Reality Check: Tackling Financial Questions in Uncertain Times

Join Arsenal Financial advisors Doug Orifice and Jeremy Vaille as they open up their relaxed office conversations about various financial topics for everybody to hear. Today's episode is a reality check for uncertain times where everybody seems stressed about the future. They dig into the reality of:

• Gross domestic product, unemployment rate, wage growth, consumer price index. Where these numbers sit now, where they've been historically, and what it says about the current economic landscape.
• The reality of the broken math of our US system and how it's unlikely to change.
• Social security. Is it going away?
• How the US economy is the world's cleanest dirty shirt.
• The current reality of inflation and the cost of lettuce in Toledo.
• Taking an optimistic look and seeing everything the economy has survived in the past!
• Then finish up with what's new in Hanover and Watertown and of course some dad jokes from Jeremy. (Doug even gets one right!)

Learn more about Doug, Jeremy, and Arsenal Financial at arsenalfinancial.com or call (781) 335-9100.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. The information in this podcast is educational and general in nature and does not take into consideration the listener’s personal circumstances. Therefore, it is not intended to be a substitute for specific, individualized financial, legal, or tax advice. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a final decision.

Transcript

Doug 

00:04

Well, hello, and welcome once again to the Arsenal Money Clip podcast, where we're trying really, really, really hard to give the people a listenable podcast about money. My name is Doug Orfice. I'm a financial advisor here in Watertown, Massachusetts, and I'm here with my pal and my business partner, Jeremy Vaille, who is hanging out in Norwell Massachusetts. Jeremy, good morning, what's up? 

Jeremy

00:24

Good morning. I am enjoying this global warming that we're having here in the Northeast. I think you said it yesterday. Now that it's like San Diego here? 

Doug

00:35

Yeah, I said this to a friend the other day. I'm like you know, now that we've had this extended summer in New England and, by the way, we're recording this on November, what is it the 7th today? November 6th, 7th (Jeremy: November 8th) November 8th, right, and this thing will probably come out after Thanksgiving, but November 8th we've just had like the most crazy extended summer. So it's like, hey, now we have a window into relocating somewhere else, right. So it's like either we can move to San Diego and get gorgeous falls like this or I guess we can just stay here, right, (Jeremy: Yeah, now we can.) Not that it's a good thing, JV, you know. 

Jeremy

01:10

Not good at all. 

Doug

01:12

File that under it is what it is, you know. So, JV, I guess we should tell the people what we do, right? You and I, we run an investment and financial planning company called Arsenal Financial, based jointly in Watertown, Mass and Norwell, massachusetts, which is kind of halfway in between Boston and the Cape. And what we're trying to do on this podcast, contrary to my 12-year-old son's belief about becoming like Bill Simmons or Joe Rogan or whatever, which, again, is not the goal, we're just trying to talk the way that you and I talk on a Tuesday morning, having a cup of coffee, whether it's in the office, on the couch, hanging out in between phone calls. It's the stuff our clients don't get to hear. 

01:54

It's the stuff that, like, you and I talk about, but like we're in the forest where the trees are falling and nobody knows they're falling. We're trying to give that to our clients, to our partners, give some insight about what we're thinking, what we're talking about, and all this stuff that's behind the scenes. So, man, we've had a big week, JV (Jeremy: it's been quite a week. Yeah.) So we had an election. We kind of know the direction, sort of kind of, for the next four years, and you know what, maybe I'm not even prepared to talk about it right yet. So why don't we talk about what's been going on in our backyards, man, you know, before we give people the reality check right and that's today's podcast, is the reality check. Man can we just talk about something light, real quick, like dude, how's soccer coaching going? Just talk to me about that first. Let's lighten it up. 

Jeremy

02:32

Soccer's good. I mean we could still be actually having an outdoor practice this year, even though outdoor season's closed. 

Doug

02:38

Oh, because we're in San Diego, Massachusetts. Gotcha.

Jeremy:

So that’s good. Because we have a bye in our indoor season. We just kicked that off. (Doug: Fantastic.) What a difference going from first grade to second grade.

Doug:

Is that what grade you’re in now? You’re in second?

Jeremy: We're in second grade, yup.

Doug

02:54

Yeah, I was joking, man, I was joking, you're in second, you know (Jeremy: Oh, I'm in second, yeah.)  Your guy’s in second. 

Jeremy:

I'm a sophomore year, you know. (Doug: You having fun?) Yeah, yeah, I mean it's been tough. It's been, it's been a bit of a challenge 

Doug:

So if you're tuning into this podcast for the first time, what you might not know about my buddy, Jeremy Vaille is Jeremy is a very competitive guy, has run marathons, gets out there and his man versus wild. So is it tough for you to coach little kids being built like you're built? 

