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Ben Fraser is responsible for capital markets at Aspen Funds, a macro-driven alternative investment firm, having raised $100MM+ from investors over the past several years.
Ben has experience as a commercial banker and underwriter, as well as working in boutique asset management. Ben is a contributor on the Forbes Finance Council. He is also a co-host of the Invest Like a Billionaire™ podcast.
Ben reveals the many benefits of investing in alternative assets, and how it can help you build your wealth through tax efficiency and predictable cash flow! He doesn’t only uncover the principles of investing, he also shares the massive benefits of different asset classes and their opportunities the ultra wealthy have been implementing for decades.
Opportunities like investing in oil and gas support another macro trend, with the lack of supply paired with long term global demand and the lack of infrastructure to meet the demand. Mr. Fraser shares some insights on the benefits of investing in this asset class and further shares his perspective on the current inflationary climate.
You’ll learn everything you need to know about macro economic trends and alternative assets with Ben, don’t miss out on this fueled episode!
In This Episode
- Ben’s background and journey to how it all started.
- Ben’s principles of investment.
- Oil & Gas trends and what you need to know to invest.
- Insights on the current inflation environment.
- Fraser’s piece of advice to accelerate your wealth.
Hey guys, welcome to today’s show on Wealth Strategy Secrets. Today we’re joined by Ben Frazier. Ben is responsible for capital markets at Aspen Funds, a macro-driven alternative investment firm. Having raised over a hundred million from investors over the past several years, Ben has experience as a commercial banker and underwriter, as well as working in boutique asset management. Ben is a contributor on the Forbes Finance Council and he’s also the co-host of the Invest Like a Billionaire podcast. Ben, my friend, welcome to the show.
Thanks, Dave. Super pumped to be on the show with you.
No, this is awesome. I’ve been enjoying your podcast since you guys rolled it out. Some really great content in terms of trends, economic trends, and things that you guys are covering. For the audience that isn’t familiar with you or Aspen, how about we just start with a little bit about your background, your journey? Tell folks how it all started for you.
Yeah, well, my journey, I spent a nice stint in commercial banking, so it was on the dark side for a while and really cut my teeth in learning how to underwrite deals. I started as an underwriter and eventually became a commercial lender. For those that aren’t very familiar with banking, there’s kind of two big worlds: residential and commercial. The commercial side is doing all the business loans, the real estate loans, and I got from a mentor of mine early on that it’s a great training ground to become an analyst and underwriter because you get to see what’s under the hood of all these deals, how these deals get put together.
The really fun thing for me was that I had free reign to look at the personal financial statements and tax returns of all these super wealthy folks. The light bulb moment for me early on was realizing that 90% of these high net worth individuals that we were lending to as a bank had substantial holdings either in real estate or in a business that they owned and other alternative investments. It’s either one of those or both of those. To me, this was a light bulb moment of wanting to get into this personally.
I started really learning how to understand risk. As a banker, your whole goal is to mitigate risk. As a lender, you don’t get any of the upside; you only have downside risk. That’s why if any of your listeners work with bankers, it can sometimes be a little bit of a stick in the mud because they don’t get to participate on the upside, only the downside. Their margins are such that they can’t have much downside risk that actually is realized, or else the bank goes under.
It was a great training ground, but as a kind of entrepreneurial personality, I didn’t last super long there. It was just a little bit hard, and I saw this path where a lot of people who started in banking on the commercial side, after about five years or so, if you don’t leave, you kind of get stuck there forever, and that was my worst nightmare. I joined the more fun side, which is being on the equity side, raising equity, looking at deals, looking at the upside. I’ve always had this background in risk mitigation, breaking down what are the key risks of a deal and how to mitigate those.
Now I’m having a lot more fun, making money when deals go well, and putting those deals together for our investors. I joined Aspen Funds about five years ago. Aspen Funds has been going for about 10 years at this point. We started as an opportunistic fund in the distressed debt space, buying distressed residential mortgages after the 08 crash, and working out deals with borrowers, helping them stay in their homes. It’s a very cool business model. It was initially spawned by the Great Recession. Our team has always had this opportunistic lens in finding opportunities supported by what’s going on in the macro environment.
