your worst dating story. Ooh okay. i've had a few of those. I would have had some really awkward. I states The one that i would say probably as my worst is when i was on a date with this girl and she spent the first twenty minutes talking about why they're her relationship with her past didn't work and now it's just something that's kind of a red flag to me Didn't make it to a second date. I hope she got back with her ex. It seemed like she wanted to. But i would definitely say that was probably the worst big red flag. Good thing going any further than that. Now what you're doing with a visual op is way too cool. You want i tell us what it is and how you actually got into doing this down so By nature study finance management and undergrad. That's something that is not very addictive to relationships. Most finance guys don't have emotions. So i throw that out there that i'm trying to learn my best. I run a company called official. An official is not an app. That helps you really find. But it's not that helps you keep someone and the reason we re framing like this is because there's thousands of apps out there and you've seen all the ones for match from spark all these other groups that are wonderful at what they do. They really need. They had a specific target. But there's nothing after that. There's nothing where you can go after besides therapy and the problem with therapy in today's day and age is most people won't identify that they have a problem until it's too late so what we're trying to do is we're trying to shift focus away from identifying a problem trying to help you guide and show you what a healthy relationship is from day one. Now what made you get into this like. You're not that emotional guy or maybe you are no six so growing up. My mother always joked that I was a little romantic. So i think that's where it all started but Adult undergrad and kind of my first job was in venture capital investing in startups. And i was doing everything quite literally from cancer research to jet packs to dating apps. So i saw my fair share and one thing that stood out to me from day one when i was looking at dating apps was misaligned incentives when the app wins user loses. And what i mean by that is the fact that when a user finds a match they turn off the app. That's a negative thing to the app. They lose you as a customer. They lose you as a product to show someone else and they can't make money after off you and that's kind of why we're seeing in today's day and age matched group came out this year and said you can now buy a report on your partner or on your potential match for some of products and it's a full background check and to me that that's red flag off the bench. But what is showing is. They're just trying to find ways to squeeze out kind of money while you're still in the platform and for myself. Personally i realized okay. That doesn't make sense. And then i was previously dating someone long distance. I was in london. She was in new york. And what i realized was i had a note tab on my phone to keep track a little thing. She'd say another one about what her family and like. Just basic things like our dog's name traveling throughout europe a little bit so we had instagram. Save folders every city every time we would go to a city we have done have to plot each of those in ceram. Save what we wanted to go on a map to try to see if we could do them. We were trying to share photos across platforms at the same time. A lot of my close friends relationships so it something where i noticed this phenomenon of everyone wanted to be a perfect couple but at the same time. There is nothing for that. So i'm like okay. There's a gap in the market. And i think i see a problem. I'm going to go for. It wasn't as easy as that. But that's kind of how the idea came to be was. There's nothing to help me. Keep my partner and i want to help. People have better relationships. So why not try it yet before we get like owns the nitty gritty of the app. Because i really wanna hear more about it. What was your biggest challenge going from idea to launch. I have more than one. But i will say the artist. I am not a technical founder. So i don't code myself. I can talk moderately well. And and i have pretty good connections and can really work my might investors and whatnot in that regard. So that's one of the biggest strength. One of my biggest weakness is was understanding in planning the entire tech stack with now my cto. Because it something where you're going from back of a napkin to on your phone and things break really easily that you'd never understand and i never understood even starting it and i still don't understand so it was something that learning this and really adapting to the tech cycle. How things grow health things break naturally was really difficult for me to learn. Did you do a lot of research on area like okay. Whatever they'll deal with it only did tons of research so we did tons and tons and tons of research. Before i even started building. I personally interviewed fifty couples and it was couples. Friends friends of friends family. We interviewed people as young as eighteen is. Old is about fifty five so it was something where we really wanted to get as broad as possible as across the us age sex demographic all of the above it was something where we really tried to see what was common trends. But you can't research tech until it breaks so you can't find solve a problem until you really identify that there is one which is the hardest part. Yeah it's like when you're in just like you're stuck with it you have to go insolvent now now when you are doing that research for those couples. What were the things that you found. Most common among them out one thing. I found most common. Is that people really enjoyed going to new places together. And i think it's pretty common sense. But people enjoy going somewhere new with their partner and experiencing something for the first time so what we were able to see was on average the average couple dinner typically two to three times a month at least and that was kind of the baseline but as hugo. Is this like before cove. Like just. Because i'm sure that changed affected thing or this whole project only started after so this entire project. I started the company in june of twenty twenty two. This is dead. Set cove it. So i'm like when i was interviewing like okay. Think about pre covid when you wore here so we still think probably skewed but we ought to ask. Everyone like what their challenges are. I don't