Jeremy

03:24

It is a little bit. Yeah, I struggle with it. I struggle with it. (Doug: I think you're great.) I don't have the tolerance that  some of my other coaching compadres have for the kind of lack of listening and lack of attention. 

Doug: You're great, you're gonna be great.

Jeremy

03:38

Thanks, guy appreciate it.

Doug:

So I'm lucky enough that I get to be on the other side of the wall from JV a couple times a week and I hear the teddy bear that you are to everybody, so you're fine, you're good. Hey, you know what I got now, (Jeremy: What you got?) A little time back. You know why. 

Jeremy

03:55

No more coaching? No ball?

Doug

03:55

Baseball practicing for coaching started in January 2024. Done my final coaching of the year as of last Sunday. (Jeremy: Celebration.) I guess.

Jeremy

Yeah, you’re going to miss it.

Doug

04:10

I got a tiny little hole in the heart right now. Little hole in the heart you know.

Jeremy

04:12

But that's not it for good, right, you're going to come back next year?

Doug

04:16

Not it for good. One more season, one more season.

Jeremy

So you're kind of in your last few innings and you're feeling that pressure. 

Doug

I am, I am. I'm getting a bit sad, but it's okay, because now you and I have this podcast to fill our time.

Jeremy

Right, and lots of clients that are highly emotional this week. 

Doug

04:35

Yeah, so I guess this is when we get into it, right? The reality check that our kids grow up, the reality check that, damn, I'm probably not going to coach baseball beyond next year. Let's do the reality check of everything right now. Right, we just finished an absolute monster grind of an election season. It's been a really emotionally charged time for folks. JV, you can correct me on this. The measuring stick that I use is not CNN, MSNBC, Fox, because personally I stay away from all of it as much as I can. I think it's been a hard time for our clients, right, you and I are on the phone with clients every single day. We're involved in our communities, so we talk to a lot of people, and I think it's just been you know it's been an emotionally charged time. 

Jeremy

05:16

Yeah, it's been difficult too. (Doug: Right.) Llast few years haven't been easy for a lot of people. It's been very different than it had been previously. So, yeah, change is never easy for anybody. 

Doug

05:25

So I got to say man, I think this is one of the hardest parts of our job as financial advisors is, you know, we're not politicians and it's not our job to espouse our political views to our clients, to our community or anybody. Here's our list of duties. Right, check me on this and feel free to add to it. It is our duty to help families make sound financial decisions, right? (Jeremy: Yup.) It's our duty to be pragmatic fiduciaries over our clients' investments. That last one is one that has some oversight that we have to do. We can't choose to do that. We have to do that. We also choose to do that. But one thing that we do choose to do, a self-inflicted duty is it's our duty to listen and to have empathy to our clients, no matter who they are. (Jeremy: Yes.) No matter their age, their situation, their political leaning doesn't matter, you know, if they're part of the Arsenal family, we're there.

Jeremy

06:13

100%. That sounding board, that collaboration partner, that somebody that they can come to talk to when they're not feeling good. That's really one of the big elements of the job is being available when things don't feel great. 

Doug

06:23

So I think the other element of the job is to kind of do our best to call it like it is right. So that's what today's point is is we're using this time today for just a big fat reality check. So, bottom line a lot of our clients, they're scared, they're confused. They continue to battle prices that are higher than they would like them to be. We're going to come back to that inflation thing. A lot of our clients are families. They still got kids to send to school. 

06:50

Our average client age in our practice is probably a shade under 60. Mine are over 60. Yours are probably in the 50s, right? (Jeremy: Yeah.) So a lot of our clients and a lot of our conversation is people thinking about wrapping up careers, retirements, and eventually enjoying retirement. And all this stuff comes with a level of unease. Fair enough? (Jeremy: Definitely.) All right. So first things first. Let's just take a breath, right? Okay, all right. We’ll all take a breath here, and that's hard for me to do when I'm over-caffeinated on a Friday here, you know. And I told you I'm feeling a little bit spicy today, right.

Jeremy

07:21

You are spicy, yeah. 

Doug

07:23

But you know, I think what we want to do here is in our reality check let's go through some of the pain points for clients and address like the big picture nature behind some of those pain points. So, first one is you were reading kind of an interesting article in the Wall Street Journal, correct? (Jeremy: Yes.) Which is about what was this election run on, allegedly, in theory. 

Jeremy

07:42

Day after the election, Wall Street Journal article, 40% of voters said economy was their top issue. 

Doug

07:49

The economy was their top issue. So let's acknowledge, number one, that it is hard out there for money right. For years, though, regardless of whether we've had booming stock market, low unemployment, good economy, whatever, we have had a huge segment of the population that's literally one car repair away from being out of cash, correct? 

Jeremy

08:08

Yeah, $1,000 in savings. 

