1519 FBF: Economic Bubbles and Fiat Currencies with Harry Dent NY Times Bestselling Author of ‘The Great Depression Ahead’

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Welcome to the Creating wealth show. This is episode number 254. And this is your host, Jason Hartman. Thanks so much for joining me today. Well, we've got another great show for you today. We have actually two guests in this show. One is Harry Dent who is on again. He's coming back to give us an update on what's going on with him and his thinking in the economy. So we will be starting with that in just a moment. Then we will have our Atlanta local market specialist talking with you about some special financing and special exclusive inventory that we have. Again, one of the great things about working with us is we have exclusive inventory that you won't find anywhere else in many of our markets because we have worked out those exclusive deals with our providers, our vendors, and I think you'll like it. So you'll hear about that toward the end of the show today. So let's go ahead and jump right into it with Harry Dent and then I'll be back to talk to you about a few things, including our St. Louis tour. I hope you've signed up for that. And of course that is May 18th through the 21st, St. Louis and St. Robert, Missouri. You get to see both markets. And let's talk to Harry Dent and I'll be right back after that.

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My pleasure to welcome back to the show Harry Dent. His latest book is the Great Crash Ahead, and he's out with some big predictions for 2012 and beyond. And as you know, I'm a big follower of Harry's. I have been for many, many years. And I love the way he looks at demographics and how they impact the economy. Harry, welcome. How are you?

Nice to be back, Jason.

Well, good to have you. You have a pretty different view than a lot of people in terms of your view of deflation and so forth. What do you see ahead for the economy?

Well, you know, it starts in the Great Crash Ahead, which, you know, her latest book came out at the end of September. We're different across the board. We look at demographics as the private driver, not only economic growth, but inflation and deflation. Young people are inflationary when they enter the workforce and cost so much to incorporate. And older people kind of downsize and deflate everything. And, you know, we have these booms in busts, and we're saying, look, this boom from 1983 to 2007, driven by baby boomers moving into their peak spending, it's over. And the Fed is acting like, well, we can just stimulate the economy and get it back to normal. No, you got 92 million baby boomers. They're going to save more, borrow less, and spend less no matter what you do with all your fancy stimulus and stuff. So they're fighting a losing battle there. The second thing we point out in the book is that everybody's looking at the government debt and trembling at 15 trillion, growing towards 25 trillion in the next decade. We have 42 trillion in private debt. We created four times as much private debt as government debt up until 2008. Now the government debt's soaring because they're having to deal with the downturn. Private debt, when it deleverages, causes deflation. History is clear on this. And when there's a lot more private debt, which there always is, than government debt, then the private debt ultimately deleverages more than the government. Debt goes up as the government's trying to stimulate the economy and running deficits due to a bad economy. So, you know, we've been saying that sooner or later the government's going to lose this war. It's going to take tens of trillions of dollars of stimulus to offset these debt trends and demographic trends over the next decade and end up like Japan. And the only thing about that is we can't even end up like Japan because we came in here so much in debt, we don't have the ability to stimulate as long as Japan did. So we see another crash coming and it's just a matter of when the bond markets realize that the US and the ECB can't bring their economies back to normal with all this stimulus and realize it's a losing battle like they already did with Greece, Italy, Spain, Portugal, Ireland and this sort of stuff. And somebody's going to realize this one day in Japan, they've been trying to come out of a downturn for 22 years doing what we're doing, and they're not coming out of it. So we tell people, look, you got to prepare for another crash. And each bubble goes a little higher. We've had three bubbles. The one that peaked in 2000, the one that peaked in 2007. Now sometime in 2012 or maybe early 2013, we got another bubble that's going to peak and each crash goes lower. So if the last first crash was 50 some percent and the last one was 60%, this was going to be 65 to 70%. Now here's the big difference though. Since the book came out, we did not expect the ECB in Europe to come up with 1.3 trillion in QE2, you know, stimulus. They were talking austerity. And they're still forcing these countries into austerity to, you know, get bailouts and stuff.

And austerity is what they need. Yeah, that's what they need.

I mean, the truth is the US went through extreme austerity in the early 30s. In three years, our debt ratios went from 200% to 50%, government and private included. Iceland had the biggest debt bubble of any country. Kind of hit the wall first, had no ability to bail themselves out of that. They weren't in the euro so they could devalue their currency. What countries used to do. They eliminated 67% of their massive private debt. Now they're growing at 3 to 4%, unemployment's dropped down to 6% and looks like it's going to continue to drop. They're the only healthy country in Europe outside of Germany and it's because they dealt with their debt instead of kicking the can down the road.

Isn't it amazing how quickly Iceland recovered? I mean that should be a model for the rest of the world because they went bankrupt. They were basically bankrupt during the first.

They were more than bankrupt. Their debt ratios, their private debt was almost eight times gdp. Ours is like three times, four times actually, you know, government debts one times. They've got the highest debt in the world, Ireland's second on private debt. And so yeah, they were more than bankrupt. They went from a nation of fishermen to nation of speculators and drew in all this capital from Europe. Well, partly because a lot of the capital came in their banks and deposits from overseas they just said stiff them. And so again they cut their private debt, which is by far the largest debt, way more than government debt by 67% and it's still a bit high. And home prices have yet to fall there because they had a big inflation when they devalued their currency. They import a lot of stuff obviously because they're sitting on a rock of ice and outside of fish, they import everything else. So they got hit by inflation instead of deflation like most countries. So home prices didn't fall as much. But yeah, Iceland is an example. Yes, it may be painful, but get the pain over. Take some short term pain like the Iron lady would, you know, Margaret Thatcher, and move on. And they're moving on. And the rest of Europe just keeps stepping into recession and more austerity and more deficits and more bailouts and it doesn't work. It didn't work in Japan. Japan bailed out infinitely, never came out of the downturn. If you don't deal with debt, what we call the winter season, you don't go into spring and Japan's proven 22 years later after a debt bubble peaked and in housing and stocks and everything else, just like we saw, they're still in winter, they still can't recover and go into a new era. And they got the fastest aging population. So Japan is dead, Southern Europe is dead, dead. Now the US is going down the same path. If we just keep coming up with QE2 and then QE3 and then QE4, I think we probably will get a QE later this year because bond rates have gotten so low, not just because the Fed pushed them down, but you had a flight of capital out of southern Europe into bond markets like the US That Pushed our rates down even lower. As long as our rates stay down low and the bond markets don't revolt against the Fed like they did against other governments, the Fed will do QE3 if the economy slows down. Economy is not slowing now. We think QE2 will wear off about summer or so, and then we probably will get a QE3. But I think that'll be the last one. I think, you know, inflation's going to become a threat. The bond markets, you know, how many times do you take Viagra and nothing happens and you not go, hey, something's wrong here.

