The Capitalist Investor

Rising Geopolitical Tensions & Your Money, Ep. #198

October 12, 2023 Strategic Wealth Partners
The Capitalist Investor
Rising Geopolitical Tensions & Your Money, Ep. #198
Show Notes Transcript

The Capitalist Investor

In this week's episode of The Capitalist Investor, we discuss a range of themes, including the impact of the Israel and Hamas conflict on the economy and markets, the potential for minimum wage hikes, and the rise in gambling and lottery jackpots. We'll explore each of these themes in detail, providing analysis and insights into their implications and future outlook.
 
The Impact of Geopolitical Conflicts

The recent escalation of the Israel and Hamas conflict has raised concerns about its potential impact on the economy and markets. While we won't delve into the religious and political aspects of the conflict, we will focus on the financial implications. One of the key factors to consider is the effect on oil production, as a significant portion of global oil production comes from the Middle East. Any disruption in oil supply could lead to increased oil prices and inflationary pressures.

Additionally, tensions between Saudi Arabia, Israel, and the United States could further complicate the situation. If tensions rise, it could result in reduced oil production and higher oil prices, which would have a ripple effect on the global economy. Furthermore, the conflict could lead to a slowdown in international revenues and economic growth in other regions, such as China and Europe, especially if China makes a move on Taiwan, creating three different big geopolitical conflicts.

Minimum Wage Hikes & Wage-Price Spiral

Another topic of discussion is the possibility of minimum wage hikes. A California representative recently suggested that minimum wage workers should earn six figures, highlighting the ongoing debate around fair wages. While the current federal minimum wage is $7.25, California has already implemented a $15 minimum wage.

However, it's important to consider the potential consequences of significant wage increases. Historically, wage-price spirals have emerged when wages rise faster than productivity, leading to higher costs for businesses and ultimately higher prices for consumers. This can result in inflationary pressures and a decrease in overall economic growth.

The Rise in Gambling & Lottery Jackpots

In recent years, we've seen a significant increase in gambling and lottery jackpots. The Powerball, for example, has reached staggering amounts, with the current jackpot standing at $1.7 billion. This raises questions about the reasons behind this trend and the potential implications.

One possible explanation is that people are seeking a quick and easy way to improve their financial situation. The allure of winning a large sum of money can be enticing, especially for those facing financial difficulties. However, it's important to approach gambling responsibly and understand the odds of winning.

From a broader perspective, the rise in gambling and lottery jackpots reflects a societal desire for instant wealth and a lack of focus on long-term financial planning. It's crucial for individuals who come into a large sum of money to seek professional advice and develop a comprehensive financial plan to ensure their newfound wealth is protected and managed wisely.

Conclusion & Future Outlook

In conclusion, the topics discussed in this episode of The Capitalist Investor highlight the interconnectedness of financial markets and the potential impact of various events on the economy. The Israel and Hamas conflict, minimum wage hikes, and the rise in gambling all have implications for inflation, economic growth, and individual financial planning.

As we navigate these uncertain times, it's essential to stay informed and seek professional advice to make sound financial decisions. By understanding the potential risks and opportunities associated with these themes, individuals can better position themselves for long-term financial success.

