CW 639 FBF – Roger Lowenstein- The End of Wall Street’ The Wall Street Journal’s ‘Heard on the Street’ Column

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 Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Thank you so much for joining me today and I got a lot of great feedback on the last several shows, really. But the Last show number 236 as well with Rich dad author Ken McElroy had a great breakfast with him last week and really enjoyed him and I even asked him if he wanted to come and speak at our Meet the Masters event which is coming up in March. And he's checking his schedule. So I'm not saying that he is, but he is checking into it. By the way, we just posted that on the website for the Hyatt regency Irvine for March 24th and 25th, however, and this big giant, however, one of our speakers instantly said, you know what, that's spring break for a lot of people and you might want to switch the date. So I called the hotel and we're thinking of switching it to the weekend of, I guess that's March 10th and 11th two weeks earlier. So if you have any feedback on that, let us know really fast. Go to Jason Hartman.com, fill out the contact us form and just write your comments in there and let us know. Or if you're working with our investment counselors, give them some feedback and we will be happy to take that into consideration. So it will be in March, Hyatt Regents Irvine, our usual venue. You know, we were thinking of doing that event in the greater Phoenix area, but I gotta tell you, it's amazing to me that you try to do an event in Phoenix, Scottsdale in the springtime, the high season, with baseball, spring training going on and just all of the great activities here that make this such a great place to live. And good luck because I had one of my assistants call around to hotels here and they wanted five and $10,000 a day food and beverage minimums. They wanted guest rooms, $250 a night. Plus plus just it was amazing. So definitely not a good fit when we can do the beautiful Hyatt Regency in Irvine where we've had our events so many times and we can get you guest rooms for $99 a night. Much better to be Prud, enjoy a great venue and enjoy fantastic California as well and use that saved money to get out of the rat race and invest in income property, a much wiser thing to do. So we want to be prudent with our investors money. And speaking of which, we've got a couple of specials you might want to check out and I'll tell you about those in just a moment. A couple of product specials. Now I don't know how many of you have heard of Equator, but Equator is the system that real estate brokers and agents use and sellers use sellers that are wanting to do distressed sale transactions. And boy, that's most home sellers nowadays or most property sellers in general, I should say. And Equator released some interesting statistics recently that said that they see nearly 1.2 million short sales were initiated through its system over the past two years. Now remember folks, why do I bring this up? Because remember that 1 million equals about 1% and 1% equals about 1 million. Well, what do I mean by that? We've mentioned on prior episodes when you see 1.2 million short sales initiated through the Equator system, that means that the homeownership rate in America has dropped by at least 1.2%. Now what do these people all need? Well, they're probably not going to be running out to buy a new home. They've got to live somewhere. So they are going to do what they are going to rent. And I venture to say something even a little bit more may be politically incorrect or slightly distasteful, but here it is, financial hardship. What does it cause? Well, many times it causes the big D word. You know, those wedding vows through better or worse, sickness and health, for richer or poorer. Well, financial stress causes divorce. So a lot of times these distressed sale households, if they're a couple, they turn into two households, not just one, creating even more demand for rentals. And when, when you look at the stats, the marriage rate in the United States is the lowest it's been in decades.

