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: Welcome to another edition of Creating Wealth. This is Jason Hartman, your host, and I’m very thankful to have you with me today listening to the show. I want to wish a very happy Thanksgiving to all of our listeners out there. The Platinum Team and I want to wish you a happy, safe, and memorable Thanksgiving.
Be sure to take a moment this weekend, of course, to reflect on the previous year. We’ve had a year of epic financial turmoil. I mean totally epic when I say that. Undeserved bailouts of Wall Street and banking fat cats and politicians getting too much power and so forth, and of course, we talk a lot about that on the show and it’s very easy to get caught up in the negative.
But let’s make sure we take a moment to step back, look at the big picture, and acknowledge how we all have so many things to be thankful for. If you’re listening to this show, you own a computer, you might own an iPhone or an iPod, you have a roof over your head, I’m sure, and you have good food, and people in your life. So let’s all just make sure we constantly pay attention to the bigger picture and the blessings that we do have and to remember to be thankful for them. So Happy Thanksgiving to all of you.
We’ve had a lot of guests on lately and some of our listeners have commented, you know, Jason, we want to hear from you. Well, I’m sure glad to hear that, that you want to hear from me a little more. So I thought what we’d do today is play just an excerpt of our recent Masters Weekend that we had in October. I believe this was October 25, if I remember correctly, 2008, where I talk about how we predicted a lot of the fiasco that is going on now, of course, and has been going on the past little over a year, and talk about that. So we’ll have a live clip from that.
And of course, our next Masters Weekend, which is truly a really, really innovative program, is coming up March 2009, so be sure to attend that. And before we get into that clip, which is a live clip so the quality isn’t quite as good as the in-studio, but it’s certainly not bad, so I think you’ll enjoy that and some insights also. We’re playing the audio track on this upcoming clip from a very, very inspiring video that you can find on our website at www.jasonhartman.com because, of course, when you’re listening to the audio track, you don’t get the totally full impact. Although, even just the audio alone I think is valuable and interesting.
So as I talk in this clip that’s coming up here, we do play an eleven-minute video, titled “Fire and Jade.” It’s just a lesson of how this incredible runner, Stan Cottrell, ran through China. It was years ago. I believe he did that in the mid to late ‘80s and it’s interesting alone to just see how China has changed when you watch that video. It’s pretty miraculous what can change in a country in 20 years that’s growing as fast as China.
Which kind of brings me to another point before we get into the clip here, everybody’s talking about the cooling of the global economy and while that is certainly true — yes, the global economy is cooling – but again, about perspective, keep it in perspective, folks. China is considered a dead economy that isn’t growing when their GDP is growing at a rate of 8.5 percent annually. If we grew that fast in the United States, we would be jumping for joy. Real estate prices would quadruple in no time here at 8.5 percent GDP growth. So even what China considers to be treading water at an 8.5 percent growth rate, is a phenomenal growth rate, which leads to massively increased consumption of commodities.
And again, you know our strategy is packaged commodities investing. That is very good for us as investors. So folks, when you look at it in perspective, the world economy is booming. It is totally booming. Even now, when you just rewind ten, 20 years and compare it to what it was, we have a booming global economy in the midst of an historic financial crisis. I say that, so can you hold those two seemingly opposing thoughts in your head at the same time because they’re both true. We are in the midst of a huge crisis, but we’re also in the midst of incredible growth, really a boom in global consumption, even now, even though the economy has cooled from what it was a year ago.
Before we jump into the Masters Weekend clip, we are posting right now in the Members Only Section at www.jasonhartman.com a very, very, very interesting graph and spreadsheet that shows the history of appreciation, from the ‘80s, from five years ago, and in the last year. And what you’ll note about this that is amazing when you look at the spreadsheet and then look at the very colorful map that is included, is every state in the U.S.A. is up in the last five years in terms of real estate appreciation.
And in addition, we understand, of course, that when we’re prudent investors that really know what we’re doing, we’re not investing just for appreciation. We consider, in fact, appreciation to be the icing on the cake, where we have a multi-dimensional asset. That is the nature of income properties; so even with no appreciation, even with depreciation in asset values, you can still be making money. Yeah, I know. That might sound like double talk, but if you don’t know what I mean by that, listen to the old shows, understand how inflation destroys debt, and so on and so forth.
So this is a very revealing graph and most of the markets that we’re recommending now continue to appreciate even slightly in the worst economy, in the midst of the worst economy in potentially 78 years. The stock market people don’t even come close. So go to www.jasonhartman.com, join as a member. It’s 100 percent free of charge. It only takes about 10 – 15 seconds to get your membership activated and it’s real easy for you. And this spreadsheet and map will be in the Members Only Section. So Members Only Section, www.jasonhartman.com, check that out, and let’s go to a live clip from the Masters Weekend.
[Masters Weekend Clip]
Jason Hartman: I wanted to cover some really, truly new ground today, some new thought, some new ideas in terms of investing. We are in a crisis state in the global economy. It is a scary time, no question about it. But the Chinese have that symbol for crisis that is the same s the symbol for opportunity and I think there are big opportunities right now. There are fortunes that will be made, given this economy, and a lot of good things are available to people who notice them. And that’s the key thing right now. We have to notice the opportunities in amongst all the bad news.
