2368: Co-Living Opportunities, Why Investors Must Own Real Estate Before Prices Rise & Financial Bubbles with Aman Verjee

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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 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.

Greetings empowered investors and welcome. We've got a great show for you today. Our guest portion is going to cover financial bubbles, yes, financial bubbles throughout history.

And I think it'll be very interesting lesson.

You might recall we did another episode like this years ago with Kerry Lutz and that was fascinating as well. So what are the big opportunities coming up in the new year and even.

This year there's a little time left. First of all, attending Empowered Investor Live.

We'Re about to ink a date and location on that for you. So we will let you know about that. And I think the big opportunity we have right now that has the most phenomenal numbers I have seen in many, many, many years is co living and we have some excellent co living properties.

Now in a couple of different markets.

Contact your investment coun and learn about amazing levels of income. Reliable, good, managed with technology, income, solving the working poor crisis. And you know we have no shortage of people who need housing. It is a desperate problem in this.

Country and actually many other countries as well.

So get in touch with one of.

Our investment counselors right away and check out some of these properties we have.

Because I you'll really, really like them and we may just do a master.

Class on this coming up next month. But we're not together on that so we're not formally announcing it here. But that may come up. But your investment counselors can help you.

If you are not assigned to an investment counselor already and you don't have one, just call 714-820-4200. That's 714-820-4200, extension two and you'll reach.

One of our investment counselors or go.

To Jason hartman.com and you can actually check out some of these properties on the Properties page. And you will be blown away by the incredible ROI return on investment.

It's very good.

Okay, before we get to our guest today, let's talk about a couple of these predictions from Redfin.

I just want to touch on them.

As quickly as possible. Number one prediction, this comes as no surprise, but here it is. Prediction number one, mortgage rates will drop to the low 6% range. And that is one factor improving affordability. But there's another factor. Incomes have been going up pretty darn nicely and they have actually outpaced housing prices. That has not been a normal thing over the past many decades, but we've got it now, so it's exciting. So I think interest rates are actually going to drop a little bit lower than Redfin does, but we shall see. I don't know. I'm just optimistic. I know that Powell has been under.

A lot of pressure.

I know that Powell is out. He's out. And we're going to get someone better. We don't know who it is yet. There's been talk of a couple of different candidates and all of them so far that I've seen read about look pretty darn good in terms of easy money. But remember what happened last Friday. We started back up with the money printer and that is through the form of quantitative easing. This time, QE is back. It started just a few days ago. And it's very exciting because it's not only about interest rates. It's about credit availability. And qe, I would say, works harder on the credit availability side than it does on the interest rate side directly.

Right.

The Fed funds rate works more on the interest rate side. But. But what happens? Just think about the dynamics of the marketplace, right? The law of supply and demand rules everything. It rules all of us.

It rules our decisions and our thoughts about the marketplace.

And when mortgage credit availability or availability of any credit in the markets is easier, that's going to flood money into the system and it is going to make lenders compete for borrowers and that pushes rates down. You see, one is a more direct mechanism.

Now remember, the Fed does not directly control mortgage rates at all.

But overall interest rates and cost of money is very much influenced by the Fed.

Not mortgage rates directly though.

Then we've got this other dynamic of qe. And when they are up buying assets, that makes lending much more plentiful. So we are moving into an era of much easier money. We've been in an era of tighter money. And you know what that means? That means upward pressure on real estate prices.

So own some of that real estate.

Own a lot of it if you can. Multidimensional asset class is the best thing going. Okay, so that's prediction number one. Number two, home buying affordability will improve as wages grow faster than prices. This is what I was mentioning just a moment ago. I've read many articles on this lately and I've looked at several charts on it. Here is just one of many. But this is exciting. I mean, wage growth is actually outpacing price growth. Price growth has been so mundane and so moderate. Just about 2% year over year. Nothing too exciting.

Depends what survey you look at, of course.

