Byron Boston

Episode 139: What’s Different This Time When Saving For Retirement With Byron Boston

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Yes, markets do run in repeating cycles. However, the best traders ask themselves, “What’s different this time?” Byron Boston, CEO of Dynex Capital explains that this is the very first rule his firm uses when plotting how to navigate their portfolio through changing times. However, two large exogenous events – the pandemic & now a war – are creating some uncertainty for baby boomers hoping to turn assets into income.

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We hope you enjoy the show.

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[Paul Tyler]: hi this is paul tyler and welcome to another episode of that annuity show ramsey

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[Paul Tyler]: how are you

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[Ramsey Smith]: fantastic

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[Paul Tyler]: hey a good um we have a great guest in fact it was a really good show it was one i

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[Paul Tyler]: missed when i was on vacation now mark is out so we’re tag team in this show

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[Paul Tyler]: ramsey do you wanna do the intro

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[Ramsey Smith]: absolutely so we’re very lucky today to be rejoined by byron boston who is the ceo

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[Ramsey Smith]: of Dynex a mortgage real estate investment trust and the reason that we wanted to

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[Ramsey Smith]: have him back on the show and the reason it’s so timely is byron

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[Ramsey Smith]: is a student of economic history

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[Ramsey Smith]: and he has really an extraordinary view on sort of macroeconomics

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[Ramsey Smith]: and and geopolitical issues which of course we you know really at the center of

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[Ramsey Smith]: everything that we need to worry about

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[Ramsey Smith]: as an economy and it’s not just it’s not just big investors need to focus on it we

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[Ramsey Smith]: as individual americans financial advisors all need to have context and so we’re

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[Ramsey Smith]: we’re delighted to have delighted to have byron back and one of the things that i

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[Ramsey Smith]: always say about baring that i think is many things that are interesting is that

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[Ramsey Smith]: fundamentally when he when he talks about how he viewed the world he starts with

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[Ramsey Smith]: you know four four words i am a lender and i think that’s something that people

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[Ramsey Smith]: not necessarily understand about what it means to be a mortgage reit but he’s

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[Ramsey Smith]: fundamentally a lender and and that that lens i think brings a very interesting

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[Ramsey Smith]: perspective on the way it looks at the world so with that

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[Paul Tyler]: oh

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[Ramsey Smith]: welcome back byron we’re delighted to have you tell us a little bit about tell a

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[Ramsey Smith]: little bit about yourself and your journey and what brought you to

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[Ramsey Smith]: and what dyne does very quickly no

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[Byron Boston]: thank you sure sure ramsey paul thank you so much for having me and um that’s a

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[Byron Boston]: fantastic introduction

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[Byron Boston]: to i am very much so a student of history

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[Byron Boston]: i am a an economics ner a very student of economics and i found my way to that

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[Byron Boston]: topic in college and i’m very happy that i did i am an economics major from

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[Byron Boston]: dartmouth college

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[Byron Boston]: and i found my way there senior year it was not my original major i had to switch

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[Byron Boston]: my major my last year in school and the reason that’s important and so many

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[Byron Boston]: students are confused in terms of their majors i switched that major because

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[Byron Boston]: that’s what i was interested in i had taken a path down the the wrong direction

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[Byron Boston]: mainly because of influence of of others and and i’m so happy that at some point i

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[Byron Boston]: said you know what i love economics i want to switch my major the head of the

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[Byron Boston]: department helped me switch my major and here i am sixty three years old that had

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[Byron Boston]: to be and at this point it was forty two years ago and um forty yeah forty two

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[Byron Boston]: years ago when i made that decision and i am so happy i did because i i really am

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[Byron Boston]: an economics ner and so in this job at dynex capital

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[Byron Boston]: this is a core

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[Byron Boston]: knowledge skill set that i lean upon and how we make our decision so i am a lender

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[Byron Boston]: i came out of dartmouth college after studying economics i came right to the wall

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[Byron Boston]: street world and i was trained in one of the better corporate lending programs at

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[Byron Boston]: chemical bank spent three years as a lender i went back to business school and

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[Byron Boston]: studied finna county came back to wall street as a mortgage backed securities

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[Byron Boston]: trader i was fortunate it was before larry fing started black black rock that one

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[Byron Boston]: of the best he ran one of the best mortgage back securities trading desks on wall

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[Byron Boston]: street and i was allowed to join that group and so i believe i trained

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[Byron Boston]: in both both the chemical bank and at first boston by some of the best in lending

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[Byron Boston]: and in uh investing and in trading and the asset class and trading that i focused

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[Byron Boston]: on was mortgage backed securities

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[Byron Boston]: and so i started that journey as a trader in eighty six eleven years on the what i

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[Byron Boston]: would call the south side of wall street and i flipped over to the b side where i

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[Byron Boston]: was at freddie mac for seven years where i further hone my skill and knowledge of

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[Byron Boston]: lending money against real estate um and in two thousand four i started my first

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[Byron Boston]: company it was called sunset financial was a mortgage reit took it public i got a

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[Byron Boston]: takeover bid in two thousand six we sold the company happily sold the company the

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[Byron Boston]: company was successful and one of the the most important things i can tell you

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[Byron Boston]: about my career

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[Paul Tyler]: no

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[Byron Boston]: is that a chunk of the investors of my first company i started asked me to come to

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[Byron Boston]: dine capital and help them rebuild this

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[Ramsey Smith]: w

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[Byron Boston]: organization dye had hit some hard times and it was somewhat of a rebuilding mode

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[Byron Boston]: so this has been a turnaround i’m very proud that my i started a company sold it

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[Byron Boston]: and i had enough happy investors to ask me to come and do it again with her and so

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[Byron Boston]: i’m still here that was about fifteen years ago my fifteenth year at dint

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[Byron Boston]: investment trust a financial services company and we generate dividend income long

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[Byron Boston]: term total returns by financing real estate assets but most importantly our

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[Byron Boston]: purpose we’re here to make lives better and the way we make lives better is by

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[Byron Boston]: taking care of the individual savers who buy our stock or our preferred stock we

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[Byron Boston]: also make the lives better of our employees by creating a great working

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[Byron Boston]: environment and giving them also an opportunity to own dn capital stock and enjoy

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[Byron Boston]: the dividend and cash income that we throw off from that stock and then here’s

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[Byron Boston]: another category that most of won’t understand we use leverage or we borrow money

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[Byron Boston]: to to make money in other words we

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[Byron Boston]: we sell stock to our investors we then borrow additional money to then take and

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[Byron Boston]: lend that money to either directly to homeowners

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[Paul Tyler]: it’s

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[Byron Boston]: uh through securities or directly to homeowners and we also lend against other

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[Byron Boston]: asset classes such as apartment buildings malls

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[Byron Boston]: we’ve pretty much a l again in every asset class

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[Byron Boston]: in fin capital the last thirty years or so so our goal again make lives better

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[Byron Boston]: take care of the savers take care of our employees and the last category i forgot

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[Byron Boston]: to tell you was we take care of our creditors when we borrow money we don’t want

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[Byron Boston]: to be a problem to our creditors we want to be one of the best credits that they

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[Byron Boston]: have on their books

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[Ramsey Smith]: so i just want to jump in real quick there so you you’ve got a business that you

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[Ramsey Smith]: are a lender it’s you’re a leverage lender and so tell us a little bit about why

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[Ramsey Smith]: that makes you so sort of hyper focused on what’s going on

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[Ramsey Smith]: in the macroeconomic environment

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[Byron Boston]: so first off

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[Byron Boston]: just trying to think every lender most people in this economy deal with deal with

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[Byron Boston]: they’re leveraged so banks are leveraged banks leverage themselves through demand

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[Byron Boston]: deposits right and so uh they could use other type of leverage but their core uh

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[Byron Boston]: uh liability happens to be demand deposits we

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[Byron Boston]: use shorter term borrowings which are not as um

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[Byron Boston]: what word simple word i can use not as easy as demand deposits it’s a little bit

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[Byron Boston]: tougher when you’re leveraging yourself through what we call the repurchase

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[Byron Boston]: agreement market or short term markets as such

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[Byron Boston]: risk management is essential for running a real estate investment trust such as Dynex

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[Byron Boston]: capital so if you ask me for just one line about dyne i’m going to say we bring to

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[Byron Boston]: the table expert risk management

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[Byron Boston]: discipline capital allocation and those are the two skill sets that we bring to

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[Byron Boston]: the table and we’ll present you with a very skilled and experienced management

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[Byron Boston]: team so we are leveraged we must think about the

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[Ramsey Smith]: thats

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[Byron Boston]: global environment we have a very disciplined approach start first with assessing

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[Byron Boston]: the global macro environment and then work your way down to ultimately the either

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[Byron Boston]: the bond or the loan that we put in our portfolio and let me just add this one

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[Byron Boston]: thing ramsay and paul i don’t want to confuse anyone if you lent money in nineteen

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[Byron Boston]: seventy five more than likely you’re making a direct loan to a borrower in twenty

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[Byron Boston]: twenty two i have more options i can either make a direct loan or i can buy a

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[Ramsey Smith]: b

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[Byron Boston]: security

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[Byron Boston]: that is backed

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[Ramsey Smith]: back

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[Byron Boston]: by a pool of loans and those are we call securit eyed assets so today dyne

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[Ramsey Smith]: like

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[Byron Boston]: balance sheet it is majority you know ninety nine percent securit eyed assets

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[Ramsey Smith]: so to talk about and we were paul and you and i were talking about this before the

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[Ramsey Smith]: before the call like there’s a lot going on in the world right now

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[Ramsey Smith]: so

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[Ramsey Smith]: you know tell us tell us about you know what what what’s on your mind and and

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[Ramsey Smith]: importantly like why things might be different this time around

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[Byron Boston]: that

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[Ramsey Smith]: in terms of market distress something that you have a great deal of patience for

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[Ramsey Smith]: because you expect it to happen every four five six seventy years but it might be

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[Ramsey Smith]: different this time tell us a little bit about that

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[Byron Boston]: what would you look at what

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[Byron Boston]: the main question we ask at din’s capital is what is different this time so there

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[Byron Boston]: was a book written called this time is different and you hear quoted on t v and

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[Byron Boston]: other shows and i think that book is misleading there is something different every

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[Byron Boston]: single time and the real question you ask is what is different this time but be a

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[Byron Boston]: avid student of history to understand global economic cycles global uh market

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[Byron Boston]: cycles and at

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[Byron Boston]: economic data social data political data

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[Byron Boston]: and to assess inform an opinion first and foremost on the macroeconomic

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[Byron Boston]: environment we don’t want to get so focused on that loan or that bond that we want

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[Byron Boston]: to make and ignore the global environment and we make a decision and then we get

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[Byron Boston]: completely annihilated because there’s a major macro change or such as

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[Byron Boston]: at this point we’ve experienced two exogenous shocks in the economy so in general

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[Byron Boston]: we believe a dy that the world changed as of january one twenty twenty that we

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[Byron Boston]: have entered into just a completely new environment what are the characteristics

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[Byron Boston]: of the environment first and foremost right off the back we were hit with an

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[Byron Boston]: exogenous shock as this decade started what happened next the global governments

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[Byron Boston]: both central banks and fiscal policymakers responded enormously like none of us in

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[Byron Boston]: our generation has ever seen um to try to

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[Byron Boston]: save the global economy

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[Byron Boston]: uh given this situation that they intentionally shut down the global economy none

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[Byron Boston]: of us could have ever imagined we shut down a global economy we were all sitting

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[Byron Boston]: at home two years ago not leaving our homes right so this enormous effort was made

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[Byron Boston]: um central banks took an unprecedented step except maybe during world war two of

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[Byron Boston]: stepping into the the global capital markets buying etfs bonds i don’t know it

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[Byron Boston]: seems if they bought a little bit of everything

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[Byron Boston]: and now two years into that we came into twenty twenty two

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[Byron Boston]: with the central banks intending to try to reverse that

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[Byron Boston]: and in addition

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[Byron Boston]: fiscal policy makers potentially trying to pull back on some of the fiscal policy

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[Byron Boston]: that have been added to the economy so when we started this year off at dns we

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[Byron Boston]: believe we were in a big moment in history we’ve never been through this where

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[Byron Boston]: central banks at first built up their balance sheets that large and now they’re

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[Byron Boston]: going to try to pull back the stimulus or the liquidity that have been pumped into

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[Byron Boston]: the global system and right in the middle at the beginning of this process we now

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[Byron Boston]: experience another major exogenous shock and what do we mean exogenous shock it’s

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[Byron Boston]: outside of the economic system something that happens on the outside now we have