Yeah, you can't just keep, you can't keep juicing the economy forever, obviously, because you get massive inflation and devaluation of a currency.

Well, and you lose people's confidence because, I mean, there was a recent poll, Economist, 66% economists agreed that the stimulus had been effective, but 81% said they don't want to see any more QE. In other words, enough is enough. Yeah, you can't, like you say, you can't. If you have to keep juicing the economy to keep it going, it's saying the economy doesn't want to grow. So, you know, if you keep doing that, like you say, you just run into inflation, you pervert the markets, you get bubbles everywhere. And that's all we have. We've just got bubble, bubble, bubble, bubble, gold bubble, silver bubble, oil bubble, commodity bubble, you know, emerging markets bubbles, US stock markets bubbles, bond bubble, junk bond bubble. I mean, this is ridiculous.

Life insurance investment bubble. You know, I think that one's coming too. It's unbelievable. We are very good at creating bubbles. No question about it. Here's the thing, you know, Harry, I thought you were really talking deflation the last couple of years, counter to the trend. I mean, but you just mentioned inflation. Can you distinguish that for us?

Yeah, well, we have inflation temporarily. Here's how they make it simplest. You've got the government inflating to fight deflation. When the banking system. And it was our private debt, it wasn't our government debt melting down like in Europe. It was our private debt melting down. In 2008, we had the money supply contracted 6%. That's real deflation. The first time since the early 1930s, the government saw that and said, holy smoke, we're going into the Great Depression if we don't really do something strong and hard. So they've injected 2 trillion in the economy. They did TARP. They've done all types of bailouts, guaranteed all types of loans, trillions of dollars of stimulus. If you add it up, let's say it's 4 to 5 trillion. Well, that's gotten us back to 3 to 4% inflation and money supply is now growing at 4%. Well, to me, if you've gone from minus 6 money supply to plus 4 and they do a QE3 a little later this year, who says that money supply doesn't go to plus 6 or 7 and inflation doesn't go to 5 to 6? I don't think you can keep stimulating when you get inflation that high. The targets for The Fed are 2 inflation.

Right. And I'd say that real inflation, at least with food and energy, quite a bit higher than the official numbers. You probably agree with me, but rather than haggle over that.

Oh, yeah, yeah, definitely.

Yeah. Okay. All right.

Now on the other hand, Jason, real quick though, people omit that. Housing's been the biggest deflator and I don't think we count fully. You know, there are things about equivalent rents I don't think account for the level of housing deflation. So yeah, you're right. Food and energy and most things are higher than people think and more inflation. But housing, which is our biggest cost of living and mortgage borrowing has gone down substantially, substantially.

And when you say equivalent rents, you're referring to how the consumer price index calculates the inflation rate with the equivalent rent issue. But here's the thing, a bunch of things you said. There's so much there and we have limited time, of course, but you know, when you look at Japan's lost two decades, they used to call it the lost decade. Now it's called the lost two decades. Really moving into the lost third decade. Japan doesn't have the reserve currency. They do have that huge demographic problem. They're not replacing themselves. Their fertility rate is meager. They don't have immigration. We have a lot of young people in the US we have Gen Y, and that is a big, big issue, especially when you look at housing, because Gen Y is right now moving into their prime housing formation years and they're going to consume rental properties or buy properties if they can. They've got a huge student loan debt bubble over their head, most of them. Yeah.

That's going to burst.

Oh, absolutely. That's a bubble we didn't mention. And that's. I, I think it's almost a trillion dollars now. What are your comments on that?

Well, first of all, you're right. We have a stronger echo boom, I call them than most countries in Europe, not as strong as Australia, and a Few, but it's still that generation has never got as large and in its number of consumers and births as the baby boom. That's number one. Number two, that generation is moving into their peak in the next several years of rentals at age 26. But most of that generation is still in school or colle and it will be many years before they move into their peak upstarter home buying and then trade up home. So they're starting to buy homes, but the economic environment's not good. Home prices are falling, credit's hard to get. We think in about three or four years you start going to see a stronger trend in starter home buying. But nobody's going to want McMansion. So this generation is not large enough in the workforce or old enough yet. To offset the baby boomers downswing. We are spending wave analysis shows that the economy should slow from about 2008 to 2020, kind of flatten out 2023. And then the echo boom starts to cause more growth than the baby boomers cause decline. So it takes a while to transition from the peak spending of one generation to the next generation having enough momentum to offset their decline. So echo boomers are going to start to help it. But again, most of them aren't even in the workforce yet.

Yeah, yeah, fair enough. And the issue of Japan not having the reserve currency so they can't bail themselves out. Iceland couldn't bail themselves out. The U.S. you know, for better or worse, we're still in that position where we can print and force a lot of our debt on the rest of the world. It is a bully pulpit to some extent. But what are your thoughts about that?

