Economics Expectations 2022

Oh! Ah! Ah! G-L-O-R-I-A! Gloria! G-L-O-R-I-A! Gloria! I'm gonna shout it all night! Gloria! I'm gonna shout it every day! Gloria! Yeah, yeah, yeah, yeah, yeah, yeah! She comes around here. Just about midnight, she make me feel so good.

I wanna say she make me feel alright.

Cops walking down my street, watch you come to my house. You knock upon my door, and then you come to my room. Yeah! I was breaking rocks in the hot sun. I fought the law and the law won. I fought the law and the law won. I needed money 'cause I had none. I fought the law and the law won. I fought the law and the law won. Things you say, I believe it, it's true. I'm getting funny dreams again and again. I know what it means, but can't explain. I think it's love, try to say it to you when I feel blue. Girl, can't explain. Can't explain. Yeah, hear what I say, girl. Can't explain.

Good turnout so far, Andy.

We're doing great. We're gonna be, uh, we're gonna start our introductions momentarily.

Great.

Welcome everybody. Great. Welcome, everyone. Welcome to Economic Expectations 2022. It's my pleasure to have you join us this evening. Thanks for being with us. I know all of you have very, very busy schedules, and the fact that you took time out to be with us, it means a lot to us. So thank you very much. I think you'll find tonight's presentation to be very exciting, informative certainly, and enjoyable. Our presenter is a high-energy, enjoyable presenter and somebody I think you'll get a lot, a lot from listening to. We've got an exciting lineup of additional folks, of additional presentations throughout the year. We'll send you invitations, we'll send you emails, and, and we'll notify you about our future events. So watch your inbox. And I think you'll, you'll enjoy what's coming up. A little background on us. We launched CFO Intelligence this past November at our launch event. It was November 18th at a wonderful restaurant in North Jersey, actually a venue in Northern New Jersey. What was interesting was it was one of the first live events that we've held in a long time. And I could see the sign of sense of relief on everyone's face where they actually walked in and shook hands again. And said hello to old friends and made new connections as well. For those of you who weren't there, uh, we had about 100 folks who stopped in. Santa Claus stopped by and gave everyone some gifts. We ate, we drank, we all had fun. I promise you that we'll be together again, hopefully soon, but for now we'll be together like this, digitally. Um, some background on our new brand, CFO Intelligence. The intention behind our new organization, is to bring CFOs together into an exclusive community. When we designed CFO Intelligence, one of the things that we wanted to make sure we were doing was creating a cohesiveness, a real opportunity to bond— not bind, but bond CFOs together. And we, we acquired the rights to a very robust technology, and it's available through a mobile app But it's a portal technology and it's available to all of the members of the CFO Intelligence community. And it affords our members the ability to connect with peers, to participate in sector groups, industry sector groups, to download and read CFO Intelligence magazine and a publication that we'll be launching shortly, CFO Wise, and actually submit a request to be interviewed for a story in those publications. You'll be able to watch CFOs in Motion, which is the podcast video series that we'll be launching in February, and again, request an opportunity to be interviewed on CFOs in Motion. You'll be able to participate in the monthly CFO Business Sentiment Survey. You'll be able to register to attend CFO events and gatherings and actually even become a member. There's so much more that we've put together through the CFO Intelligence Community app I encourage you to visit CFOintel.com, explore what's available there. There's a lot more coming, and consider becoming a member. The investment is very reasonable and the returns will be tremendous. I'd like to introduce you this evening to our intel partners. We don't have sponsors at CFO Intelligence, we have partners. We have partners in intelligence and we call them intel partners. And we're very lucky to have 4 intel partners with us this evening. All of whom are participating in this event, all of whom have made a financial investment in order for us to be able to host this event. So I'll ask you to thank them in your own way and perhaps to take that call if they reach out to you. Our 4 Intel partners this evening are Divi, Jones Lang LaSalle, Sutherland Global, and our newest Intel partner, EisnerAmper. What I'd like to do is ask representatives from each of our 4 Intel partners to take just 1 or 2 minutes and give us a brief introduction as to the nature of the company and the services that are available. Let's start out with— let's do this alphabetically, um, and then we'll finish with our newest partner. Let's start with Divi. Uh, Brand Hines, uh, say hello to our, our guests tonight and tell us about the company.

Yeah, nice to meet y'all. Um, I'm out here in Utah. Um, Divi is based in Utah, just south of Salt Lake City, but We are kind of a unique company. We are a free-to-use expense management solution. So we issue out a corporate credit card. We tie that to a mobile app, to a website, and try to help streamline expenses. So that could be recurring AP type of vendors, or just, hey, employees out swiping and making purchases. Usually when you do events like this, right, you're in purchase— in person, you have to go out and make a purchase and collect those receipts and all that fun stuff. So we just try to help streamline and automate that. So that is what we do at Divi.

Excellent, excellent. Thanks, Brent. Wonderful to have you here, and, uh, we're very excited that Divi is one of our Intel partners. Let's introduce— let me introduce you to a gentleman who's participated with us before. Many of you know my colleague Scott Lesh at Jones Lang LaSalle. Scott, are you with us? Scott, you might be muted. Okay, well, we'll come back to Scott later on. Mark Gervais from Sutherland Global, a longtime partner with us, a wonderful organization. Mark, won't you say hello and introduce the company?

Yes, uh, good, uh, good evening everybody. I'm Mark Gervais. I'm located down here in Charleston, uh, South Carolina for the winter, and, um, it's great to meet everybody. I was at the event in November, was terrific. That was terrific. I thought, Danny, you did a great job with that. But Southern Global is a global organization, about 40,000 employees, $1.5 billion, based out of Rochester. We're actually a digital transformation and services company. We started our journey in driving success in the customer experience sector with contact centers and support centers for a lot of different clients. You recognize probably half of them. You know, Spotify, Disney, you know, Sony are all clients clients of ours. And then about 15 years ago, we dove into the back office and built a very good practice with the whole finance transformation area and built out some technologies, partnered across a lot of others, and, you know, highly focused on delivering outcomes for our, our, our company partners and driving OpEx savings for them. And been doing that, like I said, for about 34 years. I'm based out of the Northeast generally, but up and down the East Coast. And it's great to have a chance to speak with you guys.

Mark, always nice to have you. Thanks so much for participating with us again.

And thanks for not telling that Bernardston story again.

And let me introduce our newest partner, a firm that is very well known in New Jersey and Manhattan and around the country. EisnerAmper, Ali Coleman, why don't you take it, take it away and tell us a little bit about EisnerAmper.

Of course. Thanks, Andy. Uh, I am Allie Coleman and I am a tax partner at EisnerAmper in the large corporate group. With me today is Barbara Peña, who is a tax partner in the large corporate group as well, and Travis Epp, who is partner in charge of our manufacturing and distribution industry group. EisnerAmper is a full-service accounting firm, so we don't just do your run-of-the-mill tax and audit services. If you need assistance with valuation or cybersecurity, which is very hot right now, or even family office and some generational planning or outsourced accounting. Um, you have a problem, I'm sure we can help you fix it. And as a tax partner, like I said, you should all be getting an invitation after today for a tax provision seminar that I will actually be teaching on February 9th. I know it's provision season, everyone's favorite. So for those of you who prepare your own provisions or just want to learn a little bit more on the disclosures and how the different aspects work together, please join. For those who are not interested in learning about provisions, call me and I'll do it for you. So, uh, thank you everyone. And Andy, back to you.

