CW 733 FBF - Jason Hartman – Rent-to-Value Ratios, Bitcoin, & The Case-Shiller Index

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 Flashback Friday edition of the Creating wealth show with Jason Hartman. As he rapidly approaches 1000 episodes of this podcast, he has hand picked individual episodes that he feels is going to be good review for you. To prepare you for the future by listening to the past. Lets dive in.

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 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 today our guest is none other than yours truly. That's right, Jason Hartman. We'll be playing a live introduction for a Meet the Masters event and I thought that would be very much in keeping with the theme of our upcoming Meet the Masters event in January that many of you have registered for. So thank you for the onslaught of early registrations. Be sure you join that group. See the people that come every year, they understand that you want to register early because you get the lower early bird pricing and the price goes up as more registrations filter in. So the early bird gets the worm, the early bird gets the discount. So do that. @jasonhartman.com we are getting very busy planning an excellent Meet the Masters event for you. Again, like I said on the last episode, I've come of loss count because we used to do these twice a year. Now we only do them once a year. I think this will be the 16th Meet the Masters event I've done. I gotta go back and figure that out. But anyway, here we go. So let's dive in and listen to a live tape of me speaking at Meet the Masters. In the beginning. I'm talking about my house dog, Coco, who's there. She's kind of roaming around. She just looked at me when I said that, you should see this right now. That was funny. That's what I'm referring to since you don't have a visual, but she was doing some funny stuff in the room. Let's just dive in and listen to that. And please register as soon as possible for our January Meet the Masters event. Go to jasonhartman.com click on Events and you can get your tickets at the early bird price while they last. Okay, so here we go. Good morning, everybody.

So we're going to talk about a lot of great stuff this weekend again. Tonight we go until 9pm and so it's a long day today, 12 hours. But after 9pm we do have some optional activities. We have a firewalk, shark dive, and all kinds of cool stuff like that too, as I mentioned last night at dinner. So anyway, welcome and thank you all so much for coming. Let's see who here is from the furthest away. We've got some east coast people. I know how many from the East Coast. Okay. And how many from another country?

Japan. Yeah. Okay. I remember when you registered. Thank you for coming such a long way. Yeah, congratulations. Give them a hand, if you would. You know.

We'Ve had people come from Europe, the Middle east, and now Asia too. And Coco was really excited about that, actually.

It's kind of neat to have a seminar with a house dog, huh? Who has an endless amount of energy.

Oh, gosh, she's amazing. One thing I will say about Coco, please don't feed her anything. She's a total scavenger. So if you drop any food, please just pick it up. And the other thing is just be careful. She's still in that training stage where she kind of does jump on people a little bit. Be careful. She doesn't like, knock your coffee out of your hand or something like that. Okay? So just be careful. You have an idiot roaming around the room and it's not me, it's her. So. So anyway. Okay, good. Well, let's dive into it. I'm just going to talk about a little overview of last year. A couple of the big trends we saw happen last year. Some of the big trends we saw last year. And then throughout the weekend, of course, we're going to talk about a lot of forecasts for 2014 and what to expect from our income properties. So again, welcome. Really, what we saw is the big three things that happened in 2013 that affect us as real estate investors. Of course, we all saw a lot of appreciation last year. I mean, that's a welcome change.

Remember, you're listening to Flashback Friday. Our new episodes are published every Monday and Wednesday. But as you know from following the podcast and coming to Other events. I know a lot of you are regulars and you come to a lot of events, so thank you for the support there. But as you know from following my work, we don't really invest for appreciation. We just look at appreciation as the icing on the cake. It's great. You're lucky. I'd rather be lucky than good any day of the week. But unfortunately, you can't depend on luck. You can't, you know, really create it necessarily. So that's just the icing on the cake. But we did have some definitely nice appreciation last year, so that was a welcome change. And it's interesting too, because last night at dinner I was talking about a chart that I've got to bring back because it's a chart that I used to show a long time ago in like 2004, 2005.

And.