Yeah, I mean we can do that until the bond markets start to say, no, this isn't working. All we see is endless deficits. And that's what they said in Southern Europe. It stops working when people. Again, if you got 8, 81% of economists who basically mostly believe in Keynesian economics saying enough is enough, you know, citizens have got to be feeling the same thing. There's a point where you just can't keep doing this. Now Japan, yeah, they don't have the reserve currency. I mean, they do, they can buy their own bonds like we do. So they do have a printing press. And Japan's been doing this since I think about 1998. Consistently their bond rates are 1%. That's the only thing that stopped Japan from being bankrupt. If Japan even had to pay 3% interest, their interest interest would take their entire government revenues. Japan is a bug looking for a Windshield. They are going to default. It's a matter of whether it's two years from now or ten years from now. And when we come out of this winter season and you get higher inflation rates around the world, their rates are going to go up. The other thing Japan's had that we don't have, they had very high savings rates among their consumers. Well they're getting so old now in Japan with their negative demographics that they've gone from 18% to like 1% savings rate. So at some point when people retire, they start spending down their savings. Japan's not going to be able to sell their bonds to their own citizens. When they have to go out to world markets to fund their massive government debt, they are going to be bankrupt. It's that simple. So Japan's strategy will prove not to work. They could have deleveraged their private debt. They never deleveraged most of their private debt. They substituted massive public debt to ease the pain. Now they got 230% debt to GDP and rising. And again, a move to 2% long term interest rate would damn darn near would bankrupt them. And 3% their interest would take all their revenues and leave no money for anything else. That Japan's dead. We just got to wait for the funeral.

That is a scary scenario for Japan. They just don't have anywhere to go. That's they are boxed in. You Talk in Chapter 8 of your book about the last great bubble, China and capital investment. Yeah.

I mean this is something people are starting to become aware of. We started touting this two years ago and people are like what? I mean everybody knows China's the one's going to bail us out of this whole downturn. China is the biggest bubble in the world. All emerging countries, especially in East Asia have kick started their economies with strong government capital spending. Government favors certain export industries. They put in infrastructures and that is something you should do in the early stages. It's like raising kids. But China has done this twice as long as any other East Asian country. Much more intensely. Instead of 30% of their economy on infrastructures and government capital spending, it's been like 50% and higher. You can't sustain that. They got 24% vacant homes. They're building housing.

They've got bigger vacant cities.

I mean vacant cities, a million people, nobody in them. And they got 20, 30% excess capacity in steel, aluminum, all these major industries, cement. And they're building roads and bridges and railways. So China has been keeping their migrant population of workers that comes in for rural areas Employed by building stuff that nobody needs, not the world, not them. So the world slows down. China's bubbles going to burst big time. So China's the last bubble to burst and China drags down commodity prices. They control 40 to 50% of the industrial metals and resources in the whole world and it drags down the emerging world that exports to them. So China makes this a worldwide crisis, not just a developed world, Europe, US crisis.

So they just don't need the infrastructure they have. They've just totally overbuilt is what you're saying.

Yeah, they're overbuilding on purpose to keep people employed because the chines, they're like government makers, programmer, one party system. And their biggest way of growing has been moving people from rural areas to urban areas, which is smart because their income triples. Just I mean no difference in education. Take somebody out of rice paddy and make them a taxi driver in Shanghai. Three times the income, three times the input to gdp. The problem is they're doing that too fast and they're having to keep building stuff. They're just saying look, we're going to need it one day anyway. The world's going to need it one day. Any we'll build it now, worry later. That's not a good policy, that's a bubble. So Europe has more of a sovereign debt problem because their private debt, at least in southern Europe is not as high because they don't have big SUVs and houses and appliances. US, UK, Ireland has more of a private debt bubble and China has a government building bubble. Governments are pushing projects down to local governments and they're borrowing money from banks and they're going to default on their loans and China's companies going to be in trouble.

Wow, Amazing things the way this all interplays tell us. I know we've got a close here, but what are some of the strategies people can use to survive and thrive with their investments, their careers?

Well, you know, right now we're telling people to be cautious on stocks but we know because of this big QE in Europe and all this stuff in the US, probably a QE3 coming, we're probably going to get a correction in the next couple months, but there'll probably be one more route, especially if we have QE3 in the United States. So you know, you can add to stocks if we see that, but somewhere late this year, early next year, you got to get out of stocks. The US dollar is the best hedge if things go down. UUP is an ETF to play that if you Want to just be safe and sleep at night. Don't buy 10 year treasury bonds. Buy treasury bills and get no return because treasury bonds can fluctuate if interest rates go up. And they could go up to 4% in a heartbeat from 2%. For more aggressive investors, you know, you can basically bet on things going down. Instead of buying Spy, which bets on the S&P 500 going up in ETF, you buy sh. And if the S&P goes down 50, 60, 70%, which we think it eventually will, you make 50, 60, 70%.

50, 60, 70% reduction in the S&P 500. Wow, that's gonna hurt.

Okay, in 87 we saw 40% overnight. In 2000, 2002 we saw about 50%, of course 78% in tech stocks. And then in 2008, early 2009, we saw about 50, 55%. The next crash is going to be 60 to 70%.

So the S&P 500 may actually be 500.

Yeah, no, no, exactly. That's somewhere, you know, somewhere between like 300 and 500. That's kind of our target. It hit 667 last time.

What about the Dow, Harry?

The dow? Somewhere between three and 6,000.

Well, wow, that's. I mean, we're looking at a Dow.

13,600, 440 last time. It hit six, 4:40 last time. So I mean, we call this a megaphone pattern. If you look at the stock, look at the do, look at the S&P 500, the three big tops, the one that's building now and the two before. Each top has been higher and each crash bottom has been lower. It's called a megaphone pattern. It's the most bearish pattern because it means the next crash. And often you break below that bottom megaphone trend line. But each crash is going to be bigger. I mean, that makes sense. If the government's going to pump up a bigger bubble every time there's a crash by lowering interest rates and all this quantitative easing and pushing markets up. Because these banks get all this money from the government and they don't lend it out because nobody wants to borrow and they don't want to lend. And so they just speculate in markets. You know, banks, investment banks, brokerage firms, everybody's a hedge fund now. And you wonder why you get these oil. Oil goes to 147 one day and is at 32 the next. It's just a big speculation play.

Yeah, it's all just a big casino. It's unbelievable. I love the way you said that. Everybody's a hedge fund now. Everybody. Yeah, yeah. It's basically the way they're all operating nowadays.

And the government's saying fine because they want these banks to make money so they don't fall down from their bad loans. But when the bubble bursts, these people are going to lose money and the whole economy is going to come down. It's the craziest thing ever done in history and it's not going to look good five or ten years from now what the government and the Federal Reserve and the treasury did, it's going to look like. What were you people smoking? What?