We’ve been doing those funds for 10 years and have continued to operate them very successfully. About a year ago, we started branching out into other asset classes. From a personal standpoint, we started deploying our own wealth into these other asset classes that we were seeing. We saw these macro trends going on, which is a big part of our thesis and ethos at Aspen. We wanted to participate in them and thought, why don’t we bring a lot of our investors that we’ve built great relationships with and built a great track record with? We’ll do the heavy lifting for our investors because most of them are passive investors. They don’t want to operate deals, they don’t know what questions to ask, how to understand risk, how to do due diligence in a good way, or how to avoid Ponzi schemes.
We put the deals together and invest alongside our investors. In the past year, we’ve launched close to 10 different offerings in about five different asset classes that we really believe in. The latest of which I just heard you’re participating in as well, which is oil and gas. I think there’s a huge mega-trend we’re at the beginning of that we could talk about from a macro standpoint. That’s about us, the long-winded version, but that’s how we got to this point.
Yeah, now that that’s excellent. Do you have a particular investment thesis? I mean, as it relates to oil and gas or just generally?
Just generally for Aspen and for myself and the principles. We kind of tag ourselves as a macro-driven alternative investment firm, and the whole idea with that is we’re really first top-down investors. We look at the big forces in the economy that are driving certain trends in various ways. We want to look at macro trends, and macro to us means long-term secular trends that are supported by supply and demand imbalances driven by other factors that are going to make these trends last longer than, say, a six to three year period.
A lot of times, economic predictions are like a crystal ball. No one really knows, but to a certain degree, you can often see the trajectory that things are going to go if you look at the basic economic fundamentals. One of the partners at Aspen, who is also my father, Bob Frazier, has been a macro economist for the past two decades and has had an incredible track record looking at these bigger picture trends. We call them economic tides versus economic waves.
We see these economic waves that are more akin to the stock market. We have this massive volatility where valuations go really high, then we have some inflation, interest rates go up, and everything crashes down. It’s a lot of these ebbs and flows that are pretty hard to predict and a lot of it is based on sentiment. But the economic tides are fundamental economic forces that are not going to change on a whim.
I kind of view it as the Titanic going through the ocean. It takes a long time for it to turn. These big economic tides are like large ships, cruise ships that can’t make a quick agile turn. It takes some time for them to make a course correction. We focus on those. We start top-down with the big trends we believe in, and then we look at the asset classes that are going to benefit from those trends and the strategies within those asset classes.
Every asset class is cyclical in nature. There are times when it’s good to be in an asset class, and times when it’s not good to be in an asset class. The final step for us is finding the right partners that have the experience executing those strategies in those asset classes and putting deals together for our investors. That’s our top-down approach when we’re looking for deals that we think are going to perform well.
Yeah, you know, we have a very shared philosophy in terms of that as well. I think it’s interesting because we’re all kind of conditioned by Wall Street and corporate America. It’s all just rapid results. What did the market do today? Nonetheless, a quarterly change, but how did it impact today or tomorrow? There’s also all of these extenuating circumstances or impacts from something happening in the global economy or something not really correlated to the actual investment itself.
I always found that very frustrating when investing in traditional markets over time. As I gravitated into real estate myself, you look at multi-family, you look at the trends, the macro trends for multi-family. Yes, there are going to be some peaks and valleys, and we’re seeing interest rates rise and some changes we can talk about here. Overall, from that supply-demand perspective, there’s just not enough housing in this country right now. The builders are way behind; they got even more behind during the pandemic.
For the foreseeable next five to ten years, there’s a huge shortage in housing. When you layer on top of that going into strong markets that have high job and population growth.
100% you’re exactly right on a lot of things there. Housing is a great example because we share the sentiment. It’s pretty obvious if you start looking at the data that the shortages are there and there’s no real way to catch up. We continue to have population growth and supply chain constraints, and we’ve already had a massive deficit of what we actually need to be at an economic stasis point of supply and demand.
We’re not building fast enough. The current home new starts are not keeping pace with population growth and new household formation. A lot of people we talk with say, “Oh, we’re in a housing bubble. House prices have just skyrocketed the past two years.” Yes, but we’re not in a housing bubble. A lot of the reason that they’ve skyrocketed is the market has finally caught up to the economic fundamentals. We’ve been calling for a housing boom for the past 10 years. We’ve been in single-family housing, buying these residential mortgages, and we’ve been saying all along housing is going to keep going up.
