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Episode #09 of Intentional Wealth:
2022 Market Commentary, Insights, and Perspective with Bob Carey

Intentional Wealth Podcast

Episode #09: 2022 Market Commentary, Insights, and Perspective with Bob Carey

September 29, 2022

In Episode #9 of Intentional Wealth, host Amy Braun-Bostich is joined by Bob Carey, Chief Market Strategist at First Trust, a trusted investment products and advisory services partner to Braun-Bostich & Associates, to discuss the 2022 Market and the many headlines that have affected the market.

Listen as Bob and Amy take a look back at market reactions to the COVID shutdown, its resulting volatility, consumer worries about inflation and interest rates, a possible recession - and even the whiff of some good news amidst all the bad.

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Welcome to Intentional Wealth, a monthly podcast where, alongside notable financial professional guests, Private Wealth Advisor and Founder of Braun-Bostich & Associates, Amy Braun-Bostich, delivers useful insights and strategies that help YOU live your best financial life! Remember, when your goals are meaningful and your wealth has purpose, you can truly live with intention.

Amy Braun-Bostich: Good morning all and welcome back to Intentional Wealth. Today I'm delighted to be joined by Bob Carey, Chief Market strategist from First Trust, a trusted investment product and advisory service partner to Braun-Bostich & Associates.

With over three decades of experience as an equity and fixed income analyst, Bob travels throughout the United States and Canada providing brokers and investors with clear and concise analysis in understanding the markets current trends, and what he believes represents opportunities today and beyond.

Besides his guest radio and TV appearances on Bloomberg TV, CNBC and Chicago's WBBN Noon Business Hour, Bob has also been quoted by several publications including…

The Wall Street Journal, The Wall Street Reporter, Bloomberg News Service and Registered Rep. Bob holds the Chartered Financial Analyst designation and is a member of the CFA Society of Chicago and the CFA Institute. Truly impressive credentials and so glad to have you with us today, Bob.

Bob Carey: Great to be with you, Amy.

Amy Braun-Bostich: Great… So let's start at the beginning. What does your role at Chief Market Strategist at First Trust entail?

Bob Carey: Yeah, that's a great question. I've held many positions at First Trust, I was the director research for about 20 years at First Trust, which meant I was in the trenches selecting portfolios, supervising our portfolio analysts and, so forth.

And then we hired a guy by the name of Brian Westbury who's our chief economist not too many years ago here, about 14 years ago. And essentially what happened is I went to work alongside Brian, and I am, you know Brian, as you can think of him as kind of the 30,000 foot view economics person, if you will, at first Trust, where he's looking at the world and trying to figure out where the economy is going.

And then I start at about 10,000 feet down to the ground and analyze actual asset classes. So it's a matter of looking at the big picture, but also getting down to various areas of the market and helping advisors, helping our wholesalers, helping as much as I can to understand, you know, what's going on within capital markets, but more specifically the actual capital markets themselves and not just the economy.

So it's really kind of a bridge position between research and portfolio selection and economics, and that's my job at this point at the company. And I've done this now for 14 years.

Amy Braun-Bostich: Thanks, Bob… That's really good expertise grounding for our discussion today. Now with all that's going on in the market, perhaps it's appropriate to take a look back at the start of the outbreak of Covid and the economic shutdown. So, what has the market taught you over the past two and a half years?

Bob Carey: Well, boy, a lot of things have happened in the last couple of years that I, quite frankly, I think a lot of us would probably say the same thing. I just never would've thought that we would see the global economy shut down to the extent that it shut down.

I think policy makers made a decision to try to contain the virus by shutting everything down and obviously we saw tremendous monetary and fiscal stimulus as a result of that. I didn't think that we would ever have the extent of government, basically involvement in the economy that we have seen the last couple of years that we have.

So, government spending as a share of the economy has increased rapidly here in the last couple of years, and I think that, you know, there the circumstances by which that happened. I wouldn't have thought that a pandemic would be the catalyst for that, but I think that's really been the big, my big takeaway from the last couple of years.

