1856: Math of Real Estate, T.I.N.A.; Lynette Zang, End of US Dollar Reserve Currency

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Welcome to episode 1856. 1856. And we have Lynette Zhang back with us today to talk about monetary policy. A little bit of fiscal policy maybe, but certainly gold and inflation hedging. And we are witnessing what is possibly a huge, huge shift in the economy. If you haven't been watching, you know, notice, because times, they are changing. But I noticed that so many people just don't get it. They don't get it. They have their money invested in certain things. So let's say, for example, you or someone you know, your friend or family member is invested in stocks, bonds, cryptocurrency, and they have seen a bloodbath, an absolute bloodbath. And we look at the housing market, we look at real estate investing, and we think, wow, it's the last man standing. Actually, I should be more politically correct. It's the last person standing. Sorry, don't want to offend anybody. I know how sensitive we all are nowadays. Anyway, so the last person standing is real estate. And we have seen mortgage rates nearly double.

But we've got to ask ourselves, compared to what? Right, so let me see if I can grab a friend and get her to come on and join the intro portion of the show today. Before we get to Lynette. Hey, Tina, will you come over here? No. Why not? No, she doesn't want to be on camera. Why? Oh, bad hair day. Okay. Why? What's the issue? Oh, stressed out about the economy and everything that's going on. Yeah, I understand. Okay. Anyway, Tina does not want to come on camera because she's having a bad hair day. And she's having a bad hair day because of all of the craziness that's going on. In the economy. But let's talk about her. We've talked about her before. Her name, T I n A Tina. What does it stand for? It stands for there is no alternative.

And that's what I'm getting at. Tina is a fictitious person. She's not. Well, I guess she's always here with us, all of us, actually, but, you know, not in, not in human form. Right. We will just honor her because of the lesson that she teaches us. So we have our money invested in stocks, bonds, crypto, whatever. Right. And we have experienced absolute devastation. It's been devastating. I mean, look at what is going on. The stock market is collapsing. The crypto market has already collapsed. What's next? Real estate is still chugging along pretty well in the face of all of these. As much as the Fed is trying to cool off the real estate market, it's still trucking, but how long can it continue? And the answer is we don't know. Nobody really knows. But inventory is still extremely low, even now. Yes, it has been ticking up with these rate increases, but I mean, we still need triple to maybe four and a half times the amount of housing inventory we have now to, to be at a normal market, to just be normal. Normal. That's it. That's all it gets us. That doesn't get us a recessionary real estate market. It doesn't get us a seller, buyer's market. It doesn't get us a big downturn or collapse in prices. It just gets us to normal. That's all. So we have Tina here. Well, there's one other investment I want to talk to you about. And most people don't consider it an investment, but it has to be evaluated that way. And that is a bank account. If you have your money in cash, maybe you've got it in money market or savings account, checking accounts, whatever. Right? Your money's in cash. You know for sure, officially, without any argument, that you are losing 8.5% annually. So you're, you're losing money for sure just due to inflation. And if you have a little bit of an interest rate return on that money, you're paying tax on that interest rate, even though you're really underwater. Because the IRS doesn't understand inflation. They don't calculate it correctly. And hey, they don't want to calculate it correctly because it works to their benefit. Okay, so what does Tina tell us? It tells us we've got losing money in the bank, losing money in stocks, losing money in mutual funds, losing money in bonds, losing money in crypto. We Got all of that. And then we've got real estate, we've got income property. And most people think the returns are just not good enough for them. Not good enough. Why do they think that? Well, because, hey, you know, why should I buy a property with a 1% cash on cash return? But they don't know how to do the math because for sure, if they just keep that money on the sidelines in cash, they are losing 8.5%.

And in reality they're probably losing about 16, maybe 17% the real inflation rate. I mean, can you imagine, you got $100,000 in the bank and next year you'll only have $83,000. Yeah, it's pretty devastating.

