363: $750M Invested in RE, Housing Collapse or Boom? Ken McElroy

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

Welcome to the AIPIS show. For accredited income property investment specialists and those who aspire to be. If you're a real estate, mortgage or financial professional, this is the place for you. Will explore innovative investment analysis, sales, marketing and income generating strategies for the most historically proven wealth creator income property. Learn from the experts as they show you how to build a better business and a better life.

Hey, it's my pleasure to welcome Ken McElroy back to the show. He's a man who doesn't even need an introduction. He's so well known in real estate circles. He's written several of the books in the Rich Dad Advisor series. You hear him with Robert Kiyosaki from time to time doing his thing and just a great educator, great friend. He's spoken at a couple of our events and been on the show many times before and owns like 832 million apartment units or at least the number, somewhat close to that, but not exact number. Ken, welcome back. How you doing?

Hi Jason. What's going on, man? It's great to be back on your show.

Hey, it's good to talk to you again. It's always good to talk to you. And man, the world feels like it's in chaos, doesn't it? Doesn't it?

It is. That's why it feels that way.

You know, you can either laugh or cry about some of this stuff. So let's try and laugh about it. But you know, it's all changing so fast. We don't want to make this two time specific. And you know, one of the things I'm always telling my listeners and viewers and followers is to just get a context and understand how much life has changed in the past 10, 20, 30, 40 years. Not even that many years. Just watch old movies, watch old TV shows. And you know, one that comes to mind that I like is Columbo, that old detective show. Remember Columbo? He was a funny guy, Columbo, and really smart. But you know what's interesting about that is when we talk about how this wealth gap is increasing. You know, you look around and when there'd be like a rich person, that Colombo would be involved, you know, would be a suspect involved in a crime and he would go to their house, their mansion in the 70s was nothing like a mansion is today, right? And you can just tell how much wealthier the wealthy are becoming. They are becoming mega, mega oligarchical wealthy and we were talking about these tech companies and so forth. What do you think about this? Is it a problem? And if so, can we do anything about it?

I think it is like you and I, I've traveled all over the world. I know you have. And so I know a lot of probably your listeners have. And when you go to places outside of the United States, there's a massive divide between the rich and the poor. It's super clear there. I think the US up to this point has done a pretty good job of trying to maintain a middle class, but boy, that's changing quickly now. That's for sure.

I would expect, based on not following any political lines here, but I would expect that the tech companies are going to be. I said this the other day to a friend of mine that we're probably going to see those get broken up just like they did to Rockefeller and Standard Oil back in the day or.

AT and T more recently.

Yeah, yeah. So I would imagine that you'll start to see that, you know, legislation around that. And in fact, I've seen some Democrats talk about that recently. You know, I think all of those things will probably, we'll see in the next 10 years and it's going to continue. Yeah, we'll see whether it's Democrat or Republican. I said, I, you know, I was buying apartments in real estate all through all this stuff and I said, you know, who really hurt my business was Bush when he made a housing cheap and, you know, and everybody went out and started buying it, or I shouldn't say cheap, you know, he said everybody should own a home. So everybody started doing that. And so homeownership went way up, which is completely fine.

Right.

Disagree with that philosophy. But then Obama kind of had the, you know, he had the effects of that bust, you know, that housing bust. And so, you know, and Clinton rolled out some great policies around, you know, you know, people that needed money and soldiers. So it is what it is.

Yeah, I think the lesson there is, and I'm so glad you said that, Ken, because the lesson is that you can make money in any environment if you just adjust your strategy accordingly. Right. And income property really is such a flexible asset class where you can adjust to how you're playing the game. Right. So that's really good. But the other little nugget that I want to make sure people realize in what you just said is that most people, people think that you want to have this booming housing market to make money, but that's actually wrong. If you're a landlord and you depend on rental income. It's better if there's a higher renter population than a homeowner population. And you just said that.

Yeah, no, that happened. I specifically remember homeownership. It was right around 62%. And with Bush, it went all the way up to like 68 or 69%. Again, not a big deal. But then from there, there it popped, and then it went all the way back down, and then so now it's kind of gone all the way back up. So. And at the time, there was a metric, it was like, for every 1%, it was a million people, or that's the metric.