And every, you know, unfortunately, we have to look at everything these days through the lens of politics and public policy. and I think that has been the hardest thing for me to get my arms around. I'm very much a markets person, and in the past I've always said, hey, governments play a role in things, but the fact is we can't ignore government policy.

And it's become vital to… it's always been important, but I think it's importance has increased a tremendously here in the last two, two and a half years.

Amy Braun-Bostich: Yeah, gotcha. So, what is your perspective then on the first half of this year's market movement?

Bob Carey: I think a lot of what's affected markets this year, especially in the bond market, is just the shift in policies from the Fed.

I think expectations were that with the inflation that we started to see last year and building up throughout this year, I think what we thought the Fed would raise interest rates at some point maybe get a couple of rate hikes this year we've gone from thinking that rates would go up, maybe we might see one percent from the Fed in 2022, and now we're talking about rates above 3% from the Fed and possibly as high as 4% in the next year.

So I think that's been the major shift in the markets this year. I just looked at the treasury curve. Right now you can go out six months out to five years and earn more than 3.2% on a treasury obligation, and that is a substantial increase in yield and an increase in the cost of capital for investors and it's an opportunity. The only way that yield goes to these levels is by a shift in Fed policy. And so the prospect of a tighter Fed, higher interest rates going forward,

and the possibility that we would see a slowdown in the economy certainly has increased. And at the same time those rates are fairly attractive compared to what we saw maybe throughout most of 2021 rates were way below the inflation rate cash. There really wasn't much of an alternative to stocks and bonds.

Well, now there is with, with yields on cash. And near cash at, at above 3%. So that, I think, has been the major factor of driving financial markets this year. You know, earnings this year we just got done with our quarterly call that we do here at First Trust, our internal call. And, you know, we think profitability for the S&P 500 this year is actually gonna come in better than we thought at the beginning of the year. Profitability really is not the problem for the markets at this point. Profit expectations have come down a little bit for next year, but we've got a market that's down substantially, and I don't think it's any more complicated than the fact that we've just simply gotten a revaluation.

We've revalued the market, especially those companies that had very, very extreme. valuations. Maybe six months ago or a year and a half ago, we had a lot of companies selling at 50, 80, 100, 150, 200 times earnings. And that's where most of the pain has been felt this year are those very, very high valuation stocks.

So as interest rates have kind of normalized somewhat, there's no doubt that that has taken a massive bite out of valuations for those companies especially. And unfortunately a lot of investors, that's where they focused most of their portfolios. We have a portfolio review team here at First Trust.

We've got a small army of CFAs who analyze portfolios for our wholesalers and for our investment advisor clients. And quite often they will tell me hey, most of the portfolios that we're seeing for review this year. Investors had a lot of those stocks in that segment of the marketplace. So I think there's been a significant lack of diversification, a lot of concentration, and I think that's for most of the pain has been felt.

A lot of portfolios, underweight sectors of the market that have done well this year, especially energy that's been really kind of the theme that we've seen here throughout this year for most of our reviews is just a lot of folks bought a lot of stocks that did very well during the pandemic when interest rates were very, very low.

And then all of a sudden things are starting to get back to normal whether it's the economy, whether it's interest rates, and that has really left investors holding. you know, holding some pretty significant losses in some of these parts of the market.

Amy Braun-Bostich: You know, things like Zoom and Peloton come to mind, right?

Bob Carey: Oh, absolutely, and you know, companies, you know, PayPal, there's a bunch of these companies out there that when we had interest rates at 1% on the 10 year, you know, we start plugging in those kinds of interest rates in our valuation models and this kind of made sense, you know, these stocks were about where they should have been priced.

Well, all of a sudden I start plugging in a discount rate north of 3%, maybe 4%. and then all of a sudden these valuations come way down. You know, earnings are the numerator and interest rates and the cost of capital, that's the denominator and essentially, if you increase the denominator in anything financially, you're going to lower valuations.

And that's certainly been the case. It's pretty obvious when the bond market rates go up, you own the same thing, that coupon stays the same, its value is gonna go down. The same thing happens in the stock market. It's very much the same sort of mathematics driving all of this. So it's really a matter of inputs changing and not so much anything else. It's just simply the market revaluing things.

