Phase 2 - Real Estate 101 (How to or one big idea)

Podcast – What Opportunities And Trends Should You Be Watching For?

Marcia Cuenca
September 9, 2021
Podcast – What Opportunities And Trends Should You Be Watching For?

Are you aware of the trends impacting the real estate market? Brian Beaulieu, CEO and Chief Economist of ITR Economics™ shares his latest forecast on the national and global economies, including, where the opportunities are for business owners and real estate investors.

Brian Beaulieu has served as CEO and Chief Economist of ITR Economics™ since 1987, where he researches the use of business cycle analysis and economic forecasting as tools for improving profitability.

About ITR Economics™
ITR Economics™ provides the best economic intelligence to reduce risk and drive practical and profitable business decisions.
Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US.
With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.

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Learn More About ITR Economics™ , click here

Don’t miss out on some great insights from ITR Economics™ CEO Brian Beaulieu and President Alan Beaulieu.

Webinar now available:
July 2021 – The Coming Great Depression: Impact of Pertinent Trends a Year Into the Pandemic

Listen to our interview with Jackie Greene on how the pandemic impacted the economy:
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If you’d like to learn how Mariner Wealth Advisors can help you build a roadmap for your real estate investments head to RealCrowd’s sister company, ReAllocate, to learn more —
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Transcript

Adam Hooper (00:03) Hello and welcome, I’m RealCrowd CEO Adam Hooper, and this is the Real Estate Investing For Your Future podcast. Here we explore the latest in commercial real estate trends, insights and investment strategies that passive investors can use to build real estate portfolios that last

Disclaimer (00:21) All opinions expressed by Adam, Tyler and podcast guests are solely their own opinions and do not reflect the opinion of real crowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions to gain a better understanding of the risks associated with commercial real estate investing. Please consult your advisors.

Adam Hooper (00:43) Our special guest today is Brian Beaulieu, the CEO of ITR Economics, it provides economic forecasts to reduce risk and drive practical and profitable business decisions for their clients. Since the 1980s, it has had a staggering ninety four point seven percent accuracy rate with our forecasts. In today’s conversation, Brian shares his latest forecast on the national and global economies where the opportunities are for business owners and real estate investors, and provides a preview of a recently recorded webinar where you can hear a much deeper dove on their forecasts over the next 10 to 15 years. Be sure to check the show notes for links to that webinar and other resources that we discussed. And we hope you enjoyed today’s conversation with Brian Beaulieu of Freakonomics. O’Brien, thank you so much for joining us today on the show, we are super excited to have you on. We’ve had Jacqui on from from Iscar in the past and we’re thrilled to to get to chat with you today on the show. So thank you again so much for your time and talking about everything that you guys have going on at our.

Brian Beailieu (01:47) It is my absolute pleasure, thanks for having me on.

Adam Hooper (01:50) Perfect. So previous listeners have probably heard a couple of episodes that we’ve done with Jackie Green in the past. And if not, we’ll put some links in the show notes there. But for new listeners of the show, why don’t you tell us a little bit about what you’re doing at it’s economics, how you got started and how you started the company, and a little bit of history of what you guys have been up to over there?

Brian Beailieu (02:10) Well, I teach economics. We focus really exclusively on working with businesses, forecasting economic trends that impact those businesses and not speaking in eco speak, but translating it into the world of business to come up with what we call management objectives. Is it time to do this? Is it time to hire or is it time to not hire? Is it time to make that capex where a price is going to be going, those sorts of practical profit, bottom line oriented decisions that leaders have to make every day? I didn’t start high tier economics. It started in 1948, which was before I was born. Fortunately, I joined it in 1982 and I bought it in 1987. So that’s my history with it.

Adam Hooper (03:00) OK, so so taking the not just the forecasting side of things, but then translating that into actionable business intelligence. Right. I think that’s a a gap that’s often missed in how to make sense of the research that’s done and how to make sense of those forecasts and the economic data. So that’s what you guys are really into, is trying to translate that into actionable intelligence.

Brian Beailieu (03:19) Right, exactly. So profitable, actionable intelligence. That’s the name of the game. And toward that end, you know, sometimes that’s a six quarter forecast. Sometimes it’s the three-year forecast. And sometimes, as we just did, it was a it’s a 15 year forecast that

Adam Hooper (03:38) We’ll talk about that today. You guys just recorded a a great webinar. Again, we’ll have links in the show notes. We want to use the title just yet. But let’s talk a little bit before we talk about the title and maybe what the content of that webinar was since since you’ve been involved. Again, you said about the company in 87, been through a fair number of cycles since then. And I’ve always been just absolutely shocked at your accuracy rate. So you guys have a pretty good historical track record of of these forecasts in this this intelligence, don’t you?