Thank you so much, that was great. I should also let you guys know that EisnerAmper, uh, has elected to lead the manufacturing distribution sector group in New Jersey, and that promises to be a very exciting group. We've got a series of sector groups, industry sector groups And I think EisnerAmper is a great partner for that. And I think you'll see a lot of very interesting content that's going to come out of that group very shortly. Ali, welcome. So let's talk about what we're doing this evening. You're in for a real treat. I will tell you that our presenter is someone that I know well. I consider him a friend. And you're going to have a wonderful time listening to what he's going to share with you and how he'll share it with you. Our presenter will share his views with us for about 30 minutes, maybe, maybe a little longer depending upon a number of factors, and then after that we'll have a Q&A. So what I'll ask you to do is don't try to save up your questions till the end. There's a chat room feature associated with this presentation tonight, and if you would send through any questions that you have in the chat room, we'll gather the questions And then after Ryan's presentation, we'll go through the questions. And if you're still on, I hope you'll stick around. And if you're still on, we'll get to as many of those questions as we can. And we'll actually— I'll ask you to ask your question verbally directly to Ryan. So, but I want to make sure that we gather them all and we know what the questions are. We'll try to avoid duplication. And we may not be able to get to all of them, but we'll do our best. Okay, so, um, I'd like to introduce you to this evening's presenter. We have the distinct pleasure of having the opportunity to hear tonight from Ryan Severino, Chief Economist, Jones Lang LaSalle. Ryan's an energetic speaker, someone who you will see truly enjoys what he does. As Chief Economist at JLL, Ryan manages the economics team and is responsible for global and regional economic research analysis and forecasting, as well as property marketing— property market forecasting. Prior to JLL, Ryan served as senior economist and director of research at REIS, also served as the associate director of research at MetLife Real Estate Investments. Before joining MetLife, Ryan served as the director of investment strategy and market research at Starwood Capital Group. He also held research positions at Prudential Real Estate Investors and UBS. So as you can tell, Ryan's a real slouch. Ryan currently serves as an adjunct professor of finance and economics at Columbia University and New York University, teaching courses in urban economics, portfolio and risk management, microeconomics, and macroeconomics. Ryan's original research has appeared in a number of journals, including the Wharton Real Estate Review and the Real Estate Finance Journal. His assessments of market conditions have appeared in international publications like The Economist, The Wall Street Journal, The New York Times, and The Financial Times, and on business networks such as CNBC and Bloomberg. Ryan is a member of the CFA Institute, the American Economic Association, ULI, and NCREIF. Ryan holds a master's degree from, master's degree from Columbia University, where he studied international finance and economics, a bachelor's degree from Georgetown University, where he studied finance, Japanese, and economics,, and Ryan is a CFA charter holder. And now, ladies and gentlemen, without further ado, I give you my friend and a great economist, Ryan Severino. Ryan, nice to see you.

I need to get you the abridged version of that, I think.

But that was the abridged version.