So the Masters Weekend, this is our twice-yearly event and over the weekend, we’ll explore together our economic forecast and our plan of action, the way you can react properly and prudently to the stuff going on out there in the economy.
We’ll do some in-depth analysis and tracking. We have the instructor for the software we like coming this afternoon, right after lunch, and she’ll share some great ideas for you in terms of predicting, evaluating, tracking properties. We’ll talk about the power of analysis. We have a special guest expert talking about that and she is phenomenal. You’ll really like her. She’ll be here this afternoon.
We’ll talk about asset protection. We have two lawyers speaking at this event, one today and one tomorrow, talking about insurance company issues, insurance bad faith issues, asset preservation, asset protection. This is advice that costs hundreds of dollars per hour and you get it all here included with the Masters Weekend.
We’ll talk about unique ways to approach the 1031 Tax-Deferred Exchange subject. Real estate, or especially income producing real estate, is America’s most tax-favored asset. And as such, one of the benefits that few people really look at is the way it plays out over the lifetime in terms of your ability to exchange properties without paying tax and constantly deferring that gain into the next property throughout the course of your whole life.
Our network agents from several various markets will be here. We’ll talk a lot about property management. We’ll talk about apartments and larger investments. One of the things that’s happening right now with the mortgage meltdown is that, as you know from listening to my podcasts and so forth and coming to Creating Wealth, I’ve believed for a long time now that the middle class in America is largely under attack.
Well, the middle class real estate investor has also been saddled with some big problems lately. Now, what I mean by that when I say middle class real estate investor is that it’s pretty easy still to qualify to buy a few rental properties, maybe four or so, but that middle class investor, who was buying six, ten, 12, 15 properties in terms of single family properties, really tough for them right now.
So what we have to do is change our paradigm a bit and look for the property to qualify more often for the transaction and look at some commercial properties, and especially my favorite type of commercial property, which is apartments because they can outsource the jobs to India in terms of call centers and office work, back office work, the manufacturing to China, but everybody still needs a place to live in America, and the population is increasing dramatically. So residential housing type properties, including apartments. But getting the property to qualify for the financing is a very key distinction right now that we need to work on.
We’ll talk about tax secrets of multi-millionaire investors. We have guests that you’ll see this morning, as Carlo G. spoke in a lot of our other events to very good response, and more asset protection techniques.
So let’s talk about the past a little bit before we get into the weekend. Now, what I did is the Creating Wealth in today’s economy, Creating Wealth 101, Creating Wealth 202, that seminar, as the name’s sort of been modified over the years. What I did is I was looking through the slides from that seminar last night and I pulled out a lot of the hidden slides that I have not been discussing for a few years now. And it was interesting to sort of look back in time and recall what my thinking was back then and what I was saying back in 2005, as we really predicted correctly the market downturn, although I think my predictions were not pessimistic enough, I hate to say. I really am an optimist, so you’ll hear more about that throughout the weekend.
But let’s talk about what led us to this point and then we’ll talk about the action plans in terms of what we can do about it. So this was one of the old slides back in 2005 we were discussing, and we were talking about how the percentage of adjustable rate loans was increasing so dramatically and people were living on borrowed time. They were living in homes that they never could afford, they never really earned. A lifestyle to which so many Americans became accustomed over the last few years was really kind of fantasyland. It was smoke and mirrors built on the largest credit bubble in human history.
And so now, we’re obviously paying the piper for that and a lot of that has come home to roost. When you just look at the adjustments in these mortgages, if that loan was at 5 percent and just goes to 7 percent, that’s a $643.00 monthly increase on a $500,000.00 loan amount. Now, we know a lot of the adjustments were much more severe than this, of course. We have mortgage people in the room and people that have these types of loans. And the popularity was increasing dramatically in the early 2000’s, in the post-911 credit inducement that occurred so much.
And then this was really where the major part of my prediction, that we would see the end of the boom real estate market in November of 2005, came from. It was this slide. A lot of adjustable rate loans are tied to different indexes. Well, one of them is the LIBOR index. And what happened here is we saw a real low point in that index in November 2002 and a lot of people were taking out 3/1 ARMS, 3/1 Adjustable Rate Mortgages, where they were fixed for the first three years at a low teaser rate.
And then they started to adjust three years later, November ’05. And nobody really noticed that the real estate market had basically ended then. Nobody really noticed until spring of ’06. Spring of ’06, when you usually see this huge seasonal increase in activity in the springtime, was when everybody said, hey, where is the boom? And it just didn’t show up. It didn’t materialize.
So this was rather easy to predict in my opinion. Now, I did not think it would really be this bad in terms of all the credit default swaps and all of the new stuff we have learned, all of these derivatives and these big time bombs of toxic debt and toxic financial products that were out there, that were behind the scenes. People in the know, of course, I think knew about them. It was really interesting to see Alan Greenspan’s testimony the other day. How many of you saw that? I mean gee, I thought I could build an economy on debt and consumer spending and it would just go on forever. It’s so amazing how naïve he pretends to be now.
But this was really a 40-year credit bubble. It has been going on all of my life. And so we have now seen that you cannot truly build an economy on consumption. Economies are built on production, not consumption. Of course, consumption is necessary, but people have to produce something real for there to be a solid, viable, long-term economy.
