1815 FBF: Jim Norman, Economic Warfare & The Oil Card with Journalist and Editor for Forbes & Business Week

Welcome to this week's edition of Flashback Friday. Your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy.

This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit hartmanmedia.com.

Welcome to Creating wealth with Jason Hartman. During this program, Jason is going to tell you some really, really exciting things that you probably haven't thought of before. And a new slant on investing fresh new approaches to America's best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self made multimillionaire who not only talks the talk, but walks the walk. He's been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason's footsteps on the road to financial freedom. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Hey, welcome to the Creating wealth show. This is episode number four. 71. 471. Thank you so much for joining me today. It is, yeah, it's Super Bowl Sunday and I live in beautiful, gorgeous Phoenix, the most populous capital city in the United States of America. It is crazy around here. There's a lot going on. So I cannot believe that they had the Phoenix Open, which, you know, the big day was yesterday, Saturday on the same weekend, in fact, two consecutive days. The next day is Super Bowl. I mean, it is just this town is buzzing. It's, it's kind of fun. It's pretty neat. By the time you hear this recording, we will have a Super bowl winner. So I'm not going to speculate on whether it will be the Dodgers or the K. Oh, wait, that's not football, is it? Anyway, okay, my humor, you know, most people don't get that joke. I'm just trying to say, you know, show that I'm not a huge sports follower. Nobody seems to get my jokes about that, but whatever. I'm a financial guy though. I like that stuff. Gosh, today I am so excited for this episode because we have got Jim Norman back on the show and I've been wanting to get this guy back for a while now. As you know, I have been really speculating on what the heck is going on with oil prices. This is a pretty like a tectonic shift that at least temporarily has occurred with oil prices dropping so much. And remember, part of our investment strategy is What I call packaged commodities investing. And so what does this mean? What does it mean to us? What does it mean to oil, oil affected areas? What does it mean to the broader economy? What does it mean to the real estate market? The real estate market, of course, one of the wonderful things about it, it's multi dimensional. So we've got not only the prices, we've got the rents, we've got the other dimensions as well. We're going to explore some of that today. And I've just got to say that Jim is a super interesting and smart guy. Second time on the show for him. He was on maybe, I don't know, three, four years ago. A while back he wrote a book called the Oil Card. He's retired from the oil industry now but is still watch it and has some interesting things to say. I will say however though that his, I think his personal experience, well, like all of ours, I mean all always our personal experience taints and affects our views. Right. I think is kind of overplayed when he talks about the Houston market. But you be the judge, you know, I think it's.

Those most dangerous words. This time it's different, right? This time it's different. But we shall see. We shall see. So before we get into the talk with Jim, couple of things. Number one, Atlanta, we are really coming back online strong in Atlanta. We went about a year there without any real inventory, just a meager amount of inventory. Prices went up quite a bit and very, very difficult for our providers there. We have a couple of them to get good inventory, but we got some good inventory in Atlanta. And actually, you know, I've been moving my portfolio around and kind of changing some things up. I'm not a big fan of selling stuff, but if you're selling and you're 1031 exchanging into something else, that's a pretty good deal. So I'm 1031 ing out of one of my properties and you know, I'm not sure where I'll buy. I'm thinking either Memphis or Atlanta. I'm looking at Indianapolis again. You know, I've owned several properties in Indianapolis over the years. I don't know, you know, we shall see. I'll let you know. How's that sound? I'll let you know where I decide to buy. But I've got properties in a lot of the markets we discussed. And again, one of the mistakes that I freely admit, I try to be, you know, transparent and admit my own mistakes, I do make them for sure. One of them was over diversification and I have to say, you know, Fernando, who we've talked a lot about a lot lately, I think he's a little over diversified. I think you'll agree with that. I told you not to, Fernando. I said no more than five markets, right? I think you're in a little bit more than five, maybe six or I can't remember. Anyway, over diversification, you want to diversify for sure. Three markets is probably the optimal number. Three cities, strategically, in different parts of the US but don't overdo it because as you over diversify, your portfolio becomes more difficult to manage and you know, you're dealing with different parties. Insurance is a state by state thing. Unfortunately, the national insurance company that I was talking about before hasn't worked out so well. They denied a claim of mine. I'm very unhappy about that. They denied one of our clients claims. I'm very unhappy about that. They denied some other people that I found out about that aren't clients of ours their claims. And you know, I'm sure they paid some too. But what was that movie, that John Grisham movie? Was it the Pelican Brief or the insurance company that, you know, just didn't pay out the claims? I think, I think it was the Pelican Brief, maybe. Anyway, I watched that again recently, a couple of months ago. That was a great, great one to see again. And if you want to laugh, by the way, I tell you another funny. And it's, you know. You know what's so funny about our culture is the way we have all of these television shows and all of these movies. I mean, there are in an extensive imbalanced. There are just too many of them really centered around the legal process in the United States. And I think that has got to be some part sort of a mini conspiracy. And the reason is, is because they hold lawyers up and the legal process up as, as if it's some, you know, great and mysterious thing, you know. You know, I'm going to talk on the future about hacking the legal system because I think I've managed to hack it a, to get around the monopolistic approaches that attorneys have and courts have. Courts really help the attorneys because heck, judges are just attorneys, okay? They help them in the same thing. Try not to be too much involved in the legal system. But when you are, you know, if you have to be, and you know, I have to say I'm very happy to report we've never been sued by a client. Knock on wood. I hope it never happens. Whenever there's an issue that needs to be addressed or a challenge. We take care of our clients, and that's really one of our foundational principles. That is part of the culture of my company, and it's deeply ingrained are people who really care. You know, over the years, I've had some investment counselors, effectively salespeople. They just are, like, acting like it's a numbers game and forgetting that it's a people business. And the lifetime value of the customer is so incredibly high.

