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We have the fund manager from the Israel fund. The Timothy plan Israel fund portfolio manager, John Wally, and John is with us today to talk about some of his thoughts about October 7th and, of course, the Israeli economy and, of course, the Israel fund that he manages for the Timothy plan. John, welcome. Thanks for being with us today. And Cushy and officiant, I think, thank you for having me back, and thank you to all those supporters of the Timothy funds out there. Absolutely. Well, John, could you start by sharing with us your thoughts on the war thus far and the steadfastness of Israel as they face many Islamic foes around them? Yeah. Israelis do not want war. They want to live in peace. But as you all well know, they live surrounded by foes that want to annihilate the state of Israel. And when one of those terrorist groups invaded them from Gaza and Israel’s Southern border, and committed the atrocities that they did a year ago, Israel was immediately thrown into war to defend its people. And unfortunately, it’s been a year. Many people are still displaced from their homes, especially in the North. They are refugees in their own country, while some hostages are still being held by Hamas. But overall, the resiliency and self-preservation is in their DNA. So they will get through it, but it’s definitely taking longer than I think most people thought it would. What do we make of the most recent attack? As Iran has launched an attack, it’s a most recent attack on Israel directly. Well, Iran’s direct confrontation with Israel is definitely a serious escalation of the conflict. As I mentioned before, Israel wants to live in peace and wants to protect their citizens. But Israel is also laser-focused on the security of its people and its state, and they will do whatever it takes to protect their land. They cannot do that when a powerful terrorist group, also on the Northern border, another proxy of Iran, has launched more than 8,000 rockets since the beginning of this war. And what I remind some people sometimes is, put it in American terms. What if a terrorist group came in from our Southern border of the US and killed the equivalent of population-adjusted more than 30,000 Americans? And then another proxy terrorist group on the Northern border of the US fired at least 8,000 rockets at civilian centers in Northern cities over the following 12 months. What would you want the US government to do? So it’s a precarious situation. Yes, it really is. You know, John, we had you on right after these attacks happened last year. Initially, the Israel fund took a 20% drop from mid-July of 23 through the end of October. Since that bottom in October of 24, the Israel fund is up almost 30%. As you mentioned, Israel’s workforce has been severely impacted by the war, as people have been called to serve in the IDF. People are away from their jobs serving their country. Have you personally been to Israel in the last year, or what has your communication been so that you can kind of get a firsthand gauge on what’s happening with the economy and the businesses in Israel? I have not personally been back in the last 12 months, but I have spoken to several people on the ground: economists, analysts, strategists, management of different companies that we invest in in the fund. As you mentioned, they’re tired. It’s been a tough road. In the initial months of the war, there was definitely a lot of people called up to reserve duty. The large corporations were not affected as much in that regard because they have not much of a younger workforce but an older workforce. Small companies and entrepreneurial start-ups definitely got affected by that reserve call duty, but it’s a resilient economy. Israel entered this conflict from a position of strength with strong fundamentals, a current account surplus, low debt to GDP, and high foreign exchange reserves. Some people have even called Israel the economic miracle over the last decades with consistent above-average growth, stable fundamentals, good population growth, sound fiscal discipline, and over the last decade or so, Israel’s been named the world’s second most innovative country. Number two in venture capital availability. Highest R and D as a percentage of GDP, great quality of research institutions, at number three in the world, which, by the way, are used by many of the leading tech companies around the world. Highest VC spend as a percentage of GDP and the OECD. So, the opportunities there are significant. One of the reasons why the Israel fund has done well over the years is because the opportunity is so good that there are plenty of opportunities for investors investing in Israel through the fund. You just did a really great job of articulating from a professional investment standpoint why the Israeli economy offers so many opportunities for us. We as Christians know that ultimately God is sovereign. He is in charge of everything. He has made promises to the Israeli people. And so, it’s really neat to see that worldly fulfillment of the promises that God made to Israel. Sometimes people will, especially as we’re talking about the Israel fund here, people get really excited to know that there is a fund that invests primarily in Israeli companies. Lots of times people blur the line with, I’m going to invest in the Israel fund to support the businesses over there. So, can you tell us how you really see an investment in it? Do you see an investment in Israeli companies as really supporting these businesses or rather as benefiting from the blessings that these companies experience? That’s a great question. I think it’s a little bit of both. By investing in Israel, you’re supporting the development of a robust capital market structure and growth of the capital markets in Israel, which benefits Israeli society but also the globe. There are things that happen in Israel that benefit everybody around the world in terms of all their innovation and technological advancements. Investors in Israel can benefit from that as well. I recently read that expected GDP for Israel for 2024 is expected to be somewhere around 1.5%. It’s good that it’s positive, but that doesn’t sound like a really robust, growing economy. What is your near-term outlook for the Israeli economy and for the Israel fund in general? For the Israel economy, anytime you’re in war, there’s a cost, and I think the cost for Israel has been like you mentioned. Initially, GDP contracted quite a bit in the first quarter of the war, back in the fourth quarter of 2023. But it bounced back quickly the following quarter, but it’s been sort of growing below trend. Most people suggested trend growth in Israel is 3 to 4%, which is a very large number for an OECD economy. Some estimates suggest the direct cost of the war has been close to or greater than about $60 billion, which is more than 10% of GDP. It’s like the equivalent of saying a war in the US over a 12-month period costs $2.5 trillion. It’s a significant amount. So as long as the war continues, you’re going to continue to see fiscal pressures on government finances. All three major credit rating agencies, Fitch, S&P, and Moody’s, downgraded Israel this past month, as these fiscal pressures continue, and there’s a sort of lack of clarity in the near-term resolution for the war. Debt to GDP has risen, but it was at a very low base prior to the war. However, it has risen, and there are some limitations on labor supply from the war, because of lack of workers coming into Israel from adjacent territories, as well as, like you mentioned earlier, employees being called up for reserve duty. So there’s this uncertainty around it. But we think that the longer-term opportunity for Israel is robust. Even though the currency was impacted initially, it’s back to levels right before the war. The Bank of Israel is considered one of the best central banks in the world. They have managed monetary policy quite well. Israel over the last couple of decades has managed their fiscal house quite well, so we think once this is over, we will get slowly back to this range of growth. The opportunity set is there waiting to take advantage of the robustness of the growth that’s available there for investors. Well, great. Thanks for being with us today, John. We appreciate your insight, your wisdom, and you sharing your thoughts with us on the Israeli economy. Well, folks, you can find out more about the Israel fund. Go to our website, financialissues.org. You can find the link over to the Timothy plan, and you can find out all about the Timothy plan funds, all the funds that they have, including the Israel fund, which is a part of the financial issues strategy.
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