[00:00:00] Jeff Weniger: In 2008, the IRA max in the United States was $5,000. So it's only gone, from 2008 to 2024, from $5,000 to $7,000. And you're trying to catalyze a thesis whereby everyday people are buying the stock market of their own country.
All right, so now, when you think about the Japanese NISA program, you think about the numbers that I just laid out. And then you also remember that the U.S. stock market is 7 times the size of the Japanese stock market. There was, okay, there was three NISAs. One was for minors, like, for your kids, and they got rid of that, but the other two NISAs, one was doubled the max. And the other one was triple the max. And so basically what you could do was in USD, if you chose this one in last year in 2023, you could max out $7,000 USD and change, if you're Japanese, into this retirement account. If you did it in this retirement account, it was like $2,700 and you had to pick this one or this one. Put $7,000 or put $2,700. This year, one of them doubled, the big one doubled, and then the little one tripled. And then you can also put it into both.
[00:01:26] Adam Butler: Okay, welcome. ReSolve Riffs. We've got Jeff Weniger here today. Again, a recurring guest. We are grateful to have him. Jeff, as you all know, I'm sure, is the chief U.S. Strategist for WisdomTree ETFs. Jeff, if I got chief instead of head or whatever, uh, apologies. Anyways, you know, Jeff's been on a brand new theme, which I know you've been pounding the table on for a couple of weeks, but we've been trying to get you on, but I know you're super busy about this “pension wars” concept, which we feel is likely to be a meaningful driver of asset flows over the next many years, and is largely flying under the radar. So wanted to have you on Jeff, to review your thesis on that and anything else that's caught your attention in the intervening period. So Jeff, welcome.
[00:02:30] Jeff Weniger: Yeah, well, I'm excited. I think it's kind of intriguing. And I also think you get a little catchiness, too, when you put “wars” at the end of one of your theses.
[00:02:38] Adam Butler: Oh yeah, definitely
[00:02:41] Jeff Weniger: That's the strategist's trick. Just next time you're on a theme, just put “wars” at the end of it. And, you know, but I think there some, I mean, these are, of course, Cold Wars. I mean, you're not having, uh, you know…
[00:02:52] Adam Butler: Not kinetic.
[00:02:53] Mike Philbrick: It's not a kinetic hot war. Yeah. Yeah.
[00:02:57] Jeff Weniger: Yeah, I think that there's a, there's a concept, it's a little bit like some of that libertarian paternalism-type thing, and that's what we had been thinking about lately, where used to be, okay, how are we going to get more people to put money into a U.S. 401k?
Oh, I know let's auto-enroll them at their employer, because you know how it is. You've got a sibling or a brother or sister, and you're like, hey listen, you know, you're eligible. Why'd you do? Oh, I'll do it. I'll do it. And that's the defined contribution part of it. And some of these countries are, and it's, you can really feel it. You can smell it with Britain, certainly with Japan, and it depends on which nation you're looking at, the defined benefit or the defined contribution site, but more than just the old nudge of that book's fame, from Cass Sunstein and Richard Thaler, but really a full-fledged push, and I think there's a lot of countries that are having a come to Jesus right now, and that come to Jesus is on several fronts. Why won't anybody list their company here in London, here in Tokyo? When, well, why would you?
If you have a tech stock and you're ready to IPO, why would you not list that In New York so you can get a premium, because you're trying to cash out, and so the problem is, is it's kind of this self-fulfilling prophecy. This is a square mile in London like, well we can't get anybody to list, so our stock market stays depressed. So then therefore, people that are saving for retirement don't invest in our stock market, and it's a self-fulfilling prophecy. So you're starting to see a lot of these countries, they're starting to, if they haven't explicitly changed, contribution max-outs in the DC side, or you can really kind of tell, pushes towards domestic equities in the DB side.
[00:05:02] Mike Philbrick: To me, it's just in a continuation of the reshoring. It's just not people in factories, it's capital. And the capital flight has been so intense in a lot of these nations, over the time of, over the recent period, it is literally the reshoring of capital and trying to rebuild the markets through that.
And it's not a new trick. You know, certainly Canada had foreign exposure limits. Peru, I mean, Rodrigo's got great stories of Peru actually, sort of nurturing the Sol into existence through superannuation and those types of programs where it all needed to be in Peruvian investments to some degree. So it's not a new thing, but it's, again, it's interesting to see it in the current context.
[00:05:51] Jeff Weniger: Well, and you're seeing the political side, you know, in the U.S., the red state pensions having their backlash against ESG. The left wing and right wing symbiosis. The only time they come together, for divesting from China, for example, that, the list that Huawei was on, at the institutional level, or Wisdom Tree, in our emerging market strategies. What did we have to do, 24 months ago? We had to write all of our Russian assets down to zero inside the ETFs. Of course those assets, they hold some value, more than zero, but it was the industry standard to mark it down. And of course that is essentially the industry shifting out of one nation into another nation, that type of thing. And you start to get, and you start to think in terms of alpha generation, performance, asset allocation consents, the math that I was doing, if you take the largest U.S. pension funds. Okay, so you have this asset, and I'm talking like a big pension fund. The one that I was using a lot of the examples of CalPERS.
[00:06:59] Adam Butler: Right. Bye bye.
[00:07:30] Jeff Weniger: And GPIF, which is the big just, I mean, it's like the big social security pension in Japan. That's like CalPERS times three. So you have a pension fund that's three times the size of CalPERS, and you have a stock market that's one seventh the size of the U.S. stock market, and then the way they allocate. Look, I don't know what they're going to do with their next, I don't work for them, but their allocation out there in Japan is, it's 25/25/25/25. This is the hyper scientific allocation. 25 into domestic equities, Japanese equities, 25 into JGBs and cash, Japanese government bonds, and then 25 foreign equity, and 25 foreign fixed income. That's the asset allocation.
[00:08:16] Adam Butler: That's what I'm talking about.
[00:08:17] Jeff Weniger: And it's probably brilliant in its simplicity if you really think about it, but then you start gaming this out. Like, again, I don't know. You know, NPS over in Korea is another mega one, 800 billion dollars, 800 billion USD. Again, that's like CalPERS times two. The Korean stock market, you got to multiply it 27 fold to make it the equivalent of the U.S. stock market. So I don't know what they're going to do in Korea. I don't know what they're going to do in Japan, but you start thinking about the game theory on this, like when I was in the old private bank, how do you form your asset allocation? Well, what's Northern Trust's asset allocation look like? Let's, you know, kind of the industry standard. We all kind of swim around like that. You start thinking, okay, well, GPIF in Japan with its 1.5 trillion USD. If that's the number one and at any given time based on market movement, it's either number one or number two, because the Norwegian Sovereign Wealth Fund, it is like, two pennies south of it. It's like $1.49 trillion. They’re 71 percent equities over there. So now you have, and everything, you guys know I can talk about Japan till I'm blue in the face because it's my favorite.
[00:09:37] Adam Butler: Please do, yeah. Yeah.
[00:09:53] Jeff Weniger: And what the political drivers are. And there are drivers in that nation. So you start thinking yourself, okay, if I'm in a position of power in Japan, and I want to push these big pension funds towards our larger allocation, specifically to Japanese equities, okay, right, because I want to get re-elected, and how do you get re-elected, you get MSCI Japan to go higher, right?
