While the government’s efforts to provide stimulus packages to answer the economic issues that are happening due to the pandemic, it’s not a sustainable solution. The country is still dealing with more unemployment, and companies and businesses are facing the threat of inevitable inflation. In the first part of this interview, Ken McElroy of MC Companies sat down with Patrick Donohoe to share his investment philosophy to help people prepare for possible future opportunities in the real estate market. Today, they discuss what people can do to be on the right side of things and survive inflation: study what’s happening, gather the funds, and invest in the right stuff.
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What People Can Do To Survive The Inflation With Ken McElroy
Thank you for reading part two of an awesome interview with a real estate investment icon, Ken McElroy. If you didn’t read the last interview, go check that out, that’s part one, it will help create some context to what we’re talking about. It’s a singular topic and it’s focusing on the economy and the influence of the effect the economy is going to have on American wealth and finance and investments. I’m wrapping up a two-day financial advisor online summit that I hosted. I’m glad you’re here and you’re willing to learn. Kenny is an amazing guy. Go check out his website, go check out his books and his YouTube channel.
Let me give you a little bit of a preface before we get into this interview. The objective I took when coming up with interview questions and so forth was to bring out Ken his perspective of the economy. What’s going on? What is being done where we haven’t seen necessarily the impact yet, but we’ll see the impact in the future? There’s a lot going on right now. We try to focus on what’s going on in two areas. I believe that these are the two primary influences of the economy. Number one is monetary policy, which is the set of objectives the Federal Reserve takes to establish the reasoning behind their activities.
Second is fiscal policy. Fiscal policy is the stance the government takes, especially the administration that has the influence on how it is going to accomplish its agenda through laws, through spending bills, through modifications, through the Tax Code. The reason I’m wanting to do this is that it’s clear based on the narrative, the activities are forthcoming, they’re happening and will happen over the coming years, but the activities are in motion. The impact it’s going to have on the economy is that there’s going to be more inflation and there are going to be higher taxes. I’m not going to get into the reasons and details, Kenny and I get into some of it, but there are important details in here that I do not want you to miss. That’s why I’m going through this little monologue so I can establish context for you.
Number one, inflation is the agenda, the purchasing power of your money, which means that the money you have right now buys many things, it will buy less in the future. That’s what inflation is. You also have taxes. Taxes, whether it’s on spending, taxes on investments, taxes on gains, taxes on income, are going up, they have to go up. It’s clear based on the narrative that’s already being set, that they are going to push forth activities to make modifications. It’s important to understand what impact it’s going to have on your specific wealth. Right now, American wealth is set up to be harmed by what’s to come. Hopefully, you extract out of Kenny some nuggets so that you can start positioning your investment strategy, your wealth strategy, your business strategy, your pursuit of financial independence strategy accordingly because these things are coming and we have to navigate around them if we want to be successful. Thank you for learning again. I hope you enjoy the second part with my friend, Ken McElroy. Thank you. Take care.
Let’s move to the last point of the economy, because that is going to determine a lot of what’s going to happen, and it’s already happening. There are things that are in motion that haven’t necessarily manifested yet. How the economy is now is in large part stimulated by the government. What do you see is happening? Obviously, you don’t have a crystal ball, but you’ve experienced market’s ups and downs cycles enough where there are probably some leading indicators. What are the Feds doing? Will they continue to do? What are some of the variables that need to happen when they stop doing it?
First of all, things are going to unravel as you know. The Federal Reserve cannot continue to spend this much money on that. They have to let things emerge. There might be new tax incentives and new stimulus packages and all that stuff to make it a soft landing for people, for businesses. They’re all trying to figure that out. We’re not out of the woods yet on that side of it, but once the vaccine gets rolled out and things start getting a little safer, I don’t think we’re going to go back to the way we were, but there won’t be any longer an excuse to not go into the office and to move forward. It’s going to be a personal decision. I don’t want to go down that road because that is what it is. People decide what they want to decide. The point is that right now the Coronavirus is the reason. When that goes away, then the government is not any longer palpable, “You’re at home, here’s some cash.” We’re now back to an even playing field. Now, it’s up to you. There will be some cash available for people and some things that we’re going to have to do. What the governments are afraid of is homelessness, and that’s a big one. They’re afraid of things like food shortages and those kinds of things. They’re going to be focused on those kinds of things.
Surviving The Inflation: Inflation is inevitable because we pumped all this cash into the system.
As opposed to putting money in people’s pockets.
They’re going to maybe do that with the minimum wage and maybe some additional stimulus, but that doesn’t go far. $1,200 to somebody will give them a couple of months. I’m not saying that’s not good. I’m saying that at some point, you can’t continue to do that. It all leads to inflation of some kind. When you raise the minimum wage, what it does is squeezes the profit margin on a business that’s already in trouble. A restaurant as an example that got kicked out now has higher wages. All of that stuff turns into higher prices. A lot of people might disagree with me, but I don’t know how you can’t pay more people more money, and then you’re going to have businesses, either reducing employee, go to halftime, they’re going to try to run a little leaner or maybe the owner gets more involved, but potentially it’s going to create either more unemployment or prices are going to rise if they can.
That’s what’s interesting is you had businesses get the crap kicked out of them for a year. Instead of getting things back, filling their coffers again, now they have to pay out more money to employees, so their only option is to either take less money or raise their prices. Is it going to lead to not just what normal inflation would be if you had a normal economy pre-COVID and you raise the minimum wage? You’d have some inflation, but now the likelihood is a lot higher. Do you see the economy being able to support a lot more inflation? I know that’s subjective.
I’ve been trying to wrap my head around this. Our good friend, Andy Tanner, I bet he’s here more than you know, trying to figure this out because he is a massive student of this. We were in Japan together. We were talking with Robert Kiyosaki and we were there on Rich Dad. People are saying they’re on like QE 30 or something crazy. Their GDP is the highest in the world, and yet they’re not seeing this massive inflation. I call them up, “Andy, when we were in Tokyo, how can the government continue to pour all this cash into an economy, and then not see it?” What he described to me, which I thought was a good example. This is Andy, and I’m still learning like all of us, he said that the balloon has been inflated and the government has been putting money in and the balloons inflated to what it is. It could be gas prices, food prices, real estate. It’s not all just an inflation number. Everything’s a little bit different. He said that there’s a hole in it and that’s deflationary.
There are things that could be potentially deflationary, but they keep putting money in it to keep it at its size. That’s what’s happening now. We do have inflation on things. This phone here when I bought it, it’s worthless. I get more. That’s an easy thing to pick on. There are things that are deflationary and there are things that are inflationary, and it’s all bundled together. I do believe that we’re going to have inflation because we pumped all this cash into the system. There are going to be more goods chasing those things at some point in time.
What are some final thoughts you have in regard to the state of things and the individual investor in mind, and how they can stay even-tempered? You have the Bitcoin soaring, the crypto craze, you have the GameStop and you have forums that are trying to short squeeze some of the big, short positions that are out there. There’s a lot of buzzes. What do you do to maintain an even keel temperament? What do you talk about frequently with investors that sometimes get off the rails because of the craziness?
There’s a bunch of things. One, it’s a horrible time for a lot of people, and that’s inevitable and there’s not a darn thing we can do about it. What you can do is you can start to study what’s happening and you can be on the right side of that, whatever that is. I mentioned that with my trainer, “No one invests a bunch of money now because you’re going to have a bunch of gyms goes out of business in the next several years. Go find out what funds those are and figure that out.” It’s a long-term strategy. People, generally, like things quick and easy. Bitcoin, GameStop, that’s lazy man’s money. It’s easy to throw money into that and then watch it. That is not investing in my opinion. That’s speculative in its biggest nature. You can go online and there will be tons of people that say this is a certainty. There’s nothing certain except debt and taxes, even real estate isn’t certain.
The one thing I love about real estate is if you look at the numbers, and I thought and did this in 2008, I went through this ‘08, ‘09, ‘10, massive people dumped out of housing, out of mortgages, and they dumped into rental housing and they put this incredible pressure on rental housing. Then it moved back out again and that’s where we are. Take a look at the numbers, follow the math, and then try to be out in front of it. This is going to be the biggest transfer of wealth that we will see in a long time. That could be wrong, I don’t know what the future is going to be like. In my lifetime, this is it. This is a time that you need to have the education and be out in front of that stuff, and then put together your team so that you can go out and do things.
There are many things happening. It’s right in front of us. The hotel businesses are closed, the micro hotels especially. Nobody is going to those, nobody is paying those. There is nobody traveling. I was on the phone with my friend that owns a bunch of it. He’s getting killed, 10%, 20%, 30% occupancy. There are already funds being put together to buy those and convert those to housing. That’s what I’m talking about. All of this is right in front of you. There are people already swirling around the malls, looking at redevelopment. That’s real estate, it is what it is. You’ve got to pay attention to those kinds of things and ask a lot of questions and get educated.
Kenny, we could probably talk for a few more hours. I have 10 million questions, but let’s do this. I know you have some new digital resources that you are making available to people that teach a lot of these types of principles. Would you speak to that as we end the interview?
This has been the greatest part of the pandemic for me. I haven’t been a big social media guy or a big YouTube guy. I’ve been trudging along on real estate and buying real estate. We have 250 employees and we’re busy and flying all over the place looking at stuff. The pandemic, I was like, “I’m going to get camera crews here and I’m going to start teaching.” We started teaching in March 2020, I start putting these YouTube videos out. Now we’re up over 200,000 subscribers. We started doing these videos to help people and we put them on our website, KenMcElroy.com. It’s been great. We put out a masterclass that people could get. They can subscribe to these videos of stuff they are interested in and learning some of the things. We have a forum that people can go and talk to other members. We have thousands of people helping people now, which has been great. It’s all been collaborative. The premium membership is $19 a month. That’s $200 for a year and you could go look at all these different videos and all these what we’re talking about and get educated and learn. That’s the key to this next step.
Surviving The Inflation: Start to study what’s happening so you can be on the right side of whatever that is that you’re investing on.
Sometimes chaos is the mother of invention. I know it was always out there for you because you always have been teaching, but what a great opportunity to pivot a little bit. I know there are people that rave about some of the stuff that you’re doing. Kenny, you’re amazing. Thank you for what you do. Thanks for teaching people. Thanks for your time. We’ll have to do this again, maybe as to 2021 comes to an end and 2022 starts to rear its head, and we’ll see whether it’s ugly or pretty.
It’s going to be an interesting time. People have some hope, you can be on the other side of this. It’s going to be some rough roads, but you can be on the other side of it.
I appreciate that, Kenny. Thanks again for teaching us. We’ll talk to you next time.
For over two decades, Ken McElroy has experienced great success in the real estate world through investment analysis, acquisitions, property management, and property development. Ken believes in sharing these successes, as well as his setbacks, to help educate and inspire investors to bridge the gap between where they are and where they want to be. In addition to sharing his expertise, Ken also shares his mindset, because building wealth isn’t simply about putting money in the right place at the right time. It’s about understanding that determination and self-motivation are the real keys to thriving. Here you’ll discover a place that reflects Ken’s passion for real estate and helping others, where investors from all walks of life can learn, grow, and thrive. We believe that everyone deserves financial freedom. Let us show you how to get there.
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The real estate market is already unpredictable as it is. Yet, with the current COVID-19 pandemic we are all facing, this unpredictability is heightened, and you can either succumb to it or find opportunities. Patrick Donohoe is joined by Ken McElroy, the Principal of MC Companies, who has a couple of insights into possible future opportunities in the real estate market that you can take hold of. Guiding us in that process, he shares his investment philosophy around buying for cash flow and generating passive income. He then dives deep into some of the significant shifts happening, the obstacles newer investors typically see, and how they can start developing the mindset to have the confidence to take their first step. Join Ken and Patrick in this episode as they help us prepare for the future, uncertain as it may.
