1469: The Dragon Portfolio Hawks & Serpents, Hertz Exec Bonus Pre-Bankruptcy, Galloway on Higher Ed

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing some exciting techniques and 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 1469. Episode 1469. Thank you for joining me today and I have a really good piece of news for our listeners in 189 countries worldwide. Now, in the past when we have had our many live events, I cannot tell you and I probably did not do a good enough job telling you how much it meant to me and to the rest of our team to see some of you folks flying from all over the world, from Africa, from Australia, from Europe, from Asia. I mean, wow, just impressive. The Middle east, everywhere in the world pretty much. I don't think we've had anyone come from Antarctica, but maybe someday anyway. So it is just such an honor that you would come so far to go to one of our events and to meet us and to meet our team. Well, we've got our virtual event coming up, our virtual Meet the Masters. It's the first time we're doing it this way like it is for so many in the world. And I think it's going to be a really good event. We got big plans for this, folks, and you don't have to travel anywhere. So save the airline flight, save the hotel expense, be in the comfort of your own home. But. But take it seriously. You know, when things come easily, we tend, we as humans tend not to take them as seriously. Right. We don't give them a certain level of formality. A perfect example would be so many of us working out of the house looking like a bunch of slobs. Right? Looking like a bunch of slobs. And I will be the first to admit that some days I get up and I just get busy and I just kind of forget to take a shower.