Brian Beailieu (04:09) Oh, yeah, we do. And I think that’s multifactorial. One is we are apolitical. We’re not tied to any particular product or service. So we don’t have an agenda from that perspective. We don’t make any more money or less money whether the economy is growing or not, we make money one more. Right. And that’s all we really, really care about is getting it right. So and when you do, you have when you apply some critical thinking along those lines, it works out OK.

Adam Hooper (04:36) And how how right have you guys been?

Brian Beailieu (04:39) What long term accuracy is ninety four point seven percent over the last several years, though, it’s been more like 98, 99 percent. 2020 obviously threw us a curveball. We didn’t have our normal 12 to 18 month horizon because come you know, came March, I think it was February twenty twenty, all of that just got blown up. And we were scrambling in March to redefine all those forecasts and which we did at the end of the year, came in on our eight benchmark items with about ninety eight point two percent accuracy rating. So we adjusted well on the fly.

Adam Hooper (05:17) That’s yeah, it’s pretty good for as much of a disruption that was. And we’ll talk about that a little bit. Wanted to also play a little bit of groundwork in terms of the the economic phases that we talk about before before we get into that, because we’re kind of reference back to those. Can you run just really quickly through how you guys look at those different cycles or different phases of that cycle?

Brian Beailieu (05:40) Sure, there are four phases to every typical business cycle. A is going to more recovering off a trough like we were in 2020. B is when we’re running above year ago levels and the data, the slope is accelerating and the rise. That’s the best phase of the business cycle. That’s twenty, twenty one sees the cautionary phase. It’s where the data is still rising, at least initially. But you’re slowing in the rate of rise. So caution is warranted. Oh my gosh. It’s so often you see businesses extrapolate their phase be that accelerating rise and they opening plants at the very top of a business cycle. History is littered with such occasions and frequently C turns into D, which is the overt, downward faced and most negative phase of the business cycle. Now, you don’t have to go through all four. There are times when the economy will slow down and then we accelerate and that’s what we think it’s going to happen. Twenty-two is slowing down and on into twenty three. The economy is slowing down and baozi. And then we think in the second half of the year we’re going to see it flip from C back over and to B what we call a soft landing. And those happen not infrequently. They are, you know, more the exception to the rule, but you can spot those coming also.

Adam Hooper (07:03) And then when we had Jackie on last time, we’ll talk a little bit about your webinar and forecast here, I proposed a Phase E, which is a depression, but it sounds like that may be I don’t know. I don’t know if that’s stuck or talked before, but so so they don’t have to go. And that was one thing that we talked with Jackie last time was the defaces. They don’t necessarily go ABCDE and sequentially. Right. They can kind of bounce back and forth from time to time. It sounds like that’s maybe what you just mentioned was you’ll see a period of maybe slowing growth here in 22, maybe 23, but then going maybe back into this phase, B accelerating growth. They don’t have to progress sequentially. They can kind of bounce around a little bit.

Brian Beailieu (07:45) Absolutely. And obviously, for a company, the name of the game is I don’t want to go into Phase D and I don’t need the recovery phase. And you have a choice, right? You always have a choice. Am I going to avoid that downward phase and my profits are going to avoid that downward phase of the cycle in terms of my top line. And that’s a fundamental choice that we talk to people about as we’re cresting the top of the business cycle. All right. What strategy you’re going to employ here? Is it about your bottom line or is it about your top line?

Adam Hooper (08:16) And it sounds like you work with all different industries, right? It’s not necessarily focused on one sector or the other. So how do you I mean, those are different. Different markers, different factors that go into those decisions, depending on what industry you’re in, right, construction in your home building might be different than, you know, retails or product manufacturing. Do you provide or are these industry specific or do you generally work with a client, dig into their specific business model? How does that work from a practical perspective? I’m curious.

Brian Beailieu (08:49) 2 ways. Actually, if a trade association is hiring us and we know the market that we’re dealing with, but we’re not going to get company specific because we’re dealing about talking about the general markets for their industry, their customers, that sort of thing. But bread and butter for us is when we’re dealing with a company, looking at their particular needs and working to tell them what we think they need to know, not what they want to hear necessarily, but what we think they need to know to adequately plan for the future.

Adam Hooper (09:23) So now let’s talk a little bit about the pandemic and maybe some of the metrics and trends that you were tracking prior to and then some of those adjustments that you made, like you said on the fly, to end up the year at that ninety eight point two percent accuracy. What were those things that got disrupted and distorted? And maybe how did you look at some of those trends differently, given what we learned in the early part of the pandemic?