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An Investment Philosophy To Prepare For Possible Future Opportunities In Real Estate With Ken McElroy
I have an incredible guest, a dear friend of mine, Ken McElroy. Ken and I had an interview that lasted over an hour. We are breaking the show into two parts. The first part is going to be his investment philosophy, as well as the current state of the real estate market, and then part two is going to be a discussion we had about the economy. If you don’t know who Ken McElroy is, Kenny is first a real estate investor. He’s written a number of books on the subject. He’s been an investor for over three decades. He also is a Rich Dad Advisor. What that means is he works alongside Robert Kiyosaki, who is the author of Rich Dad Poor Dad. Kenny has developed a giving attitude over the years. He was born with it but he is doing so much on YouTube. He has a ton of digital resources that you can get access to at KenMcElroy.com.
Kenny also has a podcast that he does. Go check him out even if you don’t go in and take advantage of some of his digital resources. This is a guy that you definitely want to follow. He’s done billions of dollars of real estate, tens of thousands of doors, and has an incredible philosophy when it comes to how he invests. I think that’s important because we’re at the crossroads of many different elements, whether it’s housing, economy, unemployment, government intervention, possible inflation, most likely inflation. It’s going to stir up emotions for those that don’t necessarily have a sound investment philosophy.
We’ve already seen that with the number of people that have lost money on trading different things. We’ve spoken on the show extensively about that. It’s going to continue and most likely amplify. There are two things that are going to happen. You can either succumb to these emotional whims and make bad decisions or you can find the opportunities which will be there in spades. Kenny drops a couple of insightful things when it comes to possible future opportunities in the real estate market, so pay close attention. Thank you so much for the support. I appreciate you. Let’s get into my part one of the interviews with Ken McElroy.
Thanks for joining me on this incredible interview. That’s somewhat presumptuous but I know Kenny. I’ve known him for a while. He’s a mountain of knowledge. I’m grateful for the opportunity for you to learn. I’m excited to learn as well. Ken McElroy, I have a bunch of your books here. You never stop writing these books. One that came out is ABCs ofBuying Rental Property. You’ve got ABCs of Real Estate Investing. There’s a bunch of others too but you’ve written extensively about real estate and also entrepreneurship. I’m excited to have you on. There’s a lot going on in the world and 90% of it has to do with real estate. I can’t wait to learn from you. We had you on 2020 and things were chaotic. I’m curious to see where things are at from your vantage point.
Thanks, Patrick. It’s always great to catch up with you. I love your stuff. I love following your investment philosophies. I know we’ve been friends a while. I adore your family. Let’s get to it. Let’s talk about what we see in our crystal ball.
Let’s start there. It’d be important for you to take a moment and describe your investment philosophy, how you view investments, purpose, good investment, bad investment.
We’ll talk real time, the GameStop thing, it’s still a buzz, how that happened, what happened, and all of that. That’s what I don’t like to do. I’m not saying that people didn’t make money but I know people lost money. In my opinion, that’s a bit of gambling. That’s throwing your money into something and hoping that it goes up. That’s not at all what I do. That’s what we would call a capital gain strategy. That’s flipping a house although that would take a lot longer. Buying something, hoping the market takes it up, and then selling it. I’m not saying that you can’t make money that way but what I’m saying is that we don’t know what’s going to happen. You don’t know if the market is going to crash or it’s going to keep going. People have strong opinions, however, on that. That’s what gets them in trouble.
What I like to do is I like to buy it for cashflow. All of my deals, Patrick, as you know, are cashflow based. I don’t have an exit philosophy. In other words, I’m not trying to time anything. What I’m trying to do is buy an asset. I’m trying to use other people’s money to buy it, the bank or investors. I’m trying to make cashflow so that everyone gets paid. I want the occupants, the tenants, the residents, or whatever you want to call them to pay it off. I want the tax consequences from that and I want to hold it. It’s a lot slower strategy. It’s a lot harder. It takes a lot more knowledge. You have to have a lot of experience to do it well. That’s my philosophy. It’s proven to be a good one. When you can get a tenant to pay off your asset, why wouldn’t you? That’s it in a nutshell.
Adding to that, you have some predominant investment purposes. People invest for capital gains or people invest for income, for cashflow. I look at the end result being unknown to most people. They don’t ask themselves, “Why am I doing this? Why am I doing that?” If you look at income, if you look at cashflow that produces month in and month out, that impacts what people were after, which is a better lifestyle. Capital gain is a short-term strategy and also it has a lot more risks associated with it. In the end, if people question their motives and their purpose, they would think twice about putting a lion’s share of their wealth into that type of strategy.
Real Estate Future Opportunities: Not all experiments work out. Not all bets work out. Not all risks work out. If you have that foundation of certainty, you learn from it as opposed to being taken out of the game.
It’s interesting if you take it in bite size. What I did in my first thing, Robert calls the financial freedom. He branded it. When I was getting out of university, that was my first thought. At the time my expenses were super low like $2,000 or $3,000 a month or something. I was like, “How do I cover that with cashflowing assets?” From there, that would be my first step at financial freedom. Like most people, I started buying bigger houses and better cars. I was driving an old Volkswagen when I was in college. There are things that you want to help the business and all that. Your monthly expenses do go up but my philosophy never did, which is how do I generate enough passive income to cover my monthly expenses?
When that happened, Patrick, everything changed. All of a sudden, I was like, “I can do deals that I want to do. There’s no real pressure on me. My bills are covered. What do I want to do next?” That’s when I started to build my business and start to create other streams of income like that. That’s all I do. I have all this passive income and the deals keep getting bigger and bigger. My core philosophy is first it was me, how do I become financially free, then it was my company. How do I generate enough passive income in my company to make it financially free so I don’t have to be there? My philosophy has been the same the whole time. The cashflow philosophy covering your expenses so that you can take months off. When my kids were in spring break, fall break, summer break, I took that time off period. I never worked during those periods of time and that was because of this philosophy. I had money coming in.
Whether it’s Abraham Maslow or other sociologists, psychologists, they’ve narrowed in on this motivation of human beings. I think some of the first motivations that people are after is certainty. They want some foundation that they can count on. Capital gain is not that strategy. Cashflow is, especially if education around developing that. When you start to establish those foundations of certainty, then risk or uncertainty, the variety of life, going on vacation, buying a car, trying this with business, trying that with business, it becomes more digestible, especially given the fact that not all experiments work out, not all bets work out, not all risks work out. If you have that foundation of certainty, you learn from it as opposed to be taken out of the game from it.
I think a lot of people work their whole lives for that certainty. They do it differently. They put their money on 401(k)s or IRAs or having their money over to wealth managers. That is the whole point. The whole point is that’s what they’re selling is they’re selling future certainty. I decided that I didn’t want to hand that off to other people. I wanted to do it myself. I wanted to learn myself. Also, if I did do that or I ever had to do that or I wanted to do that, I wanted to know what to ask them, what to say, and let them articulate the reasons. Maybe I can learn from them or maybe I could teach them. I never understood the philosophy of working your butt off and hand in your money over to somebody for the rest of your life and then meet with them once a year. That didn’t make any sense to me.
It’s a mirage of certainty. It’s a future promise that not many people are able to get to materialize. Let’s move on from that. I think we beat that dead horse. Let’s end with something that you did in 2020. I started seeing you on social media wearing this Be Infinite shirt. I thought that was intriguing. I bought one. I wear it often. I went into jeans and a long sleeve black t-shirt every day, except for my Be Infinite t-shirts. That’s my new attire because no one’s in the office anymore. Describe how that came to be and what that has to do with your philosophy.
It started with my Infinite Return. I’m working on a book called Infinite Return, which is basically how do you invest a bunch of money, get it back tax-free, still own the property or the asset, not have any money in it, and how does it continue to produce cashflow when you don’t have any physical investments. That’s called an infinite return when you create something from nothing or you use somebody else’s money and then you give it back to them. You still own it and it produces a long-term annuity. That’s how it started. I bought the domain name The Infinite and we started rebranding it. What happened is it took off. The infinite doesn’t have to just mean financial. It could be the mindset and all these things. It’s a work in progress. I’m not completely done with it yet but we are going to roll something out.
It’s infinite so you can never be done with it.
It’s been fun to listen and weigh into other people. A lot of the people that follow me send some cool stuff about how they became infinite. It’s not a financial thing as I learned. I started off that way but I’ve opened my mind up to. It applies to a lot of things. It could be in your relationships, in your mindset, in your health, in your finances. That’s where it’s heading and you stay tuned on that one. I still am going to do the book Infinite Return, which is more about real estate but I’m excited about where that’s headed.
If you are reading and want to pick up your Be Infinite shirts, go to TheWealthStandard.com. Kenny is also going to talk about some online digital resources he has for you. Let’s move on to real estate and what’s going on. There are some significant shifts happening. Sometimes that takes people out of the mindset where they feel comfortable making an investment. Talk about the obstacles you typically see with newer investors, why they don’t pull the trigger, and then how they can start to develop the mindset where they have the confidence to take that first step.
Real Estate Future Opportunities: If you can zoom, why not zoom?
First of all, I want to acknowledge how hard it is to go from working somewhere hard and then trying to wrap your head around something so different. It is different. I totally get it. I call it analysis paralysis. They sit and they don’t want to make a mistake. I completely get that. There’s a lot of anxiety, stress and fear beyond that. I will tell you that what I find is if you’re open a little bit to the idea, then you can look at things. If I’m sitting at dinner with the stock guy, he’s fully against real estate. That’s the way it is. There are not many stock guys that are real estate advocates. There’s a financial reason. They get commissions and all that stuff. I’m not saying that it’s wrong to be a stock guy. I’m saying they’re close-minded in their bias. The hardest part is being biased. Let’s say you grew up poor like I did and my parents were poor. They would always say, “We can’t afford that,” and we couldn’t, all those things. You’ve got to get out of your way as I found.
The first step is backing up from the scenario and saying, “I’m in a bad relationship. Why? I’m in a bad financial situation. Why? I’m not happy at my job. Why?” People don’t do that. What they do is they point fingers out and they go, “It’s their fault. It’s somebody else. How can it be me?” You don’t have to tell everybody. You have to do it. You can start to open your mind a little bit about, “Maybe I am a little bit biased.” We all have biases. It’s interesting. It’s a long story but I had to go through a bunch of bias training to be on the Sheriff’s posse for Arizona. It was fascinating. I was in the room with all these County Sheriffs. It was all over this whole issue between Mexico, the US, and all that. That’s fascinating, the biases. I was like, “I have my own biases the way I grew up. I have biases around money. I have biases around all things.”
Once you can step back from that and peel that back and say, “Where do I want to be?” I love that be, do, have. You want to have, you have to be. First, you have to be. I think people struggle with that. They hold on tight to their beliefs and they don’t believe that they are. It could be religion too. I don’t want to make this political or religious but the point is that people have their beliefs and that is what it is. They defend them. It’s the same thing with real estate once people realize. There are millions of people making money in real estate and there are billions of people doing well in real estate. As you know, you do both. You have to have an open mind first and then start letting new stuff in. There are tax advantages. We’re heading into a renter nation, Patrick, as you know. How can you have 3.5 million people in mortgage forbearance or another 10 million to 20 million people facing eviction and not have a rental issue?
Also, defaults on debt. It takes them out of the credit game because they can’t qualify for it.
It’s acknowledging live birth. How many people are going to turn 50? We already know the number. Everybody knows it’s data. We have this data that shows that the next couple of years are going to be rough. We’re going to turn like in 2008, 2009 and 2010, which I was involved in. People have to rent more. It will swing back to homeownership like it always does. At the moment, there’s going to be massive pressure on the rental housing market because there’s going to be way more demand than there is supply.
