FineMark Radio

FineMark Radio: Episode 8 Transcription

FineMark Radio: Episode 7 Transcription

FineMark Radio: Episode 6 Transcription

David Scaff: Good afternoon. This is David Scaff with FineMark National Bank, President of the bank in Palm Beach County. And today, I’m very proud to have with me my colleague Adria Starkey, who is the president of FineMark in Naples and Collier County. Welcome and thank you.

Adria Starkey: Thank you, David. This is so exciting to be with you in this podcast world.

David Scaff: In this virtual world. I know it’s great, isn’t it? So, today, we are going to address a topic that’s near and dear to your heart. And the topic is why women’s financial lives are different. Let me just get started right away and say, why are women’s financial lives different?

Adria Starkey: Well, David, I’ve been doing this for a long time. And so, this interest for me has taken time, and I’ve grown with it as I’ve watched my clients grow over time. So, first of all, the average age of widowhood in our country is 56 years old. That’s stunning to me. That was amazing. For women, their spouses are dying on average at 56 years old, and women are now marrying later in life. So women are going to be alone. Whether it’s early in life or later in life, they’re going to have to take care of themselves. Women live longer. They have a different employment history. Although today, there are more women enrolled in colleges, even postgraduate programs, than there are men, pretty much across the board except in technology. There are a few areas like engineering, but for the most part, women are really getting great educations. They’re all in school. Yet, they’re still making 80 cents on the dollar to a man, and they have a different employment history. We’ve seen that during COVID because who was affected? Women stayed home with their children because kids didn’t go to school, and women were the ones who dropped out of the workforce this time. When women do that, they affect their 401(k)s, their retirement savings, all of these things. And they have to live longer off of these plans than men do.

Also, women are caregivers, and it’s not only their children. They end up taking care of their aging parents. This takes away from their ability to work. It also costs them more money because you end up caring for them. Then divorce is another factor. I know we’re supposed to be, especially in Florida, in the equal divide, but women do not end up as well in a divorce situation as men do. It could be because men go into it as a business proposition, and women are much more emotionally tied in.

When you start putting all of these factors together, it’s very important that women are more engaged, yet their innate nature is to be less engaged and leave the important, bigger decisions to men in their lives. To me, those are your investment decisions, your planning, estate planning, as well as just insurance, anything that’s risk related. I think we try and not try. A lot of data shows that women prefer to have their spouse more involved in that process or their father. It happens with younger women. They turn to their father or another man.

David Scaff: True. So, listeners, in case you were unsure, Adria is passionate about this topic, and she can share the knowledge that she’s gleaned over the years with this podcast. Thank you for that introduction. Now you and I have worked in the financial services industry most of our lives, and I’ve heard you say before that women don’t think they’re being heard by our industry. Can you expand on that a little bit?

Adria Starkey: Once again, I listen to what clients say, and then I’ve also read so much research now, and time and time again, women will go into a meeting, and if both the husband and wife are in the meeting, they feel that the portfolio manager, the person who’s really running the money, focuses eye contact much more with the male in the room than the female. They feel that they’re spoken down to. These are all things I have heard. They’re spoken down to by people. Oftentimes, in most situations, we will see the male 401(k) or IRA is always larger than the woman’s. I get really excited when I see a woman have a larger 401(k) than her husband, and I give her a high five and big kudos for that. It’s very rare. Do you agree with me?

David Scaff: Yeah. Absolutely. Well, you know, we’ve lived through a time where we’re transitioning from some of our more mature couples where it was quite commonplace for the woman to leave everything to the man. I guess they sort of naturally got talked past, but do you think that still goes on today?

Adria Starkey: One of the reasons that I really do believe this still goes on today is the investment world. I don’t know the exact percentage, but I’m sure I can find out, but there are very few women involved. It’s just tough to find good women that are managing money. There are not as many. We see them on TV, and I get so excited when I do, but there are not as many women in this business and we need more women. And I actually just recently went to FGCU to talk to their women finance group to encourage them to have other women major in finance and stick to the investment side of the business. It’s really important because women like dealing with other women as well. They just feel a little more secure.

David Scaff: Sure. I certainly have noticed that over my career. In fact, a lot of times, I’ve had women be bold enough to ask if there is someone female who can be their account representative.

Adria Starkey: David, you know what, it’s not just in the investment world. It goes a little bit further. I hear about it from their accountant and their estate planning attorney. So as you said, they were not involved during the course of their long-term marriage. And then their husband passes away. They’ve had the same accountant and the same attorney who have drawn up all their documents. Then they come in and tell me, “I don’t like this guy.” I really want to change. And you’re thinking, well, maybe you should have gotten involved. I always tell women, get involved, go to the meetings, send a little note, send them a birthday card, a Christmas card, stay engaged with these people. So you get them on your side, win them over and make them feel important because you will need them as part of your team. It’s very important. So just a little tidbit of getting those people involved in your life.

David Scaff: I had a very important example of what we’re talking about early in my career. A professor at UF, a finance professor, and I were called to a meeting with the husband and wife, and the professor had had a stroke and he couldn’t speak. He could understand, he could write, but he couldn’t speak. He was bringing me all of the assets he had saved over his life. I mentioned to him that we should meet with an estate planning attorney because you could only shelter so many assets. And I said, at the time, it was like $1.2M and the wife looked at me and said, “Well, we don’t have that kind of money.” And they were sitting there in front of a stack of stock certificates that represented about $5 million worth of assets and a little tear formed in his eye, like, you know, I’ve failed. That story has stuck with me my whole career.

Adria Starkey: So true, David. We have people who come in now who might be banking clients and they love managing their own money. For some men, that’s their passion and we never want to take that away from them, because as they age, they need to have a passion, but we’ve started relationships where they agree, okay, I’m going to do this and I’m going to give you a little bit now. I want you to take care of my wife and I’ll turn it over when I can’t do this so well anymore. And you might have to be the one to tell me when I can’t do this so well. Yeah. And that’s the type of relationship we form with our clients. We have to be there to help them through transitions.

David Scaff: Well, Adria, backing up a little bit, how was it that you got so involved with educating women in particular? I know you do a lot of work for us and for our clients in this area. How did you get involved?

Adria Starkey: It really started because my dad was killed by a drunk driver. I remember waking up in the middle of the night and I’m more worried about my mom than the grief of my own dad. I’m thinking, how is my mom going to exist? Because in my mind, my mother never worked. She never did anything. She knew nothing and she wasn’t going to be able to exist without my dad. And so I needed to take care of my mom, all of a sudden, and my mom ended up being a pretty shrewd businesswoman and lived to 88 and took great care of herself. I was really proud of her, but I did not know that at the time, but it really made me begin to see the importance of understanding what you own, where it is, how you can get to it and what the next steps are after a tragedy like that.

Then I went through my own divorce and, you know, a divorce is really like, you’ve got to put on your britches and say, okay, I have to deal with this. Those learnings were very personal, and I ended up having tons of divorced women come to me and want to have the end of their divorce work out as well as they thought mine did. And so, it helped me. All of a sudden, I could really see the need, the importance of continuously doing this. I have had a passion since, you know, since my twenties, I have to do this for other women.

David Scaff: Well, those are pretty poignant and personal stories of a reason why you would get involved in this. It was somewhat by necessity and helping your mom and helping yourself. That’s really a great story. What are the couple of the things that women can do? Some things that you’ve learned that will give them, you know, a little more confidence than you seem to observe in many cases. What can they do to start to take some control?

Adria Starkey: Well, I’m going to start with the end in mind. I think there was somebody who said that it’s always good to know the end in mind. So I always tell people, you should have a strong advisor team. You should know who they are and you should like them and make sure that you’re comfortable with them. So if there’s any tragedy, there’s anything sudden that occurs in your life, who is your wealth manager? Who’s the banker? Who’s the accountant? Who’s the estate planning attorney? Who is on your team that you are going to turn to for that advice? Then actually, I have a little checklist. I’ll go through it. I don’t want to take too much time, but I always advise women to have a cash stash, a little cash on the sidelines. And I mean, they should keep it in the bank, but their own cash. It is very important.

I can’t tell you how many women, and wealthy women, that do not have credit in their own name. When you have an American Express card and it has your name on it, that does not mean you have that American Express card. Because if your husband is the primary, the day he dies, American Express cuts you off. So I have to strongly encourage women to make sure they have a credit card in their name and they are the owner of that credit card. I’ve had to guarantee them for women who have no income. And they finally realize, hey, I have no credit either. So that’s really important to me: having a cash stash. So, you can, you know, move quickly. If you need to do something, you’ve got to have some cash on the sidelines. And how you determine how much depends on the total picture of your assets. If you have a lot of liquid securities, then you don’t need as much cash sitting there, because you can get to cash quickly. If you’re very tied up in real estate, I always encourage people to have more cash because you’re not going to be able to liquidate those assets as quickly if you have an emergency or you need something.

The next thing I tell people, they don’t like, so I don’t like to call it a budget. I just want you to know what it costs you to live on an annual basis because then we can start understanding, okay, how much does it cost me to live? I need to make sure I can cover these costs. When I ask women, “How much does it cost you to live?” They want to glaze over. The first answer is “I don’t like math, so I don’t really want to deal with that all the time.” And it’s really got nothing to do with math. So what does it cost you to live?

You’ve also got to have an up-to-date will and trust. You’ve got to have your documents, your healthcare surrogate, all of those things, need to be up to date. On our website, we have an article Wall Street Journal put out years ago I love called “The 25 Documents You Need Before You Die.” I think it’s a great list of exactly how to file them because it just makes your life so much easier. I always encourage women to check the beneficiary designations on their accounts, on their and their spouse’s IRAs, just to make sure things are in order, make sure they know who is on their insurance, of course, and doing all of that. You then learn what you own, where it is, and how to get to it. And you know, I tell younger women to put away as much money as they possibly can into either retirement accounts, 401(k)s, any type of tax-free investment vehicle that works for them and make sure that you’re always trying to educate yourself a little bit every year so you can learn more. There’s a great book, “Smart Women Finish Rich.” It’s like your little handy dandy Bible. It’s really easy, but it’s a great book to go through. “Smart Women Finish Rich.” I always recommend that. That’s a quick go-to.