Welcome to this week's edition of Flashback Friday. Your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present and propel you into the future. Enjoy.

Which, by the way, Cody, one of our listeners who's been on the show before told me recently he shared a stat from Tom Sosnoff. I think. Yeah, I think that's a correct pronunciation that the lifetime value. Did I mention. I may have mentioned this at the risk of repeating myself. The lifetime value of a credit card customer for a credit card company. Half a million bucks. Half a million dollars. And you know, that's like the average customer. I mean, can you imagine, you know, most people listening to this show are in. In the upper middle class. I'd say some people are truly wealthy who are listening as well. Their lifetime value to those credit card companies has got to be a lot higher than that because how do credit card companies make their money? They make it from spending. Now, of course, they make it from absurd. Should be usurious interest rates. Usury. That's what I'm saying. Usurious. I think that's the right way to laws, you know, that they've lobbied to make legal. And you know, so anyway, that's lifetime value. Very important in any business to consider the lifetime value of a customer. Okay, we were talking about oil prices. There we go. Jason, another one of your tangents. Okay, so oil prices. Atlanta. Yeah, Atlanta. Just check out Atlanta. Go to Jason Hartman dot com. We got some good properties there again. Also, we got some great stuff in Memphis. Chicago is coming on. You know, Chicago, not Chicago proper, where it's a little more landlord friendly. And gosh, the rent to value ratios are phenomenal. We had one. We have a couple of Chicagoland providers in our network. You know, I'm no big fan of Illinois or Chicago, but boy, these RV ratios that. That's what's actually, you know, I didn't mention that as one of my choices. I'm thinking about buying there too, because the RV ratios are. Are pretty Darn phenomenal there. You do have higher taxes, but your RV ratios, rent to value ratios more than offset them. So ch that out as well. Go to jasonartman.com click on properties and check out all of our offerings. There's some great stuff there. While you're there, be sure to take advantage of the remaining but dwindling supply. Now, you know, if I was actually a good marketer and I knew how to do this stuff right, I would have sold all these like the day I mentioned it. But our Meet the Masters home study course, the best of Meet the Masters that we've still got several boxes of those left. Go get them. Heavily, heavily discounted price advantage of that while it lasts. Once they're gone, the physical product, they're gone. We're not reordering them. We will ultimately have a new Meet the Masters digital product, probably in the range of like $500. This one's only 200. And you know, this stuff, even though it's past events, it doesn't change a whole lot. That's one of the things I sort of love, but in a way as, as a business person, I a little bit hate about income property because it's such a slow, slow moving thing. It's nice, is pretty evergreen. I mean of course the market changes and things like that, but the principles of it don't change very quickly. And you know, our approach changes a little bit too over the years, of course, depending on market changes and economic climate. But it doesn't change very quickly. And I think that really limits the amount of content. For example, there could never be, I don't think a television station on real estate investing like a CNBC or Bloomberg where they've got constant things to talk about, they've got all these companies to profile, all these gyrations in the market, all this volatility, you know, all of these ups, these downs, this roller coaster ride that really gives them a lot of content. You know, if you think about it, there could never be an all day channel on real estate. There's just not enough to talk about, you know, so that's one of the things that's sort of interesting. As a business person, I'd love to have more of that, right? But as an investor, I like it the way it is very well. I like it the way it is very, very well. Okay, so before we get to Jim Norman here, two Business Insider articles I've got to mention, number one, OPEC. OPEC's general secretary, Abdullah Al Bidari. Okay, Bidri, I guess that's how you say that. I don't know. Don't hold me to that. He is predicting that oil prices will be upwards of $200 a barrel. Now I wanted to tell you that because it's very opposite of what Jim Norman's going to say now. We should see if we can get him on the show. OPEC's general secretary kind of seems like he's probably not that accessible. He says that there is a built in shortage as oil fields around the world naturally decline at an average of about 5% per year. That means that oil companies need to develop about 200 billion barrels of oil supplies over the next decade and a half just to keep up with demand, just to keep up, not to have any gains. So he cites all sorts of supply shortages and he says oil is going to $200 a barrel. So I try to give you both sides so you can decide of things. You know, we try to give you a bal. Balanced view of things with of course, my own bias. Yes, my own bias that hopefully you love and appreciate. Okay. And there's another Business Insider article besides this $200 a barrel oil prediction that says three reasons why lower oil prices won't lead to a deflationary spiral. And you know, I've talked a lot about deflation and inflation and disinflation in prior episodes, so I won't cover all that again. But just suffice it to say that governments will do whatever they can not to allow inflation to occur or deflation. They love inflation. Sorry, I misspoke. They will do whatever they can to make sure deflation does not occur because deflation is a very, very dangerous thing. You know, it causes people to delay spending to put off purchases. I mean, why would you buy now if it's just going to be cheaper in the future? And this kind of naturally is built into Moore's Law and technology, you know, and other and like hard assets, it's, it's not really there. Those tend to be inflationary in nature. And it also makes it very hard for central bankers to lower interest rates to stimulate the economy in deflationary things. So here's what he says, the author says about oil prices and why you shouldn't be concerned that low prices now contrary to the $200 barrel price, they will not lead to a deflationary spiral. Number one, lower oil prices are good for debtors. For households, it increases their income that's available for spending and for repaying debts. For governments of oil importers, lower oil prices, raise revenues, gas tax collections, go up slightly as people buy a bit more gas. And the stimulus to consumer spending raises sales and income taxes more than it lowers tax payments from oil producers and workers. Okay, Lower gasoline prices do not delay spending. They encourage spending. And you know, I would agree with this, by the way. People will use more of something if it's cheap. I mean, obviously lower gas prices do not make the central bank's job harder. They make it easier. Lower prices mean both less inflation and stronger growth. Moreover, lower oil prices do not raise the real interest rate that is relevant to borrowers. What impacts borrowing is the nominal rate relative to the ability to repay the loan. Now, we've talked a lot about that on prior episodes about the idea of inflation induced debt destruction of getting paid to borrow, of real interest rates and real dollar value versus nominal interest rates and nominal dollar value. Nominal meaning in name only. You know, if we say the nominal price of oil is X or the nominal interest rate, what we think we're paying is X. But when we have inflation or deflation going on around it, what is the real rate? What is the real amount we're paying? What is the real interest rate? So you already understand that from prior episodes, but yeah, this is neat. Now here's what he says at the end, okay, of this Business Insider article. It says deflation is bad if it lowers the price of domestically produced goods, encouraging buyers to delay purchases and making it harder for companies to repay debt. Deflation is also bad if it means weak growth in both wages and incomes. By contrast, deflation from falling oil prices is good news for every country that is a net importer. So don't worry, okay? We're seeing that balance shift. Okay. They call that the current account balance. Okay. We're definitely seeing a shift to that. But what happens when you have falling prices? You have less investment, less development. And you heard from the prior article where the the OPEC general secretary talked about $200 a barrel, massive increase in oil prices. He says we already hit bottom. He's saying oil prices will, will go up by five times 500%. I mean, that's crazy. Okay? Who knows what's really going to happen? But that's his view. So you're going to get a different view from our guest today, Jim Norman. And without further ado, let's just go over to him. Oh, one more thing. There's always one more thing with me, isn't there? One more thing. So you're going to notice something really cool and really swanky. @jason hartman.com we finally added I'VE been wanting to do this for a while, Jason. Just we didn't get around to it. But a little tab on the right hand side of the website and also on the Hartman Media website, too, where you can send us a voicemail. So if you have a question that you'd like us to address on the air, just go to our website. And right from your computer and I believe from your smartphone too, you can record a voicemail message, make it concise, make it witty and ask a question, make a comment, whatever. If we like it, we'll play it on the air. I'll answer it for you. Okay, so send us a voicemail from Jason hartman.com as well while you're there. Okay? Here's our guest today, Jim Norman, author of the Oil Card. It's my pleasure to welcome Jim Norman back to the show. He is contributing writer for McGraw Hill's Platz Oil Gram News and senior editor at Forbes and Businessweek, author of the Oil Global Economic Warfare in the 21st Century. And I had Jim on the show a few years ago and he predicted a big decline in oil prices. And as we've been watching oil prices decline and how that affects just every part of the world economy because oil is in so much of what we buy, it's in almost everything. I just wanted to get him back on the show to talk about this. Jim, welcome. How are you doing?

