Inflation, Recession, Jobs: Discussion with Economist Dr. Chris Kuehl

Hello, future billionaires. Welcome back to another episode. This conversation was— wow, mind-blowing. So this is a must-listen episode. Buckle up. This is fun. It's a lot of economics, but we hit a lot of points and we brought on a special guest. His name is Dr. Chris Keele. And, uh, he was— it was really amazing to see the level of knowledge he has. He's been doing this for many, many years. And you definitely should see, you know, on YouTube, you can watch and see his study. He's got bookshelves just stacked of books. Been doing this a long time, but He is a, uh, doctor. He actually got a doctorate in, uh, Soviet and East Asian studies, uh, way back in the day, which is fascinating. But he was a professor for 15 years and he now runs a corporate intelligence, um, uh, business where he does, you know, economic keynote presentations and talking about different trends going on. Um, for many, many years he puts, uh, together a newsletter, which he talks about at the end. But Bob, what did we talk about? What was—

Oh my gosh. Interesting to you? So yeah, first thing we talked about. About recession or no, and interest rates. You've got to hear this. I'm not going to spill the beans.

So good.

And then we talked about, about energy and manufacturing, manufacturing, the reshoring trend, which is, which is, you know, he actually works with a lot of manufacturing clients and what is happening on the ground. So this is absolutely a must-listen episode.

Yes. So we hope you enjoy it and hope you get a lot out of it. This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned. We focus on macro-driven alternative investments so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. Welcome back to the Invest Like a Billionaire podcast. I am your co-host Ben Frazier, joined by fellow co-host Bob Fraser. And today we're joined with a guest we're very excited about, uh, Dr. Chris Keele, and he is the managing director of Armada Corporate Intelligence and a very sought-after keynote speaker as it relates to the economy and forecasts for a lot of corporate clients. And so we're very, very thrilled to have Chris on the podcast today to share his thoughts on the economy and a lot of other things we'll get into here down the road. So Chris, thanks so much for jumping on and sharing with us today. Today.

You're welcome. Thank you.

Yeah, well, you know, maybe let's kick it off. You know, I think, you know, we're here in, you know, February, and a lot of investors and just people in general are worried about a potential recession and what are the impacts that that may have on, you know, just the bottom line individually, but also collectively, you know. And so give us some thoughts of where do you think we're at in this economic cycle? What are some of the things that are going on and I know you study this stuff every day, so share with us some of the things you're seeing.

Lately, it's been a lot better news than we thought we were going to see at this point. I mean, if you went back to 2022, everybody was lining up to say it's going to be an awful recession, it's going to be the worst ever. Now all of a sudden, everybody is reversing course. The Europeans have now announced that we're not going to go into recession. We have seen an improvement in energy pricing. Consumers are still spending. We have begun to really see the IMF, the World Bank, the OECD, all of the big think tanks saying, well, maybe a slowdown, maybe a little bit of a, you know, a correction, but we're probably not heading into a full-blown recession. Even at the end of last year, we started to see numbers surprisingly high. We had predicted, we being economists and we're so good at predicting, We thought that the third quarter would be very anemic, no more than about 0.5% growth. Fourth quarter was going to be just as bad. And then we actually got the numbers and third quarter grew at 2.6% and fourth quarter grew at 2.9%. So it's like, oh, okay, we only missed that by 3 points. You know, we're close. And it's like we've just seen certain certain doom and gloom predictions didn't quite come as we expected them to. And doesn't mean we're off the hook, doesn't mean that we don't still have issues, but the big concern now is simply what the Fed does with interest rates.

So, so the Wall Street Journal article, I think it was today, they said, you know, we might not even have any negative growth at all. We might actually grow. And, and, you know, and I've been talking about this for, for a while. The consumer is super strong right now. You look at, you know, consumer consumer spending is high, consumer savings is high, you know, record cash. I mean, I don't know what is going on with household checking accounts being $5 trillion above normal, record real income, high wealth effect, low debt service costs, and a strong job market. I mean, the consumer is in insanely good shape right now. And yeah, inflation is taking its toll, but the Fed is gonna have a heck of a time, you know, getting us to recession. And even Goldman Sachs has been predicting, you know, you know, their, their odds of recession keep, keep going down. So I, I think obviously the Fed can make life miserable, but they're gonna have a heck of a time putting the lid on this thing.

