The Family Fight

Patrick (00:48)

Everyone, welcome to another episode of the Perpetual Wealth Podcast. Here with some incredible people, great friends of mine, colleagues, and we're here to talk about the Federal Reserve and specifically their meeting this week. A lot of interesting stuff is going on. And Gary, Paul, welcome. Thanks for joining me. You guys ready to talk about it?

Kevin Warsh, the Fed, interest rates, what's happening in the economy, and how we're gonna, how we're gonna all prosper because of it. I guess that's kind of a very against the grain statement, but are you guys ready? This is gonna be good.

Gary Pinkerton (01:31)

Ready.

Paul Seitz (01:32)

Yes, sir. Ready as always.

Gary Pinkerton (01:32)

Ready. Exciting.

Patrick (01:34)

So obviously Gary, were you here that one that one time where we went into the Federal Reserve branch in Salt Lake?

Gary Pinkerton (01:40)

I remember y'all doing it, I was not in town.

Patrick (01:42)

Yeah. They used to do tours of the Federal Reserve Bank in Utah, right in Salt Lake City. And it was a really cool experience. I mean, there's 10 of us, you had to get rid of all your phones and communication. And, they said if anyone's caught with a phone, we're kicking you out.

They took us down, I think it was like 10 floors, like right in the middle of the mountains, but down 10 floors, and we saw these pallets of hundred dollar bills and hundred million dollar crates, like the total amount on a crate and just stacked on top of one another. And they had like a counterfeit processor. So they basically cycled through currency.

And it had this tracking system that determined which you know what was fake, what wasn't, and then they exchanged that for new bills. and that was the first time I learned that the biggest counterfeiter at the time was North Korea, but there's a lot of others, but North Korea is the best at it. I'm sure they're even better now. It was really interesting. So like the Federal Reserve is like a big part of our economy, huge the world economy.

Obviously, what happens with monetary policy in the United States affects you know central banks around the world. so it's worth paying attention to, but at the same time, typically it's news bites, that's theater that you know signals things to happen typically in the market. And so it's really become this interesting process that you step back and really look at what's happening.

And it causes you to ask questions. So we're gonna get into some of that today because we have a new Fed chair, Kevin Walsh. We have some dissenting votes based on where interest rates should go. But I'm gonna you know open it up to you guys. I mean, as we started preparing for this podcast.

maybe talk about how you've understood the Federal Reserve before, how you understand them now, and what influence they've had on our business, on providing financial financial services, but also just, how do you read between the lines and understand how to optimize this part of our everyday lives, whether we like it or not.

Gary Pinkerton (03:30)

Well, I'll start. I'd say my awakening to all of this was 2011. I just finished command of my submarine. I'd lost half my money in the markets, and I was searching for what is all of this stuff and what I don't know? I was very much a layman from personal financial management and just how the economy worked. And I read a book from G. Everett Griffin called The Creature from Jekyll Island. Many people who are listening to this probably have read that.

I've had many conversations with Griffin, as you have, Patrick, and it's fascinating. Like you can always get you can always count on a really good conspiracy if the Federal Reserve is involved in the conversation, right? At least the theory, conspiracy theory is what I should say. but I remember walking out of my office at one point, and this was probably 2011, and I said, Wow, this guy, this crazy guy, G. Ever Griffin's gonna be on the real estate guys cruise with us.

And Patrick, you and I were that. It's when we first met, in the first person at least. and then a few minutes later, I came out and I'm like, this is amazing. And I said, Did you know that the Federal Reserve Chairman or that the Federal Reserve Bank, it's not federal, it's not a reserve, it has no reserves, and it's not a bank, right? And and and I'm like, he's not even elected by the president. And she's What are you talking about? He does select the Federal Reserve Chairman, which is true, at least on the surface.

And Congress selects the Fed so or federal chair. So, but do they really have influence? it's not a true government organization? So there's a lot of confusion for somebody who's been in this industry for fifteen years now, imagine the person who's going off to work at their W2 job and then trying to feed their family and create a retirement future. There's just a ton of stuff that we don't know. and we're not going to know.

the things that would frustrate me or surprise me or make me kind of scratch my head is when Greenspan would be walking across the road and he's got two fingers laced around the briefcase instead of three and the markets, you know, having all kinds of moves happening, right, as he's crossing the street. So I mean, that stuff's just pure gambling. But I really like his approach this week. I like that he's not trying to foretell things. He's not trying to control the market ahead of time by softening a landing. He just says what he actually believes and

You know, when it comes to like three people dissenting. So Paul and I have both had the opportunity to go and become the new guy in charge of people that don't know you. And the first thing they want to do is test you. So I think there might have been a little bit of that, which is like this is what I really think. A year from now, when I'm bought in and I'm part of his regime now, I'm not gonna be able to just step up and start dissenting. So here's my opportunity. You know, and so when you

When you're the CEO or you're the executive officer or just the guy in charge of the group at the Pentagon or something, you step up and say something and that could be very easy, you like tell me what's wrong. And when these people start coming in to tell you what's wrong, they'll lay it out there because they feel like they have this kind of free path. So I think there was a lot of that going on. I was not really thrown aback or set aback or really concerned about those three dissenters. Does it signal that we don't have this awesome run down to

a few lowering of interest rates so that I can refinance my properties. I'll admit that it was not a positive signal for that, but I don't think anything's in stone. So over to you, Paul.