It's a million. It's a million new renters for every 1% decline in the home ownership rate. So under Bush, it got up to like 69% or some ridiculous number like that, which is, you know, it's. People in real estate think this is like, like sacrilege when I say this, Ken, but I think the homeownership rate is too high. I think the natural homeownership rate, even with Fannie Mae and Freddie Mac, but not overt stimulus, is about 50 to 55%. That's where it should be.

If you look around the world, it's low.

Yeah.

You know, when you go to Europe or, you know, anywhere, Australia or Asia, it's low. It's a lot lower. And so there is a. There is a. There's a point where there's a rental piece there, and what influences it is policy. And Bush was a Republican, so he was like, everybody needs own house. Which, again, totally fine. But then you're like, okay, well, what they're doing is we had renters moving out, buying houses, and that's what created that bubble. And then that popped, and then Obama had to kind of clean up that. And, you know, and then once that guy got cleaned up, that was the run we just had. You know, no one was building apartments during that time. No one's building new housing during that time because. Because the. Everything was, you know, massively disrupted. And so that's the run we just got done with. It was longer than everybody thought it was going to be, but it was regardless. It popped, as, you know, in 0708. And this. This has been a 12, 13 year run that we just had.

Yeah, it has now. As Trump came in in 2016, 17. Everybody was kind of talking back then about how it's the end of the business cycle. This thing is long in the tooth, this recovery. And I kind of postulated at the time that look, we were coming off such a low that the cycle really didn't start until about 2012. It didn't start in 2008, as some were kind of saying. Right, no way. Go ahead.

No, I was buying stuff at 08, 0, 9 and 10. I was buying it for 50 cents on the $40. You know, we were buying stuff from banks at that price. And so that, you know, banks were trying to get all this toxic debt off of their balance sheet.

It did not start to accelerate. I agree with you. It did not start to really accelerate until 12, 13, 14. I actually, I actually thought we were going to peak out around 2016. I was way off. I was way off.

Well, at least you admit it.

I was, I really. Because I was like, oh, my gosh, like, prices are really heating up here. But then they started using these monetary policies and driving rates down, which is what kept it going. So we actually, if you really look, we actually hit kind of a ceiling on values in real estate in the call mid 2015s, 2016. And then the cost of debt went way down. And then it pushed it up because your cash flow, maybe your rates at four and a half.

And 2015 values. Well, if the rate goes to three and a half, then your value goes up because your cash flow is the same. So that's what kept this next piece. That next run we had was from the monetary policy of keeping those rates low.

Right, right. Give us some of your thoughts on how you find deal flow and your average deal size. By the way, it's pretty big, so talk to us a little bit about how you find deals and how you evaluate them and average deal size even before that.

So I just actually had this conversation. Our deals 10 years ago were, call it $20 million. Now they're 35 to $50 million. And that's because the prices have gone up so much. The interesting thing is debt's gone down, rents have gone up. So oddly enough, they still make sense. But the amount of money that you have to have, the equity down and the debt you have to have is a lot more. Before we were raising, call it 7, 8, 9, 10 million per deal. Now we're 20 per deal, literally our equity.

Which is okay, but it's just an interesting note that needs to be discussed. So deals are tough to find right now for multiple reasons. One, people are moving all over the place. Maybe their jobs have decided that they can do that from somewhere else and they can work from home. That's one way. Or maybe that job is completely gone, or maybe their taxes are really high and maybe they're just moving 20, 30, 40, 40 miles away and they're commuting in or whatever it is. So things are moving quickly right now. And so the big mystery is when all this settles, what businesses are going to still be open, what they're going to be closed, and what employers are going to allow people to work completely remotely or maybe part time remotely. All that stuff is still a mystery. And there's a lot of big names that have said never come back. It's all going to be remote. So it's going to completely change the landscape for office buildings and all that kind of stuff downtown and restaurants and coffee shops and all those kinds of places. So all that's changing. And that's only to say we're trying to figure out where the concentration of people are going to be so that we can buy there. And so my acquisition guys, they're flying to these different markets right now and taking a look at some of the stress points around that. And typically those show up pretty easily. When you have a property, let's say that's 98, 99% with a waiting list, you know that there's a supply issue.

