Jeff Weniger-Pension Wars: Why Everything is About to Change and How to Profit
Introduction
In this episode, we are thrilled to have Jeff Weniger, the Chief U.S. Strategist for WisdomTree ETFs, back on the show. Jeff shares his insights on a range of topics, including the 'pension wars' concept, the potential for a domino effect in global equity markets, and the role of financial engineering in shaping investment strategies.
Topics Discussed
• Discussion on the 'pension wars' concept and its potential impact on asset flows over the next several years
• Exploration of the potential domino effect in global equity markets and the implications for investment strategies
• Insight into the role of financial engineering in shaping investment strategies, with a focus on the 1980s and 1990s
• Analysis of the impact of rising natural gas prices on diversified enterprises and the broader market
• Discussion on the future of work, with a focus on the shift towards remote work and its potential implications for the labor market
This episode is a must-listen for anyone interested in understanding the complexities of global equity markets, the potential impact of the 'pension wars' concept, and the future of work. Jeff Weniger's insights provide valuable strategies to navigate the uncertain financial landscape and better understand the intricacies of investment strategies.
This is “ReSolve’s Riffs” – published on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.
*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.
Transcript
All right, so now, when you think about the Japanese NISA program, you think about the numbers that I just laid out. And then you also remember that the U.S. stock market is 7 times the size of the Japanese stock market. There was, okay, there was three NISAs. One was for minors, like, for your kids, and they got rid of that, but the other two NISAs, one was doubled the max. And the other one was triple the max. And so basically what you could do was in USD, if you chose this one in last year in 2023, you could max out $7,000 USD and change, if you're Japanese, into this retirement account. If you did it in this retirement account, it was like $2,700 and you had to pick this one or this one. Put $7,000 or put $2,700. This year, one of them doubled, the big one doubled, and then the little one tripled. And then you can also put it into both.
[:[00:02:30] Jeff Weniger: Yeah, well, I'm excited. I think it's kind of intriguing. And I also think you get a little catchiness, too, when you put “wars” at the end of one of your theses.
[:[00:02:41] Jeff Weniger: That's the strategist's trick. Just next time you're on a theme, just put “wars” at the end of it. And, you know, but I think there some, I mean, these are, of course, Cold Wars. I mean, you're not having, uh, you know…
[:[00:02:53] Mike Philbrick: It's not a kinetic hot war. Yeah. Yeah.
[:Oh, I know let's auto-enroll them at their employer, because you know how it is. You've got a sibling or a brother or sister, and you're like, hey listen, you know, you're eligible. Why'd you do? Oh, I'll do it. I'll do it. And that's the defined contribution part of it. And some of these countries are, and it's, you can really feel it. You can smell it with Britain, certainly with Japan, and it depends on which nation you're looking at, the defined benefit or the defined contribution site, but more than just the old nudge of that book's fame, from Cass Sunstein and Richard Thaler, but really a full-fledged push, and I think there's a lot of countries that are having a come to Jesus right now, and that come to Jesus is on several fronts. Why won't anybody list their company here in London, here in Tokyo? When, well, why would you?
If you have a tech stock and you're ready to IPO, why would you not list that In New York so you can get a premium, because you're trying to cash out, and so the problem is, is it's kind of this self-fulfilling prophecy. This is a square mile in London like, well we can't get anybody to list, so our stock market stays depressed. So then therefore, people that are saving for retirement don't invest in our stock market, and it's a self-fulfilling prophecy. So you're starting to see a lot of these countries, they're starting to, if they haven't explicitly changed, contribution max-outs in the DC side, or you can really kind of tell, pushes towards domestic equities in the DB side.
[:And it's not a new trick. You know, certainly Canada had foreign exposure limits. Peru, I mean, Rodrigo's got great stories of Peru actually, sort of nurturing the Sol into existence through superannuation and those types of programs where it all needed to be in Peruvian investments to some degree. So it's not a new thing, but it's, again, it's interesting to see it in the current context.
[:[00:06:59] Adam Butler: Right. Bye bye.
[:[00:08:16] Adam Butler: That's what I'm talking about.
[:[00:09:37] Adam Butler: Please do, yeah. Yeah.
[:So how do I do that? Well, okay, if the asset allocation is 50 equities, 50 fixed income, because it's the 25, 25, 25, 25, and then you can say, well, you can take it up higher. Look at the Norwegians. They're at 71 percent equity. But the thing about the Norwegians is, there's no Norwegian equity because it's a small stock market. So they truly do have a global allocation, and the famous dictum that, in that Sovereign Wealth Fund, what is it, like 1.4 or 1.5 percent of all globally listed equity is owned by the Norwegian Sovereign Wealth Fund. This was, I feel like a lot of this got more attention years ago, maybe 15 or 20 years ago, the push of sovereign wealth funds. I don't know, I feel like I'm sniffing it out again, Adam. It's like in the last 45 or 60 days, this push is coming. I don't know if you guys are noticing it?
