What are the best inflation moves you can do right now as an investor?
To answer this, we bring together three experts to address the pressing questions of the financial landscape.
Jason Hartman is a seasoned real estate expert with extensive experience in thousands of real estate transactions across 11 states and 17 cities. His expertise lies in helping individuals achieve the American Dream of financial freedom through prudent income property investments. Today, he shares insights on navigating the ever-changing real estate market in the face of inflation.
Joe Brown, the dynamic force behind Heresy Financial, is an entrepreneur, public speaker, and investor dedicated to demystifying the intricacies of the financial system. His mission is to empower millions with the keys to financial success. In this episode, Joe unveils strategies for investors to thrive amidst inflation, drawing on his extensive knowledge and experience.
Chris Martenson, a scientist turned financial expert with a PhD in pathology from Duke University, is the co-founder of PeakProsperity.com. Chris has been a beacon of knowledge, educating millions on the risks inherent in our economy, energy, and environment systems.
In this episode, our panel sheds light on the nuanced interplay between the Federal Reserve’s balance sheet, inflation, and the strategies investors can employ to navigate these turbulent times, the FED’s Reverse Repo Facility, investing for resilience and protection, strategies for risk management, and insights into the debt super cycle and its consequences. The experts also delve into the real estate landscape in light of the current debt situation, providing valuable guidance on navigating the housing market amidst the super cycle.
Tune in as they unravel the complexities of inflation and rising interest rates, offering practical strategies for controlling debt and making informed investment decisions. Discover the significance of active investing, the role of cash reserves, and gain insights into securing your financial future.
This is an episode you won’t want to miss, Join us now for a thought-provoking discussion on investing in the era of inflation, and learn the best moves you can make as an investor in these challenging times!
Get my new book: https://bronsonequity.com/fireyourself
Full Transcript:
Bronson Hill: This is your best inflation moves right now.
What is the best move you can make right now? You know, a lot of investors are concerned because in real estate deals, particularly multifamily deals, if you’re doing anything value add, some things are struggling. Inflation is officially 3-4%, unofficially it could be 7-8-9%, could be much, much higher.
What do you do with your money? Do you sit on cash? Do you invest it?
What do you invest in? We’re not giving you any specific advice of what you should do, but when you get really smart people in the room, and you’re able to have a conversation about it, it can be super powerful. So I’m going to do a quick intro for our panelists.
Jason will be joining us here in a minute. We’re going to go for about 30-40 minutes, then we’re going to take some questions. So if you have burning questions, you want to ask these awesome smart dudes, you know, feel free to save those, you can put them in the chat, but we’re going to go over them at the end.
Also, this will be available, will be emailed to you as a replay. And it’s really exciting again for this event. So again, my name is Bronson Hill, I’m the CEO of Bronson Equity.
We’ve got about 200 million in multifamily assets. We’re also doing alternatives to real estate, such as ATM machines, car washes, oil and gas deals, things that cash flow really well, and provide an inflation hedge. So let’s get in.
I’ll introduce our panelists here. We’ve got, joining us from Phoenix, Arizona, we’ve got Joe Brown with Heresy Financial. Welcome, Joe.
We also have the same barber, so it’s really good to have you in the house. And we have Chris Martinson, I believe your camera and your mic is off there. He’s with Peak Prosperity, he’s going to be joining us here.
And he’s coming in from outside of Boston area, I was actually on his farm a couple months ago for a sustainability, like a homesteading event. It was really awesome. So Chris, are you there?
I am, I’m here. Can you hear me? I can hear you.
I can’t see you, but I can hear your voice.
Chris Martenson: I’ll keep working on that. I don’t know what’s going on. Give me a second.
Bronson Hill: It’s okay. It’s no worries. Great hearing your voice, man.
It’s great to have you here today. And then we will have Jason Hartman joining us as well. He is with the Empowered Investor.
Again, he is in the Bahamas doing some international work. He’ll tell us some more about that when he’s able to join. And we’re going to get in.
So let’s just kind of start and just jump right in and we’ll kind of go back and forth here and then kind of see where we’re at. So Joe, why don’t you give us a little picture of what you’re seeing right now in the economy. I know you do a lot of work with your channel.
It’s an awesome YouTube channel, Heresy Financial. Talk to us about some trends that you’re seeing and that investors should pay attention to when it comes to what’s happening right now in the economics and the political and just the overall situation.
Joe Brown: Yeah, yeah, absolutely. So I think moving into the end of this year and the beginning of of 2024 specifically, we have we have a big battle going on between the Federal Reserve and the government. So that’s monetary policy and fiscal policy.
And so just for some context, everybody knows rates have been going up. The Fed has been doing that to try and fight inflation, that it’s actually been made more difficult by what the federal government is doing. So if you watch the watch the debt, watch the deficit, those are all skyrocketing really quickly right now.
So just the interest payments on the national debt are above a trillion dollars now. The of the national debt by the end of 2024, about half of that debt is maturing. So about 16 trillion dollars worth.
And so that will all have to be rolled over. That was all borrowed at like, you know, one, two, three percent interest rates. And now they’re having to roll that over into five, potentially six percent interest rate debt.
And so the by the end of 2024, it’ll probably be one point two trillion dollars that the government spending just on interest on the national debt, which for context, the deficit, the total deficit was like one point seven trillion in twenty twenty three. And so it’s a massive, massive number just to pay on the interest. And so that’s a snake eating itself by the tail.
They have to borrow more and more because they borrowed so much. You know, it’s balance transfers on a credit card, you know, going from zero percent to one percent to two percent. You know, you get to the you know, you get to a point where that just doesn’t become possible anymore, where they try to borrow and there’s no more money left to borrow.
So the question is, what’s the Fed going to do? And obviously, they have paused raising interest rates right now. But really, the only long term solution to the government’s problem, if they don’t want to default, they have to be able to borrow at lower rates.
And the Fed has to lower rates to do that. But we still got inflation. And that’s the job given to them by Congress.
So are they going to keep on fighting inflation and keep interest rates high? Or are they going to reignite inflation to try and bail out the government? And so that’s a big battle that we’ll have to wait to see how that unfolds.