David Scaff: Well that’s wonderful. I’d like to say that your list, your Wall Street Journal articles, your books that you have recommended are all going to be available by either contacting us in the contact form on this podcast, or we will have notes attached to the episode that people can find out more. We also run a series specifically for women and about their financial lives. If you’d like to become a part of that, if you’d like to attend, live or attend online, let us know by contacting us. We have just a couple of minutes left here. Leave us with some real important parting thoughts. If people listen to this broadcast and take away one or two things, what would it be?

Adria Starkey: I would say that there’s just an alarming amount of data that shows that women don’t want to engage. They don’t find this topic of interest to them. And yet it’s going to be a very important piece of their long-term wellbeing. I really do mean it’s holistically like your whole well-being because if you are not happy financially, it’s really hard to be happy personally. It makes you just feel better to have your ducks in a row and know that you are safe, healthy, and well off. And that’s what we try to do for our clients all the time. And I know you do, and I try to do that all the time. So I guess for me, it’s the holistic piece of it. We have to take care of each other and our clients.

David Scaff: Well, Adria, I can’t imagine that we have any women out there who wouldn’t be motivated by some of the things you’ve said today and the passion and the personal experience that you’ve shared with us. Thank you for that. So take action, contact us and become a part of it. Thank you so much for being with us today. I really appreciate it. I’ll look forward to working with you to better the lives of our clients.

Adria Starkey: Thank you, David. It means a lot that I had the opportunity to do this because this does matter to me and thank you very much for all you’re doing. I really sincerely appreciate it.

David Scaff: Thank you. Okay. This is David Scaff signing off.

FineMark Radio: Episode 5 Transcription

Note: FineMark podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers and may contain errors. Please check the corresponding audio before quoting it.

David Scaff:

Hi, this is David Scaff with FineMark Bank. I’m the market president for Palm Beach County. Today with us, we have Carl Sabatello who is the CEO of Sabatello Companies. Welcome, Carl.

Carl Sabatello:

Thank you for your invite.

David Scaff:

Listeners are going to be interested in your perspective on real estate and Palm Beach. So that’s what we’re here to talk about. But first, before we get into those details, tell us a little bit about your company.

Carl Sabatello:

Well, we’re originally from New Jersey and relocated in 1978. I have been established in Palm Beach Gardens since that time.

David Scaff:

That’s great. 1978. So you’ve seen a lot go on in that period of time. What brought you to South Florida from New Jersey?

Carl Sabatello:

Well, it was actually scheduled. We were going to make a scheduled change. It was actually accelerated from some family issues that took place, you know, the passing of my father early, but we came here because of opportunity, number one in our business, and number two, the beautiful weather. Working in the cold of New Jersey was just difficult. So, this was the place to be. We felt that if we made the change when we were young, the transition would be so much better versus when we were older. It was an interesting story, how it all took place, because one of my brothers, Ted came to Florida and started up doing smaller projects, one home at a time, like a spec home in Singer Island. I remained in New Jersey and wound down the company and finished our jobs. Then I brought the company in Florida back up, increasing its level there.

It’s a family business. My father started it. One son joined it. I joined it when I came out of high school. I didn’t go to college and went right to the building world. Another brother went to college, and when he came out of college, he joined the company. So my father, and my other brother, Ted, and I, we were doing our thing. And then as we came to Florida, we had another brother join us. He was in the hotel business, hotel management, and didn’t like it any longer. He was traveling around the country. So, he joined us, and he handled our marketing and sales. Then our final brother Paul joined us, and he is the one who’s now in charge of the residential building in high end. He actually left medical school and decided he didn’t want to be a doctor. He always wanted to be in building and construction. So he left and joined us. So as time went on, each brother over time joined the company. The four brothers have been together since 1978, somewhere around there, 1979, we’ve been all together. My wife is in interior decorating. She would help with us in a lot of our projects that we did on the interior decorating side. So yes, it is truly a family business. And today, after all of the good and the bad, we’re all together and still doing our thing. It’s still fun. Like I said, as long as it remains fun, it’s not work, and you’ll always enjoy what you’re doing. It was a nice gathering of everyone coming together. It was great.

David Scaff:

That’s great. So, you were home building in New Jersey too, doing kind of the same thing?

Carl Sabatello:

Yes. We were home builders in Northern Jersey and also Southern Jersey on the coast. We’ve been doing that for a long time.

David Scaff:

That’s great. 1978, you said? Wow. Tell us a little bit about what changes you’ve seen in the market down here since 1978.

Carl Sabatello:

Well, the cycles have been very different. In the early days, cycles were pretty much predictable. The highs and lows were almost separated equally. You knew that you had to make money and do business during the recovery and the early part. Then the recessions came back, and the cycles repeated themselves, and it was kind of predictable. Those who prepared for a recession were always in better positions. And we always did that. We were able to have the luck and foresight to predict them. We were prepared for the downturns, and we were ready for the upturn coming out of it. Lately it has been very different. Palm Beach County specifically has changed. When we first came down, it was a lot of land and so many developments were coming up out of the ground. As time went on, the land was built out with new developments, so you ended up now where the cycle has changed to many of the homes being tear-downs. So, you either do major renovations or it’s a full tear-down, depending on the market. And that has been the biggest change over the last five to seven years. That has been the biggest change.

David Scaff:

Yeah, I guess one place where that has been going on for a while is the Town of Palm Beach, which has been built out for quite a while. But I read in the paper today that you had quite a blockbuster sale announcement for a new home here in the town.

Carl Sabatello:

Yeah, Palm Beach has been like other high-end properties and markets, with Palm Beach being extremely unique. It’s very, very different than the norm. The uniqueness of Palm Beach and the privacy and the community that they try to maintain. It is very special. There has been a change that has created a challenge for renovations versus new. So, what you’ve seen in certain areas, Palm Beach being one of them because of the requirements of the elevation, is the minimum floor elevation for flood level has increased. That has been a big problem. So homes that are older and built in the older days are lower. It’s difficult to improve those homes. You will see more of those homes being taken down because they’re too low. And then there’s another requirement that if you improve the home at a more than a 40% improvement ratio, you have to bring the whole home up to code to the current code. So you can’t go in and put lipstick on properties any longer. You have to do major improvements. So then you start making the business decision, as most people have been doing, and tear it down and just do new.

David Scaff:

The flood elevation requirement changed a few years ago, and has recently changed again, has it not? What is that elevation?

Carl Sabatello:

It continues to change as we learn more and as different problems happen specifically on the east coast. We had some major hurricanes here that had an impact to Palm Beach County. There was also a major super-storm up in the New Jersey and New York area. That again was another reason for the change. They had a big flood where the ocean connected to the bay, and everything was flooded. So, we have these events that take place, and as we learn and create changes, that becomes critical. Everybody wants to be higher. And of course, there’s a cap, meaning you can’t go as high as you want. You can only go at a certain level, and you must go to a minimum. There’s a fine detail that you have to deal with.

David Scaff:

So, they’re squeezing your property. So, the Town of Palm Beach we talked about as being built out for years and tear-downs and rebuilds going on, but when I moved here 30 years ago, the north part of the county, as you said, had lots of land to build on. That market has changed quite a bit, too, in Jupiter and Palm Beach Gardens. Tell me about the changes that you have seen there.

Carl Sabatello:

The change is the land — the opportunity to build and develop into different parcels of land. That has changed because the land is no longer there. For example, we were one of the first builders and one of the selected builders in many of the north communities: Admiral’s Cove, Old Marsh, Mirasol, Ballen Isles, PGA, Ibis. All of those communities had specific builder programs, which were selected after interviews of builders who offered something that would be complementary to their communities. That’s what we built in for many, many years. That changed. And in the real estate and building world, as in banking or in any business, the environment changes, but the core of the business never changes. You do banking the same today, 101, as you did 30 years ago, but it’s changed substantially. And the same thing with building, same thing with fashion, same thing with food: the core stays the same, but what we do today is totally different than what we did in the past. Not only in design, but how it is, the process. I remember when we came in 1978, we would make application for a building permit, which is the common situation. Plans were maybe four sheets, maybe, possibly, if it was really detailed five sheets. The building permit was three pages long, maybe two auxiliary pieces of paper and that was it. Today, we go in for a building permit and we have anywhere from three to four cardboard boxes of detail and plans and documents, all to the better. You know, it’s not to say that it’s something that’s been a requested for delay of anything, but it’s all to the better. The products are different. We’ve learned a lot over all of the storms and hurricanes that we experienced. So, things have changed. Codes have changed and how we do things today is very different than we did things years ago. But the core is the same. Building is building, if it’s a high rise or if it’s a one-story home, it’s the same.

David Scaff:

So, things have changed, and some things have stayed the same, but talk about the market from a standpoint of any change in people that are buying houses today, from what they were years ago, size of places, the features that people demand in houses today.

Carl Sabatello:

That’s changed. And the markets are very different. If you take Palm Beach, you have used that as a reference before. And when you say today, this is post-COVID. So, all rules are changed and everybody’s doing something different. We have a tremendous amount of younger people in the Palm Beach market that we’ve never seen before. Not only from the Northeast, the Midwest, California, Texas, we’ve never seen that kind of influx of people that are coming in. Families, young people, kids — it’s very unusual. Home is different now today than it was as you grew up and I grew up. We happen to be similar in age; I’m older than you, I could tell that.

David Scaff:

Thankfully there’s no video here to prove that, Carl.

Carl Sabatello:

But homes are different today, spaces and areas that people live in and how they use it is not the same. Family rooms are used differently today than 15, 20, 30 years ago. They are not as much the gathering areas; everyone has retreats in other spaces. A lot of the equipment and electronics change the home. The size of areas and how they relate to each other is very different today than it was. And it’ll change tomorrow. We’re getting near the Jetsons’ days now. We’re getting so spaces are smaller than they were, but there’s more spaces, more individual spaces for everyone. So, the homes are changing. Technology has entered into the homes. On your phone, you can do everything. Almost at this point in life, you can cook from your phone being somewhere outside of your home, push a button, turn on things, turn off things. So that’s something that is very, very different, not only in style and layout and plans and detail, but the technology has made a very, very big change to how we design homes and how people live.

