Last updated on May 18, 2023
Kevin Philip of Bel Air Investment Advisors joins the podcast to discuss why he’s still bullish about technology despite seismic changes in that industry, his less enthusiastic take on cryptocurrencies, and other issues he’s watching — be they in the banking sector or geopolitically.
Content Highlights
- Tech is not dreck, nor is it dead. Technological advances are at the heart of US economic growth. Demand for digital goods may have gotten ahead of its skis during Covid. It will return (1:40);
- Chances for an interest cut by year-end have increased with the bank failures (4:30);
- The employment situation is changing in the technology industry as it comes to terms with delicate circumstances around business models and the concept of value in general (6:01);
- The bank failures may create opportunities for venture capital in two areas: secondary funds and a new vintage of funds that should generate outsize returns in the future (9:20);
- Tech stocks have been beaten down, but lower interest rates can sustain earnings multiples. There are risks, however… (11:23);
- Some of the threats and opportunities wrought by Chat GPT and AI (14:11);
- When it comes to cryptocurrencies, the guest is not a major fan — and this was recorded before Binance (18:52);
- Silicon Valley Bank was poorly managed and had a bad business model. It deserved to fail (21:52);
- As for Credit Suisse, the Swiss bank appears to have been undone by a crisis of confidence (23:44);
- Background on the guest (27:50);
- Bel Air’s clientele is mostly about wealth protection rather than growth. What are some tried and true methods for accomplishing this? (32:25);
- China discussion and why there’s no need to invest internationally (34:48);
- Through it all, there are reasons for optimism (43:31).
Not investment advice.
For more information on the guest, visit the Bel Air Investment Advisors website.
Short Highlight Clips From Our YouTube Channel
Transcript
Nathaniel E. Baker 0:35
Kevin Philip of Bel Air Investment Advisors. Thank you so much for joining the contrarian investor podcast today.
Kevin Philip 0:42
Thank you.
Nathaniel E. Baker 0:43
Great to have you. You have a bunch of views that are quite contrarian and that we’re going to talk about. it is an eventful time in markets. We have the regional bank issue going on as we speak, we’re not entirely sure if those are in the clear yet. It’s already taken out two of them actually three if you count, the first one there. In California
Kevin Philip 1:07
San Diego, they had crypto exposure.
Nathaniel E. Baker 1:09
Yeah, they all start with the letter S. So yes, but anyway. But to kick off here, I wanted to start with your most contrarian take, which is that tech is not dead. Tech is not dreck. And this is obviously a riskier part of the market,. There are some concerns about the exposure there to the regional banks, maybe tech companies use them, and to what extent their deposits might be guaranteed. There’s that and more generally, just the rotation from tech into value, which has gotten a little bit of ink here. So that’s where we’re at. But you still like tech, so tell me why
Kevin Philip 1:51
I like tech, generally, we’re not going to overload it into, you know, at the current levels, it has a lot to do with interest rate outlooks, and how multiples are are calculated and earnings projections. But I think historically, when you look at the strength of the American economy, there is there there is no economy, like our economy that innovates better. And tech is the heart of our innovation. Even when you get into non tech sectors, whether it’s energy, or banking, even those sectors have benefited from the advance the advancement in the in the technological arena. So I think that will resurface I think it got ahead of itself, driven by the accelerated tech economy of COVID. And work from home and the swelling of, of what of the demand for digital goods and services as we’re all stuck in our houses. And I think we’re seeing a correction on that. And we’re also seeing a correction based on the relationship between the growth sectors and interest rates as interest rates have been raised so aggressively here.
Nathaniel E. Baker 3:02
Yeah. And you you raise interest rates there, if you’ll forgive the pun, what and we just had the Fed yesterday, come in and basically say there’s not going to be any cuts this year, unless the data changes. So what is your your view for interest rates? The rest of the year?
