433: Debunking the Fear Porn- Economic Cycles and Housing Stability

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I have the one and only Jason Hartman empowered investors on the show. The first one I want to talk about housing crash. Maybe why it hasn't crashed. Will it crash? And then maybe we'll get into a crazy world. What would have to happen to actually have a crash? So Jason, if we're going to start this journey and I were to ask you why hasn't the housing market crashed so far? What are some things you would think about?

You know, the first and most important thing, Michael, is that there is an absolute requirement for a housing crash. If you're baking a cake, there are certain ingredients that you must have that you cannot bake a cake without these certain ingredients, right? And the same is true of a housing crash. So there's the school of thought out there, there's the fear porn, the doom and gloomers, the Crash Bros, whatever you want to call this segment of people who are just praying for a housing crash. Now I have effectively psychologically profiled these people and I'll just put this in and then I'll answer your question. But there are so many people in life who lack the self confidence to take a risk, to go out on a limb and do something and look successful. People have faith in themselves and their ideas. That is the mark of success wherever it's found. And so many people 10 years ago, 12 years ago, 20 years ago, they thought, you know, I should buy some real estate, I should become an investor. And then they didn't have the guts to do it and they didn't have the confidence to do it and they missed the market over and over and over again. They missed many growth cycles and now they're just jealous and they're disappointed in themselves and they want to spread fear and they just hope that the market will crash. Now that said, we need to understand as investors that investing is not the process of speculating on housing prices. That's what a lot of people think it is, but that's not what it is. Income property is this beautiful multidimensional asset. It's the most historically proven asset class in the entire world. It's the most tax favored asset class in America. And taxes are the largest expense in any of our lives. Mostly we really make our money from return on investment, from yield. Okay? If the price goes up and we're in a capital appreciation market, hey, great, you know, Michael, we can spend it as well as the next guy, okay? And that's wonderful when it happens, but it's not our expectation. So we really should be talking about income yield and rent. Right. Rather than prices. But everybody wants to talk about prices because that's what they're obsessed with. So that's what we'll talk about. Okay? So that said, here's the one ingredient that you must have that you cannot have a crash without this one ingredient, and that is millions of distressed sellers. Without that, you're never going to have your crash.

It's a supply. It's absolutely right. It's a supply phenomenon. And when I think about the Crash Bros, The Doomers, I have two thoughts.

The fear porn people.

Yeah, yeah, Fear porn. I actually have two profiles. One, it is their side hustle. I think some of these folks don't believe half the things they say. But when they put out a tweet about Airbnb bust or this or that factually incorrect thing, it gets a lot of the feed. And then they get paid by X or paid by YouTube. So I think there's a lot of intellectually dishonest folks who are doing it to get paid.

I'm glad you said it because someone had to say it. The people who are doing all of this clickbait and it works and you know, I'm trying to do it a little more. I guess I'm selling a little bit of my integrity too, but I really gotta criticize them because they're just full of it. You know, they don't believe half the stuff they're saying. Their arguments are half baked. And this clickbait, you know, it really lacks integrity. It's a bait and switch, right?

My honest belief is it works in the short term, but it doesn't work long term. So they might win the sprint, but they're going to lose the marathon.

Well, yeah, I'd like to believe that, but I don't know. Some of these people, year after year after year, it just goes on and, you know, I'll use maybe one of the more famous examples. I'm going to use Peter Schiff as my example. Okay.

You know, Gold. Yeah, Gold.

He has been predicting the end of the world for as long as I've been following him. And I started following him, following them in the early 2000s. So it's been almost.

Me too.

It's been about 20 years. Okay. And you know, even a broken clock is right twice a day, right? So all of these people, if they just say all this stuff, they're going to be right, because there's going to be cycles, there will be corrections. That's just the way things work. I mean, look, there's always going to be cycles of ebb and flow correction, even to the point of crash, right? Are we going to have another real estate crash? The answer is yes. Is it going to be anytime soon? The answer is probably not.

Okay, yeah, well, here's the, here's the second category and this one I give them a little slack. For a lot of the folks predicting crash come of age in the last crash. Actually in the housing crash, right. If you're 32 or 33, you are old enough to remember your family or your friends or your neighborhood struggling, losing homes, foreclosures. So to you, every recession, every down cycle means housing has to crash.

Right?

