Bill O’Grady - Chief Market Strategist for Confluence Investment Management, a professional asset manager based in St. Louis
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Bill O’Grady is Chief Market Strategist for Confluence Investment Management, a professional asset manager based in St. Louis.
In that role Mr. O’Grady performs market, economic and geopolitical research for the firm. Investment and securities planning requires an asset allocation strategy that is discipline. While technical analysis of the market is critical, so is a macro view of the world. Mr. O’Grady takes us through a broad array of topics that will impact high net worth clients.
Topics Include:
China and Russia and U.S.
China and Russia are not natural allies - combo attack on US; not likely.
China’s entire army is living “Saving Private Ryan.”
The Finlandization of Ukraine or Russia is Defenseless.
China must secure raw material flows.
Labor Markets
The Great Resignation – Boomers calling it quits.
Automation Everywhere - A kiosk’s will take your order now.
Entrepreneurialism Is Exploding - I am not working for the Man!
Upward Wage Spiral?
Low levels of regulation allow for flexibility. Not so much in the 1950’s/60’s when labor unions ruled.
S&P 500 Earnings Strength
Corporate Profit Margins are Strong - passing along higher prices.
S&P 500 vs Nominal GDP.
Intangible asset’s role on the balance sheets of companies.
Rethinking Supply Chains - Francis Fukuyama
Monetary Policy and the Economic Triangle
Did The Fed Over Cook the economy? Maybe.
We don’t know what Quantitative Easing does.
What the heck is the Minsk Hypothesis?
Lots of Liquidity - Most of it in a small number of U.S. households.
Assuming the Fed tightens will stock buy back be affected? How the rich react to inflation.
Consumer price levels and inequality.
Are we moving toward an Equality Cycle and away from Capital?
Stranded Assets in the Age of Decarbonization
We are not getting a “supply response” from oil anymore.
More EV vehicles are being produced - Ford 150 Lightening.
What assets do you own during the EV Revolution?
Managing an energy company today.
The Changing Landscape of Private Wealth Management
The advisor represents him/herself - not the firm they are part of.
CHAMBERS: Hey everybody. This is Trevor Chambers from Olde Raleigh Financial Group. Once again, we're here at the Soundtrack -- Soundtrack to the Financial Advisors Life, and I'm very excited to have Bill O'Grady. Bill, how are you today?
O'GRADY: I’m good. Thank you.
CHAMBERS: Bill, you've been on a few times with us. We're longtime fans of your firm's advice. And we always like hearing from what's going on with you. So, we do appreciate you coming in again. So just for those who don't know, Bill O’Grady is the chief market strategist for Confluence Investments Management and they’re professional asset managers or St. Louis. And he has been working with our firm in one way or the other for a really long time. So, we -- we respect you guys' opinion and specifically your opinions. So, I'm not gonna (sic) -- I'm not gonna (sic) mess around. I'm just going to get right into it, Bill. I know you're a busy man. This question -- what we're going to do is cover today macro issues largely, about the economy and maybe things that are going on in the world. So, I want to start with a hot, hot question that to Alex, my partner in crime, one of my partners – sorry, excuse me, one of the partners here at the firm said -- asked me to ask you. China and Russia, lots going on there. Any chance that those two could get together and maybe do a combo attack on us, in some way or form.
O'GRADY: It's possible, but not likely. And even if it did occur, it may not necessarily be coordinated.
CHAMBERS: Right.
O'GRADY: China and Russia are kind of in two completely different places geopolitically. China's borders are secure. It is really facing the same geopolitical problem that Imperial Japan faced, which is that they've become a -- a power dependent upon inputs from outside their country. And so, they need to secure those inputs. And what they've discovered is they're completely at the mercy of the United States Navy. So, there are two island chains that surround China. Taiwan is -- is integral to that first island chain. And so that's kind of where the fight is now. But China views its situation as having time on its side, not completely, but -- but to some extent. Their demographics are starting to deteriorate, but they still are probably about 10 or 15 years away from where they really start to have a negative effect. It doesn't mean we couldn't stumble into a conflict. If Taiwan declared its independence, China would probably have chairman or general secretary, she would probably be -- be forced to -- to react. But barring something that aggressive, China is probably gonna (sic) buy it's time here. There's another very important thing to remember about China and that is that China, you know, has had this one child policy for around five decades now. And so, they have a whole family structure of only children. Now, some of your listeners might remember the movie Saving Private Ryan where a private suddenly became the last remaining male heir of a family. And so, he had to be pulled out of combat. Well, that is the entire People's Liberation Army are – are -- are only children. And the thought of sending your child to war and having your only hope of virginity erased is going to make going to war much more difficult than I think people imagine. It doesn't mean they won't do it doesn't mean it can't happen. But I think China will be very cautious. Russia on the other hand is -- is in a kind of a different spot. So, Russia has had to decide throughout its history. Does it want to be an empire? Doesn't want to be a democracy. And it is always chosen empire. And so how does it, what is the primary goal of its empire and its primary goal is to subjugate enough countries and its near abroad to force invaders to move great distances and extend supply lines and then hope winter comes. It worked against the French, Napoleon. It worked against Adolf Hitler. And, so the loss of Eastern Europe and especially Ukraine, forced the -- the Russian government to make a choice. Well, either we're going to give up on empire, and trust that the west won't try to destroy us or we're going to have to rebuild the old band. And Yeltsin's gamble was that the west would treat them kindly and -- and that the, you know, that they could become a democracy. And the narrative as it's evolved during the 1990’s was the west was hostile. And the moves that we made, we did not consider hostile. When we allowed the Baltic states, for example, to enter NATO, we didn't view that as trying to, you know, undermine Russia. We viewed that as these are freedom loving people looking to -- to bolster their freedom. And the Russians didn't see it that way. When Putin took power, his whole goal has been to reconstitute those near abroad areas. And Ukraine is absolutely critical to that. If -- if Ukraine is a western leaning country in NATO, Russia is indefensible as an empire. It's not indefensible as a country, but it is absolutely indefensible as an empire. And so, for Russia, they have decided that they have to actually make this -- they have to make this move and they have to make it soon. Now, that doesn't mean they invade. They would prefer to see the Finlandization of -- of Ukraine. For those who don't know what that term means; during the cold war, Finland was forced to be neutral. It could not join NATO. Its border was considered a non-hostile border for the Soviet Union. They couldn't, you know, engage in any treaty organizations or anything like that. And that's -- that's I think what Putin would settle for. One of the more interesting developments on this front has been that Finland and Sweden are now starting to think maybe they should join NATO. Ukraine and NATO is a problem. Finland and NATO is fatal. And -- and so, this is an area we are watching with great interest. The -- the trick is that Russia may be in a situation where it has bitten off more than it can chew. And the problem it’s – it’s sudden problems that have developed in Kazakhstan may end up tempering Putin's order to try to resolve this Ukraine issue. Because ultimately Putin's goal is to make Eastern Europe like it was during the cold war. That's what he wants. He wants -- he wants all those Eastern European countries to be in his sphere of influence and not necessarily directly controlled, but non-hostile and, you know, those Eastern European countries have no interest in that. So, this is going to be an area of contention going forward. And, yes, China and Russia are, you know, increasing their trade and – and, you know, seeming to make nice. But the reality is, during the 1960s, they almost went to war and they had numerous border skirmishes that got very close to an absolute open conflict. So, these are not natural allies and they are allied right now because they have common interests. But, so I -- I – to -- to answer the question, at long last, I don't think they would work together. It is possible we could have a dual conflict, but the conflict in Europe is a much higher probability than the conflict in the far east.