If you stepped back from it instead of saying, “I’m a stock person.” My brother is a great example, by the way. He was the A-student in our house. He is very bright. I have a tremendous amount of respect for him. When he retired, I asked him, “How are you doing?” He’s like, “I don’t know. I haven’t even went down.” I go, “You don’t even know.” “No, I trust them.” That is the marketing behind it all. I’m his brother. We’re together all the time. We talk all the time. I’m over here building this massive real estate portfolio. He doesn’t even ask a question.
There are some primary fears that people have. One is having to change and two is being wrong. We don’t realize it until we’re arguing politically, arguing religiously. Those fears dominate us whether we want to believe it or not. I think real estate being is something different than what people are programmed and conditioned to believe is investment and where they should put their money and what that means. It’s different. At the same time, look at how the world is evolving in every capacity, transportation, entertainment, work. It’s always evolving. It’s always changing. It’s like you have these two poles. You have the pole because things are changing and you have to adapt. This pole is the one that stays the same. It’s not surprising. That’s where those obstacles are mental at the same time. You run numbers, read books, have an open mind. Real estate purchasing it the right way is infinitely less risky than what people are typically doing.
I’ll tell you a funny story. I’ve had drivers for a long time. Way before Uber, I had this guy Ted. I love Ted. He was my driver. He would take me to the airport and pick me. I was going to go out and have a couple of drinks. He would come and get me, and dropped me off. I was going to go to sporting events. I had him on a contract. I was in San Francisco, which is one of the areas that they started Uber. They piloted it. I don’t know if you remember. I’m like, “This is the greatest thing ever.” I leave Uber and come back to Phoenix. Ted picks me up. I’m like, “Ted, you need to take a look at this Uber thing.” He said, “There’s no way. Nobody’s ever going to use that service.” That’s my point. I never forgot that because I was like, “Sure enough, Ted is out of business.” People can call a black car and get it whenever they want. They don’t have to have anything like that. It’s easy. That’s my point, whether it’s my brother, my parents. It doesn’t matter. They have these fixed mindsets on where they are. I think that’s the first thing. People can shake that.
Kenny, we’re in the middle of massive disruption. I think we were already going in that direction. You came out here a couple of years ago and we’re going up skiing. We drove around the city and I was pointing out all these apartment buildings that we were going up. It’s everywhere. It’s city blocks coming down, ripping down old buildings, putting up these masks and it continues. COVID was one of those other massive shocks to the system. How do you explain the impact that 2020 had on the real estate market? What’s going to be happening in the near future because of it?
There are a couple of things. I don’t think we’ve seen yet the impact. The government said, “Everybody go home and shut down.” We can go on and on about that, states, cities, towns, mayors and governors. The bottom line is that the government threw a whole bunch of money at this issue and they needed to, stimulus unemployment, PPE, EIDL, forbearance, eviction moratorium and all those things. That has masked, in my opinion, the whole problem. Look at the facts. We have ten million more people still unemployed or somewhere in there. We have 3.5 to 4 million people in forbearance. About three million of those people are seriously delinquent. We have anywhere from maybe fifteen million people facing some eviction. They keep kicking the can down the road.
By the way, I’m a landlord. I believe they should. You can’t tell people they can’t go to work and then have the backside of it. The problem is the landlords are having problems, a lot of the small landlords. There are cracks showing up. There are people behind on their rent. There are people behind on their mortgages. There are people that have lost their businesses forever. They have lost their life savings forever. There are over 100,000 businesses that have shut down. The cities are going to lose their tax revenues. It’s going to be a mess for years. All of that has been propped up by this money. I know we’ll get to that at some point. I don’t think that it’s shown up yet but it’s all sitting there.
The question is, when is the government going to stop backstopping all that? I thought it would be earlier but with Biden coming in and the new administration kicking down the road a little bit longer. It’s there. There are real people behind that. There were landlords that can’t pay their mortgages. There are real people that can’t afford their cars, real people that can’t afford their rent, real people that can’t afford all things that they may be financed. All of that is going to make its way. I think businesses have changed the way they do business a lot. You’re going to have massive issues on the office building side. All the malls are done. We’re going to have a different economy moving forward. I don’t think that we’ve yet seen the issue. Revenues are down. Rents are down. Returns are down. Not with everything but businesses are closing. People are losing money. The mainstream media doesn’t seem to be talking much about that but it is there. I made a prediction in a video that had come out. I think that the fourth quarter of 2021 is going to be exposed a lot but 2022 is going to be rough.
I understand the objective of what the government tried to stimulate. At the same time, when you do that, there’s always the benefit that you get from it but there’s also the unintended consequence. It’ll be interesting to see how those unintended consequences play out. This might be important to talk about the migratory patterns of employees but also states that have high taxes, maybe even states that were little too strict on their protocols when it came to the quarantine. Talk about that because not only do we have this massive stimulus that has not only conditioned people psychologically to look to the government to help solve their problems, but you also have massive amounts of resources, money that has gone into not necessarily the most productive areas to stimulate. It’s more to fill the void but the hole is still there and continuing to drain. Talk about how COVID has impacted cities, what people being able to work remotely, how they’re going about moving from state to state. Speak to that. I know there’s a lot going on there.
In every city, state, and town is a little bit different. I had a conversation with a guy. He was on the 35th floor of a building in New York City. I was chatting with him. He’s a finance guy. We were talking about some debt and equity. I said, “What’s it like there?” I’ve talked to other people there as well. He said, “Our building normally has 5,000 to 8,000 people a day coming and going. The New York Times did an article on our building. They came and interviewed the door people and it’s about 100 a day. The hot dog guy out front usually sells about 400 hot dogs a day in the corner. They interviewed him and he’s doing ten.” I know I’m in New York but the point is this is going on in a lot, Seattle, San Francisco. Not in every city though, by the way. It isn’t Phoenix but it’s not Scottsdale. You have to pick and choose.
The story is those people pay for parking. They pay for gas. They get a cup of coffee. They get a bagel. They use the corner deli for lunch. They hit the ATM. Think of all the habits that happen when people are in and people are out. They have an early happy hour with some business folks. They grab the train. They go either Uber or taxi. They go back to wherever they go. All of those things are impacted every single piece. That’s one building. You start to take a look at the ripple effects of these small businesses. For sure, the landlords are screwed. They own those buildings. There are massive discussions around lease negotiation, lease modifications, forbearance, or whatever it might be. The landlords are not paying their mortgages. They’re probably not even paying a lot of their operating expenses, depending on how many businesses are paying.
I talked to another friend of mine who is in Chicago. He goes, “I’m paying rent. I’ve been paying rent on my space for a year. All my stuff is at home.” It depends on the capitalization of the business and all that. He said at the end he’s not going to renew. That’s all coming. I don’t want to make this about commercial office space but the point is that you’ve got all this ripple effect happening. I think what’s happened is people are looking. “Do I really need to spend $3,000, $4,000, $5,000 a month in rent?” They’re moving. That’s these migration patterns that you were talking about. I’ve heard crazy stories. Generally, what people are doing is they’re not moving far. They’re saying that they’re moving 20 or 30 miles away on the average, like 70% of the people. You think about that. If you’re in San Francisco, 20, 30 miles away, you could easily reduce your mortgage or your rent by half. There are a lot of people move in different states and all that’s happening.
That’s creating depressions and bubbles in individual areas depending on where people go. The jury is still out on what that’s going to look like but it’s looking like Arizona, Florida or Texas. There are little towns like Boise, Idaho, and stuff like that are jumping up too. I think that has a lot to do with Seattle. People are moving around and they’re looking for affordability. To your point, low tax, good weather, all of those things. If you can zoom, why not zoom when you can save quite a bit of money a month? That’s almost like a reverse commute. You use your office. You use your home. You go to your office every once in a while, as opposed to the other way around where you go maybe somewhere for a retreat. It’s the opposite.
Real Estate Future Opportunities: If you think that you have to save your own cash and do it yourself, then you’re thinking really, really small. You’re not using a system that’s in place for you.
The ripple effect, you hit the nail on the head. Economies depend on $1 turning into $30. Meaning, you pay a person $1, that person takes the dollar, spends a dollar. That’s not happening. The velocity of money is at the lowest point ever, especially in fear. Most people don’t spend when they’re afraid. They hoard and they stock up. It’d be interesting. You made the point where we haven’t seen the impact yet. You’re starting to see it. There definitely were patterns already of people moving out of these big Metro expensive areas but it’s almost inevitability. Do you pay attention to any specific resources? They give you data on that. It’s relevant.
I’m all over everything. I read as much as I can. I do. I think that’s what you have to do. For migration, I studied that moving companies have good data, North American Van Lines, Atlas Van Lines, U-Haul and Ryder Truck. You think about it if you live in Salt Lake. If people moved from Salt Lake to Phoenix, that’s a data point, a lot of that stuff. It’s not perfect but if you start to look at a lot of these different things out of state driver’s licenses turned in, all these things that you can look at to figure out the migration patterns that will give you a good sense of where people are going. The media gets it later, all these brokerage houses, CBRE, Berkadia, Transwestern, JLL. They all have these annual reports. They are slanted a little bit because they’re brokers. The truth is I get all of those. I love those because they have these big analysts that look at all the markets and what’s going on. Those go out to the investors.
That’s all free. Get on all those websites. Another good one is ULI, the Urban Land Institute. Pricewaterhouse does an incredible one. I got it right here. This is called the Emerging Trends Of Real Estate and it’s Pricewaterhouse. I love this thing because it goes into all this data. That’s all I do all day long is look at that stuff and try to figure out. Wayne Gretzky says, “You have to skate to where you think the puck is going to go, not to the puck.” GameStop. You want to look at the bigger picture. Elon Musk is a guy that does that. He’s way out over here. People get surprised but it makes sense. My friend was trying to turn in his Tesla on a lease and he couldn’t buy it. I go, “Why?” He was like, “He’s going to do the autonomous taxi service.” All of a sudden, there goes Uber and Lyft. It’s all coming. You’ve got to pay attention to the stop.
It’s chess. In chess, you can play by each move and respond to each move or you can know 3, 4, 5 moves in advance. There are a lot of mini-entrepreneurs. The successful ones are able to do that. In your space, you’re doing the exact same thing where you’re looking at those leading indicators which could do this. That’s where the opportunity is.
That’s a software play, Elon Musk getting into the taxi business. That’s how he sees it. The cars are insignificant.
There was a flyover of Starlink, which is the satellite internet company that he has. There are 1,200, 1,300 satellites. It’s not even online yet. They’re not live yet. He sees where all this stuff is going. He does crazy stuff.
This is my point. The key to entrepreneurship is solving problems. What can be done better? He does it at a massively bigger level than most people but for us and for your folks here on this show, it’s housing. There’s going to be a massive housing need in the next years as a result of everything that’s happening, unemployment, fall out on the evictions, fall out on the forbearance, fall out on the defaults, and the defaults that are going to happen to the lenders. It’s going to be like 2008. The government, at some point, is going to stop writing checks that prop it all up. Trust me, it’s going to happen. This next year run, Patrick, is going to be incredible for entrepreneurs.
I went to the gym. My trainer wants to open a gym. I said, “Wait. Find out who’s locked all the doors, put chains around, and then call the landlord and say, ‘I’m not going to give you any money but I’ll take this over.’ You have to pay for the equipment and then go from there.” He’s like, “How did you learn all that? Where do I learn all this stuff?” I go, “Trust me, it’s trial and error. It’s a lot of failures, a lot of bad decisions.” He’s like, “That’s a great idea.” I go, “If you have to use your own money and in the next years, you’re lazy. It’s all how you think and what you see.” Elon Musk did throw a lot of his money early on as we know. The overwhelming majority of everything he does is financed with other people’s money and it always will be. That’s the whole point. If you think that you have to save your own cash and do it yourself, then you’re thinking small and you’re not using a system that’s in place for you that is there. It’s a bias.