There’s just no way it can’t go up when you have the replacement cost of a new home trading at such a high premium to existing home inventory, which has been non-existent for the past three years. There’s only one direction that goes. Now you add on household formation, which has been pushed off for the millennial generation. They’ve waited to form households until later in life for a variety of reasons, but household formation is a massive driver in demand for housing.
If you’re a single person living in an apartment and you form a family, have kids, you want to have your own space, you want to have the American dream. All those demand side factors continue to grow while supply is flat or declining. That’s a great example of a macro trend that’s not going to change anytime soon. We can’t just magically snap our fingers and have two million new homes appear. It’s been exacerbated even more by the current economic supply chain challenges. I 100% agree with you on that.
Another key thing is we talk about wealth strategy, which is our core ethos around strategy. When you look at how the ultra-wealthy are investing, they’re investing with strategies. They’re not investing by the flavor of the week and moving things around. When you align that to these macro trends, one key thing is that you can sleep at night. Capital preservation is absolutely key. By having a portfolio that you’re aligned to, you can really weather these storms much better because you’re not getting caught up in the ups and downs.
100%. You know, we’re looking at a deal right now that’s in an opportunity zone, right? I’m not sure if you’re familiar with that, and your listeners are, but it’s a pretty cool program. It has to be a good deal, but the tax benefits that have been created for opportunity zones are insane. Basically, if you can hold an asset for 10 years and you sell it, all the capital gains at that point are effectively tax-free. You talk about building wealth strategy and tax play and other things, and that’s a massive benefit in looking at real estate investing. Aside from getting all the benefits along the way, you have to have a long-term mindset.
To your point a minute ago, you can’t just be investing based on what the last quarter’s earnings were and how the stock price will react to that in the short term. It’s a very different time frame. For some people, that’s challenging because we’ve been conditioned to have these quick hits of dopamine based on how the market’s doing, and we can see our portfolio in real-time. But it’s not conducive to long-term tax planning and wealth building.
One of the things that was really illuminating for me, when we started our podcast “Invest Like a Billionaire,” was looking at how the ultra-wealthy invest. One of the biggest differentiators I found from the research I was doing in preparation for the podcast was most of the ultra-wealthy—billionaires, family offices, pension funds, endowments, and high net worth individuals—are investing large portions of their net worth into private alternative investments. That was surprising to me.
The percentage was as high as 50-60 plus percent. The Yale endowment fund was actually a pioneer in this space of bucking the trend of investing in the markets and going into private equity, real estate, and having heavy allocations there. They’ve been the top-performing endowment fund for the past 20 years. It speaks for itself. The average retail investor, an accredited investor with a million-dollar net worth, is 95 to 100 percent invested in publicly traded stocks, bonds, and mutual funds. That’s just the norm.
It’s surprising or seems very alternative to be investing in real estate, oil and gas, or other things, but the reality is that’s what the ultra-wealthy are doing. That’s how they’re building wealth, getting efficient tax planning, and transferring legacy wealth across generations. It’s a really powerful concept to understand.
100%, Ben. I think our investment thesis is really three-dimensional in nature. When you’re approaching an investment, you’re looking for tax efficiency with your investment, predictable cash flow coming in, and some type of potential upside on the back end. When you invest in the stock market, all you’re doing is hoping that your stock will go up unless you’re involved in trading, shorts, and puts. But 90 percent of investors are just hoping the market will go one way, which is up.
