536: Coronavirus - Black Swan Theory

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 Holistic Survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The Holistic Survival show is your family's insurance for a better life. Jason will teach you to think independently, to understand threats and how to create the ultimate action plan. Sudden change or worst case scenario, you'll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.

This is a Black Swan event. Nassim Nicholas Tale is a fantastic author. I've talked to you about his books over the years and of course he wrote a book entitled the Black Swan and has publicized and promulgated this idea that the financial markets or any part of life really occasionally sees something that is totally unexpected and has severe impact. And I think we are going through something that is would absolutely qualify as a Black Swan event. Of course I'm talking about COVID 19, the coronavirus and if you look at the markets, they are just plummeting. The S and P was halted after plunging 7% right after opening today. Absolutely crazy stuff going on. My good friend Gary Helmbacher lives in Shenzhen, China and he has lived there for many years. We met maybe 15 years ago in Newport Beach, California at the Coffee shop and we used to have these tremendous multi hour long coffee shop meetings. Gary and Patrick and Rob and a few other friends. Since Gary lives in China, I wanted to give you a report. He's been on the show before and he's very attuned to the news and the economy. He's very interested in economics and investing and so forth and I wanted to just invite him on just to give a report as to what is going on in China. Gary, thank you so much for joining us. What is happening over there?

Hi Jason, good morning to you. Good night to me. As you said, I live in Shenzhen, China, which is the farewell southern tip of China. I border Hong Kong and I started watching this virus. It kind of caught my attention about mid January. And just really quickly, I know we have a short intro. Everybody is thinking about Spring Festival which is Chinese New Year's. Imagine Christmas, New Year's and fourth of July all rolled into one. And that Spring festival and my workers actually picked up on it before me. And of Course it took off and all of February was a nail biter. My wife and I have been self quarantined since January 25th, so that's coming up on six weeks. Only in the last few days have we actually gone outside for something more than just the basic essentials.

So Gary, you're going outside for the basics, you know, food, shopping, whatever. But what's happening there when you go on the mass transit, Are there people using the system? Are there people in the shopping malls? Give us an idea as to the traffic. I've seen videos of just empty streets and empty sidewalks where, you know, I was in China last year, as you know, and it was packed. Everywhere you look, just, just packed with people. Give us an idea as to what's going on like that in terms of.

Foot traffic, I can tell you those videos are accurate. I have a number of still photos and generally the day or two after Spring festival, nobody is out anyways. But that total abandonment of both people, pedestrian and auto traffic was real. I have some pictures where there might be one or two pictures in the frame of view and we would be the only people out. Everybody has masks on. My wife and I typically wear safety glasses because the virus can enter through the eyes and everything was closed. But food markets, I would like to emphasize, I don't know what was going on in Wuhan. I've got one friend who I've kind of been trying to get a hold of. He's actually in Virginia right now at university, but he lived in Wuhan. But I can tell you in our immediate area here, food was plentiful, food was never a problem. The markets in fact were overflowing. My guess is the reason why is a lot of local restaurants would have bought their food from the market and they were all closed. So we never had a problem with food.

So in terms of supply chains, the whole world is so interconnected in terms of supply chains and so forth. Obviously China, the workshop of the world. We could talk about the economy for three, eight hours easily. But just a couple of sound bites on your thought in terms of the economy, the financial markets are just collapsing. The Fed made an emergency rate cut last week and money is free. Investors are foaming at the mouth and I agree with them. But there's a lot more to this than that.

Again, for us here, I'm fairly financially well off. You got me started on real estate. That's probably another show we could do. I'm sitting in very large cash positions. My office has been closed since January 22nd or 23rd, which would be normal. However, it was supposed to open up February 1st.

Now that was because of the Chinese holiday, right?

