Freedom, responsibility, opportunity and hard work …

We’re a little late with this week’s muse … we’ve been busy finishing up an EPIC collection of interviews for our soon-to-be-released COVID-19 Crisis Investing Webinar Series.

The original plan was to do a simple webinar with a collection of our big-brained friends. It turned into a MUCH bigger undertaking … in a GREAT way.

Obviously, there’s a LOT happening in the economy and financial system right now …

… and the issues are much deeper than debates about wearing masks … or whether tearing down statues falls under the heading of peaceful protests.

Meanwhile, as Americans head into our Independence Day celebration, there’s a lot to think about … both at the macro-policy level and the micro-investing strategy level.

Remember … your business and investments operate inside a complex, yet delicate ecology made up of people, resources, organizations, policies, procedures, and a physical environment which sometimes tosses a curveball.

Like your body, this ecology is a finely tuned machine … and though it’s often flexible and resilient … it has its limits.

Injury, disfigurement or worse are often on the other side of exceeding limits. Pain is usually the telltale sign you’re approaching the danger zone.

Ignoring the warning signs almost always ends badly. Yet even mature adults revert to childlike “covering their eyes” trying to hide from scary realities.

You can ignore reality, but you can’t ignore the consequences of ignoring reality.

Of course, pessimists only see the downside and are often paralyzed.

Optimists see only the upside … and sometimes get blindsided by dangers which are obvious in hindsight. We know. We’ve done it.

As real estate investing legend, Sam Zell says … the secret to success is the ability to pursue the upside while keeping the downside in view so it can be managed.

In other words, Sam Zell is a realist … which is probably an appropriate word for a successful real estate investor.

Our world is FULL of downside right now. Pain is everywhere.

It’s fairly obvious that people, businesses, markets, financial systems, and even society itself are all approaching their limits.

Will they bend or will they break? If they break, what does that look like? Do YOU have a plan?

Not only are those frightening contemplations, they’re hard work.

But if you love the freedom to pursue opportunity, own property, build wealth, and retain and enjoy the fruits of your efforts, it’s hard work you’ll need to do.

“Most people do not really want freedom, because freedom involves responsibility, and most people are frightened of responsibility.”
– Sigmund Freud

“If you don’t design your own life plan, chances are you’ll fall into someone else’s plan. And guess what they have planned for you? Not much.”
– Jim Rohn

“Power over a man’s subsistence is power over his will.”
– Alexander Hamilton

(That last one is a little disturbing in a “lockdown” world …)

The challenges all freedom-loving entrepreneurs and investors face in this current crisis are multi-faceted but can be distilled into a few macro and micro components.

In the macro, this could be the endgame for the 49-year experiment of a global debt-based financial system.

Or maybe it’s just a bigger crash on the way to some future endgame.

Most of the bright folks we’ve talked to think the system most of us have operated in for virtually our entire lives is dangerously close to collapse and reset (again) …

… or perhaps even full-blown replacement.

All of which begs the questions … what’s going to happen in the macro and how do you prepare in the micro?

Of course, no one knows what’s going to happen, so it’s important to analyze and anticipate possibilities and probabilities.

It may seem complicated, but it’s really a simple, though potentially catastrophic, sequence of events.

It’s important to be mindful of where we are in the process … and how likely we are to advance the next level of “yikes”.

The health crisis led to the economic shutdown, which has the potential to create a financial system crisis or collapse.

So the Federal Reserve is risking a currency crisis (or collapse) by printing many trillions of dollars trying to stop it.

Will they succeed? And if they don’t, when will we know and how will it impact all of us?

More importantly, what can we each do to prepare for a worst-case scenario?

These are the issues concerned investors are wrestling with … and the subject of our conversations both on and off the mic with our COVID-19 Crisis Investing Webinar Series faculty.

For now, here are some important concepts and actions to consider …

Incomes, whether active or passive, are based on economic activity. When commerce stops, so does revenue, and consequently rents and loan payments.

You might be a little late to the party, but if you don’t have solid liquid reserves, it’s something you probably want to get in place quickly.

The longer this crisis continues, the more likely your revenue will be negatively impacted. Liquidity is essential when revenue wanes.

Liquidity is also a VERY powerful tool when credit markets seize … often taking asset prices down with them.

The best bargains are often found by brave, bold, and liquid investors in the pit of a financial crisis.

Meanwhile, at the macro level, all those missed payments could create major problems not just in credit markets, but the banking system too.

Remember … there were already symptoms of a sick banking system just a few months before the COVID-19 crisis came to light.

And now with big debtors like Chesapeake Energy and Hertz leading a parade of bad debt and corporate bankruptcies …

… the Federal Reserve is printing dollars to not only buy up corporate debtmunicipal debtmortgages …

… but some allege the Fed is indirectly supplying freshly printed dollars to prop up stock prices.

We don’t know. But it seems like there’s a WHOLE lot of printing going on. The big question is whether the dollar is strong enough to endure this severe dilution.

Meanwhile, it seems clear credit markets are full of potentially toxic assets no one but the Fed will buy. That’s a significant warning sign.

So, at the micro-level, consider your dependence on and exposure to credit markets and the banking system.

You might find your credit lines being cut off or reduced without warning through no fault of your own. That’s what happened in the lead up to 2008.

