TRANSCRIPT – How to Protect Your Wealth Through Inflation, with Stephanie Link

By Hightower Great Lakes on February 9, 2023

Welcome to the Wealth Stream Podcast. The team at Hightower Great Lakes share their insights and passions for empowering their clients to live their best life. In this energetic podcast, we will take you on a journey to help you navigate your financial future, overcome life’s challenges to reach your financial and find the financial clarity you’ve been searching for. Let’s explore the downstream impact of your wealth and what it means to you, your family, and your community, to live greater. Transcript lightly edited for clarity.

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ARIC: Hello and welcome to the Wealth Stream with Tim Scannell from Hightower Great Lakes. Tim, what’s going on?

TIM: Not much. It’s right before Thanksgiving when we’re ready to record, so I’m looking forward to the holidays and things are good.

ARIC: Yeah and you have a special guest on the show today. Who did you bring on the show?

TIM: So today I brought on Stephanie Link. We’ve talked a lot on the podcast about our wealth management formula – with a focus on wealth transfer, wealth protection, charitable giving, wealth enhancement, and obviously to most of our clients the investment process is critical. As well as what we call our professional network and our relationship with our team.

Today I wanted to introduce to listeners to an amazing professional, Stephanie Link. She works with us, not just on helping us manage the portfolios and the assets for our clients, but also does an amazing job with helping us communicate what’s going on with the market, with the portfolios, how we’re responding, et cetera.

I’m very excited about bringing Stephanie on. I’m a big fan. So that’s who we’re bringing on today.

ARIC: Oh, I’m so excited. Stephanie, thank you so much for being on the show. I know that Tim has got a lot of things that you guys are going to be discussing, and I’m here to listen along with the audience, so thank you so much.

STEPHANIE: Thank you for having me, it’s great to be here.

TIM: Yeah, so I’ll just start by just saying, you can Google Stephanie and find all the cool stuff about her – she’s the Chief Investment Strategist and Head of Investment Solutions, etc. But what I wanted to talk about is getting to know Stephanie a little better.

Because we talk about – Stephanie doesn’t know this, but her ears are probably burning all the time because we reference her and talk about her and about things she provides to us with our clients, literally five, six times a day with different meetings. So Stephanie, you can start by giving us a little background on how you got into the industry and your background.

STEPHANIE: Sure and again, thanks so much, Tim for having me. I’ve been in the business for 30 years. My family, pretty much all of them were in the business as financial advisors. There’s a firm that no longer exists, but they all started at a company called Dean Witter.

TIM: Oh sure.

STEPHANIE: Yeah, so way back in the day and then they merged with Morgan Stanley. So they started there and they all have all been in the business for a very, very long time. And when I was young, as an intern, I actually would work for them and cold call and realized right away that I didn’t want to cold call and I didn’t want to be in that part of the business on the retail side.

So I actually after I graduated college, I went to the institutional desk, and I was in the institutional sales business. So more marketing analysts and talking to several of their clients – meaning pension funds and mutual funds and hedge funds, and just marketing the analysts and the research that they provided.

And I got hooked. I got hooked on research. I enjoyed learning about companies. I enjoyed learning about the business. Every day is very different, so I spent 16 years on the sell side as an institutional salesperson. I eventually became a research director, and then I wanted to figure out if I could run money because I really enjoyed it.

So I was introduced to Jim Kramer. We had a mutual friend and Jim was looking for someone to be a portfolio manager. I know you know this, Tim, but it’s kind of hard to go from the sell-side to the buy-side. It’s very different in terms of the qualifications that you need. And he was willing to take a chance on me.

We met for 30 minutes and he hired me on the spot and I worked for him and I ran his charitable trust for seven years, and then I went to Nuveen and I ran a Large Cap Core portfolio there, very similar to what I was doing with Jim, just much more money. And worked there for five years and then I became the Global Research Director as well.

Then I stepped back and said, well, what do I want to do going forward? I want to be in an area of the business and the industry that’s growing. So the sell side – I don’t know if people know this, but it’s very competitive and it’s very hard to get paid for the research. While it is quality research, it’s very hard to get paid.

On the buy side, you have fee compression and you have passive versus active. I wanted to find a place in the financial services industry that was growing and so I looked at the independent wealth management business. And was very excited about what I saw there and the opportunities and the growth in this business, I think you’re in the second or third inning at this point in this part of the industry.

And of course, I wanted to be at one of the very best independent wealth management companies. And so I did some research and Hightower was absolutely on the top of the list. I just linked into our CEO and asked him if he wanted to have a coffee. And we did and here I am.

