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!

Not the time for hiding in the basement …

Lockdowns, restrictions, eviction moratoriums, civil unrest, election hysteria. Fun times.

It’s enough to make a real estate investor order one bourbon, one scotch, and one beer … assuming you could find an open bar.

But before you reach for the Valium and TV remote, remember …

“Never make a permanent decision based on a temporary storm. No matter how raging the billows are today, remind yourself: This too shall pass!”
– T. D. Jakes

Sitting out troubling times is a permanent decision … because today’s opportunities are only here today. When you miss one, it’s gone.

And when today’s troubles are setups for tomorrow’s sunshine, standing pat can mean being out of position later.

We’re not saying to play in the rain without a raincoat. You need to be smart in all situations. And yes, there are times when a strategic retreat is wise.

But we see some folks just disengaging. That’s usually a mistake.

Even though we’re in harrowing times, there are reasons for real asset investors to be optimistic about the future … even on a rocky road to riches.

Surely you didn’t think it would be EASY?

So while there are a thousand hot headlines we could dissect in the middle of this pandemic / election cycle / potential system meltdown …

… better to stay anchored on timeless principles which are useful for navigating all the noise.

Because … as they say … stuff’s about to get REAL. And that’s going to be good for those aware and prepared.

For decades … through wars, recessions, currency resets, assassinations, impeachments, civil unrest, political scandals, disputed election results …

(Yes, ALL those scary things … and more … have happened before)

 professional investors reposition their portfolios  often shifting from offense to defense. But always staying PROACTIVE.

And though many of those professional investors are playing on Wall Street … the principles apply to Main Street investing as well.

So let’s look at some Wall Street defensive strategies and translate them into Main Street lessons for real estate investors.

Ride the Equity Wave … Carefully

In times of enormous currency creation (monetary stimulus) and government spending (fiscal stimulus), it’s hard to sit on the sideline. That’s a lot of fuel.

Come Merry Men, let’s ride this stock rocket to the moon!

Sure, things could crash. But they could boom big until they crash.

Just remember they can also do both at the same time … and what it means when it happens (not good).

But except for the very rarest of circumstances, pros don’t ever get out of the market completely. It’s about allocation … not abdication.

S0 while aggressive investors chase unicorns and sexy stories … defensive players often shift to “Consumer Staples”.

In other words, they seek shelter in things which are essential at all times.

Translating to real estate, we think markets and properties in the residential, distribution, agricultural, healthcare, and energy niches are “staples”.

No matter what’s happening in the world, or what currency it’s happening in, these properties are likely to remain valuable and productive.

Of course, they might be a little boring. But in tumultuous times, boring is beautiful.

But … even modest returns can be goosed through the careful use of long-term, low-interest rate debt. And today’s market has some of the lowest rates ever.

Even if your portfolio is already stuffed with its unfair share of residential properties and dripping with equity …

… you can use cash-out refinances to lock in low-rates and reposition equity into other niches where financing is less available.

Load Up on Cheap Debt

It’s no secret corporate CFO’s have been borrowing like crazy and buying up their own stock … even while sitting on piles of cash.

Pros like to borrow cheap and long and load up on quality assets they understand …

… and to have “dry powder” ready when other quality assets are shaken out of weak hands.

A word to the wise … be very wary of borrowing short and lending or investing long. Only banks backed by the FDIC and Fed can play that game “safely”.

Increase Liquidity

Extra cash isn’t simply dollars in the bank … and it’s not just for bargain shopping when markets get temporarily ugly.

Liquidity is a VERY important buffer when unexpected things disrupt all your well-laid plans. Murphy is alive and well.

Liquidity is like oxygen. You can last a while without profit … and even without revenue …

… but when you’re out of cash (or assets quickly convertible to cash), you’re in serious danger. It’s like drowning.

And remember: Credit lines don’t count because they can be shut off without warning … usually when you need them the most.

However, precious metals are an alternative store of liquidity … and allow you to pivot into ANY currency easily … which comes in handy when currencies crash.

Prioritize Principal Preservation

Warren Buffett’s #1 rule for investing is “Don’t lose money”. His rule #2 is “Always remember rule #1”.

But losing comes in different flavors. And sometimes a flight to safety is really a leap from the frying pan into the fire.

This is where we see REAL opportunity for real estate investors …

The basic defensive play for paper investors when they get spooked is to jump into U.S. bonds and dollars. BUT …

U.S. bonds and dollars are no longer the reliable havens of safety they once were … as evidenced by the popularity of gold and silver.

We’ve covered this in detail many times … but because it’s arguably the most important underlying financial story right now and so few in the real estate world are talking about it, we’ll touch on it again briefly.

When interest rates RISE, bond values fall.

Of course, when rates are at rock bottom (like they are), there’s a big danger rates might rise.

For real estate investors, rising rates are an annoyance. But for bond investors, rising rates are a DISASTER.

Think of it like rising cap rates in a rent control area. The increased cap rate isn’t from growing rents. It’s from FALLING prices. You’re losing equity.

This is what happens to bond investors when rates rise. Any bonds held LOSE value. Rising rates don’t mean more income. They mean LOSS of principal.

Consider that U.S. bonds are denominated in U.S. dollars, so bondholders get paid back in dollars. This sounds good, but it can be a problem.

So keep your thinking cap on and don’t give up now …

To keep rates down, the Fed prints lots of dollars to buy bonds. This dilutes the value of the dollars, which bondholder get paid back …

(it’s called “inflation”)

… and the Fed just announced they plan to let inflation run hot … that is, to overshoot 2 percent CPI (don’t get us started …)

Here’s the point and why it matters to real estate investors …

Like real estate, there are buy-and-holders and flippers.

Flippers buy bonds hoping rates go DOWN (driving principal UP) so they can sell at a profit. They don’t want yield and they’re not in it for the long haul.

They’re flipping for capital gains.

Buy-and-hold investors ARE seeking yields … and finding the cupboard pretty bare …

So with bonds yielding less than inflation, bondholders are already losing on income … but in danger of losing worse if rates rise.

In today’s world, bonds are terrible for both producing income AND for preserving principal long term.

Gold is good for the latter but produces no income.

And yes, paper investors can seek yields in dividend paying stocks. But this exposes them to extreme price volatility (after all, it is the stock market).

The bigger issue is companies world-wide are cutting dividends … the most since the last crash … in an effort to preserve cash during the pandemic.

This creates a HUGE opportunity for real estate investors … and especially for syndicators of cash-flowing properties.

The yields on real estate are better than bonds. And if a tenant defaults, they can be replaced. If a bond issuer defaults, you lose. So real estate wins.

Plus, the underlying asset (the property) which generates the income is a physical, tangible asset … not some “going concern” which might stop going.

(There’s probably a reason China borrowed to the moon and built ghost cities … when the debt goes bad, the properties remain … and who’s foreclosing?)

Another plus … real estate not only benefits from inflation but is often the intentional target of it (to protect the banks who lent against it).

And PLUS PLUS … (IMPORTANT) … think about this …

… it’s MUCH easier for politicians and central bankers to feed money to Main Street so mortgages and rent can be paid … than to feed big corporations so dividends can be paid. Good optics vs BAD optics.

For those who prefer to own debt, mortgages are better than bonds.

Again, the debt is backed by the property. If the borrower fails, the lender gets the property AND its income.

As Main Street investors who’ve been blindly following Wall Street advice begin to understand all this, we think the smart ones will come home to real estate.

We could go on … and on … and on … but you get the idea.

Real estate investors need to smart, careful and creative right now … but there’s no reason to be hiding in the basement.

Real estate is a great shelter in a storm.

As the world turns …

As The World Turns was one of the longest running daytime soap operas in television history. And yes … there are valuable lessons for investors.

From 1956 to 2010, As The World Turns followed the lives of a fictional collection of high-paid legal and medical professionals.