And if you’re not familiar with the concepts of “counterparty risk” and “bail-ins”, this is a good time to expand your financial vocabulary. You may have both in your future.

Remember … these are unprecedented times.

Unimaginable things may not be likely (yet), but they’re definitely moving up the ladder of possibility.

Ignoring the possibilities doesn’t make them go away.

But unless the preparation itself is exorbitantly costly or complicated, it’s better to be prepared and not have a crisis than to have a crisis and not be prepared.

After all, inconvenient or novel isn’t the same as costly or complicated.

Many people are counting on their “leaders” and “advisors” to tackle the tough tasks, stand the night watch, and provide adequate warnings.

Maybe not such a good plan.

So as we consider what America’s founders sought to accomplish when creating the United States of America, it’s important to remember …

… the American system was built by and designed for people who wanted massive freedom and are willing to accept massive responsibility to obtain and retain it.

“Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.”
– Benjamin Franklin

This freedom … to own businesses and property, speak freely and debate ideas, succeed and fail based on individual effort and ingenuity versus a pedigree or birthright …

… are all based on one singular foundation: individual freedom and personal responsibility.

We can debate whether this is the best system, but the founders made it clear …

“Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.”
– John Adams

Of course, the freedom we have allows us to debate the details of what morals and religions are best … and those are debates worth having.

But the core basis of both morals and religion are generally accepted to be personal responsibility.

We think it’s clear we’re in Act Two of a four phase cascading crisis.

And while we’re all in this together, we’re each individually responsible to mind our own business first. Just like when the oxygen masks drop in a crisis on an airplane.

So JOB ONE is to get into and stay in a position of excess strength, wisdom, time, and capacity so you can help those in your sphere.

Because if everyone is waiting for somebody to do something then nobody does anything. That’s obviously not good … and a weak, desperate society is often taken advantage of.

So we encourage you to work diligently on what you can control so you’re better positioned to respond strongly to the many things you can’t control.

Study, think, act, learn, and then share your wisdom with the people around you.

This isn’t the time to be passive.

Tragedy strikes again …

Tragedies are a terrible but predictable and commonplace part of living and investing.

You don’t always know when or how tragedy will strike, but you can be certain it will. It’s inevitable.

Of course, tragedy and suffering aren’t primarily intellectual experiences. You FEEL them … and they HURT. It’s intensely emotional.

The Real Estate Guys™ family was hit with tragedy last week for the second time in the last six months when Robert’s father, “The Godfather of Real Estate” Bob Helms passed away.

Thanks to all who expressed condolences and shared memories via email or on social media. It’s a blessing to be reminded how many lives have been touched by Bob’s wisdom, kindness, encouragement, and talent.

For those of us close to Bob, our world stopped. Nothing has mattered but processing the loss and considering a new future without Bob’s presence.

Of course, the rest of the world goes on … as it always does in the midst of a never-ending parade of macro and micro tragedies.

But as the hits just keep coming, it’s ALMOST enough to make you wonder if it’s all worth it.

After all, the “happiness” we all strive for in terms of financial, physical, and relationship prosperity seems so elusive and fragile.

All this has us thinking about the role of pain right now in the world and in the life of every investor reading this. Pain and loss are part and parcel of all areas of the human experience. It’s naive and foolish to think anyone gets a pass.

But pain isn’t something often discussed, and certainly not appreciated, by most people. After all, no one with a broken bone, heart, or portfolio wants to be congratulated and counseled to see the good.

Yet most mature people will tell you the greatest lessons were learned, the strongest relationships forged, the most profound transformations took place through the process of pushing through pain.

It’s analogous to a birthing process. Often the labor of pushing through is intensely painful, yet on the other side awaits one of life’s greatest joys.

So pain and loss are not only normal, they’re required and inescapable. They are part of the process of developing strength, resolve, and wisdom.

So how do we as individuals, investors, entrepreneurs, organizations, and societies deal with the personal and collective pain of inevitable tragedies?

And in case you don’t think this applies to the pragmatic goal of becoming a more powerful investor, consider how pain and the resulting panic can cloud judgment and impair thinking.

“When emotions run high, intelligence runs low.”
– Blair Singer

Good emotional control … even in the midst of tragedy, pain, fear, uncertainty, and doubt … is the hallmark of a powerful investor.

We learned a lot about pain and panic in the financial crisis of 2008. Today, we’re thankful for it. But at the time? Not so much.

In hindsight, if we’d cultivated an attitude of gratitude sooner, we probably would have suffered less, learned quicker, and recovered stronger faster.

After losing Russ’ wife last December and then losing Robert’s father last week … we turned to some profound ancient wisdom to remind ourselves …

“This too shall pass.”

– William Shakespeare, Hamlet

And in case you don’t think a 16th-century playwright understands the complex world you live and invest in, consider this gem …

“What a terrible era in which idiots govern the blind.”

– William Shakespeare

But that’s a different discussion we can have over a virtual beer someday while we’re “Sipping-In-Place”.

So gratitude is an empowering attitude … even in the midst of a tragedy and even if the only thing you can find to focus on is “this too shall pass”.

But as profound and brilliant as William Shakespeare was, we found an even older, arguably wiser author to help keep both our micro-tragedy and the macro-insanity we’re all living through right now in a healthy perspective.

And ironically, it also turned out to provide some practical investment wisdom.

