June Economic Data: The Investor’s Read on Housing + Consumer Confidence

Patrick H. Donohoe (00:48)

Everyone, welcome to the Perpetual Wealth Podcast. Thanks for joining us today. I'm here with great man Gary Pinkerton. Gary, how are you?

Gary Pinkerton (00:57)

Hey everybody, I'm doing awesome Patrick. I can't wait to kick this back off.

Patrick H. Donohoe (01:02)

What's up, what's new in your world?

Gary Pinkerton (01:04)

Well, ⁓ lots of things. I just moved. we have an American two hundred and fiftieth anniversary or ⁓ birthday coming up here, which is just incredible. I'm old enough to remember riding my bicycle down my ⁓ down Murpheesboro Walnut Street when I was a little like a seven-year-old ⁓ for the bicentennial, and there was red, white, and blue everywhere. It's a little sad right now that there's not a lot of American flags out yet, but you know, I've I'm giving it to the end of the week. So

so we just moved in a new home. ⁓ lots of real estate stuff going on down here in Florida. And we're actually getting to that topic today. So very, very excited.

Patrick H. Donohoe (01:39)

So what's yeah, we're gonna talk about a couple of the major ⁓ statistics, metrics that came out today that are part of what gives a pulse on how things are going in society and in the economy. ⁓ might as well just dive into that. And you know, diving into it, the reason you know for mentioning these stats, it really gives a kind of an objective semi-objective measurement of where the economy is, where it's going.

this shapes political decisions, it shapes business decisions, and that's gonna be a big focus ⁓ of ours because right now I I think it's it's safe to say that there's a lot of information that gets thrown at people every single day, whether it's social media or news headlines, multiple social media platforms. And and oftentimes when we hear things about the economy, about ⁓ where interest rates are, where housing prices are, where markets are going.

How markets are shifting. Sometimes it's hard to understand how that applies to the individual. And so we're gonna get into some of the core statistics today and unpack those, make sense of those as far as how it applies to people, what the typical narrative is with you know the average American, but then also what the strategic narrative is. Because those watching this show.

Are those that you know are really seeking ways to build wealth, seeking well ways to improve their life, try to understand where the opportunities are and ⁓ and and shoulder stewardship over that responsibility. And so understanding these numbers is typically not something you learn in school, unless you go to school for you know finance degree or an economics degree, ⁓ but they're still relevant. And so understanding how they apply and how to position yourself is really where the opportunities come from. I mean, Gary, let's start with that. I mean, you're

Maybe talk briefly about your background and how that taught you to think, which I think is somewhat rare because most people don't necessarily go and get degrees in kind of a science field. but you did in a very important science field. And it taught, you know, this kind of linear way of thinking. And I think that's important. At the same time, there's, you know, a juxtaposition of how we behave as human beings, which isn't linear, both individually and collectively.

Gary Pinkerton (03:42)

Yeah. Yeah.

Patrick H. Donohoe (03:59)

⁓ and and I wanna kinda go down that path, especially with these statistics. So maybe just unf give us a sense of what your background is and how that shaped the way you look at things today.

Gary Pinkerton (04:08)

Yeah, I I think ironically it wasn't a help when it came to doing investing. ⁓ so I mean I I grew up on a dairy farm where I learned very, you know, hard work ethic, but I also learned ⁓ you know, you got figured out. Like there was no Amazon. I still marveled every day today, I or every day now where I need something, I order it from Amazon. It's there for like six hours, you know? And I mean, it was like that.

Apollo 11 movie where like this is what you have when they dump out the box, fix it with this. I mean, that's basically how it went, or you're gonna lose a week, you know, in the fields. ⁓ and and so I mean that that helped. And then I went from there to the Naval Academy and got into nuclear submarines. I was a mechanical engineer at the Naval Academy, I was a nuclear engineer, ⁓ master's program, and then obviously nuclear engineer in in the Navy. And yeah, it was very much, check your emotions at the door. You know, this is what the book says.

You can either do what the book says or you can leave. I mean, and that resulted in a 75-year unblemished record of operating nuclear propulsion plants. I mean, the US civilian industry doesn't, sadly doesn't have that record, and no other country has that record. But it came from rigor and it came from this incredible backup where we're watching each other all the time. We're monitoring, we're reporting on each other, you know. So, like it's a very scientific, very specific, zero-defect environment.

And then I went from there to being a big time real estate investor. And you know, those checks and balances aren't there, the procedures aren't there. And then you start doing things on emotion, but you don't know you're doing them on emotion. And that's risky.

Patrick H. Donohoe (05:38)

Well let's let's let me

take let's take a step back because I think you missed an important gap there. Because you obviously with you're if you're being trained and conditioned in this very linear way of operating. So first, you know, I'm assuming nuclear engineering, there's a lot of science and straightforward thinking and very, you know, I would say narrow guidelines. But then you have the operation structure, which is the military, which is very disciplined, mainly because of what's at stake.

Gary Pinkerton (05:42)

Okay.

Patrick H. Donohoe (06:07)

And and so even though you have human behavior creeping in, it gets quelled pretty quickly. And and so maybe talk about how that applied to the way in which you were managing your finances because you I mean, you you spent a long time in the military, but that wasn't gonna be where you, you know, wanted to end up ⁓ you know, at at eighty years old. And now how that translated into what you did financially and then what made you pivot to real estate.

Gary Pinkerton (06:13)

It does.

Yeah.

Yeah, so ⁓ I quite frankly, I was just stovepiping, right? Like there were things that you know, there's just so much to do on a submarine or in a military career that you can't do it all yourself. I mean, no no team I have a hundred and sixty-five people who are supposed to be helping me be successful, right? And the best ships did that. And I became very, very good and very comfortable in training people and then delegating things to them. I mean, you can ask my team at Paradigm Life, you know.

When Gary delegates, I just make sure that they know what the desired outcome is. And if they want to run with it, like some of my team do, most of my team, I just let run. And they know to give me updates and things like that. And so it's it's a very the military is very, ⁓ very rigorous ⁓ from that perspective. And there's also a ton of backup. Right. And so with the finances, that wasn't my job. And I made the mistake of not giving and asking enough questions or giving enough back.