I'm doing well, actually. I'm retired now, so none of those jobs really apply. I'm just sitting back watching the world go by.

Well, isn't that a nice place to be, huh? Good, good. How long ago did you write the Oil Card?

I retired from platts hologram in 2007 and furiously started writing this book. It came out in 2008, just at the time when oil prices had hit almost $150 a barrel after having climbed from like $10 a barrel in the late 90s. And.

What got me going on it was that I just said these prices are crazy. There's no real free market reason for these prices to be this high. And in fact, the point of the book was to point out the long history in detail of how oil prices have been actually used, particularly by the United States and its allies, as an economic weapon. It's a very contrarian notion, but I think events have proved out that at a macro level, the US Government and its allies, particularly the Saudis, have the ability to manage even the price of a globally fungible commodity like oil and to move it up or down, keep it out of whack for protracted periods of time as a means of punishing the Russians who are desperately dependent on crude exports, or trying to slow down the Chinese who are equally vulnerable as an oil importer. Now, the point of the book was that after having kept oil prices low for a long time to bust the Soviet Union, my thesis was that in fact we pushed oil prices up dramatically to try and crimp Chinese growth. But I said at the time that these prices could change dramatically depending on the behavior of, of the Russians. If the Russians go off the reservation, as you would say, you could look for another volatile drop in oil prices. And indeed, that's exactly what happened in 2008 when Russian troops entered the Republic of Georgia.

And oil prices were brought down from $140 a barrel very rapidly to about $40 a barrel barrel. Russians removed their troops from most of Georgia. They continued to garrison one small chunk of it.

But when they withdrew, oil prices immediately came back up and they hovered at about $100 a barrel ever since then, rather mysteriously, at an artificially, I think, high level of $100 a barrel.

You know, Jim, before you go on, I just got to make a couple comments. I mean, that's fascinating what you're saying. As everybody knows, the US has the reserve currency of the world in the dollar, but maybe oil is really the reserve currency. If we can, as a country truly manipulate the prices like that. That is, I mean, it is shocking. You know, Russia went off the reservation again with Ukraine and here we go, right?