Principal of MC Companies and #1 New York Times’ bestselling author of “The ABCs of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss” and “The Advanced Guide to Real Estate Investing: How to Identify the Hottest Markets and Secure the Best Deals.”
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We now have a new President and with him, a new set of economic policies and decisions that are going to affect the financial market and all of us who feel its repercussions. The question is, will the Biden economy be good to you or will it be your undoing? Even before claiming his seat in the White House, Joe Biden has been very clear about his administration’s economic platform for a while. If you’re an entrepreneur reading this, you may already know what’s coming. But Patrick Donohoe is not here to paint a bleak picture. Instead, he offers opportunities and solutions that will keep you winning even as the government tightens its noose on the wealth producers. Listen in and be inspired to take practical steps to achieve the wealthy life you have always imagined, no matter who sits in the White House and how they decide to play God with the economy.
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Will The Biden Economy Make, Break, Or Transform You?
The topic of discussion for this episode is Will the Biden Economy Make, Break, or Transform You. I’m going to talk about the potential impact of a new presidential administration, how they are planning to influence the economy, and how that might impact you. At the end of the episode is a tax strategy. It’s an old one that I’m going to talk about. The relevance of a tax strategy will be evident based on some of the data I’m about to give you.We’ve had a lot of volatility, a lot of swinging when it comes to the markets, the economy over the last couple of months. January, the short squeeze on GameStop, the potential short squeeze that was initiated on silver.
You have an almost $2 trillion stimulus package. You have Elon Musk investing $1.5 billion into Bitcoin. I can keep going. There’s a lot of volatility. News information spreads quickly. Unless it’s controlled,it’s a very volatile, emotional rollercoaster, anywhere from wanting to get in, the fear of missing out, also some fear, anxiety, and worry about taxes and change. I’m here to tell you that there is an aggressive agenda that is hopefully evident to you. This isn’t new. I’m going to talk about some of the details but the actual agenda, the purpose, the reasons, the results that this administration wants have been clear for a while.
Here are some of the bullet points. Raising a minimum wage to $15 an hour, forgiving student loan debt, making college free for people making up to $125,000 per year, increasing top marginal tax’s brackets to 40%, capital gains tax for high-income earners, at the actual ordinary income tax rates.Corporate taxes going up for real estate investors. I know many of you,I am myself,this has a huge impact but removing the step-up in basis for real estate gains as a potential, as that passes along to the next generation. Biden‘sadministration also wants to spend $1.3 trillion on infrastructure, $2 trillion on clean energy. The list goes on.
I think the word free is interesting because it’s one of the first things you learn in economics. There’s no such thing as free. Money may not be coming out of the pocket of the person that’s going to college but it’s coming out of somebody else’s pocket. That brings me to something very simple that illustrates how the administration is going to pay for this and the potential impact it’s going to have. We have a $28 trillion deficit, which meansthere’s debt and there’s interest on debt of $28 trillion, which is a lot of money. I don’t need to go into that. There are only two ways to pay for these initiatives. The initiatives it’s to save the middle class. It’s to continue some of the aid and support for those negatively impacted by COVID. There are only two ways to pay for it, taxes and deficit spending.
Taxes, we are currently spending double what we collect. I’m speaking as a country. We are spending double what we collect in taxes. Raising taxes by double, I would say, is stifling, most likely negatively disruptive to the economy. The easy way to do it, which has been used for quite some time,several decades, is deficit spending, which basically means that the government issues new debt, essentially IOUs, and the central bank gives them money created out of thin air in exchange for that debt. That’s where we’re at. I’m not going to stop there. I can keep going through other bullet points of some of the agenda items. A fascinating read,it’s short, but if you are interested in all that detail, go to TaxFoundation.org. They did a whole analysis of how this is going to impact things. There are some variables in there that could potentially change. It doesn’t mean that all of these things are going to get passed and included in some of the tax changes. We don’t know. This is proposed but TaxFoundation.org is always on top of it.
Their initial analysis is interesting, where we lose about 500,000 jobs because of it. We also have a decline in GDP and GNP,Gross National Product. Everything is going down. If you look at the distribution of wealth and income in the United States, everyone essentially loses because of this agenda. There’s essentially the population that is making $125,000 and below that benefits but the benefit is slight. It’s not that much at all. It’s interesting where you’re able to look at, “What is the impact that this is going to have?” From a narrative standpoint, it’s easy to say, “We want to save the middle class. We want to create jobs. We want to bring jobs back domestically. We wanted X, Y, Z as end results and motivation to do certain things.” When you get into the numbers, it’s interesting where you have a much more objective point of view.
Take that for what it’s worth but here is what I’m going to say. This is deviating, hopefully not reigning too much on your sentiments. The idea here was to paint a picture that the volatility of life is here to stay. I believe it’s always been here. It always will be here. I think my initial reaction to this is whether it’s my kids having to pay taxes and pay back debt or my grandkids, that narrative is used oftentimes by conservatives. I get emotionally stirred up because I know the data behind it. This isn’t going to make much of a difference. It’s going to dig our hole even deeper. You’re probably asking why I am focusing this episode on this.
I’m focusing on it because my reaction was short-lived. The punchline of it all is that there‘s opportunity everywhere. It’s always been there. As much as we want life to be programmed, robotic, predictable, and easy, it’s not how it works. There’s never been a perfect presidential administration, a perfect tax code, a perfect economy, a perfect profession, a perfect spouse, perfect kids, perfect neighbors, perfect colleagues, perfect business. The only constant is that things will change. Things will be volatile today, tomorrow, the next day. I believe that this is the spice of life. It’s the amazing adventure, the amazing ride that we’re on.
I read something from a study by Cornell. It was done in 2005, 2006, that shows that the majority of what we fear and are anxious about has to do with the future but here’s the catch. In this study, 85% of the things that people worried and were afraid of never happened. Participants in the study,they usually will use a good sample size, so it’s not skewed or biased. The participant said that up to 15% of the events that did happen in the future, that they were anxious and afraid of, they either learn something or they handled it better than they thought they would when they were afraid and anxious about it.
My question to you is, what if your entire life, all your experiences, your thoughts, your parents, your neighbors, people have influenced you, was to prepare you for a life-changing experience? What’s on the other side of that experience if you showed up with that belief? I’m not saying that you need to believe it but I want you to consider that it might be true. What if everything in your life prepared you for something that was supposed to happen and experience? Based on how you showed up on the other side of it could have been an amazing emotional experience, a meaningful conversation, a business opportunity, an investment opportunity, a relationship, an inspiration or motivation, a breakthrough. What if that was on the other side?
Biden Economy: One of the first things you learn in economics is that there’s no such thing as “free”.
As I’ve looked at my reaction to life’s events, typically what’s going on around me, what’s in business, the markets, news, social media, I connected with something. These are things that are always going to happen. The degree, the scope is greater than it’s ever before but I believe that leads to amazing opportunity because on the other side of how you show up is where wealth truly is. It’s where growth is. It’s where the uncertainty and the beauty, the excitement of life is. That’s where I’ll bring to the next point. What if wealth wasn’t a dollar amount in the bank? What if it wasn’t cashflow?
What if it was bringing your best self to life? Meaning,you bring your game every day, every experience. To life is you wake it up. What if that was wealth? Through that vehicle, your being who you are, you’re able to experience what you want.Growth, enjoyment, relationship. It wasn’t next week. It wasn’t when you’re 65. It’s today. It’s tomorrow and the next day. I’m not saying that this is possible every day but what if it was something that you became aware of, something new? Do you allow yourself to be in a routine where it woke you up to life? What would be different?
I look at my experience and the millions of dollars I’ve spent on personal development trying to understand myself, understand what I want, understand why I say, do, believe, or feel certain ways. My discovery has been I have so much to be grateful for. I have so much that is valuable. When I start to focus on those items when I start to focus on what I can bring as opposed to what I can get, life completely changes. I believe that a lot of the events that will continue to unfold is for people, the human being inside of us. Not the human doing but the human being wakes up. It allows us to exercise what we’re capable of. Human beings are not meant to sit back, get a stimulus check, spend it on Netflix and movies. It’s not meant to scroll through social media. It’s not meant to be isolated in an apartment, in a house, even if you’re living with people.
I believe the circumstances that we’re in are allowing people to live a lax life and I think that’s anti-life. I think that’santi-human. I think that’s one of the greatest tragedies of 2020 is that the solution wasn’t the human being. The solution to the challenges that were faced, and there were macro challenges on a big scale, I think there were some cool things that happened that allowed companies more leeway to innovate, to solve problems. I think on the micro-level, on the individual level, there was a huge tragedy with the loss of opportunity to adapt, to change, to think, to solve problems. I’m not saying that this is absolute but I was hoping that the exception wouldn’t have been this. The rule became bailout, supplement, aid, help so that people don’t have to help themselves rather than it being the rule and the exception being those that are in dire circumstances.
The scary part is that there are some habits that have been formed and that is going to lead whether it’s student loan bailouts, whether it’s prolonged unemployment, whether it’s free education. There are going to be some unintended consequences from that but that leads to more volatility. The ability for you to ride that volatility and take advantage of tremendous opportunities because there’s a lot of cool things happening in our world.Whether it’s advances in transportation, advances in medicine, advances in entertainment, advances in energy, advances in food, it’s incredible what’s going on if you open your eyes to it. When you approach life and you’re trying to find the opportunities, you‘re trying to find the lessons. You’re showing up as your best self and realizing that your one smile, one conversation, one acknowledgment, one text, “How are you doing?“ One written thank you note, “I appreciate you for showing up in my life,” one step away from a completely new experience of life, a completely new business, a completely new profession.
Hopefully, this is a mentality that you feel you want to embrace. It’s not easy. The first step is being aware. The second step is doing what it takes to ground yourself. It could be a morning routine. It could be a new habit of simply writing down what you’re grateful for. If you embrace this, I challenge you to do something, commit to something, put something on your calendar, because if you don’t, the human spirit in all of us will go right back to the way that it was and you’ll forget the conversation. You’ll forget the inspiration. You won’t embrace it.
Embracing requires you do something because it makes it real. It turns it into something. That’s an idea floating around. “I should.” Do something right now. It could be as simple as,“I’m going to write down the ten things I’m grateful for every single morning. I’m going to write a thank you note every single day to somebody.” Maybe three times a week, but something. That is showing up as your best self. You’re able to take advantage of these extreme volatilities of life.
I named them.Higher taxes, less money, potentially less wealth. That’s what goes through our mind when we hear this data but this is where I’m going to end and talk about a simple tax strategy to prove the point that regardless of what is changed, what new provision in the tax code, what new change to employment, change to this, change to that.Whatever happens, there is always going to be opportunities. Here it is. I’ve invested in real estate for a long time. I got wiped out in 2008, 2009. I had to start over again. I was afraid, I was anxious, so it took me a little longer to start than most. Getting into 2011, 2012, I was pretty active. There’s a section of the tax code, the 1031 Exchange, which allows you to defer gains on a piece of property, then you do it through purchasing another property. If you sell that property, you can roll it, defer it into another property, and into more.
Let me give you an example. You bought $100,000 property and you sell it for $200,000.You have $100,000 gain. If you took that gain and rolled it into another property, you don’t have to pay taxes andyou want another property that will go up in value. Let’s say you sell that and you keep doing this over and over again, you get to the point where you have $1 million. That $1 million, if you pass away, transfers to your estate and there is what’s called a step-up in basis. What that means is that the gains that you previously had,they start over. Start basis is essentially the $100,000 original amount of money. Now it starts at $1 million for your kids. It may not pass. It may pass. Who knows? They want to get rid of the step-up in basis. That would be a $900,000 gain if you‘ve started at $100,000,ended at $1 million and we’re betting on a step-up in basis.