Feedback. And it's really kind of interesting. We would get a new advisor back then every time we would move from home port to home port. And it was like 2009 or so. I show up in Pearl Harbor, Hawaii to take over the USS Tucson, my submarine. And as I'm getting ready, I have a ⁓ you know a meet and greet with my new financial advisor there. And this guy was like 15 years younger than me. And he's recommending a mutual fund I'd never heard of. And in the end, I and I ask questions like, well, why are you recommending that? You know, and just

Because my brain was kind of working with this, I got involved and asked hard questions about the kind of thing that they taught us in the submarine command course pipeline, leading up and the nuclear power side of qualification to be a commanding officer. So a lot of like hard questions. You didn't ask enough questions here, you fail, you know, that kind of thing. And so I'm just kind of asking questions to this guy. The answers are not good. ⁓ well, it's what the boss said we should talk about this week, you know, those kinds of answers. And so it is planted in my brain, okay, make a note.

Come back to this when you have time. Well, I never came back to it because I was in a struggle to get the ship deployed. We deployed. Then all of a sudden I'm getting relieved two years later and half my money's gone. And I didn't ask any questions because I had convinced myself or told myself that that was not my job. Now looking back on it from a higher level and from a financial perspective, you got to say, well, isn't that arguably the most important thing that the provider, the breadwinner for the family, should be doing is making sure that the financial future is solid?

⁓ but emotionally we don't think that way. So I pivoted to real estate because I did feel like I had more control there. And I do have more control there. ⁓ and and so yeah.

Patrick H. Donohoe (09:05)

same time you look at you

and and I'll I'll do the parallel between and and we're all we all do this right I I don't to to take 1000% stewardship over every aspect of your financial life I just don't or not or just life in general not just your finances I think is is ⁓ is unreasonable right and it and so there are I mean we're we're tribal we're used to kind of picking a tribe picking a group trusting them that they will have your best interest in mind

And make decisions in a fiduciary way, and that just ends up not always happening, right? But I would look at where you came from and what you expected out of your crew or out of a military function and then apply that to other areas of life. And and so that if you really look at the financial world, okay, it's I. I think a lot of people do that. And we plug into a system that everybody else is doing. The herd mentality makes us feel safe, makes makes us feel

protected, that our tribe, our group has our best interest in mind because they're recommending it to others. And that sometimes not sometimes that leads to not the greatest outcome. Right. And I think you experienced that when you lost half your money. A lot of people did during 2008, 2009, 2010. But then going into real estate, I mean you obviously felt a lot of pain. It wasn't right. You became disenfranchised with

you know, how the typical financial services industry works. And then you pivoted to another field. Okay. And I I mean I obviously know you know your background. ⁓ why don't you talk about that? And then the kind of linear way in which you approached it and what type of experiences you started to have there.

Gary Pinkerton (10:50)

Yeah, so the primer was to just get my family's finances, you know, stable. And so I was just pulling money out of the markets and putting it into real estate. And along the way I found, you know, Paradigm Life and ⁓ and you and and I got really excited about that and and inspired that I could help people in that way. I mean, I kind of pivoted from ⁓ you know, being somebody who for nearly thirty years had been protecting America from outside threats. And I'm

Obviously, there's all kinds of red, white, and blue behind me. I'm a very proud person. And ⁓ I'm sorry, I'm a very, I'm a very huge believer in America and and the future of America and the freedoms and all that. And so I I wanted to do that and I started to realize that the threat's really not on the outside, it's from the inside. And so I wanted to support families and the biggest struggle that families had back then and still have and probably will a hundred years from now is how to optimize what you know, all the hard work that they put into providing for their family.

How do you optimize that to get the best result that you want out in the future? And so applying that kind of linear thinking, ⁓ I went and just looked at, okay, if that you know, we need to save some money, we need to invest some money. And so where can we do that to get to our financial destiny with certainty? And I didn't really have a playbook for that. And frankly, Paradigm Life didn't have anywhere near the playbook we have today for that, but we had the building blocks that caused me to ask questions.

It really got me moving in a direction that I've been inspired with for fifteen years and will for many more.

Patrick H. Donohoe (12:22)

So where did where did you start, I mean, as you look back on those experiences, even experiences today, like where have you seen human nature creep into the expectations set by linear thinking to essentially disrupt and maybe veer away from the intended outcome? Because I I think where I'm where I'm getting at, and this is where it goes to the statistics that we're gonna get into in just a second.

Gary Pinkerton (12:44)

Yeah.

Patrick H. Donohoe (12:52)

Right, is that there you know, there are especially with economists, those that run the government, even run businesses. You you essentially invest or put money into certain areas and you expect a specific outcome, but that's not always ⁓

It doesn't really happen that often because human nature gets in the way and causes that intent the path to that intended outcome to veer. So where did you start to see that with your real estate? Start to see that with working with clients and even looking back at, you know, what happened in two thousand eight, two thousand nine, which caused you to go down this path, how do you now frame that experience just based on what you understand now about human nature?

Gary Pinkerton (13:32)

Yeah, so I I found over time that most humans, you know, it's in the end it's hubris, it's a lack of humility. ⁓ but it is in our at least most people I know, and certainly me, it is in our nature, our instinct, I guess, to ⁓ take credit for things that are successful and blame others for things that go poorly. ⁓ but if we could flip that, if we could take credit for things that go poorly and say, well, you know,

Can't really take too much credit for that going, well, I'm glad it did. Then it would put us on a much better footing. ⁓ but it is human nature to think like when you see a pro forma for a real estate property, or when you see a a syndication or an in a passive investment you could get into and and you're gonna get a 12% preferred return. ⁓ I have thought, and I've heard many people tell me that they expected, fully expected, they've already spent that money in the future because it's going to come in monthly. Like we just expect it's going to happen.

