Announcer: Welcome to Creating Wealth with Jason Hartman, President of Platinum Properties Investor Network in Costa Mesa, California. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before and a new slant on investing, fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible.
Jason is a genuine self-made multimillionaire, who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it. And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
Jason Hartman: Well, happy November 5, 2008. Welcome to the 73rd edition of the Creating Wealth Show. This is your host, Jason Hartman. It’s great to be with you today.
Well, obviously, you know the big news. We elected a new president yesterday. I am so excited to be finished with the Bush years. I, of course, have been, like most people, rather disappointed with the Bush presidency.
However, I do have to say on balance and in fairness to President Bush that I think history will be a lot kinder to him than our current opinions of him. Think about it. Iraq, a war that I was definitely not in favor of. I’m somewhat of an isolationist in my philosophy since I have very libertarian leanings and I think we should largely stay out of other people’s business as much as possible. Of course, that’s not completely possible in an interconnected world. I was not in favor of the Iraq war.
However, I do think one of the side effects from it that we will see as beneficial ten years hence, maybe 20 years hence, as history records it is that we probably freed 26 million, 30 million people, however many there are. I think Afghanistan is 26 million. Iraq is a much larger population actually, maybe like 40 million. I can’t remember the numbers, but it’s a lot of people. And I think ultimately when you get past the agony of war and all the stuff that’s gone on and all the brave people who have made sacrifices, I think there will be another freer spot in the Middle East, which I think will be a good thing. But again, I was not in favor of the war. I’ll just tell you that.
The Obama presidency, what does it mean to us? Well, I think largely we are unsure as far as the economy. I mean Obama is a guy who gives great inspiring speeches. He is an excellent speaker, an inspiring speaker, and whether you like him or not, you have to admit that. And certainly, we’re at a time in our country’s situation where we need some inspiration and I think largely, the Republicans run pretty lame campaigns. I think Republicans have that image of being a good ole boys’ club, a club for the rich. I don’t think that’s really true because I think actually the Republican policies in so many ways are actually more beneficial to the middle class.
But whether you’re talking Republican or Democrat, I’m not too crazy about either of them because I think they both spend way too much money and they both want big government, and I don’t like big government. I don’t like big business. I don’t like big much of anything. I don’t like big religion. I think when anything gets big, it becomes abusive, and I am not looking forward to a larger government. I think that’s what we’re in for with Obama. I think we’re in for pretty much the same thing if we had McCain. Certainly, George Bush has been a total spendthrift and a rather big government person, even though everything that is theoretically the Republican ideal has moved left of center, if you ask me.
So what does this mean to us? Well, I think we don’t know much about Obama really. He’s been largely more about style than substance so far. Obviously, he will surround himself with, I’m sure, very smart people in his Cabinet and I’m looking forward to seeing who all those Cabinet appointments are, especially Treasury Secretary, which right now, is probably the most important appointment he will make after we get rid of Paulson, who I haven’t been crazy about and I think he’s in the good ole boys’ club.
Paulson, by the way, is a liberal, just so you know, in the good ole boys’ club with his buddies at Goldman Sachs and so forth, and you know how I feel about big Wall Street, big business. I do not like it. I do not like the coporatacracy. I just sound pretty cynical and I don’t like much of anything except income properties.
So what can we expect? Well, it looks like we can expect an Obama administration to eliminate taxes on seniors that make less than $50,000.00 per year. Well, that’s going to be good for a lot of people. They can purchase REO properties that have positive cash flow and definitely be looking at some tax relief. I think our older Americans have paid into the system. They’ve paid their dues. They deserve some relief there, no question about it.
We will likely see a windfall profit tax on oil companies and this will cause oil companies to raise their prices. What most people, especially the big government side of the aisle, doesn’t seem to realize is that corporations are pass-through entities. The people in positions of power in big business, when taxes are increased on them, they either just go somewhere else – I mean look at what’s happened over the years with blighted areas like Michigan. You had such strong Democratic, big government, labor union oriented, politicians there, mayors, etc, etc, for decades and what they did is you strengthen the labor unions, you make it too expensive for companies to employ people, and what do the companies do? They just leave. They just go elsewhere and you create higher unemployment.
So we’ve gotta understand as people that are trying to understand basic economics. It seems so obvious that economics, tax policy, etc, is not a zero sum game, that corporations are pass-through entities. Corporations are totally disloyal entities. The modern corporation has no soul, no loyalty. They move in and out of state borders and national borders with a lot of ease nowadays. You make it harder for them to do business, you tax them, you make their labor costs higher, they simply go off shore.
For whatever it’s worth, we’re going to see a windfall property tax on oil companies probably and the oil companies will simply find ways to pass that through to guess who? The consumer, you and I. At first, that looks like, on its face, a good deal for the middle class, but it usually doesn’t turn out that way, and there are numerous historical examples. So just check your history and you’ll find that it’s true.
