CI 48 – Learn about Judicial Foreclosure with Chris Cabanillas

Cabanillas
On today’s Commercial Investing episode, Jason interviews foreclosure defense attorney, Chris Cabanillas from Cabanillas Law. Chris started his own law firm in 2006 and focuses most of his practice on mortgage loan modifications, foreclosure defense, and other real estate issues. Chris sits down with Jason and shares some wisdom about why foreclosures take a while to process and some of the action steps you can take if you’re facing foreclosure.

 

Key Takeaways
3:50 – Somebody could be in default for thousands of days.
7:15 – One of the reasons why judicial foreclosure takes so long is because of documentation problems.
9:40 – What’s Chris’s thoughts on shadow inventory?
14:30 – What should you do if you’re facing foreclosure? Chris explains.
20:40 – What’s the best way to pay for a foreclosure attorney?
27:10 – The housing marketing is very diverse, so this advice may not apply to everyone.
29:08 – Property prices are shooting up in Manhattan because of foreign investment.

 

Mentioned in this episode
http://cabanillaslaw.com/

 

Tweetables
“Only 5% of home-owners who are getting sued for foreclosure actually go to court to fight the case.”

“Old laws concerning judicial foreclosures inhibit price discovery and therefore lead to much slower market healing.”

“Foreigners always want to park some money in America”

Transcript

Jason Hartman:
It’s my pleasure to welcome Chris Cabanillas to the show, he is an expert on foreclosure law and he is the owner of Cabanillas Law Firm. Chris, welcome, how are you?

Chris Cabanillas:
Good thank you, thank you for having me on the show.

Jason:
Good. Well, just in our pre-show quick discussion that we had, you had some very interesting thoughts about foreclosures and shadow inventory and so forth, and the shadow inventory issue has long been debated. I think I’ve been talking about this for 7 years easily, maybe even longer. The problem is that nobody really knows, except maybe the Federal Reserve, I guess Janet Yellen probably has a number, maybe Fannie Mae does, and Freddie Mac too. What are your thoughts on this?

Chris:
Well, this is just through our experiences – we have offices in three states, and they’re all judicial foreclosure states – but what I’m seeing is the length of time it takes to get through judicial foreclosure is very, very long, taking several years on average here. I think even the larger problem or the larger reason, if you will, that the shadow inventory is so big, is that so many people haven’t even been sued. I’m seeing a ton of people that maybe haven’t paid their mortgage in 3-5 years, maybe they’ve given up hope on getting a loan modification. Yet the entity that owns the loan (even though we always call that entity a bank, it’s typically not a bank, it’s usually a secured entity that was created to buy up all the loans) is not proceeding with a foreclosure action against them. When you look at this, you have a situation where the foreclosure activity might not seem like it’s very high, but somebody could be in default for thousands of days.

Jason:
Oh no, it’s really insane. Do you have a list, or maybe you can just name off a few of the major states that are judicial foreclosure states?

Chris:
Sure, the big ones are Florida, New York, New Jersey and Connecticut.

Jason:
Judicial foreclosure, to me, seems like an absolute disaster – right or wrong? Do you have an opinion as to why that law hasn’t changed in those states?

Chris:
Well, yeah, I think that first off, it’s just the set-up off how they have it. I think, frankly, that what’s happened is two things. In judicial foreclosure, someone has to be taken to court and obtain a judgement of foreclosure in sale. As we all heard about, there was a huge problem with Robo-Signing and a lot of the documentation not being in order when these cases were brought – and these cases were primarily brought by these large, mill factory kind of law firms that were just printing out these foreclosure actions and not really doing the proper due diligence. In judicial foreclosure, when these cases started getting defended, there were a lot of holes that got exposed in the system of how they did it. One of the big problems along the way was that with  these mortgages, since they were packaged up and sold to these securitized entities, there were certain transfers that needed to take place, but they weren’t taking place during the mania to get these mortgages packaged into the securities. Now they’re trying to enforce these mortgages and a lot of the deficiencies of the judicial foreclosure process  are being exposed. Because of all this, they were having difficulty moving those cases forward.
On the one hand, that’s really one of the big reasons why it got delayed. A lot of these judicial foreclosure states responded with requirements – in New York, for example, the plaintiff attorneys have to sign out and certify that an attorney has really looked at the documentation, and they have to sign their name stating that everything is in order for us to be able to proceed with this foreclosure action.

That’s just going to take time for them to get the documentation together and for somebody to look at it and actually sign their name to it – it’s all held up the process a bit.
Secondly, what’s happened is that these states, in their response to seeing these problems with the documentation and the Robo-Signing etc., have all created these procedures in their court systems to say ‘Look, if it’s a foreclosure case, before we’re going to allow this thing to really get litigated on the particulars or on the substantive nature of the case, we’re going to make both sides go to mandatory foreclosure mediation’. It’s been great for home-owners who have maybe had a lot of frustration dealing directly with the banks or with  lost paperwork etc. This puts the bank and their bank’s lawyers on the hook to actually have to give these people a fair shot to try and get it modified. That’s a process and that can probably take anywhere from 3 months to a year in many cases. I’ve seen some of those mediations go on for a year and a half.

I think those two things together have really dragged out the process of foreclosure. That’s if the foreclosure has even started, but again I think that the bigger reason is simply that I think there is some sort of conscious effort on behalf of these entities, and maybe the government is encouraging this, to really put on the breaks of bringing so many actions at once.

Jason:
Yeah, it just seems to unfair. Listen, the list of sins of the banks is so long that we don’t have enough time to talk about them, but by the same token, it seems really unfair to lenders. It’s not necessarily the banks; it’s the investors, of course, because these are all secure ties as we’ve discussed. It just seems really unfair that people should be able to live in their house for free for 3 years, doesn’t it?

Chris:
Yeah, on the one hand you would think it sounds like they’re being allowed to, but again, it’s not even so much that they’re allowed to. Again, I stand firmly behind the belief that the majority of these people – if the banks or the entities that owned them really wanted to move the foreclosure actions forward, they could. The statistics that I’ve seen in New York, for example, show that only 5% of home-owners who are getting sued for foreclosure actually go to court to fight the case. This means that 95% of these cases could be won on just simply a default judgement. Again, though, they’re not moving it forward and I don’t know why. I think it’s got to be a conscious effort that maybe they don’t want to overwhelm the market with all this new inventory, but I think it makes for a difficult understanding of what the landscape is. Are we really through the foreclosure process and all the bad times and everybody was really talking about back in 2009 and 2010, or is it still there and it’s just not really being exposed? Are we really just kicking the can down the road? That’s what I think is going on.

Jason:
Well, America is very good at kicking the can down the road in so many ways!

Chris:
[Laughs] That’s right.

Jason:
We never want to take our medicine in this country, do we? We just say ‘Well, we’ll do it tomorrow.’ But then that’s another issue. So what are your thoughts on shadow inventory?

Chris:
I think that there is just still a huge market that’s out there. Since we didn’t want to take our medicine right away, I think what’s happened is that it’s become more politically acceptable for people to allow this situation to go on and it allowed for the market to stabilize a little bit. I think the hope is that if the economy starts to improve, the anger against the investment bank etc. after the financial crisis would go away and we can all go back to business as usual. I think it’s really allowing for that to happen, but frankly, I think that at the end of the day, it’s really going to hold up a true recovery for quite some time because those properties are still going to slowly come out and hit the market. I think if we look back in 20 years, we’ll probably end up saying that it was the right call because it didn’t allow for the market to be overwhelmed with all the foreclosure properties. Time is going to have to tell.

Jason:
Okay, and I want to get some context for this discussion, Chris. In what states do you practice law?

Chris:
Our office represents homeowners in New York, New Jersey and Connecticut.

Jason:
Okay, so New York, New Jersey and Connecticut; all fairly high-flying states, certainly New York is. When I say high-flying, I mean cyclical, non-linear markets like California, like South Floria, Miami, Fort Lauderdale. They’re fairly expensive markets, for sure, right?

Chris:
Yeah, absolutely.

Jason:
When you talk about shadow inventory, I just want to try and make a distinction here. In these states with judicial foreclosures, that’s where the shadow inventory problem would seem larger, wouldn’t it?

Chris:
I would think so because in the other markets, they can more quickly take over the property. Again, we don’t know if they are. I don’t know if they have the ability to take over the trust deeds in non-judicial foreclosure states. I know that they have the ability to do it more quickly, but I don’t know if they’re executing it. From what I’ve seen and heard, it was a faster transition there and they did take it over more quickly, but I’ve got to think that there’s probably still shadow inventory there as well. We’re in these situations where they can execute and take over the property more quickly, but they don’t.

Jason:
Right, and I agree with you that there may well be that situation, but it’s so much easier for the lenders to foreclose in those non-judicial states, right?

Chris:
Oh, absolutely, 100%.

Jason:
In California, if you wanted to, you could foreclose in 111 days, right?

Chris:
That’s right. In New York, it could never be that fast.

Jason:
I remember quoting stats on prior episodes a long time ago, saying that the average foreclosure in Florida took like 960 days. That is insanity!

Chris:
That’s right. It can take that long to process it, but again, I’ve seen foreclosures in New York that have been handled by these larger, more mill firms, and they should have more of a process for it. I think that those take longer than the guy down the street who might be holding on to one mortgage – with that one it’s more personal and he’ll act more quickly. There are steps you can take to move it faster, I just think that they have so many files that they’re dealing with that they’re just sort of slowly getting through it.

Jason:
With that in mind, what you really see here is once again, the government with its old laws – I’m going to call these judicial foreclosures laws  old-fashioned laws – they’re really inhibiting what’s known as price discovery. If they would let this inventory clear the market and re-sell and be re-used by someone who’ll actually pay for it, then you’d have price discovery and you would have this healing much, much faster. Gosh, it’s very frustrating.

Chris:
Yeah. I can see it, and I think also, you have issues related to the title of these properties, which is causing a lot of problems. I’ve seen cases where the properties have been foreclosed on, yet these asset managers haven’t moved forward to take the property over or  to try to resell it. It doesn’t make sense to me, but I see it happening.

Jason:
Yeah, no question about it. Okay, so talk to us about some of the things people can do if they’re facing foreclosure, whether it be on a home in which they live or an investment property.

Chris:
The first thing you have to figure out is who the mortgage servicer is and who the investor is. You need to know if these  mortgage servicers and investors are modification-friendly. I’d say that the far majority of them are receptive and open to modifications, especially if those loans have been taken out pre-January 1, 2009 because then, for the most part, you’ll have the Making Home  Affordable Program applied to these types of mortgages. That’s where they’re trying to push to get the payments for principal interests, taxes and insurance down to around the 31% of gross income number. If it is, you can modify that. It used to be the case that only principal residences could be modified under this program, but that’s been switched as of, I’d say, about 18 months ago to a program where even if it’s an investment property, it can also be considered for the Making Home Affordable Program.

The first question is: Do you want to try to modify? If you modify, there are a lot of banks out there that have these programs. Aside from that, one way to try to get out from the situation as undamaged as you can would be to consider a short  sale. I say short sale because the majority of these properties are what you call ‘upside-down’, meaning that the amount owed on the mortgage is greater than the property value. Unless you’re going to come up with the difference in money, when you go to sell that property for its current market rate and you owe more than it, you’re going to have to ask the bank to forgive that amount to allow you to sell for that lesser amount. That’s called a short sale.

A lot of people take the short sale route to get out of the situation. There are certain consequences involved with doing that, and I think anybody who’s going to consider these different approaches or avenues really needs to consider that and speak to their tax advisers regarding how to handle that. It could be an unwelcome surprise if you have a cancellation of debt and don’t treat it correctly for tax purposes. Other than that, what’s very interesting and something that was one of the biggest surprises to me along the way is that you hear a lot of people talk about a deed in lieu, or basically where they want to just hand the property over to the bank.

Jason:
Yeah, deed in lieu of foreclosure, sure. So what’s going on there?

Chris:
There I’ve seen that it is very difficult. That’s probably the most difficult out of the three options.

Jason:
Yeah, I agree.

Chris:
The banks simply don’t want to take the properties over that quickly and they’ll often make sure that you have the property completely vacant before they’ll do that, or they’ll want to see you attempt to have the property sold via short sale before they’re willing to entertain it. I’ve had a lot of situations where people have moved out of the property and they want to move on with their lives and they can’t because the deed still remains in their name.

Jason:
I wonder why deed in lieu is the hardest. Isn’t it weird? One thing I also want to ask you is: When you talk about loan modification, speak to the concept of modifying the rate or the terms, versus the actual principle balance of the loan. First, the deed in lieu question.

Chris:
Yeah, with the deed in lieu, it’s an excellent point. I’ve read some statistics that say when a property is sold via short sale, it’s likely going to be sold for an amount greater than if the bank takes it over and tries to sell it as an REO. I’ve seen that statistic a number of times. In fact, I’ve seen statistics say that a property sold at REO is likely to be sold for 25% lower than that same property if it were to be sold at short sale. On the one hand, that could be one reason. I think that realistically, on the other hand, they simply don’t want to take on the liability of having to deal with this property. You have to maintain the property or a lot of the municipalities are going to get upset when they see that banks have taken over properties and the property then goes into disrepair, or perhaps there are squatters sitting in there..

Jason:
There’s one other high-touch human aspect that I think happens a lot of times in the practice of a short sale, and that’s the fact that the people are usually living in the property and as they’re doing their short sale, the sellers who are in default are seeing these people come through. Many times they get to meet them and they don’t want to rip the pipes out of the wall and steal the microwave because they met these people.

Chris:
That’s true, it’s a good point.

Jason:
They’ll usually leave the property in a reasonably decent condition because they may have looked them in the eye and shaken their hand. They know it’s a real person taking over the property, rather than some big, faceless institution. I think that’s another reason why short sales sell for more.

Chris:
Correct, I would agree with that. They don’t want to take these properties over and oftentimes, the municipalities are holding them liable if the property’s not nicely maintained and I’m just supposing that that’s got to be one of the reasons that they’re not really in the business of trying to take titles of these properties. If you have somebody that’s willing to hand you the keys and they’re not paying in the mortgage and you have the ability to take the keys back, it’s common sense that we would want to go ahead and do that for whatever reason. I think that a large part of this shadow inventory is not just a function of a judicial system that’s preventing this from happening; I think it’s by design that the owners of these mortgages and properties simply don’t want to take it over for whatever business reason that might be.

Jason:
Talk to us for just a moment, if you would, about how someone should engage with a foreclosure defense attorney. Should they be expected to pay an up-front fee, is it the typical to sign a retainer agreement for an hourly fee attorney relationship, is it a flat fee? How does it work?

Chris:
That’s a great question. I think that each situation is different. Also, which jurisdiction you’re in and how they do it is very important. In the New York, New Jersey, Connecticut area where we practice, we’re governed by strict rules as to the retainer agreement and the attorney-client relationship and how we do that, but yeah, we have flexibility in how we can design how we’re going to get paid. I think most people probably aren’t open to doing it hourly because they want to be able to limit their expectation of what their investment is going to be and to try to produce a particular result. Some people do it differently, and the way that we do it sometimes is that we do it by action or activity. If we have to go to court, there’s going to be a certain fee; if we have to do a certain type of pleading in court, there’s going to be a certain type of fee. There may be some blend for hourly and how you’re going to do that on the transactional part of trying to work out a deal.

There are different ways to do it but I think what’s important is to make sure that you are going with somebody that’s licensed in the area of law that you’re dealing with, and certainly somebody that has an office so you’re going to be seeing them face to face. I’ve heard so many horror stories about people who were enlisting people from out of state and from across the country to help them with a modification or something, and that was bound to be a problem later on. At the end of the day, if you can’t sit down and look your attorney in the eye and look over the file together, you’re really not knowing what they’re going to do because they’re just on the other end of a telephone. That’s not good enough. I would say certainly do your due diligence in meeting with them and sitting down.

Jason:
I just want to speak to that for a moment, and I hate to sound like such a skeptic, but that isn’t foolproof by any means. I’ve met many attorneys who have not done very good work for me over the years, and certainly, Mr Bernie Madoff met a lot of people in his physical networkings! He was hanging out at country clubs and charity events and met all those people and scammed them just the same.

Chris:
I think the reality is that if it’s an in-person attorney that you’re meeting with, the likelihood of being scammed is one thing. I think you have to be realistic as to the result that you’re looking to get, and you’ve got to be upfront with the people that you’re meeting with. Certainly, we work tirelessly to explain to everyone that we’re sitting down with how important knowing their expectations is. We don’t take every case that walks in the door; that’s our experience. Are there people out there that are fraudsters? Sure.  I think that you’ve got to be careful in anything that you do.

Jason:
Yeah, of course. OKay, go ahead with what you were saying.

Chris:
Yeah, so I think that’s the best way. There’s also local Bar Associations within most people’s jurisdictions. In New York, pretty much every county has its own Bar Association. Certainly there they have referral networks where, perhaps if you’re looking for help, you can look for some there, so that’s another way to find help.

Jason:
Interesting stuff. What would you say the average – I guess you think of it in loan amounts and I doubt that as a lawyer you’re thinking too much on the numbers, but anecdotally, do you have an idea as to the average loan amount that you’re negotiating? Or the average mortgage size?

Chris:
Yeah, the average mortgage size really depends on whether it’s New York, New Jersey or Connecticut. I would say that in New York, in the areas that we work, it’s probably about half a million. I would say in Connecticut, depending on which part, you’re probably closer to around $300,000 and in New Jersey, I would say it’s probably somewhere around the $250,000 range.

Jason:
Okay, and we should note that that’s the loan amount, which may or may not be close to the property value.

Chris:
Oh yeah, it’s almost never close to the property value because that’s just the loan amount. You also have the back payment, so when you add up all that stuff it could be 50-100% higher. Then you have to look at the property value, and oftentimes these properties were purchased during the boom times of 2004 or 2006-07 and so a lot of these properties have dropped in value  from those highs at least 25-50% in some cases. You have a situation where there’s a lot of people that owe a lot more money on their property and on their home than it’s worth and what happens is that a lot that the government has done has put Fannie and Freddie Mac, who are the majority owners of most of these loans, to try to give relief in terms of modifications, but that’s primarily only been to give modifications in terms of reducing the interest rates that are being applied. Expanding the terms out, that can allow somebody to have a lower payment, but I think that if you’re really going to look at it, sooner or later a lot of these people who are getting those types of modifications remain significantly underwater. Sooner or later, they’re going to make the business decision that it’s just not worth putting in the money anymore and they’re going to want to walk. The problem has been that Fannie and Freddie have not been granting principal reductions and I think what needs to happen, if we really want to see encouragement for getting through this problem, is that the modifications of Fannie and Freddie should be allowed to give principal reductions. I think that would go a long way.

Jason:
Good points. Well, thank you so much, and I just want to stress the distinction that the markets you’re dealing in are these high-priced markets. This is not the mid-west, this is not the south, so of course, that market varies pretty dramatically around the country. I love it when these people – and Chris, I’m sure you’ll appreciate this too! – go on CNBC and they talk about the ‘housing market’, as if there’s some single, national housing market in a country as large and diverse as the United States, with about 400 metropolitan statistical areas. Good points and boy, judicial foreclosure – I tell you, if I had my own state and I ran it, I wouldn’t have judicial foreclosure because that’s just too crazy.

We’ll see how this works itself out and gosh, I wonder if these multi-million dollar New York little tiny condos are going to see a drop in value. They may.

Chris:
Well no, I think you hit it on the head when you said that. Each market is a different market. In the markets that we’re talking about, Manhattan is probably completely excluded from the conversation and that’s a market all on its own. That one hasn’t suffered a bit.

Jason:
Yeah. But I still think it’s way too expensive. I don’t know, I just think the world is changing a lot. I used to say the three cardinal rules of real estate were location, location, location, right? Everybody’s heard that, and I think that’s becoming.. It’s still certainly important – everybody wants to be in a well-located area, but that’s becoming less important as we see these digital nomads and people running pretty good businesses from all over the planet. They can live in these lifestyle destinations now and you don’t need to be in Silicon Valley to have a tech company – although it’s cool if you are! I get it, there are benefits, but it’s just that geography is a little less meaningful than it’s been, for sure. That’s my point.

Chris:
Yeah, I would agree with that. I think what’s interesting to note about Manhattan, though, and with what’s happening there is that so much of the property prices and everything is shooting up.

Jason:
And all foreign.

Chris:
Yeah, so much foreign investment. There’s people who are just parking money and they may never live there or even sleep a night in the apartments that they’re buying!

Jason:
Let me tell you what’s really interesting about that too. We have lots of investors from all over the world that contact us to invest in American real estate, and America has always been known as the Brink’s truck; wealthy or upper middle class, if there are any – there aren’t that many! – foreigners, whether they be Chinese, Russian, Ukrainian, South American, whatever. They always want to park some money in America, and even now, even as mismanaged as the US is, we’ve still got that. I think that bodes really well for the US, I really do.
Good stuff. Hey, it’s  been really fascinating talking to you. Give out your website, tell people where they can find out more.

Chris:
Absolutely, thank you. You can reach me at  www.CabanillasLaw.com

Jason:
Chris Cabanillas, thank you so much for joining us today.

Chris:
My pleasure, thank you.

Announcer:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit  www.hartmanmedia.com  or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.

CI 47 – Why Bitcoin is a Bad Investment with Jason Hartman

JH

 

Jason Hartman talks to his audience without a guest today and brings up a couple of interesting topics. He first tells the audience that he may be moving back to California for tax purposes and why he loves to be a renter. On the show, he talks a lot about the San Diego real estate market as well as why Bitcoin is a bad investment. He also shares his thoughts on the Houston and North Dakota real estate market and more on today’s CI show.

 

Key Takeaways:
5:15 – Jason is eligible to get a tax reduction simply by moving to California.
7:10 – Despite being a real estate investor, Jason loves being a renter.
13:40 – Jason was right about Bitcoin dropping to $200.
17:10 – Jason does the math on the properties he’s found so far in San Diego.
21:40 – There will be lay-offs in Houston, which means the rental market will be moving.
26:50 – The stock market doesn’t even come close to income property.
30:30 – Jason touches once more on the Bitcoin subject
34:10 – Jason talks about some of his other podcast shows that he hosts.
36:00 – Go to the iTunes store and type Jason Hartman to find more of his shows.

Tweetables:

“California is probably the least business-friendly and highest tax state in the union, rivaled only by New York.”

“Gold at least is real. Bitcoin is just a construct.”

“Income property on its worst day out-performs the stock market on its best day.”

 

Mentioned In This Episode:
Coinbase.com

 

Transcript
Thank you so much for joining me today. I am coming to you from beautiful La Jolla, California. I’m down here in the San Diego area. Why am I here? Well, so we had our Meet the Masters event, and it was fantastic. Thank you all for coming, all of those who attended, I really enjoyed seeing you. We didn’t really debrief on that yet, which I’m not going to do now. I thought I’d spend a couple more days in Southern California and come down to San Diego, and I have an actual reason for being here; it’s not vacation.

You’re not going to belief this, and you know, there’s a song – who was that by? Alanis Morissette,  Isn’t it Ironic, Don’t You Think? Why am I here? I’ve actually been looking for places to live! [Gasp] Oh my God! Did you hear that right? Yes. Yes, the guy who famously moved out of the Socialist Republic of California three and a half years ago, to move to an environment with lower taxes and less government intrusion may well be the first person on planet Earth – I don’t know, it’s possible that I may well be the first person on planet Earth to actually be considering moving back to the Socialist Republic of California to…Get this! Are you ready? I’m letting you in on this big secret – to actually save on taxes.

And how would I possibly be able to do that, you ask? California is probably the least business-friendly and highest tax state in the Union, rivaled only by New York, which is pretty bad, Illinois is pretty bad. Well, guess what? You know, I’m not usually early on filing my tax returns, so this year – or actually, I should say ‘last year’, as usual, it’s October 15th and the last day you can file and I’m talking to my CPA on the phone, and he says to me “Did you know, Jason, that I found a big tax deduction for you, but in order to get it, you have to re-establish residency in, yes, the Socialist Republic of California?”

I couldn’t believe it. I couldn’t believe it, I couldn’t believe it. I’ve been in serious denial for, what, two and a half or three months now about this thing, and I kind of want to get my tax deduction so I’m actually thinking of moving back to California for a year. I don’t like the idea too much but, you know, the past few days, it’s been pretty beautiful looking around here. It’s cold in California! I tell you, Arizona, the temperature maybe is cold, but you add the humidity to it and it just gets into your bones here.

I know, all of you back East and in Northern climates are thinking I’m absolutely psychotic for saying that, but I’m a wimp when it comes to cold. I’ve been in warm places the vast, vast, vast majority of my life so it does feel kind of cold here. I mean, during the day it’s nice, it’s 72 degrees, but at night it’s chilly out there! Anyway, whatever, so I am toying with the idea of actually moving back to California for a year because I could live here for about a year to a year a half, for free! I mean the State of California would essentially pay me to come and live here, due to my tax deduction that I cannot take – at least that I know of, unless there’s some loophole I don’t know about and my accountant doesn’t know about – unless I become a California resident.

This, again, is one of the reasons, as much as I love being a landlord and as much as I love renting properties to other people and as much as I have made a small fortune doing so, I love being a renter myself. It’s actually really darn convenient. You know, my lease was up last month, I can just move. Just move! I don’t need to show the house, I don’t need to hire a realtor, I don’t need to clean up, I don’t need to take all my private things and all my valuables and stick them into a storage unit, I don’t need to do anything with the dog, like boarding the dog or something like that, I don’t need to do a thing, I don’t need to do any fix-up work. It is so convenient to just be able to move.

You can live somewhere for a couple of years, and if you get sick of it or if you discover you have a big fat tax write-off in the Socialist Republic of California, you can take advantage of it, so it’s a pretty great deal. And I have been amazed at how expensive things are out here! Yes, I know, I used to live here just three and a half years ago, but wow! The rental market is booming. Well, why wouldn’t it be booming in San Diego?

I mean, the rent to value ratios are terrible! Let me give you a couple of examples, and you know, I’ve got several things to talk to you about today. Time permitting, but you know how I am, I usually ramble on and on, so maybe we won’t even run the guest on this episode and we’ll run the guest on the next episode.

By the way, we’ve got some great stuff coming up for you. You know who’s coming up in either one or two episodes? Paul Craig Roberts. You may have heard of him. He’s the Nationally Syndicated Columnist who was the Assistant Secretary of Treasury for Ronald Reagan and he is considered to be the co-founder of Reaganomics. Yeah, pretty famous guy. He doesn’t have a lot of great stuff to say, though, I’ll tell you that. When I interviewed him, he was kind of gloomy about things, but you can judge for yourself. And then we have Bill Tatro, a  really interesting talk show host. I don’t know if he’s syndicated or not, but I would listen to him all the time on the radio in Phoenix and he’s out with a book called  44th: A Presidential Conspiracy. Some pretty interesting insights into the economy and politics and some interesting stuff.

And then Harvey Silverglate is coming up. He’s the lawyer who is the author  of  Three Felonies A Day, an incredibly important subject for all people around the world to be concerned with. It really shows you how governments can target people and they’ve got something on all of us because they’ve got so many laws, and that is their weapon. The point where they suddenly decide they don’t like you for whatever reason, down with you! Scary stuff. So  Three Felonies A Day, basically illustrating how we’re all committing three felonies a day. Felonies! I mean, I consider myself to be a law-abiding citizen! Maybe he’s being a little dramatic, but I don’t know! Listen to some of his examples and it’s pretty compelling stuff – I did the interview with him, so…

And then Peter Sage, the youngest coaching client of Anthony Robbins, Tony Robbins, and that’s a really interesting and innovative guy in his own right. He’s coming up too and yeah, there’s a bunch of other stuff coming up.

San Diego, back to that. And if we get to our guest today, it’ll be Robert Kahre. With him I talked about payments and how Apple Pay and different payment systems will have a big impact on the economy. He also runs a foundation that’s really interesting, that’s sending kids to College. There’s some really cool stuff that he’s doing there.

Speaking of payments, bitcoin, that we have talked much about over the last year and a half, well, let me just check because Coinbase is one of the big bitcoin companies, right? As the price of bitcoin was plummeting, and I think it’s still plummeting, and you know why I think that? Because I just hit the Coinbase.com websites that used to write on the front page and publish the price of a bitcoin, and they took it down just about a week and a half ago. I think that’s kind of lame that when your deal doesn’t go right, you take the price off and it was there. Let’s see if I can find it here. Nope, I can’t find it. Well, let me click on the ‘Buy and Sell Bitcoin’ button, it’s gotta have the price there, right? Doesn’t look like it! You’ve got to sign up and then you get to see the price. It’s like Nancy Pelosi – we’ve got to pass the bill to see what’s in it!

Let me just type this in. I predicted bitcoin would go to $250, all my friends told me I was nuts and let’s see if it’s getting close. Ooh, wow, Jason! Just like oil, here we go. Just like the FDIC, just like the FHA, just like Fannie Mae, Freddie Mack, just like the end of the last bull market in real estate in 2005 – you were right about bitcoin. It’s only $212.59 now. Gosh, I’m glad I only bought one of those puppies – for like $800, mind you! Unbelieveable.

You know, I would love nothing more than to be wrong about bitcoin, but I don’t think I am. It is amazing the believers, the cult members – kind of the way I’m sort of cultish about Apple products. I like Apple products, if you can’t tell. I’ve said it before, but the way these gold bugs and these bitcoin people.. it’s like they’re hypnotized, they’re brain-washed. It’s unbelievable! I mean, gold at least is real. Bitcoin is just a construct. It’s a great one, mind you, don’t get me wrong. Again, I would love nothing more than to be wrong about bitcoin. We’ve done shows on it, I don’t need to go into it here. $212.59 per bitcoin – down from what? What was that? That was like $1100, was that the peak? Something like that. Amazing. Amazing. Amazing stuff.

You know, that was the hope for the great payment system that would be frictionless and people could transfer money around the world and it had all sorts of cool features. It still does, of course, but what is the value of it? That’s the question. So interesting stuff there.

Yeah, San Diego, incredibly bad rent to value ratios – that’s why I want to be a renter. I looked at this high-rise condo today with an agent, I asked the agent ‘How much is that property worth?’ He goes ‘Eh, it’s probably worth about $800,000, it has a gorgeous view of the sunset over the water, the Coronado Bay Bridge, the baseball field, Petco Park – not that I care, but it’s what a lot of people what to see – and the city lights. It was nice, okay. Not very big, mind you, just a 2-bedroom, 2-bath place, maybe, I don’t know, how big was that one? 1300 square feet, something like that?

