Maybe it’s just us …
But as we’re preparing for our Future of Money and Wealth conference … (our way of sharing our epic Investor Summit at Sea™ faculty with more people) …
… we keep seeing headlines that make us think there’s more happening in the financial world than just a little stock market volatility …
From Bloomberg on February 7th:
Dollar Will Stay Weak If China Has Its Way, Morgan Stanley Says
There’s SO much we could say about that one headline …
… in which a major U.S. financial institution acknowledges both China’s desireand ability to weaken the almighty dollar.
But we’ll restrain ourselves (for now) and ask a more mundane, but relevant question …
What does a weak dollar mean to real estate investors?
We’re told a weak dollar is good for U.S. business … because it makes U.S. products cheaper for foreigners to buy with their now relatively stronger currency.
Okay, so maybe that’s good for local economies that depend on exporting.
And maybe it helps landlords in those areas because more export sales might mean more jobs and higher wages for local workers (your tenants).
But a weak dollar also means imports are more expensive for U.S. consumers. All that stuff made in China now costs MORE for U.S. buyers.
Last time we looked, tenants buy a lot of stuff made in China. If they’re paying more for it, then they have less money available for rent increases.
So a weak dollar is bad if it leads to consumer price inflation …
And sure enough, from CNBC on February 14th:
Consumer Prices Jump Much More Than Forecast, Sparking Inflation Fears
According to the report …
“Markets reacted sharply to the news, with stocks sliding and government bond yields rising.”
“Bond yields rising” is just fancy talk for rising interest rates.
If you talk to any savvy mortgage broker, they’ll tell you mortgage rates pivot off of 10-year government bonds.
When bond yields go up, so do mortgage rates.
And to no surprise comes this Market Watch headline on February 15th:
Mortgage Rates Rise to Nearly Four-Year High on Inflation Concerns
As Robert Kiyosaki always reminds us, real estate investing is about debt and cash flow.
Your mission is to acquire more of both … but with a positive spread. So if the debt costs you 5%, you want the cash flow to be at least 2-3% higher.
But when rates are rising, and tenants are being squeezed by inflation, your spread might compress.
Long-time followers know we’ve been advocates of locking rates long term because of the probability rates would turn up. Now it seems they are.
If the trend continues, short-term adjustable loans could get uncomfortable.
Real estate investors not paying attention may be unprepared for higher rates.
But the mini-news cycle above illustrates an important lesson …
If you understand how these things fit together and their domino effect … you can see them coming … and prepare.
A weak dollar leads to inflation which leads to rising rates.
We could spend a lot more time explaining all that, but that’s the gist of it.
While it played out in the above headlines in just over a week … often these trends chug along over months or even years.
So, it’s easy (but dangerous) to fall asleep at the wheel.
Of course, it isn’t just the 10-year bond that’s signaling dollar weakness. So is gold (rising), and oil (rising), and even cryptos (exploding).
But as mentioned earlier, for us … the MOST interesting part of the story is China … something we’ve been talking about for over four years.
Morgan Stanley, as reported by Bloomberg, essentially acknowledges that China’s economic size and strength are now able to influence the dollar … and YOUR interest rates.
Of course, U.S. policy also plays a substantial role, and piling on gobs of debt isn’t helping.
The point is that the future of money and wealth is evolving rapidly right before our very eyes … in ways far more profound than just routine economic cycles.
What’s an investor to do?
We think the right real estate, structured with the right debt, will prove to be one of the most attractive investments in the months and years to come.
But lazy or naïve investors seeing only “higher wages” and a “strong economy” and position only for sunshine are living dangerously.
Right now, we’re convinced every serious real estate investor should be paying close attention to the future of money and wealth.
That’s not a sales pitch for our event.
We created the event because headlines have been telling us for years something’s coming … and it’s getting closer every day.
So we’re getting in a room with the smartest people we know for two full days to focus on what’s happening and how to play it for safety and opportunity.
Stay alert, informed, optimistic, and pro-active.
Until next time … good investing!
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