060-brent-wilsey

The Current Financial State of Affairs

A discussion with financial stratagist Brent Wilsey

John DeBevoise:

Greetings everyone. Welcome to another serving of Bizness Soup Talk Radio. If it’s in business, it’s Bizness Soup. I’m your host, John DeBevoise.

John DeBevoise: Today, we’re going to be talking money, lots of it. We’re going to talk about how the Fed has printed more money in 90 days than they have in the past 90 years. We called upon our resident asset manager, Brent Wilsey, to talk about what it means.

John DeBevoise: Also, we’re going to be talking about how the federal government is the largest owner of public and private debt. We’ll be talking about that, as well as Chinese companies delisting in the US market. Is that good for us? Also, one of my favorites, the small cap publicly traded companies, those that trade at or below $1 a share.

John DeBevoise: So pull up a chair, sit on down, because we are bringing you the tips, tools and techniques of better business right here on Bizness Soup.

John DeBevoise: Brent, welcome back to Bizness Soup.

Brent Wilsey: John, so good to be back.

John DeBevoise: Always a pleasure to have you, one of the mainstays in the financial planning course. We can’t miss you with your asset management company. You are everywhere around Southern California. That raised a question that I had, before I get into about the economies and such, is that is what is an asset manager, as you call yourself, and how does that differ from a financial planner?

Brent Wilsey: John, that’s a great question. Unfortunately, the industry has been kind of tainted. What we are, as an asset manager investment advisory firm, is we actually manage and invest money, very clean and simple.

Brent Wilsey: I can describe the opposite with a financial planner. By the way, in our firm, we do have a true financial planner. Because he’s on a salary, he does not charge commissions, he does not sell product, he is a true financial planner.

Brent Wilsey: What a financial planner does, what his job is, is he looks at the whole financial picture. He’ll look at the taxes. He’ll look at the insurance. He will look at your goals as far as what you want to retire with. What about social security? He does a whole financial plan. Also, our financial planner, we charge a small fee monthly so that if you have questions, and this comes up many times, “I’m thinking about selling my house,” “I’m thinking about refinancing. Harrison, what should I do?”

John DeBevoise: Right.

Brent Wilsey: Now me on the investment side, being in the business for 40 years, I do have my own knowledge, but it’s so much better when you have a financial planner

looking at everything, because I may give you a recommendation, but I didn’t know your tax situation.

Brent Wilsey: My job is, I always tell people, and it’s not an easy job, is to make people money. It takes a lot of work to understand how to invest. This is why my opinion is, you cannot be a financial planner, a true financial planner, and also invest money for people, because something’s going to be lost there.

Brent Wilsey: I’ve seen many people use the financial planning to get people to invest money, but they’re not good investors, because they’re trying to do the whole thing. You can’t have one guy build your whole house. You need the plumber. You need the electrician. You need the carpenter. Same thing comes in the financial world. You need an investment advisor. You need a financial planner. You need an accountant. You need a lawyer. It takes many people to do the right job for you.

John DeBevoise: I was with you up until the lawyer part. I try to avoid the esqs. But yes, it is. You do need to cover your assets, as I call it.

Brent Wilsey: Yes.

John DeBevoise: So the difference, as I understand it, is a financial planner, which can be a certified financial planner, which is not the question, but they’re in the business of, are they just sitting there looking at your money, are they taking it and they’re putting it into low risk, or they’re following your directions? Is that what a financial planner does?

Brent Wilsey: Well, financial planner actually does more listening than talking. He wants to listen to what your situation is. He can give you solutions.

Brent Wilsey: The other thing too that, and I’m kind of talking about the other financial planners, and again, our financial planner’s a CFP as well. I think that is important. But the other thing that financial planners do, they try to do everything that I talked about. They’ll put people into different mutual funds and asset allocation. Well now that’s not that important, because they now have what they call robo advising, which is done automatically for you. So to pay a financial planner to do that for you, you can get it done at Charles Schwab, TD Ameritrade for 40 basis points. Why pay a financial planner to do that for you?

John DeBevoise: All right. In the field that you’re in, do you find that small business owners, such as my audience, they have a propensity to use a financial planner or an asset manager, or are they using their spouse?