In this case, you can win in three different areas, and that’s why the ultra-wealthy have up to 60 percent of their assets in these types of alternatives. It’s actually comical that they call them alternatives as well. Real estate is probably one of the oldest industries around. I don’t know why they call it an alternative, probably because they can’t sell it as part of their…
yeah it’s hard to charge your aun fees on a real estate multi-family property or something right and yeah it’s funny because another data source that i love is tiger 21 which is you’re probably familiar with them you know this is a group that you have to have i think 20 million dollars of investable assets to join and they publish on a quarterly basis the portfolio allocation of the you know aggregate of all their uh investors and only 25 percent on average across all the investors of this ultra high net worth kind of club is invested in public equities 25 i would view that as the alternative right that’s actually the alternative investment is investing in public alternatives and everything else they’re doing is private equity it’s real estate it’s hedge funds and commodities and other things and so it’s it’s really it’s your point comical that that is kind of how the whole you know mass media um wealth management system has created this expectation that that’s the way it should be you know one thing we’ve talked about in the podcast before is the liquidity premium right so the biggest knock that alternative investments that are privately traded or privately held get is liquidity or lack thereof right you don’t have the liquidity that you have in the stock market or the bond market which is 100 true you know i’m not going to make the argument that alternatives are liquid you know so you have to go in with the measure of of understanding that there is that risk and you have you know liquidity risk which you don’t actually have in the stock market but if you actually break down what is the what’s the premium you have to pay in real estate for example to get the liquidity that you would want right and so that’s kind of an easy way to think about how much you’re paying for a uh publicly traded reit versus paying for a private say multi-family syndication right so you can go look and we’ve done have an episode on our podcast about this where we’ve actually looked at the price to book ratio of some of the most commonly traded reits so a reed is a real estate investment trust it’s a vehicle that’s used to purchase real estate and pass through most of the income to investors and it’s publicly traded generally and those reits trade at a premium to book value and so book value is effectively you know the balance sheet of assets this is the value of the assets that we have in this reit and the and the price to book is you know the premium that or discount is trading relative to those assets and so a one-to-one ratio would be a hundred percent of the or the price is equivalent to the uh the value of the assets right that’s pretty easy to understand a lot of these what would you guess is the average i don’t hear the episode or not but what would you guess is the average price to book ratio on on these public trader reads
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Yeah, I wouldn’t even begin to have an answer for that. It’s probably surprising though, anywhere from five to 20 times book value. That’s kind of like your price to earnings ratio as a commonly traded valuation. So basically, on the low end, right on the five times price to book, if you’re putting in a hundred dollars into a REIT, you’re really only buying twenty dollars of real estate. You get none of the tax benefits in the REIT because it’s a C corp and it’s taxed at the entity level. You’re paying an 80% premium on that valuation, hoping it keeps going up over time and having the ability to liquidate at any point in time.
Well, I actually kind of flipped the script a little bit and we looked at some research done by Bain & Company, which is a huge global consulting organization. They actually looked at the liquidity risk of alternatives and found that it’s not as much of a risk as people think it is. For one, most people overestimate their need for liquidity. In a downturn, people like the comfort of feeling they have the ability to sell their stocks if things get really bad. They think they need liquidity to generate cash if needed, but what most people think they need for liquidity is actually way less than they would need in most circumstances.
The second thing is it’s a huge challenge psychologically to not sell when you’re down. One of the worst things you can do in a downturn or a stock market crash is to sell when you’re down. You have this inherent challenge of thinking, “It’s going bad, I’m going to pull my cards off the table.” That’s the worst thing to do. But when you’re in a private investment, you don’t have that option. You try to manage through it. If you’re working with a good operator who has planned well and gone through challenges before, they have enough reserves and can do a capital call if needed. There are ways to mitigate risk and manage through the challenge. Then you come out on the other side in a much better position.
So, I actually view the liquidity risk, which is the biggest knock on alternatives, as one of the bigger benefits. It shifts your mindset to long-term versus just the short-term dopamine hit.
Dude, such great conversation there, Ben, on liquidity. Again, going back to overall wealth strategy, I agree that is the knock on alternatives—you don’t have the liquidity. But look, the market’s down 30% this year, so are you going to sell right now at a loss? Even on the flip side, let’s say the market is up and doing well. You’ve got tax consequences on the other side of that.
I would say that liquidity should actually be managed in a different way as part of your overall strategy. What do you really need liquidity for? Is it that you want to have that nest egg of six to 12 months of living expenses for yourself and your family? That’s great. Do you need something beyond that because you want to feel more insulated or build up some dry powder for the next opportunities? That’s great as well. I think it depends on where that lies with each individual person.