Bronson Hill: Yeah, I know that is that it’s a big tension, right? They have mandates of fighting inflation and keeping employment high. But it’s hard because, you know, if if the economy is strong, then inflation continues to go up.
So they have this rustle. And of course, with the debt situation, the higher the interest rate, maybe you’re fighting inflation, but it just gets to be an unaffordability issue for the paying the debt. Chris, I know we can hear you.
We can’t see you. But the voice of Chris is is a great voice we will take. So give us your thoughts.
What are you what are you seeing? And what are some things that you’re following and you’re keeping an eye on?
Chris Martenson: Well, sorry for the for the video miss, trust me, I look great.
Bronson Hill: OK, I’m just looking. I’m sure you always look great.
Chris Martenson: No, I agree with a lot of what Joe’s saying. I mean, obviously, we’re all tracking the same things. We’re watching the Federal Reserve, when are they going to have to pivot back?
They’ve been very dutifully walking their balance sheet down. They’re almost a trillion dollars down from their high of closing in on just a whisker shy of nine trillion dollars. They were at eight point nine six ish.
And they’re down under under eight now. So, gosh, you know, the correlation between financial assets, stocks and bonds and Fed balance sheets or central bank balance sheets has been stupid high for for all of our our lives. And so I’m really looking for that to begin making some cracking sounds.
And of course, we’ve seen that obviously, you know, commercial in places like that. I think the Fed’s going to keep going till they get something certifiably that they’re looking for. Inflation has been more stubborn than they want it to be.
I know they have their official statistic, but unofficially, they also have to track finger to the air. We know that unofficially out here in the real world, things are a little tight. You know, my my partner, Evie, comes back from the grocery store looking white, you know, as a sheet with with bags that cost one hundred dollars each, you know, and and we’re not eating, you know, super special anymore, you know, nothing like that.
So I think the Fed has a problem on its hands. And it’s looking for a reason to pivot again. And we’re all waiting for that moment.
But how bad do things actually have to get for them to do that? The stock market has remained stubbornly high. It’s really riding on just a few big shares.
Seven seven issues are really holding the whole thing up mostly. It’s coming in an election year, so they have a pressure to, you know, make things easy again. But I’m taking Jay Powell at his word first fed chairman in my adult lifetime who I’m going to take it word at their word.
And he’s going to keep going till they see something that they’re looking for. And I’m not clear what that is. But we’re watching a lot of creaking and popping sounds.
Obviously, treasuries are beginning to trade like a penny stock here and there, you know, big move down and yields just this past few days. And that volatility contributes to something called the move index, which I first learned about from Daniel DiMartino Booth. And if you look at that, there’s a lot of volatility out there that’s going to eventually I think that creaking and popping sound turns into a little bit of a flushing sound at some point.
And that’s what I’m watching.
Bronson Hill: Yeah, I know it does seem like there’s this consensus, I think, for a couple of years now from a lot of smart people that the Fed’s going to keep going until something breaks. And we’ve watched it, for those that have been in value had multifamily stuff that has been a very in favor asset. It’s kind of moved out of favor because of just the debt situation.
You know, the new buyers are having trouble coming in to be able to afford. And we’re very hopeful that the rates are going to drop. It seems Powell is very, you know, really admires Paul Volcker just that to be able to bring, you know, bring inflation down.
But, Joe, what I mean, do you think it’s possible? I mean, I think there’s a point where Volcker, the former Fed of the former chair of the Fed had said, when he in the 80s, when he brought it down that he was looking at the situation now with all the debt that’s in the system, that it’s really not possible to have rates high for too long. And you kind of brought it up with your point to that the debt payments just get too big and it’s a snake eating its own tail.
So what do you see the next 12 months? I mean, with an election year, are rates do you think they are going to drop or do you think they’re going to kind of just keep them where they’re at or some crisis right around the corner? Obviously, we don’t know.
And we know it’s a crystal ball. But what are some things that you like some outcomes you could see happening?
Joe Brown: Yeah, OK, so let’s talk about election year rates and recessions and the reverse repo facility. That’s a big big one that I think goes look that’s looked over overlooked many times. So the last I think it’s two or three major market crashes have happened prior like like election years.
So, yes, the incumbent may not want that to happen, but that doesn’t always prevent it. Number two, if you look at the chart of the federal funds rate, like when the feds raises and lowers interest rates, the recessions, the gray bars are always preceded by rates being lowered. And so we’re not going to be in this situation where and we never have for the last since 1980, where, oh, the Fed pivoted.
They lowered rates. Therefore, everything is great. It’s like, no, historically, that’s actually a really bad sign.
That would indicate that the recession is right around the corner. And so and so there’s there’s definitely that to that to consider. The in terms of like, you know, how long can this tension last?
The the the reverse repo facility is a major thing that people need to look at. So when what I’m going to explain this very briefly, if you want, we can go go deeper into it. The Federal Reserve has an account they call the reverse repo facility.
That’s where financial institutions can part cash in exchange for collateral. And they get paid right now five point three percent from the Fed. The Federal Reserve is the only place that you can get risk free return because they’re literally the money printer.
So even if you give money to the government by buying a treasury, there’s still a chance of default, right? Federal Reserve just prints by typing letters on keyboard. They can’t default.
So it’s risk free, five point three percent. So up until April of this year, that account, that facility had balloons to two point three trillion dollars because of all the money printing and all the spending. There was so much cash floating, floating around in system that it got sucked in there because it was like, you know, risk free.
We’ll get paid a little bit more than the Federal Reserve’s Fed funds rate by parking our funds in there. So right now, there’s only a trillion dollars in there. So from April of this year to right now, a trillion over a trillion dollars has left that facility.
So you ask, why would money leave that facility if it was getting five point three percent risk free? Where’s it going? It’s going into T-bills because T-bills are five and a half percent or so right now.
So, yes, there’s some additional risk. There’s some, you know, you have to wait four weeks or eight weeks for your money to mature, but it’s a little bit better than five point three percent. So it attracts some of that money out.
The government knows this. The government knows that there’s now still a trillion dollars that will be willing to be lent out to the government if that rate is right. And so the government can borrow at the short end of the curve as much as they want until that reverse repo facility is empty.