Brent Wilsey: Some use their spouse, which may not be a good thing, but it depends on their situation. Actually, our financial planner does business planning. It’s a little bit different aspect of that as well with businesses and somebody that’s an executive for a big firm.

Brent Wilsey: But what actually happens is that you need to have a small business, depending if they’re starting to build the 401(k), they’re starting to build other assets, then they need an investment advisor.

Brent Wilsey: By the way, we are an investment advisory firm registered with the SEC. You have to do that. We have a fiduciary responsibility to do what’s right for people, as opposed to some other financial planners out there, they have a suitability requirement, which is not as strong as the fiduciary requirement.

Brent Wilsey: But for the small businesses, you do need to have a financial planner to help with everything. If you’re starting to build assets, you’re starting to have the 401(k)s or the SEPs or whatever you’re doing, good to have an investment advisor manage that money, because you will do much better.

Brent Wilsey: I have talked to some of my friends who are CFPs, and I can say this without getting in trouble, that we have outperformed them, because they’re doing a cookie cutter approach. We spend a lot of time doing just the investment, understand the investments. We do very well over the long term.

John DeBevoise: All right. Can anybody be a asset manager? Can I walk out of my place, and hang my shingle up there says, “Cowboy John, Asset Manager”?

Brent Wilsey: Not really. You do have to go through the SEC in the State of California.

John DeBevoise: So there are some rules.

Brent Wilsey: There are some rules, yes. Again, we are registered with the SEC. There are some requirements that you do have to follow. Like any profession, there’s good asset managers, investment advisors.

Brent Wilsey: I always tell people, understand what the philosophy is. When someone comes to our office, we spend about a 30 minute time going over how we do things. We talk about looking at the balance sheet, the income statement, the cashflow statement. We do the what are the earnings going forward? What about the debt of the company? We do all these different things to show them [inaudible]

John DeBevoise: So if I want to avoid some taxes, say, with my family … My family’s had some real estate for a lengthy period of time, and I want to avoid taxes of all taxes. And I want to set up the estate so that my kids, if I so choose, set up an estate so that we avoid as much of the tax as legally, morally and ethically possible.

Brent Wilsey: That would not be me. I always tell people, my first job is to make you money. I’d rather make you pay taxes. People make this big mistake. They try to avoid paying taxes. They make no money at all.

John DeBevoise: Well, you have to make money first before you’re obligated to pay taxes. There is that conundrum.

Brent Wilsey: Yeah. But a financial planner can look at everything. That’s the important part. Because he will look at your real estate. He’ll look at your investments, your 401(k), all different things. He will work with your CPA or your tax person doing your taxes to understand the full picture. My job, again, is to make people money. I tell people I’ll never make a tax decision over economic decision. I’d rather have them make money and pay taxes than make no money and pay no taxes.

John DeBevoise: Well beam me up. All right. Brent Wilsey from Wilsey Asset Management. That was not scheduled, but I wanted to find out just what is an asset manager versus a financial planner. Thanks for the answers.

Brent Wilsey: Sure.

John DeBevoise: I wanted to get onto some of my favorite things. That is what’s going on in our economy. As I pointed out, the Feds have printed more money in the last 90 days than they have in the last 90 years. That can’t be good for our economy. Are we going to see some form of inflation, hyperinflation? If so, where might it be?

Brent Wilsey: I don’t believe we’ll see hyperinflation, because we have to remember what causes inflation is too much money chasing too few goods. We don’t have that situation yet. Here is a big problem, John. When people or governments keep adding money to the economy, when it is getting better and it is much better, that becomes a problem. But we’re not that situation yet. We still have people on unemployment. We still have businesses that are not doing well.

Brent Wilsey: We will have some inflation going forward. I’m going to guess prime to 2 to 4% range. But so far, the government has not been, and I want to be careful politically here, but I’ll put it this way. The negotiations, while they don’t look like they’re going well, I believe they are going well, because it’s not like, “Rah, rah, rah. Let’s just throw more money out to the economy.” As we know, they don’t have a deal right now. They’ve not had a deal since August 1st.

John DeBevoise: Right.

Brent Wilsey: That is helping because there’s not just more money coming into the economy, but yet the economy is growing slowly. If they throw too much money, and they just keep throwing money, throwing money, we will have hyperinflation down the road, because once you do that, you can’t back it off and get out of it, because it’s too late.