Pretty devastating. So if you put that money in income property and you know how to do the math, you'll earn probably on that deal I just mentioned because Lisa, one of our investment counselors did a perform on this the other day and it showed a negative cash on cash return. But when you do the math and you consider the multidimensional benefits of real estate investing, leverage, equity build up, depreciation, tax benefit. Well, this didn't even include tax benefits. Actually, I take, take that out. Okay. It didn't even include that. When you consider all of these things, you're making a positive return of 17%.

And if you're losing 17% in cash in the bank.

Then your real return on investment is 34% annually. Okay, well maybe you don't believe me that the inflation rate is 15 or 17%. Fine, just take 8.5%. Take what the government tells you. Then you're losing 8.5% plus on the income property. You're going to get another 17% in this example of not our best deal. Not at all our best deal. Right. So what, you're looking at about 25% ROI. Where else can you get that? Tina, Tina, come here. What? Tell our listeners. Oh, she doesn't want to. Come on. It's a bad hair day because this economy is freaking her out and, you know, rightfully so. But folks, just learn how to do the math. If you're new to this stuff, understand that income property is a multidimensional asset class and you earn your return in many, many ways. Go to jasonhartman.com watch that free video on the front page. Just get that free video right there. You take 30 minutes to understand the math. Understand how to calculate return on a real estate deal on an income property. Not real estate. I shouldn't call it that. It's income property. Learn how to do the math and then you will see and hey, we might have, I mean we none of us know because how far is the Fed going to push it? I mean they're about to do another rate hike and they're trying their best to cool off the real estate market. But we still have a long way to go to get to equilibrium in terms of inventory. We are far away from that now. We might get there, but that's only going to be a normal market. If inventory triples, if we have triple the supply, we'll have a normal market. And remember, when you segment by price and you look at entry level housing, which is what we like to invest in, of course in linear markets.

The inventory is dramatically lower than the statistics. So no charts and graphs today? No, just a frank talk. It's like your parents sitting you down for a frank discussion. And that's what I'm doing here. Income property is the most historically proven asset class in the entire world and it's the most tax favored asset class in America. So hope that helps. Let's get to Lynette part two today and we'll go to that right now.

If those things didn't happen, inflation, inflation would have run rampant not just in the 70s, but 80s, 90s, 2000s.

Right, exactly. That is so brilliant for you to point that out because as a new stockbroker in the 80s all the talk was about globalization and they did. That's exactly what they did. They imported the deflation. But the reason why they cannot continue this on, you know, five year. I can't see it. No, I can't see it. I can't even see a five year.

Well, what's the reason? What were you going to say?

Well, I was going to say because we're at the end, because they're out of tools. You know, back in the 70s they ratcheted interest rates up to 21.5% on the overnight rate intraday. That gave them a really long ramp room. So this is really the key tool, the effective federal funds rate. This is the overnight rate. And you can see how they ratcheted it all the way up to right here. It was a little higher than that, but 19% and that gave them all this ramp room. These gray lines are official recessions. And it's pretty obvious that every time they hit a recession they drop the rate like five and a half to five and three quarters percent. And then that stimulated borrowing and spending. But can they do that now? No, I want to, I want to zoom in here so you can Just kind of see where we're at. This is that little bit of interest rate. And I also, as luck would have it, we ended up in 2015, 2016, which was the last attempt to push up interest rates, which is more about giving them the ability to lower it really than anything else. Right now it's more about their credibility. But in order to truly fight inflation, so the theory goes. I don't even think this is true anymore, but. So the theory goes that if you raise interest rates enough, then demand declines. Right, Right. But that's not been what's what we've seen around the world. Can they raise it above the true inflation rate?

Well, demand for what? When you say demand, what do you mean?

Well, okay, so when they drop the interest rates, then you go out and you borrow and spend because money is cheap.

So just demand for cheap money is what you mean.

Exactly, that's exactly what I mean.

I didn't know if you meant demand for consumer products or real estate or what. I just wanted you to clarify for.