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[Byron Boston]: to assess that and say through what mechanisms will this impact the economy and so

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[Byron Boston]: we first had this huge drop in demand from the the pandemic as we shut down the

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[Byron Boston]: economy this time we have another exogenous shock and now we’re coming through the

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[Byron Boston]: uh the mechanism uh o energy right we’re going to drive inflation

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[Byron Boston]: with that issue you could ultimately have a psychological impact because at some

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[Byron Boston]: point the war could bring very negative psychology

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[Byron Boston]: to the consumer

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[Byron Boston]: the consumer environment the largest one we’ll all talk about is inflation we had

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[Byron Boston]: an inflation issue before the exogenous shock now it’s been more exacerbated and

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[Byron Boston]: then when you think about it we’ve got the supply issue supply chains the if you

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[Byron Boston]: think about cutting off russian oil in effect we’re saying okay we’re going to cut

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[Byron Boston]: off certain supply of our energy but the demand is still there

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[Byron Boston]: so now we probably have a problem in terms of prices increasing as we try to

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[Byron Boston]: allocate

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[Byron Boston]: scarce resources so we’ve enjoyed for thirty forty years this wonderful world of

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[Byron Boston]: globalization

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[Paul Tyler]: so

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[Byron Boston]: it has helped keep inflation lower it took a long time for many of us to recognize

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[Byron Boston]: the

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[Ramsey Smith]: alright

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[Byron Boston]: full impact of moving production from

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[Byron Boston]: an employee asked that

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[Ramsey Smith]: yeah

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[Byron Boston]: asked for fifteen dollars an hour to an employee that ask for one dollar an hour

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[Byron Boston]: that that’s in effect what took place

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[Ramsey Smith]: i

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[Byron Boston]: right we moved to the low low cost producing areas of china mexico other places in

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[Byron Boston]: asia and now these supply chains are being ripped apart and we don’t know what the

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[Byron Boston]: impact will be we do know that one of the mechanisms that it will transfer into

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[Byron Boston]: the economy will be through inflation through energy prices because that’s one of

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[Byron Boston]: the major areas that we’re going to fill this supply chain disruption taking place

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[Byron Boston]: in the short medium and long term

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[Paul Tyler]: environment

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[Paul Tyler]: step back to something you said earlier what’s different this time well that

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[Paul Tyler]: implies we know the time that we’re comparing this against

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[Paul Tyler]: and you know i’m a history i was a history major in college and i think back you

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[Paul Tyler]: know they also i think when we could have a whole show on this is i know you spent

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[Paul Tyler]: a lot of time in psychology just the social change going on you know i could say

00:14:17,138 –> 00:14:22,418
[Paul Tyler]: well it what’s different now than what we went through in nineteen sixty eight i

00:14:22,498 –> 00:14:24,898
[Paul Tyler]: could say that here in the us in certain points

00:14:26,658 –> 00:14:28,658
[Paul Tyler]: looking at what’s taking place

00:14:30,738 –> 00:14:36,018
[Paul Tyler]: psychologically and politically i don’t know it’s just back to the vit know in

00:14:36,018 –> 00:14:40,818
[Paul Tyler]: germany you know post world war one you know you’ve got national psyches t

00:14:42,098 –> 00:14:47,938
[Paul Tyler]: people trying to create myths that didn’t ever you know recreate history that

00:14:48,018 –> 00:14:51,938
[Paul Tyler]: never existed before how do you factor the social change going

00:14:53,058 –> 00:14:54,098
[Paul Tyler]: taking place at the same time

00:14:54,800 –> 00:15:00,320
[Byron Boston]: boy the first point is you gotta acknowledge the social issues it’s it’s it’s

00:15:00,400 –> 00:15:05,680
[Byron Boston]: unbelievable how many economists i talk to and they don’t recognize the social

00:15:06,000 –> 00:15:09,360
[Byron Boston]: issues so let’s go back to the inflation of one thousand nine hundred seventy

00:15:09,360 –> 00:15:13,920
[Byron Boston]: seconds that everyone wants to talk about what took place in nineteen set by the

00:15:13,920 –> 00:15:17,920
[Byron Boston]: side issue if someone says that the inflation ninety seven was jimmy carter issue

00:15:18,000 –> 00:15:21,440
[Byron Boston]: just ignore them they don’t have a clue what they’re talking about the inflation

00:15:21,520 –> 00:15:24,880
[Byron Boston]: that developed ultimately in the one thousand nine hundred seventy was a result of

00:15:25,120 –> 00:15:29,280
[Byron Boston]: multiple factors i would say over the twenty years before nineteen eighty between

00:15:29,520 –> 00:15:32,480
[Byron Boston]: nineteen sixty and nineteen eighty think about everything that took place because

00:15:32,720 –> 00:15:38,000
[Byron Boston]: it ultimately came through social issues right so you have a president shot and

00:15:38,000 –> 00:15:41,760
[Byron Boston]: killed in our country you we have this view of our country in great history we had

00:15:41,318 –> 00:15:42,318
[Paul Tyler]: sh

00:15:41,760 –> 00:15:45,760
[Byron Boston]: a president killed then we had his brother killed we had martin luther king killed

00:15:46,160 –> 00:15:50,800
[Byron Boston]: we had enormous social issues that develop enormous programs that were put in

00:15:50,880 –> 00:15:56,240
[Byron Boston]: place to try to to deal with this this social unrest that was happening you had

00:15:56,400 –> 00:16:01,680
[Byron Boston]: generational tensions between the the young baby boom generation and the older gen

00:16:02,160 –> 00:16:07,280
[Byron Boston]: generation before them and so this led to public policy issues that that would

00:16:07,360 –> 00:16:12,640
[Byron Boston]: ultimately play a role it led to especially some of the programs were trying to

00:16:12,720 –> 00:16:17,520
[Byron Boston]: deal with poverty and other issues such as that so these are social factors

00:16:17,900 –> 00:16:18,900
[Byron Boston]: rippling

00:16:18,267 –> 00:16:19,267
[Ramsey Smith]: correct

00:16:18,800 –> 00:16:23,760
[Byron Boston]: through the economy in ways that you can’t always predict so let’s think about

00:16:23,920 –> 00:16:27,680
[Byron Boston]: today what was amazing about twenty twenty we have this pandemic and then what

00:16:27,840 –> 00:16:33,200
[Byron Boston]: happens someone had a phone with a camera on it and so they video tape the police

00:16:33,440 –> 00:16:39,280
[Byron Boston]: in minnesota with his with his knee on the neck of george floyd so now we have

00:16:39,360 –> 00:16:43,840
[Byron Boston]: this huge movement developed right in the middle of this unbelievable moment in

00:16:43,920 –> 00:16:48,400
[Byron Boston]: history where we shut down the global economy so when we think about what is

00:16:48,560 –> 00:16:53,760
[Byron Boston]: taking place at dyne when we think about risk we think definitively broader than

00:16:54,000 –> 00:17:00,560
[Byron Boston]: just c plus i plus g plus net exports equals gdp there are a lot of factors that

00:17:00,720 –> 00:17:06,480
[Byron Boston]: ultimately come into play let me just point out a couple of them human conflict is

00:17:06,720 –> 00:17:12,160
[Byron Boston]: at the top of our list at dyne capital we’re concerned about human conflict where

00:17:12,300 –> 00:17:13,300
[Byron Boston]: does it come from

00:17:14,400 –> 00:17:18,640
[Byron Boston]: it comes from history we’re seeing this now not only in the united states we’re

00:17:18,640 –> 00:17:22,960
[Byron Boston]: seen in other places right you go to turkey and and you know ewan doesn’t want to

00:17:22,960 –> 00:17:28,000
[Byron Boston]: admit that there was a armenian genocide that took place you come to the united

00:17:28,080 –> 00:17:31,600
[Byron Boston]: states and you got this debate over you know how are we going to look at our own

00:17:31,760 –> 00:17:34,800
[Byron Boston]: history here in the united states you’ll probably go to germany you’ll have find

00:17:34,880 –> 00:17:38,320
[Byron Boston]: some germans and want to deny that there was a holocaust so so right off the bat

00:17:38,400 –> 00:17:42,880
[Byron Boston]: the social issues around just what has happened in the past and how we’re going to

00:17:42,960 –> 00:17:47,200
[Byron Boston]: reconcile and deal with what has happened in the past um today

00:17:48,240 –> 00:17:54,640
[Byron Boston]: income and wealth inequality in my opinion is like high blood pressure in your

00:17:54,720 –> 00:18:00,800
[Byron Boston]: body they call it a silent killer and so it’s it’s or or is the the professor from

00:18:00,960 –> 00:18:06,320
[Byron Boston]: university of chicago wrote the book fault line it’s a crack beneath the surface

00:18:06,800 –> 00:18:12,320
[Byron Boston]: of a global economy and it will manifest itself in ways that of us can really

00:18:12,480 –> 00:18:18,080
[Byron Boston]: imagine that it’s happening whether it’s electing an extreme person into office

00:18:19,040 –> 00:18:22,720
[Byron Boston]: because a certain sector of the population feels less left behind

00:18:24,320 –> 00:18:28,160
[Byron Boston]: or whether it’s just an explosive situation that took place if you remember the

00:18:28,160 –> 00:18:33,280
[Byron Boston]: arab spring or how about the french revolution we could go on and on in terms of

00:18:34,240 –> 00:18:39,200
[Byron Boston]: how might wealth and income inequality manifests itself you layer on top of that

00:18:39,760 –> 00:18:43,840
[Byron Boston]: technology and so now back to the human beings right because that’s what sociology

00:18:43,920 –> 00:18:49,440
[Byron Boston]: and psychology happens to be technology has allowed us to really experience

00:18:50,000 –> 00:18:54,640
[Byron Boston]: everyone else more than when i was a child so i didn’t grow up on the the

00:18:54,720 –> 00:18:58,400
[Byron Boston]: wealthiest side of the railroad tracks but if you had to ask me if we were not

00:18:58,720 –> 00:19:02,160
[Byron Boston]: wealth i would have been not i don’t know what you’re talking about we’re fine but

00:19:01,940 –> 00:19:02,940
[Byron Boston]: when i went

00:19:02,198 –> 00:19:03,198
[Paul Tyler]: it

00:19:02,720 –> 00:19:07,440
[Byron Boston]: to dartmouth and all of a sudden i started to realize how other people lived then

00:19:07,520 –> 00:19:12,320
[Byron Boston]: it was like whoa man maybe you know maybe life is a little different for us right

00:19:12,560 –> 00:19:18,720
[Byron Boston]: but today technology take talk newspapers facebook they keep everyone

00:19:19,740 –> 00:19:20,740
[Byron Boston]: almost whatever

00:19:22,880 –> 00:19:28,240
[Byron Boston]: coveting everyone else and it’s that’s a psychological issue that comes into play

00:19:28,400 –> 00:19:32,160
[Byron Boston]: the wealthy don’t live a life that no one else sees the wealthy live a life where

00:19:32,320 –> 00:19:35,680
[Byron Boston]: all the poor people can see exactly how they live and they can see what they’re

00:19:35,680 –> 00:19:38,800
[Byron Boston]: missing so there are a lot of social factors that are coming into play the one

00:19:38,880 –> 00:19:44,000
[Byron Boston]: that concerns me the most is human conflict we’re seeing that in terms of the

00:19:44,080 –> 00:19:48,320
[Byron Boston]: russian situation today i had some more colorful language i’ve used in my office

00:19:48,560 –> 00:19:51,200
[Byron Boston]: on this i won’t use that that color uh language

00:19:50,827 –> 00:19:51,827
[Ramsey Smith]: no

00:19:51,520 –> 00:19:52,640
[Byron Boston]: here but

00:19:52,467 –> 00:19:53,467
[Ramsey Smith]: i don’t care

00:19:52,800 –> 00:19:57,920
[Byron Boston]: we have had a larger amount of authoritarian type leaders rise to the global stage

00:19:58,400 –> 00:20:02,160
[Byron Boston]: over the last call it ten to twenty years and it’s concerning to us at

00:20:03,920 –> 00:20:06,240
[Byron Boston]: i hope that wasn’t too long winded there’s a lot

00:20:05,867 –> 00:20:06,867
[Ramsey Smith]: no

00:20:05,940 –> 00:20:06,940
[Byron Boston]: of social

00:20:06,578 –> 00:20:07,698
[Paul Tyler]: no no

00:20:06,800 –> 00:20:08,640
[Byron Boston]: factors that are happening there’s a ton

00:20:09,298 –> 00:20:14,498
[Paul Tyler]: no well you know and i think it’s it’s interesting how how do all these pieces add