David Scaff:

Has that presented a challenge to you or is it just different?

Carl Sabatello:

It’s different. There is always a challenge. Anytime there’s change, you have to learn the change. Your market and your buyer are asking for something different. You have to learn and understand what that need is. Sometimes they know, and in a lot of cases, they don’t know. They know what they want, but they don’t know what they want, or they don’t know how to get there. And that’s the challenge of professionals to bring that. And that’s the job that anyone needs to do, if you’re in banking or if you’re a builder or you’re a chef in a kitchen, it’s the same thing. Somebody knows that they want something, and the professionals bring those two together and make it happen. The challenge is there for sure. The first thing is to understand it, to learn it. How do I satisfy that challenge, that need of that buyer? And once I can understand how to satisfy that as a builder, an architect, a professional, once you understand their questions or what their needs are, you know how to bridge the gap and make it happen. So that has been a challenge; it’s always fun. Changes are fun. When you stop enjoying the change in your business, it’s time to hang up. So, it’s always fun to have change. Change is always the healthy part of any business.

David Scaff:

I think the listeners would love to hear some of the more unusual things you’ve been tasked with in terms of either design or build or something lately. Anything stand out?

Carl Sabatello:

There are a lot of quirky things people end up wanting and needing. I would say some of the ones that really stand out would be when we renovated the John Lennon mansion in Palm Beach for a real estate developer from Massachusetts. When we opened up the walls, you found hallways and rooms behind walls. The interesting one was a hallway that went down into a cave and connected the next-door neighbor to the property. There are stories of what had happened in those tunnels. That was kind of fun to open up and find something in a wall that you wouldn’t expect. We’ve opened up walls, and in a lot of cases, we found things that were pretty interesting like jewelry and money. Those things stick out with you. Well, what happens is people store things away and they hide things, especially older generations. They didn’t have a lot of trust in a lot of people in a lot of places. I don’t want to mention banks. But they would hoard these things in places. And then of course, they either would get ill and forget or die, and no one knew they were there. And when we start doing these types of things, that was always an interesting thing.

In design, most of the time people stay within the parameters. They understand that if they get too unique, their properties will become an issue possibly later on. But there are a lot of them.

The design is probably what really has changed. In the eighties into the nineties, it was bigger, higher, and more glass. More glitz was very, very popular. And then it softened off and less became more. Less became better. It was more an attention to quality and refinement, simpler, more Zen, quieter. A lot of the designs went away, the heavy look of homes. That again was a challenge trying to make it feel spacious without it feeling too big. And so that always became a challenge.

David Scaff:

You mentioned a few minutes ago just in passing about post-COVID, though 2020 was a tough year for a lot of businesses. What kind of impact did COVID have on your business?

Carl Sabatello:

Our business is extremely busy and remains extremely busy pre-COVID, during COVID and post-COVID. The difficult part was the challenge of trying to stay on schedule. It was difficult for workers in the field. I’ll take the field and I’ll work my way back. It is very hard for men and women physically to work in the field. And when they started having to wear masks, which reduced your breathing ability, that was really difficult. Your day of work or production would get lessened. The restrictions by the amount of workers on a job at one time was a challenge where you would have to almost plan and schedule differently. Before, if you take a residential home, you could have four or five, seven people, and different trades could be working at one time. Somebody could be working on landscaping or driveways on the outside, painters on the outside, trimmers, plumbers, electrical people, they all can work in harmony to get together. That all changed. So now it had to be a different type of scheduling. That was very, very difficult.

Materials and supplies are to the point now, it’s almost ridiculous. We are ordering our appliances for homes 10 to 14 months out from when we need them. It’s asking somebody to pick their appliances and their plumbing fixtures prior to even starting the slab of the home. It’s hard for them. They didn’t even think of that. You have to almost reverse the selection process because things are so difficult to find. And when you do pick something out, there is greater than a 50/50 chance that when you’re ready for that item, it’s either not available or it’s delayed, and you have to repick and start that over. So that was a challenge. And then back into the offices, of course, everyone’s experienced that, when you’re in the enclosed space, that’s a whole other restriction and difficulties that everybody has really experience when you’re within a closed environment.

So, yes, it’s been a challenge. Right now and going forward and post-COVID, I would say the biggest problem that is affecting the building industry, and I know it bleeds out to others, is labor and the amount of workers. I’ve been doing this for, I hate to say it, almost 50 years. It’s greater than 50 years I’ve been doing this, and I have never seen a shortage of laborers and workers of all levels, unskilled to skilled, and materials. Supplies have been so difficult to obtain. So, you have to be that much more diligent and be on top of your business plan to make sure that you’re out in advance of those items.

David Scaff:

So, what I hear is scheduling problems, lack of available labor, lack of materials, all those sound like delays to me. People always talk about how long is it going to take me to build a home? What are you counseling people today about how long it’s going to take to build their home?

Carl Sabatello:

Well again, of course, the complexity of the home matters, but it is very difficult for any professional to answer a client and not have the knowledge or be specific and have an answer. It’s an awkward position. It’s no different than if you went to the doctor and said, “I’ve got a problem. What should I do?” and he shrugs his shoulders like, “I don’t know.” That’s an uncomfortable feeling. So, it’s the same thing. You go to your architects or your builders and ask, “How long is it going to take?” You have to give them a very broad range. It could take anywhere from 18 months to or let’s say a year and a half to two and a half years. There first is a stare like “Are you serious?” and it is. They have to be prepared for the delay, because it’s very complicated when somebody is planning to move in a new home. It’s a whole different change. And especially when they’re moving from outside the state, and they have children. There’s so much that goes into it. It’s not that easy to move. Then when you give them a window that’s maybe 12 months, it’s difficult, but it is the problem today.

Unfortunately, as people see in the media, material prices are coming down and the availability is getting better. Well, that doesn’t hit the market for six to 12 months. It’s like saying a barrel of oil has dropped. We won’t see that when we put the fuel into our car until maybe months later, then you see that drop in the barrel of oil. So it’s the same thing with these materials. You’re not going to see change of availability, change of pricing until way down the road, which again, becomes another difficult problem scheduling.

David Scaff:

So, I guess when you talk to somebody about taking two plus years to build a house, it would explain the real demand placed on existing homes and the market being overheated and people snapping up available homes left and right.

Carl Sabatello:

Many people right now are buying something that they can move in quickly. They’ve made a decision to maybe move out of other areas of the country and come to Florida for many different reasons, but they’ve made that decision and they want to do it now. Of course, the market, as it’s being so difficult, less availability creates supply and demand, and supply and demand controls prices, no matter what you’re doing. Right now, we’re seeing extremely high prices. The supply is low. The supply is going to remain low for many reasons. Cost and materials are not part of it, but the availability of building a new home, finding a lot that is for sale that you can either renovate a home or tear down. The second thing is the approval process in some areas is very lengthy. Some areas are better than others, but the days of making a decision to get a plan and go in, get a building permit and receive a building permit from the municipality or governmental agency in a couple of weeks is history. It is very common that it’ll take months to get a building permit. And the more complicated the building, the longer the delay in how long it takes to do the plans. And after the plans are completed, then you can put in for a building permit and wait months to get a building permit. Then of course the construction period, when you put it all together, you’re talking a very long time.

David Scaff:

So, Carl a hot market, but a vibrant market. What concerns do you have?

Carl Sabatello:

Well, I’ve seen them. I lived them. I lived them all. I lived the market the crash that everyone will remember — the last one that took place. There were different forces, different elements, different reasons for that crash and the market flipping and going the other way. What is going to keep controlling this market is availability and product. As long as product stays of short, you will continue to have prices stay high. Not necessarily at the pace they’re at, although today’s pace has probably never been seen before, not in my experience. It may flatten, but it will still stay strong. The only thing that could happen is a hiccup if something happens nationally or something happens globally that is unexpected, that could be a blip. But I would not say that the market is going to soften, and it will stay strong for a period of time. Right now, the old words of, I guess it was Mr. Hilton, “location, location, location” in real estate today is extremely important. And those areas of quality are going to stay strong and they’re going to stay in demand, and the supply chain is going to stay low, and that’s going to put the pressure on it.

David Scaff:

So, Carl I’ll have one last question for you, and then we’ll hang it up. If I’m moving to Palm Beach County as a new resident and either want to buy or build, what advice do you have for me?

Carl Sabatello:

Keep your emotions in check. That is probably the worst thing that anybody can do. No matter what you buy. That is the dangerous part, emotions. Test yourself, ask the questions. Don’t overreach, just because you want it. Be focused, be diligent and be focused on your budget, stay within your means, and location, location, location. Even though it may be a delay, deal with the highest quality people you can. Don’t fall victim of somebody that could do it quicker, or you could get something that you were hoping to from someone else that you couldn’t, because there’s a lot behind that. You would have to ask the question, why is everybody so busy and take so long and someone else could do it quicker and different than others. That’s a formula for problems. So be careful, don’t overstep it and go to the areas that will remain strong for years to come. And that’s location.

David Scaff:

Great! Good advice, Carl. I thank you so much for being with us today. I’m sure our listeners will really appreciate your insights and thank you so much. We’ll see you another time.

Carl Sabatello:

Thank you very much.

FineMark Radio: Episode 4 Transcription

Note: FineMark podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers and may contain errors. Please check the corresponding audio before quoting it.

David Scaff: Good afternoon. This is David Scaff, the market president for FineMark in Palm Beach County. Today I have with me FineMark Senior Vice President and Senior Lending Officer Doug Parkey. Welcome, Doug.

Doug Parkey: Thank you, David.

David Scaff: Doug, today’s topic is going to be something that you know a lot about, kind of a double topic. We’re going to talk about the real estate market in general, the real estate market in Palm Beach County, and then some lending trends that you see supporting real estate. I was getting myself ready for this, and I did a little bit of homework on home prices and I’m talking now home prices in general, nationally. And I noted that from the fifties, which is as far back as the data that I saw went, until the nineties, home prices pretty much stayed around the rate of inflation, increasing at their rate of inflation with little blips up and down. But by and large, they stayed with inflation, but then sometime in the nineties and continuing until 2008, we had a big divergence from inflation home prices. Can you shed some light on that for me as to why that would happen?

