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!

Recent Updates Unlock Retirement Account Profit Potential

Tax rules are always changing … but they’re a great signal to show where policymakers want individuals like YOU to invest your money. 

With the economy struggling under the weight of COVID-19, it’s no surprise that tax rules are being tweaked. 

Today we’re looking at how retirement accounts are being unleashed … and how you can get in on the action as a real estate investor. 

In this episode of The Real Estate Guys™ show, hear from:

  • Your tireless host, Robert Helms
  • His exhausting co-host, Russell Gray
  • Regular contributor and retirement account investing expert, Damion Lupo

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Using your retirement account now

There are lots of different ways to invest in real estate. One of the most underutilized … and often misunderstood … resources are retirement accounts. 

So, how can you take that money and invest in real estate and other hard assets?

When many people get hired, they set up a retirement plan, and they forget about it. But you can … and need … to take control off your account. 

If you’re still working for your company, you likely can’t do much about your account besides monitor it and pay into it. 

But, when you have an opportunity to turn that account into a self-directed account, you can make magic happen. 

What’s great about retirement funds is that they can be invested in all kinds of things … you’ll want to talk to your tax professional about the rules and the options available to you. 

Different money is treated differently … it’s taxed different ways, and we behave differently around money that we have saved and put away like retirement accounts. 

We think it is good for individual investors AND for society, in general, to get the money in retirement accounts freed up so you can invest directly in main street instead of relying on Wall Street. 

Whether you are a hands-on investor or a hands-off investor, we’ve got a lot to share with you. 

Understanding how the retirement game is played

Damion Lupo has been involved in many of our events … but he is here today to take us all back to square one. 

Before you can put your retirement account to work, you need to understand what it is and how the game is played. 

“The mission that I have now is breaking financial shackles, and most of it’s done with retirement accounts and breaking people out of the Wall Street jail,” Damion says. 

The Wall Street machine means people hope they are going to wake up in 40 years and maybe they’ll be rich. But there are other alternatives. 

When people leave a job … whether it’s the government with the TSP or a 401K at an employer … they typically roll that account into an IRA and invest in stock or mutual funds. The alternative is a self-directed account.

A self-directed account allows you to be able to direct your money and be in the driver’s seat instead of being in the trunk hoping it works out. 

There are different options in the self-directed realm. The most extreme form of control is an EQRP, and another really good option is a self-directed IRA. 

The biggest difference between the two is that for an IRA you must appoint a custodian … someone else that you have to go through to direct your money. 

An EQRP allows you to be a trustee on your own account, which is the equivalent of the custodian in the self-directed IRA. 

When we talk about controlling and being the trustee of your account … many people hear something that sounds like work. 

Maybe it’s a little work to get it set up … but then, the investments that you make can be as hands off as you want. Retirement accounts are generally set up for passive investing. 

Another important thing to understand is “Roth.” When we say Roth, we mean the after tax money. 

If you have a Roth account … whether it is a Roth IRA, Roth 401K, or Roth EQRP … you pay tax before the money goes into your retirement. When you pull the money out, it’s zero tax. 

And we always say that one of the most important parts of your investment philosophy is your team. That definitely applies in this situation. 

A custodian or an EQRP company can help you make sure you stay in compliance with IRS laws as you put your retirement to work now. 

What type of account is right for you?

What type of account is right for you? Damion says that deciding starts by figuring out your big picture. What do you want to do?

If you want to invest in mutual funds, a self-directed IRA is a great place to start. If you are interested in doing things like real estate, there are considerations to be made. 

A big issue right now is something called unrelated business income tax … UBIT tax. 

When somebody makes a net profit in a real estate deal and there’s debt, there is up to a 37% tax because of the UBIT.  

The reasoning behind it is that your retirement funds aren’t intended for you right now. 

So, if you use your retirement funds to partner with a loan and go buy a property, sell it, and make a lot of money … part of that return was from the dollars in your retirement account.

Those dollars aren’t taxed, but a big part of the return was from leveraged dollars that aren’t part of the retirement account. That means a big tax is due. 

It’s fairly logical, but people hate it. 

The alternative is being in a different part of the tax code. If you have an EQRP, there’s an exemption for UBIT. 

If you’re already invested in an IRA, it’s fairly easy to switch to an EQRP. 

For more information on unlocking the profit potential in your retirement account … listen to the full episode!


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The root of the real crisis is being exposed …

It’s no secret we’re a couple of older dudes who got creamed in 2008. But like the economy, we bounced back. Unlike the financial system, we got the lessons.

Read that again and think about it.

If you got on board the real estate gravy train after the last crisis, congratulations … and welcome to your first crash. It’s looking to be a whopper.

For those who went through 2008 like we did, welcome back! We’re about to take a wild ride … and it should be a THRILLER.

The big message is: this is NOT the time to take a wait and see approach to portfolio and opportunity management. Things are moving too fast.

Investing intelligence is a blend of emotional control technical knowledge, and intellectual discipline.

Stress in the real world is where you test your skills. And yes, it’s a little unnerving.

Anytime the stakes are high and you’re pressed to edge of your confidence, it’s tempting to hide, deny, procrastinate, or complain about things you can’t control … to the detriment of diligently working on the things, you can control.

So rather than dive into the weeds of the plethora of clues in the news … they’ll always be there … we think it’s a good time to do some diagnosis.

After, all prescription without diagnosis is malpractice. You can’t know what to work on if you don’t understand the root of the problem.

In this case, we think there are two primary roots of the current crisis … one you can control, and one you can’t.

Let’s start with the root cause of the current crisis that you can NOT control.

It may or may not be interesting to you … and you might not agree with the premise … but be patient and work through it.

It’s arguably the most obvious yet misunderstood contributor to the malaise the coronavirus crisis is exposing.

In one word … debt.

Absurd, insane, unfathomable and unsustainable levels of debt … which has spread like a cancer throughout the global financial system.