Supply is weak, right?

Yeah, exactly, right. Yeah. Supply is weak and demand is strong. And then you might particularly have growth there. And then you got to look at do you really want to buy more there? Do you really want to build more there? So we're looking throughout most of the markets in Texas trying to be careful of Austin. We're already there. We're already in Houston, we're already in San Diego.

Why do you say be careful of Austin?

Well, because the markets too expensive. Very, very high. Yeah, right.

I agree.

It's all rents, but also there's a lot of employers going there. There's a lot of people moving there. So it doesn't necessarily mean it's at the top, but you do. We owned stuff there 10 years ago and so for us it's doubled. And so you have to take a look at. Rents have not doubled, I can tell you that. So all those things kind of play into that. But basically it's boots on the ground, what's happening. And it could be submarket to sub market. So you can go, even in Phoenix is where I live now, we have areas that are just going like this crazy good. And we have areas that are not kind of based on what's happening with employers in the area. I'll give you an example. I was on a call yesterday with all my Regional property managers. And we went through, basically, it was a five hour call. We wrote every single budget on every single property, the 20, 21 budgets. And that's also when I find out a lot of stuff because I'm on the phone with my managers. And like in Flagstaff, one of the big employers is about ready to shut down. So small market, I own property there. Those are things that are starting to show up. And so you got to kind of be careful of that, because when you have an employer in an area that is not doing well or potentially maybe closing down, maybe not the company, but just an area, a region, a distribution center or whatever it is as they try to figure out a way to save money. Those are real estate issues. They stopped buying groceries, they stopped buying houses. They stopped.

And they move. And so those are all the things that we're trying to figure out right now, Jason. And it's hard. And everybody's doing the same thing. We're bidding on. So I'm bidding on a property right now, actually. It's due in a week, and it's about a $56 million deal. There's 45 groups that are bidding on it. Yes.

So while these numbers, your deals are so big, everybody probably says, I can't wait to be in the big leagues. Like, Ken, that's awesome. But you're competing against 44 or 45 other buyers.

Yes.

Wow.

It's going to be interesting. So, but that's. I'm used to that. That's the way it is. It's very, very common for us to have. I mean, when, you know, the data and the information and the groups out there syndicating money and the groups out there with funds and family offices and private equity and all that stuff has never been stronger. Especially because think about this. Let's say you were in retail, and I know you're not in retail, but let's say you were.

Retail properties, you mean?

Yeah, yeah. You're not going to do that now.

So you're going to go, okay, I'm going to do industrial or multifamily. And so. Okay, so that's what happens in the commercial arena. Because money's money.

So the money is just flowing from one asset class to the other.

So when everything is going well, when retail is going well and malls are going well, it stays there. Yeah, it kind of stays where it is. It's less competition. But when a whole sector like retail or malls, as, you know, or hospitality or hotels.

In office.

Yeah, office. Yeah. What it does is it moves to Other things. And that's what's happening now.

But Ken, so there's certainly this move from retail and office type properties to housing. And I've always loved housing. I always say housing, housing, housing. And you like housing too, obviously, and that's great. But just in general, I was talking with one of our clients today and you know, they want to buy some more single family houses, which is our thing. And you know, they were saying, gosh, it seems like everything is just so expensive right now. You know, real estate, bitcoin, the stock market, it's just like every asset is just pumped, pumped, pumped. And you know, I said to him, I said, look, you've got to just realize that the world, there is just so much money sloshing around out there. It is absolutely amazing. And I think one of the reasons is that's maybe not discussed that often is that nobody can earn any yield in the more traditional things like a savings account, a cd. You can't do it in bonds. So it is all come in to other assets like real estate and certainly the stock market and crypto. You know, all this money is just looking for a place for yield. It's, you know, as the saying goes, it's seeking out alpha. Right. So what do you say to that?

Great timing on this one, because I actually, I called Kiyosaki the other day, you know, we talk almost every day. And he goes, he takes a call and he's like, hey, let me call you back. I go, okay. He's like, I'm on the phone with the financial planner. Okay. That's something I never thought I would hear from Robert ever.