CHAMBERS: Well, my friend, I would agree with you on that. Especially, you know, back to your point about China – China. China has -- can you imagine trying to run one point -- what is it, 1.6 billion people inside your -- I mean -- how do you think that a lot plus -- yeah, I -- I don't -- I don't really buy the full like, those guys dominating the world anytime soon. But you're thinking like maybe 15 years they could be ready to be what, like regional?
O'GRADY: They intend to be a regional power because they really -- they have to be able to secure flows of raw materials –
CHAMBERS: Yeah.
O'GRADY: -- from at least Africa to -- to China. And right now, we -- we could stop any of that. That's why the -- the nuclear deal with -- with the Australians was what really caught their attention.
CHAMBERS: Yeah.
O'GRADY: And -- and even bigger, watch US Naval relations with India. Because the US can not only develop relations with India, but base there encourage the Indians to build their Naval capacity, which -- which they've been reluctant to do because they view their primary security threat is Pakistan. Then no matter what China does, it -- it really is going to be at the mercy of others for the availability of oil and minerals and so forth.
CHAMBERS: Yep.
O'GRADY: And, I don't think it's a, you know, I don't think it's a resolvable problem for them. But that's what they're trying to do. And it's very similar to what Imperial Japan tried to do. And if it hadn't been for the Battle of Midway, you know, Imperial, Japan may have lasted quite a bit longer. After Japan lost Midway, it became a war of attrition and they were not going to win that war. But, that -- that is – that’s -- China's geopolitical imperative is that, you know, it -- it does not want to be at the mercy of the United States for, you know, security of supply. And, the US is more than willing to provide that security of supply if China, you know, basically plays according to US rules and, you know, China would prefer not to do that. I mean, my -- my view on chairman Xi is that the direction he's going makes a lot of sense. He's probably too brazen with it and he probably is too early to try it.
CHAMBERS: Yeah. Well, I don't want to beleaguer it, but your viewpoint about the demographics doesn't -- and Russia's not so great either. Also, the Chinese household doesn't really spend. They save. It's a big problem, right?
O'GRADY: Yep.
CHAMBERS: I mean, that's a big -- that's how. But that may be for another topic.
O'GRADY: Yep.
CHAMBERS: I do like that topic though. The Trade Wars are Class Wars. The co-author -- one of the co-authors, or at least Matt Klein and I, have become friends and I've interviewed him a few times and we've gotten pretty deep into that -- that particular concept, which I'm going to leave to him. Because we're going to talk a little bit more on another -- on another episode here in a couple of weeks, but anyway, very, very cool. And by the way, your book, there was another book about China, Japan, and Russia that you recommended on your list. And everybody, their -- their list of reading books to readers. Awesome. At confluence, by the way. I'm going to do a little plug in that, but I can't -- oh, Asia's Reckoning.
O'GRADY: Yes.
CHAMBERS: Real good. I just started, but anyway, thank you for that recommendation. All right, let's get onto the other thrilling questions here.
O'GRADY: Okay.
CHAMBERS: Labor markets, boomers, retiring, spades. We're all hearing about it. What's – what’s – tell me, Bill, could the great resignation, is it – what’s your thoughts on all that?
O'GRADY: Well, the -- honestly, we -- we don't know for sure. But all the indications that we have in front of us suggests that those older boomers who have retired, don't look like they're coming back. It looks like they -- they have decided to -- to check out. And -- and I think the checkout goes two directions. One is that, you know, a lot of boomers after 2008 were like, oh my God, I'll never be able to retire and if they were fortunate enough to have money in the equity and bond markets, they've seen a dramatic recovery and home prices have also recovered. And so, their -- their financial position has improved dramatically. I was looking at net worth to GDP and -- and it has improved dramatically from 2000 -- 2008. In fact, it's recovered to levels we haven't seen since the early seventies. So, a lot of debt has been taken off the balance sheets. A lot of assets have gone up in value. There's the other flip side to it is, I'm not sure a lot of employers want them back. You know, one of the things that, you know, is starting to happen is that we are seeing a restructuring of a lot of American businesses and that restructuring was likely going to occur anyway, but the pandemic has accelerated it significantly. We were talking about this yesterday. We held our first meeting for our asset allocation rebalance that we do this month, and, you know, the question came up, well, how are businesses going to cope with, you know, rapidly rising wages? And, and as I told them, I said, you know, I'm old enough to remember that when you pulled into a gas station, that somebody came out and filled your car. And, you know, if you'd have told Americans in the sixties and seventies that, you know, in about another 10 or 15 years, you're going to fill your own car up. They’d have thought, oh my God, you know. Why would I do that, you know?
CHAMBERS: Yeah, I remember those days. Yeah.
O'GRADY: And, and I could easily see a situation where if you decide you're going to go out to have a dinner at a restaurant that you would preorder. You know, that you would be required to go on -- on the restaurant's website, place your order, tell them when you're going to show up. And then when you show up your tables there. But it would require less wait staff. And you're going to see these kinds of changes throughout the economy. One of my local grocery stores has pretty much eliminated the need for baggers. The -- the checkout person does most of the bagging and they're slowly but surely expanding the self-checkouts. Businesses are -- will adapt to this. They'll need less labor. And, but they're going to need nimbler and -- and probably younger labor. And so there -- it's a two-way street. The boomers want to quit and the business owners don't necessarily want the back. Now the other big thing that we're still getting our arms around and -- and we don't have this completely worked out yet, but we seem to be seeing just an absolute explosion of entrepreneurship. You might, if you look at the data, the December data for, you know, unemployment, non-farm payrolls, and all that, you know, non-farm payroll data was pretty anemic. Under 200,000 increase in jobs. The household survey suggests that it was around 600,000, I think. And we've been seeing this pattern now for a while. And those numbers usually didn't diverge by this kind of level. Now the employment survey is a survey of employers. So, they would send a survey to a company like mine and say, how many people work for you? But if you're out there, you know, got your own Etsy business and you -- you've got another little sideline going on and, you know, there's – we -- we do podcasts as well. And my sound engineer is a freelancer. And he's been with me for a couple years now. And, you know, I – I -- every once in a while, I'll kind of ask him, you know, you still like the freelance life and he, I don't think I could hire him. He’s pretty happy with it. He likes doing it and I don't think the establishment survey is picking up these workers. But the household survey number is, and this is, you know, it -- it's sort of like, I think there's an attitude developing and I think the pandemic accelerated it, that I just don't want to work for the man. If I have to work for the man, I'd rather be the man myself and, you know, technology, helps you do that. And, and so, you know, some futurists have been arguing for a while that this was the direction we were heading. And I think that they're right and that the -- that the pandemic really pushed it forward. And -- and so, that's kind of what we're in and the boomer exit is -- is part of that. That -- as these workers leave. And, you know, if you look at where the labor force is relative to pre pandemic, you know, my forecasting suggests we may not get back to there until the middle of 2024, if we get back there at all. And if we don't get back there, that means that, you know, the -- unless we see a huge wave of immigration, which -- which looks unlikely in the current political environment, you're -- you're -- you're just going to have tight labor markets as a matter of course and businesses are going to have to adjust.