But price growth has been very moderate, very muted. We'd like to see 6%. That would be what we would consider a normal market.

Of course, when the market goes crazy.

We can see, you know, 15, 20, 25% annually.

It's just beyond ridiculous. But that money printer is warming up.

Again and you better be ready to.

Take advantage of it.

Okay, number three, home sales will rise 3%. Now, this is sales volume they are talking about. Sales volume, the number of existing homes sold. Seasonally adjusted annual rate sar, seasonally adjusted annual rate. Homes, home sales are very seasonal, so.

You always should annualize them because it's a much more accurate way to look at it.

And so here is the projected estimate for next year, which is higher. So that means all of the real estate agents, all of the brokers, all of the lenders, all of the mortgage people, all of the settlement providers, the home warranty people, the people that do homeowners insurance, that sell furniture, that sell appliances, that sell paint, that sell yard stuff, and all of the contractors and.

Service people, they're going to get a lot more business with increased home sales.

Because that's also directly tied. And this is why the powers that be, the elites that rule the world.

Don'T want to see the real estate.

Market decline because it is so important to them, because there are so many.

Ripple effects throughout the economy.

So home sales looking up for next year. Great news for the real estate people and all the related industries. Okay, rents will rise as demand for apartments rises. And supply falls. This has been a difficult thing for.

Us investors over the past few years.

We've had a record number of new apartment home deliveries. They started building like crazy. You saw apartments going up like crazy in every major American city and even secondary and third tier cities. Lots of apartment construction, too many oversupplied market, too many units delivered. And apartment owners were cutting deals. And as they were cutting deals, it pulled some of our renters out of.

The single family market.

You know, someone may enter the market and think, hey, I would like to rent a single family home. But if the apartments are making such incredibly good deals, they're going to yank some of that demand away from the single family market. And that has hurt us as single family investors because we've had some pretty tough competition from these apartments. But that tide has turned, okay? And it is definitely turning. So here we see that the apartment.

Builders stopped constructing a couple of years ago.

Their supply is getting absorbed and they are now seeing rent growth. And that's great for us because that means we will no longer have these big apartments competing for our tenants so vigorously the way they have over the.

Past couple of years, which has softened our rents.

So we don't want to see that. So this is, this is like all good news, right?

This whole report is good news.

And it's not my report. This is Redfin.

I'm just adding my commentary.

Their prediction number five, housing costs will reshape households with more roommates and fewer babies. Sad state of affairs for the western world going extinct. Especially you white people. You are definitely going extinct. You might have seen Elon Musk's post on that recently. You know, that caused some controversy because God forbid you can't talk about the whiteies. They're the evil ones, right? This is an absurd world we live in, folks. Okay? It's just completely absurd. I'm making fun of it, but this is not funny. Extinction is forever, as the leftist environmentalists like to say. And this is not good news. Gotta have some kids, folks, yours truly included here. We're going to see more people co living and cohabitating. And during COVID we saw the complete opposite of this trend, right? And now it is cycling back. And this is another testimonial for Co.

Living properties that I mentioned earlier.

Co Living really serves this need of this reshaping households problem. So check it out. Talk to your investment counselor. If you don't have 1-714-820 4200 extension 2 and that will get you to.

Investment counselor or just go through the.

Website, fill out any web form and.

They will be in touch.

All right, prediction number six. The affordability crisis will unite policymakers across party lines. I would say this is true. And just think for a moment about how long it took to bring this to the attention of politicians. How slow their machine is, how unresponsive their machine is. I mean, this has been a problem for really a couple of decades. I mean, the 90s was like relatively affordable. You know, no one would say it was at the time. Okay, at the time in the 90s and I was practicing, I was in the real estate business back then. You know, everybody was complaining about how housing is so expensive.

But it's worse now. Okay? It's much worse now.