Oh, that is surprising. Right? Because in other words, because he's not a stock market guy. Is that what you're doing?

I was laughing. So call me back like 20 minutes later. And I go, dude, I thought I would never hear that from you ever. I'm on the phone with a financial planner. But he was, and there was a cool conversation. The guy basically said, we have a problem. I have thousands of clients that are sitting on millions of dollars each in some case a million, 2, 3, 4, 5 million, whatever, in network. And they've been working their whole lives and they're making a pretty good salary. And their issue is if they stop making the salary, that money isn't making money. So now they're looking at whatever they've saved and they're trying to figure out a way to get cash flow because, you know, they have a burn rate, they have a living expenses and let's say they say it's 50,000 a year that they need that comes out of their principal. So the issue was the guy was talking to him about, what do you suggest, Robert? Because my clients are looking for some kind of cash flow and something that isn't necessarily in a bubble. And so it was an interesting perspective because I think the guy very wisely was asking the question on behalf of his clients and tried to. Because how do you replace 200,000 or $100,000 a year job that's paying your monthly burn rate? And you're used to putting that money away in savings and then it's gone. And now you're living off of savings or living off the earnings from that savings. And so that was the issue. And I think that's happening right now even more so.

Yeah, I think you're right. And money's just looking for a place to go. It's interesting too, because years back in 2004, when I started teaching my Creating wealth seminar, I found this article, and it was actually a report by Michael Milken, everybody knows his name, and Jeremy Siegel, another name that's pretty well known in financial circles. And it was so fascinating, Ken, because Jeremy Siegel in there, I used to quote him all the time because he was talking about globalization and how it's lifted 300 million people out of poverty and there's this rising middle class around the world. And sadly the middle class is diminishing in America, but it's definitely rising around the world, right? China and India and so forth.

And he says with all of these people suddenly coming into the investor class. He didn't say it exactly this way. I'm paraphrasing, but this was the gist of it. With all of these people now coming into middle class life and then people above them getting truly wealthy. I mean, Chinese people, Indian people, and you know, there's a, there's a looming asset shortage. He says, where are all the assets for these people to buy? Like, you know, and I think we're seeing that now. And you know, this, this was a report from almost 20 years ago. And now we've seen more globalization, more people lifted out of poverty, and we see there is really an asset shortage. I mean, look, you're, you're bidding on an apartment complex and you got 45 other instit institutional buyers against you in this deal, right?

That's true. Yeah, it's absolutely true. And part of that is because people believe in the short and long term rental space.

As this economy continues unravel and employment.

Shows the Card and the businesses finally settle out and, and everything's figured out. More people should roll into rentals. And as a result of the forbearance and the mortgage defaults and all the things along that line, whether it's a commercial investor or whether it's a business investor or whether it's a single family home owner, it doesn't really matter. You're going to start to see, I think you're going to see a lot of pressure, positive pressure on the rental market.

In other words, a lot more rental demand as people move out of the ownership market. You mean like a declining homeownership rate? Right.

It happened before, it's happened a ton of times. Everybody can look at this, you know, look, just look at.08. That is exactly what happened. Now it's a little different. Of course. Home values went down and you know, they, they were below what they owed. And so this is a little different where people, oh, you know, they have pretty good equity in there, but they still owe money and they may or may not have work. And so I think, as I keep telling you, I believe that we're going to see a lot of listings next year or this year now, I guess, and we're going to see inventory as people try to clean up some of that, whatever it is, that money that they owe. Because we have a debt issue. That's the issue everywhere. If you own a hotel, it's a debt issue. If you own a home, it's a debt issue. If you own student loans, it's a debt issue. If you own credit cards, it's a debt issue. It's all around debt. So. And when the money dries up, if you own a hotel and occupancy is down, there's no money. So you have a debt issue.

Yeah, hotels are, hotels have been suffering like crazy. I mean, that's, we didn't mention hospitality too much before. We said retail and office. But hospitality is terrible. That's in the tank, right?

It's in trouble. Yeah, yeah. I get these things called the Trep report. T R, E, P, P, you should check it out. Now it's all about debt and commercial mortgage defaults by sector. And the hotel industry is in big trouble. I mean, I was looking at, I think, well, Miami, Chicago, New York, we're talking about all 50, 60, 70% in default.