The current metastasization started in 1913 with the founding of the Federal Reserve system, which gave bankers and politicians the ability to create unlimited amounts of debt.

The Federal Reserve Act and the 16th Amendment also created the income tax and the IRS, effectively equipping the government to use the productivity of the people to make the debt payments on all that debt.

Armed with this powerful new temptation, it took less than two decades to blow up a bubble known as the Roaring Twenties.

The expansion of credit led to mass consumerism, a stock market boom, and the nation’s “wealth” (based on inflated asset values) to double from 1920 to 1929.

Of course, the party ended in spectacular fashion leading to the Great Depression.

Sound familiar?

When debt bubbles implode, asset prices collapse … and the FIRST place this symptom manifests is in the stock market.

The Great Depression led to an unprecedented consolidation of power when President Franklin D. Roosevelt declared a “war on poverty” and gave America “The New Deal”.

So before there was World War II, FDR was already a wartime president.

Wait, we’re having deja vu.

FDR’s New Deal included Social Security, a proliferation of agencies and regulations, and the effective confiscation of the citizens’ gold.

FDR’s initial phase-out of the gold standard allowed the Fed to print virtually unlimited amounts of dollars.

In fact, the Chairman of the New York Fed admitted in a 1946 speech that there was no need for taxes to pay for anything because the Fed could print unlimited amounts of dollars.

He confessed the only reason for taxes was to “express public policy in the distribution of wealth and income” and in “subsidizing or in penalizing various industries and public groups”.

In other words, taxes allow the government to pick winners and losers in what is supposed to be a “free” market.

Wait, we’re having deja vu again.

Events like the Civil War, the Panic of 1907, the Great Depression, and 9/11 … demonstrate how crises always result in bigger, more powerful government and less personal freedom.

We’ll leave it up to you to decide if big government and less freedom is good or bad, but the facts are indisputable.

After 1933, it was illegal for Americans to own gold, while foreign holders of U.S. dollars and bonds could redeem dollars and U.S. bonds for physical gold.

But when the world realized the Fed was printing WAY more dollars than there was gold, it became obvious that the “official” gold price of $35 was too low.

So the world, led by French President Charles de Gaulle, started showing up at the U.S. “gold window” to redeem paper dollars for real gold.

By 1971, the U.S. gold reserves had dropped from 20,000 tons to less than 9,000 tons with no end in sight to the hemorrhaging …

… so President Nixon abruptly “closed the gold window” … effectively defaulting.

Of course, Nixon knew the dollar would collapse causing inflation.

So in an attempt to preempt inflation, Nixon also made it illegal for private businesses to raise prices or pay higher wages.

Yes, history buffs, in the “land of the free”, the government, unilaterally and without warning, mandated price and wage restrictions to private businesses … to “protect” everyone.

Of course, price controls didn’t last because they don’t work. More recently Venezuela tried it, and it didn’t work there either.

The Venezuela government said stores couldn’t raise the price of things like toilet paper. So when you showed up at the store, there wasn’t any.

To find toilet paper in Venezuela, you had to buy it on the street … and it cost a lot more than the official price.

Wait … we’re having deja vu again … again. That’s so weird.

So back to the dollar collapse after Nixon’s default …

In just a few years, gold went from $35 per ounce to $800 per ounce. Or more accurately, the value of the dollar crashed against gold.

Dollar holders smart enough to redeem their paper dollars for gold early did well. Those who didn’t, not so much.

By now, you may be recognizing some eerie parallels between the past and present. History doesn’t always repeat itself but often rhymes. That’s why we study it.

The point is these events kicked off an entire 49-year history … from 1971 to 2020 … of unhindered, exponential, and unsustainable expansion of debt.

If 49 years rings a bell for you, go look up the biblical concept of jubilee. It’s weird how all this is unraveling after 49 years. Probably just a coincidence.

(For more perspective on how the past helps predict the future, consider investing in our Future of Money and Wealth programYou’ll probably wish you bought it two years ago, but better late than never.)

Of course, YOU can’t stop Uncle Sam from spending trillions of dollars …

… or the Fed from printing trillions to fund government spending, push down interest rates, buy up toxic assets, and pump up asset values.

They’ve already begun doing all those things. The big question is whether the dollar can carry the load. It survived the 70s … mostly.

Time will tell what happens this time.

For now, it’s important to realize what the Fed is doing … and what history says is likely to happen when they do. Being confused or afraid isn’t a wise option … it only feels safer.

It’s like standing at the beach watching the distant tsunami coming toward you … it seems slow at first … then it’s on you. It can be hard to believe and scary.

But turning around so you can’t see it won’t make it go away.

So today, the COVID-19 coronavirus has stopped the economic heartbeat of the globe. Cash is not flowing, which means debt service is going to become a real problem real fast.

Remember, back in 2008, it only took a relatively few sub-prime mortgage borrowers to miss payments … and the financial system nearly collapsed.

The current debt crisis is probably going to be a LOT bigger. It could easily be The Real Crash Peter Schiff has vociferously warned about.

Of course, if the world had less debt and more savings, we could all shelter in place for a few months and everything wouldn’t unravel.

But the world is awash in debt, has little savings, and without productivity to service all the debt, a chain reaction of defaults seems virtually certain.

The government, the Fed, and the banks all appear to realize the gravity of the situation … and unlike 2008, they’re sprinting to get in front of it.

It really all comes down to the Fed and the dollar. The Fed is willing to print as many as needed to buy up everything and send everyone money.

It seems like either the debt will go bad (deflation) or the dollar will (inflation) … or both. And it’s all out of your control.

So what’s a real estate investor to do?

We’ll take that up in Part Two. Stay tuned …

Welcome to uncharted territory …

Even for a couple of old dudes, we’ve never seen anything like what’s happening now.

And we’re not just talking about the COVID-19 pandemic, though it’s proving to be the proverbial “black swan” financial pundits have been watching for.