We take out the fact that there's a tremendous amount of chance that none of that stuff happens. Right. No one expected, I mean, few, many people said, like they say today, that the markets are overheated, price and earning ratios are too high. But yet if you go back and ask them, why were you doing what you were doing in 2008 or 2009? ⁓ because I didn't see it coming, right? Like none of us actually do.

Patrick H. Donohoe (14:54)

Yeah, and that's interesting, you know. I think behavioral economics is one of those newer, newer fields. And it studies, I would say, the interaction of human beings into a very, you know, in a sense, binary system. And it's just interesting. Case after case, we're all humans, and what ends up being assumed as a linear A plus B equals C ends up being, you know, A plus B equals Z.

And and that's and it's what's interesting, I mean, you could, you know, some of the recent events just look at, you know, whether it's good intentioned or not, which is questionable, but look at California and you know, the quote unquote, you know, investment it made into you know, certain government programs only to end up giving money to people that just bought, you know, expensive cars in Bentleys and didn't really apply that to

to the specific service at hand, right? That's human nature, right? They without necessarily good incentives and disincentives are going to squirrel away ⁓ money, right, that was intended for one outcome only to produce another. Right? So that's just an example. And so I look at again, right, where you know this linear thinking is applied to finance only to look at what ends up happening.

With 2008, 2009, a failed syndication, a failed investment, a crypto scam, a Bernie Madoff, you know, a Sam Bankman-Fried, it if the list goes on, right? Where we assume this linear path of how people are gonna behave only to be disappointed, right? So looking at that, like how do you now knowing knowing that with your specific investments that you've made, ones that have gone well, ones that have gone

sideways, what are you seeing now that allows you to mitigate risk in advance of that happening?

Gary Pinkerton (16:48)

⁓ what am I seeing? It's more about having some structure in place that forces me to take some actions. ⁓ first thing I do is I run everything by my wife, if it's i even substantial in amounts. And ⁓ people may call me sexist on this, but I have come to learn and appreciate that there truly is something to women's intuition. You know, in in the ⁓ hum or in the animal species, the the

Patrick H. Donohoe (17:01)

It's

Hundred percent.

Gary Pinkerton (17:17)

The mother is the one whose job it is to keep the young ones, keep reproduction happening, right? I keep the young ones not dying so that the future generations come. And we're kind of the silly ones who go out and fight the woolly mammoths with a not so pointy stick. And that stuff has lived, in my opinion, that stuff has lived on. And so I don't see, you know, I I often do not see risks or downsides to things. And when I ask my wife, she's like, absolutely not. That guy's a shyster. I'm like, where'd you get that from? You know?

Turns out to be true most of the time. So that's one thing. ⁓ and and having, you know, trust but verify, that's been out there forever. It is an absolute cornerstone of the military. ⁓ but I can humbly say to the audience that ⁓ I had that ingrained when it was when I was at work. But then I would flip a switch and I would be at home and I would be doing stuff based on emotions. Right. And so now ⁓ I say, Well, show me the contracts. Like prove to me you have a tenant that's it that it's actually paying that. Like it I

I don't, you know, let's validate this thing. And then I do testing, you know, like what's the what's the worst downside? So it's really about having structure and having systems in place. Again, it goes back to the military, right? You kind of take your emotions out of it if you can. And we help clients do that, you know, I help clients do that often.

Patrick H. Donohoe (18:34)

So this is where we'll pivot into the stats. And the reason why I think it's important to go through this conversation is to really highlight that you know we have some incredible skills as as human beings, right? To think logically, think linearly. I mean, look at everything that's been created. I mean, it's kind of a miracle every every day. But there is a part of us, a very old part of us, that acts instinct instinctually.

As if you know there's a woolly mammoth around the corner that's gonna trample us. And so knowing that we have those two sides of our thinking, it positions us to understand information ⁓ in a different frame to be able to make logical decisions, strategic decisions, take advantage of opportunities. Okay, if you don't understand, I would say those two modes of thinking, it's gonna be very difficult. And what the typical response is, the default.

Is to just trust somebody else that they're gonna do the right thing. ⁓ and you may get it right often. ⁓ you may not. And my experience is people don't get it right very often and end up getting results that they didn't want in the end. And so what we're gonna get into is really statistics around ⁓ housing, around inflation, and around consumer confidence. these are all stats that came out as you know, this morning of us recording this, so it's kind of fresh.

and one is the housing index, right? The case Schiller index, and we're gonna get into the Chicago ⁓ PMI, and then also we're gonna get into the consumer ⁓ confidence study. Okay, but these are very important things to to look at because what it does is it shows the outcome, right, of where people are making decisions and the direction things are going.

And there's a way in which you can look at it and and ⁓ kind of understand the underpinnings of what it means, what it's measuring, how things are going to react, you know, to every action. There's a reaction. Okay, and it and it I mean, the more knowledge you have around this, the better you're going to be able to position your career, your business, your investments. So let's first talk about home prices. And the reason why I think this is important is because the biggest, you know, biggest asset somebody has is ⁓ is their house.

And it's not for everybody, you know, not everybody, but you know, predominantly the predominant amount of Americans, the biggest asset they have as their homeowner is their house. So where housing prices go is really important. And what's interesting right now is I think it's where are we at, Gary? It's like an ⁓ 11 straight months of lost value in real terms, right? When you factor in real estate growth against inflation.

Gary Pinkerton (21:21)

Yeah.

Patrick H. Donohoe (21:24)

Okay, so let's look at that data. So what's happening underneath, Gary, that's causing, that's causing this. I mean, there was a 0.8, what was the statistic this morning? ⁓ it was 0.8% over the previous year. Okay. And there was an expectation you know for it to be at 1.1, the 20 city measurement. for the quarter, I believe it was, you know, 0.9. But what is this statistic?

communicating. Like first off, what does it communicate? And then how are how are how is it being used by, you know, institutions, investors, ⁓ even, you know, politicians, lawmakers, ⁓ to influence policy, influence business decisions, et cetera.

