Now the Fed’s up to $400 billion …

Last week the Fed pumped over $200 billion of freshly printed cash into the repo market.

Since then, the Fed’s upped the ante to $400 billion … and counting.

For those young or asleep during the 2008 financial crisis …

… back then, the Fed provided an infusion of $85 billion per month to keep the wheels on the financial system bus.

Today, they’re pumping in nearly that much PER DAY.

That’s MIND-BOGGLING.

They’re trying to keep interest rates DOWN to their target. Of course, interest rates matter to real estate investors. We typically like them low.

But this isn’t about real estate. It’s more about banks who hold debt (both mortgages and bonds) on their balance sheets.

As we explained last time, when interest rates rise, bond values fall

… and a leveraged financial system with bonds as collateral is EXTREMELY vulnerable to collapse if values drop and margin calls trigger panic selling.

The Fed seems willing to print as many dollars as necessary to stop it.

And that brings us to an important question …

If the Fed can simply conjure $400 billion out of thin air in just a week … is it really money?

This matters to everyone working and investing to make or save money.

For help, we draw on lessons learned from our good friend and multi-time Investor Summit at Sea™ faculty member, G. Edward Griffin.

Ed’s best known as the author of The Creature from Jekyll Island. If you haven’t read it yet, you probably should. It’s a controversial, but important exposé on the Fed.

In his presentation in Future of Money and Wealth, Ed does a masterful job explaining what money is … and isn’t.

In short, money is a store of energy.

Think about it …

When you work … or hire or rent to people who do … the energy expended produces value in the form of a product or service someone is willing to trade for.

When you trade product for product, it’s called barter. But it’s hard to wander around town with your cow in tow looking to trade for a pair of shoes.

So money acts as both a store of value and a medium of exchange.

The value of the energy expended to create the product is now denominated in money which the worker, business owner, or investor can trade for the fruits of other people’s labor.

This exchange of value is economic activity.

Money in motion is called currency. It’s a medium of transporting energy. Just like electricity.

When each person in the circuit receives money, they expect it has retained its (purchasing) power or value.

When it doesn’t, people stop trusting it, and the circuit breaks. Like any power outage, everything stops.

So … economic activity is based on the expenditure and flow of energy.

This is MUCH more so in the modern age … where machines are essential to the production and distribution of both goods and information.

Energy is a BIG deal.

This is something our very smart friend, Chris Martenson of Peak Prosperity, is continually reminding us of.

Here’s where all this comes together for real estate investing …

New dollars conjured out of thin air can dilute the value of all previously existing dollars.

It’s like having 100% real fruit juice flowing through a drink dispenser.

If someone pours in a bunch of water that didn’t go through the energy consuming biological process of becoming real fruit juice in a plant…

… the water is just a calorie free (i.e., no value) fluid which DILUTES the real fruit juice in the dispenser.

Monetary dilution is called inflation.

Legendary economist John Maynard Keynes describes it this way

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Inflation waters down real wealth.

Fortunately, real estate is arguably the BEST vehicle for Main Street investors to both hedge and profit from inflation.

That’s because leverage (the mortgage) let’s you magnify inflation’s effect so your cash-on-cash ROI and equity growth can outpace inflation.

Plus, with the right real estate leverage, there’s no margin call. Meanwhile, the rental income services the debt.

Even better, the income is relatively stable … rooted in the tenant’s wages and lease terms. Those aren’t day-traded, so they don’t fluctuate like paper asset prices.

Effectively, you harness the energy of the tenant’s labor to create resilient wealth for yourself. And you’re doing it in a fair exchange of value.

Of course, the rental income is only as viable as the tenant’s income.

This brings us back to energy …

Robert Kiyosaki and Ken McElroy taught us the value of investing in energy … and markets where energy is a major industry.

First, energy jobs are linked to where the energy is. You might move a factory to China, but not an oil field. This means local employment for your tenants.

Your tenants might not work directly in the energy business, but rather for those secondary and tertiary industries which support it. But the money comes from the production of energy.

