Aug 18, 2021
Brian Beaulieu has served as CEO
and Chief Economist of ITR EconomicsTM since 1987, where he
Researches the Use of Business Cycle Analysis and Economic
Forecasting as Tools for Improving profitability. Brian has shared
his Highly Valued Research Results via Presentations, Workshops,
and Seminars in Numerous Countries to Hundreds of thousands of
Business Owners and Executives for the last 38 years.
In this episode we talked about:
Useful links:
https://www.itreconomics.com/brian-beaulieu
brian@itreconomics.com
Transcription:
Jesse (0s): Welcome to the working capital real estate podcast. My name is Jesse Fragale. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Welcome to working capital the real estate podcast. My name is Jesse for galley and my guest today is Brian Ballou. Brian has served as CEO and chief economists of ITR economics since 1987, where you research is the use of business cycle analysis and economic forecasting as tools for improving profitability.
Brian has shared his highly valued research results with via presentations, workshops, and seminars in numerous countries to hundreds of thousands of business owners and executives for the last 38 years. And Brian and I will be speaking in October in new Orleans for the bigger pockets conference, BP con Brian, how's it going?
Brian (1m 1s): It's going pretty well. Just me. How about you?
Jesse (1m 4s): I'm doing great. Doing great. You know, we're kind of, we're in a good spot right now in Toronto. Weather-wise Italy's moving to the final and in the Euro. So,
Brian (1m 15s): You know, everything's everything's okay.
Jesse (1m 21s): So we've talked a little bit before the show. You're joining us from New Hampshire today. Brian, is that, is that home for you?
Brian (1m 29s): No, home is Marco island. We summer up here in New Hampshire and here we are right on. Yeah.
Jesse (1m 36s): Well, I'm very excited to have you on the show as listeners know, I'm a bit, a bit, I'm a bit of a economics geek and I love looking at real estate through the lens of, of macro and micro trends, you know, when it comes to investing and, and ultimately forecasting where we think real estate is going to go. And another thing we talked about before the show as a little bit of a template for how we go through our conversation, you know, with real estate, as the backdrop, but economics as, as kind of the tool we use.
But before we do that for listeners and for myself, Brian, if you could give a little bit of a background of yourself, you know, how you got in the industry and, and how your career has has gone. Over the years,
Brian (2m 22s): I started off in the private sector, working in Boston, in the financial department of gray bar. Then I went to work for the government for three years, and then 1982 came to ITR economics. And I bought the place in 1987. So it's not a very long resumes, just one big long gap or stretch here. It it's been a great rundown. It's been, it's been amazing.
Jesse (2m 51s): And was your, your background originally was in economics or did that, did that evolve over, over the career?
Brian (3m 1s): I started college as an accounting major and realized that looking for that perfect balance or drive me crazy, I need something where it close enough is good enough. And that was economics. So I have a, I have a dual major of econ and finance with a minor in accounting
Jesse (3m 16s): Right on. And so for the, the conversation, you know, you're going to be giving this talk in, in new Orleans in October. I'd love to basically take a step back of where we're at today in terms of the lockdowns, the impact of the last 18 months on the general economy and real estate. And just wanted to get your thoughts, you know, from an economic sort of an economists point of view, what's your take on the last 18 months? And you know, how are we sitting today as a, as an economy, whether that's, you know, in north America or, you know, or the European markets
Brian (3m 54s): We are sitting on on this rock that is heading ever higher coming out of something that not none of us have ever experienced before. And hopefully it will never experience again. And the governments of the world decided that what they needed to do in order to get the economy going again, once they allowed people to move about was dumped an unimaginable amount of money into the various and century economies when all they really needed to do was simply maybe that first round is stimulus to let people out of their homes and the economy would be coming back.
But it's coming back with nitrous oxide added to the fuel tank now, which is stretching our supply chains. We have trucking shortages, we have cargo ships stacked on the east coast and the west coast. China's dealing with the Delta variant now, and that's shut down part of going down province and therefore some shipping activity guys shut down for a couple of weeks. So we're, we're clearly going to be contending with the supply chain issues and pricing issues to the rest of this year.
