Will the Economy Get Better in 2024?

0:28So will the economy get better next year? That's 22, 23 years or so. So that's one negative signal. The second one is a lot of people aren't trying to change jobs right now. So on the... No one's quitting. Yeah. Nobody wants to quit right now, right? Everyone wants security. Two years ago, everyone wanted to quit. Yeah. Everyone wanted to quit. You get like, you know, 2x your salary. You get the craziest benefits in the world. And now it's like, oh, as long as I have a job, I'm happy, right? Let me see if there's another headline. Oh, here's another headline. Did you watch... You know who Howard Marks is from Oak Tree?

0:56Okay. So he's a really rich billionaire. Yeah. Okay. Yes, he's a really rich billionaire, but he specializes. He was one of the guys that specialized in buying distressed debt. So he has a firm called Oak Tree Capital, and there's a 24-minute talk, and he talks about how there's a sea change. And so most of us don't know this. You're born, what, 85? I was born in 86, right? So in the 80s, the interest rates were like 20%, right, because we're trying to bring inflation down. So we actually don't know what that feels like. We don't know what really high interest rates feels like. What I'm trying to get at here is that we've lived in an environment of really low interest rates for a long time.

1:37And people using high debt. 50 years ago, people weren't printing money and using debt like they are right now. Point is, when you have really low interest rates, it creates bad behaviors. You're trying to stimulate. We've been stimulating for too long. And so what Howard Marks has said is like, look, people that have been searching for – people used to just invest in equities, which are stocks, right? He's like, you can now find equity-like returns, which is like 7 % to 8 % a year in the S &P 500. Dude, you get 5 % just keeping your money in a savings account at a bank now. So his argument now is like with fixed income assets or like credit instruments, like buying someone's debt or like lending out money or whatever it is, like you can get like 11, you know, 10, 11 percent in some crazy cases.

2:22And so what he's saying is there's a sea change now and he's only seen three in his life. This will be the third sea change where interest rates will go back up and we're going to see different types of investing mentalities or styles. What were the other two sea changes? I don't know. I don't think we're yeah I don't know here you talk while I find it alright so Eric and I are economists and we're not trying to give you advice on what you should do just to make that clear but we own a marketing agency we have a lot of friends who own marketing agencies as well so we see a lot of data and trends on ad spending and what people are doing and companies are doing right now we're seeing a lot of companies pull back four or five months ago we started seeing more companies talk about doing more with their marketing uh almost all of our all of us agency owners did not see the the pull through in which those companies acted on what they wanted to do more so they were just interested so we're seeing pipeline building in which companies were interested in spending more marketing but we didn't actually see the conversion of those companies wanting to spend more just because they say it you have to actually see if they're going to spend more and that didn't happen we're still seeing a massive slowdown we're not seeing companies all rush back to spend more on marketing and we don't really you know the recovery takes a while it's not like just that happens overnight but again i mentioned this earlier in the podcast marketing is typically one of the first things that businesses cut it's one of the first things that they add back they're not really adding it back yet yeah and we're far away from when i mean far away we're not talking about three months or six months it's going to be a much longer cycle so i got three c changes here are you ready yeah so number one the transition from the nifty 50 era to the great moderation do you even know what the nifty 50 is i do exactly right so it's kind of like um you know right now we have the magnificent seven you know what that is right it's stocks yes yeah yeah yeah nifty 50 is like the top 50 company i was just wondering mommy said magnificent seven i'm thinking about something else because of my dad oh magnificent or six.

4:30Okay, so in the early 1970s, and by the way, again, as Neil said, we're not... And by the way, the Magnificent Seven has been pulling up the market quite a bit. They've been doing exceptionally well. They are the market. So yeah. Look, again, we're not economists, but I think it's really important to understand this. I don't care if you're a marketer, like just a marketer, you should understand this stuff, right? So in the early 1970s, the stock market was dominated by a handful of large blue chip companies known as the Nifty Fifty. These companies were seen as safe investments with guaranteed growth.

5:00However, the Nifty Fifty era came to an end in the late 1970s, and the market shifted to a more volatile and cyclical period. This sea change ushered in the great moderation, a period of relatively low inflation and interest rates that lasted for several decades. So, by the way, this stuff, sometimes it's not just for a year or two. It's like we're talking 10, 20, 30 years or so. So that's the first part. Do you want me to continue? Yes, keep going. Okay. The second one is the rise of passive investing and the global financial crisis. So in the early 2000s, so we've seen this, the rise of passive investing and the global financial crisis led to a period of low returns and high volatility in the stock market.

5:38Passive investing, such as index funds, became increasingly popular as investors sought a way to track the market without having to pick individual stocks. However, the global financial crisis of 2008 showed that even passive investors could suffer significant losses. Now, the third one is now. So the third sea change, which is what we're living in now, which you all should understand. Sorry for the ice machine. The end of easy money and the rise of inflation. So Marx believes, Howard Marx, believes that we are currently in the midst of a third sea change, which is characterized by the end of easy money and the rise of inflation.

6:14This sea change has been caused by a number of factors, including the Fed's quantitative easing program, COVID-19 and the war in Ukraine. and what i believe is you know we're all seeing you at least not even what i believe what i'm reading online is everyone talks about how we're in a world of hurt uh we can't sustain these kind of interest rates you know people with credit card debt are now paying like 20 or something ridiculous so it's not feasible for it to just keep going this way because we're all used to a world with lower rates now the fed will eventually reduce the rates will they reduce it where it's pretty much free probably not but they'll find some sort of middle ground and i think we're in a world where we're just not used to high interest rates will it be this high forever no it'll go down but the rates are going to be pretty much free for the next 10 years on average i don't know next 10 years but if i had to give like a three-year outlook i can see the fed rate being somewhere around like two percent two and a half okay i i think it's going to be a little higher I think we'll probably meet in the middle.

