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 …

 

This ONE chart tells a BIG story …

Most investors don’t really know what it means … or what to do about it …

Real estate investors are more likely to be interested in grading slopes than yield curves. And the Fed’s balance sheet? That’s REALLY esoteric and boring.

BUT … the Fed is the most powerful and influential financial force in the world … affecting the stock and bond markets (where mortgage rates are set), the economy, and even geo-politics.

The Fed seems to prefer hiding in the shadows …

… except when diverting attention from charts like the one below with cryptic congressional testimony and occasional PR appearances on TV.

This chart shows the Fed’s ballooning balance sheet 

Source: St. Louis Federal Reserve

The numbers might be too small to read, but they’re too big to comprehend … with over $7 trillion of assets (nearly double from just 4 months ago).

You may or may not know what it means, but set that aside right now … and just look at the slow and stable trajectory leading into the end of 2008 …

… and the “big” spike at the beginning of 2009.

Bring back any memories?

We found flipping the chart over helps …

Source: St. Louis Federal Reserve

Now, instead of looking like a positive, happy, upward trend … it looks more like the way it felt …

… like you were paddling along on a river until late 2008 when … whoosh! You went into a rough patch of white waters.

Then after a bit of a bumpy ride, you settled into a deep but slow descent into “the eye of the storm” (yes, we just mixed the metaphor) where it seemed stable and trending up.

Then some headwind … you might say your momentum was tapering … and then a little teaser turbulence right before …

WHOOSH!!! Over the waterfall.

This is what it FEELS like for investors riding waves of Fed liquidity via “quantitative easing” (Fedspeak for printing unfathomable amounts of dollars).

Of course, the Fed doesn’t really “print” … that’s so 20th century.

Here’s the official explanation straight from Fed Chairman Jerome Powell’s appearance on 60 minutes:

60 MINUTES: Fair to say you simply flooded the system with money?

POWELL: Yes. We did. That’s another way to think about it. We did.

*** (ANOTHER way to think about it? What’s the first way???) ***

60 MINUTES: Where does it come from? Do you just print it?

POWELL: We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds or other government guaranteed securities. And that actually increases the money supply.

Hopefully, that’s VERY clear.

The Fed, by their own admission, simply conjures dollars out of thin air and uses them to buy government-backed debt.

Keep this in mind when you’re perplexed about why the government not only grows its own debt but seems all too willing to guarantee private debt also.

But don’t think about all that too much now. Let’s focus on the discussion at hand …

The Fed’s balance sheet shows HOW MUCH digital money the Fed conjures out of thin air … as reflected by how much government-backed debt they own.

Think about this …

The Fed creates dollars out of thin air at no cost. At this point, it has no value because it cost nothing to create.

Those fresh dollars only become valuable later when someone who did real work and produced a real product or service is willing to trade their product for those previously worthless dollars.

Doesn’t seem quite fair to the person doing real work. But that’s a rant for another day.

Of course, the Fed doesn’t actually put the money directly into circulation. They loan it to the government, who then must spend it into circulation.

Seems like a pretty good deal for the government. They get to spend lots of money to buy nice things … like votes.

If we didn’t know better, we’d be tempted to think the Fed and Uncle Sam have a bit of a racket going.

Nah.

So if the Fed prints dollars for free and then loans them to the government, wouldn’t this make them separate parties?

Good catch. Yes, they are. Of course, that’s also another rant for another day, and not our point right now.

Today, we’re less concerned with who the Fed is … and more focused on what they’re doing and what it REALLY means to Main Street real estate investors.

It’s a bit more complicated than just interest rates and inflation. Sorry. But it’s important because what’s brewing isn’t your run-of-the-mill financial crisis.

Back to our story …

So the Fed prints money from nothing and lends it to Uncle Sam. But when the government borrows money, who pays it back … and how?

Hint: The Federal Reserve, the income tax, and the IRS were all created at the same time as part of the 16th amendment in 1913.

Why?

Well, it seems there was a financial crisis in 1907, and the politicians and their funders decided to “fix” the situation.