Doug

08:10

Right. All that being said, big picture. Let's give our folks some stats. All right, for those of you that hate numbers, you can just go get a cup of coffee real quick. GDP. That is gross domestic product, which is the sum total of stuff that gets bought in America. So it's the sum total of goods and services, investment, housing and government spending that happens in the US. And GDP, dude, we need this number to go up in order for the system to work. Right? (Jeremy: Yes) Okay. 

GDP, gross domestic product year over year is up 2.7%. Jeremy Vaille, true or false. That is a weak reading or a strong reading?

Jeremy

08:49

2.7%? That's a strong rating. 

Doug

08:50

Strong, yeah, strong. It's kind of what we expect, but I'm going to say it's strong. Unemployment rate. I'll throw you the guess out there I have in front of me, what is the 50-year average for unemployment as the unemployment rate number? 

Jeremy

09:05

Probably in the four and a half to five range. 

Doug:

Ready for this. 50-year average 6.2%. (Jeremy: Wow.) 6.2%. 

Jeremy

09:14

Higher than you would think. 

Doug

09:15

Higher than you would think. If we dial back 50 years, we are going back to 1974, right so it was elevated in the 70s and of course, we've had a couple of blips with the dot-com bust, the global financial crisis, and even that blip of COVID too, where we had high unemployment. But that 50-year average is 6.2%. It is currently, despite the fact that we have had some increasing layoffs in different pockets of the economy, it's currently at 4.1%. 

Jeremy

09:39

Right, which is a little bit elevated from where we were in mid to high threes.

Doug

09:43

Right. Recently mid to high threes. We're now over 4.1, but the 50-year average is 6.2%. Okay. Wage growth. Which is hey, how much is your paycheck growing up. Part of our financial planning job, we're entering in what our clients are making because we're trying to measure if they're going to make it for retirement right. Wage growth has been above inflation at 3.9%, which is right at its 50-year average, okay. 

Jeremy

10:07

And that's come down from recent. 

Doug

10:09

It's come down from recent, right, because we did have that bump of inflation where wage growth was a little higher, but right now, year over year, 3.9%. So I'll ask you. I've given you some of the key stats. Oh, and let's throw this last one out there too. Consumer price index. So right now you can't see me because this is only an audio podcast. I got my finger on the pulse. CPI, consumer price index, inflation measures 2.4%. Which you would call high, low, historically average? 

Jeremy:

Right in line. 

Doug

10:39

Yeah, right about in line. And I think this is where the Fed's been trying to target getting us back to is two to sub two, right, so I want your opinion. GDP 2.7. Unemployment rate tick over four. Wage growth tick under four. CPI 2.4%. How's our economy? (Jeremy: Strong.) I'd say strong to very strong, you know. However, that strong economy doesn't play out for everybody, right. 

11:08

Let's again acknowledge that we have a huge segment that's a car repair away from being out of cash right. But from an economic point of view these are pretty good numbers.

Jeremy:

And those numbers don't tell us about the cost of lettuce in Toledo.

Doug

11:14

That's true. That's true. We're going to get to inflation in just a little bit. That is going to rear its head throughout our podcast today. So big picture, reality check. Point number one we're in a strong economy here in 2024. Where are we going to be in 2026? I don't know, we don't know. But the known known right now is we have a strong economy. All right, let's talk about our friends in the federal government. Got a little column here called Federal Spending and Taxes. JV, can you tell our listeners what the projected deficit is this year? 

Jeremy

11:44

Is it? Let's see the total spending… the deficit is probably going to be in the two billion range. 

Doug

11:50

Two trillion. 

Jeremy

11:52

Sorry, two trillion. 

DougHost

11:53

Two trillion. You know that's a penalty sip of coffee for you. (Jeremy: Yeah) Deficit projected to be $1.9 trillion this year. You like math right? (Jeremy: Love it.) We get to use math every day. I mean, you're an MBA, CFP, and a trained engineer. You love math. I think we're going to get into a little column here about like the math is broken. But let's also get underneath the surface of the math is broken. No matter which candidate got into office right, and President-elect Trump is the one who's going to be in the office the next four years we found out this week. Regardless who won this election, we have a current huge deficit of $1.9 trillion, which means that after all the tax collection from taxpayers and all the government spending, we're in the hole $1.9 trillion. And with either candidate, we're projected to continue to run very large federal deficits, right. So can we just say it is what it is, that we're going to continue borrowing, correct? 

Jeremy

12:50

Yeah, and just for a little bit more context.  The spending is $7 trillion, so we're almost talking about 20, 25% as a deficit spending against that.

Doug

Huge. The other thing is let's dig into that revenue piece. Nobody likes taxes, right. Do you like taxes? (Jeremy: No.) No, nobody likes it. 

