#512: Alan Beaulieu & Kim Clark | Turn Economic Uncertainty Into a Plan

Welcome to the Independence by Design podcast, where we discuss what it means to be a business owner and ways to get unstuck from the day-to-day so we can design a business that gives us a life of independence. Brian, Dad, excited to dive into today's conversation. Dad, thanks for joining us. Looking forward to talking economics, but also just like what the heck is going on in the world around us. I just I see so many news headlines everywhere and I talk about it with my friends probably at nauseam to the point where they don't want to talk to me anymore. And so then I call Ryan and he and I can talk about it for hours, which works out well. So just looking forward to having this conversation so we can share some of what's going through all of our heads with people that tune into the podcast. So Ryan, I don't know if there's anything you want to add to that or not. No, I'm excited. I'm like you and I were talking about like I in the pursuit of truth of like, so what, to your point? We hit the record button like we're all talking to business owners. Us three are going to be at the IBD summit in a couple of weeks. We have to navigate these choppy waters. Alan, you and I both sit on board on boards and it's all about the future. How do we navigate the future? How do we make it practical? How do we sit through all the propaganda? So I'm excited just to unpack what should we be paying attention to and why? Okay. Yeah, I appreciate that. And there is a lot going on and it's sometimes it's easy to get caught in a headline and you get distracted by that. But there are some headlines that are worth paying attention to. Retail sales number just came out and it was a good, healthy number. And the headline says, you know, consumers are resilient and they're confident and and all the rest of that. But then if you read far enough down, it says this is not an inflation adjusted number. I'm going, well, let's put a big red X on that one. And I just I got to read this this post that I saw this morning that I think is tied into that is. Here we go, we got anthropic says it would be profitable if you didn't count the expenses. Like La La Land. Oh, my God, whatever. That's that's truly funny. Well, it's okay. I think to frame this all up and I'm curious, like what you're paying attention, because it's like I was texting Pat Hobby back and forth because I sent him that and I said. Apparently, you and I missed the single entry accounting class that everyone took while you and I were in the double entry accounting class. Like, what is going on? Yeah, well, that's so very true. And that's one of the things I hope we get to talk about for a few minutes today is AI. And I want to roll in China. But. But I think a broader brush at the moment would be bond 10 year bond yields. You know, today they're at five point zero eight percent. And there's so much being written about that. I almost hesitate to talk about it. But as I listen to other people and some people shrug it off and go, well, you know, best it will take care of it. And others, the, you know, venture market will take care of it. And then and, you know, but the reality is. Anybody. Anybody in my opinion that wants to know what's going on has got to pay attention to the bond market and what's driving it. Why are rates going up? And the reason is multifactorial. So when they look in one area and say it's because the United States is trying to accomplish this, that's ignoring a large part of the bond market and bond yields are going up in most countries. And as they're going up in most countries, that tells us something that there's something global going on that we need to be paying attention to. Why do we care at the moment? We don't. I don't care that to 5.08. I don't care if they get to 5.59. I don't care when they get to 6%. And I don't know what the magic number is. But if we see them just slowly going up over the next three years, we're going to reach a point where the egg cracks and we're done. We're into that depression. And people like to ask, what's the magic number? And the answer is there is no magic number. It's when the bond market decides this is nuts. The United States is dead. Japan's dead. China's dead. China is a huge debtor nation. People don't pay attention to that. France is dead. Italy's got the largest debt to GDP of any nation, major nation on the planet. All this is causing people to go, you guys don't seem to know how to put the brakes on this. I can get more money by going into commercial credit at the moment. I can get more money elsewhere. So I demand a higher rate of interest if I'm going to be inflation protected. And that leads us to, OK, is inflation going to recede? And my unequivocal answer is no chance. No chance inflation is going to recede. We might find some disinflation, which is a slowing in the rate of rise, but no deflation, which is prices coming down. And I actually think in the next three years, we'll see inflation begin to pick up again in '27. And we're going to be dealing with the consequences of that and the impact on businesses. So the so what is? All right. Warsh is speaking this afternoon. President Trump wants him to lower rates. Warsh, it's hard to tell what he wants to do because he's a dovish hawk. And then he may at the end of the day raise interest rates 25 basis points. So I want everybody to know that we're talking today before it happens. Yeah, right. Exactly. Caveat. That's right. If it goes up 25 basis points, I don't care. It means nothing. It's symbolic. It's when it goes up 25, 25, 50, 25. Stop. It stops for a couple. I mean, that's what you want to watch is the trend. It's all about the trend. So if Warsh goes up 25 basis points, go, I should have put that on the betting app and I would have won some money. You know, pay any more attention to it than that. Now, part of all that, though, beneath the surface. So we're going beyond the bond yields. And what Warsh does with the Fed funds rate is that it looks like mortgage rates are going to be going up and going to 7%. So in an early slug. Ish market where prices are going up very fast, faster than people's incomes. All of a sudden, the mortgage rate is going to go from six and a half to 7%. That's a big deal. That's a so what? Because that's a major part of the economy. And it means that there's a whole generation of people who are going, I can't afford whatever the American dream used to be. I don't even know what it is anymore. And I'm denied that. And I'm a renter for life. What's the problem with that, Alan, is that most people gain equity in life because it's the equity in their home. So all of a sudden, there's a large part of the most populous generation we have who are not going to be able to gain equity that will help them as they get older. What's the so what to that? That means that they are going to be voting to change things in their favor. And things will be changing. We're going to see that all over. Yeah. When will it occur? Next decade. Does it matter to me? No. Why doesn't it matter to me? I'm going to die late next decade. So. It doesn't matter. The actuarial tables are pretty clear. I got a countdown birthday cake. Kim's seen it. Every year I take a candle out and we just. I got to get you that poster that I've got up on my wall. You would have a lot of those boxes filled out, apparently. Depends on what you give yourself for the total timeline. So first takeaway then is watch the bond market. It'll tell you whether they're expecting inflation. Those are intelligent people and what they're willing to tolerate. Watch the global bond market. That'll do what the world's. Going through. And what we're seeing is that there's going to be some global inflation. So plan your business around inflationary increases. Do I care whether it comes from oil or whether it comes from diesel fuel or whether it comes from cotton prices or rare earth? Only if I'm an investor. But as I run my business, I just have no inflation's coming. So then I go to Kim and go, Kim, I need to raise my prices. Can I raise my prices? How much? And what's the message that I give when I raise my prices? Because the worst message in the world is my costs have gone up, therefore I have to pass along my costs to you. And I go, you are truly stupid for saying that out loud. You got to find a better way. I have to tell you about the, the image that I got. I screenshot