Preppers (financial and otherwise) are feeling slightly vindicated, while mockers perhaps a little foolish. Peter Schiff is suddenly getting popular again.

Meanwhile, folks who were asleep at the wheel are snapping awake to find they’re on a collision course with a financial crash … and they’re not buckled up.

Of course, there’s the news … and the news underneath the news that the clues in the news help us find.

With all the chatter right now, it’s a little scary.

It’s important to stay calm, think clearly, and engage in quality conversations with experienced, informed, and diligent investors.

That’s what we’re doing … and because our ability to travel and attend conferences is currently curtailed, we’re using alternatives.

It’s more important now than ever to get and stay connected.

Our mission this muse is to point out some things we think are very important for investors and entrepreneurs to consider as we all sail into stormy uncharted waters together.

First of all, we’re thankful to live in a world where news and perspectives are readily available.

Access to information and ideas helps each of us find our tribe and feel connected … even in the midst of isolation and potential quarantine.

Thank you for being a part of our tribe.

In a world full of fear, uncertainty, and doubt, there’s likely to be some emotional conflicts about what’s right, who’s right, what should be done.

The truth is … nobody really knows.

So here are a couple of principles we mutter to ourselves in those times we get upset or stressed out …

“There are three sides to a coin. Head, tails, and the edge. The only way to see both sides of any issue is to stand on the edge.” 
– Robert Kiyosaki

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

In times like these, we think you’ll find those principles useful.

While we’re on the topic of helpful principles gleaned from the minds of smart people …

“Be fearful when others are greedy, and greedy when others are fearful.” 
– Warren Buffet

Most of the world is hunkering down. When you don’t know what to think or do, it’s easy to sit out and hope … or to follow the herd.

We’re not fans of either approach. Just like a physical disaster requires brave first responders, so do financial and economic disasters.

We’re not saying this is a disaster … yet. But it’s not fear-mongering paranoia to suggest it could turn into one pretty quickly.

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

Of course, bad times aren’t the end of the world. They’re just part of the cycle of life.

Our friend and history buff Simon Black often reminds us that over centuries, through wars, pandemics, oppression, and natural disasters … somehow, someway, humans rise to the occasion.

We come together, we figure it out, and we go on to build a better world.

Sure, there are a lot of rocks, potholes, and pitfalls on the road to recovery. But as a little orphan once said …

“The sun’ll come out … tomorrow. Bet your bottom dollar that tomorrow … there’ll be sun.”
– Annie

With all that said, we’re going to take a quick tour through the HUGE amount of clues in the news. If you’re new to all this, it might seem confusing or irrelevant.

That’s what we used to think before 2008.

Then after getting smacked down, we realized the warning lights were flashing the entire time. We just didn’t know what they meant.

So don’t get bored, irritated, or discouraged. Just dig in and keep studying … especially if you’re in the camp of people caught flat-footed by the recent turn of events.

The stock market is tanking. Everyone can see it. It’s what most people talk about.

But contrary to popular tweets, the stock market isn’t a proxy for the economy … or the financial system.

The news is warning us the financial system is in deep distress …

The Fed’s hair is ON FIRE. Back to back emergency rate cuts.

And they’re putting ONE TRILLION DOLLARS PER DAY into the repo market … which was flashing trouble way long before COVID-19 showed up.

The Fed also cut rates to ZERO and pledged to buy up $700 billion in Treasuries and mortgage bonds. The last time they did that was the 2008 financial crisis.

The Fed also dropped bank reserve requirements to ZERO. So your bank doesn’t need to have a single penny in reserve to back up your deposits.

Meanwhile, the Federal government (which is different from the Federal Reserve) is planning a $1 trillion fiscal stimulus (spending) plan to help boost the economy.

But the Federal government doesn’t have a trillion dollars. Apple probably still has more cash than Uncle Sam.

And because there’s already a huge cash crunch, the Federal Reserve will need to print all those dollars … and buy Uncle Sam’s bonds, so Uncle Sam can spend.

But how do you boost an economy that’s shut down? You can’t step on the gas of a parked car and expect it to go fast.

Worse, many businesses and jobs may not survive an extended shut down … or even a substantial slow down.

For example, the oil industry was almost the sole job creation vehicle for the U.S. coming out of 2008. To get there, the shale industry took on TONS of debt.

You could argue whether the debt made sense at $60 a barrel.

But at less than $30, many oil companies will go bankrupt. Until and when they do, lots of jobs will be lost.

Perhaps, it’s obvious that job losses make it hard for tenants to pay rent … which will eventually make life hard for landlords.

So although real estate is insulated from the price declines Wall Street is facing, it’s not immune. And some of these “cures” could be worse than the disease.

But we’re not saying the Fed or Uncle Sam should or shouldn’t be doing what they’re doing. It doesn’t matter what we or anyone thinks SHOULD happen.

This isn’t a policy discussion. It’s a REALITY discussion because it’s happening.

But if the Fed blows up its balance sheet to ten trillion or more, what happens to the dollar? Over-printed currencies fail. The dollar isn’t immune.

And if production is shut down because no one’s going to work, what happens to production? Are empty shelves the exception … or the rule?

Lots of cash and empty shelves in Venezuela. Yikes.

There’s more bad news, but we know you can only handle so much.

So take a deep breath …. exhale slowly … ahhhhh …..

The world isn’t ending. It’s changing. The pace of change just accelerated, which means you need to process and react faster.

It’s not too late to look at your portfolio, sources of income, strategic direction … and do a SWOT analysis … Strengths, Weaknesses, Opportunities, Threats.

They’re all present … if YOU are.

People, businesses, and money will all migrate in search of safety.

So certain markets, asset classes, investment vehicles, and structures will lose.

Some will win.

Your mission is to look at the landscape of the changing reality and make good decisions about where YOU go from here. Get in a position to thrive.

We’ll be talking about this a LOT in the weeks and months ahead. Stay tuned!

Is this a cure for coronavirus?

There are SO many things happening in the financial news and markets right now, it’s hard to focus on any one thing and say it’s the biggest story.

