AMA 95 – Consuelo Mack of PBS WealthTrack

 

The impact of technology and the future of development plays a big part in today’s Creating Wealth Show. Jason Hartman invites Consuelo Mack of WealthTrack to give her thoughts about China’s current state, the importance of a diverse investment portfolio and where technology will lead us in 15 years’ time.

 

Takeaways

01.53 – If the New World Order really is the Old World Order, it means huge implications for America.
06.55 – It is the US consumer that drives the economy – this means a strong, independent economy, regardless of the state of the rest of the world.
10.10 – China’s family policies will be their own downfall because in 10-15 years, there will be a huge demographic hole.
14.40 – Who knows where the latest innovations of 3D printing and the self-driving car could lead us?
18.35 – An investment portfolio needs a good level of diversification and well-managed real estate investment could make all the difference.
23.13 – Alternative investments are looking like an interesting option, but we still need to clarify all the details.
24.40 – For archived interviews and more information, head to www.WealthTrack.com

 

Tweetables
A country is really just a giant corporation.
Countries like China show us that we really need to consider the future when forming policies and regulations.
When dealing with Wall Street, or any sort of investing, always let caution be the word.

Transcript

Introduction:
Welcome to the American Monetary Association’s podcast, where we explore how monetary policy impacts the real lives of real people, and the action steps necessary to preserve wealth and enhance one’s lifestyle.

Jason Hartman:
Welcome to the podcast for the American Monetary Association. This is your host, Jason Hartman, and this is a service of my private foundation, the Jason Hartman Foundation. Today, we have a great interview for you so I think you’ll enjoy it, and comment on our website or our blog post. We have a lot of resources there for you and you can find that at www.AmericanMonetaryAssociation.org, or the website for the Foundation, which is www.JasonHartmanFoundation.org. Thanks so much for listening and please visit our website and enjoy our extensive blog and other resources there.
It’s my pleasure to welcome Consuelo Mack to the show, she is Host and Executive Producer of WealthTrack on PBS, and aforementioned Editor and Anchor at the Wall Street Journal of the weekly syndicated business program, the Wall Street Journal Report. Consuelo, welcome, how are you?

Consuelo Mack:
Thank you, Jason, I’m fine and thank you for spending some time with me.

Jason:
The feeling is mutual, thank you. It’s great that you’re joining us, and I assume you are located in New York today, is that correct?

Consuelo:
Yes I am.

Jason:
I always like to give our listeners a sense of geography, because they’re all around the world. One of the things that you’ve been covering and thinking about lately, and I just love this, by the way, is this idea of an American Renaissance. There is so much innovation going on, and I think without a doubt, America still leads the world in innovation. Maybe that rugged individualism concept here is just so ingrained in all of us that it helps create innovation? Look at what’s going on in energy, the possibility of exporting oil – my God! Is that a switch, or what? What are your thoughts on this Renaissance?

Consuelo:
There is a tremendous change going on which is going to be with us for decades. It’s a positive change for Americans, but quite frankly, I think it’s also a positive change for the world. For the last ten years or more, we have been covering on WealthTrack something we call the ‘New World Order’. Unfortunately, the New World Order was that China was taking over as the driver of world economic growth. It surpassed Japan as the world’s second largest economy several years ago, it was rapidly growing, it was catching up to the US and while the US was not quite standing still, but was in a sluggish growth mode, it seemed that China was just going to take over everything. That has completely changed, and I’m glad of it. Right now, there are several leading economists on Wall Street who are saying that the New World Order has become the Old World Order and that the US is now and will be the driver of world economic growth for the foreseeable future. We’re talking about a long-term trend. There are a couple of reasons for this, and one is something that you alluded to. Number One: We have an energy renaissance in the US with the unleashing of new resources in petroleum-based products and natural gas and oil with fracking. We’ve also got the unleashing of oil and gas in shale formations, which is just a revolutionary technology. It means that the US is now in a position where it can actually export oil and gas and it’s also in a position where it is becoming the world’s leading producer of petroleum products and surpassing Saudi Arabia, even. It’s a tremendous advantage for the US, from both a national security point of view and an economic point of view. It means that fossil fuels, whether we like it or not, are still 99% of the energy source for the US and basically, almost for the world. It means that our energy supplies are going to be plentiful and are going to be cheaper. It gives us tremendous competitive advantage.
The second thing that’s happening, and it’s related to this, is that there’s a huge manufacturing renaissance going on. There’s a wonderful economist named Nancy Lazar, who’s the head of a firm called Cornerstone Macro. She’s been perennially ranked as one of Wall Street’s top-ranked economists, and she called the mid-West her favorite emerging market.