John DeBevoise: I’m looking at the stock market and seeing these incredible valuations, where Apple is the biggest value ever, and they’re trading at 31 times their next year’s earnings. How can that be? How do they project that? How does it give a value at that rate?

Brent Wilsey: Well, the same thing happened back in the tech boom. What we have now, John, we have a lot of people in the market using Robinhood that are new to the market. They may experience the tech boom. That was like 20 years ago now. So some of these people trading now are 25, 30, 35, maybe even 40. They didn’t experience the tech boom and bust. Because they had no money back then.

John DeBevoise: Yes. I remember those losses well.

Brent Wilsey: You and I are also older. There is something good about being older. You’d had the experiences. We know that this is not going to end well.

Brent Wilsey: Apple’s a great company. They have great products. But to trade at 32 times earnings, it just keeps going up and up and up. Same thing happened in the tech boom, and I keep hearing the same things like, “Don’t worry. The earnings don’t matter anymore. Don’t worry about what you pay for the earnings. Just keep buying the stock. It’s going to keep going up.” These are what we’re hearing on the talking heads on TV. Some of those guys, the same thing, didn’t experience the tech boom and bust.

Brent Wilsey: I was the dumbest guy during the tech boom, because I wouldn’t participate. Well, here I am once again, the dumbest guy. We sold Apple months ago. We made a great profit, but I’m not going to keep riding this to the moon. We know nothing goes to the moon. It’s really causing some problems, because people are going to get sucked in again. You had a lot of little ladies that started day trading back in the tech boom, and made money, made money. Then it crashed and they lost everything.

John DeBevoise: I remember that well. It reminded me of that real estate crash, where anybody could borrow money. You didn’t even have to prove that you had an income.

Brent Wilsey: Mm-hmm (affirmative), mm-hmm (affirmative).

John DeBevoise: We saw where that led us.

Brent Wilsey: Yeah, it’s another bubble here, John. The bubbles keep happening. They say, “If you don’t understand history, you’re doomed to repeat it.” Well, it’s happening again.

Brent Wilsey: I’m not participating. We do not hold Apple, Tesla, Facebook. Facebook’s not too bad. But in many of these other high fliers, I just refuse to buy them. They keep going up, and they say, “[inaudible 00:11:57].” Well, I’m not managing money for one or two years. I’m doing it for a 40, 50 year timeframe for people. This is an anomaly. This does not happen.

Brent Wilsey: It seems they want to keep going on because, “Oh, my gosh.” Day after day after day keeps going up, but we know it’s going to come back down. When it does, a

lot of people are going to get hurt, and they won’t know why they got hurt. That’s the biggest problem. John. They don’t understand what’s going on.

John DeBevoise: We’re talking with Brent Wilsey from the Wilsey Asset Management. With the amount of money that has been pumped into the economy has concerned me in and a lot of people, because we’re carrying a trillion dollars a month in debt on the federal level.

John DeBevoise: We’ve touched on the possibility of inflation and a reckoning. With the federal government, as I understand, being the largest private and public owner of corporate debt, they’ve never owned corporate debt before. Is that influencing the market as we see it? Is it giving it a false influx or a false valuation, or bumping valuation? How is that working? I know they’ve done the public debt, but now they’re in corporate debt.

Brent Wilsey: Right. John, I hate to hear that they’re doing that. I know they’ve been doing it so far. It is one way to keep things stable. I’m not really thrilled about it. I’m not sure what about the way they did it. They’re doing it through [ETFs 00:13:16], which I think is wrong, but in the past they have done it. Back in the 2008 great recession, they did help out General Motors. They helped out AIG. They have done this before, but never to the magnitude they’re doing now, where they actually step and buy ETFs, because I don’t think it helps that much.

Brent Wilsey: You buy an ETF, it just floats that. The company doesn’t get that money directly. So I’m not sure why they’re doing it, what the true benefit is of doing that, other than maybe to give some people some artificial feeling of, “Yeah, well, the government’s buying corporate debt. So I guess things are pretty good.”

Brent Wilsey: I don’t like that. I wish they wouldn’t do that. I think there’s other better things they could do. I love the [inaudible] program. I think that was great because it helped out businesses directly. I do not get the benefit of the government buying ETFs. I don’t see who benefits from that other than people buying that ETF.

