Ladies and gentlemen, welcome to the business Brew. I am your host, Bill Brewster. As always, thank you for tuning in. This episode features Stewart Lauren of Fort Sheridan Advisors. Stewart was on the pod previously, though we talked about non financial things, so I had reached out to him after I said I really enjoyed speaking with you. And if you ever want to come on the pod, hit me up. I'd love to talk to you about financial related stuff next
time. So Stew Stewart put together a deck that he's been very involved in Chicago politics recently. And I think, I mean, you'll hear it in the episode, but it's got him thinking about the evolving social dynamics in society and and how there might be investable themes to go along with that. So I will link to his deck in the show notes. And I hope you like what you see or hear. I think it's a very interesting conversation.
Not the most uplifting, but it is very data-driven and there's not, you know, it's just kind of it is what it is. So anyway, I hope you enjoy the episode. As always, none of this is financial advice. Everything in this program is for entertainment purposes only. Please consult your financial advisor before making any investment decisions and do your own due diligence. Enjoy the show. Ladies and gentlemen, Stewart Lauren back for the second time. More investment focus this time.
He and I have been in touch for a while and he sent me over a deck that he said, you know, I'm kind of working on hooking up some themes. Would you want to talk about? I said, I like this very much. So here is the episode. So, Stuart, thank you for stopping by. You want to give people some background in case they don't know. Sure, absolutely. And thanks Phil for having me on. So my name is Stuart, I'm in Chicago. I'm at a firm called Fort Sheridan Advisors.
We are about a billion dollar asset manager. We manage accounts for ultra high net worth, high net worth individuals and institutions and also do some advisory work. We've done some thematic funds in the past. And I had an idea sort of born out of my experience in Chicago that that I call the age of social disruption. And the gist of it is that I think we're going through a period where economic disaffection, social disaffection, political disaffection leads to more
populist type politics. It leads to consumers looking for escapism. And it could be potentially A regime shift in markets in terms of in investment opportunities and risks. I'm a history major by background and I think the American experience has some central tenets to it, many of which are fraying at the seams,
and we can get into that. But the the main thesis and we've seen it play out of the last couple years in terms of political results is that we're probably in a socio economically, socio politically bit more of a turbulent time period than we've experienced in the past. What, what historical periods would this remind you of? You know, when you're, when you're thinking about this, are there other countries, are there different periods or is this
sort of a unique time? You know, I think it's sort of unique in the American experience and, and I can get into why, but I, I think key to the American experience has been this idea that we have sort of unlimited geographic mobility and economic mobility. And for various reasons and, and it's really been a process over the last century, but more so in, in recent years, geographic mobility is really difficult.
I was surprised by this. By this slide in your deck, I was surprised how I was surprised a how how many people used to move and then I was surprised how the how drastic these the drop off has been you you don't even see many inner county moves anymore right that's. Right in in the 1950s, geographic mobility defined by people just moving was about 20% of the population. For different county moves that was about reached a peak of
about 7 1/2%. Different state moves was about 3% and the the total geographic mobility has dropped from about 20% to 7 1/2%. In 2023, which was the last census data. Different county and state moves have plummeted and, and we all know the reasons why housing has become unaffordable for many. And that leads to a sense of people just feeling stuck. And when you pair that with declining economic mobility, it, it's not a really great melting
pot. And what do you do when you're stuck physically and you're stuck economically? You know, if you're going to seek to move, I think you might seek to move ideologically, psychologically. And we, we can get into some of the implications of that. Yeah. Now. Yeah, I guess it would be interesting to see cohorts of people that are happily stuck first, those that are miserably stuck, right, That would be it. That's true.
Interesting thing because because some of, I mean some of it obviously some people have like mortgages on homes that they like or a lot of these homes I guess are actually paid off, which is wild to me. But that is neither here nor. There, it's just the sense I think of opportunities being foreclosed and I think that resonates with some people obviously more than others. You know, you talk about people in our age bracket. I'm going to be 40 in a couple weeks. You know it's a.
Great decade of your life. Hopefully. It'll be good. You know. Although the midlife crisis may come, but that we'll get through that, don't worry about it. Pretend you did the right thing. Pretend that you know you you went to college because that's what everyone said you should do. You took out debt to do so and you graduate into a job market around 2008. And the opportunity set is not perhaps what you expected. The recovery is slow. You got to be in your mid late 30s.
Maybe you have kids. The world shuts down if you have kids. You don't know what to do with them. And then maybe when you're finally ready to buy a house, housing costs have exploded 50%. So, you know, fortunately that that doesn't describe everyone in our peer group, but for a lot of people that's been that their experience. And it's unsurprising that politically the the exit valve for that is on the left,
arguably quasi socialism. And you're, you're seeing candidates like that went across the country. I'm in Chicago, we we have one as our mayor. New York might have one seen, too. And on the right, you're seeing a surge in populism, and it's just at a very base level, people want a more responsive politics, regardless of whether the policies behind it have any merit. Yeah, yeah.
The wild thing, too, is not only is the New York candidate potentially going to win, you're starting to see some national support behind them. Yeah, it's a a very different type of politics, I think resonates with the base of each party who's who's fired up by all of these issues. And I I just am not sure what the catalyst would be for everyone to take a step back and maybe think more rationally
through this. Yeah, Well, one of the one of the charts that you had, you know, laid out like Republicans, how they describe Democrats, how Democrats describe Republicans. Maybe it would help if we all just kind of dropped our labels and stop being football fans for a little bit, started being Americans, but that's not going to happen. That would certainly help. But maybe what what I should do is just go through the the main tenets of this thesis that I have. Yeah, I would like.
