1639: Peter Schiff & Jim Rickards Debate Inflation, Mortgage Update January 2021

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 1639-1639 and that means Wednesday will be a 10th of July episode show where we discuss something of general interest. And Wednesday's show will be of not only general interest, but interest to everybody. Everybody who cares about freedom. Yes, I know that's a cliche, right? It's a cliche, but it is legit. It is so important. So today we have our mortgage update and we will have that in a few minutes. But first, since we had Jim Rickards on last week, I found an interesting clip from the Kitco podcast where Peter Schiff and Jim Rickards are debating inflation or deflation. And with Jim Rickards being on so recently, if you miss those episodes for any reason, be sure to catch them. They were last week. We had Jim Rickards on both Monday and Wednesday. Of course, we've had Peter Schiff on the show a long time ago. And you know, these guys out there in the financial world definitely have some interesting points of view, even though.

Oddly, they're wrong so often. Aren't they wrong so often? Yes, they are. But let's get into this clip. Of course, you will have my brilliant commentary included. So here we go. And I will interrupt the clip clip at the appropriate times and correct the possible misperceptions. What are the major risks that you're looking out for today? We're already living through the worst pandemic in recent history. We're seeing a recession that some analysts would say is even worse than the Great depression of the 1930s. And in response, we're seeing monetary stimulus on a historic level. Jim, let's start with you. How could things possibly get worse from here?

Well, first of all, I encourage everyone to stop using the word monetary stimulus. There is no monetary stimulus. There is money printing. Yes, there is money printing and debt monetization. But it has no stimulative effect. You don't get inflation from printing money. You get it from velocity, which is psychological, which the Fed doesn't understand, which.

By the way, I do not completely agree with. You do have to have some velocity of money. In other words, how much is the money changing hands in the economy? And, you know, it's interesting that when I talk to these various people that I interview, the thousands I've interviewed over the years, economic experts in every realm, and I ask them questions like, why does velocity create inflation? It's funny. They many times will make that statement, but they can't really explain it. So I, your host, will attempt to just give you a very basic idea as to that concept. When money changes hands and it moves around the economy, every time it moves, there is a potential for a markup. And when that markup occurs, that can be. I did say can be. Can inflationary. I didn't say always is, but mostly is. However, you can have relatively low velocity and still create quite a bit of inflation. And that goes to the argument where Jim is arguing from a more technical perspective, and he's arguing that there hasn't been any inflation, which I would beg to differ with. Okay. And then Peter, of course, he's always got these more outlandish statements about the end of the world and the dollar crashing, yet it never seems to happen. And I was talking with someone about this yesterday, one of our clients and a friend of mine, Nate. Nate, if you're listening, hi. We talked about this yesterday and with Keith as well, another one of our clients and friends. What I said is, I said, look, if you look back to, say, Howard Ruff, who I had on the show many years ago, who I believe passed on, brilliant newsletter writer, wrote several books, really interesting guy. And he was Talking in the 70s, the 80s, the 90s, the 2000s, and talking about how all of this stuff, all of this bad monetary and fiscal policy is the end of the world and it just never ends. And the problem is, is that yes, they can all say there's a bubble. And yes, there is a bubble, but who knows how long the bubble can last? How big can the bubble blow up? Right. You know, every time they blow up the bubble, they seem to get a better, stronger balloon. We'll liken it to a balloon, not exactly a bubble. And they can just keep pumping more and more air into that balloon. Look at a little tiny kid's balloon that may be at its maximum size when you blow up is 8 or 10 inches in diameter. Is much different than a hot air balloon, right? That is maybe 50ft in diameter. So the balloon keeps getting bigger and stronger, and yes, eventually it will pop, but the question is when and how big can it get before it pops? And the problem with all the doomsayers is that they keep waiting for it to pop and they miss out on a fortune in terms of returns during that time. They are waiting for the bubble to burst. That is the problem. Yes, they'll eventually be right, just like the broken clock is right twice a day, as the old saying goes. But they will miss so much opportunity on the way to that. That reckoning day. Okay, let's go back to the video.

But the biggest threat is deflation.

