8/28/11: August and the Economy Part 4 – Can a Bad Economy Create Great Investments?

Whew.  Here we are at our fourth and final installment of the August and the Economy series.  How are you holding up?  Our brains are swollen.

But, to keep the rally going, we’ve called on some very smart and outspoken money managers.  As we’ve said before (and will say again), too many real estate investors operate in their own world – which is far and away from the world of traditional financial planning, economics and paper assets.  Real estate investors are deal junkies.

However, there’s a lot to learn from paper asset and commodities guys.  And our guests for this episode are no exception.

Sitting at the silver (which some argue is a hotter commodity than gold) microphones, looking for the silver lining in the cloud of recession hanging over the U.S. economy:

  • Your silver tongued host, Robert Helms
  • Your on-his-way-to silver haired co-host, Russell Gray
  • Returning guest, the ever energetic and outspoken President of Euro-Pacific Capital, Peter Schiff
  • First time guest, alternative investment money manager, Ty Andros

With all that silver talk, you’d think this episode is about commodities.  And certainly both of our guests are concerned about the dollar and bullish on metals.  But today’s discussion is much bigger than that.

Peter Schiff has become well known for his very accurate prediction of the financial meltdown as chronicled in his best selling book, Crash Proof 2.o which is on our Recommended Reading list.  He’s been contending with many of the mainstream financial pundits for quite some time.  We like him because he makes Austrian economics easy to understand.

Since we last interviewed Peter a year ago, a lot has happened.  We check in with Peter this episode to get his current thoughts on recent events and where he sees the dollar, commodities and real estate all heading.

Ty Andros is also a money manager, but where Peter focuses primarily on non-U.S. stocks, Ty puts a lot of emphasis on commodities.   So as you might imagine, he has a lot to say on the state of the U.S. dollar and its affect on commodity values.

We care about what stock guys think about businesses because businesses are who employ our tenants.  We want to know which industries and areas are most likely to have good prospects for stable and growing employment.  People with jobs make better tenants.

We also care about commodities for a couple of reasons.  First, if our currency is dropping in value, then we need to find alternatives to hold our liquid reserves – somthing that will retain purchasing power.  After all, that’s all a currency is good for: buying stuff.

Commodity trends are important for other reasons also.  Rising commodity prices are one of the first symptoms of inflation, which will later show up in unemployment (when costs go up, but prices can’t be raised yet, companies will lay off people to reduce labor costs and offset their rising costs of raw materials).  Also, rising commodity prices make new buildings more expensive to build, so as replacement costs rise, current buildings are more attractive.

The point is that all this economic stuff really does directly matter to real estate investors.  And most don’t ever pay any attention to it.  So dare to be different!  Listen in to these compelling commentaries and expand your own thinking…right here on The Real Estate Guys™ radio show!

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to helps real estate investors succeed. Visit us on Facebook!

Treasuring Fine China

In case you’ve been living under a rock the last several years, here’s a news flash:  China’s booming economy is having a big impact on the world, and the U.S. in particular.

And whether you like it or not, or agree or disagree with U.S. policy toward China, it doesn’t really matter.  China matters.  So, we’re learning to pay attention to China.

In case you aren’t convinced, consider that Chinese demand for raw materials (cement, steel, lumber, oil, etc.) create more demand which drives up prices.  So if and when U.S. builders start building again, their costs will be higher.  This means the properties they build will cost more.  Which means that existing properties’ values will be pulled up by rising replacement costs.

What???  How, you ask, can we talk about rising prices when everything’s in the dumper?

It’s easy.  As long as people do what they do, populations grow.  The need for buildings continues in spite of the economy.  And the last time we looked, people will do without a lot of things before they skip having a roof over their head.  So it’s only a matter of time before building begins.  Meanwhile, we sit in a rare window of time where there are low interest rates and lots of properties selling at or below replacement costs.  Just something to think about…

And speaking of interest rates…

Did you hear what Morgan Stanley Asia’s honcho Stephen Roach told CNBC?  He thinks China may decide to stop lending money to Uncle Sam.

In case you’re holding your breath waiting for the super-duper council of 12 deficit reduction committee to balance the U.S. budget, even if Uncle Sam miraculously produced a surplus, he still has lots of short term debt that needs to be refinanced.  So if China doesn’t re-up, then who’s got the horsepower to feed the U.S. debt addiction?  Greece?  Spain?  Italy?

Time out.  Before your mind wanders off, let’s talk about why real estate investors care about all this.

Real estate investors get rich doing leveraged buyouts.  Really!  Just like some corporate raider.  You find an income producing business (a rental property), then go get financing to purchase it.  Then you use the income from the business to pay off the loan.

So, if your goal is to own a lot of these properties, you will have a lot of loans (what we affectionately refer to as “good debt”), and your cash flow will be substantially affected by interest rates.  Right now, in case you’ve been napping, interest rates are REALLY LOW.  And if you lock them in for the long haul, it’s hard to imagine you’ll be regretting it down the road.

