The Silent Economic Boom No One’s Talking About

Andrew Brill 0:01
Hello and welcome to Wealthion. I’m your host Andrew Brill. It’s been a big week for the economy with the Fed deciding on whether or not interest rates should come down. But is the economy humming along and it doesn’t really matter just yet. We’ll discuss that more coming up next.

Our mission here at Wealthion is to help all of us keep and grow our money. But Wealthion is not just a channel. It’s a conversation with our community. So please keep the feedback coming. If there’s something you’d like to talk about, or someone you’d like to hear from, let us know. And if you could like and subscribe to the channel, we’d really appreciate it. Now let’s dive into discussion. I’d like to welcome in Dryden Pence, the Chief Investment Officer at Pence Wealth Management. Mr. Pence is a former military intelligence officer specializing in psychological warfare. He’s received the Bronze Star Army Commendation Medal with V for valor in combat, the Meritorious Service Medal and the Legion of Merit from the US Army, one of the highest honors after all that Mr. Pence is trained as a an economist and can be seen on CNBC and Bloomberg Dryden, welcome to wealthy on it. Before we get started, on behalf of all of us here in the Wealthion family, I like to thank you for your service.

Dryden Pence 1:17
Well, thank you very much, and everybody on Wealthion if no one’s ever told you this, thank you for paying your taxes. It’s important. And and the reason why I say that is my daughter has a dad, because some taxpayer bought me an armor plated Humvee and a flak jacket, and I needed it one day. And so I’m alive. And there’s 1000s and 1000s of soldiers out there, they’re alive because you as an American taxpayer bought them body armor keeps them safe. So thank you very much. If no one’s ever said that to you, they may make that check a little easier to write. But thank you very much.

Andrew Brill 1:52
Well, we appreciate you. And obviously, you guys and all the servicemen appreciate everyone paying their taxes, because it’s it goes a long way for for keeping our soldiers safe. So I just want to ask you psychological warfare sounds like you’re dealing with the stock market and economy.

Dryden Pence 2:12
Very much. So I mean, part of it comes down to the question of what makes large groups of people do certain things. And when you take a look at the stock market, when you take a look at the economy, really, it’s just a mathematical calculation of human behavior. And every dollar is a vote, right? Yeah, right, everyone decides to do one thing more than something else, right? I want to spend $1, here versus $1. There, and that’s $1 here versus $1. There. So every dollar is a vote. And it all really comes down to human behavior, and trying to decide what’s going to make a lot of people do one particular thing. And trying to get in front of that. I mean, we we talk about it, like human behavior drives consumption. And that’s the big thing, human behavior drives consumption, nobody makes a penny until someone decides to buy. And so if you can begin to think about getting in front of human beings decision making cycles, you can be a little bit predictive about what someone’s going to buy, and who they’re gonna buy it from. And those are the companies we try to focus on.

Andrew Brill 3:12
So it’s a little bit of that, but opportunity costs and what they’re spending money on is like, Oh, I’m going to spend it here and find a little bit of happiness, and I’d spend it there. Well, let’s talk about the economy a little bit, you know, the indicators. You know, consumer prices are up consumer confidence, according to the newest Michigan study is slightly down. But jobs are good. There’s so many different ups and downs with the economics of it all. You wonder, you know, the economy’s seems to be doing okay. But there’s a lot of gloom and doom around the economy. But when we had a discussion, you’re like, oh, this economy? You know, don’t look at it, gloom and doom, we’re really doing okay.

