I’m joined to my left by my co-host, Bob Paden.

Across the table from us is our guest today, Kenny Blinkenstaff with Titan Investment Management.

Welcome to the show.

Thanks for having me, guys.

So, tell us about Titan.

So, Titan goes back to our first day of foundation, so to speak, was January 2nd of 2018.

And prior to that, I was in Chicago working in an investment firm.

And prior to that, spending time in Champaign, Illinois, but slowly but surely going through my career.

And it got to the point in Chicago where I was blessed with a very good boss who was also, dare I say, a mentor in the regard that kind of what’s next.

And the next step was either stay there and continue to grow my career, which is perfectly good for him to work for.

I’m not complaining about that.

Or do you want to take that leap of faith?

And start your own firm.

And I always thought, getting my undergrad at Purdue, I got my MBA at the University of Chicago, there’s something special on the East Coast or West Coast or Chicago compared to Central Indiana or the Midwest in general.

And all I found out is that they wear suits more often.

They play golf more often.

But outside of that, the line of thinking and the overall IQ is exactly the same.

So why not?

Take the approach that we’ve developed here in Chicago back to the Midwest, which is predominantly dominated by the kind of broker-dealer world.

The Edward Jones.

The Ed Jones of the world.

Yeah.

Where a lot of people, when it comes to their investments, their finances, I don’t want to call them complacent, but they don’t really know about alternative solutions.

And they tend to think that these alternative solutions are like for the Jeff Bezos of the world-that I just don’t have enough money.

But where technology is taking the investment community is able to offer these solutions to, dare I say, with the utmost humility, lower balances.

And by lower balances, I’m not saying like one million instead of five.

I’m saying all the way down to like $50,000 sort of dollars.

So it’s much more scalable from a solution standpoint.

And now it makes us stand out relative to those brokers.

I don’t want to call them peers because we’re not a broker, but that mutual fund model that calls it ‘set it and forget it’ complacent mentality, where we actually have a solution that not only do we do it all in house, but it’s something that we also own as us, the owners of Titan.

So when I say we own X, Y, Z, we in fact own it.

It’s not, well, Adam owns this growth mutual fund, but Bob owns this value one.

And Kenny has some dividend income nonsense where I’ve created a great hedge amongst us.

But it’s a convictionless model when you look at it.

Right.

Yeah, that makes sense.

So tell us how you got involved in constructing your business and why you did it.

So the main reason was, so even growing up, even when I think about when I’m little, I could probably ask my mom.

I’ve never been, I don’t like to be told what to do.

So having a boss doesn’t seem to be.

That seems to be a common theme, by the way.

Having a boss has never been.

Appealing um so eventually starting my own firm was always something I wanted to do, but in doing that, I always had an apprehension that there was something I didn’t know and shocker, there’s still things I don’t know.

But as I got older, I grew comfortable with knowing the unknown or not knowing what I don’t know, and so as I started Titan, I realized there’s going to be some bumps in the road.

I might like to think I have the most sophisticated investment strategy out there.

But as I’ve learned, one of the harder things, such as hiring people, was something I knew I would have to do at some point, but something that I had little to no experience in, let alone how to do it right.

And I’ve kind of had to learn trial by fire.

I would like to think the guys I have now are pretty good.

Learning through all that is kind of what set the stage for I always wanted to do this, but why I was apprehensive to do it.

But it eventually got to the point going back to 2018 where it was like, you’re not going to learn those sorts of skills sitting at the desk I was at, which is as much as I liked my comfy, cozy desk with a salary.

The only way you’re going to learn this is if you go out and do it.

And if I go out and do it and I fall on my metaphorical face.

I can always go back to the desk.

It’s not a big deal.

But at least when I’m, say, 60 years old and I’m wondering if I if I would have started this, I would be a bajillionaire.

Well, if I go out and fall on my face, I don’t get to have that thought because I realize I couldn’t cut it.

And if that’s what it is, that’s fine.

At least I can sleep on that rather than always being that person who says, ‘Well, if I would have done it compared to all the successful people out there.’

Right.

Yeah.

And you correct me if I’m wrong.

I mean, full disclosure, you’re a client, I’m a client, right?

So we’ve worked together now for five years, probably.

And coming down from Chicago, you actually chose the place to come to, if I recall.

Yes. Right? Yeah.

Kind of strategically said, I’m coming from Chicago.

I grew up in Lafayette, but I want to come to a certain place for a certain reason.

Yeah.

And so going back to that, like the Indianapolis area is obviously very robust in terms of growth.

While it has been good in terms of growth, where it is, dare I say, been apprehensive to that is the investment world because it’s still dominated by the Ed Jones, Raymond James, Wells Fargo, whatever broker.

You want to name a place where if you go to Chicago you go out to the East Coast West Coast you’ll find people with my pedigree and or background I’m not going to sit here and say I’m some sort of savant that you would never see elsewhere but in this area I am a zebra, you know, a bunch amongst a bunch of monkeys so to speak.