And it just took forever for the politicians to pay attention to this. And prediction number six says affordability crisis will, meaning in the future, unite policymakers across party lines, as if it shouldn't have done that 20 years ago. So just note how slow and unresponsive this is. The NIMBY syndrome, the YIMBY syndrome here.

The article talks about. Not in my backyard. That's nimby.

And YIMBY is.

Yes, in my backyard. Movement will pick up supporters across party lines. So we shall see how this turns out.

This is very slow process and these.

Government solutions come very slowly and they.

Always have lots of unintended consequences. You know that. Okay. By the way, I'm sure I will hear about this because I will be at the Turning Point USA event here over the next couple of days and I am sure I will hear a.

Lot of the speakers talking about the housing problem. That's a big part of it.

Okay, prediction number seven, More Americans will refi and remodel. Now this is a prediction that I made during the early Covid era days that remodeling was going to be a huge boom. And this is largely because the lock in effect, people don't want to give up those cheap mortgages, obviously. And Redfin took them a few years.

To figure it out.

I said it much earlier. I said it a long time ago. You heard me. You listened to those old episodes. It's all there that I predicted this.

Was going to be a big thing.

For many, many years.

The remodeling business is going to be a good business for a long time to come.

Okay, prediction number eight, NYC outskirts, Great slates region will be hot. Zoom towns like Nashville and Austin will not. Now, I'm kind of a more balanced approach on this one. I don't really think this is that big. A deal. But maybe their prediction headline is a little bit of sensationalism because I think that ultimately people have started definitely to migrate back into like these main cities, these first tier areas, to the extent they can afford them. But remember, these places are so crime ridden. There are so many problems with these cities.

Their budgets are a disaster.

New York City is going to be a bigger disaster with the new commie Muslim who's taking over. Not funny either.

I don't know why I laugh at this stuff. I think it's just to blow off pressure.

But we'll see. I don't really think Redfin's hugely right about this. I think directionally it's probably true. It's a little bit of a thing.

I just don't think it's a big thing. Because once people get a taste of places like Nashville and Austin, the low.

Cost, the friendly people, the easy environment, the ease of living there, they're not like all rushing out. Okay.

You know, they call those the zoom towns, but those places have come into their own for sure.

Okay. Especially if you like country music or all the keep Austin weird stuff. Okay. Number nine, climate migration will go hyper local. I don't know, this is just too.

Long a subject, so I'm not really going to make a bunch of comments about it.

I don't think climate migration is anywhere near as big a deal as some have made it out to be. It's like the other prediction, you know, it's a thing, but it's just not.

That big a thing.

At least not yet.

Okay. So I'm not going to go into that one too deeply.

Okay. Nar, nar, the national association of Realtors will let local MLSS call the shots, sparking consolidation. Now this is an industry thing and I think this prediction is probably true.

NAR has been under a lot of fire lately.

The big lawsuit, the big settlement, $440.

Million, that was giant.

And then all of the zillions of follow on lawsuits over MLSS and you know, who can monopolize the market and.

All of this kind of stuff. So that's just a whole long thing.

But that's an industry thing, not something.

That directly affects investors.

Prediction number five, AI will become a real estate matchmaker, another industry thing. And yeah, of course artificial intelligence is.

Going to play a bigger role in.

Our lives, in everything. I mean, all of the dating sites.

I read an article about, about the dating site companies and dating app companies a couple weeks ago talking about how AI is now.

You know, they're using AI in the.

Algorithms and stuff like that.

You know, this is really no surprise. I mean, of course AI will be.

A bigger matchmaker in real estate and in love.

Really.

No surprise there.

So that's the report. Let's get to our guest today and let's talk about those financial bubbles throughout history. Reach out to your investment counselor if you want to talk about these incredible cash flow properties we have. We really do have some very good inventory right now, most of the time.

Throughout the many decades I've been doing this.

Inventory is the struggle. But inventory is actually pretty darn good right now. We've got some good properties, good cash flow, good numbers, good potentials.