But all kidding aside, thanks for having me, and thanks everyone for joining. I did alter the subtitle a little bit. I wanted to stick with the excitement theme, but there really is no shortage of excitement out in the economy these days, whether you perceive it as being positive or negative. I will leave that, uh, subjective judgment up to you, but there really is no shortage of excitement and really no shortage of things to talk about. Let me show you the agenda for our discussion before I kick off. I want to start back with a look at last year because I think there were some incredible things that happened last year that probably got lost lost in some of the noise that was circulating out there. Then I want to give you some sense of where we stand right now. What's, what's going on right now that I think is really important to really setting the stage for where I think we could head. And then I'm going to channel my, my, my sort of inner fan of Toy Story and take you to infinity and beyond, or at least to 2022 or so, to give you a sense of what I think the crystal ball is showing right now. And then I won't spend a lot of time on this, but I do want to spend a little bit of time on my particular area of the economy that I, I focus on outside of the macro view, the commercial real estate market, because I think one thing that the pandemic has done, it has really focused people's attentions on physical spaces in a way that they were not probably paying a lot of attention to before this started. And I, I want to make sure that we touch on that because I do think it's a lot more relevant to people's lives, as I said, than they probably were thinking before we got into this mess about 2 or so years ago. I wanna start with this idea that 2021 was so different that we might never see this again in our lifetimes. And if you've ever heard me speak before, I do get excited about the economy and I am very enthusiastic, but I don't say things just to get a rise out of people. Therefore, if I'm going to say something incendiary like we might never see this again, in our lifetimes, I have a really good reason for using that kind of subtitle. Let me show you why. I want to start with even before 2021, because this is really important to understand how 2021 unfolded. Over the course of my career, which is longer than I care to admit these days, I have grown very fond of saying that the two most dangerous thoughts in economics are "this time is different" and "that will never happen again." So this time really was different and in a very particular way. And this scatterplot is, is a very good way to demonstrate that. What I'm showing you on this slide is every recession in the United States going back to 1948 across two dimensions. The horizontal dimension is showing you the duration of every one of those recessions in months. And the vertical axis is my proxy for severity. It's the maximum unemployment rate that was hit during each of those recessions. And you can see clearly there is a relationship between how long a recession lasts and how severe it is. There's that larger group in the middle, those kind of short, shallow recessions. They don't last very long. They're not pleasant, but they're not— they're not overly painful. Then there's that smaller group of longer, deeper recessions. They last a pretty long period of time, and they are certainly unpleasant to live through. And then lurking out there as this massive outlier is this coronavirus recession or whatever we are going to end up calling it. Because it really did something that we've never seen before. It was the shortest recession on record and only 2 months, it really only lasted 2 months as a technical recession and it didn't even last a quarter. And yet it produced the highest unemployment rate on record since we've been keeping records, which goes back about, oh, 70-plus years at this point. Therefore, we've never seen a recession like this. We've never seen a recession that violated this relationship between duration and severity. And that's important because how quickly we bounced back despite that severity is really fundamental to how the economy performed last year. If this had been a prolonged downturn like the one that we got out of the financial crisis,— I don't know what 2021 would have looked like, but it would not have looked like what we actually saw. And that's how I want to start this discussion about 2021, because I'm still pegging it as a forecast, because we are not even going to get the first look at fourth-quarter GDP until Thursday. But one way or another, this is going to be the strongest growth in the economy that we've seen in a generation or more, probably longer than a generation. So let's just for argument's sake say that I think, and I think most people's average expectation, is that the calendar year growth rate for 2021 is going to be about 5.5%. To put that into some context, the last time we saw growth of that caliber, well, the last time the economy grew at least 4% in a calendar year was back in 2000, which is longer ago than I think people perceive it to be these days when We all thought pets.com was worth $48 billion per share, whatever people were doing during the heady dot-com days back then. 22 years, certainly not a short period of time. The last time the economy grew at least 5% was also the last year it grew at least 6% and the last year it grew at least 7%, all the way back in 1984 when I was much more concerned with playing Atari with my friends than it was anything related to the economy. 37 years is longer than a generation, which is why I say this is generational caliber growth. And I was never in the camp that thought we would get to 8%, but some people in the early stages of last year were thinking that. That hasn't happened since 1951. But either way, we are dealing with the kind of growth that I think is going to be difficult to attain again in our lifetimes. There are very good reasons why the economy has not grown that fast in about 37 years. But that's not my ultimate point. My ultimate point is that there is a lot of good that came out of this, but it raises the really obvious question, how? How were we able to accomplish this? And I've taken to calling this kind of the perfect storm recovery, if you will, channeling kind of that cheesy 2000 George Clooney, Mark Wahlberg movie, if you remember that. And I'll be honest with you, I felt better about this analogy before the remnants of Hurricane Ida dropped about 8 billion inches of rain on my town in about 12 minutes back in September. But either way, I think it's still an apt analogy because the idea behind perfect storm is that you have these You have these disparate forces coming together at the right time in the right combination. And I think there are four really important forces that were important to propelling the kind of growth that we saw last year. The first was dovish monetary policy. And by that, I mean the Federal Reserve simply keeping interest rates at low levels, really record low levels, and actually keeping the financial plumbing operating smoothly. You all pay probably just as much attention to that as I do in certain respects. It was very important for the Fed to step in and make sure the system worked the way that it was supposed to. Second, we had very strong fiscal stimulus. And I think if anybody's heard me present before, I am a very apolitical person. I am not explicitly pro or anti-government, but I can objectively tell you that the federal government stepping in and spending money was hugely important to the strength of the economic expansion that we saw last year. So Whether you like the government, you don't like the government, and I will make this point again in a bit, the amounts of money that they spent in 2021 were of paramount importance to the kind of growth that we saw last year. Switching gears a little bit, if you go to the other side of the storm, these are things that are a little different, let's call them, somewhat unique to this particular recovery in a way that I think was beneficial. Reopening simply meant The supply side of the economy, which I think is all the rage for discussion these days, the idea that we turned a lot of the economy off because of the pandemic, somewhat contrived to be fair, but as we started to turn those things back on, it actually enabled a lot of growth in the economy as we started to bring production back online. And then the dry powder, you don't need me to tell you that even as we sit here in January of this year, with Omicron raging, we are still not really living our normal economic lives. We're getting back to that, but there is still a lot of pent-up demand, a lot of pent-up spending that has been unleashed in 2021 that will still get unleashed this year, probably beyond this year, that has been incredibly instrumental to pushing the economy. And for one slide, that's what I really want to focus on because This, I think, is getting short shrift in the discussion of the economy and why it has been performing so well. This slide is showing you the calendar year growth rate in overall retail sales in the United States going back to 1966. And I made a prediction around— it probably was even earlier than this time last year, let's call it late 2020. And I said that overall retail sales in the United States was probably going to set a calendar year growth record. And I don't mean this to sound like I'm straining my arm, patting myself on the back, but clearly we were able to accomplish that. What I didn't project, which is why I'm not taking a victory lap with this, is that we pretty much did that in 3 months. It took about 3 months to generate a growth rate that was stronger than any other calendar year that we've seen in the last 60 or so years. And then spending was just off to the races after that. And we were actually able to generate the kind of growth that I think would have been unheard of without this pandemic. And that is one of the main reasons why we saw such strong growth out of the economy, because we as US consumers are still probably the most important single force, not just in the US economy, but even in the global economy. We took a lot of the spending that we didn't do in 2020, we reallocated that into 2021, and we unleashed this torrent of spending and demand into the economy. I think we still have some room to run with that, which I will talk about, but make no mistake about it. For all the discussion that there's been about the supply issues in the economy, the real important story in many respects has been the demand side. But as a consequence of that, we do sometimes get byproducts that are not always pleasant to have to contend with. And I'm sure you are abundantly aware of that at this point, because it's hard to avoid a discussion about inflation these days. Because we unleashed that deluge of demand onto the economy, we are getting, boy, let's call it at least the strongest inflation that we've seen in decades, if not ever. And I'm qualifying that a little bit because the index that we're using for the production side of inflation, the PPI, the specific version of it that I'm showing you that's really become the standard, only goes back about 10 years. So if I said, oh, producer inflation is the strongest that we've ever seen it, okay, yes, that is technically true, but the data series only goes back about a decade or so. So maybe not that exciting. But on the consumer side, this is the strongest headline inflation that we've seen in about 4 decades, really since the early 1980s. There are some overstatements in the data with this, but I don't want to discount it. The inflation that is going on right now is a function of how strongly demand has come back. It is to an extent a function of the, some of the supply issues that we're still contending with. But to me, this is an unfortunate byproduct of that breakneck pace of growth that we saw. There was almost no way that we were going to be able to generate economic growth, uh, 5.5 to 6%, let's call it, without starting to see some inflationary pressures. Now, I, I think most people were probably not expecting 7 to 9% across various metrics, even, uh, probably around the middle of last year. But I think this is the other side of the coin to strong growth. I think people sometimes forget when we focus on GDP— GDP is sort of the quantity side of the economy. There's also the price side of the economy. It's been great that the quantity side has come roaring back, but we have unfortunately had to contend with some inflation in the process. But there's a silver lining here, which I'll talk about when we get to this year and beyond. But I want to make sure that I acknowledge this, because to a lot of people, I think, in society these days, this is a very, very real phenomenon impacting their lives in ways large and small. So I wanted to make sure that I acknowledge, amidst all of the excitement and unique things that were going on in 2021, there were some things that were still imperfect in ways that we're still contending with. I want to switch gears a little bit and think not just about what happened last year, but what's really going on right now that's important to us. And I want to come back to this idea of demand, because it's not just that there's been a lot of demand, but it's really been unusual in the sense that the way that we are spending money is— it's different from what we've seen I could probably keep with the idea that we might never see this again in our lifetimes. I was going to say in a long time, but in some respects, really ever. And let me show you what I mean by that. This slide is showing you the trend in consumer spending on goods and services in the economy. And you can see the time series. I have it going back to first quarter of 2018 for a particular reason, which I will explain in a minute. But if you look at the trend from 2018, beginning of 2018, up until the peak quarter of GDP growth before the pandemic, which was the fourth quarter of 2019, you could see both of those lines have this kind of shallow but upward slope. Over that seven-quarter period, the cumulative change in services spending was up about 3.5%. The cumulative change in goods spending was up about 6%. So not insignificant growth, but reasonable. Then you could see what happens. We get into 2020, we hit the pandemic, Both of those things turned down. But notice what happens to services spending. It plummets first quarter into second quarter for all of the reasons, honestly, for the same reasons why we can't hold this in person tonight. I mean, it was certainly more acute back then, but same fundamental idea. There were concerns about getting sick. There were concerns about getting together indoors with poor ventilation. We knew even less then than we know now, And so as a consequence of that, people shunned going to indoor spaces, bars and restaurants and stores and nightclubs and discotheques or whatever the cool kids are doing these days. But nobody was really congregating together in spaces where you would utilize services, not getting on airplanes, not staying at hotels, those kinds of things. What staying at home really does unleash, however, is spending on goods because we can consume goods at home. You could have a whole slew of things delivered to your house. You could actually go out and pick up things in stores and bring them home. It really unleashed this idiosyncratic change in spending on goods in a way that certainly wasn't expected, but in a way that we've really never seen before. And look how strong that growth rate has been between the end of 2019 and where we are today for goods. And then look where services has gone, because as goods has been exploding in some respects for the last 7 quarters, services spending is still actually below where it was in late 2019 because we're not back to living our normal economics lives just yet. We're not having this event in person. People are not getting on airplanes the way they normally would. They're not staying in hotels and going out to bars and restaurants and all of those other things, movie theaters and Broadway shows, those kinds of activities. I mention that because not only is this unusual, but this is a reason why you are seeing changes in the economy like inflation in a way that people were not anticipating around this time last year. Because I think most people thought that once we vaccinated the population, we would start to see people's economic behaviors more or less revert back to normal. That did not happen, right? We had subsequent waves of this pandemic. We had new variants. All of those things kept us home spending money on goods and not out and about spending money on services. But I want to emphasize that because it's not that there are not goods out there. People have probably been reading stories in the press saying something like, well, the reason inflation is so high is because there are these supply chain bottlenecks and it's hard to get goods. And I'm not completely discounting that, but it's not the case that there are no goods coming into the country because as of the third quarter, which is the most recent point in time that we have data, Imports are at record high levels on both a dollar basis, which I'm showing you on this slide. And I want to be clear on that. This is a real dollar basis. This is not being artificially inflated by the price increases in the economy. This is controlling for inflation. So the real value of the goods coming in, never been higher. I could have also measured this by physical volume. If I measured this by TEUs, volume at the ports in the United States, It's also never been higher. So yes, there are supply disruptions that are going on out there, but it's been this unusual pattern of spending, this concentration spending on goods versus services. Put it this way, pandemic or no pandemic, if we got that strong of an increase in that short of a time, our global supply chain was not built to handle that. We, over the last 3 to 4 decades, have increasingly focused on cost and efficiency. And I know I'm preaching to the choir a little bit on this, but if you take concepts like just-in-time inventory, which doesn't leave you with very much of an inventory cushion when you need it, and concepts like comparative advantage in trade, which basically says, you know, you end up producing effectively with one, maybe two providers somewhere in the world, and then those goods have to be shipped around to the rest of the world. Put it this way, our global supply chain was not built to handle what we went through over the last couple of years. That might change going forward, But it shows you why there has been such strong inflation, because we've been spending money on goods. Goods are harder to ramp up production of when you get that kind of idiosyncratic demand shock. It's a classic recipe for inflation—too much money chasing too few assets. And as a consequence, we've gotten inflation that we haven't seen, like I said, in probably decades, if not ever in some respects. But there's good news. The good news is, coming back to this idea of our normal economic lives, there's hope on the other side of this. And what I'm showing you on the slide is not somebody's bad EKG or something like that. This is actually mobility data from Google. And I picked 3 important measures just to show you what I mean by we're not living our normal lives. Google, whether we like this or not, is basically tracking where we are and what we're doing. So you can think it's a little Big Brother-ish, but the data is actually useful in some respects. So I pulled out 3 series from the way they were tracking us. How much time relative to kind of baseline expectations we're spending at home, and then how much time we're spending in transit, and then how much time we're spending actually in our physical workplace. So you can see what I mean by we're not really living our normal lives. This Google data is a good way to represent that because relative to baseline, we are still spending more time at home than we norm— normal is a little bit of a, I guess, a loaded expression these days, but than we normally would, certainly prior to the pandemic. And look what we're not doing. We are spending a lot less time doing things like getting on transit, going into the office. I could also have shown you the index for us spending time doing retail and leisure activities. And again, that's going to be important for us because until we start spending our time doing those things that we used to do more normally, there's that word again, we are going to continue to put strains on the global supply chain as we consume goods at home and not services out and about. That is going to put some pressure on inflation, at least through the first quarter of this year. Again, I'm going to show you when we get to Infinity Beyond that there's some hope on the other side of this, but I want to make sure that I emphasize this because again, this is getting lost in the conversation. Amidst all the conversation about inflation, I think people are not completely paying attention to the fact that if we're going to stay home, Remember all the things that were exciting before this pandemic? It was an experiential economy. It was all about the experiences we could have, whether it was out in retail stores or going spelunking in Mali or wherever people were doing that sort of thing. We're not doing that stuff right now. We haven't been doing that stuff for the last 2 years. And in lieu of that, we've been spending money on stuff, on electronics and on furniture and on cars. And things that we can safely, relatively safely, consume at home. Until that changes, we are going to have a very odd pattern of consumption. We are going to have inflation that is more unpleasant than I think most people want to contend with. And that is just a function of how we are living our lives relative to our ability to actually service the demand for the way that we want to live our lives right now. But it's all not doom and gloom. There is some good news out there. And the good news is the labor market is actually recovering faster than we've seen in the last two downturns. What I'm showing you on this slide is basically the— you could see the downward— it looks pretty ugly on that blue line— the downtrend in employment and then the subsequent recovery for the last four recessions in the United States. And I indexed them so I could make an apples-to-apples comparison, at least with time. So what you're seeing is Basically the percentage change in job loss