Well, and you can see that the central banks, the Fed, the European Central Bank, all of them are moving in roughly the same direction. They're all basically backing down from what they were talking about even as recently as November, December. You know, they were still talking about half-point increases, three-quarter-point increases, and then suddenly, well, no, maybe a quarter, and maybe we stop there. Uh, Bank of Canada was talking about raising rates as much as 5.5%. They pushed it to 4.5% and said, we're done. That's as far as we're going. We're finished. Um, so little by little, even the central banks are backing off. Their challenge has been that they have always looked at employment as the marker, that they know that they have had an impact on the economy when the unemployment rate rises. But there are so many things about the unemployment situation in this country now that are unusual. The Fed can't use it the way they used to. Um, we have the simple fact that 74 million boomers will have reached retirement age by 2030. So that has taken a huge chunk out of workforce participation. We have the gig economy now. The gig economy has drawn people out of the traditional workforce and we don't even know how to count them. You know, one of the ways that we look at unemployment is the household survey. And we go to a household and say, is there anybody working in the household? The people who are doing Uber and Lyft and DoorDash frequently say no. What do you mean you're not working? You've been driving the stupid car every day for 2 years. Yeah, but it's not a real job. If I don't feel like it tomorrow, I don't have to drive. You know, I can quit anytime I want. I don't have a boss. I just, you know, decide. So they're responding as if they don't have a job. Well, they do have a job, and, but we just don't know how to count 'em. And that category is confusing the Fed. So the Fed now is trying everything. They're looking at purchasing manager's index and housing numbers and retail and your point about retail, there's still $3.5 trillion in excess savings in the economy, the US alone. And this is left over from 2020 and 2021.

Yeah, exactly. I mean, you know, the stimulus, this whole idea of, you know, direct payments to individuals, right? That's never been done before. And all of a sudden, I mean, it is, it is way more powerful than any other stimulus set. When you actually just put money in people's pockets, they, Quit their jobs, they start spending, they got, get Robinhood accounts and buy crypto, and it's completely different.

And the fact that they really couldn't spend the money they got. I mean, we had that very bizarre recession where it's like, well, here's all this money for you, go out and spend it. And they're like, on what? You've closed everything. I can't travel, I can't go to a restaurant, I can't do anything with it. So what am I supposed to do? The savings rate went from 6% to 38%. In 2 quarters, and that money's still there. We're now starting to spend it, but the bulk of that spending is gonna be in upper 25% of income earners, and we don't yet know what they're gonna use their money for. Are they gonna go back to traveling? They gonna buy stuff? We don't know.

As you pointed out, you know, the job market is in a very weird anomaly. We saw the labor participation rate drop, and this is the number of percentage of of people who are in the workforce population took a big drop during COVID People assumed it was, you know, COVID, but it hasn't recovered. And there's been a lot of talk about why. And then Blackstone came out with their research that showed that it was demographically based, which you just called that out as well. And this is not cyclical, right? This is structural. And you've got people exiting the workforce, the boomers, you know, are retiring. It's that time. I think wages, there's— it's going to be high. Adding to the fact, I think energy is going to remain high, and that's a whole other topic that I hope we have time to get into. But I don't think the Fed can meet a 2% target. I don't believe that. I, I think it's going to be really, really hard.

Yeah. And I think when you hear the conversation from the central banks, they're, they're fudging things a little bit. Even at the Jackson Hole meetings last August when none of this had really become front and center. There was a recognition that realistically we're probably 2.5, 3% as our real target. And I think the idea of aiming for 2% was when there was concern that we would have deflationary impact, which has not been a problem we've ever dealt with, but Japan does chronically. So I think enough things have changed beyond the fact that the boomer delayed retirement. We were notorious for not having lives, so we kept working. And, but when you get into your 80s, it's like, okay, now I really am done. I, I, you know, I'm done, you know? So, and then you look at things like the, the women that left the workforce during COVID there are 5 to 7 million women lost their jobs. Schools were shut down, so they had to go home. Well, they found other ways to make money. I gave a talk to the Dry Cleaners Association. They pointed out that their biggest threat was internet laundry, that women had gone home, started doing other people's laundry from home, and the average take-home was $350 a day. So now they can go back to work at minimum wage and make $120 a day and pay taxes, or they can just keep doing other people's laundry and nobody knows they're doing that except them and whoever's tighty-whities they're working So are they going back to work? No. Why would they?