Of course, “fix” is a word subject to interpretation …

“Repair, mend” … OR … “to influence the actions, outcome, or effect by improper or illegal methods”.
– Merriam-Webster Dictionary

And since we’re quoting …

“Never let a crisis go to waste.” 
– Saul Alinsky

“Never let a good crisis go to waste.”
– Winston Churchill

“You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”
– Rahm Emanuel

You get the idea. Exploitation of a crisis is a standard operating political principle that’s been around a long time. And the consequences often land on Main Street.

And speaking of principles that have been around a long time …

“The rich rules over the poor; and the borrower is servant to the lender.” 
Proverbs 22:7

Interesting.

We’re guessing you’re smart enough to put all that together for yourself. Must be nice to print money out of thin air and buy up trillions in debt.

Meanwhile, back on Main Street …

You don’t need to be a rocket surgeon to know you can only extract so much tribute … even at zero interest … before the burden is simply too much.

As we noticed last September, there were signs of severe systemic stress BEFORE the COVID-19 crisis hit.

Now everything is moving much faster … so it’s important to pay close attention and be ready to react to both the approaching dangers and opportunities.

Obviously, dollars are nearly free right now. It’s probably not a bad idea to grab all you can while credit markets are still functioning.

We’re noticing small businesses and commercial properties coming on the market at an increased pace … and with “price reduced!” in the pitch.

That’s a clue the crisis sale might be starting.

You also may have noticed precious metals are catching a bid in dollar terms. That’s talking head jargon for gold and silver prices are going UP on dollar price.

This indicates more dollar-denominated investors are choosing to keep some liquidity in precious metals versus currency.

This makes sense as every other currency in the world is already at all-time lows versus gold (i.e., gold is at all-time highs in every currency except the dollar).

When the Fed is printing trillions of dollars each year … and Uncle Sam is aggressively putting them into circulation … the historical result is a falling dollar.

And despite what you may hear on financial TV … we think it can be strongly argued this is setting up a perfect storm for leveraged income-producing real estate.

Remember, Wall Street and the TV gurus who promote them believe investing is “buy low, sell high”.

But real estate investors think “cash flow” … which is the only reliable source of equity. Income creates real equity.

Meanwhile, strategic real asset investors put it all together into a bigger picture …

Real estate (especially residential) is a sector strongly supported by the most powerful constituencies … politicians, bankers, and voters.

That’s a lot of love … and a great place in line when emergency help is doled out.

More importantly, debt is the real investment.

Income property mortgages are essentially a big short of the dollar with a great feature: the income from the property makes the payments.

So while you may not be able to print money like the Fed, using the right real estate debt is pretty close. And …

… the Fed is ALWAYS working on making debtors winners.

And when you use debt to convert real estate equity into precious metals, you have a very powerful shield against a falling dollar.

Yes, it’s true the dollar is catching the “best last paper currency standing bid” …

… but the dollar’s relative strength against other paper currencies at the same time it’s showing weakness against gold …

… is a major clue there’s some real-world weakness likely coming for the dollar in the not-too-distant future.

Yes, we know this is a lot to absorb. It’s why we keep repeating ourselves.

But rather than getting bored, we hope you’re getting inspired to study and prepare. This is a whole new ballgame.

This four-phase cascading crisis is still very early in its life-cycle.

It’s not the time to succumb to a short attention span.

Freedom, responsibility, opportunity and hard work …

We’re a little late with this week’s muse … we’ve been busy finishing up an EPIC collection of interviews for our soon-to-be-released COVID-19 Crisis Investing Webinar Series.

The original plan was to do a simple webinar with a collection of our big-brained friends. It turned into a MUCH bigger undertaking … in a GREAT way.

Obviously, there’s a LOT happening in the economy and financial system right now …

… and the issues are much deeper than debates about wearing masks … or whether tearing down statues falls under the heading of peaceful protests.

Meanwhile, as Americans head into our Independence Day celebration, there’s a lot to think about … both at the macro-policy level and the micro-investing strategy level.

Remember … your business and investments operate inside a complex, yet delicate ecology made up of people, resources, organizations, policies, procedures, and a physical environment which sometimes tosses a curveball.

Like your body, this ecology is a finely tuned machine … and though it’s often flexible and resilient … it has its limits.

Injury, disfigurement or worse are often on the other side of exceeding limits. Pain is usually the telltale sign you’re approaching the danger zone.

Ignoring the warning signs almost always ends badly. Yet even mature adults revert to childlike “covering their eyes” trying to hide from scary realities.

