Avoid Crisis

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Reynaldo Arellano: [00:00:00] All right. Hello there and welcome back to another great episode of Avoid Crisis podcast. Wow. Already we're on episode six and we are sticking with our discipline. Alan. You are not in the United States right now, so where are you?

Allen Plyler: [00:00:20] Well, I'm actually in Argentina in the middle of Patagonia. And, you know, the great thing about that is that we're still able to overcome all the technical challenges and we've been technically challenged through episodes one five. And I think that, you know, just how long it took to get things squared away Today, we're still technically challenged, but I think the big technical challenge isn't even a technical challenge anymore. It's really about, you know, making sure that we're here for the podcast, giving our listeners what they want to hear, how do they avoid crisis? I'm in the middle of Argentina, and it's been pretty interesting just to see their battle against inflation as an example. But I don't think that we really want to get too far into the whole worldwide inflation piece when we have so much to talk about today about what's actually happening. I mean, today we had the CPI, I think there was some news on First Republic came out this week. I think last week you talked about how you wanted to maybe talk a little bit about the hypothetical CFO and the start up. And you know, we also have a few more weeks before the Fed makes another call on interest rates. So where do you want to start today?

Reynaldo Arellano: [00:01:31] Yeah. Let's start local. Let's finish up our one of our favorite topics. First Republic. I think the suspending that preferred dividend. Um, you know, I think it's also indicative of the entire financial sector right now. I think there's been a fundamental shift in the revenue and the business operating model of banks and financial institutions. The days where you could go after high net worth people and they'd park hundreds of thousands or millions of dollars at your bank is I think those are over. I think people are spreading it around and it's going to affect the model and the earnings of banks. And I think in some way the market is saying we don't know how to value these companies anymore properly. We need to see how these things operate in the coming quarters and years.

Allen Plyler: [00:02:23] So when you say about not knowing how to value the companies, are you talking about the banks specifically? What are you talking about? Their underlying investors.

Reynaldo Arellano: [00:02:31] Invest the.

Allen Plyler: [00:02:32] Market. The market? Okay.

Reynaldo Arellano: [00:02:33] Market cap? Sure. Yeah.

Allen Plyler: [00:02:35] Yeah. I mean, certainly the banking crisis that is going on has had a couple of different impacts. I would say that one is almost to the point of the model for banks, which has always been you must earn enough from your investments to meet all your operating costs and salaries and have something left over for profit. Right. And what has happened now is that there's a bigger challenge about the investments and there's also a challenge in that. To the point of people moving their money elsewhere. That means less deposits to work with with the bank. We talked about last week, we were talking about the deposits aren't just leaving the local banks and the regional banks here. They're also leaving large banks. Do you have, by the way, any idea of how many banks there are in the United States?

Reynaldo Arellano: [00:03:29] Last I heard, it was 3000 some odd say 3500, a little over.

Allen Plyler: [00:03:33] 4000 right now. And this goes back to the debate between Hamilton and Jefferson, You know. Hamilton was very much thinking that there should be a central bank and there should really be a part of the Treasury. And Jefferson was like, no, I think that getting a lot of the lending at the local level is much better. And so, you know, he wanted to see more lending happening in the local areas and that's why he favored a lot more banks. So right now we have, you know, over 4000 and you raised this question last week. You said, do we have too many banks? And so let's just go ahead and take the dovetail here and say, what about First Republic? What does it mean whenever they take a preferred dividend and say, we're not going to pay it and certainly one that they have paid in the past. So those investors of that preferred are thinking, hey, don't I get a dividend? And now they're being told no. So I've seen different responses. I've seen everything from, hey, maybe this means the first republic is the next shoe to drop to. Maybe they're their market is their market trading level is going to be somewhere between 5 and 8. You know, this is whenever it's been a lot closer to 13, 14. So now that means that they think that they must be strapped for cash. They don't know where the next dollar is coming from. They can't pay dividends and they're really in a position where they can't be sold. So what's the solution for a First Republic Bank? As an example, is a regional bank. And what's your view on this? Stay of the preferred dividend. So there's a complete cancellation, right? They can declare it next year if they want. Same time, same place. Maybe we're in a different position. What are your thoughts on this?

