Episode 383: A Study of Modern Wars and Government Inefficiency
On this week's Stansberry Investor Hour, Dan and Corey welcome Jonathan Shaffner to the podcast. Jon is a retired U.S. Army colonel with 25 years of service who currently works as director of federal business development at MBO Partners. MBO specializes in delivering solutions that make it safer and easier for enterprise organizations and top independent professionals to work together.
Jon kicks off the show by discussing NATO's increased presence in Europe, through the lens of his own military experience. He posits that modern wars are more ideology-based than previous ones. This leads to Jon talking about his years in Afghanistan and Iraq. After, he shares what MBO does and how it helps companies (especially in defense and health care) build better workforces...
I did an enterprise IT integration of a very small organization – 600 people. I realized I needed about $16 million to do this, to do clean data integration. You know what I had to do to get that $16 million? I had to find it in unspent money. I said, "Hey, I want that $16 million recoded to me to do this."... And all of a sudden I had $16 million to spend.
Next, Jon puts government spending into an investing context. He notes that through all the inefficiency and bloat, there are definite winners and losers of government contracts. He also breaks down his and MBO's involvement in helping to create value for the companies that have been awarded these contracts. Jon cites data usage as the biggest need he's seeing right now. Companies have massive amounts of data but don't know what to do with it or how to implement it...
In the case of a lot of the things where we thought, "Well, this wouldn't work or this doesn't work," we found that we have the data on hand. We can go back and analyze it, fix it, clean the data, and come to some really good conclusions.
Finally, Jon talks about how MBO finds contractors, the possibility of it going public someday, and its research on the gig economy. He then explores what could happen with the two major ongoing wars affecting the U.S. today: Russia versus Ukraine and Israel versus Hamas. Jon predicts that the war in Ukraine will be over within 18 months, but he says the war in the Middle East is much more complicated thanks to the Houthis...
The wild card is the Houthis. The Houthis have been causing a lot of trouble for a lot of people. And what people don't realize is their attacks in the Red Sea have been very specific... They're not shooting at everybody. They're shooting at either Israeli-flag vessels [or] companies that do a lot of business with Israel... They've been very targeted... The Houthis may take the place of Hamas and Hezbollah at some point.
Click here or on the image below to watch the video interview with Jon right now. For the full audio episode, click here.
(Additional past episodes are located here.)
Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.
Corey McLaughlin: And I'm Corey McLaughlin, editor of the Stansberry Daily Digest. Today we talk with Jonathan Shaffner of MBO Partners.
Dan Ferris: Yes, Jonathan is a friend and a colleague of our own colleague from Altimetry, Joel Littman, and those guys do a little bit of work together. Very interesting stuff. Jonathan has spoken at our conference in Las Vegas – he'll be there again this year. And he served 25 years in the army, including five years in combat. And the guy just knows, because of that and his career at MBO, he just knows a lot of stuff.
So, we're going to pepper him with a lot of questions, and you're really going to enjoy this. So, let's go ahead and talk with Jonathan Shaffner. Let's do it right now. Jon Shaffner, welcome to the show. Thanks for being here.
Jonathan Shaffner: I appreciate it, Dan. Always good to see you.
Dan Ferris: You have, let's see, I have not interviewed you before, but our colleague Joel Littman has had some convos with you. I know he had one conversation with you at our conference in Las Vegas, which was interesting. I think I was about three drinks in at the time, so I'm not going to say I remember what it was about, but I remember enjoying it very, very much.
Jonathan Shaffner: Everything's better at that point, you know?
Dan Ferris: Yeah. So, when I sort of started looking into what you're all about, I don't know if I want to talk to you about military stuff, or if I want to talk to you about what you do at MBO Partners. Maybe we should do both, a little of both.
Jonathan Shaffner: I luckily have a depth of knowledge in both.
Dan Ferris: Okay, good. Actually, the topic of war has been on my mind a lot lately, and I want to bounce some things off of you. I was reading about NATO, and I was reading about the history of it and the situation in Europe and the Ukraine-Russia war. And I was just – I knew nothing about it, so when I read that NATO is basically a defensive organization and that they bombed a European capital for 78 days in 1999, Belgrade, Yugoslavia, I thought that's not defensive, and it wasn't a NATO country, and they hadn't attacked the NATO country.
And that led me to looking into more. And I was just shocked by how far off the mission they got. And I wondered if a guy like you – I knew we're going to be talking to you – and I wondered if a guy like you had a viewpoint about that. I know you were deployed in Iraq and Afghanistan, so maybe you don't have a view of Europe, but I sure would like to know what you're thinking about that.
Jonathan Shaffner: I'll tell you, from, so when I joined the army in 1998, we're in the middle of the Balkans issues. And I got to my first unit and that unit was deployed to Bosnia, and then shortly thereafter we got deployed to Kosovo. We didn't do anything kinetic then. The army aviation piece did a lot more security operations, so more traditional NATO operations. But Europe since then – most Americans don't, we don't pay a lot of attention to it, right? If you look at the map of Europe in 1998 and the map of Europe today, you'll see some kind of stark differences, even countries and we didn't know American things.
Wait, there's countries that have changed in the last 20 years in Europe? We usually think of Europe as France, Germany, UK, right? Maybe, depending on your background, maybe some Spain, maybe some Nordic countries, but Eastern Europe has been in flux since post-World War II. So, if you look at the why NATO was formed – to protect from the Russian hordes. And then at the fall of the Russian hordes, we didn't dissolve the protective relationship, even though at the time we thought Russia was going to potentially – there was even discussion of Russia becoming part of NATO at one point, and it was very short lived, very short lived, but we can talk about investing in Russia, but let's not. Let's save that for another time.
But yeah, the NATO organization has been in some senses a protector of Europe, depends on which side of the line you're on, but it definitely has a significant interest in Europe. So, they have their articles of protection, the way we protect each other, but also that European interest where NATO might act a little bit or stretch the foundational documents a little bit to do things that they feel are good for the NATO members. It does have a little bit of a broad edict if you look at how we've applied it over the last 70 years. So, it's interesting, and our interests in Eastern Europe don't, haven't changed much, our presence has.