Now, shame on you for being lazy because there's a hundred years of data out there you can go look at, right? But in a world of short sightedness, in a, in a world where people often fight the last war when you know it's not going to work this time, I kind of get it. But if you're looking to make moves, you should really study more than one recession. And that's just where we are, I think today.

Yeah, that's a very good point you make. And I love what you just said about people fighting the last war. You know, they basically are living in this sort of post traumatic stress disorder, right? They think that's the way every recession will be. Now I've been doing this for decades and I've lived through a lot of recessions. You know, I got my real estate license when I was 19 years old in my first year of college. And so I have seen the ebbs and the flows and you know, there are always cycles. That's just the nature of the economy. Any market has cycles to it. But 2007, 2008, that was a once in seven decade cycle. Okay, almost eight decades really. So are we going to see that in our, again in our lifetime? It won't be exactly that flavor, but there will definitely be times of economic distress. You could argue that we're in one now. Even with unemployment being super low, you know, a huge segment of the Population is struggling. So we are seeing this wealth concentration effect. And it's fragmented. So you can't paint things with like a broad brush, you know, it just doesn't work.

So to get back to kind of question one of this housing crash, we're not, we haven't had one yet. Because again, if you're not, if you're not aware, active inventory is roughly 600,000 units. 2019, we were about 1.4 million active listings.

You're using NAR stats. Yeah, correct.

Roughly. And if you go back to kind of the last crash, we had over 4 million. So just in case you don't know math, 500,000 or 600,000 is about 15% of 4 million.

Right?

So we don't have the ingredient for a housing crash. So that's step one. So step two of this road to a housing crash is do you see over the next 6, 912 months? So kind of a short time frame. Anything that could really spark waves of supply coming.

Most people that are arguing with me about my fairly bullish outlook. Okay, are arguing. Jason, you're mistaken. Because the elephant in the room is unemployment. We are going to see massive layoffs, Massive unemployment. And look, we had some overstaffed, overfunded tech companies that have laid people off. But in terms of the overall labor market, that's like a drop in the bucket. It's nothing. This is a nothing burger. Although the media loves to report it. Facebook's laying off 8,000 people, you know, et cetera, et cetera, all of it. What we have to understand is compared to what these companies were, overfunded, overstaffed, illogical, stupid companies, okay? The vast majority of the tech world is completely illogical. Look, Michael, your business and my business is, you know, what our businesses have that's unique. Unlike tech companies, we make money. We actually make profit. Like, why don't venture capitalists rush to my door and say they want to give me $40 million, right? Because, you know, they're just in love with these, these tech companies, you know, and you stick a tech label on anything and it's going to just sell for more.

Right now, now the tech label is AI Just say you have something in AI and you're going to get overfunded.

So you're absolutely put A.I. you know, I'm going to re register all my domain names Instead of.com and they're A.I.

Yeah, there you go.

Instead company. Yeah, exactly, exactly.

So it's funny, I, I get the same, I'll call it nonsense for lack of a better Word of unemployment. I mean, I even go back and forth them and I say, okay, great, guys, let's assume unemployment doubles, right? Let's assume it goes to 7% or 7.5%, which wouldn't be that big a deal. Yeah, yeah, it's not that big a deal.

Right.

Also, let's assume it happens in a month, which that's not how the numbers work, but let's just assume.

Right.

What do you guys think happens? Yeah, I've been doing this a long time and banks, I've seen banks do things two ways, Jason. 1 in 060708, they foreclosed on everyone. That didn't work out very well. And we just had a economy shut down. And what did they do? They gave out moratoriums like they were freaking candy.

Yeah.

So let me just ask you, let's say unemployment went to 10% tomorrow. Do you think banks are going to be in a rush to foreclose or you think they'll just give a forbearance?

If you are leveraged, they're going to work with you. If you have a lot of equity, they don't have an incentive to work with you. That's the first thing. So as I always like to say, the best insurance is a high loan balance. It's counterintuitive. Most people think, oh, you should keep your debt levels low. No, the reality is, as unfair as it is, the banks work with the people who are highly leveraged. So be one of those. So you'll get the help if you need it. Right. But let me just go back to kind of your first question there. And that was the thing of what if we have massive unemployment? Now people have been asking me this, so I actually did the research. You know, the thing that's different about you and I is we actually do our own research. Right, exactly.

