1615: Overvalued Market, Stimulus Effectiveness, Stansberry Research Dan Ferris Part I

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 16151615 and thank you for joining me today. I don't want to forget. I hope you had a chance to listen to our last episode, Flashback Friday of Walter E. Williams. He passed away age 84, excellent economist, talked a lot about African American issues and he was skeptical of these government programs and anti poverty programs. And a real scholar, just a great guy anyway, that we had him on the show a couple of times and on Flashback Friday, just the last episode, we replayed one of his somewhat recent interviews with us on the show. So check that out, make sure you don't miss that one. It's a good one. Anyway, today we have an exciting show for you and I'm not going to tell you too much. You just have to listen to it because it's good stuff. Also, I traveled.

I know, I can't believe it.

I went on an airplane, first time in ten months. Huge record. I'm back home now and got back Friday evening from St. Louis where I attended a conference there. And who was there? A bunch of my friends were there, but one of them was our asset protection and estate planning attorney. One of our clients just asked about another attorney today and it made me think of him. And if you haven't already checked out our webinar on that, check it out@jason hartman.com protect jasonhartman.com protect and for extra credit. Yeah, we give extra credit here at Jason Hartman University.

And we don't put.

You into student loan debt for the rest of your life with a degree that nobody is hiring for. See, all of our education here is number one. It's mostly free and certainly free on the podcast and the YouTube channel and the webinars. And then you go out and actually create wealth with the stuff you learn here.

Isn't it good?

Isn't it good?

Yes, it is. It is good, good stuff.

So check that webinar out. And for extra credit, also want to remind you our Alabama webinar is replaying this week. JasonHartman.com SweetHome no need to put Alabama after that. Just JasonArtman.com SweetHome and the Estate Planning and Asset Protection at JasonHartman.com protect.

You know what, I don't want to.

Steal the thunder of this interview today, but you are going to like it. Our guest is from Stansberry Research and it's Dan Ferris. You may have read his great writings out there. He's good and he has a lot to say about the housing market.

Is it going to crash?

Is it going to crash?

There it goes, the bomb dropping, the bomb dropping on the real estate market. Well, today I interviewed for, for later playing.

It'll be coming up maybe next week.

I interviewed the president of the National Apartment Owners Association. He was back on the show, had some incredible things to share about rental housing, rental housing demographics, eviction moratoriums, federal housing assistance programs. That's all coming up on the future episode. But today Dan Ferris is going to teach us some good, good stuff.

So I think you're going to really enjoy this interview.

And here's Dan.

It's my pleasure to welcome Dan Ferris. You've probably heard his name out there. I've been reading his work for years. He is editor of Stream Value at Stansberry Research and the host of the Stansberry Investor Hour podcast, Dan Welco. How are you?

Oh, I'm great. Great to be here, Jason.

It's good to have you on. And you're coming from Vancouver, Washington, right?

That is correct, yes.

Rare sunny day.

A rare sunny day. Good for you. Good for you.

Well, hey, we appreciate you spending some time with us, Dan. I guess I'll start with just asking you about your overall take on the economy in these very tumultuous times. It seems like we've got a divided economy, a very uneven recovery, if we call it a recovery. And your expectations for the future? I'll just let you take it where you want to start.

Well, first things first, it's been an insane year and we had this enormous contraction. As far as the depth of the contraction, like 1930s depth, obviously a lot faster. But, but that kind of depth and as you say, it's bifurcated, isn't it? There's one part of the economy has really took off, right, the stay at home portion. Then hospitality and other things have just been crushed. And my fear is that I'm very confident that we're not going back pre Covid. We will never see that again. And among other things, it's really no great controversial statement to suggest that a lot more people are going to work at home, Covid or not, virus or not. And, you know, it just. It won't be ever be the same again. And travel is the one thing that kind of drives me a little bit crazy because I think we could probably have a lot less restrictions on things like travel and eating out and all that. But, man, in the meantime, you can hardly go anywhere. I mean, it's a pain in the neck and it's really depressing economically.

So I think. And I think the opportunists, the tyrants in government, are using this as a fantastic excuse for them to just intrude into our lives, gain more control over us, and do a lot of very unconstitutional things. You know, right to assemble, right to associate. I mean, nobody talks too much about our right to associate with whomever we want. But soon there'll be contact tracing everywhere. And just. I mean, this is a dictator's dream. It's just. They must be loving it right now. The tyrants that are control freaks, right?

