Richard Cunningham [00:00:00] You’re listening to Faith Driven Investor, a podcast that highlights voices from a growing movement of Christ-following investors who believe that God owns it all and cares deeply about the heart posture behind our stewardship. Thanks for listening. 

Intro [00:00:17] Hey everyone, all opinions expressed on this podcast, including the team and guests, are solely their opinions. Host and guests may maintain positions in the companies of securities discussed. And this podcast is for informational purposes only, and should not be relied upon as specific investment advice for any individual or organization. Thanks for listening. 

Richard Cunningham [00:00:44] Friends, welcome back to the Faith Driven Investor podcast. And today is not a normal episode as it is a time for celebration. We have reached a milestone. It is episode 200 of the Faith-Driven Invester podcast. And I have got a couple of the OGs with me. The two guys that helped start this ministry. Well, we’d love to have John Coleman and Justin Forman here with us as well. A couple of mainstays you always hear. I’ve got Henry Kasener and Luke Rausch. And gentlemen, we’re celebrating. We have hit 200 episodes. HK, let’s start with you. Do you know when you recorded your first ever Faith Driven Investor podcast? Nope, no idea. 

Henry Kaestner [00:01:17] 200, that’s incredible. Richard, that is amazing. It’s amazing. And it’s been so much fun. You know, in the early days, Luke and I would do them and hang out and celebrate the mission that God put us on and had some fun doing it. And, I mean, I remember the feeling. I remember really looking forward to doing them. And as we started, as I started spending more and more time on faith-driven entrepreneur and faith-drive investor and Luke continued to. Run Sovereign’s Capital as we did a divide and conquer. I remember really looking forward to hanging out with Luke and just joking around before the mic went on and joking around while the mic was on. And then, you know, coming back together, it makes me feel like 200 is a long, I mean, it’s a lot of them, but really it’s just celebrating what God has done through the movement. It’s just awesome. But you know they come back and now we’ve got the video going, Luke’s got the dignified gray in the beard. You know, I think when we started doing these, you were in like second grade and now look at you and- It’s more salt, more salt and pepper these days. That’s for sure. There is. I’d do it. I’d invest in you though. I mean, you look like you know what you’re doing. Hey, a little gray in the beard is good when you’re raising capital, and so that’s helpful. We’ve already established I need a haircut. I don’t know how many of you are going to be watching this on video, hopefully none of you. 

Luke Roush [00:02:30] It’s Gavin Newsom’s Doppelganger right now on the pod. 

Henry Kaestner [00:02:34] I don’t know how I feel about that. 

Luke Roush [00:02:36] Hey look, he’s not 

Henry Kaestner [00:02:37] He’s not a bad looking guy. He’s a good looking guy, he’s got great hair. He’s got a great taste in nice restaurants, right? I mean, let’s look at the positives. 

Richard Cunningham [00:02:46] It’s an edgy reframing you guys always talk about. Well, Henry, to answer the question, it was July of 2019. So we’re almost six years to the date of when the first FDI pod was launched. But I know the story goes back even further than that of kind of launching faith-driven entrepreneur, faith- driven investor shortly after. I’d love to hear, I mean, and travel back both of you guys as far as you want. Cause today’s the day of celebration. We’re kind of going back to the origins and we’re gonna talk about where God might be taking all of this next, of course, and celebrate some of what’s happened along the way. But go back as far as you’d like and tell us kind of how your paths crossed, how this idea of faith-driven investing kind of started. And I know faith- driven entrepreneur may have proceeded it a little bit, so it’s worth maybe getting into some of that. But Henry, we’ll start with you. Go back as the story needs to go to kind of orient us to where we are today. 

Henry Kaestner [00:03:33] Well, we could go really far back. A great friend of ours, Luke and mine, is a guy named J.D. Greer. And J. D. Is the head pastor of Summit Church and co-author of the Fate Journal and Osprey Book, and just a great encouragement to both of us. And this is going back probably 16 or 17 years. He called me up and said, hey, I’ve got this guy in a Bible study I’m doing that I think you’d like a lot. What would you get together with him? And he probably said a version of the same to Luke, and J.T. Grear was… Matchmaker just said, you know, this is somebody who’s really serious about using his guests in the marketplace is trying to figure it all out. I know you’re trying to do the same. And so we got together and went to a place called Joe’s Diner, downtown Durham, North Carolina. Great hot dogs. That’s right. It’s famous for the hot dogs that you could have a hot dog with mustard. You can have a Hot Dog with chili. You could have. A hot dog would hot dog. So we had the hot dog and it was just like, I really like this guy is awesome. And then he was living in the same neighborhood as. My best friend, business partner, as we were running bandwidth at the time, David Morgan, and hung out, mutual friends. And then over time, we really just had this sense of shared mission, that there’s actually, rather than just talking about faith in the workplace and the struggles we had and the challenges and the opportunities, what might it look like if we actually got together and did something about it? And this is the point in time where… Through the grace of God, bandwidth was having some success and I’d meet some other Christian business owners, but most of them felt uncomfortable in sharing their faith in the same type of way that Dave and I felt liberty to do so because they had outside venture capital and what they’re doing. And we’d gotten together along the way with another guy that JD introduces to, Andre Mann. And Andre had also had this thought that there’s an opportunity to blend work and investing in business excellence. And so we got together and decided that the way to… Really seize the opportunity that we saw was to start a fund whereby we would be an encouragement to faith-driven entrepreneurs coming alongside them. And yes, absolutely helping them with customer acquisition and intellectual property distribution channels and things like that, but also encourage them as they encouraged us in our faith. What does it look like to have a chaplain? What does look like to pray with non-believing employees? And so Sovereign’s Capital was started. And then life went on for five or six years as we endeavored to start a fund and run it with excellence, believing that you could get great returns, spiritual and financial bottom line, not at the expense of biblical values, but because of them. And through the grace of God and some great deal flow and some great entrepreneurs and great advisors and great investors, oh, my goodness, you know, six or seven years into it, we were finding great success and that we could throw it with some of the biggest venture capital funds. And deliver good results. But then we saw another opportunity. 

Luke Roush [00:06:26] Yeah. So, you know, just to jump in to break up the monolog. 

Henry Kaestner [00:06:32] Please. 

Luke Roush [00:06:33] The reality of our work is that we were looking at all these companies and we’d look at 100 companies and there’d be like one that really fit the right stage, the right geography, the right industry, something that we felt like we could bring some value beyond just down stroke and a check. I think all of us were a little bit troubled, but Henry probably most of all, that like the other 99 people that we met, many of whom were running really great businesses, But it just wasn’t in the right sweet spot for us. You know, they were looking for something a little more than some prayer on the way out the door, you know, and like, don’t call us, we’ll call you, let us pray for you and you know send you on your way. There’s an issue with that in that it felt as though even as we were called to kind of build sovereigns capital and focus on the investing work and reinvesting time and energy in the companies where we invested, we had all these other companies that were looking for community, like they needed content. They needed a place to be able to come together and collaborate like with other entrepreneurs who were like them trying to build something for God’s glory, but like wanted community in that. And so Henry, I think really identified that like we’ve got to do something for these folks because the sovereign’s team at the time or even now today, like we can’t pour into every entrepreneur that we meet. And yet every faith-driven entrepreneur needs someone or something to pour into them. And so FDE was really born out of this. Kind of heartbreaking for all these entrepreneurs that we were turning loose because we couldn’t invest in them and we couldn t spend as much time with them as we wanted to. And then Faith Driven Investor came a couple of years later because we were really trying to say, all right, ultimately these builders are looking for ways to tap capital markets. They need help in being able to re-envision what they’re building. But as they build, there’s capital requirements for for creating new things, right, for scaling growth stage companies, for… Facilitating transitions in multigenerational family businesses that are more mature. And so Faith Driven Investor was a way of actually creating some content, some lexicon vocabulary for how do we actually educate people on how they can reflect their faith in the way they invest to complete the other side of the market. Henry’s great analogy that I reuse weekly is that in the early days of sovereigns 2012, 13, 14, our industry was a little bit like the Eastern Black Bodega. But at least with an Eastern Block Bodega, there was a line wrapped around the block. In our case, there wasn’t really much product on the shelf. What had been there was mixed in terms of quality, and there weren’t really many people shopping in the store. And so with FTE, we started to actually develop more product in terms of companies that were being born. And with FDI, we actually started to develop a queue that started to form outside the building. But it’s still early days.