So, describe for people the difference you know between what I would call you know the Edward Jones Raymond James etc model, yeah, and yours just in plain English.

For a lot of people who, you know, most people don’t even look at their account.

But I’m willing to bet an astronomical amount of money the majority of people own mutual funds.

And at the end of the day, you can open your own Robinhood account and you can go buy that Vanguard S &P 500 fund and not have to pay Ed Jones, yes, that quote unquote advisor.

I would challenge you on what they’re actually advising when they’re buying a mutual fund.

They have no decision making skills on.

Secondly, what are you actually paying them for?

Because if they’re not advising, they’re definitely not making an investment decision.

And when you inevitably call them and ask that question, they say, oh, well, we can switch you to this growth model or just this general vague model they talk about.

Why did you have to call them for them to do that?

You shouldn’t have to do that because now you’re working for your money, not having somebody work for your money.

And so Titan coming in, bringing an in-house investment solution to the table.

One of the challenges to that is because we don’t use mutual funds-it’s a nice thing from a call it the business perspective.

They’re super convenient.

I take Adam’s money.

I put it in a mutual fund, set it and forget it, baby.

I don’t have to do squat and I can go play as much golf as I want.

Problem, though, of having everything in-house, there’s over 600,000 publicly traded firms.

So Titan, Vanguard, Fidelity.

That you know, the elephants in the room, so to speak, nobody has to sweat equity to look at every single one; it’s just not possible nor is it scalable.

But this goes a little bit into my background between the University of Chicago as well as what I was doing at these firms-econometrics, the idea of statistics and uh economics coming together and having a baby, aka writing code, algorithms, not as a black box to say ‘at this specific price on this specific day, this is a specific buy.’

Because if it was that objective, everybody else would do it, and thus the alpha or gain would be wiped out.

And two, that sort of business isn’t scalable because I can’t just sit in front of my computer all day with my finger hovering over the green button or red button waiting for that sort of signal to hit.

You can use them though to filter a universe, say 600,000 down to 600, and filter that universe based off a predefined predefined variables that historically have done well in certain environments, and thus you’re kind of shuffling out the best of breed; and now once we have what we at least discern to be the best of breed, we run through our own cash flow model, and this is where we’re even more different because In my world, or at least academically, a lot of people are taught to value businesses with like whack or what’s called the weighted average cost of capital.

And without getting too nerdy, you are making the assumption the capital structure of this business will never change.

But we know whether it’s Titan, whether it’s the Hayes Group, whether it’s Eli Lilly.

Sometimes there’s debt.

Sometimes there’s debt buyback.

Sometimes there’s shares.

Sometimes there’s spinoffs.

We acquired this company.

It’s constantly in flux.

So if you’re forecasting out Netflix to grow at 20 percent per annum, but they’re never making a positive cent of free cash flow because they’ve got to spend so much money to produce Stranger Things, they’re going to issue more debt.

And that’s not necessarily a bad thing, but something that needs to go into your prognosis.

And so we run through all that analysis.

And last but not least, because I’m not going to once again sit here and say that we are some Warren Buffett, Charlie Munger, we know everything.

We do have third-party research that we use as, dare I say, a dot our i’s and cross our T’s approach where, you know, we see a yellow flag.

What are other people saying?

And if it turns into maybe more of a red flag, we will actually talk to company management and say, hey, why are your accounts payable going up?

Yeah, as an example.

So all that nuance ultimately derives our investment solution, which is much more active.

And we’re constantly monitoring it to say, should we buy more NVIDIA?

Because that seems to be the only thing that goes up nowadays.

But that comes at the cost of what if NVIDIA goes down?

What if the AI move is overdone?

So there’s always a push and pull that we are perpetually monitoring.

Yeah.

So let’s talk about why somebody should be interested in your approach versus the traditional broker-dealer approach.

Yeah, so that one there’s that that’s the investment solution which I would like to think is much more robust than that mutual fund you could go buy on your own right.

But two we eat our own cooking so when I say we own Nvidia or we own Lily we as the owners of Titan we own the exact same securities as Adam or Bob or whomever is it is, Titan so we eat our own cooking and based off how we get compensated.

We get a raise if our client accounts go up.

We take a pay cut if our client accounts go down.

Not only have we doubled down with our own personal wealth on whatever the investment may be, but I very much care that your account goes up because I want to get paid more.

So, while you know, when I started Titan, I thought going in depth on like the actual algorithmic part would be what people want to hear.

But I’ve noticed it’d be like you talking to me about all the nuances of marketing.

I know, you know what you’re talking about, but I don’t know what the hell you’re talking about.

And so I tend to just nod my head and okay.

But when I say we own what you own and our incentives are tied to yours, whether I’m talking to a plumber who owns his own business or a surgeon at IU Health, everybody respects that.

Right.

So that’s kind of how we re and working with Bob kind of rechanged our, dare I say our value proposition, just because I don’t want to say people don’t care about the nuances we offer as much as if people don’t understand it, they tend to mentally check out. Yeah.