So how do I do that? Well, okay, if the asset allocation is 50 equities, 50 fixed income, because it's the 25, 25, 25, 25, and then you can say, well, you can take it up higher. Look at the Norwegians. They're at 71 percent equity. But the thing about the Norwegians is, there's no Norwegian equity because it's a small stock market. So they truly do have a global allocation, and the famous dictum that, in that Sovereign Wealth Fund, what is it, like 1.4 or 1.5 percent of all globally listed equity is owned by the Norwegian Sovereign Wealth Fund. This was, I feel like a lot of this got more attention years ago, maybe 15 or 20 years ago, the push of sovereign wealth funds. I don't know, I feel like I'm sniffing it out again, Adam. It's like in the last 45 or 60 days, this push is coming. I don't know if you guys are noticing it?
[00:11:09] Adam Butler: What triggered it for you? Was there a specific announcement that triggered this thesis for you? Was it Japan? I know there were some announcements out of Canada. What was it?
[00:11:20] Jeff Weniger: Well, what happens is, you start to field out for a place like Japan because we're doing so much research on Japan, and getting into the pushes that are happening there, which I, we got to get into what they're doing, but, and then as you're doing it and you're getting into it, it's like, what's this? You got this letter to the Toronto Star and the Globe and Mail up there in Canada, and it's all the CEO, all the, well, I say all the CEOs guys, except the CEOs of five of the big, of the big six, up there in Canada.
So I think it's the CEO of National signed, signed, let's call it, 70 or a hundred people signed it. And then you didn't have the CEOs of the others do it, but they were, every other industry was represented. Basically said, dear Canadian pension fund managers, what's going on here? You own, I think the number is 4 percent, Canadian.
[00:12:19] Mike Philbrick: Yeah.
[00:12:20] Jeff Weniger: 96 percent other. Now, the way they write that, when you go in and you look at some of these pension funds, it's not really fair the way it was. They got smacked across the face because it's like, oh, you have Timberland? Well, where do you think that Timberland is? That's out in BC. So it's not like they have 4 percent Canadian equities and then they're just out there. The rest of it's China, which…
[00:12:44] Adam Butler: But it's close, right? I mean, it's close. Those extras might be, you know, kind of a rounding error on it, but that's…
[00:12:49] Mike Philbrick: CPP! Canada Pension Plan portfolio is 14 percent geographical allocation to Canada, including all their privates. 14, right? And that's, that is Canada's…
[00:13:03] Adam Butler: Which is three times Canada's representative proportion of global market cap, right?
[00:13:09] Mike Philbrick: They’ve been on record as saying the reason we have such a high allocation globally is because we feel we have an advantage in Canadian markets. That's generally what they say. So on the flip side of this, which I'm sure we'll come back to is, you're going to get lower returns for the pensioners too if you, you know, sort of have a non-optimal allocation geographically, but I'll put that on the side for now.
[00:13:31] Adam Butler: That's the thesis, right? And I mean, I think we should chat about this whole stakeholder conflict challenge, because that's really what's going on, right? You've got kind of motivated by a political agenda. There's also a private sector within Canada, within Japan, et cetera, who would love to get more of that capital flows, right, and have it regulated to flow in their direction instead of flowing globally. But there's also a recursive relationship, or at least I think one might argue, there's a potential benefit from a capital formation standpoint. If you are investing more capital in Canada, in theory, you should be building up more R&D in Canada, you're going to create more, just more general capital, productive capital in Canada that Canadians can put to work for Canadians, right?
So if you're a big public pension plan, I can see there being some kind of, yeah, okay, it's possible, you might say that it's, from a portfolio allocation standpoint, we are no longer optimal, right, in terms of kind of, well, the optimal portfolio with no views, is the global market cap weighted portfolio. But from the perspective of trying to benefit our constituents, this actually may have some merit.
[00:15:01] Mike Philbrick: Well, yeah, there are views, right? That, we used the Peruvian example early on, when you're trying to bring a currency from infancy, and the whole point is to build the interrelationships between the businesses and the investment in said businesses, and then the employment that it creates, and the payrolls it creates, and the taxes it creates. So, you know, a 4 percent allocation to Canadian equities is, a little bit odd, in the context of what you're laying out, Adam. Agreed.
[00:15:32] Jeff Weniger: Well, and one of the things I've oftentimes said, with Canada, that nation's misfortune is this funky way. The MSCI IFA index is designed that, we joke, there's no C in IFA and essentially what happens is, so I'm an American and you think about asset allocation. Most, like an RIA in the United States, you have a U.S. allocation, and then there's developed, and then there's emerging and people are tracking, you know, they baited my existence. I'm at WisdomTree. We've got indexes tracking MSCI, IFA, and there's no Canada and IFA. So there ends up being this accidental structural underweight of Canadian equities by Americans, and anybody else that's tracking a lot of these indexes, just because you know it's Europe, Australasia and the Far East.
That's what that's what that stands for, so it's just kind of an intriguing little thing about just global capital flows and the way people in one nation or another think about investments if and, I don't remember what it was, the CPIB that was at 14%. Is that…
[00:16:38] Mike Philbrick: Yeah.
[00:16:39] Jeff Weniger: … the one that's also at 14 percent of domestic equities, is that the one that we're talking about, the big pension plan in Korea. The NPS, that's going to be the third largest pension plan in the world. So it's cheap if it's Japan with the Norwegian Sovereign Wealth Fund, and then that one, and it's half the size, it's like 700 and something billion dollars, 780 billion USD or what have you. And they're 14 percent Korean equities. And it's kind of like, okay, well, Korean equities are what, 2 percent of the global? I'm just guessing 2 percent of the global basket. They've got a seven fold overweight. But an argument could be made, and if the global basket is 5 percent Japanese equities, the argument could be made, well, who's your neighbor?
Who's your competitor? Who's another pension system you might be looking at? It would be all the pensions run out of Tokyo. And well, there's one over there that's 25 percent Japanese equities because it's the GPIF's 25. So GPIF could be chasing the Norwegian Sovereign Wealth Fund and then the Korean Pension Plan at 14 percent Korean equities might say, hey, they're 25 percent their domestic equities. Why don't we boost it or better yet, it's not so much, why don't we boost it? It's more like Knock, knock, knock. Hey, listen, notice you're running a lot of money there. You need to boost it.
[00:18:03] Mike Philbrick: Yeah.
[00:18:04] Jeff Weniger: …
Frontier Markets and Domino Effects
[00:18:06] Adam Butler: But Jeff, what's especially interesting about this is, as you mentioned, the sort of potential for a domino effect, right? And this domino effect will have increasingly large impact in terms of the amount of potential flows from domestic savings into domestic equities for sequentially smaller global equity markets, right?
Imagine like the Thai Stock Exchange or the Malaysian Stock Exchange versus, you know, state Malaysian Pension Plan or state, Thai Pension Plans or what have you. These are massive pension plans. They currently have some multiple of their stock market representation in domestic stocks. But if they move from, you know, 10%, even though their stock market is 0.2%, they move from 10% to 12%, those excess flows matter much, much more to a stock market that's only 0.2%. global equities, than it does to a stock market that's 2 percent of global equities or 4 percent of global equities, right? So the potential here is for the frontier markets to have a real tailwind of outperformance over the next five to 10 years if this trend takes hold, right. And the smaller the frontier market, the larger the tailwind for its domestic…
[00:19:42] Mike Philbrick: I mean, there’s some business cycle issues with the smaller countries and the concentration of which in their things, so there's…
[00:19:48] Adam Butler: …equal kind of…
[00:19:49] Mike Philbrick: … complexity.