00:20:14,658 –> 00:20:18,898
[Paul Tyler]: up to something different right pandemic we’re stuck in we’re on zoom all of a

00:20:18,978 –> 00:20:22,178
[Paul Tyler]: sudden we realized oh the technologies has been sitting here for ten years

00:20:22,338 –> 00:20:27,138
[Paul Tyler]: actually is kind of useful connects all of us you know ukraine is interesting

00:20:27,478 –> 00:20:28,478
[Paul Tyler]: because

00:20:28,918 –> 00:20:29,918
[Paul Tyler]: y

00:20:30,498 –> 00:20:33,778
[Paul Tyler]: as i’ve started to kind of start talking to people i know somebody you know i know

00:20:33,858 –> 00:20:38,018
[Paul Tyler]: a startup in ukraine i talked to her when she had her two two months ago she had

00:20:38,178 –> 00:20:43,618
[Paul Tyler]: her bag ca work on zoom she says oh yeah i have a bag of cash i have a gun my tank

00:20:44,178 –> 00:20:45,618
[Paul Tyler]: of is filled with gas

00:20:47,858 –> 00:20:51,938
[Paul Tyler]: wait a second i’m looking at you i feel like i know you and i see you here i think

00:20:52,098 –> 00:20:56,978
[Paul Tyler]: you know ukraine has such technology talent we’ve had so many you know especially

00:20:56,978 –> 00:21:00,818
[Paul Tyler]: in our business you know i have worked with so many different technology vendors

00:21:02,738 –> 00:21:05,778
[Paul Tyler]: now there these people just to screen away you feel like you know them you know i

00:21:05,858 –> 00:21:08,098
[Paul Tyler]: talked to somebody who was was on slack

00:21:06,960 –> 00:21:08,240
[Byron Boston]: yeah i do feel like you know

00:21:09,298 –> 00:21:16,338
[Paul Tyler]: slacking somebody and on video with a programmer in ukraine doing their day job in

00:21:16,418 –> 00:21:18,098
[Paul Tyler]: a bomb shelter with wi fi

00:21:19,458 –> 00:21:23,618
[Paul Tyler]: right now you know to buy your point if you didn’t have a camera and a screen in a

00:21:23,638 –> 00:21:24,638
[Paul Tyler]: on every

00:21:26,418 –> 00:21:29,698
[Paul Tyler]: camera i don’t know would ukraine just be kind of a strange thing off to the side

00:21:29,938 –> 00:21:33,938
[Paul Tyler]: and we don’t know how to spell it we barely you know now we know to say cave right

00:21:36,338 –> 00:21:37,858
[Paul Tyler]: a lot more than that a lot more

00:21:36,960 –> 00:21:38,000
[Byron Boston]: yeah yeah

00:21:37,667 –> 00:21:38,667
[Ramsey Smith]: hm

00:21:38,560 –> 00:21:41,280
[Byron Boston]: yeah it would be off to the side i i’ll tell you i have

00:21:42,800 –> 00:21:45,120
[Byron Boston]: a wonderful woman who reports to me

00:21:46,320 –> 00:21:52,400
[Byron Boston]: employee dix she is from the ukraine she came to the u s in the nineteen nineties

00:21:52,640 –> 00:21:55,520
[Byron Boston]: and she challenged me she said oh byron

00:21:55,067 –> 00:21:56,067
[Ramsey Smith]: she

00:21:55,680 –> 00:22:01,120
[Byron Boston]: what’s different between bosnia in the nineteen nineties her husband is from

00:22:01,200 –> 00:22:02,720
[Byron Boston]: bosnia so he

00:22:02,398 –> 00:22:03,398
[Paul Tyler]: wow

00:22:02,880 –> 00:22:05,920
[Byron Boston]: is he he unfortunately felt the brunt

00:22:07,040 –> 00:22:12,080
[Byron Boston]: uh um uh he’s a muslim descent from bosnia and uh she said what’s the difference

00:22:12,320 –> 00:22:16,320
[Byron Boston]: the world didn’t care about bosnia and the world didn’t care about syria why is

00:22:16,400 –> 00:22:19,600
[Byron Boston]: everyone responding to this so she’s from ukraine and i said you know that’s a

00:22:19,680 –> 00:22:24,560
[Byron Boston]: good question i thought about it pretty hard and i said the ukrainians are doing

00:22:24,800 –> 00:22:31,120
[Byron Boston]: something really really powerful they’re using the media and technology to make

00:22:31,280 –> 00:22:35,040
[Byron Boston]: sure that we all live this horrible journey with them

00:22:36,320 –> 00:22:40,640
[Byron Boston]: we’re living this journey i mean we’re seeing the president there he’s on the air

00:22:40,720 –> 00:22:43,920
[Byron Boston]: we can see it we can see the story we’re living this with them in the one thousand

00:22:43,920 –> 00:22:47,360
[Byron Boston]: nine hundred ninety seconds when they’s events were taking place in the balkans we

00:22:47,520 –> 00:22:52,480
[Byron Boston]: really didn’t know we didn’t have life to infect some of the worst genocide events

00:22:53,120 –> 00:22:57,600
[Byron Boston]: we’ve only been told about it because no one who was there is really trying to

00:22:57,600 –> 00:23:00,880
[Byron Boston]: admit if you talk to the serbian people today apparently my understanding is

00:23:00,960 –> 00:23:04,960
[Byron Boston]: they’ll deny that there was ever any type of genocide events that took place but

00:23:05,040 –> 00:23:08,400
[Byron Boston]: this is different what’s different this time right what’s different is that

00:23:08,640 –> 00:23:14,080
[Byron Boston]: they’re taking social media and they’re ensuring that byron paul and ramsey live

00:23:13,980 –> 00:23:14,980
[Byron Boston]: with them

00:23:15,920 –> 00:23:20,800
[Byron Boston]: the the or or get as close get close to it we can’t live with them because of

00:23:20,880 –> 00:23:25,120
[Byron Boston]: they’re feeling the pain of this what is taking place we’re seeing this president

00:23:25,760 –> 00:23:28,560
[Byron Boston]: speak on video we’re seeing other people

00:23:29,600 –> 00:23:34,480
[Byron Boston]: broadcasting up to the web we’re all living this experience day to day with them

00:23:34,880 –> 00:23:38,640
[Byron Boston]: very different than the balkan situation in the one thousand nine hundred ninety

00:23:38,640 –> 00:23:42,080
[Byron Boston]: seconds when we didn’t really have internet at that time didn’t have cell phones

00:23:42,400 –> 00:23:46,560
[Byron Boston]: didn’t have tick talk didn’t have facebook ett cetera et cetera so we’re living

00:23:46,800 –> 00:23:48,080
[Byron Boston]: this event together so it’s hard

00:23:47,827 –> 00:23:48,827
[Ramsey Smith]: mm

00:23:48,500 –> 00:23:49,500
[Byron Boston]: not to feel something

00:23:49,827 –> 00:23:50,827
[Ramsey Smith]: alright

00:23:50,720 –> 00:23:53,120
[Byron Boston]: with it i know there’s a lot of debate about you know why

00:23:54,720 –> 00:23:59,920
[Byron Boston]: is this getting a lot more attention than even some of the syrian it’s that point

00:24:00,080 –> 00:24:05,600
[Byron Boston]: the technology use here is to me seems very different and it’s allowing me to live

00:24:05,380 –> 00:24:06,380
[Byron Boston]: this

00:24:07,680 –> 00:24:10,160
[Byron Boston]: with the people of ukraine in some way

00:24:10,967 –> 00:24:15,207
[Ramsey Smith]: so do you have do you have any thoughts on how this might all play out i know

00:24:15,287 –> 00:24:17,527
[Ramsey Smith]: that’s a tough question none of us really know right

00:24:17,380 –> 00:24:18,380
[Byron Boston]: nine

00:24:17,767 –> 00:24:19,047
[Ramsey Smith]: but like do you

00:24:20,407 –> 00:24:22,727
[Ramsey Smith]: there’s so many directions it could go so

00:24:23,467 –> 00:24:24,467
[Ramsey Smith]: uh

00:24:25,047 –> 00:24:26,887
[Ramsey Smith]: putin could putin could

00:24:28,087 –> 00:24:33,687
[Ramsey Smith]: stop right he could keep going past ukraine even if he stops in ukraine like the

00:24:33,687 –> 00:24:36,967
[Ramsey Smith]: outcome can be a lot of different things like there could be some sort of some

00:24:37,047 –> 00:24:38,887
[Ramsey Smith]: sort of peace where he takes part of ukraine

00:24:40,167 –> 00:24:42,887
[Ramsey Smith]: he give some of the back to the existing government there’s all these various

00:24:43,367 –> 00:24:48,007
[Ramsey Smith]: outcomes like do you have a do you have any thoughts on what might be likely

00:24:48,087 –> 00:24:52,647
[Ramsey Smith]: outcomes or or even if not that like what maybe the implications are

00:24:54,020 –> 00:24:55,020
[Byron Boston]: right

00:24:54,567 –> 00:24:55,927
[Ramsey Smith]: for some of the various outcomes

00:24:55,680 –> 00:25:01,200
[Byron Boston]: yeah sorry so so so as ceo of dyne capital i am a coach right so the

00:25:00,747 –> 00:25:01,747
[Ramsey Smith]: yeah

00:25:01,280 –> 00:25:04,800
[Byron Boston]: way i tell smart papo who’s the president of our company companies and the chief

00:25:04,960 –> 00:25:07,920
[Byron Boston]: investment officer i tell her all the time i say you’re the quarter back on the

00:25:07,920 –> 00:25:11,520
[Byron Boston]: fuel i’m on the sidelines i’m the coach so i can’t come on the film through the

00:25:11,340 –> 00:25:12,340
[Byron Boston]: past so i’m coaching

00:25:11,787 –> 00:25:12,787
[Ramsey Smith]: yeah

00:25:12,140 –> 00:25:13,140
[Byron Boston]: my team through this

00:25:14,240 –> 00:25:20,480
[Byron Boston]: event so first and foremost this is evolving no one knows what’s going to happen

00:25:20,720 –> 00:25:25,120
[Byron Boston]: here no different than the summer july of nineteen fourteen no one really knew

00:25:25,520 –> 00:25:28,960
[Byron Boston]: what was ultimately going to take place but there are some things that i can

00:25:28,827 –> 00:25:29,827
[Ramsey Smith]: yeah

00:25:29,360 –> 00:25:31,120
[Byron Boston]: lean on and say okay this is what’s

00:25:32,400 –> 00:25:35,040
[Byron Boston]: the world is has changed period

00:25:36,160 –> 00:25:41,760
[Byron Boston]: get used to it what we knew ten years ago when the travel and the globalization

00:25:42,160 –> 00:25:46,240
[Byron Boston]: like it had gotten and it was and the great low prices we all enjoyed as the

00:25:46,320 –> 00:25:50,640
[Byron Boston]: iphones were made in china and brought back one piece made in mexico one in china

00:25:50,720 –> 00:25:55,520
[Byron Boston]: one and someplace else the world has changed we are going to go through a

00:25:55,600 –> 00:25:57,600
[Byron Boston]: decoupling process of some sort

00:25:58,800 –> 00:26:04,800
[Byron Boston]: what will it be how dramatic will it be how long would it last we’re not sure oil

00:26:05,440 –> 00:26:07,760
[Byron Boston]: clearly has been a political commodity

00:26:07,478 –> 00:26:08,478
[Paul Tyler]: yes

00:26:07,780 –> 00:26:08,780
[Byron Boston]: for

00:26:09,680 –> 00:26:16,640
[Byron Boston]: ages it continues to be a political commodity today so we’ve got to come to grips

00:26:16,720 –> 00:26:21,440
[Byron Boston]: with the fact at dye capital the world has changed we don’t need to sit around and

00:26:21,520 –> 00:26:27,600
[Byron Boston]: be and and cry over spilled milk the world has changed so things could escalate or

00:26:27,760 –> 00:26:32,000
[Byron Boston]: or they could could de escalate but we don’t know which way that will take place

00:26:32,160 –> 00:26:37,760
[Byron Boston]: and what we do at dns think through these scenarios what will we do in this a

00:26:37,760 –> 00:26:41,040
[Byron Boston]: generic situation what would we do in this situation what we do in this situation

00:26:41,600 –> 00:26:47,440
[Byron Boston]: one of the complications here is that before russia invaded ukraine at dns we

00:26:47,520 –> 00:26:53,200
[Byron Boston]: believe this was a big moment in history just based off of but governments trying