But we see in 2022, the rate of growth in north America and in Europe dissipates to a more normal pace. And that would allow this, the supply chains much needed time to get caught up to the demand. So over the course of 22, a lot of those stresses what we ameliorated really, and the world will seem much more sane at that particular time. We'll understand normal economic relationships much better as we get through 22 and on into 23 and 23 looks to be a good solid year of rise also.
So from a real estate lens perspective, we're bullish on all aspects. So multi-family most aspects of commercial real estate in general, coming back nicely as we go through 22, 23 office is going to obviously experienced some difficulties because of COVID backer and the, the moving away from these urban areas.
It's, it's, it's amazing to us actually that the millennials, and if you stop me if I'm digressing, but we all assume that millennials who are going to be so different than the gen X-ers and the baby boomers, but come to find out that behaving an awful lot, like gen X-ers and a somewhat like baby boomers in terms of then moving out into suburbia now, and they're buying homes and they're getting powers. We never thought they would have cars. Right. But yeah, they have cars. There's an 80% penetration of automobile ownership amongst millennials, which is the highest we've seen since the seventies.
It was a matter of fact. So there, again, all the, all the things that we used to pine for also. So I recently I mentioned that is because I find that incredibly encouraging in terms of seeing that normalcy, that rubble, that we're all striving for, at least we don't have to worry about that curve ball coming at us. Right. So yes, that the platform is going to change the commercial real estate landscape, but the fundamentals of the demand pull from the population, at least that looks to be rock solid.
And that that's really fantastic.
Jesse (7m 28s): Yeah. I'd love to Del delve into the different verticals in, in commercial real estate and residential. And just before we do, I'd like to get your take on, you know, whether it's the, you know, I can't remember the emergency plan that we had in, in Canada for, you know, whether it was 79 billion, whatever it was. And then you, you know, conversely or in addition a us had the cares act. And I think now, I don't know if you guys are up to four or $5 trillion in terms of actual stimulus six, ah, well, a nice round number at six.
Yeah. What's your, what's your take on, on this, this level of stimulus because you know, the oh 8 0 9, it was supposed to be, you know, QE was net, it was supposed to be an emergency lever. We would never see it again until, you know, we're in a global pan denim mix. So what's your view on that? How are we going to deal with, with these, this level of, of stimulus injected into the economy?
Brian (8m 26s): That's the trillion dollar question, right? Next trillion, 6 trillion. And then there's like Canadian billions on top of that. Yeah. You said you saw it in Canada, just like we did in the us, all that liquidity stimulated, retail sales activity, it stimulated housing, single family housing activity primarily to a very high degree. So the question now becomes is the resulting price inflation, be it in homes or commodities to make all this stuff, is that trenchant or is it here to stay?
That's one question and then the follow on question has to be, will the central bankers of the world decide they need to sterilize some of this activity, pull it back in, in other words, and will they do that quickly because they fear inflation, will they do it very slowly, mid that's? That's part of why we see some dangers on the horizon, in the financial markets, and by the way, we'll get there not compensation I'm sure.
But I think the after, well, I'd already mentioned that we see real estate doing well in the near term. We see it as an outperforming asset class through the rest of this decade. So investors in this real estate space, be it multifamily or other types of commercial real estate, I think they're in for a very good ride and likely to significantly outpaced stock market returns, seriously outpaced any bond market returns that could possibly get it's going to be the go-to investment place for this decade.
Jesse (10m 14s): Yeah. It's w I was talking with somebody last week on the podcast, and we were talking about the difference between where we're living right now in this, you know, technical recession and where we were in oh 8 0 9, where now we're in a position where there's a lot of credit. There's a lot of capital out in the market back then there wasn't. So it seems that the real estate, like you're saying is being buoyed by the fact that there is a lot of capital out there. And I mean, we just see it on, you know, anecdotally on the brokerage side that our capital markets teams have, have been having record record months over the last a year, year and a half.