So rather than delve deep into clues in the news this time, we’re using our moment of pain to share some deeper thoughts with you.

Thanks for sticking with us this far.

It’s said King Solomon was the richest man who ever lived. Many suspect he’s the author of the Book of Ecclesiastes in the Bible.

We’re not sure about all that, but this ancient muse (later adopted for a popular song in the ‘60s) offers useful wisdom about life, pain, and investing …

“To everything there is a season, a time for every purpose under heaven;

A time to be born, and a time to die;

A time to plant, and a time to pluck what is planted;

A time to kill, and a time to heal;

A time to break down, and a time to build up;

A time to weep, and a time to laugh;

A time to mourn, and a time to dance;

A time to cast away stones, and a time to gather stones;

A time to embrace, and a time to refrain from embracing;

A time to gain, and a time to lose;

A time to keep, and a time to throw away;

A time to tear, and a time to sew;

A time to keep silence, and a time to speak;

A time to love, and a time to hate;

A time of war, and a time of peace.”

– Ecclesiastes 3:1-8 New King James Bible

Entire books and sermons are dedicated to this passage. We’re certainly not qualified to expound on words many consider divinely inspired.

So we’re not here to say what “truth” is or what you should or shouldn’t do or believe.

But during the inevitable trying times we’ll all face in our individual lives, loves, careers, and portfolios … including the current COVID-19 crisis we’re all currently in together … keep these words handy and remember …

It’s just a season. This too shall pass.

For The Godfather, he came to the place where it was his time to die. We all have one, though we tend not to think about or plan for it. No one likes it.

As we’re writing this, Russ’ 13th grandchild is due any moment. For her, it’s a time to be born.

For aware and prepared investors, 2010 was an excellent time to “plant” real estate investments. Today might be considered a good time to harvest equity.

During most of their life, many baby boomers planted into financial safety nets like social security .. and are expecting to harvest in the coming years.

But it’s possible their hoped for time to dance could turn out instead to be a time to mourn. We hope not, but the system is weak.

Some think many of the important social contracts born in the last 150 years are entering their time to die … to be broken down and cast away.

Many on all sides of the issues are finding it’s no longer time to be silent, but to speak.

It’s conceivable the fundamental rights we depend on to move freely, earn and deploy capital, own and operate properties and businesses … are all subject to upheaval.

And with polls showing a growing number of Americans believing civil war is inevitable, it seems it might be a time for the worst kind of war is approaching.

These are no doubt tumultuous times.

All this to say, we think it’s arguably more important now than ever for investors to reflect on ancient wisdom …

… and consider the sage author’s conclusion that “there’s nothing new under the sun.”

Yes, it’s a dangerous, world and we should all be diligent in staying aware and being proactive …

… but these seasons and cycles have been ebbing and flowing for thousands of years. There’s nothing new under the sun.

Sometimes, the hardest hits help remind you about how small you really are and what really matters in the grand scheme of things.

It’s tempting to allow tragedy to make us bitter, cynical, angry, and withdrawn.

But wise men over the centuries remind us there are predictable seasons in the lives of men and societies, and whether the current time is good or bad, “this too shall pass.”

We think what’s important is to remember who you are, why you invest, and what really matters along the way.

As our great friend, Tom Hopkins often reminds us, “Love people and use money, not vice-versa.”

Which rabbit to chase?

The person who chases two rabbits catches neither …

Another week and a thousand sub-plots and angles to the COVID-19 story and how all this might affect real estate investors.

In a run-of-the-mill market gyration, those are usually fun and relevant rabbit-trails to go down. But there will be plenty of time for that later.

Sometimes it’s more important to stay focused on the main thing … even if it’s a little boring, redundant, or even (gasp!) political.

This is one of those times.

Think about it …

Virtually all major factors impacting the future of the economy, financial system, and currency that your portfolio and financial security depend on are being driven by policy.

Market participants like buyers, sellers, investors, tenants, and businesses all seem to be left out … or perhaps “locked down” is more accurate … of the process.

And the “gauges” most people focus on to determine the national, state, corporate, and individual health are questionable at best.

Whatever is going on right now is a far cry from “free” markets. It’s all driven by Federal Reserve and government (again, they’re not the same thing) policy.

So are we here to critique policy or rant about what “should” be?

Heaven forbid.

We’re not that smart … or brave. Besides, no one in charge is asking us what we think, so our opinions don’t count much in the real world anyway.

But with a thousand things to distract you, we’re simply pointing out that policy matters … and it’s a good idea to pay attention to policy so you can pivot to avoid problems and capitalize on opportunities.

As of this writing, we’re waiting to see what the Fed will say and do. They’re the makers of those important monetary policies which affect everyone everywhere.

For the uninitiated, the Federal Reserve is the issuer of U.S. dollars. The U.S. dollar currently serves as the reserve currency of the world.

Even though a lot of people know this … very few really understand it … and that’s a problem for both individuals and societies …

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

– John Maynard Keynes

The Fed expands and contracts the amount of dollars in the system to directly or indirectly manipulate interest rates, inflation, asset prices … including stocks and real estate.

If you’re paying attention, you’re watching a hyper-active Fed operate in real-time.

The Fed underwrites the United States government’s debt and deficits … including all the stimulus spending, bailouts, and vote-buying handouts by both parties.