Unlike other shows in the genre, which tended towards sensationalism …

 As The World Turns was nuanced in drawing viewers into the underlying story-lines. The pace was more real-world than melodramatic.

Perhaps it was this deeper intellectual engagement that captivated the audience for decades.

Of course, technology has changed media.

More noise leads to more sensational reporting in desperate ploys to capture attention. It’s the opposite of intellectual.

Today, much of the world’s story-line comes in sound bites, tweets and posts.

And like Pavlov’s dogs, we’re conditioned for short attention spans …

… expecting anything important to be short, loud, obvious, easily understood, and hopefully entertaining.

If information isn’t sensational, it feels unimportant. So we ignore it.

This could be why day-trading is so popular with many young “investors”. It’s hyper-stimulating.

But the real world changes SLOWLY … though surely … even in the internet age. Before Google, Amazon and Facebook … AOL dominated.

Of course, slowly but SURELY … the landscape of the internet changed … and is having a profound impact on everything … including real estate.

Impatient investors might overlook important slow-moving changes … and then miss opportunities or suffer damage from risks they didn’t even see developing.

For years, we’ve been talking about the long-term decline of the dollar …

… and the persistent collapse of interest rates …

Both have significant ramifications for investors … real estate and otherwise. Just as AOL lost it’s dominance slowly, so might the dollar.

But we’ve covered this often, so we’ll simply continue to suggest the financial system may be approaching a fundamental reset …

… and investors are wise to think outside the dollar while preparing for a temporary credit market collapse.

(Hint: Liquidity is good. If credit markets seize, prices usually crash, and bargains abound until credit markets are restored and prices re-inflate.)

If it’s not obvious, the key is getting in FRONT of the wave. Positioning depends on how nimble YOU are in relation to how fast the wave is moving.

Most ordinary investors are unwilling or unable to stay as liquid as needed to nimbly capture big opportunities when shift happens quickly.

However, when a lot of investors all chip in, then together they can grab a big opportunity quickly … even if it’s something none of them could, would or should do alone.

Of course, being able to buy is one thing. Knowing what and where to buy is another. And the best clues aren’t in soundbites and sensational headlines.

Real estate story-lines are often hidden in boring macro-trends … often only visible to diligent market watchers.

One is the so-called “Amazon effect” … as the growth of online shopping and its resulting shipping boom crushes retail and catapults commercial real estate.

Yes, it’s obvious to everyone now. But it’s been going on for many years … and there’s more to the story than meets the mainstream eye.

Of course, COVID-19 is accelerating this trend … and many others … which is why we did a deep dive into the COVID-19 crisis from an investing perspective.

And consider that before e-commerce started reshaping retail, off-shoring shifted manufacturing and its jobs to far away markets … impacting real estate investing in many markets.

Ironically, COVID-19 might accelerate the return of off-shored manufacturing … which is another slow developing storyline we’re following.

The point is … as the world turns, shift happens … often slowly.

And by the time the shifts become obvious, it might be too late to move into position to capture the best opportunities … or avoid the worst pitfalls.

In 2008, we learned businesses will take jobs to more affordable and business friendly places … even off-shore … to survive in tough times.

Similarly, people will change locations and occupations to find work. Many construction workers from Las Vegas ended up in the oil business in Texas.

Ken McElroy taught us strategic market selection … picking geographies with jobs tied to drivers which are difficult if not impossible to move.

Energy is one of the drivers Ken was focused on coming out of 2008. It’s hard to move an oil well to China. That was a good call.

Of course, oil is a complex and volatile industry so we wouldn’t pick a real estate market driven purely by energy production alone. It’s why we avoided North Dakota during the Bakken boom.

When it comes to geographically linked industry, distribution is one of the most stable because it truly follows the old adage: location, location, location.

Distribution hubs are all about location.

Because even if all the stuff is made in China, India or Mexico, it’s still shipped in boxes moving through domestic hubs to American consumers.

This was true before manufacturing was off-shored. It’s been true while shopping moved from in-person to online. And it’s still true during COVID-19.

Distribution is a boring, stable real estate story-line that’s a little hidden under all the sensationalism of the crisis du jour.

So coming out of the last crisis, we focused on Dallas (energy, distribution, and more), Memphis (distribution), and Atlanta (distribution, and more).

Notice a common denominator? And a decade later, the underlying story-line … and the markets it supports … continues to be strong.

Of course, small investors aren’t buying warehouses, distribution centers, truck sales and service centers, rail hubs, ports, or shipyards.

But small investors and syndicators CAN own the residential rental properties which house the employees of all those places.

This allows you to combine the resiliency of residential real estate with the geographic desirability of distribution to add stability to portfolios in uncertain times.

And best could be yet to come …

When capital is moving into expanding these centers, it usually means more jobs and housing demand in those markets down the road.

BUT … you can’t see these trends early by limiting yourself to tweets, memes, soundbites, or mainstream financial media. It’s all far too unsensational.

However, professionals in commercial real estate often diligently track the slow but large flow of capital and transactions into the space.

Strategic real estate investors watch these mega-trends and use them as clues about where and when to scurry into place …

… ESPECIALLY while short-attention span investors are NOT paying attention or are scattering like cockroaches in the light of uncertain economic times.

So … take a deep breath … you’ve come this far … and ponder these points …

Are the millions of people in the U.S. going anywhere soon?

Is it likely someone will create a technology to negate the need for people to live in houses or have stuff shipped to them?

We don’t think so.

Therefore, even though there’s a LOT of sensationalism in the temporary economic drama … the underlying story-line is as slow and steady as the world turns.

So when we came across this midyear 2020 report on the “Elite 11” U.S. industrial markets, it captured our attention.

The report is authored by a 40-year old commercial real estate firm. It provides insight into commercial space growth indicators in 11 key markets.

Among them are AtlantaDallas-Fort Worth, and Houston.

While DFW led in absorption, Houston led in expansion, and “Atlanta will very likely set a record total square footage delivered … by the end of 2020.”

And they’re all in business and landlord friendly states … compared to others which seem intent on chasing business out.

Remember, a fundamental priority of real estate investing is to pick strong markets and product niches FIRST …

… then build a boots-on-the-ground team … and THEN find properties.

Properties are best chosen in the context of markets and sustainable economic drivers.

So while people may not shop in stores or work in offices as the world turns … it’s highly likely they’ll always need a home and stuff.

So in an unstable world, smart investors will figure this out. Better to be among the early.

Distribution is a real bright spot right now … so while COVID-19 makes the future murkier, it doesn’t erase essential human needs.

And if the current uncertainty frightens short-attention-span investors into staying on the sideline, even though the underlying story-line is stable …

… it’s a chance to stay calm and “be greedy when others are fearful.”

Until next time … good investing!

Winners, losers, also-rans, and the clueless …

If you’ve ever been in a crowd when something surprising happened … or even in a game of musical chairs, you know …

… people respond VERY differently when stressed.

Some think, decide and act very quickly. Experience, confidence, coaching, and maturity are all factors.

Then there are those who act quickly … without thinking. It doesn’t always end badly, but it often does.

With the shoot-first-ask-questions-later group, it’s usually immaturity, inexperience, lack of training, arrogance … even desperation … that gets them in trouble.

Others take way too much time to think … and then act too slowly. They often miss the best opportunities or fail to avoid rapidly approaching danger.

This quintessential “paralysis of analysis” is usually rooted in inexperience and lack of training. But pride and extreme fear of failure is often the biggie.

And of course, they’re the folks who completely freeze under pressure.

They can neither think nor act … they’re the proverbial deer in the headlights … suffering emotional and intellectual overload.

These folks are often in denial … using avoidance and reliance purely on hope as their primary strategy … and abdicating personal responsibility for their results.

Which are YOU?