We actually look at stuff.

Yeah, we actually look at stuff and do math. Okay. That's what I actually do. I do math, believe it or not. Right. Rather than parroting lines from cnbc, I actually do the research. I go to source materials. Okay. And let me tell you this. The unemployment insurance amount that someone would get varies depending on your income you're paying into the system and what state you live in and so on and so forth. So I asked my CPA to do some research in this because it was hard to figure out. But I think you can fairly say for anyone that owns a home today, if they bought a home in the past few years, their unemployment benefit would be somewhere in the neighborhood of $2,300 a month. Okay.

Yeah.

So I got on a zoom meeting with one of the lenders that we've done a lot of business with, one of the mortgage lenders. And I said, let's calculate the people that got mortgages. Either they purchased a home or refinanced a home, and the tens of millions of people that did that in the last few years during the COVID era, when rates were historically low. And let's calculate what would it take them to qualify based on unemployment insurance. No side hustle unemployment. They get 26 weeks of unemployment insurance. Right. And if there were some crisis, that would likely be extended and enhanced two weeks. They've. They've always done that. They'll. They'll make it longer, and they'll make it more. That's what they did during COVID Right. We've seen it before. So let me show you a chart. Okay. Okay. So this shows you the median mortgage payment throughout these different time periods. And so in 2022, as we saw these massive rate hikes, we saw the mortgage payment up above $2,000 for a $471,000 home. But that's not the important number to look at, because not many people purchased a home with that mortgage. Most people purchased a home with this mortgage, and it was only $1,000 a month in 2021. Okay. Or in 2019, it was $1,200 a month for a $397,000 home or a $320,000 home, respectively. So these people basically got to go back in time. They stepped into a time machine and transported themselves back 10, 11, 12 years to the time when that mortgage in 2011 was just over a thousand dollars a month for a house that was only $225,000. Okay.

It's amazing.

This is a very affordable house. Now, let me just show you another chart here. Okay. This shows you the mortgage distribution in the United States of America. And you've probably seen this chart. I've shown it a lot. About 25% of the people in the country have a mortgage at or below 3%. About 65% of the people have a mortgage at or below 4%. These people are extremely comfortable. They're not in distress. They're not likely to be in distress. They can literally afford their house payment on unemployment insurance.

I think people don't. They don't get it. They just. They don't get it a lot.

Yeah.

A lot of these doomers are talking about. Because the most important point you made earlier is that's today's prices. They're not buying today. Have you guys not seen the activity is way down. Hello. It's down 40 and going lower, right? Yeah. These the payments Affordable. And another stat I think came from Black Knight was the. The effective interest rate is 3.6% of all residential mortgages.

However you slice that, that's affordable. Even on unemployment.

It's very affordable. And there's one more thing that you didn't say and sometimes what you don't say is the most important thing and that is that we talked about existing mortgages and the effective rate being 3.6%. But guess what? 40% of the homes in the country have no mortgage at all.

Exactly. That was same thing on your chart. I was thinking that's all mortgages, right? There should be another line that says zero. These people have no payment, no mortgage.

Exactly. So how are you going to get millions of distressed sellers?

Just that's the big question.

Tell me how we're going to see millions of distressed sellers. Because remember, if you agree with my thesis, that is the one ingredient that is absolutely necessary. You cannot have a crash without it.

Yeah.

Got to have millions of distressed sellers.

And so I've been asked this a lot. This is the only, the only answer I have, Jason, and it's not one I believe in, but it's the only one I can get wrap my head around is 10% plus unemployment for at least 12 months.

Yeah.

So we're not talking a spike to 10%, you know, like Covid crash. We're talking over 10% for 12 plus months.

Sustained unemployment.

Sustained.

Basically a great. A great depression. Yeah, but.

And let's close on this. The last thing I'll say about this is if you have 10% unemployment for 12 months, all the foreclosures don't show up till 2026 or 2027.

Yeah.

Again, reading is good. The average tenure between the first foreclosure notice 90 day late and closing was a thousand days.

Yeah. So it's three years, right?

Yeah.