Looking ahead, it's crucial to moni

Welcome to this week's episode of The Capitalist Investor, where you are missing one of the important pieces of the squad. But we got another important piece of the squad filling in. We got David Bartlett back for Derek Gabriel. Then we have Tony. You see Tony The tiger got myself not kicked off and fired yet. Cool hand. Luke. What are you doing. To be here. Guys? And my man, I thought Dave. Was going to take my spot for real. I thought he was, like, officially going to be fat. See this too? Hot little guy did not want that seat. Yeah, so I too high. Like, you know, I give out flak for it, though. You know, my people, uh, you know, get in there. I get too high as I get it starts start getting bit too pessimistic. You know, you got to watch out. Sometimes they're clamoring for you. All right, well, what are we. Well, we're going. To interesting things today. We like a lot of things that happened over the weekend as sad things happened over the weekend. So I think we're going to talk about one of the things everyone wants to hear kind of our financial takes on what's happening over in Israel and Hamas in the Middle East. We've got possible minimum wage hikes again coming up. Yeah, yeah. Had more strikes on the horizon. What else is new every week and this strike pops up and we got a nice cancel for you coming up as well. So we'll start off with the whole Israel and Hamas side stuff that's happening in the Middle East. Guys, I don't want to get too much on the, you know, religious aspects or things like that. I want to hit them more on the financial side and what you guys think that the overall impact is going to be on the economy markets, if it's long term, short term, things like that. Well, I mean things everything got everything escalated over the weekend, right? So I figured that when the markets opened on Monday, the markets would be down and they were, but they quickly rebounded. And we've have been up ever since. You know, we've been up. I think Monday was a down day, but to Tuesday was a rally on Wednesdays appearing to be a rally as well. And, you know, it's so crazy how everything is so interconnected because basically what you've been having are Treasury yields coming down for the first time ever in a long time, not ever, but in quite some time. And that means that people are buying them. And if people are buying Treasuries, they're more of a, you know, historically a safe haven, you know, for $4, you know, to put your money in in times of calamity. Right. And then but now that is, believe it or not, striking inflation fears again, because as interest rates come down, people are like, oh, it doesn't cost that much to borrow money anymore. So we're going to go buy some stuff. I don't know. But the biggest thing is, is that, you know, with this conflict in the Middle East, that's where most of the oil production comes from. Yeah. And you know, we saw Kuwait, we. Saw Arabia and Israel were like in talks, like be in good terms and this completely like, ruined it. Yeah. There's not going to be much good terms between Saudi and Israel and this could actually increase tensions between Saudi in the U.S.. Right. And if that's the case, they already cut U.S. production estimates like two months ago, lowered the OPEC. Yeah. Were they right? So if tensions rise, well, what are they going to do to the U.S.? So tensions rise. U.S. and Israel and Saudi Arabia, they're going to cut production more and increase oil prices. Right. Which is going to increase inflation. Yeah. Yeah. I think that's the biggest short term impact that I'm seeing. And I'm, you know, reading about is and really the next shoe to drop is if Iran gets directly involved is really that would that's where prices are going to surge. I was doing a little digging on this one. When you say get involved, are you are you talking directly about military involvement like this? State your candidate? I guess they get, you know, involved in the war. Monday, it looked like, you know, crude opened up about 4% higher just on the, you know, the the risk of that happening in in to put it in a context like we kind of put ourselves in this situation ourselves. Like I was looking at the numbers. The strategic reserve right now is at the lowest level since 1983. We're at 350 million barrels and that's compared to 638 billion barrels the week of Biden's inauguration. So we've kind of like done this to ourselves. It's become a national security issue now. It is. And it's it's perplexing and how we are where we are right now. Right. But but how many places can we be at once? We're in Ukraine. Maybe, or sending money there, at least not now. We're not we're not we're a mobilizing aircraft carriers to. The one we actually moved, the one we had one an aircraft carrier in the Mediterranean that was focusing on Ukraine. We reposition that down to the southern part of the Mediterranean to now focus on Israel. Yeah. So it's like what's our focus now? Is it both? Is it one What happens if China makes a move on Taiwan? That's that's a big that's a big one. This is the time to do it. If I was in China's shoes, if I was a leader over there, I'd be making a move. You know, stretching world stretched pretty thin, right? It's starting to become that way, right? Yeah. Sucks. I mean, it is. This is this is the snowball effect, right? The whole Russia Ukraine was number