And it just looks like there's a lot of capital with the caveat that, you know, on the leasing side, on the retail side, definitely, you know, where they've had the most challenge by far.
Brian (11m 1s): Well, and it's in real estate, it's always just location, right? I mean, here in the states, if you broker a deal or you're involved in a deal in Nashville or Dallas or Austin, you're going to have a much different experience than if you're trying to do that deal in Chicago or West Virginia someplace, or even New York, the geographic location driven by demographics and tax environment are extremely important.
Jesse (11m 31s): Yeah. In terms of this conversation, it's, it's funny, you have very smart people on both sides that, that seem to take a very different views from the interest rate inflation debate and, and you know what, it's, it's hard to figure out where you, where you really stand on it, where, you know, one school of thought is that there is no place, you know, aside from a future with more inflation, as a result of the amount of stimulus. And then, you know, you hear people push back on that and basically say that it's not stimulus in the Milton Friedman sense that, you know, you, you have, you have money going into the economy and no matter what that's going to cause inflation as a result of it being dumped into the economy, it's, it's like in oh eight, seem to sit on balance sheets.
Wasn't, didn't have a tremendous amount of velocity, but based on the last few months, the numbers seem to indicate that we are starting to increase from an inflationary standpoint. W how do you read that
Brian (12m 35s): It's a complex issue, but how we read it is similar to how the federal reserve and the bond market is reading the situation. If you look at the bond market, which is amazingly prescient about the future in terms of inflation, at least 18 months out, they're not at the least bit concerned about systemic inflation. They think that this supply chain driven price increase and the asset price bubbles that were experiments in are not real inflation sustained compounding inflation.
That's likely to come beginning in the mid to second half of this decade, based on all the patient buyers that have been let logs that have been laid in place by all of this Fiat currency and excess liquidity out there in the marketplace, which is not the state that we're not going to. You know, housing is a, is an asset price bubble. It's going to be some correction in housing, but it's not going to be like the 2006 through 2009 correction because the credit markets dried up at that particular time.
And as you just said, that isn't going to be going on right now. There's no indication that it's going to be going on right now. The credit markets are very well lubricated. And if you look at the extent of leverage that the consumers have engaged in Dubai, these homes, it's much more moderate than what we saw back in 2005, 2006. So it's not going to be that sort of replay, even though these prices are going up, we're just going to see a normal business cycle correction and some of these prices.
And then they're going to just rise again through the end of this decade. This is, this is a really tour's decade dream come true. As far as we're concerned, largely driven in the final analysis by the us dollar being pushed into an extended declining trend because of all the deficit spending that the U S Congress is engaged in so that, you know, a lot of people are going to lose, but the real estate markets are going to win.
Jesse (14m 41s): So from the, from the real estate vantage point is, is the lesson here to re you know, reallocate or, or readjust the portfolio to have more alternative assets in the way of real estate as a, you know, as number one, like you said, just the fundamentals are good, but number two, as a potential inflation hedge,
Brian (15m 1s): Absolutely. I mean, you, you interpreted my meanderings perfectly well. Yes. And we've been encouraging people to take some of the risk out of the stock market and redeployed into different asset classes in particular different assets buckets within the real real estate sector.
Jesse (15m 22s): So your, your economics are for, for the U S what, what, if anything, are your recommendations for the next, you know, let's say the short-term for the U S yeah. For the U S
Brian (15m 37s): My recommendations to kind of investor. Yeah, no. I
Jesse (15m 41s): Mean, from a, from a federal reserve standpoint, is it, is it stay the course kind of targeting 2%?
Brian (15m 49s): Oh, our federal reserve doesn't care about 2% anymore. Under chairman Powell, they've adopted a new system where they look at average rolling inflation. So they're going to accept inflation out of the CPI core inflation running three, three, and a half percent for a couple of years before they worry about it, because they see it as balancing out those years where it was running below 2% so that they no longer get excited about three, three and a half percent core inflation.
