The COVID-19 pandemic has undeniably thrust us into very unfamiliar ground. Economies are crumbling; systems are collapsing; the future remains unknown and unpredictable. With all these things happening, some of the most significant questions anyone wants to know are: Will things go back to normal? Will the economy rebound? In this episode, Patrick Donohoe brings Jason Hartman, the founder of the Platinum Properties Investor Network and host of The Creating Wealth Show, to help him answer this pressing question. They talk about what is going on in the economy and where investors fit in the picture, covering the good, the bad, and the ugly. On to the side of the consumers, Patrick and Jason then tap into life insurance companies and the effects of media in this time of the pandemic.
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Watch the episode here:
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Will The Economy Rebound? With Jason Hartman
I hope you are safe. I hope you’re enjoying paying attention to everything that’s going on. It’s quite a world in a society that we live in. I decided to go online and research some of the most frequently asked questions through Google as it relates to the topic of The Wealth Standard, which typically revolves around investments, finance, and entrepreneurship. There was a question that surprised me, so I wanted to have a good friend of mine, Jason Hartman. He’s the Host of Creating Wealth Show as well as 7 or 8 other podcasts. This guy is definitely busy.
I had Jason on because Jason is informed. He thinks outside of the box and I thought it was a great discussion. The question is, “Will things go back to normal? Will the economy rebound?” This episode is a little bit shorter. We spent a few minutes on that and I think it’s going to give you some decent insight into what’s going on in the economy. I’m going to reserve some additional commentary of my own for after the show. If you feel so inclined, go ahead and stick with me until then. We have a ton of resources available on the website and we’re adding more. We have a couple of things that are in the works that I’m excited about. Check that out. There are a couple of free courses as well as other material that’s important to me that I feel will bless you and impact the way you do business and enjoy life. This is my interview with Jason Hartman.
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Jason, there’s a question that I’m seeing more and more and it’s understandable because of the environment that we’re in. It’s, “Why the economy will rebound or not?” I think there are sentiments and signals pointing to it not rebounding, but also rebounding. What are your thoughts on that?
I think we are in a time where we are going to see the square root recovery or the modified square root recovery. Everybody’s talking about, “Is it going to be a U-shaped recovery with a long valley or is it going to be a V that went down pretty hard and we’re going to come back pretty quick?” Things aren’t coming back. It’s nice to see that faster than I thought, but ultimately, what we’re going to see this type of recovery is going to be square root sign. It goes along, it goes down, then it goes up. It’s up higher. The modified square root is it’s going along, goes down with the pandemic, comes up, but it comes up lower and that’s the recovery we’re going to see. I think we are waking up and we’re just barely waking up to it. This is not just the US. The whole world is going to wake up to a smaller economy than it had before. However, the good news is that there are lots of opportunities for investors, even in that environment with the mass migration to suburbia and all of that stuff we’ve talked on our mutual show.
The other thing is that there are a lot of efficiencies being created in the economy. We don’t know how efficient that’s going to make us, but it’s pretty good. We both were talking about how much more efficient we can be not traveling. That’s terrible for the airline industry, hotel industry and many other industries that are related. For business people, you can get a lot more stuff done when you stay put. That’s the efficiency of remote work, extremely efficient. A lot of new technologies have come up with the needs of remote workers. There are a lot of efficiencies being created too. Will that overcome the disasters that are being created? I don’t know. We’ll see.
I look at the rebound and it begs the question, “Rebound to what?” Is it the rebound to what was before? I don’t think so. In a sense, as you alluded to, it is going to be better but right now, it is in-between when something happens that causes plans or assumptions to not work anymore. What humanity does in times of need, which is innovative, figure out ways of doing things differently. It’s usually better. The outcome of traveling is, “I need to meet with this person. I need to get this deal done. I need to go visit somebody or I need to X, Y, Z.” People are figuring out other ways to do that.
In a sense, more efficient ways to do that. That’s the genius of humanity is they always rebound. Will the economy rebound? Not to the same degree, I don’t think, but humanity will rebound. It’s times like these, especially the extreme nature of what happened, the shutdown and then we have protests and rights. There are a lot of extreme things going on. I believe that it’s the yin and yang. The more extreme, on the other side of the spectrum, it’s going to grow too. It will be interesting to see how it all plays out.
Necessity is the mother of invention and that has certainly been showing a lot lately. No question about it.
I miss seeing you. I miss hanging out with you.
We’re doing it but it is not the same. There’s no question about it, but in a lot of ways, it does create a lot of efficiencies. Look at the size of the industries that have been hit hard from this, the layoffs, the bankruptcies, and the foreclosures that will come out of this. It’s significant. There are some areas of the economy there, interestingly, very insulated. The low-cost necessity housing in my world is insulated. It’s interesting about your business though, which is unique, insurances. It’s one of the most unique industries in the world because it has this unique characteristic, a negative cost of capital. You paid for it before you get it. With most things, you get it and then you pay for it or you pay for it at the same time you get it. In insurance, you pay for it first. Insurance companies have an interesting thing. You’re on the life insurance side, but other insurance is going to be hugely hit. With the civil unrest and all the damage and all those insurance claims, all the business interruption claims from that, but previously COVID and continuing COVID. The insurance industries got to be pretty hard hit from that, but I don’t know about life insurance. Your business is good through all this.
Economy Rebound: The whole world is going to wake up to a smaller economy than it had before. However, the good news is that there are lots of opportunities for investors.
The only barometer you have is when you look at history. They have been able to thrive through some challenging times, World Wars, other epidemics, or pandemics. These industries have been around for a couple of hundred years. It’s similar to your industry where everybody needs a place to live. There’s a median part of the bell curve where that sits a lot of people, tens, or probably hundreds of millions of people.
They don’t need an expensive place to live in a city, but they do need a place to live.
It’s one of those things, whether it’s a building, a car or business interruption insurance, those are micro but from a life side of things, it’s macro because it is everybody and it’s life. These are circumstances that don’t have a huge impact on mortality. I have seen where it is more difficult from a health standpoint to go through and gets certain approval ratings and health ratings. At the same time, nothing else has been impacted. In fact, these are the times where these types of companies thrive because they have a lot of capital and they know how to make a good investment. I would say the best investments they’ve made in the past is when that investor behavior occur. When times are the worst is when they are typically ready to pull the trigger. They have dry powder to do that.
Do you monitor what life insurance companies are investing in? Is that something you look at? Tell us about that. That’s interesting because they used to have office space, office buildings, and shopping centers. Those are hard hit, the multifamily apartment side and they invest in that. If it’s not a high-rise, I think that’s going to do well. You have some social distancing opportunities and not have to go in elevators or garden style.
They’re institutional investors. The deals that they participate in are big. It’s not a one-off multifamily apartment. These are bigger buildings. It could be developments or land. The example I use quite often is one of the companies we work with purchased a huge parcel of land in Boston Harbor during 2000 or 2001. It was during those dot-com crash plus 9/11. They bought a huge plot of land for $100 million and have sold individual parts of that parcel for over a billion. There aren’t many people or companies that can write a $100 million check but insurance companies, these big mutual private companies can.
Have you seen any evidence of they’ve changed their focus that they’re more focused on housing versus shopping centers? It is because the shopping centers and office space will be hard hit, but housing is good. Other assets like the medical office would be pretty good. That will be the one office category that will probably be okay through this. Does it get that granular in your view of it?
Not usually. There are regulations as far as what they can invest in. How much of their portfolio based on the rating of the company because they’re all rated. There are a few different rating agencies similar to how publicly traded companies are rated. They take out debt. Insurance companies are also rated. Based on their size and based on their rating, it gives them some flexibility as far as where they can invest, but it’s regulated. In large part, they have safe assets. I have big positions in the debt of strong stable companies, but they own mortgages. These are mortgages usually on commercial properties and their LTVs are extremely low rates. There’s a default on the real estate that they own. That impacts how they’re rated and subsequently what they can invest in. They do release reports as far as their portfolio is concerned. You can see that on an annual basis.
Let’s flip to the other side of that equation though. What about the consumer side of it? Have you seen these life insurance companies? Are they being more strict from their underwriting criteria? Are they rejecting more applicants? Are they raising their prices for insurance? In other words, that’s a barometer of whether or not they think the risk is higher. What’s going on there?
First off, there are regulations around the mortality expenses. There’s a whole commission that does this, and they usually do it about every ten years. There was one done in 2017. There’s a regulation on that from that standpoint. However, there are different tiers of health that a person can be in and there are all sorts of different criteria. I’ve seen them adjusting those. If somebody is older and has some health conditions, that is something that is a high risk these days given COVID.
They increase the price and they’re declining more people, but the price is higher too?
Price is higher because of ratings. They can adjust how they rate somebody. We have a standard way in which mortality is measured, then you can have a substandard or above standard. The above standard gives you a little bit better rating, substandard gives you a worse rating. The actual standard, they don’t touch because that’s regulated, but the above and below standard, they can.
What else can you tell us about that?
It’s one of those things where it’s a sign that they know how to respond during difficult times. I would say from the economy rebounding or not rebounding, the companies that don’t have the experience of downturns are getting hurt or have overextended themselves. These are big companies. Starbucks announced that 500 locations are going away. Big companies are reacting to it because these events weren’t priced into their business model. Now that it’s there, you’re going to have a different way of doing business.
I’m not sure if wages are going to get hit or benefits are going to get hit. Companies are going to act differently because what’s priced into their business model is something like COVID or some Black Swan event that can come out of the leftfield and disrupt the entire world economy. It was interesting because I got a news flash and it was this guy that was in a silent retreat for 90 days and he just got out. I challenged my daughter because she was sitting next to me. I said, “If I’m that person, talk to me about what went on over the last 90 days.”
What’s amazing is the time perception for all of us, the entire world has changed so much because the news was coming at us quickly. With the civil unrest at the time, the reopenings were starting. It’s crazy. Do you realize the biggest news story of 2020? We thought it could have been what was going on in January. It was the Australian wildfires. Nobody is even thinking about that. Right before that were the Amazon wildfires. That’s out of our collective consciousness and it goes to show you that in some ways, people have a short memory. Collectively, we can’t pay attention to that much. We can only pay attention to a few things. I noticed this whenever I go and kicking back in a hotel room on a trip somewhere.
I’ll let the news play and I do not do this at home. I haven’t even had a TV at home because I can’t handle the commercials and the garbage on it. I’ll turn on a news station on the TV in a hotel room a lot of times and let it play. It’s like the same stories over and over all day long. If you’re there for a conference, you go to the conference in the morning, turn on the news, come back, turn on the news. It’s the same stories. It’s just a repeat. I think to myself, “Isn’t there anything else going on in the world?” There’s way more, but maybe they’re lazy and they don’t cover the other things or it’s that people can’t perceive any more than that. It’s entirely possible.
These are times when people think differently. That’s why the questions that we have been answering are important because there are different questions that may have not been asked previously to COVID. If you look at the disruption, there’s more questioning of media and people are asking themselves about time, “Is that true? Is that perspective right? Is there another perspective and trying to form that?” Media has the majority of people’s attention and that’s where they get influenced and then because of our upbringing and most people in the public school system, we’re taught to listen and to obey in a sense, and we have to do what we’re told. People are questioning it these days. I think that’s a good thing because there are other forms of media, news, and ways in which they can validate what’s true and what’s not.
Sadly, those ways are being censored by the big disgusting tech companies. We are on one of their platforms and it’s scary. Love them or hate them. I’ve got to tell you, Trump has made some good points about the media. They have an agenda. This is not about free speech. Free speech is incredibly important, but the mainstream media has been telling free lies in many ways. It’s biased and ridiculous. They are dividing people more and it’s awful. We’ll see what comes of it.
There are two kinds of converging forces within an individual that fuels it. The first one is people hate to be wrong. If they’re wrong or challenged, they resist and they fight it. The other one is people hate being deceived, lied to, and told mistruth. It’s like you have this convergence of these two powerful forces. In the end, humanity in a sense always prevails. It’s a matter of time and everything else has to happen.
It takes a long time, though sometimes to work through those cycles. Unfortunately, it does, but we shall see. The upshot of this is my opinion is modified square root recovery. We’re going along, the economy was booming, went down, and coming back up. We’re going to come up less than before, but the good news, some efficiencies have been created. We’ll see how those pay off over the coming years. Your opinion I think is somewhat similar to mine, but what do you think?
It is. At the same time, the variable that I’m concerned about is everything is fueled by credit. If credit contracts, that’s going to negatively affect the economy. I look at how do you measure the economy. The economy will rebound and rebound is a function of measurements. You’re rebounding to a certain measurable level. I believe that paying attention to the fed, what they’re doing, how they’re stimulating expansion, and contraction of credit. It’ll be interesting to see how that plays out because that’s going to be a variable. It may make some of our assumptions invalid. These are the Black Swan variables who knows what’s going to happen. At the same time, long-term, I agree with you. The economy is going to be even better because it’s going to be more efficient. There’s going to be less waste.
Everybody, happy investing. Thanks for reading.
Thank you, Jason.
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I hope you enjoyed that short interview with Jason. He’s a great guy. Check out his podcast, the Creating Wealth Show. I believe he does a couple of shows a week and he has 1,200 or 1,300 episodes. This guy is a machine and smart. We just scratched the surface. He’s been on the show before, but if you guys have not had a chance to follow him, I would encourage it. I want to comment on some thoughts I’ve had as I’ve reflected on our interview as well as the question that was posed, which is, “When things go back to normal?” It’s been interesting living through this. I think we’re going to look back on these times and appreciate them and see some change and growth in us, hopefully. It’s different than what anyone anticipated.
I’ve been thinking about the idea of challenging and difficult times and in hindsight, I think we see how they’ve changed and helped us. Oftentimes, we don’t go into those difficult times with that attitude and perspective. I believe that it is an opportunity to do that. Something I’ve talked a lot about on the show is how these times refine who we are, help us understand, and grow. Without challenging times, I don’t see how much growth is possible. It might be marginal at best. This came to an important discussion in my family, specifically with my two daughters. I think that most children who grow up in the United States, if you compare the United States to other parts of the world, whether it’s third world countries in Africa or the Middle East, India, as well as Asia, I look at sometimes how we have this amazing learning experience from challenging times, yet we try to position our lives to never have them.
It’s interesting how that works. I’m not going to say it’s a paradox, but maybe it is. I realized something in relation to my daughters because they’ve experienced this shutdown and it’s different. At the same time, I look at it being a challenge. It also is an environment where you can as easily complain about and sit back and relax, and except the paycheck from the government and not do anything. I believe I know why that happened. I believe that we have the biggest opportunity cost when you paper over challenges, especially these Black Swan challenges because humanity thrives during these times. It’s not always in the moment, especially in the beginning moments, but as we figure things out and we find solutions and we innovate, things become even better.
There are going to be instances of that because lots of companies are failing, going bankrupt, and weren’t prepared. There are going to be some valuable lessons learned from that, which is good. I look at my kids on how they interact with me, their little brother, and others. For the most part, they’re incredible but I’ve noticed lately a sense of entitlement, a sense of selfishness, and a narrow perspective of life. I wouldn’t expect them to have a broader perspective because they haven’t experienced challenging things. Those of us who live in the United States who benefit from many things that we take for granted, as you compare us in our circumstances to the rest of the world, but yet you still find yourself complaining, getting frustrated, and irritated.