Correct. The office would have been closed about two weeks anyway. China would not have gotten rolling again until about the middle of February because as you probably heard, everybody travels during that time and it has to be staggered out. There's just too many people with too much money. And imagine trying to move significant portions of 1.4 billion people in two weeks. So there's about a three to four week period where things slow down almost to a stop and do not normally get back to normal. Until this year, Chinese New Year. Being early, they would have gotten moving about mid February. So we've really had about three weeks of abnormally low activity.

Okay, so, Gary, we want to have you back to talk about the economy, the broader economy. There's a lot to this. There's a lot of supply chain issues to discuss and a lot of unknowns. We really don't know. But just sum it up all up, anything else you want to say about anything about real estate, the economy, just what's going on in China in general, and we'll have you back.

Yeah. Here, as bad as it got. Remember Shenzhen is away from Wuhan. Wuhan was the center. The whole rest of the country was more or less unaffected. But through the whole process, all of my workers and myself, we were all self isolating, self quarantining. About a week before, the government had said nobody needed to tell us anything. We were already self quarantining. We were already wearing masks. We have our indoor clothes, our outdoor clothes. After we go outside, we come in and leave our indoor clothes in the vestibule area. We take a shower.

You mean your outdoor clothes?

Yeah.

And you put on your indoor clothes?

Yeah.

Put on your outdoor clothes by the door. We come in, we take a shower. Any packages we bring in get sprayed down with alcohol. Alcohol was, in short, supplied temporarily. China makes everything. They make 97% of American antibiotics, which is another show. But the lights never went off, the water never stopped working, the toilet never stopped flushing, the Internet never dropped. Our mobile phones always worked and there was loads of food in all the markets. So the supply chain that is in.

Good shape there, huh? Yeah.

The only thing I haven't been able to find is we seem to have a shortage of American bacon. And I'm, you know, they've had. But other than, you know, there have been no, other than us staying in. There have been no shortages of anything in Shenzhen, where we live.

Yeah, good, good stuff. Good to know. Well, Gary, thanks for the report. Be well, be safe. And we'll have you back on to talk about the economic impacts and other impact hacks another time. Thank you so much.

Great. Thank you, Jason.

So I wanted to have one of our Venture Alliance Mastermind members and clients on the show here. He attended a small workshop by one of our frequent podcast guests, and that's Dan Ammerman. And he's back from that. And we are in Sarasota, Florida, where I've been attending a rather cheesy real estate conference and Jeff came to rescue me. So here is Jeff Twig. We're going to talk about a few predictions that might be very important to you as real estate investors. Jeff is a real estate agent, broker and has a team here in Sarasota, Florida and is in the brokerage side of the business as I used to be the traditional side. And let's talk about some of these predictions from our multi time guest, Dan Ammerman. Jeff, welcome. How you doing?

I'm doing real well. Thanks for having me, Jason.

Yeah, it's good to have you. So tell us a little bit about your background first and then we'll jump into some of these predictions.

Yeah, sure. So I was born in Wisconsin, moved here to Sarasota, Florida when I was young. Grandparents were in the real estate business. My father was in the brokerage side of the business and so I grew up around that.

So you've been around real estate for a long time, huh? I have, I have. And you joined the Venture alliance just over a year ago, right, at our last Meet the Masters conference, right after Meet the Masters. Yeah, absolutely. Good. And tell us about what you do here, what kind of properties you sell, and just a little bit about your business, if you would.

Yeah, sure. So I help people buy and sell homes. I primarily work with sellers on the listing side. I have agent that helps out on the buy side and then I look for income properties on the side.

Good stuff. And after our last Venture alliance meeting, our retreat in Savannah, you tried to dabble in the tax lien stuff. Right. And you were surprised that the auction you were bidding on, you got beat out by someone who was willing to take a rather low return. That surprised you, Right? That'll tie in with our talk about negative interest rates and everything else. So thought it was relevant.

Yeah, that really surprised me. It must have been an institutional investor. An investor came in and I was bidding low. It started at 18% and it's a bid down here in the state of Florida and somebody came in and bid 0.25% on all properties.

Very interesting. So it is surprising to me that an investor would take such a low yield. Any speculation about that.

