2021 EP0731 - PLANNING MATTERS RADIO with OCTAVIO MARENZI !!!!

We want you to plan for success. Welcome to Planning Matters Radio.

And welcome into the program. I am Peter Rishon, founder, CEO, advisor at Rishon Planning. You can find us online at richonplanning.com. Our goal for our clients is to identify opportunities and protect what's important while formulating and constructing a comprehensive plan that will work to achieve your financial goals now and into the future. If you've got questions or concerns about your money, about your investments, about your financial and retirement outlook, pick up the phone, give us a call.

We always love hearing from radio show and podcast listeners and do offer the opportunity for a complimentary planning review and strategy session. We will put together the optimized retirement plan for you. This is a proprietary plan structure. It looks at your investments, your income, your taxes, your healthcare, and your legacy planning and make sure everything is complete. We see a lot of people with some great tools, but there are a few holes in the plan that don't make them complete.

Maybe they looked at the growth on the rate of return on their investments but haven't looked at the tax implications. Maybe they looked at building the assets and the retirement accounts but hadn't looked about how to protect that by using social security efficiently and effectively and the timing to make sure that we are making the best use of that tool to help us preserve and protect our personal net worth. There are a lot of different aspects in your financial and your retirement plan and they all have to work together.

They all have to be cohesive and coordinated and that's what we try to bring together. We help people, our clients, complete their plans through that optimized retirement planning process. If you would like to get your optimized retirement plan, pick up the phone and give us a call at 919-300-5886.

In just a few minutes here on the program, we're going to have a special guest, Octavio Marenzi. He is the CEO of Opimus and he will be talking with us about inflation. Americans' inflation fears reach another high as consumer prices surge. Americans' inflation fears have really reached a fever pitch since about June, rising to the highest level since June of 2013 as prices of consumer goods continue to surge. According to the Federal Reserve Bank of New York, the survey was published last Monday, the median expectation is that the inflation rate will be up about 4.8% one year from now, a new high for the gauge, and up 3.6% three years from now, the highest level since 2013, according again to the Federal Reserve's survey on consumer expectations.

So Americans are expecting to feel the hurt from this. Home prices keep rising, goods keep rising, commodities keep rising. What we purchase day to day, and even the major purchases that we make, are up in prices.

In fact, since last June, they're up about 6.2%, the Fed says that they don't expect that to stick, but still a substantially higher one year, 3.7% is the expectation for inflation. Now, on one hand, the Fed has talked about and the government has talked about that they will raise the cost of living adjustment on Social Security, the COLA, but how will they do this? How will they accomplish this when the Social Security Administration has already said that funds are tight and that the system is not well funded to pay a sustainable benefit into the future? They've recently updated the statements.

However, the old version of the statement said that by 2033, they'd only be able to pay about 75 cents on the dollar of promised benefit. So how are they going to offset that fact with these now higher prices and adjust the cost of living for Social Security recipients and then continue to have solvency for the system moving forward? Not only that, but how do savers and investors combat inflation? What are the ways?

What are the steps? What are some of the tools and options that we have available to offset inflation? Sure, we could go into treasury inflation protected securities or government bonds or treasuries, but timing of that is inherently difficult.

And so we need to understand the tools that we do have available and the effects that it could have on other components of our financial outlook. How will higher inflation rates affect the market? How will higher inflation potentially affect our investments? If we look back historically into the 1970s and the early 80s, there were historically high inflation rates and the market did not fare well at the same time to help savers and investors offset that. Now, we are in a different time period and the supply of money has been dramatically increased and we're not so oil and petrodollar dependent. At that time in the 1970s, we were generally at capacity for our oil consumption. Today, we run much, much lower than capacity and we are not petrodollar driven and dependent.