Jason:
[Laughs]. Interesting, I love that.

Consuelo:
Isn’t that great? Your favorite emerging market. So she picked the Mid-West because of this energy renaissance, and also because of the fact that we do have a system based on law. All around the world and in China especially, wages and costs of doing business have gone up, and there’s no transparency. There are tremendous corruption problems, there are tremendous pollution problems and the US is suddenly looking like a pretty darn good place to do business, and we are actually seeing manufacturers repatriating US works and they’re sending them to the Mid-West. The infrastructure there is good for manufacturing, and we’re also seeing major foreign manufacturers looking at the US, actually building plants here as well, and leaving where they used to be, which were places like China and India. It’s a double advantage, and these are long-term lasting trends so it’s just a great story for Americans and for the rest of the world.

Jason:
When you look at the technology side, two things that I think correlate pretty well with what you were just talking about is how we think we can look forward to a world of declining energy prices, amazingly.

Consuelo:
It’s amazing, it’s like a huge tax credit. There are few few points for consumers in business.

Jason:
No question about it, and I think it was Lockheed that announced that new breakthrough in fusion technology. That could be very exciting. I’m not exactly sure who it was, but anyway, it’s the idea of fusing atoms together, rather than splitting them, to make power – it’s clean, there’s no waste, it’s much more portable, it’s unlimited. They’re just amazing opportunities.

Consuelo:
It is amazing. There’s another facet of this, as well, in the US regaining the role of the leader in world economic growth and power, and that is the fact that we are looking at our economy. I know that a lot of investors are concerned about what’s going on in China, that it’s slowing, and also what’s going on in Europe – Europe could possibly even be entering another recession. Even in a very globalized economy, which we are in, the US is still more than 70% of GDP. It’s consumer-based, so it’s really the US consumer that drives our economy, and we only depend on 14% of GDP due to exports. In fact, there is a deep coupling that has gone on as well. There is fear that the rest of the world is going to drag down the US and again, because our economy is so strong and because our economy is so insulated with the consumer being the primary driver of the US economy, we will not in fact, be as affected as one would have thought. That’s another tremendous positive – we can be an independently strong economy, regardless of some problems that are going on in other parts of the world.

Jason:
Okay, as recently as just a few years ago, so many people were talking about the decoupling of China from the US, as if that would hurt us, and now you just see how the tables have totally turned. It’s really an amazing thing. They were talking about how China’s not going to buy our bonds, and they have great reasons for all of that. I would not blame China for a moment, but the fact is that we are their customer, and they are dependent on us, just intrinsically. I think this kind of trade is good because it will lessen the chances of war – people are (hopefully) not going to drop bombs on their own customers and vendors. Now with this decoupling, the thought is that it’s the other direction. Even though globalization, the experts say, has lifted maybe 275-300 million people out of property, and that’s great, they’re still not making the median household income in the US (about $52,000 a year, I believe). They cannot create their own consumer base; I think they’re just a long way away from that.

Consuelo:
Yes, they are. One of the problems that China has had is that they have two kinds of bubbles going on – an investment bubble and a credit bubble. We have gone through a very painful period of restructuring our financial system. As you know, the banks are still suffering, but they’re stronger and their capital base is stronger than it’s been in decades. China over-invested, it over-built and over-leant and now it’s going to have to go through its own restructuring period, and that’s going to be very painful and their growth is going to slow. That means that their personal income is going to slow. They’re on a slower growth track, even though they’re growing faster than we are – 6.5-7% GDP growth versus our 2.5-3.5%, but we have a much bigger and healthier economy. They’re starting from a much smaller base too. The tables have really turned, and it’s to the benefit of the US.

