Join co-hosts Bob Fraser and Ben Fraser in the latest episode of the Invest Like A Billionaire podcast as they share updated research on 7 Investable Megatrends for the Next Decade. These are emerging trends that will create the economic landscape over the next decade and beyond. Since the last time we presented this information, our research has been remarkably accurate, cutting through market noise. In this episode, they present fresh, updated data on these megatrends, designed to help investors make better, more calculated decisions about their investment strategy.
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Ben Fraser: Hello, Future Billionaires! Welcome back to another episode of the Invest Like a Billionaire Podcast. Today we’ve got something unique for you that we’re really excited to share. So we actually did a live webinar just a week ago on investable megatrends. So this is a topic that we’ve been talking about really for the past year or so, identifying these long term trends.
What’s inflation going to be doing? Are interest rates going to remain higher? And are we headed towards a recession? And what’s causing all this? We’ve really unraveled a lot of it. But. Things are changing really fast this year and over the past 18 months, we’ve seen an unprecedented speed of increased interest rates and just keeping track of all the data.
So we actually did a fresh look. We’ve updated all of our charts, updated all of our research to provide the most up to date information for you of what’s going on inflation, predictions on interest rates. And surprisingly, not surprisingly, we’ve actually been pretty accurate on a lot of the predictions that we’ve been making up to this point.
And so you can see, some of the things that we’ve been saying that have continued to hold true. And then really where we’re predicting things are going to keep going. So if you have any interest at all in the economy, where things are headed, just in investment, megatrends overall, you definitely want to tune in.
And really excited to share this as a recording of some of the webinars that we have. And if you want to actually watch this in person and actually, get the full Megatrends presentation, we’ll have a link below in our show notes that you can go and sign in to grab those slides to review on your own.
With that, please enjoy the Investable Megatrends.
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So our interests are aligned. We focus on macro driven alternative investments. So your portfolio is best positioned for this economic environment. Get started and download your free economic report today. Welcome to today’s webinar. And if you saw the title, we were talking about investable megatrends for the next decade.
And this is the updated version. So we actually did this at the end of last year. And really this whole year we’ve both been speaking a lot of places and sharing a lot of this research. And one of the cool things, which we’ll see if you’ve watched this, last year is a lot of these megatrends.
Aren’t actually that different from what they were before. And that’s one of the beauties.
Bob Fraser: They are mega.
Ben Fraser: Which means they’re not these kinds of small short term cycles. And really why we focus on these longer term cycles is what we believe is you can actually identify sometimes pretty early
directionally where certain markets are going to be going based on fundamental supply and demand data. And a lot of people think or equate. The economy with the stock market and the stock market is going up and down. It’s hard to know where it’s going to go. But to a large degree looking at underlying data, you can have a pretty good idea of where directionally things are going to be headed over the long haul.
And so that’s really what we want to focus on today is we’ve got a lot of fresh updated data on some of these things we’ve been tracking for a while now. And this is really important for investors to understand because these are the things that are going to shape the next decade of the investment landscape.
And these are big things. And the more that we’ve been researching these and the more that we’ve been diving deeper into these things we’re looking at. It’s only proving out and in some of these, it’s,
Bob Fraser: We’ve been very accurate so far and there’s so much noise out there, I don’t know, there’s always a reason why there’s going to be, there’s always a dozen reasons, right?
There’s high inflation, there’s got to be low inflation, there’s a dozen reasons why it can have a recession or not. So it’s sorting through the data and there’s so much opinion out there and one chart or one, one thing and it comes with a lot of opinion. Our goal here is to be hundred percent data driven.
We hate opinions, including our own, and we just want to look at the data and let the data talk to us. Yeah.
Ben Fraser: And I think one last thing I’ll say too, that I think is so important for people to understand with that in mind is, yeah, you’ll see charts that are people throwing out all the different, all the time.
We talk about this on our podcast a lot, but one of the really important things to understand is the scale and impact of that. One economic factor is against the whole, right? So you always have to be holding each data point in tension with all the other data points and really look at the whole picture, right?
Because it’s really easy to focus on, savings rates are declining, right? Of consumers. And that’s then they go on this whole long article of why the consumer is in terrible shape. But we’ll show you the contrary. To that point, it’s actually the opposite. We’re going to get into all the seven megatrends that we’ve prepared today, and we may even have a bonus for you if you hang on to the very end, a little bonus megatrend.
And then we will open up to Q and A so get your notepads out, get ready.
Bob Fraser: All right. I’m going to hit stimulus and Kiwi. Now this may seem like yesterday’s news. But pay attention. I’m going to give you a few surprising facts and it’s really important we pay attention to this because it tells us why we are where we are.
So you know, we talked about this a year ago and I made a bunch of predictions. This was almost two years ago. Yeah. And they’ve all been correct. Yep. And in spite of everyone else saying, no, this or that, or the other is going to happen, what I actually said was going to happen actually happened. And the reason is because I took, it took a time to look at the underlying causes here.
So we’re going to look at it real, real quick. We are still living in the shadow of the global stimulus, and it was massive, okay? This is, it was between 10 and 16 trillion dollars, and I point out it’s global it wasn’t just the U. S. that stimulated the economy, it was global. And there’s two different ways, there was direct stimulus and there’s also support.