Henry Kaestner [00:09:26] Today is a Spanish term for like a little Latin American market, and they probably have a different word for Eastern Europe. 

Luke Roush [00:09:33] And mixed metaphors have never stopped me. 

Henry Kaestner [00:09:34] No, me neither. I think it was awesome. You know, one of the things that I remember about that is there are these kind of these infamous stories of Anatole Melanchier coming in, who’s a fate-driven entrepreneur that want us to invest in and he’s from Moldova and we said, I’m so sorry we can’t invest. But then there’s John Porter, who came in after we’d started fate driven entrepreneur. And we thought, gosh, you know, we’ve got these resources, this content and community. By then, gosh fate driven entrepreneur probably had watch parties in 300 different locations around the world. And John Porter wanted to look for capital. And I said, well, I’m sorry, we can’t invest in you because we’re not investing in Africa. But we have all these incredible resources and really realize and talk to them that we weren’t scratching his itch. But I went to Luke, we’re talking about what does it look like to open up our LP base to invest in somebody like a John Porter. We knew that we had some LPs that had been to Rwanda, which is where this guy was running this company, Misaka Creamery. And this was not Luke’s problem, this was my problem. I was just like, you know what? Gosh, if 80% of businesses in America fail, what are the chances of the business in Rwanda working out? And it’s just, I don’t know what it looks like. And if we refer this on to some of our LPs that have been to Africa, have an interest in Africa, maybe that just doesn’t work well, and they’re gonna assume we did some discovery and diligence on it, and this is just like a no-win, so we’re just not gonna do it. But really, as Luke and I were processing that, it was really a Holy Spirit moment where we can realize that that was not for us to decide, and that we were being tight gripped. On our LPs and we weren’t thinking first about the kingdom of God and that let’s leave it to God and the Holy Spirit to help lead these LPs about where they’d allocate capital. And while we’re at it, maybe we’re not the only game in town. By then we’d had some success and we thought, gosh, if somebody is motivated by their Christian faith and they’ve got investment capital to deploy, of course, they’d choose sovereigns. But we never really just thought like Who else is God calling to the same thing that he’s called us to? Is there anybody else out there? And there are lots of people, especially in real estate. And so we just said, gosh, we need to get out there and expose our investors to other fund managers motivated by their Christian faith. We did the first one in partnership with Chuck Bentley out at the Christian Economic Forum, which that year has been held in Deer Valley, Utah. We invited our LPs to an event. We found some. Faith-driven real estate fund managers that were very much started and run by their Christian faith, delivering incredible financial returns and incredible spiritual impact to their LPs by including things like chaplaincy in the way that they invested. And we said, all right, this needs to be a broader movement. This is not the sovereign’s capital story. This is something that needs to much broader. And so that was this moment where we said all right here’s an opportunity. To instead focus on just sovereign’s capital, to instead, focus on a broader movement of the body of Christ looking to steward their investment capital in a way that built God’s kingdom under his power for his glory with men and women who were driven by investment excellence. And that was the beginning of FDI. That’s awesome. And somewhere around that, we decided let’s talk about what we’re discovering and let’s interview some of these other fund managers and let’ look at what spiritual integration looks like across investing in a bunch of asset classes. That we didn’t have any any expertise in. I remember talking to a guy who was running a natural gas and an oil fund. I’m like, guys, where’s the spiritual integration in that? I mean, how do you evangelize like a, you know, a barrel of oil, right? Because like, how about all the oil field workers? Like, oh, yeah, of course. And then we had a guy on the podcast early on had written the book, Thank God for Bitcoin, Jimmy song, I still haven’t figured that completely out. But you know, there’s spiritual integration and that or at least the guys completely convinced of it. But it really just, you know, part of this whole movement has been about just a personal quest of mine to just see God at work, to see God working through other fund managers. And you know it’s the C.S. Lewis thing, right? It’s like, I thought I was the only one that cared about this, but Luke and I have had the opportunity to interview really literally now hundreds of people that God has also given a calling to to start his capital with excellence. And so every time we talk to somebody, we hear more about just another one of God’s image bearers doing some incredible things all around the world. And it’s instead of this feeling like, oh my goodness, gosh, another competitor. It’s like, oh my gosh, Luke and I and the team at Sovereign and the Team at FDI get to be involved with some unbelievable men and women. And it has been really cool. 

Luke Roush [00:14:19] Well, I think actually like one of the things that was a shift is that the early days of the faith and work movement and the early days of what was traditionally called biblically responsible investing. So the faith in work, and this is actually first time Henry and I have actually talked out about it out loud. So it’s kind of fun to process this together with him. But my sense of the early faith and work movement was largely about personal transformation, right? How am I going to actually contextualize my faith in the way I show up at work? And it was really more kind of internally focused, heart posture, head posture, stewardship, a lot of focus on generosity, but less focused on like, how do I actually leverage my business to change the way I build product and service, change the ways I engage with my community and actually be salt and light in a more catalytic way, not just individually being transformed in one or two people that I might work with, but actually more broadly. Like, how do I actually take this idea of what was originally called business as mission, which is more ministry people trying to become more sustainable in their work? How do I flip it and actually take red meat-eating capitalist pigs who are by the grace of the Holy Spirit being awoken in their faith and now actually looking to take their business and reshape it or take something new that they’re trying to build and build in a way that is very, very catalytic? That’s actually, I think the shift is actually moving away from. Early days of kind of faith and work, how do I see these two things come together in my life? No, no, no. How do we actually take a business and think about transforming the industry that we’re playing in by virtue of the way we develop product and service, the way deliver product and service to our clients and engage with the community? I think the other thing that I would say is that going back to sort of the early days of faith-driven investor, before we waded into this and again, like all by God’s grace for his glory. I think that the emphasis was more on like, what do we want to avoid? So biblically responsible investing was very much around what are the things that we really probably shouldn’t own and profit from because they’re antithetical to human flourishing and they rely on some form of addictive behavior in humans to make the business model work. So gambling, adult entertainment, you know, things like that. I think what Henry and I and Andre all got aligned on early is we want to be known not just for what are we against as believers, but more so what can we fall in love with? Where do we see human flourishing occurring in the marketplace? How do we want positively screen for businesses that are making a difference? Let’s focus on that. That’s the main narrative. There will be some things that we want avoid. There may be some other things where we want a presence on their cap table and then with management to see if we might reframe some of how they do their work. Primary motivating factor in the early days of the phase of investor movement, certainly sovereigns, was very much of like, let’s be known for what we’re for. 

Henry Kaestner [00:17:18] This is a good time, so I really wanna make sure that I highlight some of the other influences. A lot of it was God speaking through His Holy Spirit to Luke and I, and then a whole bunch of others. Justin Foreman, who was running the Featured Entrepreneur at the time, was an early contributor, of course. But there’s also a group that we got together maybe six, seven years ago at a French bistro after a Sovereign’s Capital LP meeting. And it was people like Josh Kwan from The Gathering, and Mark Wesson from Eversource, and David Wells from the National Christian Foundation, And there may be a 25 or 30 getting together and just saying, okay, so what does it look like for there to be a broader movement in the way that we’re able to hit at some of these themes that Luke is talking about right now, about what are we for as Christ followers? And that’s really important. So it just has not been the Luke and Henry show by any stretch, although the team at Faith Driven has been nice enough to let us be on the mics a lot at the expense of the overall quality of the podcast. But there have been a lot of great. Great people that have really sown into our lives, prayed with us, for us, inspired us. You think about the redemptive work that Praxis does in helping to reshape the way that people think about how they’re running their businesses. Lots of folks. God has removed the scales from lots of our eyes to include the listener to this podcast. And this is a movement. If you’re listening to this podcast, this is something to bring to your community. One of the things we have been able to do over years is with the faith-driven team put together a community group course of six weeks that explores some of these concepts. And you do that in a peer-based community of 12 to 15 folks and with a great facilitator. So this is something that God is bringing us all into. 