I’ve stepped back and I’ve looked at what an incredible time that we live in and what an incredible opportunity for me to be more aware of who I am and why I’m in this situation. The first thing I did with my girls, I wrote them a letter about their mom. Even though the content of the letter is known to them, I wanted to put some emotion into it. That letter was telling them about their mom. My wife was on here a couple of years ago and we discussed some of this. She grew up in some horrible circumstances in Mexico. It is a very poor city. She lived in a cinder block home. There were only three rooms, a cinder block or concrete floor, and a small shower. She never had her own bedroom or bed. She always slept with the brothers or slept with her mom. Her dad wasn’t around. He was working outside of Mexico.
Economy Rebound: The time perception for all of us in the entire world has changed so much because the news comes at us quickly.
She had to be an adult at a young age cooking, cleaning, taking care of her brothers, helping them with their schoolwork, but she did it. She did it her own and she got good grades. She accomplished some pretty amazing things. She didn’t have anything. She didn’t have Christmas or birthday presents. They didn’t have food that often and she doesn’t talk about this at all and I’m reluctant to talk about it either. The point is those challenging times, put her in a position to either accept to be happy with them or to shrink. Those circumstances and experiences of life impacted her in a big way and formed her into the woman she is and their mom. There are a lot of other things I talked about in this letter.
The point of me talking about this letter is to give a different perspective of life on an intimate level because it’s their mom and to show you how difficult challenging times help and change us. Whether it’s talking back, refusing to do things, being dishonest, or treating little kids, especially six-year-olds who have way too much energy. They can be irritating sometimes, but it’s to be composed and patient. As I thought about that and about myself and thought about you as readers, it’s looking at the world and recognizing that these are experiences that we have no control over, but we do have control over how we act and how we show up.
When we look at the world in hindsight, by asking the question, “Will things go back to normal? Will the economy rebound and go back to the way it was?” We missed the point because whether that’s true or not, it’s the wrong question. I think the perspective to take is, “How am I going to do better, be different, and help more people be a better steward over my circumstances?” That’s what I’ll end with. I started to approach life a little bit differently where I recognize that life may not be coincidental. Life may be by design and the people I meet and interact with every day, maybe for a reason. Whether that’s true or not, I probably will never know. What occurred to me is knowing that I can show up in a good way every single day, every single moment, and enjoy it. Whether it’s smiling to a stranger or helping somebody, reaching out to somebody, or sending a text. There are a lot of people that are in need.
A lot of people that are lonely these days, but having a perspective of making somebody’s day better, making my team’s day better, inspiring, and motivating. Finding the opportunities to do that has impacted me in a good way and a positive way. I believe that’s possible for all of you. It’s looking at your circumstances and looking at what you’re going to experience tomorrow the next day and realizing that in those moments, the people that you meet and interact with that happen across your path. There could be some amazing opportunities there. I believe we have a stewardship to show up as the best person for those moments.
I believe that it is by design and that’s how I’m operating. It’s been awesome to observe. We look at some crazy times and I hope things don’t go back to normal. I hope we all are better from this. I hope we innovate. I hope we find new relationships. I hope we seek out experiences and do things differently than what we would have done in the past. I think if we show up as the same person after this, we’ve missed a big opportunity to grow. That’s all I wanted to share with you. We have links to Jason’s podcasts as well as any other links that we talked about. Also, check out the website. Make sure you bookmark it and subscribe to the newsletter. We’re emailing weekly. Thanks for reading.
Jason Hartman is the Founder of the Platinum Properties Investor Network and host of the Creating Wealth podcast, which is heard in more than 180 countries. Jason is a genuine self-made multi-millionaire and serial entrepreneur who owns 21 businesses in investing, financing, real estate development, and SaaS software. He has owned properties in 11 states, had hundreds of tenants, and been involved in several thousand real estate transactions. He has visited 83 countries, enjoys adventure, fitness, and lifelong learning.
Jason Hartman is the host of 23 podcasts with listeners in 189 countries, over 15,000,000 downloads, and over 5,000 episodes where he shares powerful strategies for business, investing and living the good life. Check out his podcasts and resources at www.JasonHartman.com or www.HartmanMedia.com Available on iTunes and your favorite podcast platforms. Love the show? Subscribe, rate, review, and share!
When it comes to wealth and inequality, it can be challenging to have a meaningful debate or conversation, especially with somebody that has an opposing point of view.
On today’s show, Lawrence Reed and Patrick Donohoe tackle these issues and share some insights on how you can take the right approach to inspire, educate, and have a positive influence over anybody.
Wealth And Inequality: Debunking Myths About Socialism With Lawrence Reed
Thank you for tuning into the episode. Lawrence Reed is the President of FEE. He’s also written a number of books, but his book that came out is WAS JESUS A SOCIALIST? Why This Question Is Being Asked Again, And Why The Answer Is Almost Always Wrong. He’s my guest. He was on about several months ago and it was an incredible interview. He’s so smart and well-read, but also can articulate his perspective well. I realized that we’re in some challenging times right now and I hope you are thriving. I see so much opportunity all around us to do good, to build our business and to adjust things in our personal lives for the better. Hopefully, you are taking advantage of that.
Make sure you go to the website, TheWealthStandard.com. We have a new resource section that has a lot of the programs, the book recommendations and other free courses and digital material. It’s a resource section of the website. Additionally, there’s a link to Larry’s new book, which is available on Kindle, as well as a paperback format so make sure you check that out. His organization FEE, The Foundation for Economic Education is, FEE.org. I hope you learned something from this relatively short interview compared to our last one but Larry has a perspective that I know that if you had it, you would think differently.
Regardless of the subject matter as well as the context, because it’s religious in nature, don’t overlook this episode because there’s a lot of good principles and values in there regardless of what your faith is. Hopefully, you benefit from it. Thanks for connecting too. Head over to YouTube. The episode is on YouTube as well. Subscribe to the show if this is your first time as well as the YouTube Channel. Also, follow us on social media. We’re posting quite a bit there and connecting with the audience. I would love to have you subscribe. I’m going to cut to my interview with Larry Reed.
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Larry, thanks for joining me. It’s hard to believe that it’s been almost several months since we did the last interview. It seems like yesterday. It was one of the favorites that I had in memory as I think back on some of the meaningful conversations I’ve had. Thank you for joining us. I’m excited about the conversation.
Thank you, Patrick. It’s my pleasure. I remember that program we did in January of 2019 very fondly. It’s on my website as a matter of fact.
I appreciate you helping me get the word out there. Larry, so much has changed since January of 2019. What I thought would be interesting before we get into this semi-controversial subject is to set some context. Right now, I have two teenage daughters in my house. It’s interesting the conversations you have and how much debate exists. Where I’ve gone to is not trying to prove that I’m wrong or put my fist down with authority, but it’s to understand them at a deeper level and where they’re coming from. It’s not assuming that they know what I know, have experienced what I’ve experienced.
It totally changes the dynamic of the conversation. I wanted to pick your brain briefly so we can set some context for the controversial subject of wealth and inequality, and specifically, your new book, WAS JESUS A SOCIALIST? Why This Question Is Being Asked Again, And Why The Answer Is Almost Always Wrong. It’s pretty controversial. What are your thoughts as you’ve experienced not the mainstream stance on economics, on political policy, and economic policy? Where do you stand with having meaningful debate and conversation, especially with somebody that has an opposing point of view?
You’re taking the right approach with your daughters, especially at a young age, young people who always have a little spirit of rebellion in them and a sense of idealism. If you come across as “I’m right, you’re wrong. You take what I give you and make it your opinion.” That almost never works. If you show that you’re open to a different view, but still from on your own and even take a bigger picture approach, also interested in whatever truth may lead you to, you’re in the long run more likely to have a positive influence over anybody, your daughters and anybody else. Sadly, these days, in academia, there’s not an emphasis on critical thinking skills that there was when I was a student. There are so many in academia now who act in the classroom as if they’ve got a monopoly on the proper viewpoints and on things like compassion or caring for other people. Their purpose is to indoctrinate rather than to inspire and to educate and encourage students to think for themselves. That’s very unfortunate. That is not going to serve students well in later life. It never does.
I look at the conversation we’re about to have and how much of that is being had. However, the levels of depths that the conversation gets to it’s very shallow. With the conversations, I get to have with people that, just a couple levels deeper, I believe that there is tremendous wisdom there. The reason why I wanted to start with that and this is for the audience is not to take a stance on we’re right and you’re wrong. If you have a differing opinion, it’s to say, “I recognize, understand that there are all opinions out there.” I take a stance of I may be wrong. I may be stating something that may have a different perspective and information than I have not been privy to.
That’s why I try to bring on experts like Larry so I can understand my own beliefs better and question them so that I can make better decisions. I can live a more meaningful life. I believe that the more wisdom that you have, the better decisions you’re going to make and the better outcomes that you’re going to have. Larry, let’s get into this idea of inequality. I’ve sent you some questions in advance. You take a look at the fact that there is inequality and it’s something that there are some pretty strong positions on both sides. What does inequality mean to you and maybe in the context of the book that you just wrote?
There is a kind of equality that I’m all in favor of. We all should be in favor of and that’s equality before the law. The law should be impartial. It should not render judgments against people for or against, based upon irrelevant criteria, but rather whether or not you did it, whether or not you deserve it or whatever. Economic equality is what’s in the news so much these days. That’s the kind of equality I talk about in the book. There are a lot of people who claim that economic inequality, differences in income and material possessions, material wealth is a bad thing and that it would be better if we equalized or what as far in that direction as we could, the material possessions of individual people. The problem with that is that no two people who have ever lived have been precisely alike.
Why should we expect that what they contribute to the marketplace and how other people’s values that in the marketplace should be the same? We’re different in terms of the talents that we have. If I tried to be a professional basketball player, my income from that will always be drastically lower than, fill in the blank, famous basketball player of now. We’re different in terms of the talents we have, the willingness to work. Some people work long hours hard. They think hard as well as work hard. That sometimes often reflected in the incomes later. We’re different in terms of our savings. If we equalized everybody tonight, materially speaking, we’d have inequality again by noon tomorrow because some people would save it and some people would spend it. It’s illusory to think that people who are not the same or very different in so many ways would somehow create equal incomes in the marketplace.
What do you see as the biggest pushback to that, as far as the conversations you’ve had, especially on very deep and obviously with a religious spin onto it?
Probably the biggest pushback, and it extends from my misunderstanding, would be that the problem is the system is rigged. Some people get unfair advantages. They work the politicians to get special benefits at the expense of other people. I’m the first to say I’m against that too. That’s not freedom and free markets. That looks a lot more like socialism, where you have concentrated power in the hands of politicians, and then they choose to bestow that power on their favorite friends. I’m against that too. That’s a legitimate response, but if you think that the answer is to adopt socialism, you’re only going to compound the problem because that’s the most corrupt system known to man. Lord Acton told us “Absolute power corrupts absolutely.”
The more you concentrate power in the hands of mortals, no matter what the expressed intentions may be, the more mischief and difficulties and impoverishment you’re going to have. That would be probably the number one pushback. Close behind would be there’s a sense out there always has been among human beings that whatever the cause, people should still be equal. One guy shouldn’t have more than another. When you hear that the best response is to raise questions, to ask the person, why should someone who doesn’t utilize his talents fully versus another who does? Why should one person who doesn’t save and invest versus another who does? On down the line of all the differences that define us, why should all those people be precisely the same in terms of what they earn? What about consumers? Don’t they bestow your income by choosing to buy or not to buy based upon what you’ve offered them?
It’s a fascinating question because there are lots of emotions that surround it. I believe the emotion and I haven’t necessarily thought through this well enough, but how do you see the relationship between altruism and self-interest? There’s this draw for those that have to give to the have nots and those that don’t have are the recipients. Somehow that makes their situation better, but there’s also a natural kind of self-interest in everybody. It’s wired within us for self-preservation first and foremost. How do you understand or characterize the relationship between altruism and self-interest?
I thank God every day that we are self-interested. If we were purely altruistic, nobody thought themselves and only thought about others, you would quite frequently leave yourself in a position at which you can’t help others. You’ve ignored number one, you haven’t provided for yourself. You haven’t used your own talents fully. You’re not out there creating wealth as you and your unique abilities are best able to do. If you’re not doing that, how can you help others? Self-interest is by its very nature a constructive motivation. It’s the only one that goes to the point of somebody ignoring the rights of others and takes the form of say theft or deception or fraud. That self-interest goes across the line. It becomes harmful to other people. Otherwise, it’s the most important motivation in explaining the production of this planet.
Think of the guy in Brazil who is growing coffee. He’s not doing that because he’s thinking of you. He’s not thinking, “I must sacrifice and work long hours so that Larry has coffee up there in Newnan, Georgia.” He’s doing it because there’s something in it for him. Along the way, because of that self-interest, I get coffee. I’ve seen it used in different ways. Sometimes it’s meant to mean simply caring for another person and choosing to help them. Other times, it seems to be used in terms of the desire to do harm to yourself because that makes you feel better. In the process of harming yourself, give your possessions to somebody else. Serve someone else and be a doormat in the process. That’s the most destructive form of it.
I never denigrate the personal choice of engaging in charitable activity. It’s a fine motive when it comes to the heart. When it goes awry is when some politician comes along and says, “I’m going to make you give. In fact, I’m going to take it from you and give it on your behalf.” That’s not charity at all. You don’t accomplish much. The person that you’re taking it from in the end is not going to be a better person because of it. Any more than if you take somebody to the church at gunpoint, but that person is going to end up being more religious.
As I explained in the book, I’ve heard this idea for 50 years that Jesus would be sympathetic to socialism. My understanding of history and Christianity always made me wonder about that. I couldn’t square it. Everywhere I looked around the world, I saw socialist regimes being the most impressive. The ones that utilize force, the ones that impoverished their people and I thought, “How could it be that a man who said even the most important choice you have to make whether or not to accept him is going to be a matter of free will? How could that same man say, ‘When it comes to everything else, we’re going to take it from me and spend it better than you can?’” I couldn’t square that.
Wealth And Inequality: There’s a natural kind of self-interest in everybody that is wired within us for self-preservation.
When I started reading the New Testament in great detail, which I’ve done multiple times over the decades and then applying what I know as an economist and historian, it screamed at me. This is a myth that needs to be answered, too many people falsely believe it. Every time I looked throughout the New Testament, every word that Jesus uttered, I find an endorsement of things like personal choice, private property, voluntary contracts, even supply and demand. I thought this needs to be rebutted in a way that appeals to a broad lay audience. This is not a book for theologians, although I hope they read it too, it’s for anybody who’s interested in history, the facts and what Jesus said.
What’s the response been? What are the primary takeaways and the things people are learning that may not have an understanding of economics, especially the organization that you’ve done an incredible job running, the Foundation for Economic Education? Without that, what have you seen the response from those types of individuals?