And that's one of the reasons why we think they're telling the truth when they say interest rates that they influence are going to stay down on the deck through the rest of this year and on into 2022, because if inflation does subside as the indication suggests, and that would be CPI inflation, then they're going to sit on these low interest rates until they see more concerted indications of that, a rising trend in inflation. You know, they're already making some adjustments and we behind the scenes, when you, it's one thing to keep interest rates on the deck, right?
But when you look at the repo activity that the federal reserve has been embarked on the last several weeks, it was running a trillion dollar repo activity, trying to reign in some of this extra money, if you will, but that they have so many different levers at their disposal. The thing that worries me most about this federal reserve is chairman Powell first.
And he stated it. He says this, the federal reserve can't possibly do too much to stimulate the economy. Hm. He's not the least bit worried about inflation. And I think if you had, if you could pin them down, he'd tell you that is in the modern monetary theory camp when it comes to how to, to control the political and economic environment going forward. And that, that scares me, I'm waiting for the next year.
Jesse (17m 56s): No, I was going to say, so we, we D we've talked about a modern monetary theory MMT on the show before we had a bond trade local bond trader here who now kind of manages a portfolio and fund. And it seems to be that there's this stark difference between this Austrian school of economics and an MMT. And I think both of them kind of make a caricature of the other where M you know, the Austrian city MMTs will just they'll spend it.
There is no limit to possible spending because they're in a different paradigm. You can't look at the U S government or the, or the Canadian as a household, because they can borrow the reserve currency. What's your view on, on kind of the differences between those two camps and maybe as a backdrop, you could, you could talk a little bit about the business cycle and you know how that relates.
Brian (18m 50s): Oh, okay. You know, your stuff first I'm in that Ostrin camp. Okay. MMT folks though, like Larry Summers say, you know, they can engage in depth at spending to the fullest extent until real interest rates rise about 2%, and then they need to cut back on that deficit spending problem is you think the politicians have the political will to cut back on the deficit spending.
We have seen zero inclination of their ability to do that, except for a brief period where there was sequenced ration going on for three years. But ever since the early 1980s, we've been on this spending binge, and I'll send out, we're gonna, we're gonna find discipline because it's real interest rates go up to 2%. So I cry foul on that assumption. And the other major assumption that they make is we can get away with it here in the U S because U S is the dominant world reserve currency, right?
Problem with that is the Chinese beat us to it, having a digitized currency. And they're selling that very effectively as it means of making trade easier with China. And you start in 2019 end of 2019, a $54 billion deal done between China and Pakistan and Pakistan, as part of that deal, drop the dollar as their second formal currency. And they adopted the yawn.
Okay. And then they're doing this with other Turkey has adopted the Chinese currency in place of the U S dollar. All of those are chipping away at the solvency or that immutability of the U S dollar, right? Because I have no life. I watch world reserves and the Russians have dumped the dollar. I mean, they made no bones about it. They sit and the dollar is no longer any part of their rainy day funds.
They replaced it with a 50 50 mix of the Euro and the Chinese currency. It had nothing to do with the, with the dollar. All of those are indications that you cannot afford to assume that we will always be the dominant currency and therefore a few engage in deficit spending. And assuming we can rack up as much debt as we want, because we are that dollar, that's a huge risk that you're playing with the economy, given these little pebbles that are already rolling down the hill.
Jesse (21m 35s): So from the vantage point, like I th I'm partial to Austrian economics as well. And at least in so far as you know, I I've, when I was younger Hayak and Friedman, I mean, he's more of a monetarist, but the idea that there is no free lunch, this idea that, you know, you could run an economy in oh 8 0 9 and, you know, just completely bail everybody out. I think most Austrians would have said that at that point, the states and other countries affected really needed the, the medicine there, whereas other, you know, other people said, no, they, they definitely needed the bailout.
So it, it kind of, it's interesting to see that paradigm now where MMT has become this thing where for either political party, it seems like a, an ability to just here's the scientific rationale for me to spend.