$800,000 value.  I could rent it for $4,000/month, that would be a 0.5 RV ratio, but wait! When you consider condos, you have to add another $90,000 to the value calculation. What do I mean by that? Here’s what I mean. The association fees for that particular condo I previewed today, that you don’t have to pay when you’re the renter, are a very meager  and nominal and reasonable $900 a month. Of course, I’m being completely sarcastic when I say that, because that’s a rip off! It’s outrageous. $900 a month! That means in our model, when you can get 1% of the value per month, you could by a $90,000 house in Memphis, in Little Rock, in Indianapolis, it’d be hard to do in Atlanta, but it’s certainly possible, in Dallas – even hard to do there, but it can be done, and you would get $900 a month for that. That’s just the price of your association fee on this stupid condo you would never want to buy. And in doing that, that basically makes it essentially an $890,000 condo, the way I’m doing the valuation kind of roundabout and backwards here. So the $890,000 condo (because that $900/month is a $90,000 house, you see how I’m doing that? I know it’s kind of backwards, but you get it) only rents for $4000 a month, and that’s less than 1% RV ratio, or Rent to Value ratio. That stinks!

I mean, if I’m going to invest $890,000, I want to get $8,900 per month, not $4,000 per month. It’s better to rent than buy, many times, and as you go up higher in price; I really looked at a swanky one too. Well, I didn’t actually look at it but I looked at the listing with the agent, because it’s leased right now so I couldn’t look inside. It’s at the top of the Omni Hotel here in downtown San Diego, and that place was gorgeous. I could rent that one for $6,000 a month. Most people would think ‘Well, why would you want to throw away $6,000 per month, are you crazy? You’re just throwing money away!’

But you’re not. Not at all. Because guess what? Owning that property would probably be upwards of a million 5, 1 million 6, and if I’m going to invest 1 million 5 or 1 million 6 and then I’m going to put on the association fee tax, the Homeowners’ Association Fee Tax, we’ll call it, ontop of that, that’s going to make it about 1 million 8 because I’ll bet you the association fees are $1500, maybe even $2000 a month for that. I don’t even know what they were, but believe me, they’re enormously high. If I’m going to do that, then I want to get $18,000 per month, and if I can live in that and get the use out of the property without any of the maintenance responsibilities for only $6,000 a month, I’m basically only paying one third of retail! It’s like a two thirds off sale! 66% discount!
You’ve got to live somewhere. The place you live is an expense. We all have that expense, unless we’re homeless, or unless we live with our parents. We all have that expense; we’ve got to pay to live somewhere. So the only question is do you want to pay too much or do you want to pay less? It’s counter-intuitive, I know. The real estate guy, your real estate guru that you are listening to and hopefully following his advice, yours truly thank you, is telling you that if you’re going to live in a high-end property, it’s almost always going to be a much better deal to rent it and to buy a lot of less expensive properties you can rent to somebody else.

So that’s that. I’ll let you know if I decide to actually do this move, but I would sure like to live here for free for a year, which is what the state of California is willing to do to pay me back. I think I should accept their gift, but it’s kind of contingent on what I find. More to follow on that, but isn’t it ironic, don’t you think? Yes it is.

Okay, falling mortgage rates. Wow. There is a revival going on in the mortgage market because mortgage rates are getting lower. Mortgage applications rose by seasonally adjusted 49% in the week ending January 9th from the previous week, and 30% from a year ago. All of those mortgage brokers out there, those mortgage originators, they’ve got to be happy about that because they’re probably making a bunch of money on loans. I remember when I owned mortgage companies; when we saw those rates go down, it was like you could re-fi the whole country again, it was ridiculous.
One of the warnings I gave you, dear listeners, is I told you we were going to stop recommending Houston. Now again, don’t panic. I own property in Houston, I’m not selling. If you’ve got stabilized property in a market, usually the best thing to do is just keep it and just sit tight and don’t panic. But if you’ve got a lease coming up for renewal in Houston, I would not be aggressive on any rent increases. In fact, I might not increase it at all. Because as I told you, there would be a round of lay-offs, and here we go right out of today’s Wall Street Journal – it says “Oil producer, Apache, to shed 5% of workers. Apache Corp. is laying off as many as 250 employees this week in one of the first major workforce cuts at an American oil producer since crude prices began to plunge last Summer.” And by the way, who predicted that? Yup, me. When everybody else was saying oil would go higher; well, not everybody else, obviously. Some people were probably predicting it also, but I thought it would go lower, and just like the bitcoin, it went a lot lower than I even predicted. It moved right through my prediction and went down even lower.

It says “The Houston-based energy company, one of the biggest in the US, pumps oil and gas in places from Texas to Egypt and employs about 5,000 workers around the globe. The workforce reduction amounts to roughly 5% of its staff, a company spokeswoman said on Wednesday evening.” So keep in mind that is something to look out for if you are in an oil-affected market, and boy! Am I glad that I’m not too impulsive and I did not recommend – even though so many of you kept asking me, and I know we could have made a lot of money recommending it!

North Dakota. Yup, didn’t do it. Competitors did it, and I have a feeling – because that really is a one-horse town – I have a feeling they’re going to be hurting bad, so hopefully not too many.. Well, hopefully nothing, but I know tons of investors went into those markets and paid a lot of money, way above the cost of construction, so regression to replacement cost isn’t even in the ballpark for them. Of course, if you don’t know what that is, we’ve talked about it many times on prior shows, that’s not even in the ballpark for those people because they paid two, maybe three times the cost of construction in that North Dakota market. We didn’t do that, we sat tight when everybody around us was throwing dollars in our face saying ‘Hey, you can make a lot of money doing this’. Eh, we sort of didn’t get around to it so I’m glad for that.

The interview with Aunt Joan; remember that one several episodes ago? Well, I asked our producer to go back and see if he could improve the sound quality because it was not up to par. Of course, it was an impromptu interview, Thanksgiving Day I got Aunt Joan to do it. I didn’t have my proper microphone set up and so forth, but you know, who was it? Abraham Lincoln who said ‘I’d rather see a crooked furrow than a field unploughed’. I always have said I’d rather do something imperfectly than nothing flawlessly. Well, you know, I had Aunt Joan there, I finally got her to agree to go on the podcast, I had my recorder without my microphones and I just used the internal recorder and it didn’t come out so great, but the content was good and the producer went back and he was able to get a new plug-in, a new little feature, a new little app and re-publish that show to where it sounds a lot better. Check that out, that interview with Aunt Joan, and you can see how my Aunt and Uncle got so rich buying and holding rental property for the long term.

Like I always say, I’ve been doing this many years, I’ve helped lots and lots of investors, I’ve seen the ones who tend to create the real wealth and the ones who are the flash in the pan. As I always say, the people who flip properties have spending money, and the people who buy and hold are the ones who create real long-term wealth. Which one do you want to be? That’s why I like the buy and hold; create the real long-term wealth.

The stock market has been nuts lately and you know, you adjust these numbers for inflation but still even with these peaks that the stock market has experienced recently – although it’s not lately. It’s been diving terribly! But it’s always an up and down, and who the heck knows what it’s going to do next, which is ridiculous. But even with that, when you adjust them for inflation, the stock market doesn’t even come close to income property. I mean, it’s not even a contest. That’s why I like to say that income property on its worst day, because it’s multi-dimensional, because it’s a multi-dimensional asset class, out-performs the stock market on its best day. I know that may sound like a leap, but if you really do the math and you look at the multi-dimensional aspects of the income property, I’ll bet you you’d agree with me.

So this roller coaster ride. You know, one of the things I think you’ve got to put into the cost of stock market investing is number 1: Most stock market investors have a guru. They pay a lot of money to the guru, they subscribe to a bunch of financial newsletters, they spend a lot of time reading about the market, reading the Wall Street Journal, Investors Business Daily, all those expensive financial newsletters and stock market newsletters they subscribe to, and I think it’s fair to say that one of the expenses – other than the ones I’ve already mentioned – of being a stock market investor are the expenses of the stress it causes you. They’re the expenses of the antacid you need to buy for your stomach, because these ups and downs, these emotional roller coasters. It’s really like a form of psychosis. It’s the total gambler’s mentality.

USA Today, on the cover of the money section today, it talks about these incredible crazy changes. I don’t need to read all this to you – volatility way up, stocks down. Of course, oil is down, ten year treasury note is down, etc etc etc. I don’t know why.. Even if the investment was just as good as income property, and it’s not even close, I don’t know why someone would.. Can you imagine someone who’s like a total stock market investor, if they’re married? The kind of marital discord they must have because of the stress it causes them. One day they’re in a good mood, the next day they’re in a terrible mood.

“Honey, what’s wrong?” “Ugh, the market’s down, this is terrible blah blah blah”. That’s no way to live! That is no way to live! Just go ahead and get yourself some simple little houses, rent them out. Yeah, you’ll have a few problems, you’ll have some ups and downs, certainly, but it’s nothing like the  stock market – the modern version of organized crime.

Another thing on bitcoin, by the way. There’s an article here in the Wall Street Journal. See, when I travel I read the newspaper; I actually read paper newspapers, I never do at home. But you know, the hotels always put them out in front of your door so you can’t help but look at them. So bitcoin’s rapid plunge is biting the miners. The bitcoin miners, those are the people that invested a bunch of money in buying servers and setting up the software to mine the bitcoin off the Internet. It’s the funniest idea ever. Bitcoin really is a brilliant construct; it is in so many ways. The fact that you can do virtual mining, and that’s how you create more money, instead of the way governments and Central Banks create money. Poof! They do it out of thin air. Bitcoin’s kind of poof! too, but it’s a little less poofy because you’ve got to run a software program and spend a lot of electricity running servers and a lot of Internet bandwidth that you’ve got to suck up to mine that.

Crazy interesting stuff. Alright, so I’ve been asking you for a while, and by the way, as typical as is usual, I’ve gone a little long with my intro portion, so this will be the show. On the next show, we’ll have our guest, Robert Carr. But I have decided that we need to scale to two shows per week. I’ve already gotten several complaints about this, including one from another listener, another Jason, and Jason, thank you for sending me this note, I do appreciate it. I have a solution for you. I know you don’t want me to go to two days a week, and several other people have told me that, but it takes a lot of time to come up with the content. Maybe you think my content’s terrible, I don’t know, but it takes a lot of time still to come up with the content, to record the shows, to publish them. Three episodes per week is weighing on us, it really is. But don’t worry! Do not fret because I have so many other shows out there.

Not only do I have 465 episodes of the Creating Wealth Show, but I’ve got all these other shows, not the least of which is my new Longevity and Biohacking Show that I have a feeling is going to be of tremendous interest to our listeners of the Creating Wealth Show because we’ve talked about longevity and its big, big implications on the economy, on the problem that we’re all facing which is too much life at the end of the money, okay.    We’ve got to learn how to invest for that and we’ve got to make sure we plan and we carefully execute our plan, but there are many things. You know, the Holistic Survival Show has some fantastic content. For quite a while, I haven’t checked the stats lately, but that was my number 2 show, the Holistic Survival Show. The tagline for that one is “Protecting the people, places and profits you care about in uncertain times”. Yeah, it’s more of the negative side, the doom-and-gloom side, but not completely. There’s a lot of great stuff there, we’ve got well over 200 episodes of that one you can listen to, we’ve got the Jet Setter Show where we talk about off-shore and overseas investing and asset protection structures. I haven’t been able to find anything that works better than what we’re already doing, otherwise we would recommend all of that, but anyway, still interesting and you’ll learn a lot listening to that show. I interview a lot of great people on that show!

If you’re interested in information marketing and entrepreneurship and publishing, maybe you’ve always thought you wanted to write a book, maybe produce a documentary, you’ve got the great American novel inside of you, my Speaking of Wealth Show, my American Monetary Association Show, my Young Wealth Show – there’s a whole bunch of other great content out there from the Hartman Media Company, so check it all out. If you like listening to me, you’ve got no shortage of my content. We’ve got well over 1600 episodes out there, so I’ll just share the note I got from Jason.
He said: “I wanted to let you know that I do not want you to reduce the number of podcasts that you put out per week. When you said that  on your podcast last week, I got a sick feeling in my stomach and I knew I needed to give you my opinion. If anything, I would like to see you add more episodes per week. Your Creating Wealth podcast is amazing. Please don’t change the way you conduct yourself on the show [so my bad behavior can continue! Thank you for allowing that, I appreciate it! – my little commentary there] – you have a great way of putting things and your variety of guests are second to none.”

Anyway, we’re going to go to two episodes per week, at least for now. It’s just taking so much time to publish three per week, it’s really hard to do, believe me. But we’re publishing a lot of episodes. The average episode frequency for all of the other shows, and I didn’t even mention all of them because we have 19 other shows that we do, is 1 episode per week. You’ve got loads of content out there, and just check it out. If you’re in iTunes, just go to the iTunes store and type ‘Jason Hartman’ and all the shows will come up. Stitcher Radio, SoundCloud, you can do it there too, so check it all out.
With that, I will say go to  www.JasonHartman.com, check out the properties; we’ve got some phenomenal properties up there for you. Oh, and many of you have been asking about the paper investments, land contract investing and so forth, which we of course presented for the first time at Meet the Masters last weekend. We found a few kinks in that system that we’re working out, and they’re not major because I think they’re pretty easy to work out, so more on that. There’s some Dodd Frank complaints and issues that need to be worked out; we’re working on that with the provider and we’ll get back to you with more, but I think that represents a great opportunity. Again, not as good as the real estate because the real estate, owning the physical property, has all of those multi-dimensional benefits, not the least of which is tax benefits.

Paper, investing in notes, trust deeds, land contracts, that scales pretty well, so more to come on that. Stay tuned and in the meantime, check out the properties at  www.JasonHartman.com. Of course, our blog and our free resources are there and all the great stuff, and we will see you on the next episode.

CI 46 – Learn About New York’s New State Tax with Ashlea Ebeling

Ashlea_Ebeling

 

Ashlea Ebeling is an editor for Forbes Magazine and is a tax expert. She wrote a shocking article for Forbes about New York having a 164% marginal tax. She explains how this happened as well as shares tips on how you can become sheltered from estate taxes. On the show, Jason and Ashlea talk about where is the best place to die in the US, inheritance taxes in different states, and more.

 

Key Takeaways:
2:35 – How is it possible New York has a 164% marginal tax?
5:00 – You have an exemption of up to $5.42 million dollars for estate taxes in New York.
6:55 – You need to look at the whole tax picture before moving to a state – income, sales, property, estate taxes, and more.
8:40 – There are four big ways you can get around estate taxes. Ashlea explains.
10:45 – Check out the TaxFoundation.org for tax info specific to your state.
13:10 – Ashlea talks about the percentages of inheritance tax in various states around the nation.
15:45 – Is a Roth IRA a good idea?
19:45 – 2015 has a lot of new tax laws that you need to be careful about.
21:00 – You may have delayed tax refunds because of the new laws taking place.

 

Tweetables:
“Where to retire and where to die may be two different things.”

“There is tax news that people should pay attention to, because what happens on those bills affects your tax.”

“Washington state has the highest estate tax rate at 20%.”

 

Mentioned In This Episode:
http://www.businessinsider.com/bond-market-panic-phase-of-financial-crisis-2015-1
http://www.forbes.com/sites/ashleaebeling/2014/09/11/where-not-to-die-in-2015/
http://taxfoundation.org/

 

Transcript

Jason Hartman:

It’s my pleasure to welcome Ashlea Ebeling to the show. She is an associate editor with Forbes magazine and Forbes.com. She wrote an interesting piece recently about the New York state tax and how we should be aware of a 164%, yes you heard that right, marginal tax rate and profiles different states around the country and their tax situation and a whole bunch of interesting things. So, it’s a pleasure to have her on today. Ashlea, welcome, how are you?

Ashlea Ebeling:
I’m just fine. Thanks for having me on the show.

Jason:
Well, it’s good to have you. First, let’s dive into this article. I mean, this is insane! I can not believe it. How do we get to more than 100% tax.? As if 100% isn’t bad enough.

Ashlea:
So, New York state tax has this provision called a cliff and people are trying to change it. It’s obviously a problem, but the one thing is New York made sweeping changes to its state tax law just this year and they doubled the amount that is exempt. So, if you had over 1 million dollars before, you would owe a state tax on that amount and they doubled it now to 2.625 million, but the cliff problem is if you die with 5% than that new 2 million dollar number, you face this cliff and that’s where the crazy marginal tax rate would come in.

I can give an example. So, Sharon Klein with Wilmington Trust, she kind of gave me an exact example, because the New York state department of taxation, they did a summary memorandum on the new law, but they neglected to spell out of the affects of the cliffs. So, her example was a taxable state of $2.625,000 would pay no tax, but if you had $2.1 million dollars, you’d have a tax liability of $49,000, so that’s more than the $30,000 of an increase of the value of the state. So, your state has gone up by $37,000, but your taxes would go up by $49,000. So, that’s the affect of the cliff.

Jason:
Boy, this is crazy.

Ashlea:
So, the lesson is people need to know about state to state taxes. The federal estate tax is almost..that’s been changed, so there’s a big, big exemption. The federal exemption of $5 million per person indexed for inflation is now permanent and that is indexed for inflation, so next year the exemption it’ll be $5.43 million. So, obviously most people don’t have to worry about federal estate taxes as all. In the meantime, the state estate taxes can be as long on inheritance taxes it starts at the first dollar and the states with state taxes, New Jersey is the lowest exemption with $675,000. So, people with a nice house, they’re in a state tax territory.

Jason:
Right, they certainly are. So, what do you think, what change do you think will come to this law?

Ashlea:
Well, there are people trying to change that cliff, so it’ll be more gradual. So, that’s a possibility that could get tweaked in the next legislative session and the good news in New York is the law that’s been put in place is it’s eventually going to match the federal exemption in two year. In 2017 the New York state exemption will match the Federal exemption. For most people it’s not going to be an issue.

Jason:
So, when one looks at a state to consider a move, they need to consider what life stage they’re in. If they’re in their career stage and are earning a lot of money, you obviously want a state with no or very low income tax. If you’re retired as mom retired many years ago and she, you know, I told her she should move to Texas and she said, no way, the property taxes are too high and she didn’t care as much as income tax. Texas has no state income tax. So, it really depends. It’s like, where to live during your career years, where to retire, and then where to die. Where to retire and die may be two different things, right?

Ashlea:
They’re very different. It’s going to depend on each family’s specific situation, but you’re right you’re going to have to look at the whole tax picture. You want to look at income tax, sales tax, property tax, there’s a state tax, gift tax. It’s a little crazy that there’s that much to look at, but it makes a huge difference and then for retirees, there’s state pension tax breaks that come into play. So, that’s another. That even goes into the category of income tax, but you have to see whether your state tax is social security or whether it doesn’t. My mom just moved from Virginia to Connecticut, so now her social security is being taxed when it wasn’t in Virginia.

Jason:
Wow, okay, so you’re in Connecticut, I believe, right? And that’s the only state with a gift tax?

Ashlea:
That’s right, Minnesota had one, Tennessee got rid of theirs, I think that was 2012 and Minnesota put one in in 2013 and then last year..earlier this year they finally got rid of it again, so gift taxes are a bit controversial, but the idea with the gift taxes is that the state don’t want people giving big amounts to their heir in a way to avoid the state to state tax. So, Connecticut, for example, has a 2 million dollar limit that you can’t give more than that without having to pay a tax that would go to 12%.

Jason:
So, do we see a lot of people in these states where you have a high state tax, you know, especially in New York, what do they do to get around it? Do they use a charitable remainder trust or what is the vehicle they’re using or do they just try and spend all their money before? I’m spending my children’s money…

Ashlea:
There are probably four big ways that people avoid or get around the state estate taxes. One would be moving, so you could be in New York and then also have a home in Florida and you’d make Florida your residence, but you’d have to really do it, you’d have to be there more than a 183 days a year, you’d have to change bank accounts, drivers licenses, there are all kinds of residency rules to make sure New York doesn’t pull the estate back into their territory. So, moving is the big one. Everyone says Florida all the time, but there’s 7 of these no income tax states.

The second big move that people do is setting up a traditional credit shelter or bypass trust when the first spouse dies and that puts the money that goes into that trust would then be exempt from a state tax, but the tricky thing is is on the federal level you don’t have to worry about, because there’s something called portability and you have all of this..So someone who has $5 million dollars when at the federal level they can send the money over to their spouse and the it’s protected even without a trust, but the state level there’s still more of a need to a trust and estate planning.

Jason:
Very interesting. Anything more you wanna say about different taxes in different jurisdictions, because I want to just wanna touch on some of the other stuff that you’re following and writing about.

Ashlea:
Well, if we look at the, for the state estate taxes, it’s 19 states plus the district of Colombia that have these taxes and why you need to keep track of it, we have an interactive map that we keep on Forbes.com called where not to die and every year it’s updated. There were 8 states that were ensuring changes for 2015, so that’s one place to look. The tax foundation has great maps on tax climate on income tax, taxes on all these other states, so that’s another place for people to look.

Jason:
I’ve seen some very complex charts as you were talking about the comparisons a few minutes ago. I’ve seen very complex charts in terms of all 50 states or maybe 51 one with district of Colombia, 52 with Puerto Rico, which has got some very desirable income and capital gains tax opportunities right now. It’s just a really complicated metrics of all these different issues one needs to consider.

Ashlea:
Well, when you’re thinking of capital gains tax, that’s another thing that people completely don’t think about and that can be taxed in California. I think it’s up to 10.3 there is the top rate for income tax. So, if you’re selling real estate that you know that when you’re going to into it with the capital gains rates are going to be. Not just the federal rate, which has been increased now to 20% to higher income earners, plus there’s another net investment income tax and then there’s the state capital gains tax. You have to add all of those together to really know what your tax rates are going to be.

Jason:
So, I’m looking at the where not to die map now. I found that while you were speaking just a moment ago and I guess the red states, are those the undesirable ones?

Ashlea:
Those are the estate tax states. The blue states are also undesirable in their inheritance tax state and again that’s something a lot of people don’t know. The difference in New Jersey and Maryland, they have both the state and inheritance taxes are a little different, because it’s who gets the money, who pays the tax, whether or not you pay the tax, so Pennsylvanian is a good example. It used to be the spouses paid Pennsylvanian inheritance taxes of 6% tax rate and then people complained about that, because generally for state taxes, spouses don’t pay state taxes at all.

You can give anything when you die to your spouse and it’s state tax free, so this inheritance tax, they were paying 6% in Pennsylvanian, they cut it to 3% in 1994 and then the next year they cut it to 0% and then they get similar to other states, but there’s still..in Pennsylvanian, if you have an estate going to children, grand children, or parents, it’s a 4.5% tax and if it goes to a bother or a sister, it’s a 12% tax, if it goes to a nephew or a niece, it’s 15% tax. So, New Jersey has a similar law to that too and there’s people changing it there too where they think it’s not fair if you’re single and giving your estate to your sister, you’re taxed, but if you have children and you’re going it to them, you’re not taxed.

Jason:
Yeah, very interesting. We should mention the red and blue on this map are not political red and blues, so..

Ashlea:
No, but to some extent to it is if you see like the north east as this big chunk of estate tax states. Washington has the highest rate. Washington state has the highest rate of 20%.

Jason:
Wow, that’s something else.

Ashlea:
Then, the interesting thing, there is prescient for repeal. If you look at this map a few years ago it had a lot more estate tax states. North Carolina and Indiana repealed their taxes in 2013 and Kansas, Ohio, and Oklahoma all repealed theirs in 2010.

Jason:
It is interesting that it follows the political map to some extent and that doesn’t surprise me, but tell us about some of the other stories you’re working on. I know you cover some real estate stuff. I’m kind of looking at your portfolio here on Forbes.com.

Ashlea:
One of my favorite topics is philanthropy and you mentioned charitable remainder trusts, that’s something that’s another great tax move for people who are charitably inclined and I had a nice example of a son who inherited a vacation house in the family and they put it in a charitable remainder trust and then it’s a way to give, to give real estate to charity that works.

Jason:
What do you think of the Roth IRA versus the traditional?

Ashlea:
Well, we at Forbes are huge fans of Roth IRA, but again, it’s a tax place, so if you’re going to be in a higher bracket in retirement, it’s a total no-brainier, you definitely should do it, but some people who should be doing, but aren’t thinking about it are actually in a low tax bracket now and they’re young, so they should be putting money in a Roth, because they don’t get any advantage of the pre-tax that you would for a regular traditional IRA.

Jason:
So, just to explain to the listeners who don’t know, a Roth basically says, pay the tax now, but let it grow tax free. So, you can take it out and the idea is that the tax rate would be much higher later in the future as the country is more fiscally insolvent and looking for money and you’ll just have that money that’s compounded for you over the years tax free because you paid the tax earlier. My fear and why I…maybe I’m just being too paranoid, but the reason why I’m not a big Roth proponent is I just think the government is going to become more and more hungry in years to come and they might just change the law. I mean, what is to stop them from doing that?

Ashlea:
Some people do have that fear and I can’t say that’s implausible, that it could never happen, but I think that’ll be such a outcry that it wouldn’t happen and then another point, you’ve got this two buckets. You automatically, if you’re at a work place plan, any employer money that goes into a plan and earning pre-tax, so some people like doing some Roth, some pre-tax to hedge their bets and whether you actually take money and pay taxes on it to do a Roth conversion, which you can do to try and get more money into a Roth that that’s would be more of a heads in a basket way of what you’re saying.

Jason:
I think these retirement plans are going to become the low hanging fruit in a hopefully not, but a very likely, unfortunately, I think, desperate where the government will say, you know, they wanna nationalize them or, you know, it’s just so easy to attack the retirement plans.

Ashlea:
Well, they’re already proposals out there in the administration that you can only put a certain amount in your retirement plans and after that point then once it’s a, I think, it’s at 2million dollars, once it’s at a certain balance, they’re different numbers depending on the different proposal that you wouldn’t be able to add anymore. So, when you say the proposals out there there’s a reason to be somewhat scared.

Jason:
It seems like the guard against that might be to have a retirement plan whether it be a Roth or traditional that’s one issue that we’ve already discussed, but have it be self-directed, because if it’s self-directed and the assets aren’t just with big brokerage firms and really simple electronic transactions, that’s not going to be low hanging fruit for the government. You know, the self-directed plans if you’ve got, if you own some notes or mortgages, you own some real estate…

Ashlea:
Self-directed plans are great for people who are…you have to really research what you’re putting in with them and make sure you’re not worried about the self-dealing rules, but there are definitely is a place for those for folks. I think though if the government puts in limits, they’re going to apply across the board whether it’s self-directed or through a regular brokerage. Theoretically if you have Roth money in there, you have more money in if they’re just putting limits on and not making a difference between Roth and pre-tax, you can basically have a bigger retirement pot with Roth money.

Jason:
Very interesting. Any other stories that you’re working on or have recently covered that you wanna talk about? Just thought I’d open it up for you.

Ashlea:
Well, I guess the biggest one I finished that got a lot of attention was about the upcoming 2015 tax filing season, which you wanna think about fourth quarter, but the IRS commissioners are warning that it’s going to be the worst season ever and congress is now back in lame duck session and they have 50+ tax extenders that expired, tax clause that expired at the end of last year they still haven’t they decided what they’re doing with. So, there’s a lot of tax news by year end that people should pay attention to, because what happens on those bills is going to affect your tax that you’re paying when you write your check in April or when you’re getting a refund, you’ll get less of refund.

Jason:
Ashlea, so, when you say it’s going to be a really difficult season, what do you mean by that? Law changes, audit risk, what?

Ashlea:
So, law changes, because of these tax extenders, whether some of them..and it’s everything from taking the reduction for sales taxes to teaches to buying $250 worth of supplies to $4,000 college tax breaks, commuter tax benefits, it’s a big list. So, chances are one of the things on that list will affect you and if they don’t, if congress doesn’t get around to figuring out what they’re going to do with those laws by early December, then the IRS commissioner that’ll delay the whole processing of returns, they might have to delay the start of the tax season and that might potentially delay refunds.

Jason:
Wow, what a mess. You know, I remember I was talking to Steven Forbes and then he gave a speech to our group and he just, you know, as a proponent of flat tax, he is so right. You know, he just said, let’s just drive a stake to the school system and start fresh, because this is so overly complex. I mean, I can’t believe it, Ashlea, you know, I am scared to death to sign my tax returns every year, there’s no possible way I can understand the hundreds and hundreds of pages that I’m putting my name on every year. I mean, I don’t even think one highly qualified CPA can understand all of that.

Ashlea:
Well, there are always people say three people get three different answers if they file your taxes for you, which is unfortunately is right and if you call the IRS hotline, you might get two different answers if you call two times and then good luck calling because they’re predicting 34 wait times for the 53% of the people that actually hang on till they get a live person there. So, I wished I had better news on that front, but that’s kind of the way it is. You do the right thing and try and understand the tax laws and get the right kind of advise and one of the reasons they also said about the delay is they’re putting..they’re going to have on the website, on the IRS website a list of tax prepares and obviously if you go to a CPA or an enrolled HN, they’re high standards they have to hold too, but there’s never been a problem with unregulated tax prepares, so we always have to warn people of that. They are going to put up, the IRS is going to start putting up on their website a database of qualified tax preparers.

Jason:
Very, very interesting. We will see how it’ll turns out. Ashlea, give out whatever website you’d like, is it just Forbes.com or something specific?

Ashlea:
Oh, so Forbes.com. The where not to die you can type in if you’re interested to learn more about estate state taxing and my name is Ashlea. So, that’s an easy why to find my articles too and I’d love you to follow me on Forbes or Twitter.

Jason:
What is your Twitter?

Ashlea:
Just Ashlea Ebeling.

Jason:
Okay, Fantastic. Well, thank you so much for joining us, Ashlea. Very informative.

Ashlea:
Thank you, me too. Take care.

CI 45 – Matthew Hart: The Race for the World’s Most Seductive Metal

Matthew_Hart

 

Today’s Commercial Investing Show features author, Matthew Hart, who gives his leading and well-evidenced opinion on today’s gold rush and talks about the influence of advanced technologies in both gold prospecting and more recently, in diamond manufacturing.

 

Key Takeaways

02.36 – Looking at patterns suggests that we are now coming to the end of the greatest gold rush in history, with most searches being totally price-driven.
04.55 – In Nevada, new technologies for gold extraction are really taking off.
10.20 – ETFs may well be the biggest factor in price movements and alterations with gold.
12.35 – Our fascination with gold has a history that dates back further than our ability to write.
17.19 – Like everything we use, eventually these gold deposits and reserves will run out.
18.36 – As it stands, the manufacture of diamonds in laboratories doesn’t look set to ruin the gem diamond trade.
23.02 – For more information and to buy Gold: The Race for the World’s Most Seductive Metal, go to www.MatthewHart.net

Tweetables

Gold is the measure of how we feel about how the world is going.
As long as the US has the reserve currency, it can be the bully of the world.
Imagine an explosion in space that created 50 Earth-sized planets of solid gold.