The typical morning shower, but I might have taken one the evening before. I don't always do that, but sometimes I do. So it's important to get up and get dressed. You don't have to wear a suit and tie, as it were, or anything too formal, but get dressed and look halfway decent to sit at your desk on your long commute, to sit at your desk to your den or your spare bedroom where your home office is, right, and treat it with some level of formality, some level of respect, Right? And so that's what I'm asking already, for you to treat our upcoming Meet the Masters, because we are going to work hard to make this a great event for you, quite possibly the best Meet the Masters you've been to so far. And been to is the operative term, is this one will only be virtual, so you don't have to go anywhere, but do treat it with some level of formality. And I just want to give a shout out to our client, Dan Franks, who gave me some ideas for virtual platforms we could use. And we're still kind of trying to decide on what our virtual platform is going to be to give you an optimum experience for Meet the Masters. But I do want to tell you, Dan, as he's become a real estate investor, and I know he's been listening to the show for many, many years, maybe I want to say, like 2007, I think he started possibly, I don't know, Dan, correct me, you're probably listening to this now, but Dan runs a fantastic event of his own. He's quite an event person himself. He runs a conference called Podcast Movement, and I went to the very first one a few years ago. It was excellent. And now they have grown that event and it is so big. I think they have like 3,000 people and their event this year is still a live event. We'll see if it's going to end up being virtual like so many other events. But we just wanted to get Meet the Masters done. So many of you have asked about it. Thank you so much for your interest. So we're going to do it virtually. We'll announce a date here probably this week. We'll have a firm date. And here's the way we're going to do it. We're going to do the format. And by the way, if you have any feedback on this, if you think this is a terrible idea or a great idea, let us know. You know, just go to jasonhartman.com ask and give us your feedback on whatever, you know, thoughts, ideas for the show, guests you'd like to see, questions you have, comments you have, or what you think of this Meet the Masters schedule and format. So I think we'll start Friday evening. Not this Friday, we'll announce the date, but you know, Friday in a couple of weeks, few weeks, something like that. You know, you don't need as much lead time for a virtual event. We'll start Friday night and we'll go for two hours. We'll have some content presentation, but also a happy hour. And we'll probably do that one in more of a open forum format where everybody can kind of talk and mix and mingle. You know, hopefully everybody will come to their computer with a drink and let's make it a happy hour. Right, but we'll have some presentation content as well. And we'll probably start that at like 7 o' clock eastern. So it'll be 4 o' clock in the west and you know, different time zones around the world, of course. And we'll go for like two hours. And then Saturday we will start at 11 o' clock Eastern. So that'll be 8am in the Pacific. But hey, you know, you don't need to get so dressed up for this, obviously. And then we'll go for maybe four hours and then we'll go the following week, the next Saturday again for maybe another four hour session, something along that line. And maybe that Friday night we'll also have another reception and a little happy hour and a, and a presentation as well. So that's kind of what we're thinking about. We would love your feedback because it's the first time we're doing this and really look forward to seeing you there. But I think it'll be a lot of fun and we're going to make it really valuable for you. There are some great ways to do virtual events and you know, I kind of wanted to wait before announcing hours to attend some others and I did that. So, you know, a couple of weeks ago, one of my mastermind groups, they put on a really good virtual event. There were about a hundred people involved in that. And you know, I just learned a lot from seeing how they did it. You know, I wanted to let them be the pioneer. And how do you know who the pioneers are? They're the ones with the arrows in their back, right? Because they take their biggest risk. They blaze the trail. So we blaze lots of other trails. But I wanted to learn from some others and see how they pull off some good virtual events. So I've been to a few of them now and I got a good idea for it. Okay. Hey, we also have another virtual event, a free webinar and that will be an asset defense or asset Protection webinar. A lot of you have asked for this and it'll be this weekend. So the registration link is not up yet. So I'm not going to give you the link because then you'll all go there and you'll say, hey, it's not working. Okay, so we got to get that working. But plan on that Friday, Saturday, we'll run it both days. And we've got a really good deal from this new lawyer that we're starting to work with. He specializes in asset protection. You know, this is not a mill, it's a real attorney. And he does hundreds and hundreds of of these structures for people every year. And so I think you'll really like this. And his prices are smoking. Good. Good deal. I like a deal. Okay. And I know you like a deal too. More to come on that. Now today, George Gammon is going to be on the show. George Gammon is our guest today and we are going to talk about the Dragon Portfolio. The Dragon portfolio. In fact, it's so funny because we're. One of you said you saw him talking about this somewhere else. And I said, hey, he's gonna be on the show today. So anyway, we'll have that in just a moment here. But wow, you know, I couldn't write news this interesting myself. And here's the news. So a couple of things here. Number one, Patrick posted on our content group. And Patrick, thank you for posting this. Scott Galloway talking about the imminent disruption of higher education's business model by COVID 19 and this is great news. It's wonderful. It's good news. The video is entitled and I'm not gonna, I don't have time to go into the video today, but it's entitled some Universities are about to be Walking Dead. And you know what? It's about time. They deserve it because they've been ripping people off for years the same way the music industry was ripping people off for many years. Remember when a record album. Yeah. You know, by the way, for our younger listeners, we used to have these disc shaped things, they were made of vinyl, they were black and they had a little label in the middle and you'd put them on a turntable with, with it. With a needle. Yeah. Just pretty much like the one. I think Thomas Edison invented that, right? Yes, he did. And then we had more modern things. Right. But anyway, you know, and they were ripping people off for years, for decades they were ripping people off, the universities. Hey, it's about time for some disruption here. And that's going to be great news. For society. Sorry, you fat cat. University execs and professors, you know, you've been milking it too long, so you know your business model needs to be disrupted. Okay? And one more thing. Commandment number three, you know, commandment number three, thou shalt maintain control. And boy, Hertz has proven that again. Now you all probably know that Hertz has filed for bankruptcy protection. But guess what they did right before bankruptcy protection. Sarah posted this in, in our content group. And the executives paid themselves $16 million in bonuses right before filing for bankruptcy. So let me see. They screw all their creditors, they screw all their customers, but before they do that, they're going to pay themselves $16 million in bonuses. You scumbags. Scumbags. Call it what it is. Scum. Okay, so there you go. Commandment number three, thou shalt maintain control. I don't know. This hurts a publicly traded company because they're obviously screwing their shareholders too. I'm not sure they're public, but they might be, I don't know. But you know, they've got some investors, stakeholders, so they're screwing them over. But, but you know, the execs always got to get their big fat bonuses.

