Why the 60/40 Portfolio May Not Protect You

Brett Rentmeester · WindRock Wealth Management

Crypto, like precious metals, is a grassroots store of value and a reasonable hedge against fiat failure.

A growing group sees crypto and precious metals as the anti-fiat-currency trade. If governments defaulted, extended debt durations or deferred interest, as they have done elsewhere, store-of-value assets would matter. He says he doesn't know what crypto will do, but argues investors ought to consider some of it as a hedge because the world could go there. He calls it a grassroots store of value.

“I think there's a growing group of people that believe crypto along with precious metals are kind of the anti fiat currency trade. And if anything really broke and governments didn't repay or extended durations”at 25:32

Brett Rentmeester · WindRock Wealth Management

AI agents will become the main drivers of crypto wallet and transaction demand, favoring blockchain rails.

He argues that agents acting for individuals will become the main drivers of demand for crypto wallets and transactions. One person could run many bots, each needing its own wallet. He admits no one knows how this will play out, but says it will be a favorable backdrop for blockchain and cryptocurrency rails.

“these agents going out and doing their own thing are going to be the main drivers of demand for crypto wallets and other transaction. It's not gonna be you and I.”at 26:51

Brett Rentmeester · WindRock Wealth Management

Multifamily and rental property in key areas should stay strong as inflation lifts rents.

Higher rates normally come with higher inflation, and inflation normally translates into higher rents over time. So he expects multifamily and rentals in key areas to remain strong, and he says people still want to travel and stay in the right hotels. He sees a clear split with office, which he thinks is distressed.

“Normally, inflation will translate into higher rents over time. So I think things like multifamily and rental in key areas are still going to be strong.”at 30:33

Brett Rentmeester · WindRock Wealth Management

Big-city office space is distressed, with buildings changing hands at about 10% of their value a decade ago.

He says office and big-city corridors are distressed, and he is starting to see transactions in Chicago where buildings change hands at about 10% of what they were worth ten years ago. He says this shows major distress in the office segment and that the sector cannot be painted with one brush.

“I think office and big cities are distressed, and I'm starting to see some transactions. We're here in Chicago, you see things where buildings are changing hands, you know, of 10% of what the value was ten years ago.”at 30:50

Brett Rentmeester · WindRock Wealth Management

Long rates are starting a new generational rising cycle; today's 5% bonds may disappoint in five years.

Rates run in roughly 40-year cycles: the 10-year rose from about 2% in the 1940s to about 16% in 1981, then fell to about 0.5% during COVID. Falling rates lifted bond prices and stock valuations for four decades. He argues the economy is now on the cusp of another 40-year cycle, and history suggests rates will move up. That would pressure many assets, but might make bonds a better deal for a short-term trade. Yet a 5% bond that looks attractive now may not look that way five years from now.

“So, you know, if you look at this over the period of generational cycles, you could say we had one forty year cycle post World War two up in rates. We had one cycle down, and now we're just on the cusp of perhaps breaking out into another forty year cycle. And I think history would suggest the direction is up.”at 3:58

Brett Rentmeester · WindRock Wealth Management

Federal debt and rising rates make interest costs a crushing share of tax revenue, pointing toward crisis.

He cites about $40T of official US debt, with multiples more in off-balance-sheet obligations. Projecting today's rates onto that debt gives a forward interest expense of roughly $1.5T a year, about 20% of the budget and 28% of all tax dollars collected. He argues debt and rising rates are now linked with no clear plan, and that governments tend to print money as buyer of last resort. He expects a major breakdown: one or two of these pressures will blow up and everyone will panic, with the reset likely in the early-to-mid 2030s. He says rates won't rise in a straight line and that the budgets don't tie out.

“We have 40,000,000,000,000 of official debt and multiples of that if you look in off balance sheet type things. But just on that alone, putting today's rates on it, we're projecting a forward looking interest expense of maybe 1,500,000,000,000 a year. Well, that's about 20% of the budget, but it's about 28% of all tax dollars collected.”at 7:30

Brett Rentmeester · WindRock Wealth Management

Money printing to backstop debt will drive inflation and pull demand toward non-dollar assets.

When rates rise or bond demand falls, governments tend to print money to be the buyer of last resort. He argues that printing creates inflation, and it leads people to want to own things that are not dollar denominated. He sees this as part of the reason for the current movement. He ties it to today's debt problems, which he says have no clear plan.

“They tend to come in and print money to the be the buyer of last resort. But printing the money then creates the inflation and it creates people wanting to own things that aren't dollar denominated.”at 8:04

Brett Rentmeester · WindRock Wealth Management

Social Security assets will be depleted by 2032; the benefit funding math is breaking down.

He cites the Social Security trustees' own measure, which shows assets depleted by 2032, and says that date is closer than it used to seem. He describes the system as a pyramid scheme that depends on new workers paying more tax to cover retirees, and says the math has been breaking for a long time. He expects a fresh tax plan to be needed around that point, and that people would revolt against it.

“systems we've set up like Social Security, which by their own measures are... Their assets are gonna be depleted by 2032. Well, 2032 is not as far out as it used to seem.”at 11:33

Brett Rentmeester · WindRock Wealth Management

Health insurance costs are out of control; his firm's renewal rose 22%, far above official 2.5% cost growth.

The government's health care CPI shows cost growth averaging 2.5% over five years, but the government doesn't track insurance costs, which should be indicative of the cost structure. His own experience as a smaller business owner: renewing the same plan for next year comes with a 22% increase in one year. He calls this unsustainable and argues the system is mismanaged on both sides of the aisle, with no budget that can tie out to contain it.