It’s a hard question. We all want to be Joe Cool … calm, confident, collected, decisive … taking effective action under pressure.

Yet we all have our limits. And sadly, we don’t often discover them or work at expanding them until we fail under fire. Not good.

This is a VERY timely topic because in case you hadn’t heard … the world’s economy and financial system is under EXTREME stress right now.

Some of it is likely to roll downhill onto Main Street real estate investors. So if you’re not stressed yet … get ready.

NOW is a really good time to look honestly at your own investing and emotional IQ …

… not based on your goals, aspirations, ideals, or vision … but rather on your actual history of performance under pressure.

If you’re younger, you may not yet have a resume of stressful investing or business experiences to reflect on.

So use what you have … experience in school, sports, games, and even relationships (they’re stressful!) … to find clues into your psychology.

It can be humbling. But it’s an important exercise.

It’s well known by those who study the emotional side of investing … the art of managing fear, greed, procrastination, and arrogance …

… successful investors are able to act decisively and diligently in times of extreme stress.

That’s because they’ve learned to stay level-headed, think clearly, rely on data and expert advice.

Those who FAIL to keep their cool under pressure usually only win small (if at all) … often lose (often big) …

… and sometimes aren’t even in the game at all … missing opportunities like a little-leaguer swinging against a big league pitcher.

There’s a lot of shift happening right now.

And with a polarized election season now added to the mix, it’s about to get a whole lot shiftier … and emotional.

Our friend Blair Singer says …

“When emotions run high, intelligence runs low.”

Your mission is to remain aware, prepared and rational … so when threats and opportunities pop up, you’re able to act wisely and decisively.

Easy to say. Sometimes hard to do. Yet VERY important to work at nonetheless.

In tumultuous circumstances, it’s natural to want to stop, sit down, or cling to anything or anyone familiar in search of stability.

Sometimes that’s smart. After all, there’s a reason money is moving into real assets like metals and real estate.

But it’s not smart to cling on to obsolete strategies, paradigms, or methods. As things change, you might need to change also.

How do you know what to think and do?

One of our strategies is to watch experienced investors … especially those with access to great advisors and quality research.

That’s why we noted billionaire Sam Zell’s and Warren Buffett’s moves into gold.

You may or may not be interested in gold … but the overt and implied reasons behind big money moves contain clues …

… about the economy, financial system, currency, and interest rates.

All investors, real estate and otherwise, are wise to pay attention to those things.

But while gold and real estate are both considered “real assets” … they are also very different.

Real estate is the opposite of a commodity or an asset class. It’s not uniform in all places. Every property is unique right down to the address.

Yet even seasoned real estate investors tend to think about real estate only in the context of their niche and markets.

If you’re into apartments, that’s what real estate is to you.

Or if you’re into office buildings … or retail … or farmland … or single-family residences … that’s what real estate is to you.

Of course, real estate is also more than a niche …

If you’re into residential real estate in New York, you’re having a certain kind of experience right now.

But if you’re investing in residential real estate in JacksonvilleCentral Florida or Phoenix, you’re having a VERY different experience than those in New York.

Overall, residential real estate … especially housing … is red hot. Housing starts are upHomeownership in the US soars to its highest level since 2008.

But that doesn’t mean every house in every market is on fire. Some are. Some aren’t. Some for good reason. Others … not so much.

It’s the ambiguity of real estate which creates the opportunity. And when shift happens, pockets of opportunity and disaster open up.

The important point here is real estate is NOT an asset class … and as things shift, there will be winners and losers.

So back to billionaire watching …

Reuters reports … sovereign wealth funds are re-thinking once-reliable real estate.

“The COVID-19 pandemic has forced sovereign wealth funds to think the previously unthinkable.”

Perhaps the same thing that happened to Warren Buffett and his position on gold.

“ … the funds are retreating from many of the real estate investments that have long been a mainstay of their strategies.”

“… shifting … funds increasingly investing in logistics space, such as warehousing, amid a boom in online commerce during the pandemic, while cutting back on deals for offices and retail buildings.”

Such shifts in behavior can have seismic effects on the global real estate market …”

Of course, if you’re investing in Main Street self-storage centers or mobile-home parks … you’re likely well-insulated from the “seismic effects” created by the equity repositioning of these behemoths.

But while their moves might not affect you … and you may not emulate WHAT they do … you can still learn from WHY they’re doing it.

They’re responding to the STRESS of COVID-19.

Do you think these behemoths think COVID-19 and its ramifications will pass quickly and the world will soon be back to business as usual? Or not?

After all, Buffett backtracked on one of his most outspoken positions and pulled a page out of Peter Schiff’s playbook … dumping dollars and buying gold.

Similarly, these sovereign funds are shifting HUGE long-term holdings from certain real estate niches (the projected “losers”) into others (the projected “winners”).

As shift happens bigger and faster, winning will require more intelligence and greater emotional control.

If you’re not already diligently developing those things … it’s probably a REALLY good idea to get started soon.

Notice that the big boys aren’t taking a Wait and See approach, but rather they Think and Do. That’s a clue.

Meanwhile … what’s clear is the world is changing quickly … the big boys are making their moves … and old paradigms are being re-evaluated.

Our experience, both good and bad, tells us the informed, level-headed, rational, decisive investors will most likely be the biggest winners.

Think and Do is better than Wait and See.

Six valuable lessons from Warren Buffett’s shocking move …

Mega-billionaire investor Warren Buffett made big news recently when he made a move into gold mining shares … while dumping big banks and Goldman Sachs.

This surprise move is notable for several reasons and there are important lessons and actionable insights for Main Street real estate investors.

While we could dive into how this move is being construed by some as a vote of no confidence in the U.S. dollar in favor of gold …

… we’ll focus today’s muse on 6 key lessons from watching Warren work.

 

Lesson #1: Always pay attention

It’s indisputable that Buffett is a brilliant big-time billionaire investor. So anything he says or does is worth dissecting.

Buffett is a voracious reader … and we’re pretty sure it’s not People Magazine or GQ.

He’s diligent to read to acquire information, knowledge, news, and views related to money, markets, economics and the politics affecting all of them.

No doubt he’s looking for clues to help see the financial future before it’s here. As every investor should be, he’s trying to get in front of a wave to wealth.

He knows just ONE great idea can be worth a FORTUNE … literally.

 

Lesson #2: Keep an open mind

One of Buffett’s more notable investment philosophies has been his criticism of gold. He’s on record saying he has zero interest in owning it.

But apparently, Buffett appreciates the obvious trend in gold … and presumably believes the drivers underneath gold’s rise are sustainable.

Of course, we think this is something EVERY investor should be watching … even if they never own a single ounce.

As we’ve discussed MANY times, gold’s pricing reveals a lot about the future of the dollars we all earn, save, borrow, invest and measure wealth by.

Of course, everyone wakes up to what’s “apparent” at different times.

Often, the farther your prejudices and paradigms are from current realities … the longer it takes to see change. We’re all guilty of it.

As we pointed out last year, fellow mega-billionaire and big-time real estate guy Sam Zell lost his gold virginity last year.

We have no idea if Buffett’s disdain for gold stopped him from seeing it sooner … or if Zell’s “real asset” mentality helped him see it sooner …

… but based on the price action since Zell got in, it seems Zell’s timing has been better.

In any case, it’s important to remember … the world sometimes changes in ways that require shifts in both paradigms and investment philosophy.

Dogmas are fine if you’re lonely and need companionship. But investing often requires a healthy dose of pragmatism.

Sometimes, as the world changes … so should you. At the very least, it’s wise to keep an open mind.

 

Lesson #3: Adapting to opportunity doesn’t mean abandoning your principles

Buffett is a patient, principled, disciplined investor.

He looks for undervalued, profit-producing, well-managed enterprises. He doesn’t speculate on price.

Like a smart real estate investor, Buffett focuses on cash flow … knowing cash flow creates real equity.