Jason:
That’s a good point, too. When you start from a smaller base, it’s easy to have big numbers.

Consuelo:
Absolutely.

Jason:
It’s much harder to get a giant corporation – which is really all a country is – to turn and to make surprising gains. They have to grow faster because of the size of their population and the threat of civil unrest with the Communist Party. They are very very concerned with that over there, and rightfully so. The other thing you didn’t mention about China – the other bubble that I believe they have is a major demographic bubble coming their way: populations depend on an influx of young people, either through birth or immigration. I don’t mean young people’s children; I mean young workers who are healthy and hardy and willing to work hard. Granted, we can bemoan Gen Y all day long, but that’s kind of another discussion. They need people who are going to work and advance themselves and make their way in the world, and who are going to start spending, buying things and forming families as they do that – even buying houses and upgrading their lifestyle all the way along. In China, you look down the road 10-15 years, and there is a gaping hole coming at them.

Consuelo:
Exactly, and the demographic problem is that one-child policy, which basically meant that there are many more men than there are women, which is just terrible how that happened.

Jason:
That’s not good.

Consuelo:
And now the Chinese leadership is awakened to the fact that that has occurred, but you’re absolutely right, there’s an entire generation of Chinese men that can’t find wives and set up those families that you just described and that are so critical to the health and the growth of an economy. That is a big problem for them looming, no question about it.

Jason:
Yeah, absolutely. So, other parts of the American Renaissance, if you will. Energy..

Consuelo:
Energy, manufacturing. One of the things that I know you specialize in is real estate, and there’s a multiplier effect with these energy jobs and the manufacturing jobs – for every manufacturing or energy job that’s created, they create at least 3-4 jobs, and we’re seeing a resurgence and a revitalization, community by community, because what it means is that they need services, homes, schools, and so they’re increasing the tax base. It’s an incredible multiplier effect that’s going on with this manufacturing and energy renaissance. It’s slow. As Nancy Lazar from Cornerstone Macro said, ‘It’s slow, but slow is good because it’s sustainable’. We’re going to see this kind of multiplier effect in communities all across the country, but especially in the mid-West. It’s a very positive situation, creating better paying jobs and actually creating employment in manufacturing. For the first time in 30 years, we’re actually seeing sustained employment increases in manufacturing.

Jason:
One of my favorite authors is Chris Anderson, who has WIRED magazine, and I think he’s written 3 books, the last one of which is entitled Makers. He talks about 3D printing and how that will start on-shoring manufacturing back to the US. I think he makes a pretty good argument for it. Of course this won’t be mass manufacturing – 3D printers aren’t likely to be building iPhones anytime soon, but Apple is in the process of moving iPad manufacturing back. When a Chinese worker gets paid pennies on the dollar versus an American worker, for any company to bring that manufacturing back here, at first I think it’s got to be a political thing – a gesture of good will or something.

Consuelo:
No, it’s not, they’re coming back here because it’s very competitive and due to the ease of doing business. I’m trying to remember – it’s one of the world organizations and they do an ‘Ease of Doing Business List’ every year, and the US is ranked number 4 by a whole bunch of criteria. China is ranked, I think, number 79.

Jason:
I’m wondering what 1, 2 and 3 are, if you remember.

Consuelo:
I don’t. It’s probably one of the Scandinavian countries. I think Singapore is number one, but they’re small countries, and we’re definitely the top-ranked largest company by far.

Jason:
That’s interesting, and I would agree with you. My friends that do business in China; I’ve got one friend that builds hotels there, another whose in manufacturing there, and of course every culture has its own customs and ways of doing things, but they do complain about the difficulties of doing business there so that’s an interesting point too. 3D printing – that could really bring a lot of this small, mass-customized manufacturing back to the US. I think that’s a pretty exciting part of the trend, and what you didn’t mention when you were talking about energy prices declining – I make a big deal out of this: the self-driving car. I think that could dramatically save on fuel costs and could just do all sorts of things for reduced fuel consumption. Because of the efficiency of self-driving cars, it’s like a computer network – it just works efficiently. Ultimately, in 10 years, that’s going to be pretty prevalent.