Here’s the strategy. I’m going to link to a document and video that good friends of mine did, Todd Langford and Rick Randall. Rick Randall’s an attorney. Todd Langford is a software developer. He’s the one who develops all of the financial software that I use with my Paradigm Life practice. There’s a white paper, a video, the whole nine yards. If you want to see this in practice, definitely reach out to Tom Wheelwright of WealthAbility. He’s the CPA. I’m not. I’m talking based on education only. There’s a disclaimer.
I’m going to remind you that the reason I’m doing this is to show you that there are things that you may not know. There could be an even better solution than what is taken away. There was once a solution to your problem, whether it’s higher taxes, whether it’s a provision like the removal of the step-up in basis. There are always solutions and there’s a big one. The point is with everything that’s going to be volatile, everything’s going to change.All of these new initiatives,instead of looking at glass half full,I’m looking at it as a loss or a cost. Find the opportunity.
There’s this old strategy called the Charitable Remainder Trust. It’s an estate planning strategy where you can essentially sell an asset to a charitable remainder trust. There are different versions of this. I’m going to talk generally speaking. Charitable remainder trust allows you to donate to this trust and you appoint a charity of choice that will be the recipient of that amount of money when you pass on. You get a tax deduction and you get to take income from that. A small percentage of what you donate to this charitable trust is passed onto a specific charity.
Here’s where the strategy comes in. You can purchase an insurance policy with some of those proceeds or maybe there’s an existing insurance policy you have, a life insurance policy, which will act as an asset replacement trust. To avoid the step-up in basis and that huge $900,000 tax, you could get a tax benefit using a charitable remainder trust and you can use some of the proceeds to replace the full amount of that asset, whether it’s $1 million or it could be less, and you use some of the proceeds to purchase that policy. The numbers are all in this demonstration. It’s extensive but it’s a cool strategy. It may not ever be needed if it doesn’t pass but it’s something that exists as a solution.
My point on all of this is there are going to be some extremes going on. We’re going to respond to them, react to them, it’s going to be frustrating, it’s going to be mind-numbing to an extent, but I want you to be aware of that reaction and shift gears to where the opportunity is. I look at wealth and the achievement of more money, of more investment, of more cashflow, that is a small portion of wealth. It isn’t the foundation of wealth. Foundation of wealth is to experience life and to experience it at the highest level. It’s to take your best self that I know is in you. God knows that it’s in you. Your spouse knows it’s in you. Your husband, your wife, your kids, your neighbors know it’s in you, bringing that as often as possible, showing up, creating value, making a difference, experiencing the little things at a whole new level. That’s wealth. Money magnifies that.
If you don’t have that foundational piece, it’s going to be a frustrating journey accumulating more and more money. It makes the experience worse in my opinion. Consider that as a possibility. Consider that the volatility gives you the opportunity to make new decisions about how you show up, to find opportunities, to bring out that human being inside of you that’s there. These are the opportunities that allow it to rise. Without these opportunities, you’re going to sit on the couch, go to the beach, and not contribute much to life. That’s, in my opinion, not the life that I want and I’m hoping it’s not the life that you want.
Biden Economy: Volatility gives you the opportunity to make new decisions about how you show up to find opportunities and bring out that human being inside of you.
Life is incredible. We don’t have to worry about going and hunting for food or chopping wood to feed the fire. We don’t have to worry that our kids are going to contract some gnarly disease and die when they’re young. We have access to medicine. We have access to health. We have access to information, entertainment, relationship, more so than ever in the history of mankind, yet there’s a lot of evidence out there that points to people still complaining about life. They are complaining about their circumstances, complaining about Biden, complaining about Trump, complaining about this, complaining about that.
Life doesn’t have to be that way. I think if you realize that number one, life is always going to be volatile.This utopian view of things, that doesn’t exist. It’s a mirage. The beauty of life can be experienced by those simple choices that we make, those simple decisions that we make. I truly believe that you’re one decision away from a completely new life. Thanks for joining me. Go out there and make someone happy. Love is what we’re all after in the end. Go love somebody. Go create some value and make a difference. Until next time, see you.
The great Tony Robbins once said, “The quality of your life is in direct proportion to the amount of uncertainty you can comfortably live with.” But up to what extent is it comfortable? How do you measure the amount of uncertainty you can handle in life? In this episode, Patrick Donohoe shares a breakthrough that had him realize the ways we all are seeking uncertainty in life just as much as certainty. He tells us about some of the reflections that occurred to him on what we need to do in order to take in more without reaching beyond the limits of how much uncertainty we can live with, most especially when it comes to our finances.
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Seeking The Uncertainty You Can Comfortably Live With
Thank you for tuning in. I’m excited to be with you. I’m grateful for your support. I’m excited to share with you some things that have been on my mind that have impacted the way I’ve viewed my life, my financial life, viewed financial life of clients that I have. I’m excited to share that with you. As a side note, there has been a group that is advertising and marketing underneath the #TheWealthStandard and they’re promoting different courses and other things, this is not us. This is not me. Please, if you have come across them, we’re reporting them, doing some cease-and-desist stuff. We’re on top of it but we wanted to let you know that’s going on. There are some people who have purchased some of their material that is associating the reason to this show, which is not true. This is not our group. This is not us, so please be cautious.
I’m excited because I had this breakthrough and the breakthrough occurred in a software training that I host every year, at least I have for the last few years. It’s Financial Advisor Facing. I’ve gone and participated in this training many times. It’s also something I’ve felt strongly about hosting here at my office so that my team can participate in it. In 2020, it was different because of COVID and quarantine, so the majority of it was live but it was virtual. Nonetheless, I had some thoughts that I hadn’t had before. It starts with a quote that I learned from Tony Robbins. I’m not sure if he is the author of this quote. He’s the author of some pretty amazing quotes. This is an amazing quote but he also uses quotes by others as well.
This quote says that, “The quality of your life is in direct proportion to the amount of uncertainty you can comfortably live with.” Uncertainty in his words is a need that we have. He believes we have six human needs. Certainty is the first one. Uncertainty is the second. It’s a contradiction there. You also have significance, love and connection, growth, contribution. These needs that we have, one of them being uncertainty is that we want variety in life, adventure, we want new. We want different. If everything was the exact same thing, we ate the exact same thing, we wore the exact same thing, we did the exact same thing every single day, life would suck.
At the same time, we want a degree of certainty. The uncertainty side of things is the new movies you get to watch, the new clothes you get to buy, the vacation you get to go on or the new place you get to visit, the new car that you have, a new experience, skydiving, bungee jumping, scuba diving. The uncertainty is this adventure. It’s doing things that are new and exciting. Comfortably live with, that’s a very interesting word and this is where the epiphany is.
This school I go to, this training, the software program that we put on is called Truth Training. It uses a software program called Truth Concepts. I first learned about this software during this 2009, 2010 period of my life, where it was a very vulnerable time in my life. I was in the middle of getting crushed by the 2008 and 2009 timeframe where I almost went out of business. I almost went bankrupt, lost my family. It was very challenging. It was a scarce point in my life where I was afraid. I lacked certainty. I had way too much uncertainty going on.
That is what I pushed. Truth Concepts is geared around validating the financial product, financial strategy claims. It’s objectively looking at scenarios whether it’s a mutual fund, a piece of property, an alternative investment, it doesn’t matter. It’s objectively analyzing it so that you can see between the lines, the fluff of a sales pitch and understand what’s truly going on. It was humbling. It gave me not only a realization of how individuals are making investments and planning their life financially but also gave me confidence in what I was doing.
Uncertainty: Improving the foundation of certainty that you have with your financial life will allow you to experience even more uncertainty than you currently experience.
It was right. It was beneficial. It helped people. It started to help me as well. It gave me more certainty. This is the realization that I had at a much deeper level is if uncertainty is what is required to have a higher quality of life, if it’s not balanced out with certainty, it puts you in this position of not comfortable living with uncertainty. You’re uncomfortably living with uncertainty. In essence, improving the foundation of certainty that you have with your financial life will allow you to experience even more uncertainty than you experience.
Going to human needs, these driving human needs that we have most are not aware of those. I’ve been aware of them for quite some time. It doesn’t mean that I understood them. I continue to understand how those needs manifest in me whether it’s the degree of certainty that I’m looking for, it’s the degree of uncertainty that makes me feel alive and excited and gives me that adventurous experience of life. There’s also the need for significance, the thing that allows us to understand that we bring value to the world. There’s also the need for love and connection but there’s also a need for growth.
There’s also a need for contribution, which is giving back, being of value, of service to others. As we look at where we’re getting these needs, one of the big things I’ve learned in my personal development is to strategically position myself so that it’s not this random way in which I’m meeting needs. It’s not this random impulsive behavior that has me doing this, that and the other, and hopefully getting what I want in the end but it’s strategically doing it.
That’s where in addition to revisiting this software, how financial products work, the combination of financial products and how taxes and inflation and other impacts other financial influences out there give either rise to the claims that are being made or in question the claims that are being made. It allowed me to step back and ask myself the question, “What are our people after?” The driving force behind human behavior is these needs.
As much as I was in this training, there was also a lot of buzz and excitement with regards to what was going on Wall Street, mainly in a few different companies, GameStop, AMC, where you had a group on Reddit and other influence that were combining efforts of retail investors and influencing the rise of certain stocks, which squeezed out those who were short-selling those stock, which are mainly hedge funds. There’s lots of buzz. There was lots of excitement. There was lots of adventure there.
A lot of people made a lot of money but as you can guess, the excitement and buzz led to a lot of people losing money. In the end, what I wanted to do with this very short episode is highlight the fact that we’re all seeking uncertainty. What gave rise to more people wanting to invest was that dream of doubling and tripling, 600% return of what that would mean to their life. It’s exciting. You also had those that were driven by this unbridled control of their behavior and lost money.
The lesson and the connection I made is there are things that are going to pull me, pull you toward adventure, excitement. I believe that degree of certainty that you have as your foundation will allow even more of that. Unfortunately, that’s not the case with everyone but those that understood this principle, whether it’s using the words that I’m using to describe it or using others. If there was a foundation of certainty, certain things that you can count on whether it’s cashflow, your profession, your business, your liquidity, the financial products you have that did provide certainty of outcome or the highest degree of certainty for that outcome, these bets, these risks made you feel alive but did not take you out of the game.
Uncertainty: You can experience more uncertainty, adventure, and excitement in your life when you improve the quality of the degree of certainty that you have.
That’s my breakthrough is before, I was very prone to creating more certainty and more certainty in my life but not equating that certainty to the amount of uncertainty that I could experience. I don’t get a big rise by making those types of bets in the market. That’s just me. I like to have experiences with my family. I like to make bets in my business as far as trying this thing, trying that thing, developing software, developing a course, developing ways in which I can create more value for clients. That gives me a lot of excitement.
Because I have a degree of certainty that backs me, I’m allowed to push more and more of the limits that were in place previously. I encourage you guys to do the same thing. Don’t let your impulses, your passions be a quilt, strategically position yourself to take advantage of those. That’s what gives us this higher quality of life. However, the positioning is where you create whether it’s financial education, it’s a degree of certainty and the financial products that are at the foundation of your financial life, whatever the case may be. Just look at that, it’s a balance. You can experience more uncertainty, more adventure, more excitement in your life when you improve the quality of the degree of certainty that you have. That’s it. Stay tuned for a couple of episodes that you guys are going to enjoy that are forthcoming. Go out and create some value, have an amazing life. We’ll see you next time.
You may ultimately agree or disagree with it, but James Rickards’ The New Great Depression is certainly one of those books that have something significant you can take away from whichever way you go. Coincidentally, it might also be the greatest lesson from 2020 when it comes to business and investing. Whether last year was a good one or not for you, it certainly taught all of us how the environment can affect us and how we can become better prepared to navigate challenges when they come. It was certainly the year when a lot more people began investing in financial education, personal development, and other things that could help them in that regard. With what is going on with the economy, monetary policy, and market behavior, something is definitely coming down and we better be prepared for it. Listen in as Patrick Donohoe shares his thoughts on this with Rich Dad Advisor, investor, author and educator, Andy Tanner.