Kevin Philip 3:16
I am one of those. Maybe it is contrarian to actually believe the Fed? It seems to be it seems to be the norm to bash the Fed. And the Fed is comprised of some of the smartest leading thinkers we have, I don’t I don’t inherently believe in some sort of a kind of conspiracy theory that they’re biased in some way or following an agenda of some sort. I think the Fed has largely been de politicized recently. I’m not sure if they ever were, nevertheless, they still get a lot of PR bashing and pressure. And, you know, to the extent that affects them, but the Fed has basically said they’re going to be data dependent. And they’re gonna focus on their goals of price stability, full employment. And I think it’s possible yet one more hike of 25 basis points. I think, given what we’ve been seeing in the banking world, these bank failures, I think the chances have risen that we see a Fed cut before year end, if not very early next year. It does concern me And largely, and I think you and I are kind of a similar age. I think we’re the same age demographic. I’m hearing a lot of a lot of stories of layoffs of folks in the kind of late 30s to early 50s. Demographic, typically highly compensated, upper middle management, lower upper middle, lower upper management. And I think that’ll catch up to us at some point as an economy. And if it does, we’ll see enough of a slowdown, and we’ll see enough of a release of wage inflation, which is the primary driver of inflation, that the Fed will be encouraged to cut rates sooner rather than later.
Nathaniel E. Baker 4:57
You’re based there out out in Southern California. Not Northern California. But do you see a lot of that type of action in terms of the layoffs going on in the tech scene?
Kevin Philip 5:09
I was raised in Northern California, outside of Silicon Valley. I’ve lived in Southern California for the last 20 years. And I also have, I also lived in New York as well. So I kind of have a good mix of those, those types of arenas, and I was just sitting with, I went to Stanford University, I experienced the first dot-com, while in college. A few startups that didn’t go anywhere. So I’ve seen some of this show before, which will, which informs my view of what happened in Silicon Valley Bank a bit, which we’ve been talking about later. But I am seeing a very much a change in the employment situation within the tech arena. And, and a little bit of what, how do I say this? Maybe self evaluation recentering of that tech sector itself, and and what it means what they’re trying to provide to society, the economy, how they think about themselves, you know, how they, how they approach business, etc.
Nathaniel E. Baker 6:09
Talk to me some more about that. I mean, what exactly how is that manifesting itself?
Kevin Philip 6:13
Well, you’ve had kind of a delicate circumstance, but you have you have a lot of second guessing about business models, you know, what, what is the what good is certain services providing to our society as a whole? How do they make money? What filters should or shouldn’t be on different services, networks products? There’s very much I think, a race to figure that out the entrance of, of, of AI, example, chat, GPC. Very interesting. Bill Gates is on the record, saying it’s one of the most incredible developments in the last, I’m not sure what timeframe gave exactly the last decade plus. So there’s gonna be a lot of interesting developments, I think driven around that whole ecosystem. And it comes into why I think to a degree, there was the viewpoint that not killing the heart of venture capital by by damaging deposit bases at Silicon Valley Bank probably was determined to be a good idea.
Nathaniel E. Baker 7:19
But do you think the VC model itself is in any kind of threat, and there was a lot of talk about that, right after SVB went under? About how, you know, this, this whole idea of these, these venture firms and how they wouldn’t have any money or whatever? Um, have you seen that at all, or not so much?
Kevin Philip 7:38
Well, I think it would have been the reality. Yeah, if they, if they either had their funds frozen and couldn’t make payroll, right, if they lost 20 to 30% of their deposits above the insured limits, which, you know, it does surprise me that the basics of banking and safety of deposits and insurance levels has kind of evaporated. When we only had a series of bank failures. 15 years ago, it seems like those lessons were a little forgotten. There is talk that Silicon Valley Bank required those types of deposits for certain relationships. I don’t know what that what extent that was true. There was a disturbing article about how Silicon Valley Bank did double its loan exposure to one particular group, which was their own insiders. And there is a lot of cross breeding within Silicon Valley of mutual board members sitting on each other’s companies. So it creates this kind of on the one hand, it creates an echo chamber success, you could argue because you’re they’re incentivized to help each other’s companies grow. But it could also create probably some unhealthy biases as well. And there probably should be heightened scrutiny about independent board members and and exactly those interlining interests, especially when it comes to lending and underwriting.
Nathaniel E. Baker 8:56
Yeah, although that’s not unique to Silicon Valley. I’m pretty sure like, if you look at Wall Street, you know,
Kevin Philip 9:01
that’s fair. So yeah, I just think that when you’re talking about venture firms that are so small, sure. The growth effect is much larger, it’s hard to have as much influence on the success of a company when it’s huge, like an energy company or a finding financial.
