CW 493 – Andrew Zatlin – Memphis Tennessee Real Estate Market Profile & Moneyball Economics

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Hey, welcome to the Creating wealth show. This is Jason Hartman, your host. And this is episode number 493. 493. Today our guest will be Andrew Zatlin, the Moneyball economist. If you saw the film, the movie Moneyball, it was pretty good. And we're gonna kind of talk about that stuff. But I've got Sarah with me to participate in the intro section. Sarah, how are you?

I'm good, thanks for having me.

Yeah, it's good to have you on. And thanks for doing this impromptu little intro with me. I appreciate it. So the thing I wanted to have you talk about with our listeners is what is going on in Memphis? Boy, I mean, like, I cannot believe how many of our investors are buying in Memphis. We have decided to do a property tour in Memphis because of the great interest we were there about two years ago. Sarah just wanted to kind of have you share your take on that market with our listeners.

Yeah, Memphis has been great. I mean, we get solid inventory because we've got two really strong providers there. We actually have four providers there. And you know, we do that because it's just a great cash flowing market and we can get the inventory there. You know, we're excited about the tour. We've got some new properties coming online for the tour and what I really like is that we're really gearing towards some of the, I don't want to say high end, but higher end for rental properties. Meaning, you know, we're looking after some nicer neighborhoods with a stronger, you know, good quality tenants, stronger tenant base and you know, we've got some of the less expensive properties too. So we're really getting a good range of properties in this market.

Yeah, you know, that's the One thing that investors love about Memphis, in other inventory constricted markets, we can really source some good product in Memphis. I'm actually coming out of an exchange now and I'm, I'm kind of trying to decide what market to buy in. I don't know, it may be I gotta buy two properties right now for this exchange and I'm either gonna do Memphis, Little Rock or Atlanta. Kind of thinking about Chicago though too. Sarah, be my investment counselor, help me decide.

I already told you, you have to buy in Chicago so that we can really open up that market and get confidence in that market. Cause the properties look really good. I mean, they're a little more expensive, the taxes are a little bit higher, but so are the reds. You know, it's kind of like, it reminds me of some of the Texas market.

Well, yeah, it's the same with Texas because everything passes through in these markets. It does, it doesn't pass through. Obviously in California if you buy a million dollar property, you're not going to rent it for $10,000 a month. But in these markets, like, like you say Texas, you know that, that higher property tax passes through to the tenant, right?

It absolutely does. It does. So we're working with a couple of new providers out there, as you know, and I've had a couple clients actually, you know, fly out, I think three clients in the last couple of weeks, fly out to the market, tour with both of the providers and just really good feedback on the type of properties, the neighborhood, the level of rehabs that they do. So things are looking good out there as well.

You know what's interesting, and you were bugging me a few months ago, we were kind of thinking, where do we do our next property tour? And we were debating on a couple of different markets and you were saying, Memphis, Memphis, Memphis. And I was saying, you know, we already did a tour in Memphis. You said two things to me, Sarah, I don't know if you'll recall, call this one is that Jason. That's where so much interest is. I think we should just let the clients pick, you know, basically by their level of interest, where, where the next tour is. And then the second thing you said to me, which I couldn't believe, is you said, you realize it's been about two years since we did a tour in Memphis. And I thought really time is just flying by so quickly.

Yeah, I mean, I remember when we went out there and it was somewhat of a new market. I think we'd only been in that market for, I don't know, Six months or a year. So it was great for us to meet these people in person and really get a feel for that market. It's just been steady. We've got good property management. We've got two really good solid property managers and that's where the clients go back there and buy again. Property management is key. And so if it's working for us, let's do another tour there.

Yeah, yeah. I wanted to do, I wanted to do something different, a market that we haven't been yet. But gosh, I, I guess, you know, give, give everybody what they want and that's, that's what they want. So that's what we're doing. So the tour. Let me give you the dates for that, people. The property Tour dates are May 2nd and 3rd. Thanks to Sarah, we're changing up the format of this tour a little bit. We're going to do the Creating wealth seminar. However, we're going to do it split over two days. And Sarah, this was your idea and I think it's a great idea, by the way.

I hope so.

Yeah, we'll see how it works. Okay, so here's the, here's the plan on Saturday, May 2nd. Okay? And by the way, you can register for the tour@jason hartman.com in the events section. Saturday, May 2, we're going to get together, we're going to have breakfast at the hotel. We're going to do the seminar from nine till noon. Okay. And then we're going to break. We're going to get on the tour bus and we're going to tour for just an hour or so. And then we're going to go to lunch. We'll be at lunch by 1:00pm okay. And we're going to have lunch out in the field. Well, I'm sure have some Memphis barbecue or something really cool like that. We always try to do some themed lunches and we're going to do the property tour for the rest of the day until about 6. And then we're going to all have dinner together. And then on Sunday morning we'll meet back in the hotel room and we'll continue the Creating wealth seminar. And we'll end that day by about 4 o' clock on Sunday, May 3rd. So I think this format is going to be really cool. I've never split up the Creating wealth seminar like that before into two days, but I think it'll be good. I think people will have a lot more mental endurance because there's an old saying in education. The mind can only absorb as much as the seat can endure. And so we'll, we'll, we'll cut it up and do it over two days and, and then, you know, have a nice property tour right in the middle of it. And the great thing is we've never done it this way before either. We'll be able to analyze and discuss in depth each property we see on Saturday afternoon when we meet back in the hotel room on Sunday morning.

Yeah, and I think that's key is, you know, in the past we've done the tour on Sundays, and so people get excited about the inventory, but they're concerned about catching their flight. So this way we can talk about the properties we saw Saturday throughout Sunday. And I think it's going to work really well this way.

I really like this idea of meeting back and like, debriefing on the exact properties we saw, looking at the performance of each property, analyzing the differences in each property, analyzing the neighborhoods, analyzing the school districts, analyzing the tenant profiles. I'm just super excited about this format. It's more expensive for us to do the tour this way because we need to rent the seminar room, the meeting room for the hotel both days, and pay for banquets and catering both days. But educationally and format wise for the attendees, I think it's going to be a lot better. And, and it's going to be better for me too, because I don't get so tired going straight through for a whole day. So I think I'll be a little more resourceful for all the attendees as well. So really excited about that format. Sarah, what else would you like to share just before we get to today's guest, the Moneyball economist, in talking about, you know, just what's going on in business, I mean, business is phenomenally good. By the way, thank you all, dear customers, for making this, what may well be our best year ever. Sarah, would you agree with that, by the way?