To real quick before you do that, I'd be curious just to get briefly into your experience in Chicago because I know that you've inserted yourself into local politics and like what have you, what have you seen that sort of got you pulling on this thread? Well, I never thought I'd be politically active. I became so in the last four years because the the policies in Chicago started affecting my
family life. We we had some close calls with public safety right around our house, which isn't the most exciting thing to have happen when you have little kids. I had. 3 when I was like. Yeah. Two armed robberies at gunpoint in my alley. Not not what you sort of expect when you move into those types
of neighborhoods. So I, I became a bit more politically active when our current mayor, Brandon Johnson was campaigning, I was very active in warning about the the implications of him winning, particularly for the the city's economic and financial future. He won, credit to him.
But since he's been in office, I've been working with some of the, for lack of a better term, more rational officials, elected officials in in city government and in the state government trying to prevent sort sort of the, the worst of their policies from a finance perspective from coming into action. I've I've testified in City Hall about finance issues, I've worked behind the scenes and preventing some disastrous terms of bond issuances from from getting implemented.
So it's sort of like blocking and tackling until the next election. But I tried to take a step back a year or so ago and, you know, it's, it's one thing to sort of complain all the time about how are people like this winning and they're going to destroy the city. It's, it's another to think, OK, well, what propelled someone with this set of views to victory? Obviously some people needed to support it for him to get as far
as he did. And you're you're seeing candidates like him resonate across the country on New York being the primary example. It's it's more constructive to think how did we get here and what does it mean, especially if if you want to change the the political landscape. But as an investor, I think it's really important to think, all right, what does this mean? What, what does this mean for now in the future? And how does that change the risk environment potentially in the opportunity set?
Yeah. Yeah, I agree. All right. So do you want to go, do you want to go through like sort of the age of social disruption, for lack of a better term? And we'll kind of see. How it goes, I'll, I'll, I'll do a brief run through my thesis.
So again, the, the, the main point is that people who are experiencing economic challenges, people who are experiencing social frustration, political frustration, the, the combination of all that will lead to a more populist type of politics on the left and the right. And it's going to lead to people looking for an escape valve in
their personal lives. And I think that gives us just a different type of risk and investment environment than perhaps we're used to. I think looking back in history, reading some of the foundational texts in, in, in the US experience are really helpful for framing about how we think about the country. One of those to me is Tocqueville's Democracy in America. And, and the commentary that he had, you know, 200 years ago almost still is important for how we conceive ourselves today.
And I would argue we're we're getting away from that. So one of the things that he remarked back when he he wrote his volumes is that when, when all the privileges of birth and fortune are abolished, when all professions are accessible to all and a man's own energies may place them at the top of any one of them, and easy and unbounded career seems open to his ambition. There's been there's been this idea in the American experience that, you know, basically we all
start as equals. We, we can accomplish everything. Obviously, you know, that's not how history is played out for everyone, but that that's a really important concept in terms of how we view ourselves and view the country. And to the extent we get away from that, that's leading to to a lot of turbulence. So we already talked about declining geographic mobility and, and, and to a smaller extent economic mobility. But just keep point at the outset.
If we have this sort of break in the unwritten social contract, which is that this this is basically a land of opportunity where if you work hard, you can have a good outcome that's going to lead to a break in the status quo in politics and the economy and consumer behavior. And, and I think what it means is that individuals are likely to be more self focused and more short term oriented. And the government, importantly, is likely to be more responsive to popular needs to maintain its
support and legitimacy. And we can get into all that. So. And you and you get your your idea of individuals are more short term focused is is based on the premise that if you are less optimistic about the future and your mobility than thinking long term. Absolutely. Why even plan for the why even plan for the long term? Yeah, if if it seems unattainable. Yeah. And and I think for a lot of people in our peer group, like
that's their mindset. And you know, you, you either just spend all of your disposable income or you know, you, you trade zero data expiry options and, and hope for a home run. So we, we don't need to get into all the data on housing. I think everyone listening to this realizes that housing has become a lot of it a lot more expensive in many markets and we don't build enough of it.
About 1/3 of the country lives in stressed housing markets, which, which means that their, their housing expenses to income is over 30%. For a lot of people in big cities, it's more than that. And the the great news, and I say great in a very sarcastic way, is should you not be able to afford housing? Rents have outpaced wages since the GFC. So your rent is going and. Even more so the last couple years now. Now my landlord friends really like that.
But that's probably not good for social stability. First time buyers are are being priced out. The the average age of home buyers was 33 six years ago. Now it's 38. You have more adults and who are 25 to 34 living with their parents. So in in the 1960s that that was about 10% of that age group lived with their parents. Today it's closer to 20%. I'd be curious to know those that don't. I'd be curious to know how much of their housing is subsidized
by their parents. Yeah, they're, well, I keep reading about how everyone in your marketing is getting parental handouts. Yeah, it's, but, but just think about that like if, if you're living with your parents still as a young adult, you're, you're just, you're not going to be able to start your career or family life the the way you probably want it to. And I I would think that leads
to a lot of frustration. There was a study done by some Stanford statisticians in 2017 on the number of children who are out earning their parents. And every 10 year cohort from the 40s through the 80s, that number keeps dropping and dropping to the point where people born up until the mid 1980s, only 50% of that cohort was out earning their parents. It used to be in prior decades, sixty, 7080%.
So the, the presumption that you'll be more successful than the prior generation, you know, that's that's in question. And I would guess that the data from kids born in the 1990s substantiates that. If that study's updated, it would be odd if it. Doesn't I mean to your point, like on that chart, 194050607080 goes down reliably. So the 1990's, the probability it it. Yeah, I would agree with you. It'd be interesting to see.
So, so economic social mobility or excuse me, economic and geographic mobility that that's foreclosed to to many and compared to the past. From the financial standpoint, from a personal finance standpoint, a lot of people are having difficulty out there. About 1/3 of Americans have difficulty paying their bills. There was a survey done earlier this year by Bankrate that asked if you, if you have an, an emergency savings account, how much do you have?