Obviously, the coronavirus panic is dominating headlines and airwaves everywhere.

And many of the other major stories such as stocks, bonds, interest rates, and oil prices all seem to be considered somehow a derivative of the coronavirus.

Of course, we just keep asking … what does all of this mean to real estate investors?

Two weeks ago, we posited interest rates would fall as investors piled into U.S Treasuries for both safety and speculation.

Of course, we were right … but not because we’re brilliant, but because it was SO obvious.  As Treasury yields collapsed, mortgage rates followed.

And because you never know how long these “sales” on cheap money are going to last, it’s a good idea to watch for clues … and then move quickly when opportunity presents itself.

The odds are the coronavirus scare will last months … but your uber-cheap mortgage can last for decades. Nice.

Last week, we dug a little deeper into the WHY behind collapsing rates after the Fed came out with an “emergency” rate cut.

Though billed as a preemptive strike to stop recession, most pundits viewed it as a lightly veiled attempt to calm traders and boost stock prices.

How’s that working out so far?

Of course, WAY before coronavirus, we’ve been pointing out …

… the financial system is fragile,

… the Fed’s intervention in the repo market is a potentially ominous sign,

… and gold could be flashing a “bridge is out” warning even as the U.S. economy is hurtling down the highway at a decent clip.

In other words, the coronavirus might not be a cause, just a catalyst.

Which brings us to the theme of today’s muse …

Insulation matters. And when the climate is extreme, people who don’t have it, want it.

Right now, MANY people are discovering their portfolios are naked and exposed to the extreme hots and colds of publicly traded financial markets.

Equity investors are experiencing nauseating drops and dizzying bounces … all within an overall trend which is flirting with becoming the mother of all bears.

Income investors are watching yields collapse 30-50% from already anemic levels. Savers and income investors were already suffering. Now it’s torturous.

When yields aren’t enough to live on, you have no choice but to consume equity.

And it’s hard to ride the equity roller coaster back up if you to get off at the bottom to eat.

It’s like a starving farmer who eats his seed corn has nothing to plant for food in the future. He eats now but is doomed in the long term. Equity consumption is suicidal.

So while the coronavirus might threaten your physical health, the vast majority of people who catch it will survive and go on to thrive.

But the effects of the panic on fragile financial markets are definitely making paper asset investors’ portfolios sick … and recovery could take a LOT longer.

Of course, most real estate investors are doing what they often do when these things happen … much popcorn, watch the fireworks, and cash rent checks.

Sure, if the storm is bad enough, it can blow your insulated, brick real estate portfolio over too.

But compared to the poor folks living in straw portfolios built only for sunshine, real estate looks pretty darn secure.

So it’s no surprise, that even the mainstream financial media are pointing out the safety features of real estate … at least what they think is real estate …

Don’t Panic – Buy REITs
Forbes, 3/9/20

These are the safest and highest dividend-yielding REITs as the coronavirus spreads, BofA says
– MarketWatch, 3/7/20

REITs And Bonds Rose Last Weeks As Global Stocks Fell
Seeking Alpha, 3/10/20

Of course, REITs are still publicly traded stocks … essentially a mutual fund collection of individual properties all put into one fund and offered in the Wall Street casinos.

So, while real estate is attractive in times like these, REITs are still subject to Wall Street volatility …

REITs fall in February amid broader market sell-off
Institutional Real Estate, 3/10/20

Perhaps obviously, the further you are away from Wall Street, the more insulated you are from insane volatility.

Of course, as a real estate investor, YOU already know this. That’s why you read commentaries like this, and probably don’t have much exposure to Wall Street.

But remember there are MANY MILLIONS of people who haven’t discovered real estate investing … yet. Or only think of it as Flip This House.

Of course, true real estate investing is about using low cost, long-term debt to acquire passive income and generous tax breaks …

… and enjoying superior cash-on-cash yields (compared to bonds), while benefiting from long term inflation … insulated from short term deflation.

Real estate is slow, boring, and STABLE. And right now, stable is sexy.

As we’ve said before, you’re not seeing headlines announcing rents have collapsed 50% in the last 90 days because of coronavirus. That’s short-term deflation.

And ten years from now, when this current panic and its ramifications have joined all the other freak-outs of the last 100 years in the dust bin of history … do you think it’s more likely rents and real estate values will be up … or down?

History says “up” in dollar terms … because the dollar has a 100+ year history of losing value against REAL assets.

And most of what’s going on right now … more printing, more debt, more deficits … is BAD for the dollar in the long term.

Sure, most people can’t escape the temptation to gamble. “Buy low, sell high” brainwashing makes it nearly impossible to resist Wall Street volatility.

But SOME people … especially more seasoned folks … will decide the Wall Street roller coaster is more nauseating than intoxicating … and they’ll want off.

So while we’re concerned about the coronavirus panic and its near term effects on the economy and the financial system …

…. we’re SUPER EXCITED about the lessons being learned by Main Street Americans.

Because when more of Main Street gets back to real investing … in real assets and cash flow …

… it could create a big flow of funds out of Wall Street into Main Street … where the real wealth comes from and belongs.

Last time we looked, there’s usually BIG opportunity when money starts moving. The key is to put yourself in a good position to help facilitate it.

So whether you choose to borrow lots of money flowing into bonds and acquire properties in your own account …

… or you decide to start a syndication business to raise private equity to pair with abundant and cheap debt …

… this isn’t a time to be hiding under your sheets with a bottle of hand sanitizer.

Yes, be careful and stay healthy.

But keep your eye on the long-term big picture. It’s easy to get lost in the hype and miss big opportunities that grow out of the chaos.

The pension problem is about to get REAL …

Our good friend, multi-time Investor Summit at Sea™ faculty member (who’s back again for 2020!) … and greatest-selling financial author in history …

Robert Kiyosaki thinks pensions are the greatest threat facing the financial world today.