So if we are in a different time now where we are running lower than capacity, will it have the same effect? Well, we need to understand the options that we have for structuring income, making our money work for us to build to the possibility of a higher income. And one thing that I see absent, again, talking about completing plans through the optimized retirement planning process, one thing that I have seen abundantly clear in my years of experience as an advisor is that most plans do not include or account for or address inflation. Lots of plans that I see for retirement basically assume that our need for income throughout retirement remains flat. Simultaneously, a lot of plans that I see make the assumption that the rate of return that we're going to make on our investments stays constantly steady positive at 7% or 8% or 9% or 10%.

Neither one of those is realistic and that's where the rubber meets the road. That's where we really try to help our clients examine their current tools and current projections and see if they do have a complete plan. During this process, we also sort of play Murphy's Law and see if worst case scenarios do occur if your plan can survive. If the bad things happen in the planning process on paper, if we can project out a worst case scenario and we're still in good shape, then we can go out and live with confidence and hope for the best but be prepared for the worst. And I think that's in the essence of what everybody wants from their money, from their finances, from their financial plan.

And that's what the optimized retirement plan is really all about. And if you would like that, pick up the phone, give a call. 919-300-5886. That's 919-300-5886.

919-300-5886. We are now privileged to be joined by our guest. He is Octavio Marenzi. He is the CEO of Opimus and he is the co-founder of Opimus. He directs the firm's research in the areas of equities trading, asset management and regulation. He is here to talk about inflation, surging prices, consumer concerns about how much we're paying for everything that it takes for us to survive these days. Octavio, thank you for joining me on Planning Matters Radio.

Thanks so much for having me, Peter. Well, we are seeing prices increase. On one hand, it's probably pretty concerning for the average consumer. On the other hand, we haven't seen inflation for quite some time. And the Fed has said that they were targeting higher inflation. So where is this a good thing or where is this something to be concerned about and how do we find the balance? Well, I think it certainly is something to be concerned about if you're holding cash or if you're on some sort of fixed income that a retirement or a new issue, things of that sort, inflation is going to eat directly out of those things.

So you're going to find yourself losing. It's a really good place to be if you've borrowed lots of money against the fixed asset on fixed interest rates and you see basic inflation eat your debt away. So really what it means is there's a big sort of transfer from people who are indebted to people who have saved.

I'm sorry, the other way around for people who have saved cash to people who are indebted. And that's what inflation really does and promotes. Now, the Fed has repeatedly said that this is a sort of a transitory phenomenon. And don't worry, this is just going to basically disappear after a while. This is just the economy getting back to normal.

It's going to be a bit of inflation there as this unfolds. I think they've got a bit wrong. And oddly enough, Powell and his friends at the Fed have not shared any of their models with us in terms of how they come to that conclusion. They haven't showed that to us and never do.

And I wish they would do that. How have you come to conclusion this is a temporary phenomenon. I don't think that's clear at all. So what they're trying to do is really talk down people's expectations of inflation and basically say, don't worry, it's going to be OK. Inflation is going to come back down because they know very well that people's expectations of inflation leads to inflation. So if everyone thinks the value of the dollar is going to go down, the value of the dollar will go down. Just like if everyone thinks the value of a particular stock is going to go down next week, it will go down today.

And that's the same effect. So they're trying to manage those expectations and say to people, don't worry, it's going to be OK. It's under control. It's temporary.

And it doesn't look like it's temporary. It looks like we've seen prices up right across the board. All sorts of commodity prices, all sorts of consumer prices, housing prices, what prices we want.

Bond prices are all up. But people are still paying these higher prices for housing, for goods, for commodities. So what is the motivation then for those prices to come back down if people are still buying at the higher inflated prices?