Brian Beailieu (09:49) Everything got distorted and disrupted the leading indicators just before 20/20 came around, the leading indicators globally in the U.S., we’re starting to turn around. You know, I don’t know if you recall, there was definite softness in the economy in the fourth quarter of 2019. And we saw that coming and we saw GDP being weak in the first quarter of 2020, even without the pandemic. Just obviously got a whole lot worse. But the leading indicators are already coming around. So from our perspective, one of the big disruptions, if you will, was those leading indicators all of a sudden went into crash mode, that it was no longer performing a J at the bottom of the cycle. So our next task became, what do we do with this? Right. We made the conscious decision to think about the pandemic as a natural disaster. It was not an economic disaster and it was a natural disaster that had economic political consequences. And once we did that, then we had some paradigm. We could go back and we can look at smaller natural disasters like Superstorm Sandy or any number of hurricanes, and we could extrapolate from that to first the U.S. scale and then the global implications of what we are looking at. And that provided us with that with that great construct from which to gauge things. And then that also allowed us to take a look at all the stimulus that the government was applying, not only just the checks being sent out, but all the other acts, care packages that were going out, if you will, and the Federal Reserve’s stimulus, monetary policy, stimulus and understanding that it was a natural disaster, that the economy wasn’t broken enabled us to anticipate. Holy cow. They are going to massively stimulate demand without a supply chain there. And therefore, we’re going to get all sorts of amazing distortions in the economy and unbalanced aspects of the economy. And a lot of unintended consequences are going to be derived from this. And it all stemmed from our realization that the economy isn’t broken. It just was told to turn off for a while. But they treated it like it was broken because when you have a hammer, we only know how to view everything as a nail.

Adam Hooper (12:16) Everything is a nail. Right. So we have this this massive demand spike without the supply capabilities to really keep up with that. And I think we’re probably still feeling the effects of that. Right. Like we were just, you know, taking a look around at cars over the weekend. And, boy, that’s a very different environment, right. Than what it was before. And as so many industries like that that are just the supply chain has been completely bonkers throughout. Right. So is that are we still feeling that effect and how long, I guess until some of that supply normalcy comes back? Or will that be a much longer-term disruption, do you think?

Brian Beailieu (12:54) It really depends on the market that you are looking at, the normalcy is beginning to return when you look at volume of imports coming into the United States. But then again, you can see that there’s some port issues because of the Delta variant in China. So we’re clearly not past the storm there. You mentioned the car market in particular was interesting. You know, so much of the problem for those cars. Yes. The covid disruption, it’s stimulated the demand, but the chips were a problem beforehand because the industry had made that decision years ago that they were going to assume the newer and newer chips were going to be going into these cars. And the designers, the engineers decided they want to stay with the old chips. So we ran out of supply in the old chips, not the brand new chips. So those are the plans that are being built today is to handle previous generation of chip. We’re building them abroad and they’re being built here in the United States. Those plants come online over the course of 2022 and 23, and that’ll probably be the tail end of the supply issue is really late 2022, early 2023. And we think that’s a critical aspect of why the economy can finally begin to heat back up in the second half of 2023, because we have these supply chain issues rebalanced and it’ll be a much more smoothly flowing economy than.

Adam Hooper (14:22) One of the things that we also talked about quite a bit last year was the sense of the pandemic being an accelerant to a lot of these trends that were already under underway rather than necessarily creating new trends or new factors that we didn’t necessarily think about before. It was more of just amplifying things that were already afoot. I’d love to get your perspective on what were some of those major trends that you saw accelerate? And did you see any new trends that you guys are tracking now as a result of the pandemic, maybe that you weren’t thinking about or think about differently now than before?

Brian Beailieu (14:54) OK, for the first part, did the acceleration very easily discernible, for instance, in office space, being on the decline because a distributed workforce or disseminated workforce, and that’s clearly got accelerated and now we’re seeing that trend level back. It’s certainly heightened from where it was pre pandemic, and it’s not quite as crazy as it was during the pandemic. But this is clearly a different workforce environment than we’ve had before, that the level of mobility in the workforce is clearly gone up. And that’s changed some of the real estate trends. Right, in these major cities and in some of the more popular outlying areas around those cities. E-commerce clearly was given this huge boom during the pandemic. And, you know, a lot of baby boomers, my generation learned how to make do with e-commerce because of the pandemic. And they like that. They’re not going to go back and the other way, which means department stores, which are always the poor sister on the retail market over the last 20 years, they’re going to continue to struggle and a lot of different areas. So those trends were accelerated, not really, new. I think what opened our eyes more than anything, it’s not that it was new per say. It’s just that we had not observed it as finitely was the radical departure in the deficit spending trend. Now you can say, yeah, it’s caused by the pandemic. I get that, but when we analyze that trend, you know, it really became in the 1980s and this is the research I was doing the last time when we were supposed to get together. And people have a tendency to think one political party versus another political party is better or worse at managing the deficit and therefore the national debt. Lo and behold, most of those misconceptions are nothing but political rhetoric. We looked at how many times the Democrats reduced the national debt. We looked at how many times Republicans did you know what it was even. And by the magnitude of decline that they invoked, that was even also when you looked at who was more likely to increase it. You’re going to be hard pressed to show that there is outside of wars, that Republicans are virtuous or Democrats are virtuous in that regard. They’re just politicians. And to us, that really sealed the deal when it came to understanding where we were going with this deficit spending and what with the rest of this decade is going to look like as a result and what the consequences of that are clearly going to be down the road.