Paul Seitz (06:38)

Yeah, I would I would say, you know, I've a similar to Gary, my story is just in the grind, raising children, working every day, you know, on a very challenging job with twenty-six years in submarines and just trying to show up to work, work hard, spend less than you earn and save that money in an intelligent way. And I'm just doing that for twenty-six straight years while I'm raising my five kids. When I finally retired from the Navy, and now I'm looking at my children entering adulthood at the time where you know where I was when I started.

And just realizing that they are in a different economic environment than I was when I started, my first house was significantly less than anything proportional to my income than is available to them. And part of the reason for that is federal fiscal policy and the era of fiscal dominance that we're in with massive debt and overflow there. So what you realize then is that whether you like it or not, we are partners with the federal government.

on monetary policy because we're part of that system. It's a system that is very challenging or difficult to break out of because that's what's going to denominate everything in your life. So for me, I made it a little bit of a mission to just understand that, mostly so that I can help my own children and then more broadly help my clients or our clients as we work with people because I understand what it's like. You're just showing up trying to be a good husband, a good father, and a good worker and spending time dissecting Fed policy.

is not on the calendar for a person raising multiple children and trying to establish a family. And you shouldn't have to, right? We shouldn't live in an environment where you have to do that. So understanding where you can save effectively by understanding what the Fed policy is, is kind of our job to help guide people in those kinds of saving and earning decisions.

Patrick (08:16)

So a couple of things you guys said is you know this is a system that is just part of everything. We didn't choose the system, it was basically chosen for us, if you can, if you can explain it like that. And so instead of trying to fight it, right, you have to, in a sense, dance with it. But to dance with it, you need to know what the actual dance is, you know, so you're not showing up to a line dance knowing the Macarena.

Gary Pinkerton (08:42)

No.

Patrick (08:42)

You know,

I feel sometimes right where it's like you can get so caught up in you know what's happening in the news lines and it and ultimately not being able to connect how it influences you is frustrating. And so I totally get that.

And so people just glaze over it. But I think once you understand certain fundamental tenets of monetary policy, and this monetary policy I mean this has been around for a long time, right? We're going on over a hundred hundred years, 113 years. And it, you know, it's gonna take a lot for a new monetary system to replace it. And so we have to embrace it, understand how it works.

And then learn to dance with it. And this is not as hard as it may seem. Okay, but let's just unpack that a little bit and then we'll get into actually what was said with the specific meeting this week. So as you guys have like learned about the system and learned how monetary policy works and it, you know, what the

The primary job of the Federal Reserve is because they do other things outside of just monetary policy, but their primary job, like how do you look at that, understand the system, and then know what influence it has on you and know how to position your finances accordingly, just really simply.

Gary Pinkerton (09:56)

Well, if you understand that the Federal Reserve's job is to increase or reduce liquidity at the kind of the major bank level so that it can control inflation or it wants to think it can control inflation. And I mean it can influence it. Maybe it can't control it every week or every month, but it can control it over the long term. and so they have this somebody said years ago this number of two percent. We want to target two percent inflation. 

And the Ron Paul's of the world would say we need zero percent inflation. But you and I on our previous podcast talked about like you actually need some level of positive inflation, not deflation, to keep the wheels rolling, to keep progress occurring. Even if we don't like it, burgers are going to be a lot more expensive when our grandkids get them. But nonetheless, it is necessary in the way in which ours has been constructed. So understanding that it needs to go up, they're targeting a very small increase because they understand the impact of very large increases.

In the recent past, we've seen a decent size increase. It wasn't 18% interest rates like when I was a kid, but it was high compared to normal and it was painful for people. and that pain takes a long time to kind of spread out. So understanding that if they get any signal or feeling that the higher interest rates are coming, they're gonna squash that quickly. And they could spend another year without moving rates, waiting to make triple sure that we're not gonna, you know.

get an uncontrolled increase again. Because they don't I believe, I don't know whether this is true or not, but I believe the Federal Reserve looks at deflation as being horrible, but not something they can't spiral back out of. but I do feel, in their core, I believe, that if it gets out of control high, you have YMR Germany and it's all lost. So you know, that's

I think I understand a few things like that. Like they're gonna print money, they want to keep it at very low inflation. If they can do that, you know, they feel like it's stable and it's and it's progressing appropriately. but if there's any signal or indication that it's high, and so as we start seeing headlines that indicate that it's a little bit higher than projected, then you should anticipate that they're gonna tighten money a bit.

Patrick (12:07)

So what before we go to Paul, like what so how would you say is a one way to dance with it, right? So if we have monetary policy and this is, you know, long run kind of what's gonna happen, which I would say you're gonna have price levels increase. How do you dance with that? Like what do you do with that if that is actually true?