And he’s quite willing to sit out hot-money-induced rallies.

In other words, Buffett doesn’t chase the market. Nor does he jump on bandwagons simply because everyone else is.

Of course, this is precisely why his move into mining shares and away from banks is so encouraging to gold-bugs … and concerning to dollar hawks.

After all, if Buffett is getting into metals and out of dollars, then there must be solid fundamentals supporting the rally in gold … and the reciprocal fall of the greenback.

But it’s notable that Buffett didn’t buy gold itself. Rather, he bought shares in a well-established gold mining company.

By choosing a miner over the metal, Buffett is investing in a profit-producing enterprise … one he presumably considers undervalued but well-positioned for the market dynamics he anticipates.

So Buffett is adapting to market dynamics, but still running his game.

Smart. Principled. Disciplined.

 

Lesson #4: When Mega-Billionaires talk (and act), you should listen

Billionaires aren’t always right … and you may not agree with them. But they’re certainly qualified to have an opinion worth considering.

Warren Buffet, Sam Zell and Ray Dalio are three legendary mega-billionaire investors … and their words and actions are signaling SERIOUS concerns about the dollar.

Of course, our mere mega-millionaire friends like Peter Schiff and Robert Kiyosaki are singing out of the same songbook.

We’re not sure how many people screaming fire it will take to trigger a stampede to the exits … but the alarms are getting louder and more intense.

(Sniff, sniff …) Do you smell something burning???

 

Lesson #5: Better to be fashionably late, than completely miss the party

Buffett didn’t fail to make his move just because he’s a little late to the party.

While we certainly understand the concern and wisdom of thinking twice before jumping on a bandwagon at record price levels … mega-trends move slowly.

And once you see one … even if you’re late … it doesn’t matter what happened before. The past is cast.

What REALLY matters is whether whatever caused the move still exists and is likely to create more of the same going forward.

Even at record high dollar gold prices, Buffett apparently sees a solid, shiny future.

Of course, we’re not trying to persuade you to purchase precious metals. That’s your personal prerogative.

Our point here is that arguably the most famous and respected investor of our time is making moves that teach timeless principles that apply to investors of all types … including real estate.

And they also happen to affirm the significance of concerns about the intense pressure on the dollar 

… which of course, impacts everyone, including real estate investors.

 

Lesson #6: Assets which don’t produce income aren’t really investments

Lack of yield has been Warren Buffett’s core objection to gold.

So it’s not a surprise Buffett is choosing to invest in mining companies over buying the gold itself.

Robert Kiyosaki has been making the cash flow argument for decades.

Kiyosaki says the definition of an asset is something that puts cash in your pocket. In other words … a true asset is one that cash flows.

Notably, Kiyosaki also has been saying … and LONG before Ray Dalio recently did … that cash is trash.

Yet, unlike Buffet, Kiyosaki is a BIG proponent of holding gold. Not as an investment (no cash flow) … but as money (savings).

Clearly, Kiyosaki makes a distinction between currency (cash) and money (gold).

And no less than the legendary J.P. Morgan (the man the institution is named for) told Congress in sworn testimony …

“Money is gold and nothing else.”

(You can read it yourself on page 5 of this transcript)

So money, cash, and investments are THREE different things as far as Kiyosaki is concerned. Makes sense to us.

But back to Buffett …

We’re guessing Warren Buffett views gold as simply a widget people like to buy … like furniture or houses … without any expectation of income.

Buffett also owns an $800 million stake in Fruit of the Loom. We doubt he considers underwear an investment.

So just as real estate investors like Kiyosaki buy properties for cash flow, Buffett buys businesses that cash flow … BUT …

… to be bullish on a business, you must believe their product will have durable and growing demand … along with a sustainable competitive edge.

So while Buffett may not like gold as an investment, he apparently likes it as a product. And who can blame him? The demand is big and strong.

A growing number of people and institutions …including central banks … consider gold an alternative to currency and bonds as a liquid reserve.

That could be Lesson #7.

But whether YOU think gold has any role to play in your personal portfolio, Buffett’s surprising move contains a LOT of lessons and insights all investors can learn from.

Good news for real estate in time of crisis …

A 5-minute muse …

After several weeks of confronting the brutal facts with our COVID-19 Crisis Investing Series …

… and chasing shiny objects in our Making Sense of Silver Series …

… it’s time to consider the BRIGHT SIDE of the crisis for REAL ESTATE investors.

So grab a lollipop, slather on some sunscreen, saddle up the unicorn, and let’s trot to the pot of gold at the end of the real estate rainbow …

 

U.S. Junk Bond Market Sets Record-Low Coupon in Relentless Rally
– Bloomberg, 8/10/20

“ … junk bonds at record-low yields amid a rally triggered by the Federal Reserve’s historic support for the market and heavy inflows into funds that buy the risky debt.”

 

Don’t see the sunshine yet? Hang tight …

 

“Can-maker Ball Corp. pays 2.875% yield on 10-year debt. Rate is the lowest ever for new issue due in at least five years.”

 

“Record low” … “historic” … those are words used to describe EXTREME events.

And sure enough …

 

Desperate hunt for yield forces investors to take ‘extreme risk’
– Financial Times, 7/26/20

The hunt for yield is getting harder than ever for fixed-income investors.”

“Roughly 86 percent of the $60 trillion global bond market … yields no higher than 2 percent — a record proportion – with more than 60 percent … yielding less than 1 percent …”

 

In case it’s not yet obvious, the Financial Times continues …

 

“This has pushed investors into riskier segments in search of income, compelling them to lend to lower-quality companies and countries.”

 

In the classic movie, Papillon, the hero gets tossed into solitary confinement and is fed only small amounts of bread and water.

To survive, he eats the insects crawling around inside his cell.

GROSS, right?

But starving people do extreme things. Remember the Donner party. (Not sure we’d call that a party.)

Spoiler alert: Yield starved paper asset investors might even stoop to investing in real estate.

So … are interest rates headed up any time soon?

According to Peter Schiffthe Fed is trapped in a monetary policy “roach motel” of their own making.

Ten years of zero interest rates to “fix” the 2008 crisis created an even MORE HUGE bond bubble (high bond prices create low interest rates).

Those bloated bonds are margined and splattered all over the balance sheets of “too big to fail” (TBTF) institutions throughout the global financial system.

If rates tick up … even a little … bond prices fall and those bond-bloated balance sheets implode … taking the financial system with it.

It’s like you owning hundreds of houses with 90% financing controlled by special mortgages which require 10% equity at ALL times.

If the property price falls, you MUST sell (at a loss) or pay down the loan to 90% of the CURRENT (now lower) value. That’s called a margin call.

Of course, if there’s not enough cash, you need to dump your houses on the market, which crashes the price, creating more losses and margin calls.

Avalanche!

This predicament is foreign to real estate investors because mortgages don’t work that way. But it’s commonplace on Wall Street.

So if the Fed lets rates rise, it implodes the bond bubble and crashes the financial system. That’s why they’re trapped and the dollar is on the altar.

So it seems Zero Interest Rate Policy (ZIRP) is likely the norm … as long as the Fed can print dollars to buy bonds.

But again … while ZIRP might save the financial system … it’s starving income investors. That’s the problem … and the opportunity.

So, in desperation, these yield-starved investors are dumpster diving looking for scraps of yield anywhere they can find it.

Enter the Real Estate Fairy Godmother …

 

“My child, why eat garbage in Oz when real yield awaits you in Kansas?”

 

Real estate investors know it’s not rocket science to find yields over 2 percent. And real estate investors are HAPPY to pay 3 or 4 percent to borrow.

Real estate arguably provides far more attractive risk-adjusted returns than junk bonds.

So Main Street real estate can feed the yields these income-starved investors need … if only they knew how to use their ruby slippers to get back to reality.