00:26:53,360 –> 00:26:57,840
[Byron Boston]: to pull back the liquidity that they had pumped to all the liquidity pumped into

00:26:57,740 –> 00:26:58,740
[Byron Boston]: the global system

00:26:59,680 –> 00:27:05,120
[Byron Boston]: to spare the world the pain of the pandemic so that was huge in itself so now you

00:27:05,280 –> 00:27:10,480
[Byron Boston]: layer this exogenous shock on top of it it really complicates the picture things

00:27:10,640 –> 00:27:15,760
[Byron Boston]: have changed supply chains are going to to change um if you recall in the one

00:27:15,760 –> 00:27:19,680
[Byron Boston]: thousand nine hundred seventy seconds you may not have been born yet ramsey but we

00:27:19,840 –> 00:27:25,360
[Byron Boston]: all had to to start we the speed limit on the highways were dropped from seventy

00:27:25,440 –> 00:27:29,600
[Byron Boston]: seventy five miles an hour to fifty five it was a federal law the speed could

00:27:29,760 –> 00:27:34,080
[Byron Boston]: drive over fifty five miles an hour on an interstate highway and so that was just

00:27:33,980 –> 00:27:34,980
[Byron Boston]: a big deal everyone

00:27:34,507 –> 00:27:35,507
[Ramsey Smith]: thank you

00:27:35,040 –> 00:27:39,520
[Byron Boston]: was like oh my gosh the speed limit is fifty five and then i think gas stations

00:27:39,600 –> 00:27:43,520
[Byron Boston]: were closing at night and there was a lot of adjustments that had to be made

00:27:43,920 –> 00:27:47,680
[Byron Boston]: during those oil embargoes so it’s been wonderful we’ve had a great life you know

00:27:47,760 –> 00:27:51,200
[Byron Boston]: everybody’s been traveling visiting other countries and everything’s been great

00:27:51,600 –> 00:27:56,400
[Byron Boston]: but things changed at this point likewise we all got used to this wonderful low

00:27:56,640 –> 00:28:01,760
[Byron Boston]: inflationary world and prices continuing to come down and if you look at history

00:28:02,160 –> 00:28:06,960
[Byron Boston]: in reality inflation has always been tended to be higher than what we’ve

00:28:07,040 –> 00:28:10,880
[Byron Boston]: experienced maybe over the last decade or so so we’re probably going to have to

00:28:10,960 –> 00:28:15,360
[Byron Boston]: get used to because if nothing else these supply chains changing and breaking down

00:28:15,840 –> 00:28:20,560
[Byron Boston]: and volving to something new we’ll probably end up with more inflation than we had

00:28:20,800 –> 00:28:25,520
[Byron Boston]: before one concern again i have i have a concern on the human conflict because i’m

00:28:25,600 –> 00:28:29,920
[Byron Boston]: concerned that this wealth and income inequality is being exacerbated by all of

00:28:30,000 –> 00:28:34,560
[Byron Boston]: these developments from the pandemic to this current development clearly the

00:28:34,640 –> 00:28:39,120
[Byron Boston]: higher oil and gas prices are hammering the lower income parts of the world more

00:28:39,520 –> 00:28:42,480
[Byron Boston]: than the higher income participants so the

00:28:43,520 –> 00:28:47,520
[Byron Boston]: the future is very very uncertain it’s not a new

00:28:47,158 –> 00:28:48,158
[Paul Tyler]: w

00:28:47,680 –> 00:28:51,920
[Byron Boston]: place for the world the world has been again study nineteen fourteen to nineteen

00:28:52,160 –> 00:28:53,760
[Byron Boston]: forty five but you could also study other

00:28:53,478 –> 00:28:54,478
[Paul Tyler]: see

00:28:54,080 –> 00:28:56,960
[Byron Boston]: other periods you could study the one thousand nine hundred sixty seconds

00:28:58,240 –> 00:29:02,000
[Byron Boston]: the world has i i know you want it to say it’s all nice and peaceful everybody’s

00:29:02,080 –> 00:29:07,200
[Byron Boston]: happy but that hasn’t been the case throughout history so things have changed we

00:29:07,440 –> 00:29:10,480
[Byron Boston]: are acting at dynamics if things have changed we’re trying to draw up scenarios

00:29:10,560 –> 00:29:11,760
[Byron Boston]: that include

00:29:12,940 –> 00:29:13,940
[Byron Boston]: some very

00:29:14,800 –> 00:29:15,920
[Byron Boston]: extreme scenarios

00:29:16,247 –> 00:29:21,207
[Ramsey Smith]: so then how do you how do you manage money differently so you have the old regime

00:29:21,367 –> 00:29:26,487
[Ramsey Smith]: right and you approach risk management one way and now this is new regime it’s

00:29:26,487 –> 00:29:31,127
[Ramsey Smith]: hyper inflation and but not hyper it it is inflationary it is inflationary there’s

00:29:30,740 –> 00:29:31,740
[Byron Boston]: yeah

00:29:31,207 –> 00:29:35,927
[Ramsey Smith]: there’s a lot of new risks um you know do you do you invest in different

00:29:36,087 –> 00:29:38,807
[Ramsey Smith]: instruments do you like how do you think about

00:29:40,167 –> 00:29:44,087
[Ramsey Smith]: you know managing your interest rate exposure just just big picture like what are

00:29:44,247 –> 00:29:47,767
[Ramsey Smith]: some what are some meaningful changes you think you’ll make in the way you run

00:29:47,467 –> 00:29:48,467
[Ramsey Smith]: your business

00:29:48,720 –> 00:29:53,280
[Byron Boston]: okay so i’m glad you asked this question i did bring this quote with me today so

00:29:53,067 –> 00:29:54,067
[Ramsey Smith]: okay

00:29:53,600 –> 00:29:58,400
[Byron Boston]: eight years ago in twenty fourteen here’s a quote from my

00:29:59,860 –> 00:30:00,860
[Byron Boston]: my fourth quarter

00:30:02,320 –> 00:30:06,960
[Byron Boston]: earnings call at the beginning of twenty fourteen i said we believe that economic

00:30:07,360 –> 00:30:11,360
[Byron Boston]: uncertainty regulatory uncertainty global market uncertainty have created a very

00:30:11,760 –> 00:30:17,360
[Byron Boston]: complex environment for global growth to be able to accelerate the levels seen in

00:30:17,440 –> 00:30:19,440
[Byron Boston]: prior post war uh

00:30:19,147 –> 00:30:20,147
[Ramsey Smith]: yeah

00:30:19,840 –> 00:30:24,320
[Byron Boston]: post war periods the recoveries so we use the word complex

00:30:25,600 –> 00:30:29,200
[Byron Boston]: i got a ton of people who like really challenged me for saying that the global

00:30:29,840 –> 00:30:32,000
[Byron Boston]: risk environment was complex that was twenty

00:30:32,187 –> 00:30:33,187
[Ramsey Smith]: i’m

00:30:32,400 –> 00:30:34,160
[Byron Boston]: fourteen so why is that relevant

00:30:35,220 –> 00:30:36,220
[Byron Boston]: look at i

00:30:35,907 –> 00:30:36,907
[Ramsey Smith]: oh i live there

00:30:36,000 –> 00:30:38,640
[Byron Boston]: joined Dynex in two thousand and eight when

00:30:38,800 –> 00:30:43,600
[Byron Boston]: we first started to invest we invested safely then we took on more risk starting

00:30:38,807 –> 00:30:40,647
[Ramsey Smith]: is more so creating to remember

00:30:43,380 –> 00:30:44,380
[Byron Boston]: about two

00:30:43,667 –> 00:30:44,667
[Ramsey Smith]: all those

00:30:44,080 –> 00:30:48,080
[Byron Boston]: thousand nine we went what we call down in credit we bought triple b assets single

00:30:48,160 –> 00:30:52,560
[Byron Boston]: a rated assets some non rated assets we took a ton of risk in terms of credit

00:30:53,280 –> 00:30:57,760
[Byron Boston]: about this period in twenty fourteen because we were concerned about the uh uh the

00:30:57,920 –> 00:31:00,880
[Byron Boston]: rising level of global risk complexity

00:31:00,507 –> 00:31:01,507
[Ramsey Smith]: movie

00:31:01,220 –> 00:31:02,220
[Byron Boston]: we started to

00:31:01,707 –> 00:31:02,707
[Ramsey Smith]: c

00:31:02,640 –> 00:31:07,200
[Byron Boston]: go what we call up and credit and up in liquidity we sold our lower credit rated

00:31:07,100 –> 00:31:08,100
[Byron Boston]: assets

00:31:08,880 –> 00:31:12,480
[Byron Boston]: we then started to sell our less liquid assets

00:31:12,107 –> 00:31:13,107
[Ramsey Smith]: yeah

00:31:13,040 –> 00:31:17,360
[Byron Boston]: and we moved what we call up and credit and up in liquidity by twenty eight

00:31:17,840 –> 00:31:18,880
[Byron Boston]: eighteen we were

00:31:18,667 –> 00:31:19,667
[Ramsey Smith]: education

00:31:19,120 –> 00:31:20,960
[Byron Boston]: pretty much so ninety five per cent

00:31:21,127 –> 00:31:23,847
[Ramsey Smith]: oh if you’re gonna go down there’s in the face

00:31:21,600 –> 00:31:24,880
[Byron Boston]: uh ownership the assets on our balance sheet that we

00:31:24,587 –> 00:31:25,587
[Ramsey Smith]: and

00:31:24,960 –> 00:31:27,280
[Byron Boston]: owned were all all the most liquid

00:31:28,480 –> 00:31:32,560
[Byron Boston]: real estate bonds that we could find which are thirty year residential

00:31:32,880 –> 00:31:39,040
[Byron Boston]: freddie mac fanny may securities furthermore we increase the amount of cash in

00:31:33,127 –> 00:31:35,767
[Ramsey Smith]: for in e as in rush text

00:31:38,780 –> 00:31:39,780
[Byron Boston]: what we call

00:31:39,547 –> 00:31:40,547
[Ramsey Smith]: yeah

00:31:39,600 –> 00:31:43,680
[Byron Boston]: unencumbered securities on our balance sheet that we call out liquidity versus

00:31:44,000 –> 00:31:49,920
[Byron Boston]: twenty thirteen when bernanke said taper we’re probably carrying you know six

00:31:49,700 –> 00:31:50,700
[Byron Boston]: seven

00:31:51,280 –> 00:31:56,080
[Byron Boston]: eight times as much cash and unencumbered assets on our balance sheet so we’re

00:31:56,240 –> 00:32:02,640
[Byron Boston]: very very liquid and we have a very very flexible mindset because we believe the

00:32:02,620 –> 00:32:03,620
[Byron Boston]: world is complex

00:32:04,880 –> 00:32:05,920
[Byron Boston]: and we believe we’re

00:32:05,867 –> 00:32:06,867
[Ramsey Smith]: just kind printing

00:32:06,000 –> 00:32:10,400
[Byron Boston]: going to be surprised the phrase we use is surprises are highly probable clearly

00:32:10,480 –> 00:32:14,960
[Byron Boston]: over the last eight years the surprises have continued to come and we’ve stuck

00:32:15,120 –> 00:32:19,680
[Byron Boston]: with our posture of being up in credit and up in liquidity this give us the

00:32:19,840 –> 00:32:24,160
[Byron Boston]: ability in my opinion we make the right decisions we have the ability to make

00:32:24,320 –> 00:32:28,640
[Byron Boston]: money in any environment um now you got to be able to assess the environment right

00:32:28,460 –> 00:32:29,460
[Byron Boston]: now you can’t

00:32:28,827 –> 00:32:29,827
[Ramsey Smith]: sh

00:32:29,200 –> 00:32:31,600
[Byron Boston]: assess the environment it’s uncertain what’s not gonna happen

00:32:30,887 –> 00:32:35,687
[Ramsey Smith]: so so so higher quality higher quality credits higher liquidity and

00:32:36,727 –> 00:32:38,567
[Ramsey Smith]: that served you well through the pandemic

00:32:38,880 –> 00:32:42,000
[Byron Boston]: yes very well through the pandemic we were ready for that we look very well

00:32:38,967 –> 00:32:44,727
[Ramsey Smith]: right at right not right like if you look at like some some mortgage rates did

00:32:44,707 –> 00:32:45,707
[Ramsey Smith]: better than others

00:32:45,927 –> 00:32:51,127
[Ramsey Smith]: in through the pandemic put that put it that way and then and then here you are in

00:32:46,000 –> 00:32:47,760
[Byron Boston]: yes substantially better

00:32:51,207 –> 00:32:56,087
[Ramsey Smith]: this next crisis and it sounds like a strategy it works it’s continue to work well