“So their health care CPI, their cost structure over the last five years has averaged 2.5%. Well, I can tell you as a smaller business, we just got our health insurance renewals and keeping our same plan from last year is a 22% increase going into next year, just in one year.”at 12:52

Brett Rentmeester · WindRock Wealth Management

Midterms won't matter for the debt and entitlement problems, since no party has a fix.

Whichever party is in power faces the same crisis, and there is no resolve to live within means or correct anything. Consensus is that there will be no real government budget, health costs will balloon, and Social Security is on its last legs. He expects a radical intervention when something breaks. He also cites congressional ratings below one in four and young people's disaffection with the system as signs of institutional failure.

“So I don't know if it matters right now, the midterms per se, at least as it relates to this very large story.”at 16:06

Brett Rentmeester · WindRock Wealth Management

Gold and silver held up in the 1970s rising-rate era and are useful hard assets now.

In the 1970s, when rates rose, bonds lost significant ground after inflation and stocks roughly tread water in real terms. Hard-asset-oriented holdings did well, including oil during the embargo, farmland, and gold and silver. He concludes that in a rising-rate environment with a tougher outlook, hard assets play a role. He cautions against putting everything into gold, though, which he would not advise.

“Hard asset oriented things tended to do well. So oil did well. I mean, we had the oil embargo and other events. Farmland did well. Gold and silver did well.”at 18:29

Brett Rentmeester · WindRock Wealth Management

Hard assets should play a role in a rising-rate environment with a more difficult outlook.

He uses the 1970s rising-rate period as a template: real returns on bonds and stocks were weak while oil, farmland, gold and silver did well. He applies that to today's environment of high debt and rising rates, and concludes that hard assets should be part of a portfolio. He frames this as one part of a barbell, alongside innovation and growth equity, and not an all-in move.

“I think in general, in rising rate environment with a more difficult outlook, I think hard assets play a role.”at 18:29

Brett Rentmeester · WindRock Wealth Management

He is cautious on big-city municipal bonds, given their heavy issues and the risk of rules changing.

He says his firm has been cautious about owning many municipal bonds from large cities that have tons of issues. This connects to his broader view that over-indebted governments may change the rules down the road, so investors need to be careful. Part of portfolio strategy, he says, is what you avoid.

“we've been cautious on owning a lot of municipal bonds issued by, you know, the big cities that that have tons of issues.”at 18:49

Brett Rentmeester · WindRock Wealth Management

Autonomous vehicles and humanoid robots will be everywhere within five years, a key innovation driver.

He says innovation is at a major inflection point that goes beyond AI. In the next five years, autonomous vehicles will be everywhere and humanoid robots will arrive, along with more activity in the orbital economy. He treats these as real positive drivers that offset the risks from debt and institutional decline, and says his firm invests in innovation on that basis.

“And in the next five years, we'll see autonomous vehicles everywhere. We'll see humanoid robots.”at 19:41

Brett Rentmeester · WindRock Wealth Management

AI demand for intelligence will keep rising exponentially as AI moves from laptops into devices and robots.

Intelligence demand will keep multiplying because it won't be limited to a laptop. Soon it will be in a home device or a humanoid robot, which multiplies demand for AI and the other inputs it needs. He says AI and software will move into hardware in the real world over the next five to ten years. He admits he doesn't know where it's going, but expects demand for intelligence to keep rising exponentially for many years.

“I think the demand for ever increasing amounts of intelligence will keep multiplying because it's not gonna be limited to you on your computer. Pretty soon, it will be a device in your home or a humanoid robot”at 23:37

Brett Rentmeester · WindRock Wealth Management

AI may get ahead of itself, with data centers possibly overbuilt, though he is unsure.

He expects a period where people get too hyped up about AI, and says the front edges may already be showing in certain parts of AI, such as whether data centers have been overbuilt. He also says tech goes through its own cycle and that bubbles can push prices well beyond what is justified. He says he doesn't think the market is there yet and doesn't know the answer, but demand for intelligence still won't fall.

“Now in that cycle that's very meaningful of of real changes to your life, there will probably be a period where people get too hyped up about it. And we might be seeing it the front edges on certain aspects of AI, like have we overbuilt data centers”at 24:06

Brett Rentmeester · WindRock Wealth Management

Regulators are moving to allow tokenization and promote stablecoins, merging traditional finance with crypto.

He points to the stalled Clarity Act as well as moves by the SEC and CFTC toward allowing tokenization and promoting stablecoins. These assets will run on blockchains and form a different infrastructure. He argues this will marry traditional finance and cryptocurrencies, which have been very separate until now.

“You see the SEC, you see the commodities, CFTC, commission, all moving in the direction of allowing tokenization, promoting stable coins, all of these things that are gonna run on blockchains and be a different infrastructure.”at 26:24

Brett Rentmeester · WindRock Wealth Management

Single-family home prices face possible pressure as sellers and buyers stall, with buyers priced out.

He describes a standoff: sellers have high price expectations but are locked into low mortgage rates and don't need to sell, while buyers are increasingly priced out, especially with higher rates. He says it is uncertain how this resolves, but there seems to be pressure on single-family homes at some point. He also says the market is very regional.

“a standstill between, you know, sellers that have high price expectations, but are locked in at low rates and maybe don't need to sell and buyers that are being increasingly priced out and now with higher rates even more so.”at 30:01