The pipeline takes a long time to clear. That's another important point. I'm glad you said it. Also, I want to say something because I have been accused of by the trolls, by the fear porn purveyors, by the crash bros of talking my book. Okay, so my main company, right? It makes money by selling properties to investors. Okay, so let's go down that rabbit hole for a second. Since my company is paid by the seller, right? I would be actually talking my book if I were spreading fear porn. If I Were saying the market is going to crash, you better sell now. I would cure my inventory problem. Right. Because we have a lack of inventory. We don't have enough inventory for, for the buyers. Right. And that would be my best business strategy. Right. This is just how I see it. And it's not going to last forever. The market will correct at some point, but it's just not here yet. And let me just share with you inventory numbers because that was kind of my next thing here that I wanted to show. So inventory has crept up a little bit. Now you use the national association of Realtors stats. I don't like those as much because they count the pending sales and the contingent sales. So I use Altos and they only count the actual for sale properties. You could use either one. As long as you compare it apples to apples over time consistently, either one is fine. Okay. Works. Right. As of two weeks ago, we had 496,000 and change homes for sale in the country. And you, if you're looking at the chart, you see that this is about 10% lower than this time last year. And you see that it's way lower than it was in 2019, 2018, 2017. Okay. And you look here, our inventory is just scary how low it is. It is urgently low. It crept up in the past two weeks to about 509,000 homes for sale. But compared to what, Michael? There's about 140 million housing units in the country. Less than half a percent of all the housing stock is actually for sale. That's nothing.

Yeah, yeah, let's talk about that 508 number. Because again, people don't realize inside that 508 number are luxury homes.

Yeah.

That you know, the top 1% can get in luxury market is frozen. If you're 2 or 3x, the median price for your location stuff is sitting. So a lot of luxury listings are stacking up on the other end. There are homes in there that should be torn down that aren't financeable. And you know, those aren't really available to first time home buyers either. So even 508 is grossly over reported, which is comical.

Yeah, yeah, it is. So other people will say, well, what about all the new homes? All the new homes coming onto the market. Yeah, that's true. It is a new construction market because nobody with resale wants to sell their house. Okay. Because their mortgage is so cheap they don't want to give it up. And interestingly, it's counterintuitive, but the higher the Fed pushes the rates, the more valuable all Those mortgages become. Most people think, and they just don't understand the dynamics here. Right. Most people think, oh, gosh, if the Fed keeps raising rates, we're going to have a massive crash. Houses are going to flood the market. No, the opposite is going to happen. Because every mortgage that's at average of 3.6% becomes more valuable the higher the rates go. Not less valuable, the less replaceable it is. The bigger the delta between a current rate that you could get a mortgage on and the existing rate you have, the more likely you are to never, ever sell that house and lose that mortgage.

Totally agree. Totally agree.

So where's the inventory come from?

Yeah, it's not coming.

Yeah, it's not coming.

We need time. I mean, that's the only cure for this. And again, we just need life events. Right. If you go four or five, six, seven, eight years out, people have babies, death, divorce, the market will heal itself, but it's not going to be quick. I actually put out something the other day, Jason. See how this hits you. Transactions, I think go sub 4 million for existing home sales August and September. I don't think we see the.

In other words, activity is down, down.

Down 40% down and going lower.

Yeah.

I don't think we see north of 6 million existing sales for a decade.

Wow. Yeah, you might be right about that. Because think about it, Michael. People have 28 years left on these cheap mortgages. So you know what they're going to do when their life changes? They're going to remodel their house.

So.

So I think the home improvement business is going to be quite good in the upcoming years, actually. I think that's a good business to be in. You know, you might want to think about that. That because people will add a bedroom, add a bathroom, remodel the kitchen, remodel the bathrooms. You know, they'll do stuff to improve their current house where they can keep the mortgage.

Yeah. And guys. Yeah, it's. It's just, it's just I don't see a crash coming. It's funny because I did say a crash was coming over a year ago, which was in transactions, which almost nobody got. Everybody wants it in price. We have had a crash. It's called transactions.

Yeah. And that's another good distinction you're making. You can have activity subside a lot, which normally would bring you a lot of inventory. But because of this very unique situation we're in that we've really never been in before, where all of these people have these ultra cheap mortgages, they just won't sell them and they're going to be stingy and hold on to those mortgages. So, you know, no one would fault you for at the time saying, hey, there's going to be a lot of inventory. Right. And there's going to be a correction because that's what it seemed like. And you can have a destruction in demand to the tune of 20 to 40%. But if no one's selling, you know.