00:32:57,367 –> 00:33:02,487
[Ramsey Smith]: you know the takeaway for this audience you know is is just sort of think about

00:33:02,567 –> 00:33:04,647
[Ramsey Smith]: things is like all right well how how do i think about

00:33:05,767 –> 00:33:11,047
[Ramsey Smith]: my own portfolio or my client’s portfolios if one is to sort of follow your lead

00:33:12,087 –> 00:33:15,607
[Ramsey Smith]: it is it is you know a flight to flight to higher quality

00:33:16,647 –> 00:33:21,047
[Ramsey Smith]: a flight to higher quality and having more liquidity as opposed to sort of dialing

00:33:21,127 –> 00:33:23,127
[Ramsey Smith]: up on risk but the interesting thing is everybody

00:33:24,167 –> 00:33:26,087
[Ramsey Smith]: everybody’s dialing up on risk these days

00:33:26,240 –> 00:33:28,480
[Byron Boston]: they are everyone wants to buy the dip

00:33:26,727 –> 00:33:29,847
[Ramsey Smith]: right we are in a low interest rate environment so a lot of people are going the

00:33:29,847 –> 00:33:33,127
[Ramsey Smith]: other way right so that’s kind of an interesting dichotomy there yeah

00:33:30,480 –> 00:33:34,560
[Byron Boston]: yeah they are they are can i give your thought on that um

00:33:34,187 –> 00:33:35,187
[Ramsey Smith]: sure

00:33:34,960 –> 00:33:39,200
[Byron Boston]: because i’m always thinking about the the individual investor i’d say fifty

00:33:39,440 –> 00:33:45,280
[Byron Boston]: percent of our investors are what we call retail investors and i have a great

00:33:45,520 –> 00:33:48,320
[Byron Boston]: concern for my generation the baby boom generation

00:33:49,360 –> 00:33:54,160
[Byron Boston]: they have just talked to too many friends who all believe in buying the dip they

00:33:54,320 –> 00:33:58,320
[Byron Boston]: all use phrases like well it always comes back don’t sell buy into it it always

00:33:58,260 –> 00:33:59,260
[Byron Boston]: comes back

00:34:00,560 –> 00:34:02,240
[Byron Boston]: you know by the dip mentality

00:34:03,280 –> 00:34:07,360
[Byron Boston]: i would urge whether it’s a if you’re an investment advisor listening to this or

00:34:07,440 –> 00:34:13,200
[Byron Boston]: if you an individual listening to this i would not simply fall back on the by the

00:34:13,280 –> 00:34:18,480
[Byron Boston]: dip mentality i would really do some analysis and understand why you are

00:34:18,800 –> 00:34:23,040
[Byron Boston]: continuing to if you’ve got your your your you just fully invested

00:34:24,560 –> 00:34:29,440
[Byron Boston]: you know for example all your risk is in stocks i would try to diversify in some

00:34:29,520 –> 00:34:31,840
[Byron Boston]: way shape form a fashion your holdings

00:34:33,600 –> 00:34:40,240
[Byron Boston]: i would ask myself what would happen if the stock market corrected and it didn’t

00:34:40,320 –> 00:34:44,880
[Byron Boston]: come back for seven years so i’m using the seven year benchmark because i think if

00:34:44,880 –> 00:34:49,680
[Byron Boston]: you bought the s and p five hundred in two thousand jan two thousand i don’t think

00:34:49,760 –> 00:34:55,280
[Byron Boston]: you got back to even t two thousand seven and then you got cober again with the

00:34:55,440 –> 00:34:59,920
[Byron Boston]: with the great uh financial crash and then you had to wait another probably seven

00:35:00,160 –> 00:35:04,560
[Byron Boston]: or eight years after that to get back to that level if you would have bought the s

00:35:04,720 –> 00:35:09,120
[Byron Boston]: and p five hundred i think in nineteen twenty nine you didn’t get back even until

00:35:09,300 –> 00:35:10,300
[Byron Boston]: nineteen fifty five

00:35:10,358 –> 00:35:11,358
[Paul Tyler]: yeah

00:35:11,280 –> 00:35:15,600
[Byron Boston]: and so finally we ran a chart at Dynex that

00:35:16,800 –> 00:35:21,120
[Byron Boston]: that layered on the growth of the fed’s balance sheet and the s and

00:35:20,747 –> 00:35:21,747
[Ramsey Smith]: where

00:35:21,200 –> 00:35:25,040
[Byron Boston]: p five hundred and and if you just a visual looks like a one to one relationship

00:35:25,680 –> 00:35:28,800
[Byron Boston]: right so there’s been a ton of liquidity pumped into the global system

00:35:28,427 –> 00:35:29,427
[Ramsey Smith]: oh

00:35:29,040 –> 00:35:30,160
[Byron Boston]: by the central banks

00:35:30,027 –> 00:35:31,027
[Ramsey Smith]: oh

00:35:30,640 –> 00:35:32,320
[Byron Boston]: that has inflated all

00:35:32,187 –> 00:35:33,187
[Ramsey Smith]: okay

00:35:34,080 –> 00:35:35,360
[Byron Boston]: all like let be two

00:35:36,460 –> 00:35:37,460
[Byron Boston]: an enormous

00:35:36,947 –> 00:35:37,947
[Ramsey Smith]: you cannot

00:35:37,440 –> 00:35:41,600
[Byron Boston]: amount of elevation in global asset prices stocks um

00:35:43,040 –> 00:35:44,480
[Byron Boston]: anti cars art

00:35:45,520 –> 00:35:49,120
[Byron Boston]: houses at least in the housing i think it’s a little bit unique i have an opinion

00:35:49,120 –> 00:35:54,000
[Byron Boston]: on that i’ll give you but they’re crypto there’s an enormous amount of liquidity

00:35:54,320 –> 00:35:59,600
[Byron Boston]: that has supported global asset prices i personally this is a byron opinion i am

00:35:59,840 –> 00:36:04,640
[Byron Boston]: concerned about a global asset price correction i don’t believe if let’s say you

00:36:04,640 –> 00:36:07,760
[Byron Boston]: didn’t have the russia situation if the central banks would have tried to reduce

00:36:08,000 –> 00:36:12,400
[Byron Boston]: their balance sheets and they try to do it now i eventually i do not believe they

00:36:12,480 –> 00:36:16,000
[Byron Boston]: can do it without with a soft landing i i don’t believe that they can do it with a

00:36:16,000 –> 00:36:20,560
[Byron Boston]: soft landing that i i just don’t believe they can do it so i am concerned about

00:36:20,640 –> 00:36:25,440
[Byron Boston]: the baby boom generation why because i’m sixty three so let’s say i take a hit in

00:36:25,520 –> 00:36:28,960
[Byron Boston]: two thousand it doesn’t come back to seven years okay i’m seventy now and then

00:36:29,040 –> 00:36:32,080
[Byron Boston]: let’s say i take another hit like the great financial crash when i’m seventy and i

00:36:32,320 –> 00:36:35,840
[Byron Boston]: maybe i’m dead by the time or before it comes back you see what i’m saying i mean

00:36:35,920 –> 00:36:39,360
[Byron Boston]: i’m just being real here about it if you’re if you you’ve got to think if you

00:36:39,440 –> 00:36:43,920
[Byron Boston]: don’t earn money anymore you’ve retired a lot of baby boomers have retired early

00:36:44,240 –> 00:36:48,960
[Byron Boston]: right the great resignation you must make sure you think about do you have enough

00:36:49,280 –> 00:36:53,280
[Byron Boston]: assets to go as long as you want to live everyone says i want to let them ninety

00:36:53,360 –> 00:36:57,040
[Byron Boston]: ninety five really well then maybe you should should work to seventy you know so

00:36:56,678 –> 00:36:57,678
[Paul Tyler]: yeah

00:36:57,200 –> 00:37:01,680
[Byron Boston]: check your income make sure you’ve got enough coming in and understand that this

00:37:01,760 –> 00:37:08,880
[Byron Boston]: is a unique moment in history don’t just buy the dip because you bought the dip in

00:37:08,960 –> 00:37:10,960
[Byron Boston]: nineteen nineties and everything worked out okay

00:37:12,478 –> 00:37:13,478
[Paul Tyler]: wow

00:37:14,098 –> 00:37:15,138
[Paul Tyler]: ramsey this was

00:37:14,827 –> 00:37:15,827
[Ramsey Smith]: but

00:37:15,298 –> 00:37:16,658
[Paul Tyler]: great where the end of the hour

00:37:17,598 –> 00:37:18,598
[Paul Tyler]: it went fast

00:37:19,067 –> 00:37:20,067
[Ramsey Smith]: sure did

00:37:19,620 –> 00:37:20,620
[Byron Boston]: yeah

00:37:21,207 –> 00:37:28,247
[Ramsey Smith]: so at byron thanks thanks for thanks for coming back a lot of takeaways from that

00:37:28,407 –> 00:37:33,447
[Ramsey Smith]: but perhaps the biggest one for me this time around was you know that there’s not

00:37:33,767 –> 00:37:37,847
[Ramsey Smith]: probably a scope for soft landing and right and most importantly you didn’t see a

00:37:37,927 –> 00:37:38,967
[Ramsey Smith]: soft landing before

00:37:39,220 –> 00:37:40,220
[Byron Boston]: no

00:37:39,447 –> 00:37:40,887
[Ramsey Smith]: russia invaded ukraine

00:37:41,020 –> 00:37:42,020
[Byron Boston]: no i really don’t know

00:37:41,847 –> 00:37:46,567
[Ramsey Smith]: so whatever the delta was on you know they’re not being a soft landing it’s even

00:37:46,427 –> 00:37:47,427
[Ramsey Smith]: higher so

00:37:46,820 –> 00:37:47,820
[Byron Boston]: yeah

00:37:47,207 –> 00:37:50,007
[Ramsey Smith]: i yeah hard landing the delta hard landing is even higher

00:37:49,700 –> 00:37:50,700
[Byron Boston]: yeah

00:37:50,407 –> 00:37:55,687
[Ramsey Smith]: so a that’s a very very sort of interesting view and it’s consistent with your

00:37:55,767 –> 00:37:59,367
[Ramsey Smith]: focus on liquidity and higher quality so thank think of shame

00:37:57,840 –> 00:38:01,200
[Byron Boston]: and we’re still able to generate a solid above average dividend yield it’s not

00:38:00,747 –> 00:38:01,747
[Ramsey Smith]: yeah

00:38:01,200 –> 00:38:04,080
[Byron Boston]: like we’ve said shareholders are well at a great above average

00:38:03,787 –> 00:38:04,787
[Ramsey Smith]: yeah

00:38:03,980 –> 00:38:04,980
[Byron Boston]: dividend yield

00:38:06,320 –> 00:38:09,840
[Byron Boston]: guys are still making solid cash income from both our preferred stock

00:38:09,387 –> 00:38:10,387
[Ramsey Smith]: yeah

00:38:09,860 –> 00:38:10,860
[Byron Boston]: and our common stock

00:38:11,378 –> 00:38:17,138
[Paul Tyler]: yeah well byron thank you again this was i got a lot of more questions we’ll save

00:38:17,078 –> 00:38:18,078
[Paul Tyler]: it for that for next step

00:38:18,507 –> 00:38:19,507
[Ramsey Smith]: hi

00:38:20,258 –> 00:38:22,578
[Paul Tyler]: if people want to get more of what you’re

00:38:23,598 –> 00:38:24,598
[Paul Tyler]: telling us

00:38:25,378 –> 00:38:28,898
[Paul Tyler]: how do they do this what is the best way to follow you know what you’re writing

00:38:28,798 –> 00:38:29,798
[Paul Tyler]: saying doing

00:38:31,300 –> 00:38:32,300
[Byron Boston]: you know we we do have

00:38:31,947 –> 00:38:32,947
[Ramsey Smith]: let’s see

00:38:32,480 –> 00:38:38,880
[Byron Boston]: our quarterly uh calls are very detailed and we do have a macro view we start with

00:38:38,960 –> 00:38:45,200
[Byron Boston]: the macro view to ultimately get to the investments so every quarter we do have a

00:38:45,360 –> 00:38:50,800
[Byron Boston]: call sometimes i post on a linkedin but i try try to be very careful

00:38:51,920 –> 00:38:58,240
[Byron Boston]: about some of the social media we do at Dynex we do post we do post certain points we

00:38:58,480 –> 00:39:00,160
[Byron Boston]: thought about you know some of the economic