We like to use the infinite banking strategy to do that, which is a capital warehouse that people have complete control over. You can actually become your own bank and keep those reserves in there that are growing, compounding tax-free. You have additional benefits: you can gift it to your heirs tax-free, create a tax-free income stream later on, and it has asset protection. That is the capital warehouse where you have the liquidity. If you combine that with the alternatives, it totally takes away that issue around liquidity.
Yeah, I’m not as familiar with the infinite banking concept, but I’ve heard people use it and obviously you’re a big proponent of it, so yeah, it’s cool.
Yeah, I’ve been using it with my wife for the past 10 years. That’s where we keep our reserves, our rainy day funds, our capital. It’s compounding at five to six percent tax-free, which is really nice. It’s a great solution for passive investors where you have this cash flow coming in off of multiple different alternatives. A lot of people are still working and don’t need the cash flow, so what do they do? They probably stick it in a bank account that’s not earning much. But if you put it into your capital warehouse, now you’re making five to six percent. You have these other things, and then you build up your next tranche of whatever that is—50, 100k—to be able to do your next investment. Over time, it adds significant velocity to your portfolio and gives you a lot more control and power. You don’t have to worry about whether the market is up or down, or stock or tax implications and such.
Yeah, cool. Makes sense. So, Ben, let’s jump in a little bit. I know we talked about oil and gas a little bit. Tell us your thoughts on macro trends with oil and gas right now. What are you seeing?
Yeah, so we just launched an oil and gas project. It sounds like you’re launching one here soon as well. It’s a space that we’ve looked at for a while and done a lot of diligence on. It kind of gets a bad rap because, as one of our partners said, his experience with others who’ve invested there is that oil and gas is a deal where it’s a liar on top of a hole. It’s got a little bit of a bad rap because there are a lot of bad actors, or at least that was the perception, so you really have to do your due diligence.
It’s a lot more of a volatile investment because you’re tied to commodity prices unless you employ hedging. But from a macro standpoint, it’s really hard to argue against some of the trends that are going on right now. Some people have an initial challenge against oil and gas investing because of the big ESG and green movements. It’s very clear from the political standpoint, both domestically and globally, that green is the way forward.
The challenge with that narrative is that politicians somehow believe we can magically transition over to green energy overnight. That’s just not realistic. There are massive challenges and headwinds to get to that point. I’m a big believer in green. I love the idea of it. I definitely want to do our part to reduce global warming and reduce burning fossil fuels, but at the same time, I’m also a pragmatist.
There’s this kind of meta-narrative going on that green is the only way to make this transition, and then there’s the fundamentals that we’re seeing. Every single person filling up their gas tank is seeing the disconnect. Oil is very high. It’s come down a little bit off the highs, but Goldman Sachs predicts by the end of the summer it’s going to go back up. It ultimately comes down to there not being significant capital investment made into domestic oil and gas production for the past five years.
The peak investment capital into these producing wells was about 2015, and since then it’s been on a pretty precipitous decline. If you think about oil and gas compared to real estate or another asset class, it’s a depleting asset. Whereas real estate is an appreciating asset, oil and gas have a limited amount of reserves wherever you are drilling. Those reserves will eventually run out. As these wells age, you have to keep maintenance capital invested into them to keep them producing at a high level. These are very mechanically driven pieces of machinery. If you’re not doing proper maintenance and putting new capital investment into it, it’s going to decline naturally.
What’s happened is similar to the real estate space, there’s been a huge supply shortage of building. We weren’t building a lot of single-family homes for a long time, and it’s kind of caught up with us. The same thing is happening in oil and gas. Add to that the geopolitical issues in Europe with the Russia-Ukraine war. Russia is a massive exporter of oil, one of the biggest ways Europe gets its energy. Right now, no one wants to buy Russian oil for good reason because of what they’re doing. It’s created a discount on the oil coming out of there.
You look at the global inventories of oil, the reserves we have from excess drilling, and we’re pretty much close to zero across the board. We view it as an energy crisis. We just released an episode called “The Brewing Energy Crisis” a week or two ago. Ironically, two days later, the Wall Street Journal released an article talking about America’s new energy crisis. It’s not something that’s going to be solved overnight because this capital investment is a long cycle. You can’t just turn the wells back on and get more production.