Consuelo:
I completely agree with you. I actually just had a very interesting conversation with Tom Gardner, who’s one of the co-founders of the Motley Fool, about the fact that we’re going to see a lot of software that is being developed, and most of it is being developed in the US, which is one of the points that you made earlier as far as the advantages that we have in terms of creativity and entrepreneurship in technology. We are still the country that is the most creative and innovative, and foreign workers come here because they recognize that it’s a very fertile, creative place to work. We were talking about all of the different industries that are going to be automated, including the financial services industry. Certainly, the self-driving cars, even though I love to drive and would have a hard time giving up the wheel, that is definitely in our future, and that’s another game changer. 3D manufacturing is just incredible. We’re trying to figure out how to invest in it, and it’s such a new industry, it’s difficult to pick winners. I think it’s just going to be huge.

Jason:
I do too, it really is. Okay, so are there any other components of this renaissance that you see? Geographically, you think the mid-West will be the biggest beneficiary, it sounds like – the emerging country of the mid-West, right?

Consuelo:
Yeah, and what was so cute was that Nancy – I keep quoting her, because she really was the one who coined the phrase, ‘My favorite emerging market is the Mid-West’ – it was Flint, Michigan that she said about initially, and again it’s because they have the infrastructure, they have old factories that can be restored, they have the transportation hubs with the rails and the road systems that trucks can come in and out of, and they’ve got the energy supply and the wiring for these factories. That’s why that’s the place where this is starting. Of course, we’ve got the energy renaissance that is happening in North Dakota, especially. It’s also happening in Texas, so those are the areas where we’re finding the new energy supplies. I actually just looked, Jason, and it’s the World Bank that ranks countries every year on their ease of doing business, and it’s based on qualities like the ease of starting a business, obtaining credit and construction permits, getting electricity, registering property, taxes, investor protections and contract enforcement, and the US is number 4. I got the China ranking wrong – it’s lower than I thought it was because China is actually ranked number 96. The US has tremendous advantages in that respect, as well.

Jason:
Anything else you’d like people to know what else you’re working on? I know you had maybe one or two other things that you were really excited about and really engaged in now.

Consuelo:
Right. You are the real estate expert, I am not, but one of the things that I think is intriguing on WealthTrack, and many of our guests who are basically the best in the business in terms of being investors with proven, long-term track records of success and financial leaders – one of the main themes that we have on WealthTrack, and that they do too, is how important it is to be well-diversified in your investments. Real estate is a very important part of one’s investment portfolio and most of us own our own homes, so we have a domestic real estate portfolio that’s right there right off the bat, and it’s probably one of, if not the, largest, investment we have. Where most of us don’t have any exposure is in foreign real estate. Everyone is basically going global if they’re investing in bonds, in stocks etc. International stocks are an important part of everyone’s portfolio, and international real estate is too because real estate is an aspiration around the world. Everyone wants to own a piece of property, and the world population is growing. Yes, I would not buy real estate in China because honestly I don’t trust the Chinese government and the protections that they afford, but there are other areas in Asia where real estate investing contracts are honored and there is a legal system with protections for private property. That’s one of the ideas if you ask anyone how much foreign real estate they own, everyone always says zero. However, foreign investment trusts run by reputable firms can probably be a good portfolio diversifier, so that’s one of the ideas that has come up on WealthTrack several times.

Jason:
You know, Consuelo, I have another show in my little mini media empire here, which is called the Jet Setter Show. The tag-line is “Exploring lifestyle friendly destinations worldwide”. I’ve been very fascinated by foreign real estate investment opportunities for many years – I’ve been to 73 countries now, having just returned from Peru, my 73rd. I’m always looking at deals in these markets and I’ve got to tell you, I just don’t see it. Look at the good old US – the infrastructure, the rule of law, the fact that we have a multiple-listing service. That is a huge deal other countries don’t have. We can really understand values here. In other countries, you don’t know. Everything is just so fragmented.