All of the above. Yeah, right. If it's cheap to borrow and then you borrow when you spend, if it gets more expensive to borrow, well, then you borrow less. So this isn't coming out of earnings, this is coming by incurring more debt. And in fact they were just talking about the retail public. And the retail public has not been discouraged by all of this inflation. And why is that? Because they're either spending down savings or, or they're taking on more debt in order to try and maintain this. Because in their minds, I think people think, well, this is just temporary. But I don't think it's temporary.

Right. And the consumer will be unable to take on more debt if we see rates go up too far. But the interesting thing that happens is, I mean, do you think the Fed will continue to raise rates? I don't think there's any Paul Volcker out there who has the guts to do it. But it has been fairly shocking how quickly Powell acted in the last two months. I mean, he acted very slowly for a long time. He didn't do anything when he should have done something. But then he sort of acted suddenly with a knee jerk reaction. If you ask me, it was a little too harsh, too soon. But what do you think?

Well, for one thing, if he's got to get above the rate of inflation to control that inflation, he has a very long way to go.

Agreed.

A half a point. To me, that is not nearly aggressive enough. And I don't think he's. Paul Volcker and remember too, that was the kickoff. This is the end. So it's a different kind of game.

Got it.

That was the beginning of this particular game. This is the end of this particular game. So, no, I don't think we have anybody that has the courage to raise rates enough to really cut demand. So as long as they don't, as long as we're still this low, even though interest rates have gone up.

It'S still in negative territory. If you buy a bond right now and you hold that to maturity or you even get the payments on that, it's still below the rate of inflation. So you're still actually going into the negative. And that's what happens. Right. When you get to zero, the only place to go is to attack that principle, go into the negative. And in reality, if you're sitting on bonds, that's really what you're doing, is you're going into the negative. If you hold them to maturity and presume they're not going to default, you are still negative to the wealth that you put in there to begin with because of that inflation piece.

Yeah. Right. And one assurance that we will have further inflation and that they won't raise rates too high, in my opinion, is that they really can't because it will severely hurt the country's ability to service its own debt. Debt to foreign countries. So they're in an impossible situation, right?

Yeah, they are.

What are they going to do now?

You know, we're at the end.

Yeah. All right, so what happens at the end? Describe the end for us.

The end is not pretty. It's why I'm sitting in my bug out house right now, you know, dead serious. And the end is very bleak. We've seen what it looks like in Zimbabwe, as you pointed out before. We've seen what it looks like in Venezuela and, you know, many other places, unfortunately. So we end up with abject poverty. I don't know what that percentage is. I mean, globally, on average, it's 80%, but. But if you look at places like Venezuela or Zimbabwe, it's closer to the 90%. You will notice I didn't say 100%.

And when you say abject poverty, what you probably mean, I think, and correct me if I'm wrong, is that a huge part of the country's population in any given country moves down the socioeconomic ladder rather severely. But a very small number, the cognoscente, the elite class, becomes richer and richer and it's a wealth transfer to them.

Absolutely. Did we not see that in the K Shape recovery.

Yep, absolutely.

So that, to me was just really a taste of what's to come at a severe level. Now, I don't know what the current numbers are on it, but if most people cannot come up with $400 in the case of an emergency, it's going to be a lot worse than. Yeah, yeah, yeah. Abject poverty. You can't feed your children, you can't put gas in your car, you can't pay your rent. You just don't have the ability to sustain a reasonable standard of living.

The one piece of good news is if, you know, we have listeners in 189 countries or an audience in 189 countries for those in the US you're probably much better off than the vast majority of the world because of the reserve currency status and the largest military and so forth. But, Lynette, I know you think the reserve currency is coming to an end.

Oh, yes.

Elaborate on that a little bit, if you would.

Well, you know, we've been really witnessing this since 2000, and really, you know, the euro was created to take over as the world reserve currency.

That's not going to happen, though.