Gary Pinkerton (22:13)

Well, it's it's certainly affecting all of those. So people, you know, I would say if you take the big picture items from this and the impact of this, people are not wanting to move and they're not wanting to sell property, right? I see that personally here in Cape Coral big time. ⁓ I have ⁓ short-term rentals and I have long term rentals. and we have one that we were considering selling. And all three of those aspects of real estate.

⁓ are way, way down right now. And so why is it that price rental prices and daily and nightly averages for short-term rental and homes on the market are at an all-time high? Why is that happening? Well, first of all, real estate is local, right? We all know that. So I would say our statistics down here are far worse than this is showing. My properties are down probably twenty, twenty-five percent from the peak. And it's kind of typical in a cyclical, ⁓ you know, kind of waterfront area. ⁓

And so why is it? Well, a lot of people bought homes here at 2.9%, right? And they don't want to lose those. And people have those in their hometown. So imagine the decisions that are being made. People aren't leaving their jobs. Some people aren't even after they get let ⁓ let go, aren't getting new jobs. They're trying to work for half the income so that they can work remote so that they don't have to move. Like it is driving things big time, which obviously affects businesses who are trying to hire people.

⁓ and you know, across the board it affects people. So I think a lot of it is that the interest rates were so low and they're so much higher now.

Patrick H. Donohoe (23:45)

Over over one over one simple

over one simple variable, which is an interest rate. Because I've heard that number of times. I don't wanna you to know my house is worth a million dollars, but I have, you know, a 2.75% interest rate on my hundred and fifty thousand dollar mortgage. It's like I we're not gonna w we're gonna essentially stall our life because of that one one variable.

Gary Pinkerton (23:53)

Yeah, one simple variable. Yep.

Yeah. I mean, people talk about other variables. I'm sure they have an impact from time to time. you know, I would say one that's in there right now is that ⁓ inflation w ticked up hard when the when the fuel costs went up, right, because of the the war in Iran. That's now coming back down. But I think a bigger picture than that is that we have a president who ⁓ takes action fast.

Patrick H. Donohoe (24:21)

Oil price comes.

Gary Pinkerton (24:34)

And people can't predict what's happening. And a lot of times businesses want to be able to predict two or three years out in the future if they're going to make an investment. You can imagine why. So while I personally think a lot of this stuff needs to be done and we're going to be so much further off, we're not going to find a period of time over the next two or three years where we've gone a year straight and everything was predictable. That's just not going to happen. And so that has an impact. I think that's another big one.

Patrick H. Donohoe (24:58)

And we're gonna get back to it, you know, as we kind of wrap all these statistics into the narrative we've been creating. ⁓ but the idea is here's a metric, it's it's essentially a measurement of of human behavior, right? And in this case, you know, people aren't necessarily moving as much as they were.

housing prices are pretty stagnant and they're negative 11 straight months when you factor in ⁓ inflation. And mortgage rates are still, you know, at the six and a half to seven percent ⁓ mark, making it pretty unaffordable for the majority of those that are probably wanting to get into get into homes. Right. So there's kind of a stall there. And we'll bring it back around in in a second, because again,

This systematic approach is kind of what we're leaning into. The systematic approach is really understanding all of your finances and making decisions based on everything that's going on, including outcomes, not based on one little measurement like a mortgage interest rate, okay, which is happening right now. And there's a lot of other different variables that cause people to, you know, make semi-irrational decisions or not well thought-through decisions. This is simply just one of them.

Okay, let's go to inflation. So business activity, you know, the Chicago ⁓ PMI, obviously it's spiked. It was like the high I think it was the highest rate in four or five years. ⁓ and then it came back down, mostly spiked because of high energy, energy costs. Okay, so what is the reasoning for this metric, Gary, and how is it being used?

And what are the typical narratives built around it?

Gary Pinkerton (26:46)

So we're trying to determine whether businesses are growing or they're contracting. Are they hiring people? Are they expanding? Are they gonna spend more money? ⁓ you know, so John Deere wants to know if the farmers are growing, you know. And so people who need equipment, the equipment manufacturers want to know if businesses are growing or they're contracting. So it really drives a lot of the economy and a lot of decisions that the supplier kind of businesses

are making and it it drives decisions for people on whether they move or stay local and people who build homes, you know, so everything is really driven on the production arm of America. ⁓ is it is it expanding above fifty or is it ⁓ is it failing below fifty?

Patrick H. Donohoe (27:30)

So inflation is one of those hot buttons for people. And when I look at inflation, I think there's some important things to pull out of that. So first off, because of how our monetary system works, which is a debt-based system, okay.

There is always going to be inflation, period. Like there is, there has to be. Okay. Because if not, then it kind of spirals the whole monetary system ⁓ out of control. Now I'm not saying that that's a good thing or a bad thing, it's just the way that it is, and we have to, you know, have to accept that. Now it comes down to the degree of of inflation. So we have some core inflation numbers. You have, you know, PCE, which is the one, the ⁓ personal consumption expenditure index, which is what the Fed typically uses. This is PMI.

but looking at I would say inflation and prices going up, what type of what type of emotional response do people ⁓ have to that and how does that impact their decisions?

Gary Pinkerton (28:26)

Well, it stresses them out, plain and simple, because they don't control the amount of money coming in. and then they have a burn rate, right? And many, many Americans are living paycheck to paycheck. And so, you know, our savings rate is at an all time low and stays there. ⁓ and and so when when inflation goes up, ⁓ you know, you you end up with

A lot of stress and it and it causes people to ⁓ you know, maybe job hunt to to try to hop to something that might be paying higher. So, you know, it's not good. There's nothing good about inflation when you're a consumer having to pay for expenses. Yeah, if you hold a bunch of hard assets that are gonna go up in value, maybe that's a good day for you. But that's not the typical American. It's far, far the major minority.

Patrick H. Donohoe (29:18)

And I think people get caught up in that too, especially those with assets, right? And I think that's the majority of our listener base. But if you look at expenses, right, and the expenses going up, obviously that's going to have a drain on an important aspect of your finances, which is your cash flow.