The Obama administration will address predatory credit practices, like payday loans. I think there is a lot of misleading stuff going on here with these payday loans. They generally exist in poorer areas and they do take advantage of people, so we’ll see what happens there. It should help our tenants pay their rents and secure their financial life in a better way without them paying ridiculous, usurious interest rates.
Capital gains tax will probably increase and this will affect the stock market in big, big ways and I think bad ways. Capital gains tax will probably increase from 15 – 25 percent. That is a 67 percent increase. Not a 10 percent increase. It is a 67 percent increase in capital gains tax.
So what does that mean? Well, to me, I think the way this will play out is it won’t matter anymore how long someone holds stock in a company, so the stock market will likely become a lot more volatile. People will buy stock. They will sell it in a day; they will sell it in an hour. It won’t matter if they hold it for a year and a day anymore or not. So companies will see their stock prices fluctuate dramatically. That will make it difficult for them to do business because they will see much more volatile swings in their stock price and the stock price is a reflection of the company’s market capitalization and their value. They use their stock as currency to buy things, like other companies, to hire people with stock options and stock packages in their pay packages, and when the stock swings a lot, it’s going to make them harder to do business planning.
That’s just my opinion of what that effect will be, but I think, overall, it will have a chilling effect on the stock market. I think you will see people much less drawn to investing in stocks because they are going to pay a much higher capital gains rate.
And, of course, that’s one of the things I love about investing in income properties because you can basically trade them all your life using the 1031 Tax-Deferred Exchange system and you can just defer taxes, and right now – and again, I have to make the disclaimer, we are not tax advisors, so check everything with your tax advisor. But you can trade them all of your life and then you can pass away and the basis for that property or all of your properties in your portfolio step up to market value and your heirs can sell those properties without having any real big tax consequence. So real estate, the most tax-favored asset class in America.
We’ll probably see a new stimulus package and what does that mean? Well, of course, when you print fake money that the government doesn’t have, that just means one thing. It means inflation, monetary inflation. And listeners, I know this is hard for you to believe because you’ve seen prices recently come down as you see companies, hedge funds, investment pools forced to sell assets to cover ridiculous credit practices. You see the derivative market imploding and you’re going to see more of that, by the way.
So you think there’s deflation and there is asset deflation in the very near term, but overall, inflation is coming to a theater near you, so get ready. You can’t print fake money and have no inflation. It has never, ever happened in history. History is replete with examples of governments running the metaphorical printing press and creating inflation. There has never been an exception in the history of the world, period, end of discussion. Inflation is coming, okay? I say it’s about two years away.
And of course, we know as investors, who are investing the right way, the prudent way, using debt prudently, inflation is just going to pay off our loans for us, a wonderful thing. Even if we don’t have an Amero in our future, we do have inflation and we have a further debasement of the dollar.
Universal healthcare. That’s coming our way, too. I don’t like our current employer-oriented healthcare system. Being an employer, I think it’s a lame system. I don’t know how it ever evolved this kind of system. But this universal healthcare is going to be very expensive, obviously. How will that be paid? Well, turn on the printing press; print more money. And when I say that, only 5 percent of our money is really printed. It’s a metaphor. If you want to create money, hey, where did that last George Bush stimulus check come from? Well, they just printed checks and banks cashed them. Hmm, pretty simple. Treasury bills, etc, etc. We’ve talked about that on prior shows, so go back and listen to the other episodes.
We’ll see a reduction in defense spending likely under an Obama administration. We may have some base closings, so let’s be watchful of that for areas in which we’re considering investment. Defense contracts, a little less spending there. Overall, though, I think post-911 world defense spending is up so much that relatively speaking, pre-911 defense spending would still be rather high, but much less than it is under Bush.
Implementation of trade changes will determine an impact on the U.S. and we don’t know what that is yet. We’ll talk about that in future shows. Wall Street, U.S News and World Report reports that Wall Street got its mega bailout. What about Main Street? Many economists say that plunging housing markets – and of course, that’s only in the bubble areas; it’s not in the areas we recommend – and the deluge of foreclosures remain at the core of America’s economic troubles and credit crisis.
During the campaign, Obama favored a 10 percent universal mortgage credit, but Daniel Clifton and Analysts expect Obama to consider a range of options to bolster falling prices, such as an expanded home purchase tax credit. I tell you folks, real estate is always the favored asset class, isn’t it? No matter what administration we have, they always favor real estate. So that’s good for us.
A moratorium on foreclosures. Gee, again, the debtors get a bailout, so be a debtor, not a creditor. Think about it. You put a moratorium on foreclosures, who gets burned? The people that loaned the money, so be the borrower. That’s always the position of power, of course. I’m editorializing. I think you can tell. Back to the article.