 

Transcript

Introduction:
This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit www.HartmanMedia.com
Welcome to the Commercial Investing Show where we analyze, explain and exploit the opportunities presented in today’s commercial property marketplace. If you’re interested in apartments, mobile home parks, sub-storage facilities and other income property, you’ve come to the right place. We’ll explore what’s hot and what’s not in markets nationwide in the relentless pursuit of return on investment. Here’s your host, Jason Hartman.

Jason Hartman:
Welcome to the Commercial Investing Show, this is your host, Jason Hartman, where we discuss the relentless pursuit of ROI. Yes, that’s right, Return on Investment and Return on Inflation. We have a changing future with monetary policy and fiscal policy the way it is and we need to prepare for it as investors by structuring our transactions differently, and we will talk about that on this episode and future episodes, of course. We will be back with a fantastic interview for you and the guest today in just less than 60 seconds. Stay tuned!

Announcer:
What’s great about the shows you’ll find on www.JasonHartman.com is that if you want to learn how to finance your next big real estate deal, there’s a show for that. If you want to learn more about food storage and the best way to keep those onions from smelling up everything else, there’s a show for that. If you honestly want to know more about business ethics, there’s a show for that. And if you just want to get away from it all and need to know something about world travel, there’s even a show for that. Yup, there’s a show for just about anything. Only from www.JasonHartman.com, or type in ‘Jason Hartman’ in the iTunes store.

Jason:
It’s my pleasure to welcome Matthew Hart to the show; he is the author of Gold: The Race for the World’s Most Seductive Metal, as well as some other books on diamonds and gold. Matthew, welcome, how are you?

Matthew:
Hello, I’m very well thanks, Jason. Thanks for having me.

Jason:
My pleasure. You’re located in New York today, right?

Matthew:
Yes I am.

Jason:
Fantastic, well, gold certainly is a seductive metal. It’s just so visually appealing, it’s so unique in its yellow color. You really chronicle the mining issues around the world and I want to talk to you about whether or not we’re in a gold rush. What’s the state of the world as far as gold goes, nowadays?

Matthew:
Well, you say ‘Are we in a gold rush?’ I believe that we’re ending what was the greatest gold rush in history, because there was gold exploration everywhere in the world, on every continent except Antarctica. When we think of a gold rush, we often think of the classic gold rush like in California. In California, they mined 850 tonnes of gold in 10 years. Today, we’re producing 850 tonnes of gold in 3 or 4 months, and at the time of the California gold rush, that was a stupefying amount of gold. Today, it’s just a drop in the bucket. Gold is a $20 trillion a year business. I call it a gold rush because it was, unlike California with the classic gold rush that people in the business call an ‘area play’ – in other words, someone finds gold in a given area, and then everybody else rushes there and digs for gold. Here’s it was price driven. The price converted all kinds of marginally prospective land in various parts of the world into suddenly top land, because where gold was worth $800 an ounce in 2008, at the time Lehmann Brothers collapsed, then gold price shoots up and in less than 3 years it’s worth $1900 an ounce, so that makes all kinds of gold targets all over the world. All of a sudden, ground that was not worth exploring before is suddenly very worth exploring, and that’s what created this phenomenal gold rush where they were drilling everywhere. They were going back to old mines that had been closed and re-opened.

Jason:
And the technology is much better nowadays. When you made the comparison to the amount of gold being mined today within 3 or 4 months versus 10 years during the California gold rush, I couldn’t help but think about the oil and natural gas situation. Fracking has made so much more of those commodities accessible to us, and I think ultimately, will drive down the price. We might, for the first time, really become a major exporter of those products. What’s going on with technology in terms of gold mining?

Matthew:
Some of the biggest advances in technology for gold mining have to do with recovery. In the last years of the 20th Century, they developed, to a very large extent, the heap leaching. This works with very low grade ore and it’s possible because it doesn’t have to be treated in a plant. They just heap it up and leach out the gold with a cyanide solution, and they then capture the cyanide and put it in ponds.

I know it sounds very horrifying, but it degrades quite quickly in the sunlight. I know in Nevada, where they do a huge amount of heap leaching – in fact, you could say that Nevada and the success of the Carlin Trend is due to heap leaching, which made a lot of the marginal ore very profitable. The environmental people in the state there – the land and water people – have told me that it’s just not a problem. They don’t have an issue with cyanide. They have other issues, mostly to do with de-watering, because if the mines go deeper, of course they have to pump them out and a lot of that water doesn’t get fed back into the aquifers it’s pumped from – it just evaporates. There’s a lot of water loss from the process, and I think that’s the environmental issue. Heap leaching has made marginal low-grade ore profitable.

Jason:
Is there anything else on the horizon? I don’t know if you’d ask someone in the oil industry before the advent of a new technology if they knew that, because of course we’re always somewhat surprised about the next technology, but is there anything that’s foreseeable, Matthew?

Matthew:
Well, I guess some exploration techniques are better, but I think maybe it’s looking at different locations for finding gold. For example, under the sea. There are now companies that have developed submersible prospecting systems, and in fact, the Chinese are building a bunch of these small submarines. Again, the Chinese have licensed a very big area in the Indian Ocean that they’re going to explore.

There’s a Canadian company called Nautilus, located in Toronto, and they had targeted somewhere near Papua New Guinea, and they’re under these volcanic vents under the sea. It was very rich in gold and minerals there. In fact, I think they had a mining plan on which they built a leaching agreement with the local government, which was the latest I read. Anyway, there’s gold under there. The fact that the Chinese are interested means that if it can be got out, it will be got out. They are now the world’s biggest gold consumers, as well as the world’s biggest gold producing country.

Jason:
Do you have any concern? I know you made the disclaimer before we started, Matthew, that you’re not a gold bug per se, but obviously you’re very interested in the topic, having written two books about it. Do you think any of these new exploration or mining technologies will put some downward pressure on the price of gold?

Matthew:
No I don’t. I don’t think that’s what would put pressure on the price of gold because we’re always consuming the supply. We’re always eating up their reserves, so mines are always becoming potentially less rich. But every day they mine, so you have to find new reserves all the time. I think the gold price is driven by human affairs. Yes, I know, there are technical analyses of the gold price and there are very qualified people who measure the supply of gold coming into the market with the market’s demands and all that, but I think if we brush that aside and get down to the core driver of gold value, you reach the fundamental point.

Why should it be worth anything at all? It’s the feeling that it’s an ultimately indestructible asset because man has always regarded gold as valuable and I don’t see that changing. What started the bull run in the first place, the big bull run in the price, was a general failure of confidence in other asset values such as mortgages, equities and even currencies. By the time Lehmann Brothers collapsed in 2008 and put the afterburners on their gold prices, gold prices had already been rising for around 5 years.

I could see that happening again if we get into a situation like just recently and what happened when it plunged. All of a sudden, investors were very nervous about the emerging economy of developing countries which seems to be rather uncertain right now. So what happened? The equities all settled down but gold went up, so I think gold is the measure of where we are in our feelings about how the world is going.

Jason:
It’s the fear investment and it’s also the lack of faith in currency investment, so no question about that; I agree with you. What do you think has been the effect of ETFs? There are many people out there saying, and I don’t know if you have any of these slightly conspiratorial thoughts about it, but that the ETF is kind of a Ponzi scheme because the physical gold isn’t really there.

Matthew:
I’m not a conspiracy theorist about it, but I don’t think you have to be to look at the ETFs out of the corner of your eye. The ETFs bring a lot of volatility to the market simply because they allow so much gold to be traded so quickly. For one thing, they allow people to buy in quickly and to sell very quickly. If the gold price starts to go down, it’s easy to sell. By the way the reported ETF selling brings down the price, and then at the end of the day, the ETFs have to rebalance their share position by buying and selling so it matched up with the volume they have.

They sell billions and dump it into the market in one go because that’s what they have to do. That tends to intensify the swing. It doesn’t cause it, but it intensifies price movements. I believe anyone in the gold market would agree that price movements are intensified by ETFs. It’s not whether they have the gold or not, but does the spider have the gold? They say it’s all in allocated accounts, meaning that their gold is held separate from any other gold, and you can go online, of course, and navigate through their website and see what purports to be a picture of their gold, and then you can also look and see the Bar numbers of it all. If you believe in conspiracy then you think that’s all rubbish. Have I actually looked at it? Has anyone actually gone in there and drilled the bars to make sure? No. So I understand that people have misgivings.

Jason:
Probably rightfully so. Whenever Wall Street gets involved, it creates so much smoke and mirrors in any equation that everything becomes murky and engineered, and it seems like the simple basic laws of economics become very masked by these ‘financial innovations’, as they call them. Talk to us a little bit if you would, Matthew, about what you think makes gold so fascinating and so fickle? You alluded to that before.

Matthew:
It’s fascinating. It’s only quite recently that we had any idea of the antiquity of our fascination with gold. In 1972, a backhoe operator in the town of Varna on the Black Sea coast of Bulgaria unearthed a Neolithic tomb by accident. Now, he was just a backhoe operator and was actually digging foundations for a little apartment building, when he accidentally unearthed this. They sent for the archaeologist, they opened it up, and inside was this treasure of beautiful little gold objects. Any of your listeners can go online and type in Varna Necropolis or Varna Gold and you’ll get all kinds of images of what they found.

I have a catalog from the museum they built there – the Varna Museum, and it’s got these beautiful little objects. They dated them and found them to be 6000 years old; Neolithic men and women were treasuring and making these beautiful little ornaments. That’s at the dawn of our civilization. That’s before writing. It’s before Egypt even gets going. It’s the very dawn of our tradition of civilization. People cherished it.
So you can go back to this question, why do we value it? Many writers have struggled with this, including great economists and thinkers. The best anyone can come up with is that it seems to be hard-wired into the human brain. Jastram, the Berkeley economist who wrote The Golden Constant, a book that studied the relative power of gold over the centuries. He said he thought it was erased memory, so somewhere back there, is this impression that gold made on our very distant ancestors, in probably a brutish world where they just picked up this little lump of something that never corroded or rusted, was malleable – they could shape it into anything they wanted. That hasn’t gone away.

Jason:
I wonder if bit-coin will stand the test of time like that.

Matthew:
Somehow, I feel like it won’t. I don’t have anything against bit-coin; it is what it is. It just doesn’t have this huge cultural range that gold does.

Jason:
These companies that are talking about sending probes to asteroids to mine them – this seems like the most far-fetched, incredibly expensive idea ever, but apparently, maybe it’s not. A spacecraft that would go and mine metals from heavenly bodies and bring them back to earth; that just blows my mind. I’m sure you’ve read about this. There’s one company that’s raising money. I don’t know if they’re near an IPO stage or not, or if they’ve already done it. It’s amazing to me. I can’t believe that would actually pencil out.

Matthew:
I have no idea. I’ve never seen that sort of mass on it. I guess things tend to seem less absurd the further we get on in time. Certainly, if they do manage to figure out some way that they can retrieve this very heavy – although I guess it wouldn’t be very heavy in space, it would weigh nothing – but get it back to earth without it all blowing up or something, there’s a lot of gold out there. That we do know. One of my interviewers told me about something NASA posted up online – they had been observing this distant stellar event in which stars collided, or there was some kind of explosive event far far off in the galaxy. These super heavy metals were created, including gold, and they could measure this – how exactly I’m not sure, but they have ways of measuring matter in distant space. The scientists said that it would be the equivalent of 50 Earth-sized planets of solid gold. What would that do to the gold price?

Jason:
Wow, that is amazing. Investors and speculators alike really have to consider this, don’t they? This may not actually be that far off. There may just be a massive abundance of this. The thing that makes it valuable is its rarity, but maybe gold isn’t the thing for the next 20 years. It might be the thing for the next 5 years..

Matthew:
I think the space mining is probably a fair way out, but looking at other sources like undersea mining isn’t as far out. On the other hand, other big deposits will run out. Look at South Africa – water is drying gold deposits. 40% of the gold produced in the history of the world comes from that single deposit, and they’re certainly running down. These big gargantuan deposits will come to an end. I don’t know what the predictions are for the life of the Carlin Trend – how long can they go? Eventually they’ll have mined the last ounce of gold.

Jason:
I don’t know if the last ounce of gold or the pearl of oil will ever be mined because it’ll cost $2 trillion for the last piece!

Matthew:
Well there you are. It also becomes a total function of price, doesn’t it? Whether we run out of gold or not depends on the price of gold. If gold turns out to be $10,000 an ounce, there’s a lot of ground there that suddenly becomes a gold-mine.

Jason:
That’s for sure. One more issue along the supply lines that I’d like to ask you about is you wrote a book about diamonds. What is the title of that book?

Matthew:

It’s called Diamonds: The History of a Cold-Blooded Love Affair.
Jason:

You profiled a new diamond discovery in Antarctica. Isn’t that correct?

Matthew:
In the Arctic. In the Canadian Arctic.

Jason:
Okay, the Arctic, wrong polar cap. Everybody has long criticized De Beers for monopolizing the diamond market and so forth, but one thing that I found interesting as I was reading an article a few years ago about how they’re making diamonds in the laboratory now, and they’re real. They’re not fake; this is an actual diamond, it’s just made in a laboratory. Any thoughts about that?

Matthew:
Well, it’s a very big business, and in fact, De Beers is involved in it, and they certainly don’t control the diamond business anymore. They use to, but haven’t for quite a while. The biggest maker of industrial diamonds is General Electric. They have a big press in, I think, Woodington, Ohio. They’re generally used for industrial uses where they’re used for drill-bits and things like that. They’re actually making gemstone diamonds. There have always been stories about this, and generally about the Russians and how they’re making high quality gem diamonds and manufacturing them, but I was asked to comment on that by an interviewer recently in England, and I just said ‘Well, I guess if they could actually do it and you couldn’t tell the difference – so far you can tell the difference between them – then it would destroy the value of real gem diamonds’. Their value is based totally on rarity. They haven’t reached that so far, it would be very expensive to do and they would be destroying the market you were developing this technology for, unless they can figure out a way to do it cheaply. Other than that, it’s not complicated. You need a seed of carbon, and then it’s just pressure and heat, and that makes a diamond. You’ve compressed into a very short period what nature takes much longer to do.

Jason:
In your book – and we’re talking about the gold book now, Gold: The Race for the World’s Most Seductive Metal – you have a chapter on the Camp David Coups. What is that about?

Matthew:
That’s basically about the end of the gold standard. In 1971 when the Nixon government came to power and ended the gold standard – though it wasn’t really a gold standard at the time, it was the remnant.

Jason:
It was a pseudo gold standard.

Matthew:
It was the last version of the gold standard. At the end of World War Two, the United States had 75% of all the monetary gold in the world. That’s a rough figure but it’s generally accepted. So that would be able 20,000 tonnes. The other countries, after the war, couldn’t be on the gold standard because they didn’t have enough gold – the US had all the gold. Other countries tied their currencies to the US dollar, and the US dollar was convertible to gold.

Jason:
Isn’t that interesting, though? And then we backed out of the deal so we could inflate our way out of our spending problems.

Matthew:
You backed out of the deal because it wasn’t working. What happened was the economies of other countries improved after the war, so Americans started buying Japanese cars, German cars, foreign electronics and all things like that, but they weren’t buying the same kind of amount of American products, so what happened was American dollars flowed out of the country to buy these other goods. US dollars pile up in these foreign countries, but they don’t need the foreign dollars to buy US products so they just take them to the treasury and cash them in for gold. By the time Nixon came to power, this outflow of gold had turned into a gush. From 20,000 tonnes of gold, the US went down to 8,000 tonnes of gold, and Nixon put a stop to that, as we know, by simply cancelling the whole deal and saying ‘From now on, paper is paper’, that’s all you get.

Jason:
Paper is paper, but we will still be the bully of the world and retain the world reserve currency status, so we can control the value of that paper and the amount that we want to create out of thin air. That had to be the best deal the US ever got in history – we’ll see if we can hang onto it! It’s bothering people all over the world, and quite substantially.

Matthew:
Completely the best deal.

Jason:
Good, well give out your website if you would.

Matthew:
Yes, it’s www.MatthewHart.net and that’s got buttons for buying my book and you can read a little about what I’ve done and my background. It’s got reviews and articles that I’ve written, so it’s fairly comprehensive.

Jason:
Fantastic, well Matthew Hart, thank you so much for joining us today.

Matthew:
Thanks for having me, I really enjoyed it.

Outro A:
I’ve never really thought of Jason as subversive, but I just found out that’s what Wall Street considers him to be.

Outro B:
Really? Well how is that possible at all?

Outro A:
Simple, Wall Street believes that real estate investors are dangerous to their schemes because the dirty truth about income property is that it actually works in real life.

Outro B:
I know. How many people do you know, not including insiders, who created wealth with stocks, bonds and mutual funds? Those options are for people who only want to pretend they’re getting ahead.

Outro A:
Stocks and other non-direct traded assets are a losing game for most people. The typical scenario is you make a little, you lose a little, and spin your wheels for decades.

Outro B:
That’s because the corporate crooks running the stock and bond investing game will always see to it that they win. This means, unless you’re one of them, you will not win.

Outro A:
And, unluckily for Wall Street, Jason has a unique ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than a 26% annual return is disappointing.

Outro B:
Yup, and that’s why Jason offers a one-book set on Creating Wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us.

Outro A:
We can pick local markets untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns safely and securely.

Outro B:
I like how it teaches you how to protect the equity in your home before it disappears and how to outsource your debt obligations to the government.

Outro A:
And this set of advanced strategies for wealth creation is being offered for only $197.

Outro B:
To get your Creating Wealth Encyclopedia Book One, complete with over 20 hours of audio, go to www.JasonHartman.com/Store.

Outro A:
If you want to be able to sit back and collect checks every month, just like a banker, Jason’s Creating Wealth Encyclopedia series is for you.

Outro:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit www.HartmanMedia.com or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.

 

 

CI 44 – Self-Governance With Tea Party Co-Founder Mark Meckler

Mark_Meckler
Today’s Commercial Investing Show guest is Mark Meckler. He co-founded the Tea Party Patriots and is also an author. On the show, Mark talks about his organization, self-governance, and why people hate the Tea Party movement so much.

 

Key Takeaways:

02.05 – Jason introduces Mark Meckler.
04.00 – The Tea Party was founded in 2009.
06.03 – Why is the Tea Party hated so much?
18.10 – What is an amendment convention? Mark explains.
20.33 – Congress passes board enabling acts and the regulators actually do the legislating. Mark and others are working towards stopping this.
26.15 – Elections are not enough, but with that said, we still need to vote.
29.08 – Would Texas become the Hong Kong of the United States?
31.57 – Remember, the larger the government, the smaller the citizen.

 

Tweetables:
People have a lot more in common than they think they do.
The reality is we all believe a lot of the same things and it’s not good for the politicians to let us know that.
The only way we can get those term limits is through an article 5 amending convention.

 

Mentioned In this Episode:
http://www.conventionofstates.com/
The Liberty Amendments by Mark Levin.

 

Transcript:

Introduction:
This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit www.HartmanMedia.com

Welcome to the Commercial Investing Show where we analyze, explain and exploit the opportunities presented in today’s commercial property marketplace. If you’re interested in apartments, mobile home parks, sub-storage facilities and other income property, you’ve come to the right place. We’ll explore what’s hot and what’s not in markets nationwide in the relentless pursuit of return on investment. Here’s your host, Jason Hartman.

Jason Hartman:
Welcome to the Commercial Investing Show, this is your host, Jason Hartman, where we discuss the relentless pursuit of ROI. Yes, that’s right, Return on Investment and Return on Inflation. We have a changing future with monetary policy and fiscal policy the way it is and we need to prepare for it as investors by structuring our transactions differently, and we will talk about that on this episode and future episodes, of course. We will be back with a fantastic interview for you and the guest today in just less than 60 seconds. Stay tuned!

Announcer:
What’s great about the shows you’ll find on www.JasonHartman.com is that if you want to learn how to finance your next big real estate deal, there’s a show for that. If you want to learn more about food storage and the best way to keep those onions from smelling up everything else, there’s a show for that. If you honestly want to know more about business ethics, there’s a show for that. And if you just want to get away from it all and need to know something about world travel, there’s even a show for that. Yup, there’s a show for just about anything. Only from www.JasonHartman.com, or type in ‘Jason Hartman’ in the iTunes store.

Jason Hartman:
It’s my pleasure to welcome Mark Meckler to the show. He is the president of citizens of self-governance and co-founder of the Tea Party Patriots and author of Tea Party Patriots: The Second American Revolution. Mark, welcome, how are you?

Mark Meckler:
I am fantastic even better being with you.

Jason:
Good stuff, well tell us a little bit about the citizens of self-governance.

Mark:
Sure, well I come out of the Tea Party, as you know, I was uninvolved until Tea Party movement started and I was one of those folks who was darn fed up and stood up and started protesting in early 2009. I kept standing up and protesting and ultimately that lend me to the helm of an organization called Tea Party Patriots, which we founded sort of at the go forward grass roots center for the Tea Party movement. We built that organization to over 32,000 chapters and 23 million members around the country and then I stepped away from the organization about 2 and a half years ago because I wanted to broaden the base.

It was my opinion at that point that the Tea Party brand had reached it’s z-nit, it’s still a great brand, but its reached this point where a lot of people believed in the ideas, didn’t identified with the brand. The brand has been vilified. I knew when I went out and talked to people, they believed in capitalism, free markets, they believed in the constitution and they believed in limited government, really. So, when I talked to people about that, I’d say, oh, so, you’re a Tea Partyer, a lot of them would say, no. I don’t like the Tea Party. Well, if I said, so you’re in favor of self-governance, they’d say, yeah, absolutely. I’m a self-governance person. That’s why I founded citizens for self-governance. It’s the idea of broadening the appeal of those ideas beyond on the brand of the Tea Party.

Jason:
So, I’m curious, when was the Tea Party founded, 2008?

Mark:
Actually, offically, it got started, Rick Santelli did his now famous rant in early February of 2009. What happened is Santelli calls for Tea Party on the shores of lake Michigan, he calls for it in July. Bunch of us get on the phone together and say we can’t wait that long, so a week later February 27th 2009, we held the first series of tea party protests around the country. There were 35 of them around the country, which the one I held was in Sacramento is one. About 39,000 people came out, then a group of us got together, actually 5 of us, should do it again and that’s how we planned the tax day tea party, which took place on April 15th2009. That was really the bigger that most people know about.

We’re 850 tea parties around the country over 1.2 million people came out. Actually, historically making it the largest multi-city simultaneous protest in world history.

Jason:
Wow, that’s amazing. Give those numbers again.

Mark:
April 15th 2009 there were over 850 organized tea parties around the country protesting government run a muck. Total number of people independent to those tea party roughly 1.2 million, making it literally the largest single day multi-city protest in world history.

Jason:
Wow, that’s amazing and not a single arrest, not a litter problem. I mean, it’s just amazing. The critics to try and slam the tea party any way they could, but you compare it to Occupy Wall Street, which by the way, I must tell you, I support, at least in concept, because I think Wall Street is the modern version of organized crime, but that’s another subject…

Mark:
No, you and I are on the same place on that. As Occupy Wall Street was sort of ascending the center stage, I had friends participating and I provided some guidance to them, but the problem was that they wouldn’t police their own. See, the tea party has been extraordinary about policing its own. If there are any problems that ever pop up then everybody around that person, you know, you talk about crimes being committed and even litter, it’s a self-policing movement, no body allows that kind of stuff. Occupy Wall Street was exactly the opposite it became anything goes, drugs, alcohol, literally child abuse, there were rapes, there were all kinds of crimes. So, the movement sort of ate itself alive due to like of self-policing.

Jason:
Yep, that’s true. So, I’m curious, why do people, some people, hate the tea party so much? I mean, it seems so inline with the concept of founding of America, did they just hate the original intent of the founding fathers? Is that..you know, you hear this real hatred from the left. I mean, liberals just love to hate the tea party. I don’t really understand what their problem with it is.

Mark:
Yeah, I don’t think you could understand, because frankly it’s not rational. If you talk to people on the left and you explain that the tea party has got free markets and capitalism and it’s about the constitution and the love of liberty, they’re all in favor, but they’ve been listening to MSNBC and CNN and they’ve been listening to people who call us racists and crazy and backwards and all that stuff and that’s what they know. So, if you actually get into details, you talk to people who quote unquote hate the tea party, they don’t have any details. They don’t have any specific reasons. It’s a narrative and they’ve bought into a particular narrative.

It’s one of the reasons I spend a lot of my time personally going out to the left and speaking to the people on the left and going to meetings on the left and demonstrating to them that the tea party and even the American conservatives is not what they think it is.

Jason:
It’s true. It’s interesting. I think that the left and the right is, I mean, it’s largely a fake debate. It’s like a wrestling match on television. It’s show business. It’s really probably designed by the powers that be to divide people and people have a lot more in common than they think they do. So, if you look at the right, they want limited spending and limited regulation. If you look at the left, well, they might want some free stuff and some spending, but they definitely don’t want to be regulated too much. So, why can’t people come together?

Mark:
Well, I’m with you. The reason that they struggle to become  together is exactly what you identified, you did it really well. I call it the profitable politics of hate. It really is important to the politicians that democrats haste republicans, liberals hate conservatives, gay rights folks hate marriage and family folks, religious folks hate secularists and vice verse. These are tools that the politicians use to maintain their power and their tools that the media uses to make money. So, if we go on TV and I go on Fox News like I go on regularly, a lot of the times that they want us to yell.

Jason:
Oh the evil Fox News, really? Oh my gosh.

Mark:
On the other hand, I go over to MSNBC and I sit on the air with Chris Matthews on Hardball. Both cases what they’re trying to do, often, is foam at the hatred. I mean, there are exceptions, there are people who I would consider straight up journalists, not many, but most of the shows they apply their trade in hate and they want you to come on and yell at the left and call the left names and I just don’t buy into it, because my neighbors, some of them are conservative and some of them are liberals and by enlarge they’re good people who have very similar values. They might differ a bit politically, but they are much more similar than dissimilar.

I engage in this exercise and I know you know all the stuff I’m about to say, but it’s important for your listeners when they’re talking to people with different ideologies. If I’m speaking at an event on the left, I always ask them how many people in that audience voted for continuing trillion dollar deficits. You know, no body has ever raised their hand. This is the left, right. Then I say, well, I don’t understand, because my representatives seem to keep voting for it and so do yours, so why? Then I ask, how many in the audience think we have the best education system in the world.

The money is going spot on right where it should be to the kids and it doesn’t matter whether I’m at a tea party or moveon.org type event, nobody thinks that we’re doing right. When I asked about criminal justice, how many people in the audience think we have the best criminal justice system in the world and when I asked the question, which is that the war on drugs has been a tremendous success and you know what? No body raises their hand.

If I’m at a tea party event it’s so weird because I was at the liberal event last night and none of them think we have the best justice system, the best education system either, so I’m not sure what’s going on. Am I liberal, are you guys tea party? I’m just confused. The reality is we all believe a lot of the same things and it’s not good for the politicians to let us know that, because then they can’t keep taking away our liberty and our money, frankly.

Jason:
Yep, that’s for sure. The bigger gain is beyond either of those. Okay, so, tell me about your idea for not a constitutional convention, but many you can explain what that is and explain what you’re trying to do.

Mark:
Sure, so, the main project being pursued for self-governance is called convention of states. It’s founded at ConventionOfStates.com. The idea is this, under article 5 of the constitution, that’s where we get the power to amend the constitution. There are two ways, one is congress has the power to 2/3rds of each house to propose amendments, which then go out to the states to ratification back 3/4s of the states. That’s one way, that’s the way we’ve always amended the constitution, but you know, during the convention in 1787 and the last couple of weeks when they were winding down, George Mason stood up and he noticed that we had forgotten to include the right of the people to amend. He said, you know, this is outrageous, because do we really believe if congress and the president of the government ever becomes a tyranny that the government would propose such amendments as would it restrains its own tyranny.

The wisdom of that position was so profound that Mason’s notes reflected there was no debate. It was adopted unanimously, one of the few things in the constitution to be adopted unanimously to give the people the right acting through the states, the sovereign states to call an article 5 amending convention specifically for the purposes of restraining the tyranny of the federal government. I think most people, frankly, left or right, agree that the federal government has become a tyranny. They’d like to see it restrained. 60% of Americans say that the federal government is too large.

So, the only way to do it is we call it, we call the convention, and we do that, 34 states file an application and 34 states do so and then there’s a convention of the states. We’re doing that right now, literally. Again, people can read about it at ConventionOfStates.com. That convention has already been called for by Florida, Georgia, and Alaska looking likely to get that done here in Ohio very shortly. We have legislative sponsors of upwards of 25 states going into 2015 session.

So, my expectation is what people is going to see in 2016 is something extraordinary besides the presidential election. What they’re going to see is this citizens of this country actually call an amending convention and meeting convention. In other words, do an end run around the president, the congress, and the courts. We’re going to tell them what the boundaries for what the government is without the federal government’s input.

Jason:
Okay, so, what is this amendment look like exactly and what’s it called?

Mark:
We don’t know exactly what amendments will come up. What are germane for discussion during that convention or amendment that would restrain the scope, the power of the jurisdiction of the federal government, amendments that would impose fiscal restrains on the federal government or amendments that would impose terminal events of the federal governments. So, any of those things can be discussed. We don’t know exactly what amendments could come out of it. I can tell you what I think. I think for sure what will come out of is a balanced budget amendment of some sort. 80% of the American public support that right now. I think we’ll get..

Jason:
I’m curious before you move on to amendments, which I would love to see. I mean, that would, God, we need term limits so badly. Politics was never meant to be a career. It was meant to be your civic duty and you do it and then you go back to your business.

Mark:
A majority of Americans agree with you.

Jason:
As far as a balanced budget amendment, I’m kind of wondering if that’s even possible. I’m also wondering, believe it or not, if it’s even wise. The way reason why I say that is, look, if I as an individual had to balance my budget, for example, at times, especially as I was younger and starting out and buying lots of real estate and rental properties, you need to extend yourself to do a bigger thing and the government is totally out of control obviously, but I think there are short times and good reasons occasionally; not as a standard practices as we have now engaged in for way too long; to be imbalanced.