[:[00:11:20] Jeff Weniger: Well, what happens is, you start to field out for a place like Japan because we're doing so much research on Japan, and getting into the pushes that are happening there, which I, we got to get into what they're doing, but, and then as you're doing it and you're getting into it, it's like, what's this? You got this letter to the Toronto Star and the Globe and Mail up there in Canada, and it's all the CEO, all the, well, I say all the CEOs guys, except the CEOs of five of the big, of the big six, up there in Canada.
So I think it's the CEO of National signed, signed, let's call it, 70 or a hundred people signed it. And then you didn't have the CEOs of the others do it, but they were, every other industry was represented. Basically said, dear Canadian pension fund managers, what's going on here? You own, I think the number is 4 percent, Canadian.
[:[00:12:20] Jeff Weniger: 96 percent other. Now, the way they write that, when you go in and you look at some of these pension funds, it's not really fair the way it was. They got smacked across the face because it's like, oh, you have Timberland? Well, where do you think that Timberland is? That's out in BC. So it's not like they have 4 percent Canadian equities and then they're just out there. The rest of it's China, which…
[:[00:12:49] Mike Philbrick: CPP! Canada Pension Plan portfolio is 14 percent geographical allocation to Canada, including all their privates. 14, right? And that's, that is Canada's…
[:[00:13:09] Mike Philbrick: They’ve been on record as saying the reason we have such a high allocation globally is because we feel we have an advantage in Canadian markets. That's generally what they say. So on the flip side of this, which I'm sure we'll come back to is, you're going to get lower returns for the pensioners too if you, you know, sort of have a non-optimal allocation geographically, but I'll put that on the side for now.
[:So if you're a big public pension plan, I can see there being some kind of, yeah, okay, it's possible, you might say that it's, from a portfolio allocation standpoint, we are no longer optimal, right, in terms of kind of, well, the optimal portfolio with no views, is the global market cap weighted portfolio. But from the perspective of trying to benefit our constituents, this actually may have some merit.
[:[00:15:32] Jeff Weniger: Well, and one of the things I've oftentimes said, with Canada, that nation's misfortune is this funky way. The MSCI IFA index is designed that, we joke, there's no C in IFA and essentially what happens is, so I'm an American and you think about asset allocation. Most, like an RIA in the United States, you have a U.S. allocation, and then there's developed, and then there's emerging and people are tracking, you know, they baited my existence. I'm at WisdomTree. We've got indexes tracking MSCI, IFA, and there's no Canada and IFA. So there ends up being this accidental structural underweight of Canadian equities by Americans, and anybody else that's tracking a lot of these indexes, just because you know it's Europe, Australasia and the Far East.
That's what that's what that stands for, so it's just kind of an intriguing little thing about just global capital flows and the way people in one nation or another think about investments if and, I don't remember what it was, the CPIB that was at 14%. Is that…
[:[00:16:39] Jeff Weniger: … the one that's also at 14 percent of domestic equities, is that the one that we're talking about, the big pension plan in Korea. The NPS, that's going to be the third largest pension plan in the world. So it's cheap if it's Japan with the Norwegian Sovereign Wealth Fund, and then that one, and it's half the size, it's like 700 and something billion dollars, 780 billion USD or what have you. And they're 14 percent Korean equities. And it's kind of like, okay, well, Korean equities are what, 2 percent of the global? I'm just guessing 2 percent of the global basket. They've got a seven fold overweight. But an argument could be made, and if the global basket is 5 percent Japanese equities, the argument could be made, well, who's your neighbor?
Who's your competitor? Who's another pension system you might be looking at? It would be all the pensions run out of Tokyo. And well, there's one over there that's 25 percent Japanese equities because it's the GPIF's 25. So GPIF could be chasing the Norwegian Sovereign Wealth Fund and then the Korean Pension Plan at 14 percent Korean equities might say, hey, they're 25 percent their domestic equities. Why don't we boost it or better yet, it's not so much, why don't we boost it? It's more like Knock, knock, knock. Hey, listen, notice you're running a lot of money there. You need to boost it.
[:[00:18:04] Jeff Weniger: …
Frontier Markets and Domino Effects
[:Imagine like the Thai Stock Exchange or the Malaysian Stock Exchange versus, you know, state Malaysian Pension Plan or state, Thai Pension Plans or what have you. These are massive pension plans. They currently have some multiple of their stock market representation in domestic stocks. But if they move from, you know, 10%, even though their stock market is 0.2%, they move from 10% to 12%, those excess flows matter much, much more to a stock market that's only 0.2%. global equities, than it does to a stock market that's 2 percent of global equities or 4 percent of global equities, right? So the potential here is for the frontier markets to have a real tailwind of outperformance over the next five to 10 years if this trend takes hold, right. And the smaller the frontier market, the larger the tailwind for its domestic…
[:[00:19:48] Adam Butler: …equal kind of…
[:[00:19:51] Adam Butler: But it, but as a general allocation for a global investor, allocating to the edges of the network, if this trend develops, actually be a really interesting thesis.