Once that reverse repo facility is empty, there’s no more slush fund there. So the government is leaning on this federal. Janet Young, the Treasury just released there.
It’s called the the quarterly refunding statement, I believe. And it showed where they were going to lean on the curve for their future borrowing plans. They’re leaning at the short end of the curve like a lot right now, because they could borrow a trillion dollars right now at five and a half percent because there’s enough money there that that brings up in about six months, it’ll be drained at the current rate.
And so at that point, then they can’t lean on the short curve. They’ll probably have to be more on the long end of the curve. And there’s not a lot of money to be borrowed after that.
So right now, I think rates probably pretty steady until the reverse repo facility is drained. Once it’s drained, then it’s like, who knows where the money is coming from? Rates could go much higher from there.
Bronson Hill: Yeah, absolutely. Yeah, it’s interesting to see, Chris, what do you I know you’re really paying attention to this as well. What are your thoughts on obviously an election year and rates where are they headed?
And obviously, this has a significant impact on on real estate and a lot of different assets. What’s your opinion on the next 12 months?
Chris Martenson: Well, to Joe’s point, I’m going to take the middle of this story. I want to talk about the two year rate real quick, because that’s the actual preferred rate I follow if I’m going to figure out where the Fed’s going to go. I believe that the Fed follows the market.
It doesn’t lead. So if you pull up another chart, go to the Fred St. Louis site. I love the site.
It’s good. It’s one of the good things the Federal Reserve does manage that site. But if you look at the effective Fed fund rate, that’s what they say they’re doing.
You know, we’re raising rates, we’re lowering rates. And you compare that to the two year Treasury rate. You find that the two year Treasury for the past 30 years, three decades is always led what the Fed funds rate is doing.
So I kind of look to it for my early clues. And there is a clue there, I think, for people. It topped out at five point two one percent back there in early October.
And right now it’s at 493. May not sound like a lot, but we’re talking 28 basis points. It’s down a quarter while the Fed is holding steady.
And I don’t know if this is the two year leading. It’s sometimes, it could get goes up and down things gyrate. But I am looking at this as a possible early clue.
Again, why? Same reason Joe said that when when you finally start to see the cutting, that’s when the carnage actually starts. So anybody who wants an early clue, just keep your eye on the two year rate.
I think it does provide that. So I am looking for this next year. I am looking for a recession to come.
No, I don’t really believe in the soft landing idea. I’m going to wait and see on that. I’m tracking all kinds of difficulty out there in the real world, whether it’s from Marisk and all the shipping containers, whether looking at the price of oil, Dr. Copper, also all suggesting weakness at this stage. And as well, better than I do what’s going on out there on the commercial side and for a lot of folks out there. So the warning signs are there. And again, just watch the two year.
If this is a real sustained move down, it gives you it gives you anywhere from a couple of weeks to a couple of months head start on the story.
Joe Brown: I was just Chris, I just I pulled those up on the same chart. You want you want me to share my screen so we can see this.
Bronson Hill: Go ahead.
Chris Martenson: Great. So notice that that red line, that’s all the red line would be the effective Feds fund rate. And just notice that all those candlesticks note when they go up.
Right. Pick any one of those series. You’ll see that they typically start moving up.
And then some number of months later, the Fed funds rate follows it along. And similarly, on the down cycle, you’ll see the two year make bust the move first and then the Fed’s fund rate will end up following that. And if you overlaid the gray recession bars on here, you would which may not be possible in this program, but you would see the correlation there.
It’s pretty tight.
Bronson Hill: That’s that’s cool for those that aren’t aren’t chartists. That’s a great, great chart to see. I was just actually recently, about a month ago, I was with Chris on his farm in about two hours west of Boston, two and a half hours west of Boston, having an event there, honey badger event about sustainability and and becoming resilient.
That was that was quite a bit because why don’t you just tell people for a minute to the side note what what your event was about and kind of being prepared for different scenarios of that was really cool event.
Chris Martenson: Well, yeah, thanks. I’ve been doing this for about 15 years. I’ve got a reasonable following of people who see the world kind of the same way, which is, we’re going to play the game and be smart with our money and do all kinds of things.
But we’re just going to some of us want to be a little extra resilient just in case. And for us, for my partner and I, that means, we’ve got some cows and chickens and a garden and things like that. It’s a beautiful lifestyle.
I like living this way anyway. But I do believe in being resilient, which for me means being rich in eight different forms of capital, having financial capital. That’s the foundation of it all getting to financial freedom, which you help people get towards.
That’s that’s the beginning of it, because if you don’t have financial freedom, a lot of other things get a lot more difficult. But there’s also social capital being rich in that very important emotional capital and spiritual capital. Very important because you don’t want to fall apart.
You know, when things get a little tight, you want to actually be a smooth operator in those moments. And we also talk about material capital. A lot of times when I talk about becoming prepared, people go, oh, is this about getting some beans in the basement?
I’m like, well, sure. But actually, it’s a lot more than that. It’s it’s about having the skills and the knowledge to know how to use the things that you might need to use around your house.
It’s investing in your own homestead. We just were two days into having our new solar system activated here, which I think you saw getting it was half installed when you showed up here, Bronson. So that finally got got in.
And I’m glad for that because it was it’s expensive. And it took we signed the contract to put that in 14 months ago. It’s just how long it took with the capacity issues in the in the industry in this part of the world.
So that would be an example as well of material capital that we’re putting in just so, you know, it’s good to have with a little battery backup, have the capability of not being without electricity under various scenarios. So that’s what we do. And, we talk about other forms of capital as well.
I won’t go through all of them now, but but that’s that’s my work in the world.
Bronson Hill: Yeah, I know. It’s really wonderful to be prepared. I’ve made some changes in my own life and have a solar generator now and some other things, which just in case, you know, we have I mean, there’s, of course, living in L.A., it’s a little challenging. But let’s talk kind of on that vein about being prepared. What do you see? You know, this is kind of why people are here, you know, as far as investing.