Just like those university staff. It's truly unbelievable. So don't invest in this kind of thing. Be a direct investor. Follow commandment number three and you'll be in better shape. Also an article in Housing Wire. Will smaller cities see a boom from coronavirus? I say yes. I predicted that over two months ago now. And finally the media is catching up. So yes, they will see that. So all these places that we've been investing in and helping you invest in for so many years, well, you're gonna, you're gonna be nicely surprised at the future for those, those cities and towns you've invested in with us. Go to Jason Hartman.com for more. By the way, we have had some technical difficulties with the property search function on our website and I think it's fixed now. Anyway, little, little minor inconvenience there for you, but hopefully it hasn't been too bad. It's been worse for us than it has been for you, I'll tell you that. But it should be working now, so in the hot sheet functionality should be working again as well. And before we get to our guest today, my friend George Gammon, feel free to reach out to us. We are here for you at 1-800-hartman or jason hartman.com. we are here to guide you through these tumultuous times. And here is our guest.

It is my pleasure to welcome George Gammon back to the show you've heard him on several times before. And today we are going to talk about the Dragon portfolio. Maybe you don't know how hawks and serpents can affect your investments, but we're going to talk about that today. George, how are you?

I'm doing well, buddy. Great to see you again.

It's good to have you. And you are coming to us from, as I say it, Medellin, Colombia, where I was fortunate to come visit you just as this whole coronavirus thing was starting and people were talking about. It was the last flight I ever took.

So it's a crazy time. And you guys have been in quarantine there. Your quarantine is kind of strict down there, isn't it?

Very strict, yeah. Unfortunately, they're. They're not letting you out other than between two and three during the day to, like, walk your dog, get some exercise, and then they let you go to the grocery store or the drugstore based on the last number of your id.

Wow.

So, but now if you want to work the system like I am, I've got, I've got my passport, I've got my, my Puerto Rico id, and I've got my Medellin id. And fortunately, they all have three different last digits. So the guy is at the grocery store. Like, wait a minute, we saw this guy here yesterday.

No, just say you have a twin brother. You know, that's something that Doug Casey would endorse. He would say, you know, have multiple passports, multiple IDs, and so you can work the system. That's great. Well, hey, tell us about this. You've been covering it on your YouTube channel, which is great, great content, by the way. The Dragon portfolio. What is that, George?

Well, it was designed by a gentleman by the name of Chris Cole with Artemis Capital. They're out of Austin, Texas. I love listening to the guy. He's often on Macro Voices, the podcast, or Real Vision. He's just a real, real sharp thinker. And he went back, looked at the last 90 years to 100 years and saw how the typical portfolio that financial planners, this typical portfolio called a risk parity portfolio, and that's your 60% stocks, 40% bonds, and then you kind of adjust it based on your age. So he looked at how that portfolio did over the last hundred years through these different cycles.

They performed very poorly. They performed extremely well from 1984 to 2007. But when you look before that, they didn't do well at all. So then he combined all these different elements that are really don't have anything to do with bonds. They're not really correlated to bonds or stocks, such as volatility. This is what his fund does. It's a long volatility fund, one of his main funds. He tested that and he saw that it did extremely well. Regardless of whether we are in a boom cycle or we are in a bust cycle. He came up with this paper, this report that's called Allegory of the Hawk and Serpent. It just tells a story while at the same time going through all of this research, all the charts, and then comparing this Dragon portfolio is what he calls it, to a normal risk parity portfolio that your average financial planner would suggest.

He talks about the Hawk and the Serpent. Can you go into that a little bit and how do we use this?