Is the Fed gonna be able to meet their targets? You, you think they're gonna move their targets up? And publicly they're not saying that publicly. They're sticking to 2.

There's the public and then there's the public. There's a lot of what the Fed does that most of us are blissfully unaware of. And if you really want to get a sense of where their theoretical heads are, you go back to the proceedings that come out of Jackson Hole. It's interesting that it's Jackson Hole meeting is sponsored by the Kansas City Fed. So for those who are in the Kansas City area, you can just go down to their headquarters and read it. And it has all kinds of academic arguments about why the inflation rate should be considered higher, that 3% is more realistic than Interesting. And the Europeans have kind of gone there too, because they're, they've said for years that countries are not considered in trouble until they're at about 3, 3.5% inflation. That's kind of a tacit way of saying, yeah, we'd like it to be lower, but if it gets a little higher, we're not gonna panic.

So, you know, we'll see what inflation comes in. I think even 3% is gonna be a challenge, at least for the next couple years. And And so will the Fed pause and keep rates below inflation? I mean, that's— or will they, will they, will they continue to drive it up in the, in the near term, the next couple years?

I don't see them driving it particularly hard because one of the things that people learned about economists is that we are constantly forecasting even though we know we can't. And often that forecast is more of a warning than anything else. It's basically saying, if you don't do this, or if you keep doing that, you're going to reach an unpleasant conclusion. And what you're hearing almost overwhelmingly is directed at the central banks saying, if you keep pushing as hard as you have been on the issue of inflation, you are going to send things into recession. And the various central banks are kind of reacting by saying, hey, maybe we aren't gonna push that hard. You know, we don't spend a lot of time focusing on other banks, but for example, the Bank of Japan is getting a new central bank He's an academic and he has been extremely forceful about wanting to keep the loose monetary policy that the Bank of Japan has. And he's got quite a bit of clout within the central bank community, and people thought maybe that Japan would start raising rates. And he's coming out and saying, uh-uh, no, makes no sense. Um, granted Japan has different problems, but You're starting to even hear a little bit of that from people like Christine Lagarde, uh, with the European Central Bank.

So, so if, if they're a little softer on raising rates, uh, you know, as you're, as you think they might be, we are definitely in for a soft landing or no landing, right? Is what the Wall Street Journal said.

You know, it's hard to tell because as we all know by now, central banks have given the impossible task of going both directions at once. Stimulate the economy and control inflation. You do realize we only have one tool, you idiots. We can't do both at the same time. But there's, there's kind of a sense that, that their job, per chance, has been done. They're not as sensitive to the unemployment situation because they're seeing a little bit of, of impact. We all know the drill with central banks. They raise rates until they break something. Then after they've broken it, they lower rates to fix what they broke. And I think they've concluded that they've broken enough. Housing certainly has been broken in some significant ways, not multifamily, but single family. You've seen a decline to a degree of industrial production. Purchasing Managers Indexes are now under 50. So there's evidence that, okay, we slowed things down. Maybe that's enough. And now we can take our foot off the gas and see what happens. Yeah. Just give it a couple meetings.

Yeah, you're right. All the, all the measures you mentioned are, are, you know, none of them are really to the consumer and the consumer is not yet cowed. You know, they're going full on.

That's part of that employment thing too. We know that consumers have no trouble spending beyond their means if they have a job. And as long as they're employed and as long as they're confident about their employment, and that's the critical thing is the confidence part. If people start to see layoffs, people, they just assume that they'll be next. You know, I mean, it's just human nature, you know, oh my God, they fired Bob. Bob is smarter than I am. I'm next. So as long as Bob has his job, we're all feeling good.

You know, we are seeing, what is it, the consumer confidence numbers are low though right now, right?

Yeah, they're as low as they were in 2008 crisis. Yeah.

And yet people are still spending. It's kind of, you know, so it's been disconnected, right? Consumer confidence has been disconnected from spending.

Consumer confidence is always weird because consumers are given these questions in the middle of the day. Are you feeling confident? Why not? If you live in Kansas City, it's like, what do you mean, am I confident? Did you just see the game? You know, so Philadelphia would be saying, no, I'm as depressed as I've ever been. There's going to be a recession in the last 500 years. We're all going to lose our job and die.