Further, energy consumers are all over the world, making the flow of money into the local job market much more stable than less diverse regional businesses.

It’s the same reason we like agriculture.

While machines consume oil, people consume food. Both are sources of essential energy used to create products and provide services.

So when it comes to real estate, energy, and food … the basis of the investment is something real and essential with a permanent demand.

Though less sexy and speculative, we’re guessing the need for energy and food is more enduring than interactive exercise cycling.

Real estate, energy and agricultural products, are all real … no matter what currency you denominate them in.

And the closer you get to real value, the more resilient your wealth is if paper fails.

Right now, paper is showing signs of weakness. But like a dying star, sometimes there’s a bright burst just before implosion.

Remember, Venezuela’s stock market sky-rocketed just before the Bolivar collapsed.

Those who had real assets prospered. Those who didn’t … didn’t.

Are we saying stocks and the dollar are about to implode? Not at all. But they could. Perhaps slowly at first, and then suddenly.

If they do and you’re not prepared … it’s bad. It you’re prepared and they don’t … not so sad. If they do and you’re prepared … it could be GREAT.

Real assets, such as well-structured and located income property …

… or commodities like oil, gold, and agricultural products (and the real estate which produces them) …

… are all likely to fare better in an economic shock than paper derivatives whose primary function is as trading chip in the Wall Street casinos.

So consider what money is and isn’t … the role of energy in economic activity … and how you can build a resilient portfolio based on a foundation of real assets.

“The time to repair the roof is when the sun is shining.”
John F. Kennedy

Until next time … good investing!


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The Fed pumps $200 billion into system in THREE days …

It’s been a busy week of alarming financial news!

Of course, events that rattle financial markets sometimes barely register to real estate investors. That’s because rents and property values aren’t directly involved in the high-frequency trading casinos of Wall Street.

So while paper traders frantically scramble to avoid losses or skim profits from currency flowing through the machinery …

real estate investors calmly cash rent checks and wonder what all the fuss is about.

However, as seasoned investors discovered in 2008 …

Wall Street’s woes sometimes spill over and become Main Street blues … primarily through the linkage between bond markets and mortgages.

So even though the Saudi oil almost-crisis garnered a lot of attention …

something BIG happened in an obscure corner of the financial system which has alert observers concerned …

Repo Market Chaos Signals Fed May Be Losing Control of Rates
Bloomberg, 9/16/19

Repo Squeeze Threatens to Spill Over Into Funding Markets
Bloomberg, 9/17/19

And no, this isn’t about people losing their cars or homes. It’s about systemically important part of the financial system.

Before you tune out, remember …

… when you see words like chaos and losing control and “spill over” in the context of interest rates and funding markets … it’s probably worth digging into.

When credit markets seize up, asset prices collapse. While this is troublesome for Main Street … it’s DEVASTATING to the financial system.

And when the financial system breaks down, it affects EVERYONE … even smug real estate investors who might think they’re immune.

So grab a snack and let’s explore what’s happening …

Wall Street operates on obscene amounts of collateralized leverage. Real estate investors use leverage too, but there’s an important distinction.

There are no margin calls on real estate. So when property values collapse temporarily for whatever reason, positive cash flow let’s you ride out the storm.

Not so in bond markets. When the value of a bond that’s pledged as collateral falls, the borrower faces a margin call.

This means the borrower needs cash FAST. This is a risk of the game they play.

But when traders are confident they have ready access to cash at predictable and reasonable prices, they stay very active in the market.

This is important because healthy markets require an abundance of assets, cash, buyers, sellers, and TRUST to keep things moving.

When any one falters, markets slow down … or STOP … credit markets can freeze, economic activity stalls, and it hits real estate investors too.

The head Wizard at the Fed says not to worry … just like they said about the sub-prime problem back in 2007.

Fool us once, shame on you. Fool us twice, shame on us.

But we’re far from expert on the repo market, so we encourage you to read up on what it is and why everyone’s talking about it.