Gary Pinkerton (12:28)

If long-term prices are going up, how do you operate in that environment?

Patrick (12:32)

Yep.

Gary Pinkerton (12:33)

Well, you just need to know, if there is an inflation out there, that's that's the current in the river that you that we're all floating in. And we want to at least keep up with the current in the river. And so if if it's if inflation's three percent

and and you have the ability to save money at two percent pre-tax, that is not a good idea. That is not a strategy, it might be a strategy to conserve what you have for the next twenty years, the remaining twenty years of your life maybe, but it is not a strategy to get ahead. So

Patrick (13:03)

So the r so you're saying that one of the ways is to just ensure that your net returns are outpacing inflation.

Gary Pinkerton (13:08)

Yeah. Yeah. I mean, so that's one way. Another thing about printing money is that you want to own hard assets. So I'm a huge believer in real estate. So I always look for opportunities when real estate is both price-wise and people rent it at a decent rate. I mean, those aren't both true right now. but the the simple reason that I explain why

Real estate is of value, because like gold and silver and land, it is a hard asset that will hold its value when you know when inflation is happening. And so if you can then get these long-term fixed rate loans and tax incentives and things to own it, the government is incentivizing you to operate in a way that assumes inflation long-term will be here. And that's the assumption I'm certainly making. So that's how you would download.

Patrick (13:56)

So I'll make I'll make

one comment and then we'll go to Paul. So the thing I look at is, you know, I think human nature is inherently, you know, creative. And so if you understand that prices are going to go up, right? It's just part of our monetary system. We have to have money. And you also have some kind of counterforce of technology, which right now, especially with AI, it's giving you a lot of options.

So optionality, I think, works in your favor. And the reason why I say that is, you know, one of the approaches we take to cash flow is we advocate not a budget, but a spending strategy. And if you have, you know, a specific allotment that you want to maintain your lifestyle with, psychologically, if you, you know, personally put like a cap on it, okay, you want to extend that money to essentially support your lifestyle. So you look for things that are that may be alternatives, whether it's like a

a discount for a vacation. It could be the way in which you purchase a car. It could be, you know, what you do with the housing situation. There's so many alternatives and optionality that comes with you know technology. And so I think one of the things you can do is just really look at money in, money out, and try to get the best lifestyle possible.

in an efficient way. So I think that's another approach. If you know that rates are gonna go up and you become accustomed to purchasing the exact same things, the likelihood is that those things are gonna go up. But it doesn't mean that there aren't alternatives that you can swap out to maintain your outflows. Does that make sense?

Gary Pinkerton (15:33)

Yeah, it does.

Patrick (15:35)

Okay, Paul, what do you think?

Paul Seitz (15:36)

Well, I I mean for me the the the aha moment was i if I'm working for an hour and I I earn whatever my income is in that hour and I don't want to consume that hour's worth of labor, my most precious resources, my time and energy, absolutely fixed, and I don't know what the end point is. So every hour is a production thing that I'm never gonna get back. And if you think about your the money you earned in that hour that way, if I'm not gonna consume it in this short period, then I wanna store that up someplace where it's not going to be

Where it's going to be available and still have the purchasing power of an hour in that time period, right? If I put that in a bank account and the (unintelligible) and the Fed is targeting a set inflation rate, then the one thing that I know for absolute certain is if I'm putting that hour away for 30 years in the American currency, it is going to be worth less in 30 years than it is today. That is a guarantee. So what that makes you go and evaluate is, okay, so where are the places that I can store that money, that that hour of labor that is very precious.

And make sure that it's not going to be volatile to the point where there's a chance that it's worth less. It may go up greatly, but when I need it, if it has a sudden ability to drop fifty or sixty percent the week before that I need it, now I've just lost it. I had learned this lesson with my son going to college. I had stored and stored and stored for 18 years. He went to college the year that the market dropped by twenty percent, and all of a sudden his first semester was less. So now I'm like, I got smart about it. You know, I moved my kids stuff two years ahead of time.

As you know, the first semester is a safe guaranteed asset that's not going to move backwards. So now I've got time to recover. If the market's up or whatever, when I'm ready to spend that money, I can take it out. But if not, I have it in a firm place. So I think it just makes you understand or/or do the research on where are the places that I can store wealth that are not going to be deflated or inflated away. And so it provides that long-term storehouse. So, but again.

That's not something that I think that everybody should have to think deeply about. It's a place where, you know, in a perfect world, you are able to just store your money in a safe, guaranteed place. And that's kind of our job is to help guide people into those locations where they can store their long-term wealth reliably, safely, with less volatility, and at the same time not putting it at at risk of, you know, trying while trying to hit it out of the ballpark, not put it at risk of loss.