We've paid a lot of attention to consumer confidence in the past. You're not paying that much attention.

It's not one of my favorites because it tends to be a little bit flaky. We know that consumers react predominantly— Yeah, they are going to react, and they always have, to gas prices almost more than anything else. And we can watch people's attitudes shift up and down. I like things like the Purchasing Manager's Index because purchasing managers don't know enough to lie. So when you ask them, are you buying more or less steel? They're like, more. How come? I don't know. I don't even know what we make, man. You know, they just told me to buy more steel and we're outta toilet paper. You know what I mean? It's just, they just, it is what it is. They don't fudge it.

It sounds like you're in the more the soft landing or no landing camp?

I am, I am. I'm soft-ish. I think we'll have a little bit of a landing. We've seen in the research that we do, we do a strategic intelligence assessment we've done for like the last 3 or 4 years, and we saw the big dip, which we saw in the last part of last year, which continues into the first and probably half of the second quarter of this year, but then begins to trend back up. And you start to see the numbers getting very close to the 10-year trend line, you know, and by the end of the year it's slightly above the 10-year trend line. So it's in our, our research, it's like 26 variables, mind-numbingly complex, but it's been about 96% accurate. And so we're fairly confident in what we think we're going to see by the end of the year. First couple quarters, probably the worst.

So do you have any forecasts on when you think rates will start to be cut?

Traditionally, over the last 40, 50 years, there's been a bit of a pattern, which is that whenever you hit peak global inflation, which we think we hit in December, 6 to 8 months later, the rates start to come down. So if we did indeed hit peak in December of last year, that would mean rates coming down in midsummer. And probably not dramatically. And it may just be nothing more than stopping the rate hikes, right, about that time. But it would not surprise me if by midsummer you got some kind of tentative quarter-point reductions just to see what happens.

So a couple questions related to this. You kind of opened the can of worms. Real estate is broken, meaning, you know, they've They've changed. The economics of real estate are dramatically different than they were 6 months ago. And, you know, one of the report came out from Fitch and they said of the commercial CMBS that they rate, they said 23% of the 2023 maturities that they rate will not qualify for a refinance in the current conditions there. The debt service coverage or the LTVs will not qualify. I mean, so we are definitely going to see see some, some bugs hitting windshields, you know, this, this year and probably the next few years as, you know, refinances don't work anymore. You know, are you paying a lot of attention to that? To me, that's— there's clearly going to be some, some sales and some fire sales and some distress.

We see the cyclicality in construction, both residential and commercial, because it has always followed that boom and bust environment. When the opportunities are there, everybody and their brother gets involved in it. We all remember 2008 when the housing market was absolutely on fire and all of a sudden it just burned up and, and then it happens fast. What has been driving a lot of commercial construction is what's happening with manufacturing. The reshoring thing has brought a lot of manufacturing back, and as it has, you've had to see expansion of facilities to accommodate machines to accommodate the workers, accommodate the inventory. 34% of the commercial construction new starts in the last 6 months have been manufacturing related. Wow. But at the same time, wow, you're losing a lot of momentum when it comes to the traditional stuff like office buildings and healthcare. And so it's, it's not exactly a wash. They've gotten some additional business, but they've lost some of their big big players. And as is often the case, these really big projects which have been carrying people through this year, last year, they come to an end and there's nothing really to replace them. So the, the gittin' was good there for a while, but then it falls off. On the residential side, multifamily is still booming. Single family has gone into the toilet. I mean, permits are down over 25%. Part of that's demographic. Part of it is the fact that single-family home prices haven't come down yet. They will inevitably, you know, the mortgage rates go up, prices come down. It'll happen in the existing market first and then eventually gets into the new market. But yeah, people in construction are kind of used to the fact that they live on a roller coaster and, and the ride is just about ready to go into plunge. Before it goes back up again.

Yeah. So one of the charts I look at is, you know, this 40 years of declining interest rates, right? So, you know, you and I go back, you know, we remember the '80s, right? Double-digit interest rates. All right. And if you look at the chart, it's down and to the right. I mean, it's just, you know, and all of a sudden it looks like it's over. And is it over? You know, and I would argue that that that's the baby boomers, you know, the capital accumulation of the boomers, and they're making capital costs coming down. And, and now that the boomers are retiring, they'll be pulling capital out and capital costs are going to rise. And it's going to mean the idea that I doubt we'll ever again see 2% and 3% interest rates. So I don't know your opinion on that.