Instead, they’re crawling around junk bond markets devouring what amounts to return-free risk. After all, after inflation and tax, how much real yield is there on 2.875% annualized? Not much, if any.

Meanwhile, there’s a growing rag-tag army of real estate entrepreneurs serving up hot deals on Main Street. It’s like a soup kitchen for yield-starved investors.

But Mom and Pop paper asset investors don’t know about it. So they’re buying the junk food they’re sold.

Robert Kiyosaki has complained for years about the lack of real financial education in the school system and mainstream media.

In fact, you’re probably reading this … or listening to our podcast … or watching our renewed and improved YouTube channel because …

… mainstream financial media’s mission is to promote and protect Wall Street and the paper asset casinos. They ignore real estate. They don’t understand you and they don’t talk to you.

Sure, Wall Street might discuss home builder stocks, REITs, and hedge funds as vehicles to funnel money through Wall Street into real estate and mortgages.

But there are layers of limousines, penthouses, private jets, and big bonuses between individual investors on Main Street and the Main Street real estate producing the profits.

Seems like a whole lot of skimming going on.

We think a flatter model … where Main Street invests directly in Main Street can help #cancelwallstreet … (could this be a movement?)

It keeps more meat on the bone for the people doing the real work … Main Street savers (the money) and Main Street syndicators (the deals).

The pot of gold at the end of the real estate rainbow …

Some of the Fed’s TRILLIONS and TRILLIONS of new dollars will eventually find their way into real estate.

Consider how real estate is WAY better than bonds for yield-starved income investors …

First, real estate’s yields are higher. Plus, they’re backed by real collateral.

Compare that to a junk bond. What if Ball Can can’t pay? What do the bond holders get? Cans?

When you buy a mortgage (i.e., lend against real estate), and the borrower goes bust … you get the property AND the rent.

As a landlord, if the tenant fails, you can put in a new one. The income is more diversified.

But if Ball Can defaults on their bond, the lenders can’t just insert another borrower to take over the payments. It’s single point failure.

Sure, there’s hassle in the real estate. But when things go bad, there’s also places to land before total loss.

When Wall Street “works” on paper, it feels good and seems easy. But when it doesn’t work, it can fall apart fast and there’s no plan B … except the Fed.

The Power That Be (the PTB) have your back too.

Wall Street Wizards feed their families (and their egos) betting on the Fed “put”.

They know the Fed will print UNLIMITED dollars to bail out bad bets.

So it’s all upside for the gamblers, while the downside is subsidized by all dollar-holders everywhere. But the world is waking up to this game.

Meanwhile, like it or not, agree or disagree that it’s fair or not, the fact is that real estate investors enjoy support from the Fed and Washington too.

Yes, it’s true politicians sometimes vilify landlords (as they do Wall Street … wink, wink) and occasionally throw down some public-appeasing rhetoric or legislation.

But it’s mostly theater. The Fed and the politicians NEED real estate investors.

Watch what they DO … not what they say.

Consider the notion that COVID-19 crisis stimulus … PPP loans, enhanced unemployment, and direct-deposits into Main Street bank accounts … are indirectly aimed at real estate.

That’s because stimulus funds help make sure people have money to pay their rents and mortgages.

It’s intended to flow through the recipients and their landlords to the lenders. In fact, the entire financial system is designed to do this.

Real estate investors position themselves in the flow of funds in order to create cash flow and equity.

As long as the debt-fueled system exists, real estate is arguably the BEST tool to benefit from it.

Remember, real estate serves an essential human need … and is particularly important in the financial system the PTB protect.

So unless private property rights are abolished, or Uncle Sam gives everyone a free house, or Elon Musk invents a new tech to shelter people without land …

 real estate will be with us for the long term and remains high on the priority list for everyone from Main Street to Wall Street to Washington DC.

It’s disconcerting when the earth is shaking beneath your feet. The current crisis is nerve-racking. Loose hands and weak wills are going to get bucked.

But if there’s a pot of gold at the end of the rainbow when the stormy clouds clear … and we’re guessing it will be sitting on a piece of real estate.

Keep calm and keep cash flowing.

Gold at record highs and mortgage rates at record lows …

When things are moving fast, windows of opportunity open and close quickly. Those not aware and prepared either miss a good thing … or step in a bad thing. Yuck.

Headlines are SCREAMING right now. Things are moving FAST. But in all the noise, messages can be missed.

We’re certainly not experts … just two guys with microphones, curious minds, years of experience, a big tribe of brilliant friends, and a few thoughts.

But here’s what’s on our radar this week …

In the category of “this makes no sense”, the winners are …

Mortgage rates hit new record low as COVID news grows uglier
– MoneyWise via Yahoo Finance, 8/4/20

Interest rates are risk premiums on capital. When you take a bigger risk, you expect a bigger reward. While we love to borrow at low rates …

How in the world do record low interest rates accurately reflect the growing risk of defaults, bankruptcies, inflation and financial system collapse?

Hint: They don’t. So something else must be at play …

Stocks tick higher; Treasury yields sink
– Associated Press via Times Union, 8/4/20

In theory, owning stocks is like being a silent partner in a viable, profitable business. Profitable enterprises with bright prospects should fetch a premium.

But today, entire economies are locked down or constricted by edict, untenable regulations, fear of contagion or lawsuit, or (fill in the blank).

So MAYBE companies facing severe headwinds get temporary credit for laying everyone off. But you can’t cut your way to growth.

More likely, the Fed is propping things up with Greenspan Put 4.0.

As for Treasuries …

When YOU get over-extended … with growing loan balances, dropping income, borrowing just to make interest payments …

… do lenders INCREASE your credit limit and LOWER your rate?

Of course not. That’s stupid and reckless on their part.

Yet somehow Uncle Sam gets to borrow more and more and more … and is rewarded with LOWER rates?

It makes NO sense … UNLESS …

Maybe the rest of the world is even MORE afraid of their OWN currency failing and are piling into Treasuries as a “safer” haven.

But headlines say the dollar is falling to a 3-year low against other currencies.

Maybe the Fed is bidding up Treasuries … and thereby pushing down yields.

(Just like apartment investors bidding up prices and pushing down cap rates)

Of course, gold and silver prices suggest investors worldwide are seeking shelter … not in the dollar or dollar-denominated Treasuries … but in something a little more shiny.

Meanwhile, speaking of gold …

In the category of “Duh. What took so long?” and “Uh oh.” ….

Gold logs fresh record high near $2,050
– MarketWatch via MSN Money, 8/5/20

Anyone who attended or watched the recordings of Future of Money and Wealth Conference in 2018 saw this coming 2 years in advance.

(By the way, the “appreciation” on just ONE ounce of gold purchased in Spring 2018 after the conference … would pay DOUBLE the price of the video series. For all those who “saved” by skipping the recordings. Just sayin’ …)

Candidly, we’re surprised it took this long.

Of course, when you understand the important difference between money and currency, you realize gold didn’t go “up” … the dollar FELL.

Seems like a big money “no confidence” vote on greenbacks. Makes sense.

It’s like a Picasso or Rembrandt painting. An original is rare and valuable. Limited edition prints are somewhat rare and therefore somewhat valuable.

But do you want to invest in a copy of a painting they printed trillions of … and are still printing? Perhaps if an unsophisticated “collector” can be duped into buying it from you on the mistaken belief it’s “limited edition”.

Are YOU collecting prints of dead presidents thinking they’re “limited edition”?

Gold is saying the world is concerned about the TRILLIONS of dollars being printed. They’re realizing dollars aren’t “limited edition”.

That’s probably why gold just punched through $2000 like Superman crashing through sheetrock to save Lois Lane.

Sure. Some gold bugs are giddy. Gold to the moon!