about my protein. So this protein I've been buying for a long time, it was $62 and it's now 126. And we, I asked them what the F happened and they're like, we thought it was transitory and we were wrong. So now it's 125 and I was like, oh, that was. Well, well served, eat it or not. It's up to you. Yeah. Yeah. Well, they probably would rather ship less and make more. So, you know, that's not a, not a bad thing. So as, as business owners, is there a capital available now and you have a project going in the future, you might want to get a, a loan now because it's only going to cost you more in the future. But be careful of the three-year window when you got to perhaps deal with cash flow issues, as you head into a slower growth or a downturn in the economy, while you own a lot of debt. My advice is you better make sure that's a short ROI on the reason you're buying that piece of equipment, three-year ROI. You want a new factory. Think about that one, you know, that sort of thing. I think that's the most important issue of the day is three-year planning with debt rising. And that'll mean different. Cost of debt. You're saying. Yep. Yep. I wanted to give you, and I think that makes sense. And I like. You know, Kim keeping us on track of like the, so what? Cause I, you know, before I even continue, I think Alan, like you and I are like in lockstep of like in Kim, we talk about all the good time. Like I. think being a business owner of looking at your revenue looking at your margins holding your margins to the rate of change on your cost of goods kim kim and i did that workshop alan about like how do we track the rate of change on our cost of goods so we can maintain the margins to figure out how to have that pricing increase strategy that becomes the the arc or the the thing that's you know the surfboard of the of the wave of inflation i want to zoom out even a little bit further and just kind of give you my frame of reference of how i'm how i've my mental model and how i'm thinking about all of this stuff and we started out because i want to know if i'm thinking about this in a in a in a i want to know how how you think about my mental model right now so in the lens how do you feel about it i feel like i'm a therapist at this point how do you feel about this i feel like the snake is eating its tail and there's literally no way out yep okay yep and i think that people are thinking linearly and i think that is the wrong mental model i think this is a not i think we're in for a non-linear event and for probability and statisticians who are talking about well there's only a one percent chance but like nassim teleb talks about if the one percent chance collapses the entire thing you're not weighting your probability and understanding how to plan against that one percent that's non-linear that collapses the entire thing um and there's the whole gradually then you're not weighting your probability and understanding how to plan against that one percent suddenly which there's a lot of books around that which is effectively the non-linear event and the way i think about it so the feeling is i feel like we're all in a movie theater and they call it the pavlonian bell which is like when does everybody wake up and like if we're in a movie theater and there's smoke going on and like i say hey kim like let's let's walk to the door because shit's gonna go down like and we're walking and like let's not let everybody see we're running because if they see we're running they're gonna shoot us and crawl over our dead body so they can get out and the moment that people realize we're speed walking now the closer we get to the door but the more we speed walk and the more everybody goes holy they're gone they look there's smoke and that's a non-linear event in my mind and what i look at and i can give a bunch of examples that i are headlines that i'm following that is helping me understand the rate of change of people's awareness of the smoke which then helps me better understand the rate of change of the non-linear event becoming more probable and increasing the probability of a non-linear event because the snake is eating his tail and what i mean by that is like i was joking around with pat because like i'm like like the fact that he's not talking about it it's like double entry accounting like the u.s government and the more specifically the federal reserve i know they're different and we can talk about that but they're the only ones that do single entry accounting they print money out of their butt and the whole like the whole economy as of right now according to the stats it's around 79 of the entire economy's debt refinancing so this whole like cash flow game that we talk about all the time which we are we have like double entry accounting which is cash flow because you're creating value for people that buy your value is a game that we are all subjective to and subject to and then we look at the so the fact that we're not going to be able to do that we're not going to be able to do that we're not going to be able to do that we're not going to be able to do that we're not going to be able to do that we're not going to be able to do that we're not going to be able to do that we're not going to be able to do that we're not going to be able to do that we're not going to be able to do that and why i think the snake eating the tail is the best analogy for me is because double entry accounting when i look at the sixth grade math of double entry accounting go okay well right now we either save the bond market which what do i mean by that it's like well kim if you lent a million dollars to the u.s government at four percent you want the purchasing power of that million dollars plus your four percent you want the purchasing power of that million dollars plus your four percent back that's what you that was the agreement that you had when you lend money to someone that you think you're going to get the right purchasing power plus the risk back which is technically the risk-free rate that prices the foundation of all assets across the world so save the bond market means we have to and we can go and what way my mind goes and i got a whole list of like what does that mean and what are the lenses of saving the bond market well the other side of that is or save the currency which is the medium of exchange and what i do with my and i've got a list that i'm looking at here with a huge list of like if we save the bond market all of these things have to be true and if all of these things have to be true it collapses the currency but if we save the currency and all of these things have to be true it collapses the bond market and then so what happens is it's this perpetual circle reference with people that are spreadsheet junkies it's like we're in this and because it's single entry accounting so the more you save the bond market the more you're going to get so the more we lend and like the way i think about it from a cash flow statement from the government and like a very practical example of this is we spend seven trillion we make five that's a two trillion dollar deficit we have to fund that so if we fund that deficit and we're we're gobbling up debt and the interest rates go up it blows that out and it increases the two to three to four and then all of a sudden we're eating its tail so if we increase rates that explodes upwards but if we decrease the rates the inflation explodes upwards so we either save the bond market or save the currency and what what are the data points that i'm watching is the uae tried to sell their saving the the bonds to buy oil japan is trying to sell to buy oil because we increase their lifestyle so they're trying to sell and best it and whatever propaganda he says it's like how about you don't sell that because the ponzi scheme is being kind of found out here here's your margin loan your swap line so and like all of a sudden the insurance companies who would rather buy a treasury at 5.1 versus the private credit market that's also the same so there's this whole like every single time alan i get into this like what what is the the deductive reasoning behind it's like well it's either save the bond market or save the currency because it's double entry accounting and so i agree with you like to the normal american it's like well my mortgage is now 7.1 and that sucks and we're going to vote people in that are going to give me more free and so the so and that's ray dalio ray dalio's got