7:18You say 2%, I'd say like 4 % or something like that. Well, right now, they're at 5 % and change. Yeah. I think they'll start bringing it down once they get inflation. Because you have to remember, if you're borrowing money, let's say you're at 3 % plus SOFR. Well, you have to explain what SOFR is. SOFR is like a new version of like the Fed rate. I don't know what SOFR stands for, but it's very similar to the Fed rate. So whatever the market rate is, add in whatever your lending rate is. So typically when you get a loan, they'll take the Fed rate, but they don't use the Fed rate. They use SOFR.

7:54It's a version, whatever is close to the rates that are out there. And they'll say whatever you can negotiate with the bank, 3 % plus SOFR or 2 % plus SOFR or 4%. Either way, what I'm getting at is I think mortgage rates, business borrowing, et cetera, I think it'll be in two, three years. I think it'll still be five plus percent. What I'm getting at is I don't see it being eight percent, but for it to be five percent, the Fed rate has to drop. It can't be the Fed rate can't be five percent and then your mortgage rate be five percent. You're going to the bank makes money on you. It has to be higher than that.

8:31That's why I think the bank rate may eventually be two, two and a half percent or somewhere around there. So then they add on their points. And next thing you know, you have a mortgage that's five percent, which is very reasonable. Yeah. Look, and by the way, like 5 % has been standard from the past. We've just been used to this 0%. And it's important for like, again, if you're like 20 years old or so, like you're just getting started your career, like what is all this interest rate? You have to like interest rates run the world, right? It determines how people spend. It determines how people borrow.

8:58It is everything and it will affect your marketing budget at the end of the day. Um, and so go ahead. But I see because of the environment that we're in and again, I'm not an economist. I don't know that much about interest rates or any of this kind of crap. I just watch TV and I read. Yeah, Neil just has CNBC on all the time. But what I do know for certain is this is one of the worst times to sell a company. The multiples are low because people borrow money when money costs more money or when money's more expensive. I know, I'm about to get to it. When money's more expensive, people aren't willing to pay as much.

9:31But this is probably one of the best times to buy businesses and expand. and we have a whole M &A team that just goes and tries to find businesses. But like, I'm trying to tell my guys right now, I'm like, how do we buy$10 million of EBITDA and ideally 12 months? Because I think right now is going to be the cheapest time to buy the EBITDA. So those of you listening, international, by the way, Neil's shopping right now. So if you'd like to do a deal, you know, Neil at NeilPatel.com. NeilPatel.com, he responds well as well. If you've ever built a website, you know how tough it can be to keep a strong design while ensuring site performance is fast.

10:08That's where Framer comes in, and it totally changes the game. Framer is the design-first, no-code website builder that lets anyone ship a production-ready site in minutes. I recently built a custom landing page in just a few hours. Animations, fast load times, responsive layouts, all without writing a single line of code. It was easy to use, and the end result was polished enough to look like a developer spent days on it. One of my favorite things is that Framer's AI handles translations with a single click. So your site can be up and running in multiple languages almost instantly. And with real-time collaboration, your whole team can jump in and work together.

10:40No issues with versions or miscommunication. Whether you're starting from scratch or using one of their templates, Framer lets you focus on design while handling the technical side for you. Animations, responsive layouts, search optimization, and all the things that matter. Ready to build a site that looks hand-coded without hiring a developer? Launch your site for free at framer.com and use code MS to get your first month of pro on the house. That's Framer.com, promo code MS. Framer.com, promo code MS. Rules and restrictions may apply. When I first started my business, the overwhelm was real.

11:12I didn't have the tools to help me scale. If only I had Shopify from the start to handle all the behind-the-scenes work. Shopify is the platform behind millions of businesses globally, from huge names like Mattel and Gymshark to the smallest brands just getting started. The best part about it, it has everything you could need. Say you're ready to launch your own design studio. Shopify has hundreds of templates to create a beautiful store that matches your brand style. Or if you need help with content creation, Shopify's got AI tools that write your product descriptions, craft page headlines, and even enhance your product photos.

11:43Shopify lets you easily create email and social media campaigns to reach customers wherever they are, whether they're scrolling or strolling. If you're ready to sell, you're ready for Shopify. Turn your big business idea into with Shopify on your side. Sign up for your$1 per month trial and start selling today at shopify.com slash marketing school. Go to shopify.com slash marketing school, shopify.com slash marketing school.

12:11Here's the thing. Like it's, it's not all doom and gloom at the end of the day, right? Like there are always trade-offs and like Neil just mentioned a trade-off right there. It's like, sure, it might be time. It might be a bad time to sell, but it's also like, if you're in a good position, it's a great time to buy as well. and maybe we can talk about that. But dude, I'll take lumps on stuff. I have one too many homes that we don't use and some of them are in the same city. And what we'll end up doing is we'll liquidate some of them at losses because I know if I park it in business, I'll make a killing.

12:43Yeah, and so look, at the end of the day, we talked about interest rates. We talked about where the environment is right now. It doesn't look good, but I will say this. I'm not an economist, but I do watch other talking heads, same with Neil too, right? The projection is if things do actually, if we do actually go into recession, the money printer is going to have to start up again and the interest rates are going to have to drop again. And we go into that whole cycle again, right? Because the thing is that the United States, we are, those of you that live in the United States, we are to reserve currency, which means we can print more of it.

13:15Not saying it's a good thing, but... And not saying it'll last forever either. Yeah. And like what that means again is like, We might just go into the next bull market if that happens, but I'm not holding my breath right now. So, you know, aim for profitability, aim for efficiency. Just be aware of this stuff because it does affect how you do your work.