What are the best moves that you see right now, either and you can say, hey, here’s some good ideas or here’s what I’m doing personally. And obviously, you’re not endorsing any or giving any specific advice. But, Joe, why don’t you start just maybe talk about some things that you’re looking at, some things you’re doing or some things that people should look at right now with the different forces and having the data that you have.
Joe Brown: Yeah, so it depends on, the level of wealth. If we’re talking about if we’re talking about, just barely starting out, I think that we always have to look at things from the standpoint of protecting your downside risks first before you’re betting on the upside, right? Because you might be you might win the lottery and if you die the next day, you know, that that doesn’t matter.
Right. And so we want to we want to protect our downside risks first. And then that allows us to enjoy any potential upside that we that we happen to run into.
So I am a huge fan of, you know, you know, the the the prepper stuff. I probably so we that I think about the idea of like the pencil, the Adam Smith pencil that like or pen nobody knows, nobody on Earth can make one like to be able to get the rubber for the eraser and the metal and the wood and the graphite and everything and the paint. It’s like the amount of steps and people involved in something that’s just that simple is is really is really beyond any single person’s ability.
And that’s not to say that nobody could survive on their own. Obviously, people have done that throughout all of human history. But it is to say that the more like cooperation and freedom that we can we can have with voluntary exchange, the better off everybody is.
And so when I when I look at things like I like personally, the the the food storage and the water storage and things like that that I do, I’m looking at that more from an emergency standpoint, because at this point, if we were in a truly, zombie apocalypse situation, I would not be able to survive that. So my my my backup plan is, you know, I’ve got to be able to escape that because throughout all of human history, there’s always been somewhere somewhere better you can go. And for the last couple hundred years, that’s been America.
That’s why we have a growing population. We have a birth rate that’s below the replacement level. But we have a growing population because of immigration.
And it’s been that way for 50 years. And before that, we had still had tons of immigration because we were the best place on earth to go. And the worse one place gets, the more opportunity that has for other places to become more and more attractive.
And so having a plan B, whether it’s a residency or a second passport, things like that, which you can are not actually as unachievable as many people would think. I think I think things like that are protecting, protecting your downside. It’s important to do that with your portfolio as well.
Learning things like basic options trading so that you can hedge a portfolio instead of just, you know, you’re in the 6040 passive index funds. And if everything collapses like, oh, well, like I’m going to guess I’m going to have to hold that comes back some day and I can’t retire for another 10 years now, like is the situation that most people are going to be in. And then from there, I think tactically allocating your portfolio in a way that makes sense for the coming years and decades is something that you do after all of that.
And so if you haven’t covered all those bases, then I wouldn’t be trying to position yourself to take advantage of the years, potentially decades long, uranium bull market that I think that we’ve just begun or or even just the broader commodity cycle in general, we’re looking at different developing markets like Brazil that are poised to do fantastic versus other countries. So I would I would do those other things first, but then take a look at some of those tactical opportunities with a portion of my portfolio in order to bet on the bet on the upside from there.
Bronson Hill: It looks like you got a stack of gold bars in the background there, too. So you can always buy physical metals and right.
Joe Brown: Yeah, I mean, just for anybody, that’s a thing. That’d be about 10 to 12 million dollars. So that’s just a prop.
Bronson Hill: How many Joe Browns are there in Arizona? I’m just kidding. Yeah, that’d be awesome.
On a side note here, I wanted to share. I just released my first full-length book last week, and it’s called Fire Yourself. You guys are able to see this is it here.
So we just released it, 214 pages. Super excited about it. And I’m just going to stick something in the chat for you, too.
Just talked about replacing your working income with passive income in three years or less. It’s got a forward by Ken McElroy, who’s a good friend, who’s been on this these panels before. And so I’ll stick that in the chat for you, Chris.
Why don’t you talk a little bit about what you see as some of the best opportunities right now for investing? And just when it comes to, you know, the different forms of capital, as far as, you know, where would you where are you putting resources into or what are the opportunities you’re seeing that are coming available?
Chris Martenson: Well, sure, I agree with a lot of what Joe has said here. And I’m again, this is none of this is investment advice purely for an educational standpoint. I’m highly defensive right now.
I like cash. I like cash and treasuries. I think there’s better prices for all kinds of things coming soon.
And as soon six months as a 12 months, I do believe there’s going to be another adventure out there. I do believe in my heart of hearts, the Fed’s going to open up the spigots and print again again. I’m tracking the balance sheet.
The interest rates less important to me that they set, because in 2008 and prior, it was actually important what the interest rate was because it’s a little wonky. But the mechanism used to be the Fed doesn’t have a magic dial and it sets the rate. What it has to do is go into the bank overnight lending structure and either add cash or remove cash.
And if it’s taking cash out of the system, the interest rate tends to float up towards its target and vice versa. They push cash back in and push it back down. These days, they do just set it and forget it.
They have this easy-bake thing called interest on excess reserve. So they just they do that. So it’s it’s less important what is actually happening with the interest rate because it doesn’t tell you what’s happening to the overall liquidity condition anymore.
It used to tell you things are getting tighter. There’s less cash out there or there’s more cash out there. So now I just tracked the Fed balance sheet.
It comes out on Wednesdays. I’m watching which way is it going? And I do believe they’re gonna reverse course on it.
Remember in March of 23, we had this regional bank thing and the Fed expanded its balance sheet by $400 billion in two weeks. It was very predictable. What was gonna happen right after that?
It was astonishing. I mean back, I’m old enough. I remember when if they put a billion in in a week, people would start complaining.
This was astonishing. So I know that they’re gonna do that. And the reason is I think so from a longer term, I’m not a good short term trader.
I’m a much better long term kind of guy. And I’m gonna quote here from Ludwig von Mises. I do believe the Austrians got a bunch of stuff right.
This I believe is correct. Ludwig said, quote, there is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come about sooner as a result of voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved, end quote.
I believe that we’re addicted to debt. We’re on a debt super cycle. It began somewhere around August 15, 1971.
They’ve done everything to keep the debt super cycle expanding. If I had the capability to pull a chart up right now, I would just show you overall total credit market debt in the US compared to GDP. That’s the debt compared to the income of the nation.
One of these has been growing at twice the rate of the other. That’s just a math problem. I believe we’re coming in on the end of the debt super cycle, which is a fancy way of saying, we’re about to lose our fascination with paper and financialization or about to get back to real things.