Nathaniel E. Baker 9:20
Do you think any of this might have hindered has hindered VCs fundraising efforts? Because a lot of that will drive obviously, this innovation, right, if they don’t have money to fund it, and who does? I guess something, though?
Kevin Philip 9:32
I think it’s going to actually create opportunity in two areas. I think the what’s called the secondary market where there’s locked up in a secondary funds go and buy out limited partnership interests in funds before the before the the the LP is otherwise going to receive capital. So I think the timeline on returns or liquidity events has definitely been extended. The question of whether you make money on those or not has been tightened. But in the meantime, secondary funds will sweep in this happened in Oh 809. And they’ll basically buy those interests for cents on the dollar if someone needs their money or somebody needs to rebalance, or an endowment needs to distribute something. So I think creates an opportunity for investors that actually invest in secondary funds. That’s one of the things we’re looking at heavily. Okay. And then secondly, for new money to go into the venture space, because I think I think this is in a way a healthy calling. I think business models will become more rational. I think definitely, there was a bubble in venture and late stage growth, private equity. And that bubble is burst. And sometimes the best vintage years for getting started with an investment are the years after they they burst.
Nathaniel E. Baker 10:50
Yeah, no question. No question. But as far as what we’re looking at now, in the tech space, none of this concerns you as far as the immediate future of publicly traded tech stocks.
Kevin Philip 11:01
So I think publicly traded tech stocks have been heavily beaten to a pulp. Yeah. And now that we see kind of green shoots of rate cuts, the primary driver, there’s two primary drivers of pricing stocks right there, the P E multiple, and which which is informed by what what should the P multiple be in the current interest rate environment we’re in? And second, what are the earnings going to be? So the P E multiple itself had to contract with a higher interest rate environment. Now that we see kind of the end of the road potentially, and lower interest rates, it actually gives support to sustaining multiples, where they’re at roughly 17 times projected earnings. And if you have a lower interest rate, the lower the interest rates are, the higher the multiple can be. So it gives rise to potential multiple expansion, which is means the stock market goes up the second part on earnings? You know, I think that is kind of the big question mark right now. And the consumers never pays well to bet against the American consumer. But there are a lot of metrics that give me greater concern than usual. Credit card debt, increasing costs and car loans 30% Plus, supply constrained housing still, education costs still. So at some point, at some point, I’m a little concerned that the consumers get to show some signs of weakness, there’s been an I can’t recall who who came out it was not made, he came up with this idea that the wily coyote kind of analogy, where you know, all of a sudden, we realized there’s no ground underneath us, I’m a little concerned that that the chance of that happening has heightened. And then the Fed will have to course correct rather quickly. So anyway, if we find us in a wily coyote moment, earnings could potentially collapse. The projected earnings next year in the s&p is roughly 240, in 2024, and I think there’s good news and bad news. So that I think, generally speaking, that 240, whether we hit it in 24, or we hit it in 25, we’re going to hit that number at some point within the next, within within these next two years. And the stock market trades 1218 months in advance of those earnings. So with a multiple of 17 times, that puts us at 4000 on the s&p, the bad news is I can’t quite pencil out a whole lot of upside within the broad market. You know, individual stocks are a different story. But the good news is, if we do have a blip, where it takes us down because of a scare of some sort, I think we get back to 4000 in relatively short order, simply based off of relatively attainable earnings on the s&p either and 2425.
Nathaniel E. Baker 13:48
Interesting. So you talk about growth and tech, are there any without mentioning individual companies? Are there any particular areas of tech? And I’m talking on the early stage side? Not not public companies, but like, early areas mentioned? Chat, AI chat, GBT? Um, is there anything else that’s particularly exciting to you that you’re watching? Or that the VC community you talk to is watching?