That's right. It's been in a nosedive. And there's really no fundamental reason in terms of physical supply and demand for oil change that would justify that at all. But the mechanism for moving these prices is not so much the physical price for oil. It really occurs in the futures market, particularly the Nymex, because there.

The price of oil is set not with barrels of supply and demand, but with dollars. You can just throw dollars at the Nymex and you could push the price up. You can take money out of the Nymex and it'll bring the price down. And that's what you've seen. I think people are mistaken when they think that OPEC is the price setter. They're not. And if you listen carefully to their statements, they will admit that they are price takers. Ever since the early 80s, really, the price, the global price for crude oil has been set in futures market on the Nymex. And that's a venue which is particularly adaptable to, again, economic warfare, financial Management by deep pockets players.

And so.

You can bring the price down dramatically very quickly or push it up just by moving money around. It's not unlike really the machinations that you see going on in the global interest rate and currency markets with rampant blatant government interventions all over the globe. Now to basically manipulate currency levels, interest rates, those kind of things. You have to look at crude oil as just being rather.

It's an extension of that. And actually it's much easier to move oil prices than these other global financial.

Numbers because the market is really so much smaller in crude oil prices. So it fits exactly in the same category as global currency management efforts.

Yeah, yeah, well, and you know, certainly James Rickards and all the people that talk about currency wars, that's quite, quite fascinating. But as you're pointing out to us, it's really easier to manipulate oil and it's just needed or sold by everybody. It's probably the ultimate de facto currency. You know, in fact, it's not a currency, it's money. You know, the gold bugs would argue dollars are currency, but actual money is gold and silver. And I'd argue that oil or something that actually has use, you know, real use, of course, silver does a little bit, is much more important as money than all of the others. But I'm not sure I caught, Jim, how the US can manipulate the Nymex. That's part and parcel of what you said, right? We got to be able to do that to make it work.

In the book, I go into some detail how it occurred back in the 80s, when the Nymex first came into existence in the early 80s as a paper market for oil. That's when you were able to begin trading paper barrels. The Nymex at that time was characterized by unimaginably strange short selling of oil. In other words, somebody was going into the market selling on a lot of paper barrels that was dragging down the price. And looking back, you could see one of the principal players in the oil in the futures at that time was a particular individual who, who was. His resume was curiously interconnected with the national security establishment.

It was clear to me at that point that there was a government hand in the futures market. And that was later confirmed to me by other people in the oil industry. It was well known in certain circles that the whole game was to bring the oil price down to bust the Soviets. And it worked. Now how would you move the price up? Well, you just roll more money into the futures market.

Just to give context to that, you're talking about what the late 80s, when.

You say that it was early 80s, actually continued through the 80s.

Okay, so it took a while, in other words. And that wasn't the only thing that busted the Soviet Union. Obviously the arms race, I think that was really a business plan. I was for it.

But oil was really the killer for them because.

Curiously the amount of money they lost from the oil prices pretty much equated to the amount of the Russians had to borrow from Western governments to buy wheat to feed their people. And it was the terms of those loans which precluded the Soviets from moving troops into Eastern Europe.

When people picked up their pitchforks and decided to break away from the Soviet Union, that's when the Soviet Union really fell apart. And then eventually they ran out of money and turned out the lights in 91, they just went away without a shot fired. It was a consummate exercise in economic warfare. And I think that having tasted blood, the US and the west realizes this is the way modern wars will be fought economically. And that's the context, I think, in which you have to view everything that's going on globally in terms of currency manipulations.

Commodity availability and price and, and all kinds of other trade related stuff that's going on. How you run the price up. Curiously, in 2001 the government passed what was called the Commodity Futures Modernization Act. This was ginned up during the Clinton administration, actually passed under Bush. My view is it was really a brainchild of the national security establishment, which was the purpose was really to allow basically an unlimited flow of basically hot money into the relatively small commodities futures market. And it did that wonderfully. And it just ballooned that market all out of proportion. Instead of having to be basically an actual user or provider of crude, the way the original commodities rules were set.

It basically allowed all kinds of other kind of money in so called investment pension money and so called investor money to come flooding into that market. And it vastly came in on the long side. You had ETFs and other people, pension funds buying crude oil futures, which before that had been a no, no, it was crazy for him to do that because the risk was so high. But all that money flowed in and the volume of contracts on IMAX just exploded. I mean it went sky high.

Now you can, what you've seen since last June has been a rampant exodus of that money again in the opposite direction, moving out of the futures market. Open interest has declined dramatically.

As people's contracts expire, instead of rolling them over into new contracts, the money is just going out of the market. And I think what happens is the Treasury Department, I think really is the locus of economic warfare fighting in the government. They actually control significant amount of funds through various accounts that they have, holdings of foreign banks and so forth. And plus their ability to place orders through major investment banks. So you don't really know who is buying and selling these futures, but you can see vast amount of trading by what you would call the swaps dealers, big investment houses that would be.

Basically channeling these funds and that money is just running out of the futures market. And.

In fact you could drive the price of oil, it's about 46 pounds a barrel now, down half from six months ago. You could drive it easily into the 30s, the low 30s.

And basically play havoc with traditional fundamental analysis, supply and demand analysis, just by playing around with the money coming out of the. So oil could go a lot lower.