Okay. At the same time, you all if you do have assets, whether they're market assets or real estate assets, ⁓ those go up as well typically. Now, for the average American, you're absolutely, absolutely right. Okay. But for the typical, you know, investor, those that you know are listening to a personal finance show and figuring out how to improve their finances, for them, it's like realizing that it's happening on both sides. You would think that.

You know, if you have that full measurement of your finances, you realize, okay, my expenses are going up by, you know, four percent per year, but my assets are going up by four or five percent per year. What's the offset? Most people don't have that type of visibility in their system. And so they tend to just, you know, react, respond to you know, just one variable that they can see. And the easiest thing to see is, you know, milk prices going from three dollars to five dollars.

Gary Pinkerton (30:30)

Yep. And it gets super emotional, it gets super personal. ⁓ you know, in the in the political atmosphere, a way to not get re-elected is to be blamed for inflation in in wherever the area is that you're in charge. Right. Like that is probably the most devastating thing that can happen to a president or a governor or a mayor, whoever, right? ⁓ and you know, and on the point of ⁓ assets going up, I mean, that's fundamentally why we and our clients you have real property, right? It's why across the world they've had real property because

You can have a bunch of gold, which is risky, you know, you need to protect that stuff, but no one will rent it from you and you can't get a loan to buy it. But with real estate, you can get a loan and put 25% down, which means when your asset goes up in value, it goes up by four X, right? So if your food and groceries are going up by four, you four percent a year, your assets are going up by four. Well, personally, your assets are going up by sixteen, not four. And so that's fundamentally why we do it. And

It's not exciting, but I can tell you that even though mine are down twenty five percent this year, I'm not asking anybody to cry for me because in twenty one, twenty two, when we had that massive inflation, everything doubled in value.

So it it comes and goes.

Patrick H. Donohoe (31:37)

Yeah, and you also

look at especially those that own rentals, you know, I've I've seen it a couple of times this year where, I mean, I know people are are paycheck to paycheck, but we've been able to increase rents and you know consistently for years on end. And again, all real estate, like you said, is local. ⁓ but at the same time, I would say there's always gonna be a silver lining for investors with all of these metrics.

But what we're trying to communicate is that the narrative that's being communicated in the news cycles, right, are typically pointing to what's wrong. But within what's wrong, there's opportunity. So we're trying to frame essentially these statistics, what the common response is, and then we'll kind of wrap it up at the end, showing where all the opportunities are when it comes to understanding what these statistics and measurements mean. ⁓ but let's dive into consumer, you know, consumer confidence, ⁓ which

I think it is an interesting measurement. So I'm gonna read the questions that people respond to that determine this index, which I think is fascinating. ⁓ then we'll get into the actual ⁓ consumer confidence index itself. Right now, this is kind of so the questions are in kind of two two categories. You have what's right now and then the next six months.

So right now, how are business conditions where you live?

Okay. And the job market. Are jobs plentiful or hard to get? And then the next six months, will business conditions get better or worse? And will there be more jobs or fewer? And will your household income go up or down? So I find those questions really, really interesting. That a whole index is based on those, on those questions. So what stands, you know, what stands out to you in regards to the meaning of those questions?

The people answering them, and ultimately, you know, the measurement we have as far as what those answers mean.

Gary Pinkerton (33:49)

Well, the first thing that got me was that the index is at ninety-one point two and that's out of a hundred. So that's quite impressive, you know, and it's and it's high. But when you go and look at ⁓ if I remember right, like like the answers about the current situation, you know, the current environment were not good. They actually went down, I think. ⁓ but the future went up. And I mean, you can find a pessimist, I'm sure, who says it's bad now and it's probably gonna get worse. But that's not likely what's gonna happen because people have seen cycles.

Patrick H. Donohoe (33:55)

Yeah.

Gary Pinkerton (34:18)

Right. if it's bad right now, they're likely gonna say, well, I bet it's better in the future, because it's you know, a and if it's good right now, they're like, it might get worse in the future. You know, that's just how people operate, right? And so those two offset each other. And I don't think it's a great series of cr it's not many questions, and they're basically the same questions about today and in the future. So I don't think it's a lot of rigor there that you can hang your hat on this thing.

Patrick H. Donohoe (34:44)

Well, consumer confidence is huge. I mean, it plays a big role in decision making, right? All off of not necessarily an individual's objective evaluation of their local economy, job market, business market. It's all based on their gut and feel ⁓ off of observation. And observation.

Gary Pinkerton (34:47)

Yeah. Changed a lot.

Patrick H. Donohoe (35:08)

Is typically the result of you know however many decades the person's been living, they're they're filter filters of how things should be versus how things are. So you have a lot of subjectivity in an objective measurement. That's kind of what I pulled from it. But when you get an obvious law of large numbers and you get a lot of people answering the same questions, you come to a certain consensus, right? So there is validity, ⁓ validity in that. But how is this measurement typically?

used? Like how how does someone look at this and you know whether it's a business owner ⁓ or a a politician, a lawmaker, like how do they take this statistic and and nav and navigate ⁓ what their agenda is, whether it's business or political or otherwise?

Gary Pinkerton (35:54)

Yeah, well I I think it's well, political, it's am I doing a good job or not gonna doing a good job? Am I gonna get reelected? Is the other guy gonna get elected? on ⁓ on the business side it's

Patrick H. Donohoe (36:03)

And typically it's spun in two ways. This

the spinning is in two ways. If it's bad, you blame somebody else. If it's good, you take take take credit for yourself.

Gary Pinkerton (36:09)

Yeah.

Yeah, that's right.

You go right back to that. I'm gonna take credit if it's good. Yep. ⁓ and it was the last guy who had the office who screwed me, you know, now. So ⁓ but if it's a business owner, I mean, that's really the measurement, I think the key measurement that business owners are using on whether whether they hire people, whether they make investments, build another production floor, do marketing. ⁓ if they think that people are in a

Buying mind, if they're optimistic and they're gonna go and you know, you see that as you lead up to Christmas every year, like probably the biggest one. You know, how did Black Friday go? You know, that kind of thing. Because we're worried about leading indicators of should I build more things or have I already produced too many? Right. So there it really does drive a lot of the business environment, which is America's gross national product.