Consuelo:
I would agree with you completely as far as residential real estate. Again, I would only go with a firm that has a tremendous amount of experience in commercial foreign real estate, and there are such people and there are such firms. I agree with you as far as talking about residential real estate. I would never get involved either because you never know what the rules are, or what insider deals there are, or how the community is going to treat you, so I completely agree with you there.

Jason:
Right, no question about it. The other thing I’ve found is about the infrastructure in terms of the mortgage markets – they’re so much more mature in the United States and really, real estate has been subsidized here by the government since the Great Depression, so if you’re made about government hand-outs and you don’t like Obama and so forth, then go and get your own hand-out and invest in US real estate, because it’s basically subsidized!

Consuelo:
Absolutely, I agree with you there, I really do, and I would defer to you and your expertise in real estate, because it is not my area of expertise by any means.

Jason:
I think it was Will Rogers who said “Buy land, they’re not making any more of it”, so there’s something to be said for that, no matter where it is. I would agree with you. If you have time, is there anything else you’re really engaged on, maybe give out your website?

Consuelo:
Right, I just think that the one other area that is very hot right now on Wall Street is something called ‘alternative investments’. This means investments that basically are non-correlated with the stock market, and therefore if the stock market goes up, they tend to go down or balance. When the stock-market goes down, they tend to hold their value or go up. Of course, traditional alternative investments are things like gold, which is an insurance policy against extreme outcomes, as we call it. It’s something that probably everyone should hold a little tiny bit of. Then there’s the great ETF (Exchange-Traded Fund) called GLD as a symbol for gold, and that’s probably a good little insurance policy that can make up a tiny portion of one’s portfolio. The alternative investment space is becoming very hot and a lot of Wall Street farms are introducing mutual funds. They’re called ‘liquid alternatives’ because obviously you can trade them in hedge funds etc. They’re not transparent – there are very onerous restrictions as to when you invest in them and when you can get out of them. They’re only for wealthy individuals or institutions, whereas these liquid alternative investments are hedge funds in usual fund form, and I guess I would just add a word of caution. After the financial crisis they generated a lot of interest because people’s portfolios that were stock-centric suffered greatly so everyone was looking for a way to diversify. They’re interesting to look at, they’re interesting to talk about with these alternative investments and mutual funds with your financial advisers, but I would be wary of them because many are run by people who have not run alternative portfolios or hedge funds before, as well as tending to have high fees. It’s a hot area but it’s one that I would approach with some caution.

Jason:
That’s good advice. Let caution be the word on Wall Street, always, and with investing or anything, be cautious. They say a fool and his money are soon parted, right, so don’t be that fool.

Consuelo:
Exactly.

Jason:
Good stuff. Consuelo, give out your website, if you would, and tell people where they can learn more about you.

Consuelo:
Sure. It’s www.WealthTrack.com, and we have all of the interviews that we’ve done over the last 10 years (we’re now in our 10th year!) on public television. We tend to interview guests which don’t appear on other television programs or rarely do interviews, and we are very careful about who we have on – we vet them and they have to be the best in the business, must be respected by their peers and have terrific track records, they have to have integrity and we have to like them. www.WealthTrack.com is a good resource for long-term investors, and that’s what we’re trying to do: build wealth over the long term.

Jason:
Excellent point. Yeah, I love your work so keep it up, and thank you so much for joining us today.

Consuelo:
Thank you, Jason, you too. Take care.

Outro:
The American Monetary Association is a non-profit venture, funded by the Jason Hartman Foundation, which is dedicated to educating people about the practical effects of monetary policy and government actions in inflation, deflation and personal freedom. Our goal is to help people prosper in the midst of uncertain economic times. This show is produced by the Jason Hartman Foundation, all rights reserved. For publication rights and media interviews, please visit www.HartmanMedia.com or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate professional if you require individualized advice. Opinions of guests are their own, and the host is acting on behalf of the Jason Hartman Foundation exclusively.

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