Reynaldo Arellano: [00:05:23] Yep. Um, wow, That's a that's a great one. You know, I'm a little biased. I, I bank with first Republic. I get I get great service from First Republic. My clients do as well. Everybody I know who's with them loves them. Um. The issue, I think, is that they picked markets to specialize in, and one of them was private equity and venture capital. And those banking relationships are all up in the air right now. And that was a big, big moneymaking area for FRB. So there like I said, their operating model is is very different. You know, we we talk about, you know, how do CFOs look at this stuff? Boy, what a what a challenging time. You've got issues on big issues on your balance sheet and you've got big issues on your income statement, right? The investment side of the portfolio as well as sources of revenue and and your expense infrastructure. Most of the people I'm hearing from. The core client base at FRB is staying put. They are picking up a few accounts. It's unfortunate. I think a lot of the bad press is actually kind of hurt them. It would have otherwise been an opportunity, I think, for FRB to pick up some depositors. But, you know, on this one, I hate to say it this way, but I think time will tell. And if I had to, you know, place a bet on one side or the other, I would be hard pressed to bet against the team at First Republic right now. Well, I think going.

Allen Plyler: [00:07:06] Back to the point I made last week in the podcast was that if you are thinking that First Republic is going to go out of business, then effectively you are betting against the city of San Francisco because there's such ties between everything from commercial real estate, residential real estate, wealthy investments. As you mentioned before, there's a lot of customers who, if they're to believe that this is a temporary situation and that the banking franchise of First Republic continue on. They don't really have an incentive to leave. And if they don't have an incentive to leave, that belief that eventually the company is going to have to be sold. Maybe not on the table. But let's let's jump away from that and let's go to one of the things you said you wanted to talk about last week, which was what do you do now if you're a startup CFO?

Reynaldo Arellano: [00:08:06] Oh, boy. Yeah, this is. This is this. This is where. This is where you gotta earn your money. Um, very challenging times in front of us, right? Um, rising rates. Rates are probably going to go up one another quarter before they stop, I think. Will it be the next meeting or not? I don't know. Let's. Let's throw that one for the next topic. Um, but, you know, demand is going to have some, some pressure on it at the top. Um, the, the equity markets and the ability to raise money to get to get capital is going to be kind of tight. Um, you never want to go. You look at debt. You know, you never want to, you know, you never want to try to borrow money when you need it. You always got to you always got to borrow money when you don't need it. And that's when your balance sheet looks really strong and everything looks great and you'll get really good terms. Um. You know, they don't want to see less than six months operating cash. Nine months operating cash. You got problems. So. Each situation is going to be unique, but assuming some level of stasis, you want to conserve. You want to conserve cash. You need to de-risk. I don't mind being a little bit levered right now, having some leverage out there, getting some having some debt on the balance sheet. You really want to try to drive or at least stabilize revenue the best you can and you got to be like a hawk on expenses. And at this point. I remember in the in the prior downturns, 2000, 2008. There were a lot of really good companies, really good ideas, good people, good products, good ideas that they just couldn't survive. So you're talking about and it was just bad timing. You got to survive two different.

Allen Plyler: [00:10:02] Crises, though, right? In 2000. You're referring to the dotcom meltdown, I think in 2008. You're talking about the financial crisis. But what you're saying is that both of those times were very challenging for CFOs and startups. Okay. Now what you're saying is this is similar. So although people may say that this particular crisis, because it has been labeled as a crisis, the second largest bank failure, certainly ranks up there to say that there's a crisis happening. We also had silvergate and we had I mean, we can go through all the damages that have been done to to other entities, but this is a very challenging time for the venture community and startup community and maybe even more so because one of the key players in that space in Valley Bank isn't really available to be a lender of choice. So and you're talking about being able to access funds and really keep your powder dry. Cost containment. All great ideas. But what do you do if you just can't find any place that's willing to lend you money right now? What are you going to do with your startup?

Reynaldo Arellano: [00:11:15] You got to survive. You got to you got to live to see the other side of this. So you do whatever it takes. You know, you cut, you cut fat, you cut flesh, you cut bone in that order. And if you got to amputate a limb to keep the body alive, it's what.

Allen Plyler: [00:11:30] You say that a startup founder, CFO, maybe CEO, might have to give up equity to get through this time. Portion of equity?

Reynaldo Arellano: [00:11:42] Sure. Sure. If you if you've got your back up against the wall and you don't have a lot of other choices. Yeah.

Allen Plyler: [00:11:50] Yeah, I think yeah, I think that there's two sides of the coin. One, when there's ample liquidity. Things that shouldn't get funded sometimes do. And when there isn't enough liquidity. Things that should get funded don't. That right? Yep.

