Pandemic, policies, preferences, prejudices, and YOUR portfolio …

We’re nearing the end of a marathon of back-to-back-to-back conferences. The world is different … but life goes on … both online and now back on the road.

When we started this year at our Create Your Future™ goal setting workshop, little did we know how BIZARRE and DISCONCERTING 2020 would become.

Yet here we are … still trying to discern what’s real, what’s happening, what’s coming, and how investors can best position themselves.

But that’s why we attend conferences with lots of smart people … and watch for clues in the news to help us make sense of all this uncharted territory.

Of course, we’re all deep into a very intense political cycle … and policies are having an outsized impact on Main Street business, incomes, and investments.

Usually, investors stay busy with “simple” Fed watching … obsessing over obscure comments, minuscule rate adjustments, or hints of easing or tightening.

Occasionally, there’s an update to tax or securities law to get excited about.

But for the most part, things which trigger tidal waves on Wall Street often dissipate to simply wash up on the edges of a real estate investor’s portfolio.

So real estate is often boring and insulated from the trauma and drama. This time might be different.

So with how fast everything is moving … and how little of it makes sense … we’re working even harder to gain actionable insights.

First stop was G. Edward Griffin’s Red Pill Expo on Jekyll Island.

Yes, it’s THE Jekyll Island … the one where The Creature from Jekyll Island (the Federal Reserve) was born.

Red Pill was two full days with 500 people live and in-person for a fascinating collection of speakers including Robert Kiyosaki and George Gammon.

But the hot topic wasn’t the Fed or financial system …

… it was the pandemic, the lockdowns, and whether or not the health threat is real enough to warrant continued economic pain.

As you might guess, the views of the doctors at Red Pill aren’t mainstream.

But they’re also not in a small or silent minority. In fact, there’s a large group of experts who question the wisdom of shutting down huge parts of the economy.

It’s a fair question … and very relevant to real estate investors.

For whatever reason, it’s become highly politicized … so much so that otherwise rational people struggle to openly discuss all sides of the issue.

Yet real estate investors must make decisions not based on their personal preferences, but on the probabilities based on the preferences of those in power.

Lockdowns have cost millions of jobs, threatened rental income, launched eviction moratoriums, and triggered the most mortgage delinquencies in 21 years.

The pandemic is definitely a hot topic for real estate investors.

We experienced a similar controversy when we first started investing in Belize fifteen years ago. The issue then was global warming and rising oceans.

Back then, some investors were convinced Belize would be underwater just ten years later … so they passed on investing in the market.

This was the right decision for them.

We looked at both sides of the issue and concluded the threat wasn’t there. So we proceeded. It doesn’t mean we’re right. We’re just not wrong yet.

But unlike the pandemic, the choice was ours.

Involuntary lockdowns imposed by those in power means our opinion … even the “truth” (whatever that is) … doesn’t matter.

What matters is what the people in power think, what they’re likely to think and do going forward, and what all that might mean for YOU.

At the recently concluded New Orleans Investment Conference, we caught up with several of our Crisis Investing faculty …

… including Peter Schiff, Danielle DiMartino-Booth, Robert Kiyosaki, Chris Martenson and Brien Lundin … along with a whole bunch of other smart people.

Of course, among the hot topics was (drum roll please) … the pandemic and its effect on the economy, financial markets, the system, and the dollar.

The consensus is that interest rates are highly unlikely to rise anytime soon … the Fed will do “whatever it takes” to keep rates down and fund the government spending they’re pushing for.

Of course, this puts a LOT of pressure on the dollar, which continues to be reflected in precious metals … despite the moderating of this year’s big spike.

Meanwhile, while we were there, mortgage rates hit an all-time low for the TENTH time THIS YEAR.

Perhaps obviously, cheap mortgage money is inflating housing prices and pumping equity into real estate. Whether it’s a bubble remains to be seen.

Another Main Street consideration is the impact of the ongoing pandemic and lockdowns found in some of the headlines we noticed this week …

Lower-cost metros continue to outperform pricey gateway markets

The article draws heavily on the September 2020 Yardi Matrix National Multifamily Report … but the gist of it shows expensive markets are losing.

The report makes an interesting distinction between “Lifestyle Class” (people who rent by preference) and “Renters By Necessity”.

Meanwhile, Zumper put out their National Rent Report for October 2020 … in which they concur …

“Expensive cities continued to decrease in rental prices last month.”

Of course, none of this is surprising.

After all, common sense says people will move to more affordable places when financially pressured … which drains the expensive areas while boosting the affordable markets and niches.