You can ignore reality, but you can’t ignore the consequences of ignoring reality.

Of course, pessimists only see the downside and are often paralyzed.

Optimists see only the upside … and sometimes get blindsided by dangers which are obvious in hindsight. We know. We’ve done it.

As real estate investing legend, Sam Zell says … the secret to success is the ability to pursue the upside while keeping the downside in view so it can be managed.

In other words, Sam Zell is a realist … which is probably an appropriate word for a successful real estate investor.

Our world is FULL of downside right now. Pain is everywhere.

It’s fairly obvious that people, businesses, markets, financial systems, and even society itself are all approaching their limits.

Will they bend or will they break? If they break, what does that look like? Do YOU have a plan?

Not only are those frightening contemplations, they’re hard work.

But if you love the freedom to pursue opportunity, own property, build wealth, and retain and enjoy the fruits of your efforts, it’s hard work you’ll need to do.

“Most people do not really want freedom, because freedom involves responsibility, and most people are frightened of responsibility.”
– Sigmund Freud

“If you don’t design your own life plan, chances are you’ll fall into someone else’s plan. And guess what they have planned for you? Not much.”
– Jim Rohn

“Power over a man’s subsistence is power over his will.”
– Alexander Hamilton

(That last one is a little disturbing in a “lockdown” world …)

The challenges all freedom-loving entrepreneurs and investors face in this current crisis are multi-faceted but can be distilled into a few macro and micro components.

In the macro, this could be the endgame for the 49-year experiment of a global debt-based financial system.

Or maybe it’s just a bigger crash on the way to some future endgame.

Most of the bright folks we’ve talked to think the system most of us have operated in for virtually our entire lives is dangerously close to collapse and reset (again) …

… or perhaps even full-blown replacement.

All of which begs the questions … what’s going to happen in the macro and how do you prepare in the micro?

Of course, no one knows what’s going to happen, so it’s important to analyze and anticipate possibilities and probabilities.

It may seem complicated, but it’s really a simple, though potentially catastrophic, sequence of events.

It’s important to be mindful of where we are in the process … and how likely we are to advance the next level of “yikes”.

The health crisis led to the economic shutdown, which has the potential to create a financial system crisis or collapse.

So the Federal Reserve is risking a currency crisis (or collapse) by printing many trillions of dollars trying to stop it.

Will they succeed? And if they don’t, when will we know and how will it impact all of us?

More importantly, what can we each do to prepare for a worst-case scenario?

These are the issues concerned investors are wrestling with … and the subject of our conversations both on and off the mic with our COVID-19 Crisis Investing Webinar Series faculty.

For now, here are some important concepts and actions to consider …

Incomes, whether active or passive, are based on economic activity. When commerce stops, so does revenue, and consequently rents and loan payments.

You might be a little late to the party, but if you don’t have solid liquid reserves, it’s something you probably want to get in place quickly.

The longer this crisis continues, the more likely your revenue will be negatively impacted. Liquidity is essential when revenue wanes.

Liquidity is also a VERY powerful tool when credit markets seize … often taking asset prices down with them.

The best bargains are often found by brave, bold, and liquid investors in the pit of a financial crisis.

Meanwhile, at the macro level, all those missed payments could create major problems not just in credit markets, but the banking system too.

Remember … there were already symptoms of a sick banking system just a few months before the COVID-19 crisis came to light.

And now with big debtors like Chesapeake Energy and Hertz leading a parade of bad debt and corporate bankruptcies …

… the Federal Reserve is printing dollars to not only buy up corporate debtmunicipal debtmortgages …

… but some allege the Fed is indirectly supplying freshly printed dollars to prop up stock prices.

We don’t know. But it seems like there’s a WHOLE lot of printing going on. The big question is whether the dollar is strong enough to endure this severe dilution.

Meanwhile, it seems clear credit markets are full of potentially toxic assets no one but the Fed will buy. That’s a significant warning sign.

So, at the micro-level, consider your dependence on and exposure to credit markets and the banking system.

You might find your credit lines being cut off or reduced without warning through no fault of your own. That’s what happened in the lead up to 2008.

And if you’re not familiar with the concepts of “counterparty risk” and “bail-ins”, this is a good time to expand your financial vocabulary. You may have both in your future.