[:Why, you know, I mentioned Britain. Britain's smaller than, it can't get out of its own way. The Japanese stock market's running, so it might be 5 percent of the global basket, but Britain's down to three and a half. I mean, this was, at one point we had a British empire on planet earth, and now it's just another wealthy nation, just another one on the list, and you can move the needle there as well. I think the Brits are going to, there's a lot of things going on as well there. I don't know if you guys have seen the British specific ISA, investment savings account. And that's another one that I think you could gain back Britain against Japan, because Japan modeled the NISA program, which is the Nippon, Nippon means Japan, the Nippon Individual Savings Account off of the British ISA many years ago.
And then they just, just a net. It's, I don't think the money is going to do it, but it's symbolic. I've said this is symbolic, basically what it is, is, you know, and I'll think in terms of like, 401k and IRA terms, because I'm an American, but it's kind of like, alright, what can we do in a 401k this year, like $23,000, something like that, USD? Imagine if they said, okay, Jeff, you can do $23,000 this year, and if you've got enough money laying around at the end, we're going to let you do another $5,000 USD. But, by the way, the $5,000 has to only go into your own country's stocks. That would be the point.
And so, like, Jeff and Jessica Weniger, we'd be like, okay, whatever, it's going to go into the U.S. large caps. Anything the guy could just contribute away to keep it away from Uncle Sam.
[:[00:22:03] Jeff Weniger: So that's what they're doing in Britain. It's 5,000 incremental British pounds so long as you can, so long as it has the British ISA. And so it really won't amount to much because first off, how many Brits can put 5,000 more pounds in? And then also 5,000 pounds? Global equity markets are tens of trillions of dollars. And so you have a few million people, but it's a symbolic thing.
[:[00:22:29] Jeff Weniger: You are British. You should be investing in Britain, and that's the push. It's using tax shelters, it's using political power and so forth on the defined benefit plan and the defined contribution side to goose stock markets that frankly just haven't kept up with the S&P. They're all having this moment. The S&P is kicking everybody's butt and they're saying, how can I goose it? And then we're all looking at the Japanese.
[:[00:23:27] Jeff Weniger: Yeah.
[:[00:23:50] Jeff Weniger: Interesting.
[:[00:24:00] Adam Butler: It's an interesting quandary anyway, right? You know, if you're investing in a Toronto Exchange-listed ETF, where the ETF is giving you S&P exposure, is it Canadian content? Is it U.S.? You know it's, in this current market context, this is a very difficult challenge. You can direct pension plans much more easily than you can private investments, because it's, you know, there's so many ways to interpret it.
[:I basically made a wager on that foreign country's currency, but that's just all basket juggling, is essentially what that is. So Mike was talking about kind of the way that the cycles change and different concepts come in and out, and Canadian dollar weakness in the disinflationary nineties, and the commodities just were not working at the time. And now you start to talk about, in a defined benefit plan, the big push for all these years, I mean, liability-driven investment, LDI, and this was the big, because when did that bull market and fixed income commence? What do we put that, 1982?
[:[00:25:42] Jeff Weniger: ‘82. So basically the entire lifetime of Jeff Weniger, right? Born in ‘81. And then of course that all blew up in everybody's face back in 2022. And the whole thing was, and this was what everybody was lamenting, this is what the Brits were lamenting, the Canadians were lamenting, was this is what you did over 30 years. You dragged your equity allocations down.
And I'm realizing it's a mirror image on a camera. I'm doing a chart down and to the right. And you increased your long bond exposure. That was basically, the model was with each passing year, put more in long bonds than you did the prior years. And next thing you wake up, you're at this situation where we had what was the total number of negative yielding? There's like $16 trillion in negative yielding paper at one point. Who owned that guys, owned it? It wasn't you and it wasn't me. Well, maybe it was if we had a bond, a long-duration bond fund.
[:[00:26:55] Adam Butler: Swiss Pension Fund.
[:[00:27:20] Jeff Weniger: And you start to think about it, with the S&P, where's the S&P, 5200 or something like that right now, and you start to think, well, this is, yeah, Powell tightened the cost of overnight money by 525 basis points. Why is the stock market still rallying? And it, could it be that, at least part of the explanation, I mean, look, there's AI and so on and so forth. The earnings have held up all of that obvious stuff, but it couldn't be that people said, well, heck, if I'm going to buy an asset class and I can take a loss, I might as well make it stocks because I can make money in them. Why am I buying fixed income? They hammered me in 2022. They told me that was the safe asset and I got clucked so I might as well just plow into S&P’s and I wonder if that's…
[:So if you're going to buy out a pension, it's lower. Also, you're getting all that interest payments that are going to those various places, that are going out into the economy, that are somewhat stimulative. So they're in the rate cycle. There's a little bit more recycling of the capital that's caused by the higher rates that may have been under-anticipated in some, to some degree, by the great number of investors out there.