It’s interesting because I spoke at the Irvine Chamber of Commerce a couple weeks ago and before I talked, everybody went around the room and introduced themselves and their business and what they do. And it was interesting to notice as over 50 people went around quickly and introduced themselves that not one person that introduced themselves was in a truly production industry. They were all in what I call “leech” industries, or feeder industries, and most of us are in those types of industries, frankly. They’re in marketing or they’re in internet advertising or something that comes off of another business that is generated below it. Do you know what I mean by that?
This is an ancillary industry and that’s largely what our economy has been built on in the U.S. for decades now. So we’re seeing all of this change and we have a lot of bad news coming at us frankly. But there’s some good news and some real opportunities, some real diamonds in the rough, in amongst all of this. So we’ll talk over the weekend about how to take advantage of those diamonds in the rough because they’re definitely out there.
Look at this. I owned a mortgage company back in 2005 and we used to get faxes. Nowadays, it’s mostly electronic. Even then, a lot of it was, but back then, they’d send out blast faxes all the time and back in 2005, this slide I was showing in the Creating Wealth educational seminar. And this was the fax I got from a wholesale mortgage outlet promoting this product to our retail customers. So we would do mortgages for consumers and there are wholesale lenders that are promoting their product to us, to say go talk to your clients about this. And this is just a sign of a bubble.
And one of my favorite sayings now is Warren Buffet’s saying that I was talking about a few years ago and now you’re hearing it quoted a lot. “Be greedy when everyone is fearful; be fearful when everyone is greedy.” And everyone was just way too greedy.
And I remember also in ’06, early ’06, if I’m not mistaken, I went to Las Vegas and I went with some real estate friends of mine, and we went for the condo and high-rise expo or something like that. And so we’re in Las Vegas. We’re in this ballroom and there had to be 2,000 – 3,000 people there, packing this ballroom, as these builders got up and talked about all the high-rise condos they’re going to build. And the prices were $800.00 – $1,000.00 a square foot and people were buying them like they’re water, like they’re nothing, as if everyone is just entitled to be so rich and buy so many properties and totally speculate on the Greater Fool Theory. No matter what I pay, some greater fool will come after me and pay more, and guess what? The game of Musical Chairs stopped obviously and people were left standing.
So back to this. If you have a 620 FICO score and you want a 100 percent, zero down, stated income, interest-only loan, to $1.4 million loan amount, $2.4 million with 10 percent down, $4.4 million with only 20 percent down. Folks, this is totally irresponsible. It’s ridiculous. This is not lending. This is not banking. This is not the real economy.
This is the credit bubble, that if there is one single person, the most responsible person ever for this mess, is a guy named – you know who I’m going to say – Alan Greenspan. More than any other single person, he is responsible for what is happening and what has happened now. He promoted this like crazy. It was insane what was going on a few years ago. It made no logical sense and you know what? Sometimes if it sounds too good to be true, it probably is.
So we want to get back to basics this weekend. We want to talk about sticking with simple laws of commerce, simple laws of economics that work in real life, properties that are sustainable, that make sense the day you buy them. This is a screenshot of my email box from 2005; I think it was that I got this email. So this is good ole Mark at Countrywide, wholesale loan officer, sending me this email saying, “Promote this product to your clients.”
Let’s take a look. Bankruptcy discharge, Chapter 7 or 13. If you had that one day ago, we can give you this loan. Minimum FICO score 540. That is not a very good score. FICO at 560, you can get 95 percent; 540 is 90 percent loan-to-value ratio. Cash out is okay to 90 percent, cash out of the property, 90 percent of the equity; $500,000.00 loan; foreclosure NOD, if you had that three years ago, you’re okay. Greatly expanded guidelines for collections, charge-offs, judgment, tax liens in the last 24 months.
Are we really surprised? I mean really, are we surprised at where we are? I took these slides out of the presentation because I didn’t really have time to talk about all this as it was unfolding, but it was interesting last night to unhide the hidden slides and drop them into this presentation, and recall my state of mind back then when I was saying this and people were telling me I was crazy. They were saying you’re nuts. Why are you talking about this? Like it’s just going to go on forever. Obviously, it can’t go on forever.
This Wall Street Journal article, May 19, 2005, when they were starting to notice. It took them four years, or really, 40 years, depending on how you look at it. “Concerns about the risk of the mortgage market and buyers has prompted federal regulators to work on new guidelines for residential lending, which could be available early 2006.” It’s just interesting when you look back in time and you see what’s going on.
One of the favorite books that I’ve been reading is called Empire of Debt by Bill Bonner and in it, he says, “It’s amazing how so many people disrespect dead people.” In other words – this is his point – why don’t we dust these dead people off and learn something from them. They’ve been through these booms and busts before, whether it be the tulip bulb boom and bust a couple hundred years ago or whatever boom and bust. Florida, there were huge run-ups in land prices in Florida in the ‘20s, the roaring ‘20s. These cycles repeat themselves and people forget so quickly.
They say those who do not learn from history are doomed to repeat it, right? So what does this mean to us? What can we do with this? I’m not here to just make a commentary about the mess the global economy is in, thanks to this credit bubble expansion. But what can we really do with this? There’s a lot we can do with it.