Reynaldo Arellano: [00:12:08] Spot on. And that's and that's the pendulum has swung right Like like most things in economics and life cycles it usually goes too much one direction. Rarely does it stay at the perfect, you know, Goldilocks position very long. Usually it'll swing, the pendulum goes the other direction. And we had a very quick swing this time. But yeah, we're, we are we are on the side where good ideas, good companies that should get funded probably won't over the next 12 to 18 months or so. So you know.

Allen Plyler: [00:12:43] We talked about this is a real show for real people in real time today being Wednesday. Yes, we're the day before the bank earnings start to come out. So what are we missing right now or what are we missing? We're missing all the information they have about, oh, here's how much on our balance sheet we had to give up to support First Republic Bank. And here's other potential things that we got out of the deal because we don't know what's in that deal. Right. We may not even know even as they release earnings. We'll see whenever the analyst starts asking questions or we'll see whenever the disclosures come out. But, you know, it's interesting in that this isn't the disclosures where all of the deepest disclosures come out. That's the 10-K, right on the 10-Q for the first quarter, we may see a little bit of a glossing over of all the details. Right. I mean, we potentially are going to see a lot more when the 10-K comes out, but that's going to be another one, another 10 to 12 months before that comes out. Yeah. So, yeah, you know, it'll be interesting to see what they say. I'd like to know what are the banks going to tell us? Because we're going to and.

Reynaldo Arellano: [00:13:54] As I was saying.

Allen Plyler: [00:13:55] No, they're going to give insight to the economy. They always do. They're going to give insights into what trading has occurred and the trading. And that's going to be really interesting because if there was the need to unload these assets on, let's say, the available for sale and there was this for sale, we know it was a couple billion at Silicon Valley Bank as an example. Did that fire sell end up meeting the trading gains at some bank or banks? You know could that have happened collectively? They might have all said, hey, you know, here's some it'll be interesting to see what comes out with that. Or was the overall market going through a period of digestion of this? And that led to, you know, trading losses? We don't know. We'll know as the earnings start to come out. Right?

Reynaldo Arellano: [00:14:41] But yeah, well, I mean.

Allen Plyler: [00:14:44] Well, there's a form of clarity that'll come up with the earnings, but we also are starting to see information that's really, really kind of related to where the battle on inflation is, which obviously is impacted a lot by interest rates. So today we had CPI numbers coming out. Okay. What was your response on seeing that?

Reynaldo Arellano: [00:15:05] You know, lower than expectations. I think the market initially reacted well to it, but. There's just too many headwinds and there's too many unknowns. I think that by the second half of the of the of the session today, the market lost its hubris for a very slight, you know, under under, you know, inflation coming in under expectation. But I think it's a it's a good sign in that. This may give the Fed what it needs to pause at the you know, the next the next cycle, which I think would be really healthy. Well, you know, healthy for the market stock market. I don't know about what what it means for the economy. Right. From what I'm seeing, inflation seems to be much more under control and like turning a big battleship in the ocean. You don't just flip a dial and it hits the next day. These movements of the economy are Titanic. They're enormous. They're gigantic. And so it takes there's all this lag in there, you know, at raising rates very aggressively in a very short period of time, has its own collateral damage, as we're finding. And if they haven't learned that, look, they made the Fed made the mistake. Up front and keeping rates at zero for 15 years when they probably shouldn't have been for the last few several years. Likewise, they can make the similar mistake at the other end of raising them too much and too short of a period of time. Take a pause. Let's let's let's digest some stuff and let things get stable.

Allen Plyler: [00:17:04] Well, I know in previous podcasts that you called for a pause and you haven't changed that, and you've asked Jerome Powell to really give consideration to that. And at the same time, you've been vocal about saying that he needs to fall on the sword and he needs to resign because you feel as though he hasn't done the job. Now, I'm also going to remind you that the very first guest that you invited to be on the show was Warren Buffett, who today seems to think that Jerome Powell is doing a good job and at the same time doesn't doesn't know if there's enough evidence to see whether or not they were too slow in raising rates. So it almost seems like, you know, you and Warren Buffett aren't seeing things the same way and you want to have him on the show and have a chat. Yeah, but I think there's lot of things to be brought out about him. Remember in 2008 financial crisis, and I think at that time he owned something like 9% of Wells Fargo. And when all the bank stocks were going down, he was willing to step in and invest in the banks. And I think the thing about that was that he felt very comfortable with the banking model at the time, and he felt as though that they were, you know, effectively underpriced. That's why he bought that was part of his successful stock investment strategy for a really long time. Wait until the market hands you a gift, buy sell later at a much higher amount. What I thought was interesting about this, and maybe that's why you invited him as guest and I don't know because we never talk about why we invite people. Right. But you invited them as guests. And I'm thinking maybe. Is it that he's avoiding a crisis by not investing in the regional banks now? I didn't hear anything to say that he was stepping in the way they did in the 2008 financial crisis.