Amy Braun-Bostich: So the high tech, like the Cathie Wood Ark type investments are gonna be just pummeled by increased interest rates.

Bob Carey: They certainly have been, and there's no doubt about it. I think that has been the biggest lesson of this year, is that valuations, they do matter.

And it's important to have diversification and there are no long term geniuses in financial markets. You know, we've all seen even the greatest investors of all time have, stumbled, you know, for substantial periods of time. There's nobody that ever completely has it all figured out. That's for sure. It's very humbling.

Amy Braun-Bostich: I saw an article that a lot of hedge funds now have Berkshire Hathaway B-shares in their portfolios now, which I thought was really comical since, you know, the comments have been all, you know, they've lost their touch and things like that.

Bob Carey: Yep. It's not the first time we've heard that about that particular company and Mr. Buffet and his methodology. You know, he's a growth at a reasonable price framework investor, and there's no doubt that we had a growth at any price market here a year and a half ago especially. And you know, you see the market going down as much as it did in the first half of the year and there's no doubt if you pay attention to valuations, there is an opportunity, and I think for long term investors with valuations haven't come down with the Fed, hopefully getting a handle on inflation and getting inflation under control. This is exactly what you want. If you are still in the accumulation phase, you want the Fed to succeed. You want the Fed to get interest rates to levels that, you know, perhaps make things more attractive if you're an investor.

And at the same time, we need inflation rates to come down. So, it's hard for those investors that have got capital that are perhaps about to go into the Distribution phase, and all of a sudden we get this massive revaluation. So it's really kind of a, it's a balancing act and I, I'm sure you have clients in all kinds of, you know, age spectrums and in different situations.

And I think ultimately our belief is that, that investors need advice and what works for somebody who is 60 years old is not gonna work for somebody who's 35 or somebody who's 85 who's gonna have different needs. So I think ultimately tailoring advice and tailoring the asset allocation process, that's always been important, and I think this year has been a big lesson in that.

Amy Braun-Bostich: Yeah, I think one of the surprises this year has been the erosion, the quick erosion of bond prices. I think at one point the AG was down like 13% or so, so that has been hard to manage for our retired clients.

Bob Carey: Yeah, well when you got in, you've got core inflation running at above 6% and you've got interest rates as low as they are,

you know, the market is looking at that and going, wait a second here, you know, it appears that you were not correct in your assessment of inflation, that it was going to be temporary and, that transitory is the kind of… the famous word that chairman Powell used is now the word.

Yeah. I look at my wife that speaks several languages. I barely speak English and every, she has a master's degree in linguistics and one of the things that I… when that word was getting thrown around, why every I, we'll do this every once in a while, or ask her, I said, What does that word really mean?

What does transitory really mean? And she's got all these reference books and whatnot and what I got from that is that it's transitory is not the same as transient. You know? And I think a lot of investors thought that, yeah, we're gonna have this blip straight up and we're gonna write back down again and transitory is actually closer to the word transition than it is transient. You know, you kind of wonder did he really… did he choose that word the way he did it was, you know, he's not stupid. These, these people are all highly educated and I just, you have to wonder, did they get into that. Did they used that on purpose, and I think there's probably some truth of that.

Amy Braun-Bostich: Yeah, that's a really, that's very interesting. So history doesn't repeat itself, but it certainly rhymes. What historical time periods are you drawing upon that seemed to be repeating today.

Bob Carey: Boy, you know, I graduated high school in 1981, so I finished high school right at the peak of inflation, the 70’s era inflation.

Obviously, we had a tremendous recession. In 1981-82 unemployment where I was living at the time, hit almost 20% in 1982. So I keep hearing all this talk about a recession and inflation and whatnot, and I see unemployment at the rates that we see right now. And I look at the economic numbers and one of the things that I keep hearing is that, well, we're definitely in a recession. And all these different things, and I'm like, if this is a recession, this is the best recession that I've ever seen. Quite frankly, you know, not that the recessions are great, but I think that the market that we're in right now is a little bit more akin to what we went through back in the mid to late 80s.