Yeah. You know, it's unbelievable.

You put the economy on crack and you're surprised that it crashed.

Yeah, they just think they can keep kicking the can and never, never stop dosing it with crack or caffeine or whatever you want to call it. Yeah, amazing. Well Harry, tell people where they can get the book and learn more. Yeah.

You know the best place to get the book is Amazon.com Our website can get the book too, but it's easier to get at Amazon. The best thing to do is go to our website. We got a lot of free reports and you can get a free copy.

Of our newsletter and that's hsdent.com hsdent.com alright, excellent. Well, Harry Dent, thank you so much for joining us today. Appreciate the update. We'd love to have you back every year or so so to keep getting your perspective on things. Thank you. Okay.

Thank you, Jason.

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Well, hey, I hope you enjoyed that segment with Harry Dent. I tell you, when you talk about the multi dimensional nature of the housing market. I'm looking at some news articles here and it just amazes me. I mean, haven't I been saying all this stuff for like eight years now? Yes, I have. Maybe longer than eight years. Well, there's a Zillow report out that says median rent prices on the rise as home values drop. And I mean, I've been saying this for what seems like forever, multidimensional asset class, where some of the indicators are contrary indicators. So when prices are dropping and there's no urgency to buy or people can't buy, and maybe that's the reason prices are dropping. You know, there are reasons people do and don't buy, obviously. One is their general outlook, the, what's called the wealth effect. Do they feel that they're rich enough to buy, to make commitments, to make purchases, and, and what is their ability to obtain financing? So with those things in mind, right now you've got incredibly good financing. And of course I have to mention again that we have special financing for you investors who are foreign nationals. If you want to buy American real estate and you're from Australia, Canada, Europe, New Zealand, wherever in the world you're from Asia, it doesn't matter. We have financing for foreign investors. That beats pretty much anything else I've ever seen out there, or at least ever. When I say ever seen, ever seen since the mortgage meltdown. Okay, there used to be some great programs years ago, but in contemporary ways, phenomenal financing, IRA investors, people with too many loans, foreign nationals end as low as $5,000 down in some of our markets. Talk with one of our investment counselors about that, you can reach them@jason hartman.com but this Zillow report, it's just saying what I've been saying for many, many years, when there's no urgency to buy or when people can't buy because they can't qualify for financing. As attractive as financing may be, and it is incredibly attractive right now, it just shows that rents are on the rise because of this, because of people's inability to qualify. And this trend will be with us for many, many years as the homeownership rate declines. And we as income property investors, heck, we love it when the homeownership rate declines. That just means there's more renters. And it's kind of got a double effect because not only is the rate of homeownership declining, displacing those people into the rental market, but at the same time, the population is dramatically increasing. So you've got a twofold effect there. And then when you segment it demographically by age and so forth, as we've talked about, and you look at Gen Y and the aging baby boomers, both sides of that spectrum, right, you've got the aging baby boomers that are staying healthy too long. Remember what I told you in the last show about the ski resorts losing money on those passes for senior citizens? Really quite an amazing time we're living in, for sure. You know, all of these things combine to see some great stuff for us. So back to this article here. Just one of the quotes from it. It says, well, it seems that rents are rising at the expense of home values. The opposite is true. A thriving rental market will stimulate home sales as investors snap up low priced inventory to convert to rentals, said chief economist for Zillow, Dr. Stan Humphries in the release. So folks, it's the perfect storm. It really is. Last episode I told you about JP Morgan and how they got nailed with that $20 million fine. Probably just part of their business plan. Pennies to them, nothing significant. Well, here's another one we love to talk about and that's good old Goldman Sachs. There's an AP News story that I just saw the other day and so I pulled it off. It says, Goldman Sachs paying a 22 million dollar fine to settle charges. Washington, D.C. goldman Sachs has agreed to pay 22 million dollars to settle regulatory charges that its analysts shared confidential research with favored clients. Would you be one of those favored clients? Probably not. That's the ultra uber rich, right? I hope you're one of those people. But probably most of us aren't, right? The Release goes on to say the regulators allege that Goldman Sachs held weekly, quote, huddles, unquote. You know, where everybody gets together for a huddle in the office, right, from 2006 to 2011, where they discuss confidential research on stocks with the firm's traders. The analyst then passed on the ideas to a select group of top clients, the regulators said. They said that that created a risk of research being passed on to special clients before it was published publicly. So the rules are that everybody gets access to the research at the same time, right? Well, you know, that doesn't happen, of course, and that's why one of the many reasons Wall street is such an abject scam. And traditional middle and upper middle class investors should be direct investors. They should invest in things they own and they control so they don't leave themselves susceptible to commandment number three in my ten commandments. So when you look at that, it's pretty interesting because what amazes me about these people that like the stock market is forget about the fraud, forget about the illegal dealings, forget about the scandals, forget about the insider trading, the options backdating. Forget about all of that stuff. Hey, look, even forget about the fact that the executives and the boards of directors are paying themselves big giant bonuses and salaries as the shares are plummeting in value. Forget about all of that, okay? Because you know, even if they're plummeting in value, you can be a short seller, right? There are ways to adapt to that. And forget about the fact that you don't really have the information. And it's so incredibly complex. And there are so many factors that influence the value of a stock. Not just normal fundamental business factors, as would make sense to most people. Forget about all of that. The high frequency traders, the quants, okay, the quants. The quants are those brilliant people on Wall street, of course, that would have been rocket scientists or scientists of some sort of science paid better, but it doesn't. So they go to work for Wall street and they install these high frequency trading systems. Now 60 Minutes did a story on this about a year ago maybe, and it was quite interesting and there have been lots of stories about it. And you know, you've read about it maybe, but the high frequency traders, literally the speed of light is 186,000 miles per second, not per hour per second. So light can go around the earth, it can orbit the earth seven times in less than a second. It's pretty darn fast, the speed of light, isn't it? It wouldn't make much difference if you were a high frequency trader and you had your computers executing these software based trades based on these algorithms that these incredibly brilliant people, the quants, come up with to program these computers to execute trades of stock and literally move the market because there's so much money doing this. Do you think it would make a difference if your high frequency trading servers and computers were in say California versus New York or in New Jersey versus New York right next door to the stock exchange at 186,000 miles per second? Yeah, actually it does. Light speed is not fast enough for these high frequency traders. So they have literally located their servers, their computers right next door to the stock exchange in New York City so that they can execute their trades faster than the others. Because light speed traveling around the earth seven times in less than one second is not fast enough. It blows my mind that people actually think they're going to outsmart that, that they're going to out trade that. That is unbelievable. Really unbelievable. I've talked to you in the past about how what gets rewarded gets repeated. I've talked to you about how all of the bad behavior seems to get rewarded nowadays. And here's another example of it. This is an article from DS News, bank of America to offer principal reductions of more than. You ready? You sitting down? You listening? Of more than $100,000. Oh, wow.