But if the Chinese stop buying U.S. debt (Treasurys), then (says Mr. Roach), the U.S. may have to pay (gasp!) higher interest rates to attract buyers.  And if U.S. Treasurys go up, you can bet real estate loans will be right behind them.  See?  Get the connection?

However, as previously posed, this presupposes there is a buyer out there with a big enough checkbook to meet Uncle Sam’s needs.  If not China, then who? And if there isn’t another economy strong enough out there to buy up trillions in U.S. debt, then are there buyers at any interest rate?

So here’s another take:  If China goes away, in part or in whole, our guess is that Big Ben Bernanke will get out his magic checkbook and, either directly or indirectly, will pick up the slack.  In this case, Big Ben isn’t concerned with interest rates (after all, his cost basis for the money is zero), so the issue isn’t rising interest rates, it’s an increasing money supply.  In other words: inflation.

(In case you missed it, we did a series of blogs on this topic when everyone was getting their undies in a bunch over the debt ceiling debate.  If you want to learn more about Big Ben’s magic checkbook, search our site for “The Great Debt Ceiling Debate” or click here for Part 1 of the 5 part series.)

Here’s the bottom line (which is why it’s conveniently located at the bottom):  No one knows what China will do.  But if you understand the mechanics of the money, then you can make a plan A, B, C and D.  And there’s even more letters available if you want to go farther than that.

If China goes away, and Mr. Roach is right and interest rates rise, do you want to be sitting on lots of low interest rate debt locked in for the long haul and being paid for by people who have to rent because home loans are too expensive to buy?  We do.

If China goes away, and Big Ben’s magic checkbook comes into play, and inflation is fueled, do you want to own real assets (like commodities and real estate) that go up in value (over time…be patient) as replacement costs rise?  Check.

If China keeps on buying, but demands higher interest, go to plan A.

If China keeps on buying, and is content with ridiculously low interest rates, even if the Fed doesn’t intervene, won’t low interest rates eventually lead to inflation? (Yes, they do. The whole reason the Fed alleges it keeps interest rates low is to “stimulate” the economy).  Go to plan B.

We’re not saying the current de-leveraging (the U.S. is still suffering from a major sub-prime hangover) won’t suppress prices for the next few years.  But if you’re a buyer, aren’t low prices, low interest rates, and a growing rental population all good things for right now?

 

8/21/11: August and the Economy Part 3 – The Downgrade, Rates and Your Money

How does the first ever downgrade of Uncle Sam’s credit rating affect your interest rates…or does it?  Inquiring minds want to know!

Since S&P conveniently issued the downgrade right in the middle of our August and the Economy series, we already had a lot to say on the topic.  Of course, if you read our blogs and listen to our podcasts, you already know that.

And since we’ve already heard from big time fund managers and a couple of presidential candidates, we thought it would be “fun” to get an academic’s opinion.  And to our delight, we actually found a fun academic to come on the show!

In the classroom for this episode of The Real Estate Guy™s radio show:

  • Your academic host, Robert Helms
  • You co-host and teacher’s aide, Russell Gray
  • Your substitute teacher, Economics Professor from St. Lawrence University, Steve Horwitz

As real estate investors, we care about interest rates.  And since interest rates are derived primarily from bond market dynamics (and, my oh my, haven’t the bond markets been dynamic the last few years!), it makes sense to pay attention to bonds.  Just the thought it leaves us….well, bored would be an improvement.  Hey, we just want to do deals.  Who wants to wade into all this macro-economic mumbo jumbo?

Fortunately, Professor Horwitz is a fun, high energy and super smart guy. Plus, he’s an Austrian!  (Strange. With a name like Horwitz, we wouldn’t have thought that.)

At any rate (get it?), Professor Horwitz provides us yet another important perspective on the ebb and flow of money through the bond markets – and gives us his take on the U.S. debt downgrade debate and what it means to real estate investors.  So grab your notebook and Spider-Man lunch pail and let’s go to school!

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to helps real estate investors succeed. Visit us on Facebook!

Live Stream 8/23 with Robert Kiyosaki and The Real Estate Guys

Tune in on August 23rd at 11 am Pacific / 2 pm Eastern when The Real Estate Guys™ will be in the Rich Dad office to sit down face to face with Robert Kiyosaki,  the author of mega-best selling Rich Dad Poor Dad series.  The 30 minute meeting will be streamed live, so you can watch it right on your computer (isn’t technology cool?) as it’s happening!

We’ll be talking real estate and how investors can take advantage of today’s real estate market.

To get in on the action, just go to our Facebook page at http://www.facebook.com/TheRealEstateGuys and Like us!