The supply demand curve is two lines. Supply and demand is two lines and they both can move. Yeah, that's what everybody got wrong. Everybody assumed we would still do 6 million transactions. And I kept telling people that's just not going to happen.

Right. So you could be at the cocktail party and the realtors you're talking to there, because everybody knows a thousand realtors. They could be saying they, they're crying the blues, they're starving.

It's a depression.

Right. It's terrible for them, but that doesn't mean prices are coming down.

Exactly.

Okay. It's a different thing.

Agreed. Well, you know what, I want to switch to a topic number two with you, if you don't mind.

Sure.

You have a very unique grasp on the economy, in my opinion. I mistakenly. I like owning my mistakes. I thought after Silicon Valley bank crashed and I was seeing true consumers scared I E conserving cash, I thought Q2 of 2023 would be the start of a recession. I was wrong. I am looking out on the horizon and I'm not sure that I currently see a recession in the next 12 months. We'll even say 15 months. So we'll say all of 2024. I know a recession's coming because they are a natural part of the economic cycle. So they haven't cured that it's going to happen. But Jason, when you look in your crystal ball, do you see us heading towards a classic recession sometime between now and the end of 2024?

Well, when you look at what the Fed's doing, it sure looks like we're going to have one. I mean, and, and look, we can have a recession without having a housing crash. Those are not the same thing. Okay. We've had plenty combined, but not necessarily. Right. It depends. So the Fed is certainly trying to push us into a recession. I'll tell you that. They are trying to increase unemployment, they are trying to slow the economy way down to slow inflation. But given the timing of the election and just all of the other factors and the fact that inflation has been so stubborn, they've managed to cut it a bit. But it's still pretty sticky. I think this is giving the Fed a little more leeway to try an engineer that wanted soft landing, as it were. Right. If these massive increases, you know, 11 straight rate hikes, or I think we had 11. Right, 12.

Yeah.

Historic increases in interest rates. Right. Normally the economy probably would have reacted more quickly than it did. And so it's really buying them more time to adjust the level.

Let's, yeah, let's poke at that. In my opinion, what's going on around us is we have a Fed who's clearly trying to put their foot on the brake.

Right.

But we have Congress who put their foot on the gas. Right. All of these inflation reduction act and all these other spending plans. I mean, like I got to imagine Jerome Powell is going, what the hell, Help me out here, guys. Yeah. Because it's an interesting battle.

Yeah, yeah, it really is. I mean, I think what they'll do is, is as soon as we move into recession territory, if not before that, they're going to pivot. Because the problem they have is pretty serious. You know, they can push more banks into failure mode. Because these banks, you know, it's really the Silicon Valley bank story, right? These banks have these hold to maturity assets, and some of those, not all of them, they were all purchased at different times. So it's a ladder effect. Right. But some of those are costing the bank a fortune and they're making the banks insolvent or pushing them in that direction. So the longer they keep the rates up, the bigger that problem becomes. So they gotta be careful of that. And just generally speaking, in addition to inflation and the Phillips curve, which is the relationship of unemployment to inflation, as you know, they've also got to worry about the cost of their own debt.

The government's debt, okay, stacking up an interest charge.

I mean, they don't want super high interest rates because it just costs them more money. So the powers that be, they want to see rates calm down a little bit too. And I think they'll sell out the American people and just let inflation be the problem. Because it's the easy part of the business plan. And it's really, Michael, a good business plan for the government. Because when the government owes a lot of debt to foreign countries or to anybody for that matter, they just take advantage of my inflation induced debt destruction strategy. Right? They, they inflate away their own debt. So hey, we owe a trillion dollars to China, okay? If we have 10% inflation in one year, two years, whatever the time frame that we get, basically $100 billion discount on that debt because we, we borrowed it at yesterday's dollars, but we pay it back in tomorrow's cheaper dollars. So that's a very good deal.

Yeah. It's funny, I created a shirt in 2020 that says I use inflation to get rich. Ask me how.

Yeah, that's a good shirt. I wish I would have thought of that.

There you go. Yeah. So again, it's, it's. I. I got to tell you, inflation's a feature, not a bug. That's another thing I'm starting to say. It's like, guys, you know, it's. It's part, it's part of the system. It's, it's really funny when I go back and look at the Fed. I think Jerome Powell is trying to do something. I called this a year ago. I think I've heard Danielle D. Martino Booth say it once or twice. I'm curious what you think about it. I think Jerome Powell is trying to kill the Fed put in first introduced by Alan Greenspan.