TIM: See, so you are a good cold caller then. It always comes around full circle, right?

STEPHANIE: [Laughs]This is very true. Very, very true.

TIM: Yeah and I will just say, I’ve been with Hightower since 2008, so that’s like a 14-year marriage. I would say that one of the things that they really do well is provide great resources, and you’ve been one of them.

STEPHANIE: Thank you.

TIM: So I really appreciate it.

STEPHANIE: Thank you. It’s really the size and the scale that Hightower has now. I only can imagine what it was like when you first joined. It’s changed so much and in such a good way, I think.

TIM: I think the founder originally told me that it’s like building an airplane while you’re flying. So, and it was. It’s a lot more advanced now, I must say.

STEPHANIE: [Laughs] That’s very true.

TIM: So one of the things I think we are on the retail side we’re – as you can imagine with the markets as they are this year – we’re running 30 to 40 meetings a week with clients, and I just wanted to throw out some ideas or questions that we get that maybe you could address for us.

Why is inflation, why are interest rates throwing the markets into uncertainty so much this year compared to maybe like in the last 12, 15 years?

STEPHANIE: I think that the reason is because it’s so high and it’s been so persistent, and it’s been the opposite of transitory, right? We had a Federal Reserve that was very stubborn in terms of changing their tune in terms of monetary policy. So they did what they needed to do Tim. I think you would probably agree that when we shut the economy down, they had to act and act very, very swiftly, and they did.

They cut interest rates, they had a bond program of quantitative easing. And so monetary policy was so accommodative for about 3 years, and we all know that when you raise interest rates or you lower interest rates, it’s not instantaneously felt so all of these programs that were put in place including the fiscal policies that were put in place, there was all kinds of money sloshing around in the system, and that’s very favorable for what we call risk assets. And it was.

In the last 3 years, we had a compounded annual growth rate of 28% largely because of all of this monetary and fiscal policy being put into the system. This also led to inflation and it not only in goods inflation, but services inflation and on top of that you have supply chain issues.

On top of that, you have China that can’t decide if they want to open or close.  And on top of that, you have the war [between Russia and Ukraine]. There were so many things that happened at the same time, and the Fed was really too cautious, I think, in what they were doing. They should’ve been starting to tighten policy, meaning raise interest rates, stop buying bonds. They should have done that a year ago and they only started in March of 2022.

In fact, they were buying bonds in March 2022. It’s remarkable, that accommodation, and I just want to put a number out there because it’s just staggering to me. If you add up all the monetary and fiscal policies that were put in place, say June 2020 when we were in the heart of Covid, closures, that sort of thing. If you added up both monetary and fiscal policies that were put in place, that was 60% of GDP.

TIM: Wow, that’s a lot.

STEPHANIE: Right? So, back in 2008, the great financial crisis, if you added fiscal and monetary policies together, it was 5%.

TIM: Wow.

STEPHANIE: So you just see the magnitude. So that’s why we didn’t see and feel the inflation for a while, and now all of a sudden, about a year ago, we started really talking about, oh, inflation’s going to be a problem given all of this accommodation. And at the end of the day, they always say, and you know this phrase just as well as I do, you don’t fight the Fed. You don’t fight the Fed.

You don’t fight the Fed when they’re raising interest rates and you don’t fight the Fed when they’re being more accommodative. When they’re being more accommodative, that’s very positive. When they’re being more restrictive that’s where we struggle, and quite frankly, that’s why the markets are struggling this year because we are doing this reversal of policy.

So we’re not going to have as much fiscal policy and now with gridlock probably even less. And now you have a Fed that’s really tightening really fast too, when we went from zero to four in a few months’ time and we just don’t know what the impact of that is going to be because of this the lag effect we’ll probably feel it sometime in 2023.

All of that being said we’re down – we’ve had a nice rally in the last couple of days – but we’re down 16% in the S&P 500. We’re discounting a lot of bad news because the market is a forward-looking indicator. And so what I say is in these kinds of times, turn the TV off and listen to Tim.

TIM: That’s great.

STEPHANIE: I know. Listen to Tim, listen to your advisor and Hightower Great Lakes, because I’m sure you have a lot of clients that are thinking long term. And when you think about the S&P 500 and the total return on average. In the history of the S&P 500 the average return is 7%. So have fun with the last three years of 28%.

Not so much fun with us being down 16%, but we’re going to average around and your dollar cost average and you think diversification and as I say, just turn the TV off because they like to scare people.

TIM: Definitely they get compensated to get you all riled up, right?