So reach out to your investment counselor.

714-820-4200, extension 2 or jason hartman.com let's get to our guest. It is my pleasure to welcome a man, Iman Virjee, to the show. He is the author of the upcoming.

Book A Brief History of Financial Bubbles.

Are we in a bubble now?

If so, what assets are bubbly? Maybe not all of them. You know, bubbles exist in various asset.

Classes but not others at times.

Or maybe it's just the everything bubble as it's been said.

The amazing thing to me about all of this stuff is everybody can say we're in a bubble and then it.

Just keeps on blowing up and getting bigger. Aman, welcome. How are you?

I'm great. Jason, it's great to, great to see you. I love the podcast, as they say in radio. I'm a longtime listener but a first time caller.

I love it. That's great. That is what they say in radio.

Well, you're coming to us from Palo Alto. You're right by Stanford University. Looking forward to exploring this. And maybe we want to go in chronological order. Of course we can't talk about every.

Bubble, but as they say, among those who don't learn from history are doomed to repeat it. So let's try and not repeat these bubbles.

But where do you want to start?

I mean, you know, like ancient times.

South Sea bubble, John Locke, you know where, where should we start?

Well, in my, in my book, I really went after 10 bubbles that begin in with the Amsterdam tulip bubble in 16, 36, 37. Lots of interesting stuff there. I thought the 1720s was actually a really interesting one too. It had the South Sea Company and the Mississippi Company and a lot of patience for monetary policy which I know is near and dear to the fans of the pod. So maybe we can start with that one and then move forward from there.

Sure.

Sounds good.

Sounds good. And maybe before we dive into these.

Different bubbles that you want to teach people what is a bubble? Maybe we should define that because everybody has a different interpretation of what that, what that means.

Yeah, I think the easiest way that I kind of get my head around it is it's just a run up in asset prices in some time and location that then gets undone. So in the case of something like tulips or railways or tech stocks, we saw expansions in price of 5 to 10x over a 2 year period and it all kind of went away. You can define it differently. Like somehow valuations get away from fundamentals, but that's very subjective too. What fundamentals are you looking at? When you think about crypto, that's different from stocks and different from bonds and different from real estate. So I try to stay away from the opinion, like, hey, I think this stuff is overvalued and therefore we're in a bubble and just stuck to empirical data. Like there's a big run up in this asset and then a big and symmetrically symmetrically consistent decline in that asset over about a two year period.

Yeah. Yeah.

Okay, good. So bubbles by definition always pop.

Yeah, exactly right.

Okay, got it. Okay, good. So take us to the first one you want to chronicle.

So the first one that I just fell in love with this in writing it initially I thought the book would be about 200 pages long and about 20 pages on 10 different bubbles. It ends up the book is now 500 pages long and a little bit longer because I just got caught up in a few of them that were fascinating to me in terms of the economic policy and the monetary policy. The South Sea bubble and the Mississippi bubble in England and France in around 13 to 1720 was, I thought, really interesting in this respect. You had two very similar bubbles that happened. The two companies in play are the South Sea Company and the Mississippi Company. It turns out that by today's numbers they would have been worth about 6 trillion or $8 trillion in market value, controlling for inflation.

So if you think Nvidia is a.

High value company, these, these companies outdid that, huh?

Yeah.

Yes. And they're both very similar. The way they got into these valuations was very similar. They're both trading monopolies. In the case of the South Sea Company, they have a trade monopoly between England and Spain after the War of the Spanish Succession with the New World, which for them would have been Spanish South America. And in the Mississippi Company case, it's France with their colonies in North America. So they take These trading monopolies as a bargain by the government, they also have to buy a certain amount of government debt which both those governments needed coming out of the War of Spanish Succession. France makes one really big change in about 1719. They compromised the banking system. England didn't do that. And some of that in the case of England, was just a political accident. The bank of England was aligned with the Whigs, so they stayed independent. The South Sea Company was in line with the Tories or in power. And so they never really compromised the banking system. They maintained central bank independence. France did not. They gave the Banque Royale over to the general manager of the Mississippi Company, a guy named John Law, who was. There's plenty of books to be written about John Law. He was a Scottish rogue and scoundrel. He escapes from Scotland at a tender age of 23.