No, no, that's not going to happen. But they were trying the SDR, actually, the IMF special drawing rights. The SDR was create. Created in 69 to take over as the world reserve currency. That's where I ultimately think we're going with it. But the euro was created to come in. So if you are a world reserve currency, you have to hold those assets. You have to hold dollars at this point in your coffers, whether you're a government or a corporation, to buy anything once you go outside of your borders. And you made such a good point, Jason. We don't realize how good we have it here. But. But when you travel and you see just the difference between a middle class American existence and a middle class existence in the UK or in France or much better in the US Yeah, yeah, It's very different. So in many ways we've had it better, but I think we're also gonna have a higher fall because we're falling from a much higher place.

And the fall is really related to people's expectations of how their life should be versus how real hits it. And I think we're moving more and more. I mean, we've been moving in this direction for decades, but more and more to a banana republic style situation. And like you said, when you travel, you see this all the time. Go to Central America, go to South America, go to some Asian countries. You don't really see it in Europe as much, but. Well, you see it in Europe too, but.

But you see traveled more than any place else, so yes, I've definitely, definitely seen it there.

Yeah. And so you see beautiful homes, you see the high end areas, you see mansions, but they have razor barbed wire around them. They have bars on the windows. These people have to have bodyguards. That's no way to live, even if you're rich, in my opinion. You know, a big, strong middle class is what makes a country stable. And that stability, sadly, is going away faster and faster. The pace is speeding up, you know.

Absolutely. And when people are hungry and hopeless, they make choices that they would not otherwise make.

Yeah, they have to.

And we talk about the bug out and look, it's beautiful to be up here right now and it's peaceful and it's quiet and all of that. But I'm so thankful that March 2020 happened because that was a hole in my personal strategy. If things get really bad in the cities, which is the most likely outcome, where are you going to make your last stand? Where are you going to go? Shelter is a key now. I'm working on putting the rest of the elements. I'm almost done. Well, I think I'm almost done. Probably not really, but food, water, energy, security, barterability, wealth preservation, community and shelter. And I just have a few more pieces up here to get that done. And I'm rushing. I'm telling you, I'm doing this a whole lot faster than I would have. Well, it definitely have moved up a lot of things that I thought I would do next year, but, you know, you asked me how long this can last. I don't know. Timing is the biggest challenge of any technician. But what I do know is that when it's over, it's over. And you won't have any opportunity to get prepared. So I'm getting prepared now.

Yeah. Yeah. Good. Lynette, I know this is somewhat semantics maybe, but you're a gold fan. Do you consider gold to be insurance or an investment or both?

To tell you the truth, I view it as both. It's definitely insurance because that demand out there is across the entire global economy. So I have full functionality and the broadest base of buyer. Now, it's an opportunity because a rising gold price is an indication of a failing currency. So it has been artificially suppressed and will continue to be artificially suppressed until enough confidence, the public has lost enough confidence, at which point they will do an overnight reset, an overnight revaluation, and they will use gold as real money with complete intrinsic value. So, you know, right now I see those other assets as being up here value wise and gold being down here, that's going to flip flop. And so that's why I consider it as an investment, not in it necessarily in and of itself, but because I will be able to convert some of my gold holdings into income producing real estate or dividend paying stocks once I know who's going to be able to survive this mess. As well as rights, air rights, water rights, mineral rights, different things like that. Because I'm going to actually have money to work with.

Yeah. And if anybody wants to know more about gold price manipulation, I've mentioned this for probably 15 years on the show, but go check out GATA, the gold antitrust Action Committee. It's pretty fascinating to see how the powers that be manipulate gold and silver. And now I believe cryptocurrencies down because they consider these to be competition for their fiat currencies. Remember, the number one product of any government and any central bank is its currency. That is their widget, that is their product. And like any business, you know, they don't like competition. Okay? So they're going to do what they can, but eventually their ability to do that and the whole narrative behind it has to ultimately fall apart. You know, it's like the emperor has no clothes. Eventually everybody figures it out, you know. Right, right.