John DeBevoise: With the amount of money that’s being printed out there, and I’m going to keep hitting you on this subject, because it really concerns me, we are seeing a devaluation of our dollar overseas. Inflation is a tax that is unseen. Do you see the dollar going down in value overseas, continuing to drop? If so, how’s that going to impact the goods and services over here?

Brent Wilsey: Well, John, I’m on the side that I hope it does keep dropping. Because that is a benefit for us here. What it does is it makes our products here, that we make in the US, less expensive for other countries to buy our products. On our side, it makes other products that we’re importing more expensive.

Brent Wilsey: So as opposed to buying, I’m just going to use this as an example, as opposed to buying a Toyota that’s made, I know they are made here in the US, but again,

some are not, as opposed to buying a foreign Toyota, “Gee, I might as well buy a Chevy, because I don’t have to pay that extra tax, so to speak, on the higher currency, because we have a lower currency.” That’s the positive to it. I really think that’s a good thing.

Brent Wilsey: Now, we don’t want it to go down too much, but to have a lower currency, again, keeps your people buying products here in our own country, and it makes them less expensive for other people to buy our products, which can help, as opposed to the strong dollar does the opposite. I’m not a big strong dollar guy. It’s nice to bang your chest like, “Oh yeah, the US dollar’s so strong,” but it does hurt your economy, because it makes your products that you’re making more expensive all around the world.

John DeBevoise: When is it good for the dollar to be very strong? We’ve seen times in the past where the dollar was very strong. Has that been a good thing for us?

Brent Wilsey: I don’t think it’s ever really been a good thing for us. It could have some help when it comes to debt and so forth. But overall, I’m more of a guy that wants a good economy. We should not see a strong dollar now, because our economy is weak. That would really … A strong dollar now would hurt us even more.

Brent Wilsey: The weak dollar’s good. A strong dollar, I just can’t really, other than people want to buy it more, they want to invest in us here by buying the dollar … But again, that doesn’t help our economy. They’re just buying the dollar denominations here to get the dollar. That doesn’t do anything for us. I like the weak dollar, because it helps with our economy, and make more products that are cheaper for the consumer, here in the US and also around the world, to buy our products.

John DeBevoise: If the dollar is very weak, and the Chinese have bought up a lot of our debt, is it better to pay them back with lower value dollars?

Brent Wilsey: Yeah, actually, that is a good thing [inaudible 00:16:40]. By the way, China … What has been happening to China over the years, and people don’t realize this … I don’t have the numbers in front of me. China’s debt has been running off. What that means is that, as something matures, they don’t renew it.

Brent Wilsey: So China, I now believe, is the third biggest borrower for the US. The first one is actually US citizens. So that is not the big concern it was, I think I’d say five, six years ago, with China being, “Oh. They’re going to own our country.” Well, that is veering off, which is a good thing.

John DeBevoise: We thought of the Japanese when they were coming in with the yen and buying up all the real estate, particularly in the New York and San Francisco areas. That didn’t work well for them.

Brent Wilsey: No, no. Again, John, there’s so many things in history that you look at, and you bring up a great point about Japan, and what they were doing was so, I think that was back in the early 90s, we were so concerned, “Oh, my gosh. Japan’s going to own the country.”

Brent Wilsey: Well, eventually things change, because something comes up, it doesn’t happen. Then it changes, and a new problem comes up. But going back to the dollar, China, for years, has worked … Again, they deny it. It has worked on keeping their currency low, because makes their products less expensive for us to buy them.

John DeBevoise: Until we start hitting them with tariffs.

Brent Wilsey: Mm-hmm (affirmative).

John DeBevoise: Now we’re seeing some of the Chinese companies that are being delisted off of the US market. Is that a good thing for us?

Brent Wilsey: I’m really thinking is a good thing, because what’s going on here is that the Chinese companies will not let the SEC regulators from the US come in and look to verify. The SEC does not approve or disapprove securities, but they do want to say, “Yes, they are doing all the proper filings. Everything is correct.” Chinese companies say, “No, US, you’re not going to come in and look at our companies.”

Brent Wilsey: Well, that’s an unfair advantage compared to a US company, because the US companies have to disclose everything, when China … We saw this. I forget the name of the company. It was a coffee company. I think it was [Luckin] Coffee or something. They were making all this up with the sales and so forth. This is what you’re getting, because no one is verifying that information.