Well, they have no choice. The prices have gone up basically because there's an increase in demand and there's an increase in demand because people have more cash and people have more cash because the Fed has printed more. So that is the way it has to work. So there's a question of simply demand supply meeting and demand being pumped up by this injection of that. What is demand in dollar terms being increased? I don't think people are really eating more broccoli than before or more rice. I mean, I think they're eating about the same amount, but people have more cash in their pockets and so they're going to spend more of that. Well, you mentioned that this is essentially advantageous for those who have borrowed capital against a fixed asset. Wealthier people can and do end up borrowing more. So is this continuing with the transfer of wealth from the middle class to maybe the upper class or those with larger capabilities to borrow higher amounts? I think this definitely contributes to an enormous amount of income inequality, but it's kind of a bit hidden because to be able to discern that you have to sort of follow the trail a bit. And I think they've taken it just far enough that most people don't realize that's what's going on. I don't think people sort of complain about income inequality, complain about monetary policy very frequently.

In fact, I've almost never heard that. I think it is a major driver of income inequality, but just complicated enough that you can't follow the path anymore that they've said, well, we're just buying bonds on the open market to adjust people's inflation expectations and things of that sort. They come up with sort of hyper-technical explanations of what they're doing. But I think in essence, that is a direct result of it. So the monetary policy leads to much higher stock prices, bond prices, asset prices. Of course, that favors people who own stocks and bonds.

It doesn't favor those people. And that's the first place that the monetary policy has a positive impact in terms of prices. I say positively increases those prices. They've also intervened massively in the housing market and continue to do so. So the Fed is buying $40 billion a month of mortgage-backed securities. That, of course, is money that goes directly into the housing market and drives up housing prices. That's great if you've got a house.

Not so great if you don't have a house and would like to buy one. So there's a whole generation of first-time buyers who are locked out of the market because it's become too expensive. But it drives income inequality quite directly. Well, the question then is how long can this continue? And we seem to be living in a world where modern monetary theory states that the Fed and the governments can just continue creating more and more wealth and more and more dollars in circulation. And it does not have any negative repercussions. But you and I know as a household or as an individual that racking up debt or just putting money out there does have negative consequences.

Where does the rubber meet the road here? Or are we going to see the continuation of what is essentially this modern monetary theory where debt and printing more money doesn't matter? Well, I always scratch my head when I hear to these adherents of MMT when I try and follow what they're saying, and I always find myself thinking they cannot possibly really believe what they're saying. I mean, the argument basically that they would promote is to say that it doesn't matter because the government can simply print more money. So that's OK. But if you sort of extend that argument a bit further, you might be tempted to say, well, why do we pay taxes then at all? The government could just print all the money to cover all its tax returns. And pay for it. Right.

Yeah. And pay for it. And then you might take the argument one step further still. Why should anyone work? The government could just print out lots of money and have that money out and no one would have to work anymore.

And that is just the logical sequence you have to know. And if you follow the theories of modern monetary theory is no one should be working. The central bank should just be printing money and handing it out. We could all go buy Lamborghinis. It is just such nonsense because you need the goods and services that people have to work to create.

It doesn't doesn't work. As long as we as individuals and then globally, as long as other nations continue to accept our currencies, this can or at least has seemed to continue. Well, I think there's two things really worth bearing in mind over the course of the past couple of decades. If you look at what should have happened with prices, I think we should have seen a lot of deflation, actually prices going down with the value of money going up.

And there's two major reasons for that. One is that we have things like the Internet far better information at our disposal with which we should become much, much more productive. And if you become more productive, it means prices go down, i.e.

deflection. That's what we should have seen. Another major thing that's happened over the course of the past 10 or 20 years is the opening up of China with very, very cheap mass produced goods coming into our markets, flooding them. And that should lead to deflation pressures as well. So we should have seen prices drop quite significantly over the course of the past 20, 30 years.

And we haven't. And we haven't seen that drop in prices because the Fed and other central banks have printed money just at the right rate to negate that and obscure that. So if that if that deflationary engine disappears, then they're going to be in big trouble.