CHAMBERS: So, robots and higher labor costs sounds like it's coming down the pipe. I'm going to go back to one thing he said about restaurants, because I have a little experience in restaurants. I think that the places that offer or the expectation is higher level of service, you're going to get it, but you're going to pay a lot more for it. So, if you want to open up a bottle of wine and do the whole shebang, it's just going to cost more, that's it? Otherwise, yeah, you're right. You're either going up to a kiosk, and you're dealing with, or you're running, essentially, you're running through, you know, a robot, either that in the form of your desktop computer, your -- your handheld, or you're going up to a kiosk and that's where the world's going. And if you don't have that built into your plan as a -- as an operator, I don't know. But, all right. Very interesting. Thank you for that. I appreciate it. Are we seeing any upward wage spiral, any evidence of that? I read some, you know, some of the podcasts that you and I actually watched together There's some sense of that. Are you seeing any –
O'GRADY: You know –
CHAMBERS: -- you know, Amazon, the standard is 15 bucks now it seems.
O'GRADY: I would argue you're not seeing it yet.
CHAMBERS: Okay.
O'GRADY: What -- what people, I don't think quite understand, is that the wage price spirals that we saw in the seventies were in part because we had a much higher level of organized labor. And –
CHAMBERS: Of organized labor?
O'GRADY: Of organized labor.
CHAMBERS: Okay.
O'GRADY: -- and – and -- and you had cost of living adjustments that were built in. And, so it was, you know, there was a pretty much a direct line of costs went up, you know, you had to pay people more. Now that doesn't mean that wages are not going up. They clearly are. Walmart and Amazon are kind of setting the price. And if you're not one of those companies, and you're trying to hire somebody below $15, you're -- you're probably getting candidates that can't get hired in those places. And I do think the -- the, you know, that is going to become the -- $15 -- you're not going to need legislation to get there. The market's going to take you there. But it also means that you're going to have a lot more technology and a lot more automation tied to that worker. You -- it is just going to be how it works and you -- you can -- you can see this in how retailers are encouraging people to order online and they're doing everything they can to streamline the process. Restaurant's doing the same thing. It's not that you can't pay people more. It's just that you can't pay people more and do a lot of the stuff that you used to do. You're going to force your -- basically you're going to force your customer to do more of the work. And where you can't do that, you're going to, you know, encourage your customer to shop in such a way that streamlines the process for the -- for the -- for the store or for the restaurant. Doesn't mean it's going to happen everywhere, but that that's kind of where we're heading and it's not the worst of all outcomes. You know, people are going to get paid more and that's not a bad thing. But it – it -- it's not going to be, I think what there is a general lack of appreciation of when you have a pretty low level of regulation that, you know, the market adjusts. And that was -- that was one of the big differences in the -- in the fifties through the seventies, was we had very high levels of regulation and there were just things you just couldn't do. As I tried to explain to some -- one of my younger colleagues the other day, if -- if Uber would have come out in the, you know, in the sixties, those guys all gotten beaten up, you know. Organized labor would -- would have quashed that in a heartbeat and they would have had –
CHAMBERS: (Inaudible).
O'GRADY: Yeah. And they would have had help from the government to do so. And -- and that's just not the case now. And will we get back to that someday? We could. But we're clearly not there now. So yes, you are seeing higher costs, but you'll notice. Profit margins to date have not really been adversely affected. You know, profit margins have held up remarkably well. And one of the things that, you know, anecdotally you'll hear on pretty much every company earnings call is that yeah, we feel pretty confident. We'll be able to, you know, protect our margins by passing along higher prices. They won't be able to do that definitely. But in the meantime, where they can't do that, there'll be streamlining, you know, will be figuring out how to do it cheaper.
CHAMBERS: All right, well that actually pivots me. I'm going to skip ahead because you just opened up that Pandora's box with the idea of the S and P and the earnings. Yeah, very strong. And, you know, just talk a little bit more about that. You know, the S&P is such an interesting thing to look at. You know, I asked you some – I sent you some questions earlier about intangible assets and impacts of that. And then, you know, are there any -- are there any early indications of contraction that you guys watch? That's sort of a separate question, but talk to me a little bit more about the earnings of the S & P and -- and the companies that you invest in. Go in that a little bit deeper because that's a -- that's a point that I think a lot of people are missing.
O'GRADY: Yeah. I'm very much the top-down guy at our firm. I'm surrounded by bottom-up people. And, so when I look at earnings, what I'm looking at is, what are S & P earnings relative to GDP. So, GDP, nominal GDP becomes my -- my topline. And so, what I'm looking at is, well, what's -- what's the -- what's the percentage? How -- how much are the S & P companies getting of -- of nominal GDP? And up until the 1990s, it was generally around three to four percent. We are currently above seven percent. That's an all-time record.
CHAMBERS: Hold no, stop right there. Stop right there. Did you just say seven percent?
O'GRADY: It's actually above that. It's about seven and three quarters right now. And I -- and I expect that to come down to around probably high sixes, like 6.8, 6.7 –
CHAMBERS: Okay.
O'GRADY: -- in quarters, but –
CHAMBERS: Thank you.
O'GRADY: -- that is still really, really elevated and those intangible assets that you you discussed are -- are part of that. You know, the -- unfortunately I have no information on the S & P share of it, but the economies share of it, I think it's about 30% of a total investment is considered –
CHAMBERS: Can I -- I didn't mean to interrupt, but –
O'GRADY: Oh, sure.
CHAMBERS: -- when we're talking about tangible assets, can you -- can you just describe that a little bit and then –
O'GRADY: Yes. It's things like patents, its procedures, software, brands, in other words, things that contribute to your bottom line that don't necessarily require a piece of physical equipment. And intangible assets have, you know, really unique characteristics. They're almost like public goods in that, if I come up with a new idea, if I share that idea with you, it -- it really doesn't diminish my idea at all. Now I may have an incentive to try to keep that idea away from you. But it's probably not going to be able to be -- you really probably not gonna (sic) be able to do that over time. It's too easy to get ahold of it. It's too easy to figure it out or reverse engineer it or whatever. And, so as -- as what -- kind of the way to think about it is intangible assets make everything a lot more efficient. They never wear out. You don't really have to amortize them. It's not like when you put up a piece of plant and, you know, in 20 years you're going to have to tear it down and start over. Now some intangible assets, you know, become obsolete, you know. I'm sure you've saw the story of the Blackberry going dark right after the first of the year. And for any of us –
CHAMBERS: Yeah. Yeah.
O'GRADY: -- who were, you know, holders of smartphones prior to the advent of – of the apple –
CHAMBERS: Oh, back in the day you were dominating the world with your Blackberry, I’m imagining.
O'GRADY: You were kind of a big -- and there were –
CHAMBERS: We can build a world in with that Blackberry. Everybody knew what was going down, you know what I mean?
O'GRADY: That's right. No, you -- you were made – that was kind of a sign you were a made man, you know. If you were on the plane and you pulled out your Blackberry, everybody's kind of like, oh –
CHAMBERS: Oh, that guys sketch.