Well, maybe. I mean, it's still early, it's only March, but I mean, time is definitely flying by. I can't believe we're wrapping up March here pretty soon. And, you know, I think a lot of good inventory coming online is just what I'd like to close with. You know, we've been working really hard. We've got, you know, Carrie in our office who's on the phone all day with, you know, good providers and bad providers. I mean, we're really weeding through the good and the bad and bringing on some new areas. And, you know, we talked about that. We're, you know, we talked. That's an edit. But you mentioned that we've done a lot in, in Memphis, but we're careful not to over saturate any one market. And so having more markets and more inventory allows us to, you know, spread the love into different markets. And so I'm just really excited about the level of inventory we have right now.

Well, that's one of the things really. I mean, we've always worked on it and it's always a challenge. You know, when I was in traditional real estate, I noticed this problem. Being in the investment real estate business, the investment business exclusively for the last 11 years, I've noticed this problem too. You know, it never seems like we reach this point of equilibrium where everything's balanced, where we have the right number of buyers, the right number of investors buying property, and the right amount of inventory to match them with. But what happened is late last year, we really, really, really got on the inventory bandwagon and really started sourcing good new areas and good new local market specialists. You, you've referred to them as providers a couple of times during this talk today, but. But no, I just want to make sure everybody knows what that means. I call them providers too. Inventory providers or LMSs, or local market specialists as we refer to them. But the other thing that I've really noticed, Sarah, about this, and I think it's benefiting our clients a lot, is that now that we have so many good providers, good local market specialists, number one, is that we get to be a lot more choosy on who we pick to send that client to. And number two, they know that we have more providers, more local market specialists, and their trying to be more competitive and offer a better product and better service to our clients. So I think that's been really, really beneficial for the clients and it frankly makes our business easier to run too, because the clients just have better experiences, they get better deals on the properties and everybody's happy, you know. Yeah.

And another thing that I've just kind of learned over the last couple of years is it allows us to not overload one property manager in any given market at a time. We're really working to have a couple management options. And, you know, when we get excited about a new market, sometimes what happens is we get a lot of inventory and then the property manager gets loaded with a lot of accounts at once. And what I found is that if we can really spread that out a little bit and manage that, and this is something that we're doing every day that the clients don't see, but you know, it's just really important that you don't overload one property manager with too many accounts and too many rentals at one time. And so I think we're just really having a lot of success in that area as well, with property management.

Yeah, that's good, good stuff. I'm glad you kind of expressed that to our listeners. We've got some good new areas coming online as well. And of course, later this year we'll do another property tour or two too. So in the meantime, let's go to Memphis, folks. Let's go and look for Elvis, see if he's still around.

And look for some property deals. So that tour again, you'll want to fly in on Friday, May 1, and then you can leave Sunday, late afternoon evening on May 3rd. So get your flight reservations. We're all confirmed. The info is on the Jason hartman.com website website. That's jasonhartman.com click on events and you can register for the tour with some great early bird pricing there. And that early bird pricing does go up as people start to register. And even before we put it on the website, we had a few people that were ready to sign up. So we've already got several people attending. So we look forward to seeing you there. Go to jasonartman.com Sarah, thanks for joining me. And let's go to our guest, the Money Ball economist. Here he is. It's my pleasure to welcome Andrew Zatlin to the show. He is the Moneyball economist and editor of Moneyball Economics. And I'll tell you, just on our very, very brief pre show discussion, this is going to be a fascinating guest. So I'm glad to have him. And he's coming to us from Northern California where all the startups and the venture capital is and that's San Mateo. Andrew, welcome. How are you?

Jason, thank you so much for having me on today.

It's good to have you. So you are a fascinating so many people have seen the film Moneyball. You know, when I, when I heard about that, I just kind of ignored it because I'm not that into, you know, baseball or spectator sports in general. But after I watched it, I thought that was quite fascinating. What is Moneyball Economics?

Moneyball economics is sort of we're picking up the ball, so to speak, from what was going on in baseball. It's the same concept of when situations change, you want someone from the outside, you want that fresh perspective. And oftentimes it takes an outsider to bring that fresh perspective in. That's part of Moneyball economics, I'm coming more from Main street than Wall Street. I'm an economist who went into Silicon Valley and used big data to start tracking opportunities and then rolled up my sleeves and said, let's do business based on this is the second part of Moneyball economics based on what the data is telling us. Let's not presuppose from a tops down perspective what's going on. Let's attack this from a bottom up perspective what's really going on. Let's use that data to make data driven business decisions and see what's going on. And I think ultimately wealth, if you really go back and see who's created wealth, not who's inherited it, but who's created it, what you'll find is it was someone who saw something nobody else was seeing, whether it was a perspective or access to information. That's really what creates wealth, is getting someplace before someone else does. So Moneyball economics is my approach to taking a step back and saying, this is a 21st century economy. It's functioning very differently than the 20th century was. The 21st century economy, what we're buying, where we're buying, how we're buying, it's all different. And it's rapidly changed in just the last decade. Facebook and Twitter, for example, didn't exist practically. And yet all of a sudden these are major players coming through in some areas of commerce. It's basically taking a step back and saying, just like, by the way, I look like Brad Pitt for the audience, definitely not like Jonah Hill.

The idea is coming in and saying, we've got all this information, it's new, it's exciting, some of it's noisy, the whole signal to noise issue. But let's take a look at it, let's evaluate it and see what it can do, how it can inform our investing decisions and our understanding of the economy. Because just to close it out, one of the things just a functional issue. Most of the policymakers out There got their PhDs before the Internet even existed. So they're kind of approaching the world with a horse and buggy model and we're already driving cars.

So you mentioned Wall street, and no conversation about Wall street would be complete without talking about hookers.

How do you like that for a segue? So what can the price, you know, what is the Vice Index?