The threats to our financial security I believe stem from what I call the smoke and mirrors economy or the virtual economy. As the dot com bubble was ramping up in the late ‘90s and up until the early 2000s when it collapsed, everybody was talking about remember the famous phrase, “the new economy?” Remember what venture capitalists were doing and stock market investors were doing? They were forgetting all the basic rules, all the basic fundamentals of sound financial practices.
So we’ve got to just focus on real fundamentals and remember that if it sounds too good to be true, it probably is. Not get-rich-quick schemes. Not pie-in-the-sky stuff. Life is not lived over the course of short spans. It’s lived over the course of years and decades.
So the financial services industry is a legitimate threat to our financial security because when you look at magazines like this, Money Magazine, “Retire Rich,” “Buy and Hold Stocks,” they have parsed this up every possible way you can think of. You hear them. You read it. If you weren’t in the market of the last 20 years, you would have missed the 72 days the market actually went up or things like this. You hear these claims, right? And I do agree generally with the concept that you shouldn’t try to time the market too much.
But the fact is that the Wall Street game changed dramatically. It changed dramatically around the early ‘80s. When the focus shifted from simple fundamentals, as the old guys died off, and this new generation of highly educated people came into Wall Street and started financial engineering. Financial engineering; that is truly done with these financial products.
Before the early ‘80s, when someone invested in a stock, they would ask one simple question: How much does it pay? In other words, what are the dividends this stock produces for me? What is the income? And then there was this migration away from that school of thought toward speculation, toward good stories, and financial engineering where companies would basically play their earnings forecast by understating earnings projections and then coming in just a little over them, so they could always beat them, so people would buy more of their stock. And they did this a million other ways.
And then what happened is we started facing a whole bunch of what I call intermediary risk. You hear the term a lot nowadays in the financial news, counterparty risk. So counterparty risk is for every transaction, there has to be a buyer and a seller, right? Those are counterparties. They’re at opposite ends. One party wants to buy low. The other one wants to sell high. There’s your counterparty. If you buy an investment, whether it be a piece of real estate or a stock or a bond or whatever, is that counterparty going to pay more than you paid and will you be able to achieve a profit?
What really started happening also in the ‘80s – remember the film “Wall Street” and Gordon Gecko? They’re making a sequel to that. It’s coming out. I love that film, by the way. I even went out and bought a pair of suspenders because that’s when it was cool to wear suspenders. He made that cool.
So intermediary party risk. What happened is the migration of wealth went away from the shareholders up into the C-Suite. The CEOs, the CFOs, all of the execs and the boards of directors started sucking all the money out of these companies. And really it was the shareholders that got burned, while the insiders got incredibly rich. And whether it was well intended or not, I don’t know. They started to enact law after law after law and regulation after regulation after regulation, to try and solve this problem for us poor shareholders.
But we didn’t have the lobbyists that the corporate execs have and we didn’t have the financial engineers that they had. They could engineer their books all sorts of different ways. There are people that just study ways to get around the rules. That’s all they do. The point I’m making is you can’t trust anybody else with your financial future. We have got to exist as much as possible in the real economy and as little as possible in the virtual economy.
Now, it’s not practical to say that you can totally exist away from the smoke and mirrors Wall Street economy, but we have got to take back control. That’s what this weekend is about. That’s what our philosophy is about. Take back control from any intermediary party as much as we possibly can, whether it be the financial services industry, Wall Street, the government.
Now, how do we do that? What is the government’s threat to our wealth? Well, certainly we depend on the government to create a stable society and that’s a good service the government provides. But the problem is the government is always looking for more ways to tax us because we can probably bank on forever they will never be responsible in their spending, which is actually a great opportunity for us as investors.
So life’s largest expense, taxes, most tax-favored asset class in America, income properties, that’s what the weekend is about. Central banks, central banks around the world have been working overtime lately. They have been pumping more money into the global economy than ever before in history. I’ll show you some charts in a minute that will blow your mind.
This is as of March, so this chart is a little out of date because a lot has happened since March, but just look at this. We’re all complaining about the U.S. stock market. It’s really better than a lot of other markets around the world. So the question is how little can I lose now versus how much can I make? That has changed a lot and you look around the world and you see that it’s a global problem. There’s no question about it.
We are talking about taking back control and control is my favorite part of our investment because you don’t leave yourself susceptible to counterparty risk very much. You don’t leave yourself susceptible to intermediary party risk, someone skimming all the money off the top, the executives, the boards of directors, the person who set up the fund or the LLC or the tenant-in-common deal or the REIT, the Real Estate Investment Trust. You’re a direct investor. You can manage your risk because you’re in control. You can make the decisions. You don’t have another party trying to make decisions that are not in alignment with your interests. You make them.
You have tax benefits, depreciation benefits, cash flow, mortgage payoff in two ways, not one. The tenant pays down your mortgage, but of course, inflation does, too, monetary inflation. Appreciation, the best inflation hedge in the world historically has been real estate. Leverage. I was at dinner the other night with a friend of mine and we were recounting Tony Robbins seminar. How many of you familiar with Tony Robbins? Did you ever see him do this? “Live with passion.”
