Future Economic Predictions From a 14-Year Fund Veteran | Kellen Jones Interview

All right, welcome back to the show. Today we got with us Kellen Jones. Uh, Kellen, welcome on the show. Good to see you, brother.

Appreciate it.

So Kellen, um, big-time fund manager, been in the space for how many years now?

About 14 officially.

14 years officially running your various vehicles and funds. We're gonna have you explain that in just a second. For anybody in the game though, you hear of a lot of— and this is just investing in general, I feel like— you hear of a lot of traders who Where people, you know, I've been trading for a year, 2 years. It's very rare to see someone that's been in the markets or been in the investing game running a fund for over 8, 10, 14 years. So we're gonna talk about, you know, last market, huge market cycle, this potential come-up market cycle. I think we got a fun episode to talk about. Now I wanna go back in your story when you guys were first starting. You were raising money in 2007, 2008. What was that like?

Hard. A lot of people don't have any.

Yeah.

I kind of mentioned that where a lot of that capital came from was from folks who were either fearful of where the market was headed and they were taking some chips off the table, or they were cashing out equity in their house and had to really quickly create arbitrage before that equity became due.

Wow.

And so that's where the primary capital that seeded our fund came from. And it was, it was small in the beginning, you know, uh, 10 or less people with $100,000 to $200,000 is all.

Gotcha.

So for that first year and a half, I mean, we were officially— we went from actually syndicating loans in 2005, '06, and '07 that were larger individually on a deal-by-deal basis than our fund was for 2 full years.

Wow.

So it was a challenge.

So you started out with syndications. Why move to the fund model?

We felt— I, you know, we had some division in our companies at that time because I felt like what we were doing was a security. I felt like we were underwriting loans, we were offering those loans as opportunities to investors. And of course, there's been a lot of changes that I hope we can cover since the JOBS Act passed. But up to that point, it was, it was pretty scary to be generally soliciting, but skirt that. And in reality, we were soliciting deals that were coming to us and arranging the capital. And even if it was in syndication, we either had to play under those limits of of what we could lawfully do within an LLC or a series LLC through a syndication, or we had to pivot. And so we created our fund.

Gotcha. To make sure, yeah, you were compliant, legal, and all that kind of stuff. What do you think the bank of the future looks like? Do you think banks are, with, you know, blockchain, will be disrupted? Or do you think they need to integrate into that and use that? What's kind of the future bank look like? Do you think there's going to be a big disruption? With banks, and what's your thought there?

I think that there has to be, number, I do believe there has to be a shift. And it's undeniable that there are certain technologies through blockchain that only help. And it's hard to see any bank, even the most traditional, oldest institutions, disagreeing that some of those changes don't take place. If you think, If you look at Warren Buffett divesting from all of his bank holdings except for Bank of America, and you whittle that down to what are they doing differently, it's not their banking activity. It's that they are the blockchain-friendly bank right now that's starting to talk about different cryptos. And so, I think that the future bank is one that is more accessible to those who don't want to walk into a branch.

Mm.

basically agree on what currency is. Because if I can, I think that the dichotomy is that mindset and the leaders in blockchain and crypto are, for the most part, decentralized. They're trying to get away from a third party being involved.

Yeah.

So, I mean, it's really crazy. Bank of America as well, they've created Coffee shops in their buildings where you, uh, just like Starbucks can enable you to, you can load up your, your coffee card, which is like their own, I guess, crypto if you think about it. It's just, it's what they accept in exchange for a coffee in a very— and so they load, they have, they have all this cash that traditionally they can use as a bank, but their, uh, their customers can use, you know, as a crypto. So it's got to change. I don't know where it's going.

Interesting. Well, let's go a little bit deeper here. What's your thoughts on monetary policy currently? As we're filming this, interest rates are pretty much zero. We've printed— I don't know the number. I've heard anywhere from 20% to 45% of the US dollars in circulation printed in the last 12 or 15 months. Thoughts on what the future looks like for the US dollar, for the Fed monetary policy? Can they raise rates? Are their hands tied? What I want to hear— and we can get into— I want to get into crazy land here.

Yeah.

I want to hear your thoughts. Let's hear— and, you know, this is everyone, it's not financial advice, whatever, but I actually— Kellen, I want to hear your thoughts from your seat. What do you see in the next 18 months, 24 months looking like with the Fed and monetary policy?

So to answer that, I've got to kind of tell you, I, I've always looked at retail investors, um, in the stock market primarily the same way I, I look at— I don't know if you've read Dr. Seuss's book The Sneetches.

Hmm.

But it's a story about a guy, an entrepreneur comes into town and convinces a couple of people to put a star on their chest.

Mm-hmm.

And then he builds a machine that charges to put stars on these Sneetches' chests. And, you know, after he gets all the stars on everyone because everyone's doing it, then he creates a machine to remove the star, and the cool people are actually the people without the star.

Mm-hmm.

And then he leaves town after everyone takes their stars off. Um, I own a GoPro and all the gear that comes with a GoPro, and I know how much that cost me. And when I see a stock's value, uh, more than the amount of widgets you could sell at the highest package that you're offering over 10 years, the overvaluation—

Mhm.