Doug Parkey: Sure. I have been in banking as a lender since 1985, and when we first started to make loans in the banking and S&L period in 1985 to the mid-1990s, we were doing what it’s called portfolio lending, where the bank would make the loan, and they’d keep it on their balance sheet, and they would service the loan. They lived with that loan for as long as the loan was on the books. Then at some point after that, there was the securitization of loans that provided liquidity to banks, such that if you could underwrite a loan, you could close it. And then, at some point, whether right then and there or later in the life of the loan, you could sell it, thus giving the bank the liquidity to make more loans. That ultimately became problematic in that it eased the amount of credit standards that banks used because they didn’t have to have the loan on the books.

It got a little sloppy as far as verifications underwriting, and it created the problem that ultimately manifested itself in late 2007 and 2008. We had the financial crisis where at that point, banks were doing what was called stated loans, where you didn’t even verify income. They stated a number, and banks weren’t necessarily doing the deep dive due diligence that we do today. In my eyes, that was the time where we went from being probably too restrictive to not paying attention enough. It’s come full circle now again; I think in a good way for everybody.

David Scaff: So, what you’re saying is, like a lot of other things in life, money fuels sometimes good and sometimes bad behavior and has unintended consequences. Absolutely. A lot of liquidity flooding into the housing market during those times spiked prices. Continuing on, as a result of what you were just saying, in 2008, we had the financial crisis. It started as a liquidity crisis, but it bled over into housing. Talk to me about what you witnessed and saw during those times.

Doug Parkey: Sure. In the banks that I worked for at the time, The Office of the Comptroller of the Currency, which is the regulator of the banks, forced us to do more than what I call the shadow banking system, where you had a lot of mortgage brokers out there that were underwriting paper. They were a hundred percent selling everything they originated. There was no impetus upon them to dot their I’s and cross their t’s. As a matter of fact, I heard of people using white-out on tax returns to get the numbers to work. It became the Wild West. However, speaking from working in a bank, we still underwrote cash flow. We checked credit. I look at it as kind of two different things. The banks continued to follow pretty decent rules. The shadow banking system is where I think a lot of the problems existed in that they weren’t bankers. They were just putting packages together, selling them to the secondary market, getting paid, going out and making more. The unfortunate thing for the banks is that they wound up seeing the yield on those loans because they weren’t considered A-paper. And somewhere in the asset-liability committees and investment committees of these banks, they thought it was a good idea to buy tranches of that type of paper, because it was better than “the A paper” that they were used to underwriting. The banks got pulled into the dilemma because then they now had exposure to what was non-A-paper, and thus, it helped the problem with the banks. While the banks weren’t necessarily the originators of the loans, at least in my experience, what became their problem was that they bought into pools of loans and they didn’t truly understand the underlying credits that were in them.

David Scaff: 2008 was a big change. We had an end to the increase in house prices, a pretty dramatic end, and through about 2011, prices declined. Now, did you see that here in Palm Beach County as well as what we saw in the national data?

Doug Parkey: Yes. Palm beach county had some great growth, primarily due to folks moving to Florida from the Northeastern United States. And it was for various reasons. It was retirements, the weather and playing golf. And then there are the real tax implications of being a resident of Florida, where it was advantageous for people in the Northeast to leave the higher tax states that they live in and come to Florida, where there was no income tax, and there was no estate tax. It became a strategy for people that if they stayed six months in a day in the state of Florida, they wound up having a tax advantage over living six months and a day in Northeastern states. We had that going for us and they were selling at Northeastern prices, bringing quite a bit of equity capital into the Palm Beach County market. And prices started to go up because you just had that demand for the type of product that we’re doing.

The other thing that was happening at the time was just the fact that money was so easy to get that people who weren’t necessarily moving from down here could own several homes because the true underwriting wasn’t being done. It wasn’t uncommon for people to speculate on second homes and third homes in the same market that they were in. So it just, it ran up the price. Then, once there was so much exuberance in the market, it just collapsed because it just couldn’t keep pace. And there was a good bit of problems in Palm Beach County, well, like the rest of the country. We were not immune from the downturn to the point where we saw anywhere from 25 to up to 50% declines from the highs. Sure. We’re hoping obviously now to never relive that.

David Scaff: So yes, we did take a break from that speculated lending with people owning homes that they should have never owned, certainly multiple homes that they should not have owned. So we did pause from 2008 until 2011. You said that as a result of the financial crash and the real estate crash, there was a change in the regulatory environment. Tell us just briefly about how that change came about.

Doug Parkey: In 2010, Dodd-Frank was legislation that was passed that required lenders to do more due diligence and make sure that all of the i’s are dotted and t’s are crossed on one’s ability to repay the loan. And what it did is it allowed, if you did not do that job well, it allowed for your loan to be in a precarious position, such that if you do that due diligence, you could potentially lose their mortgage on the property, which would mean a horrific loss to the bank. It has teeth to it, as it should, and that’s corrected a lot of the reckless lending that’s happened in the market.

David Scaff: Thank you. We’ve seen since 2011, I’m now focusing more on Palm Beach County, although it’s a national trend as well, we’ve seen house prices rebound again and really shoot up. I hear people ask all the time, are we in a housing bubble? Are we going to go through another 2008? And if so, what are your feelings about that?

Doug Parkey: Sure. The migration pattern has continued, and COVID just took it to the next level with all the people considering retiring from their jobs in the Northeast. And now you have some from the Midwest, California, out west states. People are moving to Florida because of the tax environment and the advantage you have here. Technology has helped to create an environment where you do not necessarily have to live in some of these places that you lived before to conduct business. Airline flights from Palm Beach County to New York or Boston are fairly inexpensive most of the time, and there’s a number of flights so that executives can live down here. They can still have their businesses up north, and now with what we call zoom calls, video conferencing, and what you can do with a laptop in your home.

You’re just seeing people migrate down here who were on the fence, in addition to the people who would naturally decide this. So, what it’s done is it’s taken most of the inventory down to a level where the supply just cannot exceed the demand. You have people paying prices that are above asking. We see that all the time, and it’s become a bit of an issue for our borrowers because it puts a lot of emphasis on banks: Being able to look at financing packages quickly and make a determination of pre-qualifications or pre-approvals such that a realtor now will not take a bid in a lot of cases where they don’t have some type of pre-commitment to financing. If financing is required, we still enjoy in Palm Beach County a very healthy cash market. Anywhere from 50 to 60% are cash deals. But for the ones who want credit, bankers are there to help do that, and they’re doing it much quicker than they used to.

David Scaff: It sounds to me like in a market like this, if I am going to borrow money to buy a house, I’m pretty interested in speed in terms of being able to get an answer about whether you’re going to lend me the money to buy my house. Talk to me about what you see in terms of turnaround time and that sort of thing.

Doug Parkey: Well, it can make or break a purchase for clients, prospects or borrowers. To give you an example of something that recently happened, we had a hedge fund manager move out of the north to run his hedge fund out of Palm Beach, and he needed to purchase a home to do that. Like I said before about the demand, on the day these listings go public, they’re selling and selling at a premium. There are multiple bidders on $5M+ properties that you’ve never seen before. We had a gentleman call us as a referral from an existing client. And they had our cell phone numbers as though they called on a Sunday. And we said this is what we need to look at a potential credit for you Monday. They got us most of the information we needed to do some kind of back-of-the-envelope underwriting. And by Wednesday, we were able to tell them that, yes, FineMark could lend this amount of money towards your purchase. And it allowed him to move forward on his contract. We wound up closing 45 days later. We had a very happy client, a very happy seller and a very happy realtor. Being nimble in today’s market has never been more important.

David Scaff: So Doug, talking about a hot real estate market, a high-end builder friend of mine told me a story that illustrates this, that I still have a hard time believing, but a local ocean-front home was listed for 25 million, with multiple people looking at it. One guy offered over asking price 25 or 26 million for the home. A very disappointed gentleman who also wanted the house found out that he didn’t get it, had his broker call up the successful bidder and offer him 20 million for his contract. Have you seen that in the market before?

Doug Parkey: I have not ever heard of that. That takes the cake. That’s incredible.

David Scaff: It seems so to me as well, just to tell you how high things are. I guess, in summary, you’re not terribly worried, at least in Palm Beach County, about a market bubble bursting as in 2008, largely because of regulation changes and largely because of new demand from people moving here above and beyond what even the historical pattern was.

Doug Parkey: Yes, exactly. This feels different today than it did over 10 years ago. I would say bankers are a lot more careful, and while there can always be a drawdown in the real estate market, I don’t think it would be as large as what happened in the 2007-2008 time period.

David Scaff: That’s great, Doug. I guess we’ll just wrap it up there, and I really appreciate your observations on the market and sharing a story with us about what’s going on there. David Scaff signing off. We’ll talk to you again next time.

Doug Parkey: Thank you, David.

FineMark Radio: Episode 3 Transcription

Note: FineMark podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers and may contain errors. Please check the corresponding audio before quoting it.

David Scaff:

Good morning. This is David Scaff with Finemark Bank in Palm Beach, Florida. Today we have with us Sandra Baran, who’s the Founder and Director of Grace Notes Music Foundation. Welcome, Sandra.

Sandra Baran:

Thank you, David. I’m really happy to be here and to have the opportunity to speak with you today about our Grace Notes Music Foundation and the work that we do.

David Scaff:

Well, we’re really excited too. In fact, we’ve been sitting here talking for a minute, and I said, I wish I had the recorder going already because you have a great story in music. So why don’t we kind of start there? Tell me about your history in music.

Sandra Baran:

Yes. Well, I started very young in New Jersey, and I come from a family of musicians. My grandfather was from Sicily and studied at a conservatory there. My dad started a music school in New Jersey, and so I was his student from the time I was about five or six years old. A very popular instrument during that time was the accordion. So, I studied classical accordion, actually played Mendelson and Bach on the accordion. And then, as I grew, I still was involved in music and became more of an ops performer later on in my early twenties, got married and then came down to Florida with my husband and kids, got a Master’s in Music and started music education. I played for kids in some of the schools, and then started teaching in schools and started a music school in 2003, the Jupiter Academy of Music.