Patrick (17:57)

So a couple things you said in there that I think are important, which, and this goes to the comment I was making before about theater. You know, a lot of these announcements and news headlines are intentional. So there could be things that are going on below the surface, but the narrative is something that's interesting to always pay attention to. But you can almost guarantee that the narrative is strategic. And so there is going to be a response to that, to that narrative. And typically it's, you know, the interest rate tied

Elements. And so this is where I want to bring in the market because I don't think people realize how the market operates today that may have been different in the past. So if you look at, you know, let's just take the S P 500. I think I mentioned this last week, but SP 500, okay, 500 companies. But if you if you subtract out the mag 7,

Okay, the actual gain in these companies is minimal. But then you add in buybacks, and buybacks are really interesting because this isn't necessarily this is a phenomena that makes an impact. I don't think people really understand it. So a buyback is typically when a company takes on corporate debt and buys their own stock, and that props up the actual value of the stock, maintaining that level. And so the

The quantity or the amount that they can actually do that is highly dependent on interest rates. So if you did that back, you know, in 2000 2020, 2021, where interest rates were super low, okay, and now you know you have to have that debt turnover, okay, going from like a 2%, 3% interest rate to like a six or a 7% interest rate,

Gary Pinkerton (19:36)

Yes.

Patrick (19:36)

okay, that's gonna make a big difference in stock valuation or stock price or market cap. And then you look at

You know, obviously the expansion that especially, you know, hyperscalers are making when it comes to data centers and you know supporting really this phenomenon of AI, there's a lot of debt being taken on to make that bet. And that's just again a lot of money that's gonna go into the economy and start circulating in the economy. So the point I'm trying to make is when all of this is happening, markets are reacting and it's become incredibly volatile.

So the other day when these, you know, when the FOC meeting concluded, after all remarks, some of it was priced in, but the markets did not react well. But then today, which is the day after, markets kind of rebounded. So there's a lot of volatility, and I think the Fed influences a lot of that. Okay, and there's also volatility just because of the influence of AI, and there's lots of sector rotation as well. So this is one of those things where it's like, as you were talking, Paul, having certainty associated with

The future use of money, I think, is more important now than ever. Okay, because people are saving, people are putting money away. Okay, but what they're confusing is savings and investment and really looking at the system that, you know, not just the monetary system, but the system of where we save, where we invest, where we put our money is also typically not a system that we've chosen into. Okay. And this is typically

Gary Pinkerton (21:02)

Yeah.

Patrick (21:03)

through qualified plans. Qualified plans mostly get invested in funds, and those funds are in the market.

And there goes essentially our volatility, right? Where it could also erode money because over the long run, a lot of volatility actually equates to a less net return. So in the end, it's really understanding these influences and then positioning your finances accordingly. This is like the ideal dance. Okay, so understanding the fundamental tenets, I think, is vital. So we don't want to if you have

our our listeners be, you know, an ostrich putting their head in the sand, it's more of just to understand what the tenets are, understand like what monetary policy is, where it's going, and then also realizing that most of the headlines associated with monetary policy is is theater and it's intended to essentially get a response here and a response there.

But also I feel like really understanding how markets are affected by mole monetary policy is something that's pretty easy to do. But when you understand that, you realize how much control you don't have. And that just again causes other, you know, other questions. But I think, you know, positioning assets is just something people wanna do with, you know, potentially certainty, depending on what they want it for in the future. and it's really confusing.

So as you guys talk to clients and you meet with people, right, and you understand this narrative, okay, what is the way you communicate with them that seems most effective?

Gary Pinkerton (22:25)

Well, when it's on a large monetary policy and projecting what might happen in the future, it's just recognizing that we don't control it. And no one is any good at predicting it. And you could say the same about the markets, but sticking with the Federal Reserve and the actions they take and what that does to interest rates, recognizing that we don't really know what's gonna happen, and making sure that you can you can still

stay in the game if they zig right or they zag left, like you can still you're still positioned in a way in which you can do that. I was speaking with a client who had a larger interest rate on a primary mortgage in the sixes or sevens, and didn't like that. and, you know, just specifically on the numbers, he had decided that it was better to put the money towards that than to put it into a place where maybe it's gonna grow at five or five percent or so. And

The problem is that the 5% thing provided him options and control and access to the capital in case things didn't happen that he thought were going to happen. Putting the money into the mortgage, handing it to the banker, means you don't get it back, right? Unless you have, you know, 10 10 different conditions all set accurately or perfectly to be able to go pull the money back again. and and so what happened, you know, he made a comment that, gosh,

I could really use the lower interest rates that I anticipated for two or three years coming because I don't have any liquidity and it's actually having an impact on my family. And so that he recognizes, I recognize, is going too far. And I kind of wish I'd pushed back a little bit harder on it. So under you know, if the market if the rates don't go down and they actually go up into the sevens for the next four years, you should have positioned yourself in a way in which that doesn't hurt you. You missed an opportunity that you hope was coming, like I wish they had gone down as well.

If they go to two and a half percent, I might miss some meetings with clients as I'm refinancing everything I own. But until that happens, you know, I just continue to march along with adequate liquidity, with you know true savings that I don't misinterpret to be the investment side.