My model for that is say Austria 1918 to 1923, the famous Weimar inflation. Yeah, they write about that. They’re like, oh gosh, so much wealth got destroyed.
It’s awful. People just suffered. The wealth of the nation was ruined.
Well, no, nothing happened to the wealth of the nation. Zero, still the same amount of arable acres of land, hotels, factories, cars, that didn’t change. But what did change was who owned it.
And so the key when you come into the end of a debt cycle is to make sure that you’re on the right side of that dividing line. For me, that means I like owning trees, rocks, really productive real estate, gold, silver, uranium, oil, things like that. That’s my preferred simplistic way to figure out how to navigate the end of a debt cycle.
But this one is the granddaddy of all debt cycles. So it could take a while to play out.
Bronson Hill: Yeah, how long do you think, I mean, just briefly, I love each of you to answer, how long do you think that is gonna take? I guess that’s the million dollar question, right? Is that, I guess it all depends right on the actions, but we’re kind of down a path now where there’s really no returning, it seems like.
And so is it a year or two down the road or is this like 20 plus years down the road where people are like banning the dollar or going back to hard assets or finding alternative currencies? Or what do you foresee, Chris?
Chris Martenson: Well, I mean, barring some event, that makes you put an asterisk at the end of a sentence, right? I don’t know, Middle East blows up or something. Forget that, just the way it’s playing out, I get in this argument all the time, so it’s gonna take longer than most people think.
There’s a lot of inertia in the system. You gotta keep playing the game because, hey, time is marching on. And the Fed balance sheet, well, it doubled because of COVID from four and a half to nearly nine trillion.
Oh, they couldn’t double it again, could they? Of course they could. There’s nothing to stop it from going to 200 trillion.
I mean, just pick a number. It’s just digits, right? So the question really is, what could cause it to devolve between here and there?
And the only forcing function, Bronson, I can think of is that somehow our international partners no longer want our debts externally. They just don’t want treasury bills anymore. And so what’s been fascinating this year is watching the big three are all, not just wobbling down, but wobbling down hard.
Japan is dishorting their treasuries mostly to defend their currency, I get it, but they’re not accumulating. They’re dishorting China big time, getting rid of its treasuries, pick your favorite reason why. In Saudi Arabia, same thing.
We know Russia dumped theirs in 2018. So it’s getting a little bit trickier. And I liked how Joe brought up the idea that there’s that overnight repo facility sitting there with a lot of giving it some buffer in the system.
But beyond that, we have to begin wondering who externally, how many people out there, how many countries are gonna keep absorbing this? Because if they don’t, this will get away from us. And to put a timeframe on it, 2033, congressional budget office gave us a really nice report in December of 22, telling us thankfully that, finally they admitted it, social security is broke.
It’s out of its special treasury obligation holdings by 2033. And somewhere between here and there, we’re gonna have to make some either really big, ugly, what I’ll call austerity decisions as a nation, or they’re just gonna print more and hope for the best. And I kind of think that’s the direction we’re going.
Bronson Hill: Gonna print more, absolutely. Say we have Jason Hartman in the house. So Jason, welcome.
I muted you for a sec there, just so it gives you some background noise. Can you just, we’re just getting into, we’ve been chatting about investment choices, the debt. I want you to weigh in to real estate.
Talk about what’s happening in real estate. And obviously I know in your business, you guys are doing a lot of single family. Obviously the debt situation has affected everybody.
So what do you foresee as far as, is real estate a good option to consider now? And obviously that’s a very broad question, or maybe a better question is, what parts of real estate are good to consider right now? And welcome by the way.
Jason Hartman: Yeah, thanks Bronson. We are hosting an event here in Nassau in the Bahamas. And it’s, I wish I could show it to you, but it’s too noisy over there.
So I ducked out to jump on with you. So I appreciate you having me. And the real estate market just continues to surprise everyone but me.
And I’m gonna take huge credit and pat myself on the back. And Joe, I see you smiling. Because I predicted that it would hold up this well.
And I think the key thing that so many people fail to understand is the idea and everybody listening and certainly everybody on the panel is very familiar with how the bond market works. And I kind of compare it to the situation in real estate because all of these cheap mortgages, we’ve got about 140 million housing units in the country. And 65% of them have a mortgage at or below 4%.
These people are extremely comfortable. They are not under financial stress. A tiny little percentage of the properties are underwater compared to during the Great Recession, many, many more were underwater.
In fact, more than 13 times the amount we have now. People have lots of equity and 42% of the country has no mortgage at all. But for those who do have mortgages, the higher the interest rates go on new mortgages, the more valuable all the existing cheap mortgages become.
Think of it like the bond market. When interest rates go up, bond values go down. When bond values rally, interest rates go up, right?
Or down, sorry. So they’re these opposite things, right? And so that’s kind of the situation that I think people didn’t understand in when they made the predictions about how the market would crash and so forth.
And so we have this situation where people look at what’s happening now where housing affordability is the worst it’s been in four decades, it’s terrible, okay? And they think, oh, that will cause a market crash. But what they should be considering is that only about four or five million people have purchased homes during that higher rate environment.
135 million people are incredibly fortunate. They’ve either got no mortgage or they’ve got a low rate mortgage. And so they’re holding tight.
And that’s why inventory is still so low. It’s less than half of what it should be to be considered normal. It has gone up a little bit though recently.
And some are saying, hey, maybe finally the real estate market is cracking under the pressure of these very high rates, but we’re still a long way away from even normal inventory levels.
Bronson Hill: Yeah, it’s interesting to see how it’s gonna play out because unless rates really come down significantly, there’s no incentive. They’re saying it’s, I think it’s the hardest time to buy a house compared to renting than it has been for 40 or 50 years just because of the interest cost. It’s so much higher.
And so it’s, if you have a lower rate, why would you sell? I mean, why wouldn’t you just rent the house and go move somewhere else and things like that? Joe, why don’t you chime in here?
There’s a lot was said both from Chris and from Jason. Give us your thoughts on some of that.