And it was comparing Orange County, California, where we are now, my old hometown. And it was comparing it, I'm pretty sure, to Kansas City, Missouri. And this chart showed an 18 year period. You know, I talk a lot about linear markets versus cyclical markets, right. And how I used to be a cyclical market investor and now I'm a linear market investor because I think it's just much more reliable and much more conservative approach. I. But it was interesting because Orange county being a very cyclical market with big ups and really ugly lows that are very devastating to people versus Kansas City, just kind of one of these linear markets that sort of chugs along. And as I recall from that old chart that I haven't been presenting in years, it showed Kansas City, boring. Kansas City beating Orange County, California, exciting. Orange County, California, with literally, Orange county has seven television shows about it. The oc, Laguna Beach, Newport Harbor. What are the names of the others? Real Housewives of Orange County. It's amazing, right? I don't know if Kansas City. Do they have any shows? Okay, yeah. So the point here is, is that all of these things that are like big talk, sexy, a lot of news media attention, those aren't the places to invest. They're really not the places to invest. So staying away from the sexy stuff, the siren song. And is what is that a Greek myth? I think. Right. Is what you want to stay away from. So we saw some good appreciation and inflation and we saw tapering as well. We saw the start of the Federal Reserve's tapering, which there was a lot of talk about it for a long time. Well, it finally started to happen. And what is tapering? It just means a reduction in the money supply A reduction in the creation of new money is what we should say. Or new currency. And so we'll talk about that. And then bitcoin. How many of you have heard of bitcoin? Chile? Don't raise your hand.

Really, Aaron, Real money, real fiat money, not bitcoin? Yeah. So, I mean, bitcoin, pretty amazing. A lot of news about bitcoin, right? Raise the hand. How many people know about it again? Yeah, most. Most of the room. Okay, so what we saw last year is an amazing new thing. Really. I mean, this deserves attention and discussion. Crypto currencies or cyber currencies, Bitcoin being the most popular of which. But there are many others out there. Okay. Litecoin, I think is the number two. And there's a whole bunch of others behind that. And this is indicative of people becoming very suspicious of a fiat money central banking model that has been around with us for a long, long time. This is, you know, last year was the 100 year anniversary of the Federal Reserve, which is the US's third central bank. And in that hundred years, the dollar from 1913 to 2013 lost about 97% of its value. So, you know, they've done a great job. Right. If you took $100 in 1913, put it in a. I guess Folgers was probably around in 1913. I'm just thinking that's one of those old companies. Maybe not, but you put it in a Folgers coffee can, bury it in your backyard, hopefully you held onto the property. Okay. And then dug it up. 100 years later it would have been worth three or four dollars. You know, not as bad as Zimbabwe, but pretty bad track record. Right. And so we've seen people, you know, we're seeing people all over the world losing faith in their governments and their central banks, which are obviously a very cozy relationship. And that's a big deal. Okay, now is it an investment? I don't know. I kind of doubt it. I will tell you my story of bitcoin in just a few minutes here. Okay, Asset prices. Let's talk about asset prices and just look at the year in review. One fantastic asset last year. Now, it wasn't as good as bitcoin, but I think bitcoin might just be like tulips and be in a bubble. So we'll talk about that. But this asset had an amazing growth rate. And the reason I mention it is because we talked about it last year. A year ago January, we were in this same room. Many of you were here then, and we talked about this this particular asset, it had zero losses throughout the year and it had a 214% gain. Any guesses? No, I wish.

I wish I could say real estate performed this well. Any other guesses? No, Bitcoin actually did better. Modern art. No.

That's such a. By the way, art. I used to be a bit of an art collector and I still own all that stuff. And I'll tell you something, art is a total misnomer of a market if you ask me, because it's so illiquid. Things are theoretically have value, but who will buy them? It's just try to sell them. Just try it. It's just so illiquid, it doesn't even work. No 214% gain with no downtime throughout the entire year. So this was pretty much a straight up upward trend. And it was Coco. Yeah, you guessed her weight last year. Many of you remember we had that contest last year.