Luke Roush [00:18:59] Well, and two things that I’ve learned from Henry, one is we serve a god of abundance. We don’t serve a God of scarcity. The early years of my career were very focused on direct competition and a bit of a zero-sum game. That’s kind of how I thought. And that is not the reality of the world that we live in. And one of the things I’ve learnt from watching Henry is that like, now we need to be rooting for rivals. Like we need to be rooting for people who are doing work well. And there’s a bunch of people, you know, even as the movement has evolved that went before, right? You think about Praxis, you think about Timothy, you think of Ave Maria, you think a whole bunch of other early movers that were down the road, at least wrestling with this question of what does it look like? And that work continues. You think of Eventide, you think Robert Netslade inspired, a whole of bunch of different people that have actually been circling on this area for a long time. And one of the things that I think has allowed. The movement to flourish is that broadly speaking, with maybe a couple of exceptions, broadly speaking the movement is for each other. Like there’s obviously places where there’s direct competition kind of A versus B, but by and large, like the movement has grown and rising tide raises all boats. I think people have kind of leaned into that. And also the broader idea that like, it is not about any one of the private equity firms or any one to the advisory firms, RIAs that are in this arena. It’s really about like, what does God want to do? And Lord willing, He does it through us, but if He chooses to do it through someone else, we need to be excited about that because the mission is fulfilled. It’s not about us individually, it’s about the mission. 

Henry Kaestner [00:20:34] Well, and it is a broader movement. I mean, maybe nobody better to speak about the expanse of the movement and the growth of movement than you, Richard, right? You know, so you’re providing leadership for the fate driven investor, institutional investors summit. And gosh, how many folks did you have out at the Rosewood? 

Richard Cunningham [00:20:52] I mean, what you guys are getting at is there’s multiple expressions of what this can look The answer is 180. 180. You had 180 out. It was awesome. I like giving indirect answers, Henry, and kind of arriving after a nice monolog. Well, thank you guys for all of that. But yes, we’ve gathered- Keep on going. I’m sorry. I should have let you go. 150 to 200 the last couple of years of private equity and venture capital. 180. Managers. 180 is the round number. Gavin Newsom, thank. The desire is like you guys said, is hey, they all have a unique expression of faith-driven investing. There’s a hundred plus trillion dollars in managed assets across the globe. Only a couple hundred billion of those are in explicitly faith-aligned products. But there’s, Pew Research says there’s 60% Christ followers in the U.S. Or at least people that identify with a Christian faith. And so just the numbers don’t add up in terms of the number of assets within faith- driven investing made a couple 100 billion. There being a hundred trillion in managed assets in the US. And there’s just such an opportunity for Christ followers to keep leaning further and further in. Like the math just doesn’t make sense. And so the desire here is to say, hey, private equity and venture capital managers, you probably have an outsized opportunity to rethink the shaping of your portfolio or the spiritual integration practices you have. Not that a public equities manager can’t. I mean, Luke could speak to that extensively in terms of the influence you can have on a public company CEO. Henry, you took a company public. Private equity and venture in particular, and private companies, when you have direct influence on the owner operator of the company, there’s just an opportunity there. And so that’s why we gathered those folks. 

Luke Roush [00:22:22] Well, and to your point also, like, you know, I think that just to tie into that, one of the things that we’ve said since the beginning, and I think it continues to be true, is we want to be descriptive of what faith-driven entrepreneurship, faith- driven investing looks like, but not prescriptive. One size fits one, you now, and, I failed to mention Bob Dahl, now over at Crossmark earlier, but he’s been thinking about this for a long time in different contexts, really active within the kingdom advisor community, think about Rob West and the whole K.A. Crew and the journey they’ve been on. So I mean, there’s a plethora of different ways. To represent faithfulness in the way we do our work. And it’s important to not become too myopic on our particular flavor of what it looks like. What is important and what I think is a mandate is you gotta be seeking Godly counsel. You gotta be on your knees in prayer and you gotta look at God’s word. If you’re doing those three things as you interpret where God’s calling you as an entrepreneur or an investor, you’re gonna end up in a good spot, but it’s gonna be different. And I think that giving some grace as we all figure this out together is important. The good news, here’s the good news. We’re probably in the top of the second inning of a very long baseball game. So it is early. It feels like at times like we’ve been at this forever. But the reality is in the long arc of history and sort of what are we trying to build together for God’s glory? Like really, really early innings still, still a wonderful time to jump in. 

Henry Kaestner [00:23:45] Thousands, thousands of podcast episodes in front of us. 

Richard Cunningham [00:23:50] I love a good baseball analogy, Luke. Thank you, guys. That’s a lot of fun coverage. I guess the question that has to be asked next is what happens next? Luke, you mentioned we’re in the top of the second inning of a really long baseball game. Where do you guys want to see this go? And I know, is this a domestic thing? You know, Luke, You spent a season in Indonesia building out sovereigns capital over there, making some Southeast Asia investments. Henry, we know about your passion for Africa, the school of hard knocks video that just went viral. You reframed kind of. What stewardship can look like in talking to Africa. Justin Forman is currently on the continent of Africa. As you guys think about where faith-driven investing goes next and broadly just kind of faith- driven movements, how do you frame up the global kind of domestic conversation? 

Luke Roush [00:24:33] I’ll comment super briefly and I’ll turn it over to Henry, but I think our view from the beginning is that this is a global movement. The pacing, the way it shows up around the world is going to be a little bit different. But if we believe capital has influence to be able to shape culture, then that’s an important opportunity, I think, as Christ followers, to be salt and light all over the world and to be to find ways to reflect our faith in the way we put capital to work and help shape cultures, many of which are still in the process of being born, developed, shaped. So I think it’s a global thing and we’ve seen that at work very much in Southeast Asia, which is the only place outside of the US that we currently invest. But Henry, I mean, you’ve been much more globally exposed. Your thoughts. 

Henry Kaestner [00:25:15] Well, from a movement perspective, and this is as you’re saying, this is outside of what sovereigns capital as an investment fund does. But from a moving perspective, the singular thing I’m most excited about is the development of a faith driven investment industry in Africa with some unbelievably talented men and women with great investment backgrounds, Ivy League educated, Wall Street, 10 years. Real assets under management, really great performance. And then just a spiritual integration that is really almost unparalleled. Just the development, the maturity of an industry. As an investor, I get excited about the macro environment too. You’re talking about a place where there is an average age of 19. It’s gonna be the only continent that’s gonna to be growing. Average age of cross-country is 19.2 years. The number of producers and consumers coming into a marketplace is astounding. There’s been some great political stability. As much in Africa as anywhere, any other continent in the world. And you’ve got this incredible sense of just individual economies growing, six of the ten fastest growing economies in the World will be in Africa and yet only 0.5% of the world’s venture capital and private equity are going on to that continent. Now I get excited about it from an investment perspective that’s one that’s seeking alpha, you know, you want to steward the capital that guys entrusted you with with excellence. But I also get excited about it because I also know that in a world in which USAID is pulling out, but believing that trade, as opposed to aid, works. Now that’s not to say that the way that we pulled out has not been very, very shaky, and I would have done it differently, to be clear. And yet, as a Christ follower that is stored in individual capital, or maybe institutional capital, to look at an opportunity in Africa where there are hundreds of millions of people living on less than $5 a day, believing that as we… Invest in that marketplace, providing employment, and doing that with faith-driven entrepreneurs, faith- driven fund managers. There’s a chance that 20 years from now, that is a vibrant marketplace, that it’s all about spiritual integration. You know, one of the things I love about Africa is that when I go and speak to faith- driven entrepreneurs in Africa, I don’t have to tell them that the work matters to God. When I’m here in America, in my hometown, there’s some amount of work for people to just kind of lean into the fact that God has glorified through our work in the marketplace. And this is something I picked up from Brian Fickert. We had the vestiges of this evangelical Gnosticism, right? Which is a thing that comes from the Greek faith, which is the separation from the secular with the spiritual. They don’t have that in Africa. So like, of course we should pray before our board meetings. Of course we shouldn’t pray for the healings of our employees that are sick. And of course, we should have a winsome witness to those who don’t yet share our faith. Of course, of of course. And so we have this opportunity as faith-driven investors to be able to put capital and encouragement and in prayer support. Behind these entrepreneurs as they in turn develop relationships with us and they pray for us a big part of the reason I get excited about Africa is this selfish thing as I do that as I get involved in these stories of these African fund managers that are doing this with excellence I come to know God more fully myself you know it’s all about me right I get more as I stored capital now. To be clear, this is not about an Africa story. This is about a bigger, broader thing. It’s about us as the body of Christ getting on our knees and just asking God how he’d have us steward the capital he hasn’t trusted us with. And for some of us, it will be check out what’s going on in Africa, it’s amazing. For others, it’ll be let’s look at innovative ways to continue to think about real estate investing across multifamily or retail or office, incredible things going on and co-working. There’s more of an opportunity to expand what’s going on in the lower to middle market. Incredible things that are going on the venture side. Think about all the just incredible technologies and artificial intelligence and the opportunity to come alongside investors like a Mark Sears that’s coming up with a novel approach, the redemptive way to do domestic AI investing. So there is incredible opportunity all around the world, but this is one that’s not to be prescriptive. As Luke said before, it’s meant to be descriptive. Opportunities virtually in every asset class, in every geography, but it’s an invitation to us all to just ask God how he’d lead us and with a hopeful expectancy that as we ask that question, he’ll answer. 