And we’ve talked about the concept of comfort food.

Yes.

So we use that as an example, Adam, of, you know, the average everyday person, you know, going about their life, doing et cetera.

And again, it may be throwing shade a bit at the, you know, that it were Jones and et cetera, but people like comfort food. Everybody does and if it’s easy and i get a sufficient return i’m happy we always joke that you know you look at your balance and go it went up right i’m good well you don’t know if it went up five percent or fifty percent right you just kind of know it went up you don’t necessarily dig into the details it says until you ask the question that five percent could have been eighteen that five percent could have been twelve right those kind of things and all of a sudden you know over the course of time That comfort food is costing you.

It’s costing you time and money.

And that’s where we spend a lot of time talking about these value problems.

And I would say the other thing we, I don’t want to say we push against, but I do not try to hold this out as different is the financial planning aspect.

At the end of the day, I can come up with the most sophisticated financial plan for you.

But the difference between that and investment management.

I can, without your discretion, because we’re being proactive, go sell NVIDIA and buy something safe because we think a recession is coming or something of that nature.

The financial planning, no matter how complicated I make it or sophisticated, you gotta do it.

And shocker, 98% of that equation is do you spend less than you make?

Right.

I mean, and do I need to tell you that?

Right.

Like, if you want to pay me $5,000 to tell you that, okay.

But once again, I’m going to be looking at you saying, ‘I don’t understand the value you’re getting.’

Kind of like if you were paying me to go buy a mutual fund.

Once again, you don’t need me to do that.

And it doesn’t take a lot of work in this day and age to go buy the Vanguard S &P 500 or to spend less than you make.

This is not sophisticated.

Yeah, this is not rocket science.

But to Bob’s point, that financial planning aspect, a lot of times for people is weirdly comfort food, which I.

I struggle.

It’d be like me, you know, talking to Adam about marketing and you’re saying, well, for marketing, you got to pay $5,000 a month to get yourself out on whatever platforms.

And I look at you shocked.

Yeah.

Like, how did you think this was going to work?

Like Adam was just going to do all this for free.

Adam’s never heard that before.

We’re just going to get on TikTok and we’re going to blow up.

Right.

Right.

Yeah.

And well, even getting on TikTok and blowing up, it’s like, well, I got to make a video like every day.

Well, I was thinking like maybe once a month, just one time.

Yeah.

Yeah.

So, yeah.

So we we actively I don’t want to say we we find I’m not going to say financial planning is a bad idea, but we the things that are inevitably in your control.

We try to highlight those things are in your control and you’re paying us for the things you’re putting us in control, such as the manage of your investments.

We can help you with the financial planning, but it’s just not different than a diet plan.

Like I, you know, I can tell you eat less.

You want to pay me to tell you to eat less chocolate?

This is not once again, rocket science.

I get it.

So let’s, let’s talk about, you know, the ideal client profile for you.

So that was once again, going back to starting Titan, probably not something I thought about a lot because I was just very focused on the actual investment approach.

I think that kind of client has kind of filtered out for me in a way.

And this was by no means what I sought out to do.

But a person I’ve definitely resonated with is a small business owner.

Because a lot of these small business owners, that general idea that we eat our own cooking, we do things in-house.

The resentment of authority.

Some of that.

Yes.

Yes.

So that’s a new tagline on the website.

So that I would say indirectly is kind of what is spun out to Titan is appealing to a lot of these small business owners because our value propositions, while different in the sense, one company may be marketing and another may be investing; the underlying idea of eating your own cooking.

Plus, you know, more or less taking pride in your work.

Right.

We all agree on that.

And we’ve talked about the no BS, right?

I mean, just there’s no BS in this.

There’s no fluff.

So, how would a small business owner come to understand that they should give you a call?

What are some of their key thinking or, you know, they’ve fallen asleep at the wheel or what are some of the kind of key things that would lead them to you?

So I would challenge all these small business owners.

That like, if they come to me, like some of the general questions I’d ask to identify kind of where they are is because a lot of them are coming from that broker sort of universe is asking them, how much do you pay them?

I don’t know.

What’s tell me what, what do you own the most of?

I don’t know.

How has your, how’s your account done?

I think it went up and I’m like, okay.

So, to be clear, but then I’ll say, so your business.

Tell me what your number one product or yeah, whatever you’re selling widget.

And they’re like, oh, it’s this.

It does that margin.

It does this percentage of revenue.

This is my most productive person.

And this is my least productive.

Like they’re just boom.

Okay.

So with probably your biggest financial asset, that being your business, you care a lot.

But the financial asset that’s supposed to take care of you when you sell this place, you have not a clue.

I’m confused because you seem to be a bit of a Jekyll and Hyde here.

You are very much Dr. Jekyll about kind of what the business is.

But you are a monster when it comes to this investment portfolio in the sense that you don’t know anything.

And for being a business owner who prides himself being hardworking and knowing what’s going on around him, you don’t have a clue.