Sure. So he starts with the first Hawk cycle, and that was in the 1930s. That was what we consider the Great Depression. Let me back up a little bit further. The Serpent cycle is a cycle where we go into a boom. So it starts off with great free market capitalism. Everything we think about, usually it has a tailwind, such as demographics or a new type of technology, and the economy expands. But when you get toward the end of the cycle, it gets corrupted by politicians, by deficit spending, by money printing, all these things that you talk about so well on your show that really cripple an economy. And then what happens that issues in a Hawk cycle? A Hawk cycle is a deleveraging. And the deleveraging can come as a result of deflation or inflation. We first talked about the Hawk cycle in the 1930s. That was a deflationary deleveraging. But in the 1970s, from about 65 to 1983, we had an inflationary Hawk cycle. And really that Hawk cycle comes in and just wipes the slate clean. It takes care of all, it eradicates the. The mal investment, the misallocation of resources that happened as a result of the latter stages of the Serpent cycle.

Okay, so are we in one of those two cycles now?

Yeah, now we're in a Hawk cycle, but it started in 2008. But these cycles last usually 20 to 30 years. So we're maybe just the first third of it so far.

Okay, so it lasts a while, this Hawk cycle. Why does it last so long? How do we know it lasts that long? What tells us that? Just history or.

Yeah, through his research, he's got these cycles defined. He goes back about 100 years, and that's generally how long they've lasted. Now can it last longer? Can it be shorter? Absolutely. But it generally lasts that long because it takes a long time for all of the mal investment to really get cleaned out of the system. And Ray Dalio calls this a beautiful deleveraging. If some of your viewers watched his YouTube videos he has when he talks about economic cycles and debt cycles, long term, short term. But I think Chris is just taking it a step further.

Okay. Okay, good. So is there a certain way we as investors are supposed to act during this cycle versus the next cycle?

Yes. So if we're in a hawk cycle right now, if you read his paper and I'll send you the link. If you want to put a link in your show notes, it's a very readable PDF, about 20 pages or so. But if you say, okay, this makes a lot of sense to me, then you've got to figure out how to set up your own portfolio to take advantage of this hawk cycle. So you've got to set up your own little mini Dragon portfolio, let's call it. Most people can do this pretty easy because it's about 18, 20% bonds, 20% stocks, you got about 20% gold. But where it gets a little more difficult is you have to go into commodity trend following, which is doable. There's some books out there, how to do it. Or if you're an accredited investor, you can check out Chris's fund. But not everyone's an accredited investor. For the average Joe and Jane, the complex part of the portfolio is trying to figure out how to go long. Volatility. Because there are volatility funds out there, but they typically have a negative carry. If you hold them over 10 years, you're almost guaranteed to lose money. I won't go into why, but it's just not a good long term investment. So one of the things I did in yesterday's video is I tried to think through, kind of get outside of the box and ask myself, what could the average Joe and Jane do to go long? Volatility. And of course one of these was real estate. Because if you look back at things that have done well either in a deflationary period like the 1930s or the 1970s, not all real estate, of course, like you say, there is no monolith called real estate. You've got to get granular. But when you look at the type of rental properties that you and I like in linear markets with great cash flow, typically if you look at the 1970s, they haven't knocked the ball out of the park from an appreciation standpoint, when you look at it in terms of inflation, Adjusted, but from a cash flow. And if you're using good, solid, smart debt at a low fixed interest rate, they do well. Then going back to the 1930s, you've got some good cash flow. They might have lost a little money as far as the equity, but you lose a lot less than all these other options. And like you always say, you got to have to ask yourself, compared to what.

That's interesting. You know what drives me crazy about these guys, all of these financial guys, George, they always talk in terms of, like, this fund or that fund or that stock or, you know, it's like they just never really talk about real estate enough. You know, they sort of don't consider it investing. Whenever I hear one of these or hear or see one of these commercials for a financial services firm, right. They talk about investors, and it's like there's this elephant in the room called income property. They just ignore it. Like, well, if you like real estate, you should be in REIT or, you know, or something like that. And, you know, what about just buying some houses?

Well, I think it takes them out of the equation.

Yeah. Right.

So they don't like it like it. Because if you're in control of your own investments, whether it's just physical gold in your back pocket or you own a real estate or you own a rental property, you don't need a manager. There's no way for them to collect fees. And I think that's most likely why they don't like it too much.

Sadly, yes, that is the definite answer. Well, is there anything else you want to tell us about these? The Dragon portfolio?