And potentially, a large-scale refinancing housing proposal, among various refinancing possibilities, using Fannie Mae and Freddy Mac, to refinance mortgages of all underwater homeowners, whose homes are now worth less than their mortgages. That could cost $50 billion or more. Remember whenever you hear the number, by the way, it’s always higher. Others have suggested that refinancing everyone into mortgages with low, low rates could cost over $300 billion.
Expect an Obama administration to do something. Word has it that his advisors have been reading up on the New Deal. One of FDR’s first moves during the Great Depression was helping homeowners avert foreclosure.
Moving on here. We got this, by the way, some of this stuff, from a variety of sources today, post-election. A lot of new content out there, of course.
NAR reports that lawmakers will focus on potential changes to the secondary mortgage market. Companies, Fannie Mae and Freddie Mac, which are under government conservatorship, among the options on the table, folding them into entirely new government entities where they’d be completely government, making them 100 percent privatized companies, or keeping them as public private hybrids, as they are now.
Now, remember. Senator Obama received the second most money of anyone in government from Fannie Mae, only second to – who was it? Schumer? I believe it was Schumer. Not sure off the top of my head. So obviously, there’s a relationship there.
NAR provided an economic analysis demonstrating that a reduction – this is important – that a reduction or a buy-down of interest rates by just 1 percentage point could result in up to 840,000 additional home sales and reduce housing inventory by as much as 20 percent. Inventory is currently at a 9.9-month supply and it would decrease to a 7.5-month supply. Isn’t that incredible, folks, what the interest rate difference can do? That is amazing. And again, I love real estate, especially when it comes to income properties that are highly leveraged, prudently, highly leveraged, of course, and it’s just always favored by every administration, by every politician. So it’s a wonderful place to have your money.
One blog reading, we got a couple blog postings we thought were interesting that we thought we’d share with you. Not off our blog; just off different blogs. Obama has promised a Robin Hood-like tactic by taxing lower income earners less and higher income earners a lot more, eliminating capital gains taxes for entrepreneurs and investors in small businesses. Well, that’s a good thing. I think that would have a very stimulative effect on the economy. Obama is also looking to raise capital gains tax, making it harder for people to make money by investing in the stock market. This is bad news. It’s bad news for the markets – the stock markets, I mean – and I think it will be good news actually for real estate because a lot of that money will come over to our side.
So capital gains, the top dividend – and let’s talk about dividends – the top dividend tax rate would remain at the current 15 percent for those earning less than $250,000.00, but would rise to 20 percent for those earning above the $250,000.00 threshold. So in other words, the richer you are, the more you pay on dividend-paying stocks.
We could see a sell-off in high dividend yielding stocks. Better time to invest in real estate, for sure. In the U.S., currently 38 percent of all households pay no tax at all. With Obama’s new tax plan, up to 50 percent of households would pay no tax at all. If half of America is paying no tax, the economy could be in for a rocky ride for even longer than it is projected now. What Obama has promised is nothing more than a wealth transfer or an attempt at one anyway.
So the call to action for us listening and us investors, we need to remain bullish on real estate because obviously, real estate is a buy-low-now type thing, interest rates at historic lows. The same thing you want to do when it comes to precious metals or stocks, of course. But remember income properties are, of course, a multi-dimensional asset class. You don’t buy real estate when it’s at its peak unless you have some other benefit, like super cheap financing, great cash flow, or whatever. You buy it at a low, like it is now.
Now, in some of the bubble market areas, it’s still declining, so of course, you regular listeners, you know what I’m talking about. Plan on keeping that investment for a while and you will do very, very well.
So I want to share with you a radio interview from just last week. Of course, it’s before the election. Let’s listen in. Next week and probably our next show – I know we’re recording the interview next week. We are recording the interview with Harry Dent. We’ve got a bunch of other great guests coming up. Let’s listen in to a recent interview I did in the L.A. radio station, KABC, just last week. I think you’ll find this interesting. It’s about 30 minutes long, I believe. So listen and I look forward to talking to you on the next show and seeing all of the exciting news coming out of our new administration that is coming right up on January 20, 2009. So we’ll have a lot to talk about in future shows. Thanks for listening. Keep listening in and here is the radio interview.
Al Rantel: Well, a lot of economic news to talk about, Jason. I don’t know where to begin, but welcome to the show. First of all, Happy Halloween.
Jason Hartman: Thanks, Al. A scary economy going on out there on the eve of Halloween here.
Al Rantel: Yep. I was going to read you a story and have you react to it, if I may, because you mentioned the scary story, this from the Associated Press today. Let me read just the first line. “Scared and out of money, Americans stopped buying everything from cars to Corn Flakes in the July to September quarter, ratcheting back spending by the largest amount in 28 years, and jolting the national economy in what experts say could be the most painful recession in decades. Retailers are bracing for a grim holiday buying season. The economy isn’t just slowing. It is actually shrinking.” What do you have to say about that?