and then the subsequent recovery. So you could see both the dot-com mess and the financial crisis took a pretty long time for us to gain back all of the jobs that were lost. But if you look at this COVID pandemic trend, it looks like we're tracking more like the S&L crisis. And that is a pretty powerful thing because look at how much further down that light blue line goes than the red line goes. We didn't lose that many jobs during the S&L. I'm not saying it was pleasant, but we didn't really lose all that many jobs during the S&L crisis. We had the single most painful job losses ever during this downturn, yet we are well on the way to gaining all of them back, and we are increasingly tracking more like the S&L crisis for job gains than we are either the dot-com mess or the financial crisis. But There is one part of this that we are going to have to contend with for the foreseeable— at least as far as my crystal ball will go. And that is the labor shortage that I'm sure you have all heard a lot about. And I think there are two components to this that are worth discussing. The first is that even prior to this crisis, we were dealing with a structural labor shortage based on demographic changes. And you could see that I've circled it on the slide. David Wolf, M.D.: That there were more than 7 million open jobs prior to the pandemic, and then you could see what happens on the other side of the dashed line, which is the onset of the pandemic. David Wolf, M.D.: The pandemic just exacerbates that. It goes from about 7 million open jobs to about 11 million open jobs relatively quickly. David Wolf, M.D.: I do think the labor market is going to continue to gain jobs, is going to continue to heal itself, but the structural part of this is not going to get fixed Overnight. And I emphasize that because— and Andy and I were talking about this fairly recently— the first time I did a presentation for Andy was back in May of 2017. And just to prove that to you, I went, I went out and I found the actual title slide from that. And you could see the copyright to the— I mean, I could have just made this up, but if you were at that presentation, then you know that of which I speak. This was the title of the presentation that I gave back in May of 2017. Drastically Fewer Employees: How Baby Boomer Retirement Will Challenge and Change Your Company. And if you were there, I hope you listened and did something about what I had to say, because the labor shortage has only gotten worse since I gave this presentation, and it got worse in ways that I couldn't even have fully anticipated. Certainly, I didn't anticipate a pandemic, but this has been— well, I think of it this way. The pandemic has been like the performance-enhancing drug for this labor shortage. The projection that I made back in May of 2017 was that this labor shortage would get worse before it got better. And it did. From May of 2017, we were net short about 5.8 million open jobs. By the pandemic, it was about— it's about up to 7— call it 7.1, 7.2. And now we're sitting just shy of about 11 million. And I emphasize that because even if we start to close that gap, we get past this pandemic and we fill some of those open jobs that have come about because of this pandemic, we are not fixing the demographic challenge that I've been talking about for the last 6, 7 years, even before I joined JLL. So that I want to make sure you understand, this is not a temporary function of the pandemic. This is a permanent structural change in the economy that we are going to have to contend with. And that's a good place to switch gears a little bit and think about what the future looks like this year, even onto the other side of this. And I want to emphasize this idea that I think the outlook is going to stay positive, but we are almost certainly going to see slowing in the economy. There's almost no way. I don't make any guarantees in economics. I never say never, but let's just say it's highly improbable that we are going to see the economy grow this year at a pace that we saw last year. But it's not all bad news. So let me show you why I think that's the case, and then I'll show you the silver lining associated with this. The first point I want to make is that this consumer spending that I've, I've been emphasizing, this, this torrent of demand that the economy has been, uh, really the beneficiary of this year, that is already slowing down. Now, consumers, to be fair, are still sitting on a lot of excess savings, probably somewhere in the neighborhood of about $2.4 trillion that is going to get spent this year, next year, even beyond. But you've already seen the excess savings rate pretty much come back to where it was before this. And I emphasize that because a lot of the reason why consumers had that proverbial dry powder is because we weren't spending it in 2020, because we were staying home, being cautious, those kinds of things. It's nice to— this is going to sound kind of counterintuitive, but it's good to see the personal savings rate come back down to where it was before this, Because believe it or not, there's this phenomenon in economics, it's called the paradox of thrift. And when I translate from geek to English, basically means if we're saving too much money, we're not spending it, and that's not good for economic growth. See also the second quarter of 2020, what happens when that's the case. It's nice that the savings rate has more or less reverted back to normal. It will help us really get through that $2.5 trillion or so of excess savings. It will still help push the economy, but probably not at quite the robust pace that we saw this year. So I'm glad to see that this is reverting back to normal. It feels like we're getting back to— at least I can see the light at the end of the tunnel for more normal spending patterns, including spending more on services as we get past this wave of the pandemic and somewhat less on goods. The second reason that I think this is— again, I'm not taking a stance on government spending. I'm not pro or anti-government spending, but you could see the two peaks on this slide that I circled. You can see how much— I'm laughing because I mean, the slides normally don't look like this, right? That nice kind of straight-line trajectory, and then it looks like we've run into Mount Everest there in the first quarter of 2020 or so. That's not really what we normally expect to see. And that's because the government passed a lot of fiscal stimulus to blunt the impact of the economy early in 2020. And then you could see that second peak. I guess if that's Mount Everest, the second one's like K2 or something like that. That was the second main round of stimulus that was passed in the first quarter in March of last year. Again, not pro or anti-government spending, but we are almost certainly not going to get another package of that caliber. We will get probably more normalized levels of government spending, which is inflated to begin with, in some respects. But the kinds of dollar amounts that we saw spent in fiscal year, you know, 2021, uh, you're, you're not likely to see that again, uh, fingers crossed on this, unless something really bad happens, which I don't like saying because the universe usually listens when I say that. I made a joke before the session, the universe never listens when I say things like, I never win Mega Millions. The universe only listens when I say things like, oh, that would be a really bad thing to happen. So I'm, I'm hedging my bets a little bit here, but It's highly improbable that we'll see this level of government spending. So that takes a little bit of steam out of the demand side of the economy that pushes growth. The other part of government policy that is almost certainly changing, and I think you're aware of this, the Fed is raising rates this year. I, again, I don't make guarantees in economics. I don't see how the Fed can't at this point. So I'm going to throw the Fed under the bus with their projection because I'm very fond of saying that there are good reasons why the interest rate forecasters hall of fame is still completely vacant, but I think one way or another, interest rates are almost certainly going up at the short end of the curve. At the long end of the curve, I will throw the Fed under the bus. This is their projection for where they think the median Fed funds rate is going. And again, one way or another, interest rates are going up. And I think as interest rates go up, it— there's, there's a little bit of a lag between when the Fed raises rates and when it actually starts to restrain economic activity. But I think if the Fed is going to hike anything like the schedule that you see here, that will also start to pull back on the reins of the demand side of the economy this calendar year into next calendar year. And then there's the supply side. As I mentioned, it does seem like as disruptive as supply has been, it's starting to ease up a little bit. And what I'm showing you on the slide is just one measure of that. This is a measure of the goods backlog, sort of order delays in the economy. And I specifically use kind of that U-turn symbol at the top to give you a sense of it seems like we are going on a U-turn with this, that maybe we've at least passed the worst of the supply chain disruptions at this point, maybe, possibly. I'm not holding my breath on this, but I will cross my fingers a little bit. There are other measures of this that I probably could have shown you, the cost of shipping, the cost to, you know, to rent one of those, uh, you know, containers that we measure in TEUs, things like that. Uh, it does seem like we've— we might have turned the corner on this. And I do think as the year goes on, as we do start to ease off of some of demand, I do think as we start to switch, reallocate from spending on goods to more services, that will help this ease up. So I am cautiously optimistic about the supply side, uh, you know, not necessarily capturing all of the demand that's out there, but at least narrowing the gap between that, that just amazing pace of demand growth that we've seen over the last 7 quarters or so and the pace of supply growth, which is clearly struggling to keep up with that. And then what does that mean for us as we really try to think about the crystal ball this year into next year? I— you could see on this slide what I'm showing you is the trajectory in the GDP data that we have up to this point. And then I'm showing you the output of my scenario forecasting model that I use to project both the global economy and then certain national economies underneath it, including the US economy. And I think rather than boring you and extolling the virtues of my super awesome scenario forecasting capabilities, what I really want to emphasize are the growth rates at the bottom, because there is a noticeable step down from '21 to '22. If we end up again, somewhere around 5.5%. I think we probably take a step down this year to about 4%, give or take, but that is well ahead of what the economy can normally generate. If you think back to the last business cycle, our economy struggled to generate even 2% on average. Remember how much fun that was? And I'm using fun a little liberally there, but to be fair, we're just not that economy anymore that can grow consistently at 4%, 5%, 6%, 7%. I think we can do better than we we did last business cycle. But I emphasize that because 4% will feel like a little bit of a step down relative to last year, which to be fair, it is, but it is still well ahead of long-run potential growth for the US economy. And I think that is going to continue to create jobs. I think it's going to continue to put money in consumers' pockets. I think it's going to continue to create an environment that is beneficial to almost everybody operating in the economy. The other good news about taking a step back is that it should ease off of inflation as well. Again, there's a quantity in the economy and there's a price level in the economy. And as growth starts to slow down, for all of the reasons that I mentioned, because I do think demand will start to ease off a little bit, I do think the supply side of the economy starts to catch up to the demand side. And there's one more reason, at least mathematically, one of the reasons why inflation rates, especially in the latter half of last year, looked so outsized was because we were calculating year-over-year inflation relative to 2020, when— I mean, you could see on the slide I'm showing you, the CPI change in 2020 was only 1.2%. It was the lowest during the last business cycle except for '15, when energy prices plummeted because of the shale oil supply glut that we had. So leaving that out of the equation, because that's pretty unique, we saw incredibly low inflation in 2020. As we unleash this torrent of demand, once you started to see upward pressure on prices from people spending money, we were basically calculating inflation off of really low prices from, from that period, 2020. So 2021 inflation looked kind of outsized. That will persist through the first quarter until we get to the second quarter. And once we hit the second quarter, don't be surprised to see inflation starting to back off, because during second quarter last year was when we really started to see prices go up because of the combination of vaccinating the population, warmer weather rolling around, and the fact that people started to actually go out and spend some of that pent-up demand. Once we get to the second quarter, I think you will start to see the year-over-year rates really start to back off. And I think by the, by the end of the year, we will probably be much closer to say 5% than we are 7%. Again, no guarantees in economics, but it's highly improbable to me And put it this way, if we are still stuck near 7%, um, I'm not even going to say what I think could happen because again the universe tends to listen, but let's just say a lot would have to go wrong for inflation to stay elevated at that kind of level. And that's not to say that 4 or 5% is, uh, anything to sneeze at, but it doesn't seem likely that we would stay stuck at 7%. So I think you'll start to see inflation backing off toward the middle of this year. I think thereafter it starts to go down. I don't think we get to quite the tepid level of inflation that we saw last business cycle when people were actually, believe it or not, if you remember complaining that inflation was too low, that feels so quaint now relative to inflation that we've seen over the last 9 months. But I think it's going to be hard to get back to that level because inflation was probably too low during the last business cycle. I think we can back off from where we are, But I think we're going to have a hard time getting back to anything like what we saw in 2010 to 2020. I don't think it's a bad place to be because I think we can get to something more reasonable. But if we, if we are calibrating our expectations relative to the last business cycle, I think that's probably a mistake. So, yes, GDP growth slows down this year, but I think inflation also slows down this year. Again, quantity and price in the economy definitely still related to each other. We have not broken the fundamental rules of economics, at least just yet. And then just switching gears one last time to give you the commercial real estate perspective, because I think it's better than many people actually perceive it to be. I put this slide together for the first time in, call it August of 2020. And the question I was trying to address is the one at the top. When is the cycle going to turn for commercial real estate? And I thought, that's a really interesting question. Let me address that. I addressed it two ways. What I did was I went back in history and I wanted to answer the question. After the economy stabilizes, so after the economy stops contracting, how long does it take for the vacancy rates for the major property types to stop rising? So office, retail, apartment, which we at JLL call multi-housing, so you can think of that as apartment, I certainly do, and then industrial. So the economy stops contracting. What's the lag time between the economy stopping to contract, stabilizing, and when these vacancy rates stop rising. So I said, okay, let me do that. Let me go back and look at history and I will calculate the averages in quarters because that's really the standard cadence for both the economy and for commercial real estate. So I did that. And so you could see for office and industrial, those are the more corporate-oriented property types, that vacancy rate tends to peak about 8 quarters after the economy stops falling. For retail and apartment, which are a little more consumer-oriented property types, it's about 5 quarters. I said, great, I have those averages. I took the bottom of the economy, which was clearly the middle of 2020, and I said, let me basically take those averages, add them to the bottom of this cycle, and see what history suggests. So that's my history-projected time of peak, the kind of third rightmost column. So if I roll the calendar forward from mid-2020 by 8 quarters, I get to 2022 or so. If I do it by 5 quarters, I get to 2021. I said, great. History is giving me a guide to where it thinks, or at least when it thinks, vacancy rates are going to peak. Then I said, let me see what my model says. I took the model that I used to forecast the real estate markets, and I said, let me see what the model's saying, and I'm going to, I'm going to compare that to history. So I took the model that I used to forecast the real estate markets, and I said, what is the model saying relative to history? The model lines up pretty well with history. Office, retail, apartments, basically says the same thing. Where it diverged was industrial, where the model said, no, I think we're probably past the worst of this, and we are going to be off and running after that. That differed by about 2 years from industrial. So that, you know, in retrospect, people are like, oh yeah, that seems so obvious. But I will tell you, at the time, I got a lot of pushback from that. And then the absolute rightmost column, the sort of actual time of peak, and I'm saying sort of because the jury is still out a little bit on retail and multi-housing, but it does seem like the model got those right.. But it does seem like both retail and apartment vacancy rates peaked earlier in, uh, in 2021. Uh, we now have data for all 4 quarters. It certainly appears to be the case unless we backslide for some random reason. Uh, and the model was spot on for industrial, so, uh, kudos to the model. The model nailed that exactly right. And, uh, uh, I, I, again, I am not one to pat myself on the back or take victory laps, but it has been fun having some people who heard me say that who were Doubting Thomases come back and say, yeah, I was wrong. You were pretty much spot on with that. And I emphasize that because I'm sure to some extent all of you are involved in the office market. I think I'm still having faith in the model. The model still agrees with history. I haven't seen any reason, even with this, this current variant, which has pushed back return to office, obviously in a way that, that we were not anticipating even just a month or two ago. The model still agrees with history. I'm looking at the data on almost a real-time, as close to real-time as I can get it. I don't see any reason to disagree with the model or history just yet. So I think despite some of the really dour prognostications, you're probably hearing about the death of offices and things like that. I don't think any of that's true. And I think we will see stabilization in the office market this year. I think you will start to see people going back into offices. I think you'll start to see vacancy rates coming down. Rents are already growing again in a number of markets around the country. So, and I emphasize that because the model has been pretty good on the other three property types. I'm going to give it the benefit of the doubt on office, at least until it proves me wrong. So just to summarize real quick, so what, right? It's enough for me to just sit here and give you some interesting tidbits about the economy. What's the point of that, right? Where does the rubber meet the road on this? There are 3 things that I want to emphasize. The first is that I want everybody listening to this to prepare. The economy of 2020 is long gone at this point. And I know it's left some scars, you know, both on the economy and maybe, you know, sort of emotionally and potentially even physically in some respects. But that economy is gone. The current expansion is upon us. We are past recovery into expansion at this point. I'm asking all of my clients, are you planning accordingly? Are you really thinking about what the economy looks like today and not dwelling on what the economy has looked like for the last 2 years? I'm also telling people to move fast because the economy is still changing faster than many people perceive it to be changing. Clients I know that are procrastinating, they're equivocating, they're already missing out on opportunities. And I'm using opportunities broadly, whether that's signing a lease, whether that's manufacturing more product, whatever the case happens to be, hiring more people. I'm telling people, if you are not ready to make a decision, then you need to at least be thinking about those decisions and ready to pounce at a moment's notice. And the last thing I'm telling people to do is really expect better, because I don't think that this economic story is just a 1 or 2 calendar year phenomenon. I think this recovery has got some legs. My crystal ball gets murkier beyond the middle of the decade or so, about 5 years out. But knock wood, barring some really idiosyncratic shock, it's hard to argue that the economy shouldn't fare well, at least into the middle of this decade. And I think people need to be thinking medium term at this point. I think we're— fingers crossed— I think we're through enough of this that we can stop, I think, panicking about the short term and really start to train our sights on what the medium term looks like for the economy, for our businesses, for our space needs, all of those good things that we were kind of safely thinking about before the pandemic. I think, fingers crossed, we'll start to be able to more safely think about those things on the other side of this sooner rather than later. With that, I am going to shut up, but I'm happy to take any questions that I did not address during our enthralling presentation this evening.