He's an amazing story. Everybody needs to know the story of John Law.

Wow.

And have a little, a little cut away in the book on him. But he's a convicted murderer and he breaks out of jail the night before he's supposed to be hanged. And 15 years later, he ends up becoming the CEO of the biggest company in France, in fact, in the history of the world. Like on the order of the Dutch East India Company, he convinces his friend, the region of France, the Duke de Noailles, to give him the bank, the central bank of France, the Bank of Royale. And so that would be like giving Jensen Huang or Elon Musk the Federal Reserve governorship of the. Of the U.S. yeah. What do you, what do you think those people would do? I don't know what Elon would do, but I know what John Law did. He printed money. He created a huge increase in the money supply. And, and he did that to finance cheap loans for shares of the Mississippi Company. Well, that creates the Mississippi bubble. It's such. It's a bubble that's so large that it also creates massive inflation in France. And the result is the French people rebel. They now hate fiat currency. They want to go back to a gold standard. As they take away those levers, the Mississippi bubble deflates. The South Sea bubble deflates, but the consequences are very different. So up until up until now, France and England both go through the same problem. In the case of England, though, because they had central bank independence, they have a mini recession. 1721, 1722, they actually emerge stronger with financial securities markets that are well, functioning. They have a very good prime minister and Robert Walpole, who takes power after, after this incident. And Walpole has a very disciplined. Next 20 years he pays the government's bills. They actually have a. They reduce the government debt, industry rates fall and they're able to raise money and finance a standing army in the world's most powerful navy. In France, it's the opposite. The depression that hits in 1722 is really bad. John Law is out of a job and he's under house arrest and is out of the country because the French peasants rebelled. There's no more central bank, they can't print currency, they can't raise debt now, they can't finance an army. They default on their debt in 1726 and now the government bonds are uninvestable. And for the next 20 years they don't have enough money to preserve an army. So it's the biggest country in Europe by three acts over Britain. But they start losing wars in the 1730s and 1740s. They lose the War of the Seven Years War in 1756 and 63. They lose North America to the British. That's why we're speaking English right now, not French. As a result of all this, just France continues to lose traction, lose military hegemony. It compromises their economy and eventually you get the French Revolution and the end of crown in 1789. 91. But that 70 year history all goes back to what those decisions were at the end of those bubbles and how they chose to put their respective countries back together again.

One of the interesting things that you.

Mentioned a few minutes ago is that.

All of these bubble companies had a.

Deal with the governments, with their respective governments to have some kind of market monopoly. And I'm just wondering the impact of those distortions. Whenever the government gets involved, they distort, distort the free market, of course. Right.

So what part does that play in bubbles?

I think it's pretty significant.

Yeah. I think those two cases were definitely the result of government monopoly. The role of the money supply is the other one. When in each, in almost every single case, there was a period where the government, through monetary policy or just easing financial conditions, created the conditions for the bubbles. In some cases it was specific to a company that was a government monopoly. But those are, those are kind of unusual. The more common case is the government does something that's either fiscally stimulative or monetarily stimulative and then that creates a bubble. And sometimes it's in a favored sector where there's a lot of subsidies. Maybe the best example was in 2008, 9 when we had the global financial crisis, which was really A subprime asset bubble. And it's not much remarked on, but here in the US Fannie Mae and Freddie Mac funneled trillions of dollars into subprime loans during the 1990s and 2000s. It began with a law in 1992 called the. It was basically an affordable Quota act that was passed in 1992. And so as a result of that, they put quotas on Fannie and Freddie to send 30% of their purchases of loans on the secondary market to LMIs or low and middle income households.