Jason Hartman: Unfortunately, I have to say ditto. It’s absolutely true. The consumers are feeling the chill level and they are pulling in their horns and they are just not spending. I’m sure you’ve had occasion to walk down a mall lately. You can roll bowling balls down the aisle ways and every store, even at the swankiest, classiest malls, is having a sale. It’s something I’ve never seen before in my lifetime.
Al Rantel: Yeah, in fact, I have a friend who follows the yachting business and he reads these magazines and they tell you what yachts are selling and stuff, so that’s for the super rich obviously. That would be for the top 1 percent of the wage earners who would be able to be in the yacht-buying business.
Jason Hartman: Or even top one-tenth of a percent.
Al Rantel: Yeah, probably even smaller than that. And he said that in that business, the prices of yachts are going through the floor because nobody’s buying them. So I guess even the rich people are feeling it?
Jason Hartman: It’s weird how this one started out, this recession that we are certainly in, regardless of the academic definition and we’ve talked about that before. But this one sort of seems like it trickled up rather than down this time, where it seems like the lower end of the socioeconomic spectrum and the middle really got hit the hardest first. And now it is finally trickling up to the high end. Of course, some of those wealthy people have such huge cushions that it really doesn’t matter, but yeah, they’re feeling it, too. No question about it. Wall Street is losing thousands of jobs. There are a lot of people saying finally real estate prices in New York might get reasonable, which could be true.
Al Rantel: But American Express tonight announced they’re cutting 7,000 employees.
Jason Hartman: Oh, yeah, yeah. I saw that one, too. And a lot of them – I have a friend that works for American Express in New York City actually. I gotta ask her what’s going on with her job. But certainly, we are in troubled times. There’s no question about it. The Fed met yesterday and they cut again.
Al Rantel: Yeah, what do you make of that? One percent, I mean geez, they don’t have much more room to go, that it could go like Japan did one time and go down to zero. That’s about it.
Jason Hartman: You’re exactly right, Al. It’s Japan all over again in a way. The scarier part, though, for Americans is that unlike Japan, Japanese people save money. Americans don’t save any money. So even though they had very tough times for – what – about 16 years or so, where they’re economy contracted dramatically, at least their culture was a savings oriented culture so they had something of a cushion, where most Americans are just landing on concrete. So it’s really tough out there. There’s just no question about it.
Al Rantel: Now, what does that mean to the average person listening if they cut this rate all the way down to 1 percent? What is that supposed to accomplish?
Jason Hartman: Well, it doesn’t accomplish really too much very quickly. They say it takes about nine months to trickle its way through the system, so the prior rate cuts that have been happening over the last nine or ten months. Those we’re starting to feel a little bit, but probably acted too late, although I don’t agree with the philosophy of pumping more money into a system, which is already overburdened, as strange as it might sound to some listeners, with too much money frankly. And we can get into that later. It’s sort of another topic.
But the people that are going to win from these cuts are people that are either shopping for or already own a property with an adjustable rate loan tied to the COFI or the Cost of Funds Index or the Treasury Index. People will not win that are tied to the LIBOR Index. So it depends which index their adjustable rate is tied to as to whether or not they will be winner or loser from this. Certainly, if someone wants to go out and buy a house today, you can get an incredible deal on a fixed-rate mortgage, which I would highly recommend.
Al Rantel: Really? Like what, about 6 percent or so?
Jason Hartman: Better than that. About 5.5 percent. It’s unbelievable. I mean if you’re going to occupy a home now, it’s a pretty nice time to be shopping for a house. Now, that said, in the bubble markets like California, I do think we’ve got a further price decline coming up, but –
Al Rantel: But are you going to be able to find anybody to lend you the money at 5.5 percent? You probably have to have now, what, a very high credit score and at least 10 percent down and all that, right?
Jason Hartman: Yeah and that’s not bad historically. Gosh, having a 700 FICO score and 10 percent down, buying a house that a year ago would have cost you 40 percent more or 30 percent more, depending on where you’re looking and what price range you’re looking in, isn’t too bad a deal. It’s probably going to lose another 10 percent of its value if it’s in Southern California, but if you’re going to stay there a while and you think you’ve got a dependable job, which is a key issue.
See, so many people are in so much trouble right now because, of course, it’s human nature to adapt your lifestyle to your earning power and people tend to ramp that up very quickly, but the reality is if the income stops in two or three months after a job layoff, we’ve got a mess on our hands. And that’s the story of most Americans.
Al Rantel: It’s amazing how many people live really literally paycheck to paycheck.
Jason Hartman: Even the high-income earners live that way a lot of times. It’s just amazing how far people will go to keep up with the Jones’, so to speak, and just outspend their means.