Ryan, thank you very, very much for a very, very insightful presentation. You never cease to amaze me. I love your energy. I love your passion for what you do. And I'm always learning something, as I'm sure did our guests this evening. Ladies and gentlemen, we're about to enter the Q&A, where we'll invite you to ask questions directly to Ryan. But before we do that, I'd like to thank you for joining us. I know your time is very valuable. It's always great to see old friends and to make new ones. I'd also like to once again thank our intel partners and ask you to consider taking a call if they reach out to you and maybe even doing business with them if it's appropriate. We'd like to thank Divi for being our intel partner, EisnerAmper, our newest partner this evening, Jones Lang LaSalle, and Sutherland Global. All of you, we can't do what we do for our CFO guests without you, and we're grateful for your participation. Thank you very, very much. Now, Ryan, we've got a bunch of questions that were sent to us during— through the chat room during your presentation. So we'll try to get to all of them. But I actually wanted to bounce something off you myself. A couple of weeks ago, David Rivella in Bloomberg wrote that shipping companies have made a $150 billion killing during the pandemic. He wrote that ocean rates are expected to stay elevated well into '22, and he wrote that some economists warn that maritime shipping companies are playing an outside role in stoking high prices. For example, Denmark's A.P. Møller Maersk, the world's second largest container carrier, was on track for an annual profit last year in 2021 that would match or surpass its combined results from the past 9 years. Its shares hit a record high this month, as did those of Germany's Hapag-Lloyd. So what are your thoughts? I mean, how much of, you know, what's going on in supply chain challenge and high prices and inflation is really happening as a result of what the shipping companies are doing?