So in other words, taking on big debt, taking on big risk and not paying your mortgage. The things that that shouldn't be rewarded is actually rewarded the most. It's kind of like winning the lottery, huh? Instead of going to work, having a job, being responsible, saving your money and not gambling, you gamble and you get rewarded. So the article says some bank of America borrowers may be in for principal reductions in amounts exceeding $100,000. According to the latest developments in the settlement the bank and four other large servicers made with state and federal regulators. One of the five servicers participating in the settlement is set to pay the largest portion of the total $25 billion settlement. The bank will pay $3.24 billion to the government and $8.58 billion to borrowers of B of A's total $1 billion is part of a separate settlement regarding loan origination issues for Countrywide. Remember of course, BofA acquired Countrywide back in 2008. It says for deeply underwater borrowers this may result in more than $100,000 reduction. And what they're saying is that they want these banks to get the loan to value or the LTV ratios for these borrowers at 120% or less. Meaning if you have a property that Maybe you paid 200,000 for, maybe you put nothing down, hopefully you borrowed as much as you possibly could as I've been advising you to since the beginning of time. Because I know that malinvestment is actually rewarded in so many cases. As ridiculous and philosophically disheartening as that is. That's just the way it is and we're not going to change it. All we can do is work within that environment. So, so you got that house for 200,000. It went down to 100,000. Its value was cut in half. And now what they're saying is if you have, say you have a $220,000 loan against it, they're going to lop $100,000 off. So your loan balance can be 120,000 and that would make the loan to value ratio 120%, 120% of the value of the property at 120,000. You know folks, debt is good as long as it's long term, fixed rate, prudent investment grade debt. But then again, does it even have to be prudent? Because a lot of these people weren't very prudent and they got rewarded. Not very fair. But it's just the way it is. We have Ken coming up in a minute who's going to talk to you about some financing stuff and some exclusive properties that we have in Atlanta, Georgia for just a moment. And again, this is not a market profile of Atlanta. We've already done that. But before we get to that, I just thought I'd talk to you for a moment about one of our other markets, Phoenix. This is not just true of Phoenix, but I'd say it may be a little more true of Phoenix. And we just got a line on a whole bunch of new inventory in Phoenix, which I'm glad to say we're working on that. It's not on the website yet but do look forward@jason hartman.com youm should see it pretty soon as early as maybe next week, week late next week. And we've got a whole bunch of new good inventory coming your way there. But I tell you, it is getting really, really tough to do business in Phoenix and in some of our markets because the inventory is just so darn scarce and there are multiple offers on so many properties. And I pulled off a real estate agents blog. I thought this was kind of interesting. Top 10 signs. The Phoenix real estate market has gone bananas. Number 10 answering office phones. And this is, you know, this is what a Real estate agent would think, okay, this is a real estate agent writing this to other real estate agents. Number 10, answering office phones is no longer a way to just get an easy way to just generate leads. Answering office phones is now an easy way to end up committed for post traumatic stress disorder. Okay. Number nine, a listing agent tells you that the house you want to show can only be shown Saturday between 1 and 2pm in other words, only one hour a week because the owner breeds pit bulls on the property.

And also, just an FYI, the house will definitely need all new paint and flooring due to the pit bull breeding. Your buyer still actually wants to see the house because there's just nothing else available. You begin to screen your calls against annoying, unsolicited all cash backup offers on your list that are firmly under contract. I mean, think about it. What real estate agent wouldn't want to answer their phone and get an all cash backup offer just in case the deal falls through, right? Number seven, you develop a psychic sense for when a new house has come on the market for one of your buyers. By the time you pull up to the house, set up an appointment to show the property and make it over there with the buyer at 8:05am on day zero of the listing, you find that the house is already under contract, it's already sold. And I'll tell you, folks, I functioned in this market many times over the years and I know what they're saying. It is definitely true. Number six, you are no longer deterred by the multiple offers received field in the MLS service, in the multiple listing service. Until the buyers have moved in, that sucker is fair game. In other words, you're willing to just put in more offers on multiple offer properties. Number five, you show a house that mentions a sparkling pool in the listing description, except that the backyard is nothing but grass and dirt. The seller explains that she doesn't know why the agent put that in there. Because they threw the pump into the bottom of the pool and pumped all the water out and filled it with dirt last fall. Despite this misleading description, in other words, the house gets eight offers first day on the market. Number four, no trouble finding buyers. Reigning buyers, trouble finding a house for buyers. Stress 8, part of the brain in charge of grammar. Some buyers, please go away. Thank you. And you know what? I remember someone saying that to me, one of the executives I was dealing with in Southern California saying to me that, you know, the real estate market is too crazy when you can't find a real estate agent to help you buy a property. That's true. It's getting like that where agents only want listings because there's just too many buyers and not enough sellers. And again, you're not reading this in the news media, folks, because the news media reports it three to five months late. And they report all segments, not just the segment in which you would be attracted to or we'd recommend as investors. We're talking about the investor segment of the market here, mostly. Number three, your spouse has become accustomed to soothing you back to sleep after you wake up in the middle of the night drenched in sweat, screaming, not again. It can't happen again. Didn't we learn anything from 2005? Number two, those water bottles that realtors are always carrying around to stay hydrated? Well, it's not water in there now.

