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Episode 174: Gas Prices, Inflation, Interest Rates and Digital Currency with David Czerniecki

December 16, 2022 2022, David Czerniecki, Podcast, Retirement No comments

Today, we catch up David Czerniecki, Chief Investment Officer for Nassau and get his perspective on the economy. We continue our discussion from last quarter about inflation, interest rates, market volatility, and the supply chain. In addition, we discuss of the current state of the digital currency market.

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Episode Transcript

The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Speaker 1:Today we catch up with David Zicki, chief Investment Officer for Nassau, and get his perspective on the economy. We continue our discussion from last quarter about inflation, interest rates, market volatility, and the supply chain. In addition, we discuss what we can learn from the collapse of digital currencies.

Speaker 1:We also wanna thank our primary sponsor and my employer [00:00:30] by day, NASA Financial Group. We are working harder to be your care of choice. We support you with best-in-class service. We seek to think things simple, and we will have your back in the years to come. We’re headquartered in Hartford, Connecticut with 19 billion in assets under management, and serve over 400,000 policy holders. We’ve been doing this a long time, 170 years, but we remain humble enough to always try to improve. Also, do you wanna get regular updates on news [00:01:00] about guests of our show? Go to that annuity show.com and subscribe to our newsletter. We hope you enjoy the show.

Speaker 2:Welcome to that annuity show, the podcast that will make you an expert in explaining annuities to your clients. Give us 30 minutes each week and we’ll shave hours from your client presentations. [00:01:30] Now, here’s your host, Paul Tyler.

Speaker 1:So David, welcome back and, uh, just for, for people who, who haven’t, uh, heard you before, can you tell people who are you and, uh, what do you do?

Speaker 3:Yep. Uh, Paul, good to, good to be back. Uh, thanks for having me. Um, I am the Chief Investment Officer of nasa. I manage the, I’m responsible for the management of the portfolios, for all of the insurance companies and all of our products and, and our newinand, and and [00:02:00] policy holders.

Speaker 1:Yeah. Well, thank you for joining us today. Appreciate the time and, uh, I guess we are living in some very interesting times. Uh,

Speaker 3:We are indeed

Speaker 1:<laugh>. So I’ve gotta have to follow up on some things we asked, uh, about earlier. And, uh, let, let me start with what’s probably closest to all of us, and that’s gasoline and good news. AR is, gas prices seem to have dropped. I drove up here and I saw gas prices are much lower [00:02:30] along the merit today. Now is this a, is this a good thing or is this a bad thing for the economy?

Speaker 3:Right. Um, I think we have improved in that, in that basis. You know, obviously prices at the pomp are lower. Um, it’s tough to say that we are sort of gonna stay here. Um, there are definitely economic growth implications that are playing through in gas prices. I think you’ve had a number of things play in. You’ve obviously had pretty significant releases from this, uh, strategic p petroleum reserve, [00:03:00] which has affected the market, you know, and that’s an anomaly and it can’t last. So that’s something at some point goes away. That’s thing one. I think think true. You’ve seen some changes in the way opexplaying the market a little bit right now. So that’s thing two. But I do think a factor is the anticipa an actual slowing of the economy in an anticipation of further slowdowns, um, particularly from some of your big manufacturing companies. So the, you know, obviously the war, you know, the deplorable war in, in Russia, Ukraine is still going on, so that’s still affecting [00:03:30] supplies. Um, you’re still gonna have a fairly hefty drain, um, as the colder months settlement in Europe. And, and Europe is not well positioned for this. So that’s gonna put some strain on the system. So unfortunately, I don’t think it’s all good news.

Speaker 1:Oh, no,

Speaker 3:<laugh>.

Speaker 1:Well, you mentioned jobs. Um, mm-hmm. <affirmative>, uh, layoffs in the tech sector made enormous headlines this summer. They, they, they continue to do it. Uh, there have been some layoffs, I know in some manufacturing, uh, [00:04:00] related sec, uh, companies and sectors like you’ve managed to, you’ve mentioned even here, uh, in, in the, in the, uh, new England region. Uh, but job reports are still good. Still see, see good numbers, good, good reports coming out of, uh, you know, some of the, the, uh, governmental units track this stuff. Um, are we at the tail end of something or does it mean that maybe the downturn’s not gonna be as bad, or am I just, uh, guilty of some wishful thinking here?