O'GRADY: He may not be C-suite, but he’s certainly headed there.
CHAMBERS: He’s a hitter.
O'GRADY: Yeah. That’s right. And, you know, now it's -- it's, you know, pretty much a museum piece. In fact, people are -- we're converting them to NFTs by taking pictures of them in frames and stuff like that. So -- so they -- they do go obsolete. You know, they -- they, in that regard, they don't last forever. But, you know, again a lot of -- one of the things I think that is underappreciated about intangibles is intangibles do require a pretty open regulatory environment. In other words, a lot of technology that exploded seemed to explode in the late seventies, early eighties, exploded because it had been around for a long time. You know, Xerox created the computer mouse in the late sixties and couldn't do anything with it because there was no personal computer. And then, you know, kind of the rest is history on that. But the other thing that is important about intangibles is that it -- it's techniques too. You know, if a farmer figures out, well, how -- how do I, you know, how do I plant my crops in such a way that I can use less fertilizer, less pesticide, get more yield? That may be something as simple as irrigation pattern. That's an intangible asset. You know, that's a piece of knowledge that -- that you got that -- and if he tells us, you know, he may have an incentive not to tell his neighbor. But his neighbor is going to watch him and he's going to figure out, you know, what he's doing and he's doing that. I'm going to do that too. And, pretty soon, you know, everybody's doing it. And, it is -- it is an element. It's not the only thing, but it's a key element in how these margins have gotten big. Now, I think there are other elements of it too. Globalizations played a big role in these margins. We, in fact, as we, you know, began to look at the semiconductor issue and its relations to Taiwan. And it kind of struck us, you know, Mark Keller and Patrick Ferron and myself, was like, boy, you had to be really confident in globalization to do that. You know, because you're -- you're putting really the most cutting-edge semiconductor foundries within striking distance of, you know, the mainland China. And, as long as everything's peaceful, that's a great idea. As soon as it's not, then it's like, holy smoke, what have we done here? But, that -- that's a big part of it too.
CHAMBERS: Yeah. What could possibly go wrong in that scenario? I suppose you look, everybody's going to look back and go, yeah, that wasn't too bright. But we’ll see. We’ll see.
O'GRADY: Well, it was – you want -- it's pretty easy to understand the thought process.
CHAMBERS: Yeah, of course. Yeah.
O'GRADY: If you make assumptions that, you know, if you look at the assumptions that people were making at the end of the cold war that Francis Fukuyama's argument that, you know, history is ended, but it ended differently than Carl Marx thought it would. It ended up with the capitalist winning.
CHAMBERS: Right.
O'GRADY: Then the idea that, well no one's going to post, you know, open markets and democracy. It works and it's turned out that it's not true, but -- but that's what was thought.
CHAMBERS: Well, I like it. Those Taiwanese certainly know how to make chips and masks. It's unbelievable. Well, thank you for that talk about intangibles. I think that, you know, the average person street doesn't really follow these things like you and I do, but it is interesting how intangibles have played a bigger role in companies’ earnings and balance sheet and S & P so, it's just something watch. Did the fed over cook the economy? Boom. Look at that. Coming in hot.
O'GRADY: Yeah, I don't think it was the fed by itself. The -- and again, you have to give policymakers some benefit of the doubt because we hadn't had a pandemic of this magnitude since 1918. We -- no one was around, you know, at that -- we have no adults from 1918 that could really explain to us what was going on. So, you know, we were doing this from narratives, from history and, you know, we -- we didn't really have vaccines then. And, so they -- policymakers looked at their situation and said, well, gosh, let's just -- let's just shove money at this thing. And, that's what they did. And you know, that last one was probably a bridge too far. The other thing that the fed, you know, this is a debate we have in our shop and it's a debate you see out in -- in the economic literature. We honestly, really don't know what QED. And the fed doesn't know either. They say they think they do, but honestly, I -- I've looked at the studies where they try to claim it's, you know, it's the functional equivalent of X amount of cuts and rates and stuff, and it’s pretty shoddy work. I -- so we honestly don't know what QED does, but the most important thing that the fed did in March of 2020 was all the backstop programs. Because when they came in and they said, okay, look, we're going to make a market corporate debt at this level. That meant that there was a market. And if you look at the way the markets were spiraling in early March of 2020, it was a clear situation where people were selling the best stuff in their portfolio, because that was easiest to sell. And so, the fed had to basically create a market for the other stuff. And, you know, at the time they did it, everybody was like, oh, this is the fed is going to be buying junk bonds. Well, if you look at actually what they bought, they didn't buy very much. And that's because all they needed to do was go out and say, hey look, we're a buyer here and a seller here. And, you know, that used to be the role of the market maker. In -- in the old equity markets, we used to have market makers and the market maker, you know, was given the task of creating a market, and they could, you know, let it -- let the spread get pretty wide. And, you know, we joke about it now, but, you know, remember spreads were in eighths. So, they were getting roughly about 12 and a half cents. There was about a 12 and a half cents spread between the bid and the ask. I mean, the only thing he got a 12 and a half spread now on the bid (inaudible) cause a pink sheet. You know, we're trading stuff, sub penny now. And those markets are really great until they get under stress. And then all of a sudden, they go from trading at under a penny to, there is no way to trade it. And that’s because what we -- what we've done in the financial markets is equivalent to a -- a community going in and saying, you know, these damn firemen, they just sit around all day eating chili and washing the damn truck. And yeah, every once in a while, there's a fire and they put on their suits and they hop in the truck and they race out. But the rest of the time they ain't doing shit. Let's just -- let's just shut the fire thing down and then we'll call them when we need them. Surely, they'll come. And, you know, what we found out is that they don't. So when, when everything's going fine, we have extremely efficient functioning financial markets and extremely tight spreads. I mean, it's really pretty great except when it's not. And when it's not, it goes from being really good to virtually no market available. So, what the fed did, is they stepped in and they said, okay, look, we're going to make a market. It's not going to be cheap, but if you want to trade it, we will -- we'll backstop it. That's probably all they needed to do. Everything else they did, we still didn't know if it really worked. And, so did the fed keep rates too low for too long? Yeah, we have been looking -- there's a chart we do where we look at the fed funds, less inflation in each expansion. And so, if you look through the sixties during that long expansion from 61 to 70, the average rate was positive and then it steadily became more negative. And then Volker came in and went way positive again. And it's been steadily getting negative each business cycle. And the problem that the fed has now is that when you have interest rates this low, you create fragility in financial markets. The famous heterodox economist by the name of Hyman Minsky who had what he called the instability hypothesis, which is that the more -- the longer things remain stable, the greater the potential for future instability. It's kind of like if there are no forest fires, eventually you end up with a big one. And, you know, the fed has two official mandates, you know, full employment, you know, controlled inflation. But it has an unofficial mandate that every central bank has. In fact, the whole reason we created central banking, which is, you know, functioning financial markets and the trouble is, is that now the fed has kept rates low for so long, not just in this cycle, but in previous cycles, that you've -- you've created a great amount of fragility in the financial markets. And the trouble is we don't know where that fragility is until something goes bad.