First of all, the Vice Index is a compendium of some data sets that I've been able to pull together which track unmentionable vices, although some of them are mentionable. It tracks gambling tracks Alcohol consumption. But it also tracks drugs and it tracks prostitution. And it's a 20 year index. It doesn't change. So a lot of times when we look at Wall street, they have models that are dynamic, which means every time they look at it, they're going to reweight and change and play around. It's got 50 pieces of different data. This is a straightforward model. It is what it is. It successfully achieved the holy grail of what economists are looking for, which is how do you track luxury spending? It's interesting. Just to turn it around, last week we had some retail numbers come out. Now I forecast retail numbers and I've been doing it for about a year and a half, and it's based on this vice index that I created. I was the number one person. There were 86 forecasters on Wall Street. I beat every single one of them last week for accuracy.

Only a handful of us thought retail would contract. And I was the one who thought it would contract where it contracted. So it has. I consistently beat consensus. In other words, I consistently beat Wall street pros by tracking this data set. I have a finger on the pulse. You could say hookers have a finger on the pulse of the real economy. But I mean, ultimately you can start academically with.

So your point is that when men are spending money on hookers, that's obviously a luxury expense, right? So it's a discretionary expense. And your thesis is that when that declines, that's a sign that the rich or the upper middle class are struggling and they're pulling in the reins, right?

Well, pretty much. I mean, I was cutting to the chase and sort of saying, hey, you know, it's proven itself. The reality is, from an, from a pure economic modeling standpoint, when you're looking for leading indicators, something that's going to tell you what's happening today and even better tomorrow, you're trying to find those, those, those financial behaviors. You know, what are, what are you and I really spending our money on? If we feel flush, are we going to go out and dine more often? If we've got more money burning a hole in our pocket, are we more willing to take vacation? It's that kind of thing.

Yeah, that wealth effect certainly trickles down, no question about it. But, you know, I would be curious and you know, I don't want to make this conversation about, you know, vices like prostitution, but, but how would you, you actually get the data?

I mean, how would you know?

Yeah, I'm willing to get my hands dirty, so to speak.

It would have to be very anecdotal, I would assume, right?

You know, the thing is that, you know, I'll answer your question a second. The key here is one man's luxury is one man's wants, is another man's needs, right? But it's also luxury for one person is a yacht. Luxury for another person might be a steak dinner. And so the core heart of the problem, tracking discretionary spending and luxury spending, which luxury is sort of like the creme de la creme, right? Discretionary spending, we do it all the time, should I get a Starbucks or not? Kind of a thing. But it's that extra oomph that really depends on how much money I have burning a hole in my pocket. The problem though was again defining finding those spendings, those places that people are spending money on that cuts across a broad socio demographic. And that was the challenge. Traditionally, economists would measure luxury spending by looking at Sotheby's or by looking at Tiffany's. I'm sorry, that doesn't apply to the 99% of the US economy, whereas there are 17 million pot smokers out there. All right, so if you can track the consumption of marijuana at XYZ price, you've got something, right? You're tracking something. It's definitely not a luxury good. I say it's definitely luxury good. It's not a need. So how do you get that data? Right, and that's where economists, traditionally mainstream economists, come to a full halt. On Friday, Bloomberg released an article where they were getting the virtues of vices. They were basically copying what I was saying. And that is if you can track this frivolous spending, this luxury spending like gambling, like going out and drinking, then you really have some good visibility. And they said the challenge is we can't get to these other more illicit or undocumented spending like prostitution. And my point is you can. I've done it and I've succeeded. Now the key thing here, what makes it so powerful is it's fairly low dollar, right? You're talking a couple hundred dollars. The key here, what sets it apart is its cash based economy. When people go out and they're gambling, when they're buying illegal drugs, when they're buying time with an escort, this is a cash based economy. So it really isn't something you put on a credit card and turn it around. The suppliers of these services don't take credit cards, they don't get lines of credit. If things are going bad, they have to move very quickly.

That's interesting because in cash. So when you look at a vice because it's illegal. Well, not all vices are illegal, obviously, but when you take illegal vices, okay, which I would argue as a libertarian, they should just all be legal pretty much. But you know, that's another debate.

Tune in next time, ladies and gentlemen.

Yeah, tune in next time, exactly. Believe me, my listeners have heard me, me talk about this stuff before. I, you know, and listen, I'm not saying I agree with it morally. I'm just saying that it's there, it's real, it happens. And you know, I think there's a lot of sickness sort of kept pent up that would go away if these things were legal and there were outlets for it. Not, not, not saying it's the highest form of the human being. Okay, but, yeah, okay, but anyway, so what you're saying is because they don't operate like traditional businesses where they have credit lines and buffers, when you operate on cash and your clients are paying cash and you're spending cash, it's like a cash value. It's cash book accounting. Right. And so there's no adaptation time. The adaptation has to be very quick, whereas a normal business doesn't give you the metric. The answer as quickly as that. Right. Is that your contention?

Exactly. And so if you can tap into that, which I have done, you've got the nature of the beast is a very, it's very sensitive to the ebb and flows of real time economics. I'll give you an example. When the sequester happened in the fall of 2013 and Washington D.C. came to a full on halt.

The places where I gather my data, there was a lot of concern. All of a sudden the phones were not ringing. Hookernomics was saying the impact of the sequester on near term spending in the Washington D.C. maryland area was sudden and severe. And as we saw later on, and this was immediate, I could track this in the immediate sense. So what you have is just by virtue. I use the word virtue here, no smirking everyone, this is serious talk. But just by virtue of the way the commercial marketplace functions, if a customer is coming in, let me put some real numbers down because this is where it gets interesting. Someone comes in, let's use the San Francisco Rate of $300 an hour, that's after taxes, that's let's say 450 bucks before taxes. Well, the median income in this area I think is about 50 grand. So as you start working these numbers through, someone is willing to spend a day of their wages for one hour of what would be Described as having no utility value later on.

Right.

They're not walking away with an iPad. So they've got to feel that they've got that cash in their pocket today, that they're willing to take one day of their wages, and not just for today, but that it won't have a monetary impact next month. Notice they have the cash, that cash flow issue for the consumers there. And if they don't, then the supplier, the escort's got to respond. And they respond like a hotel would. You know, you and I might get in our email boxes. Hey, such and such hotel is doing a special come in, you'll get three nights for two or free parking, buffet. That's the same kind of behavior you would encounter here because again, it is in essence a vacancy issue.

