You are Your Best Advocate
stute investors are always trying to figure out what is going on in the market and in the economy.
They are looking at economic data points, geopolitics, and more.
NOTE: My brand new book co-authored with Dan Kennedy, “Own Your Freedom: Sustainable Wealth for a Volatile World” is now officially available to the public! You can pick up your copy and learn more at ownyourfreedombook.com.
With so much information, there can also be a lot of confusion. It's hard to pinpoint trends and make decisions when there’s a lot of noise.
I am specifically not a data analyst. I have other people who curate that information for me. I read their analysis, but I don't personally do that sort of deep digging. My entire adult life, I've been more of a macro person. I look at the big picture.
When I first started investing in real estate over four decades ago, I really had no idea what was going on in the economy back then. I bought my first few houses with interest rates above 10%, and after those, many of them were in the 8-10% interest range. That was just part of the economy back then. It didn't matter.
We had very high levels of inflation back in the late ‘60s and ‘70s, and since then, interest rates have been on a 40-year downward trend. We're at historically low interest rates now. Rates have not been this low for 720 years. So what do we make about all this?
Again, I look at the macro, and looking at the big picture I see a lot of things that are still variables in the economy. Certainly the COVID outbreak last year was a Black Swan event—no one could have predicted it—and the resultant economic accommodations by the government to prevent widespread economic malaise have been unprecedented. I'm not judging it. I'm just saying, it is what it is – but we have to look at these things. The federal deficits and the spending are from both sides of the aisle. Trump was doing it before he left office, Biden is doing the same thing now, and nobody on either side is pushing back. Why? Politicians want to remain in power.
There are just a handful of government leaders who actually speak about what's right for the country, and they don't have enough strength to make a change. We have this railroaded momentum now towards massive spending, and the politicians think they can get away with it. Or at least they think they can get away with it until they're out of office. Then it's someone else's problem—the taxpayers’. It falls on us, our kids, and our grandkids.
We can only control what we control in our lives. We can't control these outside forces. We can get mad, angry, or frustrated about them. Yes, we can vote. We can even get involved in politics if we want to. I'm not telling you what to do or what not to do, but, first and foremost, you have to put your oxygen mask on first. That principle is the reason I wrote my new book Own Your Freedom with Dan Kennedy. You've got to start with you first, and then you can help other people.
You want to help your family, your kids, your grandkids, charities, missions, or whatever else it may be, but if you don't protect and save yourself first, then you're going to be in trouble.
In the economy today, we have this massive deficit spending without any sign of tapering. The Federal Reserve says they're going to start tapering back Quantitative Easing. Well, we'll see what happens… When the economy starts to go a little bit south, and the masses get upset because they're not getting their unemployment stimulus or they have to go back to work and businesses are shutting down – I promise you that they won't have the political will to tough it out.
This country doesn’t have the willpower to go through the hard times anymore. Of course, I don't wish hard times on anybody, but sometimes we have to go through tough times to get to the other side.
That’s a bad thing because downturns in the market cycles are supposed to address largesse in both the government and the private sector: too much capital moving too fast, too much growth, expansion, and speculation. We're not getting that right now. The printing presses are on full-speed and don't show any signs of stopping.
Now, we also have the issue of the COVID variants Delta, Lambda, Mu. We don't know where this is going. We thought we were coming out of the pandemic earlier in the spring. We thought more vaccinations and herd immunity were starting to open things back up again, then Bam! The Delta variant hit and sent us cycling back. It is what it is.
Also to watch out for are the ramifications from our withdrawal from Afghanistan, which has put an overall damper on the sentiments of our country. Not everybody but, I think, the majority does not feel really good about what's happened there, the way it was done being the main issue. A lot of people feel that at least we had control over the country and the terrorists there, but now they run the roost. Now, they've got billions of dollars and high-grade military equipment, which is not a good thing.
So the withdrawal from Afghanistan in addition to the spread of COVID variants will put a damper on consumer spending. Consumer spending is what drives two-thirds of our economy’s GDP. If people aren't spending and they aren't getting stimulus money anymore, if the small business loans have run their course and have to be paid back, and all the extra money that's been in the economy since last year is being tapered off – where will that leave us? We have to wait and see.
We have to be careful not only about these things, but also the overall exuberance in the economy that has been pushing up valuations tremendously. Asset prices in the stock market, in Wall Street, real estate, and businesses in general have been elevated by the low-cost, what I call, “hot money” circulating today.
My friend Alastair Macdonald digs down into data. On a call I had with him the other day, he said, using today’s stock market valuations as a reference point, if you had a dental practice or a business with an annual gross revenue run rate of $1 million, that practice would sell for over $3 million!
For those of you who understand business or the dental business, would you pay three times the gross revenue for a business? Of course you wouldn't! There's something wrong here. It's hot money. We've got to realize what's going on today.
I like real estate because I can understand it. Unlike with the paper assets in the stock market, I can look at the numbers on a property or a syndication, and I can say whether the property will create cash flow based on the valuation. I've got some reference points there. The stock market is just crazy off the charts. I don't know how people can live there right now because the asymmetric risk of the market taking a dive is significant. Now, that may not happen for six to twelve more months, but I don't want to play ball there.
I want to put my capital into investments that will provide me with predictable, sustainable cash flow. Based on the 40 years I've been involved in alternatives, that’s been my safety net—whether I'm investing in debt as an asset, which is very safe for capital preservation, or the right kind of equities, which can hedge me against inflation. That's what I'm looking at in the marketplace.
We have to be as rational as we can, and not feel like the exuberance of the market means we're going to miss out. FOMO runs deeply in these markets. Everybody out there today is looking for yield. They don't want to miss out on the latest deal, whether it's cryptocurrency, Reddit, GameStop, etc.
It happens just the same in real estate. People get out there and think that just because they made money in the last two to five years they've got a Midas touch. No, it has nothing to do with them in particular. It's the timing of the market! Have they been through a downturn?
Have they been through a market correction? What did they learn?
If they haven't been through one, I would stay far, far away! There's way too much hot money chasing these real estate deals, syndications, and funds out there today. Especially with crowdfunding through platforms like Fundrise and others, it is the wild, wild west.
Because of their securities offerings, syndicators and fund managers really have no liability. Of course, they can't commit fraud, but they can give you projections and target returns. Even if they don't get those returns though, as long as they don't commit fraud, they have no liability. They all make money on the front end. There's nothing wrong with that, but you just have to realize that if you're putting money with somebody who you don't know, or if you don't understand the dynamics of the syndication or the fund, you are gambling.
This is not a time to gamble. If you're not plugged in with a network and board of advisors, or you don't have experience in the markets, it's time to be very careful.
I just want you to remember that you've got to be your own advocate to protect your wealth, your freedom, and your autonomy. It is up to you.
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