CHAMBERS: Yeah. As always people, you just, you don't -- you don't know. You know, bad stuff happens. It's not -- it doesn't always go up. That's for sure. Well thank you for that. I appreciate it. I've got one more area that I want to talk to you. Oh, just real quick. If the fed tightens, what does that do to stock buybacks, typically?
O'GRADY: Well, we would expect it to slow down a bit. But the one really interesting thing that we have in the economy right now, and I can't find any other period that resembles this at all, is there is just an enormous amount of liquidity in the, in the economy. And that's probably the one thing that keeps me from getting really nervous about equities is that, you know, not only is there a lot of liquidity, but under conditions of high inequality, a lot of that liquidity is, basically in a small number of households. One of the things that back early, early in my career, I was a country risk analyst at a bank. I was -- I was part of the effort, a very small part, but part of the effort of winding down the Latin American debt crisis in the 1980s. And one of the things I discovered is that, you know, there's a famous line from F Scott Fitzgerald that the rich are different, to which Ernest Hemingway retorted, yeah, that's because they have money. But one of the ways the rich are different is how they react to inflation. So, if you look at how the working class, the lower income brackets react to inflation is they convert their money into stuff as fast as they can. So, if you get your paycheck, you immediately run to the store to buy all the stuff you're going to need because in a week or two, it's going to be more expensive. So, when I was observing Brazil and Argentina in the late eighties and they had some horrific inflation, you know. Brazil was refunding its entire government debt every 24 hours because no one would lend them money past 24 hours. We noted that the poor, as soon as they got money would try to go to the store and buy stuff. But the rich didn't behave that way. The rich would take their money and convert it to dollars D marks. And so, because there is this qualitative difference in how households react to inflation. If you're wealthy, your reaction to inflation is different. It has to be because you can't go out and buy 10 cars. There's just, there's no point to it. But what you can do is you can look to put your money in the assets that will, you know, if the store value, function of money becomes corrupted because of inflation, you can use other assets that perform that function. And what we have created now, and especially if you compare it to the seventies, which I think is, is so often overlooked. You know, we had fixed commission rates back in the seventies. We had that, you know, 12 and a half cents spread when you bought it, but you were paying sometimes four to 5 cents a share to transact, you know, a hundred share order. It was still illegal to own bullion gold until 1975. If you wanted to go into the futures market, there were no pooled futures program. CTAs were, were really not around yet. And, you had limited contracts, you could engage it. And it was pretty much just agriculture contracts. We didn't get T-bond futures until the late seventies and oil futures until almost 1980. And compare that to today. You know, you have this absolute open universe of things you can put money in. Virtually at no commission. You know, you can buy stocks with zero commission and you can buy bonds at zero commission. You can buy ETFs that invest in commodities. You can buy ETFs that do all sorts of specialty stuff. You know, you can buy precious metals in a myriad of ways. You can buy cryptocurrencies, which were completely unheard of, back in the seventies. And so, if you're wealthy, you're going to be more inclined to try to find a financial asset that will provide that store of value function of money better than money is in a rising price environment. And, you know, what that means is that we end up with inflation, but a lot of times it's asset inflation. And, we don't think of that as a price level issue. But it kind of is. And, you know, do I think inequality will remain at these levels? No, I think that's one of the big changes we will see over the next couple of decades. Is that right now, depending upon which major you use, the top 10% of households capture somewhere between 48 to 51% of national income? Back in the seventies, it was about 36 to 38 percent. That is going to change over time. It – we have growing populism on the left and the right, and at some point, you're going to get a real populist in power and it -- and it's going to happen. And I think most people in our industry think it's going to come from the left. I actually think it's going to come from the right. But from the perspective of somebody in the top 10, it's not going to matter. It's going to be higher taxes and more regulation. That's not something that's happening imminently, but it is something where we are steadily marching toward. And that's when inflation becomes a really serious problem. There is a general lack of appreciation of how important high levels of inequality are to keeping price levels at -- at what levels that we think are manageable. It is -- it's something that people don't talk about (inaudible) company, but that is a factor. In fact, you should bring that up with Matt Klein when you -- when you talk to him. It'd be fascinating to see how he would react to that.
CHAMBERS: So, to state for the record, Matt Klein, here's what I want to know. Ask that question because I will -- I'll put it in the transcript and I'll ask him.
O'GRADY: Yeah. You just ask him --
CHAMBERS: (Inaudible).
O'GRADY: -- what is the role of –
CHAMBERS: Really interesting.
O'GRADY: -- inequality with maintaining low inflation?
CHAMBERS: Yeah. Yeah. All right, cool. I'll -- I'll get back to you on that. It sounds -- that doesn't sound too enticing Bill.
O'GRADY: Well, it is not, but it is in the data. And if you -- if you map it out, it makes a lot of sense. And it's not just -- here's another way of thinking about it. When you're trying -- when we slayed inflation, you know, Paul Volcker gets a lot of credit because basically what he did was he gave money, credibility again. People, you know, when you don't have a gold standard, you have to come up with another way of giving people confidence in money. And so, what we have kind of gravitated toward is central bank independence and inflation targeting. And it's actually worked pretty well. It's, you know, you're always going to have hard money types out there. They're going to be like, no, no, no, it's not good enough. But for most of us, this works all right. But the real heavy lifting on bringing inflation down was deregulation and globalization. And if you look at patent issuance, for example, relative to the highest marginal tax rate. Reagan cut the highest marginal tax rate. Patent applications, absolutely soared and, you know, just step back. I mean, it's like one of the jokes I used to make when I used to give, you know, presentations on this was, you know, the, the man of every woman's dream in the 1950s worked for a Fortune 500 company and wore a suit to work. And now the, you know, the man of every woman's dream, you know, works in Silicon Valley and wears a hoodie. It's -- what we did was we -- if you had a brilliant idea that would make you a billion dollars in the 1950s, what was the point? You know, because there were, there was a period where the highest marginal tax rate on income over $5 million is 90%. So, a cushy life working for a multinational firm where you got to play golf every Friday afternoon and, you know, drive a nice car. And that was kind of all you needed because frankly, there wasn't a lot of reason to get extremely rich because the tax rate kept it. Then we knocked that highest marginal tax rate below 50%. Suddenly the calculus changed. Now going out, starting a business and becoming a multiple millionaire made sense because you had to keep most of it. And we needed to do that in the late seventies, early 1980s, because we had severe supply constraints. And it was that policy that got rid of the supply constraints. But the cost to society from that is that you have higher inequality and there's -- there is going to eventually be a level of inequality that gets too high to be politically sustainable. And that's kind of where we are right now. And I have postulated that United States and major industrialized countries go through efficiency, inequality cycles and we are at -- we are in the waning years of -- of the efficiency cycle that began in the late seventies. And we are steadily moving toward the next equality cycle. Now, every cycle has little differences to it. That's the problem. When you're looking at a cycle that lasts anywhere from 30 to 60 years. They happen with such great infrequency that it's hard to, you know, you don't have enough of them to where you can make any, you know, any definitive statistical analysis. But, you know, you can do qualitative historical analysis that gives you a pretty good feel for the most likely direction of travel.
CHAMBERS: Taxes, going up. Equality -- efficiency, going down. Quality, going up over my kid’s lifetime.
O'GRADY: That's probably true.