Adam Hooper (17:45) So that’s maybe a good segue into, you know, nationally what you are following and what these factors that you look at. So deficit spending, obviously, one of them said e-commerce was another one. Obviously, you’re watching. What are some of the more macro factors, I guess, that you guys are tracking nationally? And what are you seeing just generally in those right now?

Brian Beailieu (18:06) One of the macro factors we’re tracking because it led out of the downturn was housing single family housing starts in particular, but multifamily is coming around now also. And one of the big question marks was all that price rise in housing. Is this a bubble, yes or no? And if it is a bubble, how bad is this going to be? And finally, when is it going to get bad? It is a bubble because if all that stimulus and because of the shift towards staying home and the rest of it, we’ve clearly created a bubble in the housing market. Is it going to be like 2006, for instance, any time soon? No, not even close. The markers aren’t there. We’re not looking at the same level of indebtedness. We’re not looking at any of those past two numbers. We’re looking at consumer debt. I know you hear otherwise through the politicians, but the corporate and consumer balance sheets are actually very good shape right now. All in. So this bubble in pricing is going to continue for another couple of years anyway. This is our best estimate. So you don’t have to you don’t need to be worried about this slowdown in 22 turning into something nasty when you have some markets like the housing market continuing to look robust when you have disposable personal income at the consumer level, still running above pre pandemic levels by a wide margin, lot of money saved in bank accounts across this country. Consumer perfectly happy, willing to spend that money. Those are signs that you’re going to be looking at and deceleration turning into a decline in the economy. Those are really rock solid way cornerstones, really, of the economy.

Adam Hooper (20:01) And then you mentioned I mean, well, you mentioned deficit spending, but inflation is obviously that’s a big one that everyone’s trying to figure out right now with all the money that was pumped into the economy. You know, how how are you thinking about inflation at this time? There’s a lot of concerns out there. I think that’s one of the reasons why real estate has been an attractive investment vehicle for a lot of folks is it’s a fairly decent hedge against that. In the case if we do get into some inflationary pressures. But how are you seeing inflation right now?

Brian Beailieu (20:32) And we see it as transitory and very similar to the Federal Reserve. We understand and we get it from our customers, our clients, that they have felt a lot of inflation in their raw material prices. They’ve been needing to pass that through. And they think this is the beginning of that monetization, that monetarist inflation, because of all the stimulus in our answer to them is that’s not what the Federal Reserve sees. That’s not what the bond market sees, because we look at that bond market every day and that’s not what we see in our leading indicators. This is truly transient. You’re going to see that consumer price index, the producer price index, follow the trend of copper, follow the trend of gold. And they’re already on the back side of this cycle. So you’re going to be looking at disinflation, not accelerating inflation, until we get into about 2024 for time frame. That’s when you’re going to find more and more systemic, potentially monetized inflation coming about. One of the consequences of all the stimulus that’s been laid out there is we don’t have workers. You know, the manufacturing sector, you mentioned them before. There are 870,000 manufacturing job openings in the United States today.

Adam Hooper (21:57) All right. Well, I’m sorry, how many 870,000? OK, I heard that, right.

Brian Beailieu (22:01) Yeah, I know, right? I mean, there’s no possibility of filling all those positions. So we’re going to be automating we’re going to be putting in a time machine, learning applications wherever we can. But, you know, one of the consequences that will be someone’s going to start crying about how or complaining that, you know, we’re using technology to rob people of their jobs when the reality is we can’t find the people to take those jobs. Right.

Adam Hooper (22:29) Which that’s a pretty big disruptor. Right. And I think that that’s something that has been talked about forever. Again, this this robot revolution or whatever hasn’t really happened at the scale that I think it’s been feared. But sounds like with 870000 openings, there’s a need for that to fill the supply. Again, that we talked about, that supply gap that’s just not there right now seems like there’s room for some automation improvements to deal to just start to bridge that supply gap, right?

Brian Beailieu (22:57) Oh, absolutely. You’re absolutely right. We think one of the best ways to protect your bottom line through the rest of this decade is to make sure you’re making those investments in automation, obviating labor to the extent that you can, because labor is going to be a key component of inflation, your company’s inflation, systemic inflation. And the more you can reduce that variables input into your profitability, the better off the stronger you’re going to be.

Adam Hooper (23:28) Mm hmm. And then what about interest rates? Obviously, we’re in the real estate world, so that’s a very low interest rate sensitive market. And we’ve seen them stay pretty low here. You know, certainly on a historical perspective, you know, housing rates, single family mortgage rates have come down again, I think just recently here. How are you feeling about interest rates? What are you looking at there? What you forecasting for for interest rates going forward?

