CW 834 - William Cohan - Where's the Market Going? Vanity Fair, Bloomberg View, Why Wall Street Matters, The Last Tycoons & House of Cards

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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.

I want to take just a moment to tell you about Renters Warehouse, an award winning property management company that services over 13,000 investors with over 18,000 properties nationwide. They are the only residential property manager rated by Morningstar. Their centralized model with local staff provide trustworthy support across multiple markets. These experts track all aspects of your property and never try to profit from maintenance repairs. Plus, you'll enjoy flat rate pricing and warrantied tenants up to 18 months. Check this out. For a free 3 month property management trial exclusive to Jason HARTMAN Listeners, visit renterswarehouse.com Jason Again, that's renterswarehouse.com Jason Foreign. Welcome to the Creating wealth show and thank you so much for joining me today. This is your host, Jason Hartman with episode number 834,834 coming to you from the Khan Film Festival. Or is that Cons? I don't know. I think it's gone anyway. Yes, I'm in the south of France now and it is an amazing time to be alive. And I'll tell you the latest amazing thing I'm always talking about how location is less meaningful than it's ever been in human history. Yes, the price of real estate, the value of real estate, for sale or for rent is largely determined by the three rules of real estate that obviously we've talked about many times. And that is what? Location, location and location. Yes, you guessed it. Well, location is still certainly meaningful. And I tell you, when you attend something like the Cannes Film Festival or the Monaco Grand Prix or anything that highly impacts an area, it's incredible how you see it in the hotel prices, in the Airbnb prices. I've been to Monaco a couple of times before. I guess this would Be my fourth trip. I'm. I'm going over to Monaco tomorrow and, you know, always amazed. It's obviously a very expensive place. It's this little principality which is sort of a different country, but sort of part of France. I don't know. I can't explain it right now. I read about it years ago and, you know, it's kind of. Kind of like the Vatican, right? Separate country, but it's part of Italy. Andorra, kind of part of Spain, but maybe not. I don't know, you know, whatever. Anyway. But, you know, it is shocking, truly shocking what happens with these hotel prices, because I have literally stayed at one of the same hotels that I looked up on Hotels.com for this weekend during the Monaco Grand Prix. And the same basic hotel room, which I thought was outrageous when I stayed there years ago at about $450 per night and. You ready? You sitting down? Okay. This weekend, the same basic hotel room. $4,700 per night. Yes, $4,700. I kid you not. Shocking. Absolutely shocking. And it goes to show a couple of things. Number one, how much mega wealth there is sloshing around in the world. I just finished Jim Rick book here on this trip, the Road to Ruin, I believe that's his latest book. And fascinating. He is incredibly smart, incredibly knowledgeable. Mentioned this on the last episode, too. But you know, these guys with their doom and gloom predictions, they're just always wrong. I mean, I remember learning about Howard Ruff, who was on the show, and I, you know, I think I heard a rumor that Howard Ruff may have passed. I hope not, because he's certainly an interesting guy, but in the 70s and, you know, he's been on the show before. He's, you know, this makes a lot of financial predictions, has written a few books and. Fascinating guy. And has 77 grandchildren. Yes, he said that on the show here. Wow. Wow. Amazing. But he has been predicting doom and gloom since the 70s. And all of these predictions just, just have not borne out whether they be Jim Rickards, Peter Schiff, Harry Dent. Harry's been on the show many times. I love listening to these guys. I love all of their work. It's fascinating stuff, but it. They just always seem to be wrong. I don't know how that can be because they have so much knowledge, so much information and such an interesting way of looking at it. But where were we going with this? Let's get back to Monaco and the Airbnb prices and all of this stuff. So, yes, I know where I was going with that. In Jim Rick book, he talked about some fascinating things. I highly recommend that you get a hold of it. Road to ruin. Fascinating. I've got to get him on the show to talk about this. And one of the things