Brian (22m 26s): Exactly. And you're absolutely right. It is not confined to one party or the other. They both engage in the same rhetoric and premium is all about when you're on the growth side of the business cycle, you're supposed to run your government at a surplus so that you have the ability to run it at a devastating when it's needed. Right. They don't get that. I mean, it's always deficit spending with them. So, you know, they say that following Friedman's prescription, but if they are not, and when, you know, Friedman's famous saying and long run, we're all dead.
You know, where that came from is that Keynes or Friedman in the long run. Okay. Yeah, you're right. He asked where's this all going to end all this spending that you're advocating the government do. And you said even it didn't matter in the long run the world that is sort of just like a massive cop-out at that time. Right. Pretty nihilistic view there. Well, it's
Jesse (23m 27s): Actually a w one thing that's a pretty funny too, is I think it was, it had to be in the eighties, early nineties, a Friedman was with a bunch of lawmakers and they were S the Republicans were saying, you know, aren't you worried about all the deficit spending and, you know, the interest payments alone for the debt. And his answer was actually pretty funny. He, well, you know, the interest payments that we make means that there's a portion of cash that the government can't utilize for its own for its own ideas and own. As soon as like, at least we're paying the interest payments and it's out of your hands.
So I think it really comes down to just a view of, of whether you think the economy is more, at least in my point of view, in my opinion, more like a, a biological organism that, you know, goes too far, comes back and kind of ebbs and flows. We can't just be on this constant upward trend, just, you know, forever.
Brian (24m 24s): Well, yeah, business cycles are here and they don't always lead to recession, but they lead to, if they're not, you know, you celebrate, then you decelerate. And sometimes the deceleration gets you into a period of recession. Sometimes it doesn't depends on the circumstances, but I'll be it's because there are these structural imbalances that develop in the economy and you need to adjust those imbalances. And sometimes the adjustments lead to a recession because they're allowed to go on too far, being an Austrian inclination.
The heavy heavy-handed government is not always welcome, you know, but go back to 2008, 2009, I was advocating, let the banks fail, you know, let the stock shareholders take it on the chin. Instead of the taxpayer, they were being too big to fail. Right? So now the banks are back to their messy ways in so many different categories. Okay. So if you're too big to fail, cough up more money going into the federal reserves who can bail your butts out next step, you know, I'll banks have the small banks pay a greater portion of their cash to the federal reserve.
Then the large banks shouldn't be the other way around. If you're too big to fail patient more insurance here, buddy, if you expect me to bail you out, next thing we created a fantastic moral hazard. Every time we'd be on them. When we bailed out Chrysler, we created the same moral hazard. Yeah. That's where you get more and more weaknesses inherent to the system view. You know what I mean? Yeah.
Jesse (26m 0s): I mean, moral hazard is exactly what it's going to say. I've always loved the, the Hyatt quote. The curious task of economics is to demonstrate to man how little he knows about what he, what he imagines. He can design. And I think it's just, it's this MMT in can be something that if, if used as a, as a club or a justification can be a little dangerous, like you said, once, once you get an allotment or you get an ability to tax, you usually don't give it away. So emergencies, economic emergencies, any pandemics, I, I feel like a lot of things are gonna come out of this that are going to stick around for a long time.
I want to talk a little bit about the real estate perspective. So, you know, you, you mentioned business cycles. How do you view real estate? The real well, first of all, do you believe that the business cycle and real estate cycle are those pretty much in sync typically? And how do you break down real estate? When, when looking through the lens of a business cycles?
Brian (27m 3s): Well, we have our residential real estate as a leading indicator, generally followed, not a couple of quarters later, if I multifamily all else being equal. And then the caboose on that whole train would be most aspects of commercial real estate. And that typically is a lagging indicator. In fact, it's generally about 25 months after housing reaches a low that overall non-risk construction will reach a cyclical level.
So that's quite a gap. So you can play that to your advantage at the high though, I mean, an ITR were concerned about a business cycle decline occurring in 2026. Okay. But it won't be 26 for non res because they'll lag that their problems will come more on 27. So there's always ample warning in the non-residential market when things are about to go awry. Now, whether people pay attention to that or not, it's a different store.