And so kind of having, dare I say, that harsh conversation with him.

What we’ll then do is then just propose to them, give me your statement, and I’ll tell you what you own.

I’ll tell you how you’re doing, and I’ll tell you how much you’re paying, and I’ll comp it to us.

And if you are paying next to nothing and you own the Vanguard S&P 500, which the mutual fund fee for that will be next to nothing, and you’re happy with that, go on your way.

Rarely is that the case because a lot of times these broker dealers get kickbacks for owning certain mutual funds in Adam’s portfolio.

So when I’m able to highlight, not only does this mutual fund have a higher fee, not only does it suck, but oh, Adam, by the way, the reason you own this isn’t because it’s what’s best for you.

It’s what’s best for business.

And then that’s where talking to a business owner, it’s like the opposite of what you’re used to.

It’s not in-house and you’re the only one who owns it because this advisor over here broker gets a kickback right, you’re a little irritated and then that tends to begin the next portion of the conversation so and once again with business owners the idea the the idea of changing or making a change they’re usually less resistant to because they have to almost on a daily basis they’re zigging and zagging every day given the nature of the business whereas that sweet old little lady who has a big inheritance, but my broker’s so nice.

He’s so nice.

I’d be nice to you too if I was making this much.

So it’s harder to have those conversations.

Did he invite you to golf? Right, yes.

It tends to be small business owners is who we resonate with.

Right.

And you do both what I’ll call the personal side, but also the business 401(k)

if they have that benefit.

Yeah.

So typically, so drawing out that transition a little more, usually the business owner will give us the money they hold outside the company and we manage it.

And naturally now they have a point of comparison.

They have their 401k and then they have us and they’re like, why is your account going up but my 401k it’s it’s going up a little bit but i also contribute to that so that should be like crushing you because i’m not actively contributing to your account every two weeks well that’s because you own xyz and then 401ks are a whole nother beast in the for small businesses in the sense of it’s another it’s it’s unfortunately complicated and they like to keep it complicated for a reason because think about if you’re in the dark and you’re paying them let’s not rock the boat here because Adam’s not asking questions.

So, you know, as long as Adam remains deaf, dumb and blind to the world outside the room, well, let’s keep it that way.

And that is unfortunately where the 401k universe has come.

A perfect example is like a lot of these 401ks have like retirement track, 20, 30, whatever. Yes.

Yeah, 20 50, 20 60, whatever.

Yeah.

Usually in five-year intervals.

All those are mutual funds that own other mutual funds.

So you’re paying a fee on top of a fee on top of a fee, whereas wonderful.

Well, it’s like for Adam, it’s like for you to reconcile all that.

Here’s a 120-page prospectus at the bottom of page 70 and small italic letters.

You’ll be able to start figuring it out.

But last time I checked, Adam’s got a business around.

And the last thing he has to do is to read through 120 pages.

And remember, for that underlying advisor who’s providing these mutual funds, they’re getting a kickback.

So they’re not really going to be a resource for you and highlighting how much you’re paying them.

And that’s like, we send our clients an invoice every 90 days, like not pay us, but this is how much you paid us.

Just to make, we’re all clear here.

Cause I want it to be, this is how much you’re paying us.

And this is how much money you made.

And that’s it.

There is no kickback fee.

There is no mutual fund fee.

There is no…

you know, some arbitrary opaque fee that you would otherwise not know.

This is it.

Just pure cash coming out of the account versus how much the account grew.

Right.

And we talked about it as well.

You know, for the business owner, for a 401(k), there’s kind of a double as well.

It’s not just the fact that the 401(k) is not doing as well as it could be.

But it’s affecting every employee that has that 401(k), right?

It’s their personal wealth and it’s not growing at the pace or rate or whatever that it should.

And so you’re kind of getting double whammied, and it’s just, you know, it’s kind of disappointing.

And in regards to those 401(k)s, another way we’re different is, think about like, I mean, you could use a big firm, take an Eli Lilly for example, I would challenge any one of those, even those PhDs there.

When was the last time you talked to somebody at I don’t know who manages their 401k.

It’s probably like a Fidelity.

When was the last time you talked to an expert, not the call center where you just got, you know, whoever you got, but an actual expert in there?

Somebody comes into lunch every six months and tells me I should contribute more.

Jim, that’s going to go play golf that afternoon.

The question is like, how do I know if I spoke to an expert?

Well, exactly.

Well, and usually you’re probably going to talk to somebody half your age that this is their first job and they have the same script that the guy at lunch just told you.

Well, you should contribute more.

Well, yeah, I get how that would make my 401(k) go up, but I’m more interested in what is optimal for Adam Hayes versus Bob Payton versus the thousand of other employees at Eli Lilly.

And now in regards to how we go into a 401(k), once again, probably why we resonate with small businesses.

Is we actually, we’re not going to come in at, I mean, we’ll come in at lunch and introduce ourselves, but do I really expect to walk into the Hayes group and for Adam to disclose how big his 401(k) balance is relative to his employees, how much he contributes relative to his employees?