There’s been a hunger out there and the fact that the book is very unique. There’s been a rush for it. Amazon’s already sold out, but that’ll be remedied shortly. I hear a lot of people saying, and I’ve done media interviews, like crazy since the release of the book. I get a lot of this. People say, “I always thought the story of the Good Samaritan was a case for the welfare state.” As I pointed out in the book, what made the Samaritan good was the fact that he chose to help the man in need of his free will and with his own resources. He didn’t tell the man, “Call your social worker,” or “Let’s get a government program for it.” If he did, we’d call him the good for nothing Samaritan.
A lot of people are amazed to learn about the parable of the talents. No socialists could tell this the way Jesus did. Jesus talks about three guys whom a wealthy man trusts a big portion of his wealth with as he leaves for a time. He says, “When I come back out, I’ll ask each of you what you’ve done with it.” When he comes back again, told by Jesus himself, he asked the first man, “What’d you do with what I trusted you with?” The man said, “You’ll be happy with me. I buried it. I have just as much for you as you trust to be with.” In the parable, Jesus criticizes that man, “What? You didn’t magnify it in any way.” He asked the second guy, “What’d you do?” He said, “You’ll love what I did. I doubled or tripled your wealth.” Jesus praises him. He says the third guy, “What’d you do?” The third guy says, “I did even better than that.” He’s the one that Jesus praises the most. In fact, in the parable, he takes the money from the first guy and gives it to the third guy because he knows how to create wealth. I’ve had a lot of surprise audience with that.
How do you associate that with what Jesus was referring to because the talent at that time was money? There was a way in which money was weighed. The word talent is representative, the circumstances we were born in, training, natural abilities, etc. How do you equate that to those who are gifted with something and multiply that versus those who are gifted with something that doesn’t do anything with it?
The same analogy would apply whatever your gifts may be, whatever your talents, in a sense of personal traits and abilities, we are all called to make the best of it. Be the best person you can be to magnify your ability to make other people happy through the wealth that you create, the examples that you said. That’s all perfectly compatible with what Jesus would say. He was approached in the book of Luke by a man who wanted him to redistribute income. The man says to Jesus in Luke 12:13-15. He says, “Master, speak to my brother that he divides the inheritance with me.” In other words, “I didn’t get a fair share. Can you maybe equalize us or give me more?” Jesus did not say as a socialist like, “You didn’t get as much as the other guy to fix that.” Instead, he immediately rebukes the man for his ending. He makes a statement that I wish every politician would make and that is, “Who made me a judge or a divider over you?” That is a powerful rejoinder against envy and covetousness as well as the redistributive apparatus of the compulsory welfare state in my view.
Larry, what’s the best way to get the book? It’s a short read. This isn’t a novel type of book.
It’s 160 pages. You can read it in an evening. It’s available on Amazon and also the website of Barnes & Noble. Also, in our organization, The Foundation for Economic Education is FEE.org. It’s available in the bookstore and other places now. There are more and more picking it up all the time. It was just released, but I’m glad to say that it’s going very well.
I am preparing to ask this question so I’m hoping it comes outright. If someone reads this, what’s the best-case scenario? How would our current environment be different if people read this, understood the message and applied it?
If they did that, if they read it and thought about it and acted upon it, they would say, “I need to spend less time lobbying politicians to either get me something or give someone else something and get involved myself in the lives of those who presently are in need. I need to put my money where my mouth is.” Socialists don’t do that. There have been books written about this. Socialists and those who claim Jesus was a socialist, they look to the state to solve problems. All you have to do is look at the federal income tax and you realize a federal budget look at the line for donations. It almost says peanuts. Not even a socialist would think that the government is the best way to solve problems. Not even they will write out a check to the government for more than they’re forced to give. If they give anything, it too is to voluntary private organizations close to home that solve problems so much better than politicians do from Washington.
Right now, there is an interesting spirit of things in our country. There was a tremendous disruption. There were some economic consequences that are being felt. There were some other things from a social standpoint with George Floyd and there are other major issues arising. The idea of inequality is a variable within it all. I see definitely a misclassification and mischaracterization of the idea of inequality. As you look at your book and the experience that you’ve had, what are some of the maybe experiences that you’ve had, where someone is like, “I got it.” They felt one way. They believe one way. They had this high praise for altruism and equality, but then suddenly I started to understand principles, natural laws of the universe and understand the message that you get across in your book. There’s obviously a number of other books that articulate some very similar values and principles.
When you put things back on the individual and when you say, “You’re spending a lot of time expecting politicians to do such and such. Why aren’t you doing that yourself?” These are matters of the heart. It is a personal choice. That’s what determines where you are, not what you say. If they’re introspective enough and they look inward and ask themselves, “Am I doing myself what I want to foist on other people through the political process?” That’s been an a-ha moment. Other times I see them happening when you address particular issues that they’ve been especially misinformed on. I do a talk and have written about the Great Depression. A lot of people think because I’ve been taught this, “The Great Depression, that was the fault of capitalism and free markets. Franklin Roosevelt saves us from it.”
When you walk them through why that’s faulty from the word go, it’s embarrassingly faulty. They are like, “Why didn’t I learn that? How come I didn’t hear that? My teachers never told me there was another side.” The issue by issue sometimes can be a very effective way to produce those a-ha moments. I’m convinced that most people who may lean in the socialist direction don’t lean that way because they’ve thoroughly read to make a case for free markets. They’ve only heard the emotional bumper stickers of the left in most cases. When you present them for the first time with what the other side is arguing real facts, logic, history, and so forth, it’s like an epiphany.
Larry, this has been a great conversation. I love our conversations and you think so deeply, but also you have humility about you that resonates well. Thank you for sharing your wisdom. Even though you’re semiretired, you continue to write and share it, so thank you for that. What are the best ways for people to connect with you?
Wealth And Inequality: Whatever your gifts, talents, or abilities may be, we are all called to make the best of them.
People can go to my public figure Facebook page, where I use my name, Lawrence Reed. They can contact me through FEE.org or they can email me at LReed@FEE.org.
Larry, thank you again. We’ll have to do this. Hopefully, it doesn’t take several months to do it but thank you for the book. Thank you again. This was enjoyable.
Lawrence W. Reed is the former President of the Foundation for Economic Education (FEE). He is the former President of the Mackinac Center for Public Policy. He is the editor of the bestselling book “Excuse Me, Professor: Challenging the Myths of Progressivism”, author of the pamphlet “Great Myths of the Great Depression,” and the new book “Was Jesus a Socialist?: Why This Question Is Being Asked Again, and Why the Answer Is Almost Always Wrong.”
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June 11, 2020Patrick DonohoePodcast00:28:03Comments Off on Opportunity In Crisis: What Real Estate Investors Need To Think About During This Crisis With Russell Gray
There’s no getting around the fact that we are going to experience a crisis in the financial system, and no amount of government efforts to introduce liquidity is going to solve it. How can you survive, nay, thrive amid a crisis of this unprecedented scale? Joining Patrick Donohoe on the podcast today, financial strategist Russell Gray thinks this is the best time to focus on our personal investment philosophy. Russell is a co-host of The Real Estate Guys™. He has been a financial strategist since 1986. The financial system is going to behave as it will, and we hardly have any control over anything that goes on within it. Robert sees this time as the perfect opportunity for real estate investors to educate themselves and build their networks to be at their best form for whatever comes next. In every crisis, there will always be winners and losers. Listen in and learn about the things you have to consider if you are to thrive in the REI business amid a crisis.
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Watch the episode here:
Listen to the podcast here:
Opportunity In Crisis: What Real Estate Investors Need To Think About During This Crisis With Russell Gray
I’m excited for you to read this interview with a good friend of mine, Russell Gray. Russell is one of the Real Estate Guys Radio Show that I believe is still the longest-running real estate investment show. They’ve been on air since 1997. I got to know Russell back in 2010. I was invited to be a faculty member on the Investor Summit at Sea, which is more than a week-long cruise where investors from all over the world get and learn together. It’s an interesting dynamic. I was a faculty member there for nine years and there were other famous speakers as well. Robert Kiyosaki has gone on their multiple times, G. Edward Griffin, Peter Schiff, Douglas Duncan, who is the Chief Economist of Fannie Mae, Chris Martenson, and countless others. There are some experiences that changed my life. I did record podcasts when I was on the cruise.
I’m going to cut to the interview. Before that, thank you for the support of comments, questions, likes, shares. It’s been awesome. We’ve definitely had a tick-up in awareness of the show and the subsequent episodes. We’re active on Instagram and Facebook. Make sure you’re following us there, as well as a subscriber to the email list. We’re actively sitting on messages there and head over to TheWealthStandard.com. The resource section that I’ve spoken about. Specifically, a program that Mike Dillard has for entrepreneurs, that’s all life. You guys can check that out the resource section at TheWealthStandard.com. Finally, at the end of the interview, I’m going to do some Q&A, some commentary based on the crazy events that are going on. I hope you enjoy the interview with my good friend, Russell Gray.
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Welcome to this interview with an incredible guest, and he is no stranger to the show as well as other mentions in writing, blogs, newsletters. He’s a good friend of mine. His name is Russell Gray. He’s mentored me, I think it’s been several years.
We met each other in the wake of the 2008 crisis. We were both in rebuild mode.
Through the experiences of seeing how the Real Estate Guys Radio took off, how you guys have expanded your network to all ends, it’s been impressive. I appreciate it. I’m grateful for the mentorship you’ve provided me for many years. I’m excited to extract out of you some of your insights into what’s going on with this new world and the new economy. On the thick of it, at the same time, there are some signals that would lead us to potential conclusions. I’m grateful for your time and grateful for your expertise. I would also say that the RealEstateGuysRadio.com is an incredible resource, subscribe to their podcast. Russ also writes personally a newsletter. It is well-written, full of good insights. His mind took off after 2008, 2009, in my opinion. He became an incredible writer. That being said, I welcome you to this interview.
It’s great to be here. They can decide after they’ve heard me ramble here a little bit if they think I’m worth somebody they want to listen to more, but let’s get into it.
Financial Crisis: The health crisis is going to create an economic crisis, not because of the health crisis itself, but because of the reaction to it.
The consensus of our audience is on edge in a sense where things have been disrupted in all sectors. We’ve been hit with a black swan that no one anticipated, especially the response of the government to it, which I believe is a big earthquake. It’s going to have some ripple effects. First off, because we haven’t connected in a while, how are you processing the last couple of months when it comes to the economy and your role in providing guidance, insight, and wisdom to a broad audience?
To understand the answer, I’m going to tell a bit of the story. Back in 2008, it’s no secret. Going into 2008, I was in the mortgage business. I had accumulated a lot of properties all over the place. I was levered to the hilt, but I had great cashflow from my mortgage business. I was in the hottest industry at the hottest time. I looked like a genius, then all of a sudden, what happens is life hands you a bunch of humility, but I realized is that I was only structured for sunshine. When the mortgage industry imploded, it took my income with it, which was supporting this huge portfolio over-leveraged properties that were in many cases sitting empty.
I was speculating on real estate asset prices instead of focusing on investing in the production of income, which seemed boring at the time. Equity was easy money and I still believe in equity, but equity is a byproduct. Cashflow, not just rampant speculation, so there is a difference. I didn’t understand that back then. Coming out of that, I dedicated myself to understanding how could a guy like me that is relatively attentive, studious, not see such a disaster calming when I was in the epicenter of it. The net result of it was I had my nose too close to the ground grindstone. I was myopic.
We went out on a search and we started looking for people who had accurately predicted what had happened and got it right for the right reasons. One of those people, Peter Schiff, who we became friends with. He’s always been a part of our Investor Summit at Sea since 2013. Peter was a guy who began that process of explaining. I’d already read G. Edward Griffin’s book, The Creature from Jekyll Island, somebody else that we’re mutual friends with and whose book that we’ve read and it changed our lives. It began to understand the way the financial system operated and what it meant on a human level. That’s one thing to understand is how the system operates.
You may not like it. You may not think it’s great, but at the end of the day, it doesn’t care what you think of it. It’s going to behave the way it’s going to behave. Sometimes we have to set aside our political or economic proclivities and accept it for what it is and try to navigate it. When this thing hit part of that 2008, the recovery process was building out our network of smart people that we were around. Robert and I were always among the smartest people in the rooms that we were in going up to 2008. After 2008, we made it our mission to be the lowest guys on the totem pole to be around people much smarter, better connection, much wiser, much more efficient, and much more articulate than we were. It cost us a lot of growth.
Two of those guys were Chris Martenson and Adam Taggart at Peak Prosperity. They were at the forefront of understanding how bad this Coronavirus crisis was going to become. I was on the phone with Adam and he told me. I started to pay attention to. I was less concerned about the health crisis component of it. I was more concerned about the economic crisis component. What I was interested in was the chain of events. You asked me the question, how did I process it? I’m a big believer that before you can process a lot of content, there’s a lot of noise, a lot of information, a lot of opinions coming at you from all angles, I needed to set a context.
The context for me is looking at what happened. He said, “The health crisis is going to create an economic crisis, not because of the health crisis itself, but because of the reaction or arguably the overreaction to it.” Whether you think they were handling it responsibly or whether they went way over the top or they’re not doing enough, it doesn’t matter what you think. They’re doing, what they’re doing. It effectively has shut down the economy. It went from a health crisis to an economics crisis. What is an economic crisis? It’s a cessation of commerce.
That means no revenue to businesses, no paychecks to employees. What does that mean? It means that debts can’t be serviced. It goes from being at an economic crisis. It has the potential and arguably is going to metastasize or spread into a financial system crisis where it threatens both the banks and the bond markets. The Fed, in anticipation of that, is printing money like nobody’s business, trying to prop up the lack of economic equity activity. It’s like having a heart attack and your blood stops pumping by injecting a lot more liquidity, which is like giving somebody who’s had a heart attack a transfusion and hoping the pressure alone will force the heart to start to beat. It’s not going to happen.
The financial markets are in trouble and that’s what triggered the 2008 crisis. The job loss of 2008 was a byproduct of the collapse of credit markets, which caused a cessation of commerce. Here, the job market, which was the cessation of commerce created the financial crisis or is going to create the final answer crisis, in my opinion. That will reinforce the economics. In order to prevent this correct, what Peter calls, “The real crash,” which is going to be much bigger than 2008. The Fed is approaching it by printing trillions of dollars at a rate that is impressive, it’s not even funny. I have a question in my mind then is, can the dollar survive all of the pressure that is being put on it to prop up the system? I don’t know the answer to that, but that’s what I’m paying attention to. The context for me is understanding from health crisis to economic crisis to financial system crisis the dollar crisis. How do I see that coming? How do I position myself not just to survive it, but thrive? The flip side of all chaos is going to be an opportunity.
Let me unpack this. You established some good bullet points that we can address. Let me unpack the first idea, which is important to identify. The system is going to operate the way it’s going to operate. As much as we think that things should be this way or should be that way, the economy, and society, it is what it is. There’s only so much you can influence. Back in 2008, 2009, whether things should have been set up a different way or shouldn’t have, that’s beside the point. It comes down to what are you going to do with what happened? There’s a similar environment where there’s a lot happening that’s outside of your control.