And the number one reason the Phoenix real estate market has gone banana. You pass a stranger in the grocery store who has a desperate, defeated look in her eye. The skin on her face is saggy and gray from too much fast food eaten on the run. Her clothes are rumpled, she's wearing two different shoes, and she badly needs a root touch up on her gray hairs. You feel deeply sorry for this hollow shell of a person until you realize that you're standing in front of the mirrored display in the floral section looking at yourself. Boy, that is true. It has gone bananas in a lot of places, folks. And I'm not saying that this is a turning point in the economy or anything like that, but I am saying that the good inventory is getting gobbled up awfully fast. So get busy. Get working with an investment counselor at my company and we will get you the newest best deals as they come available. Again, go to jasonhartman.com and register at the website so we can contact you. Do the contact us section. Make sure you include your phone number and we will get busy working for you because the good inventory is disappearing faster than you can believe. Fast enough to make your head spin. So hey, let's talk to one of our local market specialists about that here. But be sure. I know we've jumped around. We've talked about Phoenix, St. Louis, and now we're going to talk about Atlanta. But be sure to register for our St. Louis Creating wealth in Today's Economy boot camp and our St. Louis tour that is coming up and also St. Robert tour and that is May 18th through the 21st, early bird pricing on the website@JasonHartman.com in the events section. We look forward to seeing you there. It's going to be a great time. A Great trip and also should be very fun as well as educational. And you'll get a first hand look at at this tour of inventory in St. Louis and St. Robert. Some of our best cash flow markets. So hey, let's go to our local market specialist in Atlanta and our next show we're going to talk about. Well, we've got a bunch of great shows coming up for you and I'm not going to go over them all. Now in the interest of time, here is our Atlanta local market specialist talking about financing and exclusive inventory.

Hey, it's my pleasure to welcome our local market specialist Ken back to the show. He is from Atlanta and wow, business is booming in this market. People always say, Jason, what's your favorite market? Well, I don't have one. It's like asking a mother which one's her favorite kid. I like all our markets for different reasons and you need to be diversified, of course. But I got to tell you, I really kind of favor Atlanta right at this very moment. I've been doing a lot of private land lending there and all that private lending that I'm doing and our clients are doing that is generating exclusive inventory for us. You can't find this inventory anywhere else except on Jason Hartman dot com. That's the only place. So exclusive inventory is really cool. And again it's, it's darn hard for our competitors to do this stuff because they don't have the capital we have most of the time at least. And they're not creating exclusive inventory like we are. So. So we are. Your first stop, Jason hartman.com properties section. Ken, welcome. How you doing?

I'm doing great. Thanks for having me.

2012'S off to a pretty awesome start, isn't it?

It is. I'll tell you what, man, we've had a lot of activity so far this year.

Yeah. You know, my best year in the business personally was 2008. And I tell you, 2012, I feel like it's almost gonna be that good. And most people, they say their best year was like 2005. And my business individually, it lasted a lot longer than that. And into 2008 was a really good year. But let's talk about two samples, Ken. And these are properties that are exclusive to us. People can only find them@jason hartman.com and I've got the performas in front of me. Let's talk about maybe this first one in Douglasville. Huh? What do you think? That's a nice property.

In fact, this is a house that you're actually going to Be lending on.

Yeah.

So on this particular house, I am.

The lender that's financing the deal for you for your business. And I just love doing this. It's a win, win, win relationship all the way through the supply chain. And first of all, it's a gorgeous property built in 1998. So it's newer, it's three bedroom, two bath, 2200 square feet. And one of our investors can buy this Property today for 88,900. Tell us more about it, Ken.

Yeah, it's in west of Atlanta at the town called Douglasville, which is an area that experienced a lot of growth over the last five to 10 years. Just a really good traditional suburban neighborhood, very owner occupied neighborhood. But this is a very typical style house in Atlanta. It's a split level where you kind of walk in in the middle and you can either go up to the upstairs or down to the downstairs. It's a two car garage. Good thing about Douglasville, two lower property taxes out there. In fact, the tax taxes right around $900 for the year.

That's amazing. Yeah. That generates a return on this property. I know you had to actually adjust the tax down because it's such the tax rate is so low there. And the overall return on investment for this property is projected at 34% annually based on all of our very conservative assumptions. But the cash flow here, over $300 a month, positive cash flow on a property that only takes you just over $22,000 to get into all, all in. I mean with closing costs and everything. Cash on cash return here is projected at a whopping 17% annually. Wow. That means if the property declines in value, which I don't know how it could when you're only paying $40 per square foot. But if the property goes to zero, say you pay $88,900 today, the property depreciates to zero. It's worth nothing. But you simply generate the rental income and keep your expenses where they are. You're going to make a cash on cash return of 17% annually. Phenomenal.

Not bad.

Not bad, not bad. You know, someone asked me the other day, they said, Jason, why don't you buy all these properties? Why don't your vendors just keep them all? Why would they ever sell cash flowing properties? And that's a, a silly, stupid question because you know, of course you're running a business and I'm running a business. I'd love to buy all these properties. I don't have the capital to buy them all. I loan on some of Them, I turn my money around when I get paid back when our end investor buys them and I get a nice return on my lending and then I just roll that into another property. But I can't buy them all. I wish I could.

Same thing here. We get asked the same question. I give them the exact same answer. I'd love to hold all these properties as long as I could, but unfortunately I'm not made of money.

Yeah, we don't have an unlimited amount of capital. So the one thing we do is you run your business of buying properties through banks and foreclosures and at auctions and selling them to the investors we refer to you. I run my business and we all try to pick up some deals for our own personal portfolio along the way. So we've created exclusive inventory here. Now let's look at the flip side of one of these deals. And this is not the same deal. But you just paid me off on one of my loans. And I remember making this remark to you yesterday, Ken, that, you know, I really wish you didn't pay me off so quickly. I wanted that money to be in play longer. And then you rightfully so pointed out to me that because of the funding fee, really, when they turn quickly like that here, I only had the money out for 32 days.