Meanwhile, we’ll hit the high notes to get you started …

In short, the repo market is where short term borrowing happens. It’s like a pawn shop where market participants hock bonds to raise some cash.

But when repo rates spike like this …

image

 

Source: Bloomberg

… it means there’s not enough cash to go around.

Cash is like oxygen. You can live for a while without food (profit) or water (revenue) … but when you’re out of cash, it’s game over.

No wonder Wall Street freaked out …

‘This Is Crazy!’: Wall Street Scurries to Protect Itself in Repo Surge
Bloomberg, 9/17/19

Of course, we don’t really care if Wall Street takes it on the chin.

But when craziness on Wall Street has the potential to spill over to Main Street, we pay attention.

In this case, the situation is dire enough the Fed stepped in with $53 billion of emergency cash … in ONE day.

This is the first time since the 2008 financial crisis the Fed’s needed to do this.

The next day they added another $75 billion.

Then the Fed announced another rate cut … and hinted at more rate cuts … and suggested a willingness to print more money.

Then the VERY next day …yet ANOTHER $75 billion.

$53 billion here. $75 billion there. Pretty soon you’re talking serious money … in this case about $200 billion in THREE days … and quite possibly a serious problem.

So what? What does any of this mean to real estate investors?

Maybe not much. Maybe a lot. We certainly hope the Wizards behind the curtain pull the right levers the right way at the right times.

But if this is a pre-cursor to The Real Crash Peter Schiff is concerned about, things could become more complicated than “just” a 2008-like collapse of asset prices.

As we chronicle in the Real Asset Investing Report and the Future of Money and Wealth video series, the world’s faith in the Fed and dollar were shaken after 2008.

Meanwhile, negative interest rates on nearly $17 trillion in global debt is a symptom of a huge bond bubble today.

Here’s why …

Just as rental property cap rates fall when investors bid prices up … so do bond yields fall when investors bid bond prices up.

And just like when over-zealous real estate speculators bid property prices up to negative cash flow … so over-zealous bond speculators have bid bond prices up to negative yields.

Negative yields are a symptom of a speculative bubble.

These unsustainable scenarios typically end badly when there’s no greater fool left to bid the price up further.

And then, when the market goes “no bid” … prices collapse. Bad scene.

Remember, bonds are the foundation of the credit market and financial system.

This repo problem is like finding a big crack in the foundation of your favorite property.

The bigger concern is the size of the building sitting on the faulty foundation … and how much it might take to patch the crack.

So here’s the inspection report …

Global debt is around $250 TRILLION. These are bonds … many of which are pledged as collateral for loans … creating an almost incomprehensible amount of derivatives.

Worse, many of those pledged bonds are subject to margin calls.

This is a HIGHLY unstable situation and operates largely on trust.

Think about what happens if bond prices fall …

Borrowers who pledged bonds are upside down and need to raise cash fast.

When they get to the market, they find there aren’t enough dollars to go around. Cash starved sellers start discounting to attract buyers … causing rates to rise.

Again, it’s just like trying to sell an apartment building in a slow market. As you lower the price, the cap rate (yield) goes UP.

As yields rise, bond values everywhere fall … triggering more margin calls, more demands for cash, more desperate sellers … and a dismal downward death spiral.

And then it spreads …

As the demand for cash grows, anything not nailed down is offered for sale … often at a steep discount to compete for a limited supply of dollars.

This is contagion … falling prices spreading like wildfire across daisy-chained balance sheets.

Yikes. (Of course, if you have cash, it’s a shopping spree)

Enter the Fed’s printing press to save the day. But this ONLY works long-term if the market TRUSTS the Fed and their printed product.

In 2008, the world worried as the Fed took its balance sheet from $800 billion to $4.5 trillion. And that was just to paper over the now relatively small sub-prime mortgage mess.

It worked (temporarily) partly because the world didn’t have much choice. Dollars were the only game in town.