There is a lot that maybe could have been done to prevent it or should have been done, whether it’s from health or an economic standpoint, but that’s beside the point. It happened. You don’t have any influence over it. What are you going to do now? You led to what happened was people stopped, period. School, work, spending, the list goes on, the economy is based on spending. Businesses need money and revenue from spending to pay their bills, to pay their taxes, to pay their employees. That disruption has created a void, I would say, of capital enough to pay bills, service debts.
The Federal Reserve has stepped in and it’s been around the world too. Central banks have filled that void. Because they filled that void, things are continuing on. Hopefully, things open up and so forth. At the same time, there are some fundamentals that I don’t think most people are aware of. As we look at leadership and how our education system is to teach us that there are those that are smarter than us that we should listen to. I believe that there are a lot of, why is people at the head making certain decisions? Most people are just following. Let’s talk about the unintended consequences or what could potentially happen because the void is being filled with artificial money, artificial resources.
You talked about unintended consequences. You could leave off intended or unintended because it doesn’t matter, it’s just consequences. It’s cause and effect. About the financial system, I think of the old game I played when I was a little kid called Mouse Trap. In Mouse Trap, a chain of events would happen. You put the little marble in the chute and it would go down. It would hit the boot that would kick the thing and another marble would go. Anyway, it went through this whole convoluted process, cause and effect, until ultimately the trap came down on the mouse. When I look at the economy, it’s that way. One of the things that I spent a lot of time doing was understanding the way the system worked so I could begin to anticipate when I saw a trigger event, I could follow it up through the chain and have more advanced notice on what I thought was coming.
Way before the Coronavirus crisis happened, I go back to my friendship with Chris Martenson and Adam Taggart. Back in September of 2019 in my daily perusal of the news. I was looking for what I call clues in the news. I saw this thing happening in the repo market. I wasn’t that familiar with the repo market, but I saw that the Fed was injecting hundreds of billions of dollars into this thing called the repo market. I said, “I don’t know what’s going on under the hood, but there’s a heck of a lot of smoke coming out. Something’s going on down there.” I did a little homework on it. To keep it in layman’s terms, in short, the repo market is like a pawnshop for banks to take their treasuries, which are their assets, like you hocking a watch or a piece of jewelry when you’re short on cash.
They show up at the repo market and they give the pawnshop, the pawnbroker the treasury and they walk away with their cash. They go put their cash fire out and then they come back and buy back their assets. They don’t have to give the asset up. They don’t have to write it off on their financials, which is what that’s all about is doctoring their financials so that their insolvency it can be hidden. We could talk about mark to market and all kinds of things that they changed in order to hide. There are many things in the accounting system they use to hide the weaknesses in the financial system. You don’t know what’s going on, but if you watch for these clues, so that happened.
We called Chris and Adam up and said, “I don’t know what this means.” They said, “We don’t know what this means either, but there’s clearly something wrong.” There was a cash problem brewing. There was a banking problem brewing in September way in advance of this. My antenna was up at that point and we wrote a few newsletters. I talked about it and did a couple of shows on it. I’m not being an expert but encouraging people to pay attention to it. It started there. The other thing too is after going through reverse-engineering the implosion of the 2000 financial crisis, one of the things that I became aware of was the hypothecation of bonds and what derivatives were.
Warren Buffett famously wrote in his Berkshire Hathaway letter to his investors that he considered derivatives to be weapons of mass financial destruction. This was back in the late ‘90s, it was oppression. With that said, what it means is that people who are speculating in the bond markets, and the bond market is the largest market except maybe the currency market, but the bond market is ginormous and much bigger than the stock market. Everybody pays attention to the stock market. Few people pay attention to the bond market unless you’re a financial geek. In the bond market, prices of the bonds, the value of the bond is inversely correlated to the yield on the bond.
If I want to drive interest rates down if I’m the Fed, then I’m going to bid up the price of the bond. For real estate investors, that’s like bidding up the price of an income property lowers the capitalization rate. It lowers the yield on your investment. It’s the same concept. When you understand that people don’t buy bonds for the yields because the yields are nonexistent, in some cases worldwide, they’re negative. Why would anybody buy that? They’re speculating on the bond price because they know that the central banks are committed to driving interest rates down.
They’re front running the Central banks, knowing if I can buy a bond before a Federal Reserve bond-buying program, then I can turn right around and flip it to the Fed at a profit. You say, “Why would the Fed continue to push interest rates down?” It is much bigger than simply stimulating the economy, making it easy for already impoverished borrowers to borrow more. It’s more than about making money available to corporations to do stock, buybacks programs so that they can go to the stock market. It’s even greater than trying to simply supply and overspending federal government with gobs of money so that they can buy votes, pay for programs, and do whatever legitimate activities that they do.
At the end of the day, they are holding together the financial system. Here’s how that works. If I have a bond on my balance sheet, it’s my asset. If you’re the bond issuer, it’s your liability. It’s the same relationship people have with their banks. If you have a bank account, it’s your asset on your balance sheet, but to the bank, it’s their liability. They owe you the money. That gives you something called counterparty risk, which is rife in this system. You’ve got this asset on your balance sheet and you decide, you need some liquidity. Whether you go to the repo market or anywhere else, you can borrow against that. When you borrow against it, you do it using margin. Now I’ve borrowed against that bond on the margin the way you could on your stock portfolio. The problem you have is if the bond price goes down. Why would it go down? If interest rates go up, you get a margin call.
The margin call means that you either have to post more cash, which means you have a cash crisis, or you’re going to sell the bond at a loss. Take the loss on your balance sheet and show your insolvency. You’ve got to find a way to raise cash. A repo market is a place that you can do that. That activity in the repo market was like a warning sign, a canary in a coal mine that there were things going on in the bond market. The Fed is obligated to try to continually keep interest rates suppressed in order to prop up the bond markets where they get a repeat of 2008. The difference is the number of bonds, the amount of debt, and the number of derivatives in the system dwarfs what we had in 2008. Therefore, the impact of losing control of that would dwarf the impact that we felt in 2008.
I don’t have any way of knowing this for sure, but I suspect a lot of what’s going on is trying to figure out how to keep the bond market going because when they tried to raise interest rates, Peter Schiff predicted they’re not going to be able to do it. They’re in the monetary, “Roach Motel,” as what Peter calls it. The good news is especially for real estate investors, it means you’re going to be in an environment of low-interest rates for the foreseeable future. You need to be able to use debt to make money. That’s a whole investment strategy in and of itself.
It means that if you’re a saver if you’re investing in hoping to get a yield on your savings, probably going to end up being a loser. It’s why Robert Kiyosaki says, “Savers are losers.” There’s a lot there. The main concept to understand is to pay attention to the bond market, understand the inverse relationship between interest rates and bond prices. The pressure on the Fed in many areas, but mostly in propping up the financial system. It’s got to keep those bond prices down or bond yields down to keep the bond prices up. They have to print money to do it. A lot of pressure on the dollar.
Financial Crisis: Residential real estate is a great place to be because people will always need a roof over their heads.
This is a worldwide phenomenon. It isn’t just the United States problem. Some of the reactions and that impact on real estate in general, which I think is the only tool that the governments have which is to continue to push liquidity into the system, money into the system. It’s in the form of a stimulus check to people, so they can pay their bills. That’s most likely going to continue with multiple stimuli. If that’s the case, interest rates are going to stay low. At the same time between mid-February, March maybe, going into the summer, the disruption caused many businesses to struggle as well as people. That impacts whether they’re rents, mortgage payments. Let’s talk about how the disruption it has caused some challenges when it comes to people being able to serve as debt or to pay landlords. It ultimately is going to impact real estate prices and create opportunities, but also some reshuffling of resources where some real estate may not be as valuable as it once was given the disruption.
There’s a ton there when most people think of real estate, especially people who aren’t in real estate as investing. They think about houses and apartment buildings. That’s the easiest thing to talk about to start with, but retail was already in huge trouble with the Amazon effect. Things going on there, it was a boon to industrial with warehouses, distribution centers, and markets that supported that. There are always winners, there are always losers. There are shifts sometimes. When you look at residential, it is a great place to be because people will always need a roof over their heads. Either they’re going to own the property or someone else is going to own the property. These people get poorer, the probability is that someone else is going to own the property who’s less poor and going to have some mechanism by which to generate income, getting a share of that worker’s productivity.
Rental real estate, income-producing real estate, residential real estate, all are predicated on jobs. I had the chance to interview Donald Trump, I only got a chance to ask him one question. When he was running for president, we were at Freedom Fest. I asked him, “Mr. Donald Trump, a lot of people look at what happened in 2008 and the financial crisis lay that at the foot of the Fed, monetary policy and government policy. What does a healthy housing market look like in a Donald Trump administration?” He gave me a one-word answer, “Jobs.” When he got into office, that was what his emphasis was on jobs. That was his big claim to fame was jobs, “I’m going to bring manufacturing back to America.” Every rally was jobs. We just lost 30 million-plus jobs. To your point, some of those are never going to come back. Human behavior has altered permanently. People have discovered they can work at home. If I can work at home, why do I want to pay $5,000 a month for a 400-square-foot apartment in New York City, if I can go live in Central Florida in a nice house, on the beach, in the sunny weather and do the same job?
There are going to be markets that are winners and losers. Landlords that are going to be winners and losers. One thing about real estate is it’s not an asset class, it’s not a commodity. It’s not like gold, currency, or oil where there’s one price for the same product universally around the world. Every property, neighborhood, ownership, and financial structure is unique. Because of that inefficiency and uniqueness, real estate is a lot more art than it is science. That’s what makes it fun. There are going to be gobs of opportunities, but there are also going to be problems and it’s all going to be predicated on the disruption of income. We have enhanced unemployment. We have helicopter money, direct infusions of cash, although you’d make the argument it’s not much. You have the Paycheck Protection Program, which is designed to keep people employed and cashflowing in that regard.
Forgivable loans and all the bad debt now with the Fed stepping in buying local bonds, muni bonds, and ETFs. In addition to treasuries, a whole lot of other things they’ve been buying any way through proxies behind the scenes cropping up the stock market. Mostly for optics because a lot of people look at the stock market as a proxy for the economy. The stock market isn’t bad, therefore, the economy is not so bad. That’s not true, but that’s the way people feel. The people in power understand how to manipulate the optics to create the scenarios they want. In this day and age, because of technology and guys like you and me being able to get out there and have a conversation whose voices would never ever be heard.
If it was mainstream financial media were our outlets, there are more people informed about what’s going on and alert. It’s harder to manipulate the optics, but you do have to avail yourself of what’s going on. Residential real estate is going to get a lot of attention from the government. Protect the resident level forbearance agreements. Last time in 2008, when everybody started to default, the banks are dragging their feet. Nobody wanted to take the hit. They were all afraid. Now, there have been many changes made to the way the banks report from the market. I talked about that activity, the repo market, and the Fed overtly. We’ve got your back, we’ll buy anything that you have so you can stay solvent.
It means that the banks are okay, and the government is stepping in right away with forbearance, anti-eviction, providing a paycheck, subsidies, subsidizing loan servicers, and propping up everybody in the food chain from Main Street to Wall Street. That even though it’s scary and you have to pay attention, there are going to be disruptions. You also, to a large degree, have the wind at your back when it comes to residential real estate because people always need a place to live. Politicians, industry, and bankers are all highly motivated to prop it up. I don’t even know exactly what that’s going to look like. To your point, they don’t always hit what they’re aiming at. However, you can be assured that you’ve got a lot of folks on your side if you’re in that space.
It remains one of my favorites in this environment. You’ve got to look at the specific deal, feel the specific market, specific management team, specific financing structure against the backdrop of your own specific financial situation and how much risk you can bear. There are going to be some bargains available in the next many months and years. It’s a good time to be aggregating capital and building your team and your knowledge. Whether you’re going to be a hands-on direct investor where you’re going to look at properties, cut your own deals, or work through your team. If you’re going to be a passive investor, buying into portfolios that private syndicators put together, which is like buying a mutual fund of properties, but you’re not buying through Wall Street. You just buying through private individuals. We have a lot of people in our world that do that. We think it’s one of the great business opportunities in all of the business, but especially in real estate.
What’s your litmus test for making a decision? Because we have biases, we try to gain a lot of insight and information to reinforce that. Everyone has a blind spot. Feasibly, the Fed could continue to print around the world and we can get back on track. You look at that being another perspective and bias. When it comes to what you had said, which I agree with, that the shift in employment where businesses are learning how to work remotely and they were forced into it. I would say experiencing a lot of success.
Some success, from what I’ve heard, and that is going to put in jeopardy potential, local markets, especially when they’re not climate-friendly. When you have harsh seasons where you can potentially move to a nicer climate. With all that being said, there are many different variables that could lead to potential opportunities. Is there a litmus test that you use to identify an opportunity and then subsequently do due diligence in a specific way, to ensure thatwhat’s being pitched to you is in fact as much truth as possible? Their truth is to sell you the deal but to have enough truth in there, enough details, facts for you to make a wise decision.
I don’t know if I have a litmus test. I have a methodology. Robert is the host of the Real Estate Guys Radio Show. We teach a lot together. We’ve invested quite a bit together over the years. Our basic approach, number one is you need to develop your own personal investment philosophy. You have to figure out what it is you are trying to accomplish, what you’re willing and not willing to do in order to get there. That’s done based on your life experience. It’s done based on looking at other people who’ve had success and failure. I learned a lot more through my 2008 failures and all my successes leading up to that. It’s interesting because I forgot. I had mentioned my one question of Donald Trump, but I had a chance to interview him the first time in Iowa before he was a candidate. I asked him that exact question, “Mr. Donald Trump, you’ve seen good times and bad times. What did you learn in the good times? What did you learn in the bad times? If you decide to run for president, how will that help you?” He didn’t answer the last part of the question, but in the first part of the question he goes, “I didn’t learn anything in the good times, but in the bad times, I learned it’s always good to have a little cash.”
I took that to the bank literally because it is important always to make sure that you have a little cash. Anyway, you come up with your personal investment philosophy, “Am I looking to grow my capital? Am I looking to preserve my capital? Am I looking for the production of income? Am I looking for tax breaks? Am I looking for privacy? Am I looking for lifestyle?” There’s a way to invest in real estate for lifestyle. You can buy properties that you’d be happy to live in, vacation in, and rent them out when you’re not using those. There are lots of ways to approach the game of real estate. That’s number one.
Number two is whether you want to be hands-on or hands-off. That’s an important decision to make. Regardless of how you choose to do that, once you’ve got it figured out economically, you’re looking for geographic marketplaces, first of all, product niches, and then demographics. When I say the word market, I don’t just mean geographies, I mean product niches and demography also, in other words, people. For example, if you believe in the Baby Boomer generation and you’re like, “The Baby Boomer generation has been an economic driver for all kinds of industries as they’ve gone through the cycles of life.” That begs a big question, “What cycle of life are they in now?” It’s healthcare.
We have a mutual friend who teaches people how to create residential assistant living facilities, nursing homes. Not big ones, little ones, in homes. If you followed what’s been going on in the news, all the big homes are coming under attack and they were being told it’s safer because of this virus to be in smaller homes. If you’re investing in the big boxes, that’s a loser. If you’re investing in the small ones, that’s a winner. Winners and losers always. There’s a lot of people look at the Millennial generation, which is even bigger than the Baby Boomers. I want to cater to that generation. They have challenges with student debt and jobs things like that. If you focus on affordable housing, a certain lifestyle type housing that appeals to Millennials.