It is. It is a dictator's dream. And the playbook is. To people like us, Jason, it seems so obvious, but what I hear from, you know, people around me, just, you know, people I see from day to day, they think, well, we all need to wear masks. We all need to be careful, and we can't, you know, see each other on Thanksgiving or whatnot. And I just think this is insane. It's amazing that there are as many voices as there are in the medical community saying, this is ridiculous. It's absurd. We shut down the country for nothing. But you don't. You hardly ever hear them. You know, you might hear that person once a week on, like, Tucker Carlson or something like that, or maybe on you on your show. But you don't hear those voices. And they're credible voices that need to be heard.

Of course they are. And Dan, you know, it's interesting. You know, everybody loves to bash conspiracy theories, but the reality is there are conspiracies all around us all the time. And what I like to say is that the great conspiracy of, you know, original colonists conspiring against England. I mean, America was a conspiracy, and it was a great one. So, you know what I mean? Would they have been called conspiracy wackos with tinfoil hats? Our founding fathers? No.

Yeah. They would have been called militia, you know, by the Current lefty crowd. But you're exactly right. People know that when they aggregate their resources, they become more powerful. They know that if they're very modest means, and they know that for sure, if they're centimillionaires and billionaires and well connected people in government, they know, they understand what it means to aggregate power and push other folks around. And they do it. It's funny that we have these terms, conspiracy theory, because who doesn't know that this is how human beings behave? It's a little absurd, right?

No, it is, totally. And the conspiracy point that I wanted to make is that it's hard to argue that the mainstream media isn't a coordinated effort because like you were saying, you see so few dissenting voices in the mainstream media, they all sort of publish the same headlines in lockstep. It's amazing how coordinated it is, you know, whether it be mainstream media or social media and big tech, which I'm lumping all those together, the big tech is probably the most abusive of all. It's like they're coordinating the whole story, the whole narrative. It's the same.

I agree with you. But I heard something recently that rang true. Naval Ravikant, the angelist entrepreneur and sort of philosopher, he was talking about all this and he said, you know, though if you look throughout history, like technology, technological advances, society tends to lean left at these times. And when we look at the media, it's completely technologically driven. The ability to reach more and more people is strictly a function of technology. We went from print to TV to Internet and it just got wider and wider and it leans harder and harder and harder left, as that happens. Right. When we were a print culture, I think we were a lot more reasonable. We had plenty of so called progressive ideas and things. And you know, then radio came and TV came and Internet came and we just lean harder and harder left. So I don't think you need, you don't need an outright, you know, conspiracy of folks meeting clandestinely. But it leans that way anyway. It's so very obviously leans that way that you can't dismiss it. And nowadays, see, I'm somebody who says bad ideas are on the right, bad ideas are on the left. The government wins every election and the voters lose every election. So I don't really care.

That's a good way to put it. Yeah. And regardless of which political party wins, the government always wins.

Which party is gonna run on shrinking the government? Yes, nobody wants that at this point. The electorate is thoroughly been inculcated. You know, we had these big leaps forward basically after the Civil War and then after the Great Depression in World War II. And, you know, we're thoroughly inculcated with this idea that government needs to do everything. So now the electorate is all about which one of these guys is going to give my group more stuff.

Yeah.

You know, and it's group.

Right.

It's become pure collectivism. No matter how you slice it, there's no more place for the individual.

So, yeah, collectivism at the lobbyist level, it's the corporatocracy collectivism. And you know, that dinner that Gavin Newsom had the other night when he broke the rules and, you know, completely just disregarded everything he tells everybody else to do. You know, it's unbelievable, right?

It's hypocrisy. I mean, I certainly have no problem with people going to a restaurant not wearing a mask. I don't care. However, it is typical hypocrisy. You know, for thee, the rules are for thee and not for me.

Yeah, of course, and Nancy Pelosi at her hair salon and all the rest. But let's talk about what this means financially to us and where the economy is going. We started out talking about how it's uneven. Is there a movement? I mean, you know, like, do we need to worry about a bank collapse? At the beginning of this, I was quite worried about that. You know, I entertained it for a short time. I mean, I didn't stay very worried about it. But, you know, the FDIC certainly can't insure all the deposits. Not even close. But it just seems like no matter what the answer is, just print more money. You know, that's the way out of everything. And Jerome Powell's been extremely transparent, at least compared to Greenspan, about, you know, just look at whatever you need, Rich Uncle Jerome's going to print it for you. What does that all mean to us?