Today is much different than 2008. The world is wiser. Alternatives to the U.S. dollar and financial system exist or are being developed.

And the SIZE of the potential implosion is MUCH bigger than 2008.

Meanwhile, the Fed has already returned to lowering rates … and now is injecting substantial amounts of fresh cash into the system.

The question is … can the Fed print enough dollars to paper over a serious bond implosion … and if they do, will the world still trust the U.S. dollar?

Perhaps this is why central banks have been loading up on gold.

Coming back down to Main Street …

Whether the repo market is a canary in the coal mine signaling looming danger … or just a friendly wake up call to stay aware and prepared for something else later …

… there are some practical steps Main Street real estate investors can take to build a little more resilience into their portfolios.

First is education. The more you understand about how things work and how to recognize warning signs, the sooner you’ll see shifts so you grab opportunity and dodge problems.

It’s why we constantly encourage you to study, attend conferences, and get into meaningful conversations with experienced investors.

Next, it’s important to pay attention.

Most of what’s happening is widely publicized. But things are easy to miss when events don’t seem directly relevant to your Main Street life. They often are.

From a practical portfolio management perspective, it’s probably a great time to lock in low rate long-term financing, cash out some equity and retain a good level of liquidity.

When prices collapse, cash is king … and credit doesn’t count.

Be attentive to cash flows in current and future deals.

Invest in keeping your best tenants and team members happy. Look for ways to tighten up expenses and improve operations. Cash flow is staying power.

Focus on affordable markets and product niches supported by resilient economic, geographic, and demographic drivers.

Real estate is not a commodity or asset class. Certain markets and niches will outperform others. Be strategic.

Most of all, stay focused on the principles of sound fundamental investing. Be careful of having too much at risk on speculative plays.

As we’ve said before, an economy can be strong based on activity, but fragile based on systemic integrity.

If the system breaks down, then economic activity slows … sometimes dramatically … and if you’re only geared for sunshine, the storm can wash your wealth away quickly.

Until next time … good investing!


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Market Spotlight – Markets on the Move

People, businesses, and their money move around for lots of reasons. New jobs, better opportunities, tax incentives, high returns … the list goes on and on.

Savvy investors monitor these constant migrations. They look for patterns and take action to capitalize on opportunities and avoid risks.

All this movement affects supply and demand … especially for real estate. So today, we’re taking a look at some of the many factors moving markets today.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your savvy host, Robert Helms
  • His sassy co-host, Russell Gray

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Read the signs in moving markets

We talk a lot about specific markets that are providing great opportunities for investors right now … but what about a year from now? Five years? Ten?

If you want to stay ahead of the game, you need to know how to read the signs of a market on the move.

It’s important to remember that it isn’t the property that makes you money … it’s the people.

A market is made up of people and businesses that have a relationship with real estate. That’s what makes it valuable.

The more tenants you have in properties that you own, the more positive CASHFLOW comes in … and the richer you become.

When you look at markets, the main thing you are looking at is supply and demand. Are people leaving? Are people coming in?

Then, you need to ask why people are moving in or moving out. There are always underlying factors that affect where and when people move.

As you work to identify these factors, you’ll begin to recognize patterns and principles … information that will enable you to spot emerging trends in other markets and get ahead of the pack.

The power of politics and trade

An article in Bloomberg Business Week points out the upside of a global downturn … juicy real estate deals.

Worldwide, many high-end home prices are being slashed by as much as 30 percent. This market information gives us some interesting clues.

These price cuts could indicate future opportunities … these markets could move!

If you’re looking to flip properties, you could purchase real estate now and have a good chance of selling it in the future for more … and not just because of the equity you put into it to add value.

Take a market like London, for example.

London has a reputation for being super expensive. But sellers of high-end homes are slashing their price tags.

When you do your research, you can discover some of the underlying factors contributing to this lower asking price. Recent changes to tax codes, Brexit, and a surge in populist thinking are just a few.

So, people with the means and ability to move to a more friendly jurisdiction will do it.