Joe Brown: Yeah, I’ve got thoughts on both of that. To add on to what Jason just said first is that even compared to rents, like everybody right now is talking about, hey, new mortgage on average versus rent on average, huge difference, right? But that’s the wrong comparison to make.
You have to compare average existing mortgages to current rents. And for most people, if you get kicked out of your house, if you sell your house, if you leave your house and you even go rent, you’re paying more than your mortgage right now. And so that’s the proper comparison to make.
And yeah, for somebody who’s new to the market, yeah, they may look at rent and it may be way cheaper than buying a new house today, but that’s not the majority of people. And so the more unaffordable housing gets, the fewer people can afford to actually sell. So then I have a couple of things about what Chris was talking about as well.
So watching the balance sheet is incredibly important. I would pair that also with watching M2 money supply from the Fed, because sometimes, like not all balance sheet addition and subtraction is created equal. It’s, I like to look at the Fed’s balance sheet as if it’s like their brokerage accounts.
So in your brokerage account, you might have stocks, mutual funds, ETFs, bonds, cash, you got everything in there, right? So those are not the same things. The Fed can do different things with its balance sheet.
And so when you look at what happened following the great financial crisis, they blew up their balance sheet, right? And it looked like, hey, they’re doing a ton of QE. Many people were predicting that that would cause severe inflation.
The inflation didn’t materialize. And if you look at the M2 money supply, it never blew up and it stayed the same. So you have to ask, okay, well, why?
What happened there? And it was basically when the banks are collapsing, it looks like everybody who has bank deposits there, they say, okay, I’ve got $10,000 in my checking account. If the bank collapses, boom, that money is just gone.
It ceases to exist. And so that money, there would be severe deflation. So the balance sheet expansion that happened in the great financial crisis was just refilling the coffers, basically so that those dollars didn’t disappear from existence.
So the money supply never did anything that looked abnormal. Without the Fed’s intervention, it would have cratered, but because of the Fed’s intervention, it kept on doing what it was doing. It just kept on inching up a little bit higher.
You compare that to what they did in 2020, which was the opposite. They actually printed a bunch of money that wound up in people’s checking accounts and the money supply exploded. In a year, it increased by 30%.
The obvious result of that was massive inflation. If you look at the balance sheet expansion that happened when the banks were bailed out this year, in March of 2023, it was similar. It was refilling those deposits that would have ceased to exist.
And so the money supply actually didn’t increase from that balance sheet expansion. Even though it was quick and severe, and now since then it’s gone down, it didn’t affect the money supply. So I like to look at both of those together.
Now, one thing that’s interesting is the money supply has stopped shrinking since May of this year. It has moved sideways, and that’s a result of the money leaving the reverse repo facility being reintroduced. So that’s another reason why inflation has stayed around three or 4% officially, is because the money supply stopped dropping.
And so we do have inflationary forces that are no longer being counteracted by the money supply shrinking. And then finally, the super cycle that you mentioned I think is very important as well, because we can look at this from the standpoint of quarters, maybe years, but looking at it from the standpoint of decades and centuries is important as well. 1940 through 1980 was a 40 year phase of the cycle.
Interest rates and inflation were moving higher. 1980 through 2020 was the next 40 year phase of the super cycle. Interest rates and inflation were both moving lower.
You can’t go much lower than zero. Interest rates- You can go negative in other currencies for a short amount of time, but the global reserve currency really can’t go negative. Otherwise everything else breaks.
The others are only able to go negative as a result of the global reserve currency staying above negative nominally. So you can’t really exceed, you can’t really go far past that for an extended period of time. And what we have now is a period of time where we have inflation and rising interest rates.
And government borrowing as a result of deficits and higher interest rates will feed into this inflationary cycle. And even if we get the Fed printing QE, lower rates for the government, that’s just gonna cause inflation, which means everybody else is gonna have higher interest rates. You’re not gonna get a lender that’s gonna give you 1% if the inflation rate is 6 or 7%.
Even if the government can borrow at 1%, none of us will be able to. So we are entering into the phase of the super cycle, 40 years potentially of rising interest rates and rising inflation. And unless something absolutely crazy happens, which in this case to solve those problems would be an unprecedented explosion in productive output, meaning wealth just expands exponentially that covers up the pain of the deleveraging that we’re gonna have to go through.
And AI could do that, but we’ll see.
Jason Hartman: Yeah, well, that’s actually what I was going to ask. I mean, it really does seem like we are at another sort of hockey stick inflection point in technological progress ever since OpenAI released chat GPT to the, I mean, it was out there before, but nobody knew about it before last November 30th, almost a year ago. So that’s just a really interesting question.
The first part of that is how many jobs will be lost? But then the second phase of that is how much wealth will be created. Because look at how much easier our jobs are becoming as creators.
We can produce so much more with these new tools. It’s incredible, it really is.
Joe Brown: Yeah, the AI is, I think has the potential to offset a lot of the pain that we could feel as an economy in the deleveraging here. When you look at what the art it like painters did when the camera was invented, it didn’t displace artists actually, it just changed how they did art. And it opened up new art that was used with cameras.
And so there’s never been an example in history in which innovation and technology and progress and wealth creation has been offset by the pain of the jobs lost as a result. It’s always been a net benefit to everybody. And that’s like, if we can destroy jobs, like that’s actually the goal because what’s happening is people who are doing things don’t have to do those things anymore.
We get more wealth as a society and can leverage that time and that labor and that human output for, human input for other things that are better. So I think it’s possible, but we’ll have to wait and see.
Bronson Hill: That’s a great point. Let’s take some questions now. So if you have any questions, we’ve got some very smart people here on the panel.
We’d love to take, I see there’s a hand raise. If you have a question, type it in the chat or in the Q and A box and we can get to that. We’ve got a few minutes.
So if you do have a question, don’t be shy, put it in there. We will try to get to it if we can. And what happens is typically like people save their last questions for like the last two minutes and we can’t get to all of them.
So like put it in now and then we can get to it. So I think one thing we did not ask you, Jason, because I know you got here a little bit late. What do you feel, you don’t have to take too long with this, but what do you feel are the best moves right now when it comes to investing?