one. This number two, this is number two. And you might have China. Taiwan. That's why I do think you mentioned a couple of things there, Tony, that they're paying attention to. I tweeted this kind of subliminal tweet today just said bond yields. So I said. Yeah. But that's what I'm paying attention to, is that tells the full story. You know, bond yields at a time. This morning when PBI came in higher than expected, PTI came in at 2%, did it? I didn't even see like 1.7% estimates. Wow. You got revised higher last month. Explain what people means. So BBC Producer Price Index, it essentially is what the manufacturers are paying, which then goes on to the consumers, right? So wholesale pricing, the wholesale will eventually go to retail. So PI comes in hotter, it means inflation stickier and is higher as well for the consumer for you. PRICE So the fact that it came in hotter this month and got revised higher last month and bond yields ripped a lower, not higher, means that the market's actually more concerned now about this whole Israel situation and flight to safety that you're referring to. Yeah, outside of inflation. So now the Federal Reserve now has another piece of the pie that was completely blindsided, unexpected. The now now the rate hike, you know, rate hikes basically are not going to happen. Essentially, it's pricing in the end of this year. Rate cuts are pricing in in March of next year. There's like a 35% chance now of a rate cut in March that was not priced in a week ago. So the markets are worried that this is going to cause a massive, you know, snowball effect, possible increase in conflict over in the Middle East could also cause maybe some issues with international revenues, whether it's China, whether that's the revenues in Europe, you know, slowdown in the economy in other places. What's interesting is as bond yields are dropping, you know, markets might really open higher. It's kind of staying flat. So it's just these market observations, you can tell a lot and tell a story. Well, yeah, I think it's important to tell the story because I know I've been concerned about bond yields for a long time. And then now the markets, you know, dropping bond yields, you know, are going to have a credit crunch. I was listening I was listening to some talking heads like right now there's earnings season is kicking off and we're having the banks, you know, always kick off earnings season. And you were talking about how Jp morgan is their forward multiple is historically really low. Bank of America is trading at gosh what is that cute the the coupon not to keep the book value per share rate like these are some historical lows for for banks and would you you know like the the question on TV and everyone did kind of skated the answer is this the time to buy banks. I think it depends on their and what their balance sheet looks like. Right. I mean, a lot of the banks, the ones that are going to be under the most stress are the ones. The smaller ones, one. Of the ones that have exposure to assets that are going to have a problem when interest rates stay higher and they have to refinance their debt. Right. That's when the delinquencies come into play. And then it's like a house of cards. And I think a lot of people are just they're just saying, I don't want any part of the financial exposure. Yeah. I mean, you know, it comes back to the balance sheet that that they was referring to. I would be less inclined to buy banks as a whole than I would be a couple of years ago just because we're interest rates are. I know we own Charles Schwab. It's a very good balance sheet. You know, they've been in the business for a long time. Regulations got tighter for bigger banks, Right? So, I mean, since 22,009, that's that's good. But the problem is, is all this debt needs refinance at these higher rates. You're talking about corporations 20% and then we're talking about before the podcast, 20% of corporate corporate debt comes due next two years, 50% of government debt becomes due the next two years. Consumers credit cards, balances have risen, auto loans, obviously arrears and mortgages have risen. Right. This is all impacts the banks. The whole everything goes back to the banks. Interest rates right. So I'm concerned that, like you said, the smaller regional banks loan transactions are going to decrease a lot. They already have. You don't want to own a bank that's more on the consumer transactional side. I would say when I'm in a bank that's diversified, that's why we own Charles Schwab. Yep. And then along with JPMorgan, you know, and Bank of America. Exactly. So the small regionals, they're just not like you mentioned. Well, you're going to have a lot of consolidation. You have a lot of the big banks come in sweep of through the small banks. Yeah. Essentially 50 years down the road, we have four banks in the whole U.S.. I almost thought it was going to happen this last banking crisis, you know, because as these regionals start, you know, as their price starts falling, you know, they could be just there for take over. You know, just. I would. Buy out. What I really wonder is if the open market, the market's done, the Federal Reserve's job for them for a long time, the market was you know, it was the move in interest rates from 4% to 5% the past month essentially was accumulative to one or two rate hikes to the Federal Reserve. So the market kind of did