But London has a historically great real estate market … when things settle down, there’s a predictable chance prices and demand will shoot right back up.

Sydney, Australia, finds itself in a similar situation. The median home price is down 6 percent year over year since last year.

Australia has an economy that is largely driven by supplying commodities to China. But China is experiencing a slowdown, and Australian markets are feeling the impact.

When you’re looking at markets, you’re looking for clues … and international politics and trade can be powerful factors.

Hong Kong has been a strong real estate market … but like many parts of the world, real estate there is tied to U.S. dollars.

The market is down 10 percent since August of last year and is predicted to be down another 10 percent by 2020.

When you’re looking at moving markets, that’s not necessarily a bad thing.

Populous markets have a lot of drivers … and in Hong Kong those drivers have caused prices to go down quickly. That doesn’t mean they won’t go back up.

Hong Kong is generally considered to be very safe for property rights, personal liberty, and financial stability. It’s an economic capital in that part of the world.

All of these factors are clues that tell the smart real estate investor it might be worth digging deeper to determine whether a market has a good chance of turning upward.

If it does, a temporary downturn can be a lasting opportunity.

Clue in on taxes

There are plenty of markets on the move within the United States … and a lot of that has to do with taxes.

Any time you have changes in the tax code, you will see changes in the way people invest their money. It’s an essential clue in identifying market trends.

New York City is the perfect example.

For the first time in a long time, the median price of condominiums in Manhattan has dropped below $1 million. That’s DOWN 6 percent from a year ago.

Under the previous tax code, you could deduct your state and local taxes from your federal income tax.

If you lived in a high-tax state like New York, you could mitigate a lot of those high taxes by simply deducting them from your federal liabilities. You can’t anymore.

As a result, markets like New York City and California’s Silicon Valley are moving down … and low-tax jurisdictions like Las Vegas, Phoenix, and Florida are moving up.

Learn from moving markets

You might never invest in London, Sydney, Hong Kong, or New York … but you CAN learn a lot by looking at why those markets are moving.

Markets move in different direction for different reasons. The more you understand, the more easily you can identify patterns in the trends occurring in your market of choice.

Studying markets on the move is an invitation for you to do the research. A market that works for one investor doesn’t necessarily work for another.

Markets have personalities … just like people.

You wouldn’t marry somebody just because they were the first person you talked to or because your best friend thinks they’re interesting.

You decide on your own investment life … where you want to be, and what you want to be doing.


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Clues In The News – Crisis and Growth Opportunities

Warren Buffet. Also known as the Oracle of Omaha, this investing heavyweight spends a lot of his time doing one particular thing.

It’s not scoping out new investments. Not chatting with folks in the investment industry. Not attending board meetings … although we bet he does spend a bit of time doing all of those things.

This investing genius spends 80 percent of his time reading.

From trade-specific journals to general financial news, reading and listening to the headlines is essential to staying informed. But just as important is reading between the lines.

That’s why we bring you Clues In The News … our take on how recent headlines affect real estate investors like YOU. In this edition, you’ll hear from:

  • Your media examiner host, Robert Helms
  • His (slightly OCD) news peruser co-host, Russell Gray

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Mortgage rates for single-family homes rising

Many articles are saying it … mortgage rates continue to climb and show no signs of stopping soon. Note, this information applies specifically to single-family homes.

This is important news … but before you react, stop and ask yourself the question, “If interest rates were guaranteed to rise, what would I do?”

The answer is probably buy a deal that makes sense today and lock in the interest rate so you get a competitive advantage.

Data from this Redfin survey shows less than 4 percent of potential homebuyers would cancel their decision to buy if interest rates increased … so people will keep buying even if it squeezes their bottom line.

But buying at a too-high interest rate means high cost inputs, higher rents, and potentially more vacancies. Getting in while the interest rate is lower is an important factor for success.

We also suggest you consider the advantages of adjustable-rate mortgages versus fixed-rate mortgages. Adjustable-rate mortgages may start lower depending on the market, but have no certainty of staying the same.