Okay, here’s a new one. You ready? You gotta do this with me. “Live with leverage.” Leverage; leverage is what it’s all about. Leverage allows you to benefit dramatically from this totally irresponsible Central Banking practice that is going on around the world. Massive increase in the money supply that has never been seen before in history, it’s happening right under our noses. Every time you hear about a new bailout, a trillion here, a trillion there, believe me, the price of all these bailouts are totally underestimated. They will find ways to mismanage it and spend more. I promise, with history as our guide.
You get the double inflation arbitrage from your property investments. So the Chinese symbol for crisis is the same as opportunity. Literally translated, it means crisis is an opportunity riding the dangerous wind. Crisis is an opportunity riding the dangerous wind.
So let me just show you another little video here.
Commentator: At first, I was just curious. It seemed like such a strange encounter. A lone marathon runner and the unknowable reality of China. As I watched the man struggle against the ancient and mysterious power of the mountains and the Earth, I began to realize I was witness to something approaching truth.
Stan Cottrell: Have you ever just wanted something so bad and you just hoped and you believed and believed and just longed for something so long, and then all of a sudden, one day, it’s just reality. Well, in my life, on this very day, a very special dream, right now, is becoming reality.
Announcer: Today, we are very happy to have the famous runner, Mr. Stan Cottrell, to start this Great Friendship Run from the Great Wall in Beijing to Guangzhou. It is a very significant event. It will surely have help to promote the friendship and the cooperation between China and the United States.
Commentator: He decided to begin his run north of Beijing and run the length of China, about 2,000 miles, all the way to Guangzhou near the South China Sea. He would run approximately 40 miles a day for 53 days.
In the beginning, I watched the run as an incredible demonstration of physical prowess, torturous, almost impossible challenge to the human body. Then I became aware I was looking into the very heart of human achievement. As the man pushed himself onward, one by one, some very basic laws began to emerge, laws, which bind the human body and spirit into the most powerful force on Earth.
Stan Cottrell: Just tell me that I can’t get a hold of the end of the rainbow. You better put your seatbelts on and sit back in your chair because I ain’t gonna let loose until I got my arms firmly around the end of that rainbow.
Commentator: Stan Cottrell had a dream. He would run across China. There’s a legend here about the ancient boy, Li Bai. He dreamed of immortality and he believed if he could climb Taishan, the highest mountain in Eastern China, he could learn how to be an immortal. The remarkable thing about Li Bai was the audacity, the enormous proportion of his dream. Yet achievement is in direct proportion to the magnitude of the dream. If we are to do great things, we must dare to dream greathearted dreams.
Stan Cottrell: Don’t be afraid to step out and follow a dream that’s in your heart. Even if you fail, are you still not a better person because you tried?
Commentator: In the villages, there is an old folktale about the Rock and the Wren. The Rock was a great bird like an eagle. It soared through all the known and fabled regions of the universe. Someone mentioned to the Wren that the Rock can fly hundreds of miles without a halt. “You and I know very well,” said the Wren, “that such a thing is impossible. The farthest one can get is the elm tree over there.” And so the Wren never flew beyond the elm tree, simply because it was not familiar with the second important law of achievement. In every Wren, there is a potential eagle.
Stan Cottrell: Sometime it’s hard to reduce things to absolute principles, but I know you’ve got to have a dream. You have to visualize yourself doing what you dream. You’ve got to put yourself in a position where victory is possible. You’ve got to turn that dream and that potential into action. Take the first step. Not someday, but right now.
Commentator: For a few weeks, Stan Cottrell ran with a kind of easy and measured grace, but there came a time when the road grew longer and the hillside steeper and the pain more persistent, a time when it became more and more difficult to remember the power and the quality of the original dream. It’s a long struggle to clear away the dust of the road. A bone in his left foot was broken. His lower back was in constant torment. Later, he would learn two vertebrae in his back were broken and his body weight grew dangerously low and the cold winds cut to his heart. The vitamins were gone, the water foul to his taste, and he was not keeping the unfamiliar food down.
The runner was discovering another timeless law of human achievement. For every dream, there is a dragon.
Stan Cottrell: We always think about the pursuit of our dreams and the achievement of our goals in positive terms. We talk about possibility and promise, and we ignore the dark side. But the higher our dream, the more lofty our goals, the more powerful are the forces that would deny us both. It is like a dragon, but it’s not outside. It’s not the mountain or the cold or the distance. It’s inside. It’s part of us and it eats away at our heart and our resolve. I don’t know why it always takes us by surprise, but if you reach high enough, there will come a moment of truth, a time when you feel the breath of the dragon.
Commentator: There is a saying among the Chinese people that you can tame the dragon if you know its nature. And the weapon we can use is something known to Western runners and Eastern poets, a concept called the Law of Fire and Jade. It’s an awareness of the polarities that define the universe, the mating of opposites, the alternating mastery of sunshine and moonlight.
It was the knowledge of this principle that enabled Stan Cottrell to come back from apparent defeat and resume his run.