Wow, that's just incredible. Okay, so there's a couple things we gotta unpack from what you just said. And since we're on this one now, and I want to go back in A moment to something you said before, but since we're on this one one, I've been talking just a little bit, not enough about the CMBS market, commercial mortgage backed securities. And I think this is one of the next big dominoes to kind of fall because the residential mortgage backed securities are pretty good. I mean there's some forbearance in the system. I don't think it's anything big, but you might disagree with me. So feel free to comment on that. It's definitely out there. There are certainly some people struggling, no question about it. But the commercial mortgage backed security, I mean there's a lot of defaults going on in retail, office and hospitality type of properties. They have bondholders, they have investors behind that. What happens with that domino effect?

Well, you're right on. I've been talking about CMBS a bit and in 08 it was the single family residential kind of buck. And not that there were some commercial too, but that was kind of the focus, that movie, the Big Short, all of that. So people that don't know when you get a mortgage.

It gets packaged up with a bunch of mortgages and sold off into the secondary market. And CMBS is the same thing, it's commercial mortgage backed securities. And so they're all packed into.

With these bigger investors and they're in people's portfolios for sure. So it's going to be interesting to see.

Which ones do default. It's definitely going to make its way. And these investors, I think you're going to see big, big disruption in this area.

So what does that mean? I mean these bondholders, the property owner defaults on their office building or their shopping center or their hotel, then the bondholders don't get pa. And who are those bondholders? Are they the Harvard Endowment, Are they pension plans, insurance companies? All of the above. And what happens there?

There are all of those people. Yes. And so for people who don't know, like when I'm going out to buy, let's say 100 or $200 million worth of commercial real estate in the multifamily space. I'm going to those groups. It might be through Goldman Sachs, it might be through Blackstone, it might be through a couple other different groups. But those folks are managing massive amounts of money and they're looking for guys like us that can place it for them. That's how the system works. So the Harvard Endowment as an example, or CalPERS, the California Retirement Fund. Yeah, all those are, those are just, that's just managed money. That's Real money from real people. And then those money managers go out and look for guys like us and they say, hey, we like Phoenix multifamily. We're going to go out and talk to Ken at MC because you know, they have a pipeline. I actually have a call on this tomorrow. And so that's how the system works. And then what happens is wherever that money went, if it went into a self storage or an office building or a retail or even a regional mall, and that's the kind of money that bought those stores, things that as they default as the people, let's say people inside of a mall can't pay anymore. Well, the owner of that mall can't pay. And all of a sudden it's just a trickle effect that makes it all the way down into that portfolio of whoever lent that money from the beginning.

So connected to that is the looming fear. And I think this is going to be big. And I don't think enough people are talking about it. Not even close, close. But there is not a US problem, not a state problem, but it's a global pension crisis. We have, I don't know, maybe a couple billion people, like it's a big number, okay, who are sort of kicking back thinking, I'm 45 years old, in 20 years I'm going to retire and have my pension. And I think they are going to be. They're in for a rude awakening, sadly, I'm telling you.

It's a really good point, Jason. Robert Kiyosaki just wrote a book. It's called who Stole My Pension? And I was looking for it on my bookshelf here with a guy that does whistleblowing for pensions. And you're right, people are sitting there. Again, it's the same system, guys, like if you're working your butt off somewhere and you're handing your money over work, it's going somewhere and somebody's managing it. And so it's either there or it isn't there. And you need to know this is the whole point of financial education. This is why we teach it. Because I think a lot of people, even in my own family, work their butts off and then they turn their money over into these pensions and then they get managed. But they also, those pensions, I'm not saying some of them are corrupt, I'm sure, and there's been fraud and all that kind of stuff around it, but that's not what I'm talking about. What I'm talking about is, is where they're investing is important. So.

If they're primarily in retail, office and malls. It's going to be a problem.

Or in something else that is speculative. For example. So those money managers are making big decisions with other people's money, opm and all these folks that are contributing into their paycheck. So this pension, these pensions, and we've already seen it. I mean, all you got. You can Google this lost pensions and you'll see there's been a ton of mismanaged pensions. A ton of people have retired after all these years, and those pensions are gone or not even close to what they thought.