Well, yeah, I mean, he recently said, you know, we can do more and Congress needs to do more in no uncertain terms. And Lagarde is saying the same thing over in Europe. So, you know, the fiscal stimulus needs to be greater and the central bank will do everything it can and all that. So that is happening. But if you're going to talk about the kind of, you know, talk about a bank collapse and the fdic, and then you mentioned money printing. And that is really, that's. If you want to think in terms of economic deterioration, it revolves around the ability of the Federal Reserve to print money. And the scheme at this point is still the basic quantitative easing scheme. We hit return on the computer. We create money out of thin air and then we buy securities with it. And we buy. Right now we're buying debt. The Federal Reserve is buying debt securities, including corporate debt and ETFs and things bond ETFs. So you look at that. That is actually a deflationary act because what you are doing is you are swapping the Fed. They don't buy securities because they're saving up for retirement or they want to have a portfolio of securities to borrow money against to create a business. They've taken them out of the system and putting them on their balance sheet and effectively the income disappears from the system. And now they've exchanged that for just a dollar of reserves. It just sits there. If it isn't lent and spent, you don't get the very obvious inflationary rise in the price of things, assets, wages, et cetera. Right now these operations really, they push the bond market around. That pushes interest rates around and it has some kind of an impact on the stock market as well. Although I recently saw a paper, there was an article in Barron's that said, yeah, the Fed put is real, but it really only is effective in the time somewhat after a collapse. You need that downdraft for the market to really lean heavily on the Fed. Come on, do something and then we'll start buying again.

I expect this to continue. I expect the Fed to keep the bank of Japan playbook going and maybe even go that one step further. Bank of Japan, they were buying equities. I think they may still be. I haven't kept up with that. But that's the playbook. Print money, buy securities, buy bonds, then buy corporate bonds, then buy equities.

Okay, so that's the bank of Japan playbook. And does it include 230% debt to GDP ratio eventually?

Well, yeah, who cares about those numbers anymore, right? That's. Oh, Jason, you're looking at the wrong numbers. You're worried about the wrong stuff. How fast can we print more? We need to do more. That's the number they're worried about. $7 trillion balance sheet. They're like, we're going to need to jack this sucker up to 10 or something. That's what they're worried about. But yeah, that comes with lots more debt. As Lacy Hunt and the folks at Heisington have pointed out, as they have for decades. What happens is we are to the point where you get some more debt with that marginal investment from that debt is less and less and less productive. This whole thing, it's Just one giant they're trying to stimulate, but the tool is not fit for the job. The tool of a central bank is not fit for the job of stimulating economic activity. What it is fit for is stimulating a depression. Then what happens? Well, they have a hammer in one hand and a mallet in the other and they say, well, we, we broke it with this, we're going to fix it with this. So they just keep printing more and at some point they will figure out, somebody will figure out how to do something like perhaps a Fannie and Freddie for corporate debt. Let's just say where they guarantee the Fed maybe or some other agency guarantees corporate debt. Oh, then it'll be lent and spent. Then you'll see the asset prices and the wages and the price of goods and services going up. It'll happen, they'll do it. They'll push this thing around as hard as they can until they actually see inflation ticking up. You should take them at their word when they say that that's what they want to do.

Yeah, they do want that and they want a great reset, which maybe we can get to that. But Dan, explain to everybody why, and I agree with you by the way, but why is it that the debt stops working or the stimulus stops working at a point you mentioned that it gets less and less effective. I mean, I think a good metaphor for it. But you know, I'm not exactly sure I can explain it financially as well. But from a biological perspective, I'll explain it with caffeine. Right? You know, if I drink three cups of coffee today, I'm going to have some good energy and you know, I'm going to perk up and you know, it's good. But If I drink 17 cups a day, it doesn't work anymore. In fact, it has counteractive negative effects. Same with sugar. Right. And same with, you know, addictions like alcohol and drugs. Right? A little bit of it. You have a few drinks, you're good, but you have five drinks. And that's really counterproductive. Right. Why does it happen with the Fed and the treasury and government debt? What's happening there that makes that true?

Because they are pushing money on the system that might not have anything to do with it. There's only so much investment at any given moment in time. There's only so much investment that the entrepreneurs of the world want to see happen. And if you say, well, all the investment is done, I mean, this is hypothetical. Obviously a multi trillion dollar economy is a much more complex thing. But let's just simplify and say, okay, all the investment in the world is done at this moment. And then the government says, well, we need more growth, so can we just give you the money for free or at a low interest rate? Which is exactly what's happening now. Oh, well, sure, sure. You give me some cheap money and maybe guarantee it. I got a couple of ideas. So the quality of investment just gets lower and lower and lower. And basically it's like, it reminds me of the way people behave when they win the lottery. Right.