[00:19:51] Adam Butler: But it, but as a general allocation for a global investor, allocating to the edges of the network, if this trend develops, actually be a really interesting thesis.
[00:20:04] Jeff Weniger: Well, and it's almost like a play for all except the U.S. because it's such the big dog at 62 or 60, 63 percent of the global allocation. And whether it's the frontier beneficiaries or the emerging or the small developed, because at this point, even the developed nations are tiny in the big pie chart.
Why, you know, I mentioned Britain. Britain's smaller than, it can't get out of its own way. The Japanese stock market's running, so it might be 5 percent of the global basket, but Britain's down to three and a half. I mean, this was, at one point we had a British empire on planet earth, and now it's just another wealthy nation, just another one on the list, and you can move the needle there as well. I think the Brits are going to, there's a lot of things going on as well there. I don't know if you guys have seen the British specific ISA, investment savings account. And that's another one that I think you could gain back Britain against Japan, because Japan modeled the NISA program, which is the Nippon, Nippon means Japan, the Nippon Individual Savings Account off of the British ISA many years ago.
And then they just, just a net. It's, I don't think the money is going to do it, but it's symbolic. I've said this is symbolic, basically what it is, is, you know, and I'll think in terms of like, 401k and IRA terms, because I'm an American, but it's kind of like, alright, what can we do in a 401k this year, like $23,000, something like that, USD? Imagine if they said, okay, Jeff, you can do $23,000 this year, and if you've got enough money laying around at the end, we're going to let you do another $5,000 USD. But, by the way, the $5,000 has to only go into your own country's stocks. That would be the point.
And so, like, Jeff and Jessica Weniger, we'd be like, okay, whatever, it's going to go into the U.S. large caps. Anything the guy could just contribute away to keep it away from Uncle Sam.
[00:22:02] Adam Butler: Yep.
[00:22:03] Jeff Weniger: So that's what they're doing in Britain. It's 5,000 incremental British pounds so long as you can, so long as it has the British ISA. And so it really won't amount to much because first off, how many Brits can put 5,000 more pounds in? And then also 5,000 pounds? Global equity markets are tens of trillions of dollars. And so you have a few million people, but it's a symbolic thing.
[00:22:28] Mike Philbrick: Start somewhere.
[00:22:29] Jeff Weniger: You are British. You should be investing in Britain, and that's the push. It's using tax shelters, it's using political power and so forth on the defined benefit plan and the defined contribution side to goose stock markets that frankly just haven't kept up with the S&P. They're all having this moment. The S&P is kicking everybody's butt and they're saying, how can I goose it? And then we're all looking at the Japanese.
[00:22:58] Mike Philbrick: Now in Canada, we, what happened was financial engineering, because this is totally indicative of the eighties, and the foreign exposure limits in any kind of pension plan or registered plan were phased out through the ‘00s. But in the eighties, into the nineties, it was an 80 percent requirement. And, you know, during the nineties, obviously the U.S. stock market just crushed it as well, outperforming Canada. The Canadian dollar lost 2 percent a year for a decade.
[00:23:27] Jeff Weniger: Yeah.
[00:23:27] Mike Philbrick: So what happened is they manufactured products via derivatives where all of the T-bills were held in Canadian T-bills and they created futures exposure to options exposures to the S&P 500, and lo and behold, you have this financial engineering that backdoored the whole domestic requirement, and I'm sure you'll see more of that as these things get more popular.
[00:23:50] Jeff Weniger: Interesting.
[00:23:51] Mike Philbrick: If the returns continue to outpace in other lands you'll see financial engineering come in and say, well, okay, we'll do it this way then.
[00:24:00] Adam Butler: It's an interesting quandary anyway, right? You know, if you're investing in a Toronto Exchange-listed ETF, where the ETF is giving you S&P exposure, is it Canadian content? Is it U.S.? You know it's, in this current market context, this is a very difficult challenge. You can direct pension plans much more easily than you can private investments, because it's, you know, there's so many ways to interpret it.
[00:24:33] Jeff Weniger: Yeah. I mean, like with the IRS, you have to, you know, because it's tax season, it's like, well, if I get on an airplane, I go to Toronto, and I walk into an RBC branch, and I open up a bank account, well, then I need to inform my tax authority in my nation that I have this Canadian bank. But if I just, log into my account and I buy 100 shares of RBC in my Schwab account, well, I've just got Canadian dollars.
I basically made a wager on that foreign country's currency, but that's just all basket juggling, is essentially what that is. So Mike was talking about kind of the way that the cycles change and different concepts come in and out, and Canadian dollar weakness in the disinflationary nineties, and the commodities just were not working at the time. And now you start to talk about, in a defined benefit plan, the big push for all these years, I mean, liability-driven investment, LDI, and this was the big, because when did that bull market and fixed income commence? What do we put that, 1982?
[00:25:41] Mike Philbrick: ’81, ‘82, yeah.
[00:25:42] Jeff Weniger: ‘82. So basically the entire lifetime of Jeff Weniger, right? Born in ‘81. And then of course that all blew up in everybody's face back in 2022. And the whole thing was, and this was what everybody was lamenting, this is what the Brits were lamenting, the Canadians were lamenting, was this is what you did over 30 years. You dragged your equity allocations down.
And I'm realizing it's a mirror image on a camera. I'm doing a chart down and to the right. And you increased your long bond exposure. That was basically, the model was with each passing year, put more in long bonds than you did the prior years. And next thing you wake up, you're at this situation where we had what was the total number of negative yielding? There's like $16 trillion in negative yielding paper at one point. Who owned that guys, owned it? It wasn't you and it wasn't me. Well, maybe it was if we had a bond, a long-duration bond fund.
[00:26:39] Mike Philbrick: It was largely the pension funds, right? I mean, that and, and I remember the story of one of the large pension funds in Europe saying, no, “I'll just take cash and please put it on a pallet in a safe and I'll take zero”.
[00:26:55] Adam Butler: Swiss Pension Fund.
[00:26:56] Mike Philbrick: Yeah, and they would, and they said, nope, we can't do that. You're not allowed to do that. You're going to have to buy bonds. You're in this, better or worse. And that was part of, that's part of it, right? That owning those bonds as part of that circular cycle of capital, controlled through a country's lens, is part of the game. It's, you're in it because you're part of the economy.
[00:27:20] Jeff Weniger: And you start to think about it, with the S&P, where's the S&P, 5200 or something like that right now, and you start to think, well, this is, yeah, Powell tightened the cost of overnight money by 525 basis points. Why is the stock market still rallying? And it, could it be that, at least part of the explanation, I mean, look, there's AI and so on and so forth. The earnings have held up all of that obvious stuff, but it couldn't be that people said, well, heck, if I'm going to buy an asset class and I can take a loss, I might as well make it stocks because I can make money in them. Why am I buying fixed income? They hammered me in 2022. They told me that was the safe asset and I got clucked so I might as well just plow into S&P’s and I wonder if that's…
[00:28:06] Mike Philbrick: I wonder, there has been a huge flow though. If we look at the flows, certainly in Canada, I believe this is the same in the U.S., we've had a huge flow into the sort of, the short term money market funds. Like there has been a lot of money added to those areas. So people have woken up and said, hey, rates aren't zero anymore. And there has been money flow in that direction, right? And so they got very short-term and stocks. To some degree, there's an automatic feedback loop too, that bonds and rates are very good at capturing, through the whole system, right? So all of a sudden your rates go up. Well okay, your discounted price of your pension drops, right?