If you think of dollars like blood … a currency that flows through the body of the economy supplying nutrition to individual cells (people) and organs (organizations) …

… then it’s easier to understand the impact of the quantity, quality, and velocity of those dollars.

There are MANY issues at play in today’s world. But we think the dollar may well be the most important developing story.

Of course, long-time followers of The Real Estate Guys™ know we’ve been watching the dollar for quite some time.

The long-term demise of the dollar is a mega-trend which began in 1913 …

SO much we could say about this one chart, but we’ll save it for future rants.

Profiting from the dollar’s persistent decline is the essence of leveraged real estate investing and the main thesis of Equity Happens.

Yes, we know we need to re-release Equity Happens. It’s on the to-do list. But it’s kind of flattering to see used copies trading for hundreds of dollars.

In fact, let’s use Equity Happens as a quick case study in inflation …

Right now, the supply of Equity Happens books is small. Apparently, the demand is high, so the price has been bid up.

(Note: We don’t get any of that premium. We wish. But it goes to the used booksellers. We’re still rummaging around the garage looking for copies so we can get in on the action.)

But the high price of Equity Happens isn’t the result of inflation. It’s the result of limited supply against relatively high demand. A copy of Equity Happens is rare.

Compare that to Rich Dad Poor Dad, the best-selling financial book in history.

At the same time Equity Happens is selling for over $400 per copy … nearly a 20x premium to the retail price …

… Rich Dad Poor Dad is selling for $5.39.

Does that mean Equity Happens is the better book? Or the demand for Equity Happens is higher than Rich Dad Poor Dad?

Not at all. In fact, far from it.

Now stick with us because this is the important lesson …

The disparity in price between Equity Happens and Rich Dad Poor Dad is a function of how many copies of Rich Dad Poor Dad have been printed.

While we only printed less than 100,000 copies of Equity Happens … untold millions of copies of Rich Dad Poor Dad are in the marketplace.

As a product, abundant supply is fantastic for the consumer. Mass production creates abundant supply which produces low prices and allows more people to acquire the book.

In other words, falling prices are a boon to consumers. It expands the ranks of the “haves”. Cheaper books mean more people can afford them. Remember this when some official tells you deflation is a threat. It is … but not to you.

What if Rich Dad Poor Dad wasn’t a book, but a currency that you were earning and saving … how’s it working now?

Let’s say you went into the market and traded the blood, sweat, and tears of your labor for 100 copies of Rich Dad Poor Dad at a time when the book sold for $12.

Then suppose Robert Kiyosaki prints another 10 million copies because his printing cost is only pennies per book.

This printing increases supply and drives the book price down from $12 to less than $6.

Yes, more people get copies of Rich Dad Poor Dad. In fact, maybe Kiyosaki deposits books directly into the libraries of readers everywhere.

But you … you worked for your copies at a time when the value of your work was based on a price of $12 per copy.

And you saved your copies in your library so you could trade them later for other books you’d like to read. But now, your copies are worth half as much.

You lose. The act of printing more books diluted the value of the books you already earned.

Now, go back and re-read the story of Equity Happens and Rich Dad Poor Dad … but replace Equity Happens with gold, Rich Dad Poor Dad with dollars, and Robert Kiyosaki with the Federal Reserve.

Monetary policy … the printing of dollars … affects you and EVERYONE earning, borrowing, saving, and investing in dollars.

And just in case you didn’t hear, the Fed is printing TRILLIONS of them … more and faster than at any other time in history.

There are a LOT of angles to the cascading crisis created by COVID-19, so it’s easy to take your eye off the main thing. We could be wrong, but we think the main thing is the dollar.

Unfortunately, most Americans and the pundits who inform them aren’t really talking about the dollar. So we are … and have been for years and years.

Today, everything is moving bigger and faster. Extreme policies are likely to produce extreme results.

Whether those extreme results harm or benefit you and your portfolio depends on how aware, prepared, and responsive YOU are.

But your results also depend on what everyone else in the eco-system does … and the policies they support. So talk with your family and friends. Encourage them to pay attention too.

Spreading financial awareness and preparedness helps flatten the curve of economic impact to the financial system.

Like COVID-19, bad ideas are highly infectious … especially when people are highly vulnerable. Ideas affect individual actions and institutional policies.

We’re not telling you what to think or do.

But if you’ve been hitting the snooze button up to now, it’s probably time to snap to attention and start studying. Think and do is better than wait and see.

There’s a lot more to this chain of events to come.


Thanks to all of you who’ve taken the time to send a little sunshine our way.  It means a lot to us!

Here’s what The Real Estate Guys™ Radio Show community is saying … 

Awesome analogy for gold, dollar, and the Fed! … ” – John Y., 6/10/2020

And now the REAL contagion begins …

Although there may be some debate about the true origin, cause, and date of the COVID-19 virus … there’s no doubt about its presence and impact today.

And just as the health crisis began quietly, before exploding onto the scene, so it may be with the subsequent financial crisis.

After all, if you’re not both an epidemiologist and paying attention … or listening to one … like our friend Chris Martenson at Peak Prosperity …

… you probably didn’t know anything about COVID-19 until there was no toilet paper on the shelves at your local store.

Clearly, there were people who knew and acted sooner than others …

… and we’re guessing most folks would prefer to be in the group who’s aware and prepared.