Of course, it’s not like pension problems are breaking news. The whole crisis has been unfolding for a decade as more of a slow-motion train wreck.

But over the last few years, the looming disaster is getting hard to ignore …

America’s utterly predictable tsunami of pension problems
– The Washington Post, 2/22/17

Pension Fund Problems Worsen in 43 States
– Bloomberg, 6/30/17

States have a $1.4 trillion pension problem
– CNN Money, 4/12/2018

The Pension Hole for U.S. Cities and States is the Size of Germany’s Economy
– The Wall Street Journal, July 30, 2018

“Many retirement funds could face insolvency unless governments increase taxes, divert funds, or persuade workers to relinquish money they are owed.”

And it’s not just government pensions. Some of the biggest corporations are also struggling under the weight of their pension burdens …

GE’s $31 billion pension nightmare
– CNN Business, January 19, 2018

Here Are 14 Companies Getting Crushed By Pension Costs
– Business Insider, 8/15/2012

You get the idea. Huge storm clouds have been forming for quite a while … in both the public and private sectors.

In an election year, you’d expect to hear some chatter about it. But we’re guessing you won’t because there’s no politically palatable solution.

Of course, ignoring the problem won’t make it go away.

That’s why Kiyosaki is shining light on it. You can’t prepare for or profit from a problem you don’t or won’t see.

So this is a situation we’ve been watching more closely of late. And clues in the news tell us pension problems pose a threat to real estate investors.

Desperate politicians have already proposed funding their shortfalls with property taxes and cuts to benefits for pensioners … some of whom could be YOUR tenants.

Meanwhile, major corporations like General Electric and United Airlines have already cut their pension benefits.

Of course, the flip side of bad news is GOOD NEWS …

Pension problems also create opportunities for real estate investors.

We think pension managers will eventually concede that for a chance to save their funds from the Federal Reserve’s war on yields …

… they’re going to need to get REAL … real fast.

Pension fund managers will need to funnel more money away from Wall Street and into Main Street.

Think of all the reasons Main Street investors LOVE real estate …

… reasonably consistently achievable double-digit total returns 

… inflation-hedged yields much higher than bonds and without the counter-party-risk …

… assets which aren’t practical as gambling tokens in the Wall Street casinos, and therefore much less volatile in terms of yields and principal value.

We know. You’re already convinced real estate is awesome. And you may be wondering why everyone doesn’t invest in real estate.

But don’t under-estimate the seductive allure of Wall Street marketing and the pervasive political pressure to promote paper assets.

Remember, an argument can be made that government and Wall Street sometimes work together to the detriment of Main Street.

But when Main Street gets mad … it’s every politician and pension manager for himself.

So when poking around the crevices of the internet looking for credible clues …

… and being mindful that things NOT being talked about in well-publicized political discourse is probably more worth paying attention to …

… and we came across a couple of interesting articles …

CalPERS gets candid about ‘critical’ decade ahead
– Capitol Weekly, 8/27/19

Yes, we realize this article isn’t “fresh” … but it’s still relevant today. After all, they’re talking about the “decade ahead” … and again, this is a slow-motion train wreck.

Here’s a notable excerpt …

Quoting a letter written to CalPERS by a third-party consulting company brought in to help figure out what to do …

“ ‘The financial world is changing, and we must change with it,’ said the letter. ‘What we’ve done over the last 20 years won’t take us where we need to go in the future. New thinking and innovation are in order.’ ”

Of course, who knows what they mean by that. “Change”, “new thinking”, and “innovation” are all buzz words that lack meaning apart from a suggestion or context.

But one thing is perhaps becoming clear to the pension managers … Wall Street’s not the answer …

“ Meanwhile, a line [the] letter is a reminder that CalPERS remains at the mercy of the market, as when the stock market crash and recession struck a decade ago: ‘The value of the CalPERS fund fell 24 percent in a single fiscal year, to about $180 billion.’ ”

So it’s against this backdrop that we found the second, more recent, article noteworthy …

Sacramento County launches tender for alternative assets consultant
– Institutional Real Estate, 2/11/20

“The $10 billion Sacramento County (Calif.) Employees’ Retirement System (SCERS) is seeking a consultant for its alternative assets portfolio …”

“The alternative assets consultant works with the pension fund’s investment staff to help develop and maintain strategic plans for the system’s absolute return, private equity, private credit, real assets, and real estate investments.”

Pension problems are rampant in governments … from nations to states to counties and municipalities, as well as corporations all around the world.

As pension managers realize there’s opportunity to grow absolute returns through private placement and real estate 

… it opens up a potential floodgate of money into Main Street opportunities.

Of course, if you’re just a Mom & Pop Main Street investor … or even a fairly successful real estate syndicator doing multi-million-dollar deals …

… you may wonder how YOU can get in on the action.

Like Opportunity Zones, pensions pointing their portfolios at specific markets and niches have the potential to provide a tailwind to EVERYONE already there … or going along for the ride.

So pay attention to pensions … not just for their potential to torpedo the financial system …

… but for the opportunities created as they act out on “new thinking and innovation”.

Lastly, keep in mind that like Fannie Mae and Freddie Mac back in 2008, and the FDIC today …

… the Pension Guaranty Benefit Corporation is a horribly underfunded quasi-government enterprise backing TRILLIONS in potentially failing pensions.

If a substantial number of pensions fail (a VERY real possibility) …

… it’s all but certain the Federal Reserve will need to step in to paper over the mess with trillions in freshly printed dollars.

This weakens the dollar and among the biggest winners are borrowers and owners of real assets.

This makes real estate investors who use mortgages double winners.

So while you may not be able to calm the stormy seas …

… you can choose a boat that’s seaworthy and equipped to sail faster when the winds of change (and a falling dollar) blowhard.

Until next time … good investing!

The horrible housing blunder …

If you sometimes feel like a small fish in a very big ocean … it’s because you are.

There are LOTS of big, bigger, bigger-still, and downright ginormous other fish … some with very sharp teeth … circling all around you.