Peter, you thought you've argued that we could see inflation as a tax. So how would you respond to that?

Well, first of all, the only thing you're going to see deflation measured in is gold. But in terms of fiat currency, prices are going to go up dramatically because they will continue to print the dollar until. Until it no longer has value. That's the only thing that's going to stop it. But look what we've seen so far. You know, even with the civil unrest and the riots and the looting, this is just a small dress rehearsal for what's coming. Because when the dollar crashes, you know, and prices skyrocket, these stimulus checks or, you know, whatever welfare benefits the government wants to dispense, they're not going to be worth very much. I mean, because you're not going to be able to buy anything. And I think the government is going to respond to the surge in consumer prices with price controls kind of the way we did in the 1970s. But prices are going to be rising much faster now.

Okay, so a little bit of context on what Peter is saying. So that's Peter Schiff, and of course, he's predicting the end of the world and the dollar crash. And he's been saying that for a long, long time. I've got videos that I've shared with you of him saying that back in 2006. Right. And here we are 15 years later. But he will eventually. The only question is, when will it be in our lifetime? That's the problem. They can kick this can down the road for a long, long time. But he's referring to the price controls that Nixon implemented in the 70s. What do price controls do? Well, they do the same thing rent control does. We as landlords, as real estate investors know that rent control is an epic disaster. Because what does it do? It's Supposed to create more housing affordability, just like Fannie Mae. Their goal is to promote homeownership just like another government program. You know, this program, that program, this price control, that price control, this regulation, all these things ever do is create shortages. Okay, now in the Fannie Mae example, you may be saying, well, Jason, Fannie Mae did not create a shortage of housing. You're right. What I meant there is a little bit of a different idea. Fannie Mae and Freddie Mac with the idea of promoting home ownership. All they did is increase the prices of homes. That's the very definition. If you promote something, the price will rise and fewer people will be able to afford it. You know, I'm going to share with you on a future episode a clip about Sears. Yeah, Sears, you know, the retailer that's, I don't know, are they completely out of business yet? They keep holding on for an awful long time just like J.C. penney. Well, Sears, you know, Sears used to ship you a house. Yes, a Sears house. From the Sears catalog you could buy a house. So if you had a little piece of land you could order a house, I kid you not, a real house that was, you know, it had assembly instructions and it told you when you got it, you got all these pieces of lumber and all these different parts and it told you what part went where. Just like assembling a piece of IKEA furniture. You could buy, get a house from Sears. And those houses are still standing from the 1920s. They're still around. You don't necessarily know which ones they are because they don't say Sears. There's no nameplate on them that says Sears. But there are many Sears houses. And you will not believe how inexpensive houses were back in the day. And I don't mean in nominal dollars, I mean in real dollars compared to people's wages before Fannie Mae and Freddie Mac and the government and VA and FHA and got involved in promoting homeownership, which means code word, making it more expensive and less affordable to people. That's exactly what they did. Okay, back to the video.

So now than they did back then. But I think there's going to be controls on all sorts of consumer goods. And that means shortages, that means long lines. And I think there's going to be power rationing. And so I think you're going to see a real blow up, particularly in the cities. There's going to be a lot of crime, a lot of violence associated with widespread spread shortages and a lack of food and power outages. So things are going to get pretty bad as we go through a monetary crisis. It's not, you know, this is not just a financial crisis. This is a US dollar crisis and a sovereign debt crisis. That's a whole nother ball game.

Jim. I'll let you respond and close the argument.

Yeah, well, I agree with Peter that the Fed wants inflation, but they don't know how to get it, and they haven't for the last 12 years.

Well, that's the one thing they do know how to do. They can cause inflation. That's all they can do. They can print money.

They can't. They printed $7 trillion in 12 years and we got no inflation.

