Welcome to Part 2 of our discussion on the root cause of the current coming financial crisis and what you can do to survive and thrive.
We got a lot of positive feedback on Part 1 (thanks for that!) and folks have been anxiously waiting for this Part 2.
Fair warning: This is a whopper … and we didn’t get to everything. This easily could have been a three- or four-part series … or even a book or full day training series!
(We’re working right now on the video training … stay tuned!)
For now, we’re guessing most HIP (Hunkering In Place) people have more time these days, so we’re hoping you won’t mind the “bonus” material in this edition.
Last time we highlighted how the world is saturated in absurd, insane, unsustainable amounts of debt.
Debt is the cancer the Coronavirus crisis exposed, but the financial system disease pre-existed the virus. It’s been a concern of alert investors for years.
That’s because even the slightest disruption of payments can trigger downward spiral contagion of margin calls, fire sales, asset price deflation, and a lock down of credit markets.
That’s what happened in 2008 … and this portends to be MUCH bigger.
With global economies operating skeleton crews, commerce has declined precipitously and cash has stopped flowing.
It’s a global economic heart attack.
And with layers and layers of hypothecated debt daisy-chaining balance sheets of governments and financial institutions around the world …
… a wide-spread disruption of payments is an abject financial catastrophe of biblical proportions.
That’s why the PTB (powers that be) are desperately funneling freshly printed money directly to anyone (which is everyone) who has payments to make …
… while concurrently putting a faux bid on critical credit assets to prop up values and balance sheets.
And that’s just what we can see. Who knows what’s happening behind the curtain.
One thing few people are tracking or preparing for is the possibility the dollar might not be strong enough to paper over a global debt implosion.
It’s unnerving … yet important to pay attention because it takes time to react and things are happening big and fast.
So ready or not, the storm is here. However, the worst hasn’t hit yet … and when it’s over (this too shall pass), we expect there will be lots of opportunity.
Your mission is to get in position NOW so you can cash in when the clouds clear.
So if you haven’t read part 1, click here now to catch up.
Remember, there’s nothing you can do about events and circumstances outside your control. So while politics and philosophy are interesting …
… it’s best to focus on the short list of things you CAN control … so you can better react to those things you can’t.
Here are some suggestions …
First and foremost is MINDSET. How you think and what you believe affects your actions … and your actions determine much of what happens to you.
Mindset matters even more when facing adversity and chaos. Times like these can quash your enthusiasm and optimism.
You won’t see opportunities you don’t believe are there. And you won’t work or sacrifice to prepare if you’re convinced your efforts are futile. Hope is powerful.
Hope isn’t an irrational fantasy. In addition to the prescient warnings history gives us about the possible and probable dangers in the future …
… history tells us that tough times don’t last because humans always find a way to both survive and thrive. If they didn’t, we wouldn’t be here.
Of course, just because some people thrive … doesn’t mean YOU will. But if some can, then so can you … and it starts with mindset.
Equip yourself with knowledge, wisdom and perspective. It’s important to increase your education in the things that matter most.
If all this financial system, macro-economic, geo-political mumbo-jumbo is new to you, it can be overwhelming. But so was algebra … and most of us figured it out.
Think about how much time, effort, energy, money, and thought you put into earning, spending, saving, and managing “money”.
Then remember that all those activities fit inside a complex system … with powerful people and institutions either influencing or directly controlling critical factors.
Can you afford NOT to take your financial education SERIOUSLY?
Of course, you’re reading this, so we’re preaching to the choir. Your mission is to go evangelize to the world.
Every person you inspire to take effective action to grow and protect their wealth makes the very society YOU live and invest in more prosperous … both for you and everyone else.
We’re all in this together and we need each other to succeed. And speaking of others …
The next thing you can work on is your network … or what our friends Chris Martenson and Adam Taggart at Peak Prosperity call “social capital”.
The old cliché, “It’s not what you know, but WHO you know that’s most important” became cliché for a reason. It’s TRUE.
Your network of fellow investors, mentors, advisors, and boots on the ground teams are essential sources of wisdom, intelligence, deals and capital.
Yes, it’s temporarily harder to get together physically in today’s wild world of compelled isolation …
… but it’s also never been easier to find and connect with other people through technology.
Of course, reconnecting with your party friends from college and complaining about being locked down isn’t what we’re talking about.
Be diligent to build relationships with the RIGHT people … those who are realistically optimistic, studious, thoughtful, connected, and active.
Just go watch It’s a Wonderful Life to remind yourself of the value of social capital.
Okay … we’re guessing by now we’ve already lost some of the left-brained engineers. But if you don’t make mindset, education, and strategic relationships a priority …
… all the tactical training in the world can’t help you because you probably won’t have the emotional, intellectual, or relationship capital to take action.
If money solved all the problems, we wouldn’t be having a crisis.
Now with all that said, let’s take a look at a few things the window of opportunity could be closing on. If you can’t focus on everything, these are worthy of top of list consideration …
(Remember … we don’t give professional legal, tax, or investing advice. We simply share ideas for your consideration as you consult with your own advisors and mastermind group.)
Cash is like oxygen.
If it stops flowing in from commerce, you need to breathe from your balance sheet … by either liquidating assets or tapping into credit lines.
When you know you’re headed underwater, it’s smart to take a DEEP breath … before it’s too late. History says when you need credit the most, it’s least likely to be there for you … in spite of the marketing slogans.
Look at an experienced player like Ford Motor Company. They borrowed heavily in 2006 ahead of the 2008 crisis … and survived without a bailout (unlike GM).
And Ford just did it again.
They’re not the only ones. MANY seasoned CFOs are drawing down credit lines even as credit markets are tightening.
