1338: Leading v Lagging Indicators, Housing Starts, Business Migration with Ali Wolf

The reason I invest in real estate is because I was previously doing a 401k and put my money there and doing other, you know, traditional retirement plans. That just doesn't work, didn't work for us for 10, 15 years that we were doing it and was looking for something different. So I was doing a lot of research and listen to a lot of podcasts and found real estate as being a much better avenue for creating wealth and creating cash flow. Our first investment property actually happened by accident because of not being able to sell a previously owned house that we had and moving out of that area. So it turned out to be a really good thing for us. So after that, that made me really interested. The first intentional investment property that we purchased was in Florida. I found the Creating wealth show and Jason by him being a guest on another podcast that I had been listening to. It was about creating passive income and he was a guest on that show and I was impressed with his knowledge. So from there I made my way to his podcast. Right now we have a total of 10 properties. We decided to go all in. I mean, we'd been doing 401k and other traditional retirement plans and investments that most people are comfortable with with really terrible results for lots of years. So I was okay. So we actually liquidated everything we had in our 401ks, paid the penalty on all of that and are doing much, much better with real estate and very happy about it. But I think it just comes down to being comfortable with the education. So I felt like there's plenty of information out there about real estate. There's lots of people with great track records. And so I think if you follow a path of success, that it's a lot easier to replicate and duplicate. So I felt like I was following other people's paths of success, so I felt comfortable.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh, fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now here's your host, Jason Hartman, with the complete solution for real Estate investors.

Welcome to episode 1338. 1338. Today we have another installment of economist Ali Wolf from Myers Research. I know we've been sort of breaking up her long, long episode. An interview with me in two parts. And so today you will hear, not the least of which is one more part of that. And I've got good news and bad news. Which would you like first? Would you like the good news or the bad news?

Hmm. Okay, guess what? You don't have to decide because it really depends. It really depends. And the greatest thing about what we do with income property is you can always adjust your strategy to make bad news good news. Also, I made a promise to you maybe about a week and a half ago that I would talk about the picture versus PC balance, the P versus PC balance. And I want to get a moment to do that. But in talking about this good news, bad news stuff, one of the very important things is to view life as a learning experience rather than as a good or bad dichotomy. You know, that's kind of a false dichotomy. Now, I know there are certainly bad things that happen to all of us. Hey, lots of bad things happen to me. I'll be the first to tell you. But it's like the old saying. It's not what is that counts, it's how you take it. You know, everything in life is what you make it. It's not what is that counts, but how you take it. And at the very least, at the very worst, everything is a learning experience. And if the misfortune is bad, at least, at least get one thing out of it. If it's an expensive mistake, at least get the education out of it. Look, all kinds of people spend $200,000, and they largely waste that $200,000, I'm sad to say, at overpriced universities, which used to be just a fine deal when the prices were reasonable. We've talked about that ad nauseam. But if something happens in the school of hard knocks, right, in real life, at the very least, get some value from it. And how can you get that value? Get the value from the lesson, but at an even higher level, try not to be so attached to the outcome, because the outcome really isn't necessarily good or bad. And when you look at things, you think, oh, gosh, this happened to me, it's terrible. Woe is me, and you know, I'm so depressed about it, blah, blah, blah. But then, you know, you go a little while, and this is. This is the beauty. This is the Absolute beauty of getting older. I mean, I gotta tell you, not everything about getting older is great, but some things about it are totally awesome. I mean, they are really, really awesome. Think back to the time. And I know, by the way, we've got a few teenagers listening because I know who you are. You've been to our conferences and we love it that you're getting such an early start on your, your real estate investing career. That's totally awesome. That's what I did. You know, I basically started at age 16, got my real estate license at age 19, had my first rental property at age 20, and, you know, it's been a pretty great ride from there. So that's going to be you too. In fact, you'll probably do it even a lot better than I did because, number one, you can learn from all my perils. And number two, you have all this technology and scale that I didn't have in the old days. None of us had that in the old days. But, you know, one of the points of it is when you're younger, you tend to think that, like, everything is black and white. It's just either good or it's bad. It's on or it's off. But what happens when you mature is you realize that there are just a zillion shades of gray. Hey, there's more than 50 shades of gray even, right? There's a zillion shades of gray. And in that, you find that when something happens that seems like misfortune, you just are patient. You know, when you get older, you become more patient, hopefully. And listen, there's no shortage of children walking around in adult bodies. We all know that. And that's a sad state of our commentary on our world today. I think some of that is caused by prescription drugs, Prescription medications making people crazy. And I mean it, they really are. The pharmaceutical industry is guilty of absolutely disgusting things. But hey, what industry isn't, right? There's evil, greedy people all over the place. That's just the way it is. People are fallen creatures. And then the other thing is what I call the caffeine culture. And I started to notice this years ago when energy drinks became so popular, when Red Bull became so popular. And all these people are so on edge all the time. On edge, you know, and hey, listen, I drink coffee. I drink about three cups a day. And you know, I consciously like to control my state of alertness with coffee. And it's. Caffeine is a drug. Okay, it's a drug, but at least it's a natural one. Right. All these crazy pharmaceutical things, we don't know what they do and we don't know what the side effects are in there. I'll tell you, watch, watch a documentary called RX Nation. I haven't taken a prescription drug in many years and I don't want anything to do with pharmaceuticals if I can help it. Hopefully I'll never have to take any of that stuff. You know, if, hey, listen, you know, if you're in chronic pain or something, I know you got to do it. But whenever possible, try for the natural remedy. You know, eat some vegetables, get some exercise, get some fresh air, adjust your attitude, right? That's the first thing you do. So you have a little more patience and you realize, you know, a week goes by, a couple weeks go by, a month goes by, a year goes by, a couple years go by and you realize, you know, if that thing didn't happen to me, then all this other good wouldn't have come out of it. You, you know, a lot of good comes out of all these things. So anyway, it's just, you know, you gotta look at life that way, right? So the good news and the bad news. Well, I guess the bad news is more and more businesses are fleeing my former home state, the Socialist Republic of California. Charles Schwab is the latest company leaving California, going to Texas. And it won't be the last. Expert says of course they're fleeing the ridiculously unfavorable labor laws, the high taxes, the intrusive government and the high cost of living. That's a pass through, right? You have to pay your employees a lot more money to be able to afford to live there. Whereas you can pay them a lot less in Dallas, Texas, and they can live a better life. So why wouldn't they move, right? New Yorkers are leaving the city in droves. They're moving to places like Florida. Okay, so you know, this is good news, bad news, right? I don't know. Depends. Depends on your strategy. Depends where you are. I don't know, is it good news or bad news? And the housing market, hey, the builders are going to rescue. The housing market maybe. Or the housing shortage, I should say, not the market, because what does that mean? And they're saying that they will build in the next year, they will build over 1 million homes. And they haven't done that since the pre recession level before the great Recession. So home building is kicking back into high gear and I'd say that's good news. Okay. It's not all good though, you know, look, if you Own a lot of rental properties as I do, as hopefully you do, because you're listening to this show, then you'd rather see a shorter supply, right? But hey, listen, it's good news either way because guess what? Even another million houses will not solve the housing crisis. Or I should say the housing shortage crisis. Right. It's bigger than a million homes. Okay, so that's the deal. Okay. The P versus PC balance. I'm running out of time again. You know what? I gotta talk to you about this later because I want a little time to go over it with you. It's such an important thing and it applies to us as investors and it applies to us in every aspect of life. But that's my thought on the good news, bad news thing for today. Without further ado, let's get to Ali Wolfe. Of course, go to jasonhartman.com to check out our properties, to get yourself connected with one of our fantastic investment counselors and to check out the video on the front page about how to analyze a real estate investment. That great free video. It's there for you. Take advantage of it on the front page of Jason Hartman dot com. And here we are with another installment of economist Ali Wolfe.