Jesse (28m 2s): And in that, in that residential side, are you including a multifamily housing multi-residential as one bucket?
Brian (28m 10s): No. A single family being the leader followed a couple of quarters later by multifamily housing starts.
Jesse (28m 18s): Yeah, it's fascinating. And then down the line, whether it's industrial office retail as lagging indicators for those, and w what's what's the, you know, what, what determines or w what's the cause of, of those commercial verticals lagging even, even from office to say office to industrial, for example,
Brian (28m 41s): The lag occurs at high because contracts have been signed and a construction has begun, and most of it will get completed. All those, some of it, you just button up and wait for the cycle to turn around again. But that's why it lags at the high it lags at the low, because oftentimes the commercial, I mean, the, the credit markets simply aren't there to facilitate the recovery. That's not a problem this time round, but then there's the trepidation of sinking that much money mean we're not talking small projects with Dr.
Mote, really large projects thinking that much money. And one thing, I think that you've talked about verticals. I'm, I'm excited about what it's going to be going on in manufacturing, building construction in the states because of onshoring and near sourcing phenomena. Canada's not getting nearly as much of that action as we thought they were going to, we looked at how north America breaks down and the us is getting the vast majority of that onshoring activity followed by Canada.
And then Mexico, I thought that Mexico would be getting more activity, but there's something going on. And this scares people about fender Mexico. You know what,
Jesse (29m 57s): It's a, it's funny on the manufactured housing piece, we actually had a, a local gentlemen on the show. It was a private equity, real estate, private equity. And he was from Toronto. And we were talking about manufactured housing as we've done on the show multiple times. And I said, well, let me guess, you're not buying in Canada. He's like no Atlanta. So it just like, I don't think, I can't think of, of a, a, an area of that. There's a significant investment in manufactured housing up here. I don't know if it's a cultural thing or if it's, you know, something else, but yeah, we don't, we just don't see that type of type of building.
Brian (30m 34s): Oh yeah. I mean, I can understand that. I talked it up to culture. Yeah. Yeah.
Jesse (30m 40s): We'll put it up to culture. And when you, when you look at manufactured housing, the what, what is the relationship with onshoring that you see between between the two?
Brian (30m 52s): Oh, we're going to be shortening supply chain. So we're going to actually be building new manufacturing centers. Yeah. Building right. That's cyclical. And that's going to get boosted by, but we're going to need affordable housing for the people working in those facilities. Right. And those manufactured homes, very good homes. And they're affordable compared to the old fashion, you know, stick and nail approach.
Jesse (31m 24s): Yeah. And it's, it's, I think that's, we're going to see that, you know, regardless of which country you live, I think the reality with real estate is that we've talked about this quite a bit in the industry of, you know, just the repurposing of assets, you know, hotels potentially into multi-family, you know, older shopping malls into, you know, distribution centers. I'm sure that creative destruct destruction is poised to happen over the next few years.
Brian (31m 52s): I I'm a huge fan of that lens that you just referred to in a creative destruction. My man, Joe. Yeah. Yeah. So many people get distressed distressed that the, the destruction side that they failed to see it creation side that occurs at the same time. And it is inevitable that more jobs are created by the creation side of that than by the destruction side lost jobs.
But that was future jobs. They don't, they don't vote. And that's why sometimes the, that process gets retarded or inhibited by the politicians because they hear the loud noises of the people that are on the losing side of the equation. Yeah.
Jesse (32m 39s): I couldn't agree more, I think, and you know, I'm going to lose listeners here, but that's a reference to Joseph Schumpeter coined the phrase creative destruction, but it really is the, the horse to the buggy, to the car, you know, it's something had to be destroyed in a paradigm to create something that from his lens was, was much, had much more utility and value. And I think the other thing too, is he was one of the few economists that are one of the first economists that, you know, there's a reason that in microeconomics, there's a blurb on entrepreneurship.
Whereas, you know, now there's chapters in whole courses on entrepreneurship from an economics lens. So I think it's, it's really important to look at it that way.