Interesting.

And by killing the Fed put what does that mean? In my opinion, these are my words, not yours. Alan Greenspan basically allowed Wall street to run amok. Stack up leverage because if they won, they won. If they lost, they got bailed out by the American people.

Corporate socialism. Yeah, it's.

It's. I hate it. It's horrible.

Oh, it's terrible.

You make a bet in capitalism and you lose. Pay the price right if you win. Congrats. That's how I roll. I do believe if you gave Jerome Powell true serm. I don't think Jerome Powell is saying I want to raise unemployment to bring inflation down. I think again, I go back to Jackson Hole. Not this year, the last year where he basically came out in eight minutes and said, I'm going to kick you illiquid billionaires in the nuts. I'm going to. The market's not listening to me. Hear me now. Going higher for longer. And you've seen folks like I call him billionaire Barry. Barry Sternlicht, who's mortgage company BK stopped distributions, he's selling assets to raise cash. I think Jerome Powell's main thing is he wants to kill the Fed. Put.

Yep, maybe. He certainly is acting like Paul Volcker, I'll tell you that much. It's kind of surprising because it wasn't too long ago that he was letting inflation run amok. It was true.

He was Arthur Burns times 10.

Totally. Or. Or Greenspan. Greenspan was like that too. Or Bernanke Helicopter Ben. But yeah, He. He has become Paul Volcker, you know, and I can't believe how aggressive, how hawkish he's been, but I think it's overkill. I gotta tell you, he. He's gonna have to pivot. There's just no choice.

Well, let's play with that, because my current thinking is a. We're done raising rates. We're not going to get a bump in September. We're not getting in a bump the rest of the year.

Hey, I thought that the last couple times, and I was wrong. So.

Yeah. And here's the thing that I think you and I will disagree on, which is totally okay. I don't think he cuts next year. I think we. We have these rates for 18 months, which will be the longest on record. I realized that the current longest on record is 12 months. So I'm going 50% over the longest to date, which puts me out on a pretty skinny limb. I get it.

Yeah.

But, you know, if he goes at least 12 months without cutting, I think he is trying to kill the Fed put. I think that's what Jerome Powell is trying to do. He's like, I'm tired of the American citizens losing in Wall street winning. I think that's what he's trying to do.

Well, I hope so, because it is very much not fair. And I gotta. I gotta make a book recommendation here.

Okay.

You'll love this book if you haven't read it already. I'm actually listening to the audio right now, and it's so good. All of your listeners should check this one out too. Because Wall street, as I've long said, is the modern version of organized cross crime. It really is. It's just such a criminal enterprise.

It's a legal casino. Yes.

Y. Totally. The book is called A Capitalist Lament How Wall street is Fleecing you. Okay. And this is the COVID of the book. Okay. So it's. It's that red cover right there.

Okay, gotcha.

So, yeah, it's really quite good. Leland Faust is the author and it's. It's. It's excellent.

I will check that out. Thank you for the recommendation.

Yeah.

But yeah, when I look at what's going on, I think Powell is out to save his reputation. I think 12 months ago he was. The inflation is transitory. And he would have been written in the history books in a very negative light. Almost comical. Yeah, I think he's turned some of that around. But he has bought inflation down from 9. 1 to 3. 3. CPI headline. He has more work to do. I think he wants to go down as Paul Volcker 2.0, and probably more importantly, is the guy that broke the Fed put. And if he does, that'll be something.

Yeah, well, that. That's very interesting. I mean, we'll see. Yeah. I just don't.

So you think a cut's coming then? So, again, we disagree on that. It's totally okay.

Maybe I'm just being hopeful. I. I don't know. For the past 19 years that I've been doing podcasts and conferences and so forth on the speaking circuit, my predictions have been pretty good, but one has been horrible, and that is interest rates. I suck at predicting interest rates, and I should just stop commenting on it and just say no comment.

Fair enough.

Look, I want to believe that interest rates respond to market forces, and the reality is they just don't. We live in a centrally planned economy where the Fed is running things and they have different, you know, Mr. Market, I can understand. Okay, right. You know, you understand market forces, market dynamics. That's. It doesn't seem that hard, at least for me. But authoritarian central planning is at the whims of the central planners. Their political motivation. 17 people, you know. Yeah, it's just. I don't know.