Remember, you're listening to Flashback Friday. Our new episodes are published every Monday and Wednesday. So things are changing. I'm not making a social commentary on this. Whether it's good or bad. Actually, I kind of think it's bad. I mean, I'm single. I'd like to be married. I've wanted to be married for a long time. You know, I always thought I'd get married in my late 20s, but no, just never worked out that way. And you know, listen, each obviously has its own advantages and disadvantages. Marriage, a very big decision, I guess that's life's biggest decision of all, isn't it? And it can be great when it's great, but it can be absolutely horrific when it isn't the right match. So there are obviously advantages and disadvantages to each side of that coin. But you know, regardless, financial hardship causes divorce. There's no question about it. No one can argue with that. That's not anecdotal, it's empirical. And also, rate is declining dramatically. So this means more demand for housing. Remember, you need two houses instead of one. You need two places to live, two residences instead of one. So that means more opportunity for investors. So here's a snippet on the Equator thing. Default servicing technology company equator says nearly 1.2 million short sales were initiated through its system over the past two years. The company tracks this data through its default servicing platform, which helps mortgage industry clients deal with loan modifications. Short sales deeds in lieu. That means a deed in lieu of foreclosure. When you simply hand over the keys, hand over the deed to the property to the lender instead of doing a foreclosure and foreclosure processing and reos. In other words, real estate owned Los Angeles based Equator said Wednesday that more than $150 billion in assets have been sold using its platform over the past eight years. Analyzing trends from the recent fourth, Equator said servicers heading into 2012 are focused on compliance issues. What does that mean? That means lenders and servicers of mortgages are what they are fearful, they are afraid to foreclose because all of the scandals, all of the robo signing, all of that stuff. So big, big things going on, big opportunities for us as investors. Now today on the show, our guest is going to talk about the end of Wal. Well, wouldn't that be nice? Now I say that obviously, tongue in cheek. Listen folks, I know that I constantly bash Wall street and I think Wall street deserves probably a lot more bashing than I give it and a lot more bashing than all of us give it. However, the concept of a stock market is great for capitalism because it does allow middle class people to invest in things they couldn't Otherwise, invest in, certainly. And I, you know, I'm speaking conceptually here. It allows for economic. Economic growth. It's a huge engine for economic growth. But of course, in the last couple of decades, it's been so completely, disgustingly perverted in every way. And the fat cats are just getting all the benefits while everybody else is getting the short end of the stick. And on that note, a recent article here I have, and this is a USA Today article, Gary Strauss says more CEOs rake in $50 million and up. And a couple snippets from this article. And I did not know this till the other. I cannot believe it. I had no idea he was making this kind of money. But good old Tim Cook, who took over for the late Steve Jobs, $378 million. Wow. Qualcomm's Paul Jacobs, $50.6 million. Tyco International's Ed Breen, $68.9 million. JC Penning out. I don't know about you, But I thought JCPenney was kind of a dying company. Haven't kept track of them lately, but I remember from my childhood we had those old companies, Sears, Montgomery Wards, J.C. penney, Mervyn's obviously went out. Kmart largely went out. I thought those companies were kind of a dying breed and there were new companies coming in to replace them. Well, whatever the case, I'm not sure what J.C. penney's up to, but Ron Johnson heading up J.C. penney made $51.5 million. And get this, exit packages are even more lucrative. Neighbors Industries will pay Chairman Gene Eisenberg $126 million when he steps down, while Motorola Mobility CEO Sanjay. How do you say that? I don't know. Anyway, Sanjay and Temple Inland CEO Doyle Simmons are due more than $60 million once their merger is finalized. Compensation experts say that corporate directors are wrestling with oversized pay plans, but many are hampered by deals hatched by other boards seeking new talent. Well, you know what? I bet that's not really true. They say that, but in reality, as long as the board is getting a lot of money, they're going to let the C level executives get a ton of money as well. As I've said before, I'm a capitalist, okay? I see nothing wrong with this. As long as the shareholders are being rewarded proportionately and the other stakeholders. Stakeholders are not shareholders necessarily. Stakeholders are employees, vendors, other stakeholders involved with these companies. These companies are so giant nowadays that I really think that they have social obligation to be fair with all stakeholders involved with them. I know that may sound slightly leftist don't worry, I'm not a leftist. And then it goes on to say in the article here, iger, for one who stands to make a lot more under a new contract, Disney is paying him at least $30 million annually through 2015, up 43% from his old base pay. Un unbelievable. What a total scheme and scam. Be a direct investor, stop making everybody else rich. Invest in your own properties, be a private lender. I've been doing more and more private lending myself, financing a lot of deals that you are buying, that our clients are buying, both from the end where our vendors need the financing to buy properties at auction. That's a very capital intensive business for them. Think about it, every property might cost them 60, 70,000 doll more, maybe less at times. And they need to buy these properties at auction, hold them for four months and turn around and rehab them, get them rent ready, many times, put tenants in the properties and then offer them to you, our investor clients. And I finance some of those deals. And you know what, if you have an interest, I suggest you do the same. Because I'm earning over 12% on money that I loan out for sometimes 92 days, 94 days at a time. You know, I like that short term lending when I get my money back so quickly. And several of our clients are doing it as well. If you're interested in this, just shoot me an email Jasonasonhartman.com and I will connect you with the right people. Also subject to applicable laws, not eligible in all states, etc. Etc. There's a little bit to it, but I'll introduce you to the right parties. You can find out the details that may or may not be for you. We do have a couple of nice big huge discounts actually. One discounts about 66%, the other is about 50% on two great products that you should definitely have. Number one is our creating wealth home study course. Normally, what is that? Normally $297 I believe. Well, guess what, you can get $200 off and you can buy that for 97 bucks. What a deal. That's about five or six hours of audio. It includes two books, the workbook. It's an active interactive workbook and you can fill that out as you listen along on your ipod, in your car, at home, whatever, and digital download of the audio and two PDF files as well as a complete, beautifully done transcript of that foundational course that I teach. And thousands of people have been through it. I've taught it for several different companies over the years and it's really great. So if you go to jasonhartman.com you select the Creating wealth home study course and you enter the promo code CW200. So creating wealth and a $200 discount. CW200 is the promo code. Go to Jason hartman.com click on the products. Take advantage of that and the Financial Freedom Report Great way to start off the new year is to be a subscriber to our highly acclaimed Financial Freedom Report newsletter. And that's where we talk about a lot of the stuff we just don't have time to talk about on the show or even at the events at the Meet the Masters event. This, this again is a who avenue, a whole other outlet where you'll learn a lot more stuff. And you can get a hundred dollars off on that. So you can get it for only $97 as well. And the promo code FFR100. So it's the Financial Freedom Report. FFR100 is the promo code. You can get a full year subscription to that. Just a reminder, you're listening to Flashback Friday. Our new episodes are published every Monday and every Wednesday.