That’s pretty intimate information that he probably does not want to disclose, let alone his employees disclose to him.

So instead, we’re going to meet with everybody one-on-one.

So, that we can actually have there I say those intimate conversations to figure out what is best for Adam versus Bob versus the employee you just hired, the unfortunate drawback and I’ll be the first to admit it is that that’s not really scalable like we couldn’t do that at Eli Lilly because they just have thousands of employees that wrap around the globe; we just don’t have enough manpower.

But I’m okay because I I don’t want to chase down, say, an Eli Lilly 401(k), and the administrative burden of that is just not worth it.

I’d much rather provide a much more sophisticated solution to a small business owner, as they’re usually they’re the ones getting ripped off the most, right?

So, because there are layers of cost to support it, right?

So when when you have an engagement with a small business owner for the first time, what are the top questions that they start asking you?

It’s usually what’s ironic is that so like prior to them really asking us questions we ask them questions like ‘What do you own?’ ‘How’s it done?’ and ‘How much do you pay your advisor?’

And they don’t know any of those questions, but that’s usually then what they ask us.

And we’re quick to say, this is our top holding.

This is how we’ve done versus the equity, which is the global equity market.

And this is how much you would theoretically pay us.

So those are usually the three big questions.

What do you own?

How are you doing?

How much does it cost?

Which I would assume probably for most businesses, that’s kind of the general questions that are asked of us.

Yeah, interesting, um, shift to shift a little bit, let’s talk about current market, nothing going on right now, you know, pretty quiet, you know, those kind of things, I mean, literally last night we got to watch another interesting, you know, TV special, um, but I mean, talk about current, you know, the post-coveted world we live in now, yeah, kind of what the market’s done, maybe what the market’s kind of looking at right now and then, you know, look into your crystal ball a little bit, of kind of what should we look at?

What should we be thinking about?

So obviously prior to this year, if we go back to ’22, when the market took a metaphorical dump, inflation was the problem.

We got as high as 9%.

We’re back down to three.

So it’s definitely moved in the right direction, but it’s not that simple because how they measure inflation, all it is is taking the price today and dividing it by the price it was 12 months ago.

So, for example, if we take something like eggs, that in 2022 from 2020 from 2022 to 2021 went up 10 and then from 2023 only went up three percent, yeah it shows is only three percent which is better than ten but it doesn’t change the fact that you know when people go shopping they still compare it to two years ago just like they compare the price of gas to two years ago so while inflation has moved in the right direction that being lower it is still the consumers getting pinched because I mean whether you go to the grocery store whether you go to the gas station whether you’re renting an apartment or putting a down payment on a home and looking at a seven and a quarter mortgage rate the cost of living life has gone up a lot and now year over year is it better yes but if we just take a two-year window it’s still an absolute nightmare and so that is pinching the consumer and so the consumers call it discretionary income to go buy a piece of furniture, for example, is concernably lower and kind of an industry that I would not want to be in right now, not because it’s anything the furniture maker did.

It’s just that the average consumer, especially when you look at it generationally, those being the younger consumers, it’s a big problem.

And you already see that whether it’s buying a house.

Getting married because I mean even getting married from purely an economic standpoint two people occupying one space is a lot more scalable than me renting an apartment by myself and my future spouse renting her apartment so delaying even those decisions is incredibly uneconomical, and now obviously more people are living together before getting married to kind of hedge that sort of scenario but even all this you still don’t own a home.

So all the rent is, is a cash outflow for that landlord.

You don’t have an underlying asset you’re accruing.

So, at the same time, a lot of this younger generation has student loans.

They have the highest credit card balance on average than we’ve ever seen.

And between credit card and student loans, those are the worst kinds of debt.

Because at the end of the day, what’s the underlying collateral?

There’s nothing.

And you don’t get a point to your brain; it is collateral.

Whereas fast-forwarding 20 years ago.

It was our home and I dare i say is good debt in the sense that while you may have a mortgage that’s paying seven percent, you have a home that historically is appreciated five so really you’re only paying net two right you know what?

The way you’re owning it right I can’t live in a student loan.

You live and own the very thing that you’re occupying.

So you get to keep some of the value of that exchange of money.

Correct, correct.

And you have the flexibility as you come into more wealth and or if interest rates go down, you can refinance or prepay your mortgage.

So you have all that.

You don’t get to prepay your rent.

Right.

Like if anything, the landlord’s going to say, oh, Adam’s doing a little better.

Let’s raise it.

Yeah, let’s get some of that.

Yeah.

Right.

So, so that that there is a.

There’s spending or lack of savings problem in the economy right now.

All the savings built up from the stimulus checks of COVID pretty much has been wiped out.

And our debt balances, specifically if you look at 30-day delinquencies with credit card and auto loans, are on the rise.

And that’s a problem.

And it’s not a problem in the sense that, oh, no, we need to sell everything, get out of the market today.

But it is one of those, well, it was like 2008.

It’s not like 2008 was all of a sudden people defaulted overnight.