Brian Beailieu (23:56) Well, the bond market and the Fed are both saying that interest rates are likely to remain low through the end of this year. The Fed says even in 2022, that may be a little bit optimistic. Wouldn’t be surprising to see a 50 basis point rise in long term rates over the course of 2022. And because of that webinar that we’ve obliquely referenced a couple of times, we did add long term forecast of the 10 year bond yield, US government bond yield. And we had to make a fundamental assumption. The assumption was this the U.S. dollar will remain one of the most favored world reserve currencies. And for that reason, you don’t find any crazy rates of inflation or interest rates, rather like we saw in the early 1980s. If anybody listening can remember that far back. And that’s when we had prime rate at 13 percent and that sort of thing. We don’t see that happening as long as we can maintain our global reserve status. But that’s being chipped away at as we speak because of the digitized Chinese currency, because of the Russians declaring they’re no longer interested in holding dollars, Pakistan, Turkey, peripheral economies, declaring that they’re going to go with the Chinese yuan, not US dollar, as their secondary currency. So you see some erosion is happening. So we’re watching that very carefully because if that continues. That erosion continues, you’re going to see much higher interest rates than we’re currently forecasting. We think today’s 10 year bond yield is going to go from about one point three, one point two percent, up to about six point two percent at its high. That alone is going to be very, very expensive for a government that’s increasingly in debt, but it’s not in and of itself ruinous type interest rates. It’s not like a replay of the 70s into the early 1980s.

Adam Hooper (26:02) And do you see, we’d be remiss if we didn’t see if crypto plays into that at all, do you think is crypto going to knock off the dollar as the global standard?

Brian Beailieu (26:13) Not the crypto currencies that we have today and China’s also showing us that to US will follow suit. Why would any sovereign government give up the right to control monetary policy? They won’t.

Adam Hooper (26:32) It’s going to be a tough one.

Brian Beailieu (26:33) Yeah. And I don’t there’s no way the free market is going to overwhelm the industrialized nations of the world in terms of that policy.

Adam Hooper (26:41) So then looking globally there, monetary policy one, what are some of the other more, I guess, kind of flashing bright flashing metrics that you guys are trends that you’re looking at globally right now that are on the radar?

Brian Beailieu (26:57) An aging population is huge, obviously its population on planet Earth, including the United States, gets older and older. They consume we consume more and more resources without contributing commensurately into the economy. And in many countries, there’s just not enough younger people to make up for all these old people. Fortunately, the United States is in pretty good condition compared to, say, China or Japan or even our neighbors to the north, Canada. The millennials, the generation and the Gen Xers, they’re the single largest generation in the United States has ever had, so few countries can say that, um, that’s extremely powerful economic mojo over the longer term. I mean, it’s one of the reasons why the U.S. is going to remain the preeminent economy for the next hundred years.

Adam Hooper (27:58) And then so if the U.S. is somewhat protected from that, I guess globally, that’s that’s good. Are there other trends that we might not be as protected from, I guess is the questions?

Brian Beailieu (28:12) Yeah, there certainly is. It’s called health care in the United States.

Adam Hooper (28:17) I mean, that’s an interesting dynamic, right, in health care. If we have one of the younger generations in health care in the U.S. is maybe not what it is and some of the other developed countries, we might not be immune from that, but that might be delayed. We have time to fix that. We have time to solve that before this millennial generation gets here or we are already in the middle of it.

Brian Beailieu (28:37) We are already in the middle of it, all of us baby boomers. We want whatever it takes to live as long as we possibly can, regardless of the economic cost benefit analysis, that’s part of our culture and we believe we have a right to those next six months of our life, no matter what it’s going to cost. And that’s really not up for debate. I find out frequently when I mention it at the wrong time. That’s, that’s a U.S. position. That’s a U.S. phenomenon. And it’s why our health care costs are what they are, more so than the fact that we pay more for our drugs than our hospitals are relatively inefficient, etc. it’s the demand curve not being connected to the cost curve that is ultimately at work and driving up US health care costs.

Adam Hooper (29:31) And is that do you see that getting worse as the millennial population ages, or is that too still too little, too far to be able to forecast with that?

Brian Beailieu (29:42) I see it’s getting worse until 2036 because by 2036, that’s when the majority of us baby boomers are dead. And therefore the problem starts ameliorating post 2036.

Adam Hooper (30:01) Post 2036. ok, well, let’s maybe see if we can get back onto a more positive tone then. You know, are there I guess, are there any other interesting areas or maybe, you know, we try to wrap up our episodes and not right now, but we got a lot more that we want to chat about. But maybe it’s looking nationally, then globally. What are some of the bright spots? Right. What are some of those things that you’re optimistic about? And then or maybe let’s start first with what are you what keeps you up at night nationally and globally? And then we’ll switch that to what’s what are you excited about? What are you optimistic about? How about that?