00:39:01,140 –> 00:39:02,140
[Byron Boston]: thoughts that we have

00:39:03,200 –> 00:39:07,280
[Byron Boston]: but you know it’s like when i said complex in two thousand fourteen i had so many

00:39:07,360 –> 00:39:10,720
[Byron Boston]: people who didn’t understand what i was really saying why were we going up in

00:39:10,720 –> 00:39:15,520
[Byron Boston]: credit or up in liquidity and so sometimes i like yeah you know fine i’ve got

00:39:15,540 –> 00:39:16,540
[Byron Boston]: shareholders who

00:39:16,358 –> 00:39:17,358
[Paul Tyler]: excuse me

00:39:16,560 –> 00:39:20,480
[Byron Boston]: listen to us and we’re all in the same boat together and we’re happy and i want to

00:39:20,480 –> 00:39:24,560
[Byron Boston]: take care of my shareholders it’s very very important so please you know there is

00:39:24,640 –> 00:39:30,640
[Byron Boston]: a quarterly call that’s there i i urge people with annuities to look to diversify

00:39:30,880 –> 00:39:36,400
[Byron Boston]: with something like a nine x capital stock or a preferred stock and and we’re in

00:39:36,480 –> 00:39:38,480
[Byron Boston]: the same boat as all of our shareholders were

00:39:38,358 –> 00:39:39,358
[Paul Tyler]: so

00:39:38,560 –> 00:39:40,240
[Byron Boston]: dedicated to making their lives better

00:39:40,818 –> 00:39:44,098
[Paul Tyler]: okay hey listen great ramsey thanks byron thank you and

00:39:43,947 –> 00:39:44,947
[Ramsey Smith]: pleasure

00:39:44,258 –> 00:39:49,138
[Paul Tyler]: thanks to thanks all our listeners join us again next week for another episode of

00:39:49,198 –> 00:39:50,198
[Paul Tyler]: that annuity show

00:39:51,360 –> 00:39:52,480
[Byron Boston]: thank you for having me

00:39:52,487 –> 00:39:54,247
[Ramsey Smith]: alright appreciate it byron

The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Ashley SaundersEpisode 139: What’s Different This Time When Saving For Retirement With Byron Boston
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Episode 106: Getting Ready to Step Out on the Risk Spectrum with Byron Boston

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Are you ready to take a step out on the risk spectrum? Special guest Byron Boston, Chief Executive Officer, and Co-Chief Investment Officer of Dynex Capital, joins the conversation to share insights on Real Estate Investment Trusts (REIT): another potential source of income in retirement. Do you want to get regular updates on news from Byron and other guests of our show? Subscribe to our newsletter under the Receive Updates section, below. We hope you enjoy our conversation!

Thank you to our show sponsor, The Index Standard!

Fixed Index Annuities and RILAs are getting more complex and technical just when fiduciary rules are getting stricter. How do you choose the right index and allocate to them?

The Index Standard is your answer. They are an independent provider ratings and forecasts on all indices and ETFs used in the US insurance space. Their process is systematic and unbiased, identifying robust and well-designed indices.

We all know finance is complex and The Index Standard has a clear ratings system and uses approachable language to demystify this complexity. Visit for more information.



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The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.


Laura Dinan Haber:

Are you ready to take a step out of the risk spectrum? Special guest Byron Boston, Chief Executive Officer, and Co-Chief Investment Officer of Dynex Capital joins the conversation to share insights on real estate investment trusts, another potential source of income in retirement. Also, do you want to get regular updates on news from Byron and other guests of our show? Subscribe to our newsletter under the receive update section below. We hope you enjoy our conversation.

Ramsey Smith:

Today’s show is sponsored by our friends at The Index Standard. As many of you who listen to our show certainly know, fixed index annuities and [inaudible 00:00:38] are getting more complex and technical, just when fiduciary rules are getting stricter. So how do you choose the right indexes and allocations? You should consider The Index Standard. They’re an independent provider of ratings and forecasts on all indices and ETFs used in the US insurance space. Their process is designed to be systematic and unbiased with the goal of identifying robust and well-designed indices. We all know finance is complex. The Index Standard has a clear rating system and users approachable language to demystify this complexity. Visit for more information.


Welcome to That Annuity Show, the podcast that will make you an expert in explaining annuities to your clients. Give us 30 minutes each week and we’ll shave hours from your client presentations. Now here’s your hosts.

Laura Dinan Haber:

Hello, and welcome to another episode of That Annuity Show. Paul Tyler is traveling this week, so I’m your co-host today. Let me introduce myself. I am Laura Dinan Haber, Innovation Program Manager for Insurtech Incubator, Nassau Re/Imagine. On with us today, we have some familiar individuals. Mark, how was your weekend?

Mark Fitzgerald:

Weekend was great, Laura. How are you?

Laura Dinan Haber:

I’m doing well. Thanks so much. Ramsey, always nice to see you.

Ramsey Smith:

Always glad to be here.

Laura Dinan Haber:

Absolutely. We’ve had the opportunity to kind of cross paths in a few different ways. This is my first time on That Annuity Show. Happy to be here and congratulations again to all of you on being over 100 episodes. We’ll be curious to see how many hundreds of more come down the pipeline. It’s exciting.

Mark Fitzgerald:


Laura Dinan Haber:

So with that, Ramsey, I’ll turn it over to you to introduce our guest.

Ramsey Smith:

All right. Thanks a lot, Laura. Look, we’ve got a fantastic guest today. We’ve got Byron Boston, who’s the Chief Executive Officer, and Co-Chief Investment Officer of Dynex Capital, which is a mortgage REIT. So what we’re going to do today is we’re going to learn a number of things. We’re going to learn what a mortgage REIT is, we’re going to learn what it takes to run one, and we’re going to learn what one of the best is doing to make it work.

Ramsey Smith:

Now, I’ve known Byron for a very long time. I first met Byron in the 80s when I was a summer intern at First Boston and Byron was one of a handful of African-American professionals that I, as a young guy looked up to and dreamed of someday having a career on Wall Street, which ultimately ended up happening.

Ramsey Smith:

Byron has been a leader for a very long time. He worked at, after leaving Credit Suisse, well, first Boston became Credit Suisse. After leaving Credit Suisse, he went to Lehman Brothers and worked in a number of areas. But the two things think are most significant. One is joining one of the major GSCs and helping them launch one of their retained portfolios and then ultimately taking over Dynex 14 years ago. With that, we’re very lucky to have you on Byron today. We’re going to learn about another type of income that we haven’t talked about as much. So with that, I’ll turn it over to you. And I guess first off, tell us a little bit about your journey and how you got here.

Byron Boston:

Well, it’s been a very fortunate journey because I’m one of those lucky college students who found this way into a career that really fits. So when I introduce myself, I say, I’m a fish in water, and I’m very happy. I’m an economics nerd from an undergrad at Dartmouth College. And I came straight to Wall Street in 1981, where I was trained very well in credit at Chemical Bank. That was my first job as a banker. I went back to grad school after that, to the University of Chicago and studied finance and account, and came back to Wall Street again, this time as a mortgage-backed security trader, and one of the best mortgage-backed securities trading desks at the time, which was that First Boston and it was run by Larry Fink who eventually left to start BlackRock.

Byron Boston:

And then after 11 years on Wall Street, I always had a desire to go to the buy-side. And I moved to the buy-side by going to one of the GSCs that really was in the process of developing a securities’ portfolio strategy. I wrote a comprehensive business plan to increase the diversity of assets that were owned within the portfolio. That was a major point in my career because I learned how to be a public company senior officer. And that’s very, very important. A lot of people believe they can do it. It is a skillset. I learned how to, I got board exposure while I was at Freddie Mac. I got extensive senior management type of exposure in running a public company.


Byron Boston:

In 2004, when I had an opportunity to start my own company, I was ready. And I started a mortgage read in January 2004. We took it public in March of 2004. It’s called Sunset Financial. And a couple of years later, we received a takeover bid from Wachovia. And ultimately we sold the company to another entity in October of 2006. That was about a three-year run with that first IPO. The great thing about Dynex Capital and one of the things I’m most proud of is that 40% of my shareholders in Sunset were investors in Dynex Capital and they invited me to join them at Dynex and help them rebuild Dynex Capital. So I came, wrote again a comprehensive business plan for building out this mortgage REIT, starting in January of 2008. And for the last 14 years, that’s what I’ve done here at Dynex and it’s been successful and we’re pretty excited about the things that we’ve done, not only just for ourselves, but for our shareholders and for the community.

Laura Dinan Haber:

Oh, that’s fantastic. And Byron for our listeners who may not know what a mortgage REIT is, what is it and how does it work?

Byron Boston:

First and foremost, we’re a real estate investment trust, just like other REITs. The real differential is where do our assets sit? Where do we deploy our capital? Versus an equity REIT that owns buildings and they generate their income from whether it be some type of a brand or some other type of fees off of real estate. We are a lender. If you take back in my career, I started my career as a lender with Chemical Bank. That’s what I’m still doing today. In effect, we lend money to the housing finance system and to other parts of commercial real estate. So our assets out of our balance sheet, they’re either loans or security against the real estate. And Dynex is the oldest mortgage REIT. We’ve been doing this since 1988. We were one of the earlier innovators in the non-agency securitization space, which means we made direct loans between 1988 and 1998, and we financed ourselves with non-agency debt or non-agency securities.

Byron Boston:

Today, our balance sheet is all securities, a very minimal, just residual loans on the balance sheet, but the securities all backed by loans that are either to a residential real estate or generally multifamily properties today.

Ramsey Smith:

Can you talk a little bit about if one buys a mortgage REIT, what is the investment rationale and what is delivered?

Byron Boston:

Let me continue on with your first question, Laura, because I didn’t totally complete it with that. If you compare Dynex to a bank or compare Dynex to a REIT that owns property, we’re in between because we’re lending money against the property. And in effect, we’re looking to borrow money, just like a bank, at a lower cost, the interest rate than we actually lend money or where we ultimately buy a security. If an investor is looking at a Dynex, how do you place a Dynex in a portfolio of annuities, a bank or an equity REIT? Dynex is another entity generating income, understand that we are using leverage to increase the cash return to our shareholders. And the unique skill set that we bring to the table at Dynex Capital is we’ve got a long-term track record in our personal careers and as a company in lending money. And most importantly, we’ve got a long-term track record in managing leverage and using leverage to increase returns to our shareholders.

Ramsey Smith:

I’m going to nudge a little bit more on that. There’s a transformation there, right? You’re buying mortgage-backed securities, which yield roughly what, like two and a half, three, 4%, what is the general range there?

Byron Boston:

Look, I’ll call it between 1% and 3% you can find security.

Ramsey Smith:

So 1% and 3%, and you borrow money to buy those and to get that leverage. And then what is the typical dividend yield one can expect when one buys a mortgage REIT? That’s the transformation-

Byron Boston:

[crosstalk 00:10:13] Let me go back. Let just say this again. 1% to 3% above, let’s say a treasury rate. If you look at a treasury tenure, the yield, maybe 150. So we may be 100 basis points or 300 basis points above it, but let’s put in street man’s language, we’ll call that 250 to 450.

Ramsey Smith:

So two and a half to four and a half percent total yield?

Byron Boston:

Right. That’s correct.

Ramsey Smith:

So treasuries plus the spread, total yield. Got it, got it.

Byron Boston:

That means our dividend, if you compare it to our dividend, which is your question, that dividend now is 8% on our common stock. And it’s about, call it 670, 680 on our preferred stock. I think your question was, well, how do you get there? How do you go from a bond that yields 250 to get to that level? We use leverage. We take the capital of a company. We have a total balance sheet today of equity plus preferred of like 761 million. But the size of our balance sheet will range between four to 6 billion. So we own more securities than we actually have issued in terms of stock and preferred stock. And the way we do that is simply borrow money to own more securities. And we’re still earning a spread between where we borrow the money and where we actually lend the money. And then the next thing that our shareholders depend on us is to manage that balance sheet that we have created.

Mark Fitzgerald:

So Byron, for a typical investor that’s looking to supplement income in retirement, how are the dividends paid out? Is it quarterly? Is it monthly? Is there also a capital return that goes along with that?

Byron Boston:

There are all of the above. We have a preferred stock that pays dividends on a quarterly basis. We have a common stock that pays dividends on a monthly basis. And we structured our dividend payment trying to be more attractive to the individual who is managing his money on a monthly basis. So we offer both. There are times where there’s capital gains, that the dividends may be classified as capital gains. There are other times when they’re classified as ordinary income, and it’ll vary depending on how that income is generated. And for the average investor, I’d say over the long term, you may find the income falling in either of those buckets over time. And it will change from year to year.