If you look at how back when I first joined, it was just after the Cold War had started, the Cold War had started to cool because it didn't warm up. It was pretty warm for a while, but it started to cool. So, we, our presence, moving into Poland and other strategic spots in more Eastern Europe changed kind of the perspective and then as we add more members and then most recently, our members up North it really has changed the circumstances quite a bit.
But yeah, so it's been something that has had a foundation in European security, and that has taken a lot of different definitions over the years. I think that's what's driven some of the changes and differences that you've seen as you dig into what it was originally formed for versus what it is today, which is back to what it was originally formed for, but there's that period in there of flux. So, it's like any international relations, pretty complicated.
Dan Ferris: Yeah, it is complicated. And I don't know, I was disturbed by what I learned. I was disturbed by recordings of conversations with like Victoria Newland from the United States who – there was a recording of someone from the United States, actually two people, her and was it the Ukraine or Russian ambassador talking about how they wanted the Ukraine outcome to be in 2014? Who they wanted to install in the government. I was shocked. You hear about these things going on, but you don't get to hear the conversation happening, and it blew me away.
I listened to it again and again and again. It was like they're moving chess pieces. It's like something out of a movie. It just shocked me. I just have to say, maybe I'm naive. You're probably more sophisticated about these things, certainly more sophisticated about these things than I am. But I was just shocked, blew me away. Anyway.
But what I'm afraid of though, is that the U.S. through NATO's machinations are going to get us into more trouble and that there's always the potential for another Vietnam or Afghanistan to develop somewhere in the world just because of the way that the U.S., like we think we're the world's policemen. And before you know it, thousands of Americans are being killed over a period of decades, actually in these places, and for what? To replace the Taliban with the Taliban.
Jonathan Shaffner: So, that's the thing. I always say, and I think I might have said it at Stansberry last year, but now that I'm out of uniform officially, I can be a little more open with what I think to an extent, right? Because I still have to remain employed. What I always say is, prior to World War II, and this is a generalization because you can find anecdotes, but prior to World War II and for World War II, we fought for something, like you had a war for a purpose. And that post-World War II, we have gone to war for a purpose that is not the same as prior to that. So, a lot more ideology is involved in the purposes in which we go to war.
Now, going to Afghanistan, the purpose was obvious, right? We were attacked and that was our response. And then you roll in the Iraq war, which the circumstances in which we went into Iraq were disputable, right? The facts that we believed at the time may not have been the facts on the ground. There were a lot of people that contributed to that, and people would get excited, and when people get excited, they don't make great decisions to include Saddam Hussein, right? He was a little excited and said some things that he maybe shouldn't have said, and then our response was again, excited.
And then we said and did things that maybe we shouldn't have done, in retrospect. For example, in Afghanistan, I was there in the very beginning, literally in the beginning, and we get ready to move out and they brought in a larger unit. And we were thinking, "What are they going to do?" I was like what are we going to do more here or bigger? And we all, us smart captains at the time, we were young military men, but we'd been in this thing, and we'd seen it for seven months, and we learned the country, which Afghanistan is a country unlike any other, like all countries, but this country was especially.
The graveyard of empires, they call it that for a reason. And we said well, if we come in at least at the minimum, we need to build a road between Kandahar and Kabul, the main two power centers of Afghanistan. And we all agreed, all the smart captains and majors agreed. And admittedly, some of those majors are now like retired three and four-star generals, which is really funny. It makes me feel old. Which looking at my picture in this with good lighting makes me feel old as well. I had to figure out how to have a better makeup guy or a makeup guy. But I come back there, I'd gone to Iraq three times after that Afghanistan trip.
So, I showed back up to Afghanistan eight years later and at General Petraeus' headquarters, so at the highest levels of the theater command headquarters there. And then the discussion was, "So, how are we going to build this road between Kabul and Kandahar?" And I just walk into that conversation and I literally, I'm like, what have you been doing for the last eight years? I was like, "Guys, we finally had to move it in that direction, never finished it." And then yeah, it's interesting. And then we left, obviously the circumstances are pretty dire and egregious circumstances that we left in the, our continued relationship with Afghanistan is, puzzling is about the best word that I can use in this podcast without bumping your rating up.
But it's just, we still maintain a relationship with our former enemies, but that's another conversation. We do that all over the world, but it's, what was that war for? And that begs the question of since, if you look at it since World War II, you talk about Vietnam, you talk about Iraq, you talk about Afghanistan, you look at Libya, you look at a lot of the countries we've gotten ourselves involved in. What was the war for? And that's not something you can clearly define, right? It's like oh, what do we get out of that?
It's interesting. I go on for a long time talking about being in Iraq and the oil field support contract for the Southern Iraq oil fields, didn't go to an American company. And we're sitting there guarding this. So, it's like why wouldn't we want to align those revenues back to America? Like this, something you go to war for, you want to at least have something to gain, but it's very interesting.
Dan Ferris: Jon, I don't want to get you fired. I don't want to hang on this topic and get you fired. So, maybe we should talk about what MBO Partners is. Maybe just give us a little, overview and tell us what it is and what you do there.
Jonathan Shaffner: Sure. So, MBO Partners is a very interesting business. They're one of the businesses that works behind the scenes and with a lot of big companies that you may have never heard of. What MBO Partners does is they work with contingent workforce model. So, if you look at the way the workforce has been changing in the United States it's a lot more independent. So, I'm not talking about Uber drivers and DoorDash guys and that kind of contingent. I'm talking about professionals that are billing $100, $200 an hour to do strategy work, to do large scale program management, those kinds of things, as IT and AI and all these things have made doing things more effective for a person in an office or in a business.
Dan Ferris: There are a few of those people in Washington, D. C. aren't there? Just a few.