Patrick (24:31)

So let's maybe get into this. So why obviously it makes sense to you and I as far as why interest rates should be lower or the benefit to us if interest rates were lower, right? Because we can refinance real estate debt. It makes sense. So why? Why don't they push interest rates lower? Like what's gonna happen if interest rates go lower?

Gary Pinkerton (24:53)

Huh?

Paul Seitz (24:54)

Well, I think,

Gary Pinkerton (24:54)

Go am.

Paul Seitz (24:55)

You know, if from the Fed's perspective, they run it at two percent, it has an advantage that when there is a crisis, they have an action that they can still take to reduce interest rates to stave off that crisis. Right. So not having any downside there leaves them no lever to operate in the event that they need to stimulate the economy by easing monetary policy. So that's kind of why there's a there's a lower limit from their perspective.

But in a, you know, if we went to a zero interest rate environment for a long period of time, money becomes free. That is itself inflationary. And so if it's very easy for people to lever up, then they're gonna take levered up, levered bets, and then you end up in nineteen twenty-nine. All of a sudden your stock DE ratios go off the charts. And then if anything happens, not only do they not have any downside protection because they can't lower rates further than zero, but they also have spec a speculative bubble that's likely to break and the

And the causes or the effects of that are multiplied by the leverage that's taken on on the easy money policy.

Gary Pinkerton (25:55)

A very simplistic analogy or way to think about that that I've always used is just your foot on the gas puddle. The Federal Reserve is the guy who's got his foot on the gas puddle. He can push down harder, which means printing a lot of money and called quantitative easing or financial easing. And what Paul just said there was that you know your foot might be really close to the floorboard. And so if a real crisis occurs, the next COVID occurs and you need to stimulate the economy, you can't do it if you're already you know, at the

At the limits. And then, of course, back to the beginning of the podcast, the other big concern is that you don't, I mean, not having a lever to be able to recover from a black or or gray swan event would be bad. but another one is that inflation takes off. And if inflation takes off, you need to find the breaks. and they may not have those breaks, they may not work, right? So they are always concerned with stimulation that they don't that they overstimulate.

Patrick (26:51)

So when you increase monetary supply, you know it's called stimulating. But does it always stimulate in the right way? And that's kind of how I look at it, where if you look at deficit spending.

Right, which is essentially that the government is spending more money than they take in in revenue. Okay, you essentially have where's the question, where's that money going? Is it improving things? Does it have a multiplier effect? And if you look at, you know, especially what happened with Doge and just our knowledge of the government in general, right? It doesn't have the best track record of being efficient when it spends money.

Okay, so you have spending money, then you have investing money. Now, if you look at you know the Googles, the Metas, you know, the MA the Mag 7 and where they're taking on these, you know, multiple hundred million dollars of bets, putting it into data centers, expanding AI, you look at that, is that the is it the same, is it the same outcome? It's spending, it's stimulating, but I look at that as okay, if they're doing it, obviously there's demand.

But what is that demand going to cause? And I think AI has just proven that it can make things more efficient, it can streamline things, it can reduce expenses. And so you look at investment versus expense. And I think that's how you kind of delineate what is good that comes from low interest rates versus what's bad that comes from low interest rates. Because if you're just if the government's spending money and it's not really in investing in the

you know, in the economy and doing things that are gonna make things cheaper and more efficient. It's like that's gonna lead to even more inflation. So I I think sometimes it's just interesting how the government actually positions where money goes that it could be, you know, it could be better. But again, that's a very difficult problem to solve, right? Because there's always gonna be unintended consequences no matter what they're doing. But this is all going

Paul Seitz (28:49)

Well that

Patrick (28:50)

on whether we like it or not.

Okay, and so really what we're trying to communicate to you all is just having a baseline of understanding of how the monetary system works and then a few things you can do to just ensure that you're not negatively impacted by it is our objective. So maybe let's get into maybe some of the meat of the episode. So what's happening? So first off, you know, the rates going from three and a half, the range is three and a half to three and three quarters percent.

I mean it's not much of a change. Okay, so keeping interest rates the same. I obviously had the three that wanted a quarter point increase. But then you also have you know some narrative that's being used, which is obviously the title of the podcast. So what did Worsh mean by this comment?

Gary Pinkerton (29:42)

Okay, so we're on a podcast. So his comment was eager to roll up their sleeves and have a family fight, right? So

Patrick (29:46)

yeah, sorry. We're looking at a slide and then sorry.

Gary Pinkerton (29:50)

they're willing to dissent, right? So the last time that three governors have dissented was how long ago? It was 2002, 2012. Yeah.

Paul Seitz (30:01)

Two thousand twelve, I think. Yeah, a long time ago.

Patrick (30:02)

Well.

Gary Pinkerton (30:05)

So they happen to be Midwest regional bank governors.

But I don't know that that matters a tremendous amount. I just think that they were testing, right? That the family fight is to make fun of somebody at the dinner table and see if they throw food at you or they say something bad enough to get some kicked off the table, then you can laugh at them. So I mean that to me, that's really the image that was conjured up in my head that they're not. They were afraid to speak out under the last guy because they knew him well and they knew what he would do. The new guy, hey, let's test this a little bit. And this is my opportunity to say what I actually think. So

There's a you know, again, I I just I have experienced in life that there is a period of newness that allows you to kind of test things.