About 70% has less than five months of expenses covered, 50% plus has less than 3. Wages are not keeping up with corporate profits. You know, we, we, we hear this all the time. The top 10% is doing better than than the rest And, and it's more extreme the, the higher up you go on those percentiles. But the top 10% has over 50% of the wealth. The bottom 90% has over 50% of
the debt. I, I think what adds gasoline to all of this and, and sets it further on fire is people are on their phones all day long on, you know, Instagram or whatever, looking at all these influencers who are portraying amazing lifestyles and, and you think, you know, why can't I have that? There's actually a term for that called money dysmorphia. And about 45% of Gen. Z and millennials are categorized as exhibiting that. And it again it just.
Leads to a lot of frustration. And the question is, what's the outlet for that frustration? And it's, it's a unfortunately, in my view at least, it's a type of politics that doesn't probably stand the chance of accomplishing the, the, the goals it purports. So again, quasi socialism and populism, which I think will lead to a lot more instability. Driven by a lot of resentment, I would think. Right? Like, yeah.
And, and again, I'm not judging anyone for that, you know, I, it's, it just sort of is what it is when we're trying to understand it. We have all these younger kids graduating from college now with tons of debt. There's a question, you know, they, they had a couple years where debt repayments were were paused that started to resume. How are they going to repay that? That the delinquency rate on student loans for being 90 days
behind is about 30% right now. And if you look at some of the employment numbers for recent college grads, it's not looking great. There's a question is that AI taking those entry level jobs? If so, how are these kids ever going to repay that debt? I, I have some strong views on that as my, my wife and I repaid a lot of student loans and that
was not a fun experience. But if if you're 20 something years old with six figures of debt and your employment prospects are not what you thought they were, you're, you're going to vote for someone who says, hey, let's cancel student debt, sign me up. Labor market. You know, we've all seen the statistics about, about the decline in manufacturing jobs over the years that's affected a lot of blue collar communities across the country.
And the, the question is, what's going to happen to white collar work? I use AI all the time and I, I think it, it allows me to be extremely more productive. But if, if you're a junior person in the labor force and firms are trying to protect their profit margins, you know, there's a cost to hiring someone new. Are you going to hire someone new or are you going to use
Chachi Petito 3 model? So longer term, I'm really bullish about what AI means for productivity, but shorter term, it's probably going to be quite disruptive. And white collar workers have never really needed to deal with
that type of disruption. So on for, for the blue collar workers, I, I think most data shows that disaffected people in the Midwest who lost their manufacturing jobs over the last 20 or 30 years that they've supported more populist type candidates, which, you know, it's part of Trump space. And I think to the extent white collar workers are affected, a lot of them go for sort of a different flavor on the the
other side, social institutions. You know, Tocqueville said in his Democracy in America that Americans of all ages, all conditions, all dispositions constantly form associations, associations of 1000 times religious, moral, feudal, general, restricted, enormous or diminutive. We're social preachers in in America and something changed where a lot of those social connections are just becoming
more afraid. So anyway, you look at it merit, there was a popular chart shared on Twitter the other day about 30 year olds who are married and have a home and just showing severe decline. But if you look at marriage across the board, not as many people are getting married, not as many people are having kids. That the total number of families with kids under 18 peaked in about 2006, about 36 million. We're now back down to about 33
million. Those are 1995 levels, despite the population being quite larger. There's a survey done by Pew across different countries asked me how close do you feel to people in your community and country? the US ranked just about dead last compared to 24 other countries. In those surveys, only 66% of people felt close to other Americans. 54% of respondents said they're close to people in their communities. In 1990, the average American
had at least three friends. Today those numbers are are about half. So 50% of people in the 1990s said they had more than three friends. Now it's closer to to 25%. Yeah dude, in the amount of people that say that they have no friends is 12%. That's crazy. It's sad and. It used to be 3 for context. Yep, we're we're spending more time alone. Particularly like after COVID, younger Americans are spending a lot more time alone.
The crazy thing about this that keeps going off in my head and it's, it's probably not correct, but I think so much of it and, and maybe I'm putting a square peg into a round hole here, but I really feel like a lot of it is phone addiction and social media. And meanwhile, the market caps of those companies are the highest, right that out of the
entire market. You know, it's just wild to me that I think that, like, a big component of what is driving loneliness is also apparently the most lucrative. It's kind of messed up if I'm right, yeah. There, there used to be a book not used to there was a book called Bowling Alone, which sort of predicted much of this maybe 20 years ago. The the sequel could be scrolling alone. Yeah, that's right.
It's and it's not like when you're doing some of these activities that you're, you know, if we're on the phone texting your friends, you know, that's, that's a way of engagement. But, but I think for many, the, the fact that so many Americans say they have 0 or only 1-2 or three friends at least says to me that a lot of that time spent alone, if it's on the phone, it's not social time. Religious affiliation is declining. In 1900, almost every single American was part of a religious
community. We're down to about 70% religious affiliation out of that group. You know, most people are not serious devotees and and religion, you know, for some is really important, for others it's not. But what it does provide is a sense of community. And if if you have no sense of a local community, if you have no sense of a religious community, if you have no sense of a friend community, like you're going to
try and find something. And I think for a lot of people, unfortunately, the community that they do find is a political 1. And that's great, but it just leads to like, hyper bipartisanship. And I don't think that's the healthiest thing for the American experience there. There was actually a study done earlier this year published in a journal called Political Psychology. It said basically that political identity now outweighs all other social identities. That's crazy. That's not good.
No, and and it goes into how ideology is driving polarization, which isn't surprising. Like if, you know, people need some purpose in life and for money, like the outlet is politics and it's sort of an all
or nothing thing and. Well, that, yeah, the the problem as I see it is if people are, if the primary identity is politics and the way that people describe the other party is so unfavorably now, it's like, how can you have a sense of community if you think half of the country is complete morons that are like brainwashed or hateful or whatever, right. Like that? That is not a good place to be.