That's surprising to me. To operate at a net loss is surprising to me.

Yeah, it should be surprising to anybody. That's not the goal of this show. Our goal is to make a profit. A profit, definitely. Okay, so Dan Ammerman, you finished his workshop. There were just four of you there. He's been on the show many times. I took the same workshop you took about 12 years ago, actually, in Newport Beach, California. And tell us a little bit about it. Ammerman is not too fond of making predictions, is he? But he made a few.

Yeah, it was a good workshop. Ammerman is a financial artist, I believe is what you coined him.

That's the word I use. Yeah.

He really is. He's complex. He's high level. But he made three predictions at this workshop, and I've been following him for four years, and I have never heard him make a prediction before. So that was exciting.

So, drumroll, please. Let's get the first prediction. Yeah. And by the way, folks, we are sitting outside at a Starbucks on a gorgeous Sarasota, Florida, day. It's a little cool and chilly, but wow, it is absolutely beautiful outside. So you may hear some background noise. So we just want to let you know where we were located, but go ahead.

So Dan's predictions, which he stated, off the record, the government will make, number one mandatory that retirement and savings accounts will have to hold treasuries, maybe between 10 to 30% treasuries.

Okay, so this was probably one of the more fascinating predictions, I thought. And so, Jeff, savings accounts, when you first told me that, I thought it was just retirement accounts.

I think it's the HSAs health savings accounts.

Oh, okay. Got it, got it. Okay, I'm taking up money and retirement accounts. Got it. So what's interesting about that one is, think about it. The government, one of their products is treasury bills. That's a product they create, and it finances government spending. So if the government wants to keep spending in order to buy votes and pander to certain special interest groups, then, hey, why not just have a crisis? Maybe we're in one now. We don't know yet. Nobody ever knows. Oh, you know, maybe they engineer it, or maybe they just stand by and witness it, and then they need to step in and pass a new law to protect everybody's retirement, to protect their savings. And they say, hey, lookit, the best protection you can have is treasury bills. Those UST bills are a pretty safe bet, aren't they?

Risk free and in the best interest of us to protect us.

Absolutely. So given that, why not create a whole bunch of new customers to buy your treasury bills? What a deal. Great business plan. Yeah. I mean, when you can make the laws, that's a pretty handy position to be in, isn't it? Absolutely, yeah. Yeah, absolutely. So that to me is a sign of more inflation coming because it allows the government to spend more liberally. Notice that over the years we've talked about how these treasury auctions have sometimes not been very successful. And you know, a big part of it is getting foreign buyers to buy, especially foreign countries. And buyers, you know, they can be individual investors or institutional, whatever to buy our T bills and that props up our economy. Okay. But if we can just force the American citizens to take trillions of dollars and immediately overnight buy more treasury bills, we got a new market, don't we?

We do.

And all they need to do is break in and then they can incrementally step it up when they need more money.

Yeah. Wow, that's a fantastic deal for the government. Okay, so what's the next prediction he made?

The next prediction he made was that the Roth IRA is going to have changes and it's likely that it may go away.