Mark:
No, I think you’re right and every balanced budget I’ve seen proposed has exceptions for national emergencies and various kinds of military emergencies and, you know, financially market collapse type emergencies. So, exactly what the restrictions should be, exactly what those emergencies look like, I don’t really know, but what I do know is a bunch of smart people, citizens, who might have immense faith are going to get together in a convention and they’re going to discuss what those exits and circumstances are. I’ve never seen a balance budget amendment seriously propose that didn’t contain those out clauses.

Now, I have my concerns about those too, because basically what it means we’re going to end up ultimately turning that over to the court. They’re going to litigate are we in a national emergency. What does it mean to be in a national emergency. So, I’m a little bit hesitant to turn it over to the courts, but I’m hopeful and I have a strong belief in the wisdom of the American people that when they get together  in convention, they’re going to find some good solutions to those questions that propose a good solid balanced budget and with the right exceptions.

Jason:
Okay, alright, go ahead.

Mark:
So let’s talk term limits.

Jason:
Term limits, what a wonderful idea that is.

Mark:
So, here’s an interesting bit of history that I think a lot of people don’t realize. We actually buy proposition initiative past term limits that are congressional delegations in 23 states around the United States. In 1985, in US versus Thornton, the Supreme Court told us that we weren’t allowed to pose term limits on our congressional delegations. I think that’s outrageous. I think it was a bad decision. Kennedy went the wrong way on us in that case and he hasn’t, frankly in my opinion, in many cases, but the bottom line is supreme court prohibited us from limiting the term.

The only way we can get those term limits is through an article 5 amending convention. We can actually amend the constitution so that it imposes specific term limits on federal officials. Not just by congress, by the way, how about term limits on the federal judicially. I don’t like life time appointments when the founders constituted the supreme court.

The average age of an appointee was 47 years. Average life expectancy of a male of that time was 54 years. That meant that they didn’t expect these guys to serve very long and they certainly didn’t expect them to affect the course of American jurisprudence for 20 or 30 years like we have now. So, the idea of rotation on the court really appeals to me and frankly all federal court provisions.

Jason:
So, rotation on the court, I mean, the supreme court was meant to be a non-political office, so that’s why they get those life time terms. What would a rotation look like?

Mark:
For example, it could be set up like this that they get 2 consecutive 6 years terms. 2 back to back or 1 12 year term and every cycle three of the justices are off and they’re rotating off the court. So, you could be rotating off three justices at a time, so every 12 years you come on, you’re there for 12 and then you’re off. Then we know we won’t get these wild swings in jurisprudence that are made by one justice or another.

Jason:
Yeah, interesting. It’s sort of hard for me to think about how that would work out in practice in terms of the swings, but..

Mark:
The best part is that idea that I just gave you, I don’t know, that’s one idea. I’m not that smart of a guy. I’m sure there are people who would come up far better ideas in a convention when we get a bunch of people together to debate it.

Jason:
So, how does this convention work? It’s an amendment convention?

Mark:
Yeah, it’s a convention for proposing amendments. That’s what it’s called under the constitution under article 5 of the constitution and basically the way it works is once 34 states apply for it we hold the convention. Each states send delegates. Those delegates are chosen however the state chooses. In other words, it’s true federalism. So, I come from California. A little bit whacky out here in the west. I think California would send 100 delegates I wouldn’t be surprised, because we have such a vast state with 6 different intro-sol over the state, but regardless of how many delegates you send, the state ends up with one vote.

So, every state is going to get 1 vote and in the end they’re going to cast those votes and anything that garters 26 votes or simple majority is going to pass out as a proposed amendment. So, there might be a whole slate of amendments that come out, balanced budget, term limits, all kinds of stuff. One of my favorites is the idea of a single subject amendment, meaning that congress shall pass no bills that deal with more than one subject area.

Jason:
I love that idea too, because that would just eliminate the pork. I’m curious, speaking of pork, you know, Reagan wanted the line item veto, what do you think of a line item veto concept?

Mark:
I like the idea of a one line-item veto. It require congress and the president to be working together and those matters and that’s the way I think the founders intended it and, again, a line item veto is something you could propose in an amending convention.

Jason:
So, interesting. I mean, if you have a single subject rule, then you don’t nee a line item veto. In fact, that might give the president too much power. Just keep it to a single subject. I mean, that would probably be good enough. It’ll probably do the trick.

Mark:
You know what’s so great about this, you and I, just sitting here doing this interview we’re having this back and forth and you say something and I go, hmm, you know, I hadn’t thought about what you just said, about the line item veto versus the single subject amendment. This is what’s going to happen in the convention. People from all over the country getting together saying these are the problems we have with the way government is running, how do we address these problems? You’re going to have smart people sitting in a room together debating, I mean sure sometimes in a heated manner, sometimes in a very friendly manner, but you’re going to come up with some fantastic ideas that you and I individually could never come up with.

Jason:
No question about it. Okay, what else is on the table? Anything else or does that kind of cover it?

Mark:
I mean, I’ve heard so many good amendments. Another one is what they call, some people, the regulatory freedom amendment. The idea that anything that affects the American people in the economy according to OMB or the GAO at 100 million dollars of value or more, any regulation, has to actually be approved by congress. One of the problems we have in America is that congress pass these broad enabling acts and then the regulators actually do the real legislating. Frankly, I don’t really believe that’s constitutional. The founders certainly never intended for the congress to be able to give away its power to regulate it and to give that to other people.

So, I’d like to withdraw that card and put it back in congress and say you actually have to go on record and vote on it on any regulation that imposes more than a 100 million dollar burden on the American economy. That actually sounds like a lot of money now a days for regulation, but it’s a pretty low threshold. Let’s get these men and women on record saying what they do and what they don’t support.

Jason:
Good point, good point. So, I mean, how likely is this? How many states do we have now?

Mark:
So, we just got started. This project go started 18 months ago. That’s just an idea. The idea was brought to me by Mike Farris who is the founder of the home school legal defense association also chancellor of Patrick Henry college in Virginia and one of the few guys to ever argue an article 5 case before the US supreme court. So, 18 months ago we started it, kind of did a dry run in the last legislative session in 2014. Passed it in Florida, Georgia, and Alaska. We’re looking good for Ohio in this session before the end of the year. We got it keyed up in about 25 states for 2015 expect that to jump up to 31 roughly by the time we hit legislative session in January.

So, I think we’ve got a really good shot for getting it down. I mean, it’s not just a pipe dream. You’ve got folks like Mark Levin wrote the book Liberty Amendments. It’s all about the subject. Rush Limbaugh has come out in favor, Sean Hannity, Glenn Beck, Sarah Palin, Colonel Allen West, governor Bobby Jindal just indorsed. So, you’ve got the senator Tom Coburn of Oklahoma, senator Ron Johnson. You’ve got senator Mike Lee has come out in favor of article 5. Rand Paul has come out. This is a major, major movement in America right now.

The momentum is much more than I ever expected. It’s really been extraordinary. I actually think we’re going to pull it off. I think we’re going to pull it off. I think there’s a good chance we’re going to pull it off in..

Jason:
The problem is there though, most of those people seem pretty partisan, you know, what I mean? Like, if you’re a liberal listening to this, you think, oh God, you got Rush Limbaugh and Sarah Palin. They’re going to freak out and instantly dismiss the whole idea out of hand without even considering.

Mark:
No, I think that’s fair. The movement definitely comes from the right, because there’s nature reaction of the right to enlarge government, but it’s important to know, for example, we have something called the Assembly of State Legislatures and these are folks who have gotten together to draft the rules fo an amending convention. There are already working on this already. They’ve already had two meetings and they’re going to have a 3rd one in December in Washington, DC. It’s a bi-partisan effort. So, every committee in that Assemble of State Legislatures is had by a democrat or a by a republican. You know, if you polled the American people, 60%, it’s not just republicans, not just conservatives, think the federal government is too big and is out of control.

So, for my friends on the left side, one of the things I tell them about this effort all the time. I think it’s really important. We just had the republicans take control of the senate in a pretty hard way. A pretty strong way. Republicans took control of more state legislatures than ever before. Literally now control both houses in 31 state legislatures. Democrats only control 7.

We may, I don’t know, we may elect a republican president and much to the horror of my friends on the left, maybe it’s somebody like Ted Cruz, who, you know, they consider a right-winger. Well, if that’s the case, do they really want a government in Washington, DC telling them, them meaning liberals in liberal states what to do? I think the answer is no. I think the answer should always be no for my friends. My crazy friends here in California who I love dearly and disagree with their politics vehemently. If they’re in control of the state of California, they should be able to run a liberal politics.

Jason:
Where in the socialist republic of California do you live?

Mark:
I live up in the foot hills in the Sierra mountains sort of directly between Sacramento and Lake Tahoe.

Jason:
Okay, because I grew up in southern California.

Mark:
Where abouts did you grow up?

Jason:
L.A as a kid and then Orange County as an adult.

Mark:
Yeah, I grew up in the San Fernando Valley. Went to school in San Diego, so I stayed in California my whole life. California is real interesting demographically and geographically, because what you have is you have these vast population centers, San Diego, and more so Los Angeles and San Francisco that drive the politics. Geographically if you look at the state about 85% of the land mass in California is demographically conservative. So, it’s just an unusual economy. We actually see that more in states now.

The more rural areas are very Conservative, the urban areas are very liberal. Of course, that’s why the population base is so that tends to drive the politics, but we saw in the last election an extraordinary swing saw. States like Massachusetts and Illinois elected republican governors, even they’re tired of the left wards sing. We saw a state like my sister’s state over the border in Nevada, right, Harry Reid territory and much to our shock and our surprise I was there a couple of weeks before the election. No body anticipated both houses and the govern in Nevada now all republican. I mean, that happened, we had a republican governor and now we got both houses, so that’s happening all across the country right now.

I don’t think it’s because people are in love with republicans. I think it’s because people like the idea of limited government. People are sick of big government intrusion on their lives and on that mark, they see republicans as better. They see republicans talking about limiting government. Now, the question is will the republicans do it.

Jason:
Yeah, we will see. To me it feels like two sides of the same coin with the republicans interfering with me a little bit less, but they’ve moved so far to the left already, but I don’t know.

Mark:
We’re in total agreement. I agree with that and I think most citizens agrees with that. So, if that’s the case, I think what you said 1000% accurate, if that’s the case, then elections aren’t enough. I mean, it tells us. If we believe the republicans are doing the same stuff, then elections don’t fix things.

Jason:
Very good point. Elections aren’t enough and, you know, everybody saw, ohh I voted, whoopie doo. I don’t want to say don’t vote or discourage voting, but c’mon.

Mark:
No, we need them to vote, because we want the best people in place that we can possibly get, but we can’t expect them to solve the problem for us. It’s always been up to the people. That’s the way the system has been designed. We expect it and engage it a lot greater the system wouldn’t work and so what we have is we have this tool of Convention of States that gives us the power to restrain these jokers in Washington, DC. They’ll never restrained themselves. I don’t care who the president is, I don’t care what our majorities are in congress, they will not restrain themselves. That’s what history shows us.

Jason:
Power corrupts and absolute power corrupts absolutely.

Mark:
For sure, the way we’re seeing it in DC right now.

Jason:
Yeah, we’re getting far too close to absolute power. I mean, it’s just ridiculous. So, give out your website and tell people where they can find out more.

Mark:
Sure, people can go to ConventionOfStates.com. It’s not just find out more, it’s really important that people understand that nobody is going to save this country except for you. I don’t mean that figuratively. I mean it. No body is going to save the country except for you. The question is, at the end of your days, are you going to look at your kids and your grand kids and say, you did absolutely everything you could or are you going to say I voted?

You know, I voted for the right people and if that’s what you’re going to say then you gotta know, you’re throwing up your hands and you’re really telling your kids you gave up. You knew they were going to lose their country, your grand kids were going to lose their country and you were okay with that. You can’t be okay with that. You go to Convention of States. You get involved, you join the movement, we do an end run around congress and the president and, of course, we restrain these jokers in Washington, DC.

Jason:
Good stuff. Well, sounds like a good plan to me. You know, I’m curious, I have predicted for many, many years. A long time ago I made this prediction and not necessarily saying I wanted it to happen, but like you said, it doesn’t seem like the elections are fixing much of anything. I’ll tell you my prediction first. Within my natural lifetime and many people listening, I think we will see a serious secession movement and I think we will see a successful secession of at least one stage and my guess would be Texas would be the first to go. If it did go, Texas would become the Hong Kong of the United Sates.

Mark:
You know, I think it’s plausible. I think the only way out of it is if we are able to reform the federal government. I mean, this is why this is so important to me, because I don’t think secession is the best thing for the country. I think keeping up the union together like a lot of blood has been shed to keep this country together. I think it was a wise thing to keep this country together. I think it’s demonstrably wise in what this country has accomplished and I personally be that the United States has its brightest days ahead of us if we can get back to what made the country great. What the country made this country great was not the idea of unlimited government, it was the idea of limited government.

The idea, the citizen was larger than the government. The citizen was sovereign. We’ve largely lost that in our system today. If we can recover that, I believe there’s a renaissance ahead of us and I don’t say that lightly. We are, right now, going through a technological boom like nothing ever before seen in human history. Our ability to communicate, everything is devolving power naturally. The mainstream media is getting less and less powerful because of shows like yours, right. You can do this. It doesn’t take a millions of dollars of equipment, it doesn’t take of support.

Jason:
Until they find the kill switch and they’re looking for it.

Mark:
Exactly! Right now though, media power is devolving. Technology is devolving power away from the center and out to the masses.

Jason:
I call it the democratization of everything.

Mark:
I think that’s a fantastic…I’m writing that down.

Jason:
No! Do not take that, because that’s going to be the name of my TED Talk.

Mark:
Well, I’ll give you credit for it. Well, I think we are. I think we’re seeing the democratization of everything and what that equals to me is nothing less than the second renaissance if government doesn’t clamp down on it. It is a huge if. If government clamps down on it, then i think you’re right, I think things point to a secession movement.

If government doesn’t clamp down on us and if we can push back against it. If we can literally open things up the way things were intended to be, I think we’re going to see an extraordinary renaissance. Not only in our country, but when America leads the rest of the country or the rest of the world follows. So, they’re either going to follow us into darkness. Reagan said, are we sentencing our children to take the first step into a thousand years of darkness or are we going to meet our rondevu with destiny or are we going to step up and make sure that doesn’t happen.

Jason:
Good stuff. Well, I hope this renaissance comes and I think the thing that people need to leave this interview with thinking and understanding is regardless of what side of the political spectrum you’re on, you must inevitably believe this because history has born it out to be true every single time and there’s this simple concept. The larger the government, the smaller the citizen. The larger the government, the smaller the citizen. I don’t think anybody wants to be small, right. We all want to be big and have big rights and when the government gets bigger, our rights contract and make it smaller.

Mark:
That’s it and that’s what we’re fighting for, left or right. I’ll stand and die with my citizen friends on the left for their right to decide about what goes on in their own lives. That’s what I believe in. Left, right, center, it doesn’t matter to me. I’ll fight on my own community. I am more of a right wing kind of a guy  in my own community. I’m going to fight for that kind of stuff, but at the national level, the real question in America today is who decides and the real answer should be the citizen.

Jason:
Well, Mark Meckler, thank you so much for joining us. This has been very informative and lively discussion and I am looking forward for this renaissance. Thanks for joining us on the show today.

Mark:
Thanks for having me and we’ll keep you posted.

Outro:
Here’s your chance to catch up on all of those Creating Wealth Shows that you’ve missed – there’s a 3-book set with shows 1 through 60, all digital download. You save $94 by buying this 3-book set. Go ahead and get these advanced strategies for wealth creation. For more details, go to www.JasonHartman.com.
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit www.HartmanMedia.com, or email [email protected]

Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own, and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.

CI 43 – What Is Your House Worth? Construction Costs And More

Jason_Hartman

 

 

Jason Hartman shares some very vital information that he’s learned over the years about construction costs on the Commercial Investing show. He shows the audience how you can figure out what the house is worth, talks about different square foot pricing across the United States, and more.

 

Key Takeaways:
3:15 – Jason wants to talk to his audience today about construction costs.
7:10 – Jason breaks down the cost per square foot in the various regions in the United States.
11:00 – Jason tells you how you can figure out the land value.
15:20 – Older homes may be built with a little more care, but newer homes are built with more technology.
18:15 – If you go to JasonHartman.com you can see some lucky deals you can get on houses.
19:30 – Jason explains why it’s important to know the land value and the improvement costs.
23:15 – You can find more information on this subject on Jason’s YouTube channel.

 

Tweetables:
The prudent income property investor is the one who invests based on cash-flow.

I have never met or known or anybody, any guru, any economist who can accurately predict appreciation and depreciation.

Older homes were maybe built with a little more care and quality, but newer homes are built with more technology.

 

Mentioned In This Episode:
JasonHartman.com
https://www.youtube.com/channel/UCmNsqjCUKNlByC0xSK0u_qg

 

Transcript
I want to talk to you about construction cost and when we’re investing. As you know, my very unique risk evaluator model relies very extensively on construction cost and land cost as a way to determine how to minimize risk when investing in real estate and it took me 19 years to discover that. So far as I know, it is completely original thought and my insurance broker at the time helped me discover that on one of my first nationwide property purchases. Before that I had pretty much been confined to investing in California and I did not realize there was a whole new wonderful, beautiful world of investing out there and great opportunities, and I didn’t have to rely on the speculative rollercoaster of the California cycle to invest in properties, and it’s been a great, great ride since then.

What I want to talk about today is different construction costs, and this was inspired by an article that just came out, which is by the NAHB – National Association of Home Builders – and they, of course, discuss economics and housing policy. They did an article and it is about construction costs per square foot: what it costs to build properties in these various areas, and they look at contract price per square foot of new contractor-built single family houses, starting in 2013, and this is very very enlightening. Before, I’ve talked about what I call – and this is one of my trademark terms (I’m trying to add to the language of real estate investing here), and it is called regression to replacement cost. These examples that I give you have a lot to do with it, so we know that the riskiest markets are high land-value markets because they are cyclical in nature, they have big highs and really ugly lows, and people lose fortunes in those markets if they don’t time it just right.

We also know, and I’ve talked about this previously, that over time, the linear markets tend to do just as well as the cyclical markets, or even better in many cases. I’ve given the example of Kansas City, Missouri, compared to Orange County, California. You would think that high-flying Orange County, my former home town, would be the one that would win because they have such extreme upsides in the market. Over the course of 18 years, Kansas City actually outperformed Orange County, in the example I gave where Orange City average depreciation – I’m just doing this from memory here, folks – I think it was 5.2% average and Kansas City was 5.8% average, and remember, the devastating things about these cyclical markets is that you give so much back when there’s a downtime. In these downtimes, which are very hard to predict, as you know, I have never met or known or anybody, any guru, any economist who can accurately predict appreciation and depreciation.

The prudent income property investor is the one who invests based on cash-flow. If the appreciation comes, it’s icing on the cake and it’s wonderful, but let’s not count on it. Let’s just have that be a pleasant surprise. When you look around the country, according to this NAHB and their survey, you see that in the Pacific region that includes California, Oregon, Washington and Alaska, the median (there is a different between median and average, statistically, and sometimes I prefer to use the average, but that’s a whole other discussion for statisticians, but I don’t know if I can lead that because I’m not an expert. I never took statistics class in College – I should have though, I would like to be able to understand that stuff better) price per square foot is $145. In the mountain region, which includes Nevada, Arizona, Colorado – the four corner states – the median price per square foot of a single family home is $107, versus Pacific at $145. Occasionally, you can have actual cost of construction that makes this happen, but the thing you’ve mostly got with these variants in prices is a regulatory environment which makes it more difficult to build, which drives the price up, but you also have higher price markets.

When you have a higher cost of living where you’re hiring contractors and sub-contractors to build a house, of course you have to pay them more because they have to be able to afford to live in the place in which they work – so that does drive up prices a lot too. In the mountain region $107 per square foot, Pacific region $145. The West North Central region, it’s called, which is the area that includes Illinois and that area about Texas is $103 per square foot on the median price to build a single family home. In the West South Central region, and that includes Texas and all the states around there, it’s only $85 per square foot. Just $85. And then the East South Central, which is a little bit east of Texas is $84 per square foot, not much of a difference there and those are both regions in which we like to invest.

Then they pulled out another region which they call the South Atlantic Region (Florida, Georgia, the Carolinas) which is $88 per square foot, and mid-Atlantic, which is a little bit above that as we get close to the expensive areas is $103. The New England states way back up, just like the West coast and Pacific region go to $143 per square foot. You have the East North Central region near the great lakes, which is $90 per square foot. So you see how these prices vary pretty significantly around the country. What does this mean to us?

Before I get to that I want to tell you that the median for the entire country is $93 per square foot and none of these numbers include land value. They all exclude the value of the improved lot on which the house is sitting. What do they mean by ‘improved lot’? They mean a ‘finished lot’ that is ready to build a house on: it’s graded, it’s compacted, it has utilities pulled to the curb and so a contractor can go and build a house there. So $93 per square foot is the US median price, so what does this mean? It’s pretty darn exciting. As you know, next month, November 22nd and 23rd is our Birmingham property tour, so I want to talk to you about a property that’s available right now in Birmingham and to compare it to some of these numbers, which you’ll find to be  rather interesting.

Here, I’ve got a great property in Birmingham which is for sale right now. You can go to  www.JasonHartman.com, click on ‘Properties’ and you can find this exact property. It is 1104 square feet and it’s priced at $70,900 so that comes out to $64 per square foot which you can see right on the proforma. Now, let’s take the land value out of it. I’m going to just take a very rough guess here, not knowing what the land value is, and there are 3 ways that you could know the land value. 1: The property tax assessor has their own opinion of land value, which varies because nobody exactly knows. They’re an estimate but they give you an idea. They separate the improvement, the house or the apartment building sitting on the land from the value of the land itself. That’s one way you could have a clue of the land value versus the improvement. It’s very important to dissect this and look at both parts of the value equation. 2: Get an insurance quote, and the insurance company doesn’t insure the land because even if the house burns down, the land won’t.

If the house burns down, they will have to pay at least some portion  to rebuild that house after you haggle with them and possibly have to hire a lawyer to haggle or even to sue them to pay the claim. You know how this can go sometimes and that’s why I always say the best insurance is a high loan balance. Let your lender haggle with them. Let them work with your insurance company to protect your collateral. I’m going to estimate the land value very roughly at $25,000 and the third way you can find that out is an appraisal. An appraiser will make an attempt to dissect the land value versus the improvement value. Three sources that I’m aware of: tax collector or assessor for property taxes, an insurance broker – an insurance company selling you a policy based on the property, and an appraiser. So let’s say for argument’s sake that this land is worth $25,000. Let’s look at the land cost per square foot – not per square foot of the land, per square foot of the house. I want you to see how much of this equation is potentially land cost.

We know we can purchase this property for $64 per square foot, but if you take $25,000 and divide it not by the square footage of the land, but by the square footage of the house sitting on the land, we’re going to divide it by 1104, which is the square footage. That means our land value integrated with the house value is $22.64 per square foot. Now let’s look at this. Let’s take the purchase price of $70,900, subtract $25,000, leaving us with $45,900, so we took the price of both (land + house), subtract out the potential land value, with my estimate of $25,000. Let’s look at $45,900 as the value of the structure or the house sitting on the land – the value of the improvement. Let’s divide that by the square footage of 1104, and that means the house cost is $41.58 per square foot.

Well, I hope you’re getting excited, because I am. Remember I’ve talked on prior episodes about my trademark term: regression to replacement cost, and the beautiful thing is that you can still fetch a few properties out there – these are drying up and there aren’t that many so there is real urgency to be investing because prices have definitely been going up and they continue to go up, and business is very very strong, so you’re going to constantly see a lack of inventory. Here you’re at $41.58 per square foot as our potential for the calculation that we made. In this region, according to the National Association of Home Builders, it costs $85 per square foot to build a house. This house isn’t brand new but it was renovated this year, so it’s brand newly renovated. Of course there is a different between old and new houses, and some people really like older homes better. There are benefits of older homes, they just tent to have more generous spaces and they obviously have a very different style. Some like newer, but it just depends. Many would argue that older homes are built better than newer homes. I think older homes were maybe built with a little more care and quality, but newer homes are built with more technology. We   could have that debate for a long time, but let’s not bother.

To rebuild this house, if it burnt down, an insurance company would probably spend about $85 per square foot, according to the NAHB. They have lots of members that build homes, so they should know. If we take $85 per square foot, their number for construction, and we multiply it times the square footage of 1104, we can see that it would cost $93,840 to build this home today. Well, you can buy it for $70,900, so right there you’ve got about $23,000 of potential gain already. Oh, you say, but wait a second because we didn’t include the land value. That’s just the improvement, it’s just the house sitting on the land.

What about the cost of the land? Let’s add back in $25,000 – our potential lot value estimate – and then we add those two together. $93,840 to build the house, plus $25,000 for the land and we get a grand total here of $118,840, so we’ll just call it $119,000. That means when all of those construction materials are worth what they actually cost, and I know that’s kind of a funny thing to say. It’s like the concept of – and I’ve said it before – when a piece of wood is worth what a piece of wood costs (I used to say that during the downmarket to illustrate my regression to replacement cost concept). When it regresses toward the actual replacement cost, you have a potential gain in this property, and this is not really the same thing as appreciation. Regression to replacement cost, I would argue, is homeostasis. It’s equilibrium and it’s what it should be worth, intrinsically. You have a gain potentially here, of $47,940. That’s pretty great! You can see examples there aren稚 as many as there used to be, but if you go to  www.JasonHartman.com  and you click on Properties and you start browsing through all of the property proformas, you will see several examples – not as many as you used to because prices have gone up and they continue to rise, but you will see examples of some lucky deals that you can still get where properties are priced below replacement cost. This is a good example of that.

If you want to see more properties like this, join us next month in late November (the weekend before Thanksgiving)  as we look at properties in Birmingham, Alabama just like this property. You池e buying below the cost of construction, you致e got regression to replacement cost opportunity built into the equation. One of the things I do is I will not allow our local market specialist to represent their properties as being below market value, even though in my opinion, many of them are below market value. I will not allow them to represent the properties that way, so when you look at the proformas at  www.JasonHartman.com, you’ll see one number for initial market value, and another number for purchase price, and those numbers should always be the same, unless they snuck one by us and we didn’t catch it. When you understand the math of the two components of an income property investment (the land component and the improvement or the structure sitting on the land: house, apartment building, or an office, retail or industrial building) the point is there are two value drivers in any real estate equation. One is the land, the other is the improvement sitting on the land, and you’re really got to dissect those and understand them. One reason, also, is because you only depreciate the improvement on your tax return, not the land. The land will always be there so the IRS doesn’t allow you to have this awesome depreciation opportunity.

I should say, for those of you who are the gamblers and the speculators out there who like to invest in expensive markets (I値l call them overpriced markets, whether they be California, the New England states or whatever, maybe Miami they池e expensive markets). Remember, you don稚 get nearly as much tax benefit in those markets because your land cost is so high, and your improvement is so low as a ratio to land cost. You only get to depreciate the improvement cost. The example I give when I talk about the risk evaluator and how to really reduce risk if you want to hear more about this, go to  www.JasonHartman.com  and there’s a little search bar on the website. Just go ahead and search ‘Hartman risk evaluator’ and you’ll find prior podcasts where I’ve talked about the extensively, as well as some blog posts that explain it. You really increase your risk when you invest in high land value markets, but you also massively decrease your tax benefits and of course your cash flow, and of course we are prudent cash flow investors. We’re not the gamblers, we’re not the speculators, we’re on the conservative side.

On this property that we’ve been talking about, the projected return on investment overall on this property is 38% annually – cash on cash return projection is 15% and cap-rate or capitalization rate is 9.7%. Get this, your debt coverage ratio with 25% down is 2. That means your property could go badly half the time, and you’ll still cover your debt service on this property because you’ve got a debt coverage ratio of 2.00. A lot of our properties had debt coverage ratios of 1.4, 1.6, 1.8, something like that. I’ve actually been looking for one for you that is a 2 and we’ve found it. What a champ. This property has a projected cash flow of a little over  $3400 annually, and that’s with your maintenance, your property management, your vacancy, all imputed into that equation, so make sure you really know how to analyse these deals, folks.

Another thing I just want to recommend is that several episodes ago I did a podcast on how to read a property proforma, and the YouTube video that shows the visual and you can follow along on how to read a property proforma. Just look for that and that is a fantastic tool which will make you a better investor. It’s on YouTube so if you look for our YouTube channel at Jason Hartman Media, or you just type ‘how to read a property proforma’ you can probably find it. Add my name to it and you’ll find that. It’s just a great lesson on how to read that, but it doesn’t really talk much about this land to improvement value equation that I just shared with you.

This is for advanced investors who really are thinking about all the multi-dimensional aspects of their income property investments, and I know that’s you, because you listen to the show. You want to know more and you want to be a more prudent and more sophisticated investor, so thank you for doing that, and thank you for doing your homework and really studying this stuff. Please do, if you like the show, or even if you hate the show, go write a review for us on iTunes. We had a few reviews come in last week and I really appreciate that. I know I never ask, but it really helps us get the word out there about the show, so please take a moment and go to iTunes or Stitcher Radio. You can do it 3 minutes or less, and we really appreciate that, so thank you very much.

CI 42 – Real Estate Investing with David Porter

Jason_Hartman

 

David Porter is one of Jason Hartman’s real estate clients. He has appeared on the podcast before many, many years ago to talk about his concept of the free lunch, which he also retouches on today in the podcast. David catches up with Jason and shares some of his real estate successes with the audience.

 

Key Takeaways:
2:25 – Jason welcomes his guest, David Porter.
4:50 – David bought his first home in Indianapolis in 2009 with Jason’s company.
10:30 – David talks a little bit about his background in shipping and fiance.
16:10 – It’s so hard to predict where stocks are going to go versus owning real estate.
19:00 – David took advantage of his ability to borrow and invested the money in real estate.
24:35 – David explains a bit more about what his shipping company does.
28:00 – Jason talks a little bit about China’s economy.
32:45 – The one thing that has saved the United States is the fact that we have the ability to print unlimited amounts of money.
40:00 – Jason and David talk about the cool things that are happening right now in the technology sector.
45:00 – David’s friends are shocked that he’s purchased properties he’s never seen.
48:45 – David explains the metric he came up with called, ‘Free Lunch’.
55:15 – David has made over a million dollars in appreciation.

 

Tweetables:
Certainly we have our share of problems, but like I say, technology might save us all.

What I did is I took that ability to borrow and I put it to work in a very, very, very conservative way.

The United States finds itself in a really impressive place in history and has benefited a lot from that.