Yeah. Wow.

That'S going to be a tough one. And the governments pretty much everywhere are broke, so. So they might pay some sort of Social Security or whatever it's called in their country, but it's going to be in dollars that are worth less than people expect. I think.

I actually think that's going to be one of the things that happens in the next 10 years, Jason, as you pack this stuff together, guys. The revenue from these cities or these states, as an example, come from the taxpayers, right? And so as they move around and as they mismanage or expenses go up. And we've seen it. We've seen cities file bankruptcies, right? Bankruptcy. We've seen it. I remember back in the day, there was some cities around Detroit, some cities.

In Connecticut, in California, like Vallejo, California, I think. Yeah.

So I think that's the next thing we're going to see. We have to. I mean, as people move out of those areas and they stop paying things, what else is going to happen? It's just simple math.

The sales tax revenue in these urban areas is just going to completely dry up. I mean, we had a whole summer and fall of riots in downtown, everywhere. Okay. Basically, almost. And you know, in every major city, you know, whether it be in Minneapolis or Philadelphia or Portland or Seattle, broken windows, arson.

Attacks on police officers, basically riots. Right. And insurance companies are not going to write insurance for businesses to reopen in those cities. And not that the businesses would even want to in the first place, but assume they did. They're not going to be able to get an insurance policy or it's going to be so expensive.

Right, well, right, right. So let's just pick on a city like San Francisco. Okay? So you have all these people in these high rises that are now home. Let's pick a company. Salesforce, Twitter. It doesn't really matter. They're not there. They're not coming to work. Okay. So they're not pouring out of the elevators. They're not pouring into the coffee shops, they're not pouring into the pubs after work. They're not getting dinner after work. They're not buying breakfast or lunch during the day, or they're not taking their dry cleaning. All that stuff's gonna happen. Okay, so we all know this, but what does that really mean? What that means is, as you said, those people are spending money somewhere else. And so that city, as an example, relies heavily on the property tax, the sales tax, parking fees, and all the stuff, all that rolls up. And so that I really believe that we're gonna start to see some serious issues in some of these municipalities.

Yeah, I think so, too. So, you know, with all of this talk, I mean, what do people do about it? What's the plan?

We've seen this before, so maybe not in San Francisco. You know, we've never seen negative migration out of California for as long as I can remember, but it's happening. And so I think you have to wait and let it fall out. So for me, you know, I think California is still awesome. I don't know. You know, and, you know, we saw it in New York back in the early days when before Giuliani went in and kind of cleaned things up and made things more tax friendly. And there was a time when I was younger where you would want to go to New York because it was dangerous, as an example, and that all.

It's dangerous again. The murder rate has skyrocketed in New York.

Right. It's dangerous again. Chicago was already that way pre Covid. So, you know, so what happens is, you know, the people speak, they go where they want to go based on the safety and all that kind of stuff. So that's going to make its way. And then what happens is that'll be a slow, you know, death of a thousand cut type thing. And then, you know, then guys like you and I will go in there and we'll start stamping up stuff again, and then the policies will change, and then, you know, so you want to wait for that to kind of work itself out. That's how real estate is.

But, Ken, I gotta tell you, I think that is a very long cycle.

I mean, I don't disagree with you. I think there's a lot of permanent change, for sure. But, hey, I wouldn't mind getting a penthouse in New York or maybe San Diego or to fly out to every.

Once in a while if it returns to its former glory or close to it. I agree with you. Yes.

So anyway, I don't know, but I do think that. The way I look at it is you gotta let the tide go back out, and it's just the beginning.

Yeah, yeah. No, it is just the beginning in terms of that. So talking about the market in general, you made some videos and look, I'll say it if you don't have to say it. When you make a video or you do some marketing, just like any media, sensationalism gets attention. Right. So you made some pretty sensational videos for being such a sort of understated guy, you know, about market crashes and the end of the world. You know, what do you think now? I mean, during, you know, the, like the. The thick of the plandemic. I. I intentionally called it plandemic. Okay. By the way, you were making some pretty ominous videos, and. And people will watch your stuff, and then they'd watch my stuff and they'd. I constantly heard this. I heard it all the time. But Ken McElroy says the market's going to hell.