Patrick H. Donohoe (37:03)

All right, so let's let's kind of wrap this, wrap this around into where the opportunities are. Because when most people hear these statistics across, you know, news headlines, whether it's on social media or the nightly news, if people still listen to that, ⁓ like there's there's certain ways people look at that, right? And I think for the majority of people, it's just one of those like pulses of like, how's everything doing? And they move on beyond that.

And I think that is a function of the system that most people have bought into. So, first off, even though you know we we have this kind of linear way of thinking and we have human nature that is kind of operating in the background and shows up pretty often, okay, it's been proven that having some sort of s ⁓ scaffolding ⁓ system allows the opt allows for the optimization of of human human nature. I'm not gonna get into

All of what I'm about to say now, but capitalism, ⁓ you look at the founding documents of our country, it was built on the shoulders of systems that didn't work in the past. Okay, it was kind of like a hodgepodge of those systems, built in a way that led to you know some pretty amazing innovations. ⁓ and you look at capitalism, same thing, right? When you allow freedom and people to ⁓ have ownership of capital, their imagination, creativity.

Combined with that capital, however you want to define capital, whether it's money or resources. It's amazing what people create, right? And I think that's the system that I would say led to that. It took human nature and it was optimized for human nature. Okay, but the system we live in right now isn't necessarily that like it was ⁓ originally. Okay, and so recognizing that number one, our human instincts.

Lead us to want a system to govern us. Okay, and that usually happens unconsciously. So the system we've been taught is you know, get K through 12, go to college, get a loan for college, you're gonna get a job, you'll pay off your loan, invest in the market, you'll be able to retire at 65. And it and there's a lot of other elements that go into that. You know, get more education, get a promotion. ⁓ and I feel that that's a system that may have worked.

Gary Pinkerton (39:03)

Yeah.

Patrick H. Donohoe (39:28)

You know, at a certain period of time for a short period of time, but I'm not sure if it's it's working any longer, but people don't realize they're part of that system. So I think the biggest thing to understand is that we're all influenced by it. Even me, even you, we're all influenced by this system that exists, and we sometimes get kind of roped into it. But we gotta realize that all these indexes, the way in which they're being used, especially by you know investors, business owners, okay, they're not bought into the same system.

Okay, they're utilizing these metrics to position themselves to take advantage, find opportunities based on where people are spending money, ⁓ if they're cutting back, if they're moving, if they're buying. A lot of these statistics are used in order to make people money, okay, and take advantage of opportunities. So Gary, the point is it's like we're part of we're all influenced by the predominant system. And that predominant system, we can all argue, isn't necessarily working for everyone.

Okay, so what is a way in which somebody can, you know, essentially understand that and then start to, you know, potentially find a system that will capitalize on these opportunities. What's that path look like?

Gary Pinkerton (40:43)

Well, it's it's in an unemotional ⁓ moment. You need to think about, you know, where am I headed? What am I trying to do? And then ⁓ let me let me relate it to real estate. ⁓ if you're going off, especially if you're about to go buy a primary residence, but people do this with rental properties. You know, you find one that's really cute, you know, you could see yourself living there and then you just go buy it, right? And you make big mistakes. ⁓

You don't do you don't check out to make sure that the systems are operating correctly or that the that the ⁓ utilities are working correctly, et cetera. ⁓ and and you make big mistakes because you were emotionally buying. ⁓ and so in the real estate world, especially for investors, this is thing called the buy box. And you have determined ahead of time what fits, price range, number of units, town or city that it's in, and

And somebody hands you, you know, a hundred ⁓ opportunities from a realtor every week, and you can very quickly say it's in this box or not. So you've developed a very simple system. But the key thing is emotion, you know, emotions and human just tendencies are going to cause us often to leave the box, right? And so having a system is good. I agree with you, Patrick. But ⁓ no knowing all of this stuff doesn't actually change human interaction. You know, I would throw back a question to you, like.

How do we actually get, you know, how have we learned that people actually will do something outside of their emotional instinct?

Patrick H. Donohoe (42:12)

No, that 's a good question. And you know, for me, ch my experience is that ⁓ it is the most difficult thing to change. When somebody has been part of a routine, a way of doing things, a way of thinking, a way of stressing, a way of celebrating, it just becomes baked into them and changing that, especially you know, as people get older.

It is very difficult. So it does take an acknowledgement that it's not gonna work, but also the associated pain. And if people don't recognize that, I feel that they're never gonna change. And so for one thing, I think you're right. I think that first the system, it's important to understand that like a system is necessary to govern human nature and human behavior. Okay, we're part of a system right now, whether we wanna be or not. It doesn't work the way it was intended. ⁓

And a new system will produce better results. And so how I look at it isn't necessarily starting with, okay, what system am I going to choose? It's more, you kind of started to allude to it, but it's the outcome that you want. Okay. What do you want as the end result? Okay. Where do you want to work? Where do you want to live? What type of lifestyle do you want to live? ⁓ what you know do do you wanna

Do it forever? Do you want to do it to your 50 or to your six? So I think understanding where people's outcomes are first now allows for a strategy or a system to get that outcome. So I think that's the first thing. But I also think there's principles associated with finance, there's principles associated with human behavior. And if you learn what those principles are, it'll lead to better decisions, even better decisions within the system that you're operating in.

So again, I'm gonna kind of restate that system. The system is, you know, essentially we're programmed within a hierarchical education system to follow orders, follow instructions, work solo, and work very linearly.