Kevin Philip 14:13
So there’s the, forgive me if I say there are a lot. There’s a lot, let’s just start with kind of a chat GPT and kind of think about brainstorming about what that can do. And it can be a little threatening to certain occupations, but what can I do? A could help with marketing materials, talking to a web developer the other day, who is a web developer slash marketing firm, and he was tasked with creating a website for a Dental Group, a high end Dental Group out in New York. He doesn’t know anything about dentistry, and he could get the clients on the phone and talk to him about exactly what a procedure is or isn’t but instead, he’s a very technologically savvy person. Use chat GBT to basically create the copy or the entire website and then had it reviewed and corrected by the actual dentists who said, Wow, this is pretty, really pretty good. So you have the ability of just kind of basic marketing being overwritten by chat GPT you have potentially art history, animation, graphics, logos, all those types of things that if you’ve played with the visual equivalent of Chachi, btw, I’d encourage you to do that. It’s fascinating. You know, you put a couple of keywords in Caravaggio, bird, three, woman, tunic, and then it kind of just put puts it all together, you could say colors, and then you can tweak it, it’s quite interesting. So I think you’re gonna have a whole genre of companies around this technology that actually increases productivity, potentially threatens jobs, but accelerates kind of a whole lot of kind of do it yourself. Category categories, in a way, that’s pretty efficient. Defense, cybersecurity, Blockchain, all categories that are going to be very important. I think quantum computing is something that we don’t talk about enough and will become a reality here in the next handful of years, which changes a lot of things changes a lot of our security protocols, which we’re gonna have to handle. We’re gonna the blockchain even, even though I’m not a believer in crypto, and we talked about it. But But blockchain as a faster transaction validator is is, I think, very valuable. I still think it needs to exist in a closed architecture. That’s less subject to hacking, especially when quantum computing comes into play. But I think it’s a very viable transaction validation. I think crypto or total crypto or token currencies, however you want to call it might play a role in certain ecosystems that get created in web three, oh, Metaverse kind of examples, and I think we can you know, the way I describe it to friends, family clients, you know, it’s, it’s, it’s a digital mall experience, you know, if you’re, if you’re living somewhere and I want to, I don’t want to pick a particular geography if you’re living in a distant geography, and you want to take a walk on Rodeo Drive, or Madison Avenue, and you put on a headset, and you can walk around and you want to join a friend that’s in a different state, and they’re walking next to you and you’re both in your own avatars, you your body looks the way your body wants to look online, you’re wearing certain clothes that are branded, that are, you know, an NF t that you purchased from whichever brand you love. And you have your favorite pair of sneakers on. And maybe there’s a real world equivalent that you get that you buy also. And you can do an add on with it with an NFT. And you go into your brand of choice store and yeah, you pick up an item online, it gets you know, you buy it in the metaverse, and it gets shipped to you in your home. And it’s a shopping experience. And I think there’s going to be real value. And I even though it’s not going to be for everybody, you don’t need everybody to make an ecosystem, you probably need 20 30 million to get to get critical mass.
Nathaniel E. Baker 18:16
Interesting. So yeah, Kryptos the, what do you make of the run up? We’ve seen in Kryptos, they seem to be indestructible. You know, they had the brush with death last last fall. And now again, you would you would figure that this event with the banks, this would be something that would lead to crypto dropping, but it’s rallied?
Kevin Philip 18:35
Well, I mean, I would say for the most part other than Bitcoin and ether, a huge majority of what we saw of crypto and tokens have been trashed. Okay, and haven’t been, which is, yeah, so those. So I think that that was a speculative bubble that needed to be burst. Yeah. Whether there’s a role for Bitcoin or ether, the fact that certain ecosystems are being built around ether, and there’s certain smart contracts that can be triggered with that fine, whether they have their own intrinsic value versus being pegged to the dollar, I think it’s more likely to be pegged to the dollar, or there’s some sort of crypto US dollar created, which makes more sense to me. And I get bashed by crypto addicts, I love that when I say stuff like that, but it’s just it’s just the point of, of a currency is stability, and the belief that is going to be there tomorrow. And I don’t think there’s any intrinsic value to to Bitcoin or ether, unless they’re backed by an ecosystem that rewards you for owning them or having them or transacting in them. Yeah,
Nathaniel E. Baker 19:47
yeah. Fair enough. All right. Our last question before we go to break with Silicon Valley Bank. So what do you make of that? What and how endemic is that in the broader banking system? Jay Powell yesterday? Yes. He said he doesn’t think it is. But what what? Yeah. What was your take on that? And how prevalent is
Kevin Philip 20:07
this? I alluded to this just an early on, when I mentioned I went through.com 1.0. In hindsight, which is always 2020, it feels like they didn’t learn the lesson of the late 90s, where they were very focused on a single sector on servicing a single sector, there were adamantly no to you as a borrower or client if you were not in the tech world, and preferably a founder. So they serve as a single sector that went through a massive valuation pummeling with the fastest rate increases in modern history. And so you had cash burn, valuation declines and extended illiquidity, the trifecta, and in hindsight, it makes perfect sense that a sector specific bank fails under those conditions. I think the bigger question is, yeah, that clearly seems to be some indication that that was coming. And based on their balance sheet exposure, and and you know, the Feds going to do their own research their own investigation, it’ll be curious to see what they find. But at the end of the day, it seems that it was a poorly managed bank with a too narrow of a business model. And it’s not the Feds job to save bad banks. They took it upon themselves to save the depositors. But you the bad bank, that banks generally deserve to fail.