I’m not going to, I’m just going to summarize a lot of these stocks. You have a lot of data to cover. The central banks also monetized 11 trillion. So what they did is they bought debt to the tune of 11 trillion. Again, it wasn’t just the federal reserve. It was all the central banks.
And you can see this little rise right here of this massive purchase. This is what the central banks own. This is their balance sheet. It’s and then the most important thing that happened is I want you to understand the innovation that happened amongst Federal Reserve Bankers.
Okay. You don’t think of Federal Reserve Bankers as being innovators. They were massive innovators and this happened a couple of times. So in the past, when the economy slowed down, they would lower interest rates. They had one button to push, lower interest rates. And that’s ineffective.
Okay. Let’s say. You have a, you’re making airplanes, you’re in the airplane manufacturing business and no one is buying your airplanes. But I’m the Federal Reserve. I’m your bank. And I say, Hey, Mr. Airplane maker, you can borrow money for 0 percent and you can borrow millions of dollars. You’re an airplane maker.
No one’s buying airplanes. What are you going to do? I’ll still borrow. No, you won’t. You’re not going to, you’re not going to borrow anything because there’s no one buying airplanes. Yeah. And so what happens is debt. Does not just reducing the cost of debt does not increase demand. Okay. So it’s a weak thing.
Then what happened was the great financial crisis. And they right here, what happened is they made direct equity and Beck and injections into various stocks. They bailed out AI AIG. And they started this brand new mechanism called quantitative easing and debt monetization. And what they did is they actually had the Federal Reserve buy debt and they bought 3.
6 trillion over six years. That was a huge amount of money, right? Okay. That worked so well during the great financial crisis. Now comes COVID. And we said hey, If it’s going to be, if 3. 6 over six years was good, what’s going to be really good is five trillion in two years. And so they did monetization and then they said, I’ll tell you how you can really jumpstart the economy if we can make direct payments to individuals.
We just send money to people. It turns out that it is extremely powerful. Where the first example of lower debt prices doesn’t create demand. It turns out if you. Wire people money, it creates an incredible amount of demand. What happens? And just to, I, it’s, I’ll use a silly example just by way of illustration to explain what I’m talking about.
So let’s say the government wired to every man, woman, and child in the United States 1 million into their checking account, yours for free. What would happen? People would probably start buying stuff, right? They’d go shopping, get on Amazon, they’d go book a plane ticket, book an Airbnb. They would probably start investing in crypto.
They would probably quit their job. A lot of people would quit their job. Not everybody, but a lot of people would do this. Hello? That’s exactly what it must be. So what we figured out is that direct payments to individuals are very different from every other kind of stimulus. It’s extremely powerful and very inflationary.
Okay. So what happened? So back in the great financial crisis I’m looking at this giant, this giant easing that they did and all this money printing, and I really thought we were going to see hyperinflation through debt modernization. It didn’t happen. In fact, if you recall the next few years, the Obama years after the great financial crisis were really slow growth, very low inflation in spite of all this massive stimulus.
What happened? I want you to look at these stimulus acts when they occurred. So this chart is actually the capacity utilization. This is how busy the factories are, how busy, for example the, so if you’re operating at 50 percent capacity as a factory, you have, this number will be 50.
So you’re operating at half capacity. If you’re operating at half capacity and I go say, I create money, I print money. And go order 10 percent more widgets, you’re like, okay, I can pay my bills and pay my rent. I don’t have to fire people. Is it inflationary? Not at all. Okay. But if you’re at 100 percent capacity, you literally can’t get parts you’re at 100 percent capacity, you’re making as many widgets, you’re flat out making as many widgets as you can, your factories are full, your workers are busy, and I order 50 percent more widgets.
What’s going to happen? Now it’s inflationary because now I have to buy new real estate. I have to buy new equipment. I have to hire more people. And those people are going to be, they’re going to be difficult to hire. So it’s inflationary. And this is what I want to point out. This stimulus happened at a time when capacity was idle, bottom idle capacity.
And this is what happened in the 2020 crisis. So you see this stimulus happened at the bottom, very well timed. This one was fairly well timed. Biden, 1. 9 trillion. It was one of the largest ones. At a time when the capacity was already maxed, right? And supply chains were already stretched.
Supply chains were frozen because we couldn’t get the parts we needed for existing demand. And then it creates artificial demand, right? On top of that government demand. And that’s when inflation happened. So this is what exactly happened during the great financial crisis. And I just want to point out the differences here.
The stimulus was created when it was spending was created when a time in the economy was idle versus later. Stimulus packages pumped trillions of the economy when it was at capacity and direct payments. Encourage people to quit the workforce. Yep. And to spend like crazy. Okay. So I’m making this up, right?
This is all theory. Okay. This little chart should blow your mind. Okay. This is the Households and Nonprofit Organizations checking deposits. This is checking deposits. Look at what happened. Look at how long this chart is. It was about a trillion dollars until the Great Financial Crisis, and now it’s about five trillion dollars.
What? So there’s four trillion dollars excess sitting in people’s checking accounts. That’s exactly what there is.
Ben Fraser: And you can see at the little tail there, that’s the savings rate decline.
Bob Fraser: But it’s a tiny little tail there. This is a mind blowing chart. All of a sudden, huge amounts of stimulus. Look at consumer spending.