Brent Wilsey: So I think it’s a good thing that if they’re not going to follow suit, yes, we’ll then delist your companies. Now who it could hurt, unfortunately … We’ve talked about Apple already. It could hurt Apple, because what the Chinese can say is, “You know what, Apple? You’re not going to let us have our companies here. Apple, you get out. We don’t want to buy your products anymore.”

Brent Wilsey: It is kind of amazing to me, because they have Huawei, which is the biggest phone company in the world, they really don’t want Apple in there anymore. So that is a big problem for Apple. If we start delisting companies. China can say, “Okay, fine. You’re doing that to us. We’re going to kick Apple out.”

John DeBevoise: Is that realistic? That is a huge employer, for good or bad, in China, assembling the Apple products. Would they really pull the trigger on that one, and throw one of their biggest manufacturers out of the country to spite us?

Brent Wilsey: There would be a point, I don’t know how it compares to Huawei, but obviously China, they’d rather have their own company there versus a US company, especially if we keep doing things.

Brent Wilsey: You know how many times you fight with somebody, whether it’s a divorce or a business fight, sometimes you do things that maybe aren’t the smartest thing to do, but you’re doing because you’re pissed off. It’s like, “Okay, you’re kicking us out. We’re kicking you out.” Doesn’t mean it’s going to help them, but it could happen. That would devastate Apple. Yeah. I think if that happened, Apple would probably drop at least a 20, 30%, would be a guess.

John DeBevoise: Wow. When these companies get delisted, you think that obviously the investors that are in the States here, that hold shares in the company, they’re going to take that money out, and obviously, they’ll reinvest it in US companies, which would be a good thing.

Brent Wilsey: It’d be a very good thing.

John DeBevoise: Let me get into an area that is one of my favorites. That’s what I call the small cap publicly traded companies. They’re often referred to as pink sheet companies, red herrings, you’ll hear them all the time. For the audience, that’s those companies that trade at or below a buck a share. They can go down to pennies a share. Does your firm look at these companies? If so, how do you look at a pink sheet company?

Brent Wilsey: Unfortunately, John, we can’t get into those, because we manage hundreds of millions of dollars. If we were to try to buy one of these small companies at, we’ll say, 50 cents, we would probably own the entire company based on how [crosstalk 00:21:00]. We got to be careful. Even if we didn’t-

John DeBevoise: I think they call that a hostile takeover.

Brent Wilsey: Exactly. We generally don’t buy companies that have less than a $1 billion market cap, because we don’t want to move the market. It’s happened to me in the past. It’s very hard, when you’re trying to get out, when you own 5, 6, even 7% of a company, let alone 10, 20%, because then you can move the market, and you’ve made nothing.

Brent Wilsey: But to comment on it for the small investor, for the business investor, it can make sense. You said the magic word, and that is research. Do not step in and buy these just because, “Wow, 25 cents a share. I can buy 10,000 shares. Wow. [crosstalk] There’s got to be some value on there.”

Brent Wilsey: One problem I think you got to be careful with these very tiny micro cap companies is the information. Because we know, when we’re getting the information from these larger companies, that it’s gone through the SEC, and

we’re confident with it. With a smaller company, you have to do more homework to verify that those financial statements are true.

Brent Wilsey: So I think there can be some opportunities there, but you got to know what you’re doing. You’ve got to be a business person, know accounting. You’ve got to do a lot of research, but you can make a lot of money by doing the right things and probably being a little bit patient. But to just jump in and buy something because you can buy 1,000 shares for $250, that’s not going to [crosstalk 00:22:21].

John DeBevoise: No. You get a phone call and says, “I’ve got the next hottest thing since Apple, and it’ll only cost you 75 cents a share. How many thousands of shares would you like?” That’s from a cold call. I’ve gotten those.

Brent Wilsey: Yeah. They do happen. [inaudible 00:22:33], I don’t get those.

John DeBevoise: Yeah. For those of you who don’t know, that is often affectionately referred to as a pump and dump. They pump it up and then they dump the stock. I see them. But oftentimes, as I’ve joked, that these are the companies that trade by appointment.

Brent Wilsey: Yes.

John DeBevoise: You just don’t find them listed someplace. You got to go looking for them.