When the phone's not ringing, action has to be taken immediately because rent has to be paid, cars have to be paid. You don't get that 30 day line of credit.

So what is going on in that market? I mean, what does it tell us? What do you forecast for the economy? That's, you know, that's the million dollar question, right? Yeah.

So I did a survey. So you know, you know how there are tons of surveys? You know, the Federal Reserve, for example, will go out in their various districts and ask about a hundred businesses, what's going on? How's your business today? What are your clients telling you? And every month that information gets released. What's the business outlook? Well, I did the same, except I just happened to target hookers as the businesses I was asking the same questions of. So I did a survey. I literally copied the same questions that the Fed asks. And there's a reason for this. I actually went to some folks I know at the Wall Street Journal and I said, let's take these questions. I will ask prostitutes because I feel that they have a much better handle on what's really going on. And let's go to Krugman, let's go to Friedman, let's go to these guys who are the ivory tower economic geniuses of our times. Let's ask them the same questions and then we'll circle back in six months and see who was right. And the Wall Street Journal, in their infinite wisdom, couldn't say no. Instead, what they said was, we don't have the budget for that. So I went ahead and did it. I found the budget. God bless my wife for making sure that we had the budget right.

Well, just out of curiosity, what kind of budget did you need to do that survey?

Hey, you're Asking someone for their time. And you're asking someone who makes their living for their time. I mean, imagine going to a lawyer and saying, hey, can I pick your brain for a few minutes? You think the lawyer's gonna do that for free?

Yeah, no, definitely not. But, you know, we're talking about prostitution and lawyers in the same breath here. It kind of goes together, doesn't it? Sorry.

Lawyers, the service industry. I think I smile a lot, though. A lot less when I talk to a lawyer, you know, and these are educated, I think people, we need to step back here. A lot of people might have the wrong impression. They might have this pretty woman, you know, it's a streetwalker who's uneducated kind of impression. These are college educated women, a lot of them.

Oh, yeah, yeah. Well, a lot of times it's the way they pay for college, frankly.

I think. I think actually a lot of people might not be aware that when they go to cocktail parties and are out and about, they might be meeting escorts without knowing it. You know, that someone who's arm candy, you know, we're not talking about someone who, you know, again, the Hollywood view. No, in order to. I'm in Silicon Valley, I'm surrounded. I think we talked about this. I'm surrounded by very worldly, very knowledgeable people. If you're going to maintain a conversation with them, you better have your wits about you. So we're talking about everything from high school education to graduate school education here. We're talking about not the hard luck stories. We're talking about people who have made the decision to provide this service. So I really want to make sure that when we're talking about who, you know, the people being surveyed, I'm not standing on the corner, just chit chatting with Trixie and Jade. I'm talking to everyone, okay? It's a very serious thing. I want to make sure that we're clear there. So I did a survey. And what was interesting is, first of all, it was great having a discussion about how oil prices were affecting their business. And yes, it is. And essentially, the questions I was trying to drive to, you asked me, how does hookernomics help us? Well, what we're really tracking is consumer spending and discretionary spending and intent to spend. And we're tracking that tip of the pyramid. Because again, this is, after everything is said and done, do I have a couple hundred bucks to hit the casino? Do I have a couple hundred bucks to go and spend time with an S Corp, Right? Everything else has to be taken care of. Just not just today and tomorrow. And the survey basically was asking, where do you see inflation going and where do you see spending going? And this was very informative to me. Essentially, again, questions were, do you see your costs going up? Are you going to be raising prices? What are you hearing from your clients? So where the Fed is asking 100 people, I felt like I was asking a couple of thousand, simply because every escort I'm talking to is probably seeing somewhere around a dozen clients a week. And so if they're giving me feedback on what they're hearing from their clients, I've got a good window into reality here. And it's also done across the country. Anyway, the ultimate feedback was very interesting because what they're saying is they don't see costs going up, so they're not feeling the inflationary pressure that might squeeze their margins and lead to price hikes. And at the same time, they're not seeing their client base either decrease or increase the amount of services or demand. So what we have is situation where it's a sort of a steady as you go, the demand pull inflation that a lot of people are talking about, hey, there's more money, more wages, more payroll, that's going to be fighting for goods and services and that's going to lead to inflation. It actually gets turned on its head here a little bit. What the feedback was is the only reason we are at a steady as you go situation and not declining is because of oil prices and that consequent inflation that's going on right now, the deflation that's going on. In other words, we're seeing a pickup in demand that will disappear once oil prices go back up. And I think that oil prices and where they're going and where they're not going, we can talk about that. But ultimately we're talking about are interest rates going to go up? Because the Fed seeing all this good news, the traditional economists would say, oh, we're seeing this good news because there's more money out there chasing fewer goods. That usual argument about inflation and in fact what's happening is saying it's not really more money that's out there, There's a temporary deflation that's going on that's keeping spending up. As soon as that deflation works its way through the economy, everyone's going to pull back again. And that's what the escorts are telling us is they don't feel inflationary pressure, they don't feel the need to raise prices, and their clients really aren't doing great. They're not doing bad. It's a steady as you go situation. And as everybody knows, steady as you go is a precursor to some kind of inflection point.

Yeah, inflection down or up. So inflection in terms of a bull market or a bear market, which. Inflection.

So here you've got a lot of real time, great feedback of people who make their living making sure that the phone's ringing and that they have to know what's going on with their client base's economics. And you're talking about the top 1% and the bottom 99 that they're covering. My interpretation is I don't really subscribe to a lot of the. I don't get into these dogmatic wars. You know, my Keynesian or like post Keynesian, my Milton. I don't get into that. I come out of a supply side of the world actually had to work for. So I kind of know. I keep it simple. Are people buying stuff? Are businesses hiring to make sure that they can sell stuff?