You have the political landscape trying to punish larger oil and gas producers by giving them different kinds of taxes and things that disincentivize supply. You have this natural lack of supply, then the political landscape reducing supply, and demand has come back with a vengeance in the past 18 months from people traveling more post-COVID. It’s more than that. We think it’s going to be long-term. We have an oil and gas economist coming on the podcast in a week or two to talk about long-term demand and supply trends. I had a quick conversation with him, and he said we’re going to see elevated pricing for the next decade.
This is a mega-trend that is not quick. We’ll have some volatility, and there will be points where it trades lower based on short-term things, but at a macro level, on a long-term secular basis, we’re facing serious supply challenges in the oil and gas space. From an investment standpoint, it creates a lot of opportunities, especially with these elevated prices. If you can work with an operator with a low breakeven cost, you can get pretty good cash flows. There are ways to play with better interest versus working interest.
Another mega-trend we see happening for the next several years is inflation. Energy and oil are really the mother of all commodities. It’s used for gas and energy to produce mineral drilling and exploration. It’s used as a base material in many different industries. If you have elevated prices in oil and gas, it’s going to naturally increase prices of many other consumer goods. I think we’re going to be challenged to get inflation back to a manageable level for some time.
Yeah, really great insights, Ben. Just to tack on to that, a few comments. Like you said, this overall macro trend—essentially there’s just not enough global infrastructure to support the demand, and oil and gas is such an intensive industry. From the exploration side to actually getting oil out of the ground, it’s very intensive and takes years to get there. So, trying to keep up with that demand, even if we wanted to turn on the spigot right now, we can’t really do that.
I think that really supports your thesis of the overall macro trend where supply and demand have a huge shortage in terms of supply, and that’s not going away. From the green energy perspective, I think everyone wants to do their part with green energy. We have to save our planet. But what a lot of people don’t realize is that things like lithium batteries, wind, and solar require a lot of energy to mine lithium—over 70% of it. That mining is done with petroleum-based equipment and products.
Another thing we’re not seeing on the green side is the energy required to manage lithium batteries as they start aging in 20-25 years. Where do you put them? How do you dispose of them? That’s going to create a significant issue. I believe people should do more research if they’re afraid of the green impact, like how much petroleum-based energy goes into things like batteries, wind, and solar.
100%. You make a great point about lithium. We just saw a stat the other day talking about this forced transition to green energy. Lithium is a huge component of battery technology and what’s used in electric vehicles. Right now, just simple numbers, the global percentage of cars that run on electricity is less than five percent, but the production of those cars uses 60 to 70 percent of the global lithium inventory.
So, five percent of cars that are currently electric are using 70 percent of the current mining of lithium in the world. If we want to transition to green energy in the next 10 years, there’s no way we can do that just on simple math of lithium production. We have to massively increase lithium mining, which is a very dirty business and requires a lot of fossil fuels. It sounds nice, green sells well, and ESG is super sexy. Everyone wants to be part of the green movement, which we do too.
We’re not arguing against green; we’re arguing against brushing over the facts that tell this one narrative while producing a whole other set of consequences. Another big trend we’re seeing, and not hearing a lot of people talk about, is deglobalization. Another big vertical and asset class we believe is on a mega trend is industrial. Domestically, at least, there’s a de-globalization trend going on. The e-commerce trend over the past 10 years increased the need for industrial real estate for warehousing and distribution.
That trend has started to slow a little bit. You saw Amazon with big headlines about canceling square footage in industrial, but the reality was they just didn’t execute on five percent of the new industrial they were planning. They’re still increasing by a huge number, just decreasing that increase slightly. The new trend is deglobalization, basically the onshoring of inventory and manufacturing.
When I was in school 15-20 years ago, the big thing everyone was talking about was just-in-time inventory and globalization driving down costs by globalizing the supply chain. You could get parts from China, Taiwan, or Mexico, and the labor market was cheaper, driving down costs for consumers. But COVID showed us the supply chain got really disrupted. Auto manufacturers like Ford have continued demand for new automobiles but can’t get the computer chips needed to finish production.
They have cars 90 percent complete but need this chip from Mexico, and the supply chain limits the amount they can get. That chip is an insignificant cost relative to the overall production of the car, but they can’t finish it without it. Having inventory domestically in the U.S. and paying a little more is worth it to generate revenue. We’re seeing that across the board. Big manufacturers and companies are reshoring to reduce supply chain dependence.