Fortunately, being late to the toilet paper run didn’t result in being completely wiped out. (Sorry, we couldn’t resist.)

But as the health crisis and resulting lock down has mutated into an economic crisis …

… and is already showing signs of spreading into a financial crisis 

… the consequences of being ignorant and ill-prepared could be a whole lot messier to handle than a toilet paper shortage. (Okay, we’ll stop now.)

Punning aside, our point is there are abundant and alarming clues in the news that a financial contagion has already begun.

But preparing for it is a lot more complicated than simply stocking up on paper products … including cash.

Preparing is also a lot bigger than just looking out for you and yours.

Just as society rallied to “flatten the curve” … slowing the contagion to preempt the number of afflicted from overwhelming the health system …

… we’re “all in this together” and need to flatten the curve of people going broke and overwhelming the financial system.

Because while you might be able to get along in life not exchanging germs with other people …

… it’s impossible to live in a world of free enterprise without trading with others.

We all need each other to be financially healthy if we want to build resilient prosperity.

So, it’s in everyone’s enlightened self-interest to both prepare individually … and help others prepare to prosper through the wild ride looming on the horizon.

That’s why we’re organizing a Crisis Investing webinar … featuring a STELLAR faculty, including …

Richard Duncan – Economist, best-selling author, former consultant to the IMF

Peter Schiff – Money manager, best-selling author, podcaster, financial pundit

Robert Kiyosaki – Mega-millionaire investor, greatest-selling financial author in history, host of the Rich Dad Radio Show

Nomi Prins – Former Wall Street insider, geopolitical financial expert, investigative journalist, best-selling author

Danielle DiMartino-Booth – Former Fed insider, popular market commentator, financial newsletter publisher, best-selling author

Brien Lundin – Gold expert, publisher of Gold Newsletter, New Orleans Investment Conference producer

And that’s not everyone. The Crisis Investing webinar is a big and important project.

We’re working hard to collect the thoughts and perspectives of a large, well-qualified group of thought leaders, insiders, and seasoned investors.

By the way … this isn’t a pitch … because the webinar is totally free.

So, be sure to tell your family, friends, neighbors, associates and total strangers to get on the Advance Notice List ASAP.

Remember, most of the “experts” on mainstream financial media are directly or indirectly underwritten by and beholden to Wall Street and the big banks.

So, most don’t understand or value Main Street investing … especially real estate. Yet that’s where most people live … and where all the fallout lands.

Of course, it’s possible to see danger coming in time to get in position to avoid most problems and capture many opportunities.

Of course, this requires focus and diligence because these are truly unprecedented times …

Fed’s balance sheet tops $7 trillion, shows increasing buying of corporate bond ETFs
MarketWatch, 5/21/20

Not sure what that means to you? You’re not alone … and that’s the point.

The wizards behind the curtain are pulling levers, flashing lights, and using smoke, mirrors, and fancy words to manipulate the currency, credit markets, and interest rates YOU depend on.

Hint: The Fed’s balance sheet represents how many dollars they conjure out of thin air … and it’s nearly doubled since the COVID-19 crisis hit just a few months ago.

But anyone with even a rudimentary understanding of economics knows that no amount of money printing creates products and services.

If it did, then the Fed could just print money and everyone could stay home and watch Netflix.

But like any form of debt, money printing is simply a claim on existing and future products and services.

If you earn, borrow, or measure wealth in dollars, this should concern you.

Meanwhile …

Over 4 million Americans are now skipping their mortgage payments
MarketWatch, 5/24/20

With nearly 40 million jobs lost in the last few weeks … defaults on rent, mortgages, car payments, credit card payments should surprise no one.

Sure, the Fed can print money for Uncle Sam to direct deposit to everyone.

And MAYBE they’ll use it to make debt payments … versus less important things like say … EATING.

But you may recall …

Alarming number of Americans don’t have enough savings for unexpected expenses

New York Post, 1/30/20

“One in four Americans do not have enough money saved to cover more than two months of expenses, according to a recent poll.”

Many of those folks are your tenants. But it’s not just the little guys who are struggling as the economic contagion spreads …

Default Notices Are Piling Up for Retailers Unable to Pay Rent
Bloomberg, 5/22/20

Hertz, slammed by coronavirus, to continue under bankruptcy protection
Chicago Tribune, 5/26/20

‘No business is built for zero revenue.’

NO business is built for zero revenue. Neither is any city, state, or nation.

No society can survive long without production AND commerce.

So, while it’s good that the world is coming out of its COVID-19 induced economic coma …

… the extent of the damage … and what’s temporary vs what’s permanent … will not be known for some time.

But with so much uncertainty remaining about whether the health crisis at the front end of this chain of calamity is past its peak …

… there’s no rational reason to think the subsequent economic crisis is even close to over.

And even if it was, all those missed payments and printed money is likely to create a financial system crisis … and perhaps even a currency crisis … down the road.

So our bet is things get MUCH choppier before they get better.

BUT … that’s not all bad news. In fact, there’s likely a lot of opportunity in all this mess.

So rather than go full-fetal freak out … or waste a bunch of time blaming (pick a perp or scapegoat) … or philosophizing about what the people in charge should or shouldn’t do …

… we think you’re better served to stay focused on what YOU can do NOW.