Yeah, it is, certainly, I guess, more psychology.

Yeah. Right.

You've got to figure out, you know, what their motivations are, and you can see. So it is very interesting. Well, let's talk about economy again. I think we both could agree with certainty that a recession is coming sometime in the future. I don't think that's.

At some time for sure.

Yeah, no, at some time. No, I mean, they're part of the system. Right. We haven't defeated recession.

I'll go further than that. I'll say a depression is coming sometime.

There you go. Yeah, at some time. But when, again, you look at your crystal ball and you think, just as far as 2024, I think inflation is.

Going to be an ongoing problem. You know, another book, actually, a book that I'm actually reading, a good old paper book. It's called when the Boomers Bail. And it's just interesting. The thesis of this book is interesting. You know, it's just about how the boomers didn't have enough children and there's a worker shortage. And I think that's one of the reason unemployment is being so stubborn. As much as the Fed is trying to put people out of a job, there's just not enough skilled workers and there's not enough, actually unskilled workers either. Both absolutely right. I mean, vocational schools. Trump was really big on that. And, and I think that's a good thing. You know, amazingly, a lot of plumbers make more than lawyers and that's probably as it should be. Actually.

It works for me. Yeah, yeah. No, I think the job market is pretty fascinating. Right. The Jolts report came out the other day. Right. We've now under 8 million. We were as high as nearly 11. So we're down 3 million openings. That's good. We saw jobs growth last month and the unemployment rate go up, which I know shocks a lot of people. Like, how can that be? Well, it's called a participation rate. We got one in six retirees thinking about coming back to work either because they want to or probably because they have to.

Right.

It's an interesting economy and labor market.

So one of the interesting things the author said in that book is he said, if you have a business, anybody you will hire in your business in the next 25 years has already been born.

Wow.

Just let that comment sit for a moment and really ponder that over the next day or so. That means that there is such a tight worker shortage that you are going to have a lot of upward pressure on wages. You know, throughout history. Okay. And look, Karl Marx became, I think, you know, as much as I don't like Karl Marx, obviously, but he really is the most influential economist in history, in my opinion. Okay. Not in a good way. Okay. But the whole battle throughout history has always been between capital and labor. Who gets more in the equation. Right. There's capital because you got to build the factory and supply the machines and the equipment and you know, whatever you got to open the business, that's the capital. Right. The labor are the workers who work there. Right. Who's entitled to how much. Right. And I would argue, at the risk of sounding like a socialist, that the pendulum has swung too far in favor of capital.

And I'm saying that as a high net worth person who has the capital. Okay. And hires lots of workers. But I think that pendulum has really swung too far in our favor. And if you look at CEO pay in compared to the pay of rank and file people, CEO pay used to be like 25, 30 times what the rank and file employees get, and now it's over 300 times.

Times.

So it's, it's absurdly out of balance. You know, labor really does need more power in that equation.

And I think, I think they're going.

To get it just by demographics because they're so.

I think they are too. I agree. I'm actually on record on my Daily financial show trying to get people to understand that I think labor is going to win. We saw this with UPS strike. You're going to probably see with uaw labor is winning. Labor should be winning. I think they've been mistreated for 40 years. Not since the 70s as labor gotten their fair share.

Right.

It's coming. And to tie this all the way back to.

What is that? Let's just extend that one more thing, Michael. Okay. That means inflation. Okay.

Well, it means one of two things. Yeah, inflation or they're going to eat margin and pay less to shareholders. There are three ways that that can be done and I think it's going to be all three of those. It doesn't have to only be inflation. They can eat less margin and they could pay less distributions capital back to investors. I'm certain labor is going to win. I think the stock market could be a lost decade or very low return, certainly below trend. And yeah, I think some of that rolls into inflation. So I think it's all three things happening.

Just remember though that wage inflation is very sticky. People usually don't take pay cuts very well. And so as people get more dollars and spend them into the economy, that just means the price of everything increases in including real estate and including rent, and including the devaluation of debt through inflation induced debt destruction. Which is all good for investors. Absolutely. Much of it may not be philosophically good. It's good for you as an income property investor.

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