Jonathan Shaffner: A couple. Yeah. And we can talk about the Washington Tech 100 at some point if you want, because that's, if you look at what that is, it's like oh my gosh, everybody's headquarters moved into Northern Virginia and D.C. But yeah, so MBO provides a contingent workforce for those folks. So, it allows me, especially on the federal side to engage with literally hundreds of different companies about when you start talking about people and workforce, you really get behind the curtain on how the company's health is and what they're thinking and where they're looking strategically when you're talking about where they're going to deploy people. So, that's what I've been doing the last a couple of years at MBO Partners is really looking at helping these companies build a better workforce model to deploy against growing requirements on the federal side.
Dan Ferris: A lot of defense or no?
Jonathan Shaffner: Yeah. So, obviously, defense spending is the largest section of the budget that we can choose to spend. The Defense Department has picked up a ton of cyber, a ton of IT integration. They're really working to modernize a lot of things. If you peel back the onion the U.S. government still runs on a whole lot of mainframe computers. So, that actually has become a really specific specialization because those folks have kind of aged out of the workforce in a lot of cases.
So, how do you maintain these giant mainframes, which you have to have them healthy if you want to move them to the cloud, you want to put the old garbage on the cloud. It's definitely a boom right now if you look at where a government spending is and then healthcare, same story. A lot of the IT backbone for a lot of the federal programs and companies and federal supporting agencies has been left behind in the tech boom of, we'll even say the late '90s given the continued reliance on mainframes.
Dan Ferris: All right, so I always, it's funny, I mentioned, there might be a few of these people in Washington D.C. and I always wonder, what the hell do they actually do? Really what do they do? And I'm sure a lot of people think that way. A lot of people think how are you, you talk to a guy, and you know there's something in the suit in front of you, but you're not sure if it's even a human and you're just like how does this person get $100 or $200 an hour? And I just, I can't ever put it together. You don't know what somebody can do, but people make impressions. I worked in Alexandria for a few years in the late '80s.
And I just worked in publishing. I was able to use a software program that was becoming more popular at that time. And so, we were publishing what's called the electronic data interchange standard and just worked around that for a few years. And so, I wasn't like a high level guy, but I wound up working at defense contractors and places.
And the one defense contractor gig I had stood out because basically you showed up and they said, "Whatever you're making an hour, we're going to pay you more because we need you right now, and you can sleep on the couch, and you can stay here as long as you want, but this sh** has to be done. And don't bother me with the details. Just get this thing done by X timeframe." And I was working with this other woman on the job, and we didn't leave the place sometimes for 48 hours or something. And it was weird. And the folks I was reporting to didn't seem to know a lot.
That was the thing that got me. The amount of time they said, "I don't know, but I just need you to do this." It was always, "I don't really know, but I don't, I need you to do this." So, my question then is having encountered these people inside the company who didn't know anything, at least on one occasion, many years ago, admittedly, is that why people are charging $100, $200 an hour? And if so, why not just hire the $100, $200 an hour guy?
Jonathan Shaffner: Right. So, our government spends $5 trillion plus a year. They spend it, right? It's not investing. It's spent. Of that money, $600 billion, give or take, goes to contractors. Now, some of those contractors build stuff, but a lot of those contractors are pro services guys, or IT guys, or strategists, or other administrative type of assistance to the government. So, what we tend to do, because the government isn't a business, we spend money, we never really worry about returns. We worry about effects and impacts, right?
But I think what really drives the value, not the value, but the spend is we changed the goalposts all the time. Hey, we're going to go this way and we're going to go to the cloud. Like we started that a couple of years ago. And then, oh my gosh, how do we go to the cloud? And you have to bring in cloud people, which make a good amount of money. And then you start down that path, and you realize that you have to fix your data and fix your inputs to get it ready to go to the cloud. So, there you're spending a couple hundred million fixing that.
And then you're bringing in technical folks that do things that the military folks don't understand. They just know they need to do it because somebody told them they did. And that's how a lot of the spend happens is oh, we want to do this. And then somebody like you, if it's an expert, will come and say before you do this, you have to do this. And then, oh shoot. So, now that contract is put on hold, we roll a bunch of money into another contract and let out another couple $10 million, $20 million, $50 million. So, you understand scale, I did an enterprise IT integration, a very small organization, 600 people.
I realized that I needed about $16 million to do this, right? To do a data clean, data integration. You know what I had to do to get that $16 million? I had to find it in like unspent money. And I said, "Hey, I want that 16 million recoded to me to do this." And that took one question told the right person, and all of a sudden I had $16 million to spend. And I went to a contractor, and I said, "Hey, this is what I need." And they said, "Yep, we'll do that." And there you go. I spent $16 million like that because I knew what I needed, and they knew what they needed. But I knew technically what we needed.
So, I built the program around it. It actually ended up being a really good implementation, but that doesn't happen that often. And even now, that was eight or nine years ago, they're still working through the implementation and change management of that original contract. So that's how you end up with all these very highly paid people because they know what they want, they think. They don't know how to get there. And as long as you have somebody with at least a minimum level of technical knowledge, they can move in that direction.
But a lot of times you don't have somebody with technical knowledge, so they'll fits and starts and fits and starts. For this project in specific, we had two major consulting companies that had consulted for $5 million to $7 million a pop on designing a solution. And then when the implementation came, they're like, "Oh, we don't have any money for that." So, they'd spend another $3 million or $4 million defining the solution again. So, that's how you get all this crazy spend in the government and not necessarily the value out of it. So that's, long story longer, that's kind of where I've seen the government work, and the efficiencies of the government are the efficiencies of the government.
Dan Ferris: Right. Efficiency of government sounds like an oxymoronic phrase.
Jonathan Shaffner: I can say that, and I think maintain my position.
Corey McLaughlin: What's coming in mind for me right now is what percent of government spending is inefficient, right?