Speaker 3:[00:04:30] I think that it’s, it’s very early to make a call here. Uh, I certainly don’t think we’re at the height of unemployment. Um, the job market does remain fairly robust in part that’s because of, um, sort of, we still have labor shortages and, and that’s more of a, a, a demographic and long term thing. You know, we are, we’ve had less immigration for quite some time, um, and we’ve had, um, significant return to work in the 24 [00:05:00] to 54 year old age bracket. But in the 55 plus age bracket, you know, we had the great, you know, the great early retirement thing, which has been pretty sticky. So this, this, I’ll talk a little bit more about jobs, but this also gets back to the, what we talked about last time in inflation, there’s still a lot of pressure there and wage inflation goes away very slowly.

Speaker 3:The bottom line, Paul, is, is historically for the fed to sort of break the back of wage inflation, you’re probably looking at quite a bit higher level of unemployment than [00:05:30] you see today. Remember today we’re, you know, sub four in the threes. That’s probably more consistent with the five. So that’s a lot of jobs. Um, and that’s whether or not we hit that level, I don’t know, but I think we’re more likely to go in that direction than where we are. Interestingly, some of what we’ve seen thus far, and you’ve picked up on this in looking at the actual employment numbers versus the news releases, you’re seeing tech sector layoffs, but there’s a couple things that are happening. One is they’re eliminating [00:06:00] positions that didn’t, they hadn’t filled yet. They were on the drawing board, if you will. They were in the budget. So they’ve gotten rid of that. It’s not helpful from a jobs perspective, but, you know, they weren’t positioned. You’ve seen some big companies make some layoffs and you know, Amazon has announced a number of layoffs. Amazon employs a million, you know, a million and a half people, 10,000 jobs. I I, obviously, I feel badly if I’m one of those 10,000 people, but that’s not a big number, you know, relatively speaking. So, um, but you are seeing a little bit of right-sizing going [00:06:30] on there.

Speaker 1:Yeah, thanks. Now, we, we also talked about supply chain, uh, issues. Yep. Uh, you haven’t, <laugh> haven’t given, given us a, a lot of hope that this, the supply chain issues would, would go away. Uh, we saw a lot more disruption in China over the last, uh, six or seven months. And good news is it looks like China has relaxed some of their covid restrictions. Is this gonna help us with some of the supply chain issues? And if it is, how long will it take [00:07:00] for us to see this happen?

Speaker 3:Yeah. Um, I, I think the short answer is we’ve seen a significant amount of improvement here. Um, there are a number of factors that have played into it. China is a major part of that. We’ll touch on that in a second. Some of the supply issues that we faced last year were other structural bottlenecks. If you recall, the images of all the ships lined up, you know, outside the port of, um, uh, San Diego. Well, that’s, stuff is all cleared up. So the system’s working [00:07:30] betters thing one, uh, thing two is that, um, we believe that China has found ways around some of the export and tariff restrictions. So w the US is still getting a lot of goods from China. They’re just coming from someplace else. So they’re manufactured there, they go somewhere, then they get here. So they’re still, you know, so you’re still getting some supply. Uh, you are correct, and I think everyone’s optimistic that the easing of some of the, [00:08:00] uh, covid restrictions will help. But the other, you know, the, the other side of the coin is there is slowing demand. So you’re starting. So that’s part of where the balance is coming from. So we’re seeing improvement. I still think it takes a while. I don’t think new cars are gonna get a lot cheaper real soon.

Speaker 1:Yeah. Well, shifting gears a little bit to very al alternative assets. The Bahamas have been in the news lately. [00:08:30] <laugh>, uh, FTX collapsed. I’m not sure many people in mainstream market knew who FTX was. Uh, what lessons are there, if any, that we could take away from the collapse of, uh, the digital currency market?