Brian Beailieu (30:39) Well, I think we already touched upon what keeps me up at night. It’s U.S. national debt. And our you know, we developed this thinking it’s not new. It’s rehashed modern monetary theory that says we can run up as much debt as we want because we’re the United States, we are the world reserve currency, that that doesn’t work. It never has worked. But that doesn’t stop people from regurgitating that same theory from time to time and then put different window dressing. Or, you know, there was an interesting paper done. Princeton published it. It was called 800 Years of Financial Follies. And it looked at, tipping points in economies, and they noticed that when national debt reached 80 percent of a country’s GDP nominal GDP, they went past the tipping point that they could not recover from that. There were consequences from that point forward. And when we did that, by the way, in April of 2009 here in the United States, one of the consequences, if you look at it, is that ever since the Great Recession, as our deficit spending has increased, nationals’ that’s gone up higher and higher now at about one hundred twenty seven percent of GDP. Our ability to grow as an economy from over 10 – 12-year span of time is no longer what it once was. And you can see that same scenario being played out. It happened in Japan before. It happened here in the United States. And there seems to be something to that particular tipping point that keeps me up at night now. And we just don’t want to change our ways. But let’s talk about what the good things, the good things are. The millennials, are a huge population, they think differently than Gen Xers and baby boomers. And they are going to be the ones that will adopt new technologies, new ways of doing things, new ways of looking at things more readily than the Gen Xers would have been willing to do. And with that adoption of the new technologies, you’re going to see that creative destruction forces that Joseph Schumpeter talked about really come to fruition. We’re going to be creating new industries, new jobs at a phenomenal pace because we have that young population base more so than any other industrialized nation on this planet. So that’s one of my oh god I’m not worried about the future. We got these millennials and amazing people.

Adam Hooper (33:13) You might be the second person to to say millennials are our savior. It’s very counter. It’s very counternarrative there.

Brian Beailieu (33:22) No, I’m sorry. But the second thing that makes me very confident about the future is that we have been mightily blessed with natural resource base that is beyond power. I mean, China has a relative paucity of natural resources compared to us. China’s demographic is negative. Ours is positive. There’s no comparison between the two on those two scores. And history is very clear. Nations that own the natural resources, they really control their own fate, particularly when you’re going through a period of inflation like we’re going to be going through over the next 10 years. And the third factor that still remains true, although you could argue that, you know, there’s an ebb and flow to it, but we are still a nation of laws. You have to have intellectual property rights. You must have personal property rights, and you must have bankruptcy laws if you are going to be a long term player. And who else? But the United States has the demographics, the natural resources, and has a rule of law system in place. One and you know, it doesn’t get any better than that as far as I’m concerned.

Adam Hooper (34:35) I like that. We will keep we’ll take the good let’s switch a little bit over to cover some of the specific industries that you guys that you were focusing on. Maybe just a quick hit on both what you’re seeing, global and national, and what we’ll start with manufacturing. You mentioned that before. You know, almost 900,000 openings right now. Bigger picture. How is manufacturing looking and what are you guys following?

Brian Beailieu (35:00) Their bigger picture? Manufacturing is looking very good. There is a shortening of the supply chain that is going on will continue to go on. It’s part of the Biden administration’s fiscal policy. But it was going to be going on anyways because of what the world learned going through Covid and are going to see more and more nationalism play out going forward also, which is the opposite of globalization. And that will ultimately breed some inefficiencies. But in the short term, like a decade, you see more and more manufacturing and related opportunities going on, on shoring, near sourcing. Those trends are very much alive and well. And except for 2020, the number one destination of foreign direct investment year in and year out is the United States. And that’s not about to change. So we’re bullish on manufacturing going forward.

Adam Hooper (36:01) And that’s what you mentioned, even with the car chip example right now, now starting to build some of those plants here domestically to fill some of that supply chain, whereas historically those have always been. Or manufactured overseas, right? Correct. How about finance?

Brian Beailieu (36:19) Finance. That’s a big, broad topic, finance, we’re talking about banks, are we talking about finding serious

Adam Hooper (36:27) Financial services industry? How about

Brian Beailieu (36:30) OK, they’re going to be going into an interesting time, in our opinion. One thing we haven’t talked about is our forecast that the U.S. dollar is entering into a prolonged period of decline, and that’s part of what gets you systemic inflation in the future. That prolonged period of decline in the U.S. dollar is inflationary, and it’s going to shift emphasis away from the stock market to some alternative investments. So financial advisors and services firms that understand that shift and can break away from the paradigm of the last 10 to 12 years into a new paradigm that has a weakening U.S. dollar, they are going to clearly be worth their weight in gold to their clients, their customers, those who can’t, who continue to look for yesterday to repeat itself are not going to be faring well. So I think you’re going to see a shakeout in that industry between those two, the ones who can see the future and those that are clinging to the past.