You get the idea, so you’re going to figure out your market. You want to figure out geography where you are going to have good economic drivers more than one. Back when shale oil fracking and all that was the rage before we overproduced and oil prices crashed. It was not oversupplying, it was a collapse of demand because of the shutdown. Be that as it may, the markets that are primarily dependent upon oil and oil production, as the oil prices crashed, they didn’t have another leg to stand on. They were a one-legged stool up in North Dakota and places like that. We never got involved in those markets because they weren’t diverse enough for us.
You look at the market next, then you look at the team. If you’re investing in the production of income over a period of time in a market, the most important person on your team is your property manager. That’s the person who’s responsible for producing the income and whose income, if the compensation structure is correct, is directly indexed to the performance of the property. Now you have aligned interest. You don’t have a broker who’s trying to sell you a hyped-up, glossy pitch deck and get you to buy. Then they move on with their fat commission and you’re left holding the bag.
I liked to work with property managers. Once I picked the niche in the marketplace, I work with property managers to try to figure out who I am going to hire to manage the properties. I ask them what markets and specific neighborhoods I should be in. I had them help me find the property. Now, I’m getting someone. I can always find it a broker to represent me. A lot of times they’ll have relationships, but I think property managers. There’s a lot of talk about unsung heroes of frontline heroes in different industries after 9/11, it was the first responders.
The Coronavirus, it’s the healthcare workers. In real estate, it is the property managers. They’re the unsung heroes. You focus on that. That’s the approach. The financing approach in nowadays environment. Could interest rates go lower? They could, but I don’t think they can go lower. Locking in long-term financing is a smart move. If you borrow long and cheap to control an asset, it’s likely to be the beneficiary of inflation, we may get a little deflation to start with. It may drop before it goes up. The long-term history based on the economy is built on and the way it’s operating. The people are pulling levers. Like the book says, “Equity happens.”
Over time, prices are going to go up. If you fix in that dollar for the long haul spread between what it’s worth in dollars, nominally worth, not in utility. It’s still going to be a three-bedroom, two-bath. Nothing’s going to change in terms of how useful it is, but it could go from $50,000 to $500,000. If you bought that with a $40,000 mortgage, the inflation makes the debt atrophy. It makes it go away. People don’t realize that when it comes to a potentially inflationary environment, the safest best investment you could make is leveraged real estate because you acquire a cheap long-term debt fixed. You secure the rental income to service the debt. Tax breaks to mitigate especially with nowadays’ Tax Code and the bonus depreciation.
You only have a fraction of your own money, maybe 20% 30%, which means you could endure a lot of deflation before you take a hit, as long as you don’t lose the property. Even if you bought a property for $100,000 now, 30 years from now, it was only worth $50,000. If you put $20,000 down and the tenant paid off the mortgage, at the end of the day, you still own a $50,000 house in 30 years. You’re up in dollar terms. More importantly, in any environment at whatever price point, a home that’s paid for that’s generating rent is a real valuable asset. Real estate works in this environment, but you do need to be careful in your market selection especially in your team selection and your financing structure.
Financial Crisis: Think about what you want to do with your capital and decide on your personal investment philosophy.
The philosophy of three-bed, two-bath goes to three-bed, two-bath in a home office. That maybe is a point for another conversation.
There are a lot of opportunities in that regard as you could make the argument in some neighborhoods. There’s a lot of opportunity in one-story houses because Boomers can’t climb stairs. This is you get to understand how your customer uses property and what they need from it. Giving them what they need. To your point, from internet connectivity to workspace or workout space. I live alone and I have a five-bedroom house, but I have a studio in one room, an office in another room, a bedroom in another room. I have a den or reading room, and then I have a guest bedroom because I have a family that comes to stay with me. Then I have a big loft area where I have a gym. I can live a lot of my life productivity in my own home. It doesn’t feel like it’s a big house for a guy living by himself. There are a lot of things going on it. There’s going to be more demand for folks to have more space, which is a trend is shifting, a little bit from where we were headed prior to the Coronavirus.
All real estate is appeasing demand. Demands, tastes, preferences, they’re always changing. Keeping a pulse on that is important. One thing I wanted to pick your brain on. Going back to 2008, 2009 and I’m assuming that some people that are reading now, there are properties they do own that may not be able to weather this storm. Even though there may be liquidity in the bank account of the investor, how do you approach vacancy? How do you approach when you decide to either supplement the mortgage with your income, with liquidity, or maybe the property is it’s time to let it go? I’m assuming similar decisions are going to be made now. What would you have done differently if you were to go back during that period? What would you recommend based on that experience to those that are going to potentially face out in the future?
First of all, you want to make sure you have adequate liquidity. I had none, I was 100% dependent upon healthy credit markets across everything. I brokered debt to generate income. When credit markets collapsed, I had nothing to sell. I operated my business on my credit lines. When those credit lines got shut off through no fault of my own, just banks limiting their risk and a collapsing credit, all of a sudden, I lost operating capital. That limited my ability to shift the focus of my business and develop income streams. On a personal level, I had a lot of credit card debt. I was carrying a lot of debt because I felt like paying it off. I had higher-yielding uses of capital. Putting it in a business, putting it into properties. It all penciled on paper. Businesses do a thing called a SWOT analysis: Strengths, Weaknesses, Opportunities, and Threats.
Every prudent investor should do that. It’s one of the things that I learned and would have done. I wished I would have done is looked at everything I was doing and do a SWOT analysis. It would have helped me see the things that I had to work on with, so that when the stuff hit the fan, instead of being in panic mode. Blair Singer says, “When emotions run high, intelligence runs low.” When you’re panicked, your brain freezes. I could not see all of the resources I had available. All I can think about is what I didn’t have and what was going wrong. By the time I woke up out of the fog, some of my assets had atrophied or been completely lost. I wasn’t able to react, not because I didn’t have things to work with, but because I didn’t have the mental capacity and the emotional strength or the right advisory team to help me see it, so strengths.
Weaknesses, you always want to be aware of your weaknesses. You want to be aware of your individual weaknesses as a person. Your weaknesses in your personal financials and your portfolio. If you have your own business and if you have a job, that alone is a weakness because you don’t have control. One of the most resilient things you can do is at the least create some type of side hustle. Give some serious consideration in figuring out of how to start a business that you want to control or more than one. That is a whole art unto itself. Be aware of your weaknesses. You want to do that for each and every property on an individual basis. You’re going to look at the market, you’re going to look at the team, you’re going to look at the demographic you serve and you’re going to look at the financial structure. Ask yourself, “Is this a strong property? Is it a marginal property? Is it a dangerous property?”
You want to know to clear the deadwood. You want to, in a market like this, jettison your marginal properties and then reinforce your stronger properties. Better to only maintain 20% or 30% of your portfolio than try to hold onto 100% of it and lose 100% of it. That was one of the other things I did. I tried valuing to hold on like a lot of stock traders do. I traded stocks for a little while and studied stock trading. I don’t advocate it as a way to make money or to maintain certainly. It’s great for understanding investor emotions and experiencing investor emotions. I had 37 straight consecutive winning trades, but the 38th trade I could not take the loss. I could not admit that I made a bad trade. I wrote it all the way down to the bottom. I lost way more money than I should have. It was simply because of my own pride and unwillingness. As long as I don’t sell, I haven’t taken the hit. Robert calls this zero-sum thinking.
When you look at your portfolio, whatever you’re doing, you say, “If I didn’t already own this, would I buy it now? If not, then why are you keeping it?” Sometimes you are holding a position because you say, “It’s going to come back.” The shortest path to coming back might be a different property, a different market, maybe a completely different investment or investment strategy. You got to keep an open mind to using what the market will give you. Strengths and weaknesses, that transitions into opportunities. Opportunities are a combination of what the market is giving you and what you have to work with. That’s how you do strategy. What’s available to me both that I have control over and things that are available to me that I can get in the marketplace?
Threats are things that are directly glaring up. I have a process when threats rear their ugly head. The first step is triage. I’ve got to stop the bleeding, nothing matters. It’s urgent. The first priority is anything having to do with survival. The next thing is rehab, which means I’ve got to patch things up and get a stable base. I can’t get stronger until I reinforce what’s going on. I got a property, for example, that’s bleeding out. I’ve got negative cashflow. I’ve got tenancy issues. They’re trashing the property. I’ve got a big problem. I got to go in and step in right away. I got to get the problem tenant out. I’ve got to patch up the property right away and secure it to make sure that I don’t have squatters or anything going on. I got to do rehab, which is, how did my property manager let this happen? I got to replace that property manager.
Now I can get to phase three, which is strength and conditioning. If you’re strong like with this Coronavirus if you’ve already been paying attention to your immune system, your nutrition, your health, and you’re a sanity protocols and whatnot, you’re a lot less at risk than a person who hasn’t paid attention to any of those things whose lifestyle is inviting of health issues. I hope a lot of people will be cleaning up both their financial areas as they go through this, as I certainly did after 2008. The others are also going to clean up their health issues. We’re learning a lot of lessons. That’s one of the things that I would have done differently and I’m doing differently now.
It’s interesting the relationship between opportunity and emotion. In many respects, there’s an inverse relationship where the biggest opportunities come from when there’s the greatest amount of fear. The most amount of euphoria or excitement is when there’s the least amount of opportunities. It’s an interesting relationship. I would look at it of unpacking one of the things that you said, which is during that period of time, there’s going to be an emotional reaction. Oftentimes, emotion leads to bad decisions and increasing information, education, as well as perspective will help mitigate poor decisions. It goes both ways because there may be those that have liquidity going into this a downturn and there are going to be opportunities that present themselves.
It could be a retail strip mall they’re trying to sell for $0.10 on the dollar. Because it’s $0.10 on the dollar doesn’t mean that you should invest in it. There are going to be opportunities when it comes to making good decisions with current investments that may go sideways, but also opportunities to pass on a deal. Even though on the surface it may seem a good deal based on principles and variables of the past. Do you also see that potential coming where I saw a lot of people make good decisions in 2010 and 2011? What an incredible time to buy. I also saw a lot of bad decisions.
If you study failure, which I think you need to, then you begin to understand how those things happen. Nobody sets out to fail. I certainly didn’t. Nobody constructs a life to be weak and vulnerable, but yet people do it all the time. They don’t take care of themselves, don’t take care of their finances, don’t take care of their relationships, don’t take care of their business, don’t take care of their property. The list goes on. I’m guessing the type of person who’s read this far into a program like this is probably not in that camp. They’re investing time. Pay attention to what’s going on. The two investor emotions are greed and fear.
If you’re driven by either one, a greedy person will charge in and they will see nothing but sunshine. They will go after the opportunity with reckless abandon. That’s the operative word of a reckless abandon. End up getting in over their head and having a problem. A fearful person will sit on the sideline waiting for everything. Conservative people tend to be that way. In some ways, that’s the greater danger because it’s easy if you get in over your head to find people who can help you. It’s scary but you can find people that can help you. There are a lot of fixers out there. A lot of times, the problems you’re having seem overwhelming to you because of your lack of experience or access to resources.
Whereas an experienced investor would come in like, “We can handle that.” Remember the first time I was having a financial meltdown, my dad came and he looked over all my finances and he’d already gone broke in the 1987 stock market crash. He says, “You still have a lot to work with.” It was just a perspective. I couldn’t see it. I was hitting the panic button because that stock trading trade I did was a big one and I got it all wrong. I thought I was going to have to sell my house. I freaked out. When you are in over your head, you can get help. The challenge about when you’re sitting on the sideline in isolation, there’s a lot of that going on now, waiting for the smoke to clear, there’s nobody available to help you.
There’s nothing to fix except what’s going on between your ears. You won’t know that you’ve made a mistake until you go out and you can’t buy anything that’s worth buying because all of the buyers have already done what they do. Here’s what’s going on. The way a bottom gets put in a market is the brave and the bold, the aware and prepared, the experienced, and equipped. The people that have the right teams, step into the market and they begin to go bargain shopping. The act of snapping up those bargains bring the stability that you’re waiting for. By definition, it means all the bargains are picking over by the time you get there.
Warren Buffett famously said, “Buy when there’s blood in the streets.” You’re not being a vulture. You’re being a white core puzzle. The problem exists with or without you, you’re not capitalizing or victimizing someone. You’re often solving a problem because people who were selling because they don’t want or can’t handle the property for whatever reason, it could be mental, emotional, relational, financial. It doesn’t matter what it is. Their problem becomes your opportunity. Some people are wired that way. This is not easy.
You can’t sit in your crib with your trading app and just order up real estate. Even though people are building online marketplaces, one of the biggest mistakes is taking a look at a property on an online portal. Having never met the market, not knowing anything about the team, buying it because the numbers make sense based on some YouTube video. They will watch how to do a financial analysis and then they buy it. They go looking for a property manager. They start trying to understand the market that they bought in. They do everything backward.
It starts with personal investment philosophy, market, team, property. A lot of people start with the property and then figure out the rest. The problem is by the time they get the first personal investment philosophy, they’re there because it’s been painful. They’ve discovered all the things they don’t like and can’t stand. Sadly, a lot of people will walk away from real estate. I have to confess after 2008, I was a little sour here. I’m a real estate guy, wrote a book on it, Equity Happens, and how great real estate is. I went and reread the book, making sure that we weren’t pitching snake oil, but it’s still penciled after the fact.
My problem wasn’t what we wrote. It’s what I did knowing what to do and doing it. There are lots of people who aren’t at their idea of weight. It’s not because they don’t know what to do, it’s because for whatever reason they aren’t doing it. It was the same thing as me. I knew what to do, I for whatever reason wasn’t doing it. That largely had to do with split focus and arrogance and thinking that I could make more money and in business than managing my properties. Anyway, the mistake is to sit on the sidelines. Now are the time and I commend everybody who’s made it this far into this monologue or this epic discussion.
It’s good. Now is the time to be investing in your education. It is time to be investing in your network and getting plugged into people who are already doing the thing that you want to be doing. There are clubs or mentoring programs you can join. None of those things should cost you money. They should make you money. You might have to front a little bit of money till you get up to speed and get going. Their investments like any professional education, the intent is that you’re going to make money, but this is a relationship business.
Once you’re plugged in and you have your finances in order, you’ve worked through your investment philosophy and you’ve got your team in place, and you’re starting to understand markets and product types and all that stuff. Your relationships are going to be the people that are going to get you into deals. You’re going to be active. You’re going to need more education and a different kind of education. If you’re passive, then you need to understand what it is to be a passive investor. You need to start looking at some offering documents. Understand how to understand the risks. They’re all in the prospectus. A lot of people buy stocks and they can handle prospectus. Both of us know, nobody ever reads them, but they should.
When you get a private placement, a real estate syndication, for example, you’re going to get handed a subscription agreement. Part of that in the subscription agreement, in your offering documents for private placement memorandum is going to be sobering, explanation of all of the potential risks. Remember, you’re not looking for a reason not to do the deal. You’re looking for reasons to do the deal, but you want to go in there, eyes wide open. Sam Zell is one of the most iconic, real estate investors ever, much bigger than Donald Trump and not a controversial figure, at least not in the same way Mr. Trump is. Sam Zell wrote in his book, Am I Being too Subtle?, that the thing he attributed his success to was not his ability to see the upside. He goes, “Everybody sees the upside. It was my ability to see the downside and still move forward.”