Brian (33m 18s): She was my hero and still is in college. I would say, Debo tell you, but he wrote so. Yeah.
Jesse (33m 26s): And, and he was, he was, I think he was also a, what was it? The, whatever the chief economist was for, like he was a in government as well. And then I think moved into a professorship role, but continued to do a lot of work and publish. So now that we've lost half the half the
Brian (33m 46s): Lesson, what, what I'd
Jesse (33m 50s): Like to actually talk to you about just had it in my notes, as well as I wanted to get your, your take, you kind of mentioned a little bit about the, the U S dollar for, just for listeners, regardless of where you're at. W what is the importance of where the dollar is at and what the impact has been over the last a year, year and a half?
Brian (34m 12s): Well, the impact of the let's start with that last part. The last, the impact of it last year, year and a half has been a flight to safety, which has bolstered the dollar longer than it normally would have been the pandemic clearly distorted that trend. And even now with the concerns about the Delta variant, we see that the dollar is gaining some buoyancy that it really doesn't warrant. There's a very clear relationship between deficit spending and the trend B not the day to day or the week to week, but the extended trend in the direction of the dollar.
And by the same token, there's a very strong relationship between the U S dollar and oil prices, because oil is the nominated in dollars, right? So the weakening dollar means higher oil prices going forward this decade, which is good for Canada. When I, when I saw that relationship, I said, yeah, okay, here we go. It's going to make some folks happy. I don't know about you. Tell me if this has happened to Canada, but this is what's happening here in the U S banks lending to the oil and gas industry, because they're not reading enough, they're balancing their portfolios to be politically green.
Jesse (35m 27s): Well, listen, I think at the end of the day, all, all businesses are ESG is environmental, social and governance is becoming a bigger and bigger component of, of how they invest. And I think it was, it was JP Morgan that was saying that they, I think they took the stride of not investing in certain type of industry, fossil fuel industry. I'm a cynical guy by nature. So I know, you know, there's been some pundits that have said, you know, that's the reality of them getting loans from, from Europe at extremely preferential rates, if you're a green quote unquote green company.
I honestly, I wouldn't, I wouldn't know if it's yes. If, if that is happening here at once, surprise me, especially given, you know, our political posture typically. But yeah, I I'm sure if it's happening. It's definitely to the chagrin of Western Canada, because I mean, that's, they, they were hit pretty hard even before the pandemic, at least, you know, in Calgary, the office, you know, office spaces, my and buildings is kind of the world I live in and you know, that they had been hurt years prior to this.
So, yeah, I think it's, it's a trend that is, is just something that is happening, which I, I compare it to organic food and, you know, hopefully it don't catch flack for this. I I'm sure there's even my company ESG is important. I think organic labeling was originally a positive thing. They wanted to, you know, have things that were grown properly ethically, but then it kind of moved into a, you know, just an ability to basically put a number on or check a box.
And I, unfortunately, I, I feel like that's where we're going with with ESG and from an investor standpoint, but I could be wrong. I hope I'm wrong.
Brian (37m 17s): History would suggest that you're probably right about that. Yeah. But
Jesse (37m 21s): Like you said, it, you know, it's, it's not just a, you know, economics, there's there, there's the shift. The pendulum will swing the other way. If it goes too far in one direction, and people are saying, you know, listen, is, is there actual science behind this? Because, you know, I know Tesla, I haven't checked recently, but I know they had a very low ESG score. And that was, you know, the, you would think that they are, you know, some of the, the trailblazers in terms of businesses in the world, but yeah, so it wouldn't surprise me if it's happening. I take it.
You're saying it's happening in the states that they're just not investing unless you are meeting probably a certain threshold of a green.
Brian (37m 60s): Yeah. And when we look at oil production right now, it's only in the Permian basin, Permian basin that we're seeing some increase, the middle small guys are starved for cash because of the down term that just trying to repair their balance sheets, they don't have the liquidity and they don't have the access to the credit to really start opening up a lot of their, their activity again. Then that's going to be a higher oil prices also, which is going to make the move toward the electric vehicles seem all that smarter.