[:[00:29:12] Adam Butler: …floor to the …
[:And so I'm a labor market bear and I'm generally skeptic, but I'll tell you this is that for every one time, let's say for every 10 times you hear a citation of someone, someone like me saying, oh, credit card interest. So the credit card rates are up 700 basis points in two, two and a half years. You know that where it's something like a 16 year high in a 48 month auto loan rate, it's pinching your household.
We know what's going on if you try to engage a new home purchase. This is especially if you're in a floating rate situation, like many Canadians, like many Brits and so forth. For every 10 times you hear that, you only hear the one person point out something that's plain-as-day obvious. How about the person who's 70 or 75 years old? They've got a few hundred thousand bucks. This person is not rich. They're living off of social security and whatever they can do with the $200,000 or the $100,000 or the $500,000, whatever the number is. And it was, let's say it's $200,000. And that was earning zero.
[:[00:30:39] Jeff Weniger: Even the same thing every day. They're just paying the bills, paying the electricity, seeing the grandkids. Maybe there's a vacation here and there. These people are not living large. Say it's $200,000 and let's put five and a quarter on that paper, on that six month CD. I don't know what a six month CD is. Five and a quarter? That's $10,000.
[:[00:31:02] Jeff Weniger: And it's, it's $10,000 bucks, that's not really taxable because their tax bracket is nothing because they just have social security. And look, the family that bought that Range Rover and they're financing that thing at double digits, they're getting the pinch, and yeah, they're not going to a restaurant, but people in our families....
[:[00:31:52] Jeff Weniger: Mm hmm.
[:We're talking about an industrialization renaissance in the United States, where there was like good infrastructure for this type of thing. So there's these tailwinds underneath the surface. Now you've got 90 oil, by the way, and as Doomberg points out, the Permian is getting more gassy. So the higher oil goes, the more byproduct is produced in natural gas. So natural gas doesn't look like it's going up at any time…
[:[00:33:10] Mike Philbrick: Correct. Yes, we did. They were paying you to take natural gas in…
[:[00:33:25] Mike Philbrick: Oh five. Oh six,
[:[00:34:07] Mike Philbrick: I mean, I don't know who blew up that pipeline.
[:But I'll tell you what, guys, on the other thing that I think is intriguing. So if you think about Americans getting five on their money and something very similar, for many of these other G7 nations, the country where you're still not getting anything for your money is Japan.
[:[00:34:53] Jeff Weniger: And well, in JGBs and cash. And we did have the bank of Japan hike to ever so slightly above zero, and the question with that country of which there isn't a investment strategist on planet earth that will be able to give you the good answer, but is when does it click in the popular psyche that, oh, I now have that open invitation from my friends and neighbors that it is now okay for me to engage Japanese equities once again. Because when nobody's doing it, I'm not going to do it, but there is that feeling, I think, and now you have a situation where, well, we're still a few days off from when we get the new CPI numbers out of Japan, but both core and headline CPI are plus 2.8. And, well, 2.8 is a pretty good number for the U.S., but that's inflation, and it's more than the Japanese are used to. And we just finished the big negotiations between the big major companies of Japan. It kind of sets the groundwork for wage inflation in that nation. It was plus 5.3, year over year. Japanese wages up 5.3 year over year.
[:[00:36:34] Jeff Weniger: …on me. And then also, that person at work told me that the stock market's going up a lot. I don't know anything about the stock market because I don't pay attention like an American would, because Americans are old, live in that casino, but there's that going on, and you have some psychological catalysts.
Now, the Nikkei, which is, WisdomTree people, we don't like to cite the Nikkei because it's price-weighted. It's kind of blasphemous to cite a price-weighted index, but it did get up above 40,000. It kind of came back down below 40,000 briefly, and so that was something that was promising. And I think that a lot of investors are kind of getting live to it.
[:So we actually manage private and public funds, as well as bespoke separately managed accounts, for investors that seek the potential to smooth out portfolio returns in the long run. So if you do want to see that theory that we've been talking about put into practice, please do go ahead and check us out at www.investresolve.com. Now back to the podcast.
Japanese Demographics
[:[00:38:11] Jeff Weniger: Yes.
[:[00:38:14] Adam Butler: A lot older on average. I don't know if they've got more savings. That's a good…
[:[00:38:22] Adam Butler: I don't know.
