One of the primary purposes of easy money (“quantitative easing” or QE) is to inflate asset prices, bloat balance sheets, and create a wealth effect.
The formula is simple. Print gobs of money, buy bonds to drop interest rates, and flood the markets with liquidity.
Corporations borrow cheap money to buyback stocks … pushing stock prices up and triggering big bonuses for execs.
Corporate raiders borrow cheap money leveraging operating cash flow into leveraged buyouts … triggering mega-mergers and acquisitions … and fat fees.
Real estate investors borrow cheap money … leveraging rental income into big mortgages … bidding up prices, creating lots of equity, and compressing cap rates.
Even everyday homeowners get in on the action … borrowing cheap money and leveraging their paychecks into big mortgages … pushing up prices and creating lots of equity.
And some of the equity boom in real estate comes from folks moving some of their stock equity into fancier houses.
Of course, from a portfolio management perspective, it’s probably not a bad idea to reposition fickle, volatile paper equity into boring, stable real estate equity.
For those with real estate equity in bubbly markets, it’s probably a good idea to consider repositioning some of that equity into less bubbly real estate markets.
After all, if quantitative easing was about inflating asset prices … what’s the likely outcome of quantitative tightening?
Right now, the Federal Reserve is raising rates and shrinking its balance sheet … which is the OPPOSITE of what they did to inflate asset prices.
So it’s reasonable to be concerned about the equity on your balance sheet. If the prices of your stocks and real estate fall, so does your equity.
This all begs the big question … how can you protect your equity from bursting bubbles?
Aside from selling everything and sitting in cash … which has its own risks … one strategy is to simply reposition equity into assets which are less affected by leverage.
Of course, these strategies are easy to talk about. But in the real world, it takes some work to actually implement them. And it starts with education.
But you’ve read this far, so you’ve already begun the process. Good job!
We get into much greater detail in the Future of Money and Wealth video series.
In fact, in module 13 of 20, there’s a detailed strategy (too big to explain here) for repositioning equity for wealth preservation, privacy, and increased cash flow … and some other VERY cool benefits.
But there’s more to protecting equity than simply understanding a strategy.
If you’re going to move equity from highly-leveraged stock or real estate markets into less-leveraged real estate markets, you’ll need to find and learn those markets.
One of our favorite un-leveraged real estate markets is Belize.
There’s a long list of reasons why we like a very specific market in Belize, including the fact it’s not leveraged … yet.
That’s because getting wealth into non-leveraged real estate markets insulates your equity if credit markets seize up like they did in 2008.
Just look back on what happened in Texas in the financial crisis that temporarily wiped out lots of equity for a several painful years …
Sure, you could get loans in Texas … but Texas law restricted some of the more aggressive lending. So less air got into Texas values.
That’s a big reason why the Texas markets didn’t bubble as much as other markets, which made it boring pre-crash … but VERY attractive post-crash.
Well, Belize was even MORE stable than Texas going through the crisis … and that was before Belize had as much global exposure and demand to prop it up as it has today.
We thought Belize made sense heading into back then and we like it even better today. That’s why we continue to share it with people through our discovery trips.
It’s not for everybody, but we think everyone would be wise to take a closer look.
Last year, Hilton Hotels decided to plant a flag in Belize. Marriott just announced earlier this year. Big players like this little market for a reason.
When you see big brands making moves into a market, it’s a leading indicator of market strength.
And when you have a chance to get in a market BEFORE leverage arrives, you have a good chance of catching a big equity wave.
Of course, if the leverage never happens … you simply have a chunk of your wealth parked in a stable market with some VERY desirable lifestyle perks.
So whether you do it in your own account or with partners through syndication, Belize is a market to consider right now … and you can learn all about it on our next fun-filled discovery trip to beautiful Belize.
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