But Peter Schiff, who’s one of the biggest proponents of gold we know, says on his latest podcast …

“ … gold’s move above $2,000 is not a cause for celebration … the move portends extreme economic hardship for most Americans.”

Gold’s price is a CLUE about the future of the dollar. And we’re guessing you earn, borrow, save, invest, and measure your net worth in dollars.

Most Americans have only ONE measuring stick … dollars.

But as we’ve been saying … and delve into with our expert panelists in the JUST RELEASED 13-episode COVID-19 Crisis Investing Series …

… the ONGOING health crisis has triggered an ONGOING economic crisis, which (based on the Fed’s behavior) … threatens to trigger a SEVERE financial system crisis (making 2008 look tiny) …

… which, (based on gold’s behavior) threatens to trigger a severe dollar crisis.

So yeah. Maybe not so good.

In the category of “bad news can be good news” …

Housing Demand Strong, But Other Economic Recovery Signs Point Down
– Globe Street, 8/3/20

“Sales of existing and new homes increased significantly in June, and data points to stable demand for housing, according to a report by Bank of America.”

Home Depot To Open 3 New Distribution Centers In Georgia; To Add Jobs
– Nasdaq, 8/5/20

Granted, we’re using a BIG magnifier to read between the lines … but think about this …

Most of the United States has been put in time out at home. Many small businesses have moved home. Home is a bigger part of people’s lives than in the past.

There’s also a percentage of people who’ve decided their safest investment in uncertain times is the right roof over their heads.

And while we’re admittedly biased, we’re guessing more than a few folks are looking for a place to store wealth that’s closer to home and more tangible.

When times get tough, investors tend to get REAL … as in REAL estate and REAL assets.

And based on our Boots on the Ground conversations with our network around the country, inventory is low, demand is high, while rents and collections are good.

So while macro numbers … where they throw the disastrous markets in with the good … might make the overall numbers soft …

… our anecdotal observation is there’s still solid opportunity in residential real estate … in the right markets with the right teams.

In fact, some markets are seeing an influx of people coming in from high tax, high cost states to enjoy low cost, low tax warm weather and a nicer lifestyle.

All much easier now that working remotely is the rule and not the exception.

So in addition to investors potentially seeking shelter in real estate, the Home Depot story simply illustrates that even in downturns, there are pockets of opportunity.

And an already great opportunity that just got BETTER is syndication … raising money from private investors to do bigger deals and build diversified portfolios.

Think about it …

TRILLIONS of new dollars are funneling into the economy … leading to rising stock AND bond prices, which makes NO sense apart from Fed “influence”.

As stock and bond investors wake up to their perilous position to seek REAL assets … and gold and housing says it’s already starting at both the big and small money level …

… a chunk of those trillions will be open to Main Street alternatives …

… including equity (for tax breaks, inflation protection, capital preservation and growth) … and debt (real yields above inflation and backed by real collateral).

So while the rest of the world might be wondering what to do next, we think the headlines are providing strategic guidance … for those paying attention.

Until next time …. Good investing

The big story is getting BIGGER …

As Ernest Hemingway famously wrote in The Sun Also Rises …

“How did you go bankrupt?”

“Two ways: Gradually, then suddenly.”

Of course, this isn’t the only great excerpt from this classic book …

“Everyone behaves badly … given the chance.”

These two excerpts sum up the world’s financial condition … and the policymakers who’ve been driving the ship … into the ground.

More of Hemingway’s writings seem fitting for this day and age …

“You can’t get away from yourself by moving from one place to another.”

“Do you ever get the feeling that all your life is going by and you’re not taking advantage of it?”

Ahhh … where to begin?

Last time, we said silver is signaling weakness in the dollar, which at the time was the only currency not already at all-time lows against gold.

Of course, the ink was barely dry on our computer screen when the dollar dropped hard against gold … as gold blew through its record high in dollars to flirt with $2000 an ounce.

If you agree with J.P. Morgan when he told Congress, “gold is money” … which relegates the dollar to merely a currency useful for trading (at best) …

… then you probably understand gold didn’t moveThe dollar fell.

Of course, ever since Nixon broke the global gold standard in 1971, currencies “float” … which means currencies change value in relation to each other.

If that’s confusing, that’s because it is. And when you lose your bearings, it’s hard to tell up from down.

Imagine jumping out of an airplane with a team of skydivers. You’re all in free fall. But as you look at each other, you appear to be floating together.

But if someone opens their chute and slows their descent while you don’t … from your vantage point, they went UP. But did they?

Of course not. They’re just falling more slowly than you.

The reference point of the solid ground rising up below is how you know. The ground appears to be rising, but it’s not moving up. You’re falling. And so is the person who pulled their chute and appears to you to be rising.

So if you’ve ever wondered how gold could be rising in one currency and falling in another, now you know.

Gold is the solid reference point which exposes what’s really happening with currencies. It’s accountability.

That’s why we watch it … and think you should too.

Right now, gold is shining a bright light on something all investors … real estate and otherwise … should be paying attention to.

But don’t take our word for it. Check out these recent headlines …

Goldman Sachs boosts gold price target, says the dollar’s reserve status is at risk
– Yahoo Finance, 7/28/20

Goldman warns the dollar’s grip on global markets might be over
– Bloomberg, 7/28/20

US dollar at risk of sudden collapse? Ex-IMF official warns “blow-up event” could sink currency as debt mounts
– South China Morning Post, 7/24/20

How might the dollar lose its reserve status? How might America go bankrupt?

Gradually. Then suddenly.

Meanwhile, professional money watchers are baffled …

Gold prices hit all-time high, and it’s a bit of a mystery why
– MoneyWatch via CBS News – 7/28/20

Yes. Things make no sense when you have the wrong reference point.

When you can’t think outside the dollar … when you think the dollar is eternal, immovable, invincible, the center of the monetary solar system … it’s confusing.

A similar confusion plagued astronomers who believed the sun and planets revolved around the Earth …

Retrograde motion [planets moving backwards in orbit] … had early astronomers … thoroughly confused … it was impossible for them to come up with a solution that also fit with the popular idea that Earth was the center of the solar system. Not until … Copernicus placed the sun at the center of the solar system did all that retrograde motion suddenly make sense. – Livescience

We’ve previously discussed ways real estate investors can be directly affected by a falling dollar. So we won’t repeat that here.

But it’s not just real estate investors affected. It’s everyone everywhere …

King dollar’s decline ripples across the globe
Reuters, 7/28/20

“ … adding fuel to a global momentum rally that has boosted prices for everything from technology stocks to gold.”

No wonder Americans are enamored of the stock market … even in the midst of what is likely an economic depression, everything is UP … in dollar terms.

It makes no sense.

This is “asset price inflation” in NOMINAL terms … it takes more dollars to buy the same assets. “Nominal” means in numbers … unadjusted for inflation.

So the nominal value of a 3-bedroom house might go from $50,000 to $250,000. But the actual utility value … how many people it will sleep … is exactly the same. The house isn’t worth more in the real world.

Obviously, when you measure your entire everything in a currency whose value fluctuates, it’s easy to suffer from “nominal” confusion.

In fact, bankers and politicians make their living on creating and capitalizing on nominal confusion.

Nominal confusion tricks people and societies whose wealth is falling and economies are shrinking into thinking their wealth and economies are growing.

Because they are growing … in nominal terms … denominated in dollars. But there aren’t more jobs, more production, more real world value.

Nominal distortions can show “growth” in dollars, while employment, production, and purchasing power all fall.

In real world metrics, wealth is shrinking. The only thing growing is the number of dollars. Trillions of them in fact. Conjured out of thin air.

The cure to nominal confusion is to think outside the dollar …

When you ask Ken McElroy (Robert Kiyosaki’s Rich Dad Advisor for Real Estate) how much real estate he owns … he doesn’t tell you a dollar amount … or even how many properties.

Instead, Kenny tells you how many “doors” he owns. He measures his wealth by doors.