STEPHANIE: I know. [Laughs] Yes absolutely.

TIM: I would say that when I’m in a meeting with a client, I’m spending at least a third of my time initially just discussing – normally in portfolio construction there’s an inverse correlation between stocks and bonds, and this is one of those times there’s just no inverse correlation. It’s all completely correlated. So how often does that happen? Can you talk about that if you could, just so that the listener understands why that’s such a dramatic impact this year?

STEPHANIE: Well, I think people forgot they could lose money in fixed income. Right? And they are. So you have the fixed income markets down double digits, and you have equity markets down double digits. so it’s a real whammy. We haven’t had a Fed tight monetary policy situation in years. There are some people that are running money that have never seen inflation to this extent, and they’ve never seen interest rates go in the opposite direction.

We’ve had zero interest rates for 10 years (just about) and so all of the accommodation, well, it was needed at certain points in time, but it got to be extreme. And not only was it here in the States, but it was also globally, right? everybody was zero interest rate policy for years.

And so again, that kind of feeds on itself. And unfortunately because you have the uncertainties on recession or not, that’s going to hit and what that means at the end of the day, the economy will impact earnings. And that’s on the equity side. Well, on the interest rate side, when you’re raising interest rates, that obviously is negative for the bond market. So you have a double whammy going on.

That being said, for a very long time there was no alternative because of zero interest rates. You really couldn’t get any yield in the fixed income market so you had to go into the equity market and look for a yield there. Thankfully companies have gotten religion and they have been using a lot of their free cash flow to increase dividends and buybacks and that sort of thing.

But now here we are. You’re looking at a 10-year, at 381, you’re looking at a 2-year at 433 and so to the short end, actually, there is now an alternative if you want to participate. Even the 30-year at 401 So I think there is an alternative, and oh, by the way, you could actually just sit in cash too. You couldn’t sit in cash before.

TIM: I know. Finally.

STEPHANIE: Right? So there’s a lot of places you can go now if you have patience and I’m sure you have guided your clients on the fixed income side to have a ladder portfolio.

What we’ve been doing in investment solutions has been much more on the shorter end/medium end, like 2, 5, 7 year because that’s where you can get the yield and I don’t think you need to go down quality wise at all at this point. So, it’s a very strange time.

It’s not often you lose money in fixed income. It’s just because there’s so many moving parts, again, both from the monetary policy side – which by the way, not just interest rates, but they’re trying to reduce the balance sheet too.

So it’s this double whammy. We’ve never really seen something like this before, so we really don’t know how it’s all going to play out. But so far the one saving grace of all of this noise and inflation in the markets and this and that, is that the job market remains very strong and wages are up, and that’s a good thing.

TIM: Oh, for sure and I know in conversations with clients, where we talk about what’s happening/what has happened, the thing they look from us the most for is: what’s the path out? I know that in working with your team, we’ve established a number of individual bond ladders. We’ve redirected to focus a little more on value.

Talk a little bit about why those could be good strategies and maybe other strategies to get through this period as we look forward.

STEPHANIE: Sure. Well, the whole reason why you want to have shorter duration in fixed income, and you want to have a little bit more of a value bias is because when interest rates are going up, that’s usually not good for long duration assets, both equities and fixed income because it impacts the cash flows down the road.

When you think about long duration assets, that’s technology and that’s growth. That’s what has happened this year and in fact, the Russell 1000 Growth Index is down 26% year-to-date, and the Russell 1000 Value is down 7% [YTD].

So it really does speak to how you want to lean a little bit more value and I’m Large Cap Core, so I can kind of do both. But we do have Large Cap Value in Investment Solutions. We do have a dividend growth portfolio as well. I can go either way. I could go growth or value, and I’ve been much more tilted on value.

And what is value? Value is energy: industrials, materials, financials, and some parts of discretionary. And they’ve held in really pretty remarkably well this year. Still down, but it’s down a lot less. So it’s like winning by losing; it doesn’t feel so good, but it’s important when interest rates rise.

There absolutely has been an underlying shift to the value side, to shorter duration. And I know that’s where you guys have been focused on too. I think that’s going to stay for a while because even though we got a great inflation number yesterday (the CPI) we’re still at 7.7% inflation year-over-year. The Fed is not going to stop raising rates anytime soon, in my opinion.

And while we can have days like yesterday and it felt really good I think we’re still going to be bouncing around unfortunately because of these unknowns.

