Some people like watching birds. Others auto racing. When we were young, watching submarine races was pretty popular.
Today, we’re die-hard Fed watchers.
The Fed is THE giant elephant in the economy we’re all trapped in … and whether the Fed likes us, hates us, or doesn’t know we exist …
… if the elephant steps on you, you’re CRUSHED.
It happens all the time, though they’re really good at pointing the finger elsewhere.
Of course, we’re not the only obsessive-compulsive Fed watchers.
If you watch mainstream financial media, you know they hang on every word or hint that proceedeth out of the mouth of Powell and associates.
And speaking of accomplices, former Fed chair and now Treasury Secretary Janet Yellen let a big one slip the other day …
“At a conference hosted by the Atlantic magazine she conceded something glaringly obvious to someone who had just taken Econ 101, much less earning a PhD:
‘It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat . . .’”
Of course, real estate investors care a LOT about interest rates. Not just because of mortgages and cash flow. Rising rates add costs to EVERYTHING.
Interest rates, like energy costs and taxes, increase FRICTION in the economy … slowing it down.
For entrepreneurs and investors, rising rates makes it harder to start or grow businesses, create jobs, increase wages, or finance investments.
As for tenants, higher rates make life much for unaffordable. Rent and rent increases are harder to handle. This, of course, is felt by landlords.
At the macro level, rising rates have many interpretations and ramifications … and under current conditions, most of them aren’t good.
If the Fed raises rates on purpose, it’s an admission of inflation. This flies in the face of the official narrative that skyrocketing prices are “transitory”.
Janet Yellen implied … then denied … rising rates are coming to cool an “overheating economy” (Fed-speak for “inflation”).
Remember: Janet Yellen was the Fed chair and is now the Treasury Secretary.
Now if rates go up despite the Fed’s attempts to control them, it’s a MUCH bigger problem … and a potential signal the dollar is in serious trouble.
That’s because lenders (bond buyers) are demanding higher yields to compensate for inflation.
So bond buyers lower their bids to drive up yields … to the point where they realize a positive net yield over inflation.
We can see your eyes glazing over, but it’s really simple.
After all, would you lend someone a dollar when it might by one-third of a gallon of gas only to be repaid in dollars what will only buy one-quarter a gallon of gas?
You’d need enough interest on the loan to absorb the loss of purchasing power PLUS provide a “real yield” net of inflation.
Bond buyers feel the same way.
So, if a bond is paying a 2% “coupon” (yield based on the face value of the bond), but inflation is 3% …
… if the bond buyers wants a REAL (net) positive 2%, they need to get 5% on their investment … 3% to compensate for inflation and 2% real gain.
So they LOWER their bid on the bond until they get the yield they want to cover inflation and pay a net positive “real yield”.
Well, almost … because the Fed heavily, overtly, routinely manipulates the bond market in order to tinker with rates and “manage” the economy.
So when the real market participants (not the Fed) won’t buy bonds at the right price to create the yields (interest rate) the Fed wants …
… the Fed prints money out of nothing (there’s a lot of that going in right now) and buys the bonds.
Since the money is free to them, they can bid UP the bond prices to anything they want in order to hit their target.
Of course, all this printing devalues the dollar, which causes inflation, which lowers the private bid (trying to compensate for inflation) …
… which means more Fed bond buying … with more printed money, which further devalues the dollar, which causes even more inflation …
… into an ugly downward spiral.
So ALL the pressure is on the DOLLAR.
Precious metals are reflecting dollar weakness. As is lumber, energy, food, housing, copper … pretty much everything.
Many of us Fed watchers have been watching this scenario develop over the last several years.
It’s been like floating along in a slow-flowing river … until the waterfall.
Are we saying the dollar’s going over the edge?
Not necessarily. But maybe. Like death, it’s probably inevitable. No human gets out of this life alive. No fiat currency has EVER survived.
So it’s probably not a matter of IF, but WHEN … and most importantly, how prepared are YOU?
Of course, preparation starts with awareness.
Kudos that you’re on our list and you’ve read this far. Most people prefer entertaining sound bites and motivational memes.