Dryden Pence 3:52
Well, I think I think that’s the case. I mean, the important thing for people to realize, and this is what people have forgotten. We’ve got more people working today, making more money than at any other time in our nation’s history. If you go back and look at just the pre pandemic, you know, there was, you know, we were the peak right before the pandemic, everyone can remember that that was all good. We’ve added 5.3 million more people to the job roles, all making money since then. So we got 5.3 million more people working now than we had at the height pre pot pandemic. When you think about that, that’s like adding, it’s like getting the entire labor force of Georgia, right all at once dropping them in Ohio, and it’s even picked up in the last year in the last year, we had a 2.7 million people that’s like taking the entire labor force of South Carolina and dropping it in in Ohio or Illinois or somewhere. And so when you have more people working making more money than before, the American consumer spends, I mean, that’s what we do. It’s our national pastime they want that’s why they call it retail therapy. And so it’s So we didn’t have that much money. We’ve we’ve added in just the last three years, what’s the equivalent of the entire GDP of Italy, Italy’s the eighth largest economy in the world. So in the US, we’ve grown Italy in the last three or four years. That’s, that’s huge. And all of that money has a multiplier effect. It’s working its way through the economy. So people always are trying to say gloom, and doom and things like that, you know, and people take a look at the unemployment rate, too. I mean, you when you think about it, we’ve had, you know, 25 quarters of unemployment below 4%. The last time that happened was 1969. So we’re in this, we’re in this long stretch of really good data, of really good facts, nobody wants to feel that way. Because I guess bad news sells, everybody tries to play gloom and doom or whatever it is. But when you look at the underlying math and the underlying data, and recognize that more people are working than ever before, labor productivity is at an all time high, incomes are just about an all time high, all of these things are moving in the right direction, it’s very hard to say we’re going to have this gloom and doom recessions everybody’s talking about is we’ve got 1.4 jobs for every person looking. I mean, it’s, I think that it’s definitely a glass half full, and we’re going to see that work its way through the economy, and through the markets, and through you everything we have going forward. So we’re pretty positive, it’s gonna, you know, it’s like this, you drive a car for at 90 miles an hour, I know, no one wants to admit that. But you drive a car at 90 miles an hour for a long period of time. And then you slow down to 50, you feel like you’re standing still. But you’re actually moving 10 times faster than you can possibly walk. And so during 2024, we see this, this is going to be the slowing, and people are going to be like, Oh my gosh, it’s awful. It’s not it’s just moving from a torrid pace to a normal pace, and one that’s more sustainable. So we’re kind of constructive on the economy going forward,

Andrew Brill 7:15
I want to ask you a question we had, we went through a period during the pandemic where there was a lot of money pumped into individuals, and everybody was scared, they weren’t working, things were shut down, people kind of saved that money. And as the country opened back up, again, people started spending. So prices went up a little bit. And you know, the money was flowing and everything was great. Are we getting to a point now with the increased income of people and the fact that there are jobs? Are we getting to a point where people are saying, okay, you know, what, I spent my pandemic money, I used a little bit of my savings. Maybe I’ll try and replenish that. So I’m not going to spend as much. It’s not a matter of people don’t have the money to spend, but they’re trying to rebuild their coffers, if you will, because they’ve spent because they weren’t able to spend for a year year and a half during the pandemic?

Dryden Pence 8:08
Well, I think I think you’re, I think you’re touching on something, it’s very important. It’s kind of like I said, this is kind of a slowdown, people still have money, they’re making money, they’re finding this equilibrium back to this balance of how much cash do I have in reserves? How much do I have in the bank? How do I feel comfortable with the investment, so some of the spending is slowing down. But what’s interesting is also the spending that people are doing is changing a little bit, right? I think people are spending more money on experiences, people are spending more money on, you know, sometimes luxury goods are things that are people looking at discretionary spending still seems to be reasonably robust. And, and you do see it as also a generational factor here that you see people spending more on experiences, necessarily, then things. And I think that that is part of just the nature of human behavior, changing a little bit in the post pandemic world, you know, kind of do it now. Because you don’t know when things are gonna get shut down again. But I think that that’s, that’s one of the factors that we see going forward. And that does affect investment themes, as well. But the point I guess I’m trying to make is what you described perfectly, there is that thing that I was talking about this movement from 90 to 50. It’s not we’re going into recession at all, it’s we’re moving back to some sort of normalization of American spending patterns, which are certainly quite robust.

Andrew Brill 9:38
So as the Fed meets this week, obviously things are still looking pretty good. We don’t expect to cut probably until maybe June or even July. But prices are still up and we’ve passed. I’m assuming we’ve passed that post pandemic or that pandemic, you know, levels of of where we couldn’t get goods we couldn’t, you know, there was a lack of things being produced. But we’ve kind of gotten past that, but prices aren’t coming down the way we’d like as well.