Speaker 3:Right. Well, Paul, you know, the old saying, right, you know, history may not repeat itself, but it often rhymes. If something is too good to be true or seems too good to be true, it probably is. Um, you know, we have a situation here where it appears that [00:09:00] there’s just complete and out fraud. And, you know, part of that is, um, you have to do your homework, uh, as an investor, as an institution, I am, I have to say I’m a bit been a bit surprised at the size and scale of some of these institutions that have involved. There are certainly some big personalities that lost money in this that’s more common. Um, they’re, they’re not institutions. They don’t necessarily do the same level of diligence and, you know, big personalities who spend a lot of their time, [00:09:30] you know, being influencers. There’s a, there’s an attraction to the new shiny penny, if you will.

Speaker 3:And so this seemed exciting. So that part’s a little bit, but the fact that so many big institutions, so again, you have to do your homework. And my grandfather used to say, trust, everybody would always cut the cards, right? And I, and I think you, you have to see that, I think you’re seeing it spill over into other parts of, of the, you know, digital currency markets. Um, and I think that it, it’s gonna drive us toward a situation where you’re gonna see more, [00:10:00] um, regulation come through and come through pretty, pretty hard. And I’m, you know, you know, we as an insurance company operate in a fairly heavily regulated environment, so we’re accustomed to it, and not all regulation is bad. Uh, and particularly when you’re talking about exchange type systems, you have to have confidence in those systems. And so I think you’re gonna see more regulation there.

Speaker 1:Yeah, I’m, I’m, I’m sure we will, and we, we saw this before, um, a lot of the central [00:10:30] banks were creating structures for, for regulating the, uh, currency. It’ll be interesting to see what happens, right. Following this. Um, so I’ll put you in the hot seat interest rates. Wow. Have these interest rates driven how we, how we price our products, how we <laugh>, right? How we compete in the market. Where do you think the, what’s gonna happen with rates, do you think, over the next, uh, six months?

Speaker 3:So I think there’s two pieces to this, Paul. The, the first piece is what is the Fed doing with sort of the short term rate? I e are they still raising? And [00:11:00] I think we’re still looking at a few more raises, you know, a few more raises here. They may be smaller. Um, but I think you’re looking at a few more raises. I think in general, we’ve had a, um, we’ve had a bit of a rally in rates in the past, um, you know, few weeks here. Uh, so rates have come off quite a bit, you know, come down quite a bit. But I, I do feel that we probably give some of that back here and we stay at least at that level, if not a little bit higher. [00:11:30] Again, if you look, you know, the, the whole point of raising rates is to combat inflation.

Speaker 3:If you look at where inflation is now, um, you know, we’re still pretty high. Um, and inflation is sticky. If you look at any historical charts of inflationary trends, once it comes, it stays around for a while. The Fed is fully aware of this and, and there is no playbook where it just sort of comes right back down. And so that will require rates to stay up for a while. Again, going back to what we talked about earlier on the [00:12:00] unemployment thing. Um, you know, if, if rates were to come back down a lot, I don’t think you’d see the unemployment level get to where it effectively where the Fed would like it to be. And therefore I think you, you continue to have wage pressure and so inflation sticks around. So I think we’re, we’re in this for a bit.

Speaker 1:Yeah. You, you mentioned rally last time we talked, I think you told us that this was maybe the third time in a hundred years where equities and bonds went down, uh, bond markets recovered [00:12:30] Yep. A bit in November. Do you think this is just a short, is this a rally? Do you think we’re returning to more normal market conditions?