Right, so you're not talking about the Community Reinvestment Act. That was before 92. Yeah, okay.

That was 1977. And also a factor. It also was a factor, I think, in some of this lending. But in my research, Fannie and Freddie were the ones who were mostly buying subprime loans. And those quotas went from 30% to 50% by 99, 2000. They were at 56% by 2007. And this is under George Bush and Bill Clinton and different, you know, Congress was in Republican Democratic hands. So it's a bit of a bipartisan mistake. But the goal to funnel to support ownership of housing, which sounds good, but do it by compromising your banks again and compromising your financial institutions as opposed to, you know, building low income housing or, or getting subsidies to people who need it. Very different decision. That's what caused the subprime bubble in 2008.

Yeah, no question about it. The government needs to get out of, out of the way. You know, they keep making all these distortions and these, you know, seemingly well intended things that turn out to be disasters.

Later you say it went through Republican.

And Democratic administrations, and that's true because.

Nobody wants to be the villain to.

Turn off the goodies. You know, all politicians will cave into spending and, you know, payoffs essentially. That's just the way it works, unfortunately.

So cynical, Jason. It's so cynical. But that seems like that's, that's the.

Lesson to learn, isn't it?

I think, I'm afraid.

Okay, so, you know, the dot com bubble, let's go there and then let's.

Get to the Great Recession, the Global Financial Crisis, 2007, 8.

But the dot com bubble is interesting.

You know, I remember I filed for a patent on an Internet company back then. Now nobody would say, call anything an Internet company, but back then that's what you did because that seemed like a.

Category and it was mind boggling.

I remember that CNN documentary, It was called getrich.com and they profiled all of Your neighbors there in Silicon Valley that were getting so insanely rich and some.

Of these business ideas that just weren't even real businesses, and this idea that the Internet was infinitely scalable. But what I think so many of.

These VCs and angel investors forgot is that competition is only one click away, you know, at the same time. Right. So, you know, you can, you can scale to the whole world, but so can everybody else. Right. So it just, you know, they didn't have differentiation back then in a lot of these companies.

Yes, I think that's. That's correct. Now, that said, there were a lot of great companies born in that downTurn. Like between 93, 99. Yeah, I mean, Nvidia was 93 and Amazon founded in 94. And then you had PayPal, where I worked for 10 years at eBay and Yahoo and, you know, Google. And then in the detritus of that bubble being burst, then you had Facebook. I mean, the first investor in Facebook was Peter Thiel. He had, he was the founder of PayPal. He took his PayPal profits and made Facebook. And Elon Musk was the other founder of PayPal. So he had Tesla and SpaceX. And so, yeah, there's a lot of good that comes out of it. And so they're good bubbles and that are creative and they're bad bubbles. But it is interesting too, in the case of that, that froth that happened in the Internet and a lot of people kind of got carried away. Again, easy money was a really important part of that, if you, you may be old enough to remember how it happened. I used to be a bond trader on Wall Street. So at the time, in fact, that's what I was doing. So I kind of remembered this. But the economy was booming in 95, 96, and then 97, we had again a very strong economy. And Amazon went public and the markets were roaring. There's a little bit of a stutter step in 1Q97, where the market actually went down for a quarter. I know that sounds crazy when we think of the bubble, but there was a down quarter. And then in 98 there was like the first half of the year. The summer 98 was also soft. And just as the market was cooling, and to my mind, the market was sorting itself with some rationalization. The Fed cut interest rates in September, October and November of 1998. And you might wonder, in the economy booming, full employment, the stock market at all time, why would they cut interest rates? Alan Greenspan had just given a speech at the end of 96, about irrational exuberance. So why are they cutting interest rates? And it was this weird thing where Long Term Capital Management was a hedge fund. They had gone long, a lot of risk assets short, a lot of underlying assets. They were in trouble. They weren't a big hedge fund. They were 5 billion in equity, maybe 100 billion in assets, and a lot more than that in notional derivatives. But there was a real fear that the banking system would be compromised and people, I guess Alan Greenspan bought into it. And then they cut interest rates three times and the stock market boomed. At the end of 97, it seemed like it was wobbling a little bit. End of 98, it basically doubles from the middle of 1998, end of 1998 into 1999. And right after those Fed rate cuts, then they try to raise rates and put it back together again. And at the time it felt like they were just behind the curve and inflation was picking up. But again, it's a lesson that, hey, just because when things seem to be good, sometimes the Fed steps in at the wrong time, makes money too easy, and then it really fuels that froth and that irrationality that you're talking about.