Reynaldo Arellano: [00:19:10] Yeah, there's a there's a lot there's a lot going on on the Buffett Berkshire Hathaway side. Um, you know, growth and returns at Berkshire have not been in the last five years have not been what they historically had been. You know, are they are they getting so big it's hard for them to to to to have that same level of performance. Um. You know, the other side of it, too, is, is clearly there's transition in the works I think at Berkshire warrants getting getting up there in age. I mean he's still he's still bright. He still has a lot of experience. He still has a lot to offer. I'm not it's not binary. It's not your all in or your all out. But I think at the same time, there's going to be some phase out here, too, right? So, yeah, I'd love to talk to him about a variety of things, you know, from from the Fed to basic market, you know, investment philosophy into how does he how does he look at. He is traditionally invested in very tangible. Straightforward, understandable types of businesses and industries. He he is historically talked about how he didn't understand a lot of tech. And so he stayed away from it for a long time. So where does he for a long time eventually.

Allen Plyler: [00:20:30] He understood Apple Apple made an investment there. Right.

Reynaldo Arellano: [00:20:33] So yeah, right. There you go. Right. But still right not we talk about some other biotech. Let's talk about AI. We can talk about a lot of, you know, the new SaaS model, you know, software as a service, you know, etcetera. And I'd love to just get his thoughts on that. And, you know, I don't well, just know that there's a lot of things I'd love to talk to you about that.

Allen Plyler: [00:20:57] But he has very strong views on cryptocurrency as an example. Yes. And it'd be really interesting to talk to him about that. So again, not sure exactly why you invited him. And, you know, again, we make it very public who we invite. And, you know, it's just up to, you know, our audience members to say, hey, I know a guy who knows a guy who knows a guy who knows Warren Buffett and let them know that, hey, go to our website and you'll see that you've been invited. It's a part of a, you know, the webcast that you can get just by going to the website and seeing our prior podcast, listening to them. I know I've done it many times because, you know, there's just a lot of insights that come through that. How do I know that? Well, I was trying to recap what we said and I was like, Wow, we've said a lot. You know, these are getting really long. And the HTML code, you know, trying to pull that all together and everything, having to use that AI to do that. But, you know, it's working out just fine.

Reynaldo Arellano: [00:21:56] I hear it can be done. I'm not that tech savvy to jump on that. But yeah, he heard that. I hear that kind of stuff can be done. Um, so what do you what do you think is going to happen at the upcoming Fed meetings? What a couple of weeks? I think they start they go into are they in blackout right.

Allen Plyler: [00:22:14] Now of this coming up now? I think they typically are doing it on Wednesdays. And I think it's I'd have to go back and look at the actual calendar date. But the camps have been rallying a little bit more around pause. The CPE could be looked at as saying, okay, we're starting to win some of the battle. And I think that the other thing is, is that we saw the drop in the two year rate dropping below four. And I think, you know, monitoring the ten year will tell you a lot, uh, Treasury, Treasury rates and just trying to see what's happening in rates because that kind of tells a little bit of what the market's thinking. But I think that the. The entire approach of saying this is inflation and interest rates are so correlated with inflation and controlling inflation is really something that has to be challenged because I don't know that all the financial models that everyone has been taught work the same way anymore. I think that that the ability that people have to move in and out of investments as an example in and out of locations has an impact. So you know, how was it that Austin, Texas, became such a destination point? Austin, Texas, has been around for a long time. Right. And it was only within COVID that they started to see this tremendous growth. And part of that was that people didn't have to go to the office so they could work remote. And Austin found favor. You know, So that kind of reaction would have been really hard to model and predict. And I think the same thing happens with supply chains. That supply chains that seem like they are frozen can suddenly become developed because of technology that you could actually have a replacement supply chain being developed.