Dryden Pence 10:11
Well, the easy work is done on inflation, the easy work is done on inflation, so much of the inflation was originally and energy prices, and we’re seeing a little push back on those, the spike we had that kind of panicked, everybody, we spiked up to about 9.1 We’re now moving down to a level that’s more acceptable you got, you know, core PCE PCE at around 2.4, you’ve got CPI at 3.1. You know, and everyone’s gonna say, where are we We’re trying to get down to this to number, it’s, you know, it’s easy to go from nine to three, it’s really hard to go from three to two, you know, and, and so it’s gonna take a while to get there, the Feds not even expecting us to get to this to his magic two number, which is actually kind of one they just picked, you know, until sometime in 2025. So I think that we really have to recognize the easy works done. But also you have to have some perspective, if you go back to 1971, we’ve lived over half our lives with inflation rates over 3%. And we’ve we’ve lived over half our lives with federal funds rate over 4%. So this idea that that we have to get back to to to have a robust economy that we have to get back to, to to have everything work is really a misnomer. So when you think about this long period of time, you know, from 1971, forward over half our lives, inflation greater than three over half our lives Fed funds over four. During that same period of time you had up, you had an economy that grew GDP, probably around six, you had a stock market that compounded at about seven and a half on the s&p 500. So even in this environment, that’s unusual for us today. It’s actually not unusual for over our long history. It’s unusual for us today, because we were used to a 10 year period of time where we had almost zero interest rates, we had almost zero inflation, right. But I think that the thing people forget is the way we got to that was we had a housing crisis and a banking crisis. And we had a lot of things go bad. In 2008, nine, I don’t think anybody wants to go back to that, if that’s the price, you have to pay for a 0% interest rate and a 2%. Inflation, I don’t think anybody wants to go there. So I think that that we just have to recognize this last adjustment period is going to be elongated, but it’s not going to be one that’s that’s particularly destructive, its price is gonna be a little higher, inflation is going to be a little higher, but wages and incomes are higher, you know, real wage growth is there. So I think that it’s just a matter of recognizing that the last 1% is the hardest. And it’s going to take us a little while to get there. But we don’t we don’t see anything bad coming out of this.

Andrew Brill 12:59
I mean, you’ve talked about not a soft landing, but no landing. And then there’s the you talk about housing, the Gen Zers, who say, you know, I’ll never be able to afford a house. But you know, when you look at it, and the interest rate at seven isn’t so bad. It’s just the psychological as you would know, the psychological thing, Oh, my 7% when, you know, it was just two and a half 3% Just, you know, a year and a half ago, but now I’m going to pay 7% Look, my first mortgage was almost 8%. So I get it. But there’s a we have to kind of retrain these younger people that, look, you know, what a 7% interest rate isn’t the end of the world.

Dryden Pence 13:38
I’ve kind of said this a couple of times, you and I can remember you and I can remember getting a six or 7% interest rate and going score. That’s wonderful. Yeah, and a lot of your, your lot of your viewers probably can, can think of the same thing, you tell a millennial, they’re gonna pay seven or 8%, their heads will explode. And so but the point of the matter is, is we’re just moving back to a more, I guess you’d call it you know, you had the old normal, you had the new normal now we’re getting getting it back to what I’d call the real normal. And, and I think in this in this situation, where it’s, it’s basically a psychological adjustment period. And, and then you we look at this issue, too. When you talk about home builders, and you talk about housing, there is a housing shortage. And and it’s difficult, and part of it is is you don’t have people downsizing, because let’s say if someone’s got a 30 year or more and this is the thing, they have to look at someone who has a 30 year mortgage that they got a couple of years ago with 3% They’re not affected by these higher mortgage rates. They’re just kind of like very happy paying their their more and they’re not in a hurry to sell their current house and move to another house with that mortgage not being portable, so that they they you know, there’s a going I’m just gonna stay where I am right so you don’t have as much sales and existing family homes, because no one wants to refi at a much higher rate. So I think that you’re, you’re beginning to see some of these distortions, they’re gonna have to work themselves out through the economy. But again, that’s kind of why we think the homebuilding sector is gonna, you’re just gonna have to have a lot more new homes, because no one’s gonna sell the old ones because they don’t want to get into mortgage.

Andrew Brill 15:19
I know, I’m not looking to sell mine or hop into a higher mortgage, for sure. But there’s, there’s the thinking that, you know, prices are up. Earnings are up, there’s a lot of companies doing very, very well, there’s the Magnificent Seven that have done very, very well. And now it looks like the bottom half of the s&p is going to start doing well, also, because the economy is doing so well.