Fixed-rate mortgages, on the other hand, allow you to lock in a predictable rate that won’t rise or fall with the market. And when you’re locked into a rate for 10-15 years, having consistency is particularly important.

An equal concern is the strength of the dollar. If rents are sliding upwards faster than wages, your tenants are in trouble.

That’s why investing in A-class properties can be a poor strategy (more on that later).

Tighter guidelines plus higher mortgage rates can mean good things for landlords because fewer people are buying their own homes. So pay attention and think strategically … because a large part of success is getting in at the right time.

Is the multifamily sector overheated?

Multifamily properties have attracted a lot of money. We’re now hearing from many investors who wonder whether the sector is overheated.

Interest rates are rising, and since multifamily properties typically have 10-15 year loan periods, investors do need to be careful here.

If you’re a multifamily investor, you also need to keep in mind that rising interest rates not only affect you … they affect your tenants too.

According to a CNBC article, half of all renter households pay more than 30 percent of their income in rent. That means there’s no real wiggle room for inflation … and no real wiggle room if YOU need to raise rents.

One apartment developer interviewed in the article above says, “There is an acute crisis headed our way.” We can see this in the high numbers of luxury apartments being developed … and then standing empty.

At the same time, we’re seeing a shortage in B- and C-class housing.

Because of today’s costs, it’s difficult for developers to build new buildings for non-luxury buyers. And Wall Street investors see luxury as a safer investment … even though it typically brings 2-3 percent yields.

If you’re a syndicator, all of this information can help you understand the economic world you’re operating in. A development explosion in the high-end apartment space DOES NOT mean you should be investing in that space.

This information should be the start of your research. Read between the lines, look for the wise voices, and start following them … but mostly importantly, talk to the people who have boots on the ground.

And remember, just because the economy looks bad does not mean investment options are bad. In fact, a downturn can be the best time to buy.

What’s happening on Wall Street?

We like to read trade-specific news. But we also think it’s important to read and watch mainstream financial news because that’s what everyone else is seeing.

The difference, though, is that we always attempt to delve into what’s beneath the headlines.

An article published by Bloomberg notes that Wall Street investors are beginning to snap up cheaper single-family properties they had formerly ignored.

After focusing on a particular niche … “safer” luxury-class homes and apartments … Wall Street is now lowering expectations.

Realize that what Wall Street investors are essentially doing is speculation.

They’re trying to “buy low, sell high” without investing the time and effort to research their product and control outcomes the way real estate investors can do.

But Wall Street’s foray into single-family homes affects YOU … because sourcing inventory is harder when there are more hands in the game.

It is possible to get in front of Wall Street investors … in fact, Wall Street by nature is essentially following in the steps of smart real estate investors.

But now you know what the big players are doing … and you can think about where you can step in before the market becomes saturated.

All it takes to spot the right clues is a bit of attention.

How does the tech industry affect investors?

The retail apocalypse has caused a huge shift in the industrial and office space. Products are being sold online … instead of in buildings.

But the industry behind this shift can bring boons to real estate investors.

According to the National Real Estate Investor, tech firms continue to seek out new markets for expansion.

Expanding tech companies bring huge job numbers wherever they go … and with jobs comes a need for housing.

Other markets, like office and retail space, are also impacted directly and indirectly with population and industry shifts.

To get ahead of the game, look at what factors make a market appealing to tech CEOs. A great example is Amazon’s list of market criteria, although each company will seek out different qualities.

A tech hub creates critical mass. Tech companies not only create tech jobs, but attract and are attracted to various other industries, like airlines and shipping companies.

As you pay attention and understand where businesses are growing, your ability to align yourself strategically with market shifts and new hot spots will improve dramatically.

The headlines in this episode of Clues In The News bring both challenges and opportunities. Now it’s your turn … get out there, do some research, and start reading between the lines! It’s the only way to get ahead of the game.