this entire framework where he says by the time this long-term debt cycle happens where the snake's eating its tail everyone goes i want more stuff it's not working for me give me more stuff and right now it's like this it's called the horseshoe theory in politics trump wants to own privately held companies and so does bernie sanders and aoc and elizabeth warns like they're the same thing and so i sit here and go oh my god like what the hell and i and i go back to the so what i believe i might the way my mind is going it's like they're not gonna default on they're gonna print money and do they need the political coverage to do that probably energy crisis ai debt bubble japan christ i mean what what pick pick from the order of the crisis that you want to give you the cover to print otherwise we have to default am i like what's your thoughts on like me just because i end up spinning in circles and then i try to go to the so what maybe i need to stop thinking about this stuff and just talk about like strategies of increasing prices for our clients well on a daily basis that's where it starts is you know how the client keep cash flow going but to answer your question um i'm going to answer it this way there are people like bessett and and others who actually believe they can balance the two so the snake's not eating his tail because they can they can keep the snake and and the demand and everything in balance and own the market and and control the market the u.s military backs the dollar and people want to believe that they want to believe that there is a best that there is a trump that there are people out there who can protect them and make this safe because people by nature are linear thinkers and it hasn't been so bad so far in the last 10 years you know we've had our ups and downs but overall you know not a lot to complain about which by the way is not true but that's how people think well the bond markets the bond the real return on bonds has been the worst in 250 years though right so it's not actually true but all they think about is the four percent i'm making four percent on their money they don't they don't think they really don't they don't think about the the inflation and the value of the rest of that stuff and that makes it easy for politicians to sell a story and and that's to your point where it comes upon us very slowly till all of a sudden it's here is because we have bought the story um and and that will continue until it doesn't one of the things that i always used to get asked is what's going to be the event that causes this thing to fall apart i go i have no idea that's why i keep my head on a swivel i keep you know keep looking around and it'll probably be three or four things coming at the same time and i personally think uh china is something that needs to be watched very closely i can direct our attention over there a little bit this might not what are you paying attention as it relates to china yeah i i i think the problems that we're talking about don't begin here i think they begin in china china owns a second largest foreign holder of u.s bonds that gives them the ability to crash the dollar when they want okay that's they don't need a lot of aircraft carriers they have bonds it's one they make our aircraft carriers so they have both but we can talk about that later and china's going to get desperate um they're to get desperate because they have a declining population they're going to get desperate because as the global economy slows less people are going to be buying their stuff that are made in factories that are augmented by ai um ai does not pay taxes ai does not consume anything so their internal economy is going to slow down as a global economy slows down all of a sudden you have a desperate economy that is their debt to gdp depends on who you source it from the ims has them at 99 percent debt to gdp uh really high and people don't talk about it because their interest rate's so low at 1.4 percent and as luke and lynn just pointed out that's because they're experiencing deflation i heard that and i went well you gotta stop there folks and talk about deflation because deflation wrecks economies you don't say oh good prices are coming down when prices are coming down all those companies that are selling stuff are going you oh crap you know i have to sell it for less next month i have to sell it for next less next month and i have to sell it for less and people stop buying because they go you know what i really would like a new car but if i wait two months it'll be cheaper i'm just going to wait two months and then you know you get this build-on effect where things slow down because of deflation so it sounds like it's a good thing when prices come down to people it actually ends up being worse for an economy than inflation um the one okay so i i agree in the context of we live in a fiat pyramid scheme that has to by mathematical definition accelerate to centralization and control but in a truly free market productivity the whole hype about ai is it makes things more productive more productive means things are cheaper like i think about what kim and i are doing like what we just created for one of our clients was a forty thousand dollar sim deck that any investment banker couldn't have waved a stick at so like that's good for people and so like i think about it is like and the way i think about this track is like it's the centralization and control and inflation that accelerates versus decentralization and a free market and we've never really lived in a free market because we've got a someone that controls the money supply with single entry accounting so it depends on what what frame of reference i think that we're thinking about deflation and if it's to protect the system of the pyramid scheme which i'm not suggesting we should collapse tomorrow i'm just saying like it depends on like what it is and if gold goes up because china has made it illegal to buy bitcoin they have deflated their real estate market and encouraged all of their citizens to buy gold and they bought more gold than anybody and if we actually priced gold out of the pyramid scheme we're not going to be able to buy gold because we're not going to be able to buy gold because we're not going to be able to buy gold because if we actually buy gold at 25 grand an ounce their surplus would be gone their citizens would be rich and we could get back to reshoring our industrial base and we could actually rebuy all over the long end of the bonds so we could do that whole treasury general account like where you take the 42 42 dollars an ounce on our balance sheet scott beston without talking to anybody could revalue all of that gold which if it's 850 tons at every four grand is another trillion dollars so if it gets up to 25 20 to 25 20 to 30 grand an ounce he could buy out all of the long end of the tail a long tail of the debt and then we could actually go back to then 60 to 70 percent debt to gdp and then we could actually afford to reshore and so i guess my point is is like it depends on like i'm curious on how you think about that because like china said hey real estate is for living in not for speculation which i mean i don't know it seems sensical and i'm not saying they don't have their problems but i'm trying to think about how it depends on what frame of reference i think we have right yeah and as as usual ryan when you talk four thoughts coming to my head and i don't write them all down so well at least you have only four it was like nine to eleven so you're catching up it could very well be um okay let's let's go back to deflation and keep it simple okay you're talking systemically i want to keep it simple for a moment then i want to get the productivity and and and then we'll go from there deflation i'm a farmer and i and i sell wheat and the price of wheat goes from ten dollars a bushel to eight dollars bushel to six dollars a bushel because i've increased productivity or because there's more of it grown how long can i stay in business as a farmer if i have a mortgage and i have to pay for the machinery and i have to you know take care of my my family unless all the prices around me are going down at the same time and if unless all the prices are going down at the same time at the same rate uh i'm screwed as a farmer so understood yeah because like you're either in that system and everything has to be well that's why like when i look at like the chart of all of the