Luke Roush [00:29:38] And here’s the vision. The vision is that every Christ follower, independent of net worth, independent of asset class, independent of geography, has an opportunity to reflect their faith in the way they put capital to work. That’s the mission. And so back to kind of what does the store shelf look like, still really, really early, there’s tons of opportunities. And there’s areas of the world, there’s different industries, there’s different types of businesses, where you can have more or less impact. Doesn’t make one better than the other, but there are highly catalytic parts of the world. And sectors of the economy where I think that, you know, the impact can be multiplied. So super exciting about where things are going. 

Henry Kaestner [00:30:14] Guys, it’s been great to do this with you. I’m just, I’m grateful for you, your friendship, your partnership. I’m thankful for all of our listeners. My request is that as you’re listening to this, this is a movement of God and it’s not meant to be consumed, it is meant to be passed along and encouraged and maybe you get together, a group of people there in your small group and just wrestle with things like this. But thank you for tuning in over these 200 episodes. We wouldn’t have a podcast if we didn’t have listeners and we wouldn’t a movement if God wasn’t. Inviting others to participate. So you as the listener are a big part of what God’s doing. 

Richard Cunningham [00:30:47] Well folks, this has been episode 200. It’s coming out on June 30th as you listen to this. Going forward, one of the things I wanted to say from a housekeeping standpoint is that the Marks on the Markets will continue as every other episode for Faith Driven Investing podcast and the video podcast will start to be more and more normal. We’ve seen a couple teased out with Brent, be sure. Henry thought today was a video podcast and so we’ll see, there might be some social clips of Henry today. But going forward, the actual in-studio live FBI video podcasts are coming to kind of match more of the Fates of an Entrepreneur podcast. But pump for the next 200, Luke, pump for next 200 Henry, thank you guys for your time today. What a joy to celebrate the FBI pod together. 

Henry Kaestner [00:31:26] We are grateful for the opportunity to serve this community and see listeners come in from more than 100 countries. Faith-driven investing can be a lonely journey, but it doesn’t have to be. The best way to stay connected is to join a group study with other investors looking to get the same answers to questions you have and find great community as they do so. There’s no cost, no catch. In person or online, you can meet an hour a week with other peers from your backyard or the other side of the world. You can also stay connected by signing up for our monthly newsletter at faithdriveninvesting.org. This podcast wouldn’t be possible without the help of many of our friends, executive producer Justin Forman, intro mixed and arranged by Summer Draggs, audio and editing by Richard Barley. Our theme song is Sweet Ever After by Ellie Holcomb. 

Richard Cunningham You’re listening to Faith Driven Investor, a podcast that highlights voices from a growing movement of Christ following investors who believe that God owns it all and cares deeply about the heart posture behind our stewardship. Thanks for listening. 

Welcome: Hey everyone! All opinions expressed on this podcast, including the team and guests, are solely their opinions. Hosts and guests may maintain positions in the companies and securities discussed in this podcast is for informational purposes only, and should not be relied upon as specific investment advice for any individual or organization. Thanks for listening. 

Richard Cunningham Welcome back, everybody, to another episode of the Faith Driven Investor podcast. It’s episode 181. We are closing the book on Q3 2024 as when this releases, it will be September 30th. Hard to believe we are entering into the last lap of 2024 as it relates to quarters at least, and we’re talking marks on the markets. We’ve got our resident expert, John Coleman, in the podcast studio. And before we welcome John onto the pod, just a couple of quick things I want to note. If you haven’t yet, listen to our most recent FDI podcast that dropped a couple of weeks ago, episode 180 with Richard Garnett. It was a special tribute to his life. I just cannot recommend enough after you get your marks on the markets. Phil here, to go back and listen to that episode. It was unbelievably fantastic. I promise you, you will end up sharing it with a friend or someone you love. Just the wisdom and the principle shared in it are timeless and it’s worth a listen. And the final thing I want to say is, I know we’ve got a lot of cross-pollination in the faith driven investor and faith driven entrepreneur audiences. And on Friday, the 20th FD hosted its annual conference. And man, it was a big hit. I know I got to attend a watch party here in Austin, Texas. There were dozens, if not hundreds of other watch parties across the globe, and I say that to tease out that if that was a really special experience for you, the FDI conference is coming up in January, which is hard to believe. It’s only three and a half ish months away. And so it’s conference season. It’s the fall of 2020 for John Coleman. We’re talking marks on the mark. It’s great to have you guys on the podcast. How is Team Coleman. How are you guys doing. How’s your summer. How’s the fall kicking off. 

John Coleman Yeah Richard, thank you for having me. Obviously fun to be on this side of the mic. With you interviewing me, the fall is off to a good start. We love the fall. Atlanta, like Austin, can be a little bit hot. And so it’s starting to cool down just a little bit. We’ve got kids. Richard knows we’ve got four kids between 3 and 11. And so I was telling him a lot of my life is is unpaid Uber driver at the moment or chauffeur. And so, you know, but the kids are having fun. It’s super fun to get out and watch them play sports or do their theater performances. You know, this age range is just really special. So the Colemans are having a lot of fun right now. 

Richard Cunningham Great. Fantastic. Well, John, this pod comes at a great time because I feel like we’ve got kind of one of those organic stopping points in the calendar where it’s the end of September, Q3 is over. And that’s going to kind of be the theme of today is that’s, you know, we’re in an election year. We’ve got three fourths of the year covered. We’ve had some massive kind of markets and economic headlines. And so we’re just gonna kind of go subject by subject on a few big items and let you kind of provide some commentary and some thoughts and always that kind of redemptive and biblical perspective on things. And let’s start with the big one from just this past week, September 18th. The fed cut rates, and it is a long expected, long anticipated rate cut. They’ve been at, you know, multi-year highs, I think as a 23 year high cut rates down to 50 basis points. And so what has kind of been the storyline. Why did we go on this rate hiking situation and kind of cycle in the first place and kind us kind of some of the commentary and background as to the decisions the Fed’s been making. 