Stan Cottrell: When you run great distances, the demands on your body and your mind are incredible. Since you run every day, your body doesn’t have time to restore itself and your mind becomes preoccupied with the pain. And what happens is simply this: the fire goes out. It’s the same thing in life or business. In the beginning, the excitement and the acceleration of the dream keeps us going. We’re all energy and nerve ends. The problem is when the hard part comes, you have to keep the dream alive. Keep the fires kindled and this fire burns away the impurities of doubt and confusion and pain, but it also consumes energy, so you have to strike this medium. Keep the fire of enthusiasm burning, but on the other hand, maintain an even flow of emotional distribution. This is the cool side of the equation, the jade side.
Commentator: There was another thing about human achievement I learned from watching the runner’s encounter with China. It had to do with time and the impact of a person’s life on others. We often think of challenge and achievement as a personal thing and in a very real way, it’s true. Each of us has his run to make, no matter who we are or where we live our lives. Nobody can make our run for us.
But because time is a stream, touching all lives, everything we do impacts on the lives of others for all time. We wish to succeed, to achieve greatness. It’s a profoundly selfless concept. If a person fails, or even fails to try, there’s no change in the status quo. The world is denied a victory and the whole universe suffers for all eternity. But when a person succeeds, when a person lives his dream and achieves his potential, the whole world feels that victory and is changed forever.
Stan Cottrell: The most important thing I learned on the run had to do with my own motivation. I thought it was motivated by this dream I had to run across China. But when times got hard and it looked like I couldn’t go on, what really kept me going was my desire to make a difference in the world, to make my life impact in a positive way on the lives of others. I thought the run would bring the people of China and the people of America together, help create better understanding. Maybe the children I met would be the leaders of tomorrow and they would remember the American who had become their friend. Maybe the world would be a better place.
I think it’s true that a selfish dream won’t sustain when the going gets rough. But a dream that embraces the lives of others will endure anything the dragon can devise.
Commentator: The Chinese poet, Li Bai, dreamed of immortality. As I watched Stan Cottrell run across China and as I talked with him and shared his strange adventure, I began to realize that we too often spend our lives climbing the Taishan, running through the mountains, searching for those qualities of mind and body and spirit that would make us immortal. But the point and the runner teach us the greatest secrets the ages can offer. Those qualities we seek, those things that would help us reach the summit or complete the run or live more successful lives we already possess in abundance. We don’t have to seek them in the mountains or in the forest on the other side of the Earth. To achieve greatness, we must merely look inside and gather the gifts God has already placed there.
With these gifts, we are masters of the world around us. We can be anything we imagine, do anything we dream.
Jason Hartman: Good video, huh? It’s on our website, so you can look at it anytime. I first discovered that video about 1989 actually and I’ve been watching it ever since. I think it’s really interesting as an economic commentary to see how China has changed. That’s about 20 years old, that video now, so you look at the difference and you’re seeing a rather primitive China back then in just two short decades. It’s dramatically changed obviously.
So this is what the weekend is about. Again, I am an optimist. I think there are great opportunities that lie ahead of us and many people, given this market, will make absolute fortunes. Let’s be one of them. As far as the mortgage side goes and the debt side, again, this may be one of the best opportunities of our lifetime. With the inflation that we have coming at us, the monetary inflation – I’m going to make this distinction in just a moment – we are going to see, in my opinion, much higher interest rates in the future. We have to see them.
The one prediction I made that was wrong is I thought we’d have higher rates by now. But the mortgage meltdown was so severe and the derivatives meltdown, which is sort of the next one we’re moving into, is so severe that they’ve just pumped more money into the system and kept rates low, which is ridiculous.
Another thing that’s kind of interesting, and this is totally on a different subject for a moment, nuclear power. We hear candidates talking a lot about energy and America’s energy problem, and the rip off we’re probably getting from the oil companies. Oil is – what — $64.00 a barrel now? Just a few months ago, it was $147.00. The gas price didn’t get cut in half. I mean it’s interesting how that works.
But if you look at nuclear power, I think it is an indicator of the future. So here are the current nuclear power plants in operation and this is from the Nuclear Regulatory Commission website. Here are the applications filed for new ones. In my opinion, this is the site of the next American Industrial Revolution. As our dollar becomes weaker and weaker, industry, fortunately, one of the good parts of that is moving back to the U.S. to some extent. Not enough in my opinion. I wish it didn’t all go away in the first place because you need, for a solid economy, you need a good industrial base. I like industry, heavy industry, because it’s immobile. It doesn’t leave easily. It’s expensive to have it moved.
So we favor, in terms of investments, the Southeast and the Mid-Atlantic. Those are our favorites. We have a couple of exceptions. Our new market, Denver, which we are very excited about – our agent will talk to you about that this afternoon, Joe. There are a few exceptions to this, but it’s just interesting that you have all of this going on here. I mean the east is already very heavily populated, but these are bubble markets up here, or blue-collar markets, Rust Belt markets. One or the other; it depends. And the Mid-Atlantic and the Southeast, I think that’s where the action is. I think that, to some extent, is a predictor of the future.
Let’s talk about monetary inflation. The amount of money being pumped into the system right now, and really, since August of 2007, is beyond ridiculous. And it is going to filter down into our economy over the next couple of years, in my opinion, and we are going to see dramatic monetary inflation. The printing press is running at high speed.