Yeah, I think you're probably right, because even when we lowered the rates to all-time record lows, there were critics who were saying, look, this is neither healthy nor maintainable. Again, referencing Kansas City, those of us who are from this area know that when the rates were dropped to zero, there was one dissenter, Tom Honegger of the Kansas City Fed, who said this is a dumb idea and was basically proven right later. So I agree that you're not going to see rates that low. I think you will see the continued volatility where rates come up for a while, come back down again. But I think you put your finger on the real issue, which is how do we switch from a boomer that was putting capital into the system to one that's pulling capital out of the system? And is that an opportunity for one of the other demographics to step up? And as a boomer, it terrifies me to think that the demographic that we're waiting to step up is the millennial. And then I began to weep. Um, but they may, but they may surprise me. Yeah.

Well, I'm sitting next to a millennial.

Yeah.

Well, they're not all babies, but you kind of escaped the, uh, I'm on the tail end of it.

Yeah.

Yeah. Yeah.

There always are the anomalies, you know, thank God, you know, we might see that, see the interest rates, you know, be, be, go along normal. It's interesting, I'm looking at your, at your wall, at your books, and, uh, I'm jealous. I want to go read all your, all your books. But I have one on my wall, you probably— I think I see it up there, and it's, uh, it's called The History of Interest Rates, and it goes back. It's basically a 6,000-year history of interest rates. And interest rates, the, the natural rate of interest rates is, you know, in the 5 to 6% range, and You know, I would, I would argue that it's, that it's probably gonna go in that range, you know.

Well, kind of the good news, bad news is that since you brought up Uncle Paul, the good news is we're not gonna go through one of those either. Where you suddenly have such an inflationary surge that your only solution is to jack rates up to 20%, clench your cigar between your teeth and just tell everybody to hold on because it's gonna be awful. So getting into this kind of rhythm of 4, 5, 6% moving up and down within that range. When it comes right down to it, business, particularly manufacturers, the only thing they really crave is predictability. They just want to be able to forecast far enough ahead to say, look, if I'm going to spend a bunch of money on a big machine, I need to know there's a reason to do that. And I'm, I'm not really waiting for rate increases or rate decreases to determine my investment strategy. I'm trying to read demand, but very far out because I'm buying a machine with a 30-year life. Is, is it going to be worth 3 decades? And who can tell? I mean, it's so, And I think it's interesting that the US is still dominant when it comes to its role in central banks, but it has a lot more competition than it used to. And we now have to pay attention to European Central Bank, Bank of England, Bank of Japan, Reserve Bank of Australia, Bank of Canada. All of that matters. And it affects export-import. Volumes. Um, the, the dollar was very strong at the beginning of last year because we rose rates sooner, but then everybody else started raising their rates and the dollar began to weaken. And it's like, well, it's because investors are moving to where the rates were hiked. And we've got Bank of China to contend with, and they don't even necessarily play by the same rules as everybody else.

So you've opened the door here to, uh, to the reshoring thing. Let's, let's talk about, let's talk about reshoring. And so this is a trend that, that we pay a lot of attention to. We're just right now in the middle of a, just, uh, you know, middle of a construction of a brand new, you know, uh, large big box warehouse, not warehouse, it'll be a manufacturing facility probably. And, you know, we're seeing the massive, massive reshoring. I mean, You know, we've seen this globalization happen really since 1945. If you look at the percentage of GDP, world GDP that is trade-based, it's just gone up and to the right. It's all reversed now. It's all coming the other way and, and we're seeing the end of it. I mean, you know, you know, we've talked about this before that, that the world has underpriced the risk of globalization, right? And as we're seeing now that, you know, 100% of our, you know, of the processing of ores and these kind of things is going on in China. We're seeing, you know, outsized, you know, China, China is, is the, is the keeper of so many, so many processes, industrial process manufacturing and other things. And it doesn't make any sense. I mean, you know, the rare earth minerals, they're the largest producer of rare earth minerals. Well, we need that stuff. This is a rogue state. And, uh, you know, cannot be trusted to do anything that's not in their own self-interest. So, so I mean, obviously, you know, there's so many things that are driving this reshoring trend, but it's a very, very big deal. And I think we're at the beginning of it. I want to talk about reshoring and give your thoughts.

