If you’re a newshawk like us, you’ve probably noticed the world is a little crazy. Even something as mundane as money and wealth has become weird.
The most obvious case in point is the dramatic rise and retreat of Bitcoin.
In 2017, something triggered a rush of money into Bitcoin … driving it from $1000 in early January to a peak of nearly $20,000 less than a year later.
Pundits are still trying to divine what happened and why. Of course, what’s just as interesting is how the world reacted.
The People’s Bank of China (PBOC), which is China’s version of the U.S. Federal Reserve, has moved aggressively to crush cryptos.
Okay. But does that matter if you’re not Chinese or a Bitcoin buyer? How does any of this relate to Main Street real estate investing?
Patience, grasshopper …
China’s not the only government attacking private cryptos. Six others have already banned it, though they admittedly aren’t big players.
But India is reportedly about to join the anti-crypto club. They’re pretty big.
South Korea (home of Samsung, LG and Hyundai) is another biggie that’s floating the idea of banning cryptos.
Of course, legislation isn’t the only way to attack an alternative to government issued currency …
We’ve been listening to precious metals pundits allege that central banks … surreptitiously through their agents … use futures contracts to manipulate the price of gold and silver.
Interesting. Let’s put on our tinfoil hats and think about it …
According to this CNBC report, Bitcoin started trading on the futures exchanges on December 18th.
This chart shows Bitcoin’s price peaked at $19,180 on Sunday, December 17th.
But since then, Bitcoin’s been declined sharply … all the way down to under $7000 this week. That’s a HUGE decline. And it started December 18th …
Weird. Probably just a coincidence.
Of course, the story of cryptos and their impact on the future of money and wealth is a MUCH bigger discussion.
But we think it’s safe to say that cryptos are here to stay in some shape or form.
What’s also interesting is how governments are now connecting cryptos to both gold and oil … linkages which are the heritage of U.S. dollar dominance.
Meanwhile, Russia (the world’s largest producer of oil) and China (the world’s largest consumer of oil) have both been accumulating TONS (literally) of gold.
According to this article in the India Times, “The Chinese central bank is trying to diversify from the US dollar on which it has become overly reliant”
(Side note: you might want to think about how reliant YOU are on the dollar … maybe China knows something …)
This article in Russia affirms the role of gold in diversifying away from the U.S. dollar.
Apparently, gold does actually have a role in global economics … even though most Americans think of it as a barbarous relic or merely a trading tool to accumulate dollars.
But major sovereign nations are using gold as a hedge against the U.S. dollar.
Smart. Turns out 2017 was the dollar’s worst performance in 14 years.
So if Bitcoin and gold each expose the dollar’s weakness … it’s not totally shocking the issuer of dollars, the Federal Reserve, might want to see both Bitcoin and gold prices held down.
We’re not saying the Fed is behind any alleged suppression. But we’re not saying they aren’t. We don’t know.
But in this surreal world where we’re not quite sure of the real motivations of those in power, nothing would surprise us.
The bigger questions are … what does it all mean to Main Street investors and how can we position ourselves to both grow and protect wealth in this crazy world?
Here’s some thoughts …
If the dollar is doomed to continue its 100+ year decline … then debt and real assets are your best friend.
Debt lets you pull future dollars into the present, where you can use them at today’s purchasing power (stronger than the future’s) to acquire things of real value.
By “real value” we mean utility … things that provide permanent and essential service to people. Food, housing, farmland, energy, and commodities all come to mind.
Of course, when you use debt, you have those pesky payments.
So it’s REALLY nice when you can acquire real assets that produce enough cash flow to service the debt you used to buy them. They literally pay for themselves.
Naturally, debt-financed income-producing real estate is arguably one of the best investment vehicles in a falling dollar environment.
You can buy it with relatively cheap debt and use the income to service the debt.
Over time, as the dollar falls, the dollar price of the property rises while the debt stays fixed.
Not only that, but a debt-ridden government is highly motivated to perpetuate a weakening dollar (inflation), which benefits all debtors … including YOU.
In other words, using debt aligns your investing with the government’s motivations and likely actions.
Nice. But it gets better …
Because real estate provides housing for people … who vote, work, and have pitchforks … or in the case of the USA, AR-15s …
… governments are much more motivated to SUPPORT real estate than attack it.
They might go after cryptos (until they can issue their own). They might go after gold again.
They might print free money for their friends in Wall Street to blow up paper asset bubbles and drive down interest rates (nice, if you’re a real estate investor).
But if they attack real estate … that hits home (literally) … and it’s a revolution.
That’s why, as we saw in 2008, even when they screw up and real estate is collateral damage to their financial shenanigans …
… governments, central banks, Wall Street, and even corporate America all rally to prop up real estate.
From that stand point, people still hold the power. And people live, work, and depend on real estate.
So to keep things real in a surreal world, you could do a lot worse than making real estate the anchor of your investment portfolio.
Until next time … good investing!
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