We put in a TON of effort into monitoring the news, talking with our big-brained friends, and thinking about what it all means to real estate investors.
And in case there’s any doubt, the Fed’s shenanigans directly affect real estate …
Dallas Fed President Robert Kaplan also hinted at letting rates rise …
“I think it will make sense to at least start discussing how we would go about adjusting these purchases and start having those discussions sooner rather than later …”
What “purchases” is he referring to?
“The Fed has been buying $120 billion per month of Treasurys and mortgage-backed securities, and has kept interest rates close to zero, in an effort to support the economy.”
In case you don’t know, $120 billion per month is still a lot of currency to fabricate out of thin air … and 50% more than at the peak of the 2008 Great Financial Crisis.
So think about it …
If your doctor is prescribing 50% more medicine now as compared to when you were on your deathbed … it’s hardly an indication of good health.
But as you can see, this is how the Fed suppresses interest rates … by printing money … and devaluing the dollar.
It’s not real economic health of wealth. You get rising prices (usually a sign of growth) with stagnating productivity (a sign of recession) …
This article has a lot of wonky data, but the s2ort of it is that productivity is down, prices are up, so there’s less stuff and it costs more … like CRAZY more …
Soaring lumber prices add $36,000 to the cost of a new home
– CNBC, 4/30/21
It’s a WEIRD world we’re living and investing in.
The numbers are confusing. How can the Dow Jones hit another record high, while productivity is down?
Okay, loaded question. It’s called “nominal confusion” and we dissected it last time as we explored why inflation destroys the uninformed.
Here’s the bottom line …
Americans haven’t seen stagflation in over 50 years.
So unless you’re well into collecting social security checks, you’ve never navigated stagflation before … and neither have most of the people you know.
Stagflation may not be a unicorn, but it’s a rare beast and difficult to ride.
But there’s no opt-out. There are very few places to hide, including and perhaps ESPECIALLY in cash.
So how are professional investors, thought-leaders, niche experts, and economic insiders approaching this challenge?
That’s what we’re going to discover during the upcoming Investor Summit.
We’re pretty sure a week with our stellar faculty and nearly 200 seasoned investors and niche experts will give us LOTS of insight and ideas.
Sure, we’ll come back and share as much as we can with general audience.
But it’ll be like someone watching a movie and then giving you coffee-break synopsis.
Yes, you’ll get some takeaways, but it’s NOTHING like being there … soaking it all in (and some beautiful Caribbean sunshine too!) for yourself.
The Summit is coming up FAST … and we’re very close to sold out. BUT there’s still time to add SIX more couples.
You’ve read this far. We’re guessing you KNOW there’s something lurking under all these pretty green lights. Clearly, it’s not sustainable.
Maybe you have a plan. Just remember hope isn’t a strategy. Think and do is better than wait and see. That’s why we invite you to hang out with big thinkers.
We’ve also just confirmed G. Edward Griffin … the author of The Creature from Jekyll Island … who’s nearly 90 years old … and remembers the 70’s.
Plus, we have another two new surprise headliner faculty members we’re not announcing until the event begins.
It’s going to be EPIC … and perhaps the MOST important Summit of our 19 years. We’ve NEVER had anyone tell us the Summit isn’t better than we say.
Now if you’re feeling like this was just a great big sales pitch, it was. But not for our sake. Six more couples is not going to make or break the Summit.
But for those six couples … or twelve singles … or any combination thereof …
… this Summit just might be the difference between thriving and merely surviving … as the likely “great reset” which is beginning seems inevitable.
But whether you join us in June for the Summit or not, we urge you to
take a GOOD look at what’s happening and get serious about your personal preparations.
Fortunes will be made and lost.
The difference will be what you see, how fast you see it, how effectively you prepare, who you’re connected to, and your ability to process rapid change.
The Summit is here to help you get connected to the right ideas, people and opportunities. And it’s a TON of fun. Disneyland for investors.
Just ONE great idea, relationship or opportunity can easily make the investment of time and money WELL worth it.
That’s probably why so many people come back year after year.
We hope you join us! Click here now to make it happen >>