That is simply not true. Okay, because he's not asking the question. Compared to what? Compared to what? I mean, think about this. We've had all of this technology in the past years since the Great Recession, and all of this first round of huge astronomical money printing, and now we've got it again. And so that technology has been a deflationary force. And what's the comparison? There's no basis for comparison, is there? Because if you measure it with what we should have had or could have had if we didn't have all of that money, printing, prices would be fabulously low right now. I know a lot of consumer prices feel pretty low because technology keeps pushing the price of those things down. But food prices are not low. If you go to the grocery store, it is not inexpensive. If you go to a restaurant, it is very expensive compared to what it used to be. And asset prices are outrageous. The price of real estate, the price of stock, the price of Bitcoin, even the price of gold, which has done very little, is up because it's a measuring stick. So all of that stuff. Now wait a sec. Because you're probably thinking, well, Jason, haven't you been telling us lately that real estate is cheap? How can you say it's expensive now? You're a hypocrite. You're a Democrat, a hypocrite. Oh, same thing.

No, it's expensive. From a price perspective, real estate is expensive. But from a mortgage payment perspective, and when inflation adjusted on those mortgage payments, real estate is still very cheap.

And of course, it depends where real estate in the linear markets we like. Okay, still incredibly inexpensive on a monthly mortgage payment basis, adjusted for inflation, very good buy. But if you're paying cash and you're in a cyclical market, you're going to think real estate's really expensive. So again, you gotta peel back the layers of that onion and whistle while you do it. Otherwise it'll make you cry as you're peeling the onion. You know that all of you chefs out there, you know how that works, right? You got a whistle?

Assets, yes, but I'm talking about.

So there. Rickard said assets, yes. He admitted asset inflation, but not consumer price inflation. So Peter disagrees with him. And there has been fairly significant consumer price inflation, but nothing compared to the amount of money printing because technology is tamping it down and the geopolitical environment is tamping it down. But that cannot last forever. Like I've said for many years. They cannot defy gravity forever.

I mean, prices are much higher than they were seven years ago, consumer prices. But we inflated a stock market bubble, we inflated a real estate bubble, we inflated a bond market bubble. I mean, asset prices went way up. We distorted the economy based on all that inflation. And look, consumer prices have risen, right? I mean, I don't care the way the government wants to keep track of them with their, you know, with the cpi. The CPI is not an accurate reflection of what's actually happening with consumer prices.

It's. It's pretty good. If you want to count assets here, you're right, but you're changing the. It's moving the goalpost. You're changing the definition. If you count assets yet. If you count assets, yes, but I count consumer prices or PC core deflator, because that's. If you want to predict Fed policy, that's what they look at.

So you need to looks at. I care about reality, you know, and prices. Prices are going up, but that's not inflation. Because if the Fed didn't create all this inflation, maybe those prices would have really come down. Maybe consumers would have gotten the benefit of a lower cost of living.

As Jason Hartman, your humble host, always says. Compared to what? You can't hear the dogs that don't bark. You don't know how much cheaper all these consumer prices would have been if they didn't print the trillions of dollars during the Great Recession. Now, fast forward 13 years, and we've had an awful lot of money printing last year, and we're going to have an awful lot more this year. So it's absolutely staggering the kind of inflationary tidal wave we could see in the future. But again, it's uneven. It's complicated. Like my favorite Facebook relationship status, it's complicated. So you got to really look at the nuances.

But the Fed stole that benefit away from them by creating inflation. But look, all of this inflation is going to come home to roost. All of A sudden we're going to catch up and we're going to see dramatic increases in consumer prices. And then when you go back over the entire period, you can say, oh look, prices are up 10% a year or whatever they're going to be because all of a sudden they're going to shoot way up and it's not going to matter that they were benign for a while when all of a sudden they skyrocket and catch up to where they should have been. But the cause was all the inflation the Federal Reserve has been creating the entire time.

Well, they, I agree that if the Fed didn't do what they did, we would have had more deflation. In a way, they were just fighting it to a standstill. But we haven't had inflation for 12 years. Asset prices. Yes, but that's not the definition of inflation.

The definition of inflation is an expansion of the supply of money. And that's what we've had in Spain. This is the greatest definition the world has ever experienced.

You can make up your own definition. Definition of inflation.

It's not a crisis, Jim.