No, it, it makes it tough. I mean, there's been surveys about like wouldn't if, if you're a Democrat or Republican, would you let your child date or marry someone from the other party? And, and like the, the answers are basically no, which, which to me is crazy. Like, it's the last thing I'd care about, but a lot of people really care about this. Well this could be total fake news, but I saw today that that there was something floated on Twitter so take it for a huge grain of salt.
But 43% of Republicans would support Trump if he was in the Epstein files. Like what? What are we talking about? I didn't see that. I just saw it this morning. I was like, this is insanity. I don't know if it's real, right? But like the fact, the fact is I actually kind of believe that it could be real and that's kind of.
Sick people derive a lot of meaning, but like, if you're not deriving meaning out of other aspects of your life, if you're not deriving professional meeting, if, if you're not deriving family meaning, community meaning, you got to find something that's meaningful. And if it's politics, you know, you're, you're going to support your candidate and your party. And no matter what, I know. I say this is I say this to people, but like, I supported
Jay Cutler as a Bears fan. I hope Jay Cutler is super, you know, happy. But that was the wrong decision. And it's like the Pledge of Allegiance to the Bears had me defending, you know, my guy, Jay. And people were like, you're blind. And they were right. No comment on that. Poor Jay, he could sling the ball. That was fun. Oh well, it should have been a different outcome. Anyway, I digress. Anyways, if you don't. Think it's that different than
politics, for the record. No, it's not like people. It's it's the same. I, you know, sports is a much healthier outlet in my opinion than politics. But people care about their political group candidates inside, just like you care about your sports team. Well, and dude, to your point, if your, if your identity in communities that you used to get, you know that your identity and community that from is gone and all of a sudden people are
shifting more to politics. Like it's, it's a natural sort of conclusion that people would be more dug in. But man, that's that's a scary place to be. So, so not only are we shifting more to politics, but like we're more frustrated by our political institutions at the same time. So probably no surprise. Trust in the government is at basically 70 year lows per per surveys. Only 22% of people say that they trust in the federal government, down from post World War 2 numbers in the mid 70%.
There was a survey by Gallup of confidence in various US institutions. Congress pulls the last with sub 10% confidence. Probably not a surprise. Small business actually pulls the highest. Yeah. We've talked about the growing sense of partisan division. There's intensely competing cultural values on each side. And to no surprise, like we're we're, we're getting candidates emerging on each side who are
tapping into this frustration. And they are not the establishment type candidates that we grew up with. I think on the Republican side, it's pretty much been overtaken by the, the Trump version of populist politics. And on the left side, the, the establishment Democrat Party, you know, of the Clinton, Obama years, they, they don't have anywhere near the same kind of sway that they once did.
All the energy is on the farther left of the spectrum and it's with candidates like AOC or or candidates like Mandani and representatives like AOC. That's, you know, where where all the popular support is. Really interesting surveys and this is starting to get more into topical discussion for markets. But young Democrats in a survey a couple years ago for respondents age 49 and younger,
socialism is far more popular than than capitalism. 60% of respondents under 49 support socialism over capitalism. Now there's a question, do they know what that means? I'm not so sure, but I think they support the concept of just the government providing a lot more services and redistributing wealth and not having free market competition. Totally opposite skew on the Republican side.
And another interesting note on that survey is that it it actually on the left, socialism pulled higher with upper and middle income respondents than than lower income. And, and I think that speaks to maybe the experience that people in our cohort have had where, you know, you graduate college with a lot of debt, you're making, let's say, low to mid 6 figures. You're in a big city, you know, you feel like you maybe should be doing better than you are.
And things just seem more unaffordable. And you're, you're on your phone all day seeing the, the lives of the rich and famous and thinking, you know, I should have that. And it's I think the mindset of people who respond this way and support candidates who propose socialist type policies is understandable.
Even if I don't agree with it. I, I just, it's important to to get the the impetus behind why so many are feeling that way on the right survey show that the populist support is growing. Both parties surprisingly would support strong men leaders and, and, and I think that speaks to just people being fed off on each side and wanting someone to take charge and get their, their
lives better for them. What worries me just in terms of the, the institutions that I think have worked so well for the, the country and, and for just capitalism is that the far left and far right, the populace right and, and the very progressive left, both are in pretty strong agreement that the economic system in the country is not working.
You know, they, they have different approaches maybe for, for how they fix that, but the institutions are only so strong as the, the, the people who support them. And if, if we're seeing just an erosion and institutional trust and capitalism and, and our economic system itself, I, I think that's something investors need to take into account so we, we can get into now more of the, the macro and market
implications. But fertility rates down, you know, is, is people have more expensive lives and have started their adulthood later in terms of just having their own house and, and being married. Birth rates are falling. And perhaps it's not, I mean, that's not just AUS phenomenon. It's, it's a Western global phenomenon.
But because we have so many healthy older people, it's, it's really a challenge in, in the US because our dependency ratio is, has gone from about 15% in the 60s to now close to 30% today. So it, it's really going to start pressuring the entitlement system. We have Social Security and and Medicare there. There's a question, how do you get around that? Maybe AI rescues today, maybe robotics can help to some extent.
But the the key thing I think is across the board, I think Americans see some of our budget deficit and go, whoa, those numbers don't seem sustainable. We need to cut spending. And actually, for polling, most Americans, regardless of political affiliation, do think the government spends too much. Yeah, and misallocates the resources, right? Yeah. Well, the same polling also asks, do you think the government spends enough in XYZ
area? So for almost every single area, the response is we spend too little. So again, overall 16% of people, only 16% of respondents think we spend too little, 60% of people think we spend too much, 22 just about right. So, so 60% of people think we, we spend too much on various government programs, but 60% of people think we spend too little on healthcare, on Social Security, on infrastructure, on Medicare, on education, on environmental issues like like name your issue.