[:[00:38:24] Adam Butler: …don't. I'm …
[:[00:38:36] Jeff Weniger: Well, look, the issue that continues to be at hand with Japanese society is, it is the oldest one. The birth rate is 1.3, in population decline for what, 10 or 12 years at this juncture. So it's been a recurring, issue for that country. But they're going to increase the contributions that you can make to the equivalent of the traditional IRA. And you know, the thing about a bull market is, nobody wants to be the one that's not in a bull market, that's not participating in it. And for the first time in a while, we've had these fits and starts. There's a good vibe going on in Japan. It's mostly because of the corporate governance reforms that have been taken. And I'll tell you guys, it's real. I think it's real this time. We had the Tokyo Stock Exchange threatening for all of 2023 that they were going to publish the name and shame list, and then they did, and we have 70, what did I come up with, 72 percent of MSCI Japan has now officially disclosed their name and shame disclosure. 72%.
Basically, why is your price-to-book below one, and why do you have a single digit return on equity? With like, what gives here? What gives? And so now you have some things that I think could be a positive catalyst. And then the proverbial Mrs. Watanabe. This is what we've said in the industry for all these years. Mrs. Watanabe only invests in ETFs. In cash. And then Mike, you said the Japanese investor is what, 54% cash. The American is 12% cash. Well return on equity on MSCI, Japan is like a nine, call it a nine. And for some content, and this is a function of profit margins in leverage, and that type of thing.
e Morgan Stanley estimate for:And then it comes in tandem because some bull markets you need, you can't just have one catalyst. You need several things working for you. What they did to the NISA contributions here was bold. And I'll give you guys some context on this. I looked back at, in the U.S. we have the traditional IRA. I know that you guys know this, but you have a global audience here, and this year, in the traditional IRA, I can put $7,000, and my wife can put $7,000. In addition to the 401k you do, it's $22,000 or $23,000.
of different tax shelters. In:All right, so now, when you think about the Japanese NISA program, you think about the numbers that I just laid out. And then you also remember that the U.S. stock market is 7 times the size of the Japanese stock market. There was okay, there was three NISAs. One was for minors, like, for your kids, and they got rid of that, but the other two NISAs, one was doubled the max. And the other one was triple the max. And so basically what you could do was in USD, if you chose this one in last year in 2023, you could max out $7,000 USD and change, if you're Japanese, into this retirement account. If you did it in this retirement account, it was like $2,700 and you had to pick this one or this one. Put $7,000 or put $2,700 this year, one of them doubled, the big one doubled, and then the little one tripled. And then you can also put it into both.
[:[00:43:19] Jeff Weniger: So if you have the money, so it would be like, it would be like this. Jeff and Jessica, we could do $14,000 to an IRA. It would be like if Uncle Sam said, well, I don't know if it would be like this, because I don't want to say it would be like $14,000 turns into $42,000. I don't want to say that. But it would be like if people, we don't know how many people were able to put another $5,000 in, Americans. But if they did, they'd be buying a 46 trillion stock market. And so it comes out to something like $23,000 USD. And that is the NISA program expansion I don't see a lot of people talking about in Japan, and they would…
[:[00:44:01] Jeff Weniger: yeah, I think it's massive. And that's the pension wars guys.
[:[00:44:10] Jeff Weniger: Well, that could be the issue is that maybe we're overbought. I mean, it's certainly, there's no shortage of people who are now looking at Japan at this point. I mean, that's certainly the thing that has occurred.
[:[00:44:34] Jeff Weniger: No, no, because it's generally American RIAs and in order to be specifically focused on an individual nation, the other one that's piping hot is India. Um, they would be needing to do individual line items for their end clients where they have a line item for India or Japan or China or whatever the case may be.
And you just don't see it so much. It's more like, should I be in foreign developed, relative to the U.S., or should I be an emerging relative to the U.S.? But certainly people who are doing the individual line item or country rotation, they seem to be on the story, but it's oftentimes I'd say more of a cognitive awareness that reforms are going on, but they don't really know what the reforms are, and nobody, and zero people know about the NISA expansion.
Americans, I'd say 0%, 0.00%. Not even 0. 001%
[:[00:45:33] Jeff Weniger: I don't really think anybody even knows this is happening. It's, you know guys, it's a far cry. Like these anecdotes of Manhattanites with money teaching their kids Japanese in 1988 1989. It's kind of before my time, because I was a child. I know the music and the movies of the era but I can't cognitively remember.
[:[00:45:56] Jeff Weniger: Well, that sticks and that's got to be about ‘81. But I don't have a point of reference, Americans’ attention span for Japanese investment, other than things I've read in books.
[:[00:46:16] Jeff Weniger: Yeah. Yeah, I suppose. I suppose. You know…
[:[00:46:21] Jeff Weniger: We had this feeling, I'd say, when the Shanghai Composite was peaking in '07, you started to hear this with Mandarin and Cantonese, that people were, were going to try to teach their children this. And it, you don't hear that so much anymore, because China's been so ice cold for so long. But yeah. generally speaking, we ...