TIM: Sure. This is my 36th year in the business. I’ve worked with a lot of clients, riding through ’08 – which was a traumatic event. But you mentioned the economy and unemployment, things like that. And so one of the things we try to talk to clients about is: to a great extent, their statements and portfolios look similar, but a lot of that is because the bond and stock market are both correlated this year.

In terms of getting through and getting past and giving them a path forward we have conversations about the economy now versus the economy in ‘08 to compare and contrast. Do you have any thoughts about that?

STEPHANIE: Oh, yes. I would just say that this is not 2008 at all. I think that 2008 really was all a problem with the financial services industries. The banks – they got themselves into knee deep debt. They got into a lot of leveraged products and they just weren’t as well capitalized at the time.

So you fast forward to 2022 and there have been massive, strict policies from the regulators about capital positioning and stress testing the banks. And they don’t even do a lot of what they were doing. They got out of a lot of what they were doing in 2008. I worry a little bit about the mortgage side of the business, but a lot of the banks actually have reduced their mortgage exposure (believe it or not) as well. So they’re very well capitalized.

I just don’t think that they’re going to be the problem. Crypto, the blow up this week is a mess and this FTX company – which I can’t even understand by the way, and I’ve really tried hard – they just announced bankruptcy. What are the implications there? I went back and I looked at the bank exposure to – not only this company but also to crypto in general – and you’re talking about less than 1%. Not even 0.5% of their loans and of their revenue generation.

So they’re not caught. That’s not to say that someone’s not going to get caught on the other side because somebody will, I’m sure. And that’s why on Wednesday we had a meltdown in the market because people were nervous that this might spill over – and it might. But I went on the bank side, if you lose the banks, you’re in trouble. And that’s why 2008 was scary because we lost two banks, big banks. So, this is not 2008, in my opinion.

This is a garden variety recession. The Fed acted too slowly. We’ve had unprecedented amounts of stimulus that they have to work down. and they’re trying to slow the economy. As I say, the good news is the job market is kind of bailing us all out. It’s still really strong.

Not to say that it’s not going to slow because it will – that’s what the Fed wants, but it’s coming from such a strong position at this point. We have more job openings in this country than we have unemployed people. So that’s why it’s different this time. It could be just a recession because the Fed over-engineers and over-tightens but then they’ll be able to pivot and change, and then we will have to pay the bill. Nothing comes for free.

We’re now paying back what we were given over the last 3 years, and hopefully [the Fed] can engineer a soft landing. And that’s why the market was so strong yesterday because if inflation comes down and the job market stays strong and the dollar comes down, all of this is good for earnings. And it’s also good for the economy. It’s kind of a soft-landing scenario. I don’t know. It’s very hard to say we’re going to soft land because the Fed doesn’t have a really good track record, but that’s what they’re trying to do.

TIM: I listen when you’re on CNBC, I read your materials as they come out but it sounds like I’m getting a forest view picture that you might share with your parents or your friends. Is this what should they be doing going forward and as they’re looking forward? Also what should they be looking for?

We’ve talked to our clients about keeping their ears open for peak inflation, some indication of that, or some indication that the Fed might be slowing down or stopping raising interest rates. What are you looking for?

STEPHANIE: Well, number one I think the job market is the most important.

TIM: Okay.

STEPHANIE: Because that’s the thing that’s been so strong. So keep an eye on the job openings numbers, which is called JOLTS. Not to get too much into the weeds but look at the non-farm payroll numbers, the initial claims. I never look at the weekly claims. I always look at the four-week moving average, because it’s smoother. So the job market, if that starts to roll and roll hard, then we might have a problem because that’s the one thing that’s been propping us up.

Inflation certainly is number two. We did get a little whiff of inflation being a little less bad. But as I mentioned, we’re still at 7.7% year-over-year inflation and the Fed is not going to be pleased with that. Overall I would look and watch for the consumer. So consumer is 75% of the US GDP and if the consumer starts to roll over and not spend, really retreat, that will be a problem for now.

Consumers have actually been pretty resilient. They’re not buying as many goods, but they are doing more on terms of services, restaurants, travel and leisure and that sort of thing. And that’s important because services are 70% of US consumption.

So we want to root for services. We want to root for the consumer. And we want to hope that they can continue to find jobs and get paid more for it, because wages have actually gone higher as well.

TIM: Awesome. Now this is all amazing information and I know that my clients and the listeners are going to get value from it. But I’m going to switch with a final question that’s a little off topic. When I graduated from college and I studied accounting at the University of Illinois at the Urbana-Champaign campus. More than half of the CPA candidates – fellow students – were women.