Yeah, well, okay, so you're right. What I was trying to do was unpack what was happening at the time so that the prediction video that I did, it did not have any of the CARES act issue. That wasn't even a thing. And so that was kind of pre that. And so what happened was after that video, okay, Canvik people, we're going to forbear mortgages. And then they kicked it down the road. And so I still do believe, Jason, that this is all being propped up right now by the Fed, primarily. So I think it's just prolonged because.

They always kick the can down the road. There's no question. The problem is that it's like the question of when will the bubble pop? Well, the bubble.

Maybe it should have popped eight years ago, but they can blow it up for nobody knows how long they can keep blowing it up. Right. Or how long they can kick the can down the road.

Yeah. The mistake I made was not thinking that the Fed was gonna come in at the trillions of dollars that it has. I didn't think we were gonna go to 7 trillion.

You mean, Ken, you didn't think we would print 25 or 30 or 35% of all the money printed in the last hundred years in one year?

That one missed. I missed.

You didn't imagine that one, huh?

You know they're gonna do it again because we're not out of this.

Oh, no.

It's being propped up right now. And people need the money. I don't dispute that. The businesses need it. The people need it. Nobody wants to evict anybody. Nobody wants to lose anything. But people are right now, I think they're running out of savings, they're running out of reserves. Doesn't matter if you're a homeowner or a business owner, both are happening. I'm seeing it all over the place. And so, I mean, just. There's a lot of big companies that file bankruptcy. Oh, yeah, a lot. Big names, you know, Hertz, Macy's. I mean, think about these companies. Neiman Marcus, companies that have been around.

Our whole lifetime, but going back to, like, creative destruction. My favorite economist, Joseph Schumpeter. I mean, those companies had to go anyway, right? You know, they were. I mean, come on, Macy's and needless markup companies, they should have gone out 20 years ago. They were way past their time. This is the problem. You know, folks like. And Ken comment on this, you know, but like, you notice all these sort of zombie businesses, right? They're just these companies that were really big a long time ago and they have so much cash and sort of this momentum that kind of keeps them around for decades longer than they really should be around. Right.

And yeah, we saw it with Sears and Kmart. So I agree with you on the department store stuff and direct to consumer stuff. But there are other big companies that are also, you know, apparel brands, restaurant chains like California Pizza Kitchen, you know, and Hertz, of course, is a rental car place. And so, you know, I just think. I think you're gonna start to see more and more and more of that, Jason especially. We're not out of the woods yet.

Oh, no, I agree with you. There's more to come. No. And who knows how long they're gonna keep parts of the economy locked up. And if you put on your tinfoil hat, some would say this is completely intentional to destroy the middle class. A lot of these small business people are Trump supporters. And if you look at, it's the Democrat jurisdictions where the biggest lockdowns are and then the Republican ones are open. I'm in Florida. It's like, people say, what's it like there? And it's just normal. The only thing is you gotta wear a mask in the grocery store. That's the only part of my life that's different. That's it. You know, in Florida.

Same thing in Arizona.

Yeah.

Even though we turned blue, you know, that is, we were basically red before that. But I agree. I don't know. You know, I'm not as much as a conspiracy guy.

If we were talking to Kiyosaki, he would. He would say that.

Oh, Robert, for sure.

Yeah.

But I think it's just. It is what it is, you know, that I think things are going to unravel. I still believe there's going to be a crash. Jason. I just think it's being propped up with money, which is going to create inflation. And I think that's why we've got the run on bitcoin, because I talked to George Gammon the other day. We had him on my show, and he said. And Anthem Blanchard, too.

Oh, I know Anthem. I didn't know you knew Anthem. That's the Small World anthem.

Yeah. I said, why? He said, people are. They're just concerned about their own savings.

Yeah, absolutely. And they want sound money. They want to know that they can keep something and it's going to be worth something in the future. But who knows if that's going to be Bitcoin? Because bitcoin is like a roller coaster.

I know.