Jonathan Shaffner: So, that begs the question, right? So, like I said, investor podcast, right? Where the big question that I'm working with the Altimetry team is if we take that $5 trillion the government spends every year, at what point does some of that, or what a part of that becomes investable, right? Which part is really an investment? Where is it going to be a place where a company or the government organization is going to find a value or return? Because if you look at large platforms is one thing, right? That 35, that's a lot of money, and that almost died on the vine several times, but it came through.
If you look at some of the programs and platforms that the army is pursuing right now, future vertical lift, right? The cool next generation V22 helicopter that can take off vertically and then turn into an airplane, right? It's some transformer stuff. That got funded, right? And there's a big futuristic, a bunch of helicopters that came that were brought forward as potentials, and the government paid for most of that experimentation to get there. Now they've got this thing, right? And now we plan on implementing and building that program out and start delivering it by like 2028. But it's 2024, right?
Am I going to see, is my kid, when he joins the army, like he says he wants to, who knows? Is he going to be flying that thing? I wouldn't even flip a coin on it. I don't know if I'd make that bet, but it's just it's kinda how the government works. It needs significant political backing. The products now, the bigger they are, the more broad they are, so the more people are involved in it. So, you get you build an F35, and I think it has a component in all 50 States to include all of our international partners, throw a little piece into it. So, imagine all the businesses involved in building this very complex thing that has to fit together in a very precise way. Efficiencies of the government.
So, it's a very interesting problem set. And like I said, trying really hard to figure out how government spending is something you can bet on in the short, mid, and long term as an investor. So, giving that perspective, talking to the Altimetry guys, it's been a very interesting problem set. And we've definitely made some ground on it, and it made some pretty decent recommendations because if you look, there are companies that have their fingers in line because it's so broad. And there are winners and losers out there, but it's interesting. It's a very interesting battle. We'll call it a battlefield. You can call it an industry.
Dan Ferris: Right. Yeah. Interesting.
Corey McLaughlin: Yeah, the pluses and minuses of government contracts. For the real output, there's a lot of inefficiencies, but also from the investment level, like those companies are locked up in those contracts and the government is locked up in them for however long.
Jonathan Shaffner: We can talk about, not to get into specific companies, but there's a major American aircraft manufacturer that has a lot of trouble on the commercial side that's doing okay on the federal side.
Dan Ferris: Yeah. I wonder who that is. So, Jon, I want to get as granular and detailed and intimate as you'll allow here. What does your day, week, month, year look like? What are you personally focused on in the business?
Jonathan Shaffner: So, right now, with MDO, I'm trying to find companies that have a need for a contingent workforce that they realize that need. Now, what I've found –
Dan Ferris: I'm sorry, for what?
Jonathan Shaffner: For a contingent workforce. So, they're different contract types, and whether it's a short-term or long-term contract, short term, you need to really specialize people for a certain duration, which makes sense to hire them in a contingent model versus do like some companies do and hire, for example, there's a large consulting company that I've worked with that literally has about three or four million a year in spend on people sitting on the bench waiting for a contract because contracts have a schedule, but the government rarely follows that schedule.
Like for example, the aircraft that I was telling you about. They say 2028, I think now it's out to 2030. So, maybe these it's a sliding scale, right? If you're looking at a professional services contract, it may be a half-billion dollar integration contract. If that aircraft, which is on a separate contract vehicle moves to the right, and then you've already awarded and delivered the cash for the integration of an aircraft that has yet to exist, you're burning the money, right? Or if that company has started to hire ahead of need, and that award is pushed out as well. So, they're having to sit on 30, 40, 50, 200 highly paid individuals.
That's where I'm looking at. I was like, hey you're sitting on this revenue drain. I can provide you more of a revenue positive, rather than a neutral solution to this problem. That's really what I spend my day looking for is finding these companies, and then the ones that do have a current need and they say they don't use a contingent workforce, I say let me take a look. And in every instance I've found where everybody uses a contingent workforce, SMEs, subject matter experts, specialized engineers, specialized IT folks. They use them, but they're hiring them directly at the PM level or at the VP, the ops level.
And it's not visible to the company at large, which is an inefficient use of that talent because business unit A, business unit B need the same thing. A has a line on it. B doesn't. B spends talent sourcing is plus 30%, 40%, depending on how you source it while their other business is sitting on that talent and not using it. So, I try to connect the dots there, and that's really where I try to create value for the companies that I'm pursuing. And at the same time, I learned a hell of a lot about government contracting and where the money is being spent and isn't.
Dan Ferris: You know something, Jon? As a guy who did not go to business school and who knows that some things come out of people who did go to business school like, when they're talking about investments that I just scratch my head, and I don't know what they mean. I guess I'm starting to get the feeling, oh, maybe some stuff they learned in business school really is worth something because that's what it sounds like. It sounds like I'm getting this sort of how the stuff you learned in business school is actually worth something in the real world. It's the 101 of that.
Jonathan Shaffner: By God, you'd hope so. So, the benefit that I had, I was going through business school at the same time I was going through the army's advanced planners course, which is like the business school for the army. Like in business school, you go to the nuts and bolts of processes and manpower and administration, all those things, and then on the military side, you go into the nuts and bolts of how you build a task organization, i.e., what kind of a force is needed to do a certain job. You got to have efficiency because you only have so much stuff.
You want to do the most with it that you can. And by going through those courses at the same time, it's given me a very interesting perspective on the industry now where, I look at these military problems, and then I look at the resources that the military has and that I know they have and where they're trying to get to. And then there's that gap, right? And how do you fill it, right? And you can't fill it by increased manpower because you've seen how well we're doing with recruiting. And if it's mid- or senior-level people you got to take 10 or 15 years to build them.
So, then you try to bring in a contractor, which is a retired military person to fill that gap, but for how long and in what way? When we rolled out, you guys remember the striker vehicle back in the middle of Iraq, Afghanistan? It was a wheeled armored vehicle. It looked like a Marine Corps lab, eight by eight, was an awesome truck. Really fast, really capable. The army didn't have anybody that could actually fix it. So GDIT or GDIGD Land Systems.