a Federal Reserve's job on. That's on the upside. What if the market actually does the Federal Reserve's job on the downside? What if things get pretty badly pretty quickly in the economy, whether it's war, flight safety, things like that, and rates, you know, actually the open market bails out the whole financial system by lowering rates back down to one or 2%. Obviously, we have inflation issues that are sticking to that point. What if there's a flight safety net back that way? That's something I've been thinking about. I'm like, what if the open market drives down yields by themselves because of flight to safety and it builds out these banks, it bails out mortgages, it builds out the whole financial system, we could get a rebound of inflation back to 10% as well. So it's a fine balance. Fed claims they're data dependent, so they're watching that stuff. And I think to your point, Luke, Yeah, they're they're they're weighing in, digesting all the other factors that are going on at the same time. So when they, you know, if we go back to this conflict right now, like they see the pressure it's putting on the world economy and they're more likely to pause and take it, take a breath because they want to see kind of how it plays out before they just jam another hike into the picture and blow things up even faster. Right. All right. Well, we'll see how this plays out. Earnings season is kicking off and we got a lot of world conflicts going on, so we'll see how it plays out. Anything to get elected these days. We have a California representative who is coming out and saying that she thinks that the U.S. minimum wage workers should earn six figures and $50 an hour. The current federal minimum wage is $7.25, and California being the highest at 15. So we're talking about what does that 300 to 500% increases on wages? Yeah. Okay. I just call that any say anything to get elected. However, we learn like this multiple times throughout history like would you ever That's it. My problem with the current world is it's all gender based and it's not backspace. And we don't learn from history anymore. And if you don't learn from history, you doomed to repeat it. That's insane, right? That's right. So capitalism itself, No one first of all, no one makes seven, eight bucks an hour. Like very few people. Like I'm saying, I say no. I mean, like like minimally .01 5%, 0.5% of the population, whatever that state is. Right. The reason because the reason of that for that is that capitalism is driven by wages. Amazon themselves have driven up driven up the minimum wage to 15, 16 bucks an hour just because of capitalism and the power of innovation. And by itself, the fact that we want $50 a wage now or this this whole, you know, minimum wage, it says it's all a cycle. It's like inflation hurts the pocketbooks because of government spending, because of government raising minimum wages, because of things like that, these socialist policies, then people get mad at these policies and want higher wages. And it's a whole doom cycle. This is the problem that we are. You like that one, huh? That that doom cycle? Yeah, I brought that up last week, but this blends into one of our other topics. We got another strike coming. We got Mack Truck going on strike, you know, because then it started what's what ups than the automakers and Vegas hospitality and last week it was health care now it's Mack trucks they want 20% increase um bonus ratification like I mean this is going to be like this this like snowball effect as you mentioned before and if people are striking to earn more money than they had, you know, then the the employers are going to have to charge more for their services, but they got to pay everyone. So it's this endless, endless, endless race of to higher inflation. Yeah. I mean, Tony, you're hit on like the wage price spiral, right? And I academically, what you would say is these should be corrective forces, meaning if the cost to produce the goods or services are getting higher. Right. The demand for them from the supply demand equation is going to drop. Right. And the employers are going to say, all right, now we need less people. Right. Which is going to lead to more unemployment and lower prices. So there should be some correcting forces getting involved here. But look to your point that just chaotic in terms of like when you read the headlines, like it doesn't make any sense, but this is where we're at. Yeah, but then plus you have like the the the jobs numbers coming in all all funky and stuff and they're talking about, oh, there's, there's, you know, job growth then. And if you look under the hood, it's really we're we're losing a lot of full time jobs and the part time jobs are escalating. So people are either have a full time job and taking on a second job or they lost their full time job. And now have two or three part time jobs. So this goes back I'm going to start off by saying my, my, my girlfriend works in h.r. And she talks with a lot of recruiters and there's been a big shift in the past like year that recruiters are having a tough time finding people switch jobs because a lot of people are concerned about the environment and concerned about losing their jobs. They want to keep their maintain their jobs, not have jobs. People are low, you know, thinking a lot more about if they have, are they able to maintain that for a long period of time. So the