If you aren’t on Facebook or can’t make the time, fill out the form below and we’ll send you a link to a recording of the live event as soon as it’s ready.


 

8/14/11: August and the Economy Part 2 – Perspectives from Two Men Who Would Be President

So it’s not every day you get to sit down with a bona fide presidential candidate face to face and ask whatever you want.  In our case, we got to do it TWICE in one day!  Very fun.

Now whatever you political bent, the issue isn’t what YOU think SHOULD happen.  What we’re interested in is what the people who will be shaping the debate, if not actually running the show in 2013, are thinking.

Our two guests happen to be Republican candidates, so if you’re on the other side of the fence, just hold your nose and listen anyway.  The more info you have, the better you’ll be able to invest.  Again, you don’t have to agree, you just need to understand the possibilities.  And if you know a Democratic candidate who wants to be on the show, let us know!  All viewpoints are welcome. 🙂

Behind the illustrious silver microphones in our spacious, upscale mobile studio (including folding chairs and table):

  • Your presidential host, Robert Helms
  • Your vice-presidential co-host, Russell Gray
  • Special Guest, Director of Economic Research for the Reason Foundation, Anthony Randazzo
  • Special Guest, Two Term Governor of New Mexico and current Presidential Candidate, Gary Johnson
  • Special Guest, Businessman and Presidential Candidate, Herman Cain

When you’re an elected official, you have a bazillion thinks to think about.  And you need a lot of help thinking.  It’s kind of like being a busy real estate investor.  You need to have a team of people who stay on top of changes in landlord law, taxes, mortgage guidelines, credit scoring, asset protection and estate planning – just to name a few!

So we kick off this show talking to Anthony Randazzo, a big brain whose job it is to study, think and advise on economic matters.  One of the things Anthony studies are GSEs (Government Sponsored Enterprises, like Fannie Mae and Freddie Mac).

If you’ve been paying attention, you know that Fannie and Freddie play a major role in U.S. housing (and the bond markets), were very much at the center of the mortgage meltdown, and have lots of people in Washington who’d like to see them go away. Kind of like how Ron Paul wants the Fed to go away.  It may never happen, but if it did it would change a lot things we take for granted as real estate investors.  So, it’s important to pay attention to what the big brains and the politicians (not that the two are mutually exclusive :-)) have to say.

Then we talked to Gary Johnson and Herman Cain.  We won’t paraphrase those conversations here, but you can be sure we asked about jobs and real estate.  And of course, we asked what they thought needed to happen to create more jobs. And unlike many shows, we let them talk.  We found it very interesting and we think you will too!

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

8/7/11: August and the Economy Part 1 – Macro Market Perspectives from Two Mega Players

The aftermath of the debt ceiling vote and the subsequent S&P downgrade just adds to the drama surrounding the U.S. economy.

When you add the European debt crisis, talk of a QE3 on the heels of QE2, plus gold prices hitting record highs – it’s certain August 2011 will be remembered as a time when the entire world focused on economics.

Real estate investors from Mom and Pop to REITs are watching carefully to see what will happen with interest rates, taxes and job creation. The difference is that the mega players have huge research departments and access to the best information and analysis.

Wouldn’t you like to know what the big players are thinking? The Real Estate Guys™ are here to help!

We travel the world to capture the interviews you won’t hear anywhere else. We’re dedicating the entire month of August to bringing you insights and perspectives from economists, scholars, fund managers – and even a few politicians!

At the microphones for this exciting first installment of August and the Economy:

  • Your hot August host, Robert Helms
  • Your not so cool co-host, Russell Gray
  • Special guest; U.S. Global Investors CEO and Chief Investment Officer, Frank Holmes
  • Special guest, Renowned Market Analyst and Editor of The Wellington Letter, Bert Dohmen

This is an episode you’ll want to listen to more than once – and probably with a note pad.

Frank Holmes oversees over $3 billion (with a “b”) of assets and 4 of his funds are in the top 25 best performing.  We think that means he’s qualified to have an opinion about economic issues.  Of course, his focus is stocks and bonds, but we’ve learned that the stock, bond, commodities and real estate markets are all interrelated. The mortgage meltdown and subsequent (and unprecedented) decline in U.S. real estate values was directly tied to what was happening in the bond market.

Bert Dohmen is a renowned market analyst with over three decades of experience.  More importantly, he boasts an impressive track record of having accurately predicted the start of every recession over the last 33 years.  We asked him his secret and he answered, “Technical analysis”.

Really?  Our friend Robert Kiyosaki (who’s agreed to join us live and in person for the entire week for our 2012 Investor Summit at Sea™) has been talking about the importance of technical analysis for real estate investors.  So it’s something we’ve become very interested in.   Watch for more on this topic in the weeks and months ahead.

For now, listen in and discover what some of the biggest brains in the business of managing money think about where we are, where we’re headed and what’s likely to happen next.

Listen Now:

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.