interest rates of all of the western world going up versus china's is going down is because of the under what's the denominator of the met unit of account and unless it's system-wide people get screwed along the way and hurt so it you can say you can make a case that an economy can go for a while that way but along the way people are getting hurt as people get hurt they can react in in well how is that any different than right now if if wars and best if wars increases rates and the boomers who have most of the money become more rich they are more they have more spending power and inflation picks up so like what ends up that's why i literally go back to the snake eating a sale because every single time it all bounces into the same thing of like okay well all of the people that i mean you look at the purchasing power that the the younger generation has that doesn't have the assets because if you don't have assets you don't get to ride the wave of inflation of the money printer so if you're stuck in labor like there's no mathematical way to retire with your labor like anymore and so those people are getting crushed like my wife's the people that work with my wife like no one no one's planning on getting married no one's planning on buying houses or cars because they literally can't afford it on 80 grand like the math is so screwed and so those people are pissed yeah so like who we like who who is the person that it should be getting the free lunch i guess well nobody should get a free lunch i don't want to agree with that and you made a statement i'm going to disagree with and i hear a lot the boomers i understand that most boomers barely get by and they and there are millions and millions of boomers who live on social security without social security yeah living with their with their kids it's and i hear about this massive transfer of wealth this massive transfer of wealth is very defined it's in thin beams of light that come down because you have some very rich boomers that are going to leave it for their kids don't get your hopes up kim and then you're going to find but you're going to find that most boomers what they leave behind for their for their kids is you know here's my chair i hope you like it you know it's mainly the house equity and i and i and i appreciate you of course correcting me on that because it was too much of a heuristic or generalization and when we and that's why i think looking at where the wealth is concentrated it is it's a huge it's a spectrum and there's a bell curve within the one percent and it's the whole like um the whole uh uh what do you call it the um where the one you know it's what do you call it uh eighty percent twenty percent and then the twenty percent eighty percent and whatever the hell that that phrase is called so it's not just older generations but at my point is with then whatever you're doing who is trying not to get hurt yeah and those truly rich people have lots of power be they boomers or not and so it's the power people with power i just my wife and i don and i've been watching a tv show we really like uh it's called uh murders in the building with steve martin and martin short and uh celia gomez cecilia celia gomez and in the last season uh i'm going to shortcut this so i don't bore everybody but watch the show it's kind of it is a lot of fun and we laugh a lot murder in the building murders plural in the building i think you'd really like it and what they what what they discovered in last night's episode was that uh there is no more mafia because they and how they got it's in the bottom of the building and it used to be where the gangsters met to gamble and have parties and all the rest of that so they found out about they're down there and all of a sudden three billionaires walk in and it's where rich people are coming now and they go there is no more mafia she was right it's just rich people now who are controlling everything and that's what i've been thinking about the last couple days even before last night's show i said it's the rothschild theory and you remember when george hw bush was was thought to be part of that cabal or that group that controlled all banking i mean it's that same mindset there's a large group not that large but there's a group of extremely wealthy people who are controlling so much of the economy the most that the people working for your wife can hope for is that enough crumbs will fall off the table that they will be able to to get by and have a you ever seen that uh it's a it's a meme where there's a couple people playing a game and the table is everybody else underneath like the the the game table so if you stand up the whole thing crumbles and did I lose you no oh it just froze for saying so like if you stand up then like the whole thing crumbles and I love I've got this quote that I say politicians are just prostitutes for real power like I don't need like if I think that looking through the lens of red or blue or even countries is a different it's it's incorrect because I look at it as in like there's the western block where it's like it's the IMF the Bank of International Settlements the Federal Reserve the single entry accounting folks BlackRock whatever that like it's all these boards and it's I don't think there's there's like necessarily a conspiracy of four people it's just this load of incentives through corporate structures that are all international corporate companies now and they're all moving towards and then you have then the eastern block of Russia you know bricks whatever kind of combination you want who makes stuff and like they're communists in various different shapes or forms not all of them but like there's this that's this competing incentive structures between these two and it's like that so I agree with you where it's like I think it's just an interesting frame of reference that I have had where it's not like I mean Thomas Massey's not going to save us AOC or Bernie or Trump or it's just ridiculous in my opinion well that I that's true where I was going with that whole structure thing was that if that's real if that's true then it may or may not be there's not a thing I can do about it so my focus has always been or let's talk to people who are trying to raise a family run a company and do something good in this world so I tend to ignore the great big systemic thinking which may be to my default and understand its impact on on the individual and so let's when it comes back to let's go to AI you talk about AI and productivity and I heard two people talking the other day on a podcast and they said well yeah it'll cost people jobs but the people always adjust and and they just kind of fluffed it off Kim and I did a podcast about that remember Kim there is no just just there is no just fluffing that off when when people were used to making $110,000 a year now don't have a job $80,000 a year don't have a job and and it's a period of transition where there is real pain and so when I hear people say well AI and I used to be that person on stage as a macro economist Schuberters creative destruction I'd create example you know tell people examples but what I've come to realize is that we're talking about real people whose lives will be impacted by companies that don't recognize expenses that can create something really dangerous and yet we're just going back and going oh it's just another technology iteration and I'm going what about the people what I don't know it's interesting about I because I uh I agree with you and it Luke Grohman has this frame of reference for me that he said because he was challenging people that were fluffing it off and he said okay let's take that thought further well healthcare is the largest employer in 38 of the states mainly administrators that are mainly making 100 grand well first of all the whole healthcare system could blow up and I would be happier but like that's beside the point if we go through and we get rid of the EOB processing and all of the call centers that tell us no all the time and all of the doctors that are constantly submitting insurance claims for are the meds that we don't need like if we actually made that efficient if three of those three percent of those three to four percent of those people making a hundred grand that are healthcare administrators lose their jobs the whole market like the credit the consumer credit and the mortgage industry blow up which is the collateral that's funding the pyramid scheme so