It's time for another episode of Chris with Zach Abraham, who is the chief
investment officer at Bulwark Capital Management and he is our go to guy when it
comes to all things finance and money and banking and mortgage related. Um,
Zach, we got to meet you in person this past weekend at our meet
and Greed and that was so much fun. Yes, pleasure, We had
a we had a great time. We were talking afterwards about, UM,
you know, I've been to several of these. We we do local radio
and we do radio show in Phoenix, in Portland and Seattle and so,
and we've done promo work with other people that do shows and podcasts and things
like that. So I thought I was prepared. Yeah, your guys as
listeners take it to a whole other level. Man. First of all,
they get down right, they like, yeah we can, we can party.
We come to party. Yeah, there was there was plenty of good
times being had by everybody. Um, and then just the intensity, I
mean, the great people. I really enjoyed meeting all of them. But
yeah, that was they weren't messing around. Man. When I saw that
dance when we got there, there was the dance for it. I was
like, no one's gonna dance, you know, Oh, underestimate them,
underestimate them. I walked outside and I was talking to somebody for like fifteen
or twenty minutes. I came back inside and you could like an eight year
old couldn't have fit on that dance floor. I mean it was just you
know, then their body surfing you guys back and forth, you know,
throwing Amy Joe up in the air doing heart. I mean, I yeah,
it was yeah. I thought I thought I went to greeting meat and
it was like it was like a three ring circus, you know. It
was. Yeah, It's like it's like all of a sudden that you start
hearing the Chicken dance, and it's it's funny because the DJ. The DJ's
like, listen, you're gonna lose people with the Chicken dance. And it's
like, I don't think you understand this crowd. You're not gonna lose anybody.
Yeah, I mean you could have. I mean I think probably like
the only thing that you could have put like if you put on the only
way you to stop that party is if you to run like like audio from
a Biden speech or or or yeah, put on some kind of like anti
American tune or something like that. Other than that, I mean, you
could have thrown nurse, you know, you could have thrown like children's songs
at them and that party exactly we've got. We've got a great group and
hopefully you got a lot of attention from the folks that attended. What kind
of questions were people asking you? What kind of conversations got started? You
know it's funny because, um, in a lot of ways, it felt
like we were talking to our own clients. You know, a lot of
a lot of the questions about you know, what's going on, markets rallying,
but things look really scary? What about gold? Um? You know,
a lot of a lot of the same questions that we get. And
I think it's on a lot of people's minds. Um, you know,
just because I think if you look at the economy in the markets right now,
I and I could be wrong, but we studied this pretty extensively.
I don't think that you've seen a period of time where you have as many
different conflicting cross currents going on and so um, you know, leads to
a lot of confusions. So the number one thing was, you know,
trajectory. Uh, you know, what's the economy doing? Like I said,
gold, is it a good time to buy bonds? Um? You
know, all those all those questions. I think people are really concerned.
And um, you know, I think I think the thing that and they
echoed this at the meeting or at the meet and greet that I was at
with you guys as well, which is I think there's just a lot of
confusion on what to think, you know, meaning, is this kind of
the bottom where we should be buying here despite the fact that things look kind
of scary? Is this not? You know what I mean? There's just
so many conflicting cross currents and um, yeah. And and what's funny is,
you know, we certainly have our takes and our opinions on it,
but um, you know, to be to be quite honest, this is
why we do things the way that we do them, because you get into
periods of times like this in markets where you know, things don't make sense
and navigation. People are unsure. People are unsure, and they're unsteady.
That's happy at least, That's how I when I talk to people about money,
people are like, listen, if you're not a financial expert. You
just are unsteady and unsure anyway. But then when you throw like this administration
in the mix and you're like, oh, oh yeez, I don't even
you know, then you get really unsteady and then you just feel stupid about
this stuff. And that's yeah, that's where people like you come in because
we just don't know, Like, it's hard to navigate any of this.
It's just scary. It's yeah, I've got a lot. I've got several
clients who are very wealthy and who who got that way by managing their own
money, and they've yea, then they've come to us waving the white flag,
just saying, look, I don't even I can't make heads or tails
of this. I've been managing my own money for forty years and I'm completely
lost. Um. And you know, one of the things I tell them,
I'm like, Okay, well, I can't tell you exactly what's going
on. We've got a pretty strong take on it, and we have a
pretty strong view of what's happening, but you know, things change, and
so that's why we focus on managing risk guys, which is, you know,
we get into an environment like this and I think people don't really look
at it correctly. And I think this is kind of a good lesson for
all of your listeners when you get into situations like this, guys, when
you go from accumulating to retirement as opposed to going into retirement. When we're
accumulating for retirement at age forty age forty five, the name of the game
is stack away as much cast as possible. Right, market goes down,
keep it money away, just keep doing it. When you get up to
where you're gonna retire, you're into retirement, the goal needs to completely shift.