So if you're going to buy out a pension, it's lower. Also, you're getting all that interest payments that are going to those various places, that are going out into the economy, that are somewhat stimulative. So they're in the rate cycle. There's a little bit more recycling of the capital that's caused by the higher rates that may have been under-anticipated in some, to some degree, by the great number of investors out there.
[00:29:10] Jeff Weniger: And I'll tell you this and I, you know, I
[00:29:12] Adam Butler: …floor to the …
[00:29:14] Jeff Weniger: … like to think I kind of weigh a lot of the bull and the bear concepts off of each other. And I say this because it sounds profoundly positive. I say this having like 45 minutes ago, tweeted a chart with the …, the full-time employed having tanked here in the United States.
And so I'm a labor market bear and I'm generally skeptic, but I'll tell you this is that for every one time, let's say for every 10 times you hear a citation of someone, someone like me saying, oh, credit card interest. So the credit card rates are up 700 basis points in two, two and a half years. You know that where it's something like a 16 year high in a 48 month auto loan rate, it's pinching your household.
We know what's going on if you try to engage a new home purchase. This is especially if you're in a floating rate situation, like many Canadians, like many Brits and so forth. For every 10 times you hear that, you only hear the one person point out something that's plain-as-day obvious. How about the person who's 70 or 75 years old? They've got a few hundred thousand bucks. This person is not rich. They're living off of social security and whatever they can do with the $200,000 or the $100,000 or the $500,000, whatever the number is. And it was, let's say it's $200,000. And that was earning zero.
[00:30:38] Mike Philbrick: Right.
[00:30:39] Jeff Weniger: Even the same thing every day. They're just paying the bills, paying the electricity, seeing the grandkids. Maybe there's a vacation here and there. These people are not living large. Say it's $200,000 and let's put five and a quarter on that paper, on that six month CD. I don't know what a six month CD is. Five and a quarter? That's $10,000.
[00:31:01] Mike Philbrick: That's what I'm alluding to.
[00:31:02] Jeff Weniger: And it's, it's $10,000 bucks, that's not really taxable because their tax bracket is nothing because they just have social security. And look, the family that bought that Range Rover and they're financing that thing at double digits, they're getting the pinch, and yeah, they're not going to a restaurant, but people in our families....
[00:31:23] Mike Philbrick: Yeah. The largest cohort, well, maybe now the second largest cohort, because the millennials are starting to pass demographically, is the boomers. And you're talking about squarely pointed at the boomers, who now have that saving of two to $500,000. We're making zero on it, and are now all, they're giving it away to the kids. They're paying for those vacations with the kids. They are taking more leisure themselves.
[00:31:52] Jeff Weniger: Mm hmm.
[00:31:52] Mike Philbrick: And at the same time, I got a call on you know, Doomberg here, and his insights on the fact that the natural gas prices have been a huge boon and subsidy to North America, right? You've got natty gas at $1.80 in MCF. You can heat your house for 10 days with the change in your pocket. You can drive 200 miles if natural gas equivalent. So, you know, a buck 80, a buck 90 for a million cubic feet of natural gas, heat your house to the average home in the U.S. or cool the house for 10 days, that has been an incredible stimulus across the board, and it has been, consumers, anything that needs electrons and the industrial complex.
We're talking about an industrialization renaissance in the United States, where there was like good infrastructure for this type of thing. So there's these tailwinds underneath the surface. Now you've got 90 oil, by the way, and as Doomberg points out, the Permian is getting more gassy. So the higher oil goes, the more byproduct is produced in natural gas. So natural gas doesn't look like it's going up at any time…
[00:33:07] Jeff Weniger: We had some negative quotes come…
[00:33:10] Mike Philbrick: Correct. Yes, we did. They were paying you to take natural gas in…
[00:33:14] Jeff Weniger: Far cry, a far cry from the big sirens that went off. When Katrina swept through, we hit 14. That was, what year was that, ‘06 or ‘07 at this point?
[00:33:25] Mike Philbrick: Oh five. Oh six,
[00:33:26] Jeff Weniger: And then also remember that the Russia/Ukraine war commenced in February 25, 26 months ago. And what did the German industry do since then? Spent 26 months weaning itself off of natty gas, and so now we have this abundance. I mean that was essentially, their case for European equities was, oh now what? They kind of got themselves, I believe that European consumption of Russian natural gas is down what 20, 20 some odd percent in two years time. So it's just it's testament to I guess, the…
[00:34:07] Mike Philbrick: I mean, I don't know who blew up that pipeline.
[00:34:10] Jeff Weniger: … be able to move something like, I guess the Titanic's a bad example because it's sunk, but to move a ship like that, German industry, and able to function from a completely new source, basically largely excluding an energy source like that is dynamite, to make that reference from the 1970s.
But I'll tell you what, guys, on the other thing that I think is intriguing. So if you think about Americans getting five on their money and something very similar, for many of these other G7 nations, the country where you're still not getting anything for your money is Japan.
[00:34:51] Adam Butler: For now.
[00:34:53] Jeff Weniger: And well, in JGBs and cash. And we did have the bank of Japan hike to ever so slightly above zero, and the question with that country of which there isn't a investment strategist on planet earth that will be able to give you the good answer, but is when does it click in the popular psyche that, oh, I now have that open invitation from my friends and neighbors that it is now okay for me to engage Japanese equities once again. Because when nobody's doing it, I'm not going to do it, but there is that feeling, I think, and now you have a situation where, well, we're still a few days off from when we get the new CPI numbers out of Japan, but both core and headline CPI are plus 2.8. And, well, 2.8 is a pretty good number for the U.S., but that's inflation, and it's more than the Japanese are used to. And we just finished the big negotiations between the big major companies of Japan. It kind of sets the groundwork for wage inflation in that nation. It was plus 5.3, year over year. Japanese wages up 5.3 year over year.
[00:36:03] Adam Butler: …
[00:36:34] Jeff Weniger: …on me. And then also, that person at work told me that the stock market's going up a lot. I don't know anything about the stock market because I don't pay attention like an American would, because Americans are old, live in that casino, but there's that going on, and you have some psychological catalysts.
Now, the Nikkei, which is, WisdomTree people, we don't like to cite the Nikkei because it's price-weighted. It's kind of blasphemous to cite a price-weighted index, but it did get up above 40,000. It kind of came back down below 40,000 briefly, and so that was something that was promising. And I think that a lot of investors are kind of getting live to it.
[00:37:14] Rodrigo Gordillo: Sorry to interrupt, but I did want to take a quick second to remind listeners that while we do absolutely love providing our audience with world class guests and weekly investment insights, we wanted to remind you that we actually do our best work outside of this podcast. And we try to do this by providing cutting edge, globally diversified, and systematic investment strategies that are designed to be broadly non-correlated to traditional equity and bond portfolios.
So we actually manage private and public funds, as well as bespoke separately managed accounts, for investors that seek the potential to smooth out portfolio returns in the long run. So if you do want to see that theory that we've been talking about put into practice, please do go ahead and check us out at www.investresolve.com. Now back to the podcast.
Japanese Demographics
[00:37:56] Mike Philbrick: So Jeff, what do you think about, that you just walked through in the American circumstance, that group of aged population that has the money left over. Is that not going to be even more extreme in Japan? Isn't that, isn't the population actually a little bit older on average and has…
[00:38:11] Jeff Weniger: Yes.
[00:38:12] Mike Philbrick: … savings?