people that are part of labor unions, I don't think are realizing that they don't have as much power as it did two or three years ago. You know, during the whole COVID crunch when everyone was paying 25, 30% more money to poach employees, things are a little different now that. That's the that's they're. All about to get a wake up. Call that that's the employee that should be concerned. The one that was hopping jobs. And now I'm making 30 to 50% more than I was like, was that person really like, you know, capitalism? Was that really was that person really worth it? That's a person that should be really worried about is. Where as an employee, most people don't think about quantifying what they're worth. Productivity, what is the value on their head. Everyone's got a value as performance in terms of productivity and with unions, as market has leads to all the time. He's been talking a lot about it on Fox. You know, unions basically take an average of the most productive workers and the least productive workers and makes everyone equal. So the most productive get taken down and the least productive get taken off. Right. That doesn't work in long term. That's not capitalism. This is why unions ultimately always fail and actually hurt the system because in capitalistic system you have to learn how to teach the non productive workers how to be productive, not just let them be non productive and continue to work in the system. So I think a lot of people are about to get a wake up call and realize that recessions are a normal parts downturns and not making enough money is part of the cycle and things always equal at the end. However, the government always there seems to be recently to bail out everything, including, you know, they did it back in 2000, those nine, I think GM they did it back to these automakers before. What's stopping them from doing it again, the Biden administration, from giving these these oh yeah, all hope support this these labor unions and give them money that's this is the problem is you set precedents and people want more and more more they don't want to cut back their own spending habits because they're addicted to spending. They want to make more money, be takers of the system. This is why it's a big Ponzi scheme. If we don't address it soon, the whole Ponzi falls. Yeah, absolutely. And your take on that is we had a. Downer of a show today. I'm sorry. This is what happens when I'm here at Jesus. I just. I want to be optimistic. I really do. Let's talk about let's get to our canceled or let's talk about the Powerball. Let's let's talk about how pessimistic you're talking to the gambler. Let's talk about the decrease in the gambling and how Powerball will be going off tonight as we in this show, it is at $1.7 billion like it seems. Why are they so high lately. After they change the formula? I'm not really a lottery player. I don't know that. I don't either. I mean, I guess when it's this high, I'll go spend 15 bucks. Yeah. Do the, like, the expected value, 1.7 billion where my chances of winning this is about. Well, I mean, like it was a big deal to get above a billion. It's like I felt like we've been number over a billion for inflation. It's real. I think I may be. They're just making the odds harder. Well, no, this is actually something I've been paying attention to. Oh, this is something I think it's important. Before three or four years ago, we only had $1 billion jackpot. And like this Mega millions, whatever it's called in history. Yeah, that's what I'm talking about. And then the past like year we've had every time it's like over a billion now. So what does that tell you if actually people are spent on credit cards, don't have money, don't have savings, and you've seen these billion dollar jackpots, people are gambling, more people are spending more on lotteries. So it's an actual behavioral thing. Like people are more willing to gamble when they're desperate. Right I Caesars MGM revenues saw the highest ever even this year. You know the sportsbook stuff I mean we're an inundated with it with commercials. Yeah so. People want the easy way out right they don't want to put the work in the old fashioned like you work hard American dream like that's out the window They want the get rich quick scheme lotteries Quickest way to do. That Yeah I mean the after taxes and this that and the other the lump sum is $750 million. What do you do with that? I mean. If you if any one of our, you know, listeners are more than happy to tell you how, you know, give you advice on how to manage that money. To. Take the lump sum. Yeah, Yeah. Because I am I was always under the impression that. Okay so. It's it's, it's trying to show if you were to win David Bartlett of the all star financial planner is here. We could make. You the now what if you're the voice of reason in the in. Dollars. Yes. Okay what would be just some simple you know this is very we were unprepared to talk about this. I'm gonna put you on the spot. What are some very simple general takes on ways and things you should be do If you were to win them. On first thing to do would be asset protection to make sure you're working with, you know, a team of professionals that are going to help you protect your new wealth, right? You're going to need their all the legal documents to get yourself set up. You're going to have generational wealth. So not only for yourself, but