We can say this because it's in the past in the news, there was a coup for them because they not only sold us the vehicle, they sold us all the maintenance schedule to fix that vehicle for a good number of years until we had trained up the military force to be able to fix that. So, that's the kind of contracts if you take a look at us, GD Land Systems had a big win there where they made not the money, not just the money from the truck, but also the money from all the parts, all the labor and all the personnel to fix those things around the world.
Dan Ferris: Does somebody in your company specialize in eliminating waste? I'm just curious. I'm just curious because I'm sitting here thinking, "Jon must see –" like when you told me that one part from every 50-state thing I was just like, you're kidding me. And as you're talking, all these things I'm putting together in my head, I'm like, "Jon must see so much waste that he just –" that might not, it's like not part of your job, so you got to push it on somebody else. Does that guy exist? Or is the government just not interested in that? There's no place for such a person.
Jonathan Shaffner: It depends on the administration, the time, and the budget, right? So, if you have money to burn, which, we're in one of those time periods where it seems like we might, we definitely don't look at it that way, but when things contract, then you start finding, trying to build efficiencies, right? So, that's short answer to a challenging question is does the government need that? Yes, they do. But does the government have that? Oh, certainly they don't.
Dan Ferris: Okay.
Jonathan Shaffner: They have it in name, but in effect.
Dan Ferris: No, but I'm asking specifically at MBO Partners, does someone specialize in creating efficiencies for clients?
Jonathan Shaffner: So really for, so efficiencies for clients. So yes, so our workforce model is very much in line with that. So, creating efficiencies in their manpower flow and their personnel flow, their talent finding exercises for sure.
Dan Ferris: Thank goodness. This had to be a major piece of the business or else there's something wrong with the world, right?
Corey McLaughlin: What do you find are the biggest needs of the companies that you're interacting with right now? Like maybe one or two surprising things that, most people might not understand.
Jonathan Shaffner: So, on the technical side, data, big data, moving data, using data. A lot of federal contractors in the federal government at large are not good at using it. They have a ton of it, right? So as an example, we were flying helicopters. We had these sensors in the helicopters that were testing vibrations, and they were trying to get it so you could take these vibrations and determine when a part or piece was going to go bad on the helicopter. Because normally you say when you design a helicopter, this piece has 100 hours in it, this is a 1,000, this is 3,000, whatever.
But they're trying to go more towards a condition-based replacement because it's expensive because especially when you're flying like in combat. We flew the hell out of the airframes that we had, and we were finding that some parts lasted longer than we thought, and some didn't last as long as we thought. And finding by failure is no way to really find something, right, especially in something that involves the third dimension which doesn't like, a helicopter doesn't like to fly. It just doesn't. Like an airplane you shut the engine off, it's going to glide. It's going to continue to fly for a little bit.
A helicopter, you shut the engine off, it's going to land somewhere where you're looking down, like that's pretty much where it's going. It's not going very much further. So, we try to do this right, and this was before, this is early 2000. You didn't really have the computing power to really determine this. So, we had all this data and all this experience, all these things, but we didn't really have a way to use that to create value. Now we're getting there.
Now we're realizing that in the case of a lot of the things where we thought this wouldn't work if this doesn't work, we found that we have the data on hand. We can go back and analyze it and fix it and clean the data and come to some really good conclusions. So, that's really the biggest, not the biggest, but one of the bigger spaces where I see a lot of requirements coming out against is data management, those types of things. And then the intelligence side it's even bigger.
Dan Ferris: The intelligence side. Oh, now you've piqued my interest. What can you even say about that part of the business?
Jonathan Shaffner: Well, there's a lot of sources of intelligence, right? So, you have your people, your human intelligence, you have all your signals intelligence. You have all this stuff that comes out in the public domain from social media, media, all of the data surrounding humans, right? And then how do you find, like you see in the news the guy that was just arrested out west that was going to conduct the attack on Election Day, right? That was a data problem.
Granted the guy ended up trying to buy his weapons from an undercover FBI agent, but that FBI agent needed to know where to be and how to contact that guy. They didn't set a line and start fishing for them from the beginning, he just kind of fell into that circumstance. You hear about that all the time, but that's really data analysis where they use a lot of available intelligence data and find people that are looking to do bad things.
Dan Ferris: Okay. We all want to find people looking to do bad things so we can avoid them or arrest them or whatever our job is. Jon, for some guests I don't have to ask them to do a lot of work. I just want him to talk, and I've wanted you to talk and just tell me what's on your mind and very freely express yourself. But I'm going to have to ask you to do a little work now because at this point in our conversation, I'm pretty sure our listener is saying my head's kind of swimming. We've talked about some specific things like the FBI example, and the helicopter and various things that you've discussed.
Corey McLaughlin: Big government.
Dan Ferris: Right. We all understand, and the proliferation of consultants and all the rest of it, but I'm willing to bet that many of our listeners right at this point are saying, wait a minute, wait a minute, wait a minute. I still don't completely understand what this guy does for a living. Can you make it like really concrete for them?
Jonathan Shaffner: Sure. What I do right now is I provide personnel solutions, right? If you have, it's usually a technical or a high level administrative need, I help you fill that need. So, looking at administering –
Dan Ferris: And when you say you, I'm usually government or I'm usually government adjacent?
Jonathan Shaffner: Government adjacent. So, we don't go direct B to G at least not much. Just because the government wants to solve, so government contracting has taken a turn in the last couple of years where they're, instead of going for specific small contracts, they put together these giant overarching contract vehicles where, if I need HR help, if I need IT integration, if I need all these things, I can go to this one contract vehicle, which is kind of like a store, right? And I can find somebody that is a winner of that contract vehicle.
So, a large contract will have five, six, seven winners that can provide these services. So, I decide what kind of service I need. I go to my contracting office, say, "Hey, I have this need." And they they'll help me craft my contract that goes to company to deliver that. So, when that company gets it, they're going to have part of the people, and part of the specialties to do that. So, what I do is I look for those opportunities to help them fill the rest. Because when you're doing these contracts and a lot of them are task orders that are time bound, so six months, 12 months, 18 months, three months, right?