And just to comment on lctm, if you don't know the Long Term Capital Management story, you've got to just look it up because it's so interesting. These guys basically claimed that they had mathematically hacked the stock market and you know, they just figured out the markets mathematically and they could not lose, but barely they could lose. And that, that just happens to all of them. And if you, if you think you're a stock market whiz, just think of how all of these, of these brilliant people can't figure it out either. Okay? So just, just know that to keep, keep it in mind.

But, but then, you know, then the Fed had an excuse to cut aggressively.

Again after 9 11.

So then basically, you know, that was.

Kind of the predecessor to the housing.

Bubble, but not completely, because a lot.

Of that was just the Wall street scams that were happening in the background. You know, we all know the subprime story that was all apparent to the public eye.

But what we didn't know is all.

Of the stuff that was happening in the background, selling the same loan in.

A pool 33 times and all of.

The crookery and just disgusting greed that Wall street was part of. But let's move up to the Great Recession.

Yeah, So I think the narrative you're talking about, and there's a lot of value to it, but I'll just Remind you that if you want to blame the 2008 subprime bubble and boom on things like greedy investment bankers, conflicted credit rating agencies and you know, all that shenanigans around tools, mortgages and CMOs or collateralized debt obligations, that is a part of the story. But in this book I really ask myself, are these things really the cause? Are these new? Why did the bubble happen in, you know, in 2008, not 1998 or 1988, like what happened around 2007? Eight that really created the conditions for, for a bubble. Greedy investment bankers have been around for a long time. I used to work on Wall street in the mid-1990s. We were greedy back then, Jason and I think. Greedy investment, yeah, right. The first rating agencies were in the, after the financial panic of 1907. I think Moody was the first guy to put ratings on bonds in 1909. So that wasn't new. Bad government regulation has been around as far as I can remember. And derivatives have been used to finance. I mean the first mortgage backed bonds were slave bonds and the 1840s and 50s. So the question really is what was new and what enabled the bad behavior and people to get away with it. I think you figured a big part of it which was that the low interest rates that we saw after 2001, after 9, 11, the fed funds rate came down to below 2%. Fine. There was an emergency, they wanted to reopen the market. I get that 2003, 2004 rates were still at 2%. And so you have to ask, how long do these emergency measures go on for? Right, Three years. Now after Covid, if we had interest rates that were 2 too low for three years beyond Covid, it's like what are we doing? And so low interest rates means that people have to reach for yield. And when you have to reach for yield, you start looking at investments that are mid or high single digits in subprime bonds and thinking, well, that looks pretty good, right? I got to make a 6, 7% rate of return. I can't do it on Treasury. So now I got to go into subprime bonds. And then Fannie and Freddie Mac were putting trillions into subprime bonds. So after 2009 and they did a, a review of who owned all these junk bonds, subprime bonds with the 2% down and the teaser rates, Fannie and Freddie owned over half of all that subprime mortgage debt in the US So the private sector owned a chunk of it. But CRA loans, Fannie and Freddie, the Va fha the government owned the majority of the bonds at the time. So that was the thing that really changed in the mid-90s. It was low interest rates, but it was also just fueling it with government money. And then you make bad banking and poor credit rating agency governance profitable once again.

More government. Government distortions, you know.