Five years later, or in the first dot com bubble, I think would be the perfect metaphor. Right. These venture capitalists just threw money at these stupid ideas. And the companies I visited a lot of them 20 years ago and you know, they had the Ferraris and the Lamborghinis in the parking lot and these guys had the most tenuous, dumb ideas, frankly.

Women.com, pets.com, peapodgrocer.com yeah, the sock puppet and the webvan.

And there were worse, I mean, there were worse ideas than that even, but they were just, they had beautiful office furniture and lavish parties and you know, they just couldn't figure out how to spend the money. It made them very undisciplined. You know, it's like spoiling your kid. Right? Same idea. Yeah.

And you know what's happening right now? Well, you know, all the big hedge funds are longer on stocks than they've been in a long time. And people are buying more options as speculator, you know, all the Robinhood crowd and everybody are buying more options. People are opening more, you know, just regular online brokerage accounts. And it's super duper frothy. And of course The S&P 500 is like 2.6 times sales, which actually that metric correlates extremely well with future 10 year returns. It's higher than it's ever been, higher than the dot com peak, higher than the 1929 peak. This is the most expensive market ever. And I think it's partially that way because as the Barron's article pointed out, the Fed put is real. And we hear stories of people gambling in the market with their stimulus checks as well. But I think the Fed put and the confidence that that gives people, it's real. And man, we're 60% off that march bottom right now. It's just been like a rocket ship. And it went from, hey, this is not a bad opportunity here to this is the most insanely overvalued market in all of history.

Like that.

It's crazy.

Okay, so it is overvalued.

Without a doubt. Without any doubt. Jeremy says, Jeremy Grantham says this is the third real McCoy bubble he's seen, you know, in the past couple decades. And those people studied bubbles. They studied a few dozen of these things they know from bubbles. And then he says, this is it. This is one. It's been crazy. And he's right.

So does that mean tech stocks? Does it mean the S and P? Does it mean the entire economy?

Yes.

I don't know. That means inexpensive bread and butter housing. I think that's pretty sound still. But it's going up. It'll probably reach a bubble at some point. But right now housing's cheap because interest rates are cheap right now.

I could, if I wanted to really nitpick with you, Jason, I could take issue with the idea of valuations based on the level of interest rates, but housing, you're right.

And I would nitpick with you too. I agree with you because it is a credit based asset. But here's the funny thing though. See, real estate's a little different. And here's why. I know the famous last words. This time it's different. I'm not saying this time it's different, but the thing you've got is you've got these people that take out these three decade long mortgages where they don't have to pay them off till 2005. Oh my God, that's incredible. Right? And the interest rates are negative today. In real terms, no one could argue that we have negative interest rates. No one except a Keynesian Democrat.

Right.

They could probably argue with that, but they would be wrong. So all of us people in the know know that we have negative interest rates. Right. On mortgages for three decades. And you have this safeguard where you never have to get a margin call. You can, even if rates go up to 14, 18%, all those people that have those incredibly low mortgage rates, that just makes the value of their properties even higher. The new properties, no one will be buying more properties because rates will be so high. Right, but the current properties, people would just keep them. Like they keep a rent controlled apartment.

Exactly. Same thing. Yes, exactly.

Yeah. So like one of my team members, he has a rent controlled apartment in San Francisco that he and his wife got in 1996 and it's now probably worth like $1.7 million or so. They pay $2,400 a month, I think. Okay, like they're never giving that thing up, but they really want to move. Like it could be nicer, you know, the problem with those rent controlled places. The owner never has any incentive to fix them up, you know, so why would they fix them up? They're not going to get more rent. So there's just. Capitalism works both ways, right? You know that people with these cheap rates that never get called in for three decades. I don't know, it is different. But go ahead and nitpick. I like nitpicking.

No, it's fine. I agree with you. What would a rational person do, presented with interest rates at this level? Well, if the money's so cheap, you trade it for something that you think is going to be valuable in 30 years. You do exactly this and it is exactly correct. I think the real nitpick that I have is really with Warren Buffett, who moved the goalpost and said, well, he used to look at market cap to gdp, total US Market cap to gdp, that's higher than it's ever been in history. It's pushing toward 170%. It's never been there before. It's like 166 last time I looked. Yeah, hugely high. And then he stopped talking about that when it got too high. And now he says, well, if interest rates stay this low for a long time, stocks are a big deal today. That's a big if in my book. That's a real big if. And it's not the way to think about the value of the stream of cash flows at all, in my opinion.

This will be continued on the next episode. Thank you for listening and happy investing.

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