Nathaniel E. Baker 21:39
Yeah. So why did other banks get taken down with them? I mean, was Signature Bank in New York was at the same issue where they were just focused, I kind of maybe I don’t know,
Kevin Philip 21:48
Signature Bank had, they had different issues. And I think it was more related to real estate and commercial property exposure. But at the end of the day, both these banks had similar problems when it came to the duration of their portfolios and the hit they took on the bond portfolios, particularly, as these instrument interest rates rise. So if you buy a 20 year bond, that’s a 20 year duration for every 1%. And in for every one point of duration, you have that amount of decline when interest rates go up 1%. So if interest rates go up, 1% and 20, your bond is a 20% decline of market value. So we’ve had hikes of almost 500 basis points. So tremendous decline, they don’t have to mark those to market unless they’re forced to sell them. And so I think both banks mismanage their duration risk and their liquidity.
Nathaniel E. Baker 22:48
Okay. All right. What about Credit Suisse? Any idea what’s going on? What happened there? Because the right they never really told us today. It was just like they were racing against the clock next, you know, it’s gone.
Kevin Philip 22:57
Right? Fascinating. And you compare to you, us UBS. Credit Suisse did not take bailout money in? Oh, 809. Right. So they survived. They they got through without taking bailout money. Credit Suisse has been going through a number of issues over the last years with with there have been certain scandals about their senior management with fighting with each other and some very interesting stories around that. My understanding is that they had a crisis of confidence driven by a large client base outside of Switzerland. And that combined with their underlying exposures, put them in, in a death spiral. Yeah. And and the the consequent and it’s and it’s worth it, you know, with Credit Suisse, it’s systemically important. There’s, there’s exposures across the international banking sector, to other to the city, they’re the second largest bank, the first one being UBS so, so if they went down, they might pull down the first largest bank. Switzerland is known for its banking and its stability to finance. It was kind of a national identity crisis. Yeah. So I think that’s why between the systemic importance of CSFB and the national identity that was involved, action had to be taken really badly.
Nathaniel E. Baker 24:19
Yeah. Really quickly. Yeah, I mean, in one weekend, which, interestingly was a couple days after they said that there was no systemic risk, but whatever. Yeah, you’re now repeating again, but so we’ll see anyway, Kevin Philip at Bellaire Investment Advisors. This is a very interesting conversation. I want to take a short break, come back, ask you more about your background. I want to talk a little bit about China and some other things that we will first take a break unless you are a premium subscriber and then you do not get the break. Don’t touch the dial. Don’t go anywhere. We’ll be right back. In fact, we already are.
Okay, welcome back everybody. Here with Kevin Philip Bel Air Investment Advisors. As the name suggests, based out there in Southern California, you, yourself mentioned that a top you are from Northern California. This is the segment of the show where we try to get to know our guests a little bit better. And hear about his or her background, professional background or brand or personal and how he or she came to this station in life. So take it, take it away. Tell us about that. And yeah, how things transpired to get you where you are now.