I started my career in 1986 and I watched the stock market go down substantial in the fall of 1987 and you know, we actually, the economy actually expanded through that year and continued to expand up until 1990. It wasn't until three years later that we finally had a recession. Most of the pain that was felt in 1987 was just, once again, it was interest rates going up.

We had the yield on the 30 year treasury at one point, just prior to the market crashing in 87 went to 10%. You think about it… I mean, you think about that yield was around 7% at the beginning of the year and then by the late summer or an early fall of 87, the yield was up around 10%. So it's not unusual to see the markets sensitive to interest rates and having interest rates really impact valuations. And sometimes those valuations move very, very quickly. So I think that was probably the big, probably the big thing that I see today is I think a lot of, I'm not saying that we're, that we've crashed, but I think for, for a lot of stocks, we actually have seen very similar levels of decline that we saw in 87.

Now, with broader markets down, you know, we're down 15% or whatever as of as of right now, that doesn't sound all that bad, but for a lot of folks, they are down significantly more than that. So I think I'm looking at this year is very similar to 87 from evaluation perspective. Just a revaluation is, I think more, more analogous to what we're going on going through right now.

Amy Braun-Bostich: Yeah, my husband asked me this morning, do you think Powell is trying to purposely crash the markets because of his comments coming out. Well, I'm not sure it's purposeful, but…

Bob Carey: I think he knows… he's in a tough spot. I do think the Fed stood by in 2020 and, you know, basically the federal government ramped up borrowing tremendously. Most of the increase in borrowing that drove the money supply higher did not come from you and me and the private sector. It was mostly driven by the federal government and Powell obviously didn't get in the way of that. And I think that  obviously when you shut the economy down and you try to inject as much cash as you do or did into the economy, it's designed to kind of smooth things over and get us through, but the idea that somehow all of this new money that's been created is not going to create inflation, I think he is realizing that he there is some responsibility for this. And I think that's the challenge that he has is he's gotta kind of fix the problem, but at the same time, inflation is, and money is certainly important because, you know, the amount of money in circulation drives inflation to a great extent.

But the one thing that Fed can't control, is productivity in the economy and we've seen a rather substantial decline in productivity in the last couple of years as well. And you couple that with the fact that China has had a zero Covid policy brought most of the year and Europe is undoubtedly still struggling.

You know, we are starting to see the supply chains improve to some extent, but at the same time, we've got a substantial amount of oil and gas that is not making it to the market because of what's going on in Ukraine and Russia. So these are not good for productivity when these happen as well. So it's, you know, he, that really isn't his responsibility per se, but I think he’s obviously aware of these things and I'm sure everybody at the feds is aware of this.

And I think that ultimately the pressure is on the Fed to make things change. I mean, the concern that I have, and I think all of us have, is the Fed raises interest rates to a level. Yes, they bring down inflation, but there's no doubt that they impact the economy. We really, truly do end up in a recession when it's all said and done and a potentially painful recession.

Now, I think that the situation in the 70s, it took us almost a decade to get to that point where it took, you know, basically double digit interest rates to bring down inflation. I don't think it's gonna take that, and I think the market is telling us that, but at the same time, it's not the outlook for next year, you know, we take a look at these profitability estimates and, we have a lot more questions about whether or not those companies can make those earnings numbers. And when that happens, there's no doubt that it has an impact on markets. And I think that's, you know, that was really what happened on Friday with the market selling off.

And we're obviously down here a little bit today. There's no doubt these things do have an impact on things.

Amy Braun-Bostich: Gotcha. So as inflation is the hot topic of the year, I guess, what's your outlook on inflation and what do you think its continued impact will be on the market?

Bob Carey: Yeah, I think that inflation is in the process of coming down. I think the inflation rate on a year over year number, that number will decelerate throughout the rest of the year and into the next year. I think the big question that we have is when, you know, if we were to go out a year from now, are those year over year numbers gonna be backed down to, let's say 3% or 2%?