Adam Hooper (37:42) Yeah, that’s certainly interesting. And that’s why we have a subsidiary that is an area. And we’ve been hearing a lot of the same conversations, certainly within the financial adviser wealth management space of trying to figure out how can they make a portfolio that they forecast, you know, five, six, seven percent return when when bonds are yielding a fraction of that. Right. A lot of their models have been blown up and they’re searching for some of those alternatives like real estate and some of the other asset classes that are out there to supplement that. So I think that’s definitely something we’ve seen firsthand as well. Construction. That’s something, you know, that’s been an interesting one, right. With just the cost going up. Obviously, we saw lumber spike like crazy. We’ve seen a number of projects actually get shelved due to rising construction costs. How are you seeing that forecast for, I guess, just raw goods for construction? And then also labor is a huge part of that, too, right?

Brian Beailieu (38:38) Yes, labor is a huge part of that, although I’ve been impressed with some of the inroads the construction folks are making to not needing as much labor on any given site, that is a very important trend that we’ve seen out there, nonresidential construction, which I think is what at least that’s what I inferred. I mean, I implied or missed what I heard you talking about. Sorry, that’s a lagging economic indicator. And that we starting to come up, you know, toward the end of this year and you’re going to see more and more nonreaders construction begin to take off. Probably not in terms of brick and mortar retail like it used to be defined and not in office space, like it used to be defined. But overall, that segment starts coming along and doing well. And I’ll continue to do well in 23, 24 or 25, it’ll be on its upswing. Government, state and local governments weren’t nearly as hard hit as we feared that they would be. So that bodes very well for educational construction being bonds being let for those purposes. And that’s, that’s good. That’s turning around sooner than otherwise. Manufacturing, construction, tie in with CapEx. CapEx is rising as we speak. So manufacturing construction is turning around as we speak also. So the signs are there that it’s going to be turning around and it’ll be back to business as usual now. You know, we all got a little lesson in inflation in our commodity prices, right? And like I said before, they’re settling back down, but hopefully people learned how to handle those. You know, one of the biggest follies we saw were the emergency contracts being signed at these high prices instead of taking a more measured Hegde approach. If I was a construction company dealing with a lot of these raw materials, you know, and I would be doing I would be contacting the best hedging company I knew to manage these costs going forward. That would be a really smart thing to do.

Adam Hooper (40:51) And then before we talk about how how these are all tied in, which you kind of mentioned there with construction and CapEx manufacturing for the service industry got crushed in the pandemic last year when things started to open up, we saw a big flashback in of those jobs. How is the service industry looking? Are we out of the woods yet? How’s that coming back any longer term changes that you’re seeing in the service industry?

Brian Beailieu (41:20) We are out of the weeds, mostly business travel isn’t back where it used to be, but that’s turning around family type travel, vacations, restaurants, venues, those are opening back up rather nicely. The only hesitation I have in that regard is the delta value. I can’t forecast where that’s going in the United States. I can see the numbers and it’s not nearly as big a deal here as it is in other parts of the world, clearly. But we’re sort of holding our breath watching those trends.

Adam Hooper (41:56) Mm hmm. And so then how how do you look at interconnectivity between those different industries? Are there some that are more siloed or do they all feed off of one another? Do you see one more as a leading indicator of others? How do those with the interplay between those major industries that you guys follow?

Brian Beailieu (42:17) There are definitely leading indicators, and if you’re looking for an industry segment that would be a leading indicator, for instance, would be housing starts. But in terms of the large question, and ITR Economics and it’s funny to them and to this day, we want to hire economists who have a background in music. And that was our founders thing, Chape and Hoskins. He was not interested in hiring anybody who couldn’t understand that the economy is one big symphonic movement. And you can’t focus on the woodwinds to the exclusion of the percussions, to the exclusion of the strings. They all work together. And when one of those pieces is off, you have some harmonics that aren’t going to be working. The economy won’t be working at optimal levels, but they are all tied together. And to this day, we see it as it’s all tied together to make this beautiful economy of ours funk.

Adam Hooper (43:13) Hmm. So what was your instrument of choice? Trombone. Trombone?

Brian Beailieu (43:18) Oh, yeah, trombone. It was a very sexy slide trombone. I tell you what.

Adam Hooper (43:23) Good. OK, so this is this is again, this is just so much good information. I do want to give you a little bit of a room to tease as much as you want about the webinar that, again, we’ll have we’ll have links in the show notes and obviously highly, highly recommend everybody go check that out. So why should let’s just let you kind of give a little bit of a preview of what you went over on that webinar. And maybe we can dig into a few of those points here before we wrap up today.