Meaning nothing to retail investors for like the last 5 to 10 years, is is really concerning to me. So I feel like on one side of this you have, um, a less sophisticated retail investor in the stock market, and the stock market traditionally, as we all agree, has, has been a major indicator of where we're headed. So I'm— I have, I have nothing bad to say about retail investors finally getting a chance to play with the big boys, and what we saw with AMC and, and, and GameStop was incredible. So much fun to watch. So fun. Yeah. But It also shows that those power shifts are coming. You have the accredited investor definition with help from organizations like those I'm involved with that has changed to be more open to those that if you're a BYU finance professor but you don't happen to make $250,000 a year or have a million-dollar net worth, you're accredited. I mean, you have sophistication, which is what the SEC is trying to say.

Yeah.

So I see a lot of good movement in retail investing. opening it up to the masses. And I hope that there's still a way to at least make sure there's some sophistication there so that people don't get hurt.

Mm-hmm.

On the flip side, beyond the cash being printed, we have, you know, higher than ever household debt, consumer debt. We have higher than ever business debt. We just went through a massive lull where most of the stimulus is coming from what people have received from the government. Which regardless of where we stand politically, our economy's not used to that type of solution yet.

Yeah.

And we haven't adopted that. So to go back and forth between economic policies every 4 to 8 years, that I feel in a world where innovation is creating movement and momentum and changes in how we handle our money and invest in businesses and return capital to investors, it's scary that that's the economic, world that we're kind of living in. But to answer your question, I don't see it going well. The stock that I am— the index I'm the most invested in personally is the VIX index because I feel like every 4 to 6 years you can buy it at $4 a share or $14 a share and it goes to $150 or $250 or $1,000 a share the second the market shows volatility. And all of the reasons that it's low right now because the market is good right now have a lot to do with debt and putting our finger in the dike with printed money. And I'm not certain we're keeping up with the world in innovation, and we are expected to lead the world in monetary policy.

Yeah.

So I'm scared. I'm a little scared from that perspective.

Interesting. So, and we have low productivity right now. A lot of people aren't working. And so you have money printing, you have these crazy price-earning ratios like you mentioned.

Right.

And so those are the problems. Where do you, I mean, we've been talking about this though even before COVID I've had people on my show talking about, hey, the crash is coming.

We've been late cycle for 3 or 4 years.

We've been late. So if you, in 2018, you were like, we're late, you know, and then 2019 came around, then 2020 came around, then 2021 came around, like where, Where is that day of reckoning?

And what does it look like?

You know, is it the— I guess the two, um, at least I think about, right? Obviously, if a country prints a lot of currency, you should have inflation.

Yeah.

However, is the United States the exception? Are we the exception because we're the world reserve currency? We have— and I think the US dollar currently is only backed by the US military. Like, the fact that we can drop bombs in other countries is, is really the only reason that Turkey or China or whoever will keep accepting our dollar. So do you think there's gonna be this black swan event? And if so, what event would it be?

I mean, we're not on the gold standard by any means anymore. And there isn't a certain underlying value related to our dollar, especially the more that we print. But I don't think it's a secret that this recovery or this event to come will be different than we've experienced before. Number one, because we're so late. We're so late. We've seen, I mean, if you look at the crypto bull run, you see, you know, these 300 and then 450 and then 800-day runs in crypto.

Yeah.

Since the massive crashes like we're experiencing in that world right now, that maybe, maybe we are the exception when it comes to recovery. The things that I think offset all the fear that our real metrics to look at are there's still demand in real estate, at least.

Mm-hmm.

There's still capital that's funding real estate purchases and investments that was either saved because people stayed on the sideline or accrued more. So although there is more debt, there's also a higher degree of savings. Some of that's come from the government, but I mean, if I were to, wave a magic wand and say, you know, you get a stimulus check and you don't necessarily need it to feed your family, what do you do with it? I'd say invest it. I'd say put it in the market— not the market, but I'd find a place—

Find a place to put it.

To grow it. So I don't fault anyone for doing that, but it isn't necessarily the same as accruing wealth over a lifetime of working. But the cost of labor is really interesting to look at against the cost of of the growth of the return of capital to investors. Like, that ratio is so out of whack right now.

And you mean, and cost of labor going up? Yeah, yeah.

I mean, the cost of labor is going up and there's higher pressure on employers to pay a living wage at a time where there's more inequality in who has the most capital and who is making the biggest return. So I don't know what it's gonna look like, but I do feel like this time it's gonna be different, and maybe that means that it will be a softer landing. Maybe it'll be less of an impact on those who have created some stability in their, in their portfolios. I don't know what it looks like, but I do know a lot of people are still hurting. A lot of people are still unemployed, and the moratoriums on the things that they were obligated to pay are coming due.

Yeah.

And those things we can't really plan around.

Yeah.

Huh.

That's interesting. Well, and that's wild. Your, your properties Geez, it's nuts. Yeah, and that feels like the top, right? Yeah, we've been saying that for 2 years.