Al Rantel: Okay, so let me get something straight before we move on to some of the other issues we want to talk about because you mentioned the Southern California market. So if you are interested in buying, you believe that now – not investment property, right? You’re talking about buying a home you’re going to live in.
Jason Hartman: Yeah, if you’re going to live in it a long time and you’ve got a dependable job. I mean it is going to go down in value. I can almost assure you of that. But if you can lock in a really low rate and you need a place to live and you’ve got a dependable income that’s going to afford you to stay over that hump, I think we’ll probably see the bottom of this market by the middle of 2009, which many experts are saying that same thing. And I do tend to agree with it.
Al Rantel: Meaning the prices will bottom out.
Jason Hartman: The prices will bottom out, yeah.
Al Rantel: So if you’re a seller –
Jason Hartman: If the people listening could stay and just wait, if they don’t have housing needs at the moment, and the interest rates probably won’t be any higher before, say, spring or so. After that, I’m not sure.
Al Rantel: All right, but that’s for buying property that you want to live in. You still don’t believe that Southern California is a good place to buy investment real estate.
Jason Hartman: Not yet. It’s too early and especially in the commercial real estate market, which is just starting to feel the impact of this whole crisis and that one generally lags, Al, the residential market by about a year and a half to two years. So the commercial is behind and it has a much farther fall coming at it if it’s in Southern California, I believe.
Al Rantel: So commercial property then, right now, would not be a good investment. Not here.
Jason Hartman: No, no way.
Al Rantel: Not here.
Jason Hartman: Wouldn’t touch it. It’s too early, way too early. So that’s what’s going on out there. Sorry to bring such bad news on the eve of Halloween here, but.
Al Rantel: Yeah, well, I don’t think anybody was surprised when they saw that. I mean with all the layoffs that have been announced already that have not been counted in the unemployment figures, I suspect that the unemployment rate will get very close to the double digit rate before all of this is over.
Jason Hartman: Yeah, and I think it really is in the double-digit rate if you look at real unemployment including independent contractors, who just aren’t really pulling in any real income at all.
Al Rantel: Right. That’s an interesting point you’ve made before and we should probably make it again before we take a break. When the government gives out inflation numbers and unemployment numbers, as you’ve pointed out, they really don’t tell the whole story, do they?
Jason Hartman: Yeah, I think when the government gives out any number, it doesn’t tell the whole story.
Al Rantel: Yeah.
Jason Hartman: Including all the bailouts. Those numbers are a lot bigger than we’re led to believe, if you ask me.
Al Rantel: Yeah, but I mean what they don’t count in inflation – there’s no way inflation has only been a few percent because I know. I go out and buy everything myself. I know prices are higher than that.
Jason Hartman: Yeah and I’ll tell you, I’m not sure about the timing here, maybe after the break, but we should get into the topic tonight of talking about the adjusted money base. It’s unbelievable what’s going on.
Al Rantel: All right, well, I’ll tell you what. We’ll take a break and you can tell me what’s so unbelievable. And then we’ll have Jason tell us a little bit about what people can do on an individual basis, depending upon your situation, to try to protect yourself and not land on concrete when all the dust settles, as Jason put it earlier. In other words, what things you might be able to do to look out for your financial future and that of your family. Jason Hartman is with us. By the way, if you want to find him, he has – everybody’s got a website these days, you know – www.jasonhartman.com. Pretty easy. And we’ll have him when we come right back. KABC.
Right now, though, Jason Hartman is with us to talk about Issue No. 1, the economy. Lots of economic news and none of it pretty, so can we start over on that one?
Jason Hartman: [Inaudible] Federal Reserve. One of the metrics they keep track of is called the Adjusted Monetary Base and essentially, it’s one of the metrics they use to count all of the money in circulation. And this metric, I have got – I’m actually going to stick this on my website for your listeners; I’ll get this up there tomorrow –
Al Rantel: Okay, www.jasonhartman.com.
Jason Hartman: These charts will blow your mind. The Federal Reserve has pumped in new money at a rate of over 300 percent annually, just from August to late October, if you were to annualize the amount of money pumped into the system.
Al Rantel: Wow, that’s a lot of money.
Jason Hartman: Now, you know the metaphor everybody uses for that is the printing press and only about 5 percent of our money is actually printed because nowadays, with a keystroke and a mouse click, you just pump money into the system by lowering rates, opening up discount windows, giving stimulus checks, etc, etc. And so I know it’s hard for some to see right now, but what I think is going to happen is we’re going to see this trickle through the Wall Street investment banks and, of course, they’re going to take a huge cut off the top, and it’s going to get down to the middle class. And when this money filters into the true economy, which it will in I estimate about two years, we’re going to see significant inflation.
Al Rantel: Well, there has to be because there’s all those dollars that make the dollars you have worth less, right?