Yeah, that's right. People don't think you spend the environment. So I, I, I think what, what it comes down to it is that if, if you are benefiting personally from government spending or, or you're in a difficult spot in your own personal life, which I think many are, you don't want to see the government pull back from spending.
So, so we have this conundrum where we, we see the deficit numbers just growing and growing, But if the government's going to maintain its popular support, you know, each party at this, there's no consensus anymore for cutting the deficit. Like, the the doge thing was a cute little experiment, but at the end of the day that there's just no support on the left or the right to really pull back from social assistance spending. It's too important for too many people.
Yeah. So, you know, we're in markets. We, I think we can talk about what that means for rates, but my view is regardless whether we're going to go on a cutting cycle and in the next couple months like I, I, I think the, the, the longer end of the Treasury curve probably has some upward pressure to it. That's what I've been trying to figure out. I've been trying to figure out why would a cutting cycle reduce the long end outside of term
premium right like but. I I don't think it would like what would reduce the long run is if the economy slows some somewhat or if you know, people's views on longer term inflation change, but. So I think this might be dumb, but if the economy slows doesn't the doesn't that the probability of a budget like deficit to GDP problem expand even further? It could in in in the short term, you know, typically the 10 year treasury. Tracks is a place, not nominal.
GDP and you know, just look at what the 10 years done the last couple days as we've got some mixed economic data. But I do think longer term the the look at the Treasury term premium, you know, it was negative a couple years ago and it is now very positive again. I think that was wild about this and I, you know, I mean, I should know this, but seeing it is different. But in 1984 it was 5% was the treasury term premium. That's, that's it's .68% right
now, right? Very. Positive real interest rates back then. You know, another question is, are we really going to get that serious about tackling inflation? I think there is a strategic benefit probably to letting it run at 3%. Everyone hates inflation. Like I, I certainly don't like it and politically it was a loser. But there's a difference between having 6 or 7% inflation and let's say 2 3/4 to 3% inflation. And that could be very helpful over time and sort of eroding
away our our debt problem. It certainly seems like whoever is appointed next for the Fed chair will not have a very strong inflation fighting mandate from the administration. And again, the the other way, potentially out of the predicament which the the government finds itself in of having to probably spend a lot to maintain popular support.
But also not letting the the finance situation of the country just blow out of proportions would be productivity unlocking AI. If if AI can increase economic productivity and we can get higher GDP growth, you know, that does wonders for our debt ratios in in future years. So I do think as, as part of this thesis, I have the government's going to double down on investments that support productivity enhancements, whether that's an AI, energy,
manufacturing, health. I, I don't think we're going to tackle deficits the traditional way by cutting spending. It will have to be. We really turbocharged GDP and, and on the consumer side, you know, we've talked about everyone feels, not everyone, many people are feeling frustrated in their own lives, whether that's economic, social, political frustration. What's your outlet? We're spending more time in social media. We're spending more time doing video games, streaming.
We're, we're spending a lot more time in the digital world forming relationships, which very well could be meaningful than we are in the physical world. We are if, if you're looking to get out of your financial situation, you know, maybe you're, you're trading options or, or levered ETFs retail, which didn't really used to be
the main driver in markets. It is now a huge component that there's data showing that net retail purchases, it basically quadrupled in 2020 when everyone was at home trading their stimulus money, but they, they stayed at that really elevated level. And I, I think retail volumes, the latest JP Morgan data shows that for large and midcap stocks, retail volumes are in, in excess of 20%.
You know, there's been periods when it's got as high as 40% of trading and you can look at the option volume. It's just absolutely exploded the the daily volume for for calls and puts now about 80 million or so. You know, 10 years ago it it was 1/3 of that. And and that's not all retail, obviously, but I think it's probably a good chunk, especially when you look at, you know, the zero day to expiry options. It's it's the Reddit Wall Street bets crowd.
You know, more people are turning to crypto is a financial alternative. I don't think that's shocking news to anyone listening to this get gambling. The the casinos in Vegas are having a tough time right now. But gambling across the board, whether that's in person or sports betting has gone way off. It's it's almost doubled.
We've gone from a we've gone from a world where ESPN wouldn't touch gambling because it was affiliated to Disney to a world where ESPN is has dedicated gambling feeds. That's my opinion. Hey, if you want to gamble on sports, more power to you. I will say one of the best, one of the best golf events that I watched was ESPN and and it was literally 2 guys betting whether or not people would hit the greens on their next shot. It was incredibly entertaining.
And then I was thinking, how the hell am I going to teach my kids how to do this in a healthy way? Or like introduce the concept to them so that they're not, you know, I mean, I don't know. The 18 year old male is such an idiot. Well, whether that's a smart thing to do or not aside, more people definitely are doing it. And there's this mindset that, you know, why do you need to plan for the future? It's just going to be unattainable anyways. Spend every discretionary dollar you have.
So credit card balance are going up. Credit card limits are going up by now. Pay later volumes are are going way up. It's about $100 billion gross merchandise volume in in BNPLII. Personally am suspect of that business model because I don't know what happens to those companies if we ever get a recession, but more and more consumers are financed the NPL, yeah. Oh, the loss rates on completely discretionary items will be 0. Don't worry about it, there
won't be any problems. But you know, if you want a big ticket item, like that's the way you're going to do it. If if you don't have the money, you look at travel, you look at dining, you look at live entertainment, like spending in all those categories is going way up. Spending on personal care is way up. I I have a dog, I also have two kids. But for a lot of people with without kids like pets are the
new kids. And the number of cats and dogs in the country has gone up about 50% from 20 years ago. And people spend a lot on their pets. US spending on pet industry is about 140 billion last year, which is up from 60 billion in 2016. So that's an another category that that could see some benefits. So what what I tried to do and for anyone interested, I can make this deck available.