[:And there's a rotation happening, but you know, you look at the energy complex and boy, is that, do stocks and the subsectors and sectors of energy believe in the price of oil changing? Like in gold, it doesn't seem to be the same way that, the gold stocks don't quite believe as much as the energy stocks do. And that's only 4 percent.
[:[00:48:02] Mike Philbrick: So I just, I was just chatting with the Globe and Mail. We just did an article on that, and chatting with, again, with Doomberg, we had him on and chatting with him. So there was an arb in gold between the London exchange and the Shanghai exchange, and it was anywhere from 30 to 200. So you buy gold in London and sell it in Shanghai. What's happening is that gold is moving across those borders from the West to the East. That's partially a result of the confiscation of assets by the G7 nations against Russia, for its invasion of the Ukraine. Russia is a member of the UN. We, all the countries do some nasty stuff.
So it's kind of unprecedented that they took $300 billion. And so other countries have said, wait a second. Well, if I hold Treasury bills, can the U.S. and the G7 nations just absolutely confiscate my wealth for no reason? So then you saw this huge premium develop for Shanghai gold held in the East, versus London gold held in the West. At the same time, you've seen a massive reduction in the AUM across the ETF complex of gold. I'll just give you the GLD because the GLD is kind of the …
[:[00:49:23] Mike Philbrick: … of the gold standard. $80 billion two years ago. Sitting at about $55 billion today. So a 30 percent reduction in AUM, and that's pretty much across the board. A 30 percent reduction in ETFs that often hold gold, not just the ones that are futures based, but the GLD that actually holds the bullion. At the same time, you have gold breaking to new highs. That physical gold is being bought by the nations of the world that want to have something to hold their assets in that's not conficateable by the G7 countries, and it's being held in a different geographical location. And that's how you get to new highs. And this is a sneaky trade to me. It's very much like Japan. Nobody's talking about it. You're, I mean, Nikkei has done the same as the NASDAQ, but nobody's talking…
[:[00:50:28] Mike Philbrick: Yeah, but it really is…
[:[00:50:35] Adam Butler: It's not just 300, 300, 400 points, it's also, there's also a breakout to all time highs.
[:[00:50:43] Adam Butler: After a 12 year base, right? Like this is massive, massive news, kind of like the Nikkei breaking out to all time highs after what, 40 years, a 40 year …
[:I mean, it's peculiar. The thesis makes sense, I mean, because the whole thing had been a cost-of-capital question mark. Well, why, how can gold hold up when we have an opportunity cost and fixed income, that's essentially what the argument wins.
[:[00:51:56] Jeff Weniger: Oh, we got a technician. Oh boy. Get up.
[:[00:52:11] Adam Butler: Reinvestment business. Bailey would call that a cup with high handle breakout. And it is, it is absolutely magnificent. What is that? Is that, so 2011, right, when that previous peak was? We'll break it. So it's a 12 year breakout.
[:[00:52:49] Adam Butler: Yep. What's…
[:It's not quite as beautiful. But that is just all-time highs in any asset class, in particular, an asset class that's as globally accepted and has 5,000 years of history, call it. And gold is particularly interesting because it's not like there's not a lot of global eyeballs on this, and you have a new all-time high, and it hasn't been the retail space.
It hasn't been the average investor through ETF products. So it's someone different than that. It's someone a little bit bigger than that. And still no one talks about it. So, you know, I would say that most accounts, most sort of traditional accounts, whether they be pension plans or individual investors, are probably underexposed, whatever the exposure you would think it should be to this asset class, while it's at all time highs. That's always kind of an interesting area to think about.
[:[00:54:39] Adam Butler: …
[:[00:55:18] Jeff Weniger: Well, I'll tell you guys, just thinking about again, this is not something that, a lot of this we can't quantify, but we had two energy deals in the last 90 days that were 60 billion USD plus. 90 days, 120 day. Help me with the window of time here,
[:[00:55:39] Jeff Weniger: And the lack of coverage for two mega deals in the energy patch, compared to, you can't, I can't have a cup of coffee without somebody telling me about NVIDIA.
[:[00:55:54] Jeff Weniger: … can't even…
[:[00:55:55] Jeff Weniger: …walk in my house without somebody talking about it. I mean…
[:[00:56:04] Adam Butler: Natural gas prices, though, are a little bit of a cockroach in the honey, right? Like, certainly these diversified enterprises. Some of it's natural gas, some of it's oil, this, the crack spreads are going to play a part in the margins. Like, there's this complexity there. Like, naturally what I want to say is the, if Microsoft and Google and NVIDIA are running, it's because the thesis is the future is computation and the computation requires chips.