Kevin Philip 26:02
All right. I was first exposed to finance. Because I was good at building computers. I was hired by a team out of Morgan Stanley Dean Witter at the time, Cisco, two amazing women. Karen von Hagen, Jeanette Harris. And that became a job for me through high school and college. And I segwayed from helping them build computers and to tutoring their clients about how to access stuff online then to helping them develop their marketing slides and, and they were my first mentors in finance. I went to Stanford University, I studied international relations I had, I continued with my interest in finance, I also had an interest in the diplomatic corps, and certain aspects of government. And I explored both, I went most summers I was working with Morgan Stanley, then one summer I worked in the US Embassy in Berlin, in a classified section to see what that was about. And enjoy both those experiences and, and came back to Stanford and settled on finance. And I met the folks at the firm I’m with now 20 years. So over 20 years later, Baylor investment advisors, it was the largest team at Goldman in, in 97, when they left and they founded Bellaire to exclusively service the needs of the investment needs of high net worth families and their foundations. So I met them and started with Bel Air, actually, before my college graduation, and as an analyst, and then typically you’re there for two or three years and and then you move on and they asked me to stay and I became one of the youngest advisors and and got to know existing clients met new clients, and then became one of their partners. And and we oversee about 9 billion for about 300 families. And I live mostly in LA with my husband and my dog, and or our dog. And we also have a place in New York as well.
Nathaniel E. Baker 28:03
Very cool. Really interesting. What is there anything particularly unique about the clientele there? I mean, imagine they aren’t from financial backgrounds, per se, out in LA, like they will be in New York or Connecticut.
Kevin Philip 28:17
So actually, you know, la gets overlooked a lot for the finance exposure, for example, Capital Group, a titan in the industry was started in LA Pimco, to start in LA or Newport Trust Company of the West ECW. That’s an LA based institution and in capital. Yeah, and, you know, so there’s definitely a strong presence double line, which is why a lot of sportsmen out, you know, oak tree, there’s lots of lots of great spin outs, and success stories. So, in terms of who our clients are, they tend to be and the classifications have changed or evolved, as I think people have in a way, we used to say there are about 60% of our clients are entrepreneurs who founded companies that generate tremendous cash flow, or sold them or taking them public. Then there’s about 30 ish percent 20 to 30% that are the biggest names in the entertainment industry, we can’t really talk about and, and then the balance is high profile folks, or or not high profile folks that are dynastic kind of wealth that found us and we work with them. And you know, I say that’s kind of the old way used, we used to describe it, because I think today there’s been a definite merge of any of our entertainment. Clients are also entrepreneurs. And they’ve been tremendously successful at learning that field of that angle of the business of their brand of branding and cross branding and developing products around the world. Denny’s in their brand has been amazing to watch and see.
Nathaniel E. Baker 30:03
Very interesting with that type of clientele. I imagine it’s more about wealth protection than growing capital. And what is that? I mean, that was what does one do with that I’ve always been kind of other than buy treasuries, like, how do you, you know, how do you lock in? How do you protect that? And even then we’ve seen what the Treasury markets done this last year. So
Kevin Philip 30:21
yeah, so the unique thing about velours, every client is treated, singularly, there’s no black box model we follow, we get to know all the circumstances, we’re extremely adept at tax and estate planning. We don’t practice either field, but we know we know a lot about them. We work with the other advisors, or the other lawyers and the accountants or the business managers in those spaces. And, you know, we are definitely the singles and doubles kind of investment people, the prudent people, we’re not swinging for the fences, we’d rather under promise and over deliver. It’s, it’s, it’s the tortoise and the hare kind of story. You know, and if a client finds us and has that different mentality that they’re swinging for the fences, we it’s usually not a fit either out of the gate, or for very long. It’s just if we get you know, if that evolves that way, we just, you know, if you’re willing to try and make if you’re trying to make 30 40% a year, that means you got to be willing to lose 30 or 40% a year, and that’s just not our style. Yeah. So you asked, How do you do that? How do you preserve that? Part of it is stay vanilla, make sure you know, do things you understand. Avoid leverage, avoid binary outcomes, avoid blow ups, stay private, stay disciplined, get comfortable with the process, have confidence in the process. Don’t panic. You know, the whole Warren Buffett saying because he was fearful, fearful and others are greedy? Yeah.