And I sit here and one thing that has proven itself as a track record, as an indicator for what's really going on is jobless claims. If you want to really know the truth. If you look at jobless claim relative this year, relative to last year, same time, that will, with a 100% batting average, tell you exactly where we are in the business side. It's very basic and fundamental and it's kind of one of those things where if you had an executive dashboard as an investor and you can only put a handful of things on it, this should be your number one gauge. If you think about it for a second, when an economy is growing, when we say growing, what we mean is relative to where it was. And obviously we have four seasons. So you don't want to do this quarter to quarter comparison. You want to look at, well, last year relative to last year in the springtime, because we know Baskin Robbins doesn't hire in the winter, they hire in the spring. I don't want to talk about Baskin Robbins springtime hiring versus what they did in January. I want to talk about it versus last year. Home Depot is hiring 80,000 people this year. That's the same as last year. That tells me we're not really seeing a lot of growth. Well, with jobless claims, you ask the same question. It's the flip side of hiring. Are we growing enough as an economy that the number of people who've been fired is going down? And as long as it's going down, that's an Economy growing and there's kind of some red flag as we get closer and closer to the number of jobless claims last year. Historically, that's your tipping point. That's where businesses are saying, look, we more or less have reached equilibrium. We have enough people on our books today to support our business today and tomorrow. And if we want to talk in terms of inflection point historically, once we've been in that, that bottoming for six months, you got a recession. It happens.

Let me ask you a couple things here and I want to make sure we save enough time to get to gold, because you've got an interesting post, Andrew, about the gold bubble in context and I would just love to talk to you about that because.

I don't even think gold is that great. But I think it's a really interesting measuring stick in so many ways. But you know, how does this, when you look at, of course, you know, as most people, employment numbers and so forth, they're manipulated, of course, and I'm sure you're taking that into account. But you know, what about the issue of technology and especially robotics because generally technology is deflationary. It gives you a better life, it gives you more stuff at a lower price or at the same price. Right. And so, you know, technology always improves things. But then when technology takes jobs away and there's this adaptation time that maybe takes a couple of years for people to gain new skills and get re employed doing something else or maybe as some are predicting, which has never happened before, you know, 47%, oddly it's 47%. That's the odd. That's that number by the way, of the jobs in America are literally up for grabs by autonomous cars and you know, all sorts of technological innovation that is five years around the corner. So does that really the big question I'm really wrestling with, and I'd love your opinion on it, is ultimately, are we just entering an era of huge unemployment, massive recession and you know, the end of the world as we know it, or are we entering a utopian world where we all only have to work three days a week and we all have enough because technology will provide it to us and life is wonderful and it's the best time to be alive ever?

I'm not sure. I think, you know, change is scary. Now I live in Silicon Valley, which thrives on change, drives change, but I think for most people, change, change is scary. But take a historical perspective, there was a time when a huge chunk of jobs out there were gaslighters because we didn't have electricity. You couldn't just flip a switch. You had people paid to walk around. They were driven out of jobs. There was a time when Blockbuster had. It was 60,000 people on the payroll boom. Netflix put them out of business with 2000 people on the payroll. And so change happens, and it's scary. I think what causes the pain isn't just the speed with which change happens. Netflix was out there for a decade almost before Blockbuster threw in the towel. This was. They didn't know how to embrace the change. We have problems, I think, with actual, I'd say, government policy that kind of creates a choke point, a bottleneck, until finally, when change does happen, it's bad. Let's talk about that for a second. Let's talk about it. In today's world where, to be honest, the bulk of the jobs that are still struggling are construction. Why? Well, because 10, 15 years ago, under Greenspan, we created this policy that said we need to build. Building homes is the way to go for creating wealth in America. And whatever. We create these policies that, yeah, malinvestment. And so all of a sudden, a million people, instead of getting trade jobs that could be used outside of construction, suddenly what they know is welding or what they know is glazing. And when there's nothing being built, they have to shift those skill sets and they don't have anything to shift to. So what I would say is change is great. Instead of saying all these jobs are going away, I'm in Silicon Valley. We can't find software engineers to hire. And to be honest, software engineering should be a remedial skill taught in high school. It should be, you know, if someone doesn't want to go in one direction, they want to do shop. Well, shouldn't software programming be the equivalent of shop? I mean, at a certain point in time, we need to acknowledge that we are in a digital. Why can't you have a couple hundred thousand Americans who maybe previously were doing, I don't know what, working in construction, Spend a year.

Learning the ins and outs of software. I mean, there's that great Superman movie, I think Superman 2 or 3, where Richard Pryor tumbles into a software programming job. Again, it's Hollywoodish. But the point here is that we have demand. We have a misalignment of skill set to that demand. And that's because of policy, not because of the economy. I mean, since the 90s, we've had the Internet 20 years plus, we've known that software programming is a big business. It's huge.

Interestingly, by the way I want to mention something about that. I remember seeing programs about how we had this huge shortage of programmers and how just to program a cellular phone. This was before smartphones, you know, it takes so many lines of code and all this stuff and somehow we kind of figured that out and the world didn't end. You know, lots of people are programmers nowadays and I don't know, I'm sure there's a shortage of talented ones. But you know, you go on Elance, oDesk, Guru.com or any of these websites and you got, you got a whole world of programmers available. Your rent a coder or any of those available to you for pretty low prices actually.

It's a commodity service. It isn't a lot of people. It's intimidating. Software coding, it's beyond me, but so is brain surgery at a certain point in time. This is a skill set like any other and it can be taught like a skill set. I think the challenge is really when you're competing for the career trajectory of a young person, on the one hand you've got these ridiculous hundred million dollar salaries to be a baseball pitcher. I mean, come on, you don't have the same thing until recently for software programmers. Silicon Valley has brought that out and said, wait a second, you can.

Change the world and make a lot of money. That's exciting and that's interesting. And to be honest, this is such a merit based economy here. I think if one were to go out to your generic Silicon Valley company, you would be impressed at the representation of minorities and women compared to other companies. Silicon Valley really is that egalitarian. It's a very type A environment. But to be honest, isn't California sort of the last of where the pioneers stopped? I mean there's, I have this theory about why divorce rates in California are so high. You and I were talking about something like this earlier. My theory about divorce rates in California being so high is because we attracted all the type A's. Everyone who was comfortable, you know, they got off in the Midwest, you know, pioneering days. If you weren't happy, you wanted more, you wanted more. You're the type A thing. You kept going until you got to the water. Oh, can't go, can't continue on, you.

Know, can't go any further. Yeah, no, there's, there's a lot of very interesting things. Whenever someone reads to statistics, you know, you look at it in housing, you look at it in every part of the economy. And in sociology, you know, there are so many layers to these onions that just people don't usually examine. I don't think it's too bad.