That is really such a powerful point and a really important one for viewers to understand because that's how you protect yourself.

Lynette, before you go today, I just want to ask you, you're in the business of selling numismatic coins. Is that just because that's the business you're in or is it because you specifically don't like bullion gold? I've always been kind of curious about that. So can you explain?

Okay, well, number one, ITM Trading sells all kinds of gold and silver. The caveat is it's all physical. We don't deal in ETFs or anything like that. So if somebody wants bullion, they can do bullion. I personally don't buy gold bullion. I do silver bullion, but I don't personally buy gold bullion because I believe that there's going to be an over confiscation because as you brilliantly pointed out, government does not like competition. So if I go into the collectible realm, then that's my insurance. Right, right.

And you're taking that from the precedent that was set back in 1933 when they confiscated or that's sort of an oxymoron a little bit, because they required everybody to turn in their gold bullion. They paid them for it, but then after they collected as much as they could, they revalued it at a higher price, which, you know, was a. I guess a partial confiscation, not a complete one. They confiscated like a third, not all of it, but we get it right.

Well, and then they put it not just from 33, but that's a great example of it. When a country goes into war, historically, they've needed to inflate away the currency. And so, you know, gold creates restrictions for governments, so they don't like it. But I do think we're going to see an overt confiscation again, because manipulation of the price and making you live with inflation is definitely confiscation of your wealth. They just use different terms. The level of taxation is another form of confiscation.

Right.

So I am very certain. And of course, I had my Uncle Al, who was an antique dealer and had a couple of floor safes absolutely full of gold, and that's how he protected himself.

Got it. Okay, show us. I think you have a chart on this, but numismatics versus bullion, we do have to wrap it up, but I really want to just cover this topic before you go.

This is a graph on the collectible coins going back to 1970. And you can see this is like the kind of lower end ish. So I don't really care. There's all different kinds of coins that you use for different functions, so you always establish your goals. But I think that you can see that it is definitely in an upward trend here, and it is far from the peak that they reached in 89.

Okay, so this is a PCGS chart we're looking at. And that's the coin grading service. So this is what, a chart of numismatic coins?

Yeah, exactly.

Got it. Okay, so. And just for those who might not know that word, numismatics, there was a time when I didn't know what it meant. And, you know, that just means collectible coins versus bullion, which is just gold pieces.

Right, Right, exactly. It has pre. They're pre 33. They have special value to collectors. It has an art amount of them, and they're affordable. Right, okay. This level is affordable, you know, and I can't talk prices because that's not what I do anymore. But the last chart that I want to leave you with so you can see what the wealthy are doing for themselves. So what you're looking at here are key dates and rarity numismatic collectible coins. These are coins that are can be in the millions, many millions of dollars. So only the high end, the ultra wealthy can afford this. And you see that never even had the kind of correction that we saw in the regular collectibles. So for me, I don't need to spend $8 million on the coin in order to be in the same category. But the other coins are a severe bargain. So while gold itself and silver itself as well, and is severely undervalued in my very strong opinion, what you're looking at, particularly with that first graph that I showed you on the coins, that in my mind is the single biggest bargain in this asset class. So I buy it because, number one, it protects. I think it gives me another layer of protection from an overt confiscation. And that's, that's the primary reason.

Okay, good stuff, Lynette. We gotta wrap it up. This has been great to have you again give out your website so people can find you.

Absolutely. It's itm trading.com and then I'm on YouTube several times a week also at you can. So you can go in and search it. And we have a new website that we just recently opened, beyond Gold and Silver, that talks about the rest of the mantras. So the food, the water, the energy, the security, the barter, ability, community and shelter.

Excellent.

My name is Jeremy. I'm a big supporter of Jason Hartman and grateful to Jason for a lot of what I've learned over the last four years. I can attest to him. We've had some good success using the strategies, being a little more conservative on some of the decisions. So we've purchased a couple of properties through the Creating wealth network through Jason's network. I feel like I owe a lot to Jason and the team for the education part.

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