There are also mostly hidden forces creating powerful currents and waves … speeding you up, slowing you down, or taking you completely off course.

That’s why we look for clues in the news.

And because mainstream financial media doesn’t cater to Main Street real estate investors, we need to stay alert to notice things often hiding in plain sight.

In a recent trek through an airport on our way to speak at an investment conference … a notable magazine cover hit us in the face like a brick …

The Horrible Housing Blunder
Why the Obsession with Home Ownership is So Harmful
The Economist Jan 18-24, 2020

If you’re not familiar, The Economist is one of those highbrow publications ginormous fish and wave-makers are reading.

The Economist articles provide insights into how powerful people think about small fish like us and the things we care about … like housing.

In The Economist table of contents, the housing blunder topic is introduced this way …

“The West’s obsession with home ownership undermines growth, fairness and public faith in capitalism.

“Housing is the world’s biggest investment class … at the root of many of the rich world’s social and economic problems.

Wow. We didn’t know home ownership is so harmful to our fellow man. We’re ashamed.

But before we dig in, take a minute and simply consider their conclusion …

…and what happens to YOU if powerful people decide to implement policies to protect the world from the evils of housing.

Now you know why we pay attention.

So, on page 9 of The Economist, under their “Leaders” section (think about THAT) …

… they assert housing markets CAUSE both sudden economic crashes AND chronic economic “disease”.

Then they support their conclusion by claiming “a trillion dollars of dud mortgages blew up the financial system in 2007-08”.

Maybe you’ve heard that one before.

Of course, they make no mention of the trillions of dollars of Wall Street concocted derivatives of those dud mortgages …

(Warren Buffett called derivatives “weapons of mass financial destruction” … NOT the mortgages underneath them)

They also don’t account for the dangerously weak lending “standards” (we use the term loosely) Wall Street used to entice weak borrowers.

Nor do they mention the reckless, speculative and highly leveraged bets placed using those mortgage derivatives by arrogant gamblers in the corrupt Wall Street casinos.

Of course, the greed behind all of it is simply a “derivative” of the moral hazard created when everyone in the market KNOWS the Federal Reserve will paper over any problem with freshly printed “money”.

Back to The Economist special report on the horrible housing blunder …

Besides the terror of housing threatening the entire financial systemThe Economist says …

“… just as pernicious is the creeping dysfunction … housing created …” which they define as …

“… vibrant cities without space to grow; aging homeowners sitting in half-empty houses …

… and a generation of young people who cannot easily afford to rent or buy and think capitalism has let them down.”

So it seems cities which selfishly vote to preserve green space for themselves, their families, and the environment are … financial terrorists.

As are old folks who have the gall to stay in the homes they raised their children in … long after the children have successfully (and presumably permanently) moved out.

And speaking of all those independent young people … apparently because of these selfish homeowners, they can’t “easily” afford to put a roof over their head.

Of course, there’s no mention of the terror created through government sponsored student debt which both inflated the cost of college and enslaved a generation into inescapable debt …

… making home ownership … or even renting … far from “easy”.

Ummm … sorry, but how is that housing’s fault?

And what do the social scientists at The Economist suggest is the answer to the horrible housing blunder?

For that we need to flip over to page 44 where we discover that …

“Over the last 70 years, global house prices have quadrupled in real terms.”

For those keeping score, 70 years ago was 1950. Store that for future reference.

“Real terms” means adjusting both incomes and prices for inflation. In other words, prices rose four times faster than incomes.

The solution to all these ills is threefold says the author …

First, is “… better regulation of housing finance …” so that “… people are NOT encouraged to funnel capital into the housing market.”

Yes, every business person knows when you need MORE of something you should starve it of capital. Brilliant.

Next is … wait for it … a better train and road network” to “allow more people to live farther afield.” …

… because who doesn’t enjoy riding public transportation 100 miles a day to go to work?

And last but not least, our personal favorite …

“… abolishing single-family-home zoning, which prevents densification …” and “…boosting the construction of public housing.”

Makes sense (not) because clearly, the only thing better than riding public transportation to and from work for hours a day is coming home to relax in “the projects”.

Of course, as you’ve probably discerned, we think the whole thing is absurd.

But while it’s laughable, it’s also scary … because this is the way those ginormous fish think.

Worse, they’ve assigned the symptom (high housing prices and stagnant real wages) to the wrong disease … so they’re prescribing the wrong medicine.

Housing prices took off in the ‘50s because Bretton-Woods handed the U.S., and then in 1971, the entire world, a completely unaccountable ability to go into unlimited debt.

Worse, it requires the perpetual, unrelenting growth of debt … or the system collapses.

So the wizards must continually find new ways to fabricate affordable debt 

… through mortgages, student loans, government spending, endless wars, or (insert boondoggle of your choice) …

… plus, 40 years of falling interest rates … to zero and beyond!

It would take so much more space than this modest muse permits to delve deeper into the mindset, motives, and methods of the wizards behind the curtain …

… and to explore the MANY opportunities for Main Street investors who are aware and prepared.

For now, we simply encourage you to PAY ATTENTION and THINK. And look for every opportunity to talk with others who are doing the same.

Way back in January 1988, the cover of The Economist boldly warned the world to “Get Ready for a World Currency”.

As we chronicle in our Future of Money and Wealth video, The Dollar Under Attack, and is easily seen through MANY headlines since …

… the dollar’s role as currency of the world is steadily being attacked RIGHT NOW by both friendfoe, and technology.

Here in January 2020, The Economist is overtly prodding the world to take on the threat of housing …

“Bold action is needed. Until it is taken, housing will continue to weaken the foundations of the modern world.”

This hits us all right where we live and invest. We should all be paying attention.

Housing market conditions create challenges … and opportunities …

Housing is the sector of real estate most watched … and worried about … by economists, politicians, journalists, bankers, and investors … from Wall Street to Main Street.