Yeah. Now this is one that does not surprise me because I never converted my IRA to a Roth. And the reason is I just don't trust the government. And I thought that, look, you want to try and avoid. And that was an armored car going by with fiat money going to get Treasuries. Yeah, exactly. That was funny. So you want to try and avoid, to whatever extent possible living under a government that is broke and hungry. And that's one of the reasons I really was fearful of the California government because few governments are more broke and hungry than California. And I saw the price of speeding tickets go up and I haven't had a ticket, gosh, since 1997 I don't think. But I remember a taxi driver, I was riding in his car and he was telling me got a speeding ticket and with a late fee, it was like a thousand dollars. I couldn't believe it. And they use the police as the modern day tax collector. They use government agencies to go out and fine people and fine businesses to charge them fines. The Air Quality Management District, which is not exactly a governmental agency, they make their money fining businesses, okay, in California for not having enough carpool spots in their parking lot and not making it Difficult enough for people that are driving solo to work to park, they got to make it really difficult for them to make it their parking space very far away. And if the companies don't obey this, they fine them. Okay, so these are all, you know, whether you've got the power of the government directly or like you're deputized by the government like the aqmd, right? You gotta, you gotta a government situation where they are hungry for money and they're going to use whatever means possible to get it from you. Okay, so on this level, and this is a federal government level, okay, so, you know, the US is a great country and you probably want to live there as I do. And I'm a big fan of living in the States. But if you can be in a state, at least that's not broke and starving and using its powers to take your money. Okay, so that's one part of it. But the Roth ira, I always thought that was low hanging fruit for the government because you got all these accounts where people paid the tax to convert from a traditional IRA to a Roth. And then they can just come along and change the rules and say, hey, we're sorry, we need the money, or some other excuse. This now is going to be treated just like a traditional Iraq or we're not gonna allow any more of them. Now I don't know why they wouldn't allow any more of them though, because they do have the advantage of collecting tax today. So that's probably gonna be like a retroactive thing, I'm guessing. Did he elaborate on that?

He gave some more specifics. He speculated around moving the, changing the age and just making you have to hold on to it for longer and then what you hold in that Roth ira.

And so, so they might have a separate tax rate that's maybe lower for Roth people. And they probably won't call it a tax like an income tax, like when you take distributions from your traditional ira, they'll just call it some sort of fee, a distribution fee or something. And it's really just a tax. But yeah, I just never trusted that. I thought, I thought the government's going to get their hands in there some way or another.

Ammerman made it clear that they will market, market it to be in the best interest of the public.

Of course. That's right. All right.

And I will say the core concept of the workshop was based around the national debt that nobody seems to be talking about and how that plays into other industries.

Now when you say the national debt, nobody seems to be Talking about? Are you just talking about the traditional national debt that seems like a lot of people are talking about, or is this more of a phantom national debt?

No, it's the real national debt. I read the Wall Street Journal on a daily basis. It's not grabbing headlines. Well, right now with the coronavirus, it's not grabbing headlines, but I don't hear it.

It's been crowded out by other headlines.

You know, in the political primaries that are recently, you know, nobody brought it up. Nobody brought up. That's growing. And the FOMC has, you know, the congressional budget out the next 10 years, over a trillion deficit. Deficit in addition to where we are right now.

And that's with our current administration, probably. But if we get a Democrat, we're going to be looking at an additional 4 to 5 trillion dollars added to the deficit. That's going to be unbelievable. I mean, that's going to be so crippling. But not for investors. It means inflation, so that'll be great for investors following our plan. Right.

I heard 40 trillion in 10 years with Bernie Sanders.

Oh, my God, that's incredible. That is unbelievable. Wow. So the last prediction, basically a doubling of the deficit or the debt. That's the debt on top of the current. Well, why wouldn't it be? Just do the math. Four years in office at 5 trillion a year is 20 trillion more. So there you go. Yeah, that's easy. Easy math. That would happen very easily. Yeah, go ahead.

So the third prediction he made was that the government would introduce means testing for Social Security. So before, when you go to apply for Social Security, they're going to want to collect a complete detailed financial picture of your current standings to make a determination if you're going to qualify for Social Security benefits that you've already paid into.

So Bernie Madoff, not Sanders. Bernie Madoff said that he got the idea for his Ponzi scheme from the US Social Security system. And you've paid into this, right? You've paid into it. You deserve money back. If you became successful, wildly successful, you should get your money back. Just like if you paid into an annuity or a savings account. You know, if you were on a savings program where you disciplined yourself to save extra money each month and auto deposit it into your savings account, you should get that back. But now you've got to be needy to get the money. And not only that, you have to apply and provide a detailed financial picture to qualify for Social Security. That's what he's predicting.

Right?

That sucks.

Disincentivizing, becoming Successful, Right, Right.