That's amazing. Yeah, yeah. Okay, so a few things and you know, maybe I'll just throw a couple of them out, you can take them as you wish. But I seem to remember you on the show before making an extraordinary prediction saying that oil is really only worth maybe $3 a barrel. Do I remember that correctly?

Well, I think what I was saying is that the marginal cost of producing a barrel of oil for the Saudis is really only about $3 a barrel once the wells are drilled. And they're, I mean those oils would, those barrels would keep flowing even if oil fell as low as $3 a barrel. So it's like you could have a dramatic drop in the price of oil and the supply would not necessarily respond very quickly. In fact, what would happen is oil producing governments that depend for oil sales to meet their budgets would actually be incentivized to produce more, even at an all in loss if they were generating cash. Businesses do that too. If they're in a jam.

They'Ll sell stuff below their all in cost if it generates cash for them. You can see that same kind of thing happening.

Yeah, right, right. It's the old thing, you know, we lose money on every deal, but we make it up on volume, sort of.

Yeah, yeah. That's why you see opec, their behavior in this has been to me very telling and it exemplifies the role of a price taker. They're basically sitting there looking at each other saying what the heck happened to the price of oil? Then they will tell you. And Putin, Mr. Putin himself has said flat out, this is a political price, it's not a fundamental price.

Yeah. That leads me to a couple other things. So Putin, of course, knows that the US Is doing this, right? And then it makes me concerned about, will there be some retaliation? What could he do? That's one thing. And then another thing I want to bring up, Jim, is are you saying that this is not a sign of deflation, that the deflation is not occurring, that there's just all this political currency war with oil and that's what's going on, or is this a sign of a broader deflationary trend?

Well, I think you have to think of these things in separate cubbyholes here. Deflation. I think there is a tremendous deflationary pressure globally going on across all kinds of prices. What's happening in oil, however, is a separate phenomenon which I think is driven again, by these geopolitical mandates. At the same time, you have this global inflationary push by every central bank to basically try and devalue their currencies, push inflation up to try and create the semblance of demand. Because I think all of these governments are scared to death of asset deflation, again, because it would ruin all their banks, it would destroy vast amounts of wealth.

Borrowers.

Would benefit. Well.

It depends who wins it, who loses.

I know it's such a complicated equation. And one of the things I just say as a follow on to that is if. If there are real deflationary pressures, they can just paper over that because, you know, by printing, you know, I mean, by money creation. Because inflation, from everything I can understand, is really a great business plan for governments. Governments love inflation, and they're going to make it happen no matter what. Now, I know we can always argue Japan, look at Japan the last two decades. But Japan isn't in the same spot the US Is in. That's largely a demographic problem, in my opinion. But governments will create inflation. It's a good deal for them, you know.

Oh, yeah, they can't resist. It's like heroin. They're hooked on it. They can't stop inflating. But even so, it looks like the deflationary pressures globally have them running very hard on the treadmill, and it's still not working. Global demand is just not what it needs to be to soak up all the vast industrial capacity that's been created globally, particularly in China. This is where China is going to fall off a cliff. I mean, they have overcapacity.

Yeah, China is in terrible shape. I totally agree with you. And so that leads me to another question. You didn't address the Putin thing yet, though. Putin knows this. What's he going to do about it, is there going to be retaliation? So I don't want to, I don't want to forget that. But on the note of China, Jim, why would we, like you said very early in the interview today that we wanted to do that to curtail Chinese growth. Why would we want to do that? I mean China is, we're exporting our inflation to them and they're bringing deflation to us and the consumer thinks they're winning. And that's got to make for happy voters. The fact that you can go into stores and buy stuff so inexpensively, it's another way they paper over inflation pressures. They hide it with the import, export, you know, we do it with Mexico by letting all these immigrants in, they're bringing deflation with them because they'll work for less.

Yeah, well, if China was just our manufacturing.

Back shop, it wouldn't care. But the fact of the matter is China is using the cash and the capabilities that is developed there to arm itself. And I think that in the long run, the U.S. national Security Establishment saw this coming down the pike long ago back in the late 90s. I think after the experience during the Clinton administration, they could see China was not always going to be a benign trading partner. And so I think again, economic warfare is something that is wasted on very, very long time frames in terms of decades, which is why I think you can't position. We've basically been leaning on the Chinese to increase the value of their currency. We got them into the WTO and thinking that that would correct some of their egregious trade practices. In fact, it's kind of made them immune to that. And so they've just been even more rampant in market stealing, predatory pricing, all of the banks, things you can do, which is why the whole world is going to gang up on the Chinese. And I think ultimately what you're going to see when the currency, when it becomes clear that the currency wars don't work.

To rebalance trade, then you're going to see the emergence of outright tariff, non tariff barriers emerging globally as happened back in the 1930s, frankly. And unfortunately.

Currency wars ultimately don't work everybody. It's a continual race to the bottom. Nobody really gains much of an advantage there. And you're going to see more and more movement toward protectionism. People are going to make political hay on that, I think.

Which is probably a bad sign. I think that trade wars lead to real wars.

I think I just don't know what to think about the trade. Well, the terror tariff idea. It's just Such a tough equation. You know, do you want jobs in the US or do you want low cost products? You know, it's sort of, it's sort of like that. Now granted, I, I think some of that manufacturing is definitely coming back to the US as wages rise in China. I think 3D printing is going to have a part of it. You know, it's, it's not for major big manufacturing but for sort of customized manufacturing and prototyping and stuff. You know that, that's a huge, huge advancement maybe, if you want to speak to that. But don't forget about Putin. And what's he going to do? I want you to make sure you answer that.