Jeremy

It's the biggest expense for a household, right? 

Doug

13:10

Right. Here's the thing, though, and I have a funny word written in my notes right here. I had this line that said the average American is quote enjoying the lowest set of federal taxes since World War II. Right, nobody enjoys taxes. However, here's the reality of the situation. This is the most forgiving set of federal tax brackets since World War II. Where your top tax rate during World War II was in the 90s, because we were in sort of a unique, anomalous time. Your lowest tax bracket right now, federally, is 10%, followed by a 12, followed by a 22. 

13:47

There's many tax filers that don't pay any federal taxes year in and year out. So, bullet point one, we got a hole of $1.9 trillion, JV. Bullet point two, we have the most forgiving set of tax rates since World War II. Bullet point three, you and I like math. Would you say the math is broken? (Jeremy: Math is broken.) The math is broken. (Jeremy: Definitely.) So, I think we've been talking to clients a lot about this because really our worry is we kind of think and plan and come up with our investment strategies and financial planning strategies for folks. We get to think in different timeframes. You want to give some context to like how you think about timeframes when you're working on somebody's case. 

Jeremy

14:23

Yeah, when we're talking with clients and we're thinking about their overall plan, right, we're zooming out at the 60,000 foot level and we're looking at where they are today and where they're going point A to point B to point C, all the way to the end of plan. So we're probably taking that 30, 40, sometimes 50 year view when we're working with clients. Now, that doesn't mean we're not zooming in at the what's going on today and what can we do to move the needle today. Right, because those changes that we make today are going to be amplified over 20, 30 longer timeframes. And so when we think about our investments, when we think about how we're going to put things in motion, we're kind of zoning in on well, what's our intended goal and what's the timeline for those goals.

Doug

15:05

Right. So even though we have to have a multi-decade view for clients, we do have to start with the set of known knowns, right, which is everything we just went through. What our current economy looks like, what our current capital markets look like, what our tax code looks like. We have to start with these known knowns. We got to be cognizant about 30, 40, 50 years from now. But ultimately, when we're putting a puzzle together, we have to work within a certain timeframe. Even though we're planning for 50 years out. It's how do we tackle these next several years? So the math is indeed broken. But the crazy thing is we talked about that GDP thing earlier. As long as that GDP thing continues to grow, we can still borrow as a nation and things here in America still work. It's not great that we have these federal deficits. It is not great that we have zero political will to fix the problem. But the fact is, this whole system is not breaking tomorrow. Could it break in the next 50 or 100 years? If we don't do anything, yeah, maybe, but from a planning point of view, it's like this is the tough thing is we have to think about decades from now, but we got to work within the set of known knowns and plan for the next five or 10 years. And you and I talk about this all the time, right? 

16:14

What's the nickname that we give the US? (Jeremy: Cleanest dirty shirt.) Cleanest dirty shirt baby? Right? For those that don't know what the cleanest dirty shirt means, there is really no other country, or we can call it region, that has a currency that is in a better position than the United States, the US dollar, and the US treasury market, right? So our greatest leverage that we have as a country, believe it or not, is our dollar, our treasury market. So we can continue doing what we're doing, even though it's not the right thing to do. So we will refer to the US as being the cleanest dirty shirt. 

Jeremy

16:49

And going back to your GDP topic, almost 70% of that is predicated upon the spending of all of us and all of our clients, right. So we need to continue spending, buying goods and services to make that work. And we need the income, the liquidity, the ability to spend money on things to help the system function properly.

Doug

17:11

Right. GDP keeps going up, it buys us some time to fix the math mess. So there's reality checkpoint number two is that the math is broken. The math continues to be bad and it was going to be bad, no matter which president option we elected. 

Jeremy

17:27

It didn't change on Wednesday. 

Doug

17:28

Didn't change on Wednesday. We still have a math problem. We continue to grow that GDP. It allows us some time to fix this. Maybe this is a good time for anybody, no matter what state you live in, what town, blue, red, whatever, you know, talk to your local representative about fixing the math. Because I don't know about you, man, but like this is the toughest part I have about going to bed at night doing what we do for a living. Is that the math is broken and this whole system that we have doesn't work in forty years if we keep doing what we're doing. Right, you know? (Jeremy: Yep, definitely.) So that's the reality check, okay. Related to broken math. JV, why don't we talk about a question that you've received recently, this week, from clients about something else that has broken math.

Jeremy

18:10

Yes. Well, now that this has played out the way it has this week, what does my plan look like if there's no more Social Security? And that can kind of go right back to what we just talked about in that consumer spending, that GDP math, because if 72 million people who are currently receiving Social Security benefits, which is one in five US Americans, a lot of them may be on the lower income side of things and also on the upper side of the age demographic, if there is no more Social Security, do we have 70 million people that are maybe elderly and on the lower income brackets, homeless and not spending money.