John Coleman Yeah, obviously huge news this week, Richard, in softening in the fed rate. You know effectively we started this rate hike cycle because of inflation. So we went through this uniquely long period of low interest rates globally after the great financial crisis in 2008. And we’ve talked about this on the podcast before that period, 2008 to 2000, 22 or so was really one of the more unusual in economic history. You know, we began to think of that as normal because for most of us in our adult lives, that was kind of normal. But if you looked at the prior hundred years, for example, the interest rates that prevailed during that time were unusually low. Our current rates are actually more in line with historical averages. If you were to look back in the 60s, 70s, 80s, 90s and before, in fact, in the 70s and 80s, interest rates were obviously quite, quite a lot higher than they are right now. And so that period after the great financial crisis was unusually low. And what happened at that point was in order to avoid a Great Depression, you know, a repeat of 1929. In the 1930s, the central banks around the world, not just in the United States or around the world, felt the need to drop interest rates artificially low. And when you drop interest rates, that obviously spurs economic activity because money becomes cheaper to borrow, you can borrow money to buy a house, you can borrow money to buy business to finance new capital. And so it’s stimulatory to the economy. As we rolled through Covid, right, interest rates were still unusually low in the United States and around the world. But then we got hit with a ton of fiscal stimulus. Right? So we went into Covid. The federal government just dropped from a helicopter a ton of money into the economy that was warranted at the time because it felt like in the initial lockdowns, we could risk going into a severe economic recession and then coming out of that, what a lot of people believe is the federal government, they can continue to stimulate the economy too far. So the Biden administration’s so-called Inflation Reduction Act, which was like a very Orwellian term because it was actually a very stimulatory inflation causing act, dumped a ton more money into the economy. They continued Covid stimulus long after the lockdowns were over as a reality. And what happened on the backs of that is massive inflation, which we’ve been living through for the last couple of years. Right. And I say massive inflation. I mean, this wasn’t like Argentine style inflation that we experienced as the United States, but it was very high inflation relative to what we’d experienced for the couple of decades prior. In response to that, the fed had to go through one of the most aggressive tightening cycles of our lifetimes. And tightening means they’re raising the federal funds rate, which is the rate at which they loan to banks, which raises interest rates all over the economy. Right. And they did so up until we got to kind of like 5.5%, which was much higher than where we had been previously, or almost 6%. So what’s happened most recently is the fed has now begun to loosen the economy. So inflation has slowed. There are some signs that the fundamental economy might be softening a little bit. You know, what was really interesting about this tightening cycle is usually when the fed raises interest rates, you slip into recession and they basically break the back of inflation by forcing the economy into a recession, which kills inflation, hopefully. And that’s kind of what happened coming out of the 1970s. In this case, we never actually slipped into recession. We never actually saw unemployment rise to the level. You could characterize it as problematic or outside of historical norms. And we never actually saw at least the official growth rates of the US slip into recession territory. Although we’ve seen there there’s been some funny business with those numbers over the course of the last 18 months or so. So it’s difficult to tell. And so now the fed is living in this interesting period, Richard, where the economy is softening a bit, but it’s not yet that the inflation is coming down and more under control, but not yet at their target rates. And yet they’re anticipating problems. And so the fed is now trying to cut rates to get ahead of those problems so that they can have a so-called soft landing where, you know, the nirvana here is that we get inflation under control and then we start to lower rates in a way that keeps inflation under control, but avoids any sort of dramatic rise in unemployment or dramatic recession in the economy. And that’s what they’re targeting so far. It seems like they might have achieved that. It’s a bit too soon to tell. We’ll know in a year. But this week they dropped rates by 50 basis points. The prediction markets would tell us that most people are anticipating they’ll drop it by another 50 basis points before the end of the year. So a full percentage drop between this week and the end of the year, which would be a fairly dramatic cut and would get us back to even below historical levels at like 4.5%. I think, you know, the fed is probably targeting getting to something like 3% by 2026, which may be the new normal for interest rates. More what we’ve lived through previously. If they can keep inflation under control. 

Richard Cunningham Well, man, that’s a fantastic run down. And so just to recap kind of some of the actual rate numbers behind it. So in March 17th, 2022, as John alluded to, the hiking began and it rates were down in the 0.25, 2.5 50% range to 25 Bips to 50 Bips, and they aggressively spiked them over the last two and a half years. And finally, on September 18th, 2024, we saw our first cut. And we’re back in that 4.75 to 5% federal funds rate as John was speaking to John. Fantastic rundown. And so here’s kind of, you know, hindsight’s 2020. And I know it’s as you’ve kind of mentioned right now, it feels like the fed has navigated us to a spot that is digestible. But there have been nine rate cutting cycles over the past 30 years that have taken place. Three of those nine have began with a 25 bips cut, and six began with a 50 basis points cut. As we just saw, history suggests that after the 50 basis point rate cuts, we tend to see recessionary periods and markets the S&P 500 declining on the back of that recessionary period. Do you think that is a possible outcome here, or would you kind of say, hey, I think we’re heading in the right direction? This was the move that needed to be made. Recession is just TBD. 

John Coleman Yeah. No one knows. For sure. But I do think there is a correlation causation issue there that we have to be aware of. So typically rate cuts are because we’re already heading into recession. Right. So if you think about it, the rate cut itself might not be the causal factor throwing an economy into recession or increasing unemployment, right. It could be that the economy is already sliding into recession, unemployment is spiking and the fed cuts rates as a response. And so it would be natural that as the economy deteriorates, even if the fed is cutting rates, that it might continue to deteriorate. Right. And that that might be what’s actually causing the recession or causing a decline in markets. I think that’s entirely possible here. Right? We don’t know how deep this slide and underlying the slip in underlying economic indicators is. I would say it’s tough to parse the data right now because a lot of the economic growth in the United States, I think, is currently funded by deficit spending, by government spending, because we’re still running massive historically high deficits and running up a huge, unsustainable debt, which we could talk about. We we also see employment information is a bit off in the sense that, a lot of it is spurred by immigration. And so, citizens in the United States, the employment data is a little bit weaker than in the economy overall, which would include a wide variety of workers. And so without any judgment on any of those underlying trends, it can be tough to parse just how strong or weak the underlying economy really is. I would say, given the way that this has played out, our chances of avoiding a significant recession or a significant rise in unemployment feel to me better than in the past. I think the economy, the fed, is really trying to get ahead of significant deterioration right now. So I think the real economy has a decent shot of maybe, maybe a mild recession, maybe some continued deterioration, but potentially not getting that bad. Markets are a little bit more difficult to predict in my mind, Richard, because they are at such high levels of valuation right now. So particularly at the top end of the market in large cap growth stocks, the Magnificent Seven, we are at much greater than average price to earnings ratios for those biggest stocks right now. And in fact for that top I think it’s like quartile the Russell three 3000. The price to earnings ratios are above historical averages in significant ways. How that interacts with this rate cut with some softness in the underlying economy. I don’t know if I were to tell you what I’d really be predicting is that if it looks like we’re going to get a soft landing, that small caps will likely appreciate some, that The Magnificent Seven and some of the other large caps are likely to return to historical averages of price to earnings ratios, or that they’re going to come down a little bit. The overall impact on markets is likely to be slightly negative on, kind of market cap weighted index perspective, but that’s because the valuations of those are so high right now. So there’s a lot going on in the economy right now. I don’t think anybody has exactly the right picture of what’s going on. But if I had to predict the next year, it’s kind of a sluggish economy that’s not quite in recession, where we’re kind of chugging along the chance that markets kind of come back to historical averages for price to earnings ratios or decline a little bit would be somewhat high. And the fed is going to continue to be relatively cautious, do a 50 basis point cut, I think by the end of the year, and then take a wait and see approach in the new year to see how much of an impact that had. 

Richard Cunningham Fair, fair, really good breakdown. Let’s go to that next because I want to talk about how what’s taking place in the economy with the fed is kind of dovetailed into markets and how they’ve interacted. So you spoke to Magnificent Seven. As we all know, a large part of the S&P 500 performance is attributable to those seven largest market cap weighted stocks. And so you’ve got the S&P is up 20.57% year to date. We’re recording this on the 24th of September. So barring something massive happens between now and release date that’s kind of where we are. Nvidia up 141.35%. Meta up 62.99%, Amazon 29%, Apple 21%, Google and Microsoft, respectively. Almost 17% Tesla, who’s kind of that seventh member of the Magnificent Seven who had been on a really tough slog. Looks like they’ve benefited from the rate cut. They’re back up and 64 bips on the year, but that is up almost 5% in the last five days alone. And then compare that to the Russell 2000, which is kind of the representative small cap universe, if you will, not having a bad year up 10.31%. But comparatively to what’s taking place in the S&P 500 and with kind of the mega-cap stocks, if you will, still lagging far behind. So that’s kind of one. Realm is the public markets and their interaction with what’s taking place in the economy. But John, you’re investing across multiple asset classes. And your role at Sovereigns Capital, whether it be private equity, venture capital, real estate and elsewhere, what have you seen kind of on a on a macro perspective with where the economy has been, what’s been taking place and how it’s kind of permeating into multiple different markets? 