And she weighed about 14 pounds a year ago, and by the end of the year she weighed about 44 pounds. So that was a straight up gainer. Okay, so there she is last year at Meet the Masters, huh? But let's get serious. So the Kay Shiller index, you know what I think about Case Shiller, right? So I've talked about it on the podcast a lot. Case Shiller is the most commonly used index when it comes to real estate prices. However, the problem is that it profiles only 20 markets. And of these 20 markets, I would dismiss 14 of them and not recommend them. Only six would meet our cash flow oriented, linear oriented, conservative investment quality markets. The other 14 cyclical bubble markets. So what's interesting here is this is the entire 20. It's the case Shiller composite index, right? And it showed that last year we were up 13.6%. But what's interesting here is if you look from when the bubble kind of started here in 2000, right? And it went up and up and up and. And then of course, it had a horrendous fall. The worst in seven decades, okay. As we saw the worst economy in seven decades. And then it started bumping around. And then last year we had some really nice gains. Again, the icing on the cake, the frosting on the cake. Nothing we depend on, just an extra bonus perk for investors. But the average here, if you just look at it like a straight line, 3.6%. Not bad when you leverage that. Because if you leverage that. Now remember, one of the things we love about income property is it's a multi dimensional asset class. And as such you don't just act like a gold or a Bitcoin or a stock investor and expecting things to go up in price. You get cash flow, you get tax benefits, you get all kinds of nice things along the way. So. So it's a multi dimensional asset class. But let's just look at it simply. If you were able, which you certainly were back in 2000, to put nothing down on a property, you could do that in 2000. That's what led to the bubble. You could put 5% down, you could put 10% down. Okay, so let's just take it at 10% down with 90% leverage. So you have a 9 to 1 leverage ratio, that 3.6%. And remember, that includes 14 cyclical markets we wouldn't recommend. So when you don't have the big downturn, which you wouldn't in the other six, but Case Shiller doesn't split it out like that, unfortunately, because they don't look at things the way we do. So there you would actually have done better because you wouldn't have given so much back. And recovering from a loss is very, very difficult. I mean, you know, just note that if your asset goes from $100 to $50, you've lost 50%, right? But to get back to 100, you have to have a 100% gain. So that's why it's so important to just curtail losses and ideally not have them at all, but to really minimize losses. And this is one of the problems, you know, that obviously speculators have when they invest in speculative things like metals like Bitcoin, like appreciating markets or cyclical markets like Orange county that have big depreciation, too. But the same is true of people that go to Las Vegas, right? As Kenny Rogers famously said, you got to know when to hold them and know when to fold them and know when to walk away and know when to run. Right? People have a really hard time cutting losses. It's just part of our human psychology of just cutting losses and running and doing the next thing.

Right.

They'll usually write it down. Okay, just a reminder, you're listening to Flashback Friday. Our new episodes are published every Monday and every Wednesday.