Mark Fitzgerald:

And how about from that perspective of liquidity? How does that structure work if the client were to try to redeem shares of it?

Byron Boston:

Well, that’s the great thing. Because we’re a public company, a client can buy and sell our shares at any point in time. There’s great liquidity in our stock for a customer who wants to say I want to own a mortgage REIT. Because we’re public, there’s not a mutual fund, there’s not a funky price at the end of the day or anything of that nature. You simply buy our stock. We are a public company, we’re transparent and we’re regulated by the SEC. So we have to provide you with information regarding the risks that we take. But from a liquidity perspective, an investor can come in and out of our stock, I don’t want to say in a nanosecond, but it is close to that. It’s trading any other equity.

Laura Dinan Haber:

How would someone know whether or not a REIT is right for them? We talked about investors can use it as supplemental, but how do I know if it’s right for my personal portfolio?

Byron Boston:

Obviously, when there’s an individual, you have to think about your risk tolerance. Let’s start with where an annuity starts. Annuity is a guaranteed income. I’m going to think about my dad. Let me just plug my dad. I always like to plug my dad, World war II vet, decorated World War II vet, didn’t really finish high school, but a great American citizen. He did the right things. He came out of World War II, got one job, a union man, worked there for the next 35, 40 years. Now he retires. And what he is looking for, he’s at his retirement at this US still sub. He’s looking for this check every single month that’s paying him a certain level of income.

Byron Boston:

Now, my dad wasn’t on the wealthy end of the world or to some substantial amount, but he was really great. He saved a lot of money. His other money that he could have had in his portfolio away from that guaranteed money, he may say, I’d like to live a little better. I’d like to get a little more money and I’d like to diversify. So you think about a REIT being further out the risk spectrum. You are taking more risk. We’re not guaranteeing you this income. I’d like to look back in hindsight, 10 years from now, look back at hindsight and you say, boy, Byron, you delivered me a steady stream of income. That’s our goal, but I can’t guarantee you that beforehand. And so you should be thinking of it as a step out on the risk spectrum. Because we use leverage, I like to put us in a bucket of really an alternative asset, meaning that you want to really understand the strategies that we’re using as a management team. I think you want to understand the resumes or the backgrounds of the professionals who’s managing your money.

Byron Boston:

And please understand, when you buy the stock of Dynex Capital, you are giving your money to Dynex to manage, and we take that responsibility very seriously. The first thing you’ll see in our purpose statement is we are careful stewards of individual savings. And we take that role very, very seriously. But as an investor, you should be thinking of us as moving out the risk spectrum away from a guaranteed income of an annuity. But again, put it in my dad’s perspective, my dad had had a guaranteed income from all of his years, working all of his service to the United States in the military, his savings, which he was very good at saving money, he could have moved out the risk spectrum, added more income portfolio and lived a better life. But he was a simple man. He wasn’t really interested in living too much of a flamboyant lifestyle.

Ramsey Smith:

Is that the typical profile of your investors? Are your investors typically retirees or are they in some cases, institutions? Who are the folks that buy Dynex and other mortgage rates?

Byron Boston:

For us, 50% of our investors are individuals and then 50% are institutional. And within the institutional bucket, you’re probably half passive and half active. And so if you look at our top shareholders, our top shareholders is an active manager, Fidelity, and then followed by BlackRock, Vanguard, [inaudible 00:17:15]. Then we have another active manager, which is LCM Capital. And then I would’ve liked everyone to know that if you add up the amount stock owned by our total employees of Dynex and our board, we’re probably one of the top five shareholders in Dynex Capital. So we’ve got skin in the game. I want to make sure everyone understands that.

Byron Boston:

So we think about our investors very carefully. We know the individual investors are really looking for income. So just like with you with annuity, the individual, you’re not buying us to compete against Tesla. You’re buying Dynex Capital for income, and you’re buying Dynex Capital because you trust the management team that will generate that income and likewise protect your capital over the long term.

Byron Boston:

The next couple of buckets, generally, when I look at the fund that we sit in at Fidelity, that also is an income fund. My guess is, ultimately, that ultimate borrower at the end, I’m sorry, the investor in that fund is someone that’s looking for income. And we found in many of the other active management funds that we may be part of, that their ultimate investor is actually looking for income also. Then you get back to the passive funds which would be the BlackRocks, the Vanguards. That’s very important to understand that that is a force to be reckoned with within the equity world today, but their goals, their ultimate evaluation methods are very different than the individual stockholders in Dynex and the active managers. So we think about this very carefully because we want to make sure we-

Mark Fitzgerald:

[crosstalk 00:18:53] So your objective is really to keep your share price very stable and then just generate the income off of that going forward. Correct?

Byron Boston:

I want to say it a little different than you, because when we start using words like stable, I don’t want to mislead anyone because we are using leverage, which means we do have the probability of some book value volatility. What I like to say is we are over the long term, what you just described, Mark is correct over the long term. Our goal, our sweet spot, we can generate eight to 10% over the long term and keep with that, including keeping your combination of your book value and your dividends. And that’s what you say, 10 years from now, you look back and say, I got eight to 10%. That’s pretty good deal and it generated cash income for me, that’s a winner for us.

Byron Boston:

There are times when we can generate more income than eight to 10%. For example, last year we had a, I think a 17% total economic return. It was a great time to be invested and generate income. But in other situations like when the fed was tightening in 2018, returns are smaller. So over the long term, we are looking to keep that book value and share price relatively stable and generate an eight to 10% off of that from a theoretical perspective.

Mark Fitzgerald:

Very different environments in the marketplace. Going back to the 80s, very high-interest rates. 2007, 2008, the crisis that took place. Currently, long-term, low-interest rates. What does the current environment look like from your perspective and going forward if we start to have rising rates upon us?

Byron Boston:

I will say this, let me say this about myself. Let you get to know me better. One, I think my career has been fascinating. I’ve loved it. I am an economics nerd. I am a history nerd. I think that’s the only way to be great at the job that I do and that my team does. It is important. Things have changed quite a bit. My first mortgage-backed securities that I traded were probably anywhere from 12% to 18% coupons. And for the last 40 years, we’ve been on a steady, downward move in interest rates and a steady or lumpy refinancing of the American homeowner. That American homeowner had an 18% mortgage, got an opportunity to refinance to a 12%, then an opportunity to refinance until a nine, then a seven, then a five. And low and behold, we’re inside of 3% for many of our mortgages, mine will be struck at 2.65. And for those who want floating rates or mortgages down to under 2%, maybe like 1.75. These are fascinating levels for mortgages.

Byron Boston:

The one thing I will say about the 2020s in general, at Dynex Capital, we believe we are in a transitional period as a globe on many fronts, on the economic front, on international, country relationships. We are in a major transitioning period, and just individual relationships amongst people. We are in a major transitioning period. And these, I don’t know where it will go. At Dynex Capital, we believe we can make money in any of those environments, given the strategy we’re running today, which is emphasizing liquidity and emphasize high-quality assets. But we are leaning upon our past history to understand what has taken place.

Byron Boston:

Ramsey, you mentioned March, 2020, what happened in March, 2020 was not new. Similar thing happened in the great financial crash. Similar thing happened in the fall of 1998 for long term capital crisis. I could take you back to the 1980s, and I can point out similar risk situations, where if you look at the SNLs, who were leveraged and were not edging and whatsoever, and they became a problem. So history and understanding these other situations would’ve allowed you to realize in March, 2020, we don’t consider it a black swan event at Dynex Capital. It was a risky event. It was a surprise, but it was not a black swan event.

Ramsey Smith:

How do you prepare for that? What had you done leading into that event that softened the blow? And then once it happened, what were the actions you took to manage risk once the wave was hitting?

Byron Boston:

First off, and I appreciate Mark’s first question. It was history that led us about five years ago to go up in credit and up in liquidity.

Ramsey Smith:

What does that mean to go up in credit and up in liquidity?

Byron Boston:

Here is what it means. In 2008, we bought lower credit assets. We bought BBB rated assets. We bought a single A rated assets, we still had loans on our balance sheet. We brought a broader set of assets. We were very innovative coming out of 2008, because there were just so many opportunities to invest money. Spreads were very wide. And from a street man’s perspective, what I mean is the opportunity to earn more yield versus a treasury across multiple asset classes was a mortgage board of opportunities. So we use more illiquid assets in our strategy.

Byron Boston:

Now, when you are using leverage in any investment strategy, you must be concerned about liquidity. So as the war became more complex, I just told you that we believe we’re in a transitioning period as a globe. We became concerned probably five years ago, and we started to talk about the world being more complex, the risk environment being more complex. And therefore, we sold our illiquid assets and we went from triple B to single A and to agency back, our government back assets. And then we left the AAA sector for the most part except for the small sector. And we’re pretty much all in a government-backed security. That’s what I mean by we went up in credit quality of the assets.

Byron Boston:

We also started to carry more liquidity on our balance sheet. At the end of 2019, going into 2020, we had about 225 million of either cash or unleveraged assets, liquid assets on our balance sheet. If you compare that to call it 2012, 2013, that number may have been between 75 million to 100 million. We were more than twice as much liquidity on our balance sheet. That was a respect for the macroeconomic environment. We believe the globe has become more complex and very much so interconnected in ways that I haven’t met that many, I met very few people who fully understand, no one understands the connectivity. Let me just say that right off the bat. No one fully understands it. But I’ve also haven’t met a to lot people who are acknowledging the risk of the connectivity across the globe, across assets. And so we’re not afraid at Dynex Capital, we’re just respecting the risk environment. What we do is we don’t make large market calls, we adjust our risk profile.

Byron Boston:

What happens is in 2020? Coming in 2020, we’re up in credit, up in liquidity. We are also saying that we’re concerned. We’re saying surprises are highly probable. That’s a phrase we use over and over within Dynex. In January, 2020, what happens, a general is killed in Iraq, Iranian general. We bombed a general way. That’s a major, potential risk flare moment that took place simultaneously, there was this virus that had broken out in China. Well, at Dynex Capital, we had talked about the movie Contagion. You familiar with the movie Contagion? The movie Contagion outlines a pandemic just like the pandemic unfolded last year. That’s why I say this was not a black swan event, because there were those amongst the medical community, especially after the Ebola and the SAR situations who were concerned about a pandemic. So as that pandemic unfolded, these are public statements we made. You can listen to our first quarterly conference called the 2020 and you’ll hear us talking about this concern of ours. So now, we start with more liquidity and we start becoming more liquid.

Byron Boston:

When the 10 year interest rate broke below 136, which had held for years, we increased our liquidity again. We sold all of our agency, residential pass through securities, because we were now at new interest rate lows, we were concerned about what’s going to happen with prepayments. So our first move was generally near the end of February, 1st of March, we sold most of our residential pass through securities. We increased the liquidity on our balance sheet. Now we’re prepared for March, 2020. We didn’t know what was going to happen. We were still surprised by the amount of risks that unfolded. I applaud the Federal Reserve Bank. The system was going to fail without their help and all the other governments around the world that really stepped in to save the global economy and the financial system.

Byron Boston:

But again, we had liquidity, we were operating in a situation from a position of strength. The only negative is, and it’s positive, negative. The Federal Reserve stepped in and saved the system, but they also stepped in front of us. So we didn’t get a chance to buy as many assets really, really cheap, like we did back in 2009, 2010, 2011, but the whole system survived and it’s better for everyone around the globe. That’s the case. I hope I gave you a better understanding of what’s up in credit and up in liquidity, you really want to look at us coming out of 2008. We had a completely different strategy based on a different risk environment.

Laura Dinan Haber:

To drill down a little bit deeper and the current market environment, what would you say the best opportunity is right now?

Byron Boston:

From our perspective, we’re making really solid money in the most liquid high quality real estate assets. Let me say this. most of the 14 years I’ve been at Dynex, we’ve generally run a combination of commercial, so assets backed by commercial properties and assets backed by residential. We’re mainly running a strategy today backed by residential. We’re concerned on the commercial side, that we’re still not sure that the result of all of these moratoriums or what we call in street man’s language, what happens when someone doesn’t pay rent. We’re not sure what happens when someone doesn’t pay rent, somebody has to take a loss someplace. So we moved ourselves out of the position of taking that loss on the commercial real estate side. We reduced our multifamily portfolio last year, and now we’re probably 98% to 95% in the residential real estate space.