Jason Hartman: I think inflation is the future and whether it be through, it occurs through the traditional sense. I know Chris was just talking, I just heard the tail end of what he was saying, but since I’m familiar with his work, I think I know what he was talking about, how we may lose buyers of our treasuries, right? Which really is an inflationary problem ultimately.
And the government may just go into printing mode and they may not even care about selling treasuries, right? They could just bypass that. But whatever the case, I think inflation is the big concern when it comes to atoms and that is things that are made out of matter, right?
And deflation is the trend with things that are made of bits, right? Computer code, software, software is eating the world, right? So we have these two sort of forces at war.
On one side, we have bad fiscal and monetary policy. On the other side, we have technology. Technology deflationary, bad fiscal and monetary policy inflationary.
So the move is, I think we need to protect ourselves from inflation. And I think one of the best strategies to do that is to own atoms, own things that are constructed out of matter, commodities, real estate, I call, you know, investment properties, packaged commodities because they really just consist of concrete, petroleum products, copper, wire, glass, steel, lumber, et cetera, and labor and energy, of course. And so you’re owning those and controlling those with long-term fixed rate debt that is debased by inflation and then you have that effect of that inflation induced debt destruction.
And so I think that’s really a key strategy, especially now, because at least I think the future is very likely inflationary. But I did wanna say one thing just in general, Bronson, about the doom and gloomers. And that is that I think one thing, you know, people that think, oh, the world’s gonna end for whatever reason, maybe if the inflation economic collapse debt or just pollution or whatever it is, right?
We all have to remember that 8 billion people wake up every day and the core thought in their mind, unless they’re a child or an apathetic loser, okay? The core thought in their mind is, how can I improve my situation? That’s what we all think about all day.
How can I improve my situation? And when it comes to the economic and financial part of that, you’ve got an incredible engine there of people that just will not be denied, that are going to keep improving their situation. And by doing that, they’re going to increase the size of the pie and create more prosperity for all of us.
So I think we can be very, very hopeful about that.
Bronson Hill: That’s good. Thank you. That’s a great answer, Jason.
We’ve got a couple of questions coming in here, questions about next few years. Do you like developed markets or emerging markets? Anybody have any thoughts on that?
Investing in emerging markets or developed markets?
Jason Hartman: For real estate or stocks?
Bronson Hill: I think just in general. Yeah, maybe Neil, you could clarify what you’re referring to. I think that’s a pretty broad question.
We can come back to that. And there’s another one asking about oil prices.
Jason Hartman: I will take just a cab on that.
Bronson Hill: Sure.
Jason Hartman: Yeah, okay, go on.
Bronson Hill: I think there’s a delay.
Jason Hartman: Sorry about that. I had Consuelo Mack on my show a couple of times. She’s the anchor of formerly CNBC.
And she said the Midwest was her favorite emerging market. The speaking of real estate. As though that’s an emerging market, right?
Bronson Hill: Right, right, right.
Jason Hartman: It’s kind of a joke, but I thought that was funny.
Bronson Hill: Yeah, so maybe Neil, you can clarify your question there a little bit. Also a question about oil prices. You’re short and long term.
Chris, do you want to start with that one? I mean, obviously, I know what your long term answer is going to be, but where do you think we’re headed and what timeline there?
Chris Martenson: Long term, easy. I am so bullish on oil. That’s an easy one.
And part, yeah, part of the answer for that is when you really dig down and you look at where the U.S. market is. I mean, we’ve seen the obvious signs of maturing industry with the consolidation, the shale space, right? So Exxon just bought a big old outfit, right?
So we’re seeing that consolidation. It’s a mature industry in the shale space now. A lot of great opportunities in there still.
However, as I look through it, we’re starting to see where we can see the topping pattern of that, of what we can get out of the shale space here in the U.S. I’m looking for 2025 actually to be the beginning of that topping process. I’m at odds with the EIA who says we’re going to just keep getting more and more out of shale till 2040 or something. It’s a crazy model they’ve got running.
I talk with a lot of folks in the business. So I love what’s going to happen there, but I do think that when we get to around 2025 or so, when the world wakes up and says the United States is no longer a swing producer, which was sort of the story, not totally true. You get a little wonky, you got to talk about oil grades, the difference between very, very light oil compared to heavier grades, which give you more of the things that actually move industry around, right?
Diesel, jet fuel, kerosene, things like that. So when we look at where we are in that story, I’m really bullish on oil. Right now, oil is sending us a deflationary signal, a recessionary signal.
Again, what it’s going to do over the next few months, I don’t know, but I have been dipping my toe and on every downstroke I’m dipping a little more into that particular space right now because I think it’s just, the supply demand fundamentals, look, it’s not just me anymore. Who was JP Morgan’s commodities trading desk just a few weeks ago came out and said, hey, starting around the same timeframe globally that I’m talking about between 2025 and 2030, their desk said, ah, there’s this persistent and growing shortfall between supply and demand. And of course there is no such thing as a persistent gap between supply and demand and a commodity like oil.
There’s only a rising price to get demand back in line with supply. So what they’re really saying is we have a constrained supply output. Their chart only went to 2030, but it just got wider and wider and wider.
And this is a very longer, more detailed story because of lack of investment, because the oil industry has been very heavily demonized across a lot of the Western capital centers, right? You got people gluing their hands to the road and smashing paintings. And so that does have its effect and the lack of investment in this space is highly bullish for oil going forward.
Bronson Hill: And we’re pretty heavily invested in the oil and gas space. And it’s just for the reasons you shared. I mean, if you look at a chart of the oil exploration and just money that’s gone in, it’s like went down a cliff and it’s like a quarter of what it was per year, like 10 years ago.
And yet the needs are going up exponentially. And so it’s pretty crazy. Joe, do you have any thoughts on, either you’re getting some questions on oil and also natural gas or just energy in general, do you have some thoughts on that as well?
Joe Brown: I have nothing to add after what Chris said, just it’s going nowhere but up. And that might not be in the next couple of weeks, couple of months, but long-term, there’s no possible outcome that we don’t have, the price going much, much higher for much, much longer, unless an asteroid made of oil just lands and that doesn’t destroy everything.