CHAMBERS: Okay. Heard it here, folks. All right, one more. I'm going -- it's Friday. Is this like the last thing you gotta (sic) do on a Friday? What do you got going on this weekend?
O'GRADY: Oh, I'm a big Chiefs fan. So, I've got my Saturday -- Saturday tied up with the Kansas City/ Denver, but –
CHAMBERS: Yes.
O'GRADY: -- but the -- and then tonight the Blues play the -- play the Capitals, so we’ll see what they do.
CHAMBERS: Oh, nice. Right. Okay, cool. Yeah, you're in to St. Louis. Yeah. By the way, nobody's going to-- Bill you look great. You do. I like it.
O'GRADY: Thank you.
CHAMBERS: You look good. And I like to see that. I like the guy that's helping manage -- manage some of our client's money. I like to see you looking good. You know what I'm saying? Healthy. Keep you healthy. But all right. Awkwardly moving to the next question.
O'GRADY: Okay.
CHAMBERS: Stranded assets.
O'GRADY: Oh.
CHAMBERS: This is the last thing. I just –
O'GRADY: Yeah.
CHAMBERS: -- I want to talk about – okay. So, we're going through this energy transition, right? You guys talk about it a lot. I think it's absolutely fascinating. I'm actually doing a series on energy. You contributed to that actually one time. But, when these things happen in history, you get, you might have some stranded assets and mean meaning kind of as an example, that thing -- that factory over there that you built, you know, whenever, you know, two decades ago. Yeah. It's gone. Bye-bye.
O'GRADY: Yep.
CHAMBERS: Don't need it. And that's just going to hit your balance sheet and, you know, that's -- that's not so great. So yeah, I digress. Go ahead.
O'GRADY: This is probably one of, well let me kind of frame this for your listeners. I started in this industry in 1986 and have spent most of it in the -- basically I spent from 19, a couple of years in, in that in 86. And then from 89 to 2005, I was directly involved in the futures market and there was an old adage in the futures market that nothing cures high prices like high prices.
CHAMBERS: Yeah.
O'GRADY: And, it's pretty simple. High -- what do high prices do? Well, they send signals. They tell producers, hey, make more. And they tell consumers use less. And, all my career, that -- that has been a, you know, something that you could rely on. We know, back in the mid-nineties, we began to notice that we were seeing capacity constraints in natural gas, for example. And I remember sitting around with a bunch of equity analysts at AG Edwards in the late nineties. And at one time, I said, you know, you're going to end up with five or $6, an MCF, natural gas. And kind of looking at me like, you know, if I could only have half what you're taking in the morning. And I said, but no, think about it. You're -- you're going to hit. Demand's going to go up some winter into a vertical supply curve. You know, the market is going to become nothing but a rationing instrument. You know, the molecule is going to go to the highest bidder. That is exactly what happened in like 98, 99. And then everybody in the industry is like, well, gosh, I guess we're going to have these high prices forever. And we had them for about eight years. And then shale oil came and associated natural gas came with it. And all of a sudden, we took natural gas prices down to about a buck, an MCF, sometimes below a buck, because it was, you know, it was an ancillary asset that came from from oil and you had to do something with it. And then you had people like, well, gosh, I guess natural gas prices are never going to go up. And then now of course, we've -- back in the -- in the late nineties, we were building an LNG industry to accept LNG. And if you'd have told people, me included, in the late nineties that, you know, by 2020, we would be a net exporter. And, you know, we'd be selling LNG to the Chinese, you know. But that's kind of how commodity markets work is that, you know, the price goes up, you get a supply response, you get a demand response. What we're seeing in oil we've -- we've already seen it in coal, but what we're, what we're starting to see in oil is that you don't get the supply response when you have high prices. And that's because the industry looks at its future and says, you know, every car manufacturer is electrified. Tesla is the most, you know, it's the most – has the highest market cap of any auto maker, by scads. Ford comes out this week and says, you know what, we're going to double the capacity of the F-150 lightning and their stock price goes up. The market is signaling to the automakers that you -- you're going to –
CHAMBERS: Bill, I’m sorry, can you say that last anecdote again about Ford? I didn't quite catch that. Say that. That’s really interesting.
O'GRADY: Well, Ford came out this week and said that they were going to expand capacity of its F-150 lightening, which is their electric –
CHAMBERS: Yes. Yeah, yeah, right.
O'GRADY: -- F-150, which they actually, I don't think they've actually sold one yet. This is all, you know, future.
CHAMBERS: It's America. Why -- you don't? Nah, no big deal.
O'GRADY: But again, if you're -- if you're in the oil business and you're looking at this and you're like, well, yeah, we're selling quite a bit of oil, gasoline now. But, you know, in another decade, how much are we going to be selling. And so, when you're looking at projects, you have to look at it and say, well, let's say it takes me two or three years to develop it. And I intend to, you know, deplete that, well, let's say in five years. I may not have a window there. And so, the investment doesn't happen. And, you know, we -- Jeff Curry over at Goldman Sachs has done a great job on -- on kind of walking people through this process and he's dead right? We -- we’ve seen a number of things occur. First off, we've -- we've seen the oil industry, you know, pretty much go from burning free cashflow to make more to now actually rewarding investors. We've seen -- we are seeing this transition from oil and coal to minerals. So, if we're going to electrify the transportation sector, we're going to need a lot more aluminum. We're going to need a lot more copper. We're going to need, you know, just a lot more of that stuff. We -- Mark Keller and I run a hard asset portfolio and we have been working on this theme. We've under invested in energy and it's hurt us this year. But longer term, what we want to own is things like copper and lithium and uranium, because we – we’re big fans of -- of nuclear power. We think, you know, I watch the social discussion on nuclear power, pretty closely. You are starting to see the environmental movement, reluctantly, realize that you're going to need nuclear power. It's, you're -- you're going to need clean baseload that will be there day in and day out. And then you can -- you can work wind and solar around it. But again, all these things, if you're in -- in the oil and gas business, is that, well, this kind of means that somewhere out there, it could be five years could be 15 years. There's going to be a cliff where all of a sudden, my product isn't going to be needed or not going to be needed to the same extent. And you have to start preparing for that. I mean, I -- I've always been fascinated by watching people manage the end of growth. You know, managing and growth is something that every -- everybody talks about in business school, you know. Well, you're growing X percent a year and you have to do this. You have to do that in. And you know, it takes some management skill to manage a growing -- growing company or growing industry. I think it takes a lot more skill to manage one that's doing just the opposite because you have to think so differently. You know, you have to look at, can this project make me money in the window that presents itself to me. And it's a window that may be uncertain. And, you know, adoption of new technologies is, you know, it's one of the things we have noted over the past 30 years, the adoption of new technologies can happen really, really fast. You know, I mean, if you just look at what's happened with, I mean we -- they tried to sell us Palm pilots, you know. Everybody looked at it and said well, why wouldn't I just use a calendar book. I've used these for years. And then when it gets integrated into your phone and into the games that you play suddenly, like why in the hell would I have a paper calendar? It's kind of the same thing. And that's what we, like I said, we have already seen this in the coal industry. So right now, coal has had a great year. Natural gas prices shot up because of all the turmoil in Europe and US L&G has become a big deal. And so as natural gas prices have gone up, it's created an umbrella of profitability for the coal industry. But you're not seeing anybody go out, open up new mines. They're just, you know, they're -- they're basically trying to take what they've got to, you know, monetize those assets, you know, sorta (sic) like making hay while the sun shines. I had a young man who worked for me back at Edwards and after Edwards got bought by Wachovia and the futures department was closed. He -- he went to work for Peabody coal for a number of years. And, it was -- it was pretty fun talking to him because, you know, when he went there, they were growing like crazy. And within about five years, he's watching every department go from 10 people to seven people, to three people, to one guy. And, you know, you'd go into the part of the firm where you were working and nothing but empty desks. You know, one guy in a corner in, you know, 15,000 feet of office space. And, you know, he held on for a long time and then finally they came for him. This is -- this is a very different way of managing and that's – so, you know, for people who've been in the commodity business for a long time, when they see what's going on in energy, they're like, well, yeah, they're going to -- these guys are gonna (sic) start producing again. It's like, no, probably they're not. You'll see enough production to kind of keep production at a fairly -- fairly stable level. But, under previous circumstances, these kinds of prices, we'd probably be seeing US oil production making new records. And we're producing at about 11.8, 11.9 million barrels a day. But our peak was over 13 and I don't think we'll ever see that peak again.