It was kind of a rolling problem that started in 2005.

Fast forward three years and it was like, oh, they were taking the hot potato package, yeah.

Well, it was like bundling those hot potatoes together and selling them off.

It’s small enough that it’s at Bear Stearns.

We can have J.P. Morgan buy them and kind of avoid that issue.

But then, oh, it’s at Lehman.

They’re too big.

We can’t have somebody just digest them, so to speak.

And now we got a big problem.

Right.

So we we see some of those.

Dare I say, underlying trends kind of forming at the moment.

But it’s not a problem today.

It’s a problem a few years out from now.

But in the short term, with inflation coming down, which all else equals a good thing, the other big aspect in the short term is AI.

I mean, anybody, long story short, NVIDIA is responsible for 70% of the S&P’s performance year to date.

If you haven’t ridden that wave, you’ve missed something.

Correct.

If your account is trading the S&P, I can tell you in those mutual funds you own, they don’t own NVIDIA.

If your account is outperforming the S&P, those mutual funds you own, they own NVIDIA.

It’s simply that is kind of the elephant in the room, so to speak, in terms of where it’s going.

And that AI movement, it’s going to continue to take hold because at the moment, it’s not us buying it.

It’s not the consumer buying AI because, I mean, like we can use ChatGPT and there’s free versions.

The people buying it are Microsoft, Amazon, Google, and they’re buying it for their cloud, their data centers.

And these guys have hundreds of billions of dollars.

So paying this kind of money for them is a drop in the bucket.

But in the back half of 24, what we’re going to see is the first, dare I say, AI interface with the consumer.

HP and Dell have already said the next call it generation of PEs that will be released this fall will be AI enabled.

In other words, this isn’t going to be something that Adam or Bob or Kenny is going to have to download.

It’s already going to be there.

Apple in June announced they’re going to have Apple Intelligence on the new iPhone 18.

That, once again, if history is any sort of predictor, that’ll be September of this year.

And that AI on the iPhone is going to be something else that we use.

And I think that’s going to be the catalyst where you’re going to see a lot more people upgrade their hardware in terms of IT.

They’ve been waiting.

Well, I’m going from, say, the iPhone 17 to 16; you know, Adam, your pixel rate is a little better.

I don’t think that’s enough for Adam.

I’ll just continue to work with the 16, not a problem.

But now with AI18, if I say it has all this AI interface and all this AI enablement, and oh, by the way, if other people buy it, they can do it on your phone, but you can’t.

You’re almost a forced adopter.

FOMO.

And then there’s the FOMO aspect.

So I think you’re going to see a tidal wave of demand for IT hardware, given it’s going to be the, call it first, AI-facing sort of software into hardware.

The other aspect we’re watching, and this is going to be interesting to watch, is we all know the big tech companies, Microsoft, Google, Apple.

I think Microsoft and Google are about to go to war.

Microsoft recently announced they’re no longer going to allow people to use Androids in China.

So you’re kind of already seeing the lines being drawn.

And what I think Microsoft is going to do, they have the Bing search engine that not a lot of people use.

But because it’s not Google.

Correct.

It’s not Chrome.

But they were the first ones to integrate ChatGPT.

And they integrated it with Bing and they’ve already remodeled it, calling it Copilot.

And I’m willing to bet, because think about when we have our smartphone, when we go buy that PC, when the people at the Hays Group are logging into their computer, I bet they’re all logging in via Windows.

And the majority of people for a smartphone, they’re logging in via iOS.

Apple and Microsoft are the gatekeepers.

They indirectly have a way of determining what we consume from an AI perspective.

And I’m willing to bet with this new round of PCs, when you go buy it, that it’s going to automatically have Copilot on there.

And for you to download Chrome, they can’t make it impossible, but they’re going to make it painful.

And when you think of a company like Google, 90% of their revenue is Google Ad Search or Google Chrome, whatever you want to quantify it as.

Microsoft doesn’t really even have any revenue exposure to the search engine.

It’s all upside. So, yes.

So then just getting one out of 10 Chrome users to switch, which I think is more likely than not, game changer for them in a body blow.

To Google and if you’re Google how do you counter that you’re going to get everybody to all of a sudden throw their iPhone away and buy an Android right?

So now knowing that’s their alternative Microsoft and Apple are kind of like ‘Hey, Ready to team up?’

Yeah, we’ve tried to play nice with you before.

You’ve just kind of punched us in the teeth with all this stuff, Google.

Yeah, payback.

So in terms of that AI hardware, I think is a tailwind of where the economy or where their growth will be.

The other thing to watch is naturally the election.

That’s kind of the big thing that’s coming up.

If we fast-forward to November and if we look at polling data right now, Trump’s winning by about five points on average.

At this point, four years ago, Biden was winning by nine.

And if history is any indication, once again, any sort of predictor of the future, Republicans in general tend to trail in polls leading up to an election and Republicans tend to outperform the underlying poll.

Now, is it sometimes enough to win?