 

Mentioned In This Episode:
Abundance by Peter Diamandis
Makers by Chris Anderson
Khan Academy
David Porter’s first interview – http://www.jasonhartman.com/89-%E2%80%93-the-%E2%80%9Cfree-lunch%E2%80%9D-metric-what-it-tells-about-income-property-%E2%80%93-an-impromptu-discussion/

 

Transcript

Jason Hartman:
It’s my pleasure to welcome on of our clients back to the show. He was actually on a long time ago. I think it was maybe 5 or 6 years ago when he started investing with us. His name is David Porter and it’s a pleasure to have him join us today. Dave, welcome, how are you?

David Porter:
Great, Jason. It’s great to be back with ya, yeah, I think it was a good 5 years ago when I last joined you on a podcast.

Jason:
I remember that day all too well. I remember I was rather stressed out sitting in my office and your investment counselor, Sara, kind of came into my door with you and I was thinking, please don’t bother me, I’m so busy right now! Then Sara said, Jason, you gotta hear his story. This is David Porter, our client and you just gotta hear his story and it was a really cool story of, I think, your first investment property that you got from us Indianapolis, right?

David:
Right. It’s so funny, you think, Jason, when we first met the economy was crashing. It was 2008. Yeah, some of these foreclosure opportunities were developing. I purchased my first property with you guys with Indiana.

Jason:
Good stuff. Then you started buying up Indianapolis, you were kind of quite the real estate mongol there. I don’t really know what you’ve done all these years. I know Sara has been in touch with you, but I haven’t..I hear about you once in a while, but tell us how it all went and what you’ve been doing and so forth.

David:
So, let’s see, we got started, I just looked at some records before we got to talking here. We started talking late 08. I purchased my first property in Indianapolis in March of 2009. That was an unbelievable…You think about it now since the prices have gone up since then, but $85,000 in that foreclosure market, we picked up a 3000 sq ft, 5 year old home in a suburban, very, very nice neighborhood. It’s incredible. That property today is renting out for $1250.

Jason:
One of the things that I was talking about way back then and I’ve talked about it many, many times since then. I’m probably boring my listeners saying the same stuff over and over, but it was the concept of buying below construction cost. It was also the concept I’ve talked about a lot that I call regression to replacement cost. You have a background in financial services and then the transportation business, shipping and trucking companies and so forth. By the way, I wanna ask you some insights, because those are really interesting parameters about the economy and global and national trade and so forth, so maybe we’ll get to that, but you bought this house; I thought you paid $89,000 for that house and your insurance company told you you had to insure it for $240,000 or something?

David:
Yeah. Your memory is very, very good. Those numbers are almost spot on. That was the story repeatedly, because after that I bought 8 more properties in Indianapolis. When you think about it, it’s okay, the insurance company made a mistake, they’re trying to charge me too much, and all that kind of stuff, but it kind of makes sense when you think about it. To rebuild and buy all the lumber and to create a 3,000 sq ft house, it’s going to cost you a couple of hundred thousand dollars, it doesn’t matter what you pay for it. So, that’s kind of their thinking and that’s what I kind of had to do. I shopped it around.

Jason:
So you bought the house for $85,000 or $89,000?

David:
$85,000

Jason:
Okay, $85,000 and the insurance company told you you had to insure it for $240, is that?

David:
It’s real close, I don’t remember the exact number, but it was $240 or $250 or something like that.

Jason:
So, at first, that must have upset you. You’re thinking, why do I have to pay insurance on such a large amount when I only paid $85,000 for the house, but the insurance company was thinking, if that house burns down, that’s what it’ll cost to rebuild it, right?

David:
Right, as mad as I was, the only thing that would have been worse is if they’d say, no, we’re only going to insure it for $50,000, because you only paid for…

Jason:
Yeah, that wouldn’t have been good.

David:
Yeah, the way you put that. It was really a great way for me to think about it. There was blood in the streets at that time. Again, the economy was falling apart, people were very concerned about what was going to happen. I’m telling my friends, hey, I’m buying these houses in Indiana, so I’m here in California. They were like, okay, Dave, you’re buying houses in Indiana, that’s really strange.

Jason:
They probably thought you were crazy right?

David:
They thought I was crazy, absolutely. I didn’t know at the time we were buying these homes over the course of 3 years. You never know if you’re buying at the bottom or really where you at. I’m a very conservative investor, I don’t like a lot of debt. I felt it was a very conservative investment, because based on what I knew the rents were and the rental market was relatively strong despite everything else because everybody else was losing their homes. The rental market is still a great place to be me. Even if it went down 10%, I mean, how much lower could it go given the fact I’ve got this plot of land in a nice suburban area and relatively new construction and good size, right? How much lower could it go? It couldn’t go to nothing like a stock.

Jason:
I agree with you. Even if it did, you’re still really a prudent cash flow investor. Cash flow is the name of the game if you get the capital appreciation. Hey, you’ll take it, I’ll take it, that’s the icing on the cake. Either way, cash flow is a pretty reliable thing. I mean, it’s not perfect, it does change, but it doesn’t fluctuate a lot. These investors, well, they call themselves investors, I call them gamblers, but who invest in these high priced markets just waiting for something incredible to happen, I don’t know, I think they’re in trouble.

David:
That’s speculation, right? One of the biggest regrets I have in my real estate career is one of the houses I first bought to live in. California went through one of its down markets and I sold it at a loss and wrote a check to leave and I wish I would have just held on to it, I’m sure you’ve heard that a million of times, but other than that I’ve never sold property. I think there’s only so much real estate. They’re not making new real estate. If you have property in a solid area, that’s a great long term investor. My whole strategy around this is to create a nice passive income stream to take me into retirement.

Jason:
Absolutely. I think you’re doing a great job at that. So, tell the listeners, if you would, Dave, how many properties did you end up buying in Indianapolis or greater metro area of Indianapolis?

David:
So, I bought 9 all together in the greater Indianapolis area.

Jason:
What gave you..I mean, you saw the blood in the streets. Back then you were in the shipping business. You were in the container shipping business and that was experiencing a down turn. I mean, global trade was suffering. I used to read articles and I remember asking you about this and there were just empty shipping containers everywhere. It wasn’t even wise to run these freighter ships, because, you know, there was so little trade. It was a scary time. What gave you the confidence to invest back then?

David:
You know, it was really the best place to go at the time with your money. So, I had a career in shipping for about 20 years at the point, so you’ll learn I’m not a very good market timer. In 2007 I left the transportation business to go into financial consulting for investors. We will putting together portfolio of stocks, basically mutual funds, of high net worth investors. At the time I heard you commercial, I mean, things were just falling through the floor. Lehman brothers thing was happening at that particular time and I was just kind of curious. There must be another way.

When I learned about the approach, when I saw, again, these assets in some over built markets that taken such a hit, but the rents had stayed solid and my goal was rents. My goal was the cash flow. My welfare would be independent of the value of the underline asset really, as long as the rents hold up. I really liked that idea. If you think about a stock portfolio, a mutual fund portfolio, the rule of thumb for advising clients for retirement is you can take out about 4% of your portfolio per year and that’ll last you well into your retirement, perhaps even 30-40 years. Things like that. They run a lot of back testing, there’s no guarantees with that, but it’s kind of safe.

So, when I looked at the kind of income I could generate with the portfolio of houses, I would need much more money invested in mutual funds to generate that equal amount of income. So, that’s the way I looked at it. What would I have to invest in order to generate a certain amount of income. Real estate was clearly the winner at the time. It was fact back. I saw the market was so beaten up, I didn’t see a big down side even on the value of the asset itself.

Jason:
I agree with you. When you were buying the properties in Indianapolis, which maybe we can get to, but when you were buying those were you paying cash for them or were you getting financing on them. I can’t remember, I think you mentioned on the show a couple of years back.

David:
It was a combination of the two. At the time when I went into this, Jason, I had zero debt in my life. Zero debt.

Jason:
And you met me and you got into debt, right?

David:
Yes, you corrupted me.

Jason:
I’ve done my job.

David:
I’m still conservative. My cash flow has paid off on several of these properties, but what I did I just had some other property that was owned outright. Basically, if you were credit worthy at time, they were throwing money at you, very low interest rates, historically low. I did take out a loan and I’m paying on it today. It’s 3.49% fixed interest for 30 years.

Jason:
Oh my gosh. Until recently, Dave, you’ve been getting paid to borrow that money, for sure. I mean, I would say, and I’d have to admit as much as I don’t like admitting this or even have it be this way, that inflation is actually pretty darn low this last year now. It was definitely higher in the last few years, but it’s calmed down. I’m really surprised. Do you listen the podcast regularly?

David:
Not regularly, but sporadicly. I’ve listen to a couple dozen of them over the years. I haven’t heard any recent ones.

Jason:
I’m surprised inflation rates aren’t higher, I’m surprised interest rates aren’t higher.

David:
I am too.

Jason:
I think inflation is coming back, I don’t think we’ll see it low for very long.

David:
It’s not going to last forever. I did hear, you interviewed Richard Duncan. He is my favorite economists and even he as bright as he is and he does this full time, you know, are we going to die a death of icey deflation or hyper inflation, I mean, it’s hard to tell. Neither one of those scenarios is very good, but clearly what we’re doing isn’t sustainable.

Jason:
Who the heck knows. It would be sort of possible to predict economic scenarios with some accuracy if it wasn’t for central bank intervention. You just never know what they’re going to do. They just interfere with markets and they pervert the whole thing. You can’t predict stuff very well because of them. I mean, you could think, what would they logically do and you can sort of predict that, but it’s still, you know, it’s difficult.

David:
I don’t think we’re operating in a logical world right now. Richard Duncan puts it real well and I think he said it on your podcast. This is what really broke my heart. When I was in the financial services industry. I was with a very good firm. They were thinking about things, they weren’t speculating in stocks or penny stocks or any kind of thing. It was a pretty conservative approach, but people would like to think they’re investing in capitalism, but they’re not investing in capitalism.

As Richard Duncan says so well, it’s sadism, and that’s to your point. What is the government going to do with the banking system? What’s the reserve requirement? What are they going to do with interest rates? All these things throw stocks for a loop. You know, when you’re taught in school and I have an NBA, I am a fiance major, that’s my training. They tell you that you evaluate stocks by the value of earnings of the company. Well, I wished that was the case. It’s not the case, it’s part of the equation, but..

Jason:
It’s more about the story, right?

David:
Yeah, it’s the story and it’s what the government decides they’re going to do with their policy and how that’s going to impact a particular industry.

Jason:
That’s ridiculous.

David:
And there’s no way to factor that into a spreadsheet.

Jason:
I agree with you. So, what exactly was your background in financial services? Were you an adviser, did you work with clients and help them invest their money?:

David:
Yes, I was. I was a registered investment adviser. We dealt with high net worth clients and we put together portfolios of index funds, so within in the world of investing that’s a pretty conservative, reasonable, well-diversify way to go. We had all types of portfolios that would be in alignment with somebody’s age and risk tolerance, basically.

Jason:
Ladies and gentleman, what we have here is a defector.

David:
I still have a foot in the camp and..

Jason:
I’m glad you came over to the other side.

David:
I am too. So, going back to my investing in real estate story, I came to realize largely with your help and I can honestly say if I hadn’t attended some of your sessions and had some of the conversations, and read some of your material, I wouldn’t have thought about it this way, but having untapped ability to borrow, having that ability to borrow and not utilizing it is kind of like sticking money under your mattress, you know. Maybe it’s even worse than that because you don’t even get the money.

So, what I did is I took that ability to borrow and I put it to work in a very, very, very conservative way and it was clear to me my income stream would more than pay for debt service I would have and in addition you get all the benefits our tax code allows us to do with those interest payments. So, it really helped me a great deal. I don’t borrow as much as I could borrow. I’m comfortable where I’m at. I’m still in a very conservative position, but what I did was I took some money out of some property holdings I had and paid cash for a number of properties in Indiana.

Jason:
So, you didn’t really completely follow my plan. I would have said lever everything up.

David:
I know.

Jason:
Because it’s kind of counter-intuitive, I think the more conservative position is to actually be the borrow. I know, I know that goes against the grain to what a lot of people think. I completely get it, you know, I used to in the old days think pay everything off and, you know, I remember having this conversation with a friend of mine. We were on the board of a caner charity in Orange Country, California, where I used to live. Her name is Katherine. I remember her parents had some financial hardship and I remember thinking, gosh, they were losing their house.

They had this gorgeous home and they were going to foreclosure and I remember thinking, you know, the thing to do is to just pay off your own home so at least you own that and all the other investments could be leveraged and you’d never lose your house, but the reality is we have a perpetual lean on our houses called property taxes and in some cases a second lean called a home owners association.

You know, those agencies or their investors, because people buy tax leans as a trader-able asset, they look at those in a predatory fashion. If you’ve got a lot of equity, you’re target. I don’t like having big equity in real estate, even though I own some homes with equity, but if I could lever them more, believe me I would.

David:
So I’m kind of in between where I was and where you are now, but..

Jason:
Move the needle a little bit.

David:
You’ve moved it a lot really, you know. It’s worked out well. Also with Platinum’s help, I went into Arizona. So, that’s a different market. You told me at the time, I went into Indiana, you said, Dave, you were cautioning me, you said, you need to get more diversified. You’ve got too much in Indiana. You said, Indian is like a bond, you shouldn’t expect a lot of appreciation there, but it seems like the rents are pretty stable, so it’s good for that if that’s what you want to have and that’s what I was looking for. The income, the stable, long term income, but the Phoenix market, as you well known and you’ve taken well advantage of, got beat down awfully hard.

I think the dynamics of that market is you got the weather there and a growing economy and it attracts people and if you look at the demographics of North America, I knew people were going to come back to Phoenix again. So, we bought a couple of properties in suburban Phoenix, Gilbert and those have worked out extremely well. The thing I love about Arizona is the property taxes are low, insurance is low, and I did get some really nice appreciation on those properties as well.

Jason:
Yeah, Phoenix is a very desirable city. Now that I’ve lived here for a little over 3 years, it’s kind of a gem. A lot of people don’t know about it. People in California that lived in Orange Country, where I used to live and LA where I grew up as a kid, they think I’m nuts. I ask them like, when was the last time you were actually here? You know, it’s a really nice place. We’ve got super swanky restaurants and all kinds of nice things here. Other than three or four months, hot, but it’s a dry heat, it’s a pretty nice place. Although, right now, it doesn’t make sense for an investment stand point. It’s too expensive. It’s a hybrid market. Indianapolis is a linear stage of California. You’re in Southern California, right?

David:
That’s right.

Jason:
That’s a sicklier market. So, Phoenix is in between the two. We’ve moved in and out of Phoenix a couple of times. Sometimes it just gets over valued or at least, maybe I don’t want to call it over valued, I just want to call it where the cash flow isn’t good enough for us and that was one of those time.

David:
But, I’m holding on those properties there and I think that..

Jason:
Your basics are low.

David:
Yeah and it’s worked out very, very well for me and on top of that we’ve got a couple of properties I’ve held for a long time in California. So, yeah. I’m a happy real estate investor.

Jason:
Good for you. One of the things I wanted to go over was that concept you were…Oh gosh, forgive me, I’m having a senior moment here. See, I can finally say I’m having a senior moment.

David:
Are you over the line now?

Jason:
No, I’m not over the line. The AARP is still a long ways away I’m glad to say.

David:
Good for you.

Jason:
Oh gosh, it’s something you just mentioned. It was the concept of debt or…eh, I don’t remember. I’ll remember after we finish the talk here today, of course. But, what are your thoughts..you’re in the trucking business now, so what do you do exactly?

David:
So, the company I’m associated with in Southern California, we do local trucking and a large part of what we do is taking domestic shipping containers to the railroad from all the warehouses that are unloading all these containers that are coming from China, Vietnam, Japan, Korea, and so forth. We do a lot of local trucking shuttling goods from the harbor to the railroad most of the time and then we also consolidation/de-consolidation, and some warehousing work as well.

Jason:
So, your industry has a really good parameter on the economy. You know what the volume of trade looks like, where it’s coming from, where it’s going to. Are there any thoughts that you have or ideas that you just wanna share or maybe we can sort of hash them out?

David:
What I’m noticing..So, we deal with a lot of the large retailers from all over the country because the goods that we’re picking up here they wind up in Chicago, New Jersey, Atlanta, Dallas, Memphis, where ever for the large retailers. It seems to have been a strong retail session. At least, they ordered a lot of stuff. I don’t know if it’s going to sit in a warehouse on the east coast or not, but I can tell you in previous years we hadn’t seen this level of activity. This is, what we call, peak season in shipping is a season from basically labor day up until just after Thanksgiving leading up to Black Friday there and all the shopping that gets done. This peak seasons was unbelievable. It was extremely busy. I haven’t seen it this busy for many, many years.

Jason:
Are most of these goods coming from good old China?

David:
Yeah, especially in California. Our manufacturing zone is called Tijuana. No body is making anything here. What ships out of here is brought in from overseas or just over the border in Mexico or Tijuana.

Jason:
We can thank NAFTA for that for better or worse. What are those called, the Maquiladora zones.

David:
Exactly.

Jason:
I remember Ross Perot talking about them in the giant sucking sound.

David:
He was right about that.

Jason:
He was right about a lot of things. I wish he would have been elected as nutty as he seemed. I think it would have been the only guy who would have actually shaken things up and made something different.

David:
You know, it’s fumy, I voted for him and then I voted for him the second time and he kind of got a little off kilter with some of this theories about the Republican dirty tricks committee trying to ruin his daughter’s wedding and all that. You know what, even if that’s true, I wouldn’t say it.

Jason:
Makes him sound like a paranoid freak, right?

David:
Exactly.

Jason:
So, there’s a lot of talk about how China is really beginning to slow down and they are suffering and, you know, years ago you used to hear people like Peter Schiff and others like him, sort of the doom and gloom committee talk about the concept of de-coupling. How China will de-couple from the United States, meaning they’d create their own middle class, they’re own consumer base and they’ll have countries around them that trade with them and they won’t need us anymore and when they won’t need us they’ll stop buying our treasury bonds and our interest rates will sky rocket and we will be dead, but the exact opposite has happened oddly. It’s really interesting. They’ve just not been successful at creating their own middle class and their own consumer base. The people with money are bringing it over here.

David:
Exactly and that’s great for the real estate situation we’re talking about.

Jason:
It’s great for the everything situation.

David:
And the stock market as well. When I read about their real estate market, the bubble is finally..at least the air is coming out of it. So, it’s interesting, I mean, my view on that, you know, Peter Schiff. He’s interesting. I read his books, but, you know, I think maybe he’s got a little too much invested in that gold camp and all that type of stuff.

Jason:
Yeah, I agree. The gold camp really has gotten it wrong most of the time.

David:
Well, you know, they’re going to be right. What do they say? A broken clock is right twice a day, but I don’t discount it entirely. Overtime, I would not be surprised to see all of that to come to fruition over time. I don’t think that’s going to happen, you know, by 2020 or any time real soon. I mean, we just heard some statistics recently how China their GDP is going to surpass ours earlier than what everybody expected prior to 2020. Some measures of the economy would show that their economy is larger than ours right now, so I think over time you can kind of see how the trade is going and what the direction is, but no body wants to piss off their largest costumer and that’s us. For better or worse, it’s kind of hard to bet against the United States in the long run.

I do have some very serious concerns about this house of cards we have with our debt situation and all that, I don’t know how that’s going to play, but again, going back to Richard Duncan, I hate to keep quoting him, but this could continue for much longer than what for most people think it could continue. Japan has shown that. Their economy is not like the model economy or anything, but people would rather hold yen than rupees right now. People thought Russia was the way to go not long ago.

Jason:
I just think as illogical and unfair as it may be, the United States finds itself in a really impressive place in history and has benefited from a lot of that. As mismanaged as it is in so many ways, I think they can kick this can down the road for decades long.

David:
That’s exactly right, you know. So, to prepare your entire life for something..hey, it could happen. China could make some nutty announcement next year, I kind of doubt it, it could happen, but I would tend to agree with you some time after 2020 we’ll be well into retirement and who knows. You can’t live your whole life in fear.

Jason:
I agree with you. The interesting things about China, and we don’t have to talk about this forever, with China as soon as they start to maybe gain a foot hold, say things go really well for China, then they’re going to be facing this really huge ugly demographic problem and that’s the same thing is really behind hurting Japan so much or at least inhabiting their recovery. They just don’t have any young people.

China has far too big a male population, not enough females, and the one child policy in 10 years, they’re going to be looking at a really tough demographic problem. If they ever hope to get any real social safety nets there…I just don’t know if that’s ever going to happen. I hope it goes well for them. Listen, it’ll be nice if the whole world would prosper and we all live in harmony and it’ll be great, but if you’re comparing countries, like you say, it’s really tough to bet against the United Sates. I just don’t know how you could really do it.

David:
Yeah, it really is. The one thing that really is very interesting and I’m sure you’ve read about this, how China and Russia are gaining away from…

Jason:
They’re trading outside of the dollar.

David:
Of the reserve currency of the US. The thing that saved us, I think, the only thing that saved us that can’t save a Greece or an Italy is no body will allow them to indefinitely print their money and accept it. You know, we’ve got this weird license that allows us to do that. Other people can’t do that or they would be fined too. So, I don’t think that we’re so smart or so great or whatever. I think you’ve put it well. We’re in a unique spot in history. I think we’re allowed to do that. It’s kind of relic of what we used to be. It’s not rational or logical, we do get to do that and it’s saved our butts. No body gets to do that.

Jason:
I agree, I agree. We’re just kind of…We worked our way through the industry revolution, we won that guy, and now we’re just kind of lucky.

David:
Let’s hope we can catch up. There are some unique things going on right now. I’ll throw out a book too. Have you happened to read Ray Kurzweil’s Abundance?

Jason:
Oh, that’s actually Peter Diamandis.

David:
Oh! I’m sorry. Peter Diamandis, thank you.

Jason:
They talk about Ray Kurzweil a lot in there and Steven Colter was actually on the show. I love that book. It is amazing. It leads me to another question, but what were you going to say about that?

David:
I was just going to say that there is a lot of reasons to have home and there are with the advantages of technology and with the speed that things are moving along, people don’t even realize, you know, you’ve got technologies increasing every year and a half or so for the same cost. We’re at the point now, initially, we’re making experiential gains in what we’re capable of doing and what we’re going to have access to and that’s going to provide a better standard of living for everybody. I think the next 10 years is just going to be an amazing time for us.

Jason:
For the whole world. The whole world is going to benefit from this. We’re in a position where we have, what I’d like to call, the democratization of everything. You know, other than the wall street and cronies and the crony capitalism and the unholy alliance between, you know, government and mega business. I’m not even going to call it big business, it’s mega business, whether it be pharmaceutical companies or the banks or whatever, right. Elizabeth Warren, I’m definitely not a democrat, but she gave a great speech that I just posted on my Facebook page where she just outed all these criminals with Citi bank. Criminals, I’m using this word loosely, obviously. Just my humble opinion. You know, it’s just a total scam what’s going on, but the technology is just leveling and flatting and flatting the earth. I mean, crowdfunding, 3d printing, all of these things, gene sequencing.

Last night I watched a TED talk..Have you heard of this kick starter, this glowing plant?

David:
No, I don’t know about this.

Jason:
Oh, it’s mind boggling! Basically what you can do is you can go to a website now, and you can do this today, and you can design, for better or for worse, you know, it is scary I’ll admit. It’s Frankenstein whatever, but you can design your own life form made of whatever DNA sequence you want. You can put your credit card in and you basically, this website, helps you make this blueprint, and you can order this life form and the UPS guy will deliver it to you. Someone did that and made a glowing plant. It’s a kick starter project, they raised a ton of money, and they hope they ultimately trees will replace street lights. I mean just fathom that for a moment! It’s incredible.

David:
Oh my god. I’m going to check it out.

Jason:
Google it, you’ll find it. It’s an amazing time to be alive!

David:
So everything is leveling out. Another great example, they were talking about the Sony hacking situation with North Korea.

Jason:
Right, that’s kind of scary.

David:
I haven’t followed my way on to it, but this is dark side of the internet that you can get to do to, the dark net, what I heard yesterday, if you or I wanted to do that, it would cost us about $1,000 to find somebody in Russia or China that will do that for us. To take down a corporation for $1,000 bucks!

Jason:
Wow.

David:
When they started to talk about this, I thought the person would say 10 million dollars or something like that. $1,000 bucks! You could do it.

Jason:
Wow, that’s mind boggling. Now, that might cost you your freedom and your life, but wow, that’s mind boggling. The power is moving to the people and it is really, really cool. Now, one thing I wanted to ask you, because you’ve got so much familiarity with shipping and in the book Abundance and I’ve been talking about it for years on my show, but 3d printing. Is that going to move a lot manufacturing back to the US? It’s not for mass production, I understand.

3D printing is for more like artisan-type production and there’s a great book I read last year when I was in Europe and it’s by Chris Anderson who has written three great books that I know of. He is the editor of Wired magazine and I believe he owns TED now, the conference, and the book is called Makers. It’s all about the 3d printing revolution. I mean, are those ships be needing to come here quite as much because we’re just going to print stuff? I read an article yesterday we basically emailed a wrench to one of the astronauts at the international space station and what I mean by emailed is emailed the design for the 3d printing they have now and four hours later he had a wrench in his hand made of matter, made of atoms.

David:
Isn’t that amazing?

Jason:
It’s incredible!

David:
So, I’ve sat in some of these conventions I go to in transportation and logistics and that’s a very real thought. I mean, it’s not going to happen real soon, but to kind of ask two questions. Is 3d printing going to have a big impact on shipping? Yeah, I think it will in time. The second part is a lot of things are coming back. Again, with the dynamic in China, wages are increasing there. They’re calling it near shoring. It’s not necessarily coming back to the United States, some is, but a lot of it’s going back to Mexico. Some stuff was in Mexico and those Maquiladors moved to China, now it’s coming back.

Jason:
Wow, it’s really quite fascinating what’s going on in the world. What an amazing time to be alive. Just sit back and witness this stuff. Certainly we have our share of problems, but like I say, technology might save us all.

David:
Well, I think so too. I think that for our kids, I really believe there’s never been a better time to be alive in terms of there’s never been more opportunity for everybody. I mean, you could be the poorest poor person, maybe not the poorest poorest, but if you have the access to the internet, you’ve got unlimited education and access to information, role models..

Jason:
For free! You’ve got the Khan Academy, it’s free! You can learn, you can get 10 PhDs at the Khan Academy for free, it’s amazing.

David:
That’s just tremendous opportunity. I read where they’re predicting in the next 10 years, we’ll have our first high school billion. We already have plenty of kids that dropped out of college to become billion, but imagine a high school kid becoming a billion, not just because our currency is debased, but because they’re creating real value. Yeah, so it’s an amazing time. There’s unlimited opportunity out there. Yeah, there’s problems, but Jason, you’re a little younger than me, but when I was growing up and you probably heard some of that stuff too, I literally, my elementary school teacher in third grade told us, “You know what? I don’t think you guys will live to see 30, because there’s going to be a nuclear war.”

Jason:
Wow, really?

David:
What kind of manic teacher was..

Jason:
Today you’d get fired for that.

David:
I think justifiably so. That was a ridiculous thing to say to young kids, but that’s what we were worried about. Nuclear annihilation, cold war, all these stuff. There’s really, we’ve got these terrorists, but not massive nuclear annihilation as a very real possibly. There’s always something to worry about.

Jason:
There’s always something to worry about, but hey, before you go, I just wanted to ask you about real estate for a moment. Have you estimated your returns on your portfolio or do you just like collecting your checks and you don’t think about it too closely?

David:
Yeah, I tend to do it each year as I’m getting the taxes done. I can tell you that..well, just over the last 10 years, which is really kind of my real estate timeline outside of personal residences and vacation properties we use for our families and so forth. We’ve seen a 7 digit, I shouldn’t call it that, because that could imply up to $9 million dollars, but over a million dollars in just in appreciation and the return that we’ve earned, again, it could have been much greater because we didn’t chose to use a lot of leverage, but..I’ll tell you this, when I was running the numbers when I was doing the analysis in terms of what I was going to buy, routinely my returns with a moderate amount of leverage, not a lot of leverage, was 25% to 30%.

Jason:
Annually?

David:
Yeah and that was only assuming a 4% annual appreciation and I have received much more appreciation than that. I haven’t figured it out in terms of what is my appreciation. Really, the right way to think about this, I think, is what your appreciation has been, what your cash flow has been, and what’s your…and think of that cash flow in terms of the tax benefits you’re getting. Here’s the other thing, the great advantage of these properties that we bought in foreclosure. You get your statement from the county and it gives you the assessment.

Jason:
Your property tax assessment.

David:
Yeah. The 80% of the value was in the building, right. So you get depreciation on all that. So, I’ve had some very nice sessions with my CPA, because these properties I get to depreciate so much. It’s totally legitimate. I’m using the documents that the government is giving me, so it’s very much a tax advantage return. I’m not paying any taxes, obviously, on the appreciation and on my cash flow I’m getting a nice tax flow benefit.

Jason:
Yeah, depreciation is the holy grail of tax advantages. It makes income properties the most tax favorite asset in America by a long shot. I mean, I don’t know of anything even close, because it’s a phantom write off. You don’t pay anything to get that. Your property could go up in value, have positive flow, and the way IRS looks at it you’re still losing money, which is good in that sense.

David:
I don’t want to ruin that. It’s a beautiful thing. If you go back to the bond analogy you gave me all those years ago, it’s almost like it’s municipal bond. You get those wonderful tax advantages. The other thing I want to share with you too, Jason, kind of the experience of being a real estate investor is a person who has a full time job, a family, 3 kids, you know, on the go, some people are like, Dave, okay, you’re buying these out of state properties. First of all, that’s nuts. How are you ever going to see your properties? My answer to that has been, well, I’ve had rental properties in California and they’re in the same city I live in and I very rarely went by there. If you’ve got good property mangers and you’re kind of managing your property managers. My management of my property mangers consists of calling them when I see I have a vacancy or sending them chocolates at Christmas each year. I don’t spend a lot of time doing it.

Jason:
You send them chocolates? Wow. I never give anything to my managers, maybe that’s why they like you better.

David:
I’ll give you a great example and this is one of your property managers that one of your local market specialists turned me on to and, again, this was in Indianapolis. I wasn’t happy with my insurance premiums out there, so your local market specialists is the one that turned me on to the property management company. The property management company turned me on to a insurance group that allowed me to package all these properties and reduce my insurance premiums by 50% in that market. I wish I could remember right now, but I checked it out at the time, very high rated insurance companies. So, they can take very good care of you. I want them to like me more than the other landlord they have when they have one tenant and two houses and need to decide where they want to put the tenant.