CHAMBERS: All right. So –
O'GRADY: One last thing, I'll leave you with –
CHAMBERS: Yeah, go ahead.
O'GRADY: -- on this. And I've -- I've only started to do preliminary research on it. So, it it's still too early to say anything definitive. But I got kind of fascinated by the whale oil industry. You know, we used to light our lamps with whale oil.
CHAMBERS: Right.
O'GRADY: So, I've done a little bit of research on well, what happened? And it kind of looks like what happened was it wasn't that we ran out of whales. We ran out of whales that we could harvest at prices that were economic -- that we could sell this stuff at. And -- but this one anecdote -- we went from like 600 whaling vessels to 200 in a period of about four or five years. In other words, when the end comes, it tends to come really fast and you're only harvesting the stuff that you can make money on. And, you know, imagine down the road, if, you know, virtually every vehicle out there is either a hybrid or electric. You know, we'll have gas stations, but it'll be hard to find them. I mean, meanwhile charging stations will be everywhere.
CHAMBERS: Yeah. And those countries that are producing oil on the margins on the high end, I mean, they're the ones that maybe end up finally -- I think you and I talked about this, it's basically like, I don't know where Russia lies in this because we can produce it really cheap and middle east can produce it really cheap. And maybe I'm off on base because you are the energy guy, of course, but it further puts it – am I off on this? I mean, we –
O'GRADY: No.
CHAMBERS: -- we make it pretty cheap. So that puts further pressure on Russia because their whole deal is oil and timber and some minerals and a demographic that's getting aging, like, you know, is aging dramatically. It just doesn't look good for Russia.
O'GRADY: It -- it really doesn't.
CHAMBERS: Yeah.
O'GRADY: It doesn't look good for a lot of the middle east producers. You know, the Saudis are desperately trying to move fast to, you know, to try to diversify their economy. It's just hard to do so when you've been used to being the single, you know, commodity –
CHAMBERS: Yep.
O'GRADY: -- producer for so many years. But it – and -- and it, you know, from an economic point of view, you look at it and you say, well, you've really got one of two choices either you try to maximize revenue, or you try to get every barrel out you can before they don't want it anymore. And you make a really good argument for saying no, you know what? You'd be better off trying to drive the price down as low as you can so it makes it really hard for consumers to give it up. But the trouble is that if -- if the demand is going to fall anyway, it's a lot easier to maintain your revenue in a falling demand environment if prices are going up, not down. And so, there is a real incentive to keep the price elevated, even though it will probably to some extent accelerate the transition. If the transition is going to happen anyway, you probably are just as well off trying to maximize your revenue and -- and work like hell to diversify. Which frankly that's the hard part.
CHAMBERS: Yeah, of course. Yeah. Well, I think that we closed it out, Bill. I mean, we just crushed it right there. How long did we do? We’re about an hour?
O'GRADY: Yeah.
CHAMBERS: That's pretty good. I like it. And now you can get on with your life.
O'GRADY: Yep.
CHAMBERS: Thank you. I really appreciate it. It was wonderful. And I'd love to do this again. Are you guys -- are you guys getting out and traveling a little bit here and there as a team or are you pretty much locked down in St. Louis?
O'GRADY: Well, I don't travel anymore.
CHAMBERS: Okay. Cool.
O'GRADY: Yeah, I had some health issues in 2018 and, you know, so –
CHAMBERS: Yeah.
O'GRADY: -- I pretty much stay home. Patrick Fearon, who will eventually be me. He -- he's our -- he's our road guy.
CHAMBERS: Yep.
O'GRADY: And we're not doing a lot of traveling these days. Some -- we're starting. You know, it's just real spotty.
CHAMBERS: Yeah.
O'GRADY: Some firms are encouraging it. Some firms are not, you know. It's a -- plus, you know, St. Louis is not a hub city and –
CHAMBERS: Yeah.
O'GRADY: -- we have -- we have a pretty big presence. Southwest airlines has a pretty big presence here, but, you know, it -- if you're -- it's a hard city to do -- you're connecting all the time.
CHAMBERS: Yeah.
O'GRADY: And, you know, when you're seeing flights get canceled, like they're currently getting canceled, you know, the last thing we want to do is send somebody out, you know, and they get -- they get stuck somewhere –
CHAMBERS: Yeah.
O'GRADY: -- you know, they're driving 600 miles to get home. I mean, it –
CHAMBERS: Plus, the power of zoom.
O'GRADY: Well, it, you know, and we've -- we've been exploiting that more as well. And, you know, the other thing that's happened on your side of the industry is that, as you guys have done and gone independent, a lot more, you know, advisors are doing the same thing and it, you know, the zoom and teleconferencing lends itself some respect better than actually being out somewhere. You know, it used to be that you're like, okay, we're going to go visit, you know, four or five branches at these – at two or three platforms. And that would work. Well, now you're talking about, well, we've got this platform business but we've also got this RA business. And it's a different way of doing it and the RAs are much more spread out. Not everyone of them. But a lot of them are. You know, they're working in smaller cities and smaller offices and sometimes it's just not economical to send somebody out to them because they're not around anybody else.
CHAMBERS: Yeah. Yeah, so what – this is -- I don't mean a stretch this out, man –
O'GRADY: Okay.
CHAMBERS: -- but what Bill's talking about I think is really important. We're at Olde Raleigh Financial Group, we are actually an independent registered advisor, but we're in that RIA, you know, general space. We're fully independent. We own the firm. You know, we decide all the things, that we do. And yeah, to your point, it is a very scattered group and it's growing. It's by nowhere near the dominant player. But it's a different -- it's a different gig, Bill, right? I mean, it’s a different animal. You guys sell. It's a different way to sell into it from your guys' point of view. And from our point of view, it's a different -- I think we attract a different type of client. You know what I mean? O'GRADY: That’s probably true. Yeah.
CHAMBERS: Yeah.