Remember … these are unprecedented times.

Unimaginable things may not be likely (yet), but they’re definitely moving up the ladder of possibility.

Ignoring the possibilities doesn’t make them go away.

But unless the preparation itself is exorbitantly costly or complicated, it’s better to be prepared and not have a crisis than to have a crisis and not be prepared.

After all, inconvenient or novel isn’t the same as costly or complicated.

Many people are counting on their “leaders” and “advisors” to tackle the tough tasks, stand the night watch, and provide adequate warnings.

Maybe not such a good plan.

So as we consider what America’s founders sought to accomplish when creating the United States of America, it’s important to remember …

… the American system was built by and designed for people who wanted massive freedom and are willing to accept massive responsibility to obtain and retain it.

“Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.”
– Benjamin Franklin

This freedom … to own businesses and property, speak freely and debate ideas, succeed and fail based on individual effort and ingenuity versus a pedigree or birthright …

… are all based on one singular foundation: individual freedom and personal responsibility.

We can debate whether this is the best system, but the founders made it clear …

“Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.”
– John Adams

Of course, the freedom we have allows us to debate the details of what morals and religions are best … and those are debates worth having.

But the core basis of both morals and religion are generally accepted to be personal responsibility.

We think it’s clear we’re in Act Two of a four phase cascading crisis.

And while we’re all in this together, we’re each individually responsible to mind our own business first. Just like when the oxygen masks drop in a crisis on an airplane.

So JOB ONE is to get into and stay in a position of excess strength, wisdom, time, and capacity so you can help those in your sphere.

Because if everyone is waiting for somebody to do something then nobody does anything. That’s obviously not good … and a weak, desperate society is often taken advantage of.

So we encourage you to work diligently on what you can control so you’re better positioned to respond strongly to the many things you can’t control.

Study, think, act, learn, and then share your wisdom with the people around you.

This isn’t the time to be passive.

Tragedy strikes again …

Tragedies are a terrible but predictable and commonplace part of living and investing.

You don’t always know when or how tragedy will strike, but you can be certain it will. It’s inevitable.

Of course, tragedy and suffering aren’t primarily intellectual experiences. You FEEL them … and they HURT. It’s intensely emotional.

The Real Estate Guys™ family was hit with tragedy last week for the second time in the last six months when Robert’s father, “The Godfather of Real Estate” Bob Helms passed away.

Thanks to all who expressed condolences and shared memories via email or on social media. It’s a blessing to be reminded how many lives have been touched by Bob’s wisdom, kindness, encouragement, and talent.

For those of us close to Bob, our world stopped. Nothing has mattered but processing the loss and considering a new future without Bob’s presence.

Of course, the rest of the world goes on … as it always does in the midst of a never-ending parade of macro and micro tragedies.

But as the hits just keep coming, it’s ALMOST enough to make you wonder if it’s all worth it.

After all, the “happiness” we all strive for in terms of financial, physical, and relationship prosperity seems so elusive and fragile.

All this has us thinking about the role of pain right now in the world and in the life of every investor reading this. Pain and loss are part and parcel of all areas of the human experience. It’s naive and foolish to think anyone gets a pass.

But pain isn’t something often discussed, and certainly not appreciated, by most people. After all, no one with a broken bone, heart, or portfolio wants to be congratulated and counseled to see the good.

Yet most mature people will tell you the greatest lessons were learned, the strongest relationships forged, the most profound transformations took place through the process of pushing through pain.

It’s analogous to a birthing process. Often the labor of pushing through is intensely painful, yet on the other side awaits one of life’s greatest joys.

So pain and loss are not only normal, they’re required and inescapable. They are part of the process of developing strength, resolve, and wisdom.

So how do we as individuals, investors, entrepreneurs, organizations, and societies deal with the personal and collective pain of inevitable tragedies?

And in case you don’t think this applies to the pragmatic goal of becoming a more powerful investor, consider how pain and the resulting panic can cloud judgment and impair thinking.

“When emotions run high, intelligence runs low.”
– Blair Singer

Good emotional control … even in the midst of tragedy, pain, fear, uncertainty, and doubt … is the hallmark of a powerful investor.

We learned a lot about pain and panic in the financial crisis of 2008. Today, we’re thankful for it. But at the time? Not so much.