Speaker 3:So normal is an interesting definition here. Um, uh, I think that we have to, this is, we’ve been a, a very highly volatile time period here. And again, these are rate rises, rate increases from the Fed that are historic. We haven’t [00:13:00] seen moves like this, you know, since Volker and, and the rapid pace of driving up rates is, um, again, very much unprecedented. So from that standpoint, we’re nowhere near normal. But you have to keep in mind that we’re coming off a really, really long period of the different kind of abnormal in the low, low zero rate environment. And again, that it, it was also abnormal. So I do think it’s getting a bit more normal. I think we have [00:13:30] a period of volatility yet ahead. Um, a certain amount of volatility is normal and we were accustomed to none. So the market took this pretty hard. But I do think we have a period of, you know, volatility ahead. But I think you’re starting to see it, and it will, as we come through, that look a lot more like the rate market that, you know, over my 30 year plus years I grew up with where, you know, it did move around a bit and, and, and there was some amount of volatility. I think it’s high now. I think it was too low before. [00:14:00] So the pendulum swung from side to side and you know, we’re gonna find the middle here.

Speaker 1:All right. Well David, thanks so much for spending some time with us and, uh, we’ll look forward to, uh, catching up again in, uh, a few months. You’re

Speaker 3:Welcome, Paul. Thank you.

Speaker 2:Thanks for listening. If you’ve enjoyed the show, please rate and recommend us on iTunes, Stitcher, overcast, or wherever you get your podcast. You can also get more information@thatannuityshow.com.

Episode 173: Making In-Plan Annuities a Reality with Michelle Richter and Mark Chamberlain – 2 of 2

December 9, 2022 2022, Mark Chamberlain, Michelle Richter, Podcast, Retirement No comments

Here’s the full text of her discussion:

Heads up to SOA, NAIFA, IRI, any other industry group- mark this moment as the point where contacts you have at these organizations should start listening.

Big bold assertion #1: Non-codification of verb sales in insurance means that intellectual property (inventions) can’t have value in insurance

Why is this true?

Assertion 2. The above-mentioned fact (Ip can’t have value in insurance) is true because of the intersection between how products sell and how trademark law works. I will explain further in a moment.

Assertion 3. IP having value is fundamental to the functioning of capitalism.

Assertion 4. In a demutualized world where insurance manufacturing is now entirely vertically disintegrated from distribution, IP can only come to have value by codifying insurance advisement as a scalable, oversee-able, nationally regulated discipline

So we are proving assertion 1- IP has no value in my domain- by proving assertions 2-4

So let’s start with assertion 2 part 1: how do products sell. To understand this, we need first to define both the word “product” and then the word “sell.” Products are nouns. In the context of insurance and financial services, products are issuable containers, and their distribution is highly regulated. Products are issuable legal contracts within which IP can be embedded, and in exchange for the distribution of which compensation can be paid to an FP in respect of either, but never concurrently, a or b. A is from inside the noun in direct respect to sale thereof (this refers to agency and brokerage) whereas b is charged upon the AUA/AUM there formed following a product’s intro into an advised portfolio (b refers to RIA channel).

Now that we know what product means, we move on to sell. Sell means the exchange of remuneration in direct respect to [x- x is a verb in the RIA channel and it’s a noun in the agent/broker channels]. Wholesalers are people who so routinely sell wholes that we can describe their identity by putting an r at the end of the verb that they routinely perform. (By analogy, runners routinely run, we don’t call someone a runner who once ran across the street) All wholes are nouns. The human mind cannot conceive of a whole verb. So wholesalers sell nouns, and nouns sell when they have wholesalers selling them. Wholesalers work for either a noun manufacturer, or a noun seller. An organization that sells nouns will not switch which noun it has its wholesalers focused on selling unless the new noun is more profitable than is the incumbent noun portfolio. A product concept thus cannot have value, because what is valuable about the product/noun is the seller’s prior investment in manufacturing and/or wholesaling infrastructure., not clever IP that does not have higher profit margins than does the incumbent product set.

Now we define the second half of assertion 2, which is about trademarking. Trademark (the application of which differs for IP protection relative to much easier to defend in court brand/name protection)- in this case I’m talking IP protection- requires that the IP be noun-embeddable, whereas servicemarked requires the IP to be verb embedable. If you google “trademark definition”, when applied to IP defense as opposed to brand defense, you too will become aware that the definition of this word requires the IP owner to be able to either manufacture or to sell (remember what sell means from above!) the noun.