We saw $1 trillion worth of reshoring last year. We'll probably see a similar amount this year. And the seeds of globalization's decline were planted in the very beginning because globalization, the whole just-in-time thing, worked. As long as you had societies that were able to maintain very low production costs. But as you get more successful, as China has become, those costs go up. At one point, you could hire a skilled machinist in China. This is like 10, 15 years ago, and they would be paying them around $5,000 a year. That same machinist is now $45,000 a year. Still cheaper than here. But a lot more expensive than it used to be. You used to have lots and lots of suppliers. So if you were counting on just-in-time, something happened to Supplier A, you shifted to Supplier B. But as we saw with silicon chips, it consolidated. So now we're getting 75% of our chips from one company because they were the best and they consolidated. They bought up their competitors. They put their competitors out of business. And now all of a sudden we're having to diversify again. So what's been driving reshoring is 3 things really. It's one, balancing out the cost and realizing the transportation costs are a big factor. Number 2, it's recognizing you can be competitive with a low production cost environment if you use robotics and automation. So a lot of what's happening with manufacturers now is that they're turning to those techniques rather than counting on people. And then the third is really just encouragement from the country itself that when we've been fighting the trend to globalization, every other country in the world would subsidize to a degree critical industries. We rarely did. Now all of a sudden we're like, oh, um, we need chips for the Air Force. Gosh, maybe we should not depend on those coming from a country we are planning to go to war with. That's probably not a good idea. And all of a sudden Intel gets support and Taiwan Semiconductor gets support to build a factory outside Phoenix and Samsung gets support to build one outside of Dallas and Integra is building one in Kansas. So it's like, yeah, we've always been allergic to that kind of, of government support, but the companies like Intel say, we can't do this on our own. And if you make us do it on our own, we're going to go somewhere else.

Yeah. The Wall Street Journal, there was an article maybe a month ago or so, and they're talking about one guy who had moved all of his manufacturing to China. And he said 100% of his customers were saying, hey, can you stop sourcing from China? We want you to move outside of China. 100%. And now that's just anecdotal, but I think any company in America sourcing products is looking now where it's coming from and is trying to figure out how to, how to de-risk.

And, and, but in that particular case, he also has some pretty big challenges too.

He said no one is like China. He said, yeah, the, the products, there's a unique network of suppliers. I can go to Vietnam and maybe get cheaper, but I can't get the plastics I need there. And he said no one has the scale that China has. So he says it's, it's, he says, I don't know how to, to get out of China.

I mean, and the transportation issue is critical because you see countries like India, they can compete kind of product to product with China, but getting it out of India is impossible. The roads are bad. The rails are bad. The airports are bad. The ports are bad. China invested in infrastructure and it's very difficult to replace that quickly. One of the reasons that Vietnam has picked up so much business is that we helped to build them the infrastructure they need. You know, they keep pointing out that— Vietnam, yeah, it's like, I know you built the port for aircraft carriers, but it's really dandy for container ships too. Um, yeah, America.

God bless America, man.

Exactly. Well, I've come to the conclusion that if you want a country to like you, you have to go to war with them and then they like you because our allies right now, Vietnam, Germany, Japan, the countries that hate us were the ones who were on our side in World War II.

Um, so, but what, what are you hearing like more boots on the ground level? Cause I know you're on a lot of associations and manufacturing guilds and other things to where. You have these kind of conversations at a level that's more than theoretical, you know, what, what's kind of the conversation? Is it, hey, we know we need to, you know, shift to a US-based manufacturing to de-risk, but, you know, here's some impediments or here's, you know, the long path to get there. 'Cause we're saying early innings, but you know, how, how long does this take and what does that shift look like over time?