know what type of questions you ask them. But like they're fisher. I know from asking couples. It's like being in the same place together and being all the time together and such covert A few more months fully They'll be way less of that so that is quite hard. I think the greatest thing for us because that's our that's our driving. Catalyst is the fact that we see to base case scenarios. One couples are locked in the same apartment house or whatnot for extended periods of time to their locked across city states countries. And they can't get to each other so that's something where where we target if you want to help you do more things together so because of that. That's why we took our first little into that because we identified and said look everyone's either at home or part but either way people don't want to be in the house together so that's kind of how we decided to go. That route is going back to what you were saying. I like completely cut you off. The would go out two to three months. They go out to dinner two to three times a month but they would always go to the same place. What would you say. It was now not an issue at all. We found that sixty percent of the time they wanted to go somewhere new. They only went about forty percent of the time. So there's this gap of either side. It didn't matter man woman what people wanted in general to go out to new places together and try to find something but a lot of the time they go to their typical type place. They go to their typical italian place in something where they replayed be repetitive. So because of that we found that we want to give people more options. Because no matter where you are there's always something new to do. Yeah and could like even just be a different different benches side of something always more and always different now. Wants to know if the besides like two things first of all. I'm sure there are some people that liked just staying home. I don't know if they would have said that. Now co vade but before an official or somebody for like they don't wanna go out. They prefer just to stay home. Did you have that at all. Oh we definitely got that and there was something where what we're building all kind of go into our date section a little bit more in a minute. But we're building dates at home. Where if we're trying to curate specific things where you can have a small night at home. And we'll send you the amazon link to an at home more makers you can do it in your living room and build a little pillow fort. It's something where we want to be off the cuff. And we don't want to be that you have to go out and you have to spend tons of money. We know that a lot of times when the best dates or just who. You're with and kind of fun and experience. We don't want to measure dates by how much you're spending we want measured as to how much you remember them. Yeah exactly now. My second thing is. I don't know how to research you have on this. But do you know what the fact of couples doing things together has to do like how it affects the relationship afterwards when with so. I'm going to preface this by I am not a doctor. i making no medical claims. I am probably going to get something wrong nonetheless. What ends up happening is when you are with your partner. And you're doing something. You actually have kind of heightened levels of serotonin released and especially activated frontal lobes so that basically means is these are the parts of the brain. Where you're actually bonding with your partner. So it's releasing bond and chemicals and the more you can engage the more you have intimate time. You slowly start to build love and that's one of the most interesting things that i've found is love is not a choice. Love is a long process. Which i'm sure you know at this point. But it's something where you have to continuously work towards it and that's why kind of focusing on this from the early days because we want to show that you need to continue to do things with your partner. You need to have new experiences. Because that's how you continuously bonded and grow. Yeah now is the whole app about like doing new things or their other. Like other things on their also. So it's a mix what we have today is. We have to broad sections and each section. We have different things so we'll go into the first one we have our dating section so that's user swipe left or right on different dates and experiences and we do this with your partner so it's not like dating app where you're seeing people. It's a dating app where you're seeing different things to do. So we hook you and your partner up on the back end. We connect your accounts. You have your own profile but we kind of make it social so anytime you swipe right and your partner types right. We actually saved that information. Tell you it's match plotted on a map and we're actually working on the ability to let you buy it directly from us so we can do all of that at that same time. We also let you post your dates but we know that kind of relationships are super private. So we kind of do it in a unique way where it's combination of public and private where you can decide to. I want to share it and you public which will be to everyone and then we let users around you swipe on that date because we want to have community driven date suggestions or you can just your friends like. It's an instagram feed. Or you can do private. Which is just you and your partner. So we kinda get that social aspect as well to try to broaden the community. We also have some tools in there to allow you to check in with your partner. You're doing Were rewarding couples the entire time. They're doing this so they now sorry. I like usually warn people before before that i endure up. But do you think that. Because there's it's much more than a vice and there's less talking going on on in between the two people that's gonna affect the relationship we do. We think it will affect in positive ways and kind of go into it a little bit more but the reason being we wanna curate content for them will let them both know when they match. We let either party by but this is something where we expect them to still talk about it off line. We expected to not talk about it. Or not entirely. Have their entire interaction in our app because we know the relationship is much beyond our so. It's something where we want to enhance communication. But we don't want to limit it and that's why we're trying to build things in a check in future where it's simple to prompt fashion. How do you feel today. One