Dryden Pence 15:48
Well, I think that this is an important thing for people to recognize, if you look at markets, particularly when you look at 2023. And you look at the, you know, so far parts of 2024, much of it was driven by the Magnificent Seven, you had these, these, these tech companies that were in this position, and they were really driving massive earnings expansion, and they’ve driven the market for now what we see as this matures a little bit, we see that the broadening out of earnings growth, the broadening out of performance is going to really lift the rest of the market. So we see a lot of opportunity and what we call the 493. And part of this goes back to the psychology around things, you know, if you were a corporate CFO, in 2020, to 2023, when interest rates are moving dramatically, you had no idea what your cost of capital was going to be. It’s kind of like, if you had a variable rate mortgage, right? And you didn’t know how high interest rates were gonna go, were you gonna go out and buy a new car? Probably not, right? Because you had no idea what your budget was gonna be like. So we went through this period of time, where corporate CFOs had no idea, their cost of capital, they had really no idea of how to predict their margins they had, so everyone got more conservative, all of the estimates and predictions and plans around corporate earnings became began to be pulled down. I mean, people are humans, right? And so they didn’t want to go out on a limb. Well, what happened is, is that turned into an environment where across all the s&p 500, you see this much higher than normal beat ratio, right? So you go through quarter after quarter after quarter, where instead of having, you know, 50, or 60%, of the company’s beat earnings expectations, you’re looking at 75 to 85% of the companies. And so now, as things are getting back to normal, corporate CFOs can predict their cost of capital, they know what their highest interest rate is, they can be very efficient, they can maintain and increase their margins, right, because the next moves and interest rates are gonna go down. So now you see this kind of robust pushed earnings across the rest of the s&p 500. And we think that that bodes well for the market if you if you kind of take a look at you know, the the the Magnusson seven has elevated the P E ratios of the of the s&p 500 a little bit. But if you take a look at the rest of them, they’re still at like 20, not at 23. So there’s some margin expansion, there’s P E expansion, and there’s greater profitability. So we think that 2024 is going to be a record year for margins, record year for earnings in the stock market. And that’s going to help propel a robust market, we’re pretty favorable going forward. I mean, if you look, historically, when you get, say you’re in your your two after a bad year, right, so yeah, you have a really bad you’re down 10 More than 10%, like 20.2, in the next year, you’re up more than 10%, that third year, you’re typically always up, you know, more than around 10% election years, you’re typically up 10 to 13%. So we think all of the normal historical factors plus the fundamental factors are, are looking for a market that’s going to probably be in that, that nine to 11, nine to 12. Overall, we may be a little ahead of ourselves. Now we’ll have a little volatility on the way as we get there, but But you have that kind of volatility this is the thing everybody gets worried when you have this moment of oh my gosh, the markets gonna correct 10% It does that pretty frequently. And and I think people just have to recognize that that’s part of the ebb and flow of, of emotions around markets and learn to take advantage of volatility and not be its victim.

Andrew Brill 19:27
How do you how do you coach someone through that? You know, it was like, Oh, my God, you know, everybody says, just buy and hold the market just continues to go up. And don’t worry so much about it. Don’t look at it every day, but how do you coach someone through that who’s going to call you and say Dryden? I’m freaking out here the markets on a downswing. This is my retirement, what am I doing? Or this is my my kids college fund, what am I doing? How do you coach people through that?

Dryden Pence 19:49
I think I think you have to kind of separate the fundamentals from the emotion and and you have to ask the question, okay, there’s, there’s this something’s happened and people are panicking, there’s maybe a geopolitical event or whatever it is, right? And you have to go, Is this really going to change human behavior at the consumer level? Are people going to stop? You know, people may slow down on E commerce, right, but they’re not gonna stop shopping, right? People may slow down on certain things, but you’re still gonna go by, you know, I say invest in the no matter what people are going to buy toilet paper, no matter what people you know, you’re going to have a certain amount of gasoline, no matter what you’re in, we always look at how people do things, right. So we really love ecommerce, because if people are going to continue to shop, then they’re going to continue to use the most efficient means of shopping, which is online, and you see that level continue to grow over time. So we always kind of say, you know, what people do doesn’t change that much how people do it changes, and we try to always get in front of the house. And take advantage of that. That’s, that’s kind of a big thing to look at.

Andrew Brill 20:58
So I want to get back to pricing, and maybe interest rates coming down later this year, maybe there’ll be two cuts instead of three. So that when interest rates come down, companies are able to borrow money at a lower rate they can lower their prices is this what is this what we can foresee in the future, because right now, prices seem to be high, and especially food prices and things like that, or that people are hurting a little bit, you know, there’s the people that are working hard, but their dollar doesn’t seem to be stretching as far.

Dryden Pence 21:31
I think there’s there’s two or three sides to this. One is, you know, during the during the peak inflation period of time, right, Everybody raised their prices, even if they didn’t need to, you could finally get away with pushing through a price increase, you could blame it on inflation. And so, as we all know, prices go up faster than they come down quite frequently, right. And so companies are going to be able to use when we think about it from a company, corporate profits standpoint, companies are going to because they’ve been able to raise prices and have raised prices, there’ll be slower lowering them. And that’s going to increase margins, right, they’re gonna that’s going to increase margins as they do it. And so I think that’s going to bode well, for the companies as for the consumer, you are beginning to see, I mean, Walmart has talked about which is the largest grocer in the nation, and they’ve talked about beginning to lower prices beginning to move down that a little bit. And that’s helpful, they’re going to have competitive reasons to do so. So I think you’re going to begin to see some of this come down. But it’s going to be slow. I don’t That’s That’s why you take a take a look at the inflation numbers. You know, I said this last 1% is going to be hard because you look at core services, or you look at some of the more volatile, volatile food, you know, food and energy are a little more volatile. But you can take a look at core services. That’s the sticky part of inflation that’s slow to come down. And so I think the consumer may see some tightening, but we don’t see it, we see it more as a reallocation of what they may be spending money on not as a complete slowdown and what they’re spending money on. And so, again, this is part of this adjustment from 90 to 50. That speed limit that we’re talking about.