Right. The game is not about growing the stack the biggest anymore.
The game is about taking that stack and converting it into a lifetime income.
Right. And by saying that I'm not gonna I don't mean put it all
in CDs, annuities or anything like that. But the whole point of the
money changes, right, or the goal of the money changes now. It
goes from growing it to creating income flow out of it. And so one
of the things we talk about with our clients is when we get into uncertain
environments like this, we are always going to risk not making more money.
Right, So, meaning when we're investing, we have to court one of
two risks at all times. We're either courting the risk of substantial loss or
or we're courting the risk of not making as much. Right. So,
part of our risk management approach is when we get into environments like this where
markets are really expensive, economy looks really bad, and dealing with all these
issues, we're just going to kind of put the brakes on, and if
we're wrong, it means we won't make quite as much. But not making
as much has never blown up anybody's retirement, right, And so that's that.
You know, you get into environments like this and people don't know what
to do. I get it right, because you've got the economy doing one
thing, you've got stock markets doing the opposite, and you know, usually
those emotions are going to get involved and make us do probably exactly the wrong
thing exactly the wrong time, you know. And it's not just retail investors.
You see pro do it too, And you know, that's why we
put in those risk management principles. So we're just like, hey, we're
gonna be good either way. Um, but the one thing we're not going
to risk here is substantial loss because we just can't afford it. So what's
going on with banks? Like banks are freaking me out right now? Yeah?
Yeah, and they and they should be because it's a multi pronged problem.
And I think that that's what makes it so caustic, meaning the issue
you have with banks. So if people want to know why guys like me
were you know, like madmen yelling into a storm for like the last ten
years about the Federal Reserve, it was because they kept rates at zero percent
for fifteen years. So it's not just the level of rates, it's how
long they stay at that level. Because when you have rates at zero percent
for fifteen years, everything gets refinanced, right, So debt instruments lose value
as interest rates go up, right, And the only way central banks like
the Fed can fight inflation is by raising interest rates, which they just did
ignite. So for fifteen years, you've been tilling the soil was zero percent
interest rates, right, which eventually will lead to inflation, right, because
you're just putting too much free money. That's why I say you're tilling the
soil. Eventually inflation is going to grow out of that soil. We just
don't know when, right, But you spent fifteen years tilling the soil,
and the and the and the and the site. The impact of that is
a record amount of debt piled up around the world paying record low interest rates.
So when the inflation shows up, there's only one way to fight it
with higher infest rates. But when you raise those interest rates, you crush
the value of that debt that you've created over the last fifteen years by twenty
five to thirty five percent. So those are all the safe type of assets
that banks own. Okay, so when you start raising rates going into a
recession, what happens during a recession depositor base. The depositor base at banks
goes down, right. Why, because people are pulling money out of savings.
They're in a recession. The business isn't making as much profit. So
you're going into a recession, you're jacking up rates because you've got forty year
high inflation. That's knocking the value down of the assets that the bank owns
by about thirty percent. At the same time, they're dealing with record depositor
flight because people are afraid of banks going under. And oh, by the
way, we've got to blow up in commercial office space pending that we haven't
even started to price in and guess which banks own all of that commercial office
space paper. It's the same regional banks that are getting killed right now.
Right, So it's not going to be a systemic issue like O eight,
O nine. Some banks are have done a good job. But when Biden
was out there three weeks ago, literally he did a press conference where he's
like, this bank problem is behind us. People came into my office to
see what was going on because I was laughing so hard when he said that,
right, because he's such a well yeah, and if you have a
finance one on one level of understanding, you realize that those banks are going
under because they own too much low interest rate debt that just got blown up.
Well, any bank that's been operating for the last fifteen years owns too
much of that debt. It's impossible, right, they have to own debt.
They got to have they got to have collateral underneath their you know,
underneath everything they do. So by definition, it's going to be low interest
rate debt, which is going to get slaughtered when interest rates go up.
So so there will be so there will be more of them. It's just
that it's not going to be all of them. But there will be going
to be more of them, Um Buffett. Warren Buffett was talking about this
the other day where he's like, yeah, there's going to be more bank
failures like book it and and the reason you know it is just because it's
not a one off problem. And then the other reason that you know it
too is just to keep you little little little little news flash for you guys.