Jason Hartman: Yep, no question about it.
Al Rantel: I mean that’s common sense.
Jason Hartman: The one key ingredient that money must have in order to work is it must have value and it gets value by being scarce. And if it’s not scarce, it’s not valuable.
Al Rantel: If I had a printing press and everybody else had a printing press, then a loaf of bread would cost a million dollars because you could print as much as you wanted.
Jason Hartman: You sure could. And you only have a limited number of goods and services and an unlimited amount of what they call fiat money, money by authority, which is our money. It’s not backed by anything real and pretty much every government in the world now is existing on fiat money and central bankers and it’s just a big scam.
Al Rantel: So in other words, all this money that’s being pumped into the economy, the reason you don’t see the inflation yet is because it hasn’t trickled in. Is that what you mean? It hasn’t gotten down to the –
Jason Hartman: It hasn’t trickled in and at the same time they’re pumping the money or putting on the metaphorical printing press, we’re having so many other problems that are distracting from the issue. And it’s interesting to see Paulson going around trying to get banks to lend money and Bernanke doing the same thing. And they’re still holding back. They’re not letting loose of this bailout money that is going through the system now and it’s just starting to really move through the system. One of the things I heard just the other day, in fact, and I haven’t had time to research this in any extent, is that they’re planning on giving out bonuses on Wall Street at the end of the year.
Al Rantel: Oh, yeah, of course, some of them bigger than last year.
Jason Hartman: That is mind-boggling to me.
Al Rantel: Well, how many times have you been on this show and told people that Wall Street is the insider’s game?
Jason Hartman: It’s a total insider’s game.
Al Rantel: Yeah, you’ve said that for all the years I’ve known you.
Jason Hartman: What is happening now is that money is being just totally privatized. Profits are totally privatized, which in concept, I know we both agree with, obviously, free markets.
Al Rantel: And if the losses are privatized, I’m in favor of the profits being privatized, too. But not only one of them.
Jason Hartman: Exactly.
Al Rantel: We have an economic situation now where they want to privatize the profits and socialize the losses. What is that all about?
Jason Hartman: I know. It’s –
Al Rantel: At least the people in Norway get heated sidewalks with all the confiscation of wealth.
Jason Hartman: The people in government are being lobbied and wined and dined by the people running the investment banks and it is a total insider’s game. What I call this, Al, is I call this the Virtual Economy. That is the virtual economy, the Wall Street economy, the smoke and mirrors economy. It’s just a virtual game that they try to attract our real money into and we should vote with our wallet.
Al Rantel: How?
Jason Hartman: Keep our money away from them.
Al Rantel: Well, what do you do? What do you do instead?
Jason Hartman: Well, you invest in real things, things that are tangible. If you’ve got a friend who’s in a business and you want to get into that business, you do something with your friend, with someone you know. You invest close to home. You buy tangible assets, like rental properties, but in the right areas and in the right way and so forth. You buy things that you exert control over rather than letting someone else have control. When someone else has control, they’re using it for their own good. The three biggest threats to our financial security, in my opinion, are the financial services industry, the government, and central banks. Those three things, more than any other thing, are controlling far too much of our destiny as Americans.
Al Rantel: And you still advocate – because we’ve talked before, I just want to make it clear – that in order to buy these tangible assets, as you describe them, to invest in, that you borrow as much as you can to buy them because then you’re going to pay back in cheaper dollars in the future. So someone else is – you’re getting the benefit of that inflation. Is that what I get from you?
Jason Hartman: You got it, exactly, because think about it, Al. If you borrow a million bucks and inflation is 10 percent next year, which it easily is already in real terms, 10 – 12 percent is what I’d say, you get $100,000.00 – $120,000.00 reduced, chopped right off that loan. I mean this is the hidden wealth creator that made so many people so wealthy in the last four decades. And people didn’t even realize it. They thought they were getting rich because the real estate they owned, whether it be their own home or investment properties, it went up in price.
But in real terms, the real estate didn’t really go up that much. Depending on when you bought, when you sold it, yes, it could have far exceeded the true rate of inflation. But overall, if you look at it on a nationwide basis, real estate has only outpaced inflation by a margin of maybe 3 percent or something like that.
Al Rantel: So where did the wealth actually come from then?
Jason Hartman: It comes from the reduction in debt and the reduction in debt is what really creates the wealth because over the years, if you borrowed money to buy the median price home, in 1972, the year after we went off the gold standard – Nixon took us off the gold standard in ’71. That was part of the Bretton Woods Agreement that we went onto during the Great Depression. And after that, we just had rampant inflation and only one guy stopped it and that was Paul Volker, who by the way is an advisor to Obama.
Al Rantel: Yeah, thank God.