John Coleman Yeah. Great question, Richard. So to start with public markets, I think you highlighted the trends perfectly. We’ve been on this crazy run in stocks generally. I think people are starting to assume like I get 20% a year in stocks and that’s not true. You know, the historical rate is like 7 or 8% in public markets if you look over time. And I would expect that at some point we kind of get back to that 7 or 8%, which means we’ve got to have some sort of significant decline for averages to start to take hold. There’s really, as people have been fearful of a potential recession and also very enthusiastic about the rise of artificial intelligence and other technology trends. There’s been a flight to quality at the top end of the stock market in these technology enabled stocks. And I would say that Google, meta, Nvidia certainly we could talk about that separately. Amazon. These are all stocks that are not just quality stocks. You know they’re performing. They’re profitable. They’re growing. They also intersect with artificial intelligence quite a lot. Tesla is that story too in a very different way. They’re not large language models, but Tesla is trying to develop artificial general intelligence for driving, for physical spaces and for robotics. And so you’ve got this thing where at the top of the market, there are these high quality stocks in a growth market where people are flying to quality, and they all intersect with the biggest trend in markets, which is artificial intelligence. And so they’ve been bid up above historical price to earnings ratios. And people have been a bit nervous about being in small and mid-cap because of the fears of recession. Again, I would expect if we hit a soft landing for some of that to normalize. I think that enthusiasm around artificial intelligence is also likely to normalize. I firmly believe that artificial intelligence is at least the biggest trend since the internet. I mean, it has the power to be incredibly transformative, especially moving beyond the large language models like ChatGPT. If you start thinking about like what Tesla is doing, trying to develop artificial intelligence for physical spaces, for driving, for robotics, that’s where I think we take a leap where this begins to dramatically impact the economy, even as large language models are, you know, revolutionizing certain areas of the economy, like customer service or some legal tasks, things like that. And so I think those underlying trends are somewhat likely to continue. But I do think we’ll see a normalization in public markets. I think in private markets you are seeing continued sluggishness. Right. And that has a few sources. One is we’ve just seen fewer exits in private markets lately. And private equity and venture capital real estate is its own segment, which we could talk about in a moment, because I think that’s a totally different set of trends. You know, the FTC in the United States has been very aggressive about restricting acquisitions and mergers in the United States. So Lina Khan has been particularly aggressive about that, meaning the lot of potential options for venture backed companies to exit have not materialize. They haven’t been able to be acquired or to go public with the public market. IPO market and the Spac markets have been quite slow lately, and so there haven’t been as many opportunities for exits, which means that if you invest in in a venture capital fund ten years ago, you might not be getting your money back in the way that you thought, which means you can invest it in a new thing. Right? So I was listening to a very good podcast, the All In Podcast, last week, and they had a stat which I haven’t had a chance to verify independently, but they had a stat where, you know, typically over the last period of time, first time venture funds, about 50% of them are able to raise a second fund. Right now, the stats are that about 15% one 5% of venture funds are able to raise a second fund after the first fund. Because it’s been so difficult to fundraise, it’s been so difficult to get returns. The vintages have been really challenged for 2019, 2021 because of the collapse in venture markets and the slow period to get liquidity. And I would say from my point of view, we’re seeing that I think our team that looks at different fund managers, I want to say this statistic was something like the average fund manager was only raising about 60% of its target, according to the broad based indexes that we look at, which is resonant with this idea that most venture funds, that sort of fund one are not getting to fund two right now. You know, a lot of clients pay to invest in their new venture and private equity funds by getting DPI or distributions from their old funds. Nobody’s distributing capital right now, which we’ve seen. People are not selling positions they bought at inflated rates. Financing is more expensive right now, so leveraged buyouts are more challenged at the moment because rates are higher. And so that’s generated real sluggishness, I think, in the private markets, both for limited partners and general partners. What that hasn’t meant is that the underlying companies are necessarily doing badly. You know, some of these fast growing tech stocks in the venture markets have obviously had a difficult time because there aren’t many exit opportunities. And there’s been this, you know, 2021 was this weird upcycle in venture where everything was really over bed. So valuations have come down from that. But if you look at like real companies in the economy, a lot of them are still doing pretty well. And you know, we see that across the companies that we look at. Employment was really tied a couple of years ago. It’s hard to get good people still hard in certain skilled trades, but that softened a little bit. So hiring is a bit easier right now. Borrowings expensive but not out of control. Expensive like it was in the 70s, for example. So you can sell finance equipment and things like that. A variety of private lenders have sprung up in the private market, so it’s a little harder to get bank loans right now because of some problems in banks where they’ve got exposures they’re trying to manage. But there are private credit markets where you can get loans. So we’re still seeing reasonable health in the underlying economy itself. But transactionally things have slowed. And that means that the funds markets have slowed. And again, I’ll pause there. We could talk about real estate a bit if you want, but that’s what we’re seeing in the private company world. 

Richard Cunningham Yeah, it’s a great recap. And I’m looking at a couple of charts here that relate to what you’ve just talked about. And so going back to the venture and kind of the market for exits in the IPO market, you mentioned that wild year of 2021. And then there’s kind of the Spac craze and everything like that going on. But there was and U.S. stock markets, public markets, there is 1035 exits that took place. And then in 2022, it dropped all the way down to 181 exits. In 23, it was 154. We are at currently 145 exits here in U.S. kind of IPO markets. And so, as John was talking about for these high growth tech companies that venture capital funds back, you know, it’s either get acquired by a strategic to get distributions back or take the company public. And when those exit markets have dried up, as we’ve talked about, not fully dried up. These aren’t crazy off of historical averages. It’s just in 2021, everyone, when they’re seeing companies go exit hand over fist, decided to launch a venture fund and said, I want to get in the game. We can go take this company public in a matter of months. Things have just come back to reality. And then additionally, John, you were talking about private equity and private credit and things like that, and just the difficulty for fund managers to raise funds. And there’s just been LP hesitancy because of the lack of DPI or liquidity coming back to them. A vintage year is when a fund launches and ultimately, you know, kind of classifies the year that fund was launched and how their performance ranks amongst their peers. That also launch that year, 2023 vintage private equity funds are down 8.85%, venture capital funds are down 6.22%. This is a chart from PitchBook 2022. Vintage funds are a little better, private equity is roughly flat and venture capital is down 6%. And it takes you going back almost to kind of 2020, 2019 realms to find that kind of outsized market performance in terms of IRR amongst private equity and venture capital funds. 

John Coleman And one thing to be cautious at there, you know, is the J curve. So I would expect that 20 2223 tight private funds, maybe even 2022 would be a negative right now because of. So for listeners unfamiliar, there’s some called the J curve in private markets where money tends to go out quicker than it comes in, there are transaction costs to it. And so if you hold a private equity fund, it’s not unusual to see it go negative for a couple of years and then come out of it. What I would say is like, you know, we were looking at venture funds that were posting 4,050% paper returns, IRR, you know, with no DPI, but 50% paper returns a few years ago. Some of those firms are still posting pretty good paper returns IRR. There is no DPI, right. Or there’s very limited DPI and funds are stretching on past their like ten year windows and things like that. And so one of the challenges, particularly in venture private equity is a bit different is are the paper returns really real if you can’t get money from them? And how are you going to start to get DPI? How are you going to start to get liquidity if the exit markets are not so good, that’s where you can start to use secondary markets, which has come into favor. But secondaries are trading at deep discounts right now. So you’re taking a hit on your IRR. So I think it’s a bit too soon to tell how these most recent couple of years of vintages will turn out. I’m actually optimistic that the vintages starting in like 2022, where they’re investing end of 2022, 23 are going to end up being positive. Typically, when you see a big dip like we saw in 22 when the rate cycle started, it hurts the vintage a few years prior to that, but really helped. The vintage coming out of that. So if you went back to the great financial crisis, I think it was like 20. 2006 vintages were really bad, and then like 2009 vintages were really good, or ten vintages. I’m maybe beginning that just a little bit wrong. You might see something like that here, but certainly, you know, the returns are going to be flatter than they looked for these like 2016 vintages that were just killing it in 2021 overbid. And we really don’t know how the venture funds are going to turn out until we start getting real cash back. Right. These paper returns are much more difficult to assess. 

Richard Cunningham Well said, well said. Yeah. And our actually two podcasts ago we had Chris Kim on who is from a secondaries firm breaking down just what it looks like to be a provider of those liquidity solutions where they come in and buy, you know, LP interest and private markets position. So definitely worth checking out. And if you’re curious about kind of some of these exit solutions John is talking about and what a secondary is. All right. Let’s quickly hit on real estate because we’ve alluded to it a number of times. It’s, you know, acutely affected by the rate environment. And then let’s go on to after we talk real estate, just some of the election year stuff. You’ve made a few nods to government intervention and activity throughout this podcast. And so I want to talk about that. But real quick on real estate, John. 