It's it's a fairly lengthy one, but come up with different categories that are positively exposed to these trends for investing. And, and the idea is that this could be how you allocate part of your portfolio or, or you could build a thematic fund fund around it. Because I do think these trends are going to be with us for some
time. And, and I've seen it first hand from living in Chicago that when people get really frustrated with the status quo, you know, they don't go for the candidate who will make a very reasoned pitch about what policies you need to implement to improve things. They'll go for someone who says I can fix everything and they don't go into any details, but they are charismatic and telegenic, so how? Much of Chicago's problem is you can't get through the machine enough to get on the ticket.
Like, like, do we think that the mayor that's there today is there in a truly open election, or is it that the political machine sort of lifted him to get elected? I Well, one of the problems we have is that no one votes. I think we had only 30% or so people turn out in the last mayoral election and you don't need to win a lot of votes to become mayor of the city if that's the turn out.
Another problem and, and I think it looks to be a problem in New York, is that the pragmatic voters don't rally around one candidate in, in Chicago, there was a dozen or so people who ran for mayor. And it, it gives a pathway for someone who, you know, maybe only has 2030% support to, to make it to the, the final round. And then, you know, once a candidate is on the final ballot, they have a really good shot. Yeah. So I, I don't think this is just a Chicago problem.
I don't think it's just a New York City problem. I would expect across the country, especially in cities that have these cost of living issues and have highly educated workforces where maybe a, a lot of the, the people don't feel like they've achieved what they should have in life. Yet you're, you're going to get at least on the left, more candidates in the Brandon Johnson Sohran Mamdani style. And it's, you know, I just think it's reality we we need to live
with on the right. I do think you got the type of populism that we've seen the, the, the last, you know, arguably 8 years, nine years. And it's I think we're a long way away from bipartisanship and candidates like we had in the 1990s emerging. Yeah, it's, I don't know, It's going to be interesting to see how it all plays out.
I will. I will say at the federal level, like the, the government, you know, can print all the money it wants to that there are obviously repercussions from doing that, whether that's for the dollar or for interest rates. But like, there are ways to tackle some of these social problems and just for lack of a better term, give money to, to people who are struggling or just need extra assistance at the local level. Like I, I don't know what a lot of States and cities will do.
The more that the the government gives money for or the government diverts its finances for Social Security and Medicare and federal programs, the less that's going to flow into state and city coffers. And for States and cities, at least in many of the blue States and cities, the finances just are horrendous. And it's not clear how that gets improved. And you have all the same sort of social pressures at a local level, but without any fiscal
flexibility to tackle them. And for a lot of, you know, in Chicago and New York and California, it's, it's not like tax rates are low and you have scope to increase them. It's, it's going to be a very challenging environment for, for those States and cities, unfortunately, to, to get their economies and finances in shape. It's, it's something I spend a lot of time, a lot of headache thinking about for Chicago, because we probably have the worst finances of any major
city. We have a lot of these social pressures. The mayor wants to tackle all of them. He wants to build housing. He wants to provide assistance to lower income residents. And I'm not saying those are bad goals, but like if you have no way to pay for them and you promise people them, you're going to really upset a lot of your supporters, which he has.
And you're you're just not going to be able to accomplish anything that you want to do. And you're not going to work on tackling like the underlying challenges that the city has. I, I sort of view cities and states as being engaged in 0 sum competition. You know, the federal level, everything's positive. Some like the, the economy grows fantastic, like more for everyone. States and cities are competing with each other for talent, for capital, for resources, for, for investment.
And if you have a set of policies that is responsive to these social pressures, which diverts money away or diverts resources away and policies away from just creating an environment where you can have sustainable economic growth and tax rates so high that they frighten businesses and residents with the ability to go elsewhere away.
It's sort of the self perpetuating cycle and you need to break out of it. I'm a little more optimistic about Chicago just because we've seen how incompetent this type of policy set is, especially with with the current people we have in place trying to implement it. So I don't think the appetite for trying this again is there. But for a lot of cities, like, you know, the the worst thing that could happen to New York is that a guy like Mandani gets
elected and he's confident. So it's, I don't think anyone should be surprised that you see these younger charismatic candidates start emerging whose politics maybe we personally find outrageous. But they're resonating with a lot of people who feel disaffected.
And I don't think it's a fair presumption that, you know, we revert back to some sort of normal set of some normal operating environment, just like it's probably not a fair assumption for interest rates that you're going to revert back to like, you know, 2% ten year and 3% mortgages. Like we're we're in a structurally different regime for for the markets and we're in a structurally different regime
for maybe society as well. And it, it just sort of is what it is. If you're an investor, your job is not to just complain all the time saying, you know, things need to go back to how they used to be. It was so much better. I think your job is to say what's the environment we're operating in? How might it change over time? What are the implications and how do I position for that? Yeah, a lot of this makes me want to have more assets outside the US like exposure.
I mean, I know that that may not be the right conclusion, but it's the one I have. I don't know about that because I'm not sure other Yeah. I mean, it's always good to diversify. But like, longer term, like we, we still have the world's most important companies doing the most important things. You just hope politics doesn't get in the way of it. Yeah. My, my guess is that economic growth is the way out of all of
this. And if you could get just a stretch of three, 4% GDP growth with low inflation, you know, that solves a lot of problems. And if you're at the city level, if you can, if you're Chicago and you can pull in Austin, TX and, and get 5 or 6% growth for a decade plus, you know, that really does a better job of solving having 20% funded pensions than raising taxes to an astronomical level and pushing businesses out of the city.
Yeah. Well, Chicago, I mean, I obviously have endowment bias to that city, but it always made sense to me because the cost of living is very palatable. I mean, the only, the only form of population control that I understand that Chicago has is the winter. But outside of that, outside of that, it's an incredible place. As long as. It was great. I I like it. I I'm much more involved than I'd ever thought I'd be in city governance. I I think we have a lot of great things going for us.