it was only like three or four percent of the houses that actually and I don't know what like exactly the stat in the great financial crisis it wasn't like 50 bankruptcies it was like three or four percent and it was just enough to blow up the Ponzi scheme so I actually agree with you like even outside of the pro I mean outside us if the whole narrative is this is more productive well then it the more the productive has to come through efficiencies and those people that are people like your point have real families and real things but not only that but they actually are super important for the collateral collateral-based lending of the system and don't forget they vote I know more stuff give me more stuff well that but maybe under the guise of protect me because big business is killing me protect me from big business and you get into an anti-capitalism movement which does exist and it can only it may gain in strength because the perception is that government is aiding big business and forgetting all about me and maybe I will vote for OC Smith or whomever you know just because they're not watching out for me uh this is a very complex world and there's all kinds of things going on my concern is that we're not paying enough attention to people and I and you Kim and I had that conversation the other day with Kathleen you got to be paying attention to the people that work for you you can gain efficiencies from AI uh but are you doing and and I encourage people to employ it but also think of your people that are working for you and and is it an aid to them or replacing them if it's replacing them are you giving them a good severance package are you giving them a training program are you are you doing something or are you just casting them aside maybe it's because I'm old or what I used to do but I just think businesses that don't care about people are no longer trusted by those people and the whole thing begins to fall apart amen Allen and here's what's really fun about some of the IBD community members that Kim and I have been working with where so I believe that if we and we can talk about like the so what in the playbook and I'm curious like this this will get us into like Industries and sectors and kind of like how you could see or help us think about like where to spend our time but like what I think about it from kind of the the industry agnostic so like what with our ideal client profile it's what do I say Kim like we do work with people real people doing real things for real people in the real economy so it's not like we're not dealing with VC funding or all these different ideas or different service providers that are maybe bloat in the system it's like the boiler company the commercial cleaning company it's the electrical contractor the you know the uh the pavement company or there's just regardless of all the stuff that we've talked about so far they're going to be needed right they're going to be needed in the long term which the way that I think about is well first of all these are really fun people and they're very humble and they're hard workers but also it's in it's risk protection for Kim and I it's like well we want to make sure that like what is the risk of our clients but then our clients need to think that way right because I I think Alan like it's so fun I've watched one of my uh one of the members he increased the entire payroll by seven percent because he understands this stuff he's been invested she's followed you for a long time it's like hey we need to protect our people and we're building the Noah's Ark for our company because if all of this stuff is true I think people still want purpose I think people still want to be happy they don't need private Jets they just want to be able to have a reasonable living wage and if the company can then grow their revenue and maintain their margins I think the conversation and Kim you and I've been watching it we're like who like when I if we go one step further like who are our clients clients that becomes super important because what's the risk of like I'm because we got a couple that are like heavily exposed to data centers and infrastructure oh my God they're like having gangbusters because the money printer is getting funneled that direction and then there's a lot of people that are they're sucking wind right now because the cash has been sucked out of the economy into AI so I think about like where are the sectors and the industries given everything we're talking about so we can help Kim and I can help our clients talk about you know in their strap planning who should they be working with because if we we could have this great increasing of the pricing strategy and maintaining margins but if the clients can't absorb the price increase that's a problem yeah it certainly is um yeah it certainly is um but before I forget uh we're not going to deal with it today I'm not going to get sucked into it today but that whole reshoring thing I don't buy into it what what what reassuring thing you talked for a few minutes uh a while ago about reshoring in and maybe the bringing some things back to the world there'll be more reshoring going on and use the word reshoring 15 where I what I've just the only the where that was coming from is if we don't it's very difficult for us to reshore things if we don't reprice some stuff and because it's gonna be so inflationary and it takes a long time like we like we can't just you know pop out electrical contractors you know I mean like we need these Engineers there's going to be a long process and I think we should start the process but I and it's really going to be inflationary because when you could go make 300 grand being a derivatives trader versus like I mean it's starting like well I see it where like we've got like HVAC technicians making a couple hundred grand well that means that your HVAC is now thirty thousand dollars instead of 12. so I don't know that was my only thought process of like we still need it and I think that there's gonna be inflationary impacts to it yeah i think it can't happen it can't happen you think not any significant uh not to any significant level that'll be a longer discussion sometimes but i generally agree with you yeah i mean because it's just so difficult i mean like retraining someone and like yeah anyways i would i'm curious on why but i i would i think the narrative like we're just gonna restore things is like okay we should make whenever i hear somebody go we should make everything here i i say something unkind in my head well like i like there was a mine um i can't remember what it was in minnesota that they shut down um oh no it was a woman that is a controller that i know um she is from south yeah south dakota they shut down a gold mine and it's like it's like we plan on reopening in a decade it's like it's like because it takes that long to think about restarting everything so anyways beside the point you said yeah um well i'm not sure where where this left us all except um the clients and the industries that our clients should be thinking about because like if we really want to implement the playbook we're talking about i think thinking about what sectors and industries are going to be able to navigate these choppy waters because i think there are industries that are probably going to be more tumultuous than others and i think our clients should be thinking about that is kind of where i was going with that i yes i think we agree wholeheartedly it's going to take cash it's going to take vision it's going to take flexibility and if you uh are rigid in your thinking and think you don't have to change then you should probably sell the business today yeah there's your clip kim they're going to be that hard too like dad i think back to late last year i won't mention any names but was counseling a business a client of mine and we're like we would sell like there isn't the future that you're looking for in this business and so get what you can out of it right now and walk away it's like well done walk away so i think there's going to be some instances like that for for people too where they just have to be like can i get out of this business what i want to get out of this business and if the answer to that is no why struggle over the next five years trying to get it out of it yeah no you're absolutely right and um yeah people it's there's a lot of psychological reasons why people continue on when when when they shouldn't but um you're