Doug

18:49

Right, so you got to asked the question. It's just like hey, Jeremy, what happens if my Social Security goes away? We say this to clients all the time. It's like we don't have the crystal ball, but we have to have a take. So here's our take. If there's not enough political will to even discuss the bad math productively, and if there's not the political will to address social security right now, do we really think there's going to be the political will to take it away? No way. 

Doug

19:14

No way. I'll stake my life on it. Don't have the crystal ball, but if political will and lack of it is any indication, those social security payments are not going anywhere. What we'll have to do in order to keep issuing those checks is what we've always done for decades. Keep borrowing and tax higher income levels. But to your point like can we really take away a main source of income from over 70 million Americans? No, so I guess reality check point number three is, you know, when you and I are doing this retirement income forecasting, right, we put in all these things. What do you make? What do you spend? What do you have? What do you owe? I think we're counting on that social security piece. (Jeremy: Yes, in some capacity, right?) Yeah, maybe you and I have to think about being less reliant on it. So like, in other words, the cost of living adjustment in January for social security recipients is going to be just under 3%. 

Jeremy

20:03

A lot lower than it had been the last couple of years.

Doug

20:06

Lower than it had been right. Social security has actually jumped over 20% over the last three years. Maybe you and I have to take a stance that that cost of living adjustment maybe won't be as healthy as it has been. 

Jeremy

20:16

Well, tell me this then. Why has it jumped so high? If the math was broken two years ago, why are we continuing to get raises? 

Doug

20:24

We're obeying the law right. So the raise on social security is predicated on CPI. So if I round the math off, 2022, very beginning of the year you get a 6% increase. 2023, very beginning of the year you get an 8% increase. And then 2024, I think it was another three. So you get six, eight and three. Compound that, you're over 20% for three years running. Every year you get a raise according to what CPI is. Unless something extraneous happens. Like back during the financial crisis, there was no social security raise for literally a couple of years. They were at zeros because we were questioning how everything works. 

Jeremy

21:02

Right right. 

Doug

21:04

But so long as we are in a normal and stable environment, CPI goes up, your social security payment goes up. So even though you've seen your basket of expenses increase by whatever 20 to 25 to 30% over the last four or five years, depending on who you are and what you buy. Your social security has, for the most part, kept pace with that. So I guess our house take is social security is going to be there, but we do have to address the math and something's got to give at some point. Let's go to reality check number four, right, global economic concerns. We'll just kind of call it that. 

21:35

I think some of the questions that we've had range from, what do I do with my investments? What's going to happen to the global economy? The global economy is going to crash. Trade wars are going to freeze up things. Tariffs are going to make things go up by X percent, right? So like, we've heard a lot of this stuff, but maybe we can just go back again to reality check. 

21:53

Should we take a minute to just acknowledge how big the global economic machine is? (Jeremy: Yeah.) In the global economy, 58% of global reserves are in the US dollar. 54% of transactions by dollar value are transacted in the US dollar. So point number one in this giant, giant global economic machine, we have a ton of leverage because the dollar is a reserve currency. The dollar is more than half of dollar value of global trade. And then, not to mention, the US treasury market is the deepest, at least currently, ahem cleanest dirty shirt, right, currently the deepest, safest securities market in the entire world. And let's give an example here. JV, why don't you tell the people about one of your former employers that used to make airplanes. Where'd you used to work? (Jeremy: Boeing.) So let's take aside Boeing's tough couple of years, right. 

Jeremy

22:50

Tough couple of years. Bad news. I'm glad I got out just in time. 

Doug

22:54

But true or false, would you say that Boeing has had a history of innovation? 

Jeremy

22:58

Yeah, deep, deep history. Long. 108 years. 

Doug

23:02

Do they sell planes all over the world? (Jeremy: All over the world.) Are they in businesses that actually go beyond just regular commercial airlines? (Jeremy: Yes.) So you've been part of the big machine. Let's not forget that the US stock market, think about the Boeing example, think about some of these companies that are the leaders in the S&P 500. Right now, thanks to Matt Hanna, we're doing this podcast over a pair of Apple iPhones, which I have resting up against my Microsoft Surface, and then we were communicating over Gmail prior to this meeting, right? So, like you, think about Alphabet, Amazon, Microsoft, Apple, companies that have an amazing amount of information that it's hard to replace these companies, right. Doesn't mean they'll last forever, but let's remember, as we kind of think about the global economy, right, there's some pieces to this global economy that are hard to reinvent. So I think we can also have the take that, when we look at American companies, we have a huge amount of leverage. We have the greatest innovation in terms of US companies here in the US versus other countries around the world. We should do another podcast on, like, the changing components of the Dow and the S&P over time. (Jeremy: Oh that'd be incredible.) The Dow Jones Industrial Average folks It's made up of 30 companies. It's a truly weird, weird index which we pay little attention to. 