They can't go out and hire against this because number one, their hiring timeline is usually pretty long. And number two, I have access to literally 100,000 contractors worldwide that can potentially fill these roles. So, they'll come to us and say, okay, I have this need, and then we fill that gap for them for that period of time so that they don't have to go and hire. And it's good in a lot of ways because one, you get specialized talent that wants to work for you because when you hire an independent contractor or a consultant to help you out, that person is motivated to help you. I mean, nothing against the W2 worker because I am one, right?
But a W2 guy, and this is in the government and some commercial instances I've seen, the day you're hired, that person is always already on the job site looking to level up, right? Especially in the cleared space. If you've got a top secret clearance and you're in it 100K or 80K, you know that you can jump yourself to 120, 150 with a little bit of experience because you already have that clearance, right?
So, the nice thing about a contingent workforce is you know that they're tied in and interested for that period of performance to get that contract done. And that's the value that I provide is providing you that workforce that's going to do that job and stick around for the duration of the contract. It's a common thing. The last year of a contract, like if it's –
Dan Ferris: Oh, I see what you're telling me. So, the W2 guy, he's hired, and as soon as he's there, he wants to move up and do something else. But the contractor guys, you know they're going to stick to the contract and get it done and not be angling for another position.
Jonathan Shaffner: Right. Way more likely, because they want to do business with you again. They want to be on that next contract. Maybe a little higher rate, but they're very interested in building a good relationship with you. If they hang you out to dry, if you're the company and the contractor leaves, are you going to hire them again? Probably not.
Dan Ferris: Right. And you have a Rolodex of 100,000 of these people around the world?
Jonathan Shaffner: Yes. MBO has got actually over 100,000 now. That's commercial and government and everything.
Corey McLaughlin: Yeah. How does a person who wants to be a contractor get hooked up with you guys? Like, how does that process work?
Jonathan Shaffner: So, our website's a good place to start. Hit me on LinkedIn, especially if you're a military type of person or a government type of person, hit me on LinkedIn. But there's, I've got a book behind me, literally soup to nuts on how to be a government contracting independent consultant. It's easier for nongovernment commercial side, there's a process out there. We help people do it on our website, and then and then sometimes I help, I've helped probably about 100 people do it in the last year, myself.
Corey McLaughlin: Interesting. Wow.
Dan Ferris: That's cool.
Jonathan Shaffner: Yeah. It's a good opportunity for a lot of folks. They just don't know that the gig economy is a little bit bigger than some of the classic instances.
Corey McLaughlin: Right. You hear about the gig economy and freelancing and whatnot, but to get in that contract, people hear contract, they're like, all right, what do I do after the end of one or two years? But if you're saying you get hooked up over and over again, if you actually do the work.
Jonathan Shaffner: Yeah these contractors, the ones that are successful, they'll have six or seven clients. So, they'll do two, three months with one guy, two, three months with another girl, whatever, just to build their book of business so they're not tied or over-risked to one different, one company.
Dan Ferris: That's interesting. That's an interesting way to think about that. Most people think they just want to get a job and get with one company and stick there like that's not a risky thing, like there's no risk in it. They feel safe with that.
Jonathan Shaffner: Yeah. You look at even, so even, Gen Xers, right? Our duration, our common duration with a company is like four years. There's very few people that are spending an entire career with one company, especially in the professional side. You see a lot of folks bounce around and then, and they get, Gen Z and younger, they really are looking to turn a little bit faster. They don't have as much allegiance to the company like we would think of like, I'm a Booz guy, I'm a PwC guy, whatever. They're, I'm going to work here for a little bit, and then I'm going to bump up at the next one. They're very, they're much more nomadic in their pursuits.
Dan Ferris: Right. I want our listeners to know when he says not a booze guy, he's not talking about drinking excessive amounts.
Jonathan Shaffner: Right. B-o-o-z.
Dan Ferris: Booz Allen Hamilton. I've recommended them in the Extreme Value newsletter. They've done well.
Jonathan Shaffner: In Vegas, Dan, we can talk? I've got some good insights for you.
Dan Ferris: All right. Can't wait to hear it. Okay. So, thanks for that. Thanks for just helping me just make things more concrete for our listener. That's really what we want to do here. You think like, what size is MBO? Do you think it'll ever go public?
Jonathan Shaffner: So, I think we're on our second private-equity company. It has, honestly, there's a lot of green space, right? I think it could go public at some point. It should go public at some point. There's some things that need to happen with industry. If you look at MBO is the largest source for research on the independent gig economy. Like we do a thing, it's called the, we have an annual report that's the state of independence is what we call it where we talk about, hey, this is –
Dan Ferris: That's cool. How did I not know this about you? That's awesome.
Jonathan Shaffner: That's why I'm here. That's why you have me to talk.
Corey McLaughlin: We're learning, Dan.
Dan Ferris: I know.
Jonathan Shaffner: So yeah, the state of independence actually is coming, should come out October. So, this year's will come out, and it'll give you an idea of where the independent workforce is growing, is contracting, kind of the health of it. But what we found really consistent in the research is it's been growing immensely since even pre-pandemic. Pandemic was definitely a shot in the arm. And then if you look at the independents, the independent contractors, the people who've done this, they're actually healthier, wealthier, and happier as they build out their personal business. So, Miles, our CEO, has actually started talking about, there's a new social contract, right? Social contract isn't with the business, it's with the worker.
So, the worker has to be able to take their benefits with them. And then we help independence do that. We have different programs in place. But you really, as you look at it, you're not going to work. You're not going to get a pension. Who has pensions anymore? Other than the military, and I appreciate that, but who has pensions anymore? You got to be able to have, be able to take your benefits and take them with you and build a system that, when you bring somebody into a business, whether it's a new hire or a contractor, you have to be able to contribute to their livelihood, in the long-term, not just providing them a job in the short run.