Paul Seitz (30:47)

I think it was two thousand sixteen

Patrick (30:47)

What do you think, Paul?

Paul Seitz (30:48)

My correction on two thousand sixteen was the last dissension like that. But I think functionally you have three

Gary Pinkerton (30:53)

Like ten years.

Paul Seitz (30:54)

Governors, regional governors who think inflation is more persistent than what the other members of the Fed think. So there's just disagreement there. And it's not an illogical disagreement. When you look at rising energy prices and the direct impact of that on inflation, you would expect in a rising energy environment that inflation is going to be pervasive and insistent. So there's there's no shock that there's a

That there's a problem there.

Gary Pinkerton (31:18)

And what I just want to reiterate, Pat.

Patrick (31:18)

So what's so Paul, what's the unintended? Go ahead. Go ahead.

Gary Pinkerton (31:23)

if we have nine and they're all just yes men, yes women, like why don't we just have one? Right? So I think it's healthy, it's good. But I think the actual headline is that they're willing to do it right now under this guy. The question is, how long? Are they willing to like him the entire time he has this position? Are they gonna be willing to go in and scrap about it? Again, I think that's healthy. It's gonna be

tumultuous, we're gonna feel like we're at a hurricane, you know, but we'll see, I guess.

Patrick (31:53)

So this is Paul, this is the question.

Paul Seitz (31:53)

To your point, Gary, we you know we would often

do a designated dissenter. Like if if everybody agreed, somebody has to present

Gary Pinkerton (31:58)

Yeah.

Paul Seitz (31:59)

the best worst case argument. So tell me why this can go wrong. Even if we all agree, I want somebody in here to elucidate the bad case of why this is a bad decision, just to combat groupthink. That's an important tool.

Gary Pinkerton (32:11)

Yeah.

Patrick (32:12)

But I think sometimes too, this is a question I wanted to ask to the both of you because obviously there you know the narrative is inflation, right? Getting to 2%, but monetary policy only influences so much. And right now you alluded to it, Paul, which is the chaos in the Middle East, right, is creating a tremendous amount of volatility with oil prices. And oil has a huge part when it comes to prices downstream.

just because it's a supply chain and looking at you know everything it's like an announcement comes out, prices go down. They fire a missile, prices go up. So it's like it's become this kind of daily thing that regardless of what the Fed does, you're still gonna have influence on prices that they control. And so I look at you know the Middle East, especially what's going on right now, is that a short-term? Is that a long term? Okay, is it gonna be resolved? And then if there's a decision made today as if things

You know, we're gonna get resolved and they end up not getting resolved. I mean, what is the Fed gonna do because of that? So in the end, I think the Fed has a lot of power, but having absolute power of actually what happens in the economy, I think that's what they have to deal with and that's what they have to fight through. And so that's kind of what I am, how I took a fight, which is like, listen, there's only so much we can do. Okay, here's here's a tool, here's a tool, here's a tool, here's a tool, right? But it's like it's a bolt that's a completely different size than any of the tools that we have. How are we gonna

Try to tighten or loosen that bolt. Does that make sense?

Gary Pinkerton (33:41)

Yeah, it does. And it's quite ironic that I mean President Trump wants the Roaring twenties right now. You know, like leading up to the November election. Roaring twenties were amazing. I mean, the thirties weren't because of the twenties and because we printed so much money and just had, you know, large S, unreasonable large S around the world. So but the ironic thing is that he's, you know, causing he is he is taking actions that are causing the inflation that's preventing

The lower interest rates that he actually wants. And I'm not opposed to what he's doing. but it is ironic at best.

Patrick (34:18)

What do you think, Paul?

Paul Seitz (34:18)

Yeah.

I think there's a lot of people that think that Kevin Warsh was put in there specifically to cut rates, but he's in a very difficult place to do that, right? The Fed has a lot of power, except in an era of fiscal dominance where you have massive deficits. Because if you are worried about rising inflation, the obvious answer is to raise rates. But the problem with raising rates is you have to roll over about six trillion dollars worth of debt over the next twelve months. And if I raise rates, that cost of refinance becomes very, very challenging.

And just is a bigger sink on the national deficit. So that's a problem. The rate going up is bad. Going down just cro causes increased inflation, which makes everybody's assets rise. So asset owners do great in that environment. If you're a person that has a big real estate portfolio and rates are cut, then yeah, absolutely you're gonna love that rate deflate that rate reduction. But for the rest of the economy, the prices get higher because inflation goes

And so the Fed where they do have a lot of power, but they're in between a rock and a hard place. They're, you know, skills and (unintelligible) right now challenge that that is difficult to navigate.

Patrick (35:27)

Well, welcome to human experience and human behavior. There's no predicting what's gonna happen. Yeah, I think that's an interesting party. You have a bunch of economists and mathematicians trying to predict the future and you know the variable that's always gonna remain a variable, a variable variable, is human behavior, how things are gonna, how people are gonna respond, how companies are gonna respond, how we're gonna innovate. So it's just it's interesting to be observing what's going on, but yeah, I think the message just remains.