O'GRADY: It, to me, it makes a lot of sense because most advisors, you know, it's not like somebody comes in and says, hey, I'm -- I want to be here because you're with X firm. That used to be true. If anything, with a lot of platforms, now that might actually be a negative. And, you know, they’re there because they like what you're doing. Not necessarily what a firm is doing.
CHAMBERS: Yeah. It’s – yeah.
O'GRADY: And, you know, that's a constant battle. You know, the major broker dealer platforms want the advisor to represent the firm and the way it actually works, is the advisor represents himself, and the firm is a platform for him. And that's -- that's the difference.
CHAMBERS: Well said. Well -- I couldn't really said it any better than that. I mean, I could have said it, but I don't think compliance would've gotten – they would have gotten on me. All right, Bill. See, I'm making you laugh at the end. That's good. I -- you know, I don't know. It felt like sometimes I talk to you, I'm a complete disaster, like a babbling idiot over here. But anyway, hey, listen, I appreciate it. I really, really do. I enjoy the time. You know, you're a philosophy guy, right? You, you have a philosophy background.
O'GRADY: I have a (inaudible). But I've got about 42 hours of undergraduate and graduate level philosophy.
CHAMBERS: Well, I may have said this to you before. I -- my dad was almost a Catholic priest.
O'GRADY: Oh. Okay.
CHAMBERS: And went on and taught philosophy, religion, all like Emmanuel Kahn stuff and all that stuff. So, he's since passed, but he did that for like 43 years. And, you -- you guys, you two would've gotten along great. You would've been like cutting it up about God knows what are you guys talking about, you know. But, anyway. I tend to think sometimes I have a little bit of a philosophical in me, so I do enjoy these conversations. So, I really do. But anyway, listen, Bill, thanks for coming on a soundtrack, again. We'll certainly do it again. I hope you're making it through the winter out there and let's hope for spring and spring ball. Right?
O'GRADY: Yeah, well, you know, they've got to start talking to each other at some point, so.
CHAMBERS: Yeah. Exactly. I tell you what, we'll talk -- we'll talk in the spring and hopefully we'll get past this. And -- and I hope to hear good reports out of you and how you're drinking beers in the stands out there. And that’s literally what I want to know, you know what I mean?
O'GRADY: Well, yeah, we’ll see. It's -- I don't know. I -- to me, it, you know, they're doing, baseball's actually doing pretty well. And yeah, there's lots of worry about, you know, the game has gotten boring and the games take too long and the specialists hurt and all that, but you know, there's like one of the tweaks, you know, the national league is gonna (sic) get the DH. Within our office. We've got some hardliners that, you know, just think the DH is, you know, an anathema, but as I tell people, it's hard to pay $60 to go watch a pitcher hit. You know, it's -- every once in a while, some, you know, you've got some out there like Madison Bumgarner that are actually, you know, (inaudible). They're legitimate hitters. Most of these guys are terrible. But, one of the things I –
CHAMBERS: Not many of those guys can – that’s not what they’re getting paid to do.
O'GRADY: But one of the things I would like to see, you know, baseball do with the DH is allow you to only use a DH as long as your starter is in. And when you pull your starter, then your pitcher has to hit. Now, if your starter takes you six innings, and that means you're just going to pitch it for him. But it would, you know, it would get rid of this foolishness of having an opener. It would make starting pitching a thing again. And, you know, I think that's something that baseball needs to foster. And it gives a manager another decision point, you know? Well, do I pull a guy who's doing really well, you know, under the -- under national league rules, it's like, well, I want this guy to hit. I want to hitter up there. Where the decision point would then change to, I think this guy's running out of gas, but gosh, you know, I really want my DH to hit. So, it would -- it would change, it would encourage managers to keep starters in, number one. And it would encourage teams to actually focus on starting pitching again, as opposed to, you know, looking for, let's give me six guys in the bullpen that can throw a hundred miles an hour and I'll be fine. Which is true. You'd still want some of that, but, there -- I think baseball would be better if we had pitchers that had to see the lineup a third time.
CHAMBERS: Interesting. Well, that's pretty philosophical and now we're getting into the philosophical. Well, you guys have seen -- anybody who has like a pro team in their town, right, that they grew up with or whatever. Yeah. You guys, it's deep. So, and I love how you refer to the purists or the fundamentalists in your firm talking about his. It’s hilarious. I love – fundamental investors, fundamental in the rules. I love it.
O'GRADY: Well, and the other thing we, you know, Mark and I were talking about the other day is if you think of Moneyball. Moneyball only works in cities that have terrible fan basis. So, it can work for Oakland and it can work for Tampa Bay because, you know, -- the thing I'm always amazed at when you -- when you watch a Tampa Bay game and let's say they're playing Boston, there's more people in there cheering for Boston. That's because very few people are from Tampa Bay. Everybody's from somewhere else. With Oakland, you know, you're probably a giant’s fan. And, you know, Oakland is just the other team there. So, you don't have to hold on to a player that everybody loves because nobody's showing up anyway. And, so you can -- you can play Whitey, you know, you can play Moneyball. You can -- I look at the people that -- I know Tampa, you know, the Rays get rid of. And I'm like St. Louis or Kansas City could never do that because their fan bases would just rebel. They like these people, you know. We -- the Cardinal fans want to see out of your Yadier Molina go out there on crutches and catch. And, you know, because he's beloved. And if the DH comes through, I would be shocked if the Cardinals don't get poo holes for one more year. Being able to trot him out as DH. I mean, God, you can just see this, you know, it'd be SRO every night.
CHAMBERS: Yep.
O'GRADY: You know, having the old band back together for a season. Gosh, it would be, it would be just electric.
CHAMBERS: Yeah. It would be cool. Well, it’s baseball and spring. There’s always hope, right?
O'GRADY: That's right. That's all right.
CHAMBERS: All right.
O'GRADY: All right. Take care.
CHAMBERS: Well, listen again, thank you so much for coming on a Soundtrack to a Financial Advisors Life. Appreciate it very much. We will do this again. Have a wonderful winter, my friend. Stay warm.
O'GRADY: All right. Take care of yourself.
CHAMBERS: All right, buddy. Peace. Thanks Bill.
O'GRADY: Bye bye.
CHAMBERS: Bye bye.
(INTERVIEW CONCLUDED)
Trevor Chambers
Trevor joined Olde Raleigh Financial Services in January of 2015 and his primary role is new business development and marketing. Prior to joining the firm, Trevor spent 12 years working at his family’s restaurant, Raleigh’s Bella Monica Cucina & Vino. “Exceptional service, no matter the industry, is paramount and we attract clients who value and take comfort in being taken care of.”
Bill O’Grady
As Chief Market Strategist, Bill O’Grady performs market, economic and geopolitical research for the firm, and is a member of the investment committees for the Asset Allocation strategies and International Equity strategies. Bill also co-manages Confluence’s Global Hard Assets portfolio, which focuses on tangible commodities investments. Additionally, Bill writes numerous reports for the firm, which can be found under Research & News, in which he provides insights on various economic and geopolitical topics and discusses market effects. In all, Bill has more than 30 years of experience following the energy, foreign exchange and futures markets and is frequently quoted by such national media outlets as The Wall Street Journal and Bloomberg News. Bill earned a master’s degree in economics from St. Louis University and has undergraduate degrees in history and public administration from Avila College.