And we're not necessarily part of an education system that teaches creativity and entrepreneurship. If anything, creativity leads to more art degrees, right? And that type of creative science. But there's just as much opportunity, if not more, in business as far as creativity is concerned. But still, we're kind of taught this like a soldierly path to get a degree. And that degree itself, just the fact that we have it, is gonna earn us money.

and then we put money into ⁓ the market, we lock it away for 30, 40 years and hope it grows and there's enough where we don't have to work for the rest of our life. I mean, that that's us that's essentially the system. Buy a house, get a 15-year mortgage, ⁓ try to avoid debt. I mean, we can list off what that system is. And I'm not saying you just unplug completely from the system. What I'm saying is like once you start to understand what we're talking about, you can maybe start to pivot one decision or two decisions or three decisions and start to stack them.

Okay, and I'm not sure where it starts. It might start with employment. It might start with how you look at the tax code. It might start with how you position your assets. Right. It might start with how you position your cash flow. But I think, you know, when you define the outcome first, okay, and then you essentially look at the system and if it's going to get you that outcome ⁓ and the probability of getting that outcome, I think that's the starting place.

If you realize that the system is not going to get you the outcome that you want, that hopefully will create enough, you know, angst, pain, ⁓ people don't like to look at. Okay, but when that happens, then it's like, okay, who else has tried to solve this? What are they doing? And then it comes down to the principles associated with it. And by principle, you know, principles can be as as simple ⁓ as the measurement of cash flow. Measurement of cash flow, money in, money out.

What's the percentage delta? And then what are some things I can do to increase that delta? Okay, those are essentially some basic financial principles. Other financial principles are protection. It's like we live in a vulnerable world. How can I ensure that ⁓ if something happens to me or a loved one, the income that is fueling the well-being of a family doesn't go away? Or heaven forbid there's a lawsuit, or

somebody trips or their dog bites somebody and gets sued or gets you know of a car accident, that there's protection associated with insurances that I have that will adequately protect my assets so that I don't have to you know surrender those for a lawsuit. So I think those are certain principles, right, that if you understand and follow, you know, can create a new path to getting that specific outcome. And obviously we're this is what the show's about.

Is the perpetual wealth strategy is something that's been developed over the course of a couple decades now to really understand what system people are a part of, how do you ⁓ identify it and identify if it's going to get you the results that you want, ⁓ and then provide a new way of thinking, ⁓ whether it's the positioning of your assets, whether it's the positioning of your cash flow, ⁓ and it's making these small adjustments over and over.

to ultimately get the outcome that you want, which I believe, you know, today more than ever, the life that people really want to live is totally possible. even more so today just 'cause of how our economy works. So that's a helpful

Gary Pinkerton (47:54)

Yeah, that's very well said. And and

you may you maybe think that, you know, often we try to subvert our emotional side, our our animal kind of instinct side. And that's just not going to happen. I mean, it's a survival skill. And even though we're not actually chased by a woolly mammoth, we think that that that ⁓ you know home price going down or whatever it is, consumer confidence going down, my business is gonna fail. Like all those things feel like we're being chased by the tiger. So you can't suppress it, you can't ignore it.

But you have to start to figure out how to, you know, as I think you've said to me before, like pair it with the system. Like having a system that you can remind yourself to during calm times. ⁓ but as you, as you said, you practice, you repeat, you get better at it, then you can more quickly get the emotional side under control before you completely ⁓ have to start.

Patrick H. Donohoe (48:48)

And and the and and the f and the thing I was trying to say is that the emotions aren't going away. You can't suppress them. Like they're like you were saying, like they're they're going to be there reg regardless. And so how is it but some people try to suppress them? And I don't know if that's healthy. Because making well go back to the you know case shower index going yeah, it doesn't work. But again, most people don't know that it doesn't work. But now if you learn that it doesn't work, okay, what's the solution? What's another path? So I'll go to the home price index.

Gary Pinkerton (48:53)

Yeah.

I know it doesn't work.

Yeah.

Patrick H. Donohoe (49:17)

If you're making a decision to stay in your house, stay in your job, not get a raise, not move because your decision is all based around an interest rate on a small amount of your ⁓ of the home that you live in, right there is your is your proof, right? It's like you're using one little measurement, okay, and you're taking that to govern all sorts of different things that could make your life better.

Okay, so it comes down to, again, this is the whole system and principle side. Okay, what do you want in the end? And if the decision to keep your house and keep your mortgage and stay in that community is the life you want, then awesome. But if you're not living that life, this is a way in which you evaluate, okay.

Where do I wanna live? How much is it gonna cost? What's the interest rate? What's gonna be the payment? Here's all the equity that's been built up. How do I deploy and use that? Whether it's inside of a new house or maybe somewhere else. When you start to evaluate all those moving parts, okay, that's a new system because the financial system that people are taught isn't to do that, right? It's kind of like your house is this sacred cow that you wanna pay off.

And then the rackety shack gets passed on to your kids and your kids now have to deal with it. I I just don't think that's, you know, the right move. Objectively, if you evaluate the financials along aside, you know, aside the essentially things that you want, ⁓ it leads you to understand that there are other decisions and even better decisions, right? Generally. I'm not talking specifically, I mean they're

There are instances where it does make sense. Okay. But in the end, that's just an example of if this is an outcome you want, this is the life you want to live, and here's a set of your financial, you know, your financial situation. How do you optimize in order to get that higher, without taking risk? I mean, the point isn't to just take more risk, right? The point is how do you align your financial life to get what you want, live the lifestyle that you want?

Gary Pinkerton (51:16)

Yeah. Yeah. We don't, we don't go out there to take risks and to lose. That's not the goal. The goal is to get the thing at the end. ⁓ and you can do it with so much less risk if you don't have to go backwards and start over. And that's really my intent is to make sure that's true for my family, that my kids understand that and that going forward our clients do as well.

Patrick H. Donohoe (51:38)

Okay, so let's wrap this around and just we said we were gonna talk just briefly about opportunities that would come from these three these three areas. So I would say, why don't you tackle, let's just tackle the last, the first one and the last one. I'll tackle consumer confidence. Do you wanna tackle the case schiller index? So what if you as you look at this from your vantage point, from your paradigm, okay.

Where's the opportunity in these numbers?