24:27

But these 30 stocks, these Dow components if you look at it 25 years ago, more than half the names are not there due to mergers or changing times, companies even going out of business, right. So you can make the argument that, geez, you know, maybe Apple is not as powerful in the next 25 years or Google is not as relevant in 25 years. But I think, as an investor, we don't have just these five companies. We have brand new startups every single day and we have a culture of innovation that helps bring new companies to market. So as a stock investor, you want to kind of place your chips everywhere. Despite the math problems that we were just talking about, I don't think these companies go away tomorrow. And I think the reason for betting on innovation and investing in companies is still there. And we'll kind of get into like measuring your risk and why you invest in the first place, but the bottom line would be American companies will still continue to innovate. 

Jeremy

25:15

Oh they innovate. 

Doug

25:16

CFOs are going to continue to be careful. And not for nothing, I mean, we have a strong set of rules and regulations about publicly traded companies, where information is fairly transparent, right. So there's good reason to continue to invest in stocks despite the fact that we're in a changing world. Let's be real, too, with the reality check. There's unseen risks that still exist. There's all kinds of things that could happen, from cybersecurity-type issues, geopolitical issues, right. So, as we talk about a reality check today, every single investor, I think you and I would agree, should be giving themselves not just a reality check, but probably a risk tolerance check. JV, how do you explain risk tolerance to a client? Or like, what's your conversation like when you're trying to explain choosing an investment risk level? 

Jeremy

26:01

Well, a lot of times it's preference, right. So how risky are you? In the case that you know somebody experiences or sees market decline, what's your natural inclination? Is it to take the money out, out of fear? Is it to put more money in, out of buying at a discount or something else, and anything in between? So when we think about risk, we're thinking about, or talking about those preferences as it relates to a particular client, but also the time horizon for needing the money that they're investing for a particular goal. 

Doug

26:32

Right. So, even though we just made the case for continuing to invest in US companies, depending on what you're investing for or I like how you describe that too, which I like to call, like the stomach factor, who you are as an investor and what your disposition is. You want to stay balanced. You want to have more conservative investments too. You want to have cash. And I think this is part of the fun for you and me is putting together that puzzle for each individual and looking big picture to match investment strategies to goals, right. You want to talk about buckets all the time. So another reality check. Bullet point, stock market still functions, still deep. You still want to bet on US companies right, but everybody's different. Let's do an individual and at the family level risk check for everybody out there. 

Jeremy

27:16

And we're doing that constantly, continuously, every time we meet with them. Whether it's you know we met with them two weeks ago or two years ago, we're still kind of making sure that that gut checks there.

Doug

27:27

Oh man, lettuce in Toledo, is that what you talked about?

Jeremy

27:29

Aunt Petunia. Bring Aunt Petunia back. 

Doug

27:33

We have lots of inside jokes here at Arsenal Financial that we want to bring you in on. We talk about the lettuce in Toledo, which is our inflation indicator right. And I think what's been really uncomfortable people, again, we want to empathize with the fact that, yes, things are more expensive. Costs more to insure your car. Costs more to go to the grocery store. It costs more to get out to eat, okay, but reality check. JV, inflation, as a part of the whole inflation journey, generally, do prices ever come down? 

Jeremy

28:02

No, they don't come down. 

Doug

28:04

They generally don't, and if they do, we have something called deflation, which would be nothing short of a catastrophe here in the US. If we have deflation. Inflation means how much prices are going up and we want to have controlled inflation. The reason why we need to have inflation here in the US is we have a boatload of debt over $30 trillion worth of debt and if we have deflation and deflation is classified as if that GDP thing that we were talking about earlier is negative, that is deflation. GDP relative to that big ball of debt. That big ball of debt gets bigger, right? So we are always going to generally have a level of inflation. It doesn't mean your costs are going to come down. So I hate to break this to you folks. Lettuce in Toledo, it may grind up or down in any given month or week, but the overall trend for the cost of lettuce in Toledo is probably headed up over time. 

Jeremy

28:59

This is healthy. 

Doug

29:00

It is healthy. You're right. Controlled, modest, moderate inflation is healthy on balance. I know that doesn't feel good or sound cool, but it is what it is right. The other thing which we were just talking about this before we jumped on the mics, I'm going to coin this as like the Arsenal motto, that we've gone from low, low to high, high. JV, you were talking about the recency bias. When you were telling me about recency bias, like as it pertains to inflation and interest rates, talk to me about the recency bias. 