So before we get to our guest, a couple more things I want to talk about here in Porter Stansberry's newsletter. He says some really interesting things that totally tie in with today's show. And I just wanted to mention them here before we go to our guest because they're very applicable. When we talk about Wall street, the end of Wall street, we talk about the corruption of capitalism. Capitalism, a great thing. But again, like I've said before, I don't think Wall street represents capitalism anymore. I think it has completely detached itself from capitalism and it is now capitalism on a nominal basis. And I talk always about nominal dollars and real dollars, constant dollars or inflation or deflation, impacted dollars. And so nominal means a name only. So Wall Street's capitalist in name only. It's an insider's game. So listen to this in the Stansberry newsletter. He says the 10 largest American history have all occurred in the last decade. Lehman Brothers $691 billion Washington Mutual $327 billion WorldCom, $103 billion General Motors, $91 billion CIT Group, the Commercial lender about a hundred year old company. Okay, $80.4 billion Enron $65 billion Conseco $61.4 billion MF Global, you've heard a lot about them in the news lately. We've talked about them on the show. $41 billion Chrysler $39.3 billion Thornburg Mortgage $36.5 billion. All of these failures have a few things in common. Extremely well compensated CEOs.

What a surprise. With long tenures which suggest that the board of directors was asleep at the wheel. My comment. Or getting paid not to pay attention. Vast amounts of debt that would seem completely unsafe by any reasonable standard. And accounting policies that deliberately misled investors. Most tellingly, in the vast majority of these cases, board members and executive management have no material investment in the company. In other words, they have basically sold off the vast majority of their shares. And I know a lot of you stock people. This is me talking by the way, not the article. I know a lot of you stock people. You look at what the insiders are doing, right? Well, if an insider, if the CEO, if the cfo, if the coo, if the board of directors, if all those inside people, if they own a bunch of stock in the company, well then, you know, that's a sign of they have faith in the venture, right? Not so fast. Because what is quoted when you see those figures is the amount of stock they own. So say for example, an Insider bought up $2 million or $5 million worth of their own company stock. Well, all the stock investors go out and they think, gee, isn't that great? That's a sign that they have faith in the company. But the reality is they've got a 300 million dollar net worth and they just look at, gee, if I can buy up 2 million or $5 million worth of stock and push the needle as I'm making $60 million a year or 120 million when I'm going to exit the company, it's essentially a pump and dump scam, folks. Look at how much stock they own as a percentage of their compensation and as a percentage of their net worth. I mean, that stock could be a drop in the bucket for them. It could be pennies. It sounds like a lot to you and I, but in reality you've got to consider that in accord compensation and their net worth, then you understand how at stake they are. One more thing from the Stansberry newsletter and this is interesting too because before I shared on the show how he talked about the late Steve Jobs. And it's always, never speak ill of those who have passed away. And you know, I love Steve Jobs and he's done incredible things, what a great inventor, etc. But you know, I mean, he profiled his misdeeds with Apple and how he would screw around with the numbers and the backdating and then how he hired Al Gore and covered things up. I Mean, it's just rampant, folks. You've got to just assume everybody is doing it. And that's why you need to be a direct investor. Thou shalt maintain control. Commandment number three, control the things you invest in. Buy a bunch of little single family homes, get a couple of apartment buildings, get some notes and trust deeds and do some short term private lending. This stuff you control directly. There's no middleman skimming the profits off the top. Okay, last thing from the Porter newsletter and then we'll go to the guest here. He says, I can't name a single major Wall street firm that hasn't engaged in massive fraud over the last decade. Not one. He's saying not one that hasn't engaged in massive fraud over the last decade. Not one. They have all paid massive fines to the sec, the securities and Exchange Commission. But in only one of these cases was any firm held criminally responsible. And that firm was Arthur Andersen, Enron's accountant. What about the bankers who actually lent the firm money against collateral they knew was bogus? What about the investment bankers who sold Enron stock to the public even though they knew the earnings were fraudulent? And what happened to the huge corporations whose depositors, executives and lawyers were all full active partners in the fraud that bankrupted Enron, namely Citigroup and JP Morgan, the two largest banks on Wall Street? It's just unbelievable, isn't it? I mean folks, we're talking today about the end of Wall Street. Roger Lowenstein will be back with us to talk about that. In the moment. Make sure you join us for Meet the Masters in March in Southern California and take advantage of those products I mentioned. Look at the properties on our website, things you own and control directly, where you have returns projected well upwards of 20% annually. And by the way, I got to make one more comment on the properties I don't ever claim to call everything right. And you know, my big prediction that has not come true that I've been talking about for years. I'm surprised interest rates are still this low. In fact, I am floored. I am shocked that interest rates are still this low. The way I called that, I thought they'd be much higher by now. How long can they kick the can down the road and keep this house of cards afloat? The way they're doing.

Boggles the mind. It really does. It defies gravity. It defies logic. Another one that I totally underestimated. St. Louis. St. Louis has been an amazing success for us. That market, I've told you many times, I really like Atlanta right now, great market. We've been doing great things there. But you know, also I got to draw your attention to St. Louis. The properties have phenomenal cash flow. I was looking on our website the other day under the jasonartman.com properties section and projected returns exceeding 40% annually. Not bogus, not hype, conservative things that can come true in reality because income property is a multi dimensional asset class. And look, if it only works out half as well, well, you make 20% annually. That can't be all bad, right? But certainly you can loan your money on short term loans and earn upwards of 12%. So that's what we have to offer. Things where you are direct investor that you directly control, where you won't have some criminal on Wall street skimming the profits off the top. So. So we will be back with Roger Lowenstein. This is a fascinating interview as he talks about the end of Wall street here in just a moment. We'll be back in about 60 seconds.