Dan Ferris: Makes me feel really weird. I've been with Stansberry literally longer than absolutely everyone, arguably including Porter, because he left for a couple years. I've been there every year.
Jonathan Shaffner: [crosstalk] – break in service.
Dan Ferris: So, not everyone is like me. Lots of people not like, more than ever.
Jonathan Shaffner: I did 25 years in the Army, so I'm with you, Dan.
Dan Ferris: Yeah. Wow. 25 years, really? Did you retire full bird?
Jonathan Shaffner: I did.
Dan Ferris: Nice. My brother retired lieutenant colonel, Marine Corps. Yeah.
Jonathan Shaffner: I [crosstalk] but I didn't. I forgot.
Dan Ferris: You forgot.
Jonathan Shaffner: It's like pretty literally, it's like, oh my gosh, now I'm a colonel, and now it's 25. I think it's time now.
Dan Ferris: So, you mentioned the possibility of your son joining up. How do you feel about that?
Jonathan Shaffner: I think he'll have a lot of the advantages I didn't have. I was the only member of my immediate family to serve. My grandfather served in World War II for a couple years. He peaked at E5, so he started at E1 and ended at E1, peaked at E5. You can tell he was the kind of soldier that I would have had trouble with.
Dan Ferris: Yeah, I don't even want to ask what got him busted back.
Jonathan Shaffner: His story comes very clear very fast. Just put it this way, before he joined the army at 16, he lied about his age. He was the leader of a gang on Long Island.
Corey McLaughlin: Long Island. That's where I'm from originally. What part?
Jonathan Shaffner: Oh, is it rock by Rockaway I think? Yeah. He said by Willie Mays' house, wherever that is, that's where he grew up.
Corey McLaughlin: Yeah. That sounds about right.
Jonathan Shaffner: That's how he described it. By Willie Mays' house. But yeah. And then he became a civil engineer, started an engineering company, did great. But yeah, he got all of his wild oats out of him in the great World War.
Corey McLaughlin: While we do have you here, I do want to ask about the current wars going on right now, the major ones. We got obviously Russia, Ukraine, and then what's going on with Israel and everything, Iran and the Middle East. How do you, it's a hard question to answer, but how do you see this progressing? You could go through whatever developments every other day, but where does this end up?
Jonathan Shaffner: So, the trend, right? If you look at, we'll start with the easy, I don't want to say these are easy. Neither of them are easy, but with Ukraine, I think we've reached kind of the end game with that. I'm guessing 18 months we'll have it all figured out. And my call is that Russia will maintain the Eastern territories in Crimea, I believe, and they'll just redraw the lines, and Ukraine will become Kiev, surrounding areas, Odessa, and then Russia will maintain that. Now that position isn't without risk for Russia, just given the fact that Ukraine is getting a little bit more capable, but both are really running out of resources.
So, I think that one we've reached the endgame, and I don't think you're going to see anything huge, right? Just because the manpower, the capability just isn't there. With Israel and Iran and proxies, very interesting. There's nothing stopping Israel from, I won't say eliminating, because it would be hard to eliminate, but at least making ineffective Hamas in Hezbollah. Nothing is stopping Israel from expanded operations in Lebanon. I think that will continue. I think the interesting part of that, and I think at the end, Gaza will go back, probably a U.N. mission in there. West Bank is a big question mark right now, because they've done some, but not a whole lot there.
I don't know where that one's going to be, and I think the West Bank folks have seen the things to the north and south and are self-regulating and keeping things even keel there. And for the most part, historically, that's been one of the lesser risk areas because you don't have Hamas or Hezbollah there right now. You had the PLO for a while. That's kind of softened. I think that will be, I think we'll continue operations in Lebanon for another six months. But that one's definitely tipped hard in the Israeli's favor. Now, the wild card is the Houthis.
The Houthis have been causing a lot of trouble for a lot of people, and what people don't realize is their attacks in the Red Sea have been very specific, right? If you look at the amount of traffic that they've interdicted or fired upon there is a method to their madness. They're not shooting everybody. They're shooting at Either Israeli flag vessels, companies that do a lot of business with Israel, a lot of things that are aligned with Israel. So, they've been very targeted. And they've actually increased their operations in Iraq and kind of more in the area.
So, the Houthis may take the place of Hamas and Hezbollah at some point. I'm not sure because they are geographically tied to Yemen. But that's a consideration because of the strategic importance of Yemen, vice the Red Sea, that is a significant international, global shipping risk there. So, I think that is an interesting thing to watch in that conflict. Is Iran going to get into a shooting war with Israel more than they have? I don't think that's in anybody's best interest.
I think Iran is going to double down on the Houthis because of their effectiveness and kind of their ability to stay outside the fray and still affect global shipping, provide them a bit more of a lever than Hezbollah and Hamas, which were very focused on Israel. That's kind of my take there. I think the big question mark for me is what becomes of the Houthis and how does Yemen end up in the greater Arabian peninsula, Middle East kind of structure, right? How do we respond to that, we Americans, we NATO, we global community? What does that become?
Because just a few years ago, Saudi Arabia was launching their Apache helicopters into Yemen to shoot Houthis. They're not anymore, right? So, that one for me is very interesting. I don't think anything's going to stop Israel from greatly degrading Hezbollah and Hamas capability. And you've seen a masterclass in counterinsurgency in the last three or four months.
Everybody on this side is like, why couldn't we have done that with ISIS? We don't have the Mossad or all the other units that Israel has and the timeline they've been working on to penetrate into that infrastructure. So, that's my take on the global ones. Like I said the big one for me is what becomes of the Houthis and how do they play on the world stages as the other kind of proxies are degraded.
Corey McLaughlin: Very interesting. Yeah. Thank you. Because the latest thing we have, or I've heard at least as you have the Iranian president and Putin scheduled to meet soon, and I presume they're not talking about Major League Baseball playoffs or anything like that.