to five. How do you think your partner felt today one to five and then we compare those results. If there's a big differential we let you both know that you're on different pages and we don't do this to tell you that. There's a fight that anything's wrong. We don't tell you each other scores but it's just something to really have a little quick check. Have a quick pulse of seeing if you're on the same page so it's something we're we're our goal is to eliminate awkward conversations in places where they need to be. We expect couples to still have hard discussions and hard topics but we know at the same time people struggle about where to go to dinner people's struggle about what to do on a friday night so we want to take that out so that's kind of how we plan to enhance communication on that side and he questions therefore jump onto the. Yeah two things first of all. I think it's really cool. That sh- you meaning. You could always check on your partner bump sugar. The info is saved. So you could have seen that. Let's say a year ago. We were like so in tuned to our partners feeling a now. We're much better it so we could go and see right. That i think is really cool and second. I'm curious to know if you plan on like just like. I'm so into communication also so on self awareness so this is like amazing How if you're like if any of the things on our. Let's say you have to ask your partner question so it's a little bit different because it's not as techy in as cool as like just being able to put in your partners like how they're feeling today but it's like pushing them off the app and then you really don't compare results alley so it's something that we're currently in development on there now put it something where we're working and we have a wonderful kind of psychiatrists working with us to help build our database of questions to ask in tools to use to really give people what they get in. Couples counseling without telling them. That's what they're getting. So we're trying to broaden these tools enhanced communication in such a way where we can tell you what to ask your partner and if we see that you're not matching up what to ask each other so that you eventually can and how to sync up so that's a resource that we're currently building out now. I like that. okay now. The second part okay. So the second part is where we get really interested because the first part we have one or two competitors and they're doing a wonderful job. But i think what we do next is blowing everyone the work. So we're taking the same concept of swiping left and right but we're applying it to a cop. A topic for couples therapy called. Yes no maybe and with that really is is. It's finding out what you and your partner like doing. A more intimate sets so what we're doing is going back to that. Removing awkward conversations people feel uncomfortable telling their partner what they like sexually. So what we're trying to do is let them swipe left or right on positions tours or whatever it may be to allow them to really brought in their own understanding as well as as a couple to avoid these weird conversations where you might feel uncomfortable to ask your partner for something and that's kind of this next for a of what we're working towards is building out the relationship beyond just doing things out of the world but doing things together because a big part of the relationship is in the bedroom. We're building an entire intimacy section to help with that whether it's finding things to do seeing what you liked together and more were kind of building that in as well as the same kind of checking concepts to really build it in it and all doubt so cool now. I'm curious. was this something that you had in mind like originally from the beginning or is this something that was created after you were interviewing earlier couples. This is something that came to mind slightly in the beginning but not in the same way. This is something more. So we're when we launched. We went viral very very quickly and we launched in miami at the time. It was something where we were expecting a couple of hundred people for that week. Because it was off. Beta launcher is nothing like big. I was lucky. I was interviewed by the mayor of miami but there was no real press about but what ended up having we went viral on tiktok. And you know we got fifteen thousand dollars so controlling fifteen thousand downloads. When you're expecting one hundred very difficult from the tech side and that goes to show you what breaks hip broke but what we found was initially we were targeting cities and it was something where we were targeting the major cities we had dates specifically in places but with so many people. We didn't have dates everywhere in the world. We didn't have atypical in the country. So people got really mad at us because they thought we'd been around for years we realized was we had one couple reach out to us from idaho and they're like hey were far away from the closest city. It's like three hours. And i'm thinking to myself okay. I don't no matter what i do. I don't think i'm going to have anything in the middle of idaho city. But i was like okay. Well let's not focus on the dates. Let's focus on what couples do together. And all couples have some form of intimacy. No matter what stage of the relationship threat intimacy starts with touching your partner on the shoulder. It starts with them a hug. And it's kind of building that out to allow couples to develop the relationship and continue to grow in that sense. That's kind of how the idea kind of sparked from that yet. It's like when you have a problem and then you go and create something even better from it. It's now what has been the response so far from that. It's been pretty good so it's been good and bad. The bad has been that we haven't had enough dates or enough places for people. So we've been completely revamping and we have revamped by now relaunched which is incredible but it was something for a little while. We had people this week alone kind of a recording. This we went live in europe or we can go. Live your violent your excuse me where in the last week we've had downloads. From fifty two countries we're not available in fifty two countries. I don't market in fifty two countries. I barely market in america. But it's something where this is something that people are trying to use all over the world at we're trying to build it and develop for everywhere but there's obviously huge tech challenges in trying to translate as well as get deep