No, but they outperformed the expectation historically.

So in all likelihood, it looks like this is going to be Trump 2.

0 term come January of 2025.

Not saying that with 100% certainty because it seems like, you know, read any news article, we don’t even know if Biden’s going to make it to November.

But outside of that, let’s just pretend Trump were to win, hypothetically.

He’s been very clear that China, if you thought I was hard on you in 16, you haven’t seen nothing yet.

And so if he were to do that, if he were to be, dare I say, a trade hawk, putting tariffs on these countries.

I think you could see China say, well, screw, we might as well.

We’re not going to invade Taiwan.

We’re going to blockade it.

And the reason we would do that is because NVIDIA, the very company that designs all those AI chips, all those designs are sent to Taiwan Semiconductor, naturally, they’re in Taiwan, to manufacture said chips.

And then those chips get sent to NVIDIA, who sends them to Amazon or whoever the ultimate end buyer is.

Which then puts a company like Intel in a unique position.

Because while they have been incredibly complacent, and companies like NVIDIA, companies like AMD have just dominated them; who has the ability to manufacture chips here in the U.S.?

They’re really the only guy in town.

And they’re a few years out.

And they are a few years out.

And maybe they license NVIDIA tech to do it.

So that’s where they’re in a unique position because most firms like NVIDIA, they’re just a designer.

Taiwan Semiconductor is just a manufacturer.

Intel does both.

So they kind of tried to be everything to everyone, which is where they call it made in air.

But if this world were to come to fruition where it’s increasingly nationalistic, China be China, US be US, Europe be Europe, they’re in a unique position to benefit.

Because they have both abilities.

And with the CHIPS Act that President Biden signed into law, they get hypothetically a 25% tax credit on every dollar that goes to a foundry or a factory that makes these high-end chips.

So they spend $100 billion.

The U.S. gives them a $25 billion tax credit.

So that’s kind of some of the short-term ideas we have.

And I think between now and year-end, I do think the path of least resistance is higher because once again, bringing politics into the standpoint, if you’re a president Biden, do you want to talk about the price of gas?

Do you want to talk about the price of eggs?

But, but look at your 401k, right?

Because the market is in an all-time high.

So if you’re the democratic party, just from purely a strategic standpoint, that is the one stool or one leg of the stool you have to stand on.

If you cut that out, I mean it already doesn’t look good now it looks like an I don’t know what I don’t know what you can run on so to speak, you want like people may talk about like the you know price of insulin, okay well most Americans aren’t even aware of really what you’re talking about but most Americans have 401k that’s why it simply comes down to a lot of times for the election not so some nuanced piece of legislation even if it was good that you passed; Adam drives past the gas station every day he goes to work.

He buys milk, he buys eggs.

Back to business owners, they’re buying stuff every day.

I don’t care if you’re running a repair shop or a manufacturing site, everything is more expensive.

Everything.

Client, at least recently, even in Q1, 15% material price increase on everything in three months. 15%.

You know, kind of catching them off guard right, and so now business owners are having to go back and say because they know I’ve got to review that every week, maybe even every day, depending on what they’re buying.

So, back to your value proposition again; it’s like okay, are you doing the same thing with your 401(k) correct and your management of money right?

It’s uh, unfortunately if you don’t, you’re gonna find a real big problem, yeah.

So, crystal ball next six months, the past resistance is I do believe is higher but kind of talking about that generational issue with debt as well as just the cost of housing in general going forward; it’s a problem and is it a problem tomorrow?

No, is it a problem in 2024?

No, but it’s a problem that’s going to have to be dealt with between now and 2030.

And how it’s dealt with I mean, like using housing for an example right now.

You have a 7.25% mortgage on average.

Historically, 9 out of 10 homes sold in the U.S. were existing homes.

Bob, Kenny, Adam selling their existing home and buying a bigger or smaller one depending on whatever’s going on in life.

The majority of those people who owned a home refinanced in 2020 and 2021, down to like a probably 3% mortgage on average.

Even if mortgages fell to 5%.

You ready to sell your three and buy a five?

Exactly.

We’re both in the same boat.

Exactly.

We’re not going anywhere.

So supply for housing is non-existent.

So, and that’s, like I said, historically, that’s 90% of the supply.

Right.

We just, that, so when supply dramatically goes down, all else equal, the price of that thing goes up.

And if you are one of these younger people, for example, let’s pretend that the Fed begins to cut interest rates and let’s pretend that that makes it out to resulting into a 30-year mortgage dropping from seven and a quarter to five and a quarter.

Once again, it sounds like for the people who have an existing mortgage at three, that’s not enough to get me off the sidelines.

Right.

But I’m willing to bet if you don’t own a home, if you’re owning a rent or rents been going up 10 percent per annum.

I’m ready to play ball.

So even in a call it soft landing scenario where the Fed is able to cut interest rates at a mild pace and not call it upset the economic table, you’re going to see demand come back faster than supply and housing.

And all else equal, when demand is up and supply is not, what does the price of the thing do?