It's cheaper to live here than the coasts. There is a diverse economy. It's got dynamic culture. People are nice. We also have 25% funded pensions and we have the highest combined property sales tax regime in the country. And we have a mayor who says that people aren't paying enough and he he wants it higher. Now, thankfully state law prevents him from doing that, but he he's not exactly the biggest selling point businesses in, in terms of trying to generate some economic growth.
Yeah. Well, especially when you have somebody like Wisconsin not that far away. Right. No. And like, I, I don't know how much you want to delve into Midwest politics, but like, Illinois as a whole has probably the, the worst funded pension system across the country. Can Kentucky, the percentages are slightly worse, but Illinois, the numbers are astronomically worse. We, we have as a state like 145 billion of unfunded pension liabilities. And then you had Chicago having
40 billion. The governor just signed a bill that will increase the benefits going to pension recipients. And there's no. Easy way out of it because the state constitution protects pension benefits, making reform exceedingly difficult. Yeah, Rauner tried to get it done, didn't he? Yeah, and he put 60. 6% of the
votes. The the courts wouldn't allow it, He couldn't do it. So my own personal feeling is that legal protections aside, at some point, like the, the lack of money, the, the reality that there's no money to to pay these obligations down the line will matter more than the, the, the legal constructs. Like I'm, I'm a lawyer by background. I got this stuff.
But financial reality, Trump's legal reality, I think it not, not in that you can ignore the law, but that it will create a lot of pressure down the line on these pensions to to negotiate some sort of haircut. Because eventually there's going to be popular support for reform. And it could be pretty draconian.
And they're probably better off coming to the table to make an agreement before everyone in the entire state is so fed up with rising taxes to pay people who retire at 55 at 90% of their salary and demands of, you know, 50% haircuts. So I think it will get resolved somehow.
I think the easiest way to resolve that is economic growth, Ian. But for the problem for Chicago is that, and the state of Illinois frankly, is that we're surrounded by other states who have a lot more probusiness labor laws, who have a lot more probusiness energy laws. You know, Illinois has 6 nuclear reactors in operation, which is
the most in the country. But we also have a law that prevents any new nuclear large scale reactors from being built because the governor's friendly with the Sierra Club people and thinks that nuclear waste is going to cause, you know, another Chernobyl or something. Like it's crazy. It's very clear if you're trying to attract data center investment, which we are, but you're not building any more power generation and you're curtailing gas and coal because
we have a 2050 net zero policy. Like at some point pretty soon you're gonna run out of power. And no surprise, industry is really reluctant to make major investments here because they can see 5 to 10 years down the line and understand the power tightness that we'll have across the state and don't want to pay exorbitant electricity costs. So Indiana doesn't have that problem. Wisconsin doesn't have that problem, surrounding states in the Midwest don't.
And consequently, like we've lagged in economic growth. And I think over the last 10 years, Illinois grown just north of maybe 1% annually. During Governor Pritzker's six years, we've increased our GDP by about 5% versus I think with the last six years, the USGDP is up closer to 16%.
So like policies matter. And again, if you, you have a population who is frustrated across all these various different things we've talked about, they're, they're going to, they're not going to vote for someone who is explaining that the, the policy insurance and outs like, like you and I can, you're going to vote for someone who says, you know, I'm going to make your life better in these three easy ways and
everything will be fine. And it's at the federal level, again, like there are ways out of this that that I think aren't horrible longer term, but for, for States and cities, like it really is a 0 sum competition and you just hope that your, your local policy makers understand that and are more pragmatic than they are ideological. I mean, I've seen, I've seen Gavin Newsom recently talk about how the fact that like, you know, California is a net donor
to the federal government. I mean, do you see any of this playing out where the cities say like, well, we're going to not send as much money to the federal government? Like, I don't even know how that would be possible in in in sort of the mechanics of it, but. Seems to me like. I don't think like politics. What? I, I don't think that's possible, but like politics is getting more extreme and outrageous. Like it's just, it's like a sports game.
Every side. It's, I don't know if sports game or reality TV shows that the the better term, but like these people are just aren't being serious. And, and As for California, you know, I, I don't know how those figures look when you take into account disaster relief funds that are sent their way because they're, they're in a part of the country where you're prone to drought and wildfires.
And it's my guess is it's a bit more nuanced than the governor there is letting on. Yeah, well, that's if I were not sitting in Florida, that's what I would be complaining about Florida, right. We have we, we, we do take a lot and and I think a lot of the policies down here arbitrage some of what we're talking about. And meanwhile, we're also accepting of the hurricane funds when we. You have natural disasters. We have man made ones here. Well, we might have some man
made ones too. I thought. I thought something that was pretty interesting was the you share a map of the of the United States and it's like the percentage of people that are what have difficulty playing paying bills. And it's not shocking to me that the Southeast like dominates relative to the rest of the country. But it is sort of surprising that the Southeast lean so conservative given that all these states look like they're four to five points north of the
general average. And I mean Mississippi and Alabama are like way out there. Alabama that's 49.6% and 45.5% respectively. Have over 1/3 of the state have difficulty paying bills. That's wild. I would guess some of that's a cultural thing. Why they no doubt the way they do. So some of it is, you know who who do they blame for that predicament right now? Inflation really balloon, you know, during the Biden administration. And I think that's in large part why the 2024 election turned out
the way it did. I'm not surprised that part of the country voted the way they did. Yeah, it's and, and again, in large cities just the, the the numbers are even more extreme. And there are things you could do to improve that like like Ezra Klein, Derek Thompson with
their abundance book. I don't know if you read it, but I I thought it. Was I kind of want to, I've listened to a number of their interviews and I, I, I find it interesting when they get talking, I'm like, yeah, but you guys are kind of pointing out like the structural problems of implementing your ideas. But I do want to read the book.