Believe me, I get that thesis, but you know what computation also requires? Energy, massive amounts of energy. Now, you know, if natural gas wasn't trading at all time lows with endless abundance, as far as the eye can see, then I'd say this is a profound mismatch in terms of market capitalization, right? If natty gas starts to get a bid, then this should be a really clear arb. At the moment, it's a little bit less clear because natty gas is dragging down the margins of diversified energies.
[:[00:57:52] Jeff Weniger: I’ll tell you, and I don't know how long you guys want to keep me rolling here, but you know, that curve inversion? Let's see here. What are we doing? I think we're doing the long bond against a three month bill. And I think we were 19 months on the long, but, you know, it's a tens and twos and 10 year versus a three month, but I think on the long-bond versus the three month bill, it's 19 months deep. What gives here guys? I mean, we should be, now one of the things we oftentimes say is we did have that technical definition of recession in 2022, before we redefined the word recession to not mean two straight …. I digress, but, you know, yield driven version is supposed to break something and, you know, I don't know whether it's just the liquidity lines for, after SVB and Signature went under, at which point? Heck, that's now 13 months ago, because that was March of last year that started to unfold. And I had a guy yesterday ask me, you know, talk about small cap value. You know, what do I do with small cap value? You got a lot of regional banks in here and in one of the ETFs. Well, there were people questioning.
Well, I probably shouldn't say the names of the banks because you don't want to do that. But there were a lot of regional banks that had question marks, even though they were totally fine and money good. But there was a dozen or two dozen names that got floated in all the conversations at the time.
Well, this bank's about the same size as Signature. This one's the same size as SVB. The bank walk concept that I was running with last year, which didn't, it actually didn't really work out, did it? The money never really left. You start thinking about some of that and like, okay, yield curve has been inverted for 19 months. We had two serious financial institutions go under. Well, how about Credit Suisse as well? Let's say three. You know, that's a good example, guys. I forgot about Credit Suisse.
[:[00:59:55] Jeff Weniger: I just had a conversation and I forgot about, would I forget about Bear Stearns and Lehman?
[:[01:00:02] Jeff Weniger: And that's how much it's been surprising. It's been stunning to me that we, if you would have, you know, this old, if you had told me that such and such, if you would have told me that UBS was going to have to gobble up Credit Suisse because it was a zero, and Jeff, what are you going to do in anticipation of that? I'll buy a bunch of puts.
[:[01:00:40] Adam Butler: We had him on the podcast to go through it too. So yeah.
[:[01:00:57] Jeff Weniger: Well, I don't talk about the individual names and I don't cover UBS, but they're out there saying they want to receive a Morgan Stanley style valuation on that name. They, well, that's what the CEO is saying there. And this has been, now we started a huge rally in a lot of European banking institutions. They were, a lot of them were left for dead 5 times earnings on. There's really nothing wrong with a lot of them, but, yeah, there's a lot of talk in Europe along the lines of, hey, how come we can't achieve these valuations of the Americans? And that's been one of the recurring themes in our portfolios is, you open up a lot of these portfolios, the global baskets, and yeah, okay. Yeah, there's Alphabet and there's Amazon, of course, all these names. Wow. Big U.S. banks are not where they were back in ‘05, ‘06, when they were absolutely the top of the heap, but they tend to populate a lot of your top 10 lists, some of them, and then you have…
[:In fact, it's astonishing to me that we haven't seen more pressure on banks in the U.K. and Australia, in Canada. It's, any insight on that? Why we haven't seen any major systemic issues in some of these big real estate markets, these big frothy bubbly real estate markets on, you know, on any measure, just gargantuan increase in rates, in such a short period of time.
[:I mean, remember the Canadian government stepped in during the global financial crisis on the Canadian banks and it wasn't really as well published, publicized as the American banks, but you know, never underestimate the power of subsidy to keep things going. So for example, here in the United States, just in the last 48 hours, they're talking student loan bailouts again. So to the extent that somebody's underwater in their home, unable to pay the credit card bill or what have you, they might be getting a credit card bailout. So you can credit card bailout. Well, I guess you could say credit card bailout when you're talking about student loans. A lot of it was run up with about the same level of insight as to what they're actually taking a loan for. But you can kick these cans sometimes and it's difficult to get to the bottom of…
[:The government's just buying it outright now, because they can't find any sellers for those securitized Canadian mortgages, right? So, I mean, the different channels that governments can employ to extend and pretend, as you say, we're going to continue to kick the can until the debt markets eventually balk.
[:But the thing that really upends it is job loss. That's really what gets a critical mass into a recession or depression on a situation where they're underwater in the home, or just taking a loss off the headline price in the home. Too much house. I mean, that's the Toronto... well, I don't know too much houses in Toronto. Too much price in Toronto might be a better way to explain it. Serious bear markets in San Francisco and D.C. in the U.S. housing side. Can't say the same with Dallas, San Diego, Miami. Those places are hot. You know, I mean, basically if it has sunshine, it's hot in the United States.