Insurance provides for minimization of liabilities (or contra-assets). Insurance advisor is not a defined term. Financial advisor is defined, and it means person who holds the authority to sell verbs (person who has an RIA affiliation, which means they can sell verbs. RIAs sell verbs only. Agents and brokers sell nouns only.) Financial advisors provide ongoing asset maximization advising and they frequently receive their compensation by advising upon, and thus billing upon, AUM accordingly. This asset max advising is a service. IP embedded in Services, for example, the managed account services provided by Morningstar Inc, are servicemarkable, thus they have been servicemarked, not trademarkable, because they’re verbs (services), not nouns.

Absent codifying insurance advisement so that insurance professionals can also sell verbs, by which i am saying: Absent popularizing a billing approach like benefits under advisement or income under advisement, there can’t be value to intellectual property in our field, because you can’t defend it via servicemark (because there’s no framework for scalably selling services in our domain) and you can’t sell it as a noun because an organization can only monetize a trademark in insurance from previous investment in manufacturing and distribution. an incumbent will only do this if the new product has higher expected profit margins than does its existing portfolio. Not likely in today’s fee conscious environment)

So again, because my prior words are true, Not having a scalable advisement frame for liability reduction means intellectual property that is servicemarked in our field also cannot have value, because it can’t be sold (to sell again means to exchange remuneration in direct respect to x. Non-codification of insurance advisement means we can’t scalably sell verbs in insurance). So concludes my proof of assertion #2, that IP can’t have value in my field.

Assertion 3: The impossibility of IP having value in my field is an offense about which utter outrage is merited. It is a direct affront to the very principles of capitalism. Capitalism as a governing frame relies heavily upon IP being protectable and monetizable so as to encourage invention.

Thus I question: Why is mine the sole field in this country to which capitalism is not permitted to apply, and why are other members of my community not apoplectic about my potentially true words?

Consider the implications that not codifying verb sales in my domain has now that post-SECURE, annuities are permitted in plans. Plan advisors, like all other fiduciaries in America, are inherently taught that asset maximization is the only valid lens through which financial advisement can occur. Yet i believe that consumer financials occur not only on the left side of the consumer balance sheet, but also on their income statement, their statement of net worth, their cash flow statement, and the right side of balance sheet, which is where insurance plays. Plan advisors don’t know annuities and vice versa. Advisers can’t begin to imagine why we insurance people believe our solutions have value, because they are taught to see the world through the lens of asset maximization and are not taught about liability minimization as a valid entry point to a consumer finance worldview.

Annuities in DC will only take off if we band together to fight for their place. Actuaries used to have a role in asset liability matching when we as a society had DB plans. There isn’t a natural spot for an actuary in DC plans because liability consideration is not yet required so as to advise in DC, because DC, which relies on AUM as a billing base, even though ERISA includes the words “Retirement Income” in the acronym, naturally emphasizes asset maximization.

Why not IUA?

The Society of Actuaries, NAIFA and IRI must all strongly consider the possibility that my words might be true, and if they feel they might be, they need to begin acting yesterday.

Representatives of any of these industry organizations, or other industry organizations that can help change what I believe to be the true circumstances that i have just described to you are invited to email me at mrichterfis@gmail.com and request a deck that further explains my perspective and the dangers to both our industry and our society more broadly that follow logically therefrom.

Lastly for this diatribe, I hold that Insurance advisement should be a National field (since it is not about noun placement but about contextual advisement, it is not per se corollated to an individual contract the way some state insurance law allows annuity consulting to occur, thus the field would not make sense to be state regulated) it should be policed similarly to how RIAs are overseen.

To achieve this framework is my career goal.

27 years remain until I begin taking social security at age 70. It thus follows logically that I will not stop truthfully communicating my concerns on these matters for at least 27 more years (unless they’re resolved in less time than that).

Thank you for your patience both in allowing me to read that today, and in helping me along in my communicative journey towards hopefully making this point understandable to at least a few people!