Byron Boston:

Because when people don’t make their mortgage payments, we’ve got an idea of what happens, because we’ve got the great financial crash as an example. But when governments tell renters, you don’t have to pay rent, or when stores and malls decide I’m not going to pay rent, I’m going to sue the landlord so I don’t have to pay rent, we don’t know where this goes yet at Dynex. I’m sure there’s some smarter people out there in the world. They know exactly what’s going to take place. We believe this is still an evolving health and economic environment, so we believe the safest place for us to be is to be invested in assets that are backed by residential properties.

Mark Fitzgerald:

Do you see any impact, obviously recently existing home prices have gone up pretty substantially in the last several months. The cost of lumber for building new homes has gone up close to 40%. A lot of times people are looking at, from the home value standpoint, like what’s my monthly expense. And luckily we’re in very low rate environments right now. Do see that impact changing going forward if rates start to rise?

Byron Boston:

Let me just say, if rates start to rise, there will be an economic impact. I know you hear fed officials and other government talking heads, they all talk about let’s normalize rates. Let’s raise rates. There will be an economic impact if rates go up. And it depends on how high that happens to be. Why? Because there’s an enormous amount of global debt, and the debt is higher today than it was before the pandemic. So there is an impact. From a housing perspective, here’s the way I like to look at housing.

Byron Boston:

I am a 62 year old man. I’m a baby boomer, and I’ve got two adult men now. But 10 years ago, 15 years ago, they were two young sons. Now, 10 years ago, 15 years ago, we were one household, four people. Today, we have the potential to be four people, three household. I’m still married and happy to be married by the way. But I do have friends and they are already, 10 years ago, they were one household, four people, today they’re four household because the husband and wife got divorced and the two kids are now out of college and they now have their own households. They’re either renting or they have bought a home.

Byron Boston:

So there’s more people. There’s a larger amount of household formation. It’s been there in the numbers for years. We saw it. Tip my hat to Mike, Fred and Tony at the Mortgage Bankers Association, who’s done phenomenal research on this housing industry where he showed that about five years ago, and that was the first place I took notice of this huge wave of people now who are in the system, all the baby boomers and baby boomers kids are in adulthood at this point. There’s a lot of people here looking for either rental properties or homes. So there are some real numbers behind the growth and housing values.

Byron Boston:

On the other hand, global asset prices are high, and that is a major risk in our opinion at Dynex Capital. The global asset prices, whether it’s housing, whether it’s cars, whether it’s stocks, whether it’s Bitcoin, art, baseball cards, there’s an enormous amount of liquidity in the global system. And global asset prices are high and they’re being supported by an enormous bed of debt and large Central Bank balance sheets.

Byron Boston:

So when you ask the question, Mark, what will happen if interest rates go up, with a situation like that, if you say I’m freely increasing the amount of global debt and, Hey, by the way, I’m going to increase the cost of that debt. Well, you know what? You’re going to have an economic impact and that economic impact is not going to be positive. It’s just how much of an impact will it be? How high will rates go? What will that look like? Any academic who tells you any conversation about normalizing rates, and it’s somewhere around 3% on the short end, they’re out of their brains. There’s no way in the world that the global economy can handle it. Something will break before they ever get there.

Mark Fitzgerald:

Interesting. Thank you.

Ramsey Smith:

So are we in a bit of a trap?

Byron Boston:

I don’t know. I don’t know the answer. I ask people this all the time. I asked the very [inaudible 00:34:15], how does the Federal Reserve and the other central banks get out of this? They built these huge balance sheets. The entire global asset price structure of the world is sitting on top of huge amounts of government debt, corporate debt, and these large central bank balance sheets. That’s what’s supporting the price levels. So why are we up and credit and up in liquidity at Dynex? Because we can’t answer the question you just asked, Ramsey. And I want our shareholders to understand that our goal is to take care of them, no matter what happens in the future. No matter what.

Ramsey Smith:

All right. So you’re talking to the fed chairman and you’re saying, look, if you bump rates up too much, it’s disastrous. You can’t take rates down too much lower because that that creates other issues. If you were advising the fed, what is the path you would recommend? I assume it’s like sort of maybe slow gradual rising interest rates or see if you can have extension on your mortgage backed securities or, what works?

Byron Boston:

Well, it is slow and gradual because we don’t know. We’re in an experimental period that we’ve never been in. And so I would, if they want to be slow. They’re saying and they have to be slow. And when they see something breaking or cracking, be prepared to adjust your thought process. Don’t get yourself so wedded and don’t believe all the academics. Academics sit in a classroom. They don’t feel the pain of the actions. I’m sitting here as an investor. I’m playing the game. I’m a football player, I’ll use this example. I’m on the field playing the game. Academics are sitting up in the top of the stands, trying to write what they think they see on the field. What I would say to the chair is be very careful, make sure you understand how much risk there is today in this system. A lot of it starts from the fact that so much debt and a lot of the asset price levels are there because of your buying of assets. So be very careful as you try to withdraw that process.

Byron Boston:

The other thing I would advise is to say in that withdrawal process, there’s probably someone who’s going to lose money. Someone will have to take some plane somewhere in the global system. And at some point they’re going to have to allow someone to take that pain, but I would also urge them to protect the financial system as a whole. Their actions last year were correct. It’s not over. They’re fully involved in the capital markets. They’re a major player in the capital markets. They cannot go to sleep, but their actions could generate some real pain.

Byron Boston:

I know there’s a lot of conversation around leverage and leverage players. And since I’m a leverage player I’m concerned of about that. I don’t know that the world can handle all this debt without leverage players actually being willing to take some risks, to own some, whether it’s treasuries or mortgage-backed securities or corporate debt or Lord knows those who want to buy the emerging market debt in other places around the globe.

Byron Boston:

So what did I say? I said, it said go slow, make sure J Powell you understand or try to understand the risk in the system, and keep telling yourself that even though your mighty powerful central bank, you have a lot of information, the central bank have been caught off guard. They were caught off guard in 2008, they were caught off guard again in March, 2020, they were caught off guard in 1987. And we can go back on and on and on. And so be very intellectually curious about what is the risk that exists in the system and, big one is, how is it interconnected across borders and across industries and across from corporates to individuals, to the government.

Laura Dinan Haber:

Let’s pretend you have a magic ball or a lens into the future best case scenario, three to five years from now, what does that look like?

Byron Boston:

You’re still going to have a ton of debt. Interest rates are going to be low. The fed will never have been able to raise rates as high as the academics have talked about. You’re not going to be able to do it. I don’t believe you’re able to do it. Not without paying. I don’t believe. And at Dynex, we are going, right now again, I like a diversified portfolio, but we’re up in credit, up in liquidity. I can’t see when we’re going to exit that position because I believe this could be a potentially rocky road in the central banks doing something they’ve never done before.

Byron Boston:

Remember, every one of those central bankers put their pants on just like you and I do every single day. They’re just a human being. They’re another human being. They make mistakes. They have good intentions. So at Dynex, we are managing other people’s savings. We take it seriously. So we are well aware we don’t know everything, but we do with a liquid position, a liquid strategy and being embraced and prepared for surprises. We believe we can carry our shareholders through any of these environments. But three to five years, rates, everyone talks about normalization. They’ll realize that the normalized rate is much lower than they think today. Our star is they all like to talk about it in the theoretical academic terms, our star may be zero.

Ramsey Smith:

All right. I think we’re coming up on time here. Any closing thoughts or questions, Laura, Mark? I have one more for Byron before we go.

Mark Fitzgerald:

No, I just think, number one. Thank you, Byron. I think it’s been great for our listeners. Obviously you’ve got a lot of things, changing the environment. You’ve got a lot of baby boomers going into retirement where the need for securing income in retirement is more and more critical, whether it be guaranteed income through annuity products or dividend income from portfolios like your structuring. And I think that more and more people need to take a look at different ways to generate income.

Byron Boston:

We agree with you. And I would welcome anyone to look at our website, And I would say go first to our mission and objectives page and look at, we take this seriously. We’re managing other people’s money. And it’s not just their money, it’s their savings. The reason I like to think about my dad, because again, my dad is America. We didn’t come from the privileged side of the railroad tracks. So I like to think of it as his money. It’s my money. It’s our retirement plan, Dynex Capital, but we are different than an annuity and we should just be part of a portfolio. We shouldn’t be all of the portfolio, and we are generating income. We don’t need to hit home runs. By 2030, Dynex doesn’t need to hit a home run to make its shareholders happy. We need to generate a solid level of cash income and a solid total return experience. And we’re going to have to hold their hand through other risk flares, which are bound to happen given the structure of the world.

Byron Boston:

We’re not afraid. We’re working tirelessly to prepare ourselves for potential surprises in the future to guide our shareholders through that, whatever may come our way.

Ramsey Smith:

You anticipated my question, the retirement plan comment you made. One of the things that you had said in a prior conversation with me is that at the end of the day, this Dynex will be your retirement plan once you retire from being CEO. And so, just very curious how you think about one, having skin in the game and keeping skin in the game for something that’s meant to be a really long term investment. And then two, how that drives the team you’re building or you have built to be there for the long haul?

Byron Boston:

We have a 30 year vision looking out into the future here at Dynex. And the reason it’s 30 years is because we celebrated our 30th year on a New York Stock Exchange in 2019. So we developed this vision. And the vision was personal for us. It was a dream of mine. I said, wow, what if I can create Dynex to succeed for next 30 years? I’m 62. And if God blesses me to live, I’ll be 92 and I will have been living off of this income the entire time. That’s a great idea. Then I took it to my team at the office and everyone bought into it. So everyone now we all have a 30 year vision. So when we think about markets, we think short, medium, long term, and we think about other strategies. We’re always thinking, well, is that going to be good from a long term perspective?

Byron Boston:

So what other things would I have to do? One, I have to be very serious about the succession plan, because otherwise I won’t make it 30 years. And when you talk about retirees, especially the baby boomers, it’s not only in the US. There’s a ton of older people in China, in Taiwan, in Singapore, in Korea, in Europe, there’s a ton of people in the globe who will need cash income. And so, for me to succeed at this, I have to train my team. I have to hire the right people and I have to think about the ages. I have to think about the ages.

Byron Boston:

We promoted Smriti Popenoe to president of Dynex Capital last December. Smriti is probably 10, 11 years younger than I am. She’s in a perfect position to ultimately succeed and rise through the company. She believes in the same philosophy. She’s been part of building Dynex for years. And then we have to think about the next generation below Smriti and the clump of people who were here after her. So we have to think about the ages and we have to think about training our people. I am a coach. I’m an athlete. I grew up an athlete. I grew up with great coaches.

Byron Boston:

So I am a coach. You work for me. I guarantee you, you will never do it with something wrong and I’m not going to say something. I’m going to say something, not that it is wrong, but I’m going to try to tell you here’s how to do it the right way. So I am a coach. For me to succeed with a 30 year team, you have to have a system where it’s focuses on the people. You have to build the right culture across the people. We have a no asshole policy.

Byron Boston:

So no assholes are coming in the door. None, zero. We’re drawing the line. We’re not compromising. You don’t have the right ethical standards. You’re not coming in the door. And I’m going to be pretty tough on this. And I’m not wavering on. I don’t give a damn how smart you think you are. We’re not wavering on this issue of an asshole. We don’t want our shareholders to feel at all concerned about who’s managing their money. This is our retirement plan. When I say our, I mean, everyone at Dynex Capital. We’ve all bought into this thought process and it aligns us with our shareholders because that’s what they want. They want to go to sleep every night, believing that there’s someone ethical at Dynex Capital looking out for their needs.

Ramsey Smith:

Before I hand it back off to Laura to wrap this up, we always look for like the quote of the day. And may be no asshole. I don’t know if we can get away with that.

Byron Boston:

We have a no asshole policy.

Mark Fitzgerald:

We [inaudible 00:45:59] on the front of the show.

Laura Dinan Haber:

I think it’s a great policy though, because honestly, when you build something that’s important and this strong, the people truly matter. So Byron, thank you so much for joining us today. Thank you for sharing your long term version, your insight, your experience. It’s been quite the conversation and I’m sure it’s the beginning of many.

Laura Dinan Haber:

Best way to reach you, we heard you mention it before, Reach out, learn more. It’s such an interesting conversation and I’ve learned a lot today, myself. I look forward to having the next phase of it, but if you want to stay in-touch with us at That Annuity Show, please go to and sign up for a weekly newsletter that we’ve just started sending and it’s insights and other information and news from guests just like Byron. Again, thank you all for listening today. Mark Ramsey, Byron, great to have you here and we look forward to our next episode. Thank you so much.

Byron Boston:

Thank you so much for having me.


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Ashley SaundersEpisode 106: Getting Ready to Step Out on the Risk Spectrum with Byron Boston
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