Putin is in a very tight spot. He's come right out and said they want to regime change me out of here. And it's true. I think the game plan is to basically hurt Moscow so much with low oil prices that they give up on trying to retain their stake in Ukraine, that they stop trying to support Syria and various other geopolitical steps. Putin, I think he's not crazy, but he is desperate. I would say he doesn't have a lot of cards in his hand, but he does have some remnants of military strength, the ability to free, provocate. I think that his clandestine services are still quite capable and active. There's a lot of stuff he could do to make life difficult for the West. But the trouble is he's in a tightening noose. And I think that things there are going to become ever more desperate for him. I think at some point he's so desperate that you could see a repeat of the Soviet situation where all of a sudden you wake up one day and it's gone. You know, it's possible that the Soviet Union was gone. You could see Putin might just be gone or something. I don't know. It's hard to see the end game in anything.

You have to brace for the worst though, especially when people are heavily armed and have nuclear weapons. You know, it's.

My own view is that much of the terroristic activity going on globally has some kind of state support behind it. It just doesn't make any sense otherwise. I don't see how it could be funded and supported otherwise.

Well, yeah, but what's that have to do with Russia though? I mean, aren't we talking about the Middle east and Al Qaeda and that kind of, you know, and isis? I mean, the Russians, they don't tolerate that crap. You know, they're much better than we are at nipping that kind of stuff in the Bud, you know, they just go kill everybody, you know, in the US it's like, oh, well, I don't know, is that politically correct or.

You know, I think the. Both. The Russians are probably on the receiving end a lot of stuff and probably on the perpetrators of some of it. I don't know, it's just very hard to tell. But I think along with economic warfare, I think the whole terrorism thing is another aspect of unconventional asymmetric warfare.

And I think it just.

It'S going to be with us.

Increasingly, I think.

For a long time. Yeah, yeah, that's unfortunate. We probably, you know, it's just, it's just too easy to do it. But you know, again, I always wonder, Jim, really in terms of the US how much of a threat it really is. Because in the post 911 world, I mean, it's been so many years, we're so vulnerable, our borders are still wide open. You know, it's, it can't be that hard to do something. If they wanted to get us, couldn't they have gotten us a zillion times by now?

Well, this is what I mean is that, I mean, the US.

In the media were portrayed as a crumbling weakling, but in reality we are the global gorilla and nobody really wants to mess with us.

Yeah, I mean, compared to what, you know, that's what I keep asking. Well, the US is a disaster in so many ways, but compared to what? Look around, who's better off? You know. Yeah, you know, it's always a game of relativity is how you need to look at all this.

And in fact, the US is so strong, it can absorb the collateral damage that occurs from things like oil price manipulations. In fact, you know, back in the.

80S, absorb it very well. I mean, you know, it's a benefit mostly unless you have an oil related job. And that's another thing I want to ask you about.

Well, back in the 80s, remember, the US in order to bust the Soviets, basically sacrificed vast swaths of its independent oil industry. Those companies just toppled over. They were dying left and right. That actually precipitated the S and L crisis. If you recall back in Texas, there was so much asset deflation and bankruptcies in middle America that the SNL thing then loomed. But the US government just, you know, absorbed it, bailed out what they needed to. The major oil companies rolled on. That's all they cared about really. And.

The other thing to keep in mind about oil is in the grand scheme of things, the US is probably long on crude oil. What I mean by that is if you count up and our family, the Canadians, the Mexicans, the Saudis, we basically have more, we produce more crude oil than we use if oil prices.

Are very high. In effect, we're spending the money within the family. When oil prices fall, the Saudis, the Canadians, the Mexicans, all hurt. But we bailed out the Mexicans and basically the Saudis in the 80s. And I think we would stand ready to do that again, although those countries, I think, have seen this coming and have built up substantial rainy day funds. So there is tremendous resiliency regarding oil prices either up or down within the United States. And so I think the US Attitude is we'll play these games all day and all night. The Russians can't.

Yeah, we're in a very enviable position. And I'm not saying it's necessarily right to throw our weight around, but it is the way it is. That's the point. Okay. And all we can do is react to it. None of us control it except, you know, the powers that be and they may not even be who we think they are. But that's a whole nother discussion. You know, that's a conspiracy discussion. But okay. So Jim, give us your thoughts. You know, know one of the real estate markets. I have a real estate investment company, as you may remember, and we've done hundreds of transactions over the years in Houston and always liked Houston. I own property there myself. But I put a yellow flag warning out to my listeners who are real estate investors saying that, you know, be careful of Houston. We were being pitched heavily on investing in North Dakota and we didn't do that one. And I'm, I'm glad now because I think a lot of these jobs could just evaporate with oil prices this low until and unless they come back up. What are your thoughts about the oil employment picture?

Oh, I think you're going to see massive layoffs and they're going to be, they're going to come sooner rather than later. You're already seeing that a lot of the service companies, they're not going to wait around for prices, really hit bottom. They're chopping jobs left and right now because they've seen what happened in the battle.

I've seen it already. I've mentioned a few on my show.