Andrew Brill 23:18
do you see those luxury items coming down as well? Because eventually, people are going to stop spending as much as though they won’t stop spending on luxury goods going out to going out to eat, or vacations, stuff like that. But do you see those prices coming down as well?

Dryden Pence 23:34
Not as much. I think what I think the thing that I’m going to look at is, is margins. I mean, my Our job is to find is to protect people’s wealth, and to grow it right. So I’m going to focus a lot on corporate margins, I’m going to say who’s making money, we try to find companies that are making money, and who’s going to make the most money out of whatever behavior there is. So when you look at, we kind of call it what we call choke point investing, where you look at, at there’s a there’s a supply chain between the satisfaction of human demand, right, you get from where you are to where you want to be in a choke point is this is a military term, but it talks about, it’s a place where somebody controls a piece of the supply chain. And and think of it as a bridge across a river, right? If you control the bridge, you control the satisfaction people trying to get across, well, you can charge them a toll, you can charge them a higher price, right? And when you look at that, we look for the companies that occupy a choke point that have a little bit of a monopoly that have pricing power, either because their good is scarce. In other words, they’re the only person that makes it or maybe one or two people that make it or that there is a abnormal demand for that good because it is a brand it’s something that somebody wants and is willing to pay more because of what it looks like or what it might be than what it may may factually you know For the sum of its parts, right, so I think that when we look at luxury goods, they occupy a choke point in human psyche, you want this thing and you’re willing to pay more for it because it is, it’s not just a purse, it’s a particular purse, it’s an LVMH. Purse. It’s something, it’s something that that in and of itself makes you happier because you own it. And so when we look at luxury goods, we find that their profit margins are going to be able to be more sustainable in any type of environment. And the demand tends to be more sustainable in almost any type of environment. Because the people that have the money to buy those things tend to be less inflation sensitive, and less market sensitive. And you also gotta remember that, you know, people have made a lot of money in the stock market over the last couple of years, right. So incomes are made up not just of wages that you earn, but a portfolio earnings. And this is spread out across a much wider segment of the American of the American consumer. So I think we’re a little bit more resistant to some of the normal cycles, because everybody’s kind of got this additional cushion, to satisfaction of their demands. So we look for the choke point companies, that that people are going to buy from no matter what.

Andrew Brill 26:26
One of those, that seems to be an abnormal cycles, this whole AI thing. And now, Nvidia this week is having their conference, and I’m sure there’s gonna be a little news tidbits out of there that are going to make stocks go crazy. The AI stocks the magnificent, magnificent seven, there room to grow there.

Dryden Pence 26:45
I think, you know, data is the new gold. I think that’s, that’s when you when you think about our ability to understand what the consumer is doing, what companies are doing, how we can be more efficient, how AI can help, really any company, if you take artificial intelligence and combine it with a human, you increase labor, labor productivity, increasing labor productivity is the solution for inflation, we get better outcomes from every dollar of input. And so when you think about that, the demand for what these companies do I mean data is we’re producing like five times more data every day than we did in 1999. I mean, it’s just, it’s tremendous, right? And so we’re creating all of this new data, it’s going to continue to grow, there has to be a way to crunch it, there has to be a way to store it, there has to be a way to understand it, there has to be a way to analyze it. And as we do that, we get better outcomes. And we also become more efficient. I mean, think about it, you know, 25 years ago, think how expensive computers were a computer that can just do a couple of things would cost 1000s and 1000s of dollars. Now, they’re almost disposable, you know, a couple 100 bucks, and you have and so when you think of all of that efficiency of that of that wave of industrial revolution, or the wave of community of computerization into everything, AI is kind of the next big wave of that. And so we’re going to find ourselves in the situation where the companies that are at the forefront of that they’re going to continue to be dominant. So do I think that there’s room in the Magnificent Seven, for continued demand and continued growth and continued margin expansion? The answer to that is yes. But it also think there’s a tremendous amount of opportunity in the rest of the s&p 500. As companies learn how to apply all of this AI to whatever it is they’re doing, whatever they’re manufacturing, they’re going to be able to manufacture it better and less expensively and have greater profit margins, whatever good they’re delivering, they’re going to be able to apply AI and have and develop margin expansion there. So the winners are not just the people that are at the forefront of artificial intelligence. But the winners are the companies that are at the forefront of the application of that. I mean, if you go back to the 1980s, Walmart put a 386 computer in every cash register, that revolutionized retail in America, because they could really become and look what happened to Walmart, right. And so that by applying that technology to what it was they were already doing, they created this massive efficiency that allowed them to drive down costs. It allowed them to pick up market share, and become a dominant player. There’s gonna be more of those companies. The ones who win aren’t just the guys who create AI, but it’s the guys who use it most efficiently to make lives better for everybody.