David Scaff:

Wow. So, this really is a lifelong passion of yours.

Sandra Baran:

Yes, I feel it’s in my blood.

David Scaff:

I think you said your parents and maybe grandfather even were musicians. Tell us about your life with music as opposed to what you might perceive it to be without. How has it changed your life?

Sandra Baran:

I think having music intricately involved in my life has made me a very positive person. All of our lives have ups and downs. Some things are tragic, some things are joyful, but I think being able to play music and teach music keeps my spirit and my psyche very positive.

David Scaff:

So, music education, you’ve been involved in it, teaching lessons, I think you said you founded a school here and that was?

Sandra Baran:

Jupiter Academy of Music in Jupiter, in 2003. I’ve done group music education in elementary school, private music, education, teaching piano, some voice, and also do youth choirs. I just feel it’s very important for students, for young children to have music in their lives, enriching it not only because it makes you more socially engaged and gives you more self-esteem, but also you can be a team player when you’re studying music. There is just a lot of research out there that shows that music should be a core aspect of everybody’s education from the time they’re really young. We’re far from that right now, our foundation is a small foundation, Grace Notes Music Foundation. That’s part of our mission, that we believe that every student should have the opportunity to have music education as a core aspect of their education and history.

David Scaff:

So, it sounds like you’ve really focused on youth through much of your career, especially in teaching and you shared with me a quote before we got started, which I think kind of sets the stage really for what you do and why you do it. Can I invite you to give us that quote?

Sandra Baran:

Yes. I found this quote that really has driven us and has driven me, and it’s from Plato. The Greeks really believed, as we do, that music should be a core aspect of the education. Plato said, “I would teach children music, physics, and philosophy, but most importantly music, for the patterns in music and all the arts are the keys to learning.”

David Scaff:

Wow. That’s pretty poignant. Thank you for sharing that. I really appreciate it. So you started Jupiter Academy of Music, and then you morphed into Grace Notes Foundation. Tell us the story about how that got started.

Sandra Baran:

Yes, it’s a very compelling story. I had the Jupiter Academy of Music, and in 2009, I had this wonderful little student, McKayla Joy Sitton. She was bright, she was joyful. Unfortunately, she was tragically killed in 2009, right around this time. And her parents had the forethought to invite people to donate to her music school or her ballet school. She was a great little piano student. When that happened, I was not a nonprofit, but I felt that I should do something important, as much as I could, with the funds that were given to us from that. And so, we started the Grace Notes Music Foundation. A good part of our foundation is the individual music scholarships, which children get each year. We have 23 individual music scholarships. They get lessons for the whole year. Those are called the McKayla Joy Sitton scholarships.

I find it so hopeful and so life-giving that from a tragedy like that, the seeds of the Grace Notes Music Foundation happened. And what we do as a foundation grew from that. It just gives me a lot of hope in a world where you need hope, where you need more light. We’re doing that kind of work. Now, that was our genesis. We have scholarships this year. We have 23 individual music scholarships: guitar, a lot of strings, some piano, voice all over the county with different teachers. We vet the teachers and we have them fill out a form. We know them, we know of their schooling and all that. Then on the other side of our foundation we have the other 50%, which is community outreach. We do things like we have an artist in residence that we fund at the UB Kinsey Elementary School of the Arts. It’s an elementary school in West Palm. They don’t have a lot of funding, but we have funded a master string teacher so that their fifth-grade orchestra can become the best they can be. We’re doing that. We’ve also started a mindful music program. This is new for us. And what it does is it’s helping to give teens the tools to alleviate or to work with their stress, their anxiety. It’s something new for us. It just started this year. We work with a very good music therapist.

David Scaff:

And where do you employ that? Is it in the schools or where?

Sandra Baran:

Well, this is so new, David. We had a pilot program in March for six weeks and it was virtual, and it worked really well. The kids came back every week. They had to commit; they were high school kids. It’s a six-week syllabus of just first meditating. It’s mindful music and then finding music that can be triggers for you. And you put them on your iPad or your iPhone when you’re feeling stressed or anxious. And there’s lots of other tools. So that was a pilot program. We’re now talking with several different agencies: A legal aid society, a clinic up in Jupiter and a family center in West Palm to have their teen clients do a program, probably in person, but it also works virtually. So, it’s usually eight to 10 students and they work together, and the music therapists lead them through the six weeks, and by the end, the kids said they felt they were able to better deal with stress and anxiety. Of course, it’s not a magic pill. After six weeks, we’ll probably have check in times, or we even have plans maybe if it really takes off to do a mindful music app. One of our board members is excited about that so that the kids could access this when they need to.

David Scaff:

Take me back to the genesis, the scholarships and 23 scholarship students right now. How do you determine a scholarship recipient?

Sandra Baran:

We have an application. We haven’t publicized it widely in the last 10 years because we had been a small foundation, but we’re growing and it’s very exciting. The last few years we’ve really started to grow. So, we have talked to Title One elementary schools up in Jupiter. We’ve gotten several applicants from there because the music teacher identified them as somebody who might really do well with music lessons. We have an application process, and we use the free breakfast figures from the state because, in order to qualify for free breakfast, you have to be below a certain income level.  We use that as a basis for awarding the scholarships. We do add a little bit onto that, because that’s a very, very low number income-wise. And then we have a process where we have a committee and they interview the applicant and the parent and they explain that it’s in the memory of McKayla, who was a very diligent little girl and studious. We get the applications in the spring, and the committee then decides within our budget, how many we can award for the year.

David Scaff:

Wow. So, scholarships and music lessons and mindfulness. What other sort of things are you doing?

Sandra Baran:

We’ve also done music camps over the last 10 years. We celebrated our 10^th anniversary, and we had a big celebration. You can find it on our YouTube channel, Bravo Grace Notes. It’s about 20 minutes and it gives the whole history of our foundation and the different things that we’ve done over the years. We do music camps for kids in West Palm and Jupiter. We’ve also done instrument grants for students. A few students have gone to Dreyfoos School of Arts, and they weren’t able to purchase an instrument that kids in Dreyfoos should have. You know, they’re in high level bands. So, a few times, the student has given a concert, and whatever they raise for the concert, we match and make sure they get the professional instrument they need. Those are some of the things that we do. We’ve only been around for 10 years, but I know you wanted to hear a few stories about our scholarships.

David Scaff:

I’d love to hear about something that’s really impacted someone. Yes.

Sandra Baran:

We’ve had five or six folks who have gone through high school. All those students have gotten into college and they’re in college, which if you look at the county average, that’s very high. You could say that a hundred percent of our scholarship students who have gone through 12^th grade then go on to college. That’s pretty exciting. Last year, we had a student who had been with us since she was a little girl. We actually gave her merit scholarships because you can apply for a scholarship for six years, at least. And if you keep up your studies, if your teacher says you’re progressing, then you can apply and get the scholarship again. She was one of our scholars. She was so studious, so good, such a wonderful spokesperson for our foundation and supporter that we gave her scholarships all the way through 12^th grade. She’s now at Emory College, she got a scholarship for Emory, but she’s not going to be a music major. I think she wants to go into pre-law, which is exciting. She’s playing violin at a local church. She’s a fantastic violinist.

We have two students. One is now in the Bach School of the Arts and the other, her brother, in the UB Kinsey School of the Arts. The mom came to us several years ago through a church connection. She was living in the Lord’s Place because she was homeless. She was just such an advocate for her kids. She knew she wanted her kids to have music lessons, but she didn’t even have a place to live. We did what was called an emergency scholarship because it wasn’t in the spring for the usual one and got them in. They’re still on scholarship. That must be about three or four years ago. And Lala, as we call the daughter, she got into Bach School of the Arts for strings. She’s a cellist, and her brother who’s in fifth grade looks like he will probably do the same with his violin, which is wonderful for that family.

David Scaff:

Absolutely. That is really something. Their parents must be impacted by all this work as well.

Sandra Baran:

Oh yes. I think they feel very grateful. The mom of Lala and Theo, the story I just told you about, she’s extremely grateful and wants to help in any way that she can. Alondra’s mom has been so involved in our foundation, supporting it, and they realize what it does for their kids to be able to have music.

David Scaff:

Sandra, I’m blown away by the amount of things that you’re doing. And just 10 years, I mean, you started with a scholarship program that’s grown to 23, all of these different things. How many people must you have helping you with all of this?

Sandra Baran:

We can’t do it without all of the people who volunteer. We’re still a small foundation, but we have a lot of vision, and we know we want to be in the community. We have just one administrative person. And it’s a very modest position that she has. She’s actually a violinist and works remotely now. She does all of our banking and our sending out because every week, every month you have to send out checks to the teachers. And there’s a lot of other administrative things she does. And I can’t even tell you, it’s a very low figure of what she gets and everyone else is volunteer. We’re not at a point yet where we have an actual executive director that gets paid, but we do all work because all of us are passionate. And we really believe in what music does.

Most of the people who help me have either been former students or the parents of students and they believe in music. Before we started the recording, we were talking about the fact that it takes a special person with vision to want to donate to a foundation like ours, to an arts foundation, to a music foundation, because there’s so many immediate needs in our community. People who need food, people who need medical help, you know those are immediate things that need to be done. There are foundations to address those needs, but a music or an arts foundation really depends on donors whose vision believes that our culture and our society will be better by investing in music education for students, that in the long run, this will make a better society than the one we have now. We know we do need to work on our society to make it better.

David Scaff:

Well, beautifully said. I think you’re exactly right about that. Let’s talk about those people who are donors and fundraising. You’ve got something coming up now that we’re very excited about playing a part with you. Tell us a little bit about that.