It's, you know, there are pretty basic things you you could do to relieve some of these cost pressures, but for various vested interest reasons, like they're really hard to do. And instead of people voting for those who would implement those changes, which would improve their lives, they end up voting for people who double down on the way things are and are just going to make things worse. You think rent control in New York City is going to lead to more affordable housing?
Like no, we don't need to get into what the why, but like it's just not how it works. Government run grocery stores. You know, the mayor here wanted to do that too. Good luck like. Why now, Why do you not like that idea that that idea I'm a little curious about. I don't think that they would out compete capitalism, but I do think it would be kind of interesting to see them try. I think that they would end up losing the competition.
If you had a very confident operator doing it, that's one thing. If you have a mayor who has been unable to balance the budget within like a billion dollars of where it should be operating a store with two or three percent margins, margins, yeah. That's like a strap, Yeah, no doubt, yeah. And you're going to be sub scale to acquire the stuff that you need to acquire, right like that. That is a tough, tough business.
You know, for, for this theme, it's something that I've written about over the last couple years. I never really put it together. And I felt, you know, you've heard people speak, I think very intelligently about it, like Peter Thiel going back even in a couple years before me. And it just felt like if I'm ever going to put something together, now's the time because you're starting to see elections turn out the way I would expect them to.
And I, I think this way of viewing American Society has some predictive value to it, which is valuable as citizens of
the country. And I I think is valuable as investors like it. It matters what the political regime that you're investing in is it it matters if there's just a fundamental level of support for just basic capitalist precepts like it. We'd like to think that longer term, you know, everyone will come to their senses and will allow the economy to operate the way it's basically always operated in the country. But, you know, ultimately
popular support matters. And if the system is just not working for enough people, you should probably expect some systemic change. I'm really focused locally on making sure that the systemic changes don't wipe Chicago's future off the map. Because I think just for Chicago, like, we're in a really precarious position where it really does matter who our next leaders are because the the state of just the the economy has changed so much, where businesses and people and capital are mobile.
And if you're not attracting it, you're really falling behind. But for for the rest of the country at the federal level, you know, I think you need to think through like what what does the investment regime going forward look like? Does it look like the one we're all accustomed to? Or is it going to look dramatically different based on
the type of people we elect? Are we going to have a type of politics that is more populist in the sense where you have one person saying, you know what, like, I don't, I don't like your, the, the way your sector's operating. I'm going to mandate that you lower prices or, or you, you know, you're subject to tariffs or, or whatever. Like, it could be Trump, it could be someone else in the future. The the political institutions that we have are strong and the legal institutions we have are
strong. But there's a lot of scope for a strong federal government to operate differently. And I do think it matters, again, if you're a long term investor thinking through the type of regime you're in, what's your view? I'm not a Dumor, by the way. Yeah, I know. I know you made that clear before the contest, before the discussion.
I said, I said this is not the happiest of discussions, but there could be, there could be a, you know, a, a good outcome to your point, we could grow our way out of it. Do you have a view on the current, you know, tariff policy versus the court cases that have sort of appear to have ruled against it? I. And has it resolved itself? I think so, but just really quickly, by way of background, I went to Harvard Law. I was a corporate lawyer for a couple years.
I'm not a practicing lawyer. I haven't touched like a legal document and. We don't have to talk about this if you. Don't want to, but I do think that it's pretty clear in the Constitution, like who's supposed to be in charge of trade and implementing tariffs. And it's not the executive they're arguing that it's, you know, part of various national security exemptions. I think that's questionable. But the longer this goes on, you know, the more support it probably garners amongst at
least the Republican side. And even if courts decide that, you know, this, this regime isn't workable, they'll, they'll try various other exemptions or the Congress will just pass an X saying, Hey, we're implementing these tariffs. And if they get implemented, do you really think that the Democrats are going to say, we just found some hidden source of, you know, 500 billion ish in tax revenue? We're, we're going to make that go away, you know, the next time
we're elected? No, like they they could have taken off Trump's tariffs during Biden's term and they let them stay. So it's. I was surprised. I was surprised procedurally that day one when Trump had like a mandate that he didn't ask Congress for the authority to do this. But I also have a theory that every president's got an Achilles heel and his his, he doesn't care very much for process and that may be his. It'll be interesting to watch.
Think that's a fair comment in, in in any event, I do think we're for lack of a better term, in a bit more turbulent socio economic, socio political regime. And you know, we, we can decry that or we can try and figure it out and think what are the ramifications for, for investing. And if you care about local policy to the degree I do, you know, how do you try and improve the system from within? It's a lot easier to do at the local level than it is at the federal level.
Yeah, yeah, I agree. I've I've enjoyed, I've enjoyed watching your journey, getting involved. So I I look forward to seeing where it where it leads to. I appreciate that I I recently was invited to City Hall to testify about some of our finance and credit issues, and safe to say I don't think I'll be receiving a return invite now that anytime people realize who I am. They didn't. They didn't exactly get what they wanted out of you. Huh. No. Well, good for you for doing it.
They need to hear it. Well, if anyone's interested in following up with me about any of these topics, please feel free to reach out. I have a deck I can send you. I can go over specifics of in terms of how we're structuring portfolios around these ideas. Again, I worked with a firm called Fort Sheeran and Advisors. We're located outside of Chicago. I've been there about 10 years, about a billion dollars of AUM and we we like structuring portfolios that are for lack of
a better term different. You know, our clients expect us to to perform well, but we really do try and work hard with our clients, whether they be institutions or or family offices or or individuals to create unique portfolios that achieve their objectives. So, so we're not A1 size fits all type of investment manager and and we're active allocators. Awesome. Well, thank you very much for coming on. We'll link to how to how to get in touch with you in the show notes.
And I appreciate your time, man. Yeah, any time discussion. I enjoyed it. I enjoyed it. Have a good one Have. A good one. Thanks so much. Take care. None. Music.