That’s because housing, quite literally, hits us all right where we live.

We can all relate to it and housing is both an objective and subjective measure of individual and national prosperity.

Housing has certainly been in the financial news of late …

Housing Starts Surged in December. Don’t Expect It to Last
MarketWatch, 1/17/20

Housing market falling short by nearly 4 million homes as demand grows
CNBC, 1/21/20

New Risk to World Economy: Synchronized Housing Slowdown
Wall Street Journal, 1/28/20

As you can see, there’s both “good” news and “bad” news. Of course, buried inside of all that is opportunity.

So we think it worthwhile to look at housing through the lens of a tried and true investing strategy which could prove timely in today’s market conditions.

But first, let’s set the context …

Despite low interest rates (and largely because of them), housing is expensive relative to incomes.

That’s a problem for both renters and prospective home buyers … and why affordable housing is a hot topic today.

It’s also why we’re strong advocates of leaning towards affordable markets, neighborhoods, and price points. Demand tends to be stronger there.

We think it wise to be positioned below the top of the range. If interest rates rise or there’s a recession, people above will flow downhill to you.

Meanwhile, be prepared to survive a notch or two below your current price point. Otherwise, you may lose more demand leaking out the bottom of the range than you gain flowing in from the top.

In other words, ALWAYS compete for the loyalty and rent checks of your tenants … even in a high demand market.

Those who push rents to the margin of the range are the first to feel the pullback. Like equity, all rent retraction is at the margin. High rents hurt first.

That’s because when tenants start to feel a financial squeeze, giving a 30-day notice and moving to someplace more affordable is a relatively easy thing to do.

And don’t get suckered into thinking there’s no inflation or high employment based on the highly publicized and potentially “adjusted” official data.

Pay attention to the real world … because that’s where your tenants live.

From a home buying perspective, demand comes from first-time home buyers entering the market and pushing things up.

That’s why pundits are concerned that the average first-time home buyer age has risen to 47 years old.

Perhaps young people would rather rent than own? Maybe. But even if true, we wouldn’t bet on that lasting.

Sure, Millennials saw their parent’s real estate experience turn sour in 2008 … but that’s now 11 years ago … and a LOT of equity has happened since.

Most Millennials we know would like to own. They see prices rising and affordability getting away. Meanwhile, rents are climbing.

So we think Millennial demand will be a substantial factor in housing going forward. Demand is already growing … and it’s a wave you can likely ride over the next 10 years or more.

Also, Millennials are among a large group of Americans standing to inherit about $764 billion THIS YEAR alone.

We’re guessing next to paying off student debt, buying a home is near the top of the wish list for some of those heirs … adding some additional capacity-to-pay to fuel demand.

And speaking of capacity-to-pay …

Interest rates remain crazy low … and aside from a collapse of the dollar or a seizure in the bond markets (which could easily happen somewhere down the road) …

… there’s not much in the near-term to suggest interest rates will rise substantially.

In fact, with the amount of debt in the system, it could be argued there’s FAR more downward pressure than upward.

Still, because you don’t know, it’s not a bad time to stock up on inexpensive good debt. Just be VERY attentive to marrying it to durable income streams to service it.

Of course, another much discussed hindrance to Millennial home ownership is the now infamous and mountainous levels of unforgivable and inescapable student debt.

But in terms of student debt defaults and the resulting dings to credit, it’s only less than 15% of borrowers.

That means 85% of Millennials are chugging along making those payments … and presumably preserving their very valuable credit scores.

Of course, making those student loman payments hinders a young person’s ability to save for a down payment on a home. They start later and it takes longer.

And if a young person doesn’t have parents with equity they’re willing to re-position into a home for junior, or they aren’t on the receiving end of a chunk of that $764 billion inheritance …

… the lack of a down payment is perhaps an even bigger hindrance to Millennial home ownership than student debt.

And even though there are low down payment programs out there, they come with higher interest rates, private mortgage insurance, and larger loan balances …

… all of which converge to make the resulting mortgage payment much bigger than low interest rates can offset.

So that elusive 20% down payment dramatically increases the affordability of home ownership for many Millennials.

ALL this adds up to a great opportunity for real estate investors …

There’s a simple, time-tested strategy to leverage your cash into long-term equity … while preserving your credit and avoiding virtually all land-lording hassles.

It’s “equity sharing”.

In short, a cash rich investor supplies the down payment to a credit worthy owner-occupied home buyer.

The credit partner gets the loan, makes the mortgage payment, and lives in the house for the long term.

After a predetermined period of time … usually 3 to 10 years … an appraisal is done.

Any equity growth net of capital investments (reimbursed to the partner who made them) is split at a previously agreed upon rate such as 50/50.

Of course, there are some legal agreements which need to be put in place … and the borrower needs to work closely with a mortgage pro to make sure nothing is misrepresented in the loan application.

But equity sharing is a profitable way for Main Street investors to help the next generation of homeowners get into the market … so both can ride the long-term equity wave.

The borrower gets a home of their “own” … to live in, care for, and fix up for their personal enjoyment and prosperity.

They don’t feel or act like tenants … and they’re in for the long haul.

And with their name and credit on the line, they’re HIGHLY motivated to make the payment … even if it’s higher than they could rent a similar home for.

They don’t move to save a few bucks the way a tenant would because they have housing stability, tax breaks, long-term equity growth, and pride of ownership.

Meanwhile, the investor gets half the amortization and appreciation over the hold period … and next to no management headaches.

Plus, the investor has no property management expense, no loan on their credit report, no turnover or vacancy expense.

Equity sharing is a great way for an investor to leverage cash without as much risk as traditional land-lording.

Equity sharing is really just a form of syndication and a simple strategy for taking advantage of current market conditions.

For the cash partner, you get to invest in housing for the long-term, while mitigating much of the downside risk in the short term.

For the credit partner, you convert your housing expense into housing security and long-term equity. Half of something is better than all of nothing.