Brian Beailieu (43:53) For the webinar, it was primarily focused on the 20, 30 decade and really through 2030 six, how we’re going to get from here to the top of a long way, which we think will happen in 2029, 2030. And then what that slide down is going to look like, and we’re calling it a depression, is the coming depression. We think we see a decline that isn’t one precipitous drop, but rather think about a slope you would go sledding down when you were a kid. You know, I have some steep, steep spots and then it would level off a little bit. And then you have another steep spot. But one lasting six years is what we see for this decline in the economy. That is coming up. And a lot of it is tied to health care cost, demographics, entitlement spending, and how that all wraps up into the national debt. And we took each one of those apart and we looked at how those trends are likely to build over the next 10 years, 8 years, and how they’re likely going to culminate in this six year period of difficulty. But at the same time, you know, we like to tell people, look, we’re telling you this, not this scared the daylights out of you. We’re telling you this so that you can be ready for it. Right. We have so many more social safety nets today that we had versus what we had in the 1930s that it’s silly to say it’s going to be like the 1930s. Of course, it’s not going to be, but it’s still going to be an extremely difficult period. So let’s say that you’re dealing with 20 percent unemployment. Just grab a number, OK? You can focus on that if you want to, or you can do what I choose to do and say, all right, that means there’s 80 percent employment. So what is my business going to be about that caters to the 80 percent? Who would they be that are still employed? And I think more importantly for me is what do I tell my kids and my grandkids? What should they be thinking about? What should they be studying? What should their occupations be in order to still be successful during the 2030s? You know, most people don’t realize that more millionaires are made in the Great Depression than any other time, that there’s always a way to make money. You can choose to go with the herd or you can choose to go your own path. You use the trends to your advantage or succumb to the trends that, you know, you always have those choices. And we’re just trying to educate people into what those are, what those alternatives are going to be, what those trends are. And that’s really what we tried to get across during that webinar.

Adam Hooper (46:45) Yeah, I think that’s what’s so fascinating is the the ability to take whatever perspective you want into that. Right. It can be the focusing on the, like you said, the 20 percent unemployment or how do you position to to make sure that knowing that now that you have this information. Right. Assuming that we’re able to to make sense of that information on a forecast, how do you position how do you make those changes? How do you get ready for what that looks like and make sure that you’re not you’re not going to be affected as badly as you could be, but you’re positioning things to be able to maybe take advantage of it, given what that looks like going forward. Obviously, we don’t know what that’s going to look like entirely. But, yeah, the more information you can have and the more runway you can get to start setting up for some of those decisions, I think is a is a really good piece of information to have. So you, again, super, super grateful. You’ve been so generous with your time. We will absolutely put some some links in the show notes highly, highly recommend listeners to the show. Go check out that webinar for sure. And Brian, I guess if listeners want to learn more about what you’re up to at ITR, how can they get a hold of you or what’s the best way to keep tabs on the great information you are putting out?

Brian Beailieu (47:57) Go to our website. There’s a lot of free content there and there’s a lot of material you can see where Alan and I or the other speakers are going to be through the rest of this year. And maybe you can catch one of those venues. There’s all sorts of ways to stay on top of all of this. And Adam, I really enjoyed talking with you. Sometimes I don’t get people that see things as clearly as you do. So you’ve been enjoy one.

Adam Hooper (48:27) Actually, I’m curious, since you mentioned that the business travel is is starting to come back, that’s one of things that we’re trying to figure out right now, is what is our conference schedule look like going forward, trying to come out of the shell, the covid shell of virtual meetings. I’m curious, how are you all looking at conference travel? Is that something you’re seeing? Come back. We’ve started to see a few in the real estate space come back, some mixed attendance. Some have been. Wildly overextended, based on what they’ve been historically and some have been, you know, 30 percent attendance. I’m just curious how you’re seeing business travel. As I know that’s something that a lot of us are trying to figure out right now.

Brian Beailieu (49:04) It’s slowly coming back. If I had to spitball a number Adam, I’d say it’s about 25 percent for the rest of this year, what we would call a typical year. But we’re also seeing where people are booking much more closely out than they used to. So we don’t have the same visibility that we used to have. They’re trying to figure it out themselves.

Adam Hooper (49:25) Yeah, that’s it sounds sounds accurate to our our sample size of one over here. So right on line. Well Brian again, this has been a blast. Really, really, truly appreciate you coming on. Thank you so much for your time. And listeners, again, check those show notes for for that webinar and everything. Brian and the team are up to at ITR economics. So thank you again for coming on today.

Brian Beailieu (49:47) My pleasure. Thank you.

Adam Hooper (49:49) All right, listeners, that’s all we’ve got. Hopefully you got some good nuggets in there. And it was a lot of information. If you have any questions for us or for Brian, send us a note to Podcast@realcrowd.com And with that, we’ll catch you in the next one.

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