Again, I’m not making this up. This is retail sales, trade and food services. And you look, this is the Obama era, and steady growth in retail growth. Here’s the pandemic, and then look at that post pandemic. We get a hockey stick here. This thing just went bonkers. 30 percent above the trend line.
So if you’ve been to the stores recently, if you’ve been to the airport recently, you can see that consumer spending is insane right now. And this is real. Why does this matter? This is 70 percent of the U. S. economy is consumer spending. So if he turns out, if you wire people money. They like to spend it.
Here’s another one, people exiting the workforce. This is the labor force participation rate. This is the percentage of the population that is working, considered part of the labor force. Here’s the pandemic, and then it’s been coming back, but people exited the workforce massively, and have been coming back some.
Wages spiked up. This is the growth in wages post pandemic, again, because of the labor shortage. All right so that, so that, that really mattered, right? Now… I’m going to hit this consumer real quick, this not so surprising strength of the consumer and 70 percent of the economy. And there’s been a huge amount of talk amongst economists, like, why is this economy so strong?
And I’ve been saying it for a couple of years now, why it’s so strong. So we’re not seeing a, we haven’t seen a recession yet, just FYI, I’m not going to spend a lot of time on this. Inflation is cooling, but it’s not cold. So we’re, we can see it, running right around the four ish percent range.
And on the negative consumer side, tightening consumer credit and lower consumer sentiment. I’m not going to spend a lot of time on these again. And you can see savings. This is the consumer savings boom during COVID. People didn’t leave and they were saved. And you see right now it’s much lower because of inflation.
So people are saving a lot less, but they still have tons of excess savings. But here’s the positive side of the consumer. Consumer debt. This is the delinquency rate. This is the amount of loan that’s not being paid, loans that are not being paid. It’s record breakingly low right now. There’s not a lot of distrust.
Household debt service is very low. And this may seem a little counterintuitive, but I’ll explain it. So this is debt service payments. This is how much it costs you to service your debt as a percentage of your income. It’s pretty low. Now, during the pandemic, it crashed down. Now, it’s a little bit higher.
People are carrying low interest rate mortgages. A lot of their debt is at lower interest rates. Okay. And this is all total household financial obligations as a percentage of household income. That is still very positive. So look at these. They’re quite healthy. They are low.
These things are low. So debt service is easy to do and total financial obligations are easy to do at buy and large. Real income. Now, anytime economists use that word real, it means after adjusting for inflation. So yeah, there’s been inflation, but after adjusting for inflation, income has been on a rip.
And so consumers are feeling… They’re making a lot of money. A lot of raises have been given out. A lot of it, and, and above inflation. It’s beyond inflation. So inflation has taken its toll here a little bit, but we’re still very high. The wealth effect. So what is the wealth effect?
The wealth effect is if you feel, you got, hundreds of thousands of dollars in equity in your house, and you got hundreds of thousands of gains in your stock market, you feel good. So this is the amount of wealth you feel, how wealthy you feel. It’s primarily stock market housing related.
And the wealth effect is still in force. This is real household net, net worth. And you can see, it took a dip here with the recent housing issues and stock market, but it’s continuing its way up and real household net worth. Is on another hockey stick trend.
So people are feeling, they feel wealthy. They feel like they have money to spend. Now, of course, this is not everybody. This isn’t for the entire United States. Aggregate data. Yeah. Aggregate data. Jobs gap. And so we’ve seen, unemployment is finally starting to tick up a teeny tiny bit.
This is the unemployment level. A bit. In spite of what the Fed’s doing, it has no effect on employment, but check out the job openings. Job openings are still double the unemployment rate. So there’s a skill gap, right? There’s skilled workers that are just not available. So again, all these things point to strength.
I’m ready at any time to change my forecast. I just got to see the data today. Right now, what the Fed has done has not changed the trajectory of our economy yet. Now can it and will it? They certainly can. So here’s the ones we’ve hit for, that are for recession. Here’s the reasons why I’m against recession and it’s much stronger.
Strong consumer spending, high consumer savings, low debt service, strong job market, strong wealth effect, record real income, and record cash. All those things are unchanged. Yep. And why I’ve been saying, I think we’re going to have a no recession or a soft landing for now. And by the way, this is what Goldman was saying for the year.
I’m not going to read that. All right. So we’re ready to hit Megatrends. Okay. Are you ready for the Megatrends? I’m going to hit the big ones. Now, half of you as soon as you saw my word demographics, you immediately went into a coma and fell asleep. And so I woke up. Trust me. This is something you’ll want to know.
Demographics are like glaciers. They’re boring to watch, but they also shape the landscape more than anything. And we are about to see a major demographic shift. And I’m going to point out some things that are going to be very surprising to you. So tune in. I’m not going to hit this a ton, but here we go.
These are the developed regions. We’re seeing a population decline. In developed regions. So we’re hitting right around peak population for the globe, the biggest surprise and the biggest takeaway, again, this is not a course on demographics, I want to show you something that is going to blow your mind here.
And this is China. China’s population has peaked and it is now dropping and they are slated to reach the end of the century. To lose 50 percent of their population, that is insane. And this is the workforce. They’re slated to lose two thirds of their workforce. Now if you don’t think this matters you’re not paying attention.
So GDP is what you, most economists talk about as the economy, right? The gross domestic product. This is the sum of all goods and services produced by the entire country. If I drop my population in half, my GDP stays the same. GDP is population times productivity per population. So if I drop my, if I have a country with half the people, it’s going to have half the GDP.