All right, so this is what we were talking about earlier, which is really understanding the difference between leading and lagging indicators. And this came to my attention because when I started presenting for my company, it was four years ago and I was just kind of getting used to what I was going to present to our audience. It wasn't my first job, obviously, but it was the first time I had done big presentations and I went for the low hanging fruit. I went for things like consumer confidence because I understood that and that made sense. And I always saw the Wall Street Journal and Bloomberg was presenting on it. And I don't have my shades here, so I'm going to use my mouse to show. But this is consumer confidence. And you're looking at it today and you are like awesome. Like, this number looks so good. We're seeing this hockey stick up. We've seen this huge increase in consumer confidence. And what I want you to focus your eyes on is right here is 2007 and I'm pulling this up. And you can see consumer confidence was super high. It leveled off for a few months and then it crashes. So if you're looking at consumer confidence, you have no idea that this is about to happen because things look great.

So what Ali's saying is in 2007, right on the eve of the Great Recession, consumer confidence was high. You didn't know that it was going to drop off. It looked good. And so this indicator, you're saying, was faulty? It's not faulty, but it's not a good. I mean, you certainly can't look at it in isolation. Right?

No, exactly. And what it's good for is. So the recession started December 2007, and. And there's an organization called the National Bureau of Economic Research. I think that's it. And they're the ones who officially call a recession. And they need to look at all of these different data points to figure out when it is. What this can do is if the December 2007 was the start of the recession. December 2008 is when they officially called it. If you were looking at this data, you would know that you're in a recession. So it's good at telling you that you're in a recession before it's officially announced. It's just not good for you to pivot your business strategy ahead of time because you have no idea that there's a change coming. Right, okay, so that's one. Here's another one. This one is very visual to look at, but this is looking at the GDP number. You want to be at 3%. That's generally been the target. If you're looking at this graph, you see that we haven't often been hitting 3%, and that's been concerning. But it goes back to our discussion earlier. We created this index, you know, over 50 years ago. And are we measuring it? Right. That's a whole other discussion. But if you're looking at this GDP number and you're saying, okay, awesome, we're at 3%. This is great. We see that the market's moving in the right direction. I would then have you look at GDP back 2004 to 2007. And so you're looking at this graph, and if you're not looking again, it's basically showing that GDP hovered between, let's say 1.5 and 4% from 2004 to 2007. Fourth quarter, 2007 comes and GDP is 2.5%. You know that the target's 3. 2.5%. Okay, good. You can round up. We're at 3%. This is awesome. Well, what happened in fourth quarter 2007? Well, we just talked about it. The recession started.