Anyway, so. So that's one of the things here. But if you had leveraged that measly 3.6% at 10%, you'd have a 36% gross ROI, right? Not bad. Not bad at all. Talk about tapering a little bit. So, Federal Reserve, finally, we've got a new Fed chair now. Janet Yellen, as you all know, and she seems like another Keynesian, another Greenspan, Bernanke, maybe not as bad. I'm not sure yet. She has the highest net worth. You know, a lot of this is secret and you don't really know what these people are worth, supposedly of any Fed chair, at least incoming Fed chair, of about $13 million, which, that's not that big a deal, but it's for that kind of position that pays, what, $180,000 a year or something like that? It's a big deal. So what this taper means is that instead of buying $85 billion a month in bonds, which is just creating fake money out of thin air, that's all it is. They've now cut this to 75 billion. So that represents about a 12% reduction in the creation of new money. That's pretty significant. I mean, 12% is a significant reduction in one single step. So we'll see what kind of effect that has on every asset class. Okay. And that's, you know, another thing we're definitely going to be talking a lot about this weekend. But, but here's an interesting thing. In looking at the bond market now, is anybody familiar with the author and, and media personality Neil Ferguson, but his name is spelled like Niall Ferguson. You know him? Yeah, it was awesome. He has a great book, it's called the Ascent of Money. And I'm just going through it for the second time now. And one of the things he says that the most powerful, the most powerful part of the financial system now, this isn't for investors, but it's, you know, for overall power over the financial world is the bond market. The bond market is the world's bully. And you've probably heard of the term bond vigilantes. And so Niall Ferguson talks about that a lot and it's pretty interesting. But so what happens here is this taper was announced. It pushes bond prices down. Okay. And I'll bring this back to what it means to real estate here in just a moment. Lower bond prices mean higher interest rates, upward pressure interest rates. So what does that mean for us as investors? Higher mortgage rates. Cost of borrowing is more. So what does that do to the market? It has the effect of cooling it. Right, cooling the market down. And when you cool the market down, if you have the same amount of the demand and the same amount of supply, assuming those things are equal. They never are. Exactly. But you know, generally speaking, if you have that, it tends to put downward pressure on real estate prices. But remember, the cost to borrow is higher for you. For Me for every would be home buyer out there. So they may think, well, I don't want to be a renter anymore. I want to be an owner. But now it's more expensive to be an owner because it's more expensive to borrow. Remember, generally Speaking about a 1% rise in interest rates, the price has to drop 10% to equal the same monthly payment. That's very significant. So people buy a house the same way they buy a car. They buy it on a payment, not a price. They buy it on a payment. And we do that too, as investors. We look at the monthly cost. And one of the things that we've never really separated out before in our talking with you or on the podcast is something we're going to really tease out this weekend. And that's the concept of utility value of a property being the rent you pay if you're a renter or the rent you get if you're an investor. All right, so that's going to be a big theme that we're going to touch on a lot this weekend and how that differs from the price of the property, which is largely smoke and mirrors, especially in cyclical markets like Orange county, where we're sitting. So that means higher rates, but it's less of a motivator to buy. So what is the opposite side of that equation? Remember the law of cause and effect, right? For every action, there is an equal and opposite reaction. Well, if it's more expensive to borrow, what happens? Fewer people invest and fewer homeowners buy. So if there are fewer investors, there are less rental properties on the market for rent. And if fewer homeowners go and buy, that means that they will continue renting. So there's more supply of renters. So it has the effect of pushing rents upward. Problem is this. The rents react very slowly, too slowly. They just go up. You know, they kind of flutter a little bit, but they, they go up over time. Right, but, but prices, especially in cyclical markets, can go way up and fall really abruptly. However, it doesn't happen as much as other asset classes because as the. I don't even know if she's still the chief economist. Maybe Michael would probably know this. Michael Risdow, one of our investment counselors. Leslie Appleton young chief economist for California association of Realtors. Is she still around, do you happen to know? I don't know, but she said something very valuable during the, during the beginning of the downturn, and I think she was right. Now, remember all of these, you know, national association of Realtors chief economists like Lawrence Yoon, I had him on the show a long time ago and people criticized me, but heck, I had Bill Ayers on last time. So if you want to criticize me now, you really have an opening. But how many of you listened to that one? Wasn't that good? Yeah, that was actually one show I actually prepared for. First time. Yeah. Did you notice I had some, like, tough questions for him and I got to give him credit. He answered him. He was pretty good. But one thing Leslie Appleton Young said is she said, and this is valuable, she said real estate prices are sticky on the way down. They don't drop quickly, not nearly as quick as any other asset class that can have huge fluctuations. Why is that? Because their real estate is not very liquid. And remember something, liquidity creates volatility. It's interesting because I heard one of these talking heads on CNBC who most of those people, I think are just idiots or they're promoters, one or the other. But they were talking about how if a market is more liquid, it's less volatile. The absolute opposite is true. The more liquid it is, the more volatile it is. Look, you can trade stocks with a click of a mouse. You can't sell a property like that. So that makes it more sticky. So it makes it more slow to react. So you have time to consider things and make decisions. All right. Okay. So higher rates pull yield seeking or roi, return on investment seeking capital from markets. And what does that do? Well, it creates the sea of capital looking for yield. And a couple episodes ago on the Creating wealth show, I talked about this and I didn't express it exactly in this way, but it's really that last third interview with Harry Dent that made me think of it and it was okay. Jason, a lot of your strategy is based on inflation. You think inflation is coming. There are like three major economists that disagree with you. Most everybody else agrees that inflation is coming and it will definitely come in a significant way. And that's what I think. But the question is, even if we had deflation, there would be no place to get yield. You would, you would have extremely low interest rates or zero rates like Japan. You would just not have any place to get yield. And I say the only place investors will find yield is in cash flow producing income, property, cash flow producing real estate. That's, that's going to be it in a deflationary environment. Because rents are even more sticky than sales prices. They move incredibly slow. And why do rents move slowly? That's an interesting thing to look at. Well, with a property is on A one year lease. And tenants usually aren't as financially savvy as homeowners potentially. Now I happen to be a renter, as you know, and I highly recommend renting a high end property for yourself and owning lots of lower end properties. You rent to other people. That's an awesome little arbitrage you get there. Okay, but renters generally don't shop that much and so they're on a one year lease and moving is a big hassle and they don't want to move. So if the owner sticks them with a 4% rent increase every year, they're probably not going to move. It's not worth it. It's just too much of a hassle. So that's the reason rents are sticky. So this is just kind of an overview of some stuff we're going to dive into with more depth over the weekend. Let's talk about currency. So currency, obviously, medium of exchange. Nothing too complicated there. If you look in your wallet. What's this called? If you can see it. Thank you, smart alec. Yes, Class contest winner. Right over there, Federal Reserve note. Okay. That's because it's only worth faith. That's all it is. But it's a $20 bill, right? And it was called a $20 bill throughout its life. A hundred years ago was called a $20 bill. Although back then you could trade it for silver or gold. Okay. It was a gold or silver certificate. One of our clients actually gave me two of these things and I have them hanging in my house. He gave them to me in a nice picture frame and they're a 1928 and a 1923, like $10 bills. And right on there it says gold certificate on one and the other says silver certificate. You could actually trade it for something real. Now you can trade it for faith. Okay. And so it's called the same thing, but the value of it obviously fluctuates dramatically. Right? So sovereign currencies, and you know that just means given by the country, right? They're controlled by that country's central bank and other central banks and that country's government. But the important thing to know is this. And this is what we've got to just always be internalizing. No matter what. We've always got to think of it this way. I don't care what you call it. I only care how much stuff I can get for it. Money doesn't matter. Stuff matters. And I always use that example of how many of you saw the movie Castaway with Tom Hanks. Why was Tom Hanks Life tough on the island because he didn't have any stuff. If he had more stuff, life would have been more convenient and more luxurious, right? So stuff things matter, but the money doesn't. So the only question is how much stuff can you buy with it? How many goods and services? All right, so if we look here, nominal as we know, means in name only. I know this is review for a lot of you, but I just got to set it up because we're going to talk a lot about this stuff over the weekend. Is the price in terms of the currency in name. So now here's the distinction distinction that we've never covered before. That's the price of the property. So let's take an Orange county example, since we're sitting here in Orange county and I lived here for many years and I'm quite familiar with it, owned a lot of properties here. So in Orange county, the typical deal is you can rent a $600,000 house, which is not a real nice house here. Does anybody live here? By the way, where do you live? Oh, Los Alamitos. Yeah, well, I went to Milliken High, so. Yeah, right there. So in Orange county, a typical $600,000 house you can get for about 1800, 2000amonth. Is that a good deal? Depends who you are. Are you the owner or the renter? You know, remember, the ideal is 1% RV ratio. So as an investor, if I deploy $600,000, somehow I want to get 6,000amonth. As a renter, I'd love to live in a $600,000 house for only 1800amonth. That's a killer deal. And if you go up in price, it, the deal even gets better. Okay, it gets much better if you rent a five million dollar home in Crystal Cove right around the corner from here. I don't know, lately I haven't checked, but you probably rent that for 7,000amonth. Pretty good deal as a renter, not an owner. Right. But the, what we think is, is legitimate is the real value. And we're going to call this, this weekend the utility value per month. Because this utility value per month how much income the property either produces for the owner or the renter pays to use it. I remember a long time ago I was at church in Irvine here at South Coast Community Church, as it was called back then. And there was this really good sermon the pastor Tim Timmons gave. And it was all about materialism and how we shouldn't be so materialistic. You know, the typical, typical drill, right? Which you know I don't totally disagree, okay? But one of the things he said was really, really valuable. I mean, it was like a super good thing he said. He said we don't really own anything. We are just trustees from birth to death. And I think we can all agree with that. You know, there's like, they say there's no luggage racks on the Hearst. You can't take anything with you. The Egyptians thought so. And they built pyramids and tombs and put food in there for King Tut. But you know, they walk far money. Anyway, so.