Educate yourself on what's going on, understand what's said, but also what it means. And then also realize that today it's like attention. Attention is the economy in theory. And so looking at them having the attention of the world, what are they trying to say with their message? All right, let's go to a few other things. I mean, well, let me, I'm gonna fast forward through a couple things. We'll we'll edit this out.

Anything that they're standing out?

Gary Pinkerton (36:26)

Cover most of that.

Patrick (36:27)

I like this. Maybe we can get into that. Let me just see. And this is the end. Yeah, let's wrap up, which is, you know, just kind of providing this type of heuristic where it's like, yeah, it's knowing how to respond, knowing how to interpret information and you know, forecasting, maybe we can hit on that. Anything else that stands out to you guys you think would be valuable?

Gary Pinkerton (36:50)

We've covered most of what I thought we would talk about.

Patrick (36:52)

All right, I'm gonna I think what we should do is

Kind of as if we're closing out, right? Speak about what's on, you know, here. But then also it's, you know, there's an objective part of personal finance, and then there's a human behavior part of personal finance. and so understanding the objective part is, you know, having awareness of money in, money out, having awareness of what assets are doing, how they're allocated, understanding how they, you know, are impacted or influenced by monetary policy. It's like awareness is important.

Then it comes down to the behavior you take to optimize based on that awareness. And that's where I look at, you know, maybe the typical system that people follow, right? And is it working? Which could be money in the market, payoff debt, 4% rule. Maybe we can just hit on all of those and start to plant the seed of.

That this is another system you're a part of that's kind of part of the monetary system as well. And so it's starting to ask new questions. So maybe we can have that little discussion then and then wrap up. Does that sound good? Okay.

All right, Paul, do you want to speak to this one?

Paul Seitz (37:56)

Yeah, I think there's a challenge here in wrapping your life around what the Fed is going to do or not going to do. And you if you take a longer term view and just think about in terms of what has to happen nationally over the next three decades, is it likely that we will exit an inflationary environment over those next three decades, in particular in a place where we have a national deficit that is rising by the trillions of dollars every year? So the inflationary environment or the amount of

Printing of money that has to continue to occur is very likely. Do I care whether that's 3%, 5%, 7%? Not necessarily. If I've identified the long-term trend and I've separated my finances out such that I have firm fixed savings as a volatility buffer that is not likely not exposed to loss and inflation protected, then that's the difference between saving and investing. My savings are firm, fixed, non-volatile, liquid, accessible, and guaranteed.

My investing is a different class of asset, right? So I'm doing something else with the money that I'm putting at risk, trying to earn a bigger return. If that goes well, I don't think my volatility buffer is less important. If that doesn't go well, my volatility, my volatility buffer, my safe liquid guaranteed assets are vital in that case. So I want to build both, right? I want to build that in the long term. So then I'm less concerned about what the Fed is going to do. It's interesting, but it's not critically important, and I can moderate my emotions.

in those environments and respond less to the volatility because I have a long range plan. Do I know for certain what's going to happen? No. But just based on the outlook that we have today, the federal deficit is not likely to go down. The only thing that fixes that is if Congress decides suddenly that they're going to achieve fiscal discipline and stop spending. I do not see that happening regardless of what patter what policy or what what party comes to power in Washington DC. Nobody has an appetite to stop spending. So the inflationary environment will continue at some level.

What percentage that is, no idea. But I know it's going to keep happening.

Patrick (39:55)

So one thing, one thing to consider too is you look at the two parts of your brain. And I can imagine what was going through your brain, Paul, knowing you and knowing your engineering background, you just probably had spreadsheets getting wired in your brain as you were explaining, explaining what you just explained. But I I do feel there's merit to that, right? Where there is an objective way to evaluate how you're doing financially. your financial statement, know what's coming in, know what's going out.

having efficiency, having strategy when it comes to that. Then also your, I would say, assets, your asset allocation. Because here's the thing: obviously we talked about a system that was given to us that we're a part of, which is our monetary system. I also think there is a personal finance system that most people have been influenced to to essentially be a part of. They didn't necessarily consciously choose it. And it was chosen more by the collective

Right, because most people are doing the same thing financially. So being aware of it, measuring it, understanding how it's influenced by monetary policy, I think comes first. But then when it comes to what to do about it, it's recognizing that when emotion sets in and it influences a you know impulsive decision one way or the next, it could be to, you know, buy a bunch of gold and dig a hole in the backyard and bury it. even though it might be worth more.

In the long run, you know, money is meant to be spent and support an exchange that supports a good life experience. If it's in the backyard, that doesn't give anybody experience, other than like, you know, those news stories of people, you know, buying old homes in France and finding a million dollars of gold coins in the basement or something like that.

Gary Pinkerton (41:39)

Yes.