The marketplace is showing everybody a lot of the downside. Your ability, my ability to be successful isn’t going to be to sit on the sideline and wait for things to stabilize. It’s going to be to see the opportunity and the risks and find a way forward. You’re going to do that through education and other people. Don’t camp out on the internet while you’re sheltering in place. Try to find ways to join virtual or God forbid, risk your health and go out and get in some real-world conversations, get together with some folks and get connected. It’s a fun community. If you get into the right tribe, we build those. I know you put on events. You’ve been at many of our events. The kind of people we attract and what we do. We’re not giving up on the event side of our business or getting people together.
We’re taking a time out and we’re doing more virtual stuff, but the concept of tribe is super important. That’s the season we’re at now. There’s a lot more to learn, but you got to pay attention. This is a slow-motion train wreck. It doesn’t mean you have to be run over by it or injured by it. You need to know what’s happening because when the collision occurs, there are going to be parts and pieces and things flying all over the place. You want to make sure that you’re not in the path. A few treasure chests are going to crack open and you can go bargain hunting too. That’s part of the reason we like to pay attention.
Financial Crisis: The shortest path to coming back might be a different property, a different market, or a completely different investment strategy. Keep an open mind to using what the market will give you.
Your mission statement is, “Education for effective action.” You look at the environment in which we operate, summarize what we’ve been talking about. It’s an environment that we can’t control. There are lots of things that are going to happen. Ultimately, we can control what we do, our actions. I look at something I learned but understood it didn’t necessarily implement. There’s no such thing as a perfect deal and pass a certain point, trying to get more information and have more, “This detail has to fit,” only increases the benefit marginally. It comes down to having more pros than cons.
Also having multiple perspectives, which is a good benefit from having a tribe, having a network and having different perspectives in this information age. Let’s end with that. How do you balance your perspective? You’re in the thick of real estate. You have the longest-running podcast radio show focused on real estate investment of anyone. You have a certain perspective that has been added to by multiple perspectives. Who do you continually follow and pay attention to that helps you have a different supplementing perspective that helps you grow and learn and be clearer about what’s happening so that you can take effective action?
I’m a student first. I have a huge library and I read every day. I budget an hour every morning, from 5:00 AM to 6:00 AM to read. I do that when I have an uncluttered mind. Enjoying my coffee gives me an excuse not to have to get up and get going. That’s part of it. I listen to podcasts, many of the people that I’ve become friends with because I find people through different mechanisms or books or podcasts. We then seek them out. We leverage the fact that we have this show, as you do, to talk to people. We both host and participate in mastermind groups, on various topics both business and investing. We do our annual Investor Summit. We’ve been doing it now. This will be the eighteenth year. Normally, we do it on a cruise ship. We’re not sure that’s going to happen this year. We’re still cautiously optimistic, but it’s uncertain. We’re supposed to be leaving in a few weeks. I don’t know, we’re going to see. Somehow, someway we will get together.
I was on a call with a mutual friend, Richard Duncan, who wrote the book, The Dollar Crisis. We were talking about life from his perspective. I’m going to be on the phone with Brian London, who’s a gold expert and runs a New Orleans investment conference. He’s a plugged-in guy. I’m sitting here talking to you and you have a perspective, I mentioned Chris and Adam, I’ve done webinars for them. We do some joint stuff together. They have a way of looking at the world. It goes back to using what you have, whatever you have. It could be the ability to write a check and pay to be part of a club. It could be if you have a show or some outlet where you can talk to people if you have time to read.
Most of us have something we can work with. Try to find a way to put good ideas in your head and then try to get into conversations with other people that are interested in the subject matter as well. Even if it’s the blind leading the blind, concentrate on what the author, the podcaster, or the video host is saying. Talk about it and process it. That’s a way to learn. If you can get somebody who’s got some professional expertise or real-world experience or whether it’s a CPA, an attorney, a 1031 tax-deferred exchange guy.
Somebody that does infinite banking or mortgages, bring them into the conversation whether those are conference calls or Zoom calls. Eventually, you could start your own investment club. We did a white paper. You send an email to Club@RealEstateGuysRadio.com. We’ve been putting together investment clubs for a long time. We’ll send you a free white paper. You can look at it and figure out how to start your own investment club. Tips and tricks from guys that have done it on how you can start one on the cheap. Grow it, have it be successful and begin to attract people into your world.
The point is to do what you can do. I have a saying, “My dedication is to be diligent about doing the things that I can do so that I am best prepared to handle the things that I can’t control.” In other words, be diligent to control the things you can control so that you are in the best position to react to the things that you cannot control. There are so many things that you cannot control. There are only a few things that you can control. The good news is if you focus on them, you can control things. The idea is you put in your head the people you hang around with, your self-talk, and your emotions.
What happens on your balance sheet, in your physical body, in your environment, you can control all those things. Those things will help you react better when there’s a Coronavirus crisis, an economic shutdown, a financial market collapse, a banking crisis. The list goes on and it will never end. This is not the last crisis. Certainly, not the first. It’s going to continue to happen. It’s part of being alive going from crisis to crisis. Don’t withdraw, lean in. There is an opportunity on the flip side and going through all these problems. Your mission is to try to figure out which opportunities are for you. Who you need on your team, what you have to work with to make it happen, and then never to put all your eggs in one basket? It’s to take reasonable risks that you’re aware of the threats.
Equity Happens: Building Lifelong Wealth with Real Estate
You have a mitigation strategy so that if we have a fire, I know to run out this window or this door. If somebody breaks in the house, I know where the phone is and how to call 911, or maybe where the weapon is or however you choose to defend your home. Have a plan A if everything goes great. Have a plan B in case certain things go wrong. Try to anticipate as much as you can. To your earlier comment, understand there will always be an unexpected event that nobody saw coming that you couldn’t plan for. The best you can do is have some liquidity, have a great tribe, have some stability in your financials especially avoiding counterparty risk is one of the things that I’d be concerned about.
That way you may lose a piece of your portfolio, but you don’t lose a whole thing. Be ready for inflation, be ready for deflation, be ready for a banking collapse, be ready for hyperinflation. Be ready for high taxes, be ready for high-interest rates. None of those things may happen, all of them may happen, we don’t know. Something’s going to happen. Think it through, be ready, and have people on tap that you can tap into when you’re not sure what to think. If you make those investments now, then I think your future is bright come what may. I encourage you to do that.
There’s been so much we’ve covered. Russ, thank you. It’s always amazing talking to you and I definitely learned a lot.
I appreciate it. I’ll make it easy for everybody and makes it easy for you. They can send an email to WealthStandard@RealEstateGuysRadio.com. You get a quick autoresponder with the latest copy of our newsletter and links to everything that we do. That is if you’re interested, if not, then unsubscribe and no harm, no foul.
We’ll have to do a follow-up as things unfold.
I look forward to it.
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Thank you for reading my interview with Russell Gray. He is an amazing guy and hopefully, you can follow the Real Estate Guys Radio Program. It’s an incredible podcast. They have awesome guests on. They’re insightful in the way in which they analyze things. You will get much value out of following them. Russ also writes his newsletter, which is also incredibly insightful, somewhat comedic. It’s informative and I believe you get a ton of value from it, plus it’s doesn’t cost anything. That’s it for now. Thank you for your support.
Russell Gray is co-host of The Real Estate Guys™ Radio and TV Shows. He has been a financial strategist since 1986. As a faculty member for the California Association of Realtors, Russ taught Real Estate Finance to Realtors® pursuing the prestigious GRI designation. He is a popular speaker and author.
Robert and Russ have co-authored the very highly rated book “Equity Happens: Building Lifelong Wealth with Real Estate.”
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While nothing in this world is ever permanent, the current situation we are living in is definitely more than the change we have been expecting to see. The COVID-19 situation is becoming more felt by the day, challenging our financial capacities. Continuing from the previous episode, Patrick Donohoe reveals the rest of the top five financial actions we need to take during these times of crisis. These times may be shocking, but why not use that shock to snap you out of the situation and be in a position to adopt some new habits and new behaviors that will undeniably come in handy in another unexpected crisis? It is prime time to do that, and Patrick helps you kickstart with this series.
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Watch the episode here:
Listen to the podcast here:
Top 5 Financial Actions You Need To Take During These Times Of Crisis (Part 2)
Thank you for tuning into this part two episode of the Top Five Financial Actions to Take During Times of Crisis. I hope you enjoyed the previous episode. If you haven’t read it, definitely go back. It sets the stage for these more practical things to do. Go to TheWealthStandard.com, there’s a bunch of links as well as our Resources section of the website. I’m here doing part two, and this is where the rubber hits the road. For those of you who have been reading for a long time, I’m big being in the right mindset because I believe that is a precursor to the best decisions and the best actions to take, which ultimately leads to the best results. We live in very different times. We live in times that can throw us off-kilter and times that we’ll look back on and either celebrate for how much we benefited from them or on the contrary, we look back on times that destroyed us.
I go back to 2008, 2009 and I know families, people, and friends who have still not recovered, and this is years ago. Because they are telling themselves a story about what happened and why it happened. Typically, it relates to them. Not necessarily what they control, but it relates to the blame that they’re placing on others and also not using those circumstances to learn valuable lessons and do something about it. I believe these times are going to create those same exact two camps. The camps, the smaller one that capitalized on the environment, and then the one that tuck tailed, ran, blamed others, and played the victim.
I understand where people are at. I understand that there are so many that look at life happening to them, and that they should get this treatment, benefit, and people essentially serving them as opposed to them, figuring out how to properly serve others in order to serve themselves. That’s where I’m at. This episode is going to be interesting because we’re going to get into some very practical things. They’re things that very few people have done. I have had the opportunity to advise thousands and thousands of people and collectively with my team, more than that. We see the same things. It’s seldom we find these outliers and anomalies when it comes to how they manage their finances.
There are definitely signs of what has worked for people, will work for you. Now is the time to essentially use the shock that you’re getting based on what’s going on in the environment and use that shock to snap out of it and be in the position to adopt some new habits and new behaviors. It’s a prime time to do that. First was a state of mindset. Those two equations, state, stories, strategy, and principles, processes, products, in those sequence. Not executing a strategy until state and story is in line, and then not buying a product, creating a product if you’re an entrepreneur or business owner, or even like yourself as a product of service. It’s the principles first. What are the principles? Where’s their value? Where’s their exchange?
What’s the process that you use to deliver that? Finding those two out first, before you start to look at ways in which you can tweak the product, whether that’s yourself or something you buy as a product, investment product, financial product, or any other product. This comes down to the investment decisions that you make as well. It may be into a company that produces a certain product, but knowing the principle and knowing the process of that business is way more important than the product. Most people are infatuated by the product. That’s most important. State and mindset. The second is structure. It’s the routine that you established for yourself. Your morning, meditation, visualization, and spiritual routine. How you reach structuring your day using Craig Ballantyne’s Perfect Day Formula.
Another thing that I failed to mention in Part one is Tony Robbins’ Priming Exercise. These are ways in which you can establish your day. You don’t even have to think about it. It’s preprogrammed. You don’t have to spend energy on it. You commit and you do it. What that does is it positions you to make the right decisions and take the right action. The first action is cash and cashflow. The first thing is, you need to know where your expenses are. Know your money in, money out. There’s so much to buy these days that people are just that crazy about buying and subscribing to this little thing. Now is the time to slim down and trim the fat. There’s an awesome app that I use called You Need A Budget. It’s so simple and easy, so you know where your expenses are. Here’s what’s cool. You can start to use this app to figure out ways to reduce your expenses and to be frugal, which is going to be necessary.
The way in which we’ve consumed in the past is going to change. Supply chains are completely disrupted. You’re going to find that the goods that were expensive are cheaper than the goods that used to be cheap. Looking at how supply chains work, because of how clunky it is now, things are going to get stupidly expensive. I would do two things. Number one, you’re going to want to get a handle on where the money is coming from and where the money is going. Establishing that budget and then starting to trim down. The first thing I would do in trimming down is to prioritize because there may be some situations where you don’t have income for a couple of months. You need to know where to cut and what to cut. Instead of making a decision then, in the emotional frenzy, it’s determining what are the priority of your bills right now?
Going back to my 2008, 2009 experience, I prioritized my finances. I knew what I could get away with not paying and I knew what I had to pay. The biggest priority for me was my contributions. Contributing, whether it’s tithing or charity for you. The second thing became my family. It was the home we lived in and our transportation. I had a car repossessed during that time because we didn’t need two cars and there came a month where it came down to my priorities of bills and I chose those priorities, but I determined that in advance. I defaulted on quite a few business loans that I had because they weren’t a priority. Obviously, since then I paid everything back and got everything cleaned up from a credit standpoint, as well as the relationship I have with creditors, my credit score, and so forth. I’m fine now, but during those times of crisis, I had everything prioritized. Do that. Prioritize your bills. Know that if it came down to it, and you only could pay a few, which ones would they be? Knowing that in advance is huge.
Financial Actions: Sell stuff, get some capital, and donate.
It’s also a nice time to negotiate. This could be negotiation with your landlord. I’m doing that. The office space market is going to get hammered and cleaned out. I would be willing to bet that the way in which we office and work is going to completely change because of the experience of remote work. As well as having stringent finances and realizing that, “There’s a lot of expense that goes into my rent.” I have several months left of a seven-year lease on this building, which is a big building and way more space than I could ever use even when there are people here. We’re renegotiating because the lease is up and I know that then is going to be a different environment than now. I’m figuring out ways to cut there.
You also look at your cable bill and negotiating with that, finding new deals. I guarantee most service providers are figuring out ways to cut because so many people are canceling. They’re trying to figure out ways to discount this and discount that. If you don’t call, you’re not going to get it. They’re not just going to call you up and say, “We’d like to discount your internet bill, or we’d like to discount your phone.” These are times which you can start to negotiate, find deals, and cut your expenses, but still get the same services and goods.
Also, managing your credit. Most credit cards now give you a credit score for free so monitor that if you start to get credit dinged. This is going to be an environment where it’s going to happen potentially. You need to have the resources to be able to improve it. Lexington Law is a company that I’ve used personally for years and it’s an easy service. Most of it is automated and all online. This is also a time where I’ve seen some reports where you have a lot of people paying down credit. From a low credit standpoint, this is a time to not pay off your low-interest debt. I remember back in 2008, 2009, this is when banks were cutting credit lines like business credit lines and home equity credit lines. I had a big home equity line against my house and I drew 100% of it. I didn’t spend it but it’s in cash and it has a low interest.
I look at the banks closing that down, versus me having the cash and paying interest on it. I’m going to take the low interest on it every single day of the week. It’s going to position me for making better decisions and taking some action that I can take now that I may not have been able to take if I didn’t have access to cash. Evaluate your debts. If it’s a low interest, do not pay them down. Keep cash. Cash is way more valuable than paying off something that you can’t sell or getting the credit line completely cut and not being able to use it.