I don't think that's gonna be the case. I think we're gonna see inflation staying kind of stubbornly at that at 3 and a half to 4 percent, maybe even 4 and a half percent, even 5%, you know, on an occasional basis. We have seen commodity prices come down. The price of lumber, the price of oil and gas especially oil has come down, that's helpful.

But now we've got increases in rents and rents are actually, that's the biggest component of the CPI is housing related indicators. So, and those numbers remain stubbornly high, and I think rents are gonna go up rather substantially here for the next couple of years. So a lot of, lot of folks are gonna be, if you're renting, you're gonna be looking at some rather substantial increases in the CPI.

Now, if you already own your house, you're locked in your mortgage, your CPIs not gonna go up as much as somebody who was younger and renting. So I think it's just an interesting time for sure. I think that ultimately, getting back to your question, Amy, I do think inflation is the money supply growth is starting to decelerate and that's good. And I think ultimately inflation is gonna come back down again, but I don't think it's gonna go back down to the kinds of interest, the kind of rates that we saw prior to Covid. I think that we have, you know, we've got policies that are gonna be inflationary for at least the next three to five years.

Amy Braun-Bostich: Well, the long term average is between three and three and a half percent anyway, right? Is that correct?

Bob Carey: It is, and we did have a wonderful period of time. I mean, you think about the last 20 years or so prior to Covid, we had inflation running typically closer to 2%. In fact, the Fed was, was complaining about inflation running too, too low for a number of years. We heard a lot of Fed officials making those kinds of comments. So, I don't know, it just, one of those situations where be careful what you ask for. You might get it, and they, they've got inflation, they've got the opposite problem.

They've got too much inflation. So I think essentially we had inflation running too low for too long probably. Now we're, we've got inflation running too hot. I think inflation will, it'll cool off, but I think the idea that, I wanna own the 10 Treasury at 3.09%. and potentially pay taxes on that. I don't think that yield is sufficient.

I think ultimately the markets are still affected by Fed policies. The Fed is the biggest player in the bond market, a substantial amount of our deposits all of us have money in checking accounts, savings accounts, money market and whatnot. A lot more of the, of that cash that we have given the banks is being directed to the Fed.

And then used to buy treasury obligations and mortgages and so forth. And so I think that's been the one shift in monetary policy in the last 15 years or so, is the Fed has become the big player in in the bond market. And I think that, that they, they have kept interest rates too low for too long.

And I think the short end of the curve is pushing the issue substantially. I think a lot of folks are obviously not happy about earning less than the inflation rate, and that gap between inflation and interest rates is the highest we've seen since the 70s. So I think, you know, in the end, market forces are as powerful as governments and central banks are.

I think market forces are ultimately more powerful and I think market forces should send interest rates higher here as we go forward.

Amy Braun-Bostich: Yeah, unfortunately. One of your comments, I just wanted to go back to, this is just something personally I've been wondering. You talked about the stickiness of rents increasing for people that are renters.

Do you think that has anything to do with all the investment by private equity companies like Blackstone into various markets where they're sort of cornering the market, buying housing and things, and then renting them out. Do you, is that any, have any impact there?

Bob Carey: Yeah, I don't know that that necessarily… certainly I think, specific areas of the country where they have been significant players. There's no doubt about that.

But I think ultimately rents were frozen more or less for a couple of years so people could not be evicted. We had quite a distortion in the market for a couple of years, and I think as we go forward, we start to see some unwinding of those policies. I do think that rents were going to go up somewhat naturally.

Now the one thing that we've noticed in the last, let's say the last two or three months, that as mortgage rates have gone up, there's no doubt that prices in some parts of the country have come down a fair amount. All of a sudden we're seeing kind of a natural correction in the price of housing and so in the end that may translate into maybe less inflation in the housing sector or inflation driven housing related numbers going forward. I think ultimately that's probably a good thing.