I'm not making up the definition. It's, it's people. Today you go back and get a Webster Dictionary from 100 years ago and you read what inflation is and it'll, it'll, it'll say inflation is an expansion of the money supply. Supply of money and credit. Rising prices are an effect of inflation. Right? Prices don't inflate. Prices go up and they go down. Money supply inflates. You, it's inflate is to expand, right? You don't expand prices. What, what is being expanded is a supply of money.

See, I would criticize Jim Rickards at first for being too technical, but now I'd criticize Peter Schiff for being too technical. Because look, yes, that's true, that it's an expansion of the money supply. I mean, that's what an economist will tell you in their ivory tower. But it doesn't matter. All we really care about is rising prices. That is a problem. But remember, you, knowing my methodology that I've been teaching you for many years, will benefit from this because you will benefit from inflation induced debt destruction now more than ever because the mortgages are so incredibly cheap that so many people are finally calling that mortgage what I've been calling it for 17 years, an asset, not a liability. That's what people are calling it nowadays.

That's inflation. Inflation is an expansion of the money supply. Deflation is a contraction of the money supply. The effects of inflation are in deflation are on prices. When you have inflation and you're inflating the money supply, prices will go up. And when you're deflating it, prices will go down. But sometimes you can inflate the money supply and prices don't go up because the inflation is preventing prices from going down. But don't confuse changes in prices with changes in money supply. Money supply is in freight is inflation. Prices are just prices.

The problem here, look, we're, we're talking, we're talking past each other because we have two different definitions. If you say that prices are flat, but that's inflation, fine. That's not how any central bank in the world or any economist, yes, the.

Central bankers want to pretend that inflation has to do with prices because they don't want to be blamed for it. When, when you accept the real definition of inflation, which is an expansion of the money supply.

Yeah, you know, that's the problem. Peter's getting too far afield on this and he talks over Rickards too much. So they've both got good points. They've both got things that I would criticize. But the one thing that Peter kept pointing out there, just at the tail end there, and I'm not gonna listen to the rest. Okay, you don't need to hear it. I think you get the idea is that how much lower would prices have been when the Fed and the government and the other governments and the other central banks, ecb, bank of Japan, et cetera, et cetera, when they all step in with this massive stimulus, this massive amount, this flood of money, this tidal wave of money, they prevent deflation in consumer prices, which we should get the benefit of. They are stealing that from us. But fine, we're going to align our interest with them, the most powerful forces the human race has ever known. And we are going to go and stock up on those incredibly low cost 30 year fixed rate mortgages at artificially low interest rates, thanks to them. And we are going to outsource the repayment of that debt to somebody else called a tenant. And that is the hidden wealth creator that I've talked about so many times with you, the ultimate investing equation, My ultimate investing equation and inflation induced debt destruction. Now we've got to get to our mortgage update. I really wanted to talk to you today about gaslighting, but I got to save that for a future episode because this is very important to understand. And gaslighting, you may be familiar with that concept. It originally came from a stage play back in the 30s when this husband tried to convince his wife he was a sociopath. He was trying to convince his wife that she was going crazy by manipulating the environment. And she wasn't going crazy. He was manipulating the environment and he just was driving her nuts. Right. With this manipulation of the environment and telling her that no, nothing changed. Nothing changed. It's all fine. It's you. Something's wrong with your perception. And this is what the big tech companies are doing to us. This is what the mainstream media is doing to us. This is what the Federal Reserve and the other central banks are doing to us in terms of the economic aspect. This is what the government and all governments around the world is doing to us. Okay. Very important concept. So we'll dig into that on a future episode. But if you need us, Jason hartman.com and let's get to our mortgage update.

Welcome to this edition of the Mortgage Minutes. We are once again joined by one of the lenders in our network and we want to talk today about the rates that you're going to see whenever you go to get your pre approval and then hopefully get closed on your investment property. So let's, let's have a talk today on this lovely day. What's going on in the mortgage market today?

