HS 279 - Brexit & Real Estate, Enduring Success: What We Can Learn from the History of Outstanding Corporations with Christian Stadler

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

It's my pleasure to welcome Christian Staedtler to the show. He is a professor of Strategic Management at Warwick Business School, strategy contributor to Forbes Magazine and author of Enduring what We Can Learn from the History of Outstanding Corporations. He was against the Brexit. He wanted Britain to stay in the eu. So we're going to talk about that and get some of his thoughts on the economy as a whole and some of these sharing economy types of businesses, which I think you'll find very interesting as well. Christian, welcome. How are, how are you?

I'm fine, thanks for having me on your show.

It's good to have you. And you're coming to us from where are you located?

I'm located in Bath, a small, beautiful town in the southeast of England.

Fantastic. Well, first of all, the Brexit, that's the big thing in the news. Britain has exited the eu. They've gained their independence. You were not in favour of this. Tell us why.

Well, partly I'm Austrian myself, so living in England, obviously I, for very personal reasons, would prefer if we would stay in the European Union here. But also for pure economic reasons, I think virtually. Well, everyone, I think, is too strong a statement. Yeah. But most experts have agreed, and the vast majority of economists, that this is not a good thing from an economic perspective. In the short run, it creates a lot of uncertainty. The markets don't like that and we have seen the effects immediately with the pound dropping to its lowest value since 1985, with the markets reacting strongly after Brexit in a negative way. In the long run, it depends a lot on what the outcomes will be. But it's a very hard task for the new government to find a deal that is favorable for the United Kingdom.

To find a deal. What do you mean? A trade deal or. What are you talking about?

Yes, I Mean there's various options on the table. The problem is partly the way the negotiations are structured. Once you might have heard of these famous Article 50, which means essentially that you trigger the official negotiations with the European Union. And once that is triggered, there is only a two year period until you're out of the European Union. Now the European Union has made it clear that they will not engage in any informal discussions prior to the triggering of this article 15. Now 2 years is an extremely short period to renegotiate relationships with the European Union. So in practice you probably we have only two options in these two years. One option would be that you will copy a model that is very similar to Norway. Now the Norway model is in essence that you have all the duties as the members of the European Union, including making payments to the European Union that are similar to the ones that are members with not having any say in decisions that are being taken by the European Union. So obviously that's not something that is particularly advantageous for the United Kingdom. The other option is that you fall back on the regulations of the World Trade Organization. And that is something that is not at all desirable for the United Kingdom because it would give them a much harder time to access the European Union. Other types of deals like the one that is currently in debate with America, the one which is close to being finished with Canada, are likely to take 10 years or potentially even longer. So not something that is possible to be achieved in such a short time. That's why it's really such a big problem for the United Kingdom to find a way out of this self inflicted crisis.

Do you think that other countries will leave the EU now? Is this a trend? Is this an anti establishment, anti bureaucracy, anti big government, anti globalism trend?

I mean these trends are certainly there. Whether these trends are so strong that countries le is really hard to say. Partly it will depend also on what happens with the United Kingdom. Which means that the European Union will try to, well, maybe not quite punish, but make it a difficult bargain for the United Kingdom so that it doesn't give the impression that everyone you know, you can just pick and choose and get those things that you want. Because ideally the United Kingdom would like to have full access to the market, having possibly even a say in banking regulation, which is particularly important for the United Kingdom. But being able to limit immigration in a way that the country seems to be fit doesn't mean no immigration. But basically having.

The last word and who is allowed to come in and who is not.

I have a good friend of mine who Lives in Vienna, in your home country, in Austria. She is very, very concerned and she says everybody there is very concerned about the possibility of another terrorist attack. Of course, to give a time, perspective, just yesterday an Islamic terrorist ran over and killed about 80 people in France and injured another hundred people. He had guns and grenades in his truck. Of course, France has very strict gun control, but I guess the terrorists don't respect the laws. Imagine that this is an immigration problem, don't you think? You know, people, people in Europe are very concerned about this stuff. And the EU seemingly, and I'm not an expert on this, has forced these European countries to let their, to let their countries be overrun with immigrants that have questionable backgrounds from third world countries. I mean, is this right that they do this?

So there's a difference between perception and what is happening as well in this context. So first about the security issues. In fact, one of the potential worries for the UK is that they will not have such an easy way to coordinate with security services, with secret services which are part of other countries in the European Union. There's various regulations that make this coordination easier when you're part of the European Union. So in fact, as you say, terrorists do not respect borders. Being not able to coordinate so easily and so straightforward makes it more difficult to battle terrorism.

The fact that you have, I just.

Kind of don't understand why countries would relinquish their sovereignty to this globalist organization like the eu. I mean, when I saw the Brexit happen, I predicted there would be short term pain, but long term I thought it would be better for England. And you know, that all remains to be seen. It just seems like they're relinquishing their sovereignty. I mean, why should they do that?