Then when I entered the Big 8 (at the time, the Big 4 now) and worked in public accounting, it was the same way. When I entered the investment world, the wealth management/financial planning world, it really is not that way at all. It’s very male dominated, and you obviously had great mentors, like you said earlier, with family in the business and people who helped you along the way.

If you were to talk to younger Stephanie in college, coming out of college, what would you say to a woman who’s looking to get into the industry and break in like you have?

STEPHANIE: Yeah, it was not easy. When I told you my first job was on a trading desk. I was only one of three women on a trading desk of 500 men. So, to your point, yes, it has come a long way for sure, but we’re nowhere near where we need to be. Not only did I have mentors in my family, I was very, very fortunate throughout my career to have mentors.

My first job sitting on that trading desk, I was sitting next to two men, of course, in the business for 30 some odd years, and they just taught me everything, and I think it’s really important to find mentors – not only to help teach you the business, but to coach you in your career. I had no idea what I wanted to do.

I didn’t, by the way, at my first job, I didn’t even know really what institutional sales were. I had no idea. So they taught me at such a young age and that was so helpful. Secondly, my father who had been in the business a very, very long time, he said, I don’t really care what you do.

I want you to be happy, but I also want you to be financially independent. And in this industry, you can be financially independent. And I think that is so important. It’s such a powerful thing, that you can do whatever you want to do and you have to work hard at it but it is very rewarding now. I love to run money. You love to do what you’re doing in terms of advising. Any way you look at it, if you enjoy it that’s important, right? You have to be happy at what you’re doing. I also find like I learn something new every day.

And so I would say if you’re interested in this, seek out people that can help you and can coach you, and can guide you and find a piece of this part of the business that can make you financially independent. It’s very rewarding. And also find a firm that values both work and non-work.

Right? It’s very important. I know growing up, I was just 24/7, work, work, work, work, work. One of the many things that’s so great about Hightower is that they really do want balance. They want work-life balance, and that’s very important too. You’ve got to stop and smell the roses along the way.

TIM: Yeah, I agree with you totally. I look at us all as entrepreneurs, business owners, but at the same time, you can’t just do it yourself. You really have to leverage Hightower and companies like Hightower because they bring you best practices. They give you the opportunity to collaborate with some of the best in the business and they give you the resources you need to serve your clients better.

Plus, it’s more cost effective. When we (Steve Billimack, Blair Anderson and Tim) merged our three practices four years ago to become Hightower Great Lakes, that to remain small, to remain boutique, we each needed to be part of a larger organization so we can be independent. But at the same time, we also need to leverage these technology firms, especially because of the world we’re in. You just have to partner with a great firm.

STEPHANIE: And [they’re] one of the best in the business. It’s fun to see, even in the two and a half years I’ve been at the firm, how much we’ve done in terms of growth, M&A (mergers and acquisitions), and organic growth too. So it’s been a pleasure.

TIM: Awesome. So I know there’s listeners out there who follow you – you have a big following. In fact, I think there’s two examples of people have reached out to us to work with us because they wanted to work with you, so thank you.

STEPHANIE: Aw, great.

TIM: But I would just say if they want to follow you or reach out to you, what’s the best place to do that?

STEPHANIE: Sure. Well, I’m on LinkedIn absolutely. My handle is @Stephanie-Link – I do accept everybody and I do have some conversations with people. I also put a lot of my written and my video work on LinkedIn as well, so you can take a look there and see if you’re interested.

TIM: Awesome. Well, thank you so much for being on the podcast. I can’t tell you how happy I am. Actually all my partners were looking forward to this. So I know this will probably be the most listened to and downloaded podcast we do all year. Thank you.

STEPHANIE: Aw, thank you Tim. It was such fun. I can’t wait to do the next one.

TIM: Awesome. Thank you. Take care.

ARIC: Well, I had a bunch of fun too. This has been great. Stephanie, what an amazing guest you are. Thank you so much for being here. I don’t have any doubt that this is going to be one of the most downloaded podcasts Tim has. Tim, again, you facilitate such a great podcast and you bring in amazing guests. So thank you so much.

TIM: Of course.

ARIC: Our last thank you is for your listening audience. Thank you so much for tuning in and listening to the Wealth Stream podcast with Tim Scannell. If you have not subscribed to the podcast yet, please click the subscribe now button below. This way when Tim comes out with a new podcast, it’ll show directly on your listening device.

We humbly ask that you share this podcast, rate it and leave a review as this actually does help others find the show. Again, thank you for listening today. For everyone at Hightower Great Lakes, this is Aric Johnson reminding you to live your best day every day and we’ll see you next time.

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