But then we got off the beaten path poking around one of our obscure news feeds and saw this intriguing headline 

Wage Growth Is Above Rent Inflation for First Time in a Decade for All the Wrong Reasons, Highlighting the Fed’s Fallacy

Really? Wage GROWTH … in the middle of pandemic induced job losses and business closures of epic proportions??? That makes NO sense.

But the article points out what happens when you deal with averages when one end of the dataset gets eliminated.

In this case, low-income workers laid off by the nearly 100,000 business permanently closed in the wake of pandemic lockdowns … no longer count.

So the average is now calculated using only the data from the higher paid earners still in the dataset. This graph from the article says it all …

As you can see, the same anomaly occurred in the 2008 Great Financial Crisis.

The economy crashes and the average wage goes UP. But not really.

The lesson is to be aware information put out as “data” … even “science” … needs to be evaluated in the context of the bigger picture and your own common sense.

According to the brainiacs we talk with … like Jim Rickards and Danielle DiMartino-Booth …

… even those in high levels of power … like the Fed … can misread data, fail to consider dissenting opinions, and end up creating strategies based on faulty “data” assumptions.

So be forewarned. There’s a lot of information and opinions coming at you …and more coming. Your conclusions will affect your decisions and results.

It’s wise to stay as objective as possible … because faulty assumptions lead to faulty strategies.

Maybe the most important lesson is to stay curious, remain thoughtful, and be wary of agendas and biases … even your own.

Until next time … good investing!

Markets matter more than ever …

In an age of macro-economic turmoil and stress, the risk of the tide going OUT is far greater than the odds of a rising tide lifting all boats.

So as Warren Buffett famously quipped …

“Only when the tide goes out do you discover who’s been swimming naked.”

And of course, if that happens to be you … it’s often expensive and embarrassing to have your shortcomings exposed.

Anyone paying attention right now expects the tide to go out any time now. In fact, many pundits are shocked the Fed has been able to prop things up this long.

So for strategic real estate investors, market selection matters more now than ever. You can’t count on a rising tide in all markets.

People and prosperity will start to flow away from some markets and flood into others. We’re already starting to see this polarization.

Get it wrong, and there you are in your financial birthday suit with water around your ankles.

Get it right, and your portfolio of “average” properties has you floating in equity and cash flow amidst a flood of demand with capacity to pay.

Long time followers know when we say “markets” we’re referring not just to geographies, but also product niches and demographics.

So it’s places, products and people.

And when times get tough … which is what’s clearly on the weather report …

… the question is: where will people and businesses go, and what kind of real estate will they need?

If you only invest in your own area, this might seem simple.

After all, you know the lay of the land well. You talk to people. You have your thumb on the pulse of the local market.

But if you don’t happen to live in a great investing market … and the local economy or cash flows don’t make sense … then you need to look for clues about markets that might make sense.

For example, Visual Capitalist just put out a nifty 3D map they call …

The U.S. Cities With the Highest Economic Output

   

Of course, these aren’t really cities … they’re metros.

But it’s a great top-down start for homing in on a local geography in which to search for teams and opportunities.

However, this is only a start. There are several other factors to consider when delving into markets … but strong economic activity is a biggie.

So before you jump on a plane and tour the nation, dig a little deeper.

If you’re a residential rental property investor … single or multi-unit … there are several markets you’d probably eliminate from consideration, simply based on their hostility towards landlords.

Losers in this category would be California, Illinois and New York. In fact, of these ten, probably all but Texas and Georgia would get crossed off our short list.

Of course, while the macro-financial strength of a metro is a solid sea and can float a lot of boats …

… trends in the economy and employment also matter quite a bit too.

Remember … the Titanic was a big, powerful ship. Even after it started leaking it still seemed very robust. Many thought it could leak without sinking.

Of course, those passengers who didn’t understand what was happening or didn’t take it seriously were slow to make it to the lifeboats.

By the time the slow-movers were looking for safety, the best spots were all taken. It didn’t end well for them.

Keep this in mind when deciding how to navigate this current crisis.

Another important thing to remember when shopping for real estate markets, jobs and population matter … a lot.

LinkUp.com puts out a lot of great (and expensive) data … but sometimes you get free samples that are useful.

In this case, they did a study of Changes in New Job Openings for a one-month period and created this very cool state-by-state graphic …

 

 

This adds a little color to the analysis … literally. 😉

Our audience knows some of our favorite markets for the last several years are in Florida, Georgia, Tennessee and Texas.

These numbers don’t surprise us because these are business-friendly, landlord-friendly, relatively affordable markets.

Of course, this is just a snapshot … but it’s another clue about where to search for resilient opportunity.