In the last two months, you have had more. So when we
say market capitalization, what we're referring to is the entire value, like the
market value of a bank. Right, so if we added up all a
JP Morgan shares outstanding, that would be their market cap. In the last
two months, you've had more market cap of banks failed than you had during
the Great Financial Crisis, right wow. Yeah, And everybody's sitting there going
is there going to be a recession? And you're like, a right,
yeah, right, that's that's what happens. So again, it's not going
to be a systemic issue. But with each bank failure, it puts more
pressure on additional banks because you're tightening credit. Right when banks are going under,
they're not lending as much. Well, you've got a debt driven economy
that's kind of a problem, right, So it is dice out there again.
I don't think what they're going to end up doing, you guys,
is they're gonna end up backstopping and guaranteeing every depositor. Okay, so wow,
But then doesn't that just like make the inflation with you? Oh yeah,
because it's all the spending. Oh yeah, yeah, you bet so.
And look, and that's why we've said the inflation is going to be
with us for a long time because we can go back, you know,
you can go back twenty five hundred years, okay. And what you see
is that whenever a government faces a very tough choice of okay, we either
need to drastically cut spending and reduce debt and do the painful things right that
nobody wants to do. We've got to do that being responsible, right,
We got to do that, or we've got to let inflation run hot.
Because there's two ways you get rid of debt, right. You either pay
it off or you inflate it away. Right, Meaning if I own a
million dollars worth of debt right now, but I know that the currency is
going to lose seven to ten percent of its value a year over the next
ten years. Right by definition, that debt is going to be a lot
less onerous ten years from now, because right inflation goes up the value of
my daughter. So I'm so I do financing. I take on the debt
it today's rates or with today's dollars, but I plan on paying it back
ten years from now with tomorrow's dollars, which are worth way less. So
it's one of it. It's a process we call inflating away the debt,
and every government in history has opted for the inflationary route because bottom line,
it's easier to get reelected with an inflation problem than it is a depression.
You know. So I don't understand how any how can any economists be a
liberal? I just don't get it, understand, Like it just blows me
away, Like how did AOC have it? She has a degree in economics
expert I love, but I mean, like, this is the thing.
It just seems so I just don't know. It's it's in our best interest
to to be on the right side of all of this, And it blows
me away, like how anybody that does what you do could be like,
oh, yeah, that's a great idea to just like spend our way and
just like be completely irresponsible about it. Yeah, you know what I mean,
It's just it's well, so, yeah, I think this will make
it make a little bit of sense. So when you're talking about something that
I do. So, if you're a money manager running a portfolio, the
percentage of those that are conservative to liberal, it's probably like eighty twenty conservative.
And the reason it is is because of what you just said, meaning
if you think magically like a liberal, the markets aren't going to make any
sense to you, right, Um. Yeah, But when you're talking about
economists, economists are academics. Right. When you're an economist, where do
you like the best job in the world is to work for the government?
Well, work for the Federal Reserve. But you know, and so you
kind of have you have the same issue in economics that you have in the
medical industry, right with with all the doctors saying all the known you know,
recently, my my my daughter and my wife are in Washington, DC
right now, um for for for her school trip, and they both got
COVID right before they left, and they were talking to a doctor and the
doctor was telling them, telling my daughter because she had at twelve years old,
because she hadn't been vaccinated, she had much higher risk than my wife.
Well, what right, you could? It could not be more wrong,
right, the data is conclusive the other way. But but why does
she say that? Because she's a doctor and it's a peer review, academic
type structured environment. Right, So the most important thing for a doctor is
not to get it right. It's for your peers to think you're right.
Oh my gosh, precisely, you're so. Any economists are exactly the same,
right, It's exactly the same time, and that's why they do this,
right, That's why you know the Fed did the same thing in oh
nine. They waited too long to hike than they hike too aggressively and then
boom right. Um, so yeah, it's it makes it frustrating, but
it's the world that we live in, feeling feelings over facts, feelings over
facts where they have no business being God, I mean, that's a very
insensitive thing for you to say, you know, Yes, I'm sorry,
okay, okay, all right, all right, good I figured you,
um y'all. Zach Abraham, chief investment Officer at Bulwark Capital Management. Where
can people find you and tune in and get more information? About how you
can help them. Yeah, so, I think the easiest way is probably
to listen to our show or our podcast which you which is Know your Risk
Radio. You can just pull it up on any Google or any podcast side,
Apple iTunes, whatever the case. Go to Bullward Capital Management dot com,
know your Risk Radio dot com. Uh, several different ways to find
this. Yeah, one of those will work great, as we'll find to
talk to you that ladies. Thank you so much, seem sime H