partners for all these places and that was one of the other reasons why we did want to focus on intimacy. He's even if you can't use the date aspect of it the intimate aspect of anyone can use and that's why we've been building that out net so cool. I like it so much. Both parts of lake work together with each other could also work separately. Now what's the biggest way you make money from this like affiliate links or so. It's a it's a few different ways. One is affiliate links in kind of sending people to different places whether it's the dates whether it's kind of sending them to amazon. The other is going to be subscription so we are gonna have a pro and premium level. We are always going to be available for free but we are going to have some upsells just because any business has to make money starts working will there be. It'll be premium features intimacy. One thing that we're looking at is treating almost like dating app where typical dating apps you have. Swipe limits a day you have match limits and applying those same restrictions. So let's say every day you only get to swipe on twenty dates if you're on the pro it's fifty if you're on the premium it's unlimited something like that where it's not going to really deter anyone from using the app you're still gonna get the value out of it but if you want to upgrade working to keep a cheap this is not something that's gonna be five hundred a year. This is something that's going to be really meant where it's a cup of coffee and that's investing in your relationship and that's how we want to show you because we want you to invest in your relationship and that's why we reward our users. The more they engaged in the app the more points they get which they can eventually use to get discounts off all of our dates or products. So how does the rewards work so the rewards were the more you engage in the app whether it's posting swiping referring friends. We're actually testing now having sex and rewarding couples for that as well so literally everything that you do as a couple you earn points. What we're able to do is when you're buying from. There's most of our dates. We partner with providers so they're running through our accounts so what that means is. If you're buying a date what we can do is we can be the intermediary apply the points and then pay for the rest of that city. So let's say you have a thousand points that'll be ten dollars off that date. You have one hundred thousand points one hundred dollars off that day so we're trying to make it. So that couples the more they engage in the in the more they use it the quicker they accumulate points and they level up their relationships so cool. Now how did you decide really had to build it had. Obviously you did all your research but like what made you come to your conclusion of what you're actually doing a lot of guessing and a lot of just saying okay. I'm gonna go ahead. I i would say the biggest. The hardest part about being a founder is understanding that every day. I have no idea what i'm doing but no one else around me does so. It makes it that much better where i have imposter syndrome even still but it's something where i know that i'm the best one to solve this and know in the last year we've built an entire company and going from zero to where we are now looking back blows my mind. Our website alone has gone through aided rations. So it's one of those things that's just constantly improving and just knowing that we're following the right path and that our north star is trying to help people's relationship the more we do that the more we strive towards the better we can be. Yeah i like that so much now. What are the people around you. Think and what do you think is going to happen once you get in a relationship and you're like officially the one that has to go and keep relationships together way. You're going to do that for any listening. My mother is upset with me. My investors are upset with me so ironically enough. I am single at least at the time of this recording so with goes out not too busy for right now and that's exactly i'm in a relationship with every one of my users. I'm in relationship with the company whereas the point where i'm up till two in the morning working. I can't have a relationship while i do that. It's just not fair to my partner so it's something where i have to be a point. Were uncomfortable where i know i can let loose a little bit and everything's gonna work well without me having to be there and overseeing and when that comes and i think it will come relatively soon. That'll be when. I have the ability to take a step back however it also has to be the time where anyone i'm dating. I feel terrible for because they have be to a degree like the public face. The app with me so it's one of those things like they're screwed like they have to do this and they don't have a choice so finding that person's going to be a little tricky. Yeah like i always say anyone. Who's like i'm going to have to marry before they're gonna have to listen to like all the podcasts discussion. So they know what i know. It's not true. Because a lot of i hear a lot of things that are off the recording. But at least they'll be like somewhat caught up so it could be a little bit honesty. Page swells act for our last question that i asked everyone. How would you describe extraordinarily ship without using love connection or intimacy and for you new places. Also am i allowed use trust. Yeah you can use trust. That's not in there. Okay wanna make sure. Because i think trust is like the key based relationship. No matter whether it's friends business relationship intimate trust is something where i think really is the basis of anything. If you can't trust your partner you're not in a stable relationship and it's something where trust needs to be there in order to grow and develop as people and in order to kind of hit that next level of whatever. Your relationship is awesome. Well thank you so much. That is amazing. I can't wait to see. What else is apple rank you so much for having me. That's all for this. Episode of life picks relationships and we have a huge favor. To ask of. You will not only support this show but also give others what they need to take their marriage to the next level where striving to have a million dollars per episode by december. Thirty first thousand twenty five so please share with your family and friends so they can turn their relationship into an extraordinary wine.

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