Gary Pinkerton (52:10)

Well, it's understanding that real estate is going down in some locations. And these numbers are not even reflecting what's coming. You know, if you if you go look at ⁓ where did people move in twenty twenty-five, t ⁓ over thirty percent of or very close to thirty percent of New York, New Jersey, and California moved out of their state. And ⁓ Oregon is very similar. So this shows Oregon, or Seattle, ⁓ Washington, and Oregon were very bad as well. And so you know.

Chicago went up, but a lot of people left Illinois, you know, and ⁓ and Seattle was just slightly down, yet 30% of the people left that state. And so understanding that these have not reflected things like that, ⁓ people who want to buy real estate in those areas have a a prime opportunity. So, I mean, the biggest opportunity here is recognizing that there's a buying, there's buying signals happening.

And some people are stuck and it's not good for them, but having somebody come in and buy the house from you makes you unstuck.

So that's that's the biggest thing.

Patrick H. Donohoe (53:15)

Okay, I'm gonna go to

consumer consumer confidence. So one of the one of the things you had mentioned, right, because consumer confidence is is high with with ⁓ with one exception, which is kind of the current, like now, job market, right? So the job market is shifting. And and I look at you know, the team at Paradigm, I look at clients.

look at friends, look at family. People are a little freaked out that it's changing so much, and in large part due to you know technology and AI. And so I think this is an opportunity to recognize that, right? And to take stewardship over that, you know, your position may be obsolete, but it doesn't mean that you're obsolete. Okay. I feel that one of the one of the one of the necessities of finding meaning.

Which I think that's one of the purposes of why we're all here figuring life out, is to do something that's of value to other

the current state of the job market, jobs being hard to find, it it was a standout. And it and so I think that's an interesting way to look at these measurements where you can ask, what's the opportunity in that? So I think for for those you know listening to this,

First off, if you're concerned with that, because I know a lot of people are, our team at Paradigm is concerned. There's clients that are concerned, ⁓ where AI and technology is is able to do the work that was previously done by by people. Even though those jobs may replace, it doesn't make people obsolete. Like everybody has, everybody's unique, everybody's different, everybody has something to bring.

Bring to the world. And I think that's in large part what creates meaning for people is being of value to somebody else. And so recognizing that, recognizing that, hey, if your job goes away, okay, it's because what you are doing, you know, can be done for less money or less expense and maybe even better. And it's acknowledging that. And it's okay. But what it means is there's an opportunity for you to go out and find something that's even more valuable to people. ⁓ because that also exists. And

And I and today in society, like holy crap, like all the different ways in which people make money, whether it's on Etsy or doing cat videos or traveling or gardening. I mean, I think that there's all sorts of ways to, you know, to to monetize who you are. and the job market is definitely shifting. And so it's not necessarily saying, today I'm not gonna have a job, tomorrow this is the job I'm gonna have, but start thinking about it at least and start

identifying ways in which you can be ⁓ more valuable. That's where the opportunity is because I think part of the system that we've all bought into is that you get a job that's very binary and linear, okay, and you just do it for 30 years and retire. But looking at how quickly the world is innovating, it's like, yeah, the job that you probably have right now may not be relevant, but it doesn't mean that you're not relevant. But starting to recognize where you can add value, whether it's to your employer, whether it's to

You know, society, whether it's to the market, wherever, okay, should be on your mind and an opportunity regardless of where your job is at.

Gary Pinkerton (56:41)

Yeah, I think the key

Takeaway is the value that you bring, not specifically the job you're doing. ⁓ and the other thing I would mean that ⁓ you know, back at the turn of the last century when sewing machines were becoming popular, it was cons there was a massive concern that it was gonna put a huge percentage of Americans out of work, all the people who were sewing. ⁓

Didn't happen, right? We found more and more opportunities for people. And we've always had sufficient opportunities in America. And I don't think that's gonna change. ⁓ you know, just like ⁓ you know, we were gonna people are gonna have nothing to do. That's been said for generations, and it never comes true. I don't think it's gonna come true this time. And just because you ⁓ used to put carburetors together, means that you you're actually a person who works, a meticulous person who works well with their hands.

doesn't get bored and start taking shortcuts. That works very well in assembling mainframe servers for AI. So you just have to understand the bigger picture of what you do. There will always be work for people who want to do it.

Patrick H. Donohoe (57:46)

Yeah, I think that's again going to principle, right? If you look at financial principles, okay, it's kind of part of our nature to expand and collectively be infinitely creative. And so that's not gonna stop. I mean, it hasn't stopped since you know the world began. We just figured out better ways to do things, whether it's you know, the invention of the wheel or fire, ⁓ or

You know, the industrial revolution, then you have the internet, then you have technology, then you have AI. I mean, it's not like innovation's gonna stop. Okay, people are becoming inf more infinitely creative, and so the jobs

How we how people earn money, it's just gonna, it's gonna evolve and continue to evolve. And it's cool that we get to be part of that process. And so I think again, it's not to say, today I'm not gonna have a job. Tomorrow I'm gonna have this job. It's more to just plant the seed of looking for opportunities to be of value, however that may be. And typically that value is ⁓ validated through, you know, monetary exchange. Not always, but oftentimes.

Okay, well Gary, this has been fun. Okay, we'll definitely do this again. Any final words as we as we wrap?

Gary Pinkerton (59:07)

No, I think it exciting. I love the focus on current events because it is what everybody out there listening is concerned about or thinking about or wondering how it affects their life. So probably the best way to add value, I commend you for that one. And I look forward to being on many more of these.

Patrick H. Donohoe (59:21)

Cool. Yeah, there's a lot of noise out there and you know there's things that are communicated that I just see, you know, go in one ear, out the other. And I feel that, you know, creating a new set of ⁓ contextual principles ⁓ around what's going on is gonna hopefully

Get people to think a little bit differently and be more successful. So that's our mission. Appreciate you guys for listening to this point. If you guys want ⁓ additional information about the the show or be part of the the email list as shows are released, just go head over to ⁓ perpetualwealth podcast.com and we will see you next time. Thanks for joining. Bye.