Sandra Baran:

I will, and we are so grateful to FineMark for just jumping in and helping us with this new collaboration that we have with the Pops Orchestra of the Palm Beaches. We’re going to have an event on December 10, which is something we’ve never done before. It’s called a side-by-side concert, and some of our scholarship students, the older ones, and several other musicians, student musicians in the community, will have the opportunity to work with the professional Pops Orchestra musicians. There are two sessions where they’re being mentored before the concert, by the musicians and by the concert master. They have that opportunity. And then, on December 10, they will be on the stage at Abacoa Amphitheater, side by side with the professionals, doing a fantastic holiday concert with lots of excitement, a choir, also some soloists. We’re just excited because this gives us wonderful exposure for the work that we do as Grace Notes and in the community. And again, we’re so grateful to FineMark for helping us underwrite this big event.

David Scaff:

Well, again, we’re very excited about participating with you, and I’m very excited to hear some great holiday music to kick off the holiday.

Sandra Baran:

It’s going to be a great way to kick off the holidays. At Abacoa that night, there’s a food truck event. The food trucks will be there from 5:30 to 6:30 p.m., and we just invite everybody to come out and support it.

David Scaff:

Great. And if you said the date, I missed it. Tell me the date again.

Sandra Baran:

Yes, it’s Friday, December 10. The concert itself will start at 7:30 p.m., but we encourage everyone to come at least by 6:30 p.m. to enjoy the food trucks that night. We’ll just have a wonderful time together under the stars. Hopefully, there will be stars.

David Scaff:

I hope so too. Well, Sandra, thank you so much. This has been very informative for me, and again, we’re really excited about the work you do. We look forward to your success and are really looking forward to the concert coming up very soon.

Sandra Baran:

Thanks a lot, David. And again, thank you so much for the opportunity to share everything that we’re doing at Grace Notes.

FineMark Radio: Episode 2 Transcription

Note: FineMark podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers and may contain errors. Please check the corresponding audio before quoting it.

David Scaff: Good afternoon. This is David Scaff with Finemark National Bank, President of the Palm Beach County office. Today we’re honored to have Dr. Charles Murphy, who is a Chief Quality and Patient and Safety officer at Jupiter Medical Center. Welcome Dr. Murphy.

Dr. Murphy: Great to be here. Thank you.

David Scaff: Glad to have you, Dr. Murphy. Today’s topic is a big one, I should say, which is COVID. Jupiter Medical Center puts out a lot of great data, which I really enjoy reading. It keeps me up to date on what’s going on in our community. For starters, how would you like to open this topic and talk about COVID? Maybe something behind the data?

Dr. Murphy: Yeah, well, I think I’d like to start on a positive note. We’ve been experiencing a surge in COVID cases related to the delta variant, and I’m happy to say that over the past two weeks or so, we’ve seen significant declines, both in new cases and in hospitalizations related to COVID. So, we’re very excited that we’re seeing those numbers go down.

David Scaff: That is great. Do you have anything that you attribute that to? Is it running its course or are more people vaccinated? What would you say about that?

Dr. Murphy: I think somewhat it’s running its course. We’ve got somewhere around 60% of the population vaccinated. And of course, unfortunately, there are many people who have gotten COVID infections, particularly during this latest surge. So, I think in a sense it’s running its course.

David Scaff: So, what are the latest numbers for vaccinated people, what percentage of our population has taken the vaccine?

Dr. Murphy: I think that, generally for the country, it’s about 75% of adults are vaccinated, which is, I think, a very good number. We believe that you have to get up to the 85 to 90% range to really get that herd immunity that’s discussed. There are also millions of people who have had COVID infections, and we know those individuals who have been tested and are positive, but that probably is a significant undercount of the actual overall infection rate, so, the belief is that at this point, a large number of individuals have either been vaccinated or they’ve had infection.

David Scaff: Is there a difference that you can talk about if somebody’s had COVID and so they’ve survived it and they’ve developed some antibodies or if somebody hasn’t been exposed to their knowledge and had the vaccine, is there a difference in their susceptibility to future infections?

Dr. Murphy: That’s a great question and it’s really one that’s under active investigation. I’d like to say to the audience that we really develop new information literally every day, every week. And so, these things change very rapidly, and in this case, in the last couple of weeks, Israel released a study, in which they demonstrated that individuals with natural infection actually have substantial protection from COVID reinfection. And that it may actually be better than vaccination, in the Israeli study. There is a second study, which came out of Kentucky, which I think was published by the CDC, which suggested that vaccination is better than prior infection. And then finally, there was also one other study involving the UK. So, it’s really somewhat unknown in a sense. But I think it’s clear that both vaccination and prior infection do provide substantial protection for some period of time.

David Scaff: So, I suppose if I were a person that had not yet been vaccinated, then had not yet been sick, I might prefer to get the vaccination then to go out and try out the natural way of forming antibodies.

Dr. Murphy: That’s very well stated. We would agree with that position.

David Scaff: So, talk about some other sort of common misconceptions that the public might have about COVID and vaccines and that sort of thing.

Dr. Murphy: Sure, well, I think one of the hot topics right now involves boosters and there’s an advisory committee meeting tomorrow about boosters and specifically looking at some of the Pfizer data on boosters. Again, out of Israel, what Israel was seeing was the protection afforded by the two-shot vaccine. The Pfizer vaccine was diminishing after about, six months or so, particularly in the elderly and also in those that were immunocompromised. Based on some of that information, that was why in the US, we recommended that patients who were immunocompromised should get a booster dose. Israel actually started vaccinating different age groups, but now over a fairly rapid period, it moved all the way down to 12 years and older should also receive booster doses. And their data suggests that 10 days after the booster dose, individuals received a substantial amount of protection by getting that booster dose.

And again, after about six months or so, the level of protection provided by that initial vaccination was decreasing fairly significantly. And I think in the US and particularly the HHS with the announcement last month that we were looking at starting booster doses in September, our decision-making was in large part based on that Israeli data. Although there’s a fair amount of disagreements and also politics around this particular issue, the World Health Organization has been somewhat against booster doses based on two things. I think one is that there’s some countries where many people remain unvaccinated, and they would like to focus on vaccinating as many people as possible initially. And then the second piece of information is that the vaccinations appear to be still very good about preventing severe infection or death.

And for that reason, they believe there’s not enough evidence to say that people do require booster doses. So, it’s really those two main facts that the World Health Organization is utilizing. On the other hand is the Israeli data, which again, indicates a substantial falling off of protection by the vaccine after about six months and the belief that by getting the booster doses, you have a substantial ramp up of your antibody levels, even higher levels than were initially obtained with either of the two shot regimens.

David Scaff: So, I guess we’re on hold until some more studies are done and we can get some agreement from different organizations as to whether we should have a booster or not. And when that might be.

Dr. Murphy: I think there’s a substantial push towards boosters in the US. It is unclear what the recommendation will be, but it looks like potentially the Pfizer booster dose will be recommended for probably everyone over the age of 16 or so. And then I think they haven’t had a chance to review the data by Moderna, although the data that is out there also supports booster doses. But I think that that will be delayed. I think the other topic which is of current interest is vaccination of school-age children. So the five-year-old to 12-year-old age group. I think that we expect the data on that age group to be available in September. It generally takes the FDA six to eight weeks to review that data and really go over the information in depth and make recommendations. So, it’s possible that recommendations for school age children will be coming out, either in December or January, something in that timeframe, unless the FDA decides that they want a longer timeframe of information in order to make the decision about either an emergency use authorization or for approval.

David Scaff: Very good. So, I’m a reasonably healthy person in my mid-sixties. I’ve gotten two doses of Moderna some time ago. With the Delta variant and different spikes in cases over the last several months, what should I feel comfortable doing? And what should I still be cautious about?

Dr. Murphy: If you’re in an area where there’s a significant number of cases, which frankly is most of the US, currently I think that it makes sense to avoid large groups indoors. I would be cautious about that. I would tend to still be wearing a mask, I would tend to be still social distancing. Those are the things that one can do. I tend to eat outside at restaurants when I have that option. And again, what we’re seeing, is although early on in the delta surge, more than 95% of the individuals were unvaccinated that were requiring hospital admission. We’ve actually seen that number trend down.

So we’re seeing more vaccinated patients requiring hospitalization which is why I’m recommending that one should still be cautious and should still do some of the other available measures to try to reduce one’s risk, because it is possible when you are fully vaccinated to still get a COVID infection. It tends to be asymptomatic or mild. But there is a percentage of individuals who then would require hospitalization and become even quite ill related to COVID infection. So particularly when you’re in a hotspot, you really should be cautious at this point.

David Scaff: So, I’ve gone back to dining outdoors as well. No indoor dining, lately. But it sounds to me like if I’m playing golf and my other three partners are fully vaccinated and I’m outside, I might be okay.

Dr. Murphy: I think that would be the case. I think I would feel comfortable doing that.

David Scaff: Well, that’s great news and I’m going to be sure and share that with my wife, because it’s something I would not like to give up on Saturday.

Dr. Murphy: But I will share a story that was published about an outbreak they had in California in a school. And there was a teacher who was symptomatic, who went to the school for two days, teaching her class and was sometimes not wearing a mask when reading aloud to the children. There were five rows in the class. Eighty percent of the children in the first two rows became infected. And 28% of the children in the following three rows became infected for a total of 50% of that class who became infected. So, the delta variant is very contagious. And for that reason, I think that some caution should be utilized. I think, again, if you’re talking about some sort of gathering indoors with a large group of people, I would personally try to avoid being in that situation. I think if again, if you know that everyone is vaccinated, if the area has good ventilation, if people are masking, then I think that that helps. But again, I think one should be cautious at the current time.

David Scaff: So, if you have school-aged children, it sounds like you’re still in favor of taking the precautions of the mask, whether mandated or not.

Dr. Murphy: I am. And I think the science, you know, you can find science on both sides or studies on both sides, but I’d say the preponderance of the evidence is that masking and social distancing, and hand hygiene does help prevent the spread of viral infections, particularly those that are born either by droplets or aerosol. And so, this is true of the COVID virus, as well as the flu virus. And so, again, there’s something called the reproduction number that we talk about. That is a number that when it’s above one, it means a pandemic is increasing, and when it is going below one, it means the numbers are shrinking and I would call it fairly solid evidence that through masking, social distancing and hand hygiene that you can actually drive that reproduction number below one. So, I think that it is one of the elements that we should take seriously and certainly, I would feel much more comfortable, if my child was in an environment where people were masking.