Well, and that's where I came from. So when I do Moneyball economics, the idea here is to step back and say, look, if this is the way the economy really is functioning, what types of data points will be thrown out? You know, it's kind of like I'm not a hunter, but I know how people hunt. You know, they don't. They don't try to find the deer, they try to find the tracks of the deer. They try to find the things that the deer is leaving behind to then follow. Right. And that's kind of what I'm doing is I went out and I said, hold on. I'm not married to certain models or conventional data points. I have firsthand experience in the supply chain, the global supply chain, how we're harnessing India, China, everyone to make support products being sold and services. I know exactly what a business operations looks like. I know what CEOs are looking at on their executive dashboards. I know what pieces of information are important to them. And knowing that, I harnessed it and said, so what data points would I look at if I were Stevie Cohen and had billions of dollars under my belt and wanted to know where to put my money? What I found was that most of the data points I would use are not being used in conventional mainstream economics. So it's kind of like it's not a Freakonomics approach where you say, hey, isn't that novel? Look at how prostitutes behave. And isn't that really neat how it looks like a hotel model? That wasn't the approach. The approach was the Internet has released. There's no more gatekeeper for information. The Internet has released information. It's out there.

It's very democratic.

Yeah, very democratic. And in fact, during the recession, the world is flat concept, but you still had the guards. You had people at the Fed saying, how dare you give your opinions to some people who are blogging and saying, gee, I kind of think you're wrong out there. And it was really interesting because again, that gets back to a lot of what I'm doing is I'm coming in from the side door.

And I'm harnessing data that doesn't. It passes the sniff test in more ways than conventional data does. Again, statistics means you've got to have a good sample set. When they do the consumer sentiment report that comes out every month, they're talking to 400 people.

That's it. Unbelievable. Wow.

That's it.

400 people out of 310 million. And that's the consumer Sentiment Index. My God, that's scary. Is it the same 400 every month?

You got to wonder. And oh, by the way, are they calling them on a landline or cell phone? Because who's at home with a landline? You know? So I think what I found is by being a mechanic and looking at how data is pulled together and you had said this, you know, a lot of the data that we rely on is actually kind of modeled and fudged. And it's got, it's, it's got its, hey, it's hard to come up with this data every month. You know, God bless the United States government for trying, but don't hold it up as a holy be all and end all revisit it.

No question. And just like, you know, with your hooker, what's it called, your hookernomics report. But you know, one of, one of the points of that is, is that when they, when you look at these big reports that are released by all these government agencies, you know, it's never the boots on the ground. And even though the boots on the ground guy can't give you great stats and can't give you really pretty looking reports and spreadsheets and graphs, there's, you know, there's an innuendo. And that's what we definitely learn in real estate. Like, we can sit here, we can sit here in our offices and we can do all the research we want. We can look at the Census Bureau, we can look at, you know, every housing report and every, every report about rents and so forth. And until you're blue in the face, the moving reports from the movers, those are quite interesting. But at the end of the day, it's talking to the guy on the street. And that's why when I travel, I love talking to, you know, the Uber driver, right, or the, the Lyft driver.

Let's talk about that for a second. Let me, let me correct you in one place where I will agree with you 99% of time, except for jobless claims. Jobless claims is not modeled. It's not fudged. Someone had to literally go in with a piece of paper. So you have a comprehensive.

Well, the claims aren't, but then there's the labor. Then you can dice it up though, right? There's the labor participation rate.

Now you're talking about exactly where it gets fudged.

And when you get into this world of free agents and independent contractors like we have and solopreneurs, it's, it's admittedly harder to track than it was in the, in the 50s and 60s and 70s, right, where you either had a job or you didn't back then. Nowadays there's a lot of in between.

I don't want to know what happened six weeks ago. I want to know what's going on today, right? What's, what's about, what's on the mind, you know. That's why, for example, I think the supply chain. What's interesting is. So I got on a flight over the summer last year and I sat to a guy named Harvey. And it's really funny because I was sharing a story with somebody two months ago at a conference called for super investors and this guy said, oh my God, I know Harvey. And we compared notes and sure enough, he did. Now Harvey's this really cool guy I met on the plane. He owns a couple of companies around the world and they make stuff, they make novelty stuff. Can I share this anecdote with you because it's really interesting.

It shows how I think we all know we should be going forward and understanding things. So Harvey's in the novelty business. One of the things that he does is he actually dominates every Halloween. You might see people who decorate their houses and they put these spider web, white strands of stuff up. That's his thing. He dominates that. Or he dominates on Easter, the green fluffy stuff that you put the Easter eggs in. Novelty stuff, right? Well, what Harvey explained to me was in his business, he'll talk to a Walmart or Target in January, December and January. About next year, literally, Walmart and Target are deciding in January what they're going to be selling in September and October. So there's a nine month supply chain. And this is remarkable for a couple of reasons. It's not just Harvey's industry. Every industry out there, because of this global supply chain and thanks to the Internet, it's very tight. You no longer have to guess about what you need to have on hand. What is happening today is in order to manufacture, get through customs, because all these different rules and regulations, you have to place your orders months in advance. Well, if I could find all the Harveys in the world, put them in a room and ask them in April, in January, guys, what's Walmart expecting their business to look like? If they come back to me and say it's better than last year, worse than last year, the same. Anything they tell me is useful because I know well in advance what to expect now, is Walmart going to be correct in their assessment? Turns out they're pretty darn good, right? But at least I understand that all of a sudden there's going to be a certain amount of capital investing and all this other stuff harnessed to this demand. It could be higher or lower, it doesn't matter. Right now I know what everyone's building towards and that gives me line of sight to a lot of things. What I've done is I've recognized that semiconductors are the universal common denominator. Now in the global economy, you can't do anything without a semiconductor being in it or being in the machine that made it. And semiconductors are also cool because they're very industry specific. There's a group of companies that do autos, there's a group of companies that do factories. And so you can get laser like if you want to go industrial. The bottom line, semiconductors, they have a short shelf life. These aren't tires. You can't buy them and stack them up and get to them when you need to. That chip you bought today is going into, you know, when Apple releases their iPhone in September, they were having their vendors ready in January, they were having everything. And so my goal is not to wait and look backwards and say, oh yeah, that just happened. And let me tell you why. My goal is to say I'm going to tell you what's about to happen and it's going to be based on this supply chain. Because the supply chain isn't a mystery. You can see it when cargo's going.