Allen Plyler: [00:24:10] And you may even as a standard practice, develop multiple supply chains, you know, and be ready to accelerate one on the deceleration of another. And so I think that the entire approach from businesses now is more sophisticated. And I think that if you look at all those things together, that you have a lot more opportunities now to use technology and learning to your advantage. And that includes potentially even artificial intelligence to your advantage. And absolutely that that has an impact whenever you put it all together so that that in one sense it might help to avoid crisis. In another sense, some of these things may actually lead to crises that we're not even seeing. We're not seeing the evidence. We didn't, for instance, see the impact of interest rates and how that was going to affect bank portfolios as clearly. Otherwise, there would have been a lot more discussion about it, a lot more warning about it. Right. And maybe even the management would have been aware and made some changes. But part of this is that it goes back to some of your earlier comments on Jerome Powell saying that's their job. Their job is to look at this and say, what is the exposure, especially since all of the nonpublic information about banks is in their hand, right? That's right. Everything that you would want to know about a bank and its positioning and its risks, they have that information. So. They could have just said, okay, we're going to take rate movements very slow. We're going to do it all. Once it said whatever for whatever reason. You know, But the way that they did it is definitely having a ripple effect.

Reynaldo Arellano: [00:26:02] Absolutely. I want to hit on a couple of points you made there. I love them. One of them was about supply chain and having alternate or multiple sources. Now, as we're as people can live anywhere and be anywhere and there's a lot of discussion about the overreliance on China, there's discussion about overreliance on Taiwan for chip manufacturing, that that's coming onshore. Big, big announcements on that. Et cetera. And it reminded me of of and and then in the banking crisis as well, it reminded me of a concept that I think is really important for our listeners to to remember whenever you're looking at systems and processes, you always want to avoid a single point of failure. If if you take this one piece, this tool, this person, this whatever, out of your. Process. What would you do? Do you have a what? A hot backup. Right. Do you have a a thing that you can just switch everything over to and it'll just work? So in the banking thing, it was do you have other banking relationships that are funded that you can go take your payroll and your payment platforms and everything and redirect them to in a matter of minutes, avoid crisis. You got you got ahead. You did not have a single point of failure. Supply chain issues. We're now seeing that again. So the concept I just want to throw out there is single points of failure can lead to crisis. You want to avoid crisis, avoid having a single point of failure. Um, the next thing you talked about that I loved was I and they come in impact on that.

Reynaldo Arellano: [00:27:52] There have been all kinds of statistics and data about what percentage of the workforce this is going to displace and within a relatively short period of time. Right? I mean, is it going to be tomorrow? No, next month, maybe next quarter? Probably next year? Absolutely. We are we're going to start seeing a shift in the labor pool because AI is going to be able to do a lot of work that's now humans are having to do. Where are those workers going to go? And it's going to be it's going to end up being a further separation of the haves and the have nots. So you want to be on the right side of this equation. You need you need to learn tech, you need to understand it. You need to know how to apply it. If you're one of the people who knows how to use AI in different applications or instances or situations, you can bring that as a valuable tool to a company, and you can. That's a new job, right? It's going to put 50 other people out of their job, but you're going to be the person with the job doing that. Unfortunate, but it's where we're headed. And in the long run, from a macro perspective, it's going to have a measurable increase in GDP. And so I'm very bullish on where in the long run where AI is going to take us. But like any big shift, it's going to be painful. There's going to be there's going to be equalization adjustment in the market and that that's painful when you're in the middle of it.

Allen Plyler: [00:29:32] I think we'll probably talk more about AI and how to prepare for that. And I think that going back to one of the points you were making with this, the unknown of what the impact. I guess part of thinking about it is think about your own job and say, what's the risk that what I'm doing right now could be replaced in part or in whole by the developments of AI? Maybe not today, but where AI is heading because AI is learning constantly, more and more data coming in, more and more understandings, it becomes more and more capable of performing tasks that have certain mental decisioning done by humans, but it can be trained or programed effectively to take the same data and arrive at what is the theoretical best answer. And so think about, for instance, you're a doctor and you're to determine the diagnosis. And now what you do is you go through and you inquiry about the symptoms and you're trying to understand that. Now, some doctors might say, Well, I get a feel from talking to the patient about the next question I should ask. But think about that. Could those same questions be handled over a PC? You answer these questions and it's a very friendly kind of tone that this questionnaire is coming from. And next thing you know, it's saying, okay, we think that you may have the following disease, right? And would it be great to have all that done even before a doctor even saw you saying, well, I'm looking over here at the symptoms that you said, and it gives them a head start as an example. Now does that and it.