So in China, if they lose half their population how many new apartment complexes do they need? How many iPhones, how many cars, how much food? Okay. And if they lose two thirds of their workers who is going to work? Who’s going to produce all these cheap goods? And this is going to change absolutely everything about absolutely everything.
And you’re going to see it over the next several decades unfolding. It’s a slow motion tsunami that is hitting China, and it’s going to hit America. And I personally believe we’re going to start to see some. Some Black Swan events coming out of China because you can’t do this and not have major Disruptions happening.
I think we’re gonna see a property bubble and our banking collapse, you know beginning and they may be able to fix it. But we’ll see Europe is not in super bad shape as well. Italy looks like a retirement home. There’s going to be no workers. It’s all old people. The US surprisingly is strong.
So these error bars, these shaded bars you’re seeing here is what could be based on people’s decisions. So it could be any, anywhere in there. China noticed there weren’t a lot of error bars because China doesn’t have young people. They don’t have enough young people and don’t have enough young women.
So young women are the ones who have babies. I know that’s maybe controversial, but they’re the ones who have babies. And if you don’t have enough young women, you will not have babies. And what’s more is the birth rate per young woman is only about 1. 09. It takes 2. 1 births per woman to maintain a population.
And they’re way, they’re half that and they don’t have enough women to begin with. Even if they had 10 to one, there’s still not enough women to reverse this. That’s why these error bars.
Ben Fraser: It’s so this is pretty well set in stone. There’s not a whole lot of recovery from getting out of this kind of reversal.
Bob Fraser: It’s irreversible at this point. And it’s through, 350 million forced abortions and they favor gender selection favored males. They’ve completely nuked their economy. All right. And by the way, I just want to point out, I showed you this worker shortage chart.
BlackRock put a chart together that showed how much of this was due to the decline in the, it’s due to demographics. This is the decline predicted by the demographic change in America because the baby boomers are retiring. Yep. So there it is. And just a case in point, in China, we’ve seen a 15X wage increase since 1999.
This is China right here, 15 times their wages have gone up. Since 1999, the fastest wage growth in human history, and by the way, this one is Mexico, this green one. It’s cheaper. Wages are cheaper in Mexico quite a bit. So you’re going to see the end of China as a dominant place. I’m not going to hit a lot of this, but we’re going to see higher wage growth because of fewer workers.
We’re going to see higher inflation. We’re going to see higher taxes and pension costs. And an increased capital costs as boomers pull their money out of the markets. So there you go. So that’s Megatrend 1, just demographics. Megatrend 2 is inflation. And I’ve been saying this, and I was just on a panel of economists saying inflation is going to be higher for longer.
And I’m the only guy saying it. And I’m going to keep saying it because it’s just what’s going to happen. We’ve definitely seen the worst of inflation, but we’ve not seen the last. And here’s the reason why we’re going to continue to see inflation. This little chart right here this gold band is the consumer price index.
Okay. You can see it. And the black is oil, do you notice anything? So what’s happening is most of the rise in inflation throughout, 21 and 22 was due was, had an oil price underlying it and most drop in inflation was because of oil prices dropping. So here’s the issue. We are going to continue to see higher inflation because energy prices are going to continue to remain high.
And that’s one of our next megatrends. And the other is because of worker shortage. So these are two big three inflation components that are structural, not cyclical. So what’s strong, what that means is they’re built into the system, not based on a business cycle. There is actually a structural imbalance.
That is not easily fixed. And that’s true in energy and it’s true in workers. Yeah. All because, and this is the wages and salaries cost index. So wages underlie everything, right? So that your cost of your hamburger, the cost of your gasoline, the cost of housing, everything, wages is un underlies all that.
And so does energy both are, even though they’re not exactly in the consumer price index as components. They’re a part of every component, right? Yep. So inflation is going to be difficult to contain with moderate GDP growth as long as if they slam the, the Fed really slams the brakes on, they can contain inflation, but it’s going to keep bumping its head up.
And it’s going to keep being higher than people want it to be. Why does that matter? Because Jerome Powell said inflation under 2 percent is his main goal. And I’m not going to read this, but if you read his statements, it’s 100 percent clear. This is his only goal and he’s not considering anything else.
2 percent and because of energy prices and worker shortages, you can’t get there. What’s going to happen? Higher for long, higher for longer. And that’s exactly what’s going to happen. So inflation is your friend or your enemy? It’s the greatest, one of the greatest wealth creators and destroyers on the earth.
We know how it destroys wealth, right? Because it destroys the value of your currency, the value of your green money and the money you’re checking your savings account go down the value of that. But what if you are a borrower and you’re on the other side of that inflation?
It creates wealth. If you’re an apartment complex owner, for instance, and rents continue to inflate, you’re the beneficiary of that. So at 8 percent inflation, the value of the cost of stuff doubles. in 10 years. And that includes your apartment complex, right? If you’re, if you can, the value of stuff drops by half in 10 years.
It just shows you that inflation is a transfer of wealth from savers to borrowers. So you want to be a borrower at this point, except, right now borrowing is expensive, but generally you want to be, and you want to be on the supply side where you’re benefiting from inflation rather than on the consumer side where you’re only paying it.