The real value of the property is the monthly utility cost. The price of it is bogus. It's a smoke and mirrors game. It's just fickle and nonsensical. All right, so we're really separating that the monthly value versus the overall value or price of a property. And that is going to help us distinguish a lot more this weekend. Okay, so, you know, we talk a lot about, what do I call it, inflation induced debt destruction or, and, or the double inflation arbitrage. Right. So here, what happens to the value of your mortgage debt? Well, the value of your mortgage debt is the currency value, the name of it to be repaid. But the real value is, is the difference between, you know, this is what, what represents your wealth. Okay, what. The asset you have here is the spread between the property's price and the real value of the debt. So I commonly give the example, you know, look, if you have $1 million in real estate mortgages and the inflation rate is 10% just for round numbers, in one year in real value, you only owe $900,000. But the property price may have gone up because, remember, we had 10% inflation. It may have gone up to say that was 100% finance. Just for simplicity, it may have gone up by $100,000 to 1.1 million. So this spread of what you can get for it on the market versus the real value of your debt represents the asset you have. Does that make sense? Yeah. Okay. All right, good. Okay. So bitcoin. Well, why is this whole bitcoin thing significant? You know, I almost like feel like we're going to talk about bitcoin quite a bit this weekend. I almost feel like I ought to get in the bitcoin business. I'm not. I don't own any bitcoin at all. You'll hear my story of the first time I ever heard of this thing and tried to understand it. And I was with Michael and his brother and I was speaking at a conference in Belize. One of my Least favorite places.