Yeah, that's right.

Yeah, absolutely.

Okay, well, where are we now?

Well, we are. I guess the good news is that history repeats and I think we are getting back into very expensive valuations. I think the good news is we haven't had the same kind of governance issues that we, we saw like in the subprime bubble in the 2000s. You know, interest rates right now are sitting at about 4% in the, in the U.S. so we're not, we're not at that at those danger levels. And I think the bubble that we are, if we are seeing a bubble, it's. I do feel like there's one emerging in AI stocks. There's a lot of excitement about companies that are using AI in Silicon Valley. We see it all the time. AI native companies or what. AI stocks are basically commanding valuations and multiples that we just have never seen in the Valley. It is a transformative technology. So I want to give it that credit. I think it's like mobile or the Internet or the computing revolution. It's on the order of that. That's going to be the impact that's going to have on our lives. But the valuations in AI are racing ahead. At the same time, we've seen SaaS stocks in the public company, which I remember used to trade at 10, 11 times sales. They're at six or seven times sales. If you don't have an AI story, it doesn't feel like there's a bubble in those assets. So I think it's actually going to be okay as long as the government doesn't engage in the kind of easy money or, you know, manipulative financing to kind of, kind of push the economy forward. That I think would be very dangerous.

Yeah.

So at the time we are recording.

Right now, Palantir is trading at a P E of 446.

Right, right. That's what justifies.

That means with.

And it was worse than that. It was over 500. It was like 519. I think maybe at the peak.

That means if no growth occurs, investors.

Need to wait 446 years to get their money back.

Right. I mean, great, great, great, great grandkids or their AI companions will benefit from.

Are you kidding me? I Mean, talk about this, these insane PE ratios, right?

Let me start with the broader market and then zero in on some companies. So the broader, the MAG7 are trading at 27 to 29 times earnings as of today. At the peak of the 2000 bubble, the PE ratios were more like 70 plus. And you have a lot of unprofitable companies that were like Yahoo, like being valued in the, in the top 10. I don't think that's happening. That's not to me, that's not the stuff that bubbles are made of. I think we're still in the broad market seeing high valuations, but not unsustainably high. Palantir and anyone with an AI story or anyone who thinks they can, you know, double and double and double and double again for the next four or five years, you just have to be in the valley. We say that's growing into your valuation. So we're basically giving you credit for the next three years of compounding growth and I guess hoping that you catch up. And in my experience that you know, when you're in the valley and you're investor, you're hoping that you get one, one or two great companies out of every 10 that you invest in and as long as you catch that one, it returns your fund and you do great. It is hard to justify individual companies in an optimistic market like this, especially around that AI story. So that is where I'd be careful. And the other challenge with AI is it's very expensive, right? It's capex intensive. The compute is immense. It's not like an Internet company where you launch a website and scale. The scale here is gated by energy restrictions and by capital. And so that is problem to me.

Those data centers are incredibly expensive and the energy is a big issue.

But I am glad that it's creating.

This interest in nuclear power because that is the cleanest, best thing we've got the safest, cleanest, best, best thing going. So that's good news.

Okay, Anything to wrap it up, Any questions?

I didn't ask you anything you want to share and also give out your website?

Yeah, no, I think that's, I think that's great. I think we, we covered a lot. I just encourage you to, to go to the website. You can, you can find it at www.bigbubbletrouble.com. again, the book goes into 10 different bubbles. If you didn't like the ones we talked about in the 1720s or 2008 or the dot com bubble, there may be others that are interesting. Cover a Latin American minds bubble in 1825 in the UK railway mania in 1845. And so, you know, I just follow along a lot of different stories in history. So hopefully if you're interested in history, interested in finance, economics, businesses, the money supply and fiscal policy, this will there'll be a couple of stories that are interesting for you in that book.

Good stuff. Aman, thank you so much for joining us.

Thank you, Jason. Great to meet you.

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