All right. Energy prices. This is a huge, we’re getting into now really money making trends. Yep. Transitioning here. And what’s happened is we’ve had a false narrative that’s produced seven years of underinvestment in energy prices. So what’s happened is this is actually the investment in oil and gas exploration and development globally.
And it’s dropped by 55 percent since 2014, meaning the dollars spent to explore and find and develop oil and gas reserves. You think, okay whatever, no, it’s a big deal because we know that existing production from oil fields drops, let’s say roughly five to 7 percent every year.
So you’re seeing existing production just continually dropping. Why? Because of depletion, that’s normal. So you have to maintain, you have to be investing billions of millions of dollars every year just to keep supply flat. And if you’re dull, you’re dull. It doesn’t happen. And what’s, what happened is we saw basically the narrative came out that we were post fossil fuels.
The world was post fossil fuels, which again. As a data guy and as a math guy, that is silly. It’s really beyond silly. There’s no math to support it. We are not post fossil fuels by any means, and we’re not going to be anytime soon in spite of what some of the ideologues are saying, and I appreciate the need to get off fossil fuels.
We all want to do that, but there’s also math and it’s just not going to happen. So we’ve seen huge huge, I’ve been talking about inventories for a couple of years now. We’ve been seeing a huge decline in inventories and right now in Cushing, Oklahoma, they’re at the tank bottoms.
It’s exactly what I’ve been saying is going to happen. And what’s happening is because the oil fields haven’t been developed, you can’t just develop them in a day, right? There’s only so many drills and they can only drill, one at a time. And so it just takes years and years to develop an oil field.
So it doesn’t matter if oil prices go to 140 a barrel or 150 a barrel, we’re not going to see an increase in the supply of oil. We might from marginal production in Saudi Arabia or Russia, but not from actual production of existing fields. We’re seeing a huge problem in global inventories right now, a huge decline in global inventories that is causing the current price spike.
And this is what’s shocking to people. So I was just reading from the EIA. They just announced that they’re going to see a 25 percent decline in fossil fuel demand by 2030. That’s seven years from now. 25 percent less oil and gas used. That is. Absolutely false. There is no way that’s happening.
And this is from J. P. Morgan. He’s predicting a 7 million barrel per day shortfall by 2030. Meaning the earth has a demand for 7 million barrels of oil per day that there was no, there’s no supply. And he mapped out where the supply is going to come from and where it isn’t. And so we, because of this underinvestment that’s happened in the past.
We’re going to have a pretty severe energy crisis across the world in the next few years, and it’s really unavoidable unless they do what’s called demand destruction by putting the world in a massive recession, which I don’t think they can do or will do. So we’re going to see a big change there.
This is the strategic patrol and reserve, and I can talk about these things. And this is what I want to point out. And I was sharing some of this with one guy and he was saying what about EVs? I said, electric vehicles. And he said, yeah. And I said last year they were 6 percent of vehicles sold in America.
And by the way, use 65 percent of global lithium production. And I said, where, and where do those EVs get their power from? He says from the wall. And I said where does the wall get its power from? And he said, from a power plant. And I said where do the power plants get their power from? He said, I don’t know.
And I said, from coal and natural gas, and he was like, what, why don’t they tell us this? So here are the facts right now, as we sit all fuels, 83 percent are carbon based today, 17 percent non carbon. Wind, hydro, nuclear, solar, et cetera. So 17%. This is after 50 years since we started going renewable in the 70s.
Okay. And that just goes to show you, we’ve come a very long way. Anybody who thinks this is going to suddenly drop in the next seven years is ridiculous. It’s simply not going to happen. This is a massive ship moving in one direction. It’s simply not going to. Reverse tomorrow. They just, they can’t support what they’re doing with data.
So the green, what? We wanna be green. The green revolution is simply not ready yet. To take all the energy. And as they said, we need 40 times the lithium, 40 x more lithium just to meet the goals. By 2040, 40 times more lithium than we have today. Where do we get the lithium? It takes decades to build a mine.
And by the way, those mines run diesel fuel, deglobalization, mega trend number four, suddenly in 2020 supply chains had to be de-risk and now supply security is paramount. We’re seeing China is no longer the low cost producer in the world. And what this is is trade as a percentage of GDP, global trade as a percentage of GDP.
And look what’s happened. The world has been globalizing since 1945 and it ended in 2008. And what that means is trade is because a percentage of the economy is becoming a less and less important factor. So we are currently in a massive reshoring trend that you’re going to talk about in a minute.
And we’re, we are seeing the world de globalizing, and it’s a good thing. Why should we… Why should we not be able to ship trucks because one ship that we can’t get from one factory in China, right? And you’ve, you’ve got, 200, 000 parts with one missing and you can’t ship a truck, right?
Yeah. Is it worth it to bring that back? Yes. And what’s happening is a lot of industry is moving back to the United States and to Europe as well. All right. Industrial boom changed to Megatrend 5. All right. Megatrend 5. Yeah.
Ben Fraser: I’ll jump in on this one. Go ahead. Yeah, so we’ve already been saying a lot of these things, they all flow together, but we are seeing a massive shift in reshoring.
And, the industry has had a great run and a lot of it was caused by e-commerce. And e-commerce took the world by storm over the past several decades and grew as a percentage of retail sales and needed distribution and warehousing for shipping all these different products.