Right. So,
Jesse (38m 32s): Yeah. Yeah, absolutely. Well, I didn't, Puerto Rico is probably good, a good test case for that. I mean, I think there was a congressional hearing on putting basically converting them from coal and fossil fuels. And I, and I always come from the opinion, it's very easy for us, us, you know, privileged rich countries to say, you know, to other countries that, you know, you gotta, you gotta go green where, you know, part of the reason we built wealth was cheap, renewable, reliable energy. So I, I'm always a little torn on, on that, but I digress.
So Brian listened, we're, we're coming close to the end and I want to be mindful of your time. So just, why don't you take us on a positive note? I think I have an idea of the answer to this, but what do you think are, is one of maybe one or two of the biggest opportunities you see going forward, whether it's short term or long term, I'll leave that leave that
Brian (39m 27s): I think multifamily is a huge opportunity. I think storage given us another huge upside market and a distribution, warehousing logistics, all the real estate involvement that is, that's got so much upside to it. That that that's where I would be moving some of my assets reallocating into that space over really overweighting that space within the portfolio.
Jesse (39m 55s): Perfect. Well, I'm sure listeners would love to hear that. Cause we got a lot of multifamily investors. There's four questions. We ask every guests kind of a rapid four. If you are ready, I can lob those at you, Brian. I'm ready. All right. What's something, you know, now in your career that you wish you knew when you first started out.
Brian (40m 19s): I wish I knew when it first started out that the smartest thing I could do was hire people that were smarter than me. And once I learned to do that, things got a whole lot better.
Jesse (40m 30s): I agree more on that. That's perfect. In terms of mentorship for younger people, getting the industry, whether it's real estate or even in your space, what's your view on mentorship and, and what would you say to them?
Brian (40m 46s): Oh my gosh, mentorship is probably the best training exercise you can have. We have a mentorship program in our company because you can't, it accelerates the learning curve. It makes those people that much more productive. They feel much more comfortable, happy. And when they're happy and productive, your retention rates go sky high. So it's a win-win the company is more efficient. People are more happy and mentorship is it's serious. And I'm amazed.
Sorry, question number two. Yeah.
Jesse (41m 23s): Cut out there for a sec. We'll we'll edit that out there, but I think we got everything. Yep. So question number three. Is there a resource or book that you could recommend to listeners that, you know, maybe you're you're reading now or, or you've read in the past?
Brian (41m 43s): Yeah, I'm going to recommend to it. Matter of fact, that both sitting here, my desk one is a book that my brother and I wrote called prosperity in the age of decline. I think it does a great job of putting the economics of the 2020s and 2030s into a correct perspective for people to prosper. And I just finished this Jessie called full faith and credit by Alan Axel rod. And it is extremely well done in terms of deficit spending, how we got here and what it potentially means going forward.
It's not a very thick book, but it was very, well-written both faith and credit by Alan Axelrod.
Jesse (42m 29s): Perfect. We'll definitely, we'll definitely put some links in the show notes for that prosperity. I feel like I have seen that book before, or maybe just seeing, seeing your name on it. Last question, our, our lobbed, the ball first car make and model
Brian (42m 49s): Really. Oh my gosh. That wouldn't say a word Maverick. Oh, I'm going way back. Right. And I repainted it to midnight blue metallic, and I just rode that thing until the engine sees the one day.
Jesse (43m 7s): That's amazing. You know what we like when we get a, you know, 40, 30, 5, 40 and older, you get the cooler cars, but you can pop that down. That Ford Maverick beside my dad's. I think his first car was a Ford Fairlane. Unfortunately I saw it on paper, but that's great, Brian, for, for those that want to reach out to you, what would you know aside from, I always say Google search. What would be the best way to, to connect,
Brian (43m 35s): Go to a ITR economics.com or brian@itreconomics.com. So like Gary economics is the website. You can email me brian@itreconomics.com.
Jesse (43m 51s): My bet. My guest today has been Brian Ballou. Brian, thanks for being part of working capital. It's been a pleasure. Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one.
Take care.