Jason:
You want them to think maybe we’ll get some chocolates from this.

David:
Exactly. Let me get that chocolate benefit. You know, I spend very little time on this because I do use property managers. I’ve gone the other route and tried to manage it myself.

Jason:
You did self-management from a distance, because I do both and I’m just shocked that I could even do that. How was your experience? It sounds like you weren’t keen on it.

David:
I wasn’t. Well, I tired to be a property manager here on the properties in California what happened is when it started south. I wasn’t going by the properties enough and then when it started going south, quite honestly, I didn’t know what to do as far as taking people to court stuff and all that.

Jason:
Tell us what happened. What do you mean? Did you have an eviction?

David:
Yeah, I had an eviction. So, what happened at that point in time, I found a property manager and said, hey, get me out of this mess and you can manage the properties from now on and that’s what we did and it’s worked out great. I think these people earn their 7-8% or whatever it is that you’re paying them for me. Now, maybe if I was a retired guy and I liked doing that stuff, fine. So, the work I think with getting these investment properties was really deciding which ones you were going to buy and doing your due diligence in that regard. Certainly you were a big help, your team was a big help in helping locate the appropriate markets that had the good returns in certain areas in those markets and all that, but even after that you have to decide, okay, which house are you going to buy? I really enjoy that process. Again, with all this technology we have, you can drive down the street, you can look in your neighbor’s backyard.

Jason:
You can do it Google maps. You can drive down the street.

David:
Yeah. I did it with every single one of them. One of the earlier podcasts, I would look at the schools, what is the whole situation with the schools.

Jason:
Dave, I forgot, you are the guy that created or discovered the free lunch metric!

David:
You remember that!

Jason:
Yes. I remember naming it that. It’s a good idea. Feel free to tell the listeners. It’s on the old podcast, which I’m sure is still posted, you can find it at JasonHartman.com and maybe on iTunes. I don’t know, those old ones on iTunes, I think they drop off after a while, but it’s on our webiste, I’m sure. It’s still posted. That was a great idea that you did. Tell our listeners about that.

David:
Everyone has their own view the types of properties they want to invest in and there is a need for section 8 housing, there is a need for penthouses, and there is a need for solid single family residences, which is what I was looking for. I didn’t want any trouble. What I looked at was what was the percentage of children in the local school that qualified for free lunch. So, if it was below 50% it was an area that I was comfortable with.

Now, the houses that we purchased, I always wanted to think about it as, you know what, I’d live there or my kids totally comfortable and happy with them living there. I’m very proud of our real estate portfolio. I think they’re very nice properties and I’m proud to own them and I think we provide a very nice housing arrangement for people. That kind of was one of those tests for me. If less than 50% of kids in the local school get free lunch, I was happy with it. I considered it a reasonably solid economic area.

Jason:
That’s a good metric. Like you said, there’s an investor and a property type for everybody and you like the A properties, kind of the nicer properties. We have those and we have B properties and we have C properties. Honestly, the C properties, they have the great numbers, the tenants are just more flaky. They’re just more difficult to deal with. The thing I say about C landlords is it’s going to require a little bit more of your attention and it’s going to require you to manage your emotional state better, because you’re just going to have more trials with C type properties. We’ve got them all, we used to only do A and B type properties. We got into the C stuff because a lot of our clients wanted it. So, they can take their pick and you know, you’ve got your pick and your model and it works for you, so that’s awesome. I love it.

David:
That’s worked well with me, but you know, there were some of these properties that I bought that I hadn’t, I certainly had never seen them, because they were out of state. I may have driven through the general area and I didn’t go to see them after a couple of years after the fact. I mean, that happened. I would talk to people about that and they’d say, how could you do that? How could you just trust that everything is okay?

Well, I didn’t just trust. I did my research. I can walk through the house virtually, I can walk through the neighborhood virtually, I know everything about the schools, I know everything about the crime report in the area. I can pull everything, and I did pull all that information up, when I would ask them though, what about these companies you’re investing in in your mutual funds, do you know what’s going on? Do you sit at the board of directors meeting? Do you know if they’re about to get sued or are in the middle of a lawsuit or are considering being bought or buy something or some legal problem?

Jason:
Or the CEO is just about to get nailed for some huge sexual harassment case, you know, you don’t know this stuff.

David:
I know more, virtually, of the fundamentals of the investment on this real estate if I never, ever go there. People, if they’ve own Apple stock, they’ve been to Copertino, and visited with the manager, they don’t do that, but they’ll have no problem putting $50,000 in Apple stock. So, people really need to understand how they’re talking about things. Everybody hears about the nightmare land, tenant stories, and..

Jason:
Like the one story, right, that everybody has had to discourage them.

David:
Yeah, but I don’t know my tenants, they don’t know me, I’ve got great property managers. I spend, it’s really just the accounting stuff. I spend an hour a month on it and it’s not a big deal and it’s just an investment I’ve been very happy with.

Jason:
An hour a month for how many properties by the way?

David:
13 rental properties.

Jason:
So, 13 rental properties only takes you an hour a month? See, I tell people, and I know this is high, but occasionally if there’s like a problem property, it could suck up a little bit more time, so I just tell people assume one hour per property per month. So, if you’ve got 13, I’d say 13 hours a month, but you only spend an hour a month for all 13 properties, huh?

David:
I’ve had good fortune, I guess. I mean, I just don’t have big problems with my tenants. I mean, you’ve got the occasional dishwasher, air conditioner, it’s an email in the middle of other stuff I’m doing, I’d say yeah, do that. No, get another quote. It doesn’t take much time. Once you’ve got them established and you’ve got the property manager taking care of it, I don’t see how it could take me 13 hours a month.

Jason:
Yeah, I agree with you. I think as humans, I mean, certainly we all do this. I know I do it, I’m sure you done it at time, everybody listening probably has to, we all kind of get into our way and we sometimes mirco manage stuff, we get upset about something and then we just get all freaked out about it and then it sorta just occupies our emotions and then we go dump on other people. It’s not exactly a good quality, but we all have to admit we’ve all done it.

David:
Well, I’ve been more than willing to pay, whether it to be property managers or the initial stage by these properties that aren’t new properties that need aren’t new properties and need a little bit of rehab. Now, my brother in law who is a client of yours, I referred him to you, he kind of had a different approach. He took vacation time, he flew down there, he helped rehab the properties,

Jason:
He’s a hands on guy.

David:
Yeah, little more handy type guy. I didn’t want any type of experience like that.

Jason:
Me either. I don’t like that. We don’t do that stuff.

David:
You know, he slept in the property.

Jason:
Oh my gosh, he’s like my mom. My mom is like that.

David:
Working on it and painting it and stuff, but he likes that. God bless him, if that’s what he likes to do, then that’s what he should do, but I consider that some type of torture and I don’t want to do that.

Jason:
That’s called work and I don’t like work like that.

David:
To me it’s all about passive income, so we’ve developed that and that provides some nice benefits from pay down some of these and not only that, but we’ve used the proceeds to investment in another business, which is doing quite well right now and generating even more passive income. It’s just been really good all the way around.

Jason:
Good for you, that’s awesome. So, just to recap. I’m keeping you long here, but it’s just been a great conversation, so thank you so much for coming on the show. So, you’ve made over a million dollars in appreciation and how many years? When did you start?

David:
So, that would be starting in 2004.

Jason:
Oh, 2004, but when you started with us..I mean, that was your California stuff.

David:
Right, so I started with you in 2009. So, those properties, well, all I have to do is black out my California properties there. It would be about $700,000 in appreciation in the California and Arizona properties.

Jason:
See, that Arizona, it’s a hybrid, but you gotta be careful you don’t give it back. Well, you bought early enough, you’ll be okay. If someone were to buy today or in 2006 in Arizona, they could eat it.

David:
Right.

Jason:
Same with California.

David:
I think, you say, there’s no such thing as bad…you know, there’s all these different markets all over the country and everyone raises and falls and that’s the great service that you and your team provide, which market makes sense to be in right now based on what your goals are, right?

Jason:
That’s what we do, that’s what we watch for people, and the comparison though is the Indie properties gave you much better cash flow than the California and even the Arizona properties.

David:
Yeah, absolutely. Those are going to be hard to beat from a crash flow perspective. I’ve been very pleased with the stability, the tenant base, the economy there, and, you know, because we did buy at the time we bought, we got much greater appreciation than one would expect normally to get in Indianapolis. I think you could still by in Indie and still do real well from a cash flow stand point.

Jason:
Oh yeah, Indie’s still good. The prices are still higher than they used to be, but you can still make your cash flow numbers there, which is why it’s kind of our market. I mean, we’ve got other markets that are great too, but Indie has been a very good market for us. I personally made a lot of money myself buying properties there. I love it, it’s good, good stuff. Well, Dave, it’s very inspiring story and thank you so much for sharing it with our listeners and coming back on our show again. I really appreciate it. It was great talking to ya.

David:
Alright, my pleasure, Jason.

CI 41 – The Wall Street Conspiracy With Mark Faulk

Mark_Faulk

 

Mark Faulk is an avid activist who is against financial fraud and corruption. He co-produced the documentary The Wall Street Conspiracy and joins Jason on the show today. Jason and Mark sit down to talk about the United States, Goldman Sachs and Wall Street, the U.S’s ever increasing police force, and what this all means for the future.

 

Key Takeaways:
3:00 – Congress already knew Wall Street was corrupt before the 2008 financial collapse.
7:56 – Wall Street has been corrupt since the year 2000, at least. Mark explains more about this in this segment.
15:15 – Goldman Sachs own the politicians and Wall Street owns the process.
18:20 – One of the scams Wall Street does is it run stocks through multiple companies so the stock owner will never know if the stock is legit or not.
20:50 – People have to raise up if they want to see change.
23:10 – Cops look so militarized in the US, but why? Mark says it’s all about control.
25:20 – These big companies don’t care about the economy, they just want to grab as much money as they can.
27:35 – A lot more people know about the Wall Street scams and monopolies that are going on today than 7-10 years ago.
29:10 – Mark talks about his documentary, The Wall Street Conspiracy, and where people can find more.

 

Tweetables:
Congress just looked stunned that there was corruption on Wall Street, they weren’t stunned, they all knew about it.

The United States, the Capitalist center of the universe, we are the center of where the corruption is based, sadly enough.

It is going to take the people being angry, because otherwise, we will never get the influence of money out of politics.

 

Mentioned in this episode
www.TheWallStreetConspiracy.com
The Wall Street Conspiracy a film by Mark Faulk
The Second Machine Age by Erik Brynjolfsson and Andrew McAfee
The Naked Truth by Mark Faulk

 

Transcript

Introduction:
It’s my pleasure to welcome Mark Faulk to the show, he is the writer and co-producer of a documentary entitled  The Wall Street Conspiracy,  and he has some fantastic insights. He’s already working on another documentary about the prison industrial complex, and I cannot wait til that one comes out. It’s a pleasure to have him coming to us from Oklahoma City today. Mark, welcome, how are you?

Mark Faulk:
I am good, thank you very much, I appreciate it.

Jason:
Yeah, it’s good to have you. Tell us about the Wall Street Conspiracy. I don’t think there are too many people left nowadays that doubt that Wall Street is a scam, and it is a conspiracy. I hope there aren’t many people that doubt that anymore! There used to be, but it’s becoming pretty clear, I think.

What angles and areas do you really have difficulty with?

Mark:
Well, frankly, when I got involved, and the thing that people need to understand about this is that in 2008 when our economy collapsed and Congress and everybody just looked stunned that there was corruption on Wall Street, they weren’t stunned. They all knew about it. Everybody in Congress knew about it, I’m going to say they were mostly on the take in one way or another, meaning Goldman Sachs was writing huge checks to their campaigns, Goldman Sachs had 15 people on the Bush administration, and believe it or not, they may have as many as 30 in the Obama administration. There was no surprise there, and I think that people need to understand that this problem has been going on for a very long time. It didn’t just happen overnight and everybody was shocked and stunned and taken by surprise by it. We were not blind-sided by it.

I was a guy sitting at a computer, I started covering Naked Short selling, which is a type of stock market product – it’s basically stock counterfeiting. If you have a million shares of a stock that are out there, floating around and being sold, they might sell 5 million in this scam. They flood the market, collapse the stock and create money by turning in their chips at the end of that bet. That’s a real simple analogy of how that works, but the truth is, that’s just a symptom. That’s just a way that they manipulate the market. There’s this interview in the film,  The Wall Street Conspiracy,  and I don’t even remember if it made the final cut. A guy named Bill Shea (I think his grandfather’s the one that Shea Stadium is named after), and he’s a hedge-fund manager, and he said ‘By the time Congress is allowed to (as if we give you permission for hedge-funds) implement reform, we’ve already moved on to the next scam’. He said it’s like Congress is always the General fighting the last war, and even worse than that, or better than that if you’re a hedge-fund manager, we write the next scam into the middle of that legislation.

Jason:
That is fascinating, what you’re saying. Elaborate on that. One scam is perpetrated on public, and lots of money, hundreds of millions, billions, maybe even over a trillion dollars are essentially extracted from the unsuspecting public, and it’s usually the middle class who bears the brunt of that. As we saw last time, certainly some foreign countries and people in foreign countries too. Look what happened in Iceland and in so many other places.

No wonder so many of these foreign countries hate America. Look at what our Wall Street does; it’s a global scam machine. It’s not just the US middle class. So the money’s extracted and then a law is created because of course, all the useless people in Government, like Barney Frank – or formerly in Government, I should say – have to come in and fix the problem. Of course, they have zero experience in banking, obviously, but they come in and come to the rescue, and then the next scam is basically written into the law that solves the old scam. Elaborate on that, it’s fascinating.

Mark:
Well, exactly. What he said is ‘You know, why do you think we have a thousand-page reform bills? Somewhere on page 400 and whatever, there’s six words that are a loop-hole that open the door for the next thing that we want to do. When you  have naked short selling, if they’re going to give up this idea, it started with little companies. That’s what the film is about. It started with the little companies. I was covering it.  Christina Copeland and her company, Brown Saddle Films that made the film, she decided to make this film. She connected up with a guy named Darren Sanders. He worked for Stratton Oakmont years ago, which just recently became the subject of the film  The Wolf of Wall Street.

Darren gets involved on this, and he passed away from cancer about the time the film was finished. This guy was one of those rogue national heroes – he’s a Brooklyn guy, but he found out that there was fraud in Wall Street, and he became concerned about it before 2000. While we’re all sitting at home, he’s out there, by himself, carrying the sign in front of the SEC and protesting. He knew about this 15 years ago or longer, and he gets into it and it starts out with him attacking little companies, what they call penny stocks. It’s easy to kill a little penny stock. You can take a little company, you can flood it, you can manipulate it, stock prices up and down to profit whatever bet you’re making, but then it grew to companies like Overstock.com and Patrick Byrne got involved in this crusade.

Jason:
I had Patrick Byrne on the show, yeah.

Mark:
Yeah, it turned out he was right. His company was being attacked by Goldman Sachs and other Naked Short sellers. Then it went to the biggest companies, and then the economy collapsed, and all of a sudden people are saying ‘Now they’re devouring each other’ and then the next thing you find out, Goldman Sachs is taking down the country of Greece with Naked Short selling. They’re making bets with Greece and then rigging the game so that Greece loses and Goldman Sachs wins, that type of a thing. Now they’ve moved that fraud on to packaging mortgages, and people would go in when they foreclose and you’d find out that your mortgage had been sold. Not only that, sometimes four people showed up and thought they owned that mortgage. We sold multiples of the mortgages, just like we sell multiples of stock.

Now they’re packaging rental property because everybody’s losing their homes and they’re selling these packaged rental properties. I guarantee you they’re selling them multiple times, just like they did stock. The scam just gets bigger and bigger and bigger, and they just take what is basically the fact that you can’t track electronic trading properly because there’s not a piece of paper that says ‘I own this house, or this stock, or whatever’.

Jason:
Right, and it’s even worse. I thought you were going to mention it, but what Wall Street is doing is they’re now in the business of securitizing rental income.

Mark:
Yes.

Jason:
So they’re selling people the stream of income from rental properties, and there is going to be no possible way that an investor can know number 1 that the fund really owns the properties, number 2 where that stream is coming from, when the property’s vacant, when it’s occupied, how much the tenant paid, what repair issues were there, what management costs were there etc.

It’s just rife with fraud everywhere you look, and that’s why I say – I have 10 Commandments for successful investing, and number 3, which is one I talk about all the time is “Thou shalt maintain control”. Be a direct investor. Stop giving your money to somebody else, because when you give it to someone else, one of three problems always happens, and sometimes it’s all three at the same time. The first one is you’re investing with a crook (we’ve certainly seen enough of that), the next one might be that you’re investing with an idiot (and there’s enough incompetence out there too), but assuming they’re honest and competent, they take these giant management fees off the top. They’re just skimming the profits off the top of the deal.

Mark:
That’s right.

Jason:
So the investors don’t get anything. There’s this company here in Phoenix, where I live, and they basically are now pooling money, and they’re buying up properties and then they’re getting investors to invest in them. This has been done for years and zillions of people have done it, but I know these people. I know the way they do business, and I wouldn’t trust them with a 10-foot pole! It’s unbelievable. One of the people even said to me: What do your clients think about investing in this deal? And I said ‘Well, my clients want real returns. They want to make 10, 12, 20, 30, 40% on their investments, and you can do that in a real estate deal because it’s multi-dimensional. They don’t want to make 6-8%’. And this guy, Jack, says to me ‘Well, I got tons of clients that’ll settle for 6-8%’. I’m like ‘Well, more power to you because I know on those real estate deals, they’re making a lot more than that and they’re not returning it to the investors, that’s for sure.’

Mark:
And then they do things like package those together and move them on down the road, so they don’t even care what happens to that deal in the long run.

Jason:
I know.

Mark:
And that’s kind of what this film addresses. It goes back to the beginning of how this fraud came to be. You can take it all the way back to them betting on whether Napoleon was going to win or lose, or the Rothschilds who made lots of money, so this is a time-honored tradition – betting on success or failure. They don’t care, though. The idea that you invest in a company, like you did years ago, and it grows slowly, and 20 years later, that stock has made you a millionaire. Those days are almost gone. They want to make their money quick and they don’t represent you and make a commission off of you becoming successful. They represent themselves and they’ll suck you dry, just as quick as they’ll suck dry everybody else that they’re manipulating. That’s the facts.

Jason:
You are darn right about that. So are there any other examples you want to share of the Wall Street Conspiracy, just any examples?

Mark:
Well, there’s some interesting things. This is a thing that at least should have been fixed in 2008, and they did do what they call ‘reform packages’, but to this day – I had an email the other day from a company. Let me see if I can find the name of this company. It’s called Mankind, and it’s a little company. MNKD is their trading symbol, and I’m not going to recommend this company or not recommend it, but it’s a company that still, here we are, years later – we started trying to set up hearings with the Senate banking committee in 2005. I was involved in those, and here we are, 10 years later, and they haven’t done a thing to end this fraud. You can Google Naked Short selling at any given time and find current articles that say ‘The SEC’s going to have a hard time taking care of naked short selling’. They could end it today if they wanted to, and that’s one of the points of the film: it could be ended today, except that Goldman Sachs owns the politicians and Wall Street owns the process. And they cleared their own trays through the DTCC with no

Jason:
Tell us about that, what is the DTCC?

Mark:
It’s the Depository Trust Corporation, or Clearing Corporation. It’s a big central weird beast that all the trades – you buy stock, it goes into the DTCC, they issue the stock back out to you as being sold, but they do this thing called stock borrow, where if they don’t have the stock, they just say that you have it, and then they go borrow it later. The DTCC doesn’t have any oversight, it’s owned collectively by the largest brokers.

Jason:
Of course.

Mark:
So their job is to clear and make sure properly all the trades are cleared.

Jason:
And engage in high frequency trading before that so they can skim more of the profits off. This is just unbelievable. I sometimes wonder – does this go on in other countries? You would want to think that the US is the cleaner of the different choices internationally in which to invest, but I don’t know. I think it might be..

Mark:
It goes on everywhere. I exposed, in 2004 in Berlin, one of the scams where they would go to Berlin and create fake accounts so they could manipulate stocks in America. Canada did it before that, so they find these. Of course, the Cayman Islands is famous for it, and Belize and Switzerland and Lichtenstein. There’s all these places that are famous for where to launder and do these, and that same guy, Bill Shea, describes in the film how he can take the stock and buy it in London, he can clear it through Germany, he can run it through Switzerland, and by the time it gets back to you, you have no idea whether there’s any real stock or not because he ran it through 5 different places. You lost him about three countries ago. It is a national thing, and it’s not just America, but as the Capitalist center of the universe, we are the center of where the corruption is based, sadly enough.

You think of the DTCC is just being like the Federal Reserve – you think it should be controlled and owned by the Government, but it isn’t. It’s its own private profitable enterprise, and it just helps to cloak and bag and put all of this behind a curtain so that it’s secret. If you buy stock, to this day, you don’t know if you own it. You just have no clue if you own it, unless you have in your hand, to this day, an actual certificate for that stock.

Jason:
And I think even Disney doesn’t do stock certificates anymore, I hear.

Mark:
Nope.

Jason:
So there are no stock certificates. The money isn’t real, the stocks aren’t real, it’s all fiat money. It’s all a form of fiat money, fiat meaning just by authority, it’s not legitimate.

Mark:
And to this day, there are companies that are still fighting this thing, and Mankind, which is a medical company, has come up with an inhalant for diabetics, and it’s been approved and it doing very well in the process. But then their company’s getting attacked, so they may destroy the company, possibly – hopefully not – before this product that diabetics could use instead of taking insulin shots five times a day, you use an inhaler. They don’t care. They’ll attack that company just like they’ll attack Overstock or anybody else. It doesn’t mean a thing to them.

Jason:
These people have no concept of morality and ethics. They are vultures, they are disgusting, disgusting people. It is unbelievable the way they ruin companies that would otherwise do good things for the world. I’ve covered so many of these issues and so many of these cycles on hundreds and hundreds of episodes. It’s just beyond it. How are we ever going to fix any of this stuff? Is the pendulum ever going to swing back?

Mark:
Oh dear Lord. Well, as I’ve been involved in the prison industrial complex stuff, and that spills over of course, into the militarization of the police etc etc. The thing I’m seeing is because that one’s such a direct type of pain. It’s painful when you lose your house, but it’s very direct when I throw you in prison. It’s sad, but it’s just a matter of directness. There’s a backlash starting to happen, and I hope that you’ve seen, like Ferguson, we filmed there for a little bit – those people are angry and they’re angry because there’s been 150 years of oppression and racism and horrible things happening to them and they’ve been held down. Everybody needs to be that angry, and it will literally have to be the demand of the people that will begin to create change. Occupy Wall Street – we’d to a pretty good job of at least making us talking about these subjects. Of course, then they were attacked, beat up on, because they don’t want you to know all that stuff.

It is going to take the people being angry, because otherwise, we will never get the influence of money out of politics. That’s where it starts. Corporations are not people. If you’re Goldman Sachs, you should not be able to put unlimited amounts of money into an election and just buy the election, and they do it every day. Somehow, that is the very beginning. Get the money out of politics, and that won’t happen unless people rise up and actually begin to put in candidates and vote in candidates who aren’t corrupt. Prove that the money isn’t the be all and end all of getting elected or running Government or buying influence to our society. That’s the only way to fix it.

Jason:
You know what I think has to happen? I think we need to see a real succession happen, and if there is a real succession where like-minded people move to, say, Texas, for example, that would probably be a pretty good candidate.

Mark:
You could see them doing that, yeah.

Jason:
And you see them doing it, and they succeed, and it’ll be interesting and scary to see if our Federal Government rolls tanks in here and makes a war out of it, or if they just let it happen. People get to govern themselves.

Mark:
They won’t let it happen. They will rolls tanks in there.

Jason:
Oh yeah, the police are the new military. I thought it was part of our Founding Fathers’ original intent that the military not be allowed to have any sort of presence in force against its own citizenry on US soil, but all they did was just militarize the police. What the heck does a Sheriff’s department need a tank for? This is insanity what is going on. These cops looks like complete militarized bodies. What are they expecting? What are they planning for?

Mark:
It’s about control, and that goes back to money too, and it’s always a profit mode. Even this case, the wars are winding down. The defense contractors used to say ‘We’ll give you surplus things with this 1033 thing and if you’re a police department, you can get a free tank, basically’. It was supposed to be surplus equipment, and it included grenade launchers and all kinds of things.

Jason:
Unbelievable.

Mark:
But now, well over a third of that are rolling off the assembly line, so now it’s just defense contractors milking the system to feed the police departments with free toys, paid for by taxpayer money to then be used against those same taxpayers as a militarized police department. The funny thing is that it sounds like we’re now off-topic, but we’re not. It all ties together.

Jason:
OKay, so tell the listeners how it ties together.

Mark:
It’s a very scary, but kind of simple thing. That’s that if you’re the Coke brothers, one of the richest families in the world, or the Waltons, who own Walmart, or you’re Goldman Sachs, or you’re these people who control everything, you have to have control of the people. You have to have a way. I used to say that the way they always did it in the past was corporations squeezed us, and then they let us go. They always had this thing, but they let the middle class exist, so you got the feeling that they weren’t going to kill us.

Around 2006-2007, I wrote a book called  The Naked Truth –  you can Google my name and find it, it’s on Amazon or whatever. Around then, I started saying that it felt like the final money grab. They didn’t even give a crap whether they collapsed the economy because they could make money shorting the economy that they collapsed.

Jason:
Oh, I know, they make money either way.

Mark:
They can then buy all the homes at bargain basement prices and they’re going to just keep making money off of you until you’re so broke that you go out and sell marijuana, and then they’re going to put you in prison.

Jason:
Yup.

Mark:
But because they’re pushing so hard and because you can make money off of people going to prison and asset forfeiture if you’re a police department – giving products to the police on taxpayers’ money. If you’re a defense contractor, they need that because I’m telling you, there will be an uprising based on what they’re doing to you on Wall Street with your mortgages, what they’re doing to you with student loans, not paying a living wage – all these things that they’ve done to you, privatizing the world. At some point, there will be an uprising and they’re already planning for it. That might sound like a conspiracy, but look at the numbers, look at the tanks, look at the MRAPS and look at how much they’ve milked and sucked us dry. At some point, we’re going to say ‘No, enough is enough’ and Ferguson is going to look like..

Jason:
Like no big deal, yeah.

Mark:
Compare it to what could happen nationally. When that happens, with those MRAPS and those militarized police departments come rolling out onto the streets – I’ve already seen it. We filmed it two weeks ago. We stood 3ft away from 70 police officers in riot gear, ready to bust heads, and it was kind of frightening. We were filming it. It all ties together, it’s about control.

Jason:
You know what the bright spot is, though, the bright spot is technology and mobility. People are much more mobile than they’ve ever been, and people are talking and we’ve had this huge democratization, at least for the time being, until they figure out the killswitch, to talk about this kind of stuff. Let me tell you, when I was giving seminars 7 years ago, 10 years ago, people did not understand. Because I talk a lot about monetary policy to my real estate investor clients, people did not really understand broadly the scam of fractional reserve banking and Wall Street and the Federal Reserve and so forth. Now, let me tell you, you walk down the street and you talk to the person at a fast-food restaurant, the guy fixing the air conditioner, and people know about this stuff. The cat is out of the bag, thankfully. That gives me some cause for hope, it really does.

Mark:
It does, and to add to that, I could do this in a sentence – the thing that is exposing it is not the mainstream media, it’s people like yourself, it’s people like me, it’s people on Twitter, it’s people on Facebook. The only thing we’ve found that the police feared in Ferguson was people like us with movie cameras rolling. That’s the only thing that made them think twice about just going ahead and busting heads out there. You feel like ‘God, we’re messing up your party right now because we’re filming you’. They live stream it, and like you said, that’s the Internet and that’s electronic media, and these really are kind of feeding this mini-revolution that appears to be brewing right now.
We do have that going for us, there is that hope.

Jason:
Yeah, fantastic. Well, Mark, give out your websites and tell people where they can learn more about you and the film.

Mark:
Okay, it’s  The Wall Street Conspiracy,  and if you go to  www.TheWallStreetConspiracy.com, the film is available through DVD. You can also see it on the pay-per-view on Amazon and on any of the various pay-per-view sites. You can watch it there so you can rent it for the day, or whatever, and watch it. It’s  www.TheWallStreetConspiracy.com  so if you just type that in, it’ll take you straight to the website which will link you to it. There’s a great little trailer on there about it, and I would tell everyone to watch this. It’s been out for about 3 years now, or a little longer, but what’s crazy is each day it appears to be more relevant than it was the day we made it. I’m proud of my involvement in that and I’m excited about the next project we’re working on. What’s funny is Goldman Sachs is now so well known that when I’m talking about CCA, which is a private prison company, I described it as the Goldman Sachs of private prisons.

We’ve all done a pretty good job of starting to expose this massive fraud that still exists. That’s what I want to tell everybody. The day that film ends and when you get to the last minute, the ending hasn’t changed. The fraud still exists.

Jason:
Oh, and it’s only getting bigger, that’s the reality. Good. Well, Mark Faulk, thank you so much for joining us today.

Mark:
Thank you, I appreciate it.

Outro:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit  www.HartmanMedia.com  or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.

 

CI 40 – Let’s Talk Government Regulation with Tim Carney

$RZNJFSV

 

Tim Carney has been a senior political columnist for the Washington Examiner since 2010. He is an experienced journalist with over a decade of experience in the fields of politics and economics. He sits down with Jason today on the Commercial Investing show to talk about regulation, lobbyists, and his book entitled Obamanomics.

 

Key Takeaways:
3:10 – Left and right politics is like a big wrestling match – it’s fake.
6:20 – Who represents the little guy in business?
10:20 – Regulation makes it harder for small business to start up.
11:40 – What are some actions steps we can take? Tim explains in this segment.
14:20 – The lobbyists aren’t the problem, it’s the incentives that the lobbying industry creates that causes problems.
18:16 – Why aren’t lobbyist meetings recorded? Congress meetings are.
19:40 – Tim talks about Obama and a little bit about Tim’s book entitled Obamanomics.
22:10 – Tim believes people will be able to live their own lives without being dependent on big companies and company monopolies.
23:10 – If innovation and experimentation are allowed then the economy and new businesses will do well.

 

Mentioned In This Episode:
Uber
Obamanomics by Timothy Carney.
The Big Ripoff by Timothy Carney.
http://www.washingtonexaminer.com/

Home

 

Tweetables:
Very often big business and government are not in fact the opponents, although they fool Democrats & Republicans into thinking they are.