Doors represent the REAL asset … a tenant who goes to work every day and earns a paycheck and sends a third of it to Ken and his investors as rent.

THAT is real wealth.

If you own a 32-door apartment, you have 32 tenants. If you paid $1 million and it goes “up” to $2 million, it’s nice. Equity happens.

But you still have only 32 tenants. You didn’t add anything of real value.

And if everything else is going “up” too, your extra million may not make you relatively richer.

It’s only when you use debt to magnify equity growth faster than inflation that you can become relatively richer.

When you denominate your wealth in units of REAL value … ounces of gold and silver, acres of land, barrels of oil production, tons of agricultural production, number of tenants …

… it doesn’t matter whether you trade in dollars, yuan, SDRs, bitcoin, buckskins, banana peels, or seashells.

REAL assets always have REAL value relative to each other. And when you add units of REAL value to your portfolio, your relative wealth grows.

It’s not about collecting dollars. It’s about collecting real assets.

“Assets minus liabilities equals net worth” works in accounting class and bank loan applications, but not in the real world.

Otherwise, the Federal Reserve could just print trillions of dollars inflate asset prices, and make the United States and Americans rich … nominally.

But it’s the only tool in the Fed’s kit, so they’re printing away. But precious metals say the world isn’t buying it.

Or more accurately, they’re not buying the dollar.

On Main Street, there are folks who look at their Wall Street produced financial statements and THINK they’re rich.

They’re nominally confused. If you own 100 shares of stock in a company whose sales and profits are declining … but the share price doubles in dollars …

… you still own 100 shares of a failing company. How are you richer?

Meanwhile, there are thousands of millionaire-next-door real estate investors with 20-30% of their tenants’ income flowing to them each month … often tax-free … who are richer in a more real, resilient way.

Of course, a depressed economy creates challenges for real estate investors too. There’s no easy street in a crisis.

But we don’t think you need to be afraid of a falling dollar. Just prepared. In fact, if you play it right, you’ll probably end up doing quite well.

Income property, mortgages and precious metals in the right combination are arguably the ideal tools to short a falling dollar and build real relative wealth.

We’ll have more to say on this very soon … stay tuned.

Meanwhile, keep your head in the game. The world is changing from gradually to suddenly.

This isn’t the time to “Wait and See”. It’s time to “Think and Do”.

What skyrocketing silver prices means to real estate investors …

It sounds BAD… but it can be VERY good …

As we write, silver is soaring … from $18 to $23 (a 27% gain) in just a few days.

Equity happens … in metals too!

We’ve been talking about precious metals for years. Watching metals is one of the important lessons from the 2008 crisis.

What do rising silver prices mean to real estate investors?

First, silver and gold are important financial system gauges … providing valuable clues about the future of money and wealth.

Precious metals are considered attractive alternatives to dollars in the bank … and to equity in real estate as vehicles to store wealth.

Precious metals tend to combine the best features of both cash and real estate equity. There’s a LOT more to say on this, but we’ll save it for another day.

For now, remember real estate equity is illiquid … exposed to creditors and predators … and hard to protect in a foreclosure.

Meanwhile, dollars have a long history of losing value. It’s a big reason why equity happens and leveraged real estate is a great investment.

Also, dollars stored in a bank are subject to nasty things called counterparty risk and bail-ins … which few depositors are aware of. It’s a reward-free risk.

Of course, converting real estate equity and dollars into precious metals mitigates many of these risks. And done right, this strategy can significantly outgrow inflation and help you build resilient wealth.

This is a hot topic right now, so we’re preparing a tutorial on it. To be notified when it’s ready, email [email protected].

Meanwhile, back to the clues in the news and soaring silver prices …

Gold and silver are considered “monetary” metals. They’re money.

Many people confuse “money” with “currency” because they used to be one and the same.

But money and currency are divorced now. Strategies which worked when they were married don’t work so well today.

The lesson is … when fundamental parts of the financial system change, strategies, and tactics should be updated.

Right now, rising silver prices could be foreshadowing a fundamental shift we’ve been watching for.

Gold’s already there, which makes silver’s move noteworthy because …

Gold and silver are similar … but different.

It’s kind of like the penthouse and the warehouse.

While gold gets to prance around at the “monetary metal” ball … hobnobbing with central banks and uber-rich investors …

… silver is often relegated to working-class status as an “industrial metal”.

This is because silver is cheaper than gold and is an essential component in many products, including solar panels and cell phones.

So while gold finds its way into fancy jewelry and safe deposit boxes … silver ends up conducting electrical current before being buried in a landfill.

But sometimes Cinderella silver gets invited to the monetary ball. And it looks like it just happened.

It’s a safe bet industry is suppressed. Lock-downs do that. So the big spike in silver probably isn’t due to industrial demand.

Of course, we’re not precious metals experts, but we know several.

One of our favorite commentators monitors an esoteric metric which helps distinguish paper trading from physical demand. It’s an important distinction we’ll delve into shortly.

In a recent article, Keith Weiner writes …

“… the [silver] buying which drove the price up so much was … buying of physical metal.”

What does this mean and why does it matter?

Seems to us if physical demand is up, and it’s not from industrial demand, then it may be silver is now on the MONETARY metal bandwagon.

That is, people and institutions could be buying silver to stack in their safes.

Perhaps a clue that dollar holders are losing faith in the dollar. And there are several trillion reasons why this would be.

Of course, gold’s surge supports this. Gold is quickly approaching the all-time high last reached in 2011.

As we noted then, central banks bought physical gold in record amounts in 2019. As the ultimate currency insiders, maybe they knew something?

In any case, it seems today more people are trading in dollars for gold.

If true, you’d expect dollar weakness … and along comes this Reuters headline …

Battered U.S. dollar ‘hanging by a thread’ as coronavirus cases grow

Here’s the concern … something we’ve watched for a while …

The primary reason the Federal Reserve can create unlimited dollars without disaster (think Zimbabwe or Venezuela) is the U.S. dollar reigns as the world’s reserve currency.

This “exorbitant privilege” creates huge demand for dollars all over the world.

So although those newbie dollars might be Made in the USA (who says we don’t make anything?) …

… but they’re funneled around the globe through federal spending on military, foreign aid, international loans, and a host of the things.

Even those stimulus dollars deposited directly into citizens’ checkbooks find their way to China … as consumers buy Chinese stuff from Wal-Mart and Amazon. U.S. trade deficits funnel dollars overseas.

This means Americans don’t feel the full devaluation of their dollars … the rest of the world soaks up much of the excess.

But consider this …

If sending dollars overseas suppresses domestic inflation, what happens if (when) those excess dollars come back?

Ironically, as chronicled in our Real Asset Investing Report … China is leading the charge to de-dollarize the world. Russia’s on board too.

Rising gold prices … and now soaring silver prices combined with physical demand … could be indicators of a growing migration out of dollars.

This is a big deal when set against the backdrop of unprecedented Fed printing … and public officials’ denials. Pay no attention to that man behind the curtain!

In 2008, we were told the sub-prime problem was contained … how’d that work out?

‘We want a stable dollar,’ says U.S. Treasury Secretary Mnuchin: ‘It is the reserve currency of the world and we’re going to protect that’

– MarketWatch, 7/23/20

Here’s the problem …

The way we understand it, to save a struggling financial system, the Fed MUST create MANY TRILLIONS of fresh dollars … more than ever.

Those new dollars buy bonds to suppress interest rates … another topic we’ve addressed before.

Of course, as long as enough people trust and accept all these brand-new dollars, it’s business as usual.

BUT if dollar-holders revolt, then a lot of SHIFT HAPPENS …

Interest rates could rise. When lenders think they’ll get paid back with highly depreciated dollars, they’ll demand compensation.

Are you prepared for the possibility of spiking interest rates?