I would suggest reading the paper. It's absolutely fascinating. It makes a lot of sense, but it also teaches.

Is that the one you sent me the other day?

It is, yeah.

Yeah. Oh, that's long, by the way. That's deep. Yes, There's a lot to it.

Yeah, yeah. But it also teaches people to see things more clearly. And what I mean by that is, if you look at some of the charts he has in there for the 1970s, as an example, he uses that as. As a period of this inflationary deleveraging. Most people look at inflation and deflation as though it's binary. So we have one or the other. But what you see in the paper and what I found through my research in the last couple months is there is no binary. We don't have either deflation or inflation. We have a combination of both all the time, and they're like two different cross currents. So you have to ask yourself, well, Inflation or deflation compared to what? So when you're looking at some of his charts as an example, you see that from.

1972, I believe from 1974, the stock market went down by like 60%. Most people don't know 60%, while at the same time, if you look at the CPI or the inflation rate, as you have many times, you see that the inflation is like 6 or 7%. So we had 6 or 7% inflation in consumer prices, while at the same time the stock market went down by 60%. Not all at once, just gradually. A big bear market. So where, if you say, like, let's say the average person on the street or even the average investor, you said, okay, we're going to get inflation over the next 10 years, they'd say, okay, well, then the stock market has to go up. Well, not necessarily. We could see the price of food increase by 50%. We could see the price of rent go up by 50%, while we could see the stock market or the bond market go down by 20 or 30%. Or we could see the dollar get stronger against the euro. You really got to get granular there if you want to figure this stuff out.

Okay, so what you're talking about there is asset prices versus consumer prices.

Yeah. But even within consumer prices, you have to ask yourself, okay, what type of inflation am I referring to? Right now is a great example because you've got the price of gas. I just read a Market Watch report this morning. Price of gas is down in the latest CPI numbers by 21%. But the price of food on average is up by 5 or 6%. The price of education, I would guess is up higher than that.

And my prediction is that one's gonna collapse, thankfully. I think with people realizing they can learn online and with the universities maybe not having the ability to bring people back to campuses, or people not wanting to go back to campus because they're afraid of the social distancing or the lack of ability to socially distance. And I think that's gonna be great. Let's see a lot of deflation there because that's been a scamming people forever, but go ahead.

Yeah, but I think you make a great point that you could see the cost of education come down while at the same time medical care, the cost goes up. You pointed out some flights with me the other day when we were going back and forth via email, where initially. And you would just make logical sense. You see all these airplanes that are literally being parked at airports, like this giant parking lot.

I've Seen it? Yeah. Some of the functioning airplanes, airports that, you know, you might. If anyone takes a flight anymore, but, you know, there. There are like three people watching or listening that are actually taking flights occasionally, but that's it. And. And if you go to the airport, you know, you just go to a regular, you know, widely used airport, and they'll have one whole Runway with jets just stacked up on that Runway, you know, billions of dollars worth of equipment. I mean, billions and billions of dollars worth of equipment. And interestingly, it is expensive for these airlines to store those airplanes. If they start those engines every couple of days, those things decay quickly. So storing those planes is very costly. I didn't know that until recently. Go ahead.

Yeah, but most people would think, okay, that's got to be deflationary. There's no customers, there's no passengers. So airlines just must be dramatically lowering their prices. And they did initially, yes. What you've seen more recently is you have the supply component come into play. So it's not just demand, it's also supply. So supply decreases faster than demand, then prices still could rise. And that graph you showed me was a great example, just for your viewers. Jason sent me kind of a price chart from going back, I think, to February or January.

Yeah, it was like right before the lockdown started. And it was just from. You could do this yourself. It was just from Google Flights, the website and the chart. You can tell them, George, the punchline. But, yeah, go ahead.

Yeah. Well, it was a flight direct from Miami to LA. And it started off, I think, maybe 400 bucks or 350 bucks. And then when we first had the virus, you just see it plummet down. It got down to like a hundred bucks.

Yeah, yeah, yeah.