If you’re little, you can’t even play the game. Who’s representing the small business out there? No-one.

There’s that principle in economics; you never hear the dogs that don’t bark.

 

Transcript
Introduction:

Jason Hartman:
Welcome to the Commercial Investing show. This is your host Jason Hartman where we discuss the relentless pursuit of ROI. Yes, that’s right, Return on Investment and Return on Inflation. We have a changing future with monetary policy and fiscal policy the way it is and we need to prepare for it as investors by structuring our transactions differently and we’ll talk about that on this episode and on future episodes, of course. So, we will be back with a fantastic interview for you and the guest today in just less than 60 seconds. Stay tuned.

Announcer:
What’s great about the shows you’ll find on JasonHartman.com is that if you want to learn how to finance your next big real estate deal, there’s a show for that. If you want to learn more about food storage and the best way to keep those onions from smelling up everything else, there’s a show for that. If you honestly want to know more about business ethics, there’s a show for that and if you just want to get away from it all and need to know something about world travel, there’s even a show for that. Yep, there’s a show for just about anything only from JasonHartman.com or type in Jason Hartman in the iTunes store.

Jason:
It’s my pleasure to welcome Tim Carney to the show, he is a Senior Political Columnist for the Washington Examiner, and a visiting Fellow at the American Enterprise Institute, and author of  The Big Rip-Off: How Big Businesses and Big Government Steal Your Money.  Tim, welcome, how are you?

Tim Carney:
Good, thanks for having me.

Jason:
Good, it’s good to have you on. This is a hot topic, unfortunately, but it’s very true. Tim, it’s interesting because when you look at the political divide with the Left and the Right, it seems like one side is for big business and against big Government, but I kind of think it’s just a big wrestling match. It’s fake. This is like a fake dichotomy; it’s sort of the same thing, nowadays at least. Your thoughts?

Tim:
Absolutely. I think the professional wrestling analogy there is apt. Very often, big business and big Government are not in fact the opponents, although they fool Democrats and Republicans into thinking they are, but often they’re the allies. What they want are regulations that keep out competitors, they want hand-outs, corporate welfare, bail-outs, eminent domain-taking mandates and the losers end up being consumers, small businessmen, people who want to be small businessmen and tax-payers.

Jason:
Yeah, or the small businesspeople that want to be medium sized businesspeople but who can’t grow because of the onerous regulations. It’s just interesting to me that you’ll see the people who run the corporatocracy – they’ll be on TV or in media, complaining and grousing about Government regulation, but what they’re secretly thinking (I think!) is ‘Gosh, this regulation is great because it’s just impossible for new companies to enter the market and compete with us.’ This is certainly true on Wall Street with the security laws and with the Jobs Act, maybe there’ll be a bit of a shift there and with crowd-funding and so forth. Talk about that a little bit. It sounds like we agree.

Tim:
A couple of my favorite examples are the tax preparers – you think of H&R Block, for example. I was reading that an analyst at one of the banks said ‘How is this company doing? What are their prospects?’ And they were looking at H&R Block. They called them the biggest tax preparer in the country and said they were probably going to do well over the coming years because the new regulations from the IRS really make it much harder for smaller businesses or independent operators to function as tax preparers. H&R Block has the size to deal with and to absorb the cost of these regulations, and to crowd out some of their competitors. Sure enough, when small tax preparers sued to block it, you had the government saying ‘Well, these regulations can’t be that onerous, even H&R Block affords them.’

This happens in all sorts of industries and you saw James Dimon, the CEO of JP Morgan saying ‘There’s a lot of things about this Dodd-Frank financial regulation that I don’t like, and there are ways in which it will definitely hurt our bank, but on another level, it protects us.’ He used the term ’emote’ and said that these regulations created emote, and it’s a beautiful image. It digs this trench so the guys who are already in the middle, on the island, in the castle get to stay there, and they have protection from competition. If that’s one of the major effects of regulation then you can see that it actually hurts consumers rather than protecting them.

Jason:
Yeah, all the entrenched interest, they can deal with it. If you want to take your company public, or you want to maintain your company as a public company, if you’re big, you can spend $1 million on compliance. If you’re little, you can’t even play the game. Who’s representing the small business out there, Tim? No-one. Where is their lobbying group? What the Chamber of Commerce? I don’t know. There’s a couple of groups but..

Tim:
Yeah. The Chamber of Commerce is good when it comes to opposing regulations, but they end up supporting big spending, bail-outs and again, even those primarily go to the big guys – the guys who can afford to hire the lobbyists, the consultants, the former congressional aider, the former Congressman. The guys who can afford to hire them are the people who are going to get their hands on most of the Government money when that’s being handed out. One of the problems is what economists describe as ‘concentrated benefits with a diffuse cost’ – the benefits of a Government program, a regulation, a subsidy go to a small group, and they get it a lot. There’s a billion dollar subsidy, and it goes to one company. It costs every tax-payer about $3, so who’s going to lobby harder? The big guys who get the hand-out or the little guys who are paying it? It’s the same with these protective regulations where the businesses that are hurt are often businesses that haven’t even come into being. It’s the guise of ‘You know what, I’d like to start up a food truck and compete with these restaurants, and then he starts dealing with the rules and the regulations and says, ‘OKay, never mind”.

Jason:
Yeah.

Tim:
So there isn’t really a lobby for the businesses that want to exist but yet exist.

Jason:
Tim, that’s a great point. It’s the ones that don’t yet exist. There’s that principle in economics; you never hear the dogs that don’t bark. They don’t bark because they don’t exist yet. They might exist, but we’ll never know if they could enter and if they could play the game.

Tim:
Exactly, and so you asked about the lobbyists. The couple of times that I feel like the small guys won are the best demonstrations of these rules and of hurting consumers. Here in DC, we’ve had a couple of fights. One was over food trucks where the Restaurant Association of Metropolitan Washington was saying we should severely limit where food trucks are allowed to park, and their argument at times was openly protectionist. They said ‘Look, we’ve invested a lot in these communities and these food trucks will hurt us.’

Then the other one had to do with Uber, where the Unions and the companies that run the taxi cabs around here didn’t want this smartphone-powered, basically a limo service being allowed.

Jason:
It’s a much better system.

Tim:
And so they proposed all sorts of rules that would either bar Uber or at least really limit their activity, or at least make sure that another competitor doesn’t come in. In both of those cases, there was a strong public push-back. Because the consumers of these were rich and upper-middle class, young, politically active, urban progressives, all of a sudden they said ‘Hm, maybe these regulations aren’t helping us, they’re helping the incumbent businesses, hurting consumers, hurting would-be competitors’, and there the big guys have actually lost because the consumer base is active enough to apply pressure to the politicians.

Jason:
Yeah. It just kind of begs the question, and I’m probably going to offend someone here, I’m sure, but I debate these things with people on the Left, with Democrats, and I just can’t help but think how can Democrats be so dumb? How can they not see this? They’re always pleading for more regulation. When the financial crisis happened, they were saying ‘Oh, well these big companies weren’t regulated enough, and that’s why it all happened’. That’s the surface argument, and I can see how one would think that, but what we never hear about is the fact that they became too big to fail because of the regulations. You can’t compete with Lehmann Brothers, you can’t compete with JP Morgan. Well, Lehmann Brothers is obviously an old example, but you get the idea.

Tim:
Yeah, and so a lot of what I like to point out is that if you are somebody who doesn’t like big business dominance, if you’re somebody who loves small business, loves local business, then in a lot of cases, I would argue that the right answer here is not, in fact, more Government regulation, but is the opposite. It’s not only getting rid of regulation, but also getting rid of the spending, which as I said, goes to benefit the biggest guys. One example I write a lot about are export subsidies. The export/import bank is not a bank; it’s a Government agency, and it subsidizes exports. They’ll always talk about ‘Oh, here’s a small pickle producer who goes ahead and gets these subsidies and it really helps their growth.’

Guess what? 80% of export/import bank subsidies go to big business, and the small businesses who get the other 20%, in some cases, can be up to 1500 employees. Not only that, but a third of export/import bank subsidies go to one business – Boeing, which is the largest exporter in America.

When the Government sets up these programs, it helps the big guys. One thing I always say is that whenever something is put in the arena of Government, it becomes a home game for big business.

Jason:
Yeah, it does. OKay, so what are some action steps that people can take? What can we do about this? It just seems like you get these entrenched interests and they can just never be dislodged. They’re so powerful and they have such scale. Is there anything that can be done?

Tim:
First I’ll say the reasons to be depressed. It is a self-reinforcing thing. The politicians and the lobbyists and the big businesses that can hire them become an inside circle and they can all benefit each other. How can everybody be benefiting in this sort of situation?

There’s two ways in any kind of economy that everybody benefits. 1: If there’s actual creativity and growth and creation, but that’s not happening here. The other is if they can extract wealth from everybody else, and that’s exactly what’s going on here. Everybody in power is  benefiting, and everybody out of power is losing. That’s the depressing part of the answer.

On the other side, I have seen things like technology creating these decentralizing effects. The way that things like Uber and food trucks have been able to win, and then there was a law called the ‘Stop Online Piracy Act (SOPA)’ a couple of years back. These had all the special interests, all the insiders behind it, and the small guys won because of organizing over the Internet and over social media.

That’s one half of it.

The other half is just the political pressure. I think the Tea Party has been a very good source within the Republican party because what it is is all of a sudden, then are politicians where if they have a message that really resonates with people around the country, they can suddenly raise money. You need money to win an election! They can raise money from them, instead of doing what the Republicans have always done before, which was always raise money from the business lobbyists. Now it’s easier to get grass roots money and grass roots organizing. That’s the hopeful thing, that there can be a push. There’s money coming in based on what people believe in, and not just on people who stand to prophet from a specific policy.

Jason:
Yeah, that’s nice and hopefully technology will allow us to do that. Do you really think the problem is mostly the business of lobbying and the lobbyists?

Tim:
I mean, lobbying first of all, I should say, is a constitutionally protected right. We would never want a world in which nobody has the right to go and try to tell Congressmen either what they need or how they’re going to mess everything up or anything like that. On the other hand, the problem I see is not the lobbying, but the incentives that the lobbying industry creates for the people who are supposed to be our public servants. We call it the revolving door. The revolving door is where when you leave Congress, if you’ve served a couple of terms, you are guaranteed to be paid a ton of money – often $1 million – to be a lobbyist for special interests, and often for a firm that represents a handful of businesses. If you’re a top-level Congressional staffer, you might be making a decent salary of $140,000, but you’re raising kids, you’re in DC, it’s expensive. Lobbying firms come along and will hire you for half a million, and they go and they do that.

Then these lobbying firms have these guys who have direct access to their old bosses, or to their old underlings who are now the Chief of Staff. That gives them undue influence but again, go back to what their incentives were when they were on Capital Hill – it was to play ball with the special interests, it was to make sure not necessarily how they’re going to vote, but to schmooze and to listen to them and to be reasonable by their standards to make sure you’re going to get hired. That is the biggest thing rigging the game against hope for fairer stuff. These guys’ incentives – the staffers and the elected politicians – are to play ball with this revolving door system.

Jason:
And you have that too, going on within the Government agencies, of course. You have the auditor or examiner who works for the SEC, and then they go and they investigate a certain company – say it’s Goldman Sachs, for example – and somehow, a few years later, they seem to end up working for Goldman Sachs. To argue that there wasn’t some sort of subtle bribe there, if not an overt one like ‘Hey, we’ll hire you and quadruple your pay’. Can’t the Goldman Sachs guy sit across from them on the table and say ‘Hey, you’re really good at your job, maybe you should come to work for us some day’.

Tim:
That’s like Jack Abramoff, who went to jail for illegal lobbying practices – he used to tell a story like that. He said how he’d be trying to persuade some Congressman staffer to put in an earmark or something, and then one day they’d be socializing, not talking about work at all, and he said ‘By the way, I know you love working on the hill, your boss is a great guy and I know you’re good at what you do, but if you’re ever looking for a place, you’d fit in really well at our firm.’ Once he said that, he had them in the bag.

Jason:
This is just disgusting. I’m sure this happens at every level of the SEC, the FDA, the FAA, the FCC. This is unbelievable that this stuff is allowed to happen, right?

Tim:
Yup, but the problem is they try to regulate the lobbyists when the people who I think need the regulation are in Government. They’re the politicians and the staffers. We always talk about Big Brother, which is Government watching us. One of the terms people use in circles in Washington DC is Little Sister. We ought to be able to spy on them better. If a Congressman has a meeting with a lobbyist, we should know that basically right away. When the day is over, it should be posted as to who they met with so we can say ‘Why were you talking to JP Morgan?’ and he might be saying ‘You know what, we were talking to JP Morgan lobbyists because they were explaining how this one rule was crafted in a way that hurts everybody in the industry’, and the same with their campaign contributions. Politicians, just like I could go into my bank account and my wife could instantly see that I was spending money at Murphy’s Pub, we should be able to say ‘Why are you depositing money, Senator, from this check? What are they getting for that $3,000 contribution?’

Jason:
Think about it: why aren’t these meetings public record? When Congress meets, there’s a transcript, there are minutes. Why isn’t it that every communication with the lobbyists is recorded?

Tim:
Yeah.

Jason:
Why isn’t it available for the public to listen to?

Tim:
And even if they need the privacy – say I’m a company coming in and I say ‘Okay, let me tell you, we have a unique business model so there needs to be some privacy’. The nature of the discussion and the fact that it happened, I think, is certainly the public’s business.

Jason:
Yeah. Of course. Good stuff. Tim, just before you wrap up,  do you want to talk about  Obamanomics? That’s your other book – do you just have the two books?

Tim:
Yeah. So  The Big Rip-Off  and  Obamanomics are the same thing. They’re the idea that big business and big Government are often allies. Big business benefits from and lobbies for big Government to the detriment of the consumer, the competitor and the tax payer.  In  Obamanomics what I did was  I just took a look at Obama’s policy. In  The Big Rip-Off I go back to the Whisky Rebellion and talk about Teddy Roosevelt and that sort of thing, but in  Obamanomics I just point out how the drug industry wrote a huge portion of Obamacare and how the stimulus was Christmas for lobbyists here in DC. I wrote about how Obama was the one man who could have stopped the bank bail-out but he didn’t. One of his fundraisers was Warren Buffett, who invested millions in Goldman Sachs because he knew the bail-out was going to happen, and then he made lots off of it, and all these things. Not that Obama is worse than previous Presidents, but that Obama had promised to be different. He’d promised to freeze out the lobbyists and obviously did not. If the special interests had been winning as much under President Obama as they have under every previous President, which was obviously not what hope and change was supposed to be about.

Jason:
Yeah, no question about it. It’s just unbelievable. I just kind of wonder what’s going to become of our country. There are so many really positive things, and I think almost all of them revolve around technology and innovation, which is just awesome. In so many ways, Tim, we’re living in an amazing time. Maybe technology and mostly that  related to communication will save us. You mentioned before how people can get together and you talked about SOPA and so forth, and as long as that’s really allowed to be this democratized, free, level playing field, maybe that will save us. When you look at it on the Government side and the big corporate side, I’m like ‘Wow’. The abuses that are happening are insane, and I tell you, I kind of think that during our natural lives we’re going to see a strong and serious succession movement. I have no idea if you have any thoughts about that, but it’s something to think about.

Tim:
I’m somebody who thinks that the United States is a pretty strong country and that things will proceed basically without major changes. I do think often that technological development will result in people being more able to live their lives in a lot of ways. That obviously can be cut the other way. Let’s say the power of technology is used in ways that infringe on our freedom, but a lot of it – even if the politicians and the bureaucrats want to force us into a funnel of uniformity, that will become part of it. When you look at things like Uber, when you look at things like people getting cell phones and not being tied down. All of a sudden, you see ‘Wait a second, we can make a lot of these regulations unneeded’. I think that my version of a succession movement we could get is that it’s not going to be a political one, but people are going to find it easier to live their own lives without dependence on the big businesses. We won’t be as dependent on duopolies or monopolies in a lot of businesses. I have friends – Nick Gillespie and Matt Welsh – who wrote a book about that. Maybe that’ll happen in politics, but often politics just adjusts to what the people are doing. Technology will be, in a lot of cases, a fairly liberating thing.

Jason:
Yeah. Technology does, in many ways, have the result of fragmenting marketplaces. On one hand, it gives big Government and big business a scalability advantage and it allows them to scale really quickly, but it also allows this fragmentation where there’s more consumer choice in many ways, and there’s more of the long-tail concept and more democratization, more start-ups. Let’s just keep a vibrant start-up business environment because that’s where all the innovation comes from.

Tim:
Yeah, and that’s always what matters most to me. If there’s innovation and experimentation allowed, then we’ll do well. If there’s not, then we get what we’ve had in the airline industry for decades, which is stagnation. As long as people are allowed to innovate and experiment, I think we’re going to be doing pretty well.

Jason:
Good stuff. Good thoughts. Tim Carney, thank you so much for joining us today. Give out your website, tell people where they can find out more about you.

Tim:
Yeah,  www.WashingtonExaminer.com  which is where I write, and my Fellowship is at the American  Enterprise  Institute,  www.AEI.org.

Jason:
And of course, the books are on Amazon and all the usual places, right?

Tim:
Everywhere you can buy books online:  The Big Rip-Off  and  Obamanomics.

Jason:
Alright. Tim Carney, keep up the good work.

Tim:
Thank you.

Outro:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit  www.HartmanMedia.com  or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.

 

 

CI 39 – Jerry Robinson Talks About The Economy

$R9SOE82

Jerry Robinson comes on the Commercial Investing show today to talk a little bit about bankruptcy and our inflated market. He is the author of the book Bankruptcy in Our Nation and has a lot of insight to share with Jason and his audience on the subject. Also on the show, Jerry talks about US international relations and dives into American history and how we can potentially use it to predict the future.

Key Takeaways:

2:40 – Jerry talks a little bit about his book Bankruptcy of Our Nation.

7:00 – Jerry compares 2014 with 1914.

14:17 – Jerry asks an important question, how can you fiance the foreign policy without the federal reserve?

20:45 – People expect a certain level of economic standard and for those standards, values, and prices to keep raising.

26:30 – The interest rates are so low right now that it’s distorting the market place and making things harder to predict.

30:30 – Countries are moving away from using oil for dollars and dollars for oil.

39:10 – The US is trading with only a select amount of counties and we’re seeing that both Russia and China are picking up the slack and trading with everyone else.

45:10 – Jerry talks about the 5 Levels of Financial Freedom program that he teaches on his website.

52:00 – Remember, if you’re a real estate investor, your tenants pay your mortgage debt off for you.

 

Mentioned in this episode 

www.zillow.com

Bankruptcy of our Nation by Jerry Robinson

www.FTMDaily.com/fivelevels.

 

Tweetables

We’ve created an artificial demand for the dollar that didn’t exist prior to the Seventies.

Many countries are moving away from using oil for dollars and dollars for oil.

We have to have a global demand for our debt and we have to maintain that for our currency. If we don’t, then we implode.

 

Transcript

Jason Hartman:

It’s my pleasure to welcome Jerry Robinson; he is Editor-in-Chief of  Follow the Money  quarterly financial newsletter, host of  Follow the Money  weekly and author of  Bankruptcy of Our Nation: Twelve Key Strategies for Protecting Your Finances in These Uncertain Times. Jerry, welcome, how are you?

Jerry Robinson:
I’m great, thank you so much for having me on. It’s a pleasure to be here.

Jason:
It’s good to have you. Your book is fascinating, and I want to just dive right in and talk about that. Let’s maybe start off with talking a little bit about the overall situation, and then dive into some of the discussion on the petrodollar and what that means to people.

Jerry:
Sure, well the book,  Bankruptcy of Our Nation, I don’t think is really a prophetic book. Whenever I wrote the book, back in 2007, I was under the impression that we were going to be in for a major, major economic collapse. I was desperately trying to get the book published so we could get the word out, and no-one would touch it. In fact, no-one would even consider it until September 2008 when I was speaking at a conference out in Denver. I was talking about this very topic – in fact, the name of my speech was ‘Surviving Financial Chaos’. The market totally imploded in September 2008, as you well remember, and when I got back from the speech that I was giving, I had 5 missed calls from my literary agent and he said ‘We have 5 offers for the book’. It was such an exciting moment for me so we were able to get the book published. The publisher wanted to get it out very quickly so it came out just at the end of 2008 and towards early 2009.

The book really breaks apart what we thought was going to happen and of course, what ended up happening with the whole economic crisis. It kind of explains in layman’s terms what really happened, and I think it’s unfortunate that so many people today often try to formulate answers or solutions without firmly having a grasp of what the real underlying problems are. In the book, we lay out what these underlying problems are: ie, fiat money, a debt-based monetary system, fractional reserve banking. Many of these things that are very faulty, that have terrible foundations, that cannot last, that are unsound and that over time, are simply going to break down. That was the whole message of the book. The book goes on and explains how people can take actions to protect themselves, even some specific things that people can do.  The book is a mixture of both what went wrong and what individuals can specifically do  to insulate themselves from what we believe is still going to be a further downfall in the years ahead.

Jason:
What does that downfall look like when you talk about  Bankruptcy of Our Nation? Obviously we create fiat money in mass quantities out of thin air, and we can get away with this for a few reasons. Number 1: Every nation can get away with it for a certain amount of time, and then it ultimately becomes unsustainable and the country collapses. The difference with the US is we have the largest military in human history, we have the reserve currency – at least for the moment, and there are several other factors that I think do make it pretty unique. What does a bankruptcy look like? Does it look like a collapse of the economy, or does it just look like we’re inflating away this irresponsible spending that the government has been engaging in for so many decades, and especially over the last 7 years? Most people are just impoverished by the inflation, but some are enriched by it – they know how to play the game and invest for it. What does the bankruptcy look like? What do you mean when you say ‘bankruptcy’?

Jerry:
Jason, what we usually refer people to is to look back to 1914, as opposed to where we are now in 2014. One hundred  years ago, you had a very bloated British empire that was on its way down and everybody knew it, and then you had this ascending United States of America that was very disarticulated. It developed the Fed in 1913 and it suffered from the panic of 1907 before that. As we got into World War One, Europe tore each other apart, and this really benefited the United States. The United States then emerges and enters this Roaring Twenties era, and then has this Great Depression. Then World War Two, of course, is where the United States really takes off. It’s really since the 1940s that America has really had the stranglehold, so to speak, on the global economy, and it has had that world reserve currency status. It’s similar to what’s happening now. If we fast-forward from the 1914 picture to 2014, we see something very similar. The American empire itself is bloated, it’s over-extended and it’s all over the place. Our military is woefully under-prepared for some of the challenges that it faces and it simply cannot afford to take care of all of the things that it wants to take care of. It’s over-promised and now it’s going to under-deliver, and that’s exactly where the British Empire was 100 years ago. And China is the new United States, so to speak, in this picture, where here we have China rising and you have all these complaints: ‘China certainly can’t get much bigger’, or ‘Certainly, it’s going to implode’, or ‘Certainly, it’s going to have a problem’. That’s what they said about the United States back in 1914, and no doubt, it was a very disarticulated time for the United States. The US dollar was still being formed and it was nothing like it is now; it was still blocked out of many international financial markets so it took a while for the US to reach its state of  ascendancy  and finally reach its peak. This really came back in the Seventies and Eighties.

Since that time, we’ve been on the downward trend, even though it may not feel like it, and we have countries like China that are now rising to take our place. It is simply the mechanism of history, Jason, that empires rise and empires fall. I think whenever you’re inside of a declining empire, you tend to either A)  ignore it or maybe you can’t see it because of the fog of war, or B) you think to yourself ‘This is going to be the worst thing that ever happened in the history of the world, because it’s a bit arrogant’. We all tend to think that our country and our situation is the most important in the whole world. Well, we expect the US to continue declining, not at a precipitous rate, but at a aggravatingly sharp rate.

I’ll give you an example.

Jason:
Is that worse than precipitous? I don’t know.

Jerry:
It is, but I’ll give you a perfect example. If you have a choice –  and this is terribly morbid, but let’s think in the terms of empire – if you have the opportunity to kill the empire by throwing it off of a cliff or by rolling it down a steep grade and letting it hit every single rock on the way down, and then it dies, just throw me off the cliff! I think that’s what most people would say. Just throw me off the cliff; don’t roll me down the hill and make me hit every rock along the way. That’s exactly what the US is doing. It’s rolling down that steep grade. This is a slow, steady decline and it’s going to be not just economically challenging and economically damaging, but we’re beginning to see that it’s going to be psychologically damaging too.

Americans can’t quite come to terms with the fact that other nations may be rising or that other currencies may challenge the dollar. They just can’t seem to grasp that.

Jason:
I definitely get the idea of context. Fish live in water and I assume they probably don’t notice the water. We live in air, and thankfully, unless we live in Cairo or Mexico City, we don’t notice the air! So you’re right about that, and I definitely see that. There’s this kind of arrogance and there’s the fog of war and all that stuff, but it’s so interesting because this is such a contrast from one interview I did yesterday with a guy named Peter Zeiahn, who used to work for Stratfor as a VP. He wrote a book called  The Accidental Superpower: The Next Generation of American Pre-Eminence, which talks about how this is a relative issue. America’s a mess, I agree, and I agree that it’s in decline, but look at the rest of the world. My God! We may be mismanaged and doing all sorts of things wrong, but everybody else has got fiat money too, and they don’t have the reserve currency, they don’t have the big military, they don’t have the big brand name and they don’t have our geography. I think the geography cannot be underestimated. Go ahead.

Jerry:
I think it’s a good point, but again, think about America’s military. The United States, right now, cannot afford America’s military.

Jason:
We’ve got to get out of everyone else’s business. This is just absurd, acting like the world’s policeman, and it’s usually not for humanitarian issues as we would like people to believe. That’s neither here nor there; Ron Paul is right. We’ve got to contract these military bases all over the world. It’s absurd and it’s every sign of empire, just like you said. I agree.

Jerry:
What makes it even worse, Jason, is the fact that it is too big. Yes, we are in too many places. And yes, we have too many bases. But the sad part of it is that China and other countries like it are the ones that finance it. Many people take great solace in knowing that yes, we are pretty bad, relatively speaking, but when you look at the whole world in focus, I guess things aren’t as bad as they could be. The truth of the matter is exactly the opposite.

It’s worse than we can imagine because what we have built, we can’t afford. What other countries have built, they can afford. What we have built, we need them to pay for, and when they get tired of paying for it, then what good is that military?

Jason:
So tell me about that. What happens when they get tired of paying for it? Certainly, many people, including yours truly, have said ‘What happens when China and Japan  stop buying our debt?’ Then we’ve got to raise interest rates to attract investors. It’s such a freaking ponzi scheme, it’s disgusting, but our own Federal Reserve just buys our debt instead. What a scam! The whole thing’s a sham, obviously. So what? How does it look when that happens?

Jerry:
This reminds me of the 2008 and 2012 Presidential Elections. We just had Ron Paul on our weekly program last week.

Jason:
I’m a huge fan of Ron Paul.

Jerry:
Yeah, he was on and we were talking, and one of the things I brought up to him was so bizarre – I said ‘All the Conservatives and Republicans have this real fun saying. They say ‘Well, I love Ron Paul’s monetary economic side; I hate his foreign policy.’

Jason:
He’s right about his foreign policy. If he would just pander a little bit, he could have won. If he would just say ‘We’ll hang out in Israel, we’ll do everything we’re doing for Israel and we won’t let Iran get a nuke’. If he just would have said that, he probably would be President and the whole country would be better off.

Jerry:
Well, take that logic of someone who says ‘I really like Ron Paul’s In the Fed message, I like his sound money message, I just don’t like his foreign policy message’. When you take that and you add 1+1+1, you get a very strange answer – how in the world can you finance our foreign policy without a Federal Reserve? In other words, they want to get rid of the Fed, they want sound money  and  they want to keep dropping bombs on everybody. You see, you have to have a Fed..

Jason:
You can’t do both.

Jerry:
You have to have a Fed in order to fund those wars.

Jason:
Of course, and that’s why the Central Bankers love war and we’re never going to have peace as long as the Central Bankers run the world.

Jerry:
You’ve got it.

Jason:
It’s more than the military industrial complex; that’s just the first tier that everybody sees as somewhat obvious. The real complex is the Government Central Banking complex; that’s the real thing that creates the war. They have to have the war machine – they finance both sides! It’s absurd.

Jerry:
People just don’t think about it in terms of basic incentive. When I’m walking around in my own city, there’s certain incentives that I have and there’s certain incentives that I don’t have. Everybody, in their own life, can think ‘Why do I get up and go to work?’ ‘I get up and go to work because I need money’. Those are real basic incentives that we all understand, but many times we don’t apply that same logic to things like Central Banks.

What does the Central Bank want? It wants to loan money to a Government.
ow do you loan money to Governments? You create a demand for loans from the Government.
hat’s the perfect way to create demand for a loan from the Government? A war.

When you really back up into it, what you just said is very correct, but it’s because of the incentives. Many people don’t think that far; they realize that they’re driven by incentives, but they forget that these guys who are Republicans, Democrats, Central Bankers, whatever the case might be, have incentives too. Usually, they’re contrary to what is best for this nation going forward.

Jason:
Yeah, no question about it. So what does the bankruptcy look like? Is it just inflation? Well, not ‘just’, that could be really bad, obviously. When you say ‘bankruptcy of a country’, how does it look?

Jerry:
Look, America is unique in the fact that it does have more wealth on paper and even in physical form, than many other nations. We are very, very, very rich, relatively speaking. Again, that means that the bankruptcy is going to first take the form of a psychological pain. It’s a psychological denial; it’s ‘No, China is not getting bigger. No, China’s going to fail. No, the Euro’s going to crash. No, the Middle East stocks can’t possibly rise. No, India’s not going to rise’. It’s very America-centric, so there’s a psychological denial which will cause many people not to diversify their investments and to not take advantage of foreign growth. Therefore, they’ll stay right here in the United States, and as that ship sinks, we’re going to continue to see that psychological pain. The actual physical and financial pain that’s going to be inflicted is going to be, as you mentioned, inflation, in the fact that we have printed so many dollars and there’s so much demand for the dollar – therefore, the Central Bank has a permission slip to print money whenever we have a problem.

Think about the Alan Greenspan  doctrine. The Greenspan doctrine was this: 1987, Alan Greenspan gets in to the Federal Reserve as the Chairman, and we have a big stock market crash. He cuts rates as the solution. In 1994, the Tequila Hangover, he cuts rates. 1997 and 1998, the Asian Financial Crisis, long term capital management debacle and all that, the Fed cuts rates. 2001, they cut rates. 2003, they cut rates. That’s all they do, and they keep printing more money.