We’re sorry if this is a little repetitive …

… but if you were on the deck of the Titanic, would you want the crew to stop boring you with repeated directions to the lifeboats?

Of course, no one knows exactly the “best” way to mitigate risks and capture opportunities … there’s still too much unknown.

But as we often say, focus on being diligent to control what you can so you’re in the best position to respond to what you can’t.

And listen to as many smart people as you can who are also diligently preparing and paying attention. That’s what the Crisis Investing webinar is all about.

The follow up to the webinar will be to take all these expert perspectives and then come up with the best ideas and action plans.

But be patient. With MANY hours of interviews, the project won’t be ready for a few more weeks. Stay tuned!

Meanwhile, we still think it’s wise to get as liquid as you can while you can … especially with respect to equity and taking advantage of the cheapest mortgage money you may ever see.

Take a good look at your portfolio … and think about how it would respond to rising rates, a banking crisis, a credit market collapse, or a substantial decline in rents.

Remember, “no business is built for zero revenue”.

Sometimes you simply can’t save everything from a worst-case scenario. So it’s also important to know when to retreat and preserve capital … so you can live to invest another day.

But if you’re liquid, conservatively structured, well-educated, and connected … you’ll probably hold onto most of what matters …

… and easily make up any losses by grabbing the bargains likely to be littered across the landscape as this all unfolds.

And if this turns out not to be as big a deal as it seems … how are you worse off for being prepared?

Real estate and the economic pandemic ahead …

Here’s another installment in the continuing saga of Crisis Watch 2020 …

Last time, we discussed the scope and sequence for the mutation of the current health crisis into a potential dollar crisis.

If you haven’t read it, try to fit it into your hectic sheltering-in-place schedule.

We think it’s important to have context for the deluge of data, news, and opinions overwhelming your senses. Without context, it’s just a lot of scary noise.

Today we’re considering the future of real estate in a perpetual and post-pandemic world. After all, we are The Real Estate Guys™.

And last time we looked, none of the talking heads on mainstream financial media are talking to real estate investors. So, we will.

Of course, real estate is a vast topic with a multitude of sub-sectors. Each is affected by both micro and macro factors.

All that is obviously WAY too much for a deep dive in a weekly muse.

But with only a few exceptions, when it comes to real estate, it’s really ALL about jobs and incomes.

And right now, it’s no secret the jobs market is imploding in unprecedented fashion. The Atlanta Fed is projecting a STUNNING 42% decline in Q2 GDP.

Imagine if your blood pressure, paycheck, or rents declined 42%. Ouch.

The Federal Reserve and the U.S. government (not the same thing) are frantically trying to stave off depression with both monetary policy (lower interest rates) and fiscal stimulus (government spending).

But at the end of the day, it takes real jobs to produce real income to make real rent and mortgage payments on real estate. Really.

It’s productivity that creates products and gives money its value. Money from nothing doesn’t create goods and services to consume.

More money and less production usually leads to shortages and high prices. That’s hard on everyone, but especially tenants.

So, policymakers are like Han Solo flying into the asteroid belt in Star Wars: The Empire Strikes Back … attempting to successfully navigate a VERY dangerous landscape.

The plan seems to be for the Fed to use EXTREME dollar printing to fund ginormous government spending, suppress interest rates, and buy almost everything from local bonds to ETFs … maybe even stocks.

Ostensibly, the goal is to prevent a collapse of asset prices and the financial system (banks and bond markets) they support.

This presumably buys time for the economy to be re-ignited, so businesses, jobs, and incomes are restored. But at what price? And will it work … fast enough?

Maybe. But it’s probably smart to be prepared in case things don’t go as planned. This crisis is unprecedented. No one really knows what will happen.

In practical terms, we think increasing liquid reserves, tightly managing cash flow, dumping marginal properties in marginal markets, and staying tight with your mortgage professional are all things that make a LOT of sense right now.

We’re guessing free cash flow, liquidity, and access to capital will all be very valuable in the very near future.

For active and aspiring syndicators, NOW is a GREAT time to expand and educate your network of prospective investors …

… preparing them to join you in taking advantage of the bargains likely coming to a neighborhood near you.

Meanwhile, some investors are choosing to sit on the sidelines until AFTER the crisis passes and things stabilize.

Waiting for things to stabilize could be a BIG mistake …

First, things don’t “stabilize” on their own. Things stabilize because intrepid investors step into the chaos and go bargain shopping.

Think about it. It’s the very act of grabbing the best deals while others sit out which puts in a price bottom and stabilizes a market.

So a stabilized market is one that’s already been picked over. If you want the best bargains, you need to be among the brave and bold.

This isn’t to suggest throwing caution to the wind and buying anything anywhere for any price. That’s dumb any time, but especially when a storm is clearly on the horizon.

But if you’re in it for the long haul, which is what true real estate investing is all about …

… then the best “price” is a whole lot less important than great long-term financing.

That’s because when the best price is available, it’s often because financing is limited, expensive, or not available at all.

So, go back and think about where we’re at in the pandemic …

A health crisis leads to a lock down which crushes commerce … taking revenue, jobs, and paychecks with it.

Real estate values start to fall because buyers are either unable or unwilling to buy … and demand slows. Of course, that usually proves to be TEMPORARY.

Meanwhile, the economic crisis means missed payments and debts going bad. Lenders get nervous and credit starts to tighten. It’s already happening.