right we talk about that real quick and i'm not saying that you should put on your psychology hat but like i have uh i hope he's listening to this he was on the workshop that you attended and he actually submitted a question and you pretty much said why it's all the business multi-generational business and he was like and he like i think you spoke to his heart because he like already got his feelings and like i watched the like it you know those things where you punch it goes down comes back up you punch it goes down back up i mean this poor guy i'm like my god how many black guys can you get in one year like but like there's this like hey it's multi-generational we used to make a bunch of money this could be something so great exposure to the housing market and you're just like i don't know at what point like what what what information does someone need where hopefully you can like logic them to death or is it just like so the human nature to just deny until it's so obvious yeah some will never succumb to reason and to the to reality and they will hang on to what used to be and what got me here will keep me here and there's absolutely nothing you can do about it seen it too many times it's just it was the people that we don't work with ryan that's right the ic well why would they work with you if they believe in what they're doing and and it's always worked and it'll work again i've just got to be patient because things are going to change why they wouldn't work with you because you talk about changing and looking at things differently so yeah that would not be your client there and i think he's got that mindset to be honest it's just you get sucked into the day-to-day crap where you like it's just like you're not going to be able to do anything about it it's like this perception of progress but then you kind of zoom out like i said you and i are both on boards and like we look to the future go like what's the risk of the cash flow and then what are all of the variables that would increase the risk and are we thinking about them correctly and i think what clients they're working with what industries they're exposed to because even though we do real work with real people in the real economy they could be working with the wrong type of industries or clients where all of a sudden that cash flow valve gets shut off and they should have been over here even though that company is in a good industry does that make sense yeah and that's something that we can help people with because as we look to the future with a reasonable uh amount of confidence you can say your exposure in this industry is your problem i know it's real profitable now but you got to start keeping your eye open for how you're going to slowly move over here because that's your future doesn't look like it now but these three industries over here are going to replace what you're doing over here and it's simple example would be an industry that serves baby boomers uh we're dying it's a dying industry serving baby boomers it's proper for now but millennials now outnumber baby boomers so try to find a way to serve millennials because they're the ones who are going to be around the next 40 years you got 10 years with boomers that's your lifespan for your business so start working on baker's square like don't be a baker's square investor so you know it's it's should i be in defense in the future should i be in mining should i be in whatever you know pick it you can study it you can know what's going to happen with a reasonable amount of certainty as you look at the trends you see today what what what are the industries that you see so i mean maybe this is part of that reshoring or health care very i mean there's probably a whole spectrum of different ways to provide services to health care not just health care administrative if that might have ai potential but then you have other real you know valuable service in there or is it electrical contractors or infrastructure or energy is there certain places that you feel will be needed and will be focused like will be a focal point for the bigger trends uh well the trade certainly i think uh defense will be i think entertainment uh will be good business as we go forward i think uh removing little ducks from dogs will be big business as we go forward the pet i pet i don't know if you've ever seen any data on um the pet industry is like wildly resistant to uh to downturns like apparently people are more than comfortable spending a couple hundred dollars on their pet every month even though they're broke oh yeah yeah i've done a lot of presentations to uh veterinarian associations and animal groups and stuff and uh yeah so i mean it's it's a good it's a good way to go about it but i think it's a good way to go about it i think it's a good way to go about it industry to be part of uh and actually as people find work tougher and tougher putting on my psychology hat for a moment and less and less satisfying you come home to that dog that loves you and is so happy and jumps up when you get home or the cat that starts purring doesn't have to be a dog and cats aren't lovable so sorry but it brings you something that you're not getting at work you know and and it that doesn't go away that's just going to continue on the way that way that things look now the alcohol industry yes and you're absolutely right alcohol is going to do well and in truly bad times it's just a matter of trading down to less expensive brand if you get down to smirnoff things are really really really bad i hit my quote on how many bottles of vodka i bought early in my life so i've i've i've done my i've done my share i hit the stop button that's good dogs now so if you're not a dog person or cat person there's always vodka you know but i think the the thing as we move here is that the economy is always changing and these big themes are with us and we can talk about why interest rates be going up and money can be debased or it can be strengthened if it's strengthened the u.s dollar strengthened too much that can ruin other nations economies if it's debased by other nations doing it to us or we do it to ourselves that has a large effect on our economy and our economy has a large effect on the world i mean we can talk about those great big themes but what i'm hoping as we get together in a couple weeks and as we each work with our companies we can take this and go okay uh this is the most likely outcome but if we have to pivot let's have that plan on on the shelf because we don't have time to start thinking of the plan if it goes in a different direction have the plan on the shelf open it up and go this is what we're doing step one it's already been decided don't try to talk me out of it this is it and because you're doing that planning when you're not in crisis mode what what are your some of your components that you would want in that playbook i want a really good severance package for me as a ceo and a farm with some horses no that's a great way to make sure you don't have any i think what you want to do is have a scenario based upon your experience and mathematical modeling and you can use ai for this and say all right If we see that the economy slows by X, in the past, my marketplace has slowed by X plus. Therefore, I can expect my revenue to drop by this percentage. What will that mean within my company? And you think it through. So that when it starts happening, you're not doing all that work and all that math up front, taking time to do it. And then you have to have the courage to act. And a lot of CEOs don't. I don't mean to put them all down. I said a lot about CEOs. Why do you think that is? Probably what made them entrepreneurs in the first place. If it's the type of CEO who has first started as an entrepreneur, you're hopeful. You can overcome this. You can find a way around it. As opposed to becoming, as you get a little more distanced, if you will, from the factory floor or the floor where the people work. Skeptical, where it's not just your identity. Where like, it's me. It's a reflection of me, whether I succeed or not. Just being objective. Like, hey, this is just like any other stock. It's like, hey, I have to think about it. And there's some hubris involved. I can get us through this and all that kind of stuff. There's lots of reasons. But if you find a CEO who truly is able to change, which that's the key, they can navigate their way through just about anything if they're willing to