Reynaldo Arellano: [00:31:26] And it can all be all be voice activated. This isn't like typed on a keyboard anymore. This is you're actually having verbal conversation with the AI. Now.

Allen Plyler: [00:31:34] There's certain jobs that you probably are never going to see. I really be able to change. So let's say horse racing. You know, the trainer is not going to be I Now I might help you in making your picks. So who's going to win the race? You know, but might be evaluating the jockey, the trainer, the horse, you know, might be doing all that. But who's going to win the horse around the track? You know, So so again, going back to a point of crisis, think about your job. How much do you think it can be replaced in part or in whole by something we think about to avoid a crisis? Because avoiding the crisis says, hey, think so? You're going to think about, you know, the AI and then you're going to decide. And that decision could be a lot of things. I'm going to stay in the career. I am. I'm going to move into a new career. I'm going to, you know, maybe even be a part of the whole learning process for AI because there are jobs out there just to help. I learn more, you know, feeding information to it. You know, maybe that's a decision that you make, but the end after you think and decide, then you have to act.

Allen Plyler: [00:32:38] I think that's one of the main things that we're trying to bring across in these podcasts to avoid crisis about how to go to each evaluation decision that you're going to make and you're going to start by thinking you're going to question the information you're getting. You know, is it biased? Whose agenda are you listening to? And add form your own opinion and get multiple reliable resources? We've talked about that in the past. And yeah, let's go back to something else that was talked about. We talked about the Hindenburg report coming out there on Block, and we talked about Cash app as being, you know, the really big driver of a lot of the concern there. And then unfortunately, we had the death of Bob Lee, who was the developer of Cash app. So and we also have learned hardly anything about that, a little bit of video. But, you know, it's just really something to think about how ironic it is to have that developer so closely associated with that app which has had so much criticism. To then have the unfortunate situation of his, you know, demise. Obviously, it's murder, right?

Reynaldo Arellano: [00:33:59] Right. Yeah. And I I'm not a big conspiracy theorist on this. I mean, you know, there's causation, correlation or coincidence. And I'm going to put this one in the coincidence column. I don't and I have nothing to base that on other than just, you know, a feeling. Um, but yeah, very sad. Very sad story indeed. Um, there's a, there's an interesting topic there. And everybody talks about San Francisco being a mess and Portland and some of these major, generally speaking, you know, blue more liberal cities, but it's most large urban environments have crime and a homeless problem throughout the country. Um and. This is a this is another, I think, crisis situation that our society is going to have to deal with is crime, homelessness, poverty, and what are we going to do about it? And what we just said is with I and a lot of technology, it's going to have further separation. So, you know what? What are we going to do? This is an idea, I think, a topic for a whole nother episode. We've we've time flies when we get going on these ideas but and we're jotting them down and and invite our listeners if there's a topic or an idea that you would like us to dig into and we can put it on a full kind of, you know, research, look into it, get everything ready, and then have an episode dedicated to a specific topic. We'd be we'd love to hear from listeners with ideas of topics for us to research and dig into. Well, it's interesting.

Allen Plyler: [00:35:42] You're talking about our listeners because we do have different things that we'd like and very easy to reach us. You can send an email to Ray at Avoid crisis.com or you and that's our or Allen at Boyd crisis.com that's Allen and you can tell us your thoughts on the show you can tell us what you like you can tell us what you don't like Of course we'll ignore that, right? No. Well, obviously listen to that because we want the feedback and we want to know how we can improve. And then two, we want to know what you'd be interested in having us talk about. We've had a lot of different ideas of what we're going to be talking a lot more about, but a lot of that's aligned with being able to get guests that are very informed on the topic, and we would like to have some of those join as we get into some of the other areas that we're going to explore. You know, we've been dealing a lot with the banking crisis because I think we both agree that it's not over. Jamie Dimon later probably has seen some evidence to say that it's not over as well. And we don't know exactly where these these particular ripples are going to surface. You know, it starts in one place. And where does it show up? And we know, for example, that with interest rates, there's a lot of debt out there that has to be refinanced. Maybe a lot of that debt is going to come to term at a lower rate. It has to be refinance a higher rate. So that's going to put a lot of pressure on the financial systems. And we're also talking about that may we may be entering into a credit contraction period where it's a lot harder to get lending and you have to have very good history with your lending. You have to have very good cash flow so that you're going be able to repay the debt. So there's a lot more challenges ahead.