Absolutely crazy. Ken, I got a theory I want to run by you, and, you know, we'll wrap it up, I guess, but. But check out this theory. Okay? So you're talking about how, you know, there's more to come. And I do agree with you that there's definitely going to be certain parts of the economy that are in for, you know, there's a lot more pain to come. So we got to prepare for that. But tell me what you think about this theory. We've got tens of millions of people that are either refinancing or purchasing homes with literally the lowest interest rates in. And, you know, George talks about this 5,000 years. They actually have statistics back to ancient Egypt on interest rates, if people can believe that. But forget about 5,000 years. Certainly they're the lowest interest rates in 100 years or in, you know, since the 70s or whatever you want. Right? They're low. I mean, mortgages are insanely cheap. Arguably negative interest rates in real terms. You're getting paid to borrow the money, okay? So you got all these people that have these killer mortgages, and the mortgage is not movable. So what I think is going to happen, you know, three years, five years, seven, 10 years from now, now is we're going to have this constraint on housing supply because nobody's going to let go of their houses. They're either going to, number one, they're going to add on, they're going to do an addition, they're going to do, you know, they're going to do improvements, they're going to do new landscaping, they're going to fix up their house and keep it and stay or they're going to keep it as a rental but they're not going to let go of that mortgage because it's such a good deal. And I think that's going to really constrain housing supply in the future. And I think that's going to have the effect of keeping prices elevated. What do you think?

I actually agree with you. I think that.

I know that that is a reason that a lot of people will not make a decision to buy somewhere else would be obviously higher interest rates. And I think that's where you're kind of heading with that because they're at all time lows and that's always whenever rates go up or maybe they're payment is going to go up because of the rising price of a home as an example somewhere else, then that's a constraint and a big decision. If somebody's going to move somewhere and their mortgage is going to be $1,000 more, then they very well may could decide to stay where they are.

Yeah. Or keep it as a rental. And you know how I thought of that? Because low interest rates pervert the market. They distort it and it's just like rent control. I've got this guy that works for, he's been with us for several years and he and his wife have a rent controlled place in San Francisco and they got in there in like 1997. And Ken, they've got such a great deal they cannot move. They want to move. They don't like their place anymore. They'd like to move but there is no way they can give that deal up. That rent controlled place. They're paying $2,400 a month for a place that's worth like 2 million bucks. And the same will happen with these super cheap mortgages. People just won't want to give them up. It's like a rent controlled apartment, you know.

Yeah, it's the same concept. So you're absolutely right. That will definitely make some people stay. It will be interest rates as you know, drive consumer spending all over the place. Whether it's a home mortgage or a car or you know, something that they finished like a TV or something that they buy. So interest rates are something to watch and I think that if they go up, it does tend to keep people in place.

Yeah, it's going to be an interesting future for sure. What else would you like people to know as you wrap it up and please give out your website? I got that link from your assistant but I don't have it Handy. So do you have it? It's just got my name at the end. I know.

Yeah, yeah, yeah. Well, Obviously, go to KenMcEroy.com Jason Hartman is the work.

So it's just KenMcElroy.com Jason Hartman, right?

Yep. Jason Hartman. And that's one way, obviously, the YouTube channel has been fun. We post a video every week.

And then those are the two best places to reach me and to learn more.

Awesome. Good stuff. So that's kenmcelroy.com JasonHartman and Ken, any closing thoughts? Anything you want people to know. Thank you for joining us. Just wrap it up.

Yeah, well, I just, I think, you know, there's a lot of fear out there and there's a lot of fear in the media, you know, with everything that's happening, and rightly so, with COVID and the pandemic and all those things. And so you can absolutely, positively tend to focus on the defaults, the business closures, you know, the deaths, the COVID numbers. And you should know those things. But there's this flip side to it, and that is, you know, stay objective and start to take a look at when people are moving from somewhere. As an example, where are they moving to? Because it's creating bubbles in other areas. So some areas might be getting depressed with low occupancy and negative rent growth and low values and business closures, but other areas, people are moving around. And so there's tremendous opportunity, community out there if you just choose to look for it.

Good stuff. Good advice. Ken McElroy, thank you again and happy investing.

Always great to see you.

Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out the show's specific website and our general website heart.

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