And that has really caused industrial real estate to be this really hot area and super low vacancy. So a lot of people think hey, that, that kind of ship has sailed. We are seeing e-commerce growth slowing down. It’s plateauing. And so the natural thought is that the industry is slowing down.
Well, industrial real estate, but we think it’s really the start of a second boom, early phase two. And the real reason is because of this reshoring trend. And so in COVID, we saw the supply chain disruptions. Really exacerbating and accelerating, this globalization trend that was already starting, but is really now accelerated because of things like this is a great case in point with Ford.
They were sitting on a billions of dollars of inventory of a person called the world’s heaviest paperweights because they couldn’t sell their trucks because of missing microchips. So how important is it for Ford to bring the manufacturing of those critical components back to where they have a lot more control and ability to scale up or down based on where they need.
So we’re seeing this trend be less driven by e-commerce and a need for distribution, but more for manufacturing. And more for bringing more inventory. So the sentiment has changed from, just in time, which is built the whole supply chain as it is. And when I was in school, that was the big thing.
Bob Fraser: You should learn how to manufacture, you only want the parts to arrive just when you need to put them in your assembly line.
Ben Fraser: Yeah. And now it’s shifting to just in case you’ve got to have them there. He’s got to have them sitting there for when. Capacity is high and you need to be able to meet the demand.
And so this is something that is flying under the radar. A lot of people don’t realize what’s going on, but these charts are incredible. These are a reshoring of job announcements that are up almost 50 percent year over year in 2022. This is the number of jobs that are being brought back to the U.S. in manufacturing.
Bob Fraser: reversal of a long time ago, going up. This is the de-globalization trend that’s happening, and this is COVID. It’s just post COVID. It’s like a different trajectory.
Ben Fraser: Yeah. And you go to the next slide, you’ll see here. The trend for so long was this kind of downward trend of manufacturing, the U.
S. is past the manufacturing era. We’ve moved on from that. We’re seeing a complete change of the trajectory of that curve. And this is only just getting started. Another big reason, which is also caused by the energy early parts of this energy crisis that were going on. Is natural gas in European countries.
So a lot of people don’t realize, but Europe does not have their own supply of natural gas or Asian harvest or Asia. And so they have to import it while it’s about, five to seven times more expensive to use natural gas in Europe as it is in the U S and that’s one of the largest input costs of the manufacturers, right?
Energy and labor are the two largest costs. And if you think about it, I’m strategically trying to make decisions for the next 10, 20 years, because these are big decisions that are being made for manufacturers. I want to be where there’s going to be cheap energy and they’re going to, they’re seeing it more acutely than probably anywhere else because they are.
Paying these higher prices right now, they don’t have any way to fix it in the short term. And so a lot of companies are moving manufacturing back to the U. S. because of these energy challenges.
Bob Fraser: And it’s not just cheap energy, but it’s energy security. Yes. We’re the only manufacturing power in America, in the world, that doesn’t import energy.
The only one. It would be easy to shut down China as a manufacturer by just blockading their ports from, From oil imports. And they would, it would be over. Yep. Yeah. So we’re seeing here on the next slide these are the top reasons companies are reshoring.
Ben Fraser: A lot of them are so social ethical concerns, wanting to de risk from China, de risk from Russia. Walmart surprisingly is one of the top ones there. Walmart is actually pushing their suppliers to move manufacturing back to the U S or, nearshoring. Inventory, just having inventory on hand and the energy.
This is really fascinating. So this, intuitively it makes sense, but we’re talking about, this is the reshoring trend, but it’s going to drive a lot of demand for industrial real estate. And this is something we’ve been talking about for a while that we’ve been investing in for a little while.
But what’s really interesting right now is because of the interest rate environment, we’re seeing new construction starts just fall off a cliff. Look at this chart here. So this is over the past few quarters. We’ve seen new construction. This is the announcement of new projects underway.
Bob Fraser: And so a lot of new construction, and by the way, it was fully absorbed. The demand is so hot. All this massive buildup has actually been absorbed and now there’s nothing new being built.
Ben Fraser: So we’re seeing a huge drop off and that basically creates a gap, nine to 18 months from now as these projects are started now are being brought to the market.
So you want to go to the next slide here, you can see, this is a vacancy and the rent per square foot graphed over each other. So we are actually seeing a large amount of product being brought to the market and at the end of this year it’s very high deliveries. And so we may see a slight tick up in, in vacancy, by being projected here by this costar chart.
It’s going to be absorbed very quickly and when you have limited supply and you have strong demand, pricing usually goes one direction. And rent per square foot is expected to continue to go up. And what’s interesting is that the data that we just showed is really on an aggregate level, but just like any type of real estate investing, it’s so market specific.
And so you can see here, I put a box around the markets here where you see a little dot above. That is the number of the absorption of new construction being absorbed by the market.
Bob Fraser:Yeah, what the market typically wants to absorb new construction. And this is what’s actually being built. So they’re well below what the markets actually need right now, not even in the future.
Ben Fraser: So this is a real problem right now where we’re again, seeing these starts fall off a cliff. So we’re getting very bullish on industrial. It’s going to continue to be a hotspot within the commercial real estate asset class.
And there’s certain estimates on values being impacted in different real estate asset classes and industrial is one of the least impacted by the higher interest rates right now. And the other one. The one I’m about to talk to you about right now is neighborhood retail. Retail is actually the a shining star in the midst of,
Bob Fraser: Some cowardice you look for in retail spending, right?