Virtually every one of these manufacturing groups, number one, they're all reporting that they have a very good solid book of business right now. Almost any group I've gone to is like, hey, we're doing great. We don't see a recession coming. Now, to a degree, this is a self-selected group. These are people who are coming to meetings and people whose businesses are failing don't come to meetings. Um, it's the ones who are doing well. But the other comment that's coming from them is that they are prepared to do a lot more production in the United States because they are relying a lot more heavily on robotics. And they're learning how to do that at a record pace. The big companies have been there for a while, but now it's the small and medium-sized companies that are saying, hey, I can do this too. Their biggest challenge, however, goes back to workforce. You don't have the workforce to support that expansion because you're having a hard enough time just finding your ordinary manufacturing employee. But now if you want to be a welder, you better know how to put down a good bead, but you also better know how to program a robot welding arm. And so finding that skill, which is exactly the same challenge China has. China has a worker shortage right now, 1 billion, 400 million people, and they're short workers because they don't have the skills for modern manufacturing. They used to be able to bring people in from the rural area. Recognize that half the population of China does not speak either one of the dominant Chinese dialects. Wow. Half the population does not speak either Mandarin or Cantonese. So they come in from the hinterlands and they're like, I don't even know what you're telling me. 'Cause I don't speak that language. And, and so much less know how to run a laser cutter or a press brake or a plasma cutter or any of the other things that we need now.

Wow. What do you think? I mean, on the one hand you have, you know, investment in robotics and technology that is deflationary, right? But then on the other hand you have labor shortage. And if we're bringing things back, that's inflationary. You know, how do you kind of see those forces balancing out? Is it, you know, inflationary in the short term and over time, you know, bringing back—

It's probably more short-term phenomenon because generally speaking, when you bring in the machinery, It depends on how fast you can integrate it into your business. But one of the bonuses is that as you bring in these machines, you discover that you can do all kinds of things you didn't know you could before. You bring on new clients because the machine doesn't care that you were in the automotive sector. The machine says, I can make anything. If you want to make stuff for cars, cool. If you want to make things for X-rays in a hospital, I can do that too. And I've talked to an awful lot of businesses that have said, I just turned my operators loose and said, what else can you do? And they said, we can do all kinds of stuff. You know, you find me someone to sell to and I'm, I'm there.

So you said $1 trillion last year, which doesn't surprise me. And, and I mean, correct me if I'm wrong, I think this is a multi-decade trend. We've been globalizing for 65 years. There's going to be deglobalization. This is a massive trend that, you you know, that is, that's going to go on for a very, very long time. And it's going to take a lot of real estate, a lot of robots, a lot of infrastructure. And, you know, so you're, you're agreeing.

Yeah, I agree completely because it's not just us. I mean, you're seeing that same reshoring happening in Europe. You're seeing it happening in Japan. The developed countries are looking at their future a little differently and basically trying to figure out How do we produce? How do we compete? What do we import? What do we export? What do we do as far as worker shortage? We're going to have to rethink a lot of things, including immigration. You know, we've always looked at immigration as kind of a second or third generation solution. You let people in, you mostly want their children because they're going to be educated in the system. But today it's like, no, I need somebody who can run a CNC machine now. So how do I get that person when everybody else in the world wants that same person?

Yeah, it's so interesting. We just saw— I just think it was an article the next last couple days in Wall Street Journal, and talk about in Europe, they're, they're now trying how to bring solar manufacturing back in, back in town. And, uh, because 80% of solar, solar panels are manufactured in China, and they they think it's too risky. And, you know, so yeah, it's interesting that it hopefully will affect immigration. I'd love to see, you know, a sensible immigration policy in this country. It seems like it's just nothing but political bickering, you know, rather than, rather than a real solution. Hey, these guys really need jobs and we really have them, you know, let's, let's, let's work out something here that makes sense, right? For everybody.

And frequently, because when you start to focus on that, given the way that patterns have behaved in the past, when you bring in somebody who's got skills and gets well paid in the United States or Europe or anywhere, a significant part of their money goes back home. And that ends up developing their own countries from which they came from, which reduces the number of people who are trying to move to the US because they're like, I don't need to move to the US. Cousin Ferd has a really good job and he's sending money home. And we're cool.

Yeah. One thing we've been seeing too is, you know, even not just US-based companies, but even European companies that are saying, hey, it makes sense to shift manufacturing to the US as well because of energy costs, right? Which is one of the biggest input costs. And, you know, another trend we've been looking at and studying is energy. You know, we're going to get into that for the last few minutes here, but, you know, what are you kind of seeing in the energy space? Our view is that there's some fundamental challenges on the supply side, you know, constrained supply and You were talking about before we hit the record button, you know, demand is relatively inelastic. You know, there, there could be some challenges where energy prices remain elevated, which is also inflationary.