John Coleman Yeah, so on the real estate markets, it’s so pretty dicey right now. Honestly, Richard, you know, some of the more attractive segments like industrial or warehouses etc. got a little bit overbid. And so there’s still a lot of demand for those as we have this kind of secular increase in the need for those types of facilities in the US office is still very precarious. I think any of these real estate cycles can sometimes take some time to work through because of all the lease agreements. You know, we’re still working through leases that were signed five, six, seven, ten years ago sometimes. And so it’s not a cliff. You know, those tend to roll off over time as rates reset, etc.. I would say office is still somewhat weak. We’re seeing a lot more return to office, but I don’t think we’re seeing anything like the demand for office that we saw in 2019, for example. I mean that structurally things have just changed in the way that people work. And I think that’s going to stick. And then residential is in this odd period of time where because a lot of people locked in rates for their properties that are renting a few years ago and rates have gone up so dramatically, it is much more expensive to buy an apartment condo house right now in most areas than it is to rent. There’s been this inversion where, you know, the natural order of things is it’s a bit more expensive to rent and to buy because landlords are getting rewarded for basically their outlay of risk capital. So you pay a premium to rent, not outlay any upfront or risk capital. And then if you buy something you kind of benefit from that over time. Right now there’s an inversion of that where it’s much cheaper to rent than to buy. I think because of the movement in interest rates over the last couple of years. I saw a chart recently where, you know, cap rates on rental properties right now, which is which is obviously the income from that property divided by its value are lower than the mortgage rate. So there’s an inversion in that because mortgage rates are higher. And that’s just caused a lot of sluggishness in the home market. Rates are coming down but they’re still high. You know mortgage rates I think for really good credit score like six a little over 6% right now. Many people are locked in at like three, which is, you know, almost twice the cost on a monthly basis. I mean, not quite twice the cost. And so people aren’t selling. A lot of people aren’t buying. A lot of people who stocked up on these kind of rental properties, Airbnb, Vrbo that’s coming back down to earth. And there’s been some not distress in that area. But I think you’re starting to see that space more challenged. And it still just doesn’t make sense to buy a new property right now to rent. Right. That’s inverted at the moment. And so that continues to be sluggish. The other thing that’s been true for more than a decade now is sluggishness in new home starts, a lot of which never really recovered to pre great financial crisis levels. I think that’s continue to be sluggish, although I think the August numbers said new home starts were up just a bit. Obviously there’s a secular shortage in housing in America. Our population is growing faster than our housing stock, especially when you include immigration. And so there’s a shortage of housing right now, whether rental or purchase. And so you would think that would lead to more construction. It’s helping to lead to higher prices, right? Where there’s the highest gap between the price of a property and the average median income in history, basically over the last couple of years. So that shortage is driving up prices. You would think it would drive up new home starts or new construction. And maybe that’s starting to happen, although that’s a pretty sluggish indicator. And so housing right now is still continues to be tough. The mortgage market continues to be tough. And if I were, you know, to predict I don’t. I think that dramatically changes in 25. Even with interest rates coming down. Although if we come down another 50 basis points, and especially if the fed were to bring things down another full percentage point next year and we get in the kind of threes again on the fed funds rate, mortgage rates get down in the force. We see that starting to loosen up quite a lot. But I think that remains to be seen. 

Richard Cunningham That’s a really good analysis. I know the season of life we find ourselves in, it is friends and family. Friends and all that situation are looking to be that first time homebuyer. And they sit there and they say, man, my rent payment as you’re talking about, would double because of where interest rates are and mortgage rates are, even though I can afford a 20% down payment. And so why go under that duress or that stress when you can rent it below market rates, if you will? And I know people are feeling that acutely. All right let’s pivot John. And we’ve got a few minutes left here. And we have got an election coming up in a month and some change. We currently have a Democrat controlled Senate, a Republican controlled House and a Democrat controlled white House. Obviously, you’ve got Kamala Harris running and the Democrat Party, you’ve got Donald Trump running on the Republican side. We are in debate season. We saw the debate a few weeks back, and it feels like the tension and the temperature is up, as always in an election year, but maybe help kind of bring us back down to earth and steady us as you kind of provide some of the maybe economic commentary on both candidates or some of the things you’re seeing and what the bigger issues are as we head into November’s election season. 

John Coleman Yeah. I mean, anybody who tells you they know what’s going to happen right now is lying to you. This has been and this continues to be like the craziest political environment of my lifetime. Certainly, you know, we’ve had two assassination attempts. We’ve had a president be revealed to be in cognitive decline, ousted from office, a new nominee basically appointed by the party without a process, massive reversals in polls, obviously, just a number of kind of crazy policy proposals. And I think more than at any point in my lifetime, too, we’re also seeing candidates just throw spaghetti at the wall in terms of policies. They think we’ll get them votes right. So every day some new promise comes out to try and for lack of a better term, by a vote, right up. Student loan forgiveness, no tax on tips, no tax on overtime. You know, mortgage, first time homebuyer assistance. I mean, we’re running trillions of dollars in deficits. And every day I wake up and there’s some new handout that people are proposing. I think, look, this won’t be revolutionary analysis. I think that in general, it’s likely that markets would react better to a Trump win than a Harris win at this point. What do markets not like about the Trump candidacy? I think and this is one man’s opinion. I don’t think they like some of what they perceive as the volatility of that, not knowing exactly what might come of that, not knowing exactly how the administration will behave in certain circumstances. What I think they favor versus a Harris administration would be a lot of kind of traditionally conservative policies that would be positives for the underlying economy. Right? I think a Trump presidency is staked out pretty clearly that it would try and slash regulation, that it would cut down on the regulatory burden of the business environment in the United States right now, or at least that’s what they’ve stated they would do. They did some of that last time. That would be very stimulatory for business right now in a positive way. I think the Harris administration has signaled in alignment with the Biden administration on some just absolutely insane policy proposals on tax. To be honest, a lot of people now are saying, well, you know, she kind of doesn’t mean it. She’s just appealing to her base. But this idea of taxing unrealized capital gains, for example, even if they’re only doing that higher income people of dramatically raising capital gains taxes at the federal level, of dramatically raising income tax rates, all of these would range from slightly negative to catastrophic for markets if they were to be implemented, and seemed so poorly considered that a lot of people are basically saying they don’t mean it, they’re just appealing to people. I think that with regards to potential negative shocks in the international environment, you know, we’ve obviously got very volatile situations right now with China, with Ukraine and Russia with a widening conflict in the Middle East, where Israel is now effectively, openly at war with Hezbollah in Lebanon, which has been a breaking thing this week as they’ve stepped up that conflict, moving beyond pushing back on the terrorist attacks that occurred out of Gaza. I mean, so that’s very volatile. I think people are very split on which candidate would be positive for that. I think there are wide contingent of. Folks who believe that a Trump presidency would potentially change that environment a bit, that Russia and China would be a bit more cautious during a Trump presidency than during a Harris presidency. And there’s a lot of fear, honestly, right now, with Joe Biden seemingly not as engaged as president, as he was before that something could happen between now and inauguration, right where it’s kind of unclear how the power structure is operating at the moment. So I do think there are some near-term risks to that. And then, you know, one thing. I’ll make an overarching comment, Richard, and it kind of goes back to this. You know, we’re in the handout stage of the election process where everybody’s just trying to announce new policies. They think people will vote for neither candidate, neither party has in their platform any significant way of addressing the structural deficits and debt that we’re accruing right now. Early in the next year, our interest payments on the federal debt are going to go over $1 trillion, effectively, no matter what happens with rates, you know, our entitlement payments for health care and for Social Security in our interest rate payments now eat up the vast majority of the federal budget. They dwarf defense spending. They dwarf spending on the apparatus of the federal government itself. And I heard a stat the other day that almost half of the US economy in some way touches government spending, meaning either is directly a federal agency or state or local agency, or is reliant as a private sector business on funding from those. Right. So we’re reaching this point where the government has just become an enormous part of the federal, state and local economies. Right. And that used to be a platform of the Conservative Party, the Republican Party, that was a loser electorally, because no one likes to hear that we’re out of money and we can’t spend anymore. And everybody wants to know that you can. No one likes higher tax rates, which is the other way to solve that. Although higher tax rates at this point, a lot of people think would be negative for the economy. You reach a point at which if you tax more, you actually hurt the economy. And some people think we’re there, and I just don’t know who’s going to actually begin to fix that. It might be a significant crisis with our debt that forces us to do any sort of cuts or reform to things like Social Security and Medicaid or Medicare, which are really the only ways to fix this imbalance going forward. So I think the next couple months are going to be nuts. Honestly, next month and a half, whatever, it’s in the election. I think it’s going to be pretty dicey all the way through inauguration, because I think the likelihood that we definitively know who won the election on the night of the election is as low as it has been the case since Bush versus Gore, and I think we’re going to see a lot of tumult no matter who wins. And so I would just be prepared for a ton of volatility through at least the inauguration. And then after that, you know, I do think Trump would be initially better received by markets, especially because of the tax policies that have been proposed by the Harris administration. But I do think the long term health of the US economy will be contingent upon whether either of the parties faces up to this deficit and debt problem that we have in a responsible way, and help the United States kind of fix the imbalances that are going on there, which it doesn’t seem like either party or the voters behind them have any appetite to deal with right now. 