Bronson Hill: That seems like it would kind of have a big, negative impact, but a big atmosphere full of oil.
Joe Brown: Right, just right into the strategic petroleum reserves. Yeah, see the emerging markets versus developed markets question, I would like to address that and just say that we are transitioning from a passive investing world into an active investing world.
I’ve said for a long time that there’s no such thing as passive investing, there’s gambling and there’s investing and passive investing is throwing your money in something that you don’t know what you’re throwing it into just because everybody else is and that’s a recipe for losing your money long-term. And active investing is looking well into your investments, it’s buying something with as much certainty as possible that what you are buying is going to produce a return for you. And so there are going to be individual companies in both developed and emerging markets that are gonna do very well in the future.
And that’s not because they’re in emerging or because they’re in developed. And I think that we need to, we’re gonna have a big shift where you can’t just rely on some massive passive index funds that invest in the entire world. You’re gonna have to take a look at what you’re investing in and be strategic about looking for value in individual companies, individual assets that produce income and have long-term capital appreciation potential instead of just throwing it into a mutual fund and hoping for the best.
Bronson Hill: So this question is coming up about holding cash, basically saying consensus. Is everyone holding cash or is everyone invested? I think there’s been some on this panel that have shared, yes, holding cash is good because I think, Chris, you said that valuations or there could be some opportunity later with having cash.
I’m pretty well deployed in cash flowing assets, things like that. Is anybody else well deployed or are you guys mostly holding cash personally?
Jason Hartman: I’m holding more cash than I should be, but it’s not because I don’t believe that that’s a bad idea. I do believe that that’s kind of a bad idea. I would rather have it be invested.
It’s just time to deploy capital, right? That’s a job. It takes time to deploy it.
Bronson Hill: It’s not passive.
Jason Hartman: And the more capital you have, the bigger the job. So, yeah.
Bronson Hill: Yeah, that’s good.
Jason Hartman: Too much in cash is my answer.
Bronson Hill: Yeah, what about you, Joe? You got something there?
Joe Brown: Yeah, I always like to have what I call it reserves. I always like to have about 30% in reserves. And I say reserves because that’s not just cash.
I view gold as savings because of how it maintains its purchasing power over thousands of years. And because it’s over the short term, somewhat volatile, I don’t have everything in gold. So, of my cash compared to my whole portfolio, I like to have about 5% in cash.
And that will be split up between high yield savings accounts, money market funds, very short term T-bills right now just because of the interest rate environment. That’s not always gonna be the case. But money market funds have less risk and a higher return than every bank account right now.
And so do T-bills. So you can do a T-bill ladder and every month you have some of your cash maturing. And so, yeah, anything under six months for T-bills is great.
Bronson Hill: So, yeah, and for me as well, we’re about probably 90% deployed or more mostly real estate, other ATM car washes, businesses, different deals. And then I also, I use, I used to use gold and silver for liquidity as well because you can borrow, you can put it in a vault and you can borrow against the value at a less than 10% just kind of HELOC type of loans, which are kind of nice, just the days you need them, which is kind of nice. Guys, we’re getting to the top of the hour.
I thought it was just an awesome conversation. It was great to have each of you here for a lot of reasons. And this has been a fun panel.
So I wanted to just go around and just maybe you can just take 60 seconds and just people wanna reach out and follow what you’re doing. Why don’t you just let people know how they can do that? Let’s start with Chris.
Chris Martenson: Well, sure. Thanks for a great, great panel. It’s great to meet everybody.
Sorry that, you know, I’ve been so opaque with my video. I don’t know what’s going on with the machine today.
Bronson Hill: Man, a mystery.
Chris Martenson: It just, I tried restarting it several times mid-flight. Anyway, it’s, there we are. So you can follow me at Peak Prosperity.
That’s my website, peakprosperity.com. We’ve got a great community of people. They are all wrestling with sort of the questions around how to be resilient.
As well, I’m at Twitter at Chris Martenson and just all over YouTube and various places. So that’s where you find me. But we’re holding, every year we have a virtual seminar event that happens in February.
That’s coming up and I’m also on the board of the FLCCC. They’ve got a big event coming up in Tucson, sorry, Phoenix this year, February 2nd to 4th. That’s gonna be a lot of fun.
That’s where all the doctors who fought COVID bravely gather and talk about all the awesome things that have transpired in terms of their knowledge this past year.
Bronson Hill: Awesome, thanks so much, Chris. Jason, how can people follow what you’re doing?
Jason Hartman: So just my podcast, The Creating Wealth Show, look up Jason Hartman on any podcast platform, YouTube channel, just type Jason Hartman. And then my website is jasonhartman.com and happy investing. Thanks for having me on, Bronson.
And sorry, I couldn’t provide a better internet connection, but I got to get back to hosting this event. I’m here with the real estate guys, with Ken McElroy and everybody you all know, so.
Bronson Hill: That sounds like a fun time. We’ll say hi to everybody. It looks like I’m sharing a great time.
Thanks, man, that’s great. Well, great to have you with us. Thanks, man.
Joe, tell us how people can follow what you’re doing.
Joe Brown: Good thing, well, thanks again for having me. This was a lot of fun. Heresy Financial, primary places are gonna be YouTube and Twitter, so if you’re on either of those, I tweet every day, multiple times, too much.
I’m on Twitter too much. And then I make a YouTube video a couple times a week. And it’s heresy, which is an old religious word that means an opinion that is at odds with what is generally accepted.
So Heresy Financial everywhere.
Bronson Hill: Awesome, well, I love that you’re speaking to heresy though, that’s great. Well, great guys, thank you again for each of what you added to this conversation. Tremendous respect for each of you and how you’re adding value to people and really creating an awesome conversation in the world.
So thanks for being at this event. This will likely be our last one of the year. We will do this again.
We typically do this every month and we either do real estate or investment related events or events like this that are more economic and related to just what’s happening in finance. We also, like I said, we do deals in relation to car washes, oil and gas, ATM machines and multifamily. So you can check that out at Bronx about inequity and check out my new book behind me here.
I believe Jason has an endorsement in there as well. And so really appreciate each of you guys and look forward to seeing you guys again here soon.
Thanks so much, everybody.
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