David Scaff: In your example, in the story that you just gave about the teacher and the first few rows of students. I missed that. Did you say the teacher was or was not vaccinated?

Dr. Murphy: The teacher to my knowledge was not vaccinated but did test positive for COVID related to this incident.

David Scaff: So, I’m going to ask you a question about those who choose not to get vaccinated, and I’m not asking you to be a psychologist in this particular case, but in your role, you must talk with peers in the industry, and there’s a percentage of medical staff that choose not to get vaccinated. What do you and your peers discuss when talking about that issue?

Dr. Murphy: Sure. Well, I’d say one thing is over 95% of our physicians are vaccinated. So, at the physician level, we had people really knocking down our doors to get vaccinated, but you are correct overall. There have been a significant number of healthcare personnel who have not gotten vaccinated. The number one reason still tends to be concern over the vaccine safety and believing that we still don’t have enough time that’s taken place where they can feel confident about vaccine safety. And, I understand that perspective. I mean, we’ve really only had vaccines available for a year and a half. So when you start thinking about what are the long-term effects, I mean, I understand why people could be leery about that. On the other side of the ledger though, is you know, there’s over 600,000 people that have died of COVID in the US.

So, the information we have, with hundreds of millions of doses under our belts, is that the serious adverse events of vaccines tend to be somewhere in the one to 10 per million shots range, whether it be the myocarditis that impacts some with the vaccines, whether it be the blood clotting, that’s associated with low platelet counts, that we’re discussing, or even anaphylaxis to vaccines, all tend to be in that very low occurrence range. So, we’re really confident that in a short-term perspective, the vaccines are very safe. There’s a vaccine adverse event reporting system that’s very robust, and this is being tracked very carefully at a national level. And again, I feel very confident the vaccine is safe. I also feel very confident that the vaccine is very effective. You know, the early effectiveness of the MRNA vaccines is right at 95% for preventing severe illness or death.

So really the whole development of the vaccinations is an amazing accomplishment over a short period of time. When it was four or five years previously before we could get a vaccine rolled out. So, I think that that’s been a tremendous success from our scientists and our system to get this rolled out so effectively and have so many people that are vaccinated at the current time. And as a healthcare professional, I would certainly like to see people avail themselves of the vaccine, but again, safety concerns tend to be at the top of the list for why people don’t get vaccinated. One other plug is that all of the major obstetrics and gynecology societies, so, the American College of Obstetrics and Gynecology and the Society for Maternal and Fetal Medicine, they all recommend the vaccine for pregnant women and women of childbearing age, because those individuals, pregnant woman, are actually at very high risk of getting severe disease. So, vaccination is certainly recommended by the major societies in that situation.

David Scaff: Well, I think that’s right. It sounds like we’ve done an amazing job in my view about bringing vaccines to bear. And we will find out the long-term issues sooner or later, but we know about problems with COVID and what happens with people that get it. If I read your background, correctly, Dr. Murphy, you have a background in cardiology and thoracic surgery, is that right? So, what evidence has already developed, or what concerns do you have in that field about the long-term effects, from having gotten COVID?

Dr. Murphy: Yeah, no, that’s a great question as well. And there is this syndrome of long COVID, which probably impacts at least 30% of individuals who have COVID where they’re having long-term effects for weeks to months. Some of those can be cardiac events, when you do imaging such as MRIs or cardiac MRIs, heart MRIs of the heart in patients who have had COVID, there’s a significant number who have abnormal scans after COVID. So there, although we talk about myocarditis or an inflammation of the heart muscle occurring with vaccination, it actually can also occur with COVID infections as well. There also are long-term lung impacts. So, patients remain short of breath for weeks to months. Fatigue is a major element. There are some impacts on the brain, such as sort of what is described as a brain fog or forgetfulness. So again, this is something that we’re really learning about as we go, but there are certainly a significant percentage of patients who have a COVID infection who have long-term significant health impacts that certainly affect their ability to do things like work and have normal activities.

David Scaff: Great, well, Doctor, as I predicted at the beginning of this, we’ve been a little over 20 minutes and, I feel like we could go on for quite a while. I would like to bring one last question to you, back to our community and Jupiter. You know in 2020, Florida was like a number one destination for people moving out of other states and many of those settled in our community. What sort of impact has it had on Jupiter Medical Center and what kind of resources have you had to add and anything that you’d like to speak to about that?

Dr. Murphy: Sure. No, you’re exactly right. There’s been a definite migration to Florida. We’ve seen an increased number of visits to our emergency room, an increased number of setting records for operations performed in a given month, setting records for numbers of deliveries in a given month. The healthcare in Florida also has tended to be seasonal historically, with the snowbirds who are up north in the summer and then come down here for the winter. We’ve seen some of that seasonality go away. Individuals have chosen to stay in Florida and not do the snowbird-type thing. And so, it has become busier year around. I would say now, we would love to be adding staff. I think one of the challenges that we, and almost all healthcare organizations, have had is that there are actually shortages of nurses and several specialty areas within healthcare, in large part due to the COVID crisis. But we actually have, at the same time, been busier than ever. We’ve struggled with having and maintaining the staff to provide that care. So, it’s definitely a challenge across the healthcare industry.

David Scaff: Well having said that, you guys do a wonderful job for our community, and I want to thank you for that. And I want to thank you for giving your time today to talk to us about this topic, Dr. Charles Murphy. Thank you so much.

Dr. Murphy: And I’ll just close by saying, please get vaccinated if you’re a candidate.

David Scaff: Great. Thank you.

Dr. Murphy: You’re welcome.

FineMark Radio: Episode 1 Transcription

Note: FineMark podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers and may contain errors. Please check the corresponding audio before quoting it.

David Scaff:

Good morning. This is David Scaff, Market President for FineMark National Bank & Trust, in Palm Beach County today.  Joining me, I have Paul Blatz, CFA, who is a Private Wealth Advisor & Senior Vice President of FineMark Bank, specializing in investments. Good morning, Paul.

Paul Blatz:

Good morning, David. Thanks for having me.

David Scaff:

Today’s topic is inflation. So, Paul, in preparation for this, I was just doing some news searches and I very quickly found over 80 articles in a 24-hour period of time on various media outlets talking about inflation. So today let’s talk about that and find out why the news is covering inflation so much. For starters, why don’t you just talk a little bit about what inflation is?

Paul Blatz:

Absolutely. And to your point, I would say that inflation’s impact on interest rates are the by very far the most important thing on investors’ minds as we kind of navigate this post – well, I guess we’re not quite out of the pandemic yet, but we’re certainly closer to the end I think than the beginning – but to define inflation, it’s really kind of the old adage that our grandparents and parents all talked about. You know, the price of milk when I was a kid was X. And now it’s some high multiple of that. It’s really that the price, in terms of the dollar value, of the goods and services that we pay increases over time. And that’s kind of a natural thing.

And it’s part of growth as an economy. It’s something that you do want, the thing that you must be very careful about is, like what we saw in the seventies and early eighties, until Paul Volcker came in and said that we can really use interest rates to calm down inflation. What you don’t want to have, that I was referencing is, massive inflation, where your currency is essentially devaluing at a greater rate than you can grow.

David Scaff:

Okay. So, to clarify, everybody understands that something costs more. Whether it’s gasoline or groceries and that sort of thing. And that’s worrisome too, with 5% annual inflation, we just about eat up wage gains that people have gotten recently, and that’s concerning for the consumer, but today’s topic since you’re an investment guy, we’re going to talk about inflation and the investor and why the investor should care. So set the stage. Why should an investor care about the level of inflation?

Paul Blatz:

Sure. So there’s a lot to unpack about inflation as a whole, what type of inflation we’re seeing right now, but, you know, generally speaking the risks of long term inflation or higher interest rates, because, like I just, alluded to, when Volcker took over in 82, and then really since then, the fed has been very effective in trying to tame inflation by raising our short term interest rates, which that’s really where the capital markets start, right? Everything is essentially based off what you can get paid off of your cash and CDs at your bank. And you get risk premier for everything that you invest that is kind of a derivative of that, up to corporate bonds and treasuries, and then equities, and even things like your cap rates on real estate, the interest rates paying on your mortgages, all of that is based on essentially what the fed has said is the overall rate.

So that in and of itself is probably the biggest risks that we see as being pervaded through long-term inflation. The other things that inflation touches upon in effects, slower growth, and for equity, the primary concern is that the price to earnings multiple or what you’re willing to pay for stocks based on what they earn can be a lot lower in a higher inflationary environment. And again, why is that? It is essentially because interest rates will have to be raised in order to tame inflation. And again, interest rates are kind of the barometer of what you’re relatively willing to pay for stocks. If you’re in a very low interest rate environment like we’re in right now, a higher priced earnings multiple can be justified. You know, we’re trading right now at about 21-ish, PE on the S&P 500. To many folks, on a historical basis, that is expensive. I mean, over the last 25 years, we’ve ran about 16-17 in that range. However, we’re also at a point in time where the 10-year treasury is only about 1.4 or 1.5, that inverse PE yield is, well almost 70.

David Scaff:

Let’s talk about history a little bit. You mentioned before that Volcker came in, back in the early eighties. I started my career in the early eighties, and I can remember when people were borrowing money in the teens to buy a house. Where people could go to the bank and get 8 or 9% annually on a CD, or where you could get double digits for a municipal bond. Back during those times, savers had it made! If you could just sit back and put your money in a CD for 8% or get a municipal bond that was tax-free for 10%, you know what great times, but what’s happened since 1982?

Paul Blatz:

Well, lots happened and, and I’d be remiss, because of what we just went through regarding the relative pricing of assets, if I didn’t mention that this period of time is also when Warren Buffet really started to generate his unbelievable track record. Because back in those times, when you could get teens on your CDs and you were paying the same thing on your mortgage for your home, that was also when stocks were trading at only 6-8 times earnings. And why would you go buy a stock that was yielding dividends in the low, mid, single digits. And you’re only paying 6-8 times earnings. Why would you do that? Take the risk of equities when you could get equity-like returns? And in today’s parlance from CDs and very low risk investments. So, what has changed?  Well, certainly the power and influence of the Fed has changed a lot with the advent of, you know, Volcker coming in, raising interest rates dramatically in order to combat inflation. That kind of set the stage for things that developed later. Greenspan came in and we had this terminology that came into the foray of the Greenspan put, and that’s kind of evolved essentially into the Fed put.