he talked about is how in the United States there is this, you know, just completely disappearing middle class. And we've, we've talked about this many times before. I've shared a lot of stats on the, the decline of the middle class. And one of my urgent pleas to you as a, as an investor is that you must, as the middle class is under attack, as the middle class is shrinking, shrinking, shrinking. And I believe that's one of the key things that has made America such a great country is, is its large middle class. You know the, the old saying, even if you win the rat race, you're still a rat. Right? You've heard that saying and I've mentioned it before. And this is one of the things that, you know, I don't want to be. Even if, you know, I have a good degree of wealth, I don't want to live in a banana republic. I want to live in a country where there's a large middle class because that middle class makes it so stable. Well, Rickard's book and I will tie this in, I promise you here. Before we get to today's guest, I'm not going to be rambling on and on and sharing another rant on Europe, but they're well deserved. I do have one. Maybe next week I'll share with you after I'm back home. But in Jim Rickert's book, he talks about the decline of the middle class, and this is so true. And when you look at these hotel prices here in Cannes for the film festival or in Monaco this weekend for the Grand Prix, you see that there is this massive, elite, incredibly wealthy class. There is this massive amount of wealth sloshing around in the world looking for a place to go, for assets in which to invest, for money to spend on hotels during the Monaco Grand Prix for $4,700 per night. It is absolutely insane. So the rich are certainly getting richer. There is this concentration of wealth. You, you, you have the, the country, the US And I believe this is true of many other countries as well, where it's becoming more like a banana republic. No, not the store, which, by the way, I think banana republic is a great place to shop. I really like their clothes and they're always on sale. So, you know, but a banana republic is where you have a, an elite, wealthy class and most of the population being poor and really no middle class. California, my home state, is rapidly turning into a banana republic. It has been for years because you've got these very wealthy people who have all sorts of complex tax shelters and they figure out a way to avoid taxes or evade. I don't want to say evade, but at least avoid. And, or they just pay the freight and they pay the tax bill because they're so wealthy they don't care. And then you have the poor in California, which is taken care of by the radical liberal left that you have in much too high a concentration in the socialist republic of California. And then you have the middle class being under attack with massive taxes and all sorts of burdens. They're fleeing the state. They have been for over a decade now. So, so that's what you have that looking more and more like a banana republic. And if you don't believe me, if you think California all looks like Newport beach or Santa Monica or La Jolla or, you know, San Francisco or San Jose or Palo Alto, well then just go to any of the downtown or south central Los Angeles areas and you will see what I mean about a banana republic. Go to Fresno, check it out. It's, it's really not good. So you have this massive amount of money in the world and one of my ploys to you as investors, my urgent, my urgent advice is to get richer, okay? By using the most historically proven asset class the human race has ever known, income property. Get richer and get richer quickly. Because as the middle class declines, as the middle class is under attack in the US and around the world, you're either going to find that your standard of living goes up or down and you want to, you know, many of our listeners are in the middle class or in the upper middle class. Some are wealthy. But you are under attack. If you are in the middle or upper middle class and the point is to invest wisely and follow the advice outlined on this show, follow the advice on my, in my ten Commandments of Successful investing and build your portfolio with urgency, with extreme urgency so that you are not left behind as part of the shrinking middle class. You don't find your standard of living declining and you know, ending up into the upper poor class rather than the middle class or the upper middle class. You want to really invest properly. And certainly you've all heard and read the rags to riches stories and there is so much mobility out there available to