Jeremy

29:26

And I think we're all kind of subject to this as a behavioral finance element, right, and it's we remember what's happened most recently. So we're biased to what the most recent past has been like. So, for example, we've seen a spike in inflation so we're thinking about oh well, it's not working. We have high inflation now. Historically, last 20 years or so we've had very, very low inflation. But we're talking about the last two years. Not any different than current mortgage rates. Mortgage rates are in the 6, 7, they even jumped up to maybe 8% at one point. After being in the high 2s, low 3s (Doug: For a while.) So we had gotten used to that twos and threes and when we see now six, sevens, now we're like well, rates are high, but historically not all that high when you look back to the eighties, where you had upper teens for mortgage rates, which we've talked about on here before. So that recency bias is we’re kind of anchored to what's been happening in the most recent past.

Doug

30:26

Yeah, I'm so glad you brought that up so, you know, reality checkpoint about inflation. We've gone from low, low to high, high. Low inflation, really from 2009 to 2019, the beginning of 20, and then a corresponding set of low interest rates. We were in a time where we were still trying to recover from the financial crisis, so that was part of the stimulus was having low interest rates. That was not normal dude. 2009 to 2019, not normal. We have a list of clients that have mortgage rates in the twos right now. Dude, not historically normal. 

Jeremy

30:56

And we think of that as like ages ago, but we're still dealing with the ramifications of the whole thing. 

Doug

31:00

Right. So reality check, let's acknowledge that this time period from 2009 to 2019, not normal, artificially low. Low interest rates, low inflation. This 2.4 level of inflation that we have right now, these mortgage rates in the sixes and sevens, these treasury yields in the four we are way closer to historically normal right now, right. So it might feel crappy to a bunch of people whether you're a home buyer, I know that feels crappy, right, but, like, file this under, it is what it is. We have a set of numbers which is more historically normal now and costs for things in general are likely not to go down. The only way that they can go down is a couple things happen. 

31:39

Stellantis, right. Stellantis is what we used to know as Chrysler, right. They make Jeeps and they own a bunch of different car brands. They got crushed this week from a stock price point of view. Part of the reason is because they have a huge supply and glut of cars that they can't sell. That's one time where prices will go down is when people have to discount things, and that's generally not good, right. Deflation, also generally not good. We went over that. 

32:04

And then the third one, let's hit on this really quick, is if you have lower cost inputs. And we do have to acknowledge some of the policy that's in front of us, which is America first, possibly some tariffs in play. We are not in an environment where lower cost inputs are going to be a thing. In fact, we have to prepare for higher, higher. Higher inflation, higher interest rates, higher input costs, which is probably a headwind against stocks, even though we're betting on innovation and betting on the US. So let's be very, very aware of that. Prices are not likely to go down. Inflation is probably here to stay in some level, and if we can keep it at a moderate level, it might just be okay in the big picture. 

Jeremy

32:43

Which is what the Fed has been trying to do these last couple of years. With their dual mandate they have to keep prices stable and employment levels.

Doug

32:53

And we're at a reasonable spot right now. So let's button this up right, because I think the question that we get most when we alluded to it is, like, Jeremy, with my investments, what do I do? Sometimes I don't know about you, but like I can feel like I'm parroting the same things again and again and I even have to check myself and just say, man, I'm like I'm saying the same stuff all the time. Should I not be? But really like I think you and I are saying the same things all the time, because it reflects back to our values and our principles. (Jeremy: Yeah.) I'm going to start calling it the Arsenal broken record is number one, when it comes to your investments, it all starts with planning. You go to our website, we got a little page and there's a little quote. It says do the MRI before the surgery, which means before you do the surgery, which is invest a dollar in anything. Do the MRI, do the examination. Let's talk about who you are. Let's talk about why you're investing. Let's talk about the state of things. Let's talk about our reality check right now, the risk that you should be taking, the why behind your investing. Do that MRI before the surgery. Make sure that you incorporate some planning. Stay balanced, right. Don't get greedy. And also like, don't put your head in the sand either. 

34:06

Invest according to the risk that you should take, and you know I think we're both believers that you're going to be 80 to 90 percent of the way there if you just follow those steps, right.

Jeremy

34:08

Yeah, and I mean I think we've talked about this before kind of being that expedition guide. You know the destination and you're working with your clients and sometimes you get off track. Sometimes you're not feeling too good, right. You know you're dehydrated or something, right? Sometimes you got to help carry the pack for your clients, right. This is maybe one of those times where maybe we're off track, maybe we don't feel so good, but we just got to stay the course. We got to get back on the trail and know that we're marching towards something down the road, that we've got a plan for. 

Doug

34:36

Amen. And I think our last big context thing and you brought this up earlier too is, look what we've survived in the past. Whether it's five-year timeframe, 25 years, 50 years, 100 years. We're talking about global wars, great depression, you know, just different economies that have ushered in and ushered out, different inflation and interest rate regimes that have ushered in and ushered out, different presidents and political backgrounds. We went through this crazy, crazy COVID time and as a people, communities and as a market, we've survived and we've evolved. 