Nathaniel E. Baker 31:51
Interesting. Cool. Very cool. You talk to the top of the show a little bit about, you know, betting against the American consumer and American ingenuity. And then you mentioned working in the diplomatic corps and Germany, and we have China, of course, I realize he’s desperate issues, right. But um, right now, today, we had testimony in DC, the CEO of Tiktok, saying that no, no way that Tiktok has access to any client information. Whatever, that’s what he’ll say. He says we’re leave that alone for now. But what do you make of this? And China has been such a big part of emerging market portfolios and such a big part of the growth there for the last 2030 years? And so yeah, where do you what do you make of that? And what do you make of investing internationally? Obviously, it all kind of is a plan, the US consumer, a lot of it, but not all of it. So what do you what do you make of that?
Kevin Philip 32:49
So there is a a segment a large segment of investment researchers that say you should wait your portfolio, according to the market weight of the global economy. Baelor has never been a believer of that. Our client base are pretty much all US based all dollar denominated, they aren’t in dollars they spent in dollars in from a from a point of view of accounting principles, avoiding corrupt, corruption, stability of governments stability of currency, that all causes us to overweight, US exposure. China has been a big economic success story for as you said, 20 years, it did have a little bit of a wind at his back, because it was coming from a very small kind of economy and the reverse of law of large numbers. You know, like I mentioned before, it’s easier to grow when you’re small, they’re now no longer small. So it’s gonna be harder to maintain those accelerated growth rates. So I think from just a return perspective, you kind of have to meter down your return expectations of what it was and what it will be based on simply that, you know, setting aside different opinions, you know, the differences of accounting principles and or whether there is or isn’t corruption, I don’t know any differently in the United States setting those two things aside, we now have to kind of ask ourselves as, as US investors, you know, this, this new kind of adversarial circumstance that has arisen between our countries, even though I think all of our populations want nothing but peace and prosperity and, you know, sing Kumbaya, you know, unfortunately, it feels like we’re getting pulled back in almost the, the world we were in before the Berlin Wall fell. And we’re going to have kind of two competing political ideologies in the world. And so if we’re going to have this kind of antagonistic circumstance that could potentially manifest in hopefully not direct military experiences but maybe periphery like we’re kind of having with Ukraine, we have to ask ourselves if we want to fund investment and innovation in an adversarial country.
Nathaniel E. Baker 35:12
Yeah, fair enough. Yeah. What do you make of this new reproach mom between she and Putin that we saw just this week here. And these countries have traditionally been rivals. And somebody, a Russian friend of mine, once upon a time told me that when he was a kid, at some point, he was telling me how his grandparents were preparing for war between China and this was in the Soviet Union. So this is, it’s a little unusual for this to be happening. Is this all kinds of smoke and mirrors to show off to show off to the US? Or is there something genuine there? realized? I
Kevin Philip 35:45
don’t think it’s, but go ahead. Yeah, yeah, no, I don’t think it’s smoke mirrors. I think it’s there’s genuine, I’m curious what your friend says about about war between China, Russia back, back in the days, the Soviet Union and China, they did have competing ideas of what constitute the most pure Marxist philosophy. So they did kind of have this, this kind of drum beating going on. And sometimes to rally your domestic population and keep them focused off how you’re doing as a government, they might rally your attention against a foreign adversary, and Russia and China do share a very long border with each other. So I’m not sure that technically, you know, they might have had some territorial flare ups or intentions going on. But generally speaking today, it makes sense that we’re different, for different reasons. And maybe there’s some shared reasons, they would prefer a world not dominated by the US, basically, you know, since the fall of the Soviet Union. And China was such a small economy, it’s been a hegemony with the US leading the way. Since since basically 1989. And a few different parties in the world are kind of done with that model. And they’d like to see that change. I don’t think China wants disorder, but they don’t want a US only order. And then, you know, Putin, I’m not sure he hasn’t a specific order in mind. Other than, you know, maybe through chaos, he, you know, brute strength, he seems to have this philosophy, which, you know, he practiced in Syria, it’s easy to rule a country when there are fewer people in it. So, you know, send them off war constructions, and, you know, bomb the heck out of them. And ruin empty country, it feels a little bit like, but I think their, their, their alliance is real, it’s concerning. It’s a change of the geopolitical arena in the world. Russia does not play a huge role, you know, as a percentage wise, financially in the markets. But they sure can cause a lot of trouble.
Nathaniel E. Baker 37:54
Yeah, so then what does one do as an investment in de risk are prepared or keep an eye on it? And?