you're going to want to make sure your, you know, your children and their children are taken care of. I don't know what the status, but how many of these lottery winners. I think 70. Ended up going bankrupt. Right. Because they don't structure things the right way and they spend it amazingly faster than it comes in. I saw last year's winner of 2 billion, which ultimately it was like lump sum and after taxes, like 700 million, same, very similar to this, he bought like a $50 mansion in California and now the $30 million mansion in Cali, like two of them. And I mean, between property taxes, I mean maintenance. I mean, hell, I mean, I have a, you know,$300,000 house and I don't want to pay 100 bucks a month. Somebody cut my grass and everything else like that. I can imagine the maintenance on like a $50 million house property like taxes. And you have your you have. Your own crew. You had like. Ten people, employees working for you to maintain that house. Yeah, exactly. So you want to bulletproof your plan so that you can't mess it up, right? That's that's step number one. Yeah. The last thing I want to do is walk up to the front of the line, and I'm on TV and I'm holding the big check, and the next thing I know, I have a bunch of new friends and people are, you know, kidnaping my family and stuff. Like, all kind of like, I mean. Tony would go in the witness protection. But yeah that's why you like you mentioned legal trust. Legal like get yourself a trust and have the trust accept the money is always something that I've always known that that's the best route to go. Some states actually allow you to be anonymous for the acceptance of the money. And then the next thing is, is that I've always been under the idea of take the money. Now I don't want to wait 30 years because what if what if that money like disappears? What if that money goes to zero? What if there was bad investments with my money? Like go the if they're offering you the money right now, go get it right. That's kind of our take on Social Security, right? Yeah. Is well, it's there with Social Security issues. 25% of the trust fund running out in like eight years. And the government who knows what's going to happen with the government? You know, all the taxes, take some security, we can get it. Same kind of philosophy of the government or whatever it is, which, you know, who's the biggest winner of the lottery. It's the government. Tax. The House House always wins take away can get it. So yeah, I mean, that's interesting. I mean people are gambling more and I mean I guess people are gambling more income in very unlikely to come in at a large amount of money. But if you do come in large amount of money, it's important to know what to do with it. Right? Yeah. Seek help. Yeah. Gamble responsibly. That's why they had. The number in the bottom of the screen, Right? Right. Yeah. Gamblers Anonymous. Yeah. That's funny. All right, so, you know, sum up, I guess the convo today, you know, there are a lot of issues out there, and I do hate to be pessimistic a lot. And even Varney said to me on Friday, he's like, well, we're going this week in pretty depressed. Sorry. Like, which frankly, it was actually a depressing weekend. So it was very well. All right. How how do we optimistic, though? Yeah. One optimistic thing for the market, according to a lot of analysts, you know, analysts and things like that, they are saying that we're expecting a 10% earnings growth next year. And if the market was good this year with 10% with everyone beating their numbers and hitting their targets and 10% growth, then markets should be in good shape for next year. Yeah. So just watch out for those black swan events. Maya, my last piece here will be just on the planning angle, right? There's a lot of anxiety out there. And Tony, we recently talked about this. One of the best antidotes for all that anxiety is to prepare yourself, right? And what practically what that means is, you know, when you're working with, with a team, they should be stress testing your financial plan, your portfolio to see what happens when this negative stuff, if it were to happen, how does that impact your personal situation? So you have more confidence that you're set up and you're in a more all weather kind of plan that's going to get you through, you know, these potential risks? Yeah, I guess my turn to be optimistic, my optimistic take is that we keep the bonds going a little bit longer. So anyway, I appreciate everyone listening as always. I think we'll have diamonds back next week. Maybe not. We got maybe. Dave, you have a name for Dave. We'll come up with one. If we can come up on the spot. All right. Well, it's always nice having you, Dave. Thanks for joining. Thanks to everyone again for listening to the cannabis investor. And again, if you have any topics that you want to talk about, always feel free to hit me. Tony, Dave up on Twitter, LinkedIn, whatever, Be on on our website. Email. We've got our emails as well. More than happy. Take suggestions. We're always looking for more optimistic things to talk about. Maybe you have one. So anyway, thanks for listening again. We'll see you guys next week. The opinions expressed in the podcasts are for general informational purposes only and are not intended to provide specific advice or recommendations for any investment. Legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.