We’ve seen labor market costs rise in third-world or second-world countries, where historically you saved on labor costs by producing abroad, but it’s normalized now. The U.S. manufacturing market is more attractive. We’re seeing these deglobalizing trends, which we think will benefit many industries, including industrial real estate, a vertical we really like.
Yeah, very interesting. So why don’t we transition into that? You talked about inflation a little bit, having some insights on that. I know everyone’s trying to pull out the crystal ball right now. What are you thinking from that perspective?
Ben: Yeah, I think I kind of alluded to it. If you break down the components of CPI and what’s causing the bigger drivers of CPI, the number one driver is energy. We’ve seen a little bit of it come off recently from the highs, but for all the reasons we just talked about, we don’t see energy prices coming back anywhere close to 2019 levels for some time. That’s going to have an indirect effect in many other industries because it’s used as a base material for the production of a lot of things, and it’s going to drive inflation.
I think it’s going to plateau and probably come down a little bit. The last reading was 9.1 percent, which was extremely high, but it’s a bit of a lagging indicator. I think the next reading will probably be a little bit lower than that. If you think about the Fed’s mandate of long-term inflationary numbers they want to see, it’s around two to three percent. That’s their mandate; that’s what they’re going for. We’re way off from that, and I think we could probably normalize somewhere in the five to six percent range as some of these initial shocks get out of the system.
We’re going to have elevated prices for a period of, we think, a couple of years, possibly as many as three to five years. If you look at energy costs as a primary component of that, alongside many other factors, we think inflation is going to remain high. The Fed is trying to slow demand a little bit by increasing interest rates, which will probably have some effect on that.
But boots on the ground, we’re still actively trading deals. It does not seem to be slowing down the real estate market too dramatically. Some deals are kind of at a disconnect, but it still hasn’t fully done what I think they’re looking for. I think that could be a headwind we have with interest rates continuing to rise. The Fed’s position on that has historically been pretty dovish, but they’ve also turned very hawkish. It’s a little hard to read where they’re going to go.
Will they let us go into recession? Will they keep us there for a while? Will it be like the period of the 1980s where you had stagflation, which is a word a lot of people are throwing around? I don’t know. My gut says that if things get bad again, they’ll drop rates again and help keep liquidity in the market because it seemed to help a lot during COVID. From a pure inflation standpoint, I think we’re going to see it for a while, probably not as high as we have, but it’s going to continue.
So what we’re doing is positioning ourselves by buying inflation-protective assets, buying assets that are going to benefit from inflation. Real estate generally is a really good asset. Residential real estate is probably the most highly correlated to inflation, so we love multifamily, single-family, short-term rentals, and long-term rentals. We’re trying to get in a position to benefit from what we think is going to continue for a while.
Yeah, for sure. Ben, if you could give one piece of advice to listeners about how they could accelerate their wealth journeys, what would it be?
Oh, good question. Yeah, you know, I think all the things we’ve said to sum it up would be to think differently about your wealth allocation. Get out of the public markets, or don’t get all the way out if you like it, but get into some of these other asset classes that are going to benefit from what’s going on. At Aspen, we believe there’s always an opportunity. Even if there are challenges, if there’s an economic recession, there’s always going to be an opportunity if you know where to look and what trends to look for. Turn off the noise from the media that’s always changing the headlines with the latest thing. Look at the underlying data and find places that are going to benefit from long-term trends. The power of compounding, as I’m sure you talk a lot about with your listeners and your clients, if you can just compound and not have big tax hits or big volatility hits, that’s probably one of the biggest ways to grow your wealth very rapidly.
Yeah, awesome. Thanks for that, Ben. I really appreciate you coming on the show today and sharing your insights. I know everyone’s going to love the updates. If people want to get in touch with you, learn more about what you’re doing, what’s the best way?
Yeah, our podcast is “Invest Like a Billionaire.” You can go to thebillionairepodcast.com and tune into some of the episodes. Investors who want to check out some of the offerings we have can visit aspenfunds.us for our investment private equity firm.
Awesome, thanks again, Ben.
All right, thanks, Dave.