Kevin Philip 38:00
Well, I mean, yeah, if the world’s gonna be a little bit more chaotic, it’s gonna be more confrontational. And you don’t have you know, it means you need more, you need more investments in Security, Defense. And you need to be less exposed to geographies that could be pummeled by those circumstances. So you know, without getting in, you know, or at the very least, you just stay out of those, you know, you focus more than just the US consumer, maybe in Western Europe, what they offer, which is, you know, there are interesting, there are great companies out of, you know, Western Europe, UK, Japan, South Korea, Australia, that that provide goods and services that we Americans love and that people all around the world love. So there’s plenty of opportunity to find investments. There’s Africa, there’s, there’s a rising opportunity in Africa, you know, some are aligning more with quote unquote, the other side and some are more towards us see, there’s opportunity there opportunities everywhere, it’s just a question of what you feel comfortable with.
Nathaniel E. Baker 39:11
Yeah, any thoughts on Taiwan? We’ve had people on the show and they said that look, China would love to invade Taiwan, but I can’t because we’ll cut off their oil shipments there in the Middle East and with with our Navy, and that’ll be the end of that. Any any thoughts on that?
Kevin Philip 39:27
I have a lot of thoughts but I don’t have any answers. You know, it’s it’s it’s really complicated and I you know, there’s there’s a saying in, in international relations and when you look at international security that domestic politics, trumps everything. I don’t mean to use that. I don’t mean to use the Trump’s word, anything sort of fun. I just mean message. So I think sometimes what seems to be reasonable and rational from like an internet national perspective gets totally overruled because of its domestic politics, political need. So, you know if she ever feels threatened to what his his what seems to be a life rain for him, and he needs to rally the troops and wave the flag. And he needs to do that by being more aggressive with Taiwan, he’ll probably be more aggressive with Taiwan. And, you know, the American people are, they get pretty war weary. And I think everybody knows that. That’s no secret. And he knows that. So I worry a lot about Taiwan. And I think this this, this, the Ukraine, there’s circumstances in Ukraine, and everyone’s comparing to it. And there’s definitely comparisons to be made. And I think what we’re trying to demonstrate is the best way that we can be prepared for that is to help people defend themselves. Because the American people will get weary of doing it for them and losing lives for distant lands.
Nathaniel E. Baker 40:58
We’ve seen that several times, haven’t we? Yeah. All right. Not a very great, great way of closing here.
Kevin Philip 41:04
Well, we should, we should end on an upbeat note, because I
Nathaniel E. Baker 41:09
Yes please
Kevin Philip 41:10
what we’ve seen here is we’ve come out of an unprecedented period of the global economy who would ever imagine that, you know, we’d have the world shut down, stuck in our homes, interest rates go to zero for as long as they were. And here we are now kind of maybe a year ish, emerging into normalcy. The Fed has apparently has gotten monetary policy much more towards normal. You can argue they broken things, but I don’t really think they broken anything fundamental. They have more tools in their belt to fight a crisis. If it arises, you have kind of a split Congress, that means stagnation, which, you know, the market, the rule, the market likes stability of rules. If it knows what the rules are going to be, it can plan around it, whatever the policy is. So because of the fragmented Congress, we’re probably going to have stability of rules. We have a monetary policy that’s closer to normal. We got to get our fiscal got, we got to have an idea of what we want to do fiscally as a country, but that probably we won’t change much with the Congress. So I think going forward here, we’ve gotten pretty far out of this crisis. And we can look forward to a growing stable US economy that surfaces here in the next six to 12 months without going what feels like from crisis to crisis to crisis.
Nathaniel E. Baker 42:35
That is indeed very optimistic. Kevin Phillip, thank you for that. Maybe in closing, you tell our listeners how they can find out more about you more about Bellaire Investment Advisors. I don’t know if you’re active on the social media.
Kevin Philip 42:48
The best way is I’m not terribly active on social media. But our website is www dot Bellaire BL Ayar hyphen llc.com. All of our BIOS and team is there and contact information contact information is there. And thanks for having me today.
Nathaniel E. Baker 43:07
Yes, nice coming on. Very interesting conversation. Thank you all for listening. Thanks to Kevin for making himself available. And we look forward to speaking to you again next time. See you then. Bye.