Yeah. So. And that's going to translate directly into demand for all kinds of stuff, particularly real estate. I know I lived in Houston in the 80s. I remember I bought, I bought a little house there. It had been vacant for a year. I bought it for $30,000, fixed it up, lived in it for several years and thanked my lucky stars that I was able to sell it and break even when I got transferred out of Houston in 84. Prices can fall and remain low for a very long time. And you know, particularly in places like Houston where it's kind of a one company kind of town. I mean, it's one industry.

Well, Houston is not one industry though. I mean, that's not fair to say, is it? I mean, you know, you've got so much health care there and I mean, there's way more. You know, North Dakota is a one horse town. Okay.

You know, that is Houston does have other things going for it, but I mean, it's the oil business that ultimately is the bedrock for all of that stuff. So the 80s is a good example. Houston just got terribly beat up in 80. But what I wonder about is places like New York where.

You know, the market just seems so impervious to any kind of a downward movement.

But, and I think is extremely, exceedingly overvalued in terms of affordability.

You're talking about New York City, of.

Course, New York City.

I mean, that's absurd. New York City is absurd. I mean, I mean it's just, that's the perfect word for it. It's absurdity. You know, they just had a $100 million penthouse sale like two weeks ago or something. I mean, this is just absolute psychosis. There's no, there's no rhyme or reason reason to that kind of stuff. But what were you going to say? I mean, you agree with me, right? You think it's totally overvalued, don't you?

Yeah. In fact, I'm in the process of moving out of New York. We're going to move to New Hampshire and build a house because sooner or later markets equilibrate. Sooner or later prices move to where they ought to be and it's going to have to happen in New York and probably a bunch of other places too. So.

So yeah, yeah, yeah, that sure is. And I think Miami is on the target. I think all of California, you just can't have such a business unfriendly environment like you do in California, New York, and sustain these crazy high prices. And you know, there's a lot to be said for the technology impact. I think people can really be geographically independent somewhat nowadays. Not everybody, of course, but a lot of people can. You know, that was never true before. You can live in lower cost areas and in my opinion have a much nicer life. Much, much more breathing room in Your financial life, you don't need to live in expensive places anymore.

Right, right, right. I think it's absolutely true. In fact, I think that urban life in America is going to get more challenging as the budget situation has really come home to roost for most of major cities in the U.S. what about North Dakota, though?

What about the oil sands? I mean, these oil price declines, they're not really attributable, it sounds like then to this increased supply and this wealth that America didn't know it had several years ago.

Right. Definitely. There's been more oil production coming out of North Dakota. In fact, US oil production overall has gone up and that has contributed to this rather marginal surplus production globally. But that's not enough to explain these price changes really. You've got to look beyond that. But yeah, in all of these boom town kind of situations, you're going to have ups, you're going to have serious downs.

And the little guys, the smaller companies, particularly anyone who's taken on leverage, are an extremely vulnerable position because I think that this very low oil price down draft, it's not going to bounce back like it did in 2008. I think this could persist for protracted periods of time. And a lot of companies have taken on very high yield debt to finance their drilling and stuff. You're going to see workout after workout after workout out there and a lot of companies toppling over.

Yeah. When you say workout, you mean with the bank, bankers, right? Finance deals? Yeah, yeah. I'd say it's kind of counterintuitive, Jim, but the people who took on the most leverage, sometimes they get the best deal of all because they get the bailout. You know, the banks bail them out. We saw that in the housing market for sure. Tens of millions of people got bailouts.

Yeah, I don't know if that'll happen to oil assets, though. I think you'll see forced sales, mergers, bankruptcies, reorganizations. Again, like the 80s in, in Texas was not a pretty sight.

I mean, is North Dakota going to be kind of pretty much out of business for a while? I mean, you know, are they just going to, is that going to come to a screeching halt or what's going to happen up there?

Well, you know, companies lease that land, they have to drill it within a certain amount of time or they lose the leases. So there will be a continuing level of drilling and I think that the cost of oil field services is going to come down dramatically. So that will continue to make it possible to keep rigs working at some level. At Some price, that iron is going to find work somewhere, I think.

Is that not true in Houston though?

Well, Houston is where the companies are headquartered and that's where.

A lot of manufacturing and stuff is there. So you see that already in the off field service industry.

Scaling back in anticipation of this.

But you're just going to see price cutting and.

Service costs coming down so that they will, you know, the rig count is probably going to go from 2000 rigs working maybe down to 1000, 1200, something like that. There'd still be your rigs working. You still got to get these leases drilled. And I mean.

Even at $40 a barrel, I think a lot of this franking type production still makes sense.

So it's not going to be the end of the world. I don't think production is going to continue.

And I think oil and natural gas prices are going to be quite affordable for a while.

So doesn't that ultimately lead to a prosperity movement, a wealth effect for American consumers? I mean, gosh, it's incredible. You know, I drove to California from Arizona recently to do one of our seminars out there. I couldn't believe it. I mean, it was so cheap to get there and back. You know, I didn't fly. But airfares are coming down too. I've got a couple flights coming up and I couldn't believe. Believe how? I mean, those really haven't come down. I don't think those have adjusted enough yet. The airfares with the oil prices. Would you agree with that, by the way?

Yeah, yeah, there is a wealth effect there. But you know, actually American motorists are actually, I think rather impervious to prices. They're going to drive the same distance anyway pretty much at very high prices. You do see some reduction in miles per second. But I think like you say, it's more of a technology thing where people just don't have have to drive it. I think more of a limiting factor is the amount of time you want to spend sitting in traffic jams, you know, rather than the price.