Now you can get Jason's Creating wealth in Today's Economy home study course. All the knowledge and education revealed in a nine hour day of the Creating wealth bootcamp created in a home study course for you to dive into at your convenience. For more details go to jasonhartman.com.

My pleasure to welcome Roger Lowenstein to the show. He's the author of the End of Wall When Genius Failed. And I think you'll find this interview to be very interesting. Roger, how are you?

I'm very good. Jason, it's a pleasure to be with you.

Well, likewise. Let's talk about the end of Wall Street. And you're the author of five books, I believe, but tell us about this one in particular. It seems to me that for the last 30 years, so the financial services industry has had such a great run and maybe that leads us to a bit of a bubble. There's so many scandals and problems and. Tell us more.

Well, I think we certainly had a bubble. We had a huge bubble obviously in mortgages and in the stock market, in the business of banks. And we've seen as you suggest, a bunch of related bubbles or scandals about how anything from Bernie Madoff to how the, the banks packaged mortgages and sold them to investors and so on and how the credit rating agencies operated. But the End of Wall street, which was the title of the book, was meant to suggest that speculation and the notion that free markets and Wall street could do no wrong and needed no regulation, that all these things really reached a peak in the last cycle and peaking in 07 or so. And that the world that we're emerging from or into is really going to be different than that era, that we're going to have more regulation, less profitable banks, more of a government hand, higher unemployment, more volatile and less exuberant stock market, people more afraid to invest in the stock market and are afraid to do anything with their money. And I think you're seeing most of that play out.

We read just recently how bank profits haven't come back, real estate markets haven't come back. Whatever the new normal is, it sure feels different to me than pre 2007.

Well, I would certainly agree with that. Now when we talk about the end of Wall Street, Roger, I guess that really needs to be parsed up into what we consider to be Wall Street. I mean, of course there's, there are the companies there, the people that own shares in those companies and bonds for those companies, but also there's the financial services industry. That seemed to change a lot. Of course, my life hasn't been long enough to really know, but I kind of look at the 80s as a fundamental change. When people used to invest for income, they used to be dividend investors. And it seems like a whole new breed took over in the 80s where it became largely a capital gain and speculation market and market. More about hot stories rather than good old fashioned blue chip stocks that pay dividends. Yeah.

Although you have to remember that there was a fair amount of speculation in the 20s and there was also a fair amount of speculation in the 1960s, the go go years when people were buying electronic stocks. They were the precursor of Internet stocks.

But back then. Yeah. And of course I do realize that especially in the 20s, don't know as much about the 60s. But were those back in those days more even if they were speculative, were they companies that planned to pay dividends or did pay dividends and the investors were still looking for income, even if it was kind of a hot story or a hot new segment.

Not a lot of them. There were some real growth stories, growth stocks. That term came into its own in the 60s. But let me pick up on your question in a different way, which is because I do think the financial climate has changed and become more speculative and more short term. And I think there's a proliferation now of financial assets trading that we didn't have before. Not just by the way, in securities, but you know, the choices. When you get a mortgage, do you want a fix, do you want an adjustable, do you want a 10 year or 30 year? And I mean, just what do you do with your savings, do you put it in the money market? Do you take more risk? If we go back to the 1970s, the early 70s, you really had one choice, which was put it in the bank or stick it under the mattress. And I think what has happened since about the early to mid-70s is we've had consistent deregulation. So we've had more markets opening up, more financial instruments, more opportunities, sure, for hedging inefficiencies and all that, but more volatility, more risk, more markets that are susceptible to booms and busts. If you think about the oil market for a second, the price used to be controlled by Texas oil men, basically, and then it was controlled by Saudi sheiks. They wouldn't always get the price perfectly right, but now, of course, the price is controlled by markets. And you'll see the price of a barrel of crude run up to $140 a barrel, and then a year later it's back down to 40, and then it's up to 90. And because.

Open markets, as good as they are, they are susceptible to speculation, greed, fear, all this. One other very important example is the mortgage market. It used to be the local banker who decided if you qualified for a mortgage, usually, and hopefully by.