Over time, once that becomes the solution to everything, then you become addicted to that solution. Here’s the problem: if the dollar itself is not in demand everywhere like it is now, you lose that permission slip to print money. Then you can’t solve the problems of the nation by simply hitting the Print button because there’s nobody around the world who’s willing to hold those. That’s how the whole thing works. If we can print the money and then get it out of the country, then we don’t have that inflation. What happens in a case like this is where you don’t have that global demand for the dollar because maybe people want to hold Yuan, or maybe people want to hold Euros, or maybe they want to hold gold or something like that. Then they don’t need as many dollars and as that demand for dollars goes down, we also lose the permission slip to create an excess of supply.

Here’s the big, big kicker. If you live in an economy, Jason – let’s say that we live in this fake economy and it has $1 million total supply. That’s it, that’s the total money supply. Well, you have no houses that cost $2 million, that’s impossible. Everything has to cost less than $1 million. In fact, it has to cost dramatically less because you have to spread everything out across that amount. That’s in essence what we have done. We have driven up the amount of money, and then we’re surprised when our 401(k)s go up, or when our house values go up, or when we get a raise. In fact, where we are today, Jason, and this is that psychological pain I’m trying to explain – we live in a time now where the present must be the minimum. People are dissatisfied if the market does not go up. Something is wrong if they don’t get a raise. Something is wrong if their house value doesn’t go up. Something is wrong if their IRA doesn’t go up. They’re addicted to the present being the minimum; everything has to be the minimum and everything has to go up from here.

The problem with that is it’s completely unsustainable. A) That’s not how things have worked throughout history because of the Gold Standard, and B) that’s an unsustainable model. Things cannot continue to go up in value, so here’s what we say: as we see a decline in the demand for the dollar around the world and for US debt, that’s going to translate into an overall deflation in the US prices. It’ll begin with an inflation. You’ll have all of these dollars come back from around the world – perhaps it happens instantly, but I think it’ll happen slowly. You have all these dollars flowing back and then we have to suck them out. How do we do that? We suck money out of the system by raising interest rates. If you and I are driving down the road and we see a bank and they’re saying ‘Hey, we’ll give you 8% a year for a CD’  – you know we’re hitting the brakes and taking all of our money out of the mattress and throwing it in the bank. That’s how the banking community and the banking industry sucks money out of economy to prevent high inflation. What they’ll do is suck the money in through high interest rates and that seems to fix the problem. We have so much excess money that we’re going to have to keep doing that over and over and over again to where it’s going to cause major problems. Think about the trillion dollars we have in student loan debt, think about all the credit card debt, think about all the adjustable rate mortgages out there. It’s just a mess.

If you get higher interest rates, that’s going to be very devastating to people. This ‘present is the minimum’ kind of psychology where everything should go up is going to be destroyed. In fact, it’s going to be the opposite. Things will be declining and deflating back to a place of normalcy and back to a place of sanity. That, I think, is going to be the hardest thing for people to understand: things don’t go up anymore, they just seem to be going down every year. That’s because we have too much money in the system; it’s going to have to be reduced over time because the global demand will not always exist for it, and that means the housing prices, stock prices, the amount you get paid when you go to work – all of those things are all factors based upon the amount of money in the system. If the money supply shrinks, so do all those values.

Jason:
Okay, so if the money supply shrinks, then we have deflation. If it expands, we have inflation. That’s the general rule as Milton Friedman would have said – inflation is and is always a monetary phenomenon, or something like that, as his famous quote goes.

I think the opposite will happen. I think that the government will print their way out of the irresponsible problem they’ve created – they’ll just create more money out of thin air. If other governments won’t buy our treasuries, of course we’ll attempt to throw our weight around and bully them into it, whether it’s by trade agreements or visa requirements or maybe invading the country with military. Whatever, I’m not saying it’s right, I’m just saying this is what goes on.

Jerry:
I think we’re on the same page there, we’re probably coming at it from different angles. What I’m saying is that we are going to see a period of great inflation, it’s going to be hyper-inflation of sorts. Hyper-inflation never lasts forever; it always ends in a period of great deflation and revaluation. It’ll begin as a period of inflation, but the rates will have to go up in correspondence with that, and we’re not going to be able to get the rates high enough to be able to manage the excessive amount of money. Even if they print money, if it doesn’t leave the country, they’re just going to be creating more inflation so they’ll have to raise interest rates. It’s a vicious cycle.

It’ll begin as inflation, there’ll be a big response to the inflation, and then as they raise interest rates and as the economy grinds to a halt, then we move into a period of deflation. Again, they don’t have a permission slip to print money anymore. If the Chinese will hold the dollars and keep them out of our banking system, we don’t have inflation. But if the Fed prints them and they don’t leave the country, that’s inflation and you can’t get rid of that. They can print all they want to, but if it doesn’t leave the country, you have inflation. Therefore, they’ll have to raise rates and that will stop working. They can keep printing, like you’re saying, but there’ll come a time when if the money is not demanded outside of the country, they’ll be smart enough not to hit it because they’ll just be creating a terrible amount of inflation that will ultimately lead to a period of deflation as we move back to a level of sanity.

Jason:
So, I think one of the challenges when we’re looking at this type of economy. Obviously, the economy in the country is very complex, but then you take it to a global scale and it gets incredibly complex. What economists are trying to do is anticipate how people, countries, companies will react to various stimuli. In the past 10 years, almost every prediction I’ve made about the economy and the real estate market has come true, except one glaring mistake I’ve made. The glaring mistake is interest rates. If you asked me in 2005, ‘Would we have significantly higher rates by 2008?’ I would have said ‘Yes!’ and I did, publicly. I was completely wrong about this, and the reason I was wrong is because it doesn’t make sense. This isn’t just about logic and math. There’s so much more going on here that is perverting the incentives. One of the things that’s doing that is this giant government we have, with its military and with the fact that it can kind of defy gravity and kick the can down the road. It’s been doing it for a long, long time and it’s really doing it now.

Who’s to say, Jerry, how much deficit and how much debt and how much unfunded entitlements for the future we can withstand? Is that number $17 trillion? Is that number $60 trillion? Or $220 trillion? I had Lawrence Kotlikoff on the show, and he said ‘Unfunded mandates are $220 trillion’. The whole GDP of the planet is only about $60 trillion a year. That’s insane, right? We would all agree with that, but it doesn’t exist in a rational world. I agree, if you do the math, absolutely.   We should be sucking wind by now and having 25% interest rates, but it’s not just math. Thoughts?

Jerry:
Well, I would say that’s certainly true. The interest rates being so low now, and you even used this word, it’s distorting.

Jason:
It’s artificial.

Jerry:
It’s artificial and it’s distorting incentives, it’s distorting the overall market, it’s hurting savers, it’s punishing those wanting to save and it’s encouraging speculation. It’s doing everything that we did in 2007. We haven’t learned a single lesson and we’re just repeating it over and over and over again. Countries get a few chances to do this, Jason, they don’t get a pass forever. You already have countries like China, Russia, India – the BRICs nations are coming together saying ‘Look, we’ve got to come up with a different solution’.

Jason:
You can’t blame them, we’re exporting our inflation to them. They’re the ones hit with it, not us. We are a little bit, but it hurts them more. It’s really unfair.

Jerry:
It really is, and it’s becoming more exposed as to America’s true intentions with all of this. Back in September 2000, Saddam Hussein emerged from a meeting with all of his cronies and they had decided to take a gamble and move from accepting dollars for all of their crude oil to accepting Euros. About 4 years later, he was hanging from a tree.

Then you had Iran do something similar, North Korea did something similar – they said ‘We’re not going to pay for anything, we’re only going to use Euros, we’re only going to buy from people who sell in Euros’, and then Venezuela did the same thing. Then we had Bush talking about this ‘axis of evil’ and these evil, evil countries.

Jason:
The people that don’t participate in the Central Banking cartel are the evil ones, right? Conveniently.

Jerry:
These countries are extremely evil, they have terrible human rights records and therefore we need to isolate them and call them the axis of evil. By the way, ignoring Saudi Arabia who still publicly beheads people and still has terrible human rights. If you’re going to talk about human rights, Saudi Arabia tops the list. Or China. But there was no mention of that because China and Saudi Arabia understand how the drill works – you use the US dollar and you don’t fight back. China has been fighting that, Russia has been fighting that and you’re beginning to see Russia now being labeled as part of this axis of evil. ‘It’s an evil empire we’re seeing’. It all has to do with protecting our petrodollar system that we built back in the Seventies after the Bretton Woods system broke down. The petrodollar system now is breaking down before our eyes, many countries are moving away from using oil for dollars and dollars for oil. Instead, they’re looking for other things. China and Russia are using their own currencies when trading oil, and this is the kind of thing I’m talking about, Jason.

If everybody around the world must have a dollar in order to buy oil, then it creates that artificial demand for the dollar, and that’s exactly what we’ve done. We’ve created an artificial demand for the dollar that didn’t exist prior to the Seventies. Everybody  has to have it. They don’t want to have it, they have to have it. Well what happens when that goes away?

Suddenly you’ve got to figure out what to do with all these trillions and trillions and trillions of dollars. If those things aren’t going to be held by all these countries, they’re going to have to come back here. Then we’re going to have to decide on either A) everything that we have is now going to have to be worth more, or B) we’re going to have to suck this money out of the system and raise rates, and that’s going to lead to a period of deflation. This is what I’m saying.

Jason:
Okay, so let me just ask you about that before you go on. What you’re saying is that basically if those dollars have to come back, that’s because the dollar is no longer the reserve currency?

Jerry:
Yeah. There’s no further demand and no need. ‘I don’t need to hold the dollar, I can hold my own currency because now I have other countries who are willing to take my currency for things instead of making me convert to a dollar.’ Because all of these nations around the world with a gun to the head artificially have to prop up this artificial demand for the dollar to buy things, it’s created this permission slip for the Fed – any time we’ve got a problem, we just print money. Well, that’s fine, but what happens whenever these countries begin to trade in their own currencies is that they don’t have to keep the dollar around. They send the dollar back, and when the Fed hits the print button, it doesn’t go anywhere. All the money stays in the country, and that’s when the game is over.

Jason:
Okay, so what would lead up to that? What would have to happen? What you’re describing is the dollar not being the reserve currency anymore, right?

Jerry:
Exactly. A number of things could happen. 1. Saudi Arabia could suddenly decide that it no longer wants to use the dollar, it’s tired of the US and it’s going to have a new deal with China or with Russia. You could see something like that. I think Saudi Arabia, in my ways, is the linchpin that props up the dollar more than people realize.

Jason:
We sent our economic hit-man over there years ago to do the job, so when Saudi Arabia was a wasteland, we turned it into a semi-modern country. I kind of don’t want to say it’s modern when they’re cutting heads and hands off people, it’s despicable. Go ahead.

Jerry:
Well, of course. That’ll be a very big shock, I think, for many Americans, when they see bombs falling on Saudi Arabia because they’ve always thought that Saudi Arabia was somehow different from all of the other Islamic terrorist regimes that are over there in the Middle East. They’ve always thought Saudi Arabia was our buddy. They didn’t realize that it was just a back-room financial deal and  that as soon as it goes wrong, the bombs are going to fall.

The United States hates Saudi Arabia and Saudi Arabia hates the United States, that’s no secret. What it a secret, though, is why we like each other. We like each other because they take dollars for oil and they don’t complain about it. They turn around and take those dollars and they invest them in US bonds – it’s called petrodollar recycling and it’s been going on for years. Saudi Arabia gets the whole thing and they get all the benefits. You’ve got groups like ISIS now, running around saying that Saudi’s the Great Satan and they want to take it down. Over time, when this royal Saudi family, which has really buddied up with America – when they lose power or when they change their minds, the whole balance of power in the Middle East changes and the demand for the dollar certainly goes with it.

The US is playing a very dangerous game, trying to manage all of its relationships around the world, trying to keep peace with the right people, and trying to continue to fight the other people. In the long run, it’s all going to break down.

Jason:
OKay, so let me just ask you one thing about that. One thing you didn’t address in that equation, which I agree with so far, is the fact that Saudi Arabia and the rest of the Middle East is about to lose its biggest oil customer. We are probably going to become an actual oil exporter pretty soon. The US is so much richer in terms of oil than we ever realized, and then Canada of course is too. The US is going to be energy-independent. Granted, it might be with fossil fuels  to the chagrin of the Obama regime, but we’re rich in natural resources, as you mentioned earlier, and we didn’t even know it until fracking came along and oil sands technologies. Who cares about Saudi Arabia? They’re just going to have the rest of the world as a bunch of smaller customers after we’re gone.

Jerry:
Well, maybe. The way to look at it perhaps differently, is to say that somebody like Saudi Arabia created an artificial demand for the US dollar because they sell their oil in dollars. Because they do it, other OPEC nations do it. It’s kind of a domino theory. If the US begins exporting oil and doesn’t need Saudi Arabia anymore, then why would Saudi Arabia choose to sell all of its oil in dollars? Why not sell it in Yuan? Why not sell it in a different currency where somebody’s actually going to give them a benefit?

That’s the thing. We can sell all of our oil in our own currency, but if we lose all of our buddies around the world who are agreeing to doing the same thing, we’re still in the same boat. In other words, we have to have a global demand for our debt and we have to maintain a global demand for our currency. If we don’t, then we implode, and I think that’s the risk that’s facing Washington right now. They have to maintain this demand globally for both.

This is the double-edged sword of the oil exports that we have.    Yes, we certainly have an oil renaissance happening here, albeit it’s shale, rather than pure, conventional oil. Nevertheless, we are still exporting that, or we’re going to be able to export it and we’re going to do very well with that. Again, though, that just basically shoots all of our friends in the face who have been agreeing to take our currency for everything. If we’re now their challenger, they lose their incentive to continue to prop up our currency. It’s one of those things where it’s a real difficult thing for the United States, and it’s really going to be interesting over the next decade to see how Washington handles this going forward, especially all the oil you just brought up. That’s a whole other can of worms.

Jason:
Yeah, it certainly is. It’s going to be interesting, that’s for sure. The other wild card, Jerry, that I think it’s worth discussing just for a moment is that of course these countries are probably pretty disgusted with the US spending and the exporting of inflation. China sells stuff to us, we buy it and then we depreciate the value of the currency, so we force them to sell things on sale to us for less than they thought they were getting. That is definitely not a cool deal for them. It’s not like the US is going to sit idly by and let the whole world just decide they’re going to trade outside of the dollar and not go with the Bretton Woods plan and the petrodollar plan. We’re going to do something about it, right? We’re going to throw our weight around and say ‘Hey, look, if you’re not going to trade in the dollar, then we’re going to pressure you somehow. Maybe we’ll blow up your satellite.’

Jerry:
Oh yeah.

Jason:
This is not a friendly game. ‘Maybe we just won’t buy as much from you, or maybe we’ll impose tariffs or visa requirements.’ You can hurt other countries in a zillion different ways and pressure them in so many ways.

Jerry:
That’s right. Empires don’t have friends, they have subjects.

Jason:
Good point.

Jerry:
America’s an empire, no doubt. Maybe it’s a reluctant empire, but it’s an empire. Yeah, countries around the world – when they decide to make a change and the United States tries to woo them back, they’re going to have to do better than they have already. For example, the United States has been over there messing around with its Asian pivot over in South East Asia, and it’s been brokering deals, especially the one that’s made all the headlines as the TTP. There’s been a lot of concern about the fact that China has been left out of that trade agreement.

The United States has really just kind of shot itself in the foot; it’s really not doing a great job of reaching out and embracing the emerging countries. It’s been very selective with the ones that it’s befriending, and China and Russia have been picking up the slack and they have been forming relationships with many of these other emerging nations. You’re really kind of developing this bi-polar world – one that supports NATO and the US and the West, and another that supports this BRICs kind of development. I think that’s where you end up. You end up in a place where somebody’s going to have to choose sides, but the US has kind of lost its ability to come across as an honest broker. I think its hand has been shown; everybody knows now. We’re spying on all of our  creditors!

Jason:
That’s just ridiculous.

Jerry:
You go down the list and you think ‘Gosh, when does the blow-back really hit the United States?’ I don’t even think we’ve seen the blow-back from the Snowden affair. I think Americans themselves are still trying to figure out what that even means. I don’t think many people even know how to process that, let alone the companies around the world, the foreign corporations who have been targets of that. There will be blow-back.

Jason:
When you say ‘that’, do you mean the  NSA spying that Snowden revealed to the world?

Jerry:
Yeah, I should clarify. I’m referring to the NSA spying that’s been going on for so long. Imagine, Jason, if we were to find out that China was actually aggressively looking at us through our television screens as we sat and watched TV on the couch. Wouldn’t we be a little upset about that? Wouldn’t we have a little more distrust about China? Wouldn’t we be a little bit more concerned? It’s almost as if America just says ‘Well, deal with it, it’s tough, we’ve just got to protect our own,’ and they don’t realize that these nations have feelings and they also  have their own share of wisdom and they’re going to say ‘This may not be the best thing to be hanging out with America the way that they’re proceeding’, and I think over time, you’re going to have a severe blow-back from that.

We’re already beginning to see that in the technology industry; many of our big tech companies are running into problems because of the NSA. I think it’s just this long, slow grind, Jason, that we continue to see this downward spiral. I don’t think it’s a off-the-cliff or we’ll run into a brick wall and it’s all over. I don’t subscribe to that theory; I think it’s a slow grind. I think it’s a terrible slow process that is humiliating both psychologically and financially. Our standing in the world is already being questioned now. There are so many things that we could talk about, but yes, I think that that’s where we’re heading.

Jason:
Okay, good. Good points. So what should people do? We’ve talked extensively about the problem, and in hundreds of other episodes I’ve done the same. What’s the best game plan for one to protect oneself against the problems we face?

Jerry:
I’ll tell you – I have an interesting story to share. I was living in Houston, Texas, of all places. It’s a very big city. It’s not where I’m originally from, but I went down there to start a business. I was down there for some time and a few years ago, something in me just really convicted me. I’m sure it was the Lord, and I just sensed that I  had to get out of Houston and get out into the middle of nowhere. My wife and I began doing research and we said ‘Where will we move to?’ We started looking and we decided to move to North-West Arkansas, based upon all these different factors. We did a little spreadsheet and got kind of nerdy about it, but we really wanted to figure out where the best place to go for us was and for our situation.

We moved up here, we got a mini ranch, we built a garden, we are slowly getting off of the grid. We have wood-burning fireplaces, wood-burning stoves and we’re slowly getting off the grid with water by using a well. We’re doing everything that we possibly can because, Jason, I think not just the financial things that we’ve been talking about are a threat to the American people, but at the same time, some of the punitive damage that’s going to come to America is not just going to come through the barrel of a gun, it’s going to come through a cyber attack that shuts down your whole electric grid. Or it’s going to come through a cyber attack that takes down your bank, it’s going to come through a cyber attack that takes down your local utilities. Currently, the Wall Street Journal has been reporting  ad nauseam,  constantly about how many of  these public utilities here in America are dealing with unbelievable amounts of cyber attacks from China, Iran,  Russia and other places like that.

Eventually, one of those is going to succeed. I think it’s imperative for people to be ready. If they are currently living in a city, I think they can certainly take precautions. There’s some good books out there on urban survival, I’m sure you have some good materials as well.

Jason:
Hey, I do a whole show on it – the Holistic Survival Show.

Jerry:
Yeah, there you go.

Jason:
Absolutely. There’s a lot of great resources, and one of the things I want to stress, Jerry, is that this is not nutty. It’s nutty if you spend your whole life on it and you make it everything you do, but basically, for about $200-$300 per person in your household, you can gain a huge edge in prudent, rational preparedness. This is not difficult to do, okay. Even if you live in a city. It’s like the old story of two hikers – they’re hiking in the woods and they see a bear. One of them starts running away from the bear and one of them stops to tighten his shoelaces. The other says ‘Hey, what are you doing, man? You’ve got to keep running. Forget about tightening your shoelaces, you can’t outrun a bear.’

The other one says ‘I don’t need to outrun the bear, I just need to outrun you!’

Jerry:
[Laughs]. Right.

Jason:
And that’s really what it is. As vicious as that sounds, you just need to outlive or out-survive the people around you. When you do, there will be leftover resources available, to some extent at least. I think 3 days is the first magic number, and then 3 weeks is the next one. It’s 3 days water – you’re going to die if you don’t drink for 3 days (or you’re going to get close), and food is 3 weeks. Have a ham radio for communications off the grid. It’s just some really simple stuff; this is not difficult to do.

Jerry:
No, no, it’s really not. As you pointed out, it’s not nutty. I think what’s nutty is buying into the whole idea of the American dream and thinking that somehow, we’re not facing real serious issues and problems. I think that being awake and aware to that is vital. Some of the things we do, Jason, is we teach something called the Five Levels of Financial Freedom. It’s completely free, people can log onto our website and see it there.

Jason:
Give out that website.

Jerry:
It’s  www.FTMDaily.com/fivelevels

Jason:
What are those five levels?

Jerry:
Those five levels are five kind of large steps with some micro-things inside of them. They’re kind of the big planks. These are five steps that my wife and I have taken to financial freedom. We call them the Five Levels to Financial Freedom. We went literally from a one-bedroom apartment to where we are now, and we’re much better off now than what we were. We used these five levels to get there, and they involve A) Diversifying your savings,  B) Diversifying your investments, C) Diversifying your income sources. Along with that, basic preparatory type actions. We talk about the need for having a go-back, we talk about the need for having food and water storage, we talk about the need for people to actually invest in a portion of their savings – not actually invest, but take a portion of their savings and diversify. I’ll give you one example.

We have something we call DSL. It’s our Diversified Six-Month Liquid Savings Reserve. Most people tell you ‘Hey, you should have 3 months of liquid savings’, or maybe even six months of liquid savings. We agree, but we did a back-test in the study that showed that if you will take that savings and not just throw it in US dollars, but if you’ll diversify it, you can really get a lot more bang for your buck. We did a study that went back 25 years, that showed that if you took your six months of liquidity and threw it in 3 month bills and just kept reinvesting them over and over again, or if you had taken that same six-months liquidity and put one third of it in the bills and taken the other third and put it into stable foreign currencies, and taken the last third and put it into gold and silver, for a period of 25 years, the return is just outrageous. We even took out some of the extra gains in gold and silver to make sure it wasn’t being jacked up by that price gain in metals.

That’s one thing. We diversify our savings. We also diversify our investments with something we call ‘PACE’ – P: Precious Metals, A: Agriculture, C: Commodities, E: Energy. We talk about those areas as ways to diversify our investments against some sort of inflation, and then we also teach the absolute importance – and I think this is one of the most important things for people today – of diversifying their income streams. I don’t know how many people I’ve met over the years who have one income streams, maybe two income streams. The average US family today, in America, is three income streams. Usually Mom and Dad have an income stream, and then there’s usually some sort of seedy or money-market account that throw off pennies in interest. That’s usually their three income streams. They hope to get a few more by the time they retire. Well, we teach the importance of having many, many income streams. We have an Income University at our website where you can learn 22 different income streams and how to create them.

Some people have more time than money, and other people have more money than time, so some people may not be able to get all 22 income streams because they don’t have the ability, but if you have time, you can always trade it and receive money. If you have money, you can always take that and enhance its returns and do better as well. Some people will tell you they don’t have either, and those people usually have their priorities backwards. Some people will say that they have both, and that’s of course, a great place to be if you have both time and money. All 22 income streams cover all of those different situations, whether you have too much time and no money or a lot of money but not a lot of time. There’s plenty of things that everybody can do, and I think that oftentimes, we get so obsessed with trying to pay off debt – and I think that’s a good thing – but oftentimes we forget that we can add on new income streams.

Jason:
Yeah, and let me comment on the debt thing for just a moment, if I may. I know we’re kind of wrapping up here and we’ve been going for a while, but one of the things few people really understand deeply, and my listeners do because I’ve talked about it for so many prior episodes – it’s the idea that in an inflationary environment, and we both think we are going to see some significant inflation, debt actually transfers wealth from lenders to borrowers. Borrowers are actually enriched by debt because they pay the debt back in cheaper dollars. If you look at what happened in the Weimar Republic at the way that lenders and borrowers interacted together, you just see. When you put the debt against a commodity that has universal need, and my love is real estate – I love getting a 30-year mortgage, blow the rate of real inflation on low-priced real estate. That’s necessity housing, not luxury housing. I want it to throw of cash-flow the day I buy it.

Then, the debt is debased by inflation. I created a little trademark term and it’s a mouthful: inflation-induced debt-destruction. It’s just an amazing phenomenon; it’s like the hidden wealth creator. Then you have a commodity like precious metals – think of what little houses or apartment buildings are made of. They’re made of copper wire (a commodity), lumber, concrete, petroleum products, glass, steel. These are all things that are traded globally, not indexed to any one currency.

I just think that’s such a good equation. Have some metals and some other things and some preparedness too, of course. I wouldn’t totally rush to pay off debt unless it’s consumer debt. I like the mortgage debt because that’s being paid by someone else. I don’t pay my own real estate debt, my tenants do.

Jerry:
That’s a good strategy. We mention that too. The one caveat with that is to make sure that your audience or whoever follows that advice locks it in on a fixed interest rate.

Jason:
Oh, most definitely. Never adjustable rates, no way.

Jerry:
If you have an adjustable rate, it works against you, actually.

Jason:
Oh yeah, absolutely. You’re going to get payment shock when the inflation finally does hit and the rates go up, but who knows how long they’ll kick that can down the road. When you’re borrowing, I’d say real inflation now is always understated by the government. Real inflation, now, is probably 6-8%, in reality, although the government would have us believe it’s much lower. If you can borrow at 4.5% for 3 decades, if  someone takes out that mortgage today, they’re not going to make the last payment – or I should say, their tenant’s not going to make the last payment until 2044. Do you know how much inflation we’ll probably see in the next 3 decades?

Jerry:
Oh sure!

Jason:
It’s insane!

Jerry:
And you know, Jason, I’m an economist, I do a lot of investing, I’m a real estate investor.

Jason:
I didn’t know that, I’m glad to hear that you like real estate.

Jerry:
Oh, sure. It’s one of our income streams that we love. We’ve built many different income streams and I love rental real estate. I love, as you said, that 30-year mortgage. I would take a 40- or a 50-year mortgage.

Jason:
Oh, I’d take a 200-year if I could.

Jerry:
I could go on like Dave Ramsay and other people who say ‘Don’t have any debt at all’, but we do like the whole concept of real estate. Many people today, as you well know, are very happy to borrow as much as they possibly can. Some of the wealthiest people I know are borrowing to the hilts at fixed interest rates.

Jason:
Oh yeah, and borrowing specifically against a commodity that has universal need, like housing.

Jerry:
Exactly.

Jason:
That’s a great deal, and of course, it’s the most tax-favored asset in America. We don’t even have time to go into that one, but taxes are the modern version of slavery. If you want to really lower your tax bill, own a lot of long-term buy-and-hold income property.

Jerry:
I agree.

Jason:
Just prudent, non-sexy, boring stuff in markets that don’t make the headlines. It’s not going to be Southern California. You want to  own stuff in Texas and Georgia and Tennessee. These are great markets, we love them.

Jerry:
Well, many of the things that we teach over at our website include things like options trading for people who maybe want to do that, rental real estate for sure. We also talk about affiliate marketing. We have 22 different income streams, so anybody out there who’s just wanting to add another income stream on, that’s what we love to do. We’d love to help them.

Jason:
Good stuff. Really good. Jerry, give out your website again.

Jerry:
Yeah, it’s  www.FTMDaily.com

Jason:
And just remember from the Nixon-Watergate days, deep-throat said ‘Follow the money’, so there you go. Good stuff. And the book is on Amazon with 4.5 stars and good reviews. Any closing thoughts?

Jerry:
I would just tell people to really keep their eyes open right now. I expect the market overall to probably do fairly well as we head into the year and into the next year; this is historically from the stock traders’ almanac and from all the investors and all the different cycles that we’ve studied, this is usually the best time to be in the market. It’s the third and fourth year of a Presidential candidacy and cycle. The third and fourth year are often great times to be in the market. We also offer, at our website, a market barometer. We were able to step aside and get out of the market before the collapse. I really do pride out system on catching that. I expect to see another major collapse. I don’t expect it to come within the next year – I think we’re still a couple of years out, but we don’t really guess at that. We have a system called the market barometer which has a great track record, going back all the way to the 1929 crash (we back-tested it). Maybe you have money in a 401(k) or an IRA and people say ‘I don’t want to sit through another one of these major collapses’. We have a market barometer that is available at our website that people should definitely check out.

Jason:
Jerry, I’ve got to say, I’m a little surprised that you’re a stock market fan. I call it the modern version of organized crime, and a conservative guy like you, I would think that you wouldn’t be too in favor of the stock market.

Jerry:
You know, the stock market has been really good to me because I’m a trend-trader. I trade with the trend, and so when the market goes down, I make money. When the market goes up, I also make money because I use options and I use inverse ETFs and leveraged ETFs. It’s been really good to me, so it doesn’t really matter what the market’s doing. I don’t really root for the market to go up, I just root for the market to move. If the market moves, I make money. When the market’s stagnant and kind of moves in a sideways motion, okay, you’re right and it’s probably a bad place to be. When it’s going up or down, I can’t complain and I like the market at that time.

Jason:
Good stuff. Well, Jerry Robinson, thank you so much for joining us today. The book, again, is  Bankruptcy of Our Nation, so check it out on Amazon and all the usual places. I appreciate you joining us.

Jerry:
It was great to be here, thanks Jason.

Outro A:
I’ve never really thought of Jason as subversive, but I just found out that’s what Wall Street considers him to be.

Outro B:
Really? Well how is that possible at all?

Outro A:
Simple, Wall Street believes that real estate investors are dangerous to their schemes because the dirty truth about income property is that it actually works in real life.

Outro B:
I know. How many people do you know, not including insiders, who created wealth with stocks, bonds and mutual funds? Those options are for people who only want to pretend they’re getting ahead.

Outro A:
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Outro B:
That’s because the corporate crooks running the stock and bond investing game will always see to it that they win. This means, unless you’re one of them, you will not win.

Outro A:
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Outro B:
Yup, and that’s why Jason offers a one-book set on Creating Wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us.

Outro A:
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Outro B:
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Outro A:
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Outro B:
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Outro A:
If you want to be able to sit back and collect checks every month, just like a banker, Jason’s Creating Wealth Encyclopedia series is for you.

Outro:
This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit  www.hartmanmedia.com  or email [email protected] Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.