Andrew Brill 30:00
You’ve seen companies like Apple, so to speak to that have scrapped an Eevee vehicle to really concentrate on AI. So there’s a lot of companies, I would assume that are trying to concentrate with AI learn how to use it better use it in their products, and Apple is one of those stocks that have gotten hit kind of recently, because China, they’re not selling as many phones in China, the Chinese economy, not from all reports isn’t as good as it here is here in the US. But they’re really concentrating on the AI thing. So that’s one of those companies that are going to look to increase margins do better make their products better through AI.

Dryden Pence 30:41
That’s exactly right. And I think that yet when you think of Apple is, it’s it’s really the dominant consumer products company of the world. And in my opinion, and and it, they’re, they’re so large, they have if you think of the Apple platform, is about $1.1 trillion worth of, of income and products and stuff that rolls through the app store every year, right. And when you take when you take a look at $1.1 trillion, running through things that Apple touches, right, that’s, that’s like the entire economy of I think Norway, which is like number 18, or something like that. So when these people just forget how big it really is this entire ecosystem that they have that affects our daily lives. And so I think that that’s, that’s important. So while you know, the stock may be affected from a headline standpoint, saying, Oh, well, China’s slowing down, you know, there’s a whole slowing down, it’s not stopping. And there’s a whole lot of other people in the world that that use Apple products. So we think that they’re going to continue to be a dominant company for decades to come.

Andrew Brill 31:55
What isn’t that? Why doesn’t something like that come out, you hear when earnings come out? And they look at forward guidance? And they say, Oh, well, you know, we took a hit in China, we didn’t sell as many phones as we thought we would. But look at our apps, we’re doing over a trillion dollars with our apps. Why? Why don’t people latch on to the good, and they’re like, oh, so sales were down in China. So we have a problem. But we’re still cash positive, we still have a ton of cash reserves. And we’re sinking those cash reserves into AI.

Dryden Pence 32:26
Well, I think that I think that, you know, that old adage of bad news sells, right? So everyone’s looking for the thing. Everything’s everyone is always looking for the thing that knock something down. And I tend to look for the thing that that curious something through or drives it up as you as an economist, a lot of people talk about the unemployment rate, but what I really want to look at is how many people really have jobs, because what really drives an economy is aggregate demand. Right? So how many people have jobs, how many making money how many doing, I want to look at that number, because that’s going to tell us what’s more going on in the future. And I think that we really have to step back and try to get out of the quarter by quarter, week by week news cycle with regard to companies, because what, what really matters is is this company going to make money for the long term. And so they may have one bad quarter, or they may have some short term stuff, or you could have an exogenous event, like you have a pandemic, right? But you take a look over a long period of time, you see this massive recovery. So this is when I talk about people, you know, in their in their individual portfolios, you know, kind of like the old keep calm and buy on dips, right? That’s, that’s the thing. You’re trying to take advantage of volatility and not be its victim. Don’t play into the panic that everybody wants to instill in you. But rather ask yourself a fundamental question. Is someone going to buy this company’s product and continue to do it? I mean, people don’t change that much. I mean, think about it. Why did the Romans have gladiators? Well, it’s because they didn’t have the NFL. I mean, it’s, it’s that and, and then and then think about, think about when we were when we were young. What did we do? We pulled out the Sears and Roebuck Montgomery Ward catalog, and we drew pictures on it. We circled the and what we wanted for Christmas. We showed our parents, right, we said here, this is what I want. This is the picture of what I want. And our parents did something as archaic as they wrote a check and filled out a form and they mailed it in. Well now we do the same thing. You’re just looking at your your laptop or your mobile devices, your catalog, your press a few buttons, you pay for it with a credit card, and instead of taking four to six weeks, it shows up in four to six hours. What we do does not change the how we do it changes and this is why we’re big fans of E commerce we’re big fans of of companies that are involved in that because they’re transformative in how the American consumer, which is really the driving force, and most of the global economy, how the American consumer is executing the fundamental fulfillment of their desires. And so we really take a look at our hard look at that we watch what people are doing. And that’s where we want to make sure we invest. And I think that that’s gonna, that’s we talked about investing in the no matter what, and, and that’s what, that’s what people do. And I think that’s how you get through all of this noise. And I think that that’s the big thing. Step back. One of the hardest things for people to do, I think, particularly of investors who are doing it themselves is step away from the keyboard. Think about, think about what does this really mean long term? And if you have, because you’re not the segregates your money, right? Your your Are you investing as a recreation for the next five days? Or the next five weeks? Are you investing for the next five years or 50 years, and you need to kind of look at those two things differently. And I think that’s what we spend a lot of time trying to talk people into doing.