you if you'll just take advantage of it. An income property is the most proven way to do that. Now I started off by saying it's an amazing time to be alive and how location was less meaningful than it's ever been in human history. And you may have felt with what I just said, I'm kind of contradicting myself. Well, I'm not because as I talk about these ridiculous hotel prices and so forth, I'm also talking about the new forms of transportation and the sharing economy and of course the autonomous vehicle, the self driving car that is a game changer. And what I saw when I went with Fernando and Gary, our Venture alliance members, to the Consumer Electronics show in Las Vegas in January before our Meet the Masters of Income Property event, we saw the self flying helicopter that can just pick you up. And you know, this, this is coming, it's coming quickly, folks. All this stuff is coming quickly where you can just summon it with an app on your phone. It comes to pick you up and it'll take you places. And there's no pilot. It's, it's about 250 grand. And I can see those things being deployed all over in cities and suburbs around the world as a future means of transportation. So yesterday, why am I saying it's an amazing time to be alive? Well, I had my first experience yesterday with Uber helicopter. Yes. I opened the app on my phone when I landed at the airport in Nice, France and I summoned a helicopter. Well, not when I landed. I went back to the airport, actually got to be more accurate there. But I did open the app when I was at the airport. I just didn't take the helicopter right then. I first went to my home hotel and then I came back the next day after touring around Nice a little bit. And I opened the app on my phone, summoned an Uber helicopter, and the Uber helicopter took me from Nice to Khan, okay, to Cons and to the film festival yesterday. And it was about €180, €160$. Being so strong now, it's kind of nice because their money goes a lot further. And we've talked a lot about exchange rates and how they affect imports and exports over the years and inflation induced debt destruction and so on and so forth. So I took the Uber helicopter along the coastline of the French Riviera and landed and avoided all that traffic. And it was so simple. It was just a wonderful experience. And you know, in the past that would have cost you a fortune. It would have been complicated to arrange. Now you know, it's open the app on your phone, jump on the helicopter, the Uber helicopter, and I just took it over €160. What a phenomenal experience. Location is less meaningful than it's ever been in human history and it's going to be less and less meaningful as time goes on. Okay. And we have a property tour and a JHU Live event coming up in Oklahoma City at the beginning of July, first weekend of July. And I hope you'll join us for that. Go to jasonhartman.com click on the events section. Early bird pricing still in effect. It's not the earliest early bird prices have already gone up a little bit, but they are still very good for tickets for that event. And join us in Oklahoma City. We have got a phenomenal host. It'll be a first class event where we do the Jason Hartman University Live seminar. We dive into a lot of the math of real estate investing and property selection and a whole bunch of great stuff. And then we do a property tour and all the meals, by the way, are included in that ticket price. So just we've got a good discounted hotel room block. Make sure you register and you'll get the hotel information after you register and take advantage of that room block as well as the early bird pricing. Time is of the essence. So do that right away. Go to jasonhartman.com, click on Events. Join us in July in Oklahoma City. And then also we've got our Venture alliance event coming up in Chicago. We're going to have a full phenomenal time. We're going to do some cool things that we've never done before. That's part of the Venture alliance and that's also@jason hartman.com in the events section and also more information in detail@venturealliancemastermind.com or talk to your investment counselor for info on that. And without further ado, let's get to our guest today and talk about the house of cards. The house of cards. Here we go. It's my pleasure to welcome William D. Cohen back to the show. He's been on before and he's a columnist for the New York Times, special correspondent for Vanity Fair and formerly columnist for Bloomberg View. He's author of why Wall Street Matters and the other best selling books, the Last Tycoons and House of Cards. Bill, welcome back. How are you?