Also, check out TheOrganicPrepper.com. They have a whole section on their blog about being frugal. Where you can cut how to grow your own vegetables. A lot of ways in which you can learn to cook. There are some things that you can teach kids, start to study, and also find opportunities to have fun that don’t require going to Disneyland, Disney World, or a vacation. Also, start to understand bartering. This is going to be an environment where I would say trade is going to be way more prevalent than it had been in the past. If somebody needs this, you can provide that. I believe this is the time to look for those opportunities.
Those are three for cash and cashflow. You want to have cash. This is where the dry powder idea comes from, which is number four, financial actions. Keeping liquidity in areas that provide interest but are susceptible to being taken. With my other company Paradigm Life, we specialize in insurance products and how they play a role in personal finance. I have pretty much all my cash in these vehicles and in well over a dozen different insurance policies. Insurance companies are contractually obligated to lend you that money. It’s one of those circumstances where I know that I have a tremendous amount of dry powder so that when opportunities do present themselves, I can capitalize on those quickly.
I earn good interest on what the insurance company pays me as opposed to what a bank pays me. Diversify your liquidity. There are a lot of emotional decisions that go into buying metal like gold and silver. These are the crisis investments, the crisis assets, and I have a lot of gold and silver. If you don’t have any, I would definitely encourage you to look into that physically. Tom Dyson, who was a guest a few months ago is writing postcards from the fringe. He talks extensively about gold and its role in history as far as how it has been used as the benchmark for money and is continuing to do that during this crisis.
It’s an already established rule. Despite how digital things have gone, it is already an established habit that people have as far as what is safe during times of crisis. If there’s ever an end to the long-term debt cycle, which we talked about with the Richard Duncan episode. Gold is typically the place to be because most likely the new long-term debt cycle is going to start with potentially a new reserve currency. Who knows? It is one of those assets that you know is safe during times of crisis. Remember, you need to be smart about this. Consult with a wealth strategist and a financial advisor in order to make the right decision there.
Financial Actions; Right now, people are heightening their game when it comes to selling, so put yourself in that emotional state where you can operate the three sides of the coin: heads, tails, and the edge.
I would also separate your dry powder from your general expense account. Create a savings account. Create something that you have rules attached to. I have rules attached to three accounts that I have where no money is spent out of those accounts and they don’t pay bills. They don’t pay off a credit card. They are not used for any expenses. They are used for opportunity. Create some side account or repurpose an account you already have as your side account, your dry powder account. Sell things during this time. Donate them to charity and get the charitable deduction, or sell them. Facebook Marketplace. You have local classifieds that are still widely being used. I have a friend I used to work out with, and he works for a classified section of one of the local news organizations and they’re blowing up.
Number five is investments and assets. It’s going to be a really interesting time because I remember back 2008, 2009 so many people got into investments, this deal, that deal because they were so emotionally vulnerable. It was crisis, fear, “I’ll buy it.” “I’ll subscribe.” “I’ll do this.” I’m starting to see a lot of it especially when it comes to gold and silver. It comes down to the dollar as the reserve currency is going to end. The story there is so emotionally driven that it leads people to make poor decisions. I’ve made them in the past. I bought a ton of gold and silver, because of these things, and I realized that it probably wasn’t the best decision I could have made relative to the other decisions that I had. You’ve got to be smart here because the sales acumen of businesses is going to go up a lot.
I’m not saying that sales is bad, part of my business is sales. What I’m saying is that, people are heightening their game when it comes to selling. Be aware of that and put yourself in that emotional state where you can operate the three sides of the coin. Heads, tails, and the edge. A salesperson is never going to tell you not to buy what he’s selling. He’s always going to tell you to buy it. That’s one perspective. What’s the other perspective? Most people don’t go to the other perspective. Go to the other perspective. What would the opposite of what he is saying be? Who would say it? Find a person that is somewhat credible that is saying not to do whatever you’re being sold.
Now you have the two opinions, you can sit on the edge and make the best decision. That comes down to seeing both sides, getting more information, educating yourself and now you’ve positioned yourself to make the best decision. That’s one thing to be aware of. Also, I would revert back to this emotional cycle. During the times of euphoria, it’s the biggest financial risk that exists. The time between depression and despondency is the ideal place to make a decision. It’s right at the very bottom where everybody’s saying not to do something. Blood in the streets is often the quote that’s used. When there’s blood in the streets, even if it’s your own, that is when you should buy. That’s not right now. That’s why dry powder or liquidity is vital.
We’re going to be going down through these emotional stages. Anxiety, denial, fear, desperation, and capitulation. “This investment is not for me, I’m getting out and never getting back in.” You’re going to see this. There’s so much money tied in the capital markets. There’s so much money in pension funds, 401(k)s and IRAs, it’s insane. There’s going to be a lot of selling because of what type of tsunami is going to hit. Whether it’s GDP, second-quarter earnings, or third-quarter earnings. It’s going to be crazy. At the same time, that’s one perspective. You’ve got to know the other perspective and when you sit on the edge, you can now analyze the additional information which is emotional states. That will help you start to buy in the right environments.
That’s where I would say a lot of the investments are going to come from. It’s during that stage, but at the same time, you know that I’m always big on business, that’s my biggest investment. I’m my biggest investment because I’m not meant to be a trader. I have a lot invested in real estate. I sold more than half of my real estate in 2019 because I knew we were in this bubble place. For me, I look at the biggest opportunity and it’s in business. That’s what I often communicate through this even though I do make investments. If you love investments and that’s a passion of yours, make it a side business of yours. That passion is going to give you information, expertise, and hopefully a lot of these ancillary things as far as your emotional state and the structure of things is concerned, the philosophical things and psychological things. That will help you be a better business person.
How I look at businesses is, leadership is number one. What leaders do is they serve. Whether you’re a leader or not, it doesn’t mean a leader in the formal terms, whether it’s a manager, an executive, or a director. I’m not saying that. Leader is an archetype, it’s a persona. That persona exists in you, it is inside of you. That king and warrior inside of you, male or female, it’s there. You just have to know what that is, identify it, and figure out how to bring it to the service you provide others. People gravitate toward leaders. They’re attracted by leaders. They follow leaders. Honing in those leadership skills allow you to leverage that, and then help and help a lot more people because doing it by yourself, is single-dimensional, and you’re only going to get a certain amount of output from that.
Make some investment in yourself even if it’s just time. Finding opportunities to serve and do it without the expectation of pay. If you think there’s something that would be valuable for a person, or valuable as a business, try to do it for free to see if it is valuable. Do more than what’s expected. Go out of your way to help people. Build and enhance relationships. These are things that don’t require any money but they do require the right state and mindset and also an identification of that leader inside of you. I would say this is a time that you’d want to double down. Do the things you’re most afraid of. Do the things that give you the most anxiety. Do the things that you were afraid to do in the past. Make the commitment and do it. The fear that exists is all mental. It’s all mental fear, but that experience will teach you some tremendous lessons and help you to identify opportunities, both in the short-term and in the long-term.
Financial Actions: If you can keep your head straight, keep yourself liquid, keep yourself lean, mean, and efficient, then you’re going to crush it.
Two more things when it comes to investments and assets. First, it’s the idea of asymmetric risk and reward. That’s where making small bets but getting huge upsides, or multiples of those bets. These are not the times that getting the standard long-term interest rate is relevant. Now is the environment to find deals. Deals happen in disruption. Don’t settle for small interest rates as far as your investments are concerned. Try to find the highest interest rates as it pertains to your tier one security guaranteed bucket. Your cash liquidity. When it comes from an investment standpoint, these are the times in which you can get multiples. You can get deals on them.
2010 was the best time after the financial crisis of 2008, 2009. Everyone said housing had crashed and nobody should get into the housing market. I got a few deals during that period of time. I know people that cleaned up because of buying during that time. Now’s the time that there’s going to be tremendous disruption and opportunities to make some good investments that give you this asymmetric risk-reward type of return. These multiple returns. Finally, it’s the identification of assets when it comes to cashflow. In the end, capital gains is going to become income. If you buy low and then sell high, that money is either going to be income or it’s going to have to go into another investment. Who knows what the investment environment is going to be then?
That’s where focusing on your tier two and tier three assets. As I talk about my book Heads I Win, Tails You Lose, these are assets that produce monthly or quarterly income. This is income that’s going to be consistent for a really long time. A perfectly leveraged income. Here is when more education and information is required on your part so you can make those right decisions. I’m not saying the capital gains isn’t necessary, but in the end, what gives true lasting wealth is income. Property values are going to tank, in my opinion. At the same time, those that bought for cashflow are going to be just fine. There’s maybe some slight disruption to rents but people need a place to stay. There could be some months between stimulus in responses by the government to help tenants and also help landlords where you may not get a month or two of rent.
At the same time, it’s going to be there especially if you bought in the right areas. Cashflow investments, there’s going to be a ton of those. There are always going to be people that have gotten in the game in the last couple of years, and it may not have been the right time. The reason why I sold my properties is I would never pay those prices for them. It was at such a high level and the cashflow wasn’t justifiable. The values were too high. I decided to sell. I don’t know if selling is appropriate, probably not. At the same time when it comes to the decisions you’re going to make in the years to come, that is where you want to get into investments that obviously produce a high amount of long-term cashflow as well.
That’s what I wanted to cover in this two-part series. These are some of the core financial decisions to make during times of crisis. I’m going to speak a lot to this as the months start to transpire, and the topics from guests as well. I believe that if you can keep your head straight, yourself liquid, lean, mean and efficient, you’re going to crush it. There’s a tremendous opportunity coming. I believe that if you guys continue to read, continue to implement what I’ve talked about, this is going to be a prime environment to establish personal wealth beyond your expectations and beliefs before. At the same time, you’re going to be able to help a lot of people. They’re going to need it. I mentioned tons of books, lists, graphics and terms. Make sure you also subscribe to the newsletter. Give me your feedback. I’d love to hear from you, Hello@TheWealthStandard.com. Thanks for reading. Thanks for your support. You guys are amazing and we’ll talk to you next time.
We are right smack in the middle of a crisis, and we are yet to see some ripple effects that will profoundly impact almost every aspect of our lives. Now is the time to be prepared and take some essential financial actions that will allow you to seize the opportunities that come once the worst is over. In the first episode of this two-part series, Patrick Donohoe elaborates two of the five things you can do to make the best, financially speaking, of the opportunity the current crisis presents. He talks about having the right state and mindset and creating a structure from which you can anchor your goals on. Join in and be prepared to make the best out of the situation and thrive in the post-crisis world.
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Watch the episode here:
Listen to the podcast here:
Top 5 Financial Actions You Can Do During Times Of Crisis (Part 1)
I’m doing this one solo. There are going to be two parts. The first part is going to be probably number 1 and 2 of what I consider the Top Financial Actions to Take During Times of Crisis. Part two will consist of the Final Three Actions During Times of Crisis. I felt it was important to speak about this. The guests that I’ve had on before, we’ve all spoken to what’s going on with regards to COVID-19. The disruption to the economy. As I’ve had some time to digest, to think about, what is going on? What are the ripple effects based on this rock in the water? How long is it going to last? What are they going to be? What to pay attention to? I’m finally ready to start speaking to that. Things that you as an audience can do to prepare yourself to capitalize on the situation. That’s what I’m going to start into. There are a lot of updates that we’ve been making through the show. We’re creating our resources page for you. You can find it at TheWealthStandard.com. It consists of some of the businesses of guests that we’ve had. It also consists of courses that I’ve done. Let’s go ahead and get into it.
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As I look back the world has changed dramatically and it’s happened quickly. I remember 2008, 2009 where I was in some pretty rough shape. I was starting a business and having the financial crisis in sue, it felt quick. It was one week after another week, and it continued to get worse then it gets better. It was one step forward, three steps back. I look at where we’re at as a society and it’s been interesting. It’s easy to talk about the things that you can’t control. It’s easy to put blame on media. It’s easy to say this or that regarding where the virus came from and what China did or didn’t do? What the president should or shouldn’t have done? There are many things that we focus our attention on that we have no control over.
I got caught up in that and I get it. These are some dire times and often when we start to hear statistics and soundbites, it engages this unconscious part of who we are and we start to react to things. I’ve caught myself to that a number of times. At the same time, the guests that we’ve had on and what we’ve talked about, as well as some of the material that I’m reading, videos that I’m watching with a lot of time to study and reflect that I didn’t necessarily have before. I’ve come to at least conclusions to the point of, “What can you do to influence your life?” Some things that you can do, you can control things to be aware of so you can make the best of this and you can capitalize on this opportunity.
Firstly I’m going to dive into is, we’re going to be experiencing some ripple effects. What’s a ripple effect? Ripple effect is, a drop us a stone in the water or rock in the water. You can even have an earthquake under the ocean and you have a tsunami. There’s obviously a spectrum of how big a ripple could be, the magnitude of a ripple. We don’t realize that it wasn’t an earthquake of sorts. It wasn’t a pebble or a rock in the water. It was an earthquake. The earthquake waves are still coming. Some of the statistics that represent this is, if you look at quarter one January, February, and March, we only had disruption to the first quarter in the latter part of March. If you look at productivity, there are different measurements of productivity of people.
The Bureau of Labor Statistics has a couple of them. It was down in quarter one by negative 2.5% which is huge. You have the velocity of money not to get into the complexities of it. When I spend $1 at a coffee shop, the coffee shop then pays their employees and the employers spend money, and then the businesses that the employees spend money. There’s this money multiplier. M2, which is one of the common ways to measure the velocity of money has also gone down significantly, and the stimulus that is done. Whether it’s quantitative easing since 2008, whether it’s what they’re doing now, it’s not working at all. It’s keeping things at bay.
We had some employment figures out, which were shy of 15%, but it didn’t take into consideration some critical weeks. There are estimates that unemployment’s 20%, 25%, maybe even more when you count underemployed in there. GDP is going to take a massive hit because nobody’s out. Nobody’s spending. That right there is going to be a big indicator as to how severe, what the magnitude of this earthquake is. The psychological impact that we’ve experienced. I was talking to my parents, they live in Massachusetts and it’s different here in Utah. I’m from Connecticut, partly from Massachusetts. There’s a term called “maskhole” and it’s coming out when it comes to the masks.
My dad got shootout by these old ladies when he was standing in line and he goes down the wrong aisle or doesn’t go the right way in the aisle. The psychological damage where people are afraid. Whether there’s a reason for that or not, it’s the fact that there is psychological damage associated with people washing their hands, wearing a mask. There are some psychological things that are going to inhibit business, whether it’s theaters, transportation, going to stores in general, people interacting, which is going to have long-term effects. You also have travel. We’ve become this connected world.
This idea of globalization where different countries are doing different tasks. We’ve created a global supply chain because of it. Demand comes from this country, but yet a piece is manufactured in China, in Europe, in South America, Africa and everything comes together. That’s all been disrupted. The earthquake is hit but we haven’t seen the waves. We’ve seen some ripples or maybe some signals as to what’s coming. There are many different reasons why we could be concerned for all of this. These are things that are outside of our control. On this show, I’m going to keep repeating this, it’s based on things that are within our control, having the information that we have.