Andrew Brill 36:05
So you spend a lot of time evaluating investment portfolios on the, the, the fundamentals of stocks, basically not not the news or not the cycles, but you’re gonna look at the numbers. And look, yeah, maybe this quarter was down, but their fundamentals are really good. It’s like, when Warren Buffett’s sold a little bit of apple, everybody’s like, Oh, my God, apples, it was such a small, small percentage of his portfolio. And then Warren Buffett came out and said, Look, apples, apples fundamentals are still very good.

Dryden Pence 36:35
Absolutely. I think I think we, I think we invest in really two things, or three things. The first one is we’ll look at policy, right governments, governments have policy that drive people to do certain things. And then we look at fundamental human behavior. I mean, Abraham Maslow did a great study back in the 1919 43. As we prepare to go into D Day and World War Two and 6000 years of human history says that you’re first going to fulfill your, your physiological needs, then your need for safety and security, then your need for love and belonging, then your need for self esteem and your need for self actualization. I mean, people really don’t change. So we first look at what is the fundamental human desire, let’s look at the consumer, what are they going to use their dollars to vote for? What are they going to do first? And then we try to look at the company that is best positioned at that choke point, who’s best to class who can deliver on that? Because they’ll have pricing power, and pricing power turns into excess earnings, and excess earnings turns into better stock performance? It’s not any more complicated than that. So yes, it’s very much driven by fundamentals. And you just ask yourself, is the consumer going to change? Are they changing from this product to the other? They don’t change that quickly, right, you get fads. And that’s where luxury goods come in, you’ll have some time, sometimes a luxury, you know, everybody’s gotta have this. But I think that when you when you begin to focus purely on the fundamentals and say, who’s going to make to have the best earnings? And are those earnings going to be predictable, over a long period of time is, is when we look at a company, we we before we would you know get out of a name or something like that, we asked a couple of fundamental questions. Is there something wrong with the big noble thing? There’s big noble themes driving a lot of people to do something? Is there something wrong with the big noble theme? Is that changed? Is there something wrong with the choke point? Is there something wrong this that particular point in time that’s actually allowing excess earnings to occur? Or is there something wrong with the company in and of itself, they just, you know, no longer can can execute on whatever it was. We look at those three factors. And if something’s wrong there, then we’ll consider you know, backing away from a company. But other than that, we just say Now you’re probably going to plow through because consumers consume and that’s what they do. And if you’ve got the right product, you have the right choke point, you have a big noble thing driving people to do a lot of stuff. You’re gonna have good fundamental r&d so that through the cycle, and and you’re investing you’re not, it’s not a recreational sport. And I think that that’s what people have to pay attention to.

Andrew Brill 39:12
One of the last things I want to touch on, as you talked about consumer spending and habits. You know, we’re entering this spring and summer travel season, and oil seems to start, it seems like it’s creeping up, which means gas prices are going to creep up again. It’s just the nature of the beast. Where do you see oil going? I know there’s a lot of geopolitical pressure on you know, the Middle East right now. A lot of the oil comes from there. Where do you see the price of oil going? And the summer travel season?