People are buying like crazy, shopping, right? And so
Ben Fraser: this has been getting a lot of attention over the past few months. The Wall Street Journal has been putting out a lot of articles. We’ve been talking about it on our podcast. So you can go in depth and research some of the nuances here, but they’re claiming that retail is the hottest real estate play in your neighborhood.
And we’re seeing occupancy continue to go up. We’re seeing because of post COVID, a lot of people are now working from home more permanently or at least hybrid. And so they’re frequenting these neighborhood strip centers that are in residential areas, not your big shopping malls.
Yes. Not even your big box.
Bob Fraser: This is not big box retail, which is very at risk for e-commerce. It’s not even grocery anchored retail, which we’re not that bullish on because one, the prices are usually double for grocery anchored. Yep. And it’s not worth it. And especially grocery is being disintermediated now by e-commerce.
We like the neighborhood, this, the strip centers that are non grossly anchored and they’re just, they’re incredible.
Ben Fraser: And so you can go to the next slide here.
Bob Fraser: You can see occupancy is rising. And there’s, you talk about migration, but what’s happening is people are migrating out of the city course, to the suburbs
Ben Fraser: areas, and, the absorption and the occupancy is going up, partly because there’s not anything new being built. So here’s some other headlines here that we’ve talked about in our podcast, you can go to the next slide. And this shows you real estate space per capita.
This has been a long secular decline of new or just total space, aggregate space of retail strip centers. Think
Bob Fraser: about the last time you saw a strip center being built. Yeah. There’s none being built. There’s none being built. And they haven’t been built for 15 years. So right now you can buy these things at 50 percent of replacement costs.
Yeah. Half of what it costs to buy a new one. They might get them at a 9 percent cap rate. It means you’re getting, without debt, you’re 9 percent yield on cash, which is insane. Yeah. And so this next chart, this is an example from our market year, cause we’re buying a lot of year.
Ben Fraser: And this was a pretty crazy chart. This is a, I guess it’s a top 10 retail market and you can see the orange bar. That’s the vacancy rate. So we’ve seen that just fall off a cliff here, just super low. There’s very little vacancy in the market and hey, there’s not anything else being built.
So that’s one thing to rent and to prices and that’s going up and you can see the forecast continues to support those trends. So again, where there’s limited supply, but strong demand. It’s going to be well supportive for these asset classes.
Bob Fraser: All right, housing. So if you are a homeowner, you’re going to like this one.
15 years of under building. Again, very few new homes have been built in 15 years, single family homes. So this is where the new privately owned housing unit started and relative to total households. So the households being formed or population. And look through the 60s and 70s, this is, Right up here, but ever since the great financial crisis, new starts for housing went off a cliff, and it’s never really recovered to its normal level.
So we have a housing shortage in all, especially single family, but also multifamily. And so there remains a structural shortage of housing units relative population and relative to households. So we think it’s a great opportunity. Right now, this is the cost to buy a home, and this is the cost to rent an apartment.
So we’ve seen, because of interest rates, we’ve seen a pretty big divergence, which favors apartments. So we see apartment rents and home prices marching higher together, but it’s going to favor apartments. In the near, near term, and here’s your bonus Megatrend, I’m going to hit this, so we’re going to, we’re going to give you one more bonus Megatrend.
One more. Y’all thought you were getting seven, but you got eight today. We call this the multifamily meltdown, and there’s a mini bubble popping, which offers great short term opportunities. And so what’s happened, I just said there’s a housing shortage, right? Yep. There’s a housing shortage, at the same time there was a multifamily bubble that happened over the last three years where people overpaid for multifamily and they used what’s called bridge debt.
Yeah. Which was, they would go very high. They give you a lot of debt, a lot of debt, and they give it to you for very low prices, but it has a floating interest rate and is only for three years. Yep. And so it happens. Now all this stuff is coming due and there’s a huge issue, with 4, 435 billion potentially troubled multifamily debt.
Ben Fraser: have the highest number of new construction hitting the market right at
Bob Fraser: X2 clusters. So it’s a perfect storm in multifamily. Okay. And to us, it’s a great buying opportunity because we believe there’s a shortage long term, there is a shortage long term, and we have a short term crisis.
So what we’re going to do is we want to go down the capital stack. So we go, this is safer where you’re, if you’re the senior debt holder on this, you’re not going to lose a dime or your Hermes debt, right? It gets a little less safe, but super high yields, preferred equity. And these are the guys that are going to take the biggest hit.
So these guys have to lose everything before these guys lose a dime. That’s the way it works. So these kinds of deals. So there’s a great opportunity to, there’s going to be a lot of distressed multifamily, and there’s a great opportunity to go down the capital stack and go into distressed multifamily.
So we’re probably going to be starting a distressed fund here shortly because there’s a lot of people knocking on our door. Asking for or distress lending and that’s our bailiwick anyhow. Yeah.
Ben Fraser: And ultimately that the long term trend, as you just pointed out, is in favor of housing and we need it.
We have a shortage of it, but in the short term, there’s all these factors that are putting a lot of pressure on operators. With that last little product for the podcast, we talk about these kinds of trends all the time on our podcast. Leave us a review, share with somebody. We love having you guys listen to the podcast with that Oh, last thing we have an investor club.