And I think we're seeing it disappearing under our eyes. I think sort of the gains made with better information and the gains made in terms of China opening up are probably at their end in terms of further benefits, I think, to plateau there. And so now we're starting to see inflation take hold. The Fed had stated that they intended to target a higher inflation rate. In fact, from their previous target, the rate that they stated at the end of 2020 or beginning of 2021, I think they stated that they were looking to essentially double their target rate for inflation.

My question is, once the toothpaste is starting to leave the tube, it's hard to get that cap back on. How are they going to control it and keep it at that target rate at a maximum amount? Or do we see this getting out of control? Well, I think it does have a very serious risk of getting out of control. Things don't always work the way that they expect it to.

So their models have not always proven to be the most reliable in the world and have frequently proven themselves to be downright wrong. And so what do they do when inflation starts to get out of hand? I think they're going to kind of waiting until political pressure builds up and they're just going to accept higher inflation, say this is good and come up with some sort of argument why it's in their favour. But at some stage, the political pressure will become quite intense. And there's going to be a lot of very, very unhappy people, unable to buy houses, see that pensions evaporate in terms of value, not able to buy anything. There's going to be a great deal of upheaval there and they will have to address it. And then they will have to increase interest rates. And once they increase interest rates, they're going to crash the markets that become so dependent on their cheap money. I think that's what we're going to see unfold over the course of the next few years. I don't know exactly when that will happen. How long can they keep going? How long will people still accept the temporary inflation story before they run for the exits? I don't know if it takes a year, two years, three years. I'm not sure.

It's a question of psychology more than anything else. But when it does happen, you can be sure a lot of institutional investors are going to run for the doors as quick as possible. They'll crash the market. Inflation will be brought under control. So that's what's going to have to happen. What would you see as some of the potential early warning signs that that is beginning to occur? Well, I think the early warning signs, there's two ways out.

There's two parts out. One is the Fed is just going to accept a very high inflation rate and it's going to go out to control. And the signs of that would be they just carry on saying everything's OK. We're just going to carry on printing money. We're going to carry on buying lots of bonds. Maybe we're even going to expand our bond purchases. So I would see that as a sign that we're going to see inflation really take off. The other side of the thing is that they could crater the markets by cutting back on the money supply. And what we'll see there is the Fed basically coming out with decisions saying we're going to increase interest rates now over a prolonged period of time.

And so that would be the two scenarios and those would be the warning signs of either one of them. Last week on the program, we talked about the fact that Wells Fargo recently announced that they were cutting or ending extending personal lines of credit to individual account holders throughout their banks nationwide. Do you see that maybe where banks are beginning to exit the area where they are extending credit to consumers, that that may be a warning sign of the beginning of this? I think Wells Fargo is kind of an exceptional case.

I mean, Wells Fargo is sort of in the worst student in the class for some time in terms of banking, in terms of ripping off its customers, in terms of opening up fake accounts, and they're still sort of trying to recover from that. We have seen a certain amount of softness in some lending, in some lines of business at the large banks. So if you look at something like credit cards, for example, lending there came back down about 15% during the pandemic and hasn't recovered. So that is still lower than it was pre-pandemic.

Other areas have done quite well. So housing loans are up and other social loans are up. I think with Wells Fargo, I think it's pretty easy to interpret far too much into it. They basically transferred those people out of fixed rates into variable rates.

And that was really what the story was. They said, we're not going to be a personal line of credit anymore, but you can have a credit card instead. So basically those debts got transferred around. I think Wells Fargo's overall level of lending didn't really get impacted by that so much directly. They just found that particular type of loan hadn't been as profitable as they hoped.

And so they got rid of that line of loans and replaced it with other loans. On the other hand, and potentially not offsetting the inflation that we are seeing, but we are hearing that Social Security is preparing for a historic cost of living adjustment for income recipients, for retirees, for Social Security recipients. That can help us offset some of this inflation. If we see a higher cost of living increase than we have historically seen, that'll put a little bit more income into retirees pockets each month. Well, that would be exactly inflationary now. I mean, I suppose it depends how it's funded.