[00:38:14] Adam Butler: A lot older on average. I don't know if they've got more savings. That's a good…
[00:38:18] Mike Philbrick: Well, they were, I thought they were particularly good savers.
[00:38:22] Adam Butler: I don't know.
[00:38:23] Mike Philbrick: Yeah, no, I…
[00:38:24] Adam Butler: …don't. I'm …
[00:38:25] Mike Philbrick: Yeah, no, I'm going by hearsay, and stuff like that, but I thought they had particularly high levels of savings, even at zero rates, but is that a continuation of the same story then?
[00:38:36] Jeff Weniger: Well, look, the issue that continues to be at hand with Japanese society is, it is the oldest one. The birth rate is 1.3, in population decline for what, 10 or 12 years at this juncture. So it's been a recurring, issue for that country. But they're going to increase the contributions that you can make to the equivalent of the traditional IRA. And you know, the thing about a bull market is, nobody wants to be the one that's not in a bull market, that's not participating in it. And for the first time in a while, we've had these fits and starts. There's a good vibe going on in Japan. It's mostly because of the corporate governance reforms that have been taken. And I'll tell you guys, it's real. I think it's real this time. We had the Tokyo Stock Exchange threatening for all of 2023 that they were going to publish the name and shame list, and then they did, and we have 70, what did I come up with, 72 percent of MSCI Japan has now officially disclosed their name and shame disclosure. 72%.
Basically, why is your price-to-book below one, and why do you have a single digit return on equity? With like, what gives here? What gives? And so now you have some things that I think could be a positive catalyst. And then the proverbial Mrs. Watanabe. This is what we've said in the industry for all these years. Mrs. Watanabe only invests in ETFs. In cash. And then Mike, you said the Japanese investor is what, 54% cash. The American is 12% cash. Well return on equity on MSCI, Japan is like a nine, call it a nine. And for some content, and this is a function of profit margins in leverage, and that type of thing.
And the best nation for profitability and for this quality factor is going to the United States, and 17 or 18 percent is the ROE. And that's why, you know, that's why there's this valuation gap. That's why everybody's been plowing into U.S. communication services, and tech all these years, and that whole concept. We have things like Morgan Stanley basically saying, okay, if it's nine, I think the Morgan Stanley estimate for 2025 is ROE goes up to 12. So no, you don't have a U.S. ROE, but you close the gap, and then that's your full catalyst. And then as that happens, and then theoretically, maybe the Nikkei, which is, where's the Nikkei like 39,000? Maybe busts up back through 40, 41, 42.
And then it comes in tandem because some bull markets you need, you can't just have one catalyst. You need several things working for you. What they did to the NISA contributions here was bold. And I'll give you guys some context on this. I looked back at, in the U.S. we have the traditional IRA. I know that you guys know this, but you have a global audience here, and this year, in the traditional IRA, I can put $7,000, and my wife can put $7,000. In addition to the 401k you do, it's $22,000 or $23,000.
And then there's other things like the Health Savings Account if your employer has a high deductible, and Flexible Spending, and all these other things. And then of course the U.S. 529 plan for college. So there's a lot of different tax shelters. In 2008, the IRA max in the United States was $5,000. So it's only gone from 2008 to 2024 from $5,000 to $7,000. And you're trying to catalyze a thesis whereby everyday people are buying the stock market of their own country.
All right, so now, when you think about the Japanese NISA program, you think about the numbers that I just laid out. And then you also remember that the U.S. stock market is 7 times the size of the Japanese stock market. There was okay, there was three NISAs. One was for minors, like, for your kids, and they got rid of that, but the other two NISAs, one was doubled the max. And the other one was triple the max. And so basically what you could do was in USD, if you chose this one in last year in 2023, you could max out $7,000 USD and change, if you're Japanese, into this retirement account. If you did it in this retirement account, it was like $2,700 and you had to pick this one or this one. Put $7,000 or put $2,700 this year, one of them doubled, the big one doubled, and then the little one tripled. And then you can also put it into both.
[00:43:17] Adam Butler: Wow.
[00:43:19] Jeff Weniger: So if you have the money, so it would be like, it would be like this. Jeff and Jessica, we could do $14,000 to an IRA. It would be like if Uncle Sam said, well, I don't know if it would be like this, because I don't want to say it would be like $14,000 turns into $42,000. I don't want to say that. But it would be like if people, we don't know how many people were able to put another $5,000 in, Americans. But if they did, they'd be buying a 46 trillion stock market. And so it comes out to something like $23,000 USD. And that is the NISA program expansion I don't see a lot of people talking about in Japan, and they would…
[00:43:59] Adam Butler: That is massive.
[00:44:01] Jeff Weniger: yeah, I think it's massive. And that's the pension wars guys.
[00:44:04] Mike Philbrick: Yeah. On, on a stock market that's also up a hundred percent over the last 18 months, in its local currency.
[00:44:10] Jeff Weniger: Well, that could be the issue is that maybe we're overbought. I mean, it's certainly, there's no shortage of people who are now looking at Japan at this point. I mean, that's certainly the thing that has occurred.
[00:44:23] Adam Butler: I was going to ask you actually as you're CIOs and allocators, is Japan now like front and center on people's radar?
[00:44:34] Jeff Weniger: No, no, because it's generally American RIAs and in order to be specifically focused on an individual nation, the other one that's piping hot is India. Um, they would be needing to do individual line items for their end clients where they have a line item for India or Japan or China or whatever the case may be.
And you just don't see it so much. It's more like, should I be in foreign developed, relative to the U.S., or should I be an emerging relative to the U.S.? But certainly people who are doing the individual line item or country rotation, they seem to be on the story, but it's oftentimes I'd say more of a cognitive awareness that reforms are going on, but they don't really know what the reforms are, and nobody, and zero people know about the NISA expansion.
Americans, I'd say 0%, 0.00%. Not even 0. 001%
[00:45:32] Adam Butler: Right.
[00:45:33] Jeff Weniger: I don't really think anybody even knows this is happening. It's, you know guys, it's a far cry. Like these anecdotes of Manhattanites with money teaching their kids Japanese in 1988 1989. It's kind of before my time, because I was a child. I know the music and the movies of the era but I can't cognitively remember.
[00:45:54] Adam Butler: Domo arigato, Mr. Roboto.
[00:45:56] Jeff Weniger: Well, that sticks and that's got to be about ‘81. But I don't have a point of reference, Americans’ attention span for Japanese investment, other than things I've read in books.
[00:46:13] Mike Philbrick: Go watch the movie Gung Ho.
[00:46:16] Jeff Weniger: Yeah. Yeah, I suppose. I suppose. You know…
[00:46:19] Mike Philbrick: 1986, man.
[00:46:21] Jeff Weniger: We had this feeling, I'd say, when the Shanghai Composite was peaking in '07, you started to hear this with Mandarin and Cantonese, that people were, were going to try to teach their children this. And it, you don't hear that so much anymore, because China's been so ice cold for so long. But yeah. generally speaking, we ...
[00:46:46] Mike Philbrick: I think that, let's be honest. The NASDAQ has crushed it and everybody's laser focused on that area of the world. And by the way, over the last year, the NASDAQ has underperformed the Nikkei. I know that's a bad word, but it's not by a lot, right? It's like, with my home country and I did 39 percent of the last year, and Japanese, and you know, the Nikkei has done 42. So what? But as that rolls and changes, we know what'll happen. I mean, you know, it'll just be performance chasing. It'll be like the BRICS of the ‘07, ’08. Australia fertilizer, all this stuff. We've seen it before. Right now, it just happens to be technology in the United States and that sort of thing.