Brent Wilsey: What was that movie? It was called Wolf on Wall Street.

John DeBevoise: Yeah.

Brent Wilsey: That’s a very good lesson.

John DeBevoise: That it is. We’re talking with Brent Wilsey from the Wilsey Asset Management, on all kinds of things. Brent, I want to hit you up for one more thing on digital currencies. I, myself, with my company, have been approached with digital currencies. There’s Ethereum, Bitcoin, and there’s a whole host of other things I’ve never even heard of. But I was offered Bitcoin for advertising, which has hit over $12,000 a coin. How familiar with Ethereums and Bitcoins and digital currencies are you, and what do you do when you get one?

Brent Wilsey: Well, we have looked at them. The funny thing is you say the coin. There is no coin. That’s the big problem. What is this made from? They have these mining things that kind of create it and so forth. It is out there. I know people are making money on it. I know people who lost a lot of money on it. If you can’t explain it to people, you should not be into it.

Brent Wilsey: I saw this a great commercial from, I think it’s called Greystone, where they actually, it’s like an ETF. They have, I th

ere. It’s like, “Wow. We should get this.” The commercial is so great, because they show the history of the currency, and how it happened, and so forth. This is the next thing.

Brent Wilsey: It could be, but I want to tell people, it’s not backed by a government. When you buy the dollar, it’s back of the US government. When you invest in a Bitcoin, who’s backing it? That’s what I don’t understand.

John DeBevoise: Right.

Brent Wilsey: It’s actually kind of like the gold thing. It’s backed by the next person that will buy it. That’s the value to it. So there’s no support for it. It is very speculative. I know people make money on it. I say, “Congratulations to you. I’m glad to hear that.” But if I can’t explain it or understand it, and even when you ask me, “Oh, I know all about Bitcoin.” “Explain it to me.” They come up with all these things, but they never tell you what it is.

John DeBevoise: I wonder, what do you do when you get it? Being in the horse and cattle business, I’ve traded a lot of horses. I know what to do with them, even the bad ones. But if I was handed something like this, I would go, “All right. Now what?” Who would get it from me? It sounds like a tough putting up for sale. “Hey, I got a Bitcoin. Come one, come all.”

Brent Wilsey: Right.

John DeBevoise: It is buyer beware. It’s only worth as much as the person behind you is willing to pay.

Brent Wilsey: Oh, exactly. It’s called the greater fool theory. You’re hoping there’s a fool out there greater than you that’s going to buy that Bitcoin in that place. There are a lot of greater fools out there right now.

John DeBevoise: When did you become PT Barnum?

Brent Wilsey: But it’s just something that I can’t recommend. I know it’s [inaudible] you said $12,000. It’s been, I think, as high as 20. It’s been as low as, gosh, I think I’ve seen it 100. I just can’t explain it. I can’t put my arms around it. You can’t touch it. You can’t explain it. I recommend people stay away from it. Again, as I said, if someone made money off of it, congratulations, but I’d say that same thing when people go to Vegas and make money as well.

John DeBevoise: Well, put 20 down on 19 for me the next time you go out there. That’s my [inaudible 00:25:55]. That was my fun time.

John DeBevoise: Brent, there’s so many things we can cover perhaps next time on what is the government doing for us today? Let me count the ways.

Brent Wilsey: Are we going to do that before the election or after the election?

John DeBevoise: Well, it’s unintended consequences. One of my favorite lines with the politicians is, “Don’t judge me by my actions. Judge me by my intentions.” They always create these laws that are intended, obviously, or they think they’re intended for good reasons, but then there are loopholes that they never saw, because most of the time, they have never owned and operated a small business.

Brent Wilsey: Yeah. Small business is what runs our country.

John DeBevoise: Yes. As political as I get on this show, if they support small business, I support them. If it’s good for small business, it’s good for everybody.

Brent Wilsey: I like it.

John DeBevoise: Brent, thank you so much. Once again, Brent Wilsey from Wilsey Asset Management. Anything that you need to ask him, you can reach him right through BIZSOUP, where you found us. All of the transcripts and links to Brent’s operation, that is Wilsey Asset Management, located in beautiful Southern California, right there at BIZSOUP.

John DeBevoise: Brent, thanks for being on this serving of Bizness Soup.

Brent Wilsey: Thank you, John. I enjoyed it