I think if I were a betting man, I would bet dollars to donuts that they're going to fund this by issuing more bonds and those bonds will be bought by the Federal Reserve. So I always hear the term vicious cycle and I say, well, it's maybe not so vicious. It's just a cycle.

But in this case, it may be, in fact, a pretty vicious cycle there. Yeah, I mean, they're going to be talking about a 5.4 percent increase in Social Security checks that will be funded by money printing, either directly or indirectly. They do a bit of a round circle by selling the bonds first to the primary dealers and then the Fed buys those things from the primary dealers. But in effect, it's just monetizing that debt and printing money to pay people. So, I mean, we're going to see MMT put to the test. Modern monetary theory will really be put to the test and we'll see how it works. It didn't work so well in all the other times it's been tried. And Zimbabwe is not doing that well. But by that theory, that should be the richest country in the world now.

But they're struggling a bit with all sorts of inflation. Well, there are other political and financial theories that have been tried before and we seem to be cycling back to and trying again with with a new attitude that it can work this time. There was just something wrong with the way they did it before. History repeating itself? Yeah, I mean, I think we hear that a lot this time is different. And I think a lot of people promoting these theories are really sort of stubbornly ahistorical. They don't look back at what's been tried and tested in the past and look at older economic theories and understand what they did and what they didn't do.

And so that is what we sort of fated, I think, to repeat now in this cycle as well. For the average saver or investor who has built up some capital and hoping that at some point in time they've built up enough to where they don't have to trade their time for money and they can survive off of their savings and investments, what is maybe something to consider for them a good play right now or something that could help offset and combat the effects of inflation? Because it didn't work out so well to be an investor in the market in the 1970s, where we had historically high inflation and stag inflation. Well, if you were to go back to that to the 1970s and 1980s, the smartest thing to do back then when basically Volcker increased interest rates up to about over 20 percent would have been to buy just a whole bunch of U.S. treasuries and sit on them and wait for the interest rate to then fall. And then you would have made a killing.

So can you time that that well? I mean, theoretically, now, if you're now an investor or small time saver looking to take advantage of this and fuel yourself from inflation, the thing to do is to go into any asset that is not denominated in dollars or in currency. So anything that is not a bond and any asset by inflation, by definition, is going to increase in value. So be it art or stocks or anything like that or real estate will be shielded at least until the inflation ends.

Hard assets. Then what you need to do is switch really quickly into cash at that turning point. But that turning point is really difficult to estimate and a lot of traders are watching that quite carefully to see when does that point get reached. So I don't know. Someone said you don't want to be the investor who benefits from the last 10 percent in the spike in the market. You want to be out well before that. And I don't know whether we've reached that point or not.

It's so hard to say. But I think for an investor who thinks that they can time the market really well, that's what I would be doing. I would be saying, get into the stock market with all you have. And once you see that turning point reached, back out and jump into bonds and cash. But I don't know how to time that that well.

I think it's almost impossible to do. Are these factors leading to the rise in value, in popularity, in legitimacy of cryptocurrencies? Are these concerns that we are talking about with modern monetary theory, with inflation, with the fiat currencies, are these some of the factors that are leading toward the popularity and acceptance of cryptocurrencies? Well, definitely that is the underpinning philosophy of the cryptocurrency, in particular Bitcoin, which was basically created as a response to that. They're basically saying we don't want to have a currency that is just inflated willy-nilly by some central bank because they decide now there should be twice as much money in circulation. So we want something that's limited.

We want something that cannot just be expanded indefinitely. I mean, Bitcoin has its problems. It has sort of a weird approach to generating new currency and doing transactions is a bit strange, but it makes perfect sense if you're going to try and come up with an alternative to fiat currencies. The thing is, I think about Bitcoin and other currencies like that, the central banks don't like it for obvious reasons.