In hindsight, if we’d cultivated an attitude of gratitude sooner, we probably would have suffered less, learned quicker, and recovered stronger faster.

After losing Russ’ wife last December and then losing Robert’s father last week … we turned to some profound ancient wisdom to remind ourselves …

“This too shall pass.”

– William Shakespeare, Hamlet

And in case you don’t think a 16th-century playwright understands the complex world you live and invest in, consider this gem …

“What a terrible era in which idiots govern the blind.”

– William Shakespeare

But that’s a different discussion we can have over a virtual beer someday while we’re “Sipping-In-Place”.

So gratitude is an empowering attitude … even in the midst of a tragedy and even if the only thing you can find to focus on is “this too shall pass”.

But as profound and brilliant as William Shakespeare was, we found an even older, arguably wiser author to help keep both our micro-tragedy and the macro-insanity we’re all living through right now in a healthy perspective.

And ironically, it also turned out to provide some practical investment wisdom.

So rather than delve deep into clues in the news this time, we’re using our moment of pain to share some deeper thoughts with you.

Thanks for sticking with us this far.

It’s said King Solomon was the richest man who ever lived. Many suspect he’s the author of the Book of Ecclesiastes in the Bible.

We’re not sure about all that, but this ancient muse (later adopted for a popular song in the ‘60s) offers useful wisdom about life, pain, and investing …

“To everything there is a season, a time for every purpose under heaven;

A time to be born, and a time to die;

A time to plant, and a time to pluck what is planted;

A time to kill, and a time to heal;

A time to break down, and a time to build up;

A time to weep, and a time to laugh;

A time to mourn, and a time to dance;

A time to cast away stones, and a time to gather stones;

A time to embrace, and a time to refrain from embracing;

A time to gain, and a time to lose;

A time to keep, and a time to throw away;

A time to tear, and a time to sew;

A time to keep silence, and a time to speak;

A time to love, and a time to hate;

A time of war, and a time of peace.”

– Ecclesiastes 3:1-8 New King James Bible

Entire books and sermons are dedicated to this passage. We’re certainly not qualified to expound on words many consider divinely inspired.

So we’re not here to say what “truth” is or what you should or shouldn’t do or believe.

But during the inevitable trying times we’ll all face in our individual lives, loves, careers, and portfolios … including the current COVID-19 crisis we’re all currently in together … keep these words handy and remember …

It’s just a season. This too shall pass.

For The Godfather, he came to the place where it was his time to die. We all have one, though we tend not to think about or plan for it. No one likes it.

As we’re writing this, Russ’ 13th grandchild is due any moment. For her, it’s a time to be born.

For aware and prepared investors, 2010 was an excellent time to “plant” real estate investments. Today might be considered a good time to harvest equity.

During most of their life, many baby boomers planted into financial safety nets like social security .. and are expecting to harvest in the coming years.

But it’s possible their hoped for time to dance could turn out instead to be a time to mourn. We hope not, but the system is weak.

Some think many of the important social contracts born in the last 150 years are entering their time to die … to be broken down and cast away.

Many on all sides of the issues are finding it’s no longer time to be silent, but to speak.

It’s conceivable the fundamental rights we depend on to move freely, earn and deploy capital, own and operate properties and businesses … are all subject to upheaval.

And with polls showing a growing number of Americans believing civil war is inevitable, it seems it might be a time for the worst kind of war is approaching.

These are no doubt tumultuous times.

All this to say, we think it’s arguably more important now than ever for investors to reflect on ancient wisdom …

… and consider the sage author’s conclusion that “there’s nothing new under the sun.”

Yes, it’s a dangerous, world and we should all be diligent in staying aware and being proactive …

… but these seasons and cycles have been ebbing and flowing for thousands of years. There’s nothing new under the sun.

Sometimes, the hardest hits help remind you about how small you really are and what really matters in the grand scheme of things.

It’s tempting to allow tragedy to make us bitter, cynical, angry, and withdrawn.

But wise men over the centuries remind us there are predictable seasons in the lives of men and societies, and whether the current time is good or bad, “this too shall pass.”

We think what’s important is to remember who you are, why you invest, and what really matters along the way.

As our great friend, Tom Hopkins often reminds us, “Love people and use money, not vice-versa.”

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