Yeah, well, I'm not just talking, I'm not just talking about driving though. I mean it, you know, it's in the price of everything. It's just baked in. Heck, it's in the price of coal production, oddly, because there's so much oil used to produce coal in terms of mining it and so forth. I mean, it's just in everything. It's in every consumer product, right?

Yeah, yeah, yeah. And like I say, technology is relentless and there's that's, I think the real driver behind this rather global deflationary pressure is that everything is getting cheaper.

Mainly as a result of technological advancements and so forth. So I think, I think governments are continual uphill treadmill to try and keep prices up in the face of that.

Yeah, technology is awesome and it does make things cheaper and better constantly. It is a great thing. But as we talked about earlier, the inflation business plan for governments is such a winner for them. I mean, that's just the way out.

Right? Yeah.

I mean, in the. Real estate is really where the government is going to make such a killing. I think that's why government revenues are actually so much higher than people expect. The capital gains tax structure now on real estate, it's not as favorable as it used to be. You can't just roll over a gain and dodge tax. You can shelter some of it, but.

Every time somebody sells a house now the government's basically in a position to reap gains. Plus you have the Obamacare real estate tax. That's a hidden killer in there. New York has the so called.

I've heard a debate about that. I heard that that was an urban legend. The Obama real estate tax. I haven't seen that on any of my deals. I mean, is that actually true?

I think it's true that if you.

There was a lot of stuff going around on social media about that when the Affordable Care act was passed and then it was debunked. I, I don't know if it's true or not. That's interesting.

No, I think it's quite true. Over a certain level of gain, you pay 1%. I think it's 1% or more tax on that as part of the Obamacare legislation.

So for investors, if you've got gain in a property, you get the 1031 exchange opportunity for homeowners as long as you trade into another one. You can shelter 250,000 if you're single or 500,000 if you're married. That's the last I knew. Unless this has changed.

No, I don't think you have to trade. I think you just get to shelter $250,000 as an individual on a real estate gain. $500,000 as a couple, and you can do that every three years. But if you go over that, you get whack at the capital gains rate. Plus in New York you get the Cuomo tax. Plus there's Obamacare tax.

We had a Forbes reporter on the show talking about New York's 164% inheritance tax. And you know that was sort of more of a headline than reality. But you know, the way you do the math, depending on if your estate is just a slight bit over $2 million, that the tax just escalates astronomically. So there, you know, there's certainly it's a progressive, as they say. It really bodes though, what you're saying, Jim, that governments want to see inflation because the IRS doesn't adjust for inflation. You know, the tax revenues from stock market gains and real estate gains are not indexed. And so the government wins collecting those big taxes when if they can figure out a way to inflate these assets and maybe even cause people to sell them and increase velocity.

Another way they benefit.

Right, right. And plus their pension obligations depreciate basically that way. Yeah. I mean, the deck is stacked, heavily stacked in favor of government to inflate. All roads lead to inflation, basically, which is why this downdraft in oil prices that's so anomalous really.

That, that it just cries out, why is this happening? And I think you have to look at these broader geopolitical imperatives that are really driving it.

Good. Well, good stuff. Thank you so much for giving us some insight onto this. You can get the oil card on Amazon.com do you maintain a website or a Twitter account nowadays that you're relaxing and enjoying life?

No, no. If somebody.

Wants the book or an autographed copy, they can email me@oilcardauthormail.com that's one way to do it. Otherwise there's the Amazon site. The publisher is Trynday, a little company out of Oregon which has some websites now and then they're kind of up and down.

But yeah, we're a well kept secret actually. The book is almost out of print now. It's time to do another printing. I'm gonna have to go back to work here to get that done.

Yeah, well, you can print the same book if you don't update it or maybe just update the intro or something. But you know, it's an excellent analysis, Jim. You got four and a half stars on Amazon, so I would encourage our listeners to go out and get it and take a look. It's fascinating as you can tell from our discussion today. So again, thank you so much for joining us. Really appreciate having you back on the show.

It's a great pleasure. Thanks for having me on.

I've never really thought of Jason as subversive, but I just found out that's what Wall street considers him to be.

Really? Now how is that possible at all?

Simple. Wall street believes that real estate investors are dangerous to the their schemes because the dirty truth about income property is that it actually works in real life.

I know. I mean how many people do you know, not including insiders who created wealth with stocks, bonds and mutual funds? Those options are for people who only want to pretend they're getting ahead.

Stocks and other non direct traded assets are a losing game for most people. The typical scenario is you make a little, you lose a little and spin your wheels for decades.

That's because the corporate crooks running the stock and bond investing game will always see to it that they win. This means unless you're one of them, you will not win.

And unluckily for Wall Street, Jason has a unique ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than a 26% annual return is disappointing.

Yep, and that's why Jason offers a one book set on creating wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us.

We can pick local markets untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns safely and securely.

I like how he teaches you how to protect the equity in your home before it disappears and how to outsource your debt obligations to the government.

And this set of advanced strategies for wealth creation is being offered for only $197.

To get your Creating Wealth Encyclopedia Book 1 complete with over 20 hours of audio, go to jasonhartman.com store if you.

Want to be able to sit back and collect checks every month. Just like a banker. Jason's Creating Wealth Encyclopedia series is for you. This show is produced by the Hartman Media Company. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com 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.