It’s powerful to look at this from how I view things because I’ve gone through some difficult times, but these are difficult times and nobody’s ever gone through. It will be interesting to see how humanity rises to the occasion. We’ve talked about the idea of creative destruction. Joseph Schumpeter, the idea that, “When there are massive disruptions, humanity rises.” Humanity is going to rise. I know that they’re going to rise. They’ve done it for millennia, they’re going to do it again and figure out ways to be more efficient, ways to create a product, and ways to create the new ways of being entertained and the list goes on and on.
The biggest thing I would say is as this disruption occurs, it’s in a person’s mind as far as what they think something means. The meaning of things is being created by the populous and collective. That’s why it’s important to have your own individual perspective information, trying to prove and disprove not just your opinion, but other opinions so that you can come to the truth. If you could do this, it is known that these are the times where the greatest opportunities are. There’s a field of study called Behavioral Economics, which talks about how people behave around money. It relates to everything.
Financial Actions: The psychological impact associated with this crisis is going to have long-term effects on business and human interaction.
It’s behavior in general as far as stimulus and then the response, what a person does given a set of circumstances that they are exposed to. There is a curve. The curve that I’m going to post is the investor mentality, but I’d also say it’s the business mentality because, during these times, there’s a story going on in people’s minds. We’re going to go back to the way it was. We’ll be able to hang on for a month and then we’ll do a lot of business and be able to pick up there. Businesses are going into the hole. It’s hanging on, hoping that things come back. This curve states that the point of maximum financial risk is where there is maximum euphoria. The whole idea of nobody buys low and sells high, everybody buys high and sells low.
I often post at my other company Paradigm Life our eLearning in our courses called the Dalbar Report. Dalbar is an independent research group. It studies the average returns people receive. It’s mainly alluding to the impact of human behavior when it comes to rates of return, not necessarily market indexes. These emotional stages that you euphoria where everyone thinks everything’s amazing this is leading up to 2020. 2019 was an amazing year for people, investors, markets, businesses, capital, and liquidity. This is the next stage of the curve, which is anxiety and denial. There’s some anxiety now. You started to see sell-off, but there’s like, “I need to get back to work.”
You see people protesting. Denial that this is going to have a long-term impact. Fear is the next stage and then it’s desperation. These three are the ones to pay attention to, denial, fear, and desperation because they can oscillate back and forth. After desperation is panic. I don’t think we’ve seen desperation yet. There’s the next stage, which is the capitulation. Maybe the investment and this business isn’t right for me. You start to see people file bankruptcy and retire early. You have despondency and between despondency and the next phase, which is depression, this is the point of maximum financial opportunity.
State And Mindset
There are other perspectives as far as this is concerned but this curve is consistent with how humans behave. Most of our behavior is unconscious. It’s pre-programmed and we operate in a similar way. That’s why this field of study has been created. That is number one, as far as what you can do to prepare yourself to capitalize on this opportunity, which is state and mindset. I consider this being the watchman at the gate of your mind. What does that mean? I’ve tried to structure the way in which I lead, do podcasts, speak, show up for my family, and show up for myself, is in a sequence. The sequence is state, story and strategy.
State is something I’ve discussed in the show. State is a function of our physical well-being, where we’re focused, and the language that we use. It’s how we describe things. There’s a difference between like, “Crap,” and “Wow, this is interesting.” Even though it can be applied to the same situation. I also look at focus. It’s what I have, not what’s missing. What I’ve gained, not what I’ve lost. You can look at anything, any situation, any circumstance, and find that there is something you will gain from it. This is all unconscious, at the same time most people gravitate toward what they’ve lost. For me, what I’ve focused my attention on and improving is my leadership capabilities, my leadership state.
Being in a zone so that I show up for my team, the audience, and my family because I know that most people are not going to respond in a strategic way. They’re going to respond in a carnal instinct way. How do you do this? First off, you’re going to recognize that there’s going to be way more bad news than there has been already and a lot of it is going to be economic. The economic is going to cause even more ripple effects. It’s a main ripple effect and then multiple ripple effects. As some of you know who’d been reading, when we started to shut down, I sent my office home when we had an almost 6.0 magnitude earthquake. I was here in the office. I was the only one. The building was shaking and swaying back and forth. It was crazy.
The reason why I brought that up is that there have been aftershocks and there’s still going on. It freaks my wife and dog out. For me, I look at, “We’re going to get a lot of aftershocks.” When the earthquake hit, we’re going to have a tsunami, ripple effects, and aftershocks. Those are going to carry ripple effects as well. The worst has not been seen yet in my opinion, from an economic standpoint. I look at being prepared, being in the right state of mind, is going to position you to create a tremendous amount of value for people and capitalize on some amazing opportunities. People will identify leaders more in this environment than in any other environment. In the euphoria environment, it’s difficult to stand out as a good leader.
In times of crisis when difficult decisions need to be made, that is when true leadership steps up and is identified. It’s the yin and the yang. The more severe the state of things in the environment, the more it creates like, “That person is an amazing leader.” The other end of the spectrum is also extended. We’re seeing murders, suicides, home invasions, and tons of crime. People are going stir crazy. The emotional intelligence that exists in people is low. What that does is present a huge opportunity for you to step up as a leader and help a lot of people with who you are in the state that you’re in.
The idea of state leads the story. When you’re in the right state when you’re looking at the glass half full as opposed to half empty. What you have versus what’s missing, what you’re grateful for as opposed to what you haven’t been given or what you deserve or you feel entitled to, it’s also one of those ideas of words because words describe what our story is. What words are we using? Are you using unbelievable or are you using, “This is horrible?” Unbelievable is a word that can connote whether good or bad. At the same time, it doesn’t have the tone or the psychology piece to it to be bad. It’s carefully choosing your words.
Being the watchman at the gate, not letting those thoughts come in, knowing how to position yourself so you can do something about it. The final thing that I would say in regards to a state in mindset is another sequence. The state that you’re in, your physical well-being, what you’re focused on, the language that you’re using, the story that you’re telling. What is going on? It’s disruption. This is a great opportunity. I have a lot of opportunities to serve. Finally it’s strategy. It comes down to the how. First define what the how is, what is the outcome that you’re looking for?
Financial Actions: Being in the right state of mind is going to position you to create a tremendous amount of value for people and capitalize on amazing opportunities.
You start to create your game plan based on that, but you don’t create the game plan before you’re in state and then have the right story associated with it. The final thing is, another sequence that I’ve been using a tremendous amount, especially when it comes to financial advising, are principles, processes and products. Principles are laws of sorts. Gravity is a principle of nature. Honesty is a principle of morality. You also look at other principles when it comes to finance, interest rates, and evaluations. There are principles out there that can be identified. There are also principles of commerce exchange, exchanging with one another, exchanging your services and getting something in return. You also look at principles in people.
Structure
People are the true assets. I look at relationships as some of the most valuable assets. Its processes, which is the structure of things. This is going to be number two. Number one is state in mindset. The reason why I want to use structure is because there’s only so much energy we have during the day. It’s an allotment of energy and keeping yourself healthy, keeping your head and I’m going to get into some structure and some strategy as far as how to do that. Being able to have energy focused on the dynamic. Not the approach reoccurring or recurring, but the dynamic, it’s powerful. That’s why structure is powerful because you can set yourself up so that you don’t have to think about things.
Things are done in a certain way. You have a routine, you have habits that allow for all the energy to be focused on dynamic things the day-to-day decisions that you maybe didn’t have to make the day before. The decisions for an opportunity, new content, and ways in which you can be a better leader and do those things. It’s establishing essentially a structure so that all of the routine things you do on a daily basis are pre-programmed. You don’t have to waste your energy on that. An example I heard maybe to illustrate this point is, when we get up in the morning with an alarm clock, the buzz when that goes off, it ignites in every human being an adrenaline rush.
Our DNA associates that sound the same way you would associate being attacked by a Saber-toothed tiger 10,000 years ago. When that happens, it jars us out of bed and expands the majority of our adrenaline, testosterone, those chemicals that have our body respond that way are expended for the day and they’re gone. There’s a strategy there as far as waking up with peaceful music, which doesn’t necessarily waste those valuable chemicals that you expend and allows you to apply those at different points during the day. What I would challenge you to do is, start to establish a structure for this summer. The next few months are critical. Some of the hardest times are going to come after the reportings from Q2 or quarter two ends in June. The reports usually come out mid to end of July. Creating all of this now is going to prepare you. When a lot of these things go sideways, you have structure, you’re not trying to figure it out then. It’s optimizing your energy.
Craig Ballantyne who wrote The Perfect Day Formula is applicable. Some of you maybe had your routine and it wasn’t necessarily as valuable as it should be. Revisiting daily routine, structuring your day, and your priorities. Perfect Day Formula from Craig Ballantyne is ideal for that because Craig is a genius at that. He’s done that with many entrepreneurs and business owners. It’s a short book and it’s simple. Perfect Day Formula as a resource there where you can start to structure your day and you systematize the predictable. There’s a saying that we started using with my other company Paradigm as how we’re operating and what we’re looking for as far as opportunities are concerned. It’s a saying by the Four Seasons Hotel, which is called “Systematize the predictable so that you can humanize the exceptional.” What that means is, it’s all those routine things that you do on a daily basis. It’s the setup structure for those things. One way in which I have re-evaluated my goals to finalize the redo of some of my annual goals. The way in which I’ve done that is using what’s called the Wheel of Life, which is a self-assessment.
The Wheel of Life is essentially a wheel in which you rate the different aspects of your life, your physical well-being, financial well-being, mental well-being, spiritual, relationships and physical situation. You rate yourself there and it starts to help you evaluate where the areas are that you can make the biggest difference in. You start to create your goals and your routine around that.This is important because the goals that you may have set, they’re probably not realistic anymore given that the environment has changed, at least not all of them. That’s why I’ve reevaluated all of my goals. Looking at establishing where those goals are, that’s going to help propel the daily routine.
Craig talks about it in The Perfect Day Formula, you can start to chip away at some of those goals and have something simple to do on a daily basis and make those micro improvements toward the end results. The morning routine as far as structure is concerned is huge. I’ve redone my morning routine. I come to an office and there’s nobody here. It’s completely quiet and dark. Everybody’s working from home. We have a daily standup with my team, but it’s given me the opportunity to not have any distraction or disruption. I always get the knock on the door when I’m in the middle of something. I don’t turn people away. It’s one of those things where it’s allowed me a lot of time too to be consistent with some of the things that I find valuable.
What I started using is a neurofeedback device called Muse. Muse is a feedback part of meditation. What it does is it allows you to see where you’re at when it comes to your mindset. It’s not expensive at all. I do it on a daily basis. What it does is it shows you where your brain activity is with sounds. When you’re active, all over the place and thinking about this and this, you’re in an active mindset and it measures that by the severity of weather in the environment. You have to wear earphones associated with it, but you’ve got the desert, the rainforest, and the ocean. There’s one that’s general sounds, but when you are active, not calm and not focused, the weather is all over the place. What it does is, the weather and it gets less severe and calm the calmer you get. Eventually, you have birds that start chirping when you are calm and in the zone.
There are days where I don’t get any birds or 1 or 2. There are days where I get 50, and this is in a ten-minute timeframe. What it does, it gives you feedback so that you’re not telling yourself stories. It gives you actual feedback so that you know where you’re at and you know how much time and attention you have to focus on your meditation, your gratitude getting in the zone. That’s one thing that I’ve started doing. Now that I have my goal is getting restructured, I’m sitting back and once I’m in the zone, I start to ask myself strategic questions.
These questions, you don’t have to ask them all in one day. I usually ask 1 or 2 per day. I learned this from Keith Cunningham, Keys to the Vault and there are a few other books that he’s written. The questions are insightful and asking yourself these questions in the wrong state can be catastrophic. That’s why being in the right state, doing meditation, getting in that zone is powerful. The questions are like, “What do I want? What in my control is preventing me from achieving that? What don’t I see? What if I’m wrong? What is the result that I would be ecstatic about? How can I make the biggest difference? How can I be the best conversation on somebody’s day? Who do I need to call? Who do I need to write? Who would benefit from a conversation with me?” This is a big one. Maybe a whole thinking session dedicated to this. “Why am I paid? What must I believe about myself to be paid more? What are the ways I can go above and beyond what is expected that I am not paid for?”
Financial Actions: Structure is powerful because you can set yourself up so that you don’t have to think about certain things.
Here are a few others. “What is the least amount I can earn and live an unbelievable life? What am I spending money on that is not producing the result I want? If I could devote time to one thing, what would it be? What about if my life gave me tremendous enjoyment many years ago but doesn’t now? Is there an opportunity there?” These are a few. These are profound, insightful questions that you can find online. It may not feel like it’s that significant, but asking yourself these questions creates tremendous breakthrough and insight as to where opportunities are. The reason why I wanted to start here these first 2 of 5 things to do in a financial crisis, is because being in the right state, having the right mindset and then structuring your day so that all the different routine, things that you do, don’t expend any unnecessary energy. It will position you for making the best decisions given what’s going on.
The next three are going to be cash and cashflow, dry powder and investments, and assets. I wanted to cover this again because it sets the stage for where the opportunities are, as well as a dry powder, which is more opportunity fund. If you are familiar with the language I use in the book, Heads I Win, Tails You Lose. Finally, investments and assets and we’re going to revisit the financial, the behavioral economics curve when it comes to most the collective state of mind. Where in that state of mind are the best opportunities and the worst opportunities to make a decision or take action on something? Thank you for reading this episode. I will talk to you next time. Take care.
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.
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that person was Patrick Donohoe when he first explained what you're about to learn in this book.
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ABOUT THE AUTHOR
Patrick Donohoe is the Founder and CEO of Paradigm Life and PL Wealth Advisors. Patrick and his team teach thousands how
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Patrick was recently honored by Investopedia as one of the Nation's Top 100 Most Financial Advisors. He is a highly sought
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Patrick grew up in West Hartford, Connecticut, and attended the University of Utah, where he received his bachelor's degree in economics.
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WHAT'S INSIDE THE BOOK?
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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
Heads I Win, Tails You Lose
by Patrick Donohoe
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Jason Hartman is the Founder of the Platinum Properties Investor Network and host of the Creating Wealth podcast, which is heard in more than 180 countries. Jason is a genuine self-made multi-millionaire and serial entrepreneur who owns 21 businesses in investing, financing, real estate development, and SaaS software. He has owned properties in 11 states, had hundreds of tenants, and been involved in several thousand real estate transactions. He has visited 83 countries, enjoys adventure, fitness, and lifelong learning.
Lawrence W. Reed is the former President of the Foundation for Economic Education (FEE). He is the former President of the Mackinac Center for Public Policy. He is the editor of the bestselling book “Excuse Me, Professor: Challenging the Myths of Progressivism”, author of the pamphlet “Great Myths of the Great Depression,” and the new book “Was Jesus a Socialist?: Why This Question Is Being Asked Again, and Why the Answer Is Almost Always Wrong.”
Russell Gray is co-host of The Real Estate Guys™ Radio and TV Shows. He has been a financial strategist since 1986. As a faculty member for the California Association of Realtors, Russ taught Real Estate Finance to Realtors® pursuing the prestigious GRI designation. He is a popular speaker and author.