Another fun resource is Zumper.

They have a semi-interactive tool which visually shows internet search volume for where renters are interested in moving to.

Seems like that would be good to know.

Here’s an interesting chart they recently put out …

 

As you can see, there are some new markets to consider adding to the research bin to see how they stack up in terms of strength in economy, jobs, and landlord friendliness.

While we love top-down data … we like to compare and contrast it to “thumb on the pulse” feedback from people who know the market intimately.

For example, we can see from this data that Indianapolis is attracting a lot of interest. We just don’t know WHY.

But we learned from talking with our Boots On The Ground correspondents, Indianapolis has been the beneficiary of people fleeing Illinois.

Our point is that as we continue to navigate this COVID-19 induced cascading crisis … people ALWAYS need certain types of real estate … and residential is always at the top of the list … no matter what’s happening.

People and businesses will move to pursue or preserve quality of life and opportunity … which is about income, expenses, amenities, and climate (weather and business).

In good times and bad, there will always be winners and losers.

Investors who win are more strategic, informed, well-advised and supported, and therefore more aware, prepared, brave and bold … and move smartly and decisively as trends emerge.

To paraphrase Charles Dickens … these are the best of times and the worst of times … and history proves both are ever-present.

So it’s not the circumstances which make times good or bad. Success depends on how well each individual responds to whatever is happening.

The good news and the bad news is … each of our individual destinies remains largely our own responsibility.

If that thrills you, then you’ve probably got skills and a great team … and are looking forward to the impending economic white waters.

If it freaks you out, then it’s probably time to work on your training, tribe and team as a top priority.

The great news is it’s never been easier to find great ideas, information, people and resources. Those all lead to great opportunities.

Thanks for being a part of our tribe … and for reading our stuff. We like it when you reply, give us feedback, comment on our videos. Especially while we’re still in semi-lockdown.

We look forward to getting back into visiting with our audience at live events … but until then, we’ll see you on the radio, podcast, social media and YouTube.

We’re stepping up our content creation now because talking heads on mainstream financial media don’t understand real estate investing.

They don’t talk about real estate investing because it doesn’t promote or protect Wall Street … and real estate is not an asset class or commodity.

But because properties CANNOT be used as chips in the casinos, they’re much more stable in stormy seas. We think that’s going to become VERY attractive.

The right real estate in the right markets controlled with the right financing and managed by the right team is about as good as it gets for building resilient wealth in tumultuous times.

Keep this in mind while watching the storms … and as you focus on the fundamentals, your odds for success go way up.

Until next time … good investing! 

This is a SHOCK! … said no one

We’re proudly filing this under the category of “We told you so.” ….

Stripe workers who relocate get $20,000 bonus and a pay cut
– Bloomberg, 9/15/20

“Stripe Inc. plans to make a one-time payment of $20,000 to employees who opt to move out of San Francisco, New York or Seattle, but also cut their base salary by as much as 10% …”

“… companies … have expanded opportunities for employees to work remotely while also signaling … pay cuts if workers move to less-expensive cities.”

“VMware Inc. … Facebook Inc., Twitter Inc. and ServiceNow Inc. have all considered similar measures.”

Of course, we could just as easily file this under “Duh.”

After all, when companies discovered they could move jobs to China and Mexico to save money and increase profits, they did.

Modern tech empowers remote working.

And while many info workers might not be keen on moving overseas … moving to low cost, low tax, good quality of life states is not just palatable … it’s appealing.

The COVID-19 lock-downs have forced businesses into improving their remote workforce management … opening everyone up to a win-win move.

Companies LOWER their labor expenses, while employees improve their NET lifestyle in more affordable markets.

Also obviously, this has implications for the demand for real estate … housing, office, retail … in both the markets losing and those gaining people and their paychecks.

This is just one of many trends the COVID-19 crisis has accelerated, though likely still in its infancy … and worth watching.

That’s why we created the COVID-19 Crisis Investing video series … and why we’re getting regular updates from our Boots-on-the-Ground correspondents.

Shift is happening … and faster than usual.

Investing in this environment is like driving a car … the faster you go, the farther up the road you need to look so you have time to react well.

Here’s another noteworthy article with insights which are a little more challenging to decipher, but worth the effort …

The Death of the 60/40 Portfolio
– Yahoo Finance, 9/6/20

“That’s stock talk. It doesn’t apply to me. I’m a real estate investor!”

Really?

Well, before you click away to check the latest mortgage rates or political pandering, consider …

While 60/40 refers to a typical Wall Street portfolio allocation model for a mix of stocks and bonds.