Well, you heard the interview with John McAfee, right? Don't go invest in Belize. Please. Stop this. Stop this stuff with this crazy ideas of these third world countries. Okay, so bitcoin is a virtual currency. We talk about the Federal Reserve creating fake money. Well, bitcoin is. It's a cyber currency. I couldn't even get my mind around this. It took like a month for me to just relate to this concept. Bitcoin is essentially a mathematical equation. Nobody really knows for sure who invented it. They think it's a Chinese guy. I think the Chinese invented math. Weren't they the abacus? Wasn't that kind of a sort of it? See, they're smart. They know this stuff, okay? And anyway, so it's this virtual currency and you can buy stuff with bitcoin. People were buying a lot of illicit stuff. The feds shut down a website called Silk Road where you could hire hitman, but. Yeah. Oh, yeah. And paying bitcoin, you know, you could kill someone for. It's only like a thousand. It wasn't that much. Yeah, I mean, you know, I didn't use it, but I was thinking about it.

Am I going to get in trouble for saying that? I'm joking. Well, I actually did kind of think about it. I have an enemy or two. But anyway, yeah, you know, knock someone off for $1,000 in Bitcoin. But back then, Bitcoin was only $42 when I first heard about it. So it was kind of a lot of money. But then bitcoin became worth over $1,000. Just one coin. And people could buy drugs and, you know, prostitution and all this stuff. And this website was called Silk Road. They shut it down. And I'm sure there'll be a million others for everyone. They try and shut down like that. Right? But bitcoins, the funny. Here's what I really had a tough time getting my head around, is mining bitcoins. How do bitcoins come into existence? Well, if you think about the history of money, and I'd highly recommend that book by Neil Ferguson. N I A L L looks like Niall, but he says Neil Ferguson called the Ascent of Money. And, you know, money at first was goods. It was barter of stuff. Stuff matters, Right? Okay. Tom Hanks stuff matters. And then it became precious metals, gold and silver coins. Right. And so that was the start of it. And how did those come into existence? Well, they were mined. They had to be mined out of the ground. And with bitcoins, they are mined off of the Internet. So does this sound like a scam yet? It may be. There's a ton of videos on YouTube saying Bitcoin is the ultimate Ponzi scheme. It's a complete scam. And it may well be. I don't really know, okay? I just don't know. But Cody over there, raise your hand. Cody. Cody is one of my college buddies from a different generation. Okay. And I met Cody because he lived in my apartment building a block from asu and he graduated like almost a year ago. Right. And so Cody sends me an email about a month ago. And it's for a bitcoin mining machine.

Yeah, it's essentially a server that goes on the Internet and processes transactions. And that's how they. And when you process bitcoin transactions, you get paid. Paid. You're. You're a miner. And how much was that? Like 1700. They range from like 1500 all the way up to like 25, $30,000. Wow. So if you want a fast mining machine, like the big, you know, thing like, you know, that would get the stuff out of the ground, I don't know what it's called, but in mining, you know. Yeah, yeah. So. So there you go, you know. Now just remember during the gold rush, at least in California, the people who got the riches were the people selling the pig ticks and the accesses and the axes and the Levi's jeans. Okay. To the miners. Right. It wasn't the gold miners, okay. They were just selling the infrastructure. And so, you know, that's the whole bitcoin mining thing. Maybe the best deal is to sell bitcoin mining machines. I'm not sure. But it's just like hard to wrap your head around these cyber currencies. And there's a whole bunch of them, they're kind of a big deal. Now here just is what happened just last year. I mean, this is shocking. It's a bigger return on investment than Coco the Dog. Okay. So in 2013, the price in January started at about 15 bucks and ended the year at about 800, but peaked at about $1,200. Now when I learned about it, I was in Belize and I remember Michael and I and I think your brother in law were standing on the beach and we were listening to this really interesting kind of cagey guy. And this guy had a company that did these like VPN things that would hide your identity and so you could surf around the Internet anonymously. You know, this was kind of a sketchy crowd I was hanging out with, but I spoke at this conference down There. Right. And he explained bitcoin. I just couldn't get it. It was $42. Right, Michael? That's when I learned about it. And then I just watched it go, you know, way up. Right. But it may collapse just as fast. I mean, look, we've seen this chart before. Tulips. That's the most famous one. You know, in Holland, when they thought, you know, tulips were the big investment, people were buying them up and. And they had obviously a huge crash. Right. So is bitcoin a bubble? Yeah, I think so, probably. When will the bubble burst? I don't know. You know, there's the $42, about a thousand new businesses a week. You heard in the News last week, Overstock.com is going to take Bitcoin. Yeah. And the Overstock CEO is being like, really challenging and antagonistic to Jeff Bezos of Amazon.com saying they're going to have to take bitcoin. They're going to be forced to, because we're taking it. Right. And so it's just like a credit card or something. No, you can buy goods anywhere. You can go. You can go and look on a bitcoin exchange and you can meet a guy at Starbucks and give them dollars for the bitcoin. But it's mostly used online. You can today.