I think the trick with energy is that people are accepting the fact that it's going to be a multifaceted solution. There's been this notion that it's either this or that. It's either fossil fuel or solar. It's either gas and oil or it's wind. It's going to be all of them. Um, and you're gonna take advantage of where you have the advantage. And oil and gas is not gonna go away. Energy Information Agency predicts we're gonna be 75% dependent on fossil fuels through the year 2070. So it's not going away anytime soon. Nuclear power continues to see a comeback because Europe had all of these problems because of the sanctions, except for France, because France never gave up its nukes. Nuclear France. So, um, it's just, I think we're finally gonna start coming to grips with the fact that there's no sort of automatic, we're not all gonna start driving electric cars. We're not all gonna start putting solar panels on our house, but some of us will. And I dare say people in Arizona will have more fun with solar than Kansas City. Um, on the other hand, Kansas has a lot of fun with wind. Our big problem is it blows too hard. And rips the windmills to pieces. But other than that, um, so I think energy is, is likely to be short-term inflationary. But what we've learned over the years is as soon as demand goes up, it's amazing how quickly people find energy. You know, it's kind of like, oh gee, I didn't know we had it here. Uh, my little rule of thumb has always been the gas prices are way too high when Kansas oil is marketable. Um, it's just like when we get that desperate, then we know, um, that more development is needed. Yeah.

So since 2015, we have seen investment in global energy infrastructure drop by 55%. So the spending has dried up. And there was this narrative that kind of came forth, and it was that we were kind of post-fossil fuel, as you're pointing out, right? That there's this narrative that We don't need fossil fuels anymore. It's all in the decline. Well, why, why invest in a declining business? And so I think, I think we're in a pickle right, right now where we, we have not invested in the infrastructure. So you made the point while we're off camera, you know, that, that demand was inelastic, but I would also argue that supply is, is inelastic because if you haven't developed an oil field, there's, there's just no way to turn that on, right? And it takes time to do that. And, um, So I, I, I think especially if, if we are predicting economic growth, we are going to see, we are gonna see energy prices, uh, spike.

I think it may be fairly short term, but you see how quickly even now some of the investors are changing their tune. They certainly are in Europe because the, the assessment prior to the sanctions was that we're all gonna go alternative direction. We'll never need this again. and now all of a sudden it's like, we're not ready to do that, are we? Um, we, we need energy and suddenly money is flowing into it again. The investors are opportunistic and they pay attention to trends. And one of the things that they were paying attention to is that government support for energy was all oriented towards the alternative side. And all of a sudden you start to see more willingness to back new versions of old technologies. How can we use gas and oil and coal more efficiently? And suddenly that begins to attract attention. And I think that that's ultimately what— but as of oil, again, is one of those things that it's when demand is high, the prices are high, and then that forces demand down and the prices come down. And then, man, I mean, just watching the way people buy cars. You know, it gets up to about $4 a gallon and all of a sudden people are looking at little fuel sippers and as soon as it drops to $3, they're like, I hate those damn fuel sippers. I want my truck back. So it's like we are nothing but predictable.

That's awesome. Well, Chris, this has been a real treat for us.

What a highlight.

So thank you so much for coming on. And for those that are, you know, curious of the research you do, you mentioned before we hit record here, you do, I think you said a newsletter 3 times a week. Tell us a little bit about that and for people that may want to get on that newsletter.

It's called The Flagship. It comes out Monday, Wednesday, Friday, and it sells for the whopping price of $7 a month, same as 2 caramel macchiatos from Starbucks. So that's all you have to give up. And it's about 5 or 6 pages worth of global US economics. We look at raw materials and supply chain and environmental stuff. It's just designed to be a quick read. It's designed to be guiltless. If you don't have time on Monday, don't worry about it. It's coming back on Wednesday. And you know, you don't have to— I used to accumulate weeklies, like, I'm gonna get to 'em, I promise I'm gonna read them. And then I would just, then I would just get frustrated and delete all of them. So now it's like, hey, no sweat. If you have time for it, read it. If you don't, Don't worry about it. It's coming back day after tomorrow. So the way to get in touch with it is simply to send me an email, which is the simplest. And my email is chris.keele, so C-H-R-I-S dot K-U-E-H-L at armadaci.com. So that's A-R-M-A-D-A-C-I dot com. Perfect.

And we'll, we'll put a link to it in our show notes here and I know I definitely got way more than $7 of value today.

So, oh my gosh, this was great.

So thanks so much, Chris, for coming on. Appreciate it.

You're welcome. Thank you guys.