I think the housing market, undoubtedly in certain parts of the country where prices just went absolutely crazy, far beyond any kind of increase in rents and kind of natural demand that I think that a lot of that was driven by very, very low rates. And I think that once again, these higher rates are, you know, basically putting a bit of a break on these really hot markets and I think that will help inflation somewhat, but how much involvement, I think institutional investors, when I think whenever you have the kinds of increases and the kind of returns that we saw, housing prices going up, it's, it's not surprising that we would have institutional investors get more involved in assets that maybe they don't normally get involved in.

And, you know, I think packaging up significant, we have way more real estate now owned by REITs and, and so forth than we ever saw before. I remember a time, you know, going back maybe 30 years ago, the REIT sector had about the same market capitalization as Pfizer.

If you go back 30 years ago, and you know, essentially real estate was still very much a private asset and we have taken an awful lot of real estate that was privately held and we have now securitized it in the form of REITs and, and other vehicles. I think it's kind of a natural extension of a trend that's been in place for a long time.

And how much of that is driving prices? I don't think it's necessarily driving prices any more so than any other institutional endeavor. I just think that we've securitized an awful lot of property in the last 30 years.

Amy Braun-Bostich: Yeah, I was just wondering about that myself, cuz I've had a number of real estate brokers say, well the competition here is all cash purchases, you know, when you're looking at places that are in desirable locations and I thought, wow. Well those are mostly institutional. I mean, some people go in, sure, with all cash, but…

Bob Carey: Yeah, a lot of folks have been you know, we have, our second office is in Austin, Texas. You know, we're based here in the Chicago area. That's our home office. But our second office, is actually in Austin.

And you talk to the folks down there in Austin and they've seen huge inflation. In housing, in that part of the market. Really, all of Texas and the competition, when we have employees looking for housing in that region, the competition is people coming from California that have gotten substantial gains in their real estate.

So they come in with a lot of equity in their California real estate, and they're willing to pay just about anything if they find the right property. So it's not really driven by interest rates per se. It's really just the fact that a lot of folks want to get outta California for tax reasons.

You know, it's funny how many of these people live in Austin six months and maybe a day or two, and they as soon as the weather gets too hot in Austin, they go back to California. And where the weather's a little milder in the summertime, there's an awful lot of that going on. And, you know, they've got the resources to do it as an awful lot of wealth has been created, especially in the tech sector, which is driving an awful lot of that migration.

Amy Braun-Bostich: Yeah okay... Well, I kind of got us off topic, I guess, but just a couple more questions. One is, if you could talk to 25-year-old Bob,Carey, what advice would you give yourself when it comes to investing for the long-term?

Bob Carey: Oh boy, I wish I bought more tech stocks. I was buying some tech related companies back as a 25 year old.

Of course, I didn't have that much money back then. I was starting my career. My background is in engineering. I have a degree in physics, and I was going to have this career in engineering and whatnot, and I ended up getting into this business kind of by accident. But I knew that we were going to see more and more technology.

You know, the PC became a thing back in the ‘80s and all this, I knew that they were working on mobile telephones and, you know, the information Super Highway was being talked about back then. I probably should have put every last dollar that I had back then and into the tech sector, I knew that it was gonna happen.

I'm not surprised that technology has become such a big part of our economy and certainly the markets. To the extent that it did though, in looking back, I wish I had bought even more tech related things than I did. It's been extraordinary to see the changes that have been, that have been brought about because of the expansion of the tech sector.

Amy Braun-Bostich: Yeah, everything is techy now. So finally, we seem to be inundated with negative news, the war in Ukraine, high inflation, a possible recession, you name it. What, if any, good news is out there? What can you leave us with today?

Bob Carey: Yeah, I think one thing to take away… and this doesn't get talked about very much, but one of the things that I pay very close attention to is the relationship between what a company or an industry has invested in their business and then the, basically the rate of return on that investment. You know, we, we think of ourselves as investors. We go out and we buy a stock, and you know, really we, what we're betting on and what we're hoping for is that the company that we own underneath it all has made good investments.

And I think that ultimately that relationship between what a company has invested in and the kind of revenue that generates and hopefully the profitability and the returns and margins and all that, I think we kind of lose sight of that, that that's really what we're, we're all about.