I'm great, Jason. Thank you for having me.

It's good to have you back on the show. And you know, everybody is asking what should I expect with the new administration? You know, it looks like things are pretty optimistic, deregulation maybe, you know, for our real estate investors, softening or eliminating Dodd Frank, which will I Think be a boon to the real estate market but you know, may have some other unintended consequences. So, you know, take it wherever you want. But what can we look forward to?

Well, I think we were talking a little bit before. I mean, with Donald Trump, you never quite know what you're going to get, which is, you know, sort of an age old negotiating tactic. Which is fine if you're a real estate developer and you're negotiating for a space or a building contract or whatever it is. You know, it's a little more disconcerting with our President of the United States. But I think when it comes to financial deregulation, it seems that Trump and Congress have found or talking about common ground. It doesn't seem like it's going to be nearly as contentious an issue as healthcare has been or tax reform will be. So I suspect that, and you know, he was talking about it again yesterday, I suspect that there will be some redesigning of financial regulation for Wall street and big financial institutions and small and medium sized banks as well that have been sort of begging for a relook at the regulations that are imposed upon them. You know, for me the question becomes, you know, we have to be careful what we wish for. I think some of the regulations that Dodd Frank has enacted and required are good. And those I put in that category requiring banks to have more capital, I think that makes the banking sector safer. There's a reason that the American banking sector is in better shape than its counterparts in Europe or in Asia. And that's because they have more capital. I think requiring less leverage, demanding less leverage is a good thing. I think the leverage requirements are now something like 15 to 1. Bear Stearns its height intra quarter used to report or talk about 50 to 1 leverage. That means that a 2% change in the value of assets on their books wiped out the equity. And obviously that's pretty much exactly what happened. Now it's 15 to 1, which means that, you know, a move in the valuation of all these assets would have to be something along the order of 7%, which is obviously a lot more. So I think that is a good thing. Having derivatives hard to value securities, having derivatives traded on an exchange so that price discovery is easier. I think that's a good thing. We could talk about the value or not of the Consumer Protection Financial Bureau. It's sort of a hard thing to be against, even though there are aspects of it that I don't particularly like. And you know, we probably don't need more bureaucracy and it would be nice if people took responsibility for their own actions instead of, you know, relying on the government. But I think that, by and large, Dodd Frank, all 2300 pages of it, plus another 22,000 pages of rules and regulations that have still being written, although I think the acting head of the SEC put some of that on hold recently. So I think that, oh, the reregulation plan was just excessive and over the top and ended up, you know, the pendulum swings too far. There was no regulation before Dodd Frank. Now there's too much regulation. And I think, unfortunately, it's had the effect, as people like Larry Summers and others have discussed, of creating what we call secular stagnation, or what he calls secular stagnation that is sort of condemning our economy to grow at 2% a year. Last year grew at 1.9% GDP growth. So I think we need to take some of these restrictions off, clean out some of the sand that's been thrown into the gears of the capital markets and the Wall street machine, and get this thing humming again. Because I think once you do that, job creation increases what you can pay people increases, innovation increases, new plant and equipment purchasing increases, and just all around, you know, makes the economy run more efficiently and better. And people who want access to capital can get access to capital. And I think that is a fundamental thing in a capitalist society that we should strive for.

Yeah, very important. To sum that up, then, you know, the system has basically overcorrected. It's become too conservative and too tight with regulation. You know, it sounds like you believe that Trump will undo a lot of that and move the pendulum back to the other direction. I don't know if you think he might move it too far. I don't think any of us know. But it sounds like you think we're moving in the right direction, at least with the statements the Trump administration has made. I particularly liked that one, you know, right when he took office that, you know, for every new regulation, you got to repeal, too. Now, granted, that could become reckless, I guess, but. But in concept, it sounded like a good idea to me.

Oh, you know, it's sort of like one of those phrases that Trump says, who knows what that really means? But, I mean, I think this is a moment for a scalpel, not a sledgehammer. But unfortunately, Trump strikes me as kind of a sledgehammer kind of a guy. So, I mean, frankly, I have been an advocate lately, and I discussed this a little bit in my book of what I call a grand bargain that I think Trump, who fancies himself the dealmaker in chief should undergo with Wall Street. And basically the grand bargain is this. We'll take off some of these onerous regulations that you don't like. We'll, you know, get rid of the Volcker rule. We'll, we'll, you know, get this machine humming again. But in exchange, what we would like you to do is to revamp your incentive system. Revamp the reward system on Wall Street. Revamp the compensation system on Wall street that frankly, has been rewarding people to take big risks with other people's money for about the last 50 years and has gotten firms and our economy into trouble, you know, time and time again. And I think, you know, I think the worst thing would be, quite honestly, if he takes a sledgehammer to the rules and regulations and the laws and does not also demand that Wall street change its compensation system. Because we sort of seen that movie before. We saw that in 2005, 2006, 2007 was a period of virtually no regulations. You know, the Glass Steagall act had been repealed. There were no regulations on derivatives. We had Christopher Cox as head of the sec, the surfer chairman of the sec, as I like to refer to him as. And you know, Wall street, of course, had a party and it was great. They had a great time. But unfortunately, it led to, in many respects, the excesses that we experienced and the collapse that we experienced in 2008. And I don't think we want to go through that again. So, yes, by all means, take off some of these regulations that are onerous and gumming up the beautiful machine. But please, please, please demand in return that Wall street change its incentive system so that people are not rewarded to take big risks with other people's money. Which is exactly what's happening now, unfortunately.