Reynaldo Arellano: [00:37:34] That? Absolutely. It's the the Analyze Decide Act. You really need to manage the balance sheet, manage the income statement, both professionally and a business side, but personally as well. You know, you got to get rid of that credit card debt. You got to, you know, just manage the cash flow. But. It's what these cycles are all about, right? And nothing's ever going to be static. And with this, change is going to come both, you know, risk and opportunity and being prepared is what helps. You avoid a crisis thinking about it, researching it, looking ahead, consulting with the appropriate experts in the topic, reading. That's what's going to get you in that analyze phase. Then you have to align with what your goals and priorities and values and beliefs are and decide. But analyze and decide didn't get you anywhere. You got to do something about it. You got to act. And that's what that's what we're trying to talk about, what we're trying to get ideas about and. God love doing it. Looking forward to getting more feedback from our listeners, that's for sure.

Allen Plyler: [00:38:57] So we still have maybe another five minutes or so, and I'd really like to jump into. This whole let's just call it the elephant in the room. It's recession and it's the fear of recession. And are we going into a recession? We now have potentially the interest rate adjustments that have been too much, too soon, too fast or too slow to get started or just accelerated, won't stop. And we don't know what to think from a data standpoint. And also, we have a slowdown in the economy after a very long period of expansion potentially. And so that means recession. When you hear recession, you think economic contraction, you think mild recession, a long recession in terms of avoiding crisis. If you really think that we're heading towards a recession, what do you do right now?

Reynaldo Arellano: [00:40:00] As an individual or well, as an investor. You don't you do not want to be in discretionary items, right? I think right now travel is doing pretty well because of the pent up demand from COVID. But, you know, generally speaking. People start when recessions come and people have to cut back and tighten up on their on their spending and that they're not cutting groceries first. Right? They might not go to the movies as much. They might not take that vacation trip that they want to take, you know, three trips this year. They only can take two. Maybe they only take one. Maybe they put off buying that new car a little bit longer. You know, so a lot of that kind of spending is going to get going to get pulled back. On the other side, there's going to be winners. Look at here's one. We didn't talk about this earlier. So you didn't get a chance to do any any any pre research. But Campbell's Campbell's Soup has been crushing it the last few months. You know, I think as all the recession talk was heating up, you look at what you know the CPG lineup that they have they're great products for recessionary times and so and they're they're they're behaving accordingly. So it is definitely a time to rebalance that portfolio and to have a much more defensive position. Right. Things that aren't going to be affected by interest rates. You know, look at the housing and homebuilders are are having a tough time and look at things that are going to be more of a flight to value and a flight to frugality, if you will. I think that's where that's what you do as an individual at this time. And then, you know, looking inward, microeconomics, you got to manage your own budget accordingly. You know, now is not a time to be taking on new big expenditures, things like that. You want to conserve your cash, you know, and and tighten up a little bit. That's what I. That's what I think.

Allen Plyler: [00:42:10] All good things.

Reynaldo Arellano: [00:42:11] So I sound. I sound like such a downer on that stuff, man. It's like, no, go out and party, spend all your money. But, you know, I remember back in the day, cost him the election. Jimmy Carter and his sweater standing by the fireplace saying, We've got tough times. We really need to lower our thermostats and not use so much gas. And, you know, we got to hunker down. It's like, okay. Then Ronald Reagan came along and said, there's a light on the hill and blah, blah, blah. You know, people want to hear the good stuff. But you you can you can be optimistic. You can you can win in this environment. But you just have to be realistic about what's happening on the playing field.

Allen Plyler: [00:42:54] All good stuff. Once again, I can hardly believe that our time is coming up already. Wow. I'm wondering about do you have any new guests? I know that you've invited three already. Um, so you've got Mike Roffler and you've got Warren Buffett and Jamie Dimon, if I recall right. Uh, Jamie Dimon is probably going to be speaking tomorrow, so maybe he'll mention some of the ideas he's gotten from the podcast and repeat those and yeah, we'll see.