I guess what we're seeing with regard to the industry in general is underwriting teams and lenders. Fannie Mae and Freddie Mac are continually asking for a borrower to update their situation or position to the degree that we want to make sure that they haven't lost their job, that they haven't been furloughed from work, or if you're a self employed borrower, that your position within your employment and your business hasn't changed negatively as a result of any Covid related concerns. On the flip side, however, the good side of it all is that rates have obviously been as low as we've seen in history, not just modern times, but historically low. So that has led to some Covid related consequences as well. In the industry such as appraisal and underwriting teams just being completely overwhelmed, lenders in general are overwhelmed. But the biggest delay that we're seeing really is with the appraisers. They might go out and do the inspection, see the home, view the home, but it might take them a week or longer or maybe two weeks to write up the report.

Wow.

So that's, that's kind of a related consequence of the overall volume that we're seeing in the industry because everybody's trying to refinance to lower rates. And all of our borrowers in our network are trying to buy these, these properties because the inventory is kind of low, as you can imagine.

So there's a demand on the purchase side because of the inventory issue. There's also a huge demand on the refinance side for clients just to lower their payments and or take equity out of their homes to buy more homes. So the whole system is a little strained as a result of rates being low, which is a direct consequence kind of, of COVID and the recessionary environment that we're in. Having said that, rates are excellent though. Rates are excellent. Right now, an individual borrower, let's say, who's buying our, you know, our typical investment property for 120, $125,000. You know, with 20% down, that 30 year fixed rate today is going to be 3.5% with no points.

You can get down to maybe 2.75 if you pay a couple of points. A lot of our clients, a lot of our clients are doing 20% down and paying a point or two points to buy the rate down.

What's the lowest you've gotten 25% into the deal? The lowest I've seen with 25% down is two and three quarters with no points.

Well, conversely, if you're doing 20% down and you just pay a point or two, let's say you pay two points and you get down to 2.75, then you're putting 20% plus 2% of the loan amount under the deal as opposed to 25% equity into the deal and getting the same interest rate.

Yeah, it's definitely worth running the numbers.

What I tell a lot of folks is exactly run the numbers, but I tell a lot of folks if you were to pay 20% down and take the rate at 3.5% or even 3.75% and then wait for the market to improve again, you may never get down to 2.75%. But even if you did, the cost of a refinance is much more expensive than just paying 2 point or 2 points to buy the rate down today. So it's almost worth the investment today when you're buying your home because you'll never touch that rate ever again.

Yeah, I was wondering, with the massive increase that you were talking about that we've seen with refinances and mortgage starts, how long is a pre approval process taking? Because everybody's slammed and backed up, how long is that taking right now?

Well, refis are definitely taking longer because the purchase market with every lender, doesn't matter who you are every Lender is going to prioritize a purchase deal over a refinance deal.

So again, as it relates to the appraisals and the timeline anticipated around an appraisal being done, I would say we're in between 30 and 45 days to close a loan if the house is already appraisal ready or maybe even tenant occupied. Now, pre Covid, that would have been three weeks to 30 days to do that loan. So we are allowing for a week or a 10 day extension on just getting the appraisal completed. Our execution as it relates to underwriting and documentating and collecting what we need from the borrower is pretty much the same. So our outlier here is just the appraisal turn time.

Okay, so pre approval still a couple days?

Yeah, yeah. From an underwriting perspective, we're 24 to 48 hours to get a decision.

So that's not changed really at all with the volume, simply because we're managing that internally as a company and we're staffing up as we need to for the volume. So. But on the refinance side, you'll certainly see that's a delayed process. You know, it might take an underwriter a week to underwrite a refinance file, whereas pre Covid, that would have been done in that 24 to 48 hours time only, because again, the purchases are going to take precedence over the refinance transactions.

So one of the things that a lot of people have been talking to me about is forbearance right now. And they're, you know, there's some people who went into it strategically, there's some people who went into it because they needed it. And you know, now they potentially could come out, but they're kind of biding their time. What is the current rules about coming out of forbearance and then getting an investment property loan?