Certainly that's part of it, right? It really does dovetails with what I was saying about the demand for goods relative to services. They knew this, right? It wasn't a surprise. And so with most people around the world staying home and buying things and not buying services, you know, economics is— the fundamental laws of economics, Andy, have still not been broken. It's a supply and demand kind of thing. They knew there was a lot of demand for goods, because those goods tend to be manufactured in one or two specific parts of the world, which means to get them to all of the other parts of the world, you pretty much have to put them on a container ship. I'm not going to throw any particular company under the bus. Say whatever you want about those shipping companies. They were not stupid. You know, the prices would not have gone up the way they did. And I'm not— I'm not saying they did or didn't do anything untoward. I'm simply saying if there hadn't been that outsized increase in demand for goods, they wouldn't have been able to extract those kinds of price increases. If we all go back to, you know, experiential out and about partying like it's 1999 sort of thing, it will probably ease some of that pressure. But until we stop buying goods with the voracious appetite that we have had, prices are going to stay elevated. It's just, it's just fundamental economics. Yep. Yep.

Thanks, Ryan. So Fred Guerra from Takasago had a great question for you earlier in the presentation, in your presentation. Fred, are you still with us? Yes, I am. Fred, welcome. Glad to have you with us. Uh, why don't you pose your question to Ryan?