JeremyHost

35:09

We've lived through it and some would argue better on the other side of these things. You made the point this week, during Corona, the entire world shut down. Talk about an economic potential meltdown. We survived that. 

Doug

35:21

We did. So we've gone through a lot of reality checks here. Maybe the very, very last one is man, let's stay optimistic, right? I joke with people that you know, when you and I run a retirement income analysis, doesn't do us any good to plan 70 just because somebody thinks they're going to die early. Like we get to have the take that someone's going to live a long, healthy, fulfilling life, maybe have a longevity problem, and that's the math that we have to solve for. So let's stay optimistic. I'm going to take a breath, man, here on a Friday. But I feel pretty good. How are you feeling? 

Jeremy

35:55

I'm feeling pretty good too. I think you know talking through this stuff is always important and having each other to bounce ideas off of is always helpful, especially when we're out there in the trenches with our clients and making sure that they're okay and health.

Doug

36:10

Do you know what would make me feel better? A couple dad jokes. What do you got? What do you got?

Jeremy

36:13

I got three that are recent that I think you're gonna enjoy. (Doug: All right, I'm so I'm so bad at these, so bad.) All right, Matty Hanna can jump right on in on this too. Why do astronomers hate vegetarian restaurants?

Doug

36:29

All right. I see Matt thinking. Why do astronomers hate vegetarian restaurants? Matt, you're creative. Nothing. 

Matt

36:37

I'm going to like tofu, seitan. 

Jeremy

36:40

Pretty good yeah. 

Doug

36:41

You know, Matty's a creative guy. When Matt comes up empty, I'm like I don't have a shot. What do we got? 

Jeremy

36:47

They need something meatier. 

Doug

36:52

Ah, that's so bad but so good. I love it. I love it. 

Jeremy

36:57

Now I got a couple that are maybe more applicable to us. What is a kangaroo's favorite thing about beer.

Doug

The hops? (Jeremy: The hops, yes.) Yes, yes, that's the first one I've ever got. 

Jeremy

37:13

Good one, good one.

Doug

Oh my god, that's great. What a success on a Friday.

Jeremy

37:18

And now to end on a financial note. What's similar between credit cards and gymnasts?

Doug

37:26

Credit cards and gymnasts. Oh, I think I know that there's something about bouncing. Is it, no? No, that'd be checks. (Jeremy: Pretty close though.) Their lines are both flexible? 

Jeremy

They both have outstanding balance.

Doug

Oh wow, I like that. Can we make a poster that for the office? Might be encouraging debt, I don't know. (Jeremy: Isn't it good one?) Oh, man, JV, I had fun today. Man, I needed this. I needed this badly, you know.

Jeremy

37:57

Yeah, yeah, it's good. Good therapy.

Doug

38:03

Yeah, yeah, hey, let's give a little nod to community. So by the time this comes out, it'll probably be around Thanksgiving time. So what do we have for the holidays coming up in your neck of the woods? 

Jeremy

38:11

In Hanover we have the Hanover Holiday Stroll, which is November 30th, from 1 to 5 at the Hanover Crossing, which is the newish mall area. So the Hanover Chamber of Commerce is putting that on. Looking forward to doing that.

Doug

38:25

Great, beautiful. One thing I'd love to give a shout out to which I'm really excited about. This is an annual event that the Watertown Business Coalition and the Rotary of Watertown have done the last several years is a toy drive. A holiday toy drive and kind of a holiday hangout to support the Whooley Foundation, which is a foundation started by the Watertown Police Department years ago to benefit children who can't put anything under the tree for the holidays. So we were able to get a whole host of toys last year to hand out to kids to bring some smiles to faces. So we're going to be doing that again at the Mosesian Center for the Arts, who's just a great partner and they'll be helping us with this event. So it's the Watertown Business Coalition, Rotary of Watertown and the Mosesian Center for the Arts, bringing you Holiday Toy Drive and Hangout on Monday December 2nd from 530 to 8pm. We're going to have BranchLine local restaurant providing some food. There is a bar there. There will be a little bit of music. There's an amazing art gallery that's always on display at the Moseisan Center for the Arts. So please join us Monday December 2nd, 530 to 8. All are welcome. It is a free event, but you're encouraged to bring a toy with you. So hope to see you there. JV, this has been good. (Jeremy: I've enjoyed it.) If we have clients and partners listening and you have any questions, please feel free to visit us at www.arsenalfinancial.com. You can shoot us an email at info@arsenalfinancial.com. You can pick up the old telephone too and call us at 781-335-9100. Always here to answer your questions. And thanks again for listening today. 

Speaker

39:57

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