But it will take job losses, and that kind of goes back to something I did reference like, at this point, an hour ago. We have 1.3 million fewer full-time jobs in the United States than we did last year. So one of the things, I think it got attention, I think it got attention. But with these jobs reports, you've got to take a look at these headline numbers, are sometimes skewing it. These are not accountants being hired. This is fast food workers in many cases. And so that's not really paying the bills. That's not making ends meet. And there's a lot, a lot of it has been shuffled into the part-time. So you want to look at some of the internals on that because that might be one of the canaries on the U.S. labor market.
[:[01:07:29] Jeff Weniger: Yeah. And who gets left out ,and who ends up being the winner in all of this? And are we luddites and that type of thing? I mean, we're talking, I'll give you a very good anecdote, and I just hope that BlackRock doesn't steal this from us, and State Street doesn't steal this from us. But essentially, you're talking to the president. You say, okay, Weniger, you write a research report. The AI can take your, you can do a voice sample, and it'll know your fits and starts of the way your voice inflects at the sentence ending, and all of that. It just needs a 60 or 90 seconds of you talking anything. I just, something off of my desk. I hear I have to give Charlie Tylenol before bed because he had a tonsillectomy.
Okay, so we'll read that. Charlie needs, he's going to be at Illinois Masonic next to the emergency room. Read that for 90 seconds. It'll now know the way I speak and then because I'm writing a blog on this screen, or a research report for WisdomTree, trying to convince people to go to the ETFs. But what about the person who's a podcast person, like the person listening? Half of your people are jogging right now. They're on an elliptical machine listening to us right now. They're not sitting at the desk. So how do we, without any incremental labor from Weniger, get that person to engage WisdomTree content.
Well, that's the thing about the emergency room. There's my voice. Now it will, the AI will just read the research report, wrap it into, I guess, an MP3, and then also you can program it to not only do my research report, but then my colleague's research report written the prior day. And then while this person is jogging, we've essentially had WisdomTree in their ear for 60 minutes with zero extra effort from WisdomTree humans.
[:[01:09:23] Jeff Weniger: Well, maybe that means they don't need me anymore, but we all run the same risk. It's one of these things where it's like, well, if I'm not needed, well, that's the same logical risk as the next person. I mean, you would have to evolve to work with the machines. That's one of the things, and this goes to Gen X types, like I'm on that Gen X to Millennial cusp, and who among us will claim I know as much about that which is unfolding in tech, as much as the 18 year old? Who among us?
But I have enough intelligence or I would hope that I would have enough intelligence to figure out how to navigate the world to make myself most efficient as an investment strategist in this world. Okay, fine. You want to take my voice with AI? Let's parlay it and then let's make sure that the original content is holding enough value to make it worthy to that person to bother to listen to it. We're going to work with the machines. And then if not, I'll just, can I crash on your couch?
[:[01:10:39] Jeff Weniger: What do you think?
[:[01:10:44] Jeff Weniger: Do you think, what do you think?
[:Usually there is a lot of heartache in between. I mean, one could argue that the great depression was also a result of moving from family farming to industrial farming, and the advent of petrol tractors replacing horses, and those types of things. There was a great displacement there where the skills that people had for a certain group were displaced, and it can be a tough time in that scenario. And then you end up coming out the other end of that with a five day work week, right, and so does AI do the same thing to white collar work?
[:[01:12:07] Mike Philbrick: It hasn't been formalized yet and put it in benefits packages, and put into it, and it may take some time. The boomers just aren't retiring either. There's a whole bunch of weird stuff that we could go on probably for another…
[:[01:12:57] Adam Butler: Yeah, I agree.
[:[01:13:08] Jeff Weniger: No, I think that's good. We're going to be hitting the road for RIAs and advisors, and in May and June, we're going to be hitting, what are we doing, Houston, L.A., and then Chicago, which is great, because then I just only have to go downtown. So that's the only thing, you know, kind of new. So if anybody's got any WisdomTree, they can find me in some of those cities. We'll be doing some strategy round tables. You guys have been part of those.
[:[01:14:00] Jeff Weniger: Thanks, guys. My WiFi went out for five or ten seconds, but I did catch the end of that, Mr. Butler. So, I appreciate it, guys. Always love the relationship with ReSolve. So, thanks, fellas.
[:[01:14:11] Adam Butler: Feeling's mutual.
[:So, you know, if you have a chance to join Jeff on his Spaces, they are always awesome and informative. So I highly recommend those as well. Thanks again, Jeff.
[:[01:14:56] Rodrigo Gordillo: Sorry to interrupt, but I did want to take a quick second to remind our listeners that the team works really hard on these podcasts. We spend a lot of hours trying to get the right guests and we do a lot of prep work to make sure that we're asking the right questions. So if you do have a second, just do hit that Subscribe button, hit that Like button, and Share with friends if you find what we're doing useful.