Yeah, the Great Recession.

The Great Recession. So you're looking at this and you think everything's great, and then, oh, my gosh, out of nowhere, it collapses the following quarter, and you got a little bit of rebound Goes down again. Yeah. So this indicator too, it can tell you when we've gone into a recession. But does that help you? Maybe, maybe there is some value in that. But if you're actually looking for forward planning, GDP is not your number.

Yep, that's lagging.

Yep, lagging. So this is the last one I want to hit on in terms of lagging, which they also call them coincidence indicators. This is non farm payrolls. And I will be honest with you, I loved this number so much I wrote a rap about it. I won't do it here. But just think, instead of snapshots, change it to jobs, jobs, jobs. So there I took LMFAO's rap and changed it. But I used to love this indicator because I thought this is great, this is timely, you get it the first Friday of every month. Like this is your best gauge of what's going on in the marketplace. Well, problem is again, this graph, now it's a little bit confusing to explain, but once you get it, it makes sense. What it's showing you is 12 months before the recession, which if you're looking, that's the gray, then the 12 month average, 24 months before recession and you see that it's positive. Every 12 months before the recession it's positive. Before that it's positive. And you don't see job growth go negative until you're in the recession. And in fact the 12 month average right before recession is 150,000 jobs added. And so this one too, you're looking at 150,000 jobs added and you're saying awesome. But you're not seeing that that's going to give you any warning. It does. Look at each of these. It does go down. It does go down. The average starts to go down before a downturn, but it's not going to go negative. And I know even people in my own company have said we'll just wait for job growth to go negative. No, no, don't do that. That's wrong.

Absolutely.

Okay, so instead of that then my team went through really any indicator that we could find that actually does have predictive power. And we looked for ones that would at least give you a two quarter heads up and ones that would go further out. We have one that will give you three years. Now I've gotten in debates with my friends about whether or not an indicator can give you three years warning of a recession. And maybe you don't agree with that and that's fine. But there are different ones that will give you 6 month, 12 month, 18 month warning. And it's spread across a whole bunch of different sectors. Whether it's actually the housing inventory is a good leading indicator, whether it's manufacturing, whether it's retail sales, whether it's inflation, unemployment. There's a small business survey that has a component, even the yield curve. So there are a lot of different leading indicators that in isolation don't pull up home sales and say, well, Ali said that when home sales go down, there's going to be a recession. You need to look at these in combination. But when you do that, you can the best you could forecast out some kind of change in the overall market. And right now these are telling us that there's growth in the overall economy for at least the next 12 to 18 months. So we are seeing some positive signs from these stats.

Definitely. Very good. Well, Ali, there is a wealth of information here and I could talk to you about this for days. I love this stuff, but kind of wrap it up for us as much as you can and of course, give out your contact information too.

So when you think about recession planning, you think about long expansions. This slide basically tells you something needs to actually trigger any kind of downturn. And if it does, you have to think about how are you positioned because prices do not always fall during downturns, sales do not always fall. You actually can see growth in some price points in some sub markets. So I think it's really, it's not just if you build it, they will come or if you renovate it, they will come. I think it needs to be very specific. You need to understand the markets that you're operating in, I think now more than ever. But I still think a well positioned product can continue to perform well. Because we didn't even talk about millennials today, but because we have millennials who are 27, 28, 29 years old, they're having kids, they're getting married and they still need places to live.

Right.

And boomers maybe need to move out of their home, they need to maybe move to smaller product or they want to move closer to their kids. So there's a lot of demographic tailwinds to keep housing strength going as long as you're strategic and well thought out.

Right. And you know what I want to talk to you about next time you're on Ali, about those demographic cohorts and how they matter and why they matter. One other factor that I think is pretty significant is the aging in place concept and how with mortgage rates so low for so long, people will be incentivized not to move because they don't want to give up their mortgage. And when in the future we see higher rates, we will at some point. Just none of us know exactly when. It's going to be darn hard to replace these super cheap mortgages everybody has received over the past several years.

Yes.

Yeah, it's going to do several things. It's going to limit supply of housing and you know, like, I don't think that's really very good for the market overall. It's too bad the mortgage has to stay with the property and it can't move with the person. There have been some talks about that over the years. I find that to be an interesting idea, but it just doesn't work that way.

So yeah, we can talk about that next time.

Let's definitely do that. Yeah. Very interesting. Thank you so much for this great presentation. Ali.

Give out your contact info Aliewolf with Myers Research AWolfyers LLC.com is my email. I'm also very active on LinkedIn, so if you want to just find me Ali Wolf A L I Wolf I will be there and we can connect.

Ali Wolf thanks for joining us.

Thank you.

Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out this show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to itunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.