Credit markets could implode. Think 2008 on steroids. Rising rates are kryptonite to the mighty-but-leveraged balance sheets of nearly every financial player.

Are you prepared for a world without cheap and abundant credit?

Commodity and energy prices could rise faster from inflation than they drop from depreciation based on depressed demand.

Are you prepared for tenants to have more of their income consumed by food and energy?

We’re not saying all of this will happen … maybe none of it will. But there are rational reasons to think it could.

As we often say …

“Better to be prepared and not have a crisis, than to have a crisis and not be prepared.”

Except this time, a crisis isn’t a “maybe”. It’s here … moving methodically through a progression of crises aimed at a currency crisis.

Ironically, the Fed’s attempts to stop it could cause it. Peter Schiff has been warning of this for years. Now we’re here.

Of course, we certainly don’t have all the answers. But we’re paying attention and working hard to stay ahead of it.

And it’s not all bad.

In fact, there should be a lot of opportunity. We’re sad for those who get blind-sided but excited for those of us who are aware and prepared.

Quality properties will likely be available at great bargains … IF you’re in a position to purchase them.

Many affluent folks could be looking for syndicators to help them move money out of Wall Street onto Main Street.

The landscape for syndication just got better.

NOW is the time to prepare for these possibilities. But it may require thinking outside the box you’ve been in for the last decade.

The world is changing in BIG ways … and very fast. Your investing strategy and tactics probably need to change too.

So stay tuned … and we’ll keep the ideas and insights coming.

We’re not in Kansas anymore …


Editor’s Note: It seems there was a delivery problem with our last muse … either spam filters found the content delicious … or the thought police didn’t like our attitude. 😉

Great read! I’m looking forward to the crisis investing webinar!” – Ben B.

“Excellent article. I highly recommend …” – Jan G.

Love your info … and your humor!” – Douglas L.

This is a great one. Is there an online version to share?” – Jason O.

If you happened to miss it and are curious, click here to read now >>

Of course, if you love it … first, tell us (it helps feed our enormous egos) …

… then share with your family, friends, colleagues, neighbors, ex-lovers, personal shoppers, and random strangers walking their dogs past your house.


On to our current hot topic of consideration …

Actually, there are too many hot topics to pick a clear winner, so while we’re busy ramping up our content creation schedule (that’s a tease) …

… here are some notable headlines with short commentary on why we think they’re useful for real estate investors.

(You can file all these under “We’re not in Kansas anymore.”)

According to both World Bank and IMF, as reported by Statista, China is now top of the list of Biggest Economies in the World 

Yes, we realize there are debates about whose is bigger depending on how you measure. But that’s majoring in minors.

It’s really not size that matters, but quality.

An industrialized economy puts people to work making things. Look around at the labels on just about everything Amazon delivers to you. Made in … where?

financialized economy puts people to “work” recycling currency … using paychecks to make loan payments, and borrowing to consume … products made somewhere else.

Of course, it’s the exorbitant privilege of the dollar’s reserve currency status that keeps the financialization game alive. But we’ll save that for future discussion.

Meanwhile, if politicians can break the Wall Street wizards’ spell over them … (maybe the recent shortage of medicine and masks in a crisis will do the trick)

… there might be a serious effort to re-industrialize the United States.

IF that happens … some markets left for dead after the great manufacturing exodus might be resurrected … or new ones will emerge.

If you can spot the trend early, you can make your move ahead of the influx of capital and people.

Meanwhile, the financial system is starting to show signs of stress …

‘This is not a normal recession’: 3 large US banks set aside $28 billion to cover potential loan defaults due to the coronavirus pandemic

-Business Insider, 7/14/20

Mariners in pre-tech seafaring kept a lookout perched in the Crow’s Nest.

The lookout keeps a 360 degree view out to the horizon, and warns of looming threats like storms, obstacles, or hostile vessels.

In today’s world, there are hundreds of financial lookouts … all perched higher than we mere mortal Main Street investors.

If we’re correct that the world is only in Act 1 of a 4-part cascading crisis (Act 1 – health crisis, Act 2 – economic crisis) …

Then Act 3 is a financial system crisis … major problems in credit markets and banks.

A financial system crisis happens when debt does bad faster than the system can absorb. It’s like when a virus overwhelms your immune system.

The first to know are the borrowers. But unlike public companies, most people and private businesses keep financial woes to themselves.

Next in the “bad debt early notification” food chain are lenders … most notably banks. They see payments coming in late or not at all … long before it’s reported.

And according to this Business Insider reportthe biggest banks just beefed up loss reserves … by more than any time since 2008.

(Hmmmm …. that date rings a bell … something about a financial crisis …)

“This is not a normal recession.” 
– Jamie Dimon, CEO of JP Morgan Chase

Dimon points out that the recessionary piper whose can was kicked down the road by the Fed … is still up ahead on the road we’re on. He wants to be paid.

We’re not saying Dimon’s right. But he’s got a vantage point we don’t … and clearly, big banks see bad debt rising. Actions speak loudly.

Of course, when debt goes bad, prices collapse … which can be good or bad depending on whether you’re a prepared buyer or an unprepared seller.

And it seems savvy investors are starting to smell opportunity …

Non-listed REIT fundraising shows early signs of recovery
– Real Assets Advisor, July 14, 2020

This headline is a little off the mainstream, but sometimes that’s where you need to go for news about Main Street real estate investing.

In this case, the news is straight-forward … and not too surprising for anyone who understands shift happens.

After a gruesome May took the shine off a near record first quarter, June inflows into private REITs spiked back up by 83 percent.

Reading between the lines, it seems passive real estate investors see opportunity … and perhaps some safety … in real estate.

Of course, for many years we’ve been proponents of private syndications …

… for both real estate entrepreneurs as well as passive investors who want the benefits of real estate without getting their hands dirty.

It’s notable that private money is already making the move back into real estate.

And speaking of shift happening …

Coronavirus Accelerates Secular Shifts in Structured Finance
– Fitch Ratings, 7/9/20

Okay, this one’s a little wonky. But you don’t need a PhD to understand.

Remember, we live in a financialized world, so the first place opportunity and problems manifest are in financial markets.

And because we think the financial markets are next in line to feel the wrath of COVID-19 (or the reaction thereto) …

… we’re monitoring some of the more esoteric corners of the eco-system.

This Fitch report presents conclusions that are worthy of a closer look …

Home price growth is likely to increase in areas where home sales and new mortgages are driven by migration to smaller cities or suburban and rural areas.

“Sustained elevated unemployment and economic uncertainty may also mean fewer mortgage applications, particularly for first time buyers. This may increase demand for multifamily and single- family rental properties.”

Yes, it’s true these people aren’t real estate investors … and they’re not writing for real estate investors.

They’re addressing the research needs of debt investors … people and institutions who invest in derivatives of debt against real estate.

But because they know the debts they invest in are only as good as the ultimate collateral … the property and borrower … they pay attention to the same things you should.

The difference is they have big budgets, fancy computers, super-studious analysts … and they write these reports.

So for simpletons and cheapskates like us, it’s easier to cheat off their homework.

Of course, it’s certainly not crystal clear. In fact …

Payment forbearance measures are clouding the credit picture, and high levels of loan modifications or payment holidays are posing challenges …”

Soooo … the bottom line of this commentary … which we conveniently placed at the bottom is …

At both the global macro level and the micro Main Street level, the world is changing bigly and quickly.

But with politicians and bankers manipulating financial markets, currencies, contracts, landlord-tenant law, tax codes, and even the personal freedom to make a living …

… NOTHING is clear. Yet.

It kind of feels like sailing on a big ocean liner operated by an allegedly competent crew … through a sea of icebergs and thick layers of fog.

But not to worry. The nation, the currency, the system are unsinkable. What could go wrong? Right?

Which way to the lifeboats? Just in case …

 

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