You can scan this QR code. You can get on our list if you’re not already notified of early investment opportunities and other things we’re doing for our investors. We ran through a lot of information. I think let’s take a few minutes and see if there are any questions out there. So let’s see if we can pull up the Q&A.
Oh, great question. How can we get a copy of the slides? That was a long time ago. But we are going to be sending a link out where you can download. I know we had a lot of slides, we skipped through a lot and the data nerds are probably like, no, slow down. But. We will be putting this out for people to download and you can get a copy of it.
We’ll be doing that when we send out the replay. It’ll take a few minutes. Any questions? What are you thinking about? What are you reacting to? What’s hitting you here? Or what do you want clarification on? Feel free to put it in the Q& A or in the chat and we’ll keep it out here for just a few
Bob Fraser: minutes.
Typing your question in. I’ll just make a comment and, I’ve been telling you, I’ve been doing this a long time and I have rarely seen an opportunity like what I see in oil and gas right now. Yeah. We’re seeing well fields right now, I don’t know if you realize, but we just purchased an oil field with 143 operating wells at a, it’s basically a, what a 30 percent return cash on cash return.
It’s insane how cheap this stuff is right now and in the midst of an energy crisis. I remember in the great financial crisis watching Miami Beach front condos sell for 35, 000 and and I’m thinking that is a generational opportunity and this is a generational opportunity.
So we’re seeing incredible opportunities, for you and for good. Okay. We’ve got
Ben Fraser: minimum entry point for our fund. We have a few different funds that are open right now. They vary between 50 and a hundred thousand dollars for a minimum. So you can go online and look at those. Housing trends look great.
What about buying a single family home in the San Diego market?
Bob Fraser: Yeah, I don’t want to necessarily talk about a particular market, but single family homes, there’s just a huge shortage and you’re probably going to be fine. The coasts are more problematic because they’re seeing more migrations out from the coast as people are looking for lower costs of living and higher standards of living.
Generally, if you buy a single family home right now, you’re going to be in really good shape.
Ben Fraser: Shandor, how’s it going? Thanks for putting a question in. Distressed Multifamily Fund. Yeah, so we’re working on that this quarter. Hopefully we’ll be launching that next quarter. We think there’s going to be a very big opportunity.
And what are your thoughts on
Bob Fraser: that? Yeah,
Ben Fraser: So what we’re seeing is, great properties in great locations with good operators that are finding they’re having shortfalls, right? They have an interest rate
Bob Fraser: cap that’s expiring. And just, there’s no debt. There’s no way to lend. There’s no… They can’t fix the deals.
There’s no money. We’re hearing
Ben Fraser: stories of operators that are doing well. They’re hitting their budgets. They’re getting the rents that they need to be getting. But the banks have just shut off new capital coming in. Even what they committed to their construction laws are saying, Nope, we’re not giving you anymore.
You gotta find other sources. So there’s gonna be a lot of deals you can come in. And you can come in at preferred terms. And so what we’ve been seeing is a lot of these deals, preferred equity, mezzanine debt, you’re coming in at a lower part of the capital stack, so you have less risk that you’re taking and you’re earning the same or better returns a lot of the equity guys that are taking more risk.
Bob Fraser: a bigger check writer, you just get that advantage. Yup.
Ben Fraser: So we’re very interested in that.
Bob Fraser: We have investments for non accredited investors. I would say
Ben Fraser: get on our list, talk with our team. We periodically will open up funds for non accredited investors. Usually it’s only once a year.
So you, we have to have a preexisting relationship. So be sure to talk with our team just so we can start that conversation and get to know you and your situation and. See if it’s a fit.
Bob Fraser: So we have to have a pre existing relationship. So the only way we can accept your money is if we know you. And so what that means, if you want to do that, you need to get on our list and talk with some of our investor relations guys and build a relationship.
That’s the only way. And so you need to do that now. And then when the next deal comes you’ll be primed for that.
Ben Fraser: Yeah, and then 1031 exchange what recommendations do you have? Yeah, talk with us. We have some deals that are in the pipeline. So be sure to talk with us.
We’re always looking for work, working with tick investors and different deals. So sometimes timing doesn’t work out, it’s sometimes a challenge in these situations, but. Yeah. Reach out to us. Let us know how much you have in an exchange, what your timeframe is, and we may be able to help.
Do we invest these assets with our own money? Yes, we do. You might’ve missed the first few slides, but we invest in every single deal we put out to our investors.
Bob Fraser: Like our deals. Yeah. We, yeah. Our best deals out there. Yeah.
Ben Fraser: Last question here. It looks like with current market conditions, where do you think new operators stand in real estate?
Yeah, as with any credit cycle experience really matters. It matters with the relationships you have with your lenders, with your counterparties. It matters with understanding how to be conservative, your capital reserves. It’s difficult to jump in. But this is a really good time to find out who the good operators are and the ones that have been through cycles, understand how to navigate them and can pivot and create agile models to, to find
Bob Fraser: the best opportunity.
Yeah. And in bull markets, it’s less important because all the tide breathes all boats, right? Including the guys that got a crappy boat. Yeah, but when you have troubled waters, you definitely want to go with experienced people that have been there before and know what they’re doing. Thanks so much.
Ben Fraser: care all.