Well, as we relate, anything that we see, like every company might be a little bit different and certainly some big servicers, some big banks like Wells Fargo, B of A, the big, the big guys might have different internal forbearance guidelines. You know, so in other words, if your loan is with Wells Fargo and you want to refinance that loan with Wells Fargo, but it's in forbearance, they may have some alleviated guidelines there as it relates to Fannie Mae and Freddie Mac with our buyers who are buying investment properties to qualify for a new loan. If you're in forbearance on any other property that you might own, you have to get current on that forbearance okay, so if you've taken forbearance for 90 days one way or the other in the past, but that 90 days forbearance has expired or up and you wanted to extend your forbearance, we're going to require that you come out of forbearance and you get current on that mortgage. So you got to think about it this way in practical terms is like, okay, if you're asking us to lend you more money to buy another investment property, but one of your other investment properties is in forbearance because you strategically took forbearance because you know, or you had to take forbearance because your tenant wasn't paying you.

Why would a lender lend more money on a loan and know the history of a loan that's not being paid on time? You know what I mean? So they're going to want to make sure that you pay the loan that's in forbearance to the current level before they'll extend more credit to you.

Yeah, but pretty much as soon as you're caught up on everything, you're good to go.

Yeah, I mean, I could document that while we're processing the loan too. It's just we sometimes don't even find out that the borrower is in forbearance until we pull credit. So we've already pretty much gone down the garden path and then we find out about the forbearance. So that's when we have the conversation about getting current.

So with the rates being as low as they currently are, what do you see? And you know, you talked a minute ago about the refinance market and kind of paying down points now to. Because you're not going to be able to refinance. What do you see happening in five, six, seven years when people would usually refinance? Are we just going to see a whole lot of HELOCs coming on board or what are these low rates going to do to the refi market in the future, do you think?

Well, I think any refi market is cyclical. So for example, we're as low as we are now as it relates to Covid and the recessionary environment that we're in. Covid related recession. I think in three, four years time we might see a more normal rate market where rates will go back up. They don't really have any place to go but up. So in three years time they might go back up, but then you'll start that cycle of acquisition again. And then six years from now, seven years from now you might see another recessionary environment where rates come back down and those folks that had purchased in two years time at let's say 4.5% or 4% might get a chance to refinance. So the nature of the industry is very cyclical.

Right.

The average length of time that a loan is on a lender's books is probably five years, three to five years these days. So those folks that purchased from us earlier in the year and financed loans from us late last year and earlier this year pre Covid are now refinancing. Right. So I'm seeing a lot of customers that close on loans in March and April of this year and they're now, you know, and they were at higher interest rate environment and now they're trying to refinance that debt. Yeah, but I mean rates are so low.

But I mean the ones who come in and are getting the, you know, three and a quarter, three, 3.5%. Are you expecting those loans to stay on the books longer since they are so low?

Yeah, I don't expect, I don't expect what we call churning that's not going to churn. Those rates are so historically low that you said it and forget it, or if you paid a point to buy the rate down to 2.99 or whatever the case may be, you're making that investment now to buy that rate to the lowest bid in history and you truly can just settle and forget it. Unless you want to take cash out of a property, that's the only way you would refinance off of that low interest rate. So yeah, I definitely anticipate rates that people, folks that are taking these rates today, to literally sell it and forget it.

Yeah, I mean there's not much reason.

Not to until that's a 30 year fixed rate. Yeah. So I mean there's no stress or no pressure on you to do anything with that market rate. But certainly we're seeing a lot of folks take advantage of the market.

All right, well, is there anything else going on in the mortgage industry and the rates that you think people should know?

I mean, I would just say have patience because the process, like I said, everybody's overwhelmed. Our processing team certainly had challenges this year, personnel wise. You know, people get burned out. And just personally on our team we had a couple, two or three members just quit. You know, they just resigned because of the overwhelming volume and the stress that that creates. So I would just say have patience with us and we'll get it done.

You know, so that's the only thing folks kind of need to be aware of as it relates to the volume, you know, because we all want it when we want it, and we want it done quickly, of course. But at some point, you know, there's a strain on the system that needs to be acknowledged, and that will do.

It for this month's edition of the Mortgage Minutes, everybody, if you haven't started talking to us about your investment properties now, go to Jason Hartman.com, fill out any form there and we will get back to you and start helping you with that. If you have an investment counselor such as myself reach out to us now. Let's start talking properties and getting your portfolio going.

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