Will that last? I don't know. China outlawed bitcoin and the price went.

So what I say is this. I say that gold, silver, bitcoin, any cryptocurrency, anything that challenges the most powerful institution in the world. The bankers of central banks, namely the Rothschild family, which is potentially worth, nobody knows. But you think like Forbes 400. Oh, there's Carlos Sims, the Mexican telecom guy who was the richest man of like $70 billion, I think. And then there's, of course, Warren Buffett and Bill Gates know, 50 billion ish, give or take. It's just a billion here or there, no big deal. And, you know, you think they're rich. Well, some have estimated the Rothschild Fortune be worth $230 trillion.

With a T, not a B, and certainly not an M. Okay. Like million trillion. Now, just to give you a reference point, the total economy in one year of the United States of America is about 13 trillion. And the total economy of the entire planet Earth in a year is about 60 trillion.

That's a lot of money. Okay. Yeah. It's unbelievable, really. Okay.

Well, the market now. But my contention is that central bankers do not like this, even though Bernanke did make a seemingly positive comment about it. I think that was window dressing. I think the powers that be will find a way to crush this. They can just make a law against it like China did. And they say, you know, they can just make a law and say bitcoin is like cocaine. You can't trade it. Can you trade cocaine? No, not without going to prison. So, you know, I mean, that's a good. Just like corn or gasoline, anything. Right. So they could just outlaw it and say it's illegal. Anything that competes with such a powerful established interest is not something I want to bet on. But ATM machines are going to start working in bitcoin, potentially. That'll be interesting. And if it really ever arrives and it ever becomes something real, I say this is how you'll know when it's traded on futures exchanges. Cody, you gotta love that forex derivatives markets, then it's probably here to stay because a huge powerful interest called Wall street will be behind it. Right. But until then, it could be squashed like a cockroach. So was there. Yeah. Question.

You have a resume on money laundering?

You actually had to prove that you were. Yeah, exactly. If they're running it and if the Rothschilds get into the bitcoin business and the Federal Reserve and all the other central banks. Oh, yeah, it's here to stay. Okay. But you know, why would they. They have fake dollars that they've done a great job of impoverishing most of the world with. Okay. And enriching some. And so I say let's be on the side, their side. Let's do what they do. Let's work inside their plan and just use it and exploit it. Okay. Okay, so last slide here. And I got to wrap up because we got to have Steve up here, but this is just a comparison of some assets. And like a year ago I never even heard of bitcoin. I wouldn't even mentioned it. Right. But now we're talking about it. So. So it's kind of interesting. So look here at this chart. What's controlled by the Federal Reserve and other central banks? Well, fiat dollars, the stuff in your wallet that's controlled by the Federal Reserve. Bitcoin is not. Gold is partially. And the reason I say that is because gold and silver, when I say gold, it's a proxy for all metals, platinum, palladium, silver, whatever. Okay. But the central banks around the world manipulate the price of gold and other metals by buying it and selling it and storing it and suppressing it and taking it off the market and putting it on. They can intentionally inflict pain on investors because of that income property is not controlled by the Federal Reserve. However, you might say, well, look, Jason, that's not really true. And you'd be right to say this because the Federal Reserve does control the availability of cash to buy it. The financing opportunity for income. Income property is controlled by the Federal Reserve somewhat indirectly. But remember, since it's a multi dimensional asset class, if they tighten the ability to finance the property, that puts upward pressure on rents. We all know this because we understand the multidimensional nature of income property. Does it rise in value when the dollar declines? Well, you know, the dollar is the dollar, so that's irrelevant. Bitcoin, we don't know yet for sure. Probably does in relation to the dollar. Gold. Yes. That's the historic thing of 5,000 years ago. For an ounce of gold, you could buy a toga and a pair of sandals. Today you can buy a man's suit and a pair of shoes. Hasn't changed much, except the clothing got a little better. And it's made in China.

The toga was probably made in Rome. Okay. They probably didn't import those. Is it subject to theft? Well, certainly. People can steal your dollars. They can steal your bitcoins, they can steal your gold. Kind of hard to steal your income property. Those are kind of hard to move. Hard to steal the title. There are scams in real estate, of course, but those are so rare as to be almost negligible. Is it used for illicit activity? Dollars, certainly. Bitcoin, Most definitely. That's how it got started. And then gold, Absolutely. You know, you've seen movies where they give them the gold and then they get the whatever, you know, the missile launchers. Income, property. No, not really used in illicit activity, you know, I mean, meth labs. Meth labs. If you could do percentage rent on those, I think it'd be the ultimate business question. No, it was about like meth labs and brothel. Yeah, well.