change. And having a and having a playbook for understanding. What are the different alternatives? And like, it's really interesting because like I Alan, it's remind me of Kim that I want to come back to like business cycles and like fiscal dominance versus not. And I just because I have a question about that, Alan. But before I get there is like when I think about like optionality, like it's just like that's really part of like the undertone of what I think independence is like, I'm going to keep doing what I'm doing until something changes. And I want the. I want the options to do something different without blowing up my life. I think that's really what I think about it. And like I, my brain and I don't know if it was just like the crisis mode that I was in at the family business for six years straight were like, I just had to be looking at five banks at once. I had to be trying to diversify away from Canon because even like it just like it just was part of like, if I don't do this, I'm totally screwed. And. It's this optionality that's very natural for me where like I can plan for multiple scenarios in my head without feeling like I'm betraying my current path. And I find that so fascinating where people were like, well, I can't plan about that because that means that I'm second guessing this. And I'm like, well, that's not the case. Like we're doing all of these things as preparation, but I want to keep doing this. And it's just me keeping my options open. And I just find it very interesting. How difficult that is for people. Well, not everybody can get by on 20 minutes sleep a day like you can. So, I mean, that's, oh, I'm a baby with sleep. That's a whole nother conversation. So it's not the case, but it's just part of how we are and maybe it took somebody that fortitude to get there. Or maybe it's just, uh, they had the right staff along the way. It's really hard to tell why some can and some cannot, but they cannot. So the ones who are going to, uh. Yeah. Yeah. follow everybody else off the cliff someday. And then they'll look back and go, uh, they did it to me as opposed to saying, and maybe I'm being too harsh as opposed to saying, why didn't I see that coming? Yeah. Or like, like, or, or having a plan, like you're saying about, I don't actually know what's coming, which is okay. But what I do have is a playbook, you know, I mean, very specifically, like Kim and I have got the three statement model where we have the annual ground up budgeting. We have the five-year forecast pegged to the valuation so we can see the cash flow and the working capital debt and taxes. Like, okay, if this happens, revenue goes down by 10% of these product lines. This is what happens to my cash. Okay. If that happens to my cash, is it my people or is my client? And then you start to just go through this decision tree, but the, like Mike Tyson is getting all the, everybody's got a plan till they get punched in the face. I actually did a podcast saying everybody gets punched in the face. You might as well have a plan. Right? Like if that's going to be the case. And so then I think about, and you know, like Kim, maybe you get you and you two can talk about it. Like Alan, to your point, like when COVID hit Pat, Abby and I had an in-person training business, March 13th, Friday in the afternoon. I think we're totally effed. And he's like, I think I need to drive home from Minnesota to Wisconsin because I can't get on the plane. And I was like, Pat, you're going to get home and you're going to log into zoom tomorrow morning. And we're going to record the entire training program and sell it online. He's like, what? I'm like, don't ask any questions. And like, and within six weeks, we had a virtual training program and we made hundreds of thousands of dollars that year on the virtual stuff, along with spinning up an entire CFO business that we had no intention of doing because otherwise we were not going to succeed. And like, and I watched people just like frozen and it's just like, it was like, so like, and I got, I don't know if it's just like, I like crisis mode. Cause then it's like, there's just the reason to act fast and everybody's now at my pace or what, but like, maybe you can kind of speak to like, what you guys were like, cause you had something similar with ITR, right? You, you were a speaker and you still are like, and you were going in person. And then all of a sudden you had a plan that you guys executed. You maybe kind of speak to how you get, or how you think about what that means to like, just pivot and how that, what was your experience of feeling that uncertainty hit you between the eyes and then how you guys move forward? I think the best way to, for me to answer that would be that it was not one person. It was a collaborative effort of the leadership team. It was certainly not my idea for us to go out and rent a studio so that we could continue on. Not my idea at all. Really glad Kim came up with the idea and Joe wanted to build a in-studio studio in the office. And we did that at the time. It was like, I don't know what we'd spend Kim, $140,000 to build that studio. And it's not a big room, but it looks big, you know, on camera. And we more than made, made that back. Other people's ideas. So I'm taking a long-winded answer to your question. Be willing to listen to other people because they will see things that you don't see, that you cannot see. Whether it's their age, their experience, their personality, a leader who does not listen is not a good leader in my opinion. Kim, any thoughts? No, I don't have anything to add to that particular situation. I mean, you did want me to remind you about the business cycle. I think you said fiat dominance. Fiscal dominance. So like there's that word monetary dominance or fiscal dominance. Can you give us like a plain language explanation of that for the audience? Because it took me a long time to hear that a bunch of times ago. Okay. I think I get that now. And how does that impact or does it impact business cycles? No, it does not. Business cycles. Well, business cycles occur and they're different reasons at different times. You can be on the upside of the business cycle. Then on the backside of the business cycle, it's not always the same thing that tips you over. So when you keep your eye focused on monetary policy versus fiscal policy, you know, you can say, oh, fiscal policy is good. And you still find yourself on the backside because it came from overseas. It had nothing to do with what's going on, you know, at the Fed or in the banking industry or, you know, at the Fed or anything like that. No legislative impact, no expansion of the money supply, no contraction of balance sheet and all the rest of that stuff. So business cycles exist apart from that, which is part of the long-term research that ITR did. And it was fascinating. We had data going back over 200 years looking at business cycles and seeing the waves just continue to come. They don't come in the same way. That happened even before the Fed in 1913 and afterwards. And so it just was a constant undertone, like waves in the ocean, regardless of the monetary structure underneath it. Yes. Okay. Interesting. Before there was a United States, it was occurring in Europe. So this is a big thing that does not depend upon what does the Secretary of the Treasury decide to do? That's super fascinating to me because when I, so like, do I have this correct? I mean, I think that's a good question. I think that's a good question. How does that, how do those two lenses think, or land on or sit on top of the business cycles that you're talking about let's simplify it by the way i like it when you did that i thought that was like a t-rex all over the place i haven't said regurgitate or whatever like whatever the word was that you called me out on the last podcast i thought kim he's listening to music over there my daughter's told me to talk with my hand without my hands and put my hands on my side i'm like well my soul is going to crawl out of my body all right well let's keep it simple for for now and maybe next time we do this we can get into deeper waters because i have to get ready to go for an appointment that's coming to my house think of it this way okay the money supply is monetary policy how much money is out there and that's controlled by treasury and by the fed the more money that's out there the more money that's out there the more money that's out there the more that's