Of course, bad debt in a debt-based system is its own next-level nightmare.

IF the economic crisis continues, the bad debt contagion spreads … collapsing credit markets and threatening the banking system.

Think 2008 … only WORSE.

When this happens, credit’s not just tight. It’s nearly non-existent.

So yes, bargains are everywhere, but you better have CASH.

That’s why we think it’s smart to convert equity to liquid reserves while both equity and great financing are still available.

Of course, when you find the right deal in the right market with the right cash flow and you’re able to obtain great LONG-TERM financing …

… then you can ride the price train down and back up again on the backside.

Remember, what happens from the time you buy until you sell doesn’t matter much as long as cash is flowing positively in between.

Plus, with the updates to the tax law, rental real estate got an additional boost to the already awesome tax reform accelerated depreciation credits.

These tax breaks reduce taxes in the future, but can now also help you reclaim taxes paid in the past. This all really helps with your cash flow early in your ownership when you need it the most.

Lastly, consider how much pressure is being put on the U.S. dollar to prop up the entire world’s collapsing asset prices and credit markets.

Gold is signaling concerns about long term inflation. Smart investors are paying attention. We hope you are too.

Will the dollar soften, crash, or collapse … causing the dollar price of real assets like real estate and gold to soar?

No one knows. But it’s certainly possible. We’ll be digging deeper into this hot topic in our upcoming Crisis Investing webinar.

But whether it’s only the 2 percent per year inflation the Fed targets … or a much higher rate which could result if the Fed loses control and the dollar collapses …

… the key to profiting from inflation is DEBT.

And the best debt on earth is real estate debt because you enjoy very low interest rates and payments which can be locked in for the long term …

… with no margin calls …

… plus you get control of a real asset that produces income for servicing the debt …

… plus you only need to put in a fraction of the price … 30% or less down payment in many cases… which means you don’t have much capital at risk if you get long term deflation …

… plus you get fantastic tax breaks to further enhance your after-tax cash flow.

Meanwhile, you earn inflated dollars which might be worth less against today’s products and services … but worth a lot when paying off that old debt.

So the key is to acquire cash flowing assets with debt. This is real estate 101, but what makes it work is INFLATION.

And right now many pundits believe (and gold is confirming) the stage is being set for accelerated inflation.

The danger, as any seasoned investor will tell you, is lack of liquidity.

But with dollars losing value and banks paying zero interest, who wants to hold cash?

This is where gold comes in … not as an investment, but as liquid reserves that can insulate you from long term inflation.

In a world where massive printing of dollars (inflation) is the singular “vaccine” being administered to prevent economic contagion …

… it’s arguably urgent to start taking precautions to prepare for the potential decline of the real value of the dollar.

The main ingredients are income property, debt, and gold.

When you mix them properly, you insulate yourself from the negative effects of inflation while positioning yourself to create real profits.

We’ll be talking more about this timely and important subject in the weeks ahead. Stay tuned!

Grim warnings from Powell and the Fed push rates on home loans to new low

Even as building slows, the Fed is pumping purchasing power into housing. Short supply plus increased purchasing power could put upward pressure on prices. Of course, it all hinges on demand … will buyers be willing to take on a mortgage in such an uncertain jobs market? After all, even a zero percent mortgage payment is hard to make with no income. … continue reading, click here >>

US home construction drops 30.2% in April as virus rages

Is there a housing supply shortage in our future?  … find out more by clicking here >>

Fed Warns of Significant Hit to Asset Prices If Crisis Grows

Another not-so-subtle clue in the news … Fed chair Powell warns that commerical real estate values could plummet because of crisis … if “financial system strain’s re-emerge”. Notice Powell makes a distinction between the economy and the financial system. Health crisis > Economic Crisis > Financial System Crisis (credit markets and banks).

The economy needs to generate revenue to make payments on the ginormous debts. If debts go bad, asset values collapse taking bonds and banks with them. Our guess is the Fed will print as many dollars as it takes in an attempt to stop it. Is the dollar strong enough to do it? What if it’s not? Get ready … to continue reading, click here >>

The next stop in the coronavirus cascading crisis tour …

If you’re tired of hearing about the COVID-19 coronavirus crisis … get over it.

We’re on the front end of a series of cascading crises that will likely affect every investor on the planet … including YOU.

Pretending it’s not happening … or blindly trusting the great and powerful wizards behind the curtains … or pulling the covers over your head and hoping for the best …

… will NOT make any of it go away.

Of course, HOW it affects you could depend on how well you pay attention, understand what’s happening, and take effective action.

There will be WINNERS … and LOSERS.

We’re far from experts, but we’re fortunate to have access to some of the smartest folks on the planet. And they’re ALL monitoring the crisis VERY closely. Seems like a good idea.

As you may know, we’re organizing an EPIC mega-webinar featuring discussions with MANY of our big brained friends to find out what they’re seeing, thinking, and doing.

We realize you’re being bombarded with information … we all are … so rather than just pile more on, let’s focus on creating some context to process all the info better.

It’s important to think about how the crisis is likely to spread …

What started out as a health crisis quickly mutated into an economic crisis as cities, states and nations worldwide virtually shut down in unison.

These lock-downs have suppressed both the supply and demand for all kinds of good and services.