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On James Rickards’ “The New Great Depression” And The Greatest Lesson Of 2020 With Andy Tanner
Thank you for tuning into this episode. I get to sit down with a Rich Dad advisor, investor, author, educator, and someone who I consider a close friend. He’s been on the show before. His name is Andy Tanner. You can go check him out Andy@AndyTanner.com or TheCashFlowAcademy.com. He also has a pretty awesome podcast. Andy and I both had the opportunity to interview James Rickards about his book, The New Great Depression. I had a chance to read it. I get to compare notes about our interview, as well as some of the experiences we had in 2020 and what we see coming in 2021. There are lots of stuff going on. You guys are in for a treat.
Before I get to the interview, I have a special announcement. There is a free online virtual event coming up with someone that I’ve known for several years. He’s also a Platinum partner with the Tony Robbins Group. I’ve had a chance to sit by him and learn from him. His name’s Brad Sumrok. He is considered the apartment king and specializes in educating people about investing in multifamily and residential real estate. He has a free event coming up in the first week of February 2021. You can go get more details at BradSumrok.com.
He has a pretty cool lineup of speakers. Robert Kiyosaki is one of the headliners, as well as Ken McElroy, Tom Wheelwright, and Robert Helms from the Real Estate Guys Radio. It’s a free event. It is a great time to educate yourself. There is a lot of movement when it comes to people leaving one state and going to another. When I moved to Salt Lake, there were hardly any people. It seems like buildings are being torn down by the dozen and apartments going up because of the influx of people.
That is a drop in the bucket compared to people going to states like Texas and Florida. It’s a great time for that specific type of investing. At the same time, go educate yourself first so you know what you’re doing. I hope you enjoy that. Brad also has a big presence on Facebook. We’ll post the links on our Facebook page. Make sure you go and like The Wealth Standard Facebook page, as well as Instagram. That’s it. I hope you enjoy the interview.
Thank you for being a part of the show. You’re a part of the show. We’re speaking to you, a good friend, mentor, COVID-19 shoulder to lean, and fashion icon in a sense.
In our relationship, I pretty sure you’re the mentor. I am the mentee or the apprentice or whatever you call me. Patrick, you and I have been friends for a long time. You’re the only guy I’ve ever dated. We had some mandates. They weren’t mandates for healthcare but if there’s a cool movie that we don’t think our wives will like, we took up and go. Thank you for having me. It’s always good to hang out. Bill Gates and Warren Buffett gave a townhall once. They were asked what’s the most important thing they do every day. Both of them said learn and study. That embodies what you do. You always seem so well read and you always are abreast of the latest and the greatest everything, whether it’s a gadget, a technology, a policy or a business philosophy. I love hanging out with you because you stay on the cutting edge of everything.
You’re the smart one because you circumvented all this stuff that stands in between what I’m trying to do and what the end result is. The end result ultimately comes down to psychology, how people behave, and what makes them do this, what makes them do that, how to predict it. I have to learn a lot of those lessons thinking, understanding details and facts. It makes that much of a difference. In the end, human behavior, if you understand it, is predictable.
Psychology is the most fascinating hobby that I have. People say, why would a guy who wants to teach primarily stocks and options trading say so much about psychology? That’s what drives every decision. It’s that combination of emotion, maybe thrown in with some rationalization and logic. I’m trying to figure out how my brain works, doesn’t work, works with flaws. It’s a fascinating thing and speaks to what we’re going to be talking about in terms of 2020 came to a close. Now we’re in a post pandemic world. There’s so much to talk about in terms of economy, monetary policy globally, fiscal ideas and politics ideas. It’s a great movie to watch.
It’s an ideal case study that will be used for the ages on how people respond, not just individuals but governments, businesses and markets. That’s why I wanted to do this show at the beginning of 2021, especially after you and I both got a chance to interview and talk to Jim Rickards about his book. It’s not so much learning where to invest or what to pay attention to. For me, the biggest lesson in 2020 after COVID was understanding how an environment can impact you, and then being prepared to see how the environment is going to evolve. My business did good in 2020. I don’t know if I did good as a businessperson because my environment changed. I found myself coming to an empty building and not associating with people. I didn’t realize how much energy and motivation, how much I relied on that in the past until I was gone. It was hard.
I’m going to give people a peek behind the curtain. Patrick has a good side office. I don’t know how many people you have employed there, but it was sizeable. He has a good spacious office, several levels, many rooms. I got to tell you, I went up there with the pandemic and everybody, the golf mechanism that Patrick had to burn off all that energy is phenomenal. He’s got dents in it but it held most of them, only a couple of shakes. Your golf game went through the roof during the pandemic.
It’s one of those things where I don’t like to admit it where that’s occupied and helped me balance out what was going on.
I like what you said and this might be the first section we talk about is people write books. Books that are mishmash, you don’t sell well. Books that take a stand and make bold statements. The illusion people have that might be noteworthy as the first thing to talk about is we very much psychologically like shorty. We like to know what tomorrow’s going to look like. We’re not big into negative surprises or if a positive surprise happens. We don’t like uncertainty at all as human beings. When someone can make a prediction, whether it be a good prediction or prediction of a holocaust, an economic meltdown, global warming or whatever inconvenient truth, when someone comes on and says, “This is what the future’s going to hold. This is what you can expect. It’s going to be ugly or it’s going to be the other way,” to get people’s attention and that’s great.
There are a lot of voices right now like that, “I have an opinion.” What you said at the top of the show that is worth noting is to have a psychology of preparation and say that’s a possible future. In talking to Jim, he says, “It’s easy to predict the future. All I do is 1, 2, 3.” I love the idea. I’m an overgrown boy scout. I barely got mine before I was 18, barely got under the wire. They have some good laws, and they have a good slogan, and they have a great motto, which is “be prepared.” As I look at some of the things that Rickards calls for, I think it’s a possible future. It’s one pathway that in his crystal ball he sees what’s going to happen. It’s worth preparing for in case. As an investor, a businessman, and an entrepreneur, that is a great approach. You can’t be scared of ghosts. There’s reason why you’re in the insurance business. Insurance is a preparatory move against something that might happen, not something that will happen necessarily to you.
You hit the nail on the head where life is essentially a balance between certainty and uncertainty. On one side of the scale, you have certainty where if there’s disruption, we get freaked out. There’s this built in fear mechanism to help us to stay alive and want to be alive. If everything was certain, life would be incredibly boring. We want excitement, new and novel. It’s this balance. That’s where understanding the environment in the frame of it’s going to change and evolve, sometimes subtly, sometimes COVID-19 or earthquake where it’s pretty profound. It’s understanding what happens, what could be the results of the environment, and then how you operate within that environment and within that frame. That’s where those that master that not 100% absolute or you nail it all the time, but at least understand and are aware of it, they’re better businesspeople, better professionals, and better investors. They’re better people. They know what’s going to happen and they don’t knee-jerk react, freak out, and go off the rails emotionally.
If you ever write a book or have a show, you feel like, “I have something worth reading to.” People might get the wrong idea with that posture, at least on my side. When you’re talking about knee-jerk reactions, I would say March of 2020, I was mortified. My fear gauge was buried at the top. I knew investing-wise that it was a time to buy. It was a time not to freak out. Buffett always says, “Be greedy when people are fearful and be fearful when people are greedy.” I knew that was a buying opportunity. Nonetheless, the unknowns, you got to work on your spirit and your emotions. I was frightened about this virus, where it could go and what it could do. I’m not as frightened now because I think we got an economic pandemic that’s coming next.
The New Great Depression: Winners and Losers in a Post-Pandemic World (James Rickards)
I found these books called the Way of the Warrior Kidthat Jocko wrote to counter balance the Diary of a Wimpy Kid. There’s a story in one of the books where his uncle is this Navy SEAL and he’s this ten-year-old kid spending the summer with his Navy SEAL uncle. He has this threshold of pull-ups. He can only do three. His uncle has him get up to this pull-up bar and do 100, not all at once. He rests and the another, all the way until he gets 100 to get through that plateau. After a couple of days, he was able to do five, and then break through that plateau. The reason I bring that up is 2020, hopefully for most, it was breaking through that threshold because what’s to come as Rickards points out is the ripple effect.
The earthquake happened and now it’s wave after wave where you’re going to have some disruption in different sectors. It’s one of those changing and evolving environments, and how will you respond? Will you respond in that knee-jerk fear-based reaction of 2020? It was the case with most people because that fear went viral because it wasn’t a subtle change. It was a significant boom change. They went throughout the world. You look back on it and that was crazy, how governments responded, how people responded, how businesses responded. It’s a great case study of what’s to come. Hopefully, it’s prepared us to understand how the environment could change, and then subsequently how we operate within that environment.
I have to be careful when I say this. In this world you have to be careful with what you say. That’s probably a good thing because I wouldn’t want to say anything that hurts someone’s feelings or anything less. The first thing we’ll say is condolences to anyone who lost someone to Coronavirus, or who lost their job, or became in a rough economic situation because of this. Let’s say that right there. With that in mind and said, in a way, aside from those types of tragedies, 2020 is a gift. I’ll tell you why. It could have been so much worse. It’s not like a fire drill.
It gave us a glimpse of a few very important things that gives you a chance to be prepared. Let me maybe go further into that. When Coronavirus hit, I was like, “This is going to be devastating.” I remember you called me in March and you’re like, “Is this going to be your best year ever?” I’m like, what do you mean? You go, “Your business is built for this. You have telecommuters everywhere. You have systems set up on the web,” and it hit me between the eyes. I’m like, “How come I couldn’t feel like he does?” Everything you said was true. Here’s what’s interesting, we had more people interested in learning financial education than ever in the history of our business.
A lot of them were very honest about it like, “I feel like a Johnny come lately. I feel like this is something I knew I should have done. I knew I should have studied more. I knew I should have been more prepared. I knew I should have been smarter, but I’m here now.” That’s a great lesson for us to reflect on here is this could have been so much worse pandemic-wise. There could have been a lot like this black plague type stuff. There are worst viruses that could have hit us than this one. It’s going to give you a little bit of time, not much, to think about the economic. People go from social to primal quickly.
I remember I was sick in March 2020. I don’t know if I have Coronavirus or flu but I was sick so I didn’t go anywhere. When we finally went out and we went in the grocery store, we’re looking at these bare shelves. I was like, “This is surreal. This is like apocalyptic. This is nuts.” I never have understood the toilet paper thing. That’s still going on. You take that experience and you say, “This is what prime will begins to look like a little bit. It’s everyone for themselves.” You would never teach your son or daughter to go to a pizza party and grab as much piece for themselves as they could. You say, “You first, please.” The reality is that’s what happened in the grocery store. As you have an economic fallout, there’s a lot of lessons in preparing. How am I going to prepare for those types of grabs and those types of primal behaviors, stock markets, real estate markets and business markets. I think 2020 is a little bit of a gift that way in saying, “What can I do in 2021 when 2022 falls apart, if it does, if there is a new Great Depression as Rickards says?” It’s a gift. It’s a warning shot.
When we talked in March 2020, I think we did an episode shortly after that too. I started seeing a lot of volume of interest in investment. Specifically, Paul Tudor Jones, I heard him speak before. It was February of 2020. He’s one of the founders of Robin Hood and Robin Hood went berserk. There was almost a half a billion dollars in call options credited to the Robin Hood platform. Robin Hood’s average age is like 29, 30 years old as far as users. They rushed in because they saw opportunity, yet they missed a key point which was the education around it. Their education was Reddit.