Yeah, it's all a matter of degree, isn't it?

Absolutely. I mean, look, if we didn't want there to be any car related deaths, we would not allow any cars to be driven at all. You could have a car, you could keep it in your garage, you could look at it, but you couldn't drive it. Obviously, nobody is talking about that. If we didn't want to have any financial crises, we could eliminate all banks. But nobody is talking about that. And that obviously is ridiculous. But what we do need, just like with cars, is we allow cars on the road. We have speed limits, we have seat belts. We demand that people don't drive drunk. And we need the same kind of smart regulation on Wall Street. We need banks to have a lot of capital. We need them to not have a lot of leverage. And we need them to have an incentive system that rewards good behavior, not bad behavior.

You know, Trump talked a lot about draining the swamp. You know, the criticism of his cabinet is that it, it looks like there's a lot of swamp dwellers in there. Would you agree with that or do you just sort of need those people, you know, that are that because they have the resumes, they know how the system works. Right. It seems like you can't, you know, maybe that's not a fair criticism. I don't know. What do you think?

Well, I think it's really a mistake to make blanket judgments about any group of people. You know, you know, if we said, I'm sorry, we can't have any blacks be in the Cabinet, I'm sorry, we just can't do that. I don't care if they're qualified or not, we're just not going to have it. There aren't going to be any black people who are in Washington or in a cabinet or at the White House. I mean, that is obviously beyond ridiculous, completely discriminatory and unfair. And frankly, if you say like Elizabeth Warren has been saying, I'm sorry, we can't have any people who worked on Wall street in the White House, we can't have any people who worked on Wall street in the Cabinet, I find that equally discriminatory. People on Wall street come from all walks of life, have all sorts of different experiences, are generally very intelligent. And if you're successful and then you want to give something back to through public service and you want to in effect give up your high paying job to go do that and you can make it through a Senate confirmation hearing. Well, why the heck not? Why wouldn't we want those people in Washington? I mean, you know, I think you want people in the Treasury Department, people on the National Economic Council, people who, on the Commerce, in the Commerce Department who understand capital markets, who understand Wall street, who understand capital structures, who understand finance, I think that would be an asset, not a liability. And so, you know, I hate to make blanket statements now. You know, Donald Trump has, for whatever reason invited a lot of people from Goldman Sachs into his White House and into his Cabinet, basically. I don't really have a problem with that. I mean, I think a little goes a long way. I think he's taken it to the limit here, which is, you know, I think enough is enough. But, but, you know, basically I don't have any problem with it. These are smart people. If they can get through a Senate confirmation hearing and they want to give up their lucrative job, then they should.

Talk to us about what you expect in the economy and particularly the real estate market, if you have any thoughts. And you know, interest rates and such.

Well, obviously interest rates are now headed up. I think that's a good thing. Both because they were kept artificially low. I mean, interest rates are a commodity. The price of money is a commodity that is like any other commodity. It is driven by the supply and demand. And I think after the financial crisis, the Fed decided to move into the market in a big way through quantitative easing, buying trillions of dollars of high yield securities and mortgage backed securities. The Fed's balance sheet went from 850 billion before the financial crisis to something like 4.5 trillion today. So obviously the Fed was this big kahuna going into the market and I think clearly manipulating the price of money, manipulating interest rates and forcing them down by driving up the price of the securities that they were buying. In any market, anytime you manipulate the price of something that should be left to supply and demand, that's not a good thing. So the good news is that for a year plus now, quantitative easing has been ending and slowly but surely, interest rates are moving up to reflect the price of money and the risk of a risk associated with borrowing money. You know, I think the problem has become that with money being priced so cheaply, investors are desperate for yield, what I call the yield Hunger Games. And that's not healthy. That creates bubbles, that creates high inflated prices of assets, and that never ends well. And so I'm glad that the Fed is starting to raise interest rates and I hope we can get out of it without an asset bubble explosion.