Jason Hartman: Well, I’m not an Obama fan, but other than that one thing maybe. And so if you borrowed this money on a 30-year, fixed-rate loan, by 2002, when you paid that loan off, you would have actually been paid over 1 percent to borrow that money. It is amazing the wealth creating potential. And if you think of it, Al, this is exactly the same philosophy our government uses because the government controls the printing press or the supply of money, as we all know – or really the government doesn’t, but the Central Bank does in collusion with the government or the Treasury.
So they control the printing press and money is owed to all these foreign governments in bonds and so what we do is we just constantly pump more of those bonds into the system. The bonds are rolled over many times without ever even coming due and being repaid. They’re just rerolled, like your CD in your bank is rolled over to the next time.
And so the money is never really paid back and if the currency is devalued, the debt just disappears.
Al Rantel: That’s fascinating.
Jason Hartman: If you owe a trillion dollars and inflation is 20 percent, poof, $200 billion just came off the loan amount. It’s a miracle. It’s magic.
Al Rantel: That is real. I love the way you explain things. Well, Jason, stay on hold. Can you?
Jason Hartman: Sure.
Al Rantel: Because I want to get the callers in on this at 1-800-222-KABC.
On the Al Rantel show, our good friend Jason Hartman is filling us in on all the economic news and boy, it’s been – I gotta hand it to you, Jason. In 30 minutes minus commercials, you gave us quite an education there tonight.
Jason Hartman: Well, hey, we still haven’t talked about the Plunge Protection Team.
Al Rantel: What’s that?
Jason Hartman: I don’t know if you’ve heard about this, but the Plunge Protection Team, otherwise known as the PPT, this is the group within the government that is charged with manipulating markets for our supposed benefit. And it is just unbelievable what you see happening. The most egregious manipulation of the markets is in gold, silver, other precious metals, and oil, and I tell you, Al, they are constantly trying to make sure that we don’t see these big, giant dips and the market can’t act in its own free way. And of course, when you stop the dip, you hurt someone because there’s a counter party on the side of every other transaction.
So you’re making the buyer pay more for that stock, if you’re manipulating the stock. If it’s a commodity, I totally see it in the precious metals market because I know a couple of people who sell gold and silver, and in fact, I think one of them is an advertiser on KABC, and it’s unbelievable. You call them up, you say you want to buy an ounce of gold, and you want to buy a gold coin, and the spot price is $750.00 or whatever it is. But they’re now charging you a premium, making it like $870.00, $120.00 more than the spot price, whereas a year ago, it was $30.00 more.
So tell me there’s not manipulation in the market. They can’t get the coins. It’s just being completely manipulated. It’s a sham. It’s incredible. If you just start investigating this stuff a little bit and you can see it all over the place.
Al Rantel: And who’s behind doing that?
Jason Hartman: The Plunge Protection Team. This Plunge Protection Team, from what I understand, started in ’87 when we had the stock market problems there in ’87. And it’s been sort of less active until recently and it’s just manipulating what’s going on. It is stopping real falls in the markets, trying to prop up the stock market, prop up the –
Al Rantel: So it’s kind of like when OPEC gets together and decides to cut production so they can keep the price up, manipulating the market.
Jason Hartman: It’s manipulating the market. It’s an artificial thing and that’s why I say the three biggest threats, central banks, governments, and the financial services industry.
Al Rantel: We’ve got a lot of callers that want to talk to you obviously and, for those that don’t get through, you can find Jason at www.jasonhartman.com. And we’ll start off on KABC with our caller George.
George: Hi, Jason.
Jason Hartman: Hi, George.
George: My question is this. The scenario you’ve just presented is very interesting about buying big-ticket items, I guess, that are cheap in an inflationary situation, but if the economy continues to tank, just like Al said, there are several thousand people just getting laid off from one company, then isn’t that going to just continue to drive the prices even further lower with nobody having any money or jobs to buy things?
Jason Hartman: My answer is yes, it will initially and I think that this inflation that is underlying the problem we’re having now is going to take about two years to really bring its way through the system. There’s a heck of a lot of money being created and throughout history, this rule has never played any other way, George. There has been no time in history where a government or a central bank or any entity at all has produced more fake currency and kept inflation under wraps. It has never before happened.
Now, supposedly, the people that are promoting the idea of central banking and this kind of monetary policy, they think it’s different this time. But you know what? That’s what they always thought throughout history.
Al Rantel: Yeah, everybody thinks they’re going to reinvent the wheel.
Jason Hartman: They’re not going to reinvent the wheel. You just can’t. It’s cause and effect. Nothing else can occur here and so yes, we will have a two-year span, which really started a couple years ago, where we have seeming deflation, but we are going to have a sudden inflation as we see production decline because production is certainly declining as the global economy is cooling, so that means fewer goods. And then you see people on –
Al Rantel: But there’s a lot of dollars chasing those goods.