And there's a rotation happening, but you know, you look at the energy complex and boy, is that, do stocks and the subsectors and sectors of energy believe in the price of oil changing? Like in gold, it doesn't seem to be the same way that, the gold stocks don't quite believe as much as the energy stocks do. And that's only 4 percent.
[00:47:56] Jeff Weniger: What's going on? What, why is gold? There's a lot of people really perplexed by gold. Count me among them.
[00:48:02] Mike Philbrick: So I just, I was just chatting with the Globe and Mail. We just did an article on that, and chatting with, again, with Doomberg, we had him on and chatting with him. So there was an arb in gold between the London exchange and the Shanghai exchange, and it was anywhere from 30 to 200. So you buy gold in London and sell it in Shanghai. What's happening is that gold is moving across those borders from the West to the East. That's partially a result of the confiscation of assets by the G7 nations against Russia, for its invasion of the Ukraine. Russia is a member of the UN. We, all the countries do some nasty stuff.
So it's kind of unprecedented that they took $300 billion. And so other countries have said, wait a second. Well, if I hold Treasury bills, can the U.S. and the G7 nations just absolutely confiscate my wealth for no reason? So then you saw this huge premium develop for Shanghai gold held in the East, versus London gold held in the West. At the same time, you've seen a massive reduction in the AUM across the ETF complex of gold. I'll just give you the GLD because the GLD is kind of the …
[00:49:23] Jeff Weniger: Yes. Yes.
[00:49:23] Mike Philbrick: … of the gold standard. $80 billion two years ago. Sitting at about $55 billion today. So a 30 percent reduction in AUM, and that's pretty much across the board. A 30 percent reduction in ETFs that often hold gold, not just the ones that are futures based, but the GLD that actually holds the bullion. At the same time, you have gold breaking to new highs. That physical gold is being bought by the nations of the world that want to have something to hold their assets in that's not conficateable by the G7 countries, and it's being held in a different geographical location. And that's how you get to new highs. And this is a sneaky trade to me. It's very much like Japan. Nobody's talking about it. You're, I mean, Nikkei has done the same as the NASDAQ, but nobody's talking…
[00:50:21] Jeff Weniger: It's surprising to me. What, let's back of the envelope this. How much was the pop in gold? 400 points, 300 points,
[00:50:28] Mike Philbrick: Yeah, but it really is…
[00:50:31] Jeff Weniger: And it really isn't getting the press that a three, or is it 300 points
[00:50:35] Adam Butler: It's not just 300, 300, 400 points, it's also, there's also a breakout to all time highs.
[00:50:42] Jeff Weniger: Without any press coverage?
[00:50:43] Adam Butler: After a 12 year base, right? Like this is massive, massive news, kind of like the Nikkei breaking out to all time highs after what, 40 years, a 40 year …
[00:50:59] Jeff Weniger: Like, the U.K. did get some attention compared to the last five or 10 years of coverage of Japan, but it's like, yeah, I see the quote for gold every day and I see the articles I read all day long. That's what I do for a living. You would have thought there would have been more coverage of it or more interest, but yeah, like, even with our gold mining stuff, we don't get as many inbounds, you know. People aren't really asking about it.
I mean, it's peculiar. The thesis makes sense, I mean, because the whole thing had been a cost-of-capital question mark. Well, why, how can gold hold up when we have an opportunity cost and fixed income, that's essentially what the argument wins.
[00:51:42] Mike Philbrick: Here, I've got a chart of gold, just to kind of give you a, this is a monthly chart. Let's just look at this snapshot. I don't know if you can share this, Ani. I’ve drawn a few colorful lines on it. You can ignore…
[00:51:56] Jeff Weniger: Oh, we got a technician. Oh boy. Get up.
[00:51:59] Mike Philbrick: Technician. I'm just like, there's, 2011 is gold peak. There's kind of 13 years of sideways motion. I don't know what you call that puking camel?
[00:52:11] Adam Butler: Reinvestment business. Bailey would call that a cup with high handle breakout. And it is, it is absolutely magnificent. What is that? Is that, so 2011, right, when that previous peak was? We'll break it. So it's a 12 year breakout.
[00:52:28] Mike Philbrick: And at the same time, the ETFs that hold gold are down in their AUM by about 30%. Like it's the, it's like tobacco stocks, ‘99. It's, nobody in the general public is owning it while it's doing this. I mean, this is happening in front of our eyes.
[00:52:49] Adam Butler: Yep. What's…
[00:52:52] Mike Philbrick: We've created some money through the COVID period, right? And so there's lots of reasons for why, but now we have the confirmation of strangers. And this is very, this is just a monthly chart, very long-term, you're seeing uptick in volume and things like that. You can stop sharing the chart now, Ani, but you know, it is strange, like in the gold stocks, they're not quite as clean.
It's not quite as beautiful. But that is just all-time highs in any asset class, in particular, an asset class that's as globally accepted and has 5,000 years of history, call it. And gold is particularly interesting because it's not like there's not a lot of global eyeballs on this, and you have a new all-time high, and it hasn't been the retail space.
It hasn't been the average investor through ETF products. So it's someone different than that. It's someone a little bit bigger than that. And still no one talks about it. So, you know, I would say that most accounts, most sort of traditional accounts, whether they be pension plans or individual investors, are probably underexposed, whatever the exposure you would think it should be to this asset class, while it's at all time highs. That's always kind of an interesting area to think about.
[00:54:11] Jeff Weniger: And you wonder, what is it? Is it sniffing out inflation? I was going to start going down a tangent there with copper because copper's acting possibly, and this is an industrial metal compared to a precious metal, and see these different dynamics. There's a lot of theories floating around as well, that the Israeli war s not what's moving the gold price. Maybe it is what you're talking about. These, the flow of gold from West to East, if you will. Uh, but copper, copper…
[00:54:39] Adam Butler: …
[00:54:56] Mike Philbrick: It's the same on the materials sector, right? It's the XLB, another beautiful breakout on a long-term chart, nice base setup. So that's just confirmation of strangers. Somebody knows about it. There are people who are allocating to this, and energy's another one. The XLE is facing potential breakout, that's also 15 years.
[00:55:18] Jeff Weniger: Well, I'll tell you guys, just thinking about again, this is not something that, a lot of this we can't quantify, but we had two energy deals in the last 90 days that were 60 billion USD plus. 90 days, 120 day. Help me with the window of time here,
[00:55:38] Mike Philbrick: Yeah, no, it's recent.
[00:55:39] Jeff Weniger: And the lack of coverage for two mega deals in the energy patch, compared to, you can't, I can't have a cup of coffee without somebody telling me about NVIDIA.
[00:55:53] Mike Philbrick: This is…
[00:55:54] Jeff Weniger: … can't even…
[00:55:54] Mike Philbrick: …
[00:55:55] Jeff Weniger: …walk in my house without somebody talking about it. I mean…
[00:55:59] Mike Philbrick: It's, it's a lot. It's a lot, you know, late nineties, two thousands. I was …
[00:56:04] Adam Butler: Natural gas prices, though, are a little bit of a cockroach in the honey, right? Like, certainly these diversified enterprises. Some of it's natural gas, some of it's oil, this, the crack spreads are going to play a part in the margins. Like, there's this complexity there. Like, naturally what I want to say is the, if Microsoft and Google and NVIDIA are running, it's because the thesis is the future is computation and the computation requires chips.