Dryden Pence 39:39
Well, I think that I think we’re gonna see oil, you know, it dropped down a bit and now we’re heading in that mid 80s. You know, range, I think, you know, typically things work. Okay. In that 80 to 85 range. It’s expensive. People make decisions around it. I mean, the most there’s two most recognizable prices in America right? The price of gasoline and your mortgage, you know what you pay for gas, you know what you pay for your mortgage, you probably don’t know what you pay for peanut butter. And so and so you people pay attention to that, and we are seeing some elevated gas prices, we’re gonna start moving into that. And I think as long as you don’t have a sustained oil price north of 85 or 90, you’re gonna be okay, you get certainly you get oil north of $100 a barrel that becomes recessionary. And you have to you it’s very difficult to sustain that. But the United States is producing more oil now than they ever have, we’re producing more oil now than at any point in our history. And I think that we’re also beginning to to do that, I think you’re gonna have the two other players that are, you know, Iran, and in the Soviet Union, or, excuse me, I ran in Russia, sorry, I’m an old soldier, I still can’t hear you. But Iran and Russia, you know, they have two wars going on. So in order to fund those wars, they have to keep pumping oil, and that’s going to keep oil supplies up. And I think that will, we’ll probably see this moment where, where oil will probably pick up, you know, get up around 80 to 85. And then we’ll have more supply come on the market, and markets will adjust. So I think the prices will be elevated, but sustainable. You know, it may cause people to change their travel habits just a little bit. But I think it’s still gonna be a very robust travel season, we like the luxury and leisure segments of the market. You know, people are still wanting to take that trip and do that thing. And I think that consumer behavior has moved a little bit more towards experiences, whether that’s individuals or families. And so whether we’re hitting the road globally, or we’re hitting the road here in the United States, I think it’s gonna be a busy season this summer, it’s gonna be good for companies that are involved in that.

Andrew Brill 42:02
And that’ll be good for the economy to keep growing strong. So that’ll be nice thing.

Dryden Pence 42:06
Absolutely. It’s in we, you know, money tends to work its way through the economy, there’s a multiplier effect to what consumers do. And I think, here’s one thing that we forgot. During the pandemic, we put $5.4 trillion into the economy. That’s more and we did it in one year, that’s more money than we put into the entire economy during World War Two. So we four years of World War Two, we put in about 5.1 trillion. And then the, during the pandemic, we put in 5.4 trillion, that’s a huge amount of money that’s working its way through the economy, it doesn’t go poof, overnight, it goes and has a multiplier effect, and it works its way through. So we’re going to continue to feel the effects of the stimulus coming from the pandemic for probably several more years. And I think that helps provide this underlying strength that we’re seeing in the economy. And, and you know, people worry about the Fed and interest rates and others kind of our list of things to talk about here. We think that the feds probably going to, you know, it’s not going to be six, it’s probably three, maybe two now. And they don’t have to raise interest rates, they just have to wait, and just wait, and just wait. And they’ll have the continued effect of slowing things down. They’re getting the result they want. Right. But they’re slowing it down slowly. And that will bleed out some of this inflation. So for those who are expecting a quick reduction in interest rates, I think they’re going to be disappointed. But I think we’re going to the Feds just gonna roll this thing out a little later, there’ll be talking about Yeah, we’ll do it in June for the first one, well, maybe July, in begin to push it out. And we we probably see, you know, two cuts, maybe three this year. But, but the Fed doesn’t have to raise rates, they just have to wait for things to bleed out a little bit. And I think that’s where we’re going to be

Andrew Brill 44:02
Patience. Everybody has to be patient.dy

Dryden Pence 44:05
Just a little bit.

Andrew Brill 44:06
So what’s your best advice for investors today, other than patients other

Dryden Pence 44:11
than other than than patients? I think the thing is, don’t get all excited about trading. There’s billions and billions and billions of dollars being spent advertising trying to get you to trade your portfolio. When what you really need to do is think about the fundamentals of the companies Am I well positioned owning companies that are going to make money off of what consumers do. And if you do then then you forego that urge to trade every day and recognize what you really should do is let your money be your money and Let you be you know, you go you live your life. Let your money work hard for you. But But don’t don’t push it around every day. I think that that’s probably a Good way to a good way to look at things. And so we kind of tell people that, you know, if you step back and you look at it, it’s all going to be pretty okay. And we just kind of move through it.

Andrew Brill 45:12
Thanks so much for joining us where can we find you on social media?

Dryden Pence 45:15
Basically, the easiest way to find me as it PenceWealthManagement.com You can find me at also at Pence Capital Management. And you can also find me at Pence Financial Group. So all three of those entities are affiliated with us. All three of them are they’re designed to help investors and help consumers and we look forward to anything that we can do to help anybody at anytime.

Andrew Brill 45:41
We thank you so much for joining us. It was awesome insights. And I think that your your demeanor in investing and your knowledge investing in the way you go about is phenomenal. And I really appreciate join you joining me. And I know our viewers will appreciate your your insights as well. Thank you.

Dryden Pence 45:58
Absolutely. Happy to be here. Thank you very much. It’s been a lot of fun.

Andrew Brill 46:01
That’s a wrap on another discussion here on Wealthion. Thank you for joining us. If you need help being financially resilient, please head over to Wealthion.com and sign up for a free no obligation consultation from one of our vetted registered investment advisors and remember to follow us on social media for the latest news and information to help you invest wisely. Thank you for watching, and until next time, stay informed, stay empowered, and may your investments flourish.