It's a direct competitor and has been explicitly set up to compete with the dollar and the euro and the yen and currencies like that. So I think at some stage, as it takes off as a payment vehicle, if it takes off, the central banks will step in and try and have it banned and they'll find excuses. And they might not come out just outright and say, we're now going to ban Bitcoin, but they'll find ways of making it very, very difficult.

They'll say it's used to fund terrorists or tax evasion or child pornography, all sorts of evil things you can think of. And they'll find reasons to gradually shut it down or make life very uncomfortable for the crypto exchanges, anyone dealing in crypto. So I think that's probably how it's going to unfold. If it becomes very popular as a payment vehicle and really looks like a replacement for the dollar, the Fed will respond and will respond powerfully because their position as a central bank will be challenged.

Do we see that this trend of inflation could derail the recovery that we've seen from the COVID pandemic? I think it's going to make a lot of people feel worse off, certainly. So like I said, anyone who's on fixed incomes or pensions or news and salaries is going to sort of feel that their dollar is not going as far as it went before. So they are definitely going to suffer. Now, other people might do quite well out of it. So it's not a neutral thing in the sense that everyone sees it the same way and has the same impact.

Some people will benefit from it and some people will suffer. How does this compare to the interest rates from the Fed? On one hand, they're targeting higher inflation rates, but they voted unanimously to keep interest rates at or near zero.

Well, I think it's the two sides of the same coin, basically. They keep interest rates very, very low by printing money and buying bonds. So that's how interest rates get low.

So it is directly related. So you could perhaps argue the money supply is the more important factor than interest rates, but they are intimately related. If you look at how the Fed actually gets money to circulation, so the way they increase the money supply is they print up some money and they go buy some bonds and that's how the money supply comes into circulation. I personally have never received my share of the new money supply. If the Fed sent you a check saying we've increased the money supply, here's your $20,000.

Never saw it happen. It's all done through bond purchases and other asset purchases. Well, if you go to the Federal Reserve Economic Data, Fred, they can show you charts where 20 percent of all money that is in circulation right now has been printed in about the last 18 months.

So no, I have not received my 20 percent bonus on my savings. We've been talking with Octavio Marenzi. He is the CEO of Opimus and he has been talking with us about modern monetary theory, about low interest rates, about inflation concerns and the effects that that could have on savers, investors and the economy. Octavio, really appreciate the time and the perspective and insight that you've shared with us. Right.

Thank you so much. Well, that was a great interview with Octavio Marenzi. Again, he is the CEO of Opimus and gave us perspective on modern monetary theory, something that I've talked about in our regular monthly client newsletters. By the way, if you'd like to sign up for those, be in touch. We send those out to a wide variety of clients and prospective clients, savers and investors who just want to stay informed. So if you would like to join our mailing list for our regular monthly newsletter where we talk about inflation and financial strategies to combat it, we talk about taxes and how to keep more of your money. We talk about low interest rates and where there are other alternatives. We talk about large economic trends, modern monetary theory. What does it mean for the average saver investor? If you'd like to be more informed, it's a monthly newsletter.

You won't get spammed every day, but you can stay informed once a month getting that information out to you. And again, if you would like the optimized retirement plan, individual specific for your situation, just pick up the phone and give a call. No cost, no obligation. Similar plans can easily go upwards of a thousand to several thousands. Even I've seen tens of thousands of dollars for the type of planning that we put together, but we make that plan available.

No cost, no obligation. Well, why do we do that? Well, we end up getting more clients and getting to help more people and more families achieve their financial goals.

At the end of the day, that's what it's all about. And if you would like your optimized retirement plan, pick up the phone, give a call 919-300-5886. That's 919-300-5886. Glad you tuned in today for Planning Matters Radio. Look forward to speaking with you hearing from you real soon.

Take care. This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss of principal advisory services offered through Brooke's own capital management, a registered investment advisor. Fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission which may result in a conflict of interest regarding compensation.