Believe me, I get that thesis, but you know what computation also requires? Energy, massive amounts of energy. Now, you know, if natural gas wasn't trading at all time lows with endless abundance, as far as the eye can see, then I'd say this is a profound mismatch in terms of market capitalization, right? If natty gas starts to get a bid, then this should be a really clear arb. At the moment, it's a little bit less clear because natty gas is dragging down the margins of diversified energies.
[00:57:13] Mike Philbrick: Yeah. And there's reasons for that, that gassiness in the Permian, that like, it's a byproduct. Higher oil prices mean we're going to do more oil. We're just going to have more natural gas, which again comes back to this, the economic cycle in the United States. Well, you've got an amazing economic industrial complex in the U.S. that you could experience a massive rejuvenation. And this is why the inverted yield curve just continues to be inverted. It's truly unique times. It is a, it's interesting. You know, it is a very interesting…
[00:57:52] Jeff Weniger: I’ll tell you, and I don't know how long you guys want to keep me rolling here, but you know, that curve inversion? Let's see here. What are we doing? I think we're doing the long bond against a three month bill. And I think we were 19 months on the long, but, you know, it's a tens and twos and 10 year versus a three month, but I think on the long-bond versus the three month bill, it's 19 months deep. What gives here guys? I mean, we should be, now one of the things we oftentimes say is we did have that technical definition of recession in 2022, before we redefined the word recession to not mean two straight …. I digress, but, you know, yield driven version is supposed to break something and, you know, I don't know whether it's just the liquidity lines for, after SVB and Signature went under, at which point? Heck, that's now 13 months ago, because that was March of last year that started to unfold. And I had a guy yesterday ask me, you know, talk about small cap value. You know, what do I do with small cap value? You got a lot of regional banks in here and in one of the ETFs. Well, there were people questioning.
Well, I probably shouldn't say the names of the banks because you don't want to do that. But there were a lot of regional banks that had question marks, even though they were totally fine and money good. But there was a dozen or two dozen names that got floated in all the conversations at the time.
Well, this bank's about the same size as Signature. This one's the same size as SVB. The bank walk concept that I was running with last year, which didn't, it actually didn't really work out, did it? The money never really left. You start thinking about some of that and like, okay, yield curve has been inverted for 19 months. We had two serious financial institutions go under. Well, how about Credit Suisse as well? Let's say three. You know, that's a good example, guys. I forgot about Credit Suisse.
[00:59:52] Adam Butler: Yeah, exactly. Thank you.
[00:59:55] Jeff Weniger: I just had a conversation and I forgot about, would I forget about Bear Stearns and Lehman?
[01:00:01] Mike Philbrick: Probably not.
[01:00:02] Jeff Weniger: And that's how much it's been surprising. It's been stunning to me that we, if you would have, you know, this old, if you had told me that such and such, if you would have told me that UBS was going to have to gobble up Credit Suisse because it was a zero, and Jeff, what are you going to do in anticipation of that? I'll buy a bunch of puts.
[01:00:27] Mike Philbrick: Our good friend Brian Moriarty had a piece walking through the timeline of that, which is spectacular reading if you like financial history. Boy, oh boy.
[01:00:40] Adam Butler: We had him on the podcast to go through it too. So yeah.
[01:00:43] Mike Philbrick: Integrated work between government and regulators and banking. And this is a Swiss problem. It's going to have a Swiss solution. Boy oh boy. That is a good one. That's, some good intrigue on that one.
[01:00:57] Jeff Weniger: Well, I don't talk about the individual names and I don't cover UBS, but they're out there saying they want to receive a Morgan Stanley style valuation on that name. They, well, that's what the CEO is saying there. And this has been, now we started a huge rally in a lot of European banking institutions. They were, a lot of them were left for dead 5 times earnings on. There's really nothing wrong with a lot of them, but, yeah, there's a lot of talk in Europe along the lines of, hey, how come we can't achieve these valuations of the Americans? And that's been one of the recurring themes in our portfolios is, you open up a lot of these portfolios, the global baskets, and yeah, okay. Yeah, there's Alphabet and there's Amazon, of course, all these names. Wow. Big U.S. banks are not where they were back in ‘05, ‘06, when they were absolutely the top of the heap, but they tend to populate a lot of your top 10 lists, some of them, and then you have…
[01:01:57] Adam Butler: I think a big part of that, Jeff, is that in the U.S. all of those home mortgages were fixed for 30 years and at super low rates. And, you know, in the rest of the world, everyone's got to refinance their mortgage every two, three years. And, you know, the banks, depending on the regulatory regime and the degree to which those mortgages are guaranteed by state entities, the banks are going to come under some pressure on those defaults.
In fact, it's astonishing to me that we haven't seen more pressure on banks in the U.K. and Australia, in Canada. It's, any insight on that? Why we haven't seen any major systemic issues in some of these big real estate markets, these big frothy bubbly real estate markets on, you know, on any measure, just gargantuan increase in rates, in such a short period of time.
[01:02:57] Jeff Weniger: I know. And it was so much floating-rate paper. It's, it might be one of those things that just takes more time because with each passing day, somebody else's rate adjusts on them until you reach some critical mass, and you don't know whether or not it's going to be the thing that takes out big names, or whether or not it's just one of these clouds that you have to kind of go through for many, many years.
I mean, remember the Canadian government stepped in during the global financial crisis on the Canadian banks and it wasn't really as well published, publicized as the American banks, but you know, never underestimate the power of subsidy to keep things going. So for example, here in the United States, just in the last 48 hours, they're talking student loan bailouts again. So to the extent that somebody's underwater in their home, unable to pay the credit card bill or what have you, they might be getting a credit card bailout. So you can credit card bailout. Well, I guess you could say credit card bailout when you're talking about student loans. A lot of it was run up with about the same level of insight as to what they're actually taking a loan for. But you can kick these cans sometimes and it's difficult to get to the bottom of…
[01:04:04] Adam Butler: It's just extended pretend through a different channel right, and I saw some news a couple of weeks ago that the Canadian government is now buying CMHC debt, directly. So, typically the government will buy the CMHC debt, but they just turn around and sell it, right? So it's, the banks roll it up, they securitize it into CMHC debt, and then they sell it to the government as a proxy, but then the government just sells it off to buyers.
The government's just buying it outright now, because they can't find any sellers for those securitized Canadian mortgages, right? So, I mean, the different channels that governments can employ to extend and pretend, as you say, we're going to continue to kick the can until the debt markets eventually balk.
[01:04:57] Jeff Weniger: Well, and look, it's going to require the labor market to roll over because usually, not always, but usually if you end up with some sudden new expenditure, in this case, your mortgage rate or your mortgage monthly, not just went up, you can move things around to make it work if you're fortunate, right? You could basically just eat peanut butter and jelly sandwiches, and stop having any leisure time until you can get your wage to catch up to it.
But the thing that really upends it is job loss. That's really what gets a critical mass into a recession or depression on a situation where they're underwater in the home, or just taking a loss off the headline price in the home. Too much house. I mean, that's the Toronto... well, I don't know too much houses in Toronto. Too much price in Toronto might be a better way to explain it. Serious bear markets in San Francisco and D.C. in the U.S. housing side. Can't say the same with Dallas, San Diego, Miami. Those places are hot. You know, I mean, basically if it has sunshine, it's hot in the United States.