Yeah, let me just, you know, before I go to this, let me make one more point on the terrorism story. So, you know, open borders means open borders within the European Union. The European Union doesn't have open borders to the outside world.

Right, but they do by default. I mean, look at Greece. Look at all these countries have just been forced to take all of these Syrian refugees and you know, if they weren't part of the eu, they could all do their own thing, but they can't. The EU pressures them.

Well, I mean, the European Union has been tough on this since the heydays about a year ago now, specifically for the United Kingdom, one of the kind of gentlemen's agreements they have is that France keeps migrants on the French side rather than letting them through to England is a big camp in Calais and not Being part of the European Union, it would be surprising if the French continue to do that and just let them through. So, in fact, you know, it enhances this particular issue for England. On your other question about the sovereignty, one has to be a bit careful. All the big decisions are not taken by some supernatural body, but they are taken by the member states. So there's a Council of Ministers where the.

Respective leaders of the various countries come together and they actually take decisions on what's happening and what's not happening. So a lot of things are blamed on the European Union, but they actually come from the various member states. It's simply not true that you give up sovereignty by being part of the European Union. It's not the same as being part of one country. There's still a very distinct difference.

Yeah, now I know it's a different model than being annexed by a country, for example. It's not that. But you give up some of your sovereignty would be the more proper way to put it. Because if you're giving up tax revenue, that's some of your sovereignty money. It's just money. So that's part of it. So what does this mean for the overall global economy? And particularly we have a lot of listeners who are real estate investors. I'd love to hear. I know it's not your specialty, but if you have any thoughts on it, please feel free to share them and tell us about all that.

Well, you know, it might not affect the wider world. It certainly has effects for Europe, it had effects for the United Kingdom. But how big the waves are in United States, in Asia, in Africa, that's really hard to predict. It's possible that they have some issues with exporting goods to Europe to the UK because their currencies are. Both currencies are likely to go down, which makes it more expensive to buy products that are produced in the United States over here. It could mean, on the other hand, if you are real estate investor and you want to invest in the UK in London, for example, as a market that right now is a cheap pound, you have opportunities and I think we saw a little bit of that.

But let me just chime in on that. Even though the pound is down and so on, the currency conversion, you're better off. The prices are still insane and it makes no sense at all for real estate investors. I just want to throw that comment in.

That is the kind of cyclical market that is just absurdly price and the rent to value ratios are awful anyway, but go ahead.

Yeah, I mean, one of the worries if you invest in London is that if a lot of the big companies decide to partially move staff to Europe, that there's less need for office space and that there is less people who need housing and prices go down. So you could have that effect as well. Absolutely.

Yeah. Okay. All right. What else? As far as the global economy, real estate markets around the world, it does seem like one of the results is that it will give the US Central bank, the Federal Reserve, a lot of excuse to keep rates low, which there are many critics of the low rates, of course, because it's not like it's all good. There are negative side effects of low rates for sure, especially for older people. And it gives the Fed an excuse to keep the rates low because, you know, instability, so on and so forth, we got to keep rates low. And so for real estate investors investing in US real estate, I mean, that's a fantastic opportunity, I believe, because it means higher prices in the future, likely it means very low rates. You can lock in 30 year, three decade long fixed rate loans at incredibly low prices. There are many aspects to this. So please, what are your thoughts?

No, I mean fully agree for now, there's an excuse and this excuse will last at least for another couple of years. There's a lot of uncertainty. Once it becomes clear what the solution will be over here and there's more certainty then I think that will be harder to sustain. But at least for a couple of years, I see this trend absolutely playing out exactly the way you describe it.

What else should we know? I mean, what questions have I not asked you that we should talk about here? There are many political ramifications, of course. The politicians are all trying to scramble to hold their power and do their thing. Of course there are immigration issues, both legal and illegal. What do you think about some of these issues?

I mean, at the moment it's really chaos. When you look at the politicians here, it is painfully clear that no one expected the result that we got. And as a result no one was prepared. So even those who were the leaders of the Leave campaign had never thought this seems to happen and they have no idea how to actually go forward. That's pretty worrying for companies. I think one thing that we see is that they all take a wait and see position. They are preparing potential exit plans for part of their staff, part of their business. If it becomes harder to do business from the UK for the rest of Europe. You see, for example, a lot of the American banks have their headquarters for Europe in the UK was a perfect entry market. Now should it become tedious to do business with Europe from the UK they might move to Amsterdam, they might move to Frankfurt, they might move to Dublin. So one of the. We talked about real estate a minute ago. One of the things that we've heard is that there's expectations that the Frankfurt real estate market is heating up because banks might move some of their activities from London over there. Now, as this is happening, that could mean job losses over here. Maybe not dramatic, but a sort of slow missing of additional investments, less new jobs created. So that's really a big worry for us here in the UK at the moment.

What do you think about the direction of the political climate in England