Wow. What did that deal look like for me? I signed up to loan you the money at 12.5% and my loan amount was 57,500. But let's kind of deconstruct this deal. And the reason we're deconstructing it is that. Anybody listening, I'll be happy to refer them to you or any of my private lending sources if they want to loan money and keep their money from a lending perspective. Now I just have to say and feel free to comment on this, Ken. Personally, I like owning the actual property better. But the one thing I do like about lending on the properties on a short term basis like this is this simplicity. Whenever I do a lending, it's just a paper transaction. I don't have to talk to any property managers. I don't have to sign any property management agreements. I don't have to call any insurance brokers and shop for insurance policies. I don't have to approve any tenants. It's a paper transaction. All I do is I wire you the money and then I sign the document and later you give me more money back than I gave you. I like that deal.

That's about it. That's right.

It's pretty simple. So it depends what type of investor you are. And what I'd say is be both own some properties and lend on some properties. They're both good.

Yep. I love the diversified approach. Own some properties and loan on some properties. That's exactly right.

Well, deconstruct this loan and let's talk about how I did, because anybody listening can do the same thing.

I think this was what, $57,500 was the loan amount on this particular one. And money was only in play for 32 days. I think you made about $630 in interest during that 32 day period. But you also got a $500 funding fee up front.

So I made $1,130.08 to be exact.

There you go. In 32 days, which, when you annualize that, that's about a 23.5% annual return on your money.

23 over 23% annually. You know, Ken, I'm starting to feel guilty. I'm starting to feel like one of those sleazy payday, lenders, you know, with those check cashing places and all the bad neighborhoods.

You know, it's just the thing is, it's a win win. I love the fact that we're only in a deal for 30 days, that our properties move that quickly, and you as the investor man, to make that kind of annualized return. It works out good for both of us.

Yeah, it does. It does. And so I'm loaning the money to you. You're my borrower now. Do you feel like I really ripped you off?

Not at all. To me, you perform a vital function for our business. So I don't mind at all that you made a great return on your money.

But, you know, people ask Ken, why do you need to borrow the money? You're doing really well. I know how you're doing, and you're doing well for yourself. Congratulations. Good job. And the reason you need the money is because your business, you know, when you're buying houses, this is an expensive big ticket item. I mean, this is a capital intensive business. So what else would you say to someone that says, why do you need the money? Why would you pay such a high borrowing cost?

Well, that's exactly right. Same thing I said before. Reason I don't hold on to all these properties is I'm not made of money. And it's, you know, when you've got 30 or 40 houses going at one time, that's a lot of capital requirement. And for us to partner with, with investors that can do onesie twosies with us, it just makes all the sense in the world. The other thing is I've got lending relationships with local community banks who have better interest rates, but there's so much red tape and they're so tedious and they want so much of my capital in and it just takes so long. I'd rather be more nimble and pay a little bit more for the money and be able to move quicker on properties.

And see, the thing is, you, you know, like on this deal, I mean, this is a very. This is the shortest deal I've ever done. Just so everybody knows, I've never had one payoff this quickly. Usually there are three months or 92 days and you know, I got one out now in a different market, not a near market, but that one has been. It was going to pay off in like 90 days and then the deal fell out of escrow, so we had to put it back in or we didn't have to. I didn't do anything. But just as a lender, I called up my vendor, my local market specialist in this other market, and I said, hey, I thought my loan was paying off right at the end of the year. And they said, you know, we did too, but the deal fell through. So you're going to carry it longer and get paid more interest. And I'm like, okay, twist my arm.

On that one. I'm getting 12 and an eighth, I think on that one or 12 and a quarter. Not quite as high as this one, but you know, what was I going to say about that? Sorry, I lost my train of thought, but it's pretty cool. So use. You don't have to pay that carrying cost for very long.

That's what I was getting at, you know, our average. In fact, we just ran some reports for our own business here over the last six months. Right now our average is about 62 days.

62 days. So you're paying a pretty high cost of carrying, but it's for a short time.

That's right, yeah. And so, you know, perfect example is the deal that we were just looking at that you just did. If yours had gone out 62 days, which is our average, it's still a 70, 17.5% or so, give or take return on your money that you would have gotten if it had been our average length of time.

Yeah. And I just want to clarify that for everybody so they understand, see the funding fee, the $500 funding fee that I got up front in the deal. Or points. Points are just prepaid interest. So what happens is you're getting a note Rate or the coupon rate here on this deal was 12.5%. But the fact that it paid off so quickly, when you throw in that $500 funding fee, that actually increased my actual interest rate because it was so short, the longer it goes, the lower my rate gets. Because you throw in the funding fee and then you take that over a longer period, you sort of amortize it over a longer period, if you will, that actually lowers the percentage rate I get right. Everybody understand how that works? Can anything you want to throw in there to help people understand that? I'm not sure everybody will see that right away and I just want to.

Make sure they get it right. So essentially like you said, you're starting with the 12. Typically what we do is a 12% interest rate, but because of that funding fee of $500 which is fixed and it's one time, it's like you said, the longer that the loans in play, the closer you sort of migrate to that 12%. But if it's quick, you know, if it's a quick turnaround, like I said, our average is about 60 days, 62 days, you know, you're going to be to up upwards between 15 and 20% return on your money.

Now, everybody listening. If you want to be on the lending side for some of your deals and on the buying property side for other deals, the trick is it gets a little difficult sometimes to keep your money in play. And that's why the properties really are your long term road to wealth. The lendings like really quick gratification. I just love it and I love the simplicity of it. But again, sometimes there isn't a deal to lend on and your money's not in play. So that's part of the problem. There's a challenge to that a little bit. Is that fair to say, Ken? It is.

But I'll tell you that the investors from your group right now that are lending with us, it's rare that their money is out of play for more than a week. I mean, honestly, it's usually a scramble to get the money back to them and turn around and get it back to the attorney for the next closing.

Hey, I just wanted to tell you something and you probably didn't hear this because I know you only listen to my show sporadically and that really bugs me.

But anyway, I'm so busy servicing your members, Jason.