Meanwhile, in a desperate attempt to keep credit markets open and backstop everyone, the Fed is printing as many dollars as it takes … and it’s taking a LOT.
We think investors who get liquid while they have equity and access to affordable credit will be happy campers down the road.
After all, in a crisis cash is king. Or is it?
Actually, it’s liquidity that’s king. So while dollars are the life-jacket du jour right now, they may not be the lifeboat you’re looking for.
Even though we’re The Real Estate Guys™, we’ve been around long enough to remember when dollars and money were the same thing.
The coins we’d buy our comic books with were made of silver. And dollars the U.S. printed were simply coupons redeemable for the real money … gold for foreigners and silver for citizens.
Of course, all that changed decades ago. In 1965, the United States stopped minting money and started minting zinc-plated copper tokens.
Gresham’s Law says when bad money is introduced into an economy, the good money goes into hiding. Good luck finding a silver coin in your change at the grocery store.
In 1971, President Nixon told the world their gold-backed dollars were no longer gold-backed. But while the dollar stopped being money, gold didn’t.
That’s why that $35 ounce of gold in 1971 is now worth $1600. The gold didn’t change. It’s still 1 ounce. It just takes a lot more dollars to buy it.
So an ounce of gold in 1971 was a better long-term store of value than 35 dollars.
There’s SO much to say on this one topic. For now, we’ll focus on just a few important points …
Precious metals give you a place to park liquidity outside of counter-party risk where you can pivot into virtually any currency. Those are two nice features in many forms of crises … including a dollar crisis.
Precious metals are real … just like real estate. When currencies fail, anything real is worth more than paper money. Look at toilet paper in Venezuela.
People are confused and confounded by metals because they think of them like a share of stock or a piece of property … just a something to flip for capital gains … in dollars.
Part of getting real is learning to think of wealth and profit in non-dollar terms. It’s not easy … especially for Americans.
So while traders use metals (or more accurately, futures contracts) to flip for dollars … cash flow investors complain precious metals don’t produce a yield, so what good are they to hold?
Yet, Mr. Cash Flow himself, Robert Kiyosaki, is a serious collector of metals. Think about that.
We find it easier to think of precious metals as equity.
And when we have equity in properties and we’re not ready to use to buy more properties, we’d rather have it in metals than in dirt.
As much as we love real estate equity… it’s very fickle, fragile, illiquid, non-private, and accessible to predators.
At the Future of Money and Wealth conference, we explained a simple strategy to convert real estate equity into precious metals …
… while improving cash flow, privacy, asset protection; reducing taxes and counter-party risk;
… and simultaneously hedging equity against both inflation and deflation.
Whew! That’s a lot of output from one simple strategy. And you can’t do it with paper assets.
Folks who were there in 2018 and acted on this idea are likely VERY happy they did. They probably made MANY times what they invested to attend the conference.
Of course, there were also those who “saved” by NOT attending. Remember, how you think affects what you do, which affects your results.
The MAIN point is it’s not too late to take a good look at precious metals as an alternative to cash (especially in the bank) for your liquid reserves.
This is probably the most boring of preps, but still super-important for anyone with a lot to lose. Crises can make people crazy.
Frightened people are buying guns, dogs, and security systems to protect against the possibility of desperate and hungry street thugs from taking their treasures.
But when stuff gets weird, street thugs aren’t the only people who are desperate and hungry.
So are opportunistic tenants, employees, customers, and their lawyers.
If your lawsuit protection and insurance structures aren’t updated and robust, NOW is a great time to evaluate them.
The best time to repair the roof is while the sun is shining. The next best time is when dark clouds are forming, but the deluge hasn’t hit yet. Like NOW.
Get Going … and Going … and Going …
You probably know there’s a WHOLE lot more to riding out this storm.
Here are some closing tips … and we’ll have a lot more in the Crisis Investing video series we’re putting together.
This is probably a great time to revisit your financing and lock in low rates long term on properties you plan to keep.
It’s a great time to review or develop a serious tax-saving strategy to help pay for your “roof repairs”.
Explore all your options under the various stimulus bills and loan programs.
Consider helping your tenants explore their options for financial help. After all, some of those funds can be used to pay you rent.
Be proactive with your lenders to be sure you understand your options if you do suffer a reduction in rents.
That’s defense. But you can’t score without paying offense.
Even if you’ve restructured and gotten liquid, you might need extra reserves to ensure your own stability through the storm. But it’s hard to play offense without resources.
So if you don’t have enough funds to capture all the opportunities you anticipate, the timing has never been better to learn to raise private capital.
Sure, lots of stock market millionaires may find themselves demoted to the thousandaire club.
But the multi-millionaires … the millions of people with a few million or more left over … even after a nasty bloodletting … are going to be eager to rebuild.
Those folks have capital to invest. And while they may be interested in real estate, they may not want to get their hands dirty.
YOU can help them … for a slice of the pie. When you get a few of those people on your bus … all your little slices add up, so you can play big without taking big risks.
Lastly as we’ve been saying since 2008, markets and teams matter.
Picking the geographies, demographic, product types MOST likely to prosper in the coming economic environment is a more important than ever. And wherever that is you’ll need to have (or be) a great boots on the ground team.
With all this stimulus still rolling out, it’s not yet clear where, when, and how the trillions will make its way to Main Street.
But the Fed and the politicians are DESPERATE to get the cash into circulation.
You can bet we’ll be watching how all this plays out and which markets benefit most … as should you … and all the people in your strategic network.
One thing is certain …
No matter how the world changes, people will still need real estate to live, work, farm, and play on.
So stay tuned because as you can tell, we have a LOT to say on this topic. After all, we’ve been preparing for this time for over a decade.
Until next time … good investing (from a safe distance)!