And right now, the rate of return for US companies… I just calculated it this morning, it's 8.7%. So the, the average company that's publicly trade, generates… you think of it as a bond with a coupon of 8.7%. Well, that 8.7% rate, you go back 15 years ago, 20 years ago, the rate was closer to 6%.

So we have seen as we've gone through the last, let's say, let's call it the last generation. We have seen rather significant improvements in how companies generate cash flow from their projects, from their investments. So whether it's a company like Amazon expanding what they're doing, or Microsoft or Apple, even companies in manufacturing, even companies in energy, steel materials.

These companies have done a pretty good job of figuring out how to do more with less. And I think that is really the one thing that's been lost, I think, in all of the noise in the market this year is that the wealth creation underneath at the corporate level is still happening. And the markets might not reflect that right now compared to where we were at the beginning of the year, but that hasn't changed.

You know, the idea that somehow interest rates of maybe 3 or 4% are gonna slow these companies down. I don't think that's gonna be the case. I think it would take much, much higher interest rates for that to happen. So companies, you know, we think of them, we see the stocks and we… people think the stock markets a casino and underneath it all, you know, these companies are worth something because they generate cash flow. They're cash machines. It's no different than if you wanted to buy… let's say you saw an apartment complex and you know, you're looking at this building and you're thinking to yourself, what kind of rents can I get from this?

You know, how much money do I have to put into this? And, you know, really it's, it's cash in versus cash out. That hasn't changed, that's always gonna be finance101 is, you know, what I, the value of an asset is gonna be a function of just that relationship between what's been put into the business or the asset and what's coming out of it in terms of cash flow and, and cash.

Cash on cash returns remain very, very high for US companies. And I think that that, you know, certainly companies in certain areas of the economy are struggling right now. A lot of retailers are having a very, very difficult time because quite frankly, a lot more of our income is being spent on other things, food and energy, gasoline, things like that.

And yet those companies that are in those businesses are doing very, very well. And so returns on capital are very high. For those companies. But the energy sector did very, very poorly for a long time. Returns on capital were low for basically a decade, and now they are, they're the ones that are generating high returns on capital.

So, you know, things change, and things are never permanent. And ultimately I think technology has profoundly changed the way companies do business and the way that we account for things, and you know, there's just so much more information at our fingertips as, as consumers. And I can tell you that at the corporate level, that kind of information is even higher.

You know, we as a business, we know exactly what's, what's working, what's not working, and we can make adjustments much more flexibly and on the fly. We can, we can do things much more quickly today and figure out what's working, what's not working, and I guarantee that same thing's happening at every company these days. And it's, I think, amazing what that's done to our, the way companies create shareholder value.

Amy Braun-Bostich: I was just reading an article on Disney. You probably read the same article where…

Bob Carey: …Oh, Prime example!

Amy Braun-Bostich: Fantastic what they've done with pricing and, being able to curtail the number of people coming into the park, but still exceed profit margin expectations.

Bob Carey: Yeah, you have to have a reservation now used to, you know, you show up in the past and you had a ticket, you were in, you actually have to have a reservation now to get into the park and not just a ticket, which is kind of crazy. It's, you think about it, it's more like a hotel. It's more like an airline, you know, you have a ticket, but you need to have a specific reservation.

And I think that that allows them to plan much better. And, and these days of, you know, labor shortages and whatnot, that's one way to manage it is you… for those people that managed to, you know, to make it into the park who have reservations you can create a higher value experience for them. You know, they're gonna definitely spend more money when they get in there, so yeah.

Amy Braun-Bostich: Very interesting… Well, you've been so generous with your time. I wanna thank you so much. Your information has been really insightful and I'm sure it's been incredibly informative for our listeners with lots of good takeaways. Thank you... really appreciate it.

Bob Carey: Been a pleasure, Amy. Nice visiting with you and I hope everyone has gotten something out of this. You know, we've put out a lot of good information, so we certainly appreciate the chance to be of service anyway that we can.

Amy Braun-Bostich: Yeah, you guys are the best, so thanks. Thank you very much.

Bob Carey: Thank you. Appreciate the kind words.

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