Jason Hartman: Right, but before you see that, what you see now is you see people selling off goods and you see excess supplies because merchants that made cars or clothing or whatever, they were gearing up for a much better economy. And so they can’t control their inventory that well when they have to make it in advance. This will work its way through the system and just like in the Weimar Republic in post-World War I Germany, we’re going to have inflation. It’s happened every time.
Al Rantel: Andrea, you’re on KABC with Jason Hartman.
Andrea: Hi, Al, hi, Jason. My question is my husband and I bought our home three and a half years ago and I consider ourselves to be responsible people. We pay cash for our cars, we pay off our credit cards almost every month, and he did all the research on getting the loans and that sort of thing. And we were offered all sorts of crazy loans that we’re looking at each other like how can they do this. This is insane. But we didn’t take one of those loans. We took a more responsible route.
But we paid like – we put 20 percent down and we paid top dollar for our home. You’d think it was a mansion for the price that we paid. And now, with the way things are going, we pretty much lost our down payment and we’re paying so much to live in this house. It’s just kind of sad because so many people who were irresponsible, not only the buyers, but the mortgage lenders and the bankers and all those evil people – I don’t know if they’re evil.
Al Rantel: Well, let’s figure out what we should do, what you should do, Andrea, and your husband, to protect yourself then. What do you advise for Andrea?
Jason Hartman: She’s absolutely right. It pays to be irresponsible. Unfortunately –
Andrea: That’s sad, though. I don’t want to be irresponsible.
Jason Hartman: Sorry. We live in a society where everywhere you look, the irresponsible are getting the benefit of the bargain, whether it be on Wall Street, whether it be businesses, local businesses on Main Street, whether it be your neighbors, Andrea, who bought more than they could afford. Those are the people getting the bailouts and it’s totally unfair. It goes against every ethical fiber of my being. It is wrong. But the fact is, that’s the way it is.
Andrea: Okay, so I guess my question for you, in the last segment, you mentioned something about it’s a good time to make large investments when the economy is down because then over time, when inflation – I’m not going to say it right, but.
Jason Hartman: What I said is that I said it’s a good time to get long-term, fixed-rate debt attached to an asset that is likely to outperform inflation.
Andrea: We have that.
Jason Hartman: Okay.
Andrea: The fixed rate asset, so I guess I shouldn’t feel so bad, like hopefully, over time –
Jason Hartman: You should learn to love your debt and just keep paying it and let inflation be the invisible hand, if you will, that is paying for some of it for you.
Andrea: Because over time, like you said –
Al Rantel: It’s going to go back up.
Andrea: – it’ll be less money that we owe, even though it’s the same dollar amount.
Jason Hartman: Right, because the dollar – your mortgage balance, if the mortgage balance on your home is $500,000.00, that’s called nominal dollars. But real dollars is the value of that $500,000.00 and I say the value of that $500,000.00 will decline dramatically over the next several years. The nominal – it will still be called $500,000.00. It’ll still have the same name, but it won’t mean what it used to mean.
Andrea: Well, that’s the best news I’ve heard in a really long time.
Jason Hartman: Yeah, so when you go to bed tonight, just be thankful that you have some debt because the debt is going to turn into quite an asset for you.
Al Rantel: Okay, Andrea, good luck to you and I’m sorry that you’re such a responsible person because we’ve punished you in our society for being that way. Hey, Jason, Happy Halloween.
Jason Hartman: Hey, thanks, Al. You, too. What are you going to be for Halloween?
Al Rantel: Working. I’m playing a talk show host.
Jason Hartman: Sounds good. You do a pretty good job of that.
Al Rantel: But anyway, if people want to reach you and you’ve got goodies for them and charts and all that stuff at your website, I’m sure you’ll welcome them to go.
Jason Hartman: Yes, www.jasonhartman.com. We’d love to see some of your listeners there.
Al Rantel: If they’re smart, they will. Hey, thanks for coming on my friend. Talk to you after the election.
Jason Hartman: Attention agents, brokers, and mortgage people. Do you know that we cooperate? Do you know that our network is an open system, that you can refer clients and outsource your investor clients to us and receive passive income? It’s a really great opportunity. All you have to do is register your clients at www.jasonhartman.com and tell them to attend one of our live events, our live educational seminars.
Listen to our podcast, go to the website, and request our free CD at www.jasonhartman.com. And if they invest with us per the terms listed on the website, you will get a referral fee. We have lots of agents, brokers, and mortgage people that receive surprise referral fees that they weren’t even expecting. They get a check in the mail and they are just happily, happily surprised. It’s a nice extra supplement to your income. So be sure to take advantage of our broker cooperation. Agents are welcome. We cooperate with outside people and we’d love to help you with your investor clients.
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Anyway, we’ll talk to you next week. Thanks for listening.
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Duration: 54 minutes