Cheap. And then what happened just more recently in the last few weeks, once they restricted supply, well, there was still some demand. And then the prices of these flights actually went up higher than they were before.

So this is this supply demand kind of battle that we see happening. And it gets granular not just with the price of gas, but food, education, health care. And then asset prices is like, well.

I get what you're saying about that, but. Well, maybe the asset inflation deflation thing. I don't want to go into that, but you said something to me a few weeks ago where this was an interesting dichotomy where the dollar can be strong, you can have a strong dollar, which most people think that means you have deflation. Because, look, it's logical. If the dollar is strong, then I can buy more with it. But based on what happens inside the US versus outside the us that can really be different. It's not that simple. Right, George?

100%. If you look at a chart of the CPI going back to 2000 as an example, it just goes from almost in a straight line from left to right. There's a little blip where we get 2008, 2009, where you see just a, a little bit of deflation in the cpi.

What you mean there is. You're saying that chart would mostly reflect inflation in the Consumer Price Index. Okay, go ahead.

Correct. As the government measures it. And you and I would both agree that's probably low. Sure. But that's what the government will admit to. And they're admitting that the prices have gone up pretty much just, well, not pretty much, but very steadily since 2000 all the way to 2020. So you always have constant prices, price increases, but during the same time, if you look at a chart of the US dollar compared to, we'll call it the dxy, so a basket of other currencies, you'll see that it's not going up the whole time, it's not going down the whole time. It looks like a roller coaster. Sometimes it's increasing value, sometimes it's decreasing in value, while at the same time the CPI is always increasing in value. There really isn't a correlation between the Consumer Price Index or what you're paying for your food at the grocery store or your gas or your health care or your rent compared to what the dollar is doing compared to the euro, the yen or the Colombian peso.

But why is that? You would think that when you have a strong dollar, everything else would be cheap in comparison. You'd get to go out and spend your strong dollar. It's like a lot of people, at least they used to do this years ago. They would literally plan shopping trips where people in the US when the dollar was strong, would go to London and New Yorkers would fly over to London to go buy clothes, buy high fashion clothes. These are wealthy people doing this, or upper middle class at least. And then sometimes the trend goes the other way. We've certainly seen it with Asians, Japanese and Chinese coming to the US over the years where they have these buses of people going to shopping malls.

Right. Go back to your original example. They're going over to the UK and buying things in pounds, but you're still comparing the currencies because the things that you're buying, let's say the clothing that you're buying could be going up in price in pounds. But based on your dollars, they're going down in price because you're still talking about the swap between the currencies. You're not really talking about the domestic product sector themselves. Now, to your point though, when you have an increase or a strong dollar, we'll call does mean that our imports are getting cheaper. So that should be deflationary. But that's just one cross current. You've got the cross current of that. You've got the cross current of the M2 money supply expanding based on the commercial banks. You've got the cross current of the Fed creating more base money or bank reserves and how that's being spent into the financial economy or how it's being lent into the financial. And then you've got the velocity of money. So all those domestic dollars, how fast are they circulating within the system? It's like the ocean in the sense that there's not just one tide. That's why I always call cross currents. There's these 10, 20 infinite cross currents that are at play at all times. It's just a matter of deciding, okay, what's the strongest cross current right now that we should be paying attention to. And that's why macro is so fun. I know that's why you enjoy it, but that's what makes it so complex.

Yeah, yeah, It's a super interesting topic. I love it. George, give out your website or whatever resource you want to share with people and any closing thoughts, anything we didn't cover or whatever you want to share.

No, I think that's it. I'll send you a link to the description for Chris's paper. If you're kind of like geeking out on that stuff like Jason and I, I think you'll really.

We have no life.

But as far as my contact stuff, you can find me on YouTube at George Gammon G A M M O N I do videos, interviews like this all the time or just on Twitter, just my name.

And George is famous for his awesome whiteboard videos, folks, so check him out. He's doing a great job teaching people stuff. George Gammon, thanks for joining us.

Thanks for having me.

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