The reason it’s been a staple … and the reason it’s changing … is highly relevant to real estate investors.

“The biggest takeaway is that Woodard’s team is more confident than ever that … interest rates … will likely … move considerably higher … arguing that investors should start to move away from bonds in their current allocations.”

The “Woodard” they’re referring to is Jared Woodard, Head of the Research Investment Committee for Bank of America Research.

So he’s well-qualified to have an opinion worth contemplating.

But it’s not just rising interest rates that are interesting to real estate investors …

(though that’s a compelling reason to secure as much low-cost long-term debt as you can while you can)

… but his recommendation to “move away from bonds” is important.

So in another “surprise said no one” moment, are reports the two biggest U.S. bondholders in the world (China and Japan) have already started “moving away”.

That’s because when rates rise, bond values fall.

And like any bubble … when bondholders head for the exits en masse, it sets off a very disrupting chain of events in the macro-strata of the financial system.

Of course, as you might suspect … it all rolls downhill onto the often unsuspecting denizens of Main Street.

The reason it’s SO extreme is because of the way bonds are used in the financial system.

In real estate terms, they’re used like properties with equity. The owners borrow against them to raise more cash to lever into more “assets”.

Except these loans against bonds come with margin provisions … which means if the value of the bond falls, you’re either forced to sell at a loss or borrow more.

The point is when balance sheets at every tier of the financial system are stuffed with leveraged bonds …

… a collapse of bond prices is a BIG problem for everyone … including real estate investors. Remember 2008.

(Yes, we know we’ve covered this before. But although the asteroid is moving slowly towards Earth, it still seems important to talk about it and prepare.)

Of course, in 2008 bonds collapsed because of a higher than expected default rate in sub-prime loans.

Yes, it’s true, that was then and this is now. But with an economy still largely locked-down, headlines like this should surprise … no one …

Lower-Credit Homeowners Weigh Heavily on U.S. Mortgage Market
– Bloomberg, 9/15/20

But whether it’s sub-prime borrowers defaulting, large foreign holders dumping, interest rates rising, or leveraged bond-loans going bad …

It doesn’t matter WHY bond values fall … if they do, it’s a threat to the financial system.

The fix, of course, is lots of dollar printing by the Fed, which (as we’ve been saying and saying and saying) puts a lot of pressure on the dollar 

Dethroned Dollar Is Making Waves Across Markets, in Five Charts
– Bloomberg, 9/15/20

Of course, as this article points out, there are different tactics for investors to mitigate risk and capture opportunity …

“Savvas Savouri at Toscafund Asset Management recommends switching out of conventional Treasuries and into inflation-protected securities.”

“’The simple reality is that the only feasible way to get the U.S. to the preferred inflation target is through a dollar devaluation,’”

The article also mentions gold as an alternative tool for the job …

“The dollar’s decline has also helped thrust gold onto center stage … some investors are betting that [gold] bullion will prove a better haven than Treasuries as inflation bites …”

So while there’s a fair amount of consensus about the challenges … there are variations on how to best address it.

And in yet another “surprise … said no one ever” moment …

… real estate is completely missing from mainstream financial media’s discussion of potential solutions.

That’s like heading out to a job site and leaving your best power tools at the workshop. Then again, if you don’t know how to use them, what good are they?

Of course, any talk about the what, why, and how of real estate investing is completely omitted because (in our not-so-humble opinion) mainstream financial media exists to protect and promote Wall Street.

That’s probably why YOU are here. It’s certainly why we are.

The GOOD NEWS is, whether you’re investing in your own account or organizing syndications with private investors …

… there’s a LOT of opportunity RIGHT NOW to use the right real estate as the foundation of a resilient real asset portfolio.

The GREAT news is that even though things are moving faster than normal …

… there’s still time to build your knowledge and relationships and to organize your life and portfolio to get in on the action.

The asteroid hasn’t struck yet … and while it may not … better to be prepared and not have a crisis than to have a crisis catch you unaware and unprepared.

We’re working hard to step-up the volume of ideas, resources, people and opportunities we share with you right now … because we think the times demand it.

There’s a “new normal” on the horizon …

… and while real estate is real, essential and a time-tested vehicle for wealth building and preservation …

… there are new rules and strategies emerging … because market conditions are dramatically shifting.

So be SURE to subscribe to our re-launched YouTube channel, follow us on Facebook, and of course, subscribe to the podcast.

When you support ALL our distribution outlets with your listens, views, likes, shares, comments, questions, and reviews …

… you make it easier for us to attract the guests and resources necessary to produce more and better content for you.

We appreciate you … and look forward to thriving through this crisis with you.

Until next time … good investing!