Um, since the beginning of 2020, the money supply has grown at unprecedented rates, and you brought a lot of factors into your discussion about what has been generating inflation, uh, but you didn't touch upon money supply and the amount of money that is, uh, being, uh, essentially printed. Uh, the, the M2 money supply, I believe, in, in the last 2 years has grown by about $8 trillion, if I'm not mistaken, or a recent article I've read. Um, how do you factor that in, and, and how do you factor the, the long-term outlook of inflation given this growth in the money supply?

What's interesting— so it's a good question. What's interesting about the money supply is that we have a really good contrasting example from the last business cycle, because if you remember what happened with the last recovery, we did more or less the same thing. We pumped up the money supply. Everybody kept saying, oh, we're increasing the money supply, there's going to be inflation. And guess what? Inflation never came. The reason that inflation never came is because money velocity— and you can look this up— money velocity has been structurally declining in the United States, meaning whether or not those dollars are actually getting spent and passed around. Most of what happened last business cycle is that those extra dollars in the money supply sat on bank balance sheets as excess reserves. The reason that didn't happen this time is because of the fiscal stimulus. What we did was instead of creating that money and letting it sit on bank balance sheets, we basically gave it to consumers in the form of fiscal stimulus. As we took that money out of lending institutions and put it in consumers' pockets, and they went out and spend it, they actually, to an extent, they monetized, if you will, the increase in money supply. And so to me, I think about it in the context of whether or not we're actually giving it to consumers, or is it sitting with lending institutions and not circulating through the economy? As to whether or not this, this really impacts us going forward, I think it becomes a question of whether or not we, we continue to put money in the power of consumers as opposed to this declining money velocity and it's sitting on balance sheets. And my sense is you're going to continue to see money velocity stay at pretty low levels, and I don't think it's going to have a huge structural impact. But there is a risk that if we are going to continue to rely on fiscal stimulus in ways that are outsized relative to historical experience, then the more money we put into consumers' pockets, we run the risk of, of at least stoking inflation a bit. So I think that is the big differentiating factor in my mind, that we enabled consumers— and I don't mean that as a loaded expression— but we enabled the consumers to spend that increase in the money supply in a way that we didn't during the last business cycle. So that will be the important factor going forward.

Ryan, thanks. Fred, thank you very much for that question. Tom Siegert was— mentioned that he may have to drop off, but he had a great question for us. Tom, are you still with us, or did you, uh, or you're not able to answer me? I have Tom's question, Ryan. He asked, which industries do you think are most at risk of not rebounding?

I think the really important question with that is what kind of structural change do you think we see in the economy associated with this, right? What is permanent and durable? And I think the one thing that I see that's probably permanent and durable is probably how people think about where they're physically located. So I think what it's going to do is it's going to be a bit of a reallocation in terms of where we spend our time. Now, that said, it sounds like I'm saying like, oh, like nobody's ever going into an office again, and I'm contradicting what I said just a few slides ago. What I think it's going to do is it's going to cause people to think about how much space we need for different purposes and how much construction we're going to need associated with that. So something like an office, are we going to need offices being built? Maybe, but we might actually need people demolishing offices, the old ones that are kind of inferior too. So I don't want to pick on any particular industries unfairly, but that's how I would frame it. What about the world on the other side of this is going to be different? I think where we physically locate ourselves is going to be different. I think how we spend our leisure time is probably going to be a little bit different. But I think more importantly, there are some things that are just going to lag. I don't think everybody's comfortable getting on an airplane again. I don't think everybody's comfortable going on vacation quite yet. So I don't think that's a permanent impairment, but my broader point is to differentiate between things that are probably going to lag versus things that are never coming back. I think if you're really talking about things that are never going to recover, you have to think about the ways that our lives are going to be permanently different. And to me, that's probably more marginal things than any, like, we are completely upsetting the apple cart. So probably new offices, but maybe not as much inventory growth in office as we need. But maybe we really need to focus more on housing supply because if people are going to be potentially spending more time at home, then they're not going to just need more homes for people, but we're probably going to need bigger homes for people if they're going to have de facto offices there. So that's the way that I would, I would, I would think about that question.

Thanks, Ryan. Ralph Hermkins, you had sent a question through the chat room. Are you still with us, Ralph? Yes, I am. Ralph, why don't you pose your question to Ryan?

Yeah, um, one of my interesting observations, and you, uh, notice that there was a lot of money supply that went to consumers differently than the balance sheet, but also the big impact of the last 2 years was the huge increase into the stock markets. And a lot of people started to invest not only in Bitcoin but also stocks. Everybody saw their 401 almost double, and I think that created a lot of confidence into the market and a lot of confidence in spending. And also people had additional income from the stock market, uh, compared to normal years. So going forward, with interest rate rising, as the stock market is probably going to decline, or maybe finally the bubble is going to— bubble is going to burst, what impact would have this on your demand forecast? Is this going to hurt confidence? Is that going to temper demand? Or is there some other financial source that now the consumer has when it doesn't come from the stock market?

No, I think Ralph poses a good question. The effect that he's discussing is an economic phenomenon known as the wealth effect, which basically means when people feel wealthier, they're willing to spend more out of their current earnings, and they don't feel like they have to save as much because they're seeing their wealth go up because of investments in assets. I think it's one of the reasons why I expect demand to slow down. I think as interest rates go up, as the Fed starts to tighten, I think as, as long bond yields start to go up, you're already seeing the stock market adjust to it. I think you're seeing housing values still increase, but the rate of change is slowing down. I think that will diminish the wealth effect, and I think it's one of the reasons why I think monetary policy is going to restrain demand this year, and then I think into '23, probably even '24, is not just because the cost of debt capital is going to go up. So it's going to somewhat disincentivize borrowing. I think you will see a diminished wealth effect, which should also pull back on the demand side of the economy as well. No doubt about it.

Thanks, Ralph. Thanks, Ryan, for that answer. Ryan, I have a question for you. If a fifth pandemic wave occurs, what do you project will be the effect on the economy?

Let's hope it doesn't come to that. But let's say for argument's sake that it does. The one thing that I would say without being an epidemiologist, and I'm not playing one on Zoom either, is that what it seems like in the data is that every subsequent wave is disruptive, but it's less disruptive than the prior one. So obviously, the first one was massively disruptive, right? Second quarter of 2020, the economy plummeted in a way that we've never seen. Then it gets its legs underneath it for a while. And then we saw it kind of retrench a little bit with the second wave in the winter of last year, but it wasn't as bad as what we saw in '20. Then we started vaccinating people, warm weather came around, it felt like life was normal again. Then we hit the Delta wave, it was like, eh, kind of a speed bump. And now we have this Omicron wave, which is probably, I think almost certainly going to show up in the data. I think what will likely happen is that we'll still be disruptive if we get another wave, But I think with vaccination being widespread at this point, knowing more about the pandemic, and I think people's also just kind of, they're just, I'll call it pandemic fatigue. I'm not accusing people of doing anything reckless, but it does seem like to an extent people are moving past this one way or another, especially if it is more like a cold than a hospital stay. I expect any subsequent wave, unless it mutates in a way that nobody's anticipating, will probably be disruptive, but less disruptive than prior waves that we've seen. So a little bit of a silver lining there.

So let's talk labor shortage for a minute. Um, you know, your audience this evening is primarily chief financial officers, uh, all of whom are dealing with resource availability and scarcity. What guidance would you give them in response to the labor shortage that we've been dealing with?