But it will take job losses, and that kind of goes back to something I did reference like, at this point, an hour ago. We have 1.3 million fewer full-time jobs in the United States than we did last year. So one of the things, I think it got attention, I think it got attention. But with these jobs reports, you've got to take a look at these headline numbers, are sometimes skewing it. These are not accountants being hired. This is fast food workers in many cases. And so that's not really paying the bills. That's not making ends meet. And there's a lot, a lot of it has been shuffled into the part-time. So you want to look at some of the internals on that because that might be one of the canaries on the U.S. labor market.
[01:06:47] Adam Butler: What about gigs, right? I mean, I can't help but think that that AI facilitates a pretty substantial greasing the wheels of the gig economy, right? Like, you can scale into the productivity of a small business with the help of good AI tools. You don't need to be an expert, you know, coding engineer to build apps. I just, I wonder to the degree that AI may be at the margin contributing to some of this shift from full time to part time.
[01:07:29] Jeff Weniger: Yeah. And who gets left out ,and who ends up being the winner in all of this? And are we luddites and that type of thing? I mean, we're talking, I'll give you a very good anecdote, and I just hope that BlackRock doesn't steal this from us, and State Street doesn't steal this from us. But essentially, you're talking to the president. You say, okay, Weniger, you write a research report. The AI can take your, you can do a voice sample, and it'll know your fits and starts of the way your voice inflects at the sentence ending, and all of that. It just needs a 60 or 90 seconds of you talking anything. I just, something off of my desk. I hear I have to give Charlie Tylenol before bed because he had a tonsillectomy.
Okay, so we'll read that. Charlie needs, he's going to be at Illinois Masonic next to the emergency room. Read that for 90 seconds. It'll now know the way I speak and then because I'm writing a blog on this screen, or a research report for WisdomTree, trying to convince people to go to the ETFs. But what about the person who's a podcast person, like the person listening? Half of your people are jogging right now. They're on an elliptical machine listening to us right now. They're not sitting at the desk. So how do we, without any incremental labor from Weniger, get that person to engage WisdomTree content.
Well, that's the thing about the emergency room. There's my voice. Now it will, the AI will just read the research report, wrap it into, I guess, an MP3, and then also you can program it to not only do my research report, but then my colleague's research report written the prior day. And then while this person is jogging, we've essentially had WisdomTree in their ear for 60 minutes with zero extra effort from WisdomTree humans.
[01:09:18] Adam Butler: Exactly.
[01:09:23] Jeff Weniger: Well, maybe that means they don't need me anymore, but we all run the same risk. It's one of these things where it's like, well, if I'm not needed, well, that's the same logical risk as the next person. I mean, you would have to evolve to work with the machines. That's one of the things, and this goes to Gen X types, like I'm on that Gen X to Millennial cusp, and who among us will claim I know as much about that which is unfolding in tech, as much as the 18 year old? Who among us?
But I have enough intelligence or I would hope that I would have enough intelligence to figure out how to navigate the world to make myself most efficient as an investment strategist in this world. Okay, fine. You want to take my voice with AI? Let's parlay it and then let's make sure that the original content is holding enough value to make it worthy to that person to bother to listen to it. We're going to work with the machines. And then if not, I'll just, can I crash on your couch?
[01:10:32] Mike Philbrick: Of course. Yeah. Well, we're starting to hear more and more about the four day work week, right? I mean, it was a six day work week at one point. It was…
[01:10:39] Jeff Weniger: What do you think?
[01:10:40] Mike Philbrick: … slavery initially back in the day, but I mean, you…
[01:10:44] Jeff Weniger: Do you think, what do you think?
[01:10:46] Mike Philbrick: I think that, if you think through like productivity increasing and if productivity increases, we can afford to work less and maintain compensation, then yeah, I think it's a natural, it's actually a natural conclusion.
Usually there is a lot of heartache in between. I mean, one could argue that the great depression was also a result of moving from family farming to industrial farming, and the advent of petrol tractors replacing horses, and those types of things. There was a great displacement there where the skills that people had for a certain group were displaced, and it can be a tough time in that scenario. And then you end up coming out the other end of that with a five day work week, right, and so does AI do the same thing to white collar work?
[01:11:51] Adam Butler: Like, I think it's already doing it. It's just that no one's making it explicit, right? I think a lot of white collar workers are able to do a lot more of their jobs and a lot fewer hours, right? But it's just that the employers are not really able to track that or see it, right?
[01:12:07] Mike Philbrick: It hasn't been formalized yet and put it in benefits packages, and put into it, and it may take some time. The boomers just aren't retiring either. There's a whole bunch of weird stuff that we could go on probably for another…
[01:12:22] Jeff Weniger: And I think that's the best way to describe it. It's a whole bunch of weird stuff. And there's a lot of people out there proclaiming to have the answers for all of these things. I mean, I could see it in my local coffee shop, the difference between a Monday and a Tuesday. And that has to do with whether or not they went into the Loop, which is our financial district in Chicago, or did not, and you guys have seen it. You guys know how it is. Monday and Friday is the work from home date for a lot of people, and then go in on Tuesday, Wednesday, Thursday, and you can, it's clear, it's clear. And so it's, there's, we have to see how that all ends up shaking out. I don't think anybody has a really good answer.
[01:12:57] Adam Butler: Yeah, I agree.
[01:13:00] Mike Philbrick: Anyway, I think we've droned on. We've kept you here for an hour and 15 minutes. I think, what do you got? Anything else that you want to touch on before we wrap up?
[01:13:08] Jeff Weniger: No, I think that's good. We're going to be hitting the road for RIAs and advisors, and in May and June, we're going to be hitting, what are we doing, Houston, L.A., and then Chicago, which is great, because then I just only have to go downtown. So that's the only thing, you know, kind of new. So if anybody's got any WisdomTree, they can find me in some of those cities. We'll be doing some strategy round tables. You guys have been part of those.
[01:13:33] Adam Butler: Nice. Anyway, Jeff, as usual, a tour de force, and I think this pension wars thesis is absolutely magnificent. I think it's got a 5 to 10 year runway, and I don't think anyone's paying attention. So, you know, thank you for helping us bring it to the attention of our listeners. And I look forward to seeing you continue to shape this story over the coming months.
[01:14:00] Jeff Weniger: Thanks, guys. My WiFi went out for five or ten seconds, but I did catch the end of that, Mr. Butler. So, I appreciate it, guys. Always love the relationship with ReSolve. So, thanks, fellas.
[01:14:11] Mike Philbrick: Yeah.
[01:14:11] Adam Butler: Feeling's mutual.
[01:14:12] Mike Philbrick: Just a reminder, Jeff's at, head of Equity Strategy at WisdomTree. He is also a Twitter Ninja, and is @JeffWeniger on the X, and I'll just put a plug in. I know you're having Jim Bianco on April 18th on Spaces. So you guys are going to talk to macro markets, and maybe chat more about the flailing banks back in the day, because he's got some pretty interesting theories on what was happening at that time.
So, you know, if you have a chance to join Jeff on his Spaces, they are always awesome and informative. So I highly recommend those as well. Thanks again, Jeff.
[01:14:53] Jeff Weniger: All right. Thanks, guys. All right. Take care.
[01:14:56] Rodrigo Gordillo: Sorry to interrupt, but I did want to take a quick second to remind our listeners that the team works really hard on these podcasts. We spend a lot of hours trying to get the right guests and we do a lot of prep work to make sure that we're asking the right questions. So if you do have a second, just do hit that Subscribe button, hit that Like button, and Share with friends if you find what we're doing useful.