Back, you can see it happen, you can touch it.

And even better, you can see months in advance. And again, things like Harvey's business, he's got a nine month window that he's operating in. Semiconductors are a little tighter.

So with that, before we wrap up, I want to ask you, what predictions do you have? I mean, everybody wants to know where we're going, whether we should expect inflation or deflation. The stock market is a bubble about to pop. You know, any of these things along these lines that you, you care to, you know, jump into the forecasting world.

Only if you, only if you bring me back in a few months and you hold my feet to the fire.

Okay.

If I say it, I'm held accountable to me.

Okay, go for it.

So my whole perspective is that we are in the ninth inning. We caught a little bit of a break with the oil deflation, the commodity deflation, and that's still working its way through the broader economy.

And that's going to happen. It makes the US look really good right now relative to our Peers. But there's a reason why 20 some odd central banks around the world recently cut their rates. And when they cut their rates, it's the equivalent of us raising our rates. So, you know, ultimately there are two markets out there. There's the bond market and the equity market. And depending on where you, you have your investments, I mean, you've got a dollar that's gotten 30% pricier against the euro. Is it going to go to 40? Hey, come on. It's pretty much traveled most of the distance. It's going to travel in the near term. I would actually see some dollar weakness just as we get some consolidation. But fundamentally the entire world is, is really harnessed to what's going on in China. They created this super bubble over the past couple of years with their super investing that drove up commodity prices. Now we're seeing that the tide's rolling out and guess what, there's not a lot there. China is. There's no soft landing for China. I don't care what an expert tells you.

Totally agree. By the way. Yeah, China's in trouble.

China's in big trouble. And the blowback is already being felt in what I call the feeder economies, the countries like Brazil, Australia that are directly tied to them. For the US we're kind of buffered from a lot of this, but not really. I mean, take a step back. We are entering our sixth year. July will be our sixth year of a recovery. Traditionally we would be in a recession. Now my own view is we can continue on for a while. Thanks again. Thanks to the Internet, things are a lot leaner in our world. We're a lot less fat. We've leaned out a little bit and so we can have a longer cycle, a little bit shallower GDP growth, but we can not recessionary. But now we're getting into technical nuances. Is it a recession? Is it slow growth? Hey, bottom line, we are in somewhere the eighth or ninth inning. I'm getting defensive. What I'm doing is I'm not a great stock picker by any stretch of the imagination. But what I do is I'm in the equity market right now. I believe it still has a ways to go this year, but I'm not going to try to time the market. I'm going to assume that when jobless claims relative to last year stop dropping, and by the way, they're only within 20,000 of last year, so they're approaching, they're about 90 something percent of last year's numbers. Once we get closer to that zone, I'm out of the equity market and I'm on the sidelines. I think that's an end of the year situation. I think the Fed will screw things up. If they raise rates, it will bring the economy to a halt. I think they are, they box themselves into a corner. They're trying to say we should raise rates at exactly. They missed their opportunity. At this point in time, the rest of the world is on a global demand driven slowdown. Everyone has what they need. China's falling apart. Japan is boxing way ahead of their way. I've been predicting. Last year I said the Japanese yen has to go.

Oh, Japan is totally in trouble. Yeah.

So when Japan two years ago when Japan was at 80 yen to the dollar, I said they've got to go to 110. Boom, they went to 110. Last year I said they got to go to 120. Just I think it was a month or two ago I said they've got to go to 140. Oh, and we're going to see. Last year I was saying I got to see euro parity.

I mean, is Japan going to default on their debt? They've gotten massive debt. It's just unbelievable.

Oh, it's not a question. They want the Soros Black Wednesday moment. Right? And here's the problem is timing. And we can talk about this for one second just for the benefit of everyone. Japan doesn't make things people want. I don't care that people say they're the number two or three economy. The reality is when was the last time you bought a tv, a laptop, a network device, a smartphone, anything that was made in Japan? The answer is none. We haven't for years.

Well, what do you mean? I mean people buy Toyotas a lot.

But they're made here. By the way, 90% of the Toyota and Honda stuff is now made here. Bottom line, they don't really make anything anymore in the digital economy that anybody wants. Let me put that into terms just graphically. Japan, in the last six, seven years their exports to the US have contracted. They are sending us less dollar value goods. During that same period of time, you've got Korea sending us tens of billions of dollars more. Taiwan, same thing. Everyone else is growing. Their trade with us. Japan is shrinking because they don't make anything anymore. They make cars and a little bit of steel and this and that. They really have disconnected from the global economy. What's keeping the yen afloat really was China. They did not want a cheap yen because that competes with them in certain ways. They did Not. And then also there's some political, cultural stuff going on there. There's, there was a lot of trade. There was a lot of friction. Not trade fiction, but political friction. They've had to give that up over time. Japan, Japan is so problematic. You know their demographics. They have the oldest growing population of any industrialized country. They don't have enough people working. They have this enormous debt load.

They've got a major demographic problem. They've got to have kids, but it's too late. You know, they've got to start allowing immigration. Japan has got to stop being so insular or they're just gonna, they're just gonna crash.

They're facing a challenge which, you know, we sort of off on the side. But I mean, the reality is Japan is treated like an economic heavyweight when they're really a middleweight. When you really look at where they are and where they're going and the trend, they are falling off the map of global relevance. And this is a wow. And yet they are buying. And the reason I mentioned them is they have become the second largest creditor for the US again. So how is it that they can support our debt? Support their debt? I mean, I look at this and I say there's a problem here. I'm not Henny Penny by any stretch of the imagination, but there's so much debt in the world. Look at the US If I'm right, and we've got a global slowdown and that affects us, if I'm right, that we've got a global slowdown and actually I'm putting out a report today called it's not too Premature to Talk Recession. We might as well start looking at this and understanding how far away or how close a recession is for the US the global situation is there, but the reality is, let's take that hypothesis a year, two, three, whenever the recession happens. How do we fight that when We've got almost 20 trillion in debt already? It's not really going down that much. It goes down to 15 trillion over the next year or whatever and interest rates are zero. What kind of policy or ammunition can the Fed roll out?