And when it’s hard to find rental housing that cash flows after expenses, equity sharing is a way to ride the housing bull with far less risk than traditional land-lording … while helping a young person get on board the real estate equity train.

WORST investing advice ever … or is it?

Do you know how five of America’s richest families lost it all? 

Neither did we … until we saw an article in our news feed promising to tell all. So down the rabbit hole we went. 

After all, we’re STILL stinging from the 2008 wipe out. So any lesson about landmines on the road to building and preserving wealth is an enticing topic. 

And if mega-wealthy families can lose nine-figures, it makes street rat investors like us feel less bad about our six-figure screw-ups. 

The author of the article briefly describes the lost fortunes of Cornelius Vanderbilt, John Kluge, George Hartford, Joseph Pulitzer, and Bernhard Stroh. 

Aside from Vanderbilt (as in University) and Pulitzer (as in prize), you might not recognize the others. 

Hartford was a retailer … creating what’s described as “Walmart before Walmart” … the biggest in the world in 1965. 

But the fortune he built was squandered by heirs who could act like wealthy business moguls because they’d inherited the trappings. 

But they didn’t really know what they were doing. If you’re going to fake it ’til you make it … keep the stakes small until you know you know you’re capable. 

Stroh was a beer-maker (we like him already), but when he died, his sons took over and decided to expand faster than their cash flow could support. 

Their $700 million fortune went flat … along with their beer. Tragic. 

Kluge was a media mogul who sold a network of TV stations to what is now Fox for $4 billion. That’s a lot of popcorn. 

Divorce divided the Kluge fortune, and the ex-wife dumped ALL her money into a down payment on a vineyard … to which she added a big mortgage. 

Perhaps unsurprisingly the business failed, the land was lost in foreclosure, and some true real estate investor named Trump picked it up for pennies on the dollar. 

The lesson? 

Well, according to the article’s author, the former Mrs. Kluge should have put her fortune into … wait for it … 

“… low-risk investments like certificates of deposit (CDs), which are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per individual.” 

Really? 

But then an astonishing admission … 

“…CDs are promissory notes — essentially IOUs …” 

We’re guessing this author has never heard of counter-party risk, interest rate risk, or inflation risk. Savers take on ALL those … plus lost opportunity. 

Savings in the bank is FAR from safe. 

And while $250,000 of FDIC insurance is great … up to $250,000 … we’re pretty sure Mrs. Kluge was dealing in more sizable sums. 

So the advice in this article is HORRIBLE. 

Or is it? 

As dumb as it is to make a giant unsecured and uninsured low interest loan to a bank, for someone with no financial education, it’s almost reasonable. 

Of course, in the real world, when big money needs a place to “deposit” huge sums of cash … i.e., make low interest rate loans … they go straight to the source: government bonds. 

After all, if the bank fails, they’ll turn to the FDIC (which is woefully underfunded and arguably insolvent), which would then turn to Uncle Sam (ditto), who would turn to the Fed … who just funds everything with inflation (stealing from the workers and savers). 

Read that all again and REALLY think about it. 

But the bigger lesson from the article is … 

“Make informed investments …” 

However, rather than dumb down your investments to your current level of financial education … 

… we think it makes a LOT more sense (and dollars) to RAISE your financial knowledge by investing first and foremost in yourself, your advisor network, and an investor mastermind group. 

In other words, get smart and surround yourself with smart people. 

Money doesn’t make you smart. But smarts can make you money. 

The tragedy of our time is millions of people are facing a bleak retirement because of the pervasive fraud and mismanagement of pensions … 

… the hidden and misunderstood wealth-stealing cancer of inflation … 

… a dangerous ignorance of the important difference between speculation and investing … 

… and a false focus on net worth over passive income as the ultimate metric of wealth. 

You can read the referenced article yourself for the rest of the stories of the rise and fall of the rich families. You’ll find they’re all variations on a theme. 

Our reason for drawing all this to your attention is to remind you that most mainstream financial media is loaded with dumb ideas and devoid of any understanding of the wealth-building power and resilience of income property investing. 

Yet the need for Main Street investors to tap into the power of real estate has never been greater … 

The Fed continues to DESTROY savers. 

Yet ignorant (though perhaps well-meaning) journalists promote saving in banks … loaning money to broke and corrupt institutions which are backstopped by broke and corrupt institutions … as a panacea of safety in uncertain times. 

Wall Street continues to promote “buy low, sell high” speculation as an “investing” strategy. It’s not. 

Besides, Main Street investors are ill-equipped to swim in the shark invested waters of Wall Street for long without losing a few pounds of flesh … which is the entire reason they keep being invited to swim. 

Of course, we’re preaching to the choir. You’re probably already sold on real estate investing. 

But our point is the world needs YOU to be an outspoken, well-prepared, advocate for REAL real estate investing. 

Average people can produce WAY above average results with much less risk though well-managed income producing properties in solid markets and properly structured with optimal leverage for resilient cash-flow, inflation-destroying leverage, and tax-defying deductions. 

If you know real estate, we encourage you to teach it. 

And if you’re a proven producer of real estate profits, consider starting a syndication business to partner your skill with other investors’ money. 

No matter how you do it … join the crusade to move money out of banks and Wall Street and back where it came from, belongs, and does the most human good … on Main Street. 

Until next time … good investing! 

Now the Fed’s up to $400 billion …

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

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

For those young or asleep during the 2008 financial crisis …

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

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

That’s MIND-BOGGLING.

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

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

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

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

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

And that brings us to an important question …

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

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

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

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

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

In short, money is a store of energy.

Think about it …

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

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

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

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

This exchange of value is economic activity.

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

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

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

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

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

Energy is a BIG deal.

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

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

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

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

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

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

Monetary dilution is called inflation.

Legendary economist John Maynard Keynes describes it this way

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

Inflation waters down real wealth.

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

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

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

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

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

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

This brings us back to energy …

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

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

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

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

It’s the same reason we like agriculture.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Until next time … good investing!


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