available to people the more that they will buy and the more that they will buy eventually i mean that causes economic growth that's a good thing but eventually it's too much and it causes prices to go up because there's more consumption than availability and so monetary policy can create inflation monetary policy can also stop inflation because you take money out of the system and we just can't buy now you could raise interest rates uh which is not monetary policy that's the cost of money not the money itself and and as you eventually get into like where you started this whole discussion as interest rates go up you can change the value of the currency and you can change you know so so they're not as separate as might seem on the on the surface it makes that makes way more sense because it's all yeah yeah okay and and you can get into uh incentives that are part of fiscal policy you know 401ks and the and uh roth iras and all the rest of that is is legislation and all the rest of that is is legislation that is a legislative policy that impacts money and impacts you know the uh all of the economy really so it's horribly complicated it makes you know the the federal reserve board uh we tend to oversimplify that and the treasury by saying it's just about expansion money supply raising interest rates the the amount that's involved in that is just truly amazing what are the reserve requirements and how are we going to value the the the bad loans and what's the percentage we're going to use now on on valuing what is a bad loan i mean all those things are being done behind the scenes and most americans have no idea those conversations are going on uh all they know none of the whether the u.s government being treasury is just spending a bunch of money on data centers or you know you guys i've heard in the past that like health care is kind of cycle resistant is that just because of the perpetual spending coming from the spigot and that's what i was wondering about the business cycles and the industries and how that may or may not change given the fact that it's not how much what's the cost of money it's now how much i'm doing it again that's right so how much is the cost of money versus how much and where is the government spending that money uh again it's it there is that demand for medical care that will continue on and it needs to be paid for by government and and medicare is certainly a great example of that social security is another spigot that continues to flow uh which will burn out for now yeah now go to the other side of that though if a doctor and because i know a doctor a neurologist that in 20 years saw his pay cut by over 50 just because of the reimbursements and because the value of the money and all the uh neurosurgeon and light hauling just to make a point you know oh my gosh um so it that's the other side of the point why do i want to become a doctor for 90 000 a year you know so if it becomes uh a policy that we're going to make medicine more affordable by capping wages we're going to keep people from going into that and then you have a supply demand function so eventually the wages will go up again but you know that that's the horribly complicated way that a capitalistic system works we want to do good so we're going to cap wages so that it's more affordable next thing you know we don't have nurses we don't have technicians we don't have doctors it doesn't sound like a capitalistic system well it's not just a capitalism you're right yeah it's not just you thank you for correcting me um so quickly and and before that untruth lingered uh i i do appreciate it a lot mutual mutual fight here i like it so the business cycles are and i think that was fascinating you said before the federal reserve and as it's gone the cycles exist the industry cycles exist this thing as the money regardless of the like where the money's coming from people are having trade back and forth and that trade back and forth it's creating the cycles and that's which is helpful for me to understand because i think about this is really important kim as we're bringing this information to our community like paying attention to that stuff what's of it like what's the industry's cycles that we should be helping people think through i just want to make sure because like that the kpis and the concepts and the mental models are are sound yep yep all right so we're near the end of our time here what do we think um ryan and dad for kind of our summaries of thoughts i don't know if you guys are ready for that i have kind of like an undertone that as i've been listening to both of you and thinking to our clients and thinking to people that listen to our podcasts and stuff is like there's a lot of stuff going on and it seems really really intense to have to try to figure it all out and to manage it all and so it's possible and doable but one of the major thoughts that kept coming to my head is how that reinforces how important it is for you as the owner of business to know what is it that you want in life like what are truly your goals personally and professionally and so i was thinking ryan back to one of your activities where it's like imagine you're at your funeral what do you want people to say about you and to think about that and to answer that because what's going to make you happy might not be growing to like the 50 billion dollar company and good news that's a good thing because it's probably not going to happen over the next 15 years because all the stuff that's going on in the world right now so it's like kind of just like really rebalancing our focus on what's important in life versus always being in the moment and what's important in the moment and mindset of i need growth growth growth so i think that's been my summary takeaway from listening to the conversation today i think that's a great thing for ceo or other levels of leadership to keep in mind maybe an entrepreneur who doesn't have that title that sort of thing i think i would also add kim one of the things we could layer on there is there's so much in the news that sounds like it's a immediately in our face but we have to make sure that we keep that at a distance and understand you know it may have an impact and we got to keep an eye on it but i i can't get so rattled by that that i stopped paying attention to the to what's important here and then i would add onto that my favorite thing a leader is always a listener if you're a leader and you're not a listener you're going to miss what somebody something important that people are telling you and you're going to find yourself in a whole lot of trouble that'd be one like that i like that alan and like and what i as my final comment is i i'll speak from my own perspective i think it's easier for me to listen if i already have a base case plan i think when i'm trying to figure out what the my footing is in my foundation it's very difficult to listen because i'm trying to figure out how to orient myself and so i mean obviously this is super it sounds super um self-promoting kim but like i mean i just look at like have a plan like have a three-statement model where you can see all of your operational decisions and your ownership decisions in one place and so like what yesterday when we were on that workshop you know you toggle on your funnel and if the conversion rates or the price goes down you can see the impact on cash if you toggle your distributions you can see the impact i mean you can just see the impact of every one of your ideas on your time cash flow and wealth so that way you don't have to pay attention to the news necessarily every day because you're like okay well this is what i'm doing then then where there's a mechanism to course correct and then actually listen to the people around you without having to like wonder in the moment so yeah makes sense we see that a lot where people want to listen but they're just so busy in crisis mode running around trying to do busy work that they don't stop to listen so alan my guess is you got some trades person at your house who gave you a window and you needed to go so i don't know i'm gonna fix your fridge at some time today and you better show up otherwise i'll see you in eight months yeah yeah exactly so i appreciate uh the time it's fun hopefully we did some um some good things for some people today thanks for coming thanks ryan for having us on your show bye y'all i'll see you you Thanks for watching! I'll see you next time.