I would say go find Doc Brown and Marty McFly, get in that DeLorean with the flux capacitor, go back to May of 2017 and listen to me when I warned about this the first time. All kidding aside, I think, and I've been saying this again since before then, but certainly since then, employers need to stop paying lip service to how important their employees are. And I'm not accusing anyone on this call explicitly of doing that.. But I'll tell you, like, I have gone through recruiting cycles, undergrad and graduate school. I've been on the other side of that working for companies. I have heard so many companies extol the virtues of how great their workforce is and how they treat people and all that stuff. And honestly, for most of the last 25 to 30 years, that's been nonsense. Most employers have viewed their employee base as fungible, as replaceable, as a cost center. That's changing, right? The, the pendulum has swung from employers and capital back toward labor. And I'm not trying to sound like Karl Marx or anything, but I think we have entered the era where employers are going to have to stop paying lip service to that stuff and care about it. Not just what you're paying your employees, but thinking about their career trajectories, where they feel comfortable working, what kind of vacation they get, what kind of benefits they get, because this is a structural factor in the economy. It is not going away on the other side of this pandemic. And we are going to separate the companies, the ones that are actually caring about their employees and doing something about it, from the ones that don't care. Because again, fundamental rules of economics have not been violated. When demand exceeds supply for labor, you're going to find out who really cares about their employees and who wants to be competitive in that kind of labor market. Yeah, here, here. I couldn't agree more.

Mark Gervais from Sutherland had a very interesting real estate question for you. Mark, are you still with us? Mark, you still with us?

Yeah, I am here. I just unmuted.

Sorry. It's all right. Why don't you pose your question to Ryan?

Yeah, sure, Ryan. Yeah, just curious. I mean, you didn't talk a lot about the retail, you know, real estate market. Obviously, you know, you're involved with the commercial side. It just, you know, it seems like there's just gigantic bubble, you know, over the past, you know, a couple of years, a lot of a lot of, you know, overbuying or overpricing of what, what, you know, the valuations are.

Mark, let me interrupt you for a minute. You said retail. Do you mean residential?

Residential, I said. Yes. Okay. Did you, did you, do you think that that's going to have an impact, you know, long term with a major bubble, a bubble burst? Not, not to the extent that we had all the defaulting going on 10 years ago, but, you know, something's going to have an impact that's fairly significant.

You know, honestly, Mark, certainly not in the short to medium term. The thing that's different now relative to then is that that was, that was clearly a bubble. I think it's apparent in retrospect. To me, what's different about this is that we are massively undersupplied in housing in a way that probably got ignored for too long because of the last cycle, because residential was, that was really at the heart of what happened last cycle. We probably didn't build nearly enough during the last expansion because, because residential was, was, was really the epicenter of what caused that. Estimates vary, but I've seen estimates in the United States that we are net short somewhere around 4 to 6 million housing units right now. Now, I think that probably doesn't stick because demographic growth is slowing down in the US, but it is going to take time to narrow that supply-demand gap. I'm not saying that, you know, not every— you know, certainly some people are overpaying, some people are getting aggressive. There's probably overbuilding in certain pockets, but on a structural basis, there's just too much demand for housing relative to the supply that's out there. It's hard to argue that, that this is a systematic bubble because, um, to me, again, fundamental laws of economics haven't been violated. If there's excess demand by 4 to 6 million housing units It certainly justifies prices being up relative to where we've seen them for the last few years. Wow.

Wow, that's great. That's great. Ryan, last couple of questions for you. What if inflation goes in a different direction? What do you think will cause that?

You know, if inflation is really not going to behave the way that I, I think that it should, and I think certainly a lot of other economists think that it should, it's probably something associated with the pandemic. It's probably— because think about it, the pandemic hits both the supply side and it's like the perfect recipe for inflation in a way that seems obvious now, but didn't at the time. What does the pandemic do? It makes it hard to deliver goods, right? Because people are getting sick, they're not going into manufacturing facilities, they're not working at ports, they're staying home or wherever recovering. And at the same time, it scares people into going out and about. So they stay home and they want to buy things with their money instead of spending on services. If the— I hate to say this, but if the pandemic really gets worse in a way that we're not anticipating, right, some variant that's really contagious and, you know, really dangerous at the same time, that's the kind of thing that will send everybody, or at least enough people, send them back home again. It will keep people out of work. It will keep production limited. That's the kind of thing that can keep inflation, I think, above where most reasonable economists expected to be over the next, you know, 12, 24 months, something like that.

Well, gotta hate to say that, but, uh, well, you know what, I know you hate to say it, we hate to hear it, and let's keep our fingers crossed. Um, Ryan, our last question, um, if Russia does what everyone is afraid that they're going to do and actually invades the Ukraine, how do you expect that— how do you see that affecting not just the U.S. economy but the world economy?

Yeah, we live unfortunately in a period of heightened geopolitical risk. And I mentioned that because, you know, I think other people have probably made this— political scientists can probably make this argument better than me, but in some respects, we are still dealing with the highest level of political risk we've seen in probably 3 decades, really since the end of the Cold War. And because of Russia's saber rattling, because of China's saber rattling, because we're integrated in ways that we've never been before, because we've seen pushback against democracy in a way that seemed unfathomable 2, 3 decades ago. What our integrated global economy does is it amplifies risk. If we had this pandemic 70 years ago, it would still not be pleasant, but it wouldn't have reverberated through the global economy the way that it did because we are so interconnected now relative to what things were like 40, 50, 60, 70 years ago. Geopolitical events are the same thing. Geopolitical events will ripple through the economy in ways that wouldn't have happened 50, 60, 70 years ago. You will see asset prices respond in a way they wouldn't have a generation or two ago. You will see people's behaviors, not just in terms of what they're spending on, but even without a pandemic, right? Do you want to travel to certain parts of the world if you don't feel completely comfortable being there? I'm not saying you're going on vacation to North Korea anytime soon. I'm just saying, East Asia becomes a more challenging environment with China and North Korea there. Eastern Europe, even into Central Europe, becomes a more challenging environment with Russia being kind of atavistic and more belligerent. These are consequences that are just amplified by an integrated global economy. There is only, put it this way, there's only downside risk to the Russias of the world and the Chinas of the world rattling their sabers. And I'm not giving the US a free pass for some of the stuff that we've done over the last few decades, I'm simply saying it all gets amplified in an integrated global economy in a way that it would not have a generation or two ago.

Thanks for that, Ryan. Ryan, your presentation, as always, has been excellent. This has been a superb evening. You've given us an awful lot to think about. I'm sure our guests are going to have more questions after the fact and going to want to talk to you. Thank you so much for being with us, Ryan, and for always being so generous with your time and your thoughts and your your wisdom. I also like to thank our guests for joining us. Like Ryan, I know your time is very valuable, and anytime we get to connect with you, it's always a pleasure for me and for my team. Lastly, I'd like to thank our intel partners once again. I hope you'll consider talking to our intel partners and perhaps doing business with them if it's appropriate. Thank you to Divi, to EisnerAmper, to Jones Lang LaSalle, and to Southern— Sutherland global. When you get a chance, folks, visit us at CFOintel.com. Consider becoming a member of CFO Intelligence. It'll be tremendously worth your while. And come visit us again. Watch your inbox for, for additional invitations. And again, Ryan, thank you very, very much for a wonderful presentation. No, Andy, thanks for having me.

And to everyone out there who's still listening, you know, feel free to reach out. Andy knows I, I love economics. I love what I do. I'm always happy to help when I can. Don't, don't feel like you have to wait for the next formal event. As my children know, I am not hard to find on the internet with a simple Google search. Feel free to reach out if I can help at all. Really, it's not lip service. I'm always happy to help if I can.

Ryan, we know that's true. Thank you again, ladies and gentlemen. Thank you for joining us. Stay healthy, be well. I look forward to seeing you again and actually shaking your hand sometime soon. And have a great night and God bless.