David Scaff:

Talk to me about what that means because I’m not sure I’m with you on that.

Paul Blatz:

Understood. So, what that means is, developing around the dotcom, bubble era, into this relatively, still young century, there has become a philosophy amongst investors that the Fed is, going to step in and save the market from diving into deep recessionary territory. Certainly, we’ve had about three severe market shocks, most prominently being the great financial crisis in 2008. But in early 2009, you did see the Fed come in and slash interest rates dramatically. So there that Fed put, or what was referred to earlier as the Greenspan put, is that the Fed now takes an activist role in protecting the market. I’m not saying that it’s true and that it’s always going to be there. In fact, one could argue that we are less than a free market environment today, and that the Fed probably needs to take a little bit more of a hands-off approach and let capitalism and free market do its magic.

David Scaff:

Take us through owning bonds. You’re talking about in the eighties, we had pretty good inflation until Volcker came in and raised interest rates quite a bit. And interest rates have trended down for decades. Now reaching about zero. So again, those were good times to be bond investors.

Paul Blatz:

Absolutely. I would say it was the Golden Era.

David Scaff:

Right. So, inflation was in check, interest rates were coming down, which means that you had a bit of a tailwind in the value of your bond portfolio. In view of our topic on inflation, how do you think about investing in safe bonds today with inflation on the horizon?

Paul Blatz:

Well, that’s a tough question, David. For starters, the topic today is in inflation and talking about the fears and risks that surround that. The bond market is not really acting as though it’s scared about inflation. And what I mean by that, again we’ve mentioned several times already this morning that the lever that the Fed pulls to keep inflation at bay is to raise interest rates. Right? Yet month after month, we keep seeing the Treasury bounce around this 1.4 to 1.7 range and it’s staying very low. You would think if bond investors were scared about inflation, that they would be selling bonds because as you know, interest rates are going to go up. The bonds that you’re buying today, the rates that you’re getting are not going to be anywhere close to what rates are going to be when the Fed raises the funds rate to 3.75, which they’ve tried to do several times and likely will at some point in the future. Well, what you’re getting today is pennies.

And unfortunately, as we know, there’s an inverse relationship of bond prices to the bond yield, meaning that if rates go up, price goes down and vice versa. So, it’s kind of a tough outlook and the market’s not necessarily acting based on the fears that we keep hearing about in the journal and seeing. You mentioned that every day, there’s dozens of headlines that are talking about inflation.

David Scaff:

So, I’ve heard the term “transitory inflation”. Is that more how the bond market is reacting to inflation? There seems to be real inflation numbers reported, things are up cost-wise, but yet the bond market is not reacting as if it’s concerned about inflation. Because you wouldn’t want to be a bond buyer if you were really facing inflation. Am I right?

Paul Blatz:

You have absolutely hit the nail on the head. And that bifurcation is really what I’d say a lot of the market strategists’ focus is on today. Whether – and we need to unpack it a bit – whether inflation is permanent or transitory. And there are a lot of factors that are transitory today. A lot of focus has been on things like used car prices. Used car prices are substantially. In fact, the percentage of folks that own a car that significantly more than what they owe today, has jumped. I think it’s like 25-30% in the past year. A lot of that is driven by semiconductor shortages, and that is one of the inputs into new cars. So, there’s actually a significant supply shortage in new cars, which is hopefully subsiding right now.

But again, a lot of that was driven by COVID, right? The COVID situation caused a lot of factories to stop. And there was pent up demand over the last 16 months, and they’re just trying to catch up. So, unfortunately right now we have this temporary situation with auto, same thing with a lot of other headline-grabbing items. For instance, lumber was up, I think, 540% over the past year. Now it has since fallen about 60% off of that high. So, you know, still higher than it was a year ago, but now significantly below that.

David Scaff:

What you could say is that because of the disruption to businesses, and the restarting of the economy, you could say that you’re seeing these 5% numbers and supply chain disruptions, and that is what is driving inflation in goods and services, but that might not be permanent. There’ll be a time when we can catch back up. Is that essentially what you’re saying?

Paul Blatz:

Absolutely. And I’d be remiss if I didn’t bring up the other point, which I think gets missed in a lot of the, the news articles, and that is that right now the general populace is flush with cash. A lot of millennials and other folks moved back in with their parents. They were getting stimulus checks from the government. They were saving a lot of money because they weren’t going out to dinner, out to the movies or spending money, generating that money supply velocity. So, we have a lot of that pent up supply of money that is now coming back into the system. There’s been competition for rent. You know, I read about one apartment that was, I think it was listed at $725 a month, and got bids all the way up to $950. The landlord was of course happy but couldn’t really explain it other than you had a bunch of folks just competing for scarce resources.

David Scaff:

There’s one other thing I read about, that I want to touch on before we wrap up here. So, the bond market seems to think that this inflation will work itself out over time. Hence the interest rates on long-term bonds not going up. But then I also read that we just passed a $1T+ infrastructure bill, and that we’re fast-tracking a $3.5T care bill at some point. Don’t you think that this level of government spending will have an impact on inflation?

Paul Blatz:

Absolutely. Without question, because one of the problems that we continually face from Washington is they’re very antsy to spend money and to offer these programs. But there’s not a lot of thought these days on how are we going to pay for it, right? And one of the other risks that we didn’t even get to mention before is that, we do have this very substantial national debt that over the past couple years, because of the pandemic, has gotten a less air lot less air time in the news. But when interest rates go up, our cost of that national debt also goes up. So not only do we have these trillions, which I was reading a memo the other day that said trillions is probably the word of 2020, at least in the financial, sphere. But, as we have these trillion-dollar programs put into place, we also still have this other, much greater accumulation of debt from all these programs that we put into place over the past 40 years that we still have to pay for. So, there’s that risk on top of it.

David Scaff:

So, we have the bond market that currently thinks that inflation is temporary. And in all my economics training, spending trillions of dollars that we don’t have seems like it will produce inflation in the future. Somebody’s right, and somebody’s wrong. So, we’ll just have to stay tuned to see which side is correct.

Paul, can you talk a little bit about how you’re having these conversations with your clients at FineMark, and how you are helping them position their portfolios, in case, the bond market is currently wrong, and we do indeed have inflation headed down towards us.

Paul Blatz:

Sure, very good question, David. And I think it’s important to state the obvious, that we really don’t know what the future holds and anybody who says otherwise is probably fooling themselves. So, we can really just base everything on what the Fed is saying, what they’ve implemented, and what the risks and rewards are with regard to what the market is presenting. The nice thing about this scenario is that the three things that I’m going to mention, regarding how we’re positioning portfolios, even if we’re wrong and inflation becomes transitory or it becomes permanent, in either case, we still will be positioned to do well.

David Scaff:

Well, that sounds interesting. I want to hear how you win both ways.

Paul Blatz:

Sure, well it’s not to say that it doesn’t come with short-term volatility. So, I would say first and foremost, because we’ve spent a lot of time talking about fixed-income bonds, certainly you have to be a little bit more creative with regard to your fixed-income exposure. A portfolio of just investment-grade credit, your AAA bonds, things that we’ve kind of taken for granted over the past several decades, you’re probably going to have to ameliorate that with some, I don’t want to say high-yield credit, but there are other credits out there. Right now, we’re using some more opportunistic credit strategies, again, to try and enhance the yields that we’re getting on fixed income.

But again, that does come with more risk. The primary hedges against inflation, or ways to combat this would be stocks. It seems a bit counterintuitive, and I talked about the PE, or price to earnings ratio, and how that could shift around, but that tends to be historically a more short-term move. And short-term in this discussion about inflation could be a few years. Over the long run, especially if you’re investing in businesses that can pass on price increases at a higher percentage than others, they’re going to do well. And they’re going to outpace inflation over time, especially companies that can have earnings growth rates that are significantly more than inflation. That kind of velocity effect will dampen inflation over a full market cycle.

The other allocation that we recommend to help combat inflation is commodity-trading advisors or managed futures, which is coined a hedge fund or alternative strategy. But what they’re doing there is using futures, as the name might suggest, to extrapolate trends in the markets. Whether it’s grains or currencies, interest rates, you name it really. There are about 250-260 contracts that they trade on a daily basis. And why is that effectively a very good hedge against inflation? Well, futures were initially created a long time ago to fight things like weather and other unknowns, but also to protect farmers at the very onset against inflation and deflation. Farmers were concerned about their input costs, like the corn and grain that they’re feeding their cattle, to use one example. And they were also concerned about the heads of cattle that they were selling two years or so (I’m not a farmer, so I don’t know the exact timeframe) but I think it’s about two years down the road. They were concerned about, if this is the price today, then I’m making a profit, but I need to ensure that I can lock that in down the road, because if things move against me, Icould be in a very heavy loss position.

David Scaff:

So, what you’re saying is that in fear, or in positioning for potential inflation, if it’s real, and if it’s not just transitory, you’re de-emphasizing traditional high grade bonds, you are increasing allocations to equities and you are making use of futures trading strategies, which on their face are inflation-fighting vehicles.

Paul Blatz:

Yes, that’s correct. And we also do have a small allocation to precious metals currently. I would say that much like we talked about bonds before, that even though gold is the age-old inflation hedge, it’s not referencing fear against inflation at the current moment. Gold last fall hit it’s all-time high of about, $2,063/oz. And that was right after the Fed pumped a lot of stimulus money into the system. Most recently it’s right around $1,700-$1,750/oz. That’s the opposite move you’d expect if investors were really fearful about inflation. You would expect gold to be going up. But nonetheless, we have a very small allocation right now as a defensive posture against the inflation dollar weakening, which is another risk factor that comes along with it. So, in terms of priority – stocks, managed futures and then precious metals as a defense.

David Scaff:

Great. Well, thank you for sharing that, Paul, and thank you for sharing your views today on inflation. We’ll see what happens in the near future.

Paul Blatz:

Absolutely. Thank very much, David.