Patrick (41:40)

Right. So the idea in the end, it's like anything that's an asset that has value is gonna be spent by somebody.

either you or somebody else. And so understanding that exit strategy I think is important as well, once you actually have an objective evaluation of where your finances are. Gary, what do you think?

Gary Pinkerton (41:56)

Well, I think we're not gonna predict what they're gonna do. I think that having what we can do, like you know, focus on the things you can control. And those are a small fraction, right? And the number one thing we can control is our own mindset and our own actions from the state of mind that we're in. And so I would just suggest, and what I've learned over the years is that we can't predict what's coming over the next hill if you can't see it.

What you can do is make sure you're not super close to the guy in front of you and that you have good brakes and that you're nice and calm and you're paying attention. Like you can set yourself up as best as you can, but you can't control everything. So we don't know what he's going to do next. What we can do is set ourselves up as best we can. And so making sure there's enough, as I always say, you know, food for the racehorse. And the racehorse is you, you know, is ourselves as the provider for our family. Make sure there's enough fuel for that. And that might be

that you have a nice boat because that's what helps you keep, you know, killing it in your job. Whatever it is, you know yourself better than everybody else. But you need to position yourself so that you can show up as best as possible in an environment that you can't predict is going to come. And so having actual savings, having some protection of the important things in your life, you know, those foundational kinds of things that everybody preaches to you since you were a little kid, are still very important. Trying to guess and gamble, that doesn't, you just can't like historically, that doesn't work.

So that's what I think.

Patrick (43:23)

Yeah, and I think,

yeah, and I think you look at, you know, to kind of wrap up the session today, it's like I think we're there's nothing that can, you know, essentially a life experience that can essentially put us in this state of euphoria for the rest of our life. I think human nature always wants more, right? I think that's part of our survival instincts. But if you really take a look at the world around us, it's like wow, we live in a pretty amazing world compared to 100, 150 years ago.

And so in the end, wealth, the core of the word wealth is well-being. And even though money is a part of it, it doesn't guarantee that you're gonna have a high level of well-being just because you have a certain set of financial circumstances. And we've seen it across the board. Like us, we've seen those that have less means, you know, have a really amazing life. We've seen those with a lot of means that have a miserable life.

Okay, so in the end, even though money has a big impact on it, it's really recognizing what you said, Gary, and just being grateful, appreciative, and paying attention to our internal well-being, which is the purpose of it all anyway. So any final words before we let it wrap up? Go ahead.

Gary Pinkerton (44:27)

Yeah, and I think we well

Well, I would just say that a lot of the purpose of this series of current events and talking about both sides and kind of getting people's reactions. I mean, my impression is that you are doing that so that we can help people who are somewhat moderate. So we can help them kind of buffer it. Right. So they're not just like that guy in the cartoon where he's like squirrel, squirrel, you know the dog. He's like chasing every squirrel. So just

You know, you get to see, you get to hear both sides, you get to hear two or three people talking about it. And then you realize, okay, it's not that huge. Like these guys don't know what's going to happen either. and so how about we all kind of calm things down and you know and just count on the things that we can control and influence. And that's us and our family relationship and you know having those advisors around that you can talk to, you know, whether they're your friend or I don't know, your banker.

Paul Seitz (45:24)

Yeah.

I the only thing I would just add

Patrick (45:25)

Any parting words, Paul?

Paul Seitz (45:26)

A contrarian thought on this in the sense of, you know, not really conventionally thought about this way. I think that long term fixed debt is one of the things that helps me moderate my emotions in these times. So for

Gary Pinkerton (45:37)

Mm-hmm.

Paul Seitz (45:38)

For example, I have a 30 year fixed mortgage on my primary home and the environment is inflationary and rates are going up. Well, great. I have a 30 year fixed asset that's at a lower rate than the inflation is today. So now flip the script.

30-year fixed rates are going down, and I have this big mortgage. Well, great, I can refinance it to a lower rate. Like no matter what, that is a volatility buffer that is a huge power in moderating my own emotions. And, you know, so long-term fixed debt is often viewed as a liability. In most cases, though, in our monetary policy world, long-term fixed debt is more of an asset than a liability.

Patrick (46:17)

Yeah, so there's a handful of ways you can essentially position yourself to optimize what our monetary system has taught us is going to happen. But it comes down to first, you know, understanding the the primary tenants, as we've explained, educating yourself, know how it impacts you know what you're doing, and then making an educated response as opposed to

You know, essentially a decision that might be impulsive or a decision that might be based on what everybody else is doing, based on the system that we've been taught. So let's wrap up. Thanks for watching or listening, everyone. Hope you guys learned something. Again, learning, understanding really does influence the amount of control that you have over your life and over your finances, and that's the objective of the show. If you want to learn more, go to perpetualwealth podcast dot com, leave us a review.

Give us some feedback, any topics that are of interest to you that you don't quite understand and want us to unpack. Totally open to feedback. So do that, just go to perpetualwealth podcast dot com. And that's it. We'll see you guys in the next episode. Thanks for listening or watching today. Bye.

Gary Pinkerton (47:30)

Thank you.

Paul Seitz (47:32)

Thank you.