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The REAL cause of rising rates …

Maybe it’s just us …

But as we’re preparing for our Future of Money and Wealth conference … (our way of sharing our epic Investor Summit at Sea™ faculty with more people) …

… we keep seeing headlines that make us think there’s more happening in the financial world than just a little stock market volatility …

From Bloomberg on February 7th:

Dollar Will Stay Weak If China Has Its Way, Morgan Stanley Says

There’s SO much we could say about that one headline …

… in which a major U.S. financial institution acknowledges both China’s desireand ability to weaken the almighty dollar.

But we’ll restrain ourselves (for now) and ask a more mundane, but relevant question …

What does a weak dollar mean to real estate investors? 

We’re told a weak dollar is good for U.S. business … because it makes U.S. products cheaper for foreigners to buy with their now relatively stronger currency.

Okay, so maybe that’s good for local economies that depend on exporting.

And maybe it helps landlords in those areas because more export sales might mean more jobs and higher wages for local workers (your tenants).

But a weak dollar also means imports are more expensive for U.S. consumers.  All that stuff made in China now costs MORE for U.S. buyers.

Last time we looked, tenants buy a lot of stuff made in China.  If they’re paying more for it, then they have less money available for rent increases.

So a weak dollar is bad if it leads to consumer price inflation …

And sure enough, from CNBC on February 14th:

Consumer Prices Jump Much More Than Forecast, Sparking Inflation Fears

According to the report …

“Markets reacted sharply to the news, with stocks sliding and government bond yields rising.”

“Bond yields rising” is just fancy talk for rising interest rates.

If you talk to any savvy mortgage broker, they’ll tell you mortgage rates pivot off of 10-year government bonds.

When bond yields go up, so do mortgage rates.

And to no surprise comes this Market Watch headline on February 15th:

Mortgage Rates Rise to Nearly Four-Year High on Inflation Concerns

As Robert Kiyosaki always reminds us, real estate investing is about debt and cash flow.

Your mission is to acquire more of both … but with a positive spread.  So if the debt costs you 5%, you want the cash flow to be at least 2-3% higher.

But when rates are rising, and tenants are being squeezed by inflation, your spread might compress.

Long-time followers know we’ve been advocates of locking rates long term because of the probability rates would turn up.  Now it seems they are.

If the trend continues, short-term adjustable loans could get uncomfortable.

Real estate investors not paying attention may be unprepared for higher rates.

But the mini-news cycle above illustrates an important lesson …

If you understand how these things fit together and their domino effect … you can see them coming … and prepare.

A weak dollar leads to inflation which leads to rising rates.

We could spend a lot more time explaining all that, but that’s the gist of it.

While it played out in the above headlines in just over a week … often these trends chug along over months or even years.

So, it’s easy (but dangerous) to fall asleep at the wheel.

Of course, it isn’t just the 10-year bond that’s signaling dollar weakness.  So is gold (rising), and oil (rising), and even cryptos (exploding).

But as mentioned earlier, for us … the MOST interesting part of the story is China … something we’ve been talking about for over four years.

Morgan Stanley, as reported by Bloomberg, essentially acknowledges that China’s economic size and strength are now able to influence the dollar … and YOUR interest rates.

Of course, U.S. policy also plays a substantial role, and piling on gobs of debt isn’t helping.

The point is that the future of money and wealth is evolving rapidly right before our very eyes … in ways far more profound than just routine economic cycles.

What’s an investor to do?

We think the right real estate, structured with the right debt, will prove to be one of the most attractive investments in the months and years to come.

But lazy or naïve investors seeing only “higher wages” and a “strong economy” and position only for sunshine are living dangerously.

Right now, we’re convinced every serious real estate investor should be paying close attention to the future of money and wealth.

That’s not a sales pitch for our event.

We created the event because headlines have been telling us for years something’s coming … and it’s getting closer every day.

So we’re getting in a room with the smartest people we know for two full days to focus on what’s happening and how to play it for safety and opportunity.

Stay alert, informed, optimistic, and pro-active.

Until next time … good investing!


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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.