They run out of bullets right now.

That's my core concern is we have a problem if there's a recession. There really is no monetary solution. When you look at Japan, while bombing the yen helps, as soon as you bomb the yen, their industrial production goes up because they steal market share from someone else because their steel is cheaper. But long term, unless they make something that's globally relevant beyond cars, keep in mind Korea's catching up to them with cars, right? So will China. At some point they don't have sustainable advantage, competitive advantage right now. They have to regain that. And if they don't, again, all these downstream monetary policy isn't going to solve the next recession for the US because we've already kind of loaded up on all this debt. And so I sit there and I scratch my head and say, where would I park my money? Well, over the next year, for me it's no longer a question of if, but when the recession starts.

I gotta ask you if you're a.

Gold fan, not a gold bug. But you know, for me, you know, I know the number one performing asset for a while was gold, right? But there's a reason why it's down now.

It wasn't really number one though. That's a myth and I'm gonna challenge that. And the reason, the reason is no, I know you're not a gold bug and neither am I. But the reason is, is gold doesn't produce cash flow or tax benefits. Income property was the number one performing asset class in those good gold years in the, in the midst of, in, in, in the midst of a terrible recession. If, if you had income property in linear markets, not California, not the markets that crashed and burned, just the linear boring markets, you would have outperformed gold massively.

Okay, well, I mean number one, number two, gold is definitely one of those where people could see it go, wow, it's $2,000. It was like 300 bucks just 10 years ago. What happened? You can cherry pick the bottom and the top I guess was sort of like that's where a lot of gold bugs were going. Ultimately for me, my understanding of gold is that it was largely fear based inflation too, but largely fear based.

On. So when you recognize that there's no fear anymore in the US and central banks are coordinated, remember there was a period there where everyone was disconnected. There was just all this fear. That's when gold really started to shoot up because people just didn't know they're.

Coordinated to suppress precious metals prices because that is the competitor for their fiat currency. So you know the gold is the competitor to the dollar. Yeah. And bitcoin, same thing. Yeah.

Bitcoin hasn't succeeded for a lot of those same reasons. Bitcoin, I mean there's no difference between bitcoin and the dollar. Dollar is basically digital now for all intents and purposes, except that bitcoin has a controlled rate of growth versus what's going on now. But bottom line for me People, you kind of had those multiple ways people got into gold because hey, inflation, if it takes off and the dollar gets cheaper, then the nominal value of gold is going to go up. But there was this fear and then it was followed not just by fear, but the usual behavioral finance, everybody piling in at the last minute.

There's the fear trade, then there's the momentum trade.

Right.

What I do is I like to use Google data. Google's got this wonderful tool we mentioned, consumer sentiments, 400 people. You can go on Google and you can track what you punch in the word inflation and it will tell you over a 10 year period or you can slice and dice it. But basically it says this is how frequently the term inflation has popped up in a search on Google. So you're talking about millions.

Are you talking about the keyword tool or what tool specifically are you talking about?

Google Trends is what they call it. And I like to use it. What I do is every quarter I'll triangulate on the same words and say, okay, unemployment, bankruptcy. Let's choose those hot button words that you know are cyclical. You know, people start talking about unemployment more when unemployment's, you know, ramping up, jobless claims and so forth. And what you can chart the same with gold, the same with mortgages, is the interest in mortgages way down. Lately, the interest in gold way down. People just aren't that interested anymore. That tells me as an investor I'm tapping into what millions of people are searching on. Not 400. It tells me more validly in real time. Maybe if people aren't talking about gold, they're not afraid, they're not interested in leveraging up on mortgages. Maybe gold is a dead trade. So what I've been predicting is, I think it was about six months ago, gold should be based on all this information, at the level of interest of gold, it's really heading below 10,000. It really is. You know, you put some, some inflation metrics on there and say, well, it was here at this point at.

Wait, you said 10,000. What are you talking about?

It's definitely heading below 10,000 there, Jason. I'll put money.

Yeah, it's way below that.

Anyone want to take the other side of that bet?

So did you mean 1,000 when you said that?

I meant 1,000.

Yeah, yeah, right, okay.

You know, it's bumping, it's been bumping up to 1200 and 1200 and all of a sudden we're sagging again.

You probably heard it, but you know, we've had Harry Dent on the show a few times and. And he predicts gold will drop through 750 and then drop down to $250. Oh, my God. That's a sensational prediction. We'll see if it's that crazy, but yeah, that's just amazing where it ultimately goes.

You know who predicted oil at 43, right?

Yeah, I know. Yeah.

I think it's. Unfortunately, I'm in the business of being the kind of fool who has to predict things, but I'm much more. I'm much more in tune directionally. Now, I'm also good at predicting, obviously, because I'm one of the top forecasters out there, but it's not so much the actual number that's key. A lot of the times it's directional. Right. It's, look, I'll never know the exact peak of the market, but am I going to be happy looking back, that I got out when I got out? That's all I want to know. Or I got in when I got it, that's all I want to know. I might have done another 5 or 10% better. Okay, that's greed talking. I'd rather do wealth management and wealth preservation and capital preservation than I'd rather hit the singles and doubles and not try to swing for the grand slam home runs all the time.

Absolutely. Okay, well, listen, give out your website, Andrew. This is a fascinating talk. We really appreciate having you on. Give out your website, if you would.

Okay. Moneyball, Economics, come on down. It's free. Let me just emphasize that it's free. Reports go out every week on various topics related to the economy as investors. Moneyball, economics.com. and then we're also offering a free report right now that shows how vices hookernomics can help you understand exactly what's going on in the economy today and tomorrow.

Interesting stuff. Andrew, thanks so much for joining us.

Absolutely. Thanks for having me on.

What's great about the shows you'll find on jasonhartman.com is that if you want to learn how to finance your next big real estate deal, there's a show for that. If you want to learn more about food storage and the best way to keep those onions from smelling up everything else, there's a show for that. If you honestly want to know more about business ethics, there's a show for that. And if you just want to get away from it all and need to know something about world travel, there's even a show for that. Yep, there's a show for just about anything Only from Jason Hartman.com or type in Jason Hartman in the iTunes store.

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