Goes up.

Housing is the biggest issue.

And, you know, it’s like the opposite of 2008.

You know, Alan Greenspan had the famous comment, like, how do we fix this?

And he was like, you need to go burn a third of the homes.

Now it’s like we need to somehow get Lennar, Pulte, and Horton to increase their production 50 percent overnight.

Which is shocking to think about because, I mean, well, there’s a labor shortage.

Correct.

Right.

But even in Central Indiana, the amount of houses being built is still high.

It’s a lot of activity.

It’s still not enough.

That goes back to because those guys have killed it.

Remember, they were only 10% of the supply.

Even if they increase their capacity 50%, they go from 10% to 50%.

It’s not a needle mover.

Even if they were to say double the amount of homes they could build or shorten the time to build a home to half of what it is today, not good enough.

And it’s this problem will only fix itself in terms of affordability until the existing home market wakes back up.

And it seems like, you know, just anecdotally talking to you guys, the only way that market wakes back up is you got to drop interest rates significantly, maybe not all the way to three, but even if you get it from seven to five.

I’m happy with my house.

And we have to have somewhere to go.

I mean, the challenge is physically even, where do I go?

Yeah.

Right?

Without having a $700,000 mortgage type thing.

Right.

So that is the under, dare I say, one of the underlying problems of the economy.

And it’s weird because I’m calling it a problem because your home price is going up.

Sure.

Weird, isn’t it?

Yeah.

But once again, it’s a generational, because for us, I mean, we’re kind of like, yeah, that’s weird, but my house is going up in price, so my mortgage doesn’t go up.

I can’t exercise the value change.

I can only pay the cost difference in insurance and valuation and taxes and all that.

The cost of holding it is higher, 100% it is.

Obviously, the municipalities around us see that.

Yes, they do.

If we increase the appraised value of Adam’s home, what are you going to do?

Are you going to move?

Good luck.

We’ve got you on both sides of the street, buddy.

Yeah, so that is a problem that is going to have to be dealt with.

And how exactly it gets dealt with, I mean, either mortgage rates need to dramatically come down and or home prices need to come down.

And if mortgage rates were to come dramatically down, the only reason they would come down is because interest rates go way down and the only way interest rates go way down is because of a recession.

Yeah, so it doesn’t look good say three years from now.

But I don’t, I mean, we, and this is something we look at every day.

I haven’t identified the catalyst for what kicks off that.

I haven’t found the Lehman Brothers.

Right.

What’s the leading indicator or leading indicators that should be paid attention to?

Because even for the banks, a lot of the rules have changed since ’08, and they have a lot more capital on their books to digest the indigestion.

Is it enough?

You don’t know.

I mean, it’s all just like statistics.

It’s estimating.

So probability-wise, I can say with X percent certainty, but I mean, we don’t really know until reality kicks us in the teeth.

Gotcha.

So that’s short term.

I’m optimistic three to five years out from now.

A wheel will fall off the wagon.

At that point, we’ll look for a good dentist for that.

That’s been extremely insightful.

Helping people understand the state of where we are economically as a country.

Thanks for coming on.

Really appreciate having you.

We’re going to have to have you on again, get another update from you.

Post-election, maybe. Yeah, absolutely.

We’ll talk about the economic outlook at that point.

I’ll say it’ll be the blue team will say it’s all the Republicans’ fault.

The red team will say it’s all the Democrats’ fault.

And God forbid anybody takes accountability in the middle of those two wings gets the shaft.

Right.

Well, I would say as a quick antidote that like people should watch what’s going on in France right now.

So they’re there having elections and what you’re seeing.

And I don’t know if this is a side effect of social media.

But more people are identifying as either extreme right or extreme left.

That moderate, that person in the middle, they’re disappearing. Wow.

And that’s not good.

No, the polarization it creates turbulence.

It does, 100%.

And these aren’t like me speculating.

This is what is coming out in polls.

And I think France right now is a bit of a canary in the coal mine.

What the U.S. and pretty much every other developed economy is right now, because whether you look at social media, that being TikTok, Instagram, whatever media you like, it is it is bifurcating people to-you know, if you are if you don’t vote for Donald Trump, you like to kill babies.

If you don’t vote for Joe Biden, you want to deport children.

Like, it’s it’s they’re making it incredibly emotional and making you out, making out to be us versus them. Right. Which.

That’s not good for anybody, no over time, nope, exactly awesome, thanks Kenny, appreciate you being here.

How can people find you?

Uh, yeah, so I would say our main means is our website, Titan Investment MGMT or management for short dot com.

There we have all our resources as well as we’re kind of revamping that so that our clients have a place to log in, that’ll kind of be our brainchild because that’s where we can kind of control our content and our traffic, so that we can kind of scope the message we want rather than, you know, posting something on LinkedIn that I feel like a lot of times just gets lost in the shuffle.

Yeah.

Perfect.

Awesome.

Thanks again for coming on.

Appreciate having you guys. Thanks.