Reynaldo Arellano: [00:43:26] Yeah, he should. He should read. He should read those notes typed up just to make sure he got. He has all the points right and it'll be good for sure. For sure. Yeah. No, I thought my homework assignment was only three. I guess I should always be thinking of other guests. Thanks. You should be. Next show. Next show. I'll have my. I'll have my fourth guest on somebody on my list. I'll have that help. That way.

Allen Plyler: [00:43:46] I. I have been waiting to make an invitation because I want to I want to make sure that they are willing to go into the chapter that we'll get into because it's going to be a really hot topic. And I want to make sure that we don't try to do it without having some people that are really informed and can talk, because I think it'll be something that has impacted a lot of individuals. And so I think that it'll be really interesting to have some more of those kind of topics come up. But we're interested in hearing what our listeners are wanting to hear as well, and we'll be developing that. And so I think the next guest that I'm going to invite probably be next week as well. So I'm going to hold off. Wow. Okay. Uh, just as an update, I have not heard from the three that I have. Invited, which is Sharon Stone's answer, Lee and Shaquille O'Neal. I'm expecting to hear from at least one of them because I know that our word of mouth strategy will work, that somebody knows somebody who knows somebody who knows Sharon Stone. Spencer Lee or Shaquille O'Neal. And as soon as they hear that, they're invited to come on to the Boy Crisis podcast. Who can resist? Right. I mean, I'm sure that they they want to come on here just to be able to talk a little bit about. Their experiences in life, their thoughts about how to handle different situations. And I think any individual has gone through ups and downs, so everyone's had to. Face situations where it's not been easy. And so the very interesting set of individuals that have come on, because even as you talk about Warren Fortnite.

Reynaldo Arellano: [00:45:28] Where they've had to.

Allen Plyler: [00:45:29] Warren Buffett has he's had some ups and downs. You know, I mean, sure. Yeah. I think Jamie Dimon has as well. And and I think that.

Reynaldo Arellano: [00:45:41] Where they've had where they've had to avoid crisis, no doubt.

Allen Plyler: [00:45:44] And I think, too, that when you think about the the idea of think, decide Act, I think that his wisdom to say, hey, we really need to do something to support this regional bank here first republic. Um, and this is the first republic in San Francisco because you know before we mentioned about there's 4000 banks, there's other banks that have first Republican in name, and they all kind of suffered as they were getting confused about, you know, No, no, this is the one that's out in San Francisco. That's that's not us here in Ohio. Right. That kind of thing. But. Right. It'd be very interesting to to hear from Jamie Dimon as well and just what went into this and as well as Mike Rother, I think would be really great. But again, these people, you know, we're not expecting that. We're going to call them up directly because that would you know, that would not be in the spirit of what we said, our word of mouth advertising and marketing. So it's a challenge, right? But I think it's something that can happen. And as soon as one of them comes on, we'll be like, did somebody ask you or tell you, Hey, did you hear like, how did you find out about. Yeah, how did you find out? How did you find. You know, it'd be great. Yeah. Connect the dots. Like what? Connected. And then, like, why in the world was I selected to be on such a great podcast? And yeah, it would be an interesting story to hear.

Reynaldo Arellano: [00:47:04] So of course, the power, the power of the power of networking, the power of this, and.

Allen Plyler: [00:47:10] Maybe that's what gets you through a recession. You never know.

Reynaldo Arellano: [00:47:13] That's right. Very much so. All right. Well, with that, I think we should wrap up for the week here of Wednesday, April the 12th. And next week, are you going to be still traveling on the road or are you going to be back in the US?

Allen Plyler: [00:47:27] Yeah, Yeah, I'm going to be back, I think. Okay. It's been a great trip so far. I've learned a lot. I've been, you know, talking to a lot of people here in the country about the battle with inflation. And I think that we'll be able to talk about that a little bit more because, you know, hyper inflation is a real, real problem. And, you know, we'll get into more details about that in upcoming podcast and and give you some more of the observations. But, you know, the we're really don't want to see inflation get out of control.

Reynaldo Arellano: [00:48:00] So you don't want to see hyper inflation. Well, I'm really excited to hear about your man on the street discussions down in Argentina when you when you get back next week. And I think until then, we're going to call this our sign off for the Avoid Crisis podcast for this episode six. All right.

Allen Plyler: [00:48:20] Good to see you again, Ray. All right.

Reynaldo Arellano: [00:48:22] All right. Everybody, good to see you, Alan. Take care. All right. Bye. Take care.

Allen Plyler: [00:48:24] Bye bye.