Now, that’s a metaphor because printed money only accounts for about 5 percent of the money supply. Since the advent of computers, it’s really easy to create money now. All you have to do is push a couple buttons and click a mouse, send everybody a stimulus check. Where did that money come from? Just print a check and suddenly there’s money. Shazam, create it out of thin air, abracadabra. Good ole Helicopter Ben here destroying the value of the dollar.
But it’s really not as much his fault as it is Alan Greenspan’s. He just took the job at a really bad time. I mean, did Greenspan know when to retire or what? He probably was thinking after I run the dot com stocks up and stimulate the heck out of the stock market, I’ll just retire then. Leave on a high note like Jerry Seinfeld, nine years, the show’s really popular. Leave on a high. So that’s what Greenspan probably wanted to do, but then that bubble burst a little more quickly than he thought, so he thought I gotta create another one. How about real estate? How about pumping money, easy credit, into the real estate markets?
And so look at what happens here. This is the discount window. You’ve heard that term, the discount window. Basically, that’s just a credit facility the Federal Reserve uses to pump more money into the system. I mean straight up, in terms of credit being pumped into the economy. We’ve had this massive credit bubble. That’s really what burst. And the way to solve it – I guess firefighters do this from time to time. The fire will start, a brush fire will start, and the way they put the fire out is to start another fire from another place to burn up the fuel. Well, I guess that’s kind of our Federal Reserve’s policy, too, in a way.
So the credit bubble bursts, irresponsible borrowing, let’s just throw more money at it. So what this means to us is it means inflation. It means monetary inflation. But there’s some confusion about that, so we’ll talk about that in a moment.
But look at this interesting cycle, a year of monetary inflation being exported to other countries. Now, of course, it’s happening in the U.S. dramatically. U.S. extends credit on credit cards; people go use the ATM machine in their living room. I was talking about that in 2005 and 2004. Debt-based consumer spending, big box retail centers offering zero percent financing, big Asian trade gaps, where we’re importing a lot more than we’re exporting, U.S. deficits, Asians build factories. Japan even off-shores to China. I mean they’ve had a 16-year downturn in Japan, similar concept to what’s going on here.
U.S. direct investment in technology, a lot of that moves to Asia. Asia imports flood the U.S. market. Lower prices at Wal-Mart, lower prices at Target, every store, prices are cheap. It appears we have deflation and this cycle keeps repeating itself. But what happens when this part of the cycle stops? The whole thing tumbles, right? It’s a house of cards.
So here’s the confusion. I was at church a couple weeks ago and I ran into a buddy of mine, who is also one of our investors. And he has most of his money in the stock market. He’s very depressed right now. And I started talking to him and I talked to him about his property, and he says, you know, Jason, your whole argument, I’m not sure you’re right because you have banked on inflation and it appears that we’re having deflation.
But this is the problem. Most people, they can’t hold contrary ideas in their head at the same time. They’re seemingly contrary, but they’re not contrary at all. So here’s what he says to me. I said okay, well, tell me where there’s deflation. He says with the stock market, a lot of deflation. And then he says my house in Kalona Del Mar, deflation. But you have to parse this up. It’s not that simple.
And then I said well, let’s talk about your property in Houston that you bought from us. Deflation? He said no, it hasn’t gone down at all. In fact, it’s gone up just a little since I bought it from you. And I said, well, that’s interesting. And that’s because real estate is deflating. Land is deflation impacted right now significantly.
So those of you who have been to Creating Wealth, listened to the podcasts, you know our solution to this, right? Don’t buy land. In fact, buy as little land as possible when you buy something called real estate. We only want the real estate label on our investments because it entitles us to all sorts of great things. It gives us an e-ticket to tax benefits, leverage, double inflation arbitrage, all kinds of things.
But when we buy very cheap land and we mostly spend on improvements, the house sitting on the land, what is that made of? Labor, energy, commodities, building materials. Now, again, we’re about macro trends here. We’re not about micro trends. If you tell me, gee, Jason, the price of copper went down last week, I’m going to tell you I don’t care. The big trend is consumption around the world.
Now, granted, I’m going to be so crazy as to say to you that we have a global prosperity boom going on right now. And then you’re thinking, well, I just heard on CNBC that the global economy is cooling. Well, you’re right. That’s true. But it’s all relative. Compared to where the global economy was ten years ago, it is booming. There is a huge middle class population coming up around the world, in China, India, and now Brazil. Brazil is really moving. I mean that’s a big player, possibly the fastest growing economy in the world this year. A big economy, too.
So the big macro trend, don’t be deceived by small trends. Small trends are very misleading. The big macro trend, I’m going to be so bullish as to say that we are in a global prosperity boom. I don’t care what happened last month. I showed you that map of stock markets around the world being down. Consumption is cooling compared to where it was a year ago. But so what? The fact is people around the world are enjoying better lives than they were 10, 20, 30, 40 years ago, for sure. There is no question about that.
It means consumption, consumption, consumption, and as you know, most of you, we are a big bull, a big proponent of what we call packed commodities investing. Investing in the raw materials, the sticks and the bricks, the energy of improvements, of packaged commodities sitting on really cheap land, and the really cheap land is our entrée to the special unique characteristics of an investment called real estate.