Jonathan Shaffner: It could be like, they're just having a birthday celebration like North Korea, but yeah it's interesting. And then, the reports of North Korean soldiers fighting in Ukraine is also of interest, but I don't see there being a lot of appetite for that internationally. I think we can shut that off through different actions. That's a wild card. There's not as a big of a wild card as the Houthis, but I think it's a wild card for the Ukraine conflict.
Dan Ferris: Yeah. I hadn't heard that. That's crazy. Wow. I thank you, Jon, for being here and for just letting us kind of pepper you almost randomly with questions about your current business and your past career and what's going on in the world. I appreciate your accommodating our wide ranging questions. But it is time for our final question, which is the same for every guest, no matter what the topic, even if it's a nonfinancial topic, same identical question.
And if you've already said the answer by all means, feel free to repeat it, so just take your time if you need to. But the final question is simple for every guest. If you could just leave our listeners with a single thought today, what would you like it to be?
Jonathan Shaffner: I had an answer to this, but through our discussion I've rethought it. I think my answer to that would be is everybody should be comfortable that the United States is still in a position of power and influence in the world. What we need to be careful of is how we wield and use that power and influence, and if it's in the best interest of both this country and other countries that are involved in those decisions. So, I think as you look at, because it's election season and all these, I don't know if this is coming up before elections or not, but as we look at how we view our place in the world and what's important to us as Americans I think that people need to really consider what's important and how to create the best position for ourselves that also allows other people to thrive.
Because once you really shift that balance of power and you exploit it, then people use that against you and then you end up with global disruptions, unrest and conflict, which is something that nobody wants. Twenty-five years in the army, over five years in a combat situation, nobody wants that. You don't want your kids to go there, but you need to be prepared for when and if it happens, because people make bad decisions, whether they're world leaders or the guy next door. Just as you think about where we are in the world, you can be very comfortable that the United States is strong and has great people at the helm. But as you frame your opinions and thoughts about things, think about both yourself and then, all those around you. How do we make the best decisions to use our great power and resources to make the best for everybody, right?
Dan Ferris: All right. Thanks for that, and thanks for being here, Jon. I really enjoyed it.
Jonathan Shaffner: I did too, Dan. This went fast, it's too bad, but I'm looking forward to seeing you out in Vegas and having a little conversation there and we'll have a couple of days to do that.
Dan Ferris: Yeah. Looking forward to it.
Corey McLaughlin: We will see you there.
Dan Ferris: I had no idea how that was going to go, so I really am delighted that it was so enjoyable and just easy and freewheeling and we really, we hit him from all sides on the questions, didn't we? It was great.
Corey McLaughlin: Yeah, it was, yeah, fascinating conversation. He's got, because, he's got 25 years in the army and then obviously he's in private life now with MBO Partners. So, there was a lot to talk about and it was interesting because we talked about gig economy trends, big government spending. And to me, listening to, and then obviously the wars going on in Russia, Ukraine and the Middle East. And to me, I've been like adding all of this up and thinking, what I usually think is more inflation, more government spending, more threats for inflation. Remember, he's talking about the Red Sea as being a wild card still. And yeah, it's the costs of everything to me. Unfortunately, that's where my head goes.
Dan Ferris: Yeah, me too. I wonder, like I was asking the questions that reflected this, but I wonder like, a bright guy like this who, he's been to business school, and he has a head for these things and working adjacent to the government all the time, like I wouldn't be able to do it. I just would be, I would be constantly pointing out all the waste and inefficiency and absurdity. I'm sure that a lot of these contracts are probably things the government shouldn't even be doing, you know what I'm saying?
So, you just have to be constantly biting your tongue and just swallowing all this stuff. I worked in Alexandria in the late '80s for the Electronic Data Interchange Association. I just, even just what I saw in that short period, and then I worked on my own as a consultant for a year or two after that. And just during that time, I thought, man, like I couldn't wait to get out of there. I couldn't wait to leave that life. It was one of the worst three-year periods, maybe the worst three-year period of my life.
Corey McLaughlin: Oh, really? Yeah.
Dan Ferris: Yeah. In the late '80s through about mid-1990 or so when I finally got the hell out of there. It started with me like commuting from Cockeysville, Maryland to 17th and L in Washington, D.C., two hours one way, like half of it driving, half of it on the metro. So, it was like, that's your day. That's how your day begins and ends.
Corey McLaughlin: Yeah. That's enough.
Dan Ferris: Yeah. It was interesting for me just to hear, just try to get him to be real concrete about the sort of things that he does. He's finding people to fulfill these contracts, and he gave us a real window into how the contract works and the circumstances under which they kind of arise and how they need to be fulfilled, and they can't hire people. They can't live without this guy. They can't live without MBO Partners. They've got to have somebody because they can't, by the time they hire people, the contract would have to have been fulfilled, in some cases.
Corey McLaughlin: Yeah, that's the other point. That's the other big point I'm taking from this is just the size. Again, we know this, but the size of government, and we talk about, a lot of times people use the analogy like moving a battleship, but this is like, I don't know, just a freighter that's stuck in a sandbar and is not going to move for a very long time if ever. Which again also can be an opportunity, a lot of these companies that have the contracts that they're going to have business for five, 10, 15 years, whatever it may be.
Dan Ferris: Yeah, that's like the whole rationale behind the defense stocks that I've got in actually in both publications, Ferris Report and Extreme Value, which is like part of it is like, look, this source of revenue is certainly never going to go away. There's a chance it might not go to this company, but it's gone to them like every year for decades. What do you think is going to happen?
Corey McLaughlin: Yeah. And that's frustrating as it is to hear about, practically. It's there, the money's there.
Dan Ferris: It is there. And you as an investor, you're like, I need to get some of this back that they're taking away from me. It's like a way to assuage the pain you feel at paying taxes. If you feel bad about paying taxes, just buy the defense contractor stocks, and you'll collect really nice dividends. And lately you're getting pretty good capital appreciation the last few years. All right. Really interesting conversation. And that's another interview and another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we really, truly did.
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