Because the decreases in production and demand aren’t perfectly synced, there have been both shortages (toilet paper) and gluts (oil) … the effects of which range from inconvenient to devastating (no toilet paper?!?).

But that’s just the beginning …

Lock-downs stop revenue, profits and paychecks … which stops debt service.

This is where the economic crisis mutates into a financial system crisis. 

But unlike toilet paper and oil, the signs of stress in the financial system are harder to see. That’s why financial system failures blind-side many Main Streeters.

Yet there are many clues in the news IF you know what to watch for.

It starts with obvious headlines …

Coronavirus-caused spike of homeowners in forbearance surges on
– Fox Business via Yahoo Finance, 5/4/20

Of course, this surprises no one.

When people don’t have jobs and incomes, they can’t make mortgage payments. For those old enough, this elicits flashbacks to 2008.

Except now, it’s not just mortgages. It’s corporate debtconsumer debtmunicipal debt, public and private pensions, and much more.

Basically, virtually all IOU’s everywhere are in danger of going bad.

This is counter-party risk … when your asset is someone else’s liability … if they fail to perform, your asset loses some or all of its value.

Even your bank account (your asset) is your bank’s liability (they owe you). If the bank fails and you have more than the insured amount, YOU could have a problem.

Counter-party risk is EVERYWHERE in today’s debt-based system.

Yet while bad debt is one level of awful, it gets worse when gamblers in the Wall Street casinos use derivatives to magnify their gains.

Of course, the extreme leverage created through derivatives cuts TWO ways.

Sure, extreme leverage turns tiny gains into massive profits … but it can also turn bad bets into a systemic crisis.

We’ve gotten into the weeds of how all that works in the past, so we won’t rehash it now.

But the first clue in the news indicating stress in the financial system is when asset prices are falling and cash is running low …

… as everyone is madly selling everything and the kitchen sink to raise cash to cover margin calls on their bad bets.

Of course, that’s also when quality assets get caught in the downdraft, so if you’re aware and prepared (i.e., liquid), you can step in and snap up bargains.

Which leads to another clue in the news … savvy investors sitting on huge war chests of cash.

According to a recent Bloomberg article …

“assets in money-market funds have soared to a record $4.77 trillion amid a flight to safety by investors this year.”

Business Insider reports Warren Buffet’s Berkshire Hathaway has a record $137 billion cash pile.

Yet as Buffet explains …

“Berkshire’s cash pile isn’t overkill given the cataclysmic risks posed by the coronavirus pandemic.”

(Buffet is the same guy who called derivatives “weapons of mass financial destruction.“)

Now, with all these demands for cash, it isn’t surprising to see headlines hinting that there’s not enough to go around.

Interestingly, as you may recall, the current cash crunch didn’t grow out of the coronavirus crisis. It preceded it.

We noticed this back in September when the Federal Reserve started pumping billions of dollars per day into the repo market.

(The repo market is like a pawn shop for banks to hock T-Bills for dollars.)

Since then, the Fed has injected trillions of dollars directly and through Uncle Sam … driving interest rates down to zero … and perhaps negative …

… and stepping in to buy debt no one else can or will, including U.S. Treasuries, and now for the first time ever, corporate debt.

This is very similar to how the Fed put in a bottom to the free-falling mortgage-backed securities market back in 2008 … except WAY bigger.

All this suggests the financial system could be far more stressed than the wizards behind the curtain let on.

Which brings us to the final stop in our progression of dominoes from health crisis to economic crisis to financial crisis …

… a dollar crisis.

As we’ve been pointing out, the financial bondo the Fed is slathering all over the dents in the economy and financial system are dollars.

ALL the pressure is on the dollar, which should concern EVERYONE who earns, owes, spends, and denominates wealth in dollars.

The coronavirus health scare alerted the American politicians and public to a sick dependency on China for critical supplies like masks and medicines.

Naturally, Americans are uncomfortable with this dependency and lawmakers are preparing bills to bring the medical supply chain back to the USA.

Of course, as real estate investors, this interests us because it could mean the creation of new jobs in whatever regions land these factories.

But our point today is that just as Americans realize they don’t want to depend on an adversary for something as critical as life-saving medicines …

… Chinese (and Russians and others) similarly don’t want to depend on the U.S. for something as essential to commerce and prosperity as currency.

So as we first pointed out way back in 2013 in our Real Asset Investing Report, and later updated in our Future of Money and Wealth presentation, The Dollar Under Attack …

… the calls continue for a global alternative to the U.S. dollar as the world’s reserve currency.

And with the Fed conjuring trillions of new dollars out of thin air to prop up sagging asset prices, hold together collapsing credit markets, backstop virtually all insolvent corporations, states, plus the federal government, and suppress interest rates …

… the final stop on this cascading coronavirus crisis tour could be a dollar crisis.

So don’t get tired or bored of watching a slow-motion train wreck. Slow means you have time to get out of the way.

If you’ve been asleep up until now, it’s time to wake up. Because things are picking up speed.

Are you aware and prepared? Stay tuned …

Mortgage Rates Seen Below 3% With Fed Buying Low-Coupon Bonds

The Fed seems committed to propping up housing with nearly free money.  It’s probably a good idea to grab all you can and lock it in long term while you have still have equity.  Always nice to borrow cheap and long …  to continue reading, click here >>

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