My friend's house had all of the plumbing stolen out of it by the tenant. Yeah, yeah, but. But the asset. That just means the asset was detached, deteriorated by a bad tenant. It doesn't mean that it was used in illicit activity. Right. So. So, you know, I think it's fair to say no, you know, on that one. Right. I mean, there are minor things occasionally, but nothing ease of use. How easy it is to exchange in dollars. Super easy. Right, Very convenient. But also that creates more volatility because it's highly liquid. Bitcoin, very easy. Although, you know, you now overstock.com, but you know, mine, most people don't take bitcoin yet. Like try to pay your hotel bill here and probably won't work. I have bitcoin. No, what's that? They'll probably say gold, very difficult to use in exchange. And the one thing people don't realize about these metals is that try to sell them. Just try it. I promise you. Because I did as an experiment. And you basically have to pay closing costs in and out of the deal. Because when you buy the gold or the silver or the platinum or the palladium, you pay a premium over the spot price. And when you sell it, you're either only going to sell it at spot or even below the spot. And to ship it back and forth to the buyer and seller, you got to insure it. And I think that's a hugely high risk of theft. Because you say you send them 10 coins to get your dollars to cash out. Most of these coin dealers are online. Obviously they don't want you walking in, having a big vault there. You know, not only the little ones have actual retail locations, but most of it's done where they're companies. You call up and they have a call center and you send it somewhere. And who knows if they're going to say you really sent them 10 coins. They might say there were only eight in there. Right. So ease of use. No, not easy. Income, property, not easy to use or trade. Very slow to trade. Illiquid, which I think is a benefit. So subject to bubbles and crashes. Dollars, certainly. Bitcoin, most definitely. One coming up, I'd say gold, most definitely. And income. Property, yes, but more sticky, especially in linear markets. So here you'd really have to separate out the linear market from the cyclical market. Inflationary debt destruction, or as I say, inflation induced debt destruction. Does it have an advantage in that way? Dollars? Certainly not. Dollars are destroyed by inflation. Bitcoin? I don't think so. I think bitcoin is very similar to dollars in that way. Although relative to dollars, it may look like bitcoin's doing well. But ultimately, bitcoin, I think is subject to inflation too. They say the amount the supply is limited in open source mathematical equation. Okay, that's just, I don't know, I'm gonna be like Warren Buffett on this stuff. You know, in the first dot com bubble around, I don't know, 2000 or 1999, when, when all these stocks were going nuts, it's a, you know, remember the words 13 years ago, 14 years. It's a new economy. What happened? Right. Warren Buffett said I'm not doing technology. I don't understand this stuff, you know, I just want to own Geico and Coca Cola and things like that, you know, so maybe it's good to be a little less sophisticated sometimes like that. So gold, no, it just is a. It ideally just keeps pace with inflation. It's insurance against inflation, but it doesn't have an advantage from inflation. It's a pace keeper, not a exceeder Income property, though, because of the multidimensional aspect and the debt against it. Hugely advantageous with inflation. And then the last one we threw in for Steve. Disliked by Paul Krugman. Steve, you listening back there? Where are you? Oh, I thought you were over there. Okay, yeah. Disliked by Paul Krugman. So whatever Paul Krugman says, just do the opposite. It's a pretty good idea because he's an idiot. So fiat dollars, he likes them, so I wouldn't want to have my money there. Okay. Bitcoin, he doesn't like that because it's not part of the central banking scheme in the government. Gold he doesn't like. And he doesn't like income property. So just do the opposite of what he says and you'll be in pretty good shape. All right, that's it for me for now. You'll see a lot of me this weekend, though. But Steve, come on up and let's talk about what investment counselors are here to do and then we'll take a little break.

I've never really thought of Jason as subversive, but I just found out that's what Wall street considers him to be.

Really? Now, how is that possible at all?

Simple. Wall street believes that real estate investors are dangerous to their schemes because the dirty truth about income property is that it actually works in real life.

I know. I mean, how many people do you know, not including insiders, who created wealth with stocks, bonds and mutual funds? Those options are for people who only want to pretend they're getting ahead.

Stocks and other non direct traded assets are a losing game for most people. The typical scenario is you make a little, you lose a little and spin your wheels for decades.

That's because the corporate crooks running the stock and bond investing game will always see to it that they win. This means unless you're one of them, you will not win.

And unluckily for Wall Street, Jason has a unique ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than a 26% annual return is. Is disappointing.

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