Richard Cunningham Like one double clicking on the the debt problem is Donald Trump’s proposed a government efficiency commission, if you will. And he’s specifically and maybe this is just social media world, as you know, called on Elon Musk to be the person to come in and almost clean house and just let’s evaluate where overspending is taking place. And to be clear, there’s some phenomenal people that do incredible tasks for the US government. But as John has kind of alluded to, there has been some just wild overspending which has led to our debt levels. Any thoughts on just kind of that approach, if you will, instead of kind of looking across just government inefficiencies and waste of money, if you will. 

John Coleman Look, I think it is I won’t comment on the Elon thing. I won’t comment on that specific circumstance. I would say, obviously government spending is inefficient right now. Right? I think there’s been a lot of news recently about this, like Federal Broadband Initiative that put forward $45 billion and has not connected a single user to broadband, right? The cost to build infrastructure in US cities now is often two, three, four times as high as it is in European cities, which shocks a lot of Americans. The American government is not working well right now, and we need significant reforms to the way in which we spend to the structure of the federal government structure of state governments in certain circumstances, and there is huge opportunity for efficiency in that. I think it is a no brainer to try and take that on. I think it’s quite difficult to take on because of various employment rules around the federal government. I think it’s needed. I don’t think it fully solves our debt or deficit problem, and I don’t say that in a dismissive way, in the sense that I think we should do it. But ultimately, you don’t solve the federal deficit problem unless you either dramatically increase taxes. And again, I’m skeptical that you can do that to fix our current deficits, because I think it would flip us in. To negative growth territory, or you have to rein in the entitlement programs Medicare, Medicaid, Social Security and have positive interest rate movements, which would lower the interest rate on the debt a little bit. And there are some straightforward mathematical fixes to that. Like, you can mean Social Security, you can raise the retirement age, you can do some other things on the health care side. But right now, neither political party has expressed an interest in anything, which I understand because they’re deeply unpopular with citizens. And so I think it’s a no brainer to try and do efficiency in the federal government. I don’t think it gets us all the way to fixing the structural imbalances that we have. 

Richard Cunningham Fair enough. Well said. Well, as we’re talking election volatility and just the chaos that is likely to ensue throughout the month of October and into November. Let’s rein it back in with kind of the eternal and redemptive perspective and close here with just kind of man. What’s the Lord been teaching you lately, John? And and through his word and just kind of in your time with him? 

John Coleman Yeah. Apropos to this kind of discussion, Richard, I think I’ve mentioned it once on the podcast here. I’m writing this book on money at the moment for my publisher, Harvard Business Review. And the idea is like, what are the principles for money that can make it a tool for human flourishing rather than something that’s destructive? And I just wrote a Substack about this particular point. I have this Substack on purpose, and I wrote about this passage from First Kings, about Solomon, you know, the passage where God asks Solomon what he wants, basically as he emerges as king and he asks of all things for wisdom. And because he asks for wisdom, God gives him wealth and power and those kind of things, at least out of the gates. And then, of course, we know Solomon kind of lost his wisdom over time, but it really made me reflect. In this latest piece, I put up on wisdom as a precursor to getting those other things right. I think one of the errors that we make in modern life is to turn means into ends. So power and money, for example, should be a means to doing something good in the world. You know, in the Christian world, we think of that as stewardship. Did that power money belong to God? He doesn’t need us, but he can entrust us with those things to do his purposes. And the way to use that well is to do what God intends for it, right? To use that as a steward, not to think of it as ours, our money, our power for our purposes, but his money, his power for his purposes and to submit ourselves to that. A lot of people today confuse that as an ends. I want money for money’s sake. I want power for power sake. That is the end of itself. And I think that’s obviously distorting point of view. And the wisdom of Solomon was to ask for the right judgment and discernment in wielding the authority that was going to be given to him. And, you know, that’s something that’s natural to us. But I think we do lose sight of that in day to day life, right? That wisdom is an end of itself. It is good to be wise. It is a means to stewarding all these other things because it’s discernment for God, but it is also an in. It’s good to be wise regardless of anything else. It’s good to be wise for wisdom sake. And so it’s encouraged me to think a lot more about praying for wisdom, for discernment, for judgment. Many of the folks listening this have been blessed with financial resources. They’ve been blessed with professional position. They’ve been blessed with political power. They’ve been blessed with an audience like you, Richard, on this podcast. And those things aren’t good or bad in themselves, right? They are only good or bad, depending on what we do with them. And so it should be each of our prayer every day for wisdom, discernment, judgment so that we can see the path God has for them and that we don’t ask him to join our path, but we ask that we see and join his path, that we see his will for that, and that we align ourselves with it. And so that passage in First Kings about Solomon has caused me to just reflect more and more on am I seeking and praying for wisdom enough for discernment, for judgment in every area in which I’ve been given authority, so that God may trust me with that authority and whatever else he chooses to give me, that I would be trustworthy of that, and I would have submitted myself to his will for that, and that I would have the discernment to see it. And I think all of us could potentially lean into that. 

Richard Cunningham Man, that’s fantastic. Especially relevant to me as I turn the chapter this morning out of first Chronicles, and Samuel in the first Kings of David is handing over kind of the throne to Solomon. So historically relevant to me in my own scripture time. John Coleman, thank you for that, man. How fun to keep kind of this podcast inside the FDA host family this time around. And he remarks on so many things from the fed to the economy to markets to the US election, and just always grateful for your wisdom and your timeless kind of insights that apply on this podcast. And so, folks, thank you so much for joining us. We will catch you next time. 

We are grateful for the opportunity to serve this community and see listeners coming from more than 100 countries. Faith driven investing can be a lonely journey, but it doesn’t have to be. The best way to stay connected is to join a group study with other investors looking to get the same answers to questions you have, and find great community as they do so. There’s no cost, no catch. In person or online, you can meet an hour a week with other peers from your backyard or the other side of the world. You can also stay connected by signing up for our monthly newsletter at Faith Driven investing.org. This podcast wouldn’t be possible without the help of many of our friends. Executive Producer Justin Foreman intro. Mixed and arranged by Summer Driggs. Audio and editing by Richard Braly. Our theme song is Sweet Ever After by Ellie Holcomb. 

We believe this podcast is especially valuable to you for two reasons. One, you get to hear about an incredible business venture in Apartment Life. There’s no doubt you’ll be hearing more about them in the future, and we’re glad we get to share about them early on in this podcast. And two, you get to hear the heart behind the business. Pete Kelly is one of those business leaders who puts his heart into what he’s doing, and it shows in this interview.

We’re excited for you to hear about Apartment Life and the potential they have in the real estate market. But even more so, this podcast gives you the opportunity to hear from a business leader about how his values affect his business and how everything he does serves other people. Tune in and enjoy!

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When Trae talks about his relationship with God, you’ll hear both his personal faith journey—what it means to imitate Christ as a venture capitalist and how Silicon Valley opens the door for him to share his faith—and what he thinks about the global Christian movement. He invites listeners to consider what it would look like to be co-creators alongside God, with references to how God and Adam interacted in the Garden of Eden.

Our team had a blast catching up with Trae, as it felt like he covered dozens of topics with the fluency of an expert. His intellect and skill are on full display in this interview, but so is his spirit and heart behind what it means to be a faith driven entrepreneur and what faith driven investors can do to create value, not only for themselves, but for the world.

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