It was Johnny come lately and it wasn’t just Robin Hood. Ameritrade, E-Trade, Schwab, all those guys had record quarters in terms of enrollments. The difference between those guys and Robin Hood. The average Robin Hood balance is probably $2,000. There were some bad stories and people. They were Johnny come lately to the market. They didn’t respect what investment is. It was more like a run on a casino.
They got the first domino. They were aware and saw opportunity. The subsequent domino was down the path that seemed easy, not down the path that was less trodden.
What did you take away from Rickards’ interview? When you talk to him, what were some of the takeaways there?
It’s the disjointment. It’s where markets haven’t corrected much at all, the business world hasn’t corrected. What’s to come is essentially going to be the fallout. In the end, extending more toward the eviction moratoriums, you extend unemployment benefits, you provide stimulus. There was also a huge shift to online work, which was vital. The commercial real estate and retail, you look at lodging like my landlord, March and April 2020 was negotiation. We can whittle down this space and work this out, then they got the bailout, and they went to Costa Rica. I didn’t hear from him since.
It’s one of those where my lease is up, that’s why we’re moving the next couple of months. We’re not moving to their spaces. We’re not renegotiating. That’s the example where stimulus acted as a shortcut. It’s a Band-Aid. There are all forms of stimulus, yet when they stop receiving our rent, the other businesses are forced to like, “I don’t have stimulus. What am I going to do?” That’s when there starts to be the disjointment of resource allocation. There could be more money printing. That’s inevitable based on some of Biden’s plans. Who knows, but the piper has to be paid at some point in the future. That’s an artificial market in a sense. There’s always a day of reckoning.
I would agree that there’s what I would call a detachment from what we call fundamentals. When you detach from fundamentals, you’re in trouble. If you were a patient and you have a heart attack and your heart stops beating, that adrenaline shot, that epinephrin, those pads, those are stimulus, those are stimulants. They’re used when you’re dead. They’re not carbohydrates, fats or proteins that will keep that heart running well. They’re not nutrients. Stimulus is not a nutrient. It’s a drug.
When I look at the detachment from fundamentals, I’m completely blown away, especially in the stock market. You’d know more about real estate and I do, but the stock market is detached from fundamentals. What do I mean by that? Things being produced and consumed, value being given to people. There are some businesses that have done well and are thriving. Zoom has been hugely valuable to people. All the online stuff, that’s all great. There are also some fundamental things that are not being produced, that are not being expanded.
The entertainment industry, it’s rough when people don’t go to movies. You can only do so much Amazon, Google+, and Apple TV. The sports, you can still watch the NBA and NFL, those guys we’re pretty highly paid. When you look at ticket sales, revenues, hotdog, game ticketing schedule, and $40 are in your home arena and there’s no one there, this is billions of dollars. I agree with you that every time they do a stimulus, it’s another shocked up at the heart. After a while, the heart isn’t going to come back. It lives on nutrients, not paddles, epinephrin, and adrenaline. It lives on nutrition and we got to get to work where it gets going.
As part of this conversation, there are some fixed variables. There are lots of moving variables and even new variables that get introduced. It’s the element of human nature, and their drive to want to solve problems, and make things better. It’s that drive of the entrepreneur because you have a lot of stuff that’s going to come online that you may not have if it hadn’t been for COVID like new supply chain and technologies. There are tons of opportunities, but yet the point of this whole show, where there are tons of relevance to what Jim Rickards is alluding to is get the forecast right. One of his first rules of investing in how to beat the market is get the forecast. That’s where if you understand some of the fundamentals of the economy, you can look to what is most likely going to happen. It’s never going to be 100%, but getting to 80%, 90%, seeing how the environment is going to move, subsequently how you prepare yourself to act when it does or to act before it does.
The challenge of fundamental forecastingis half of a forecast. We say this is going to happen. When’s it going to happen? Fundamentals will tell you what will eventually happen. You’ll know the future. You don’t know what the day of the week or the month a year is. It’s the timing. You and I went and saw The Big Short together. They made a forecast based on fundamentals, “We have all these toxic mortgages. We have all this debt that isn’t as good as the rating says it is.” They tried to time it. How many people timed it too early and got it wrong. How many people timed play it and got it wrong? Those guys look geniuses because they happen to have gotten the timing right. Was that because they were brilliant or because they were lucky?
There had to be super high level of negotiation at the end in order to get those contracts that pay out. It’s the decisions that have been made, whether it’s from an investment standpoint or a professional standpoint. The investments, the business decisions that are going to be made, assuming that the environment is going to go back to normal because we have a vaccine. People are in for a rude awakening. He illustrates that. That’s where I would say people want certainty. They want things to go back to normal. They want the variables to be fixed the way that they work because it was working based on what they wanted out of life, yet they didn’t see the structure of uncertainty and how the weight of that counterbalanced the certainty. Now it’s going to come back in multiple forms. Hopefully, people have gotten down the lesson that the environment is going to be evolving. There’s always going to be opportunity business-wise, investing-wise, and personally. It comes down to the awareness you have about the fundamentals, about also the changing fundamentals of an environment, and how you operate within it.
I would tell everyone, be careful with what your vision of back to normal looks like, be careful what you think that looks like. For most people it looks being able to go to a football game again, not having to wear a mask, and being able to go to the grocery store and have toilet paper on the shelves again. That’s what they think normal looks like. It’s almost a vision of the past, things are back the way they used to be. Things are normal and it’s back to how it used to be. When things are back to how they used to be, take a look at the financial statement in the United States. When Trump took office, we had a deficit of about $500 billion.
It’s $4.4 trillion, suddenly. That’s astounding to go from $500 billion deficit to $4 trillion. Our debt’s gone from $19 trillion to $27 trillion and the bonds we’ve issued. That’s not back to normal. That’s a new challenge for Janet Yellen, the Treasury Secretary, and for Jerome Powell, the United States, Europe, the Bank of Japan, and the Bank of China. The dollar is way different post pandemic than it is now. That’s why Bitcoin is so volatile. It’s not back to normal. If the dollar is normal Bitcoin, wouldn’t be doing this dance that it’s doing.
Money is flowing. It’s that whole Gresham’s Law where money floats around to the most certain areas. When there’s uncertainty, it flows out of what was certain before. That’s something that he talks extensively about in his book. There is a more and more of a push to Modern Monetary Theory based on some of the stimulus that has made itself, what’s going to be the response to when things go bad, print more money to stimulate. He says that it’s not stimulation. It does not stimulate. It’s going to do the opposite.
Did you read Stephanie Kelton’s book on that by chance?
He references that book though.
I read her book when it came out because I was curious to see how you argue that. The concentration about ideas in that book is astounding. That point and how they’re selling MMT is a little frightening that those ideas can keep you advanced as far as they are to the levels of politicians that it’s getting to. They have an unsolvable problem fiscally. This seems like a bit of a panacea for it, and it’s not. Like you say, it’s fundamentally flawed. Even if it works, the thing about MMT that is really important if that’s our future, and I agree with you. Your forecast, if you say MMTs are our future, you’re probably right with that forecast. What that means is whether it works, it’s almost scary if it works. Talk about the new normal, that changes our relationship with government tremendously because now the value of money is a function of the authority of the state to jail and penalize people, as opposed to a function of value in what we see as valuable in supply and demand.
The New Great Depression: When you detach from the fundamentals, you’re in trouble.
Modern Monetary Theory, if it goes forward and continues to go forward, will fundamentally change our relationship with our currency and our government where currency will no longer be about what we feel is valuable in terms of supply and demand. It will become valuable only and solely because of the state’s ability to punish its citizens for not coming in line. That takes away your independence and makes you extremely dependent on government.
It also weakens the human spirit. This is to balance out what happened. We had stimulus and people relied on stimulus checks. They got unemployment benefits, but if they hadn’t, what would they have learned in that process? That a huge opportunity cost there.
It’s funny, I was talking about this with some family members. There’s this idea that consumer prices look stable like a balloon, not inflating or deflating, stable prices. You got a hole that’s causing it to deflate. The technology is causing deflation and the velocity of money. I’ve talked a lot with Jim on the velocity of money issue when we had our talk, which is deflationary. You have a pump going into the balloon called the federal reserve with money creation that’s inflationary. The amount of inflationary pressure is in all time extreme. The amount of deflationary pressure is all time extreme. When I say all the time extreme, it’s the most money ever printed in the shortest amount of time and the lowest velocity of money we’ve seen since the ’60s.
Have these two extremes on the other side battling each other that makes it look like a stable price. If that hole gets a little bigger or that pump goes too far, you can pop it or deflate it back quick, it’s not as stable as people think it is. Learning how to deal with both, we have to be prepared for both the inflation and the deflation. There’s data that shows both of those exist, so prepare for both. It’s an arm wrestle. You don’t know who’s going to win, but they can arm wrestle in deadlock forever. One of them is going to push the other one over eventually because it’s all fake.
This is where hopefully, I wasn’t misunderstood when I was saying predicting environment or seeing what’s to come. It’s knowing that things are going to change and what causes those changes. It’s the ever-changing variable which is human nature, which is how we respond. People don’t know. You can assume, you can understand human behavior to a point where you can try to predict, but there’s always going to be new variables that people are always going to respond differently. It’s one of those understanding the different tenets of the environment in which you live, you operate your business, you invest, you were a professional and provide services to others, whether you’re an employee or own a business, it’s understand the environment, and then how you respond to it, and how to mitigate risk going into it.
You’re not betting on one outcome. You’re not betting on two outcomes. Maybe you have 3 or 4 ways in which you think things are going to pivot. You have backup plans and you can adequately preserve a couple of months without income, or you can preserve potentially your business and be more agile starting now. Hopefully, those are the lessons that people learned in 2020, so that when other events of similar magnitude happen, you’re in the position of responding quicker, and in order to improve your life, as opposed to how most people responded, which is either they let somebody else improve their life through their stimulus or extension of benefits or whatever temporarily or they relied on parents, neighbors or charity. There’s time and a place for all that stuff. At the same time, I don’t believe that creates the lesson that’s needed for somebody to grow. Hopefully those that had some pain grew from it, so that this next go around your muscles are stronger. You can do more pull-ups.
I think we all have an education deficit where there’s a gap between what we know and what we’d like to know. There’s a degree of ignorance in all of us. What’s funny is the harder I pursue to close that deficit, the bigger the depths that becomes because you realize how much you don’t know. The more you study, the more you realize you don’t know. It’s almost like I chased to close the deficit it expands on me. That’s my thing for 2020 is people say, “I need a stock teacher.” I’m not a stock teacher. I’m a stock student, I’m trying to learn because my biggest fear is ignorance in this stuff. My biggest fear is not knowing stuff. You’re a lot better at it than I am. I think the time we spend studying guys like Jim and reading Stephanie Kelton’s stuff, whether we agree with or not, it helps you know what’s out there. The best way to prepare first is to learn, and then after you learn, you try to bring your behavior in line with what you’ve learned. That’s where you’re so good with your discipline. I couldn’t agree more.
I would say from a financial standpoint, I went into 2020 super prepared and good. I learned a lot of those lessons, 2008, 2009 by not being prepared, but getting into 2021, what I was surprised by myself is that I wasn’t prepared emotionally. I wasn’t prepared psychologically. I had all sorts of environmental variables that I needed in order to be happy, to feel successful, to be fulfilled, to be excited. A lot of those went away and I had to step back and think about the life I’m living, what I want, what I want for my family, and how I could essentially make an impact on others, which I believe that sense of contribution is built into us where we want to make a difference. It was several months lesson for me. I don’t know if I would have learned. Now I look at my experience with my kids where I don’t have to take them on vacation or go to this indoor skydiving. I have to do crazy things in order to enjoy them, enjoy their company, and be present with them.