So we’re focusing on the improvements, not the land. Land is deflationary, so don’t buy it. If you have to buy a little bit of it with your investment to call it real estate, that’s what I suggest you do. The land value in our investments for a single-family house is $20,000.00 – $30,000.00. Where’s the overall value? It’s $182,000.00 – $200,000.00. So it’s mostly improvement. It’s mostly packaged commodities sitting on very cheap land. The printing press is working. This stuff is becoming more meaningless every hour, every day, every week, every month, and every year. In the Weimar Republic in Germany, pre-World War II Germany, post-World War I Germany, if you type in Weimar Republic or if you type in inflation on Wikipedia, you will see this great picture of a woman taking money, taking their dollar bills – I don’t know what their currency was called – and loading into a furnace to burn them because it was cheaper to do that than to go and trade that money for wood. It’s cheaper to just burn the money. Think about that.
The dollar is fake. It’s part of the virtual economy. It’s part of the smoke and mirrors economy. It doesn’t work. It’s a scam. What is real is the fact that people need a place to live. That’s the real economy. What is real is if I buy something from you and you sell it to me, that’s commerce. That’s the real economy. I like the real economy. The real economy is actually surprisingly healthy right now. You engage in it every day. Get as much of your wealth away from the virtual economy as possible. That is where the danger lies, in the virtual economy.
Now, the virtual economy has so many proponents and so many very, very smart people promoting it. You open this magazine, you read the articles, you look at the ads. These ads are done by multi-zillion dollar ad agencies. They make you feel confident. We make money the old-fashioned way. We steal it from shareholders. That’s what Wall Street does. It separates people from their money. They’re very good at it.
So printing press is working overtime. You want a couple predictions? It was on KABC about three weeks ago. On October 3, I was on the radio and I predicted on the air that the DOW would hit 8,000 and when I got home and checked my email, I got a very nasty email from someone, probably part of the vast Wall Street conspiracy, who said who would listen to you? Who would trust you? Six days later, the DOW dipped below 8,000. Six days. I hate to make this prediction because I do own stock. DOW 6,000, I think it’s going to happen.
Bubble markets, bubble real estate markets. Another 10, maybe even 15 percent decline over the next year. Solid markets, flat or a little bit of appreciation. Because the land is cheap, the deflationary part of the equation is small. The packaged commodities part of the equation is big and the macro trend is consumption and increased prices.
Consumer prices, up, up, up. Things are going to get a lot more expensive. That’s bad news. The standard of living for millions, if not tens of millions of Americans, is going to decline. As you rent your houses to people, you’re going to hear stories – I just say this as almost a metaphor because I don’t talk to my tenants; I have managers that manage all the properties – but if you did talk to your tenants, you’re going to hear stories like this. You know we used to live in a really big house. I used to live alone, not have roommates. Single people, it will be a status symbol in the next several years to live by yourself, if you’re single because so few people will be doing it.
People will be doubling up. People will be living in smaller houses. They will be downsizing. The standard of living will decline, but not for us because what we’re going to do is we’re going to game the system and we’re going to beat them at their own game. We’re going to use the same techniques that Wall Street uses, that Central Banks use, and we’re going to get a big break on taxes because we invest in the most tax-favored asset in America.
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.
Hey, I just wanted to announce a couple of quick things for you. If you are able to come to one of our live events, we would love to see you and meet you in person. We’ve had people fly in from all over the U.S. for them. So hopefully you can join us for some of those events.
I wanted to mention to you that we have a new offering, a free CD, a free audio CD, that you will really, really like. We’ve had so many people that have given us really good comments about them, and you can go to our website at www.jasonhartman.com and just fill out a little quick web form and you can either download it or you can have the physical CD mailed to you in the postal mail. But get the free CD, especially if you are a new listener. You need this. And if you are a regular listener and you’ve listened to all the other old shows, you don’t need the CD so much, but it will be a nice review for you either way. But if you’re a new listener, you definitely want to go to www.jasonhartman.com and request the free CD.
Remember that Platinum Properties Investor Network has moved. We are in our beautiful new office in Costa Mesa, California, 555 Anton, Suite 150, in Costa Mesa, California, 92626, and we’re right by world-famous South Coast Plazas. So come in for a visit and a little shopping.
Also, we just uploaded another video podcast and I’d highly recommend that you subscribe to that. There’s some stuff that just lends itself better to video than audio. If you want to see what’s on that, subscribe to it, you can go to www.jasonhartman.com. If you use iTunes or an iPod and you’re an Apple person, then you can go to the iTunes Store, type in Jason Hartman, and two podcasts will come up, the video podcast and the audio podcast. And you’re probably already, if you’re listening, a subscriber to the audio podcast, so make sure you get yourself a free subscription to the video podcast as well.
And this particular one that we just loaded in the video podcast is about Naked Short Sales and what goes on with this short sale and manipulation of the stock market. It’s a very interesting report from Bloomberg News and I think you’ll really learn a lot from that. So be sure to tune in and watch that.
Be sure to see appropriate disclaimers and disclosures on our website at www.jasonhartman.com. Remember that we are not tax or legal advisors.
Anyway, we’ll talk to you next week. Thanks for listening.
This material is the copyrighted creative work of either Jason Hartman, the Hartman Media Company, Platinum Properties Investor Network, Incorporated or the J. Hartman Company, all rights reserved.
[End of Audio]
Duration: 65 minutes