I won't give you too much of a hard time, but one of the things I did say recently on a show, and no offense because we've got people lending in different parts of the country, in different markets with different providers. We have. But one of the things I did say recently is I gave some guidelines for hard money lending, which I emailed you a copy of that. But a new one that I added to it is, is this one. And I said this on a show recently. As I said, take your money back each time. Take your money off the table. And the reason I said that is because of the, the Bernie Madoff thing. Like, say, for example, you were a crook and you're not. I know, but say you were running like a Ponzi scheme out of this stuff. Right. It would be really hard for anyone to run a Ponzi scheme when the investor, the lender keeps taking their money back on every deal and then putting it back into play. So in every deal, I take my money out. It's not in a fund. I'm a direct lender. I'm lending on a specific property and I'm in first position and I've got a specific note or mortgage on that specific property. And that's what all of our investors, members that we refer to you are doing on the lending. So here what I do is I get paid off, I get my money back each time and I stick it in my own bank account and then I wire it out to you again for a new deal. Any thoughts on that?

We do that on every transaction. And in fact, a lot of the folks that are lending to us are borrowing out of their IRAs, and it's got to go back into their IRA so we can refill out the new paperwork, you know, their whatever, investment direction letters to come back to us. So I think you're exactly right. If anybody's doing hard money lending with any group, I would definitely say get it back. But in terms of how we operate, that's exactly what we do.

Yeah. Yeah. And you know, I like the fact that you hire the lawyer and you actually pay for the lawyer to do the transaction. And your stuff is so well documented. And I've just been really impressed with how clean and smooth and official these transactions are.

Yep. It's on our nickel, like you said. I mean, we spend $150 per transaction so that you're as secure in your investment as possible.

What would you say about loan to value ratio and collateral and the lender being comfortable with collateral?

Well, we try to provide our lenders with comps. You've seen that I've sent to you. Here's pictures of the house, here's comparable properties. This is where we Think it's going to come in. And most of the time you're lending 65 to 75% loan to value, you know, on the ARV value once it's been fixed out.

And ARV, you know that acronym after repair value or after rehab value, it means a couple different things. It's the same thing basically. But that's what ARV means, Right?

Right, exactly. And so you're in a very secure position. And the other thing to emphasize is the fact that you're in first lien position too. There's no other loans, there's no other liens against the property. It's just you as the lender who's in first lien position.

Okay, good. So speaking of exclusive inventory, there's another one here. And this is another gorgeous looking house. I mean, I just love the looks of the houses in your markets. They're so substantial. Tell us about this one.

This one is in Austell, which is in Cobb County. Same thing, it's west of town. I actually grew up in Cobb County. Great system to be in very good schools. This particular house, square, same thing. It's over 2,000 square feet. I think it's about 2,100 square feet. We're asking 98. 9 for it. And that's with the full scale renovation included in that price cost per square foot, $47. I mean, this is half of what it would cost to build this house.

Yeah, so by the way, that's a great thing. We talk about regression to replacement cost. We talked about buying below cost of construction or cost of replacement. And in your market for this type of house, about $100 a square foot is what it costs to build it.

Yeah, 80 to 100 somewhere in there.

Okay, so you're well below cost of replacement. And the monthly rent per square foot is projected at $0.52 per square foot or $1,100 per month. And positive cash flow here, 304 per month or almost $3,700 per year, which brings a cash on cash return to the investor projected at 15% annually. Now folks, just realize, again, I'm going to point out, I love this cash on cash metric because it basically just shows you that if the property, if the value gets cut in half, if there's no tax benefit, if there's nothing else but what you put into it versus what you're getting back on it, you're at 15% annually. Wow, that is mind boggling. Ken, what are you going to get in the bank? About 0.2%. Now, the ROI is thousands of times better when you look at a overall projected return on investment here here of 31% annually. How do you beat that?

Yeah, pretty strong. So again, we recommend you diversify into several markets depending on how big your portfolio is going to be. And I recommend you do some lending. And then the long term strategy is owning and controlling that income property. Remember, the lending is not multi dimensional. It doesn't provide tax benefits. In fact, you get taxed on it. So you use the long term wealth creation is to buy and hold your income properties because those are the most tax favored asset in America. And the lending you do for some quick pocket money. And you know what we've had, Ken, that's really interesting and we've seen some of our clients grow so nicely with this is they didn't have much money to start with. And so what they might do is they might do some private lending in the beginning and use that to sort of pyramid into owning income properties. And so they do that like that dual path strategy. Any comments on that?

No, that's exactly, exactly right. We have a lot of investors who just even want to kind of have a relationship with us, see what it looks like, sort of dip their toes in the water. And a three month loan is not much of a commitment. It sort of lets you try it on, see how it fits. And then when they get a little bit more comfortable with us and our houses, then you're going to. Exactly right. They move into purchasing one and owning it long term.

Great stuff, good stuff. Well, what else would you like people to know about Atlanta, about the properties? Again, this is exclusive inventory for us. And there's a bunch of exclusive inventory on the website@jasonhartman.com that you won't find anywhere else. And the reason is that my deal with Ken and the others is that it's ours exclusively because we finance the deal. So that can really bring some more choices to you as an investor that you won't find anywhere el else but anything on any one of, I guess the three subjects, the Atlanta, the greater Atlanta market, these specific exclusive properties or other exclusive properties or financing from a lender perspective.

Well, I think just in terms of being in Atlanta, I think Atlanta's really on the map right now in terms of an investment market. I mean, our inventory has been down three years in a row. We've really cycled through a lot of our foreclosures. Obviously interest rates are still phenomenal, but our economy is projected to be strong. We're actually supposed to add over 50,000 jobs just this year alone. 100,000 people per year for the next 10 years. We're a growing market and our real estate just happens to be on sale right now. So it's a great time to get into Atlanta. Whether you're on the lending side or the buying side.

Fantastic. Contact us through the website jason hartman.com and you can learn more. You can see some great videos on this market and you can browse on all the properties there right on the website with full performance and they're all totally consistent. So once you learn how to look at the one page document we have at Jason Hartman.com everything is consistent. Just learn how to read that one page and you don't have to be a detective. So it's a great thing. Thanks so much for joining us today. Appreciate it.

Thanks. Jason.

Are you interested in a property outside of our network? Do you need a second opinion? No problem. Let Jason's experts evaluate the deal. Our deal evaluator is only $50. For more information go to Jason hartman.com now.

This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews. Please visit www.or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. Exclusively.