But those buyers, they're not— they're obviously not investors. They aren't buying it for the same purpose I bought it.

Yeah, true.

They're gonna buy it to live in it or call a second home, and they aren't getting a loan from a— I mean, they submitted a proof of funds that says I'm buying, buying it cash. Yeah, so that gives me a little bit of confidence that although they're kind of screwing it up for folks that don't have those sort of means to buy a house and get into a first home, It's not with some crazy negative AM loan at 110% LTV. Like, they're paying cash.

Yeah. So yeah, it's interesting. What are— if there are people watching that are a little bit scared, okay, Kellen's giving me this, you know, all these things that are going on. What's some— not financial advice, but if you're telling your son or your best friend, where would you be some places to look at or notice or maybe to invest into or to think about right at that current time? And you've already been in the game through a previous market crash, right? I'm sure too 2004, 2005.

Yeah.

Felt just like it does right now. And what would, what would be your advice there?

Well, if I only knew someone who was a proponent of the fund structure. I'll start there. The fund structure, like what you're doing, is really important because not only is it teaching people how to create these vehicles, but my advice always goes to people who think that they're making good decisions by making their own decisions investment by investment. And if you look at those who were hurt during the financial crisis, It was the people who were mostly on black. They just, they picked something that most of their wealth was growing in and that thing corrected hard.

Yeah.

And although it whittled down, those who did have a spread on their, on their, on their holdings seemed to weather a little bit, a little bit better.

Well, that's exactly— if you listen to Ray Dalio, has been preaching for the last 8 months on all these topics. And his answer every time is just you got to diversify. I don't know. He goes, I don't know the answer, but if you diversify well, Generally, you're pretty good.

Yeah.

Last question I want to ask you, and I ask this to everybody on the show.

Okay.

You've got 2 minutes. I'm not even gonna interrupt you at all. You can share whatever you'd like with the camera. You can even look at the camera if you want, but what you feel like is most valuable to you in your career and business for people that are listening, what would you feel like is most important to leave this audience before you go?

As you prepare to go and create wealth through fund management, 'cause I think that's your audience.

Mm-hmm.

I mean, I'm not gonna talk about how— my big platform is that the market is not a good comparable metric for us because it's just full of uncertainty and stupidity. But for the— or when I talk to kids, I'm like, don't follow your passion. Go and find something that is creating Wealth, whether you like it or not, put food on the table, and as you create a nest egg, create freedom to go and do what you are passionate about. But I would say those who are getting into this game, it is not for the faint of heart. Creating a fund, raising capital, these are all wonderful skills that Bridger's helping you learn. As you get into that driver's seat, These people have either entrusted their money with you because they have inherited it, and the person they inherited it from worked a lifetime to accumulate it.

Mm-hmm.

They've worked for it. They built a business and sold it. Now they've got this exit, and they're giving you some of the capital. They have $1,500 at the end of every pay cycle over 20 years that they are handing to you. Think about that every time you deploy that capital. make sure you understand that the win did not come when you raised the money. The win comes when you recapture the principal, preserve the principal with a yield on top of it. And the coolest thing about, I think, the, the, the sector we've chosen to operate within, beyond it being tangible, is if you think about the American dream, the thing I love about fund management, specifically in real estate, is that you are taking a situation where someone needs capital from someone who has worked to create capital, and in an unconventional way that they wouldn't get through the bank, you are connecting those dots, and with that capital is created something tangible that wouldn't stand otherwise, and within that tangible thing, if it's student housing, we have 1,044 kids in our latest building.

Wow.

This year, 25% of those kids are going to meet their spouse. They're going to start a family. Hopefully they don't start the family in the student housing, but they are going to decide what they're going to go and be.

Yeah.

In our retail building, there are 4 businesses. One of them will fail. 3 of them will thrive. Those— there's beauty there. They're hiring employees. Those employees now feed their families. I love that in fund management, as you deploy capital and take it seriously because of where that money came from, not only can you build wealth for yourself and your family, it's a great model to earn a living with, but you create this ecosystem where everyone is winning if you don't get greedy. And it's a great thing that you're doing by democratizing the entry points, because if people learn how to manage capital and deploy it, With integrity, you know, there's no better place to be. It's fun. Every single day is different and I love what I do.

Kellen Jones, thank you so much for coming on.

Thanks so much, brother.

I love that. That was spot on. I absolutely love that. Where are people— people watching on Instagram or live here, whatever— people that can go find you? What's a good place to follow you or reach out? What's— where if people want to find you and your stuff, where do they go?

You hit me on LinkedIn or our website is prospera.fund, F-U-N-D. So depending on who you are, we either put the F-U in fun or fund. Yeah, but that's where you can find prospera.fund, right?

And then just Kellen Jones on LinkedIn and Instagram as well.

Yeah, I'm on TikTok now.

I've been seeing his TikToks. He has some good TikToks.

Yeah, Jones.

I love it. Okay, thank you guys. We'll see you next one. Bye.