It’s the same thing with Cynthia and same with friends and family. I don’t know if I would have got that lesson. It’s what allowed me to enjoy life more and not necessarily have attachments or things that have to happen in order to enjoy it. That’s another interesting thing that is going to happen in the future and partly, it’s accelerated by 2020 is people are figuring out how to be more efficient. Businesses are not going to go to the space they had before. People are not going to work the same way they worked before. They’re not going to go on vacation. They’re not going to entertain themselves the same way. Efficiency is a big thing and I think they’re realizing that they could be happier and be more successful fulfilled with less.
If you don’t know that’s coming, that enjoyment isn’t necessarily a function of having stuff or doing things, or achieving some professional level or money level, wealth level. It’s going to be another big lesson for people where the sustenance level could be zero or very minimal. Now people are going to find themselves saying, “I may only have to work ten hours a week.” A lot of people attach their meaning in life to their work and what they do on a daily basis. That is going to shift at a pretty rapid pace over the next decade. I’m not sure if people are prepared for that.
The simplification is an interesting thing. I had a friend of mine who spent a lot of time in the NBA as a basketball player. They’re pretty well paid. His nest egg is okay. He’s fine. He had a bigger house and he sold his house. He moved to a rural state and started a farm, and he’s ordered chickens and pigs. I’m like, “What do you know about that?” He goes, “I’m going to read about it.” His focus is simplification and narrowing down. It’s going to be fun to watch him because his happiness level is about health and family, and being closer to the land.
You’re right, I had the best year with my family I’ve ever had. It was awesome that way. I was frustrated though. I was scared for myself. I’m not a brave guy. I’d hate to come off that way. I wasn’t scared. I was bothered by my inability to help anybody. I saw people that were scared. I saw people are hurting, and other than teaching them how to trade through it, that was all I had to offer. I realize most people don’t even trade. Most people don’t have an interest in their 401k. Here I saw all these people getting annihilated in their markets and I was powerless to help. That was a good experience to look back on and say, “If this happens again, am I going to be able to help people, or am I going to be helpless to help them?”
The New Great Depression: Modern monetary theory takes away your independence and makes you extremely dependent on the government.
It’s one of those where you can help by giving a person money or the homeless, or you can help by donating to charity. You can help by supporting your favorite restaurant that was impacted by not having enough patronage. At the same time, it’s in your core competency. I read an article and Rickards is the one that spoke to this and turned me on to it. It hurts when one of the companies went bankrupt, and you had so much money go into that company at the bottom, even though they had filed bankruptcy. They had stock in bankruptcy and it totally screwed them. That’s the thing is how much wealth, how much money do people lose during that? It could have been prevented had they understood capital stack, the process of bankruptcy, and what they were doing, and why there wouldn’t be liquidity if they were able to come out of that.
There’s a lot of that to come. Nordstrom is in trouble because of the amount of money they borrowed to stay afloat. When you get into borrowing money to stay afloat, that’s not a sustainable business model, to continue to borrow, to continue to need stimulus. Neiman Marcus and there are so many retailers that couldn’t make it. Meanwhile, Amazon continues to be a behemoth that is unimaginable. Another one that’s interesting is Tesla, the PE on Tesla is $1,600.
That’s a big one in itself for the uninitiated. A PE is simply how much money you pay to get $1 out of a box that makes dollars. Picture Tesla as a box that makes dollars. When $1 comes out, how much did you pay in price to get that dollar? $1,600. You either believe you’re going to live for 1,600 years, get the money back, or you believe they’re going to have 1600% growth, which could happen. You could grow a company by 1,600. If you took Tesla’s PE and superimpose that on GM’s stock price. I don’t know how many thousands of dollars GM would be going for right now.
My point in saying that was what you were able to do, where it’s education. It’s like people want to take advantage of the volatility in the market and what’s happening with companies as they’re restructuring. They’re always looking for opportunity. At the same time, novices get her pigs get slaughtered. It happened quite a bit. Education is the key if you want to participate in that arena, especially in an arena as complex as options. That’s a big piece of what’s pushing market’s so high. It’s the amount of leverage that’s out there in derivatives.
Tell us a little bit about your business. We’ve talked about 2020, but 2021, what’s on your list? Where’s your focus? When you think of 2021 and what you’re going to get done or positions up to do, what’s on that list?
It’s all business at this point. What I focused on 2020 and still focusing on are two things. Number one, I realized that there’s so much efficiency in my business. Number two, I realized that people weren’t necessarily the solution to all of the inefficiencies. That’s where I adopted this slogan of, “Systematize the predictable so you can humanize the exceptional.” Where I looked at what makes the world go round from a human relationship standpoint is human connection, human relationship. That’s what is exceptional. There are a lot of technology and systems that are behind the surface that can make it so that there’s more of that. That’s where my big focus has been. It’s to take my technology game to a higher level. From a process standpoint, it’s pretty good, but we’re developing some technology right now that will essentially create better experience, more efficiency, and make things simpler.
Going back to a message to those that are listening to this. I’m not the only one, I’m not smart by any means. Companies are out there doing the exact same thing, but at a way bigger scale. That’s where the disjointment of resources is. Task oriented jobs are going to be a thing of the past. I believe that the skillset that is going to create infinite possibilities is the ability to connect with people, to speak to market, to write, to do things that invigorate the human spirit. You may think it’s even maybe a job that’s meaningless at a grocery store. There’s still so much value.
You go to a restaurant over and over again mostly because of the experience you have with people, not necessarily the food. If you think about it, that is going to be the commodity. The commodity of all commodities is the ability to connect and speak to people, to communicate a message, to sell to market. Those are skillsets that are humanizing the exceptional. A lot of my focus is to integrate a lot of the technologies that are out there that can make essentially what we do.
It’s ironic, technology to humanize. Technology should serve the human. That’s what it’s for and should do.
What are you working on?
I’ve been with the Donohoe’s more often in 2020, 2021. I don’t think Hawaii is going to happen yet for us. That trip with Hawaii with your family was insane. I want to do some more of that. I don’t want to live more, and a lot of personal goals that I have. I thought 2020 was a wake-up call for my health because I thought I can’t be heavier, and prediabetic and all this. That was a big one. A lot of personal things. From a business standpoint, the word I would describe my goals is selective growth. To be a little bit pickier about which type of student we will welcome, and yet grow in terms of language platforms. We serve the U S pretty well, but there are many people globally that we don’t serve, and technology can help us with the language barriers. We’re going to be more selective. Some people that are not fun to teach and not ready to teach, and not in the right mindset to teach. Temperament is a big deal to me and we have better students if they have a good temperament. We’re going to be more selective but yet still grow.
There are two sides to relationship. You got to have both sides in order for something to grow. Maybe we can end with something like this. You taught me something a couple of years ago that I had heard before. It’s a great common statement. Maybe you can break it open or unpack it for me. In order to get from where you are to where you want to be, number one, you have to identify where you want to be. That has to be defined. The gap that stands in the way is information or it’s motivation. There’s all the information for a person to do amazing things in life. It’s free and it’s there, but it comes down to the motivation to do it.
The New Great Depression: Systematize the predictable so you can humanize the exceptional.
Sometimes that’s built in. Sometimes it’s coached. Human behavior is so baked into who we are, our habits, the way we operate. It doesn’t change overnight. That’s something that’s profound when it comes to hiring employees, when it comes to bringing on clients, bringing on partners, bringing on contract groups. Those that help you do certain things. There are habits built into that are easily identifiable if you know what you’re looking for. In the end, that motivation, that mentality, that drive which creates that human connection dynamic, whether it’s business-wise, friendships, business-client relationships. It makes a huge difference because if it’s not there, the cost is not worth it. It’s way too extreme.
It always seems to come down to some personal development, and keep on evolving and developing every single year, learning from what the history was and putting in the next.
We’ll end with that. This is Jim’s book. I didn’t have it when I interviewed him. He talks about the environment being in the new Great Depression, but he had some optimistic things to say. In the end, that’s the environment that doesn’t have to be your life.
With a long time passion for Teaching, Investing, Entrepreneurship, and Self Development, Andy has devoted his career to training and inspiring motivated people all over the world.
Andy’s passion for helping investors and entrepreneurs shows through in everything he does: The Cash Flow Academy Show podcast, regular investing update videos and commentary, interviews with top experts, and focused training programs. The goal with The Cash Flow Academy is to make everything fun, simple, and real.
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Patrick is the President and CEO and started Paradigm Life in 2007 after learning from his mentor Kim Butler about financial strategies outside of Wall Street.
With a background in economics and marketing, Patrick immediately realized the opportunity to teach investors, business owners, professionals and families on a large scale using modern digital media and communication technology. Since 2007 Paradigm Life has worked with thousands of individuals in all 50 states.
Run-of-the-mill advice is everywhere. But in order to achieve different results, your strategy has to be different.
In this book, you're going to learn about a hundred year old strategy that's tried and proven to give results. Are you ready to
shift the way you think about investing?
WHAT THE PROS ARE SAYING...
Once in a great while, a person comes along who can explain financial concepts so clearlu that all of a sudden,
what had been a mystery becomes obvious. For many people, Robert Kiyosaki was that person when he wrote Rich Dad Poor Dad. For me,
that person was Patrick Donohoe when he first explained what you're about to learn in this book.
Tom Wheelright, CPA
Author of Tax-Free Wealth, of the Rich Dad Advisor Series
"Patrick's book explains why every American is experiencing worry, fear, and uncertainty with thier finances.
'Heads I Win, Tails You Lose' outlines a better way to take back control and live a life you love."
"Storyteller, man of honor, humble seeker of truth - these are the words I think about when Patrick comes to mind.
I've been looking forward to this book for quite a while and am pleased to tell you, the reader, it is worth the wait."
CEO, Partners for Prosperity
"Patrick is someone that I call upon to learn the strategies of the world's richest people. 'Heads I Win, Tails You Lose' provides
a creative approach for managing wealth outside of the old and tired methods used by everyone else."
Founder of Capitalism.com
Book Nailed it
A should-read for anyone looking to be smart with thier money, and smart enough not to just follow the herd.
Robert K. Cunningham
Very enlightening and actionable!!
If you want a real path to Economic Independance and not a theory this book is for you.
Wise if I read this years ago.
Great book, made me change my thinking on my investment situation.
Take back control of your money
The truth about money. You will be surprised with the information. WOW!
A must read
Outstanding book. Details information most people are not aware of in creating a sound financial programs.
...a critical financial strategy
I simply couldn't put this book down, I read it cover to cover in 1.5 days! #VeryEngagingRead
ABOUT THE AUTHOR
Patrick Donohoe is the Founder and CEO of Paradigm Life and PL Wealth Advisors. Patrick and his team teach thousands how
to build wealth, create lifetime cash flow, and leave a meaningful legacy.
Patrick was recently honored by Investopedia as one of the Nation's Top 100 Most Financial Advisors. He is a highly sought
after presenter and speaker at financial-based events around the country and is the host of The Wealth Standard podcast.
Patrick grew up in West Hartford, Connecticut, and attended the University of Utah, where he received his bachelor's degree in economics.
He lives in Salt Lake city with his wife and three children.
WHAT'S INSIDE THE BOOK?
THE CHAPTER LIST:
1. ORIGINS OF THE AMERICAN DREAM
2. THE PERPETUAL WEALTH STRATEGY™
3. QUESTION EVERYTHING
4. BREAK AWAY FROM WALL STREET
5. AVOIDING THE INVESTING AND LENDING TRAP
6. THINK FOR YOURSELF
7. A SOLID FOUNDATION
8. B ELIKE THE WEALTHY
9. MYTHS AND TRUTHS OF INSURANCE
10. SAVE, BORROW, INVEST, AND BUILD WEALTH
11. START, BUILD, AND PROSPER YOUR BUSINESS
12. YOUR FINANCIAL FUTURE
13. MAKE THE SHIFT
14. TAKE BACK CONTROL