Okay, so the question of more specifically, and I agree with all that, where do you think the economy is going? I mean, are good times ahead? The sentiment is really good. The optimism seems very high right now. Is that warranted?

Let's be clear. The economy has been good for a number of years now. It has been good in the last few years of the Obama administration. Basically the second four years of the Obama administration. You know, the market has gone from 6,500 to 18,000 and now from 18,000 to 21,000 under Mr. Trump. Unemployment is what, 4.7% having nothing to do with Mr. Trump. So let's give credit where credit is due. I mean, the Obama administration did a pretty darn good job getting us out of the Great Recession and getting things back on track. You know, how much more Trump can do given where things are now. I'm not exactly Sure. I don't really see how unemployment rate can go down much further. We're sort of at the structural limits, which means that wages are going to have to rise, which is probably a good thing, all things considered. Unless, of course, you know, Trump is right and there's, you know, another, whatever 90 million people or something that he said are underemployed. I find that really hard to believe. You know, another analysis says there's another 7 million people who are underemployed. I guess if that's the case, I don't know.

Just, just anecdotally though, you know, it, I do see a lot of underemployed people. I mean, a lot of highly educated people working, you know, Uber, Starbucks. A lot of homelessness. I mean, the homelessness problem seems like it's just out of control. It's so sad, you know, tent cities, I mean, it's just mind boggling. That wasn't like that years ago, you.

Know, you know, maybe because I live in New York City, you know, there are more homeless people on the streets now under de Blasio, the current mayor, than there certainly seem to be under Bloomberg, the former mayor. And maybe it's because Bloomberg, you know, dipped into his own pocket and rounded up all these people and put them in homeless shelters and de Blasio doing that. I don't know. You're right. I mean, there obviously are a lot of people who used to have high paying jobs and now work for Uber or Starbucks or are homeless and wandering. There are a lot of people whose jobs have disappeared and need retraining. But, you know, that's a very difficult problem that I don't really see how a president, unless a president decides to allocate billions of dollars to, you know, sort of retraining centers in each state, in each community that somehow retrain. I mean, how do you, I mean, it's nice to talk about retraining people and it's certainly a worthy goal, but how do you actually do that? Somebody who, say, was working on an auto production line in Detroit and that line goes away, you know, goes to Mexico, goes to Japan, goes to China or goes to North Carolina, and now, you know, they have to be, what, retrained to do data entry at Facebook or Google. I'm not exactly sure how it really works in the real world. And I think that is a big problem. And that's why there are so many people who are, were once so gainfully and happily employed, who are not anymore, who may have dropped out of the workforce. But I'm not sure how you get them back in the workforce.

Yeah, well, it's obviously a challenge, but, you know, having money flowing, you know, flowing freely is certainly one of those potential answers.

You know, I agree.

I think we'd agree on that. Yeah. Okay. Well, anything else about what to expect from the Trump administration in terms of the economy, and let's wrap it up and have you give out your website.

Well, I mean, I guess, you know, there's talk of tax cuts. There's talk of an infrastructure proposal. There's obviously talks of reforming Wall street regulation. I think, you know, the question is, does Donald Trump have the political capital to get these things done? Done. And I think, you know, that's a big question right now after the health care debacle. So we'll see if he reforms taxes, if he reforms regulations, if he repatriates trillions of profits from overseas, if he implements a big infrastructure program. Yeah, it could be Happy days. Could be here again.

Absolutely. All right, well, give out your website. Tell people where they can find out more.

Sure. My website is williamcohan c o h a n.com and my books are there. My recent articles are there. How to get in touch with me is there. So have at it.

Bill, thanks so much for joining us. It's great to have you back.

Thank you, Jason, for having me.

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