So you don't want to be successful because then you're not gonna get anything. Okay. Which is already the way we have it in a lot of ways. So that's quite interesting. Any other sort of broad takeaways or specific ones? Jeff? There's tons of graphs and charts in this book we're looking at here together. It's sort of hard to share them necessarily with the audience, but just whatever else you want to mention.

Yeah, sure. So when I go to a workshop like this, I'm a real estate guy. I'm a real estate investor. That is how my mind is thinking while he's going through the details of his presentation. And one big takeaway that I got. And Dan Ammerman calls it an asset liability management strategy. An alm.

Yes, the alm. And this is our strategy too.

So it's great. It's called something different, but it is. We did a test case of 20% inflation, and he did all the numbers, all the graphs. 20% inflation, 50% asset deflation. We checked all the investment classes, multiple combinations of investment classes.

Let me just comment on that. So what that means, I think is that there was consumer price inflation, but the assets were deflating in that example.

Correct.

Okay, so what that means is that all the prices of your cost of living go up. But say real estate stocks, precious metals, assets, bonds, they deflate in value. So a decline, a recession or depression level type of thing. So give us those numbers again, if you would, and then tell us how it all worked out.

Sure. So we have inflation, consumer price inflation of 20%. So.

Ouch.

Right, right. And then asset deflation of 50%. So your current asset value.

Ouch again, cut it in half.

Right.

So that is the scenario, the environment, the investing environment, landscape of the model.

Okay, so now note that this is not a prediction. This is just an example. He used to show how the asset liability management. Right. The alm, the alm performs if the worst happens. Right. Okay, so the worst has happened. But since you've got inflation induced debt destruction in here, I'm guessing, and I don't know what you're going to say, this is going to work out at least to mitigate losses. Right. Or how's it work out?

Yeah. So it works out in year one. So in all the other asset classes, catastrophic losses in year one, with the ALM asset liability management strategy, we have a negative 0.5% real return without cash flows.

So this is on income property.

On income property, year one, 20% inflation, 50% asset deflation and still a real return on year one.

Just a very slight return. But it's positive.

But it's positive.

And everything else in the world, every other asset class is negative, catastrophically negative.

50% decline and the ALM strategy recovers, it continues to rise from there. So you never actually lose any money. So if you can imagine the environment, 20% inflation, your assets are the values.

Cut in half and the cost of living is rising fast.

Right, Right. So you're losing everywhere else, but with this strategy, basically you cannot lose.

Okay, so that's because we're paying the debt on the property back. The property's got to be leveraged for that to work, right?

Yes. So asset, you have the property liability.

Which is another asset, which is, which is the mortgage. But it's really an asset in our world. Right. But yes, most people call it a liability.

Right. And what Dan Amerman does, and this is the management part, is you manage the asset with the liability. This is what the largest institutions, who he used to work for, that's how they evaluate.

Yeah. So Dan is a charter financial analyst and his strategy of turning inflation into wealth has been, he does a good job creating examples about this and articulating it because that's really using that inflation induced debt destruction to our benefit. I mean, think about it, everybody. This isn't hard to figure out. You don't need to do any real math here, okay? If any asset in the world, say that you've just got a totally diversified portfolio, you've got precious metals, you've got stocks, you've got bonds, you've got real estate, you've got everything, every asset out there, right? And those assets depreciate by 50%. None of those other assets, except your income property, have debt against them. None of them have a super cheap mortgage that benefits from inflation induced debt destruction. So what he calls this is the liability driven inflation arbitrage. Isn't that interesting? I call it the double inflation arbitrage. And I've been saying that for 16 years now, before I even knew who Dan was. That's fascinating that he calls that, you just slip the paper to me, liability driven inflation arbitrage. I love it. Or as Hartman would say, the double inflation arbitrage.

So Ammerman said this is the only option that we have as individuals to use the same strategies that the institutions use.

And the institutions use them because they're using the same principles. We're using the principles of self liquidating debt, the principles of the double inflation arbitrage, or what does he call it liability. Sorry, folks, we got notes out here and it's a little windy. And the liability driven inflation arbitrage. Yeah, okay. I think mine's easier. Double inflation arbitrage is easier. So, yeah, good stuff. Any other takeaways or impressions? And let's wrap it up.

Just that we're in good hands. You know, I spoke with a couple other guys at the workshop when we were having lunch and had coffee afterwards. And I asked them, are you guys feeling like. I'm feeling rushed. You want to rush out and acquire more income, properties, more debt, More.

I want to take on more debt.

But the other attendees, they were talking about gold, they were talking about stocks. And that was just fascinating to me, but it told me that we just need to continue to stay the course.

So one guy, you did mention a couple of the attendees to me. One guy had a company sold for around $50 million. And he came because he said he doesn't want to pay a money manager. He just wants to learn it himself and figure out how to manage his wealth. But another one you told me, I think was a retiree, I believe, who purchased a property in one of our market markets, Cape Coral, Florida.

Okay.

And he had a bunch of assets, and he said the property did the best, I think, of all of them.

Right.

Tell us about that.

Yeah. So he had bought this property in cape Coral in 2012, and he planned to, I'll buy it, I'll rent it for a few years, then I'll retire there. And when he retired and they reviewed his assets, he had had a grandchild. And so he had planned not to move down to Cape Town Coral, but it was his top performing asset. And so.

And did he have a bunch of other assets, like a diversified asset base? What do you have?

Everything.

Gold, stocks, bonds. I mean, he seemed to dabble in everything.

In everything, in everything.

And this was by far the most superior investment return that he was receiving.

That's fantastic. Hey, like we said at the beginning, you were at our Venture alliance retreat in Savannah, Georgia. You got interested in the tax sale world and you just took that course. You bought that course that we were emailing about. I didn't know this till today. Tell us about that a little bit.

Yeah. So I listened to the webinar and one of the first things that was announced is this is a business. Two qualifications. You need to want to help people and you need to want to make money. So I was immediately drawn in by that. And then I learned that you could be completely mobile and basically help The. The regular general public get money that's owed for them that the government is trying to keep.

So you can do a good deed for the person, but you also get to stick it to the man because the government's holding onto his money. And you could have a mobile lifestyle.

And there's no income cap, so that was important too.

And it's just you and your wife, no kids. Right, right, right. Yeah. So you could be mobile. And right now you don't have a mobile business right now because you're geographically in traditional real estate. I felt the same way. And I just wanted to move. I wanted to get out of California for so many years.

Right.

I had to.

Took me a long time to make my life a little more portable so I could do that.

And it's tough to go to a new market and start that business up. A relationship business like that takes too long.

Too long, too much effort. But the thing I like about that tax sale business is that you don't really spend any real money on it necessarily. You don't have to. I mean, just nominal minority amounts of money. The only thing you can really lose is the cost of the course and maybe some nominal filing fees or mailing fees and your time. That's it. So the risk is just your time. But with your time, you always learn stuff too, right?

Yeah.

Look, even if you take a course and you spend the money just to learn that it's not the right thing for you, then you've just bought back future time for yourself to do something that is right for you. You're gonna have to learn anything new you try.

Yeah, no, definitely true about that. Hey, Jeff, do you want to give out your website or anything? If people are looking for Sarasota area properties or looking to sell properties in Sarasota, Jeff is your guy.

Yep. You can find me@jefftwighomes.com that's J E F F T W I G G homes dot com.

Hey, Jeff, thanks for joining us. And we'll see you at the next Venture alliance event or. Or meet the masters. Everything's kind of on hold right now, given what's going on in the world, but hopefully this will be past us in a couple of months. And of course, we're talking about COVID 19, folks, and hopefully life will get back to normal pretty soon. Thanks for joining us.

Thank you, Jason. It was a real pleasure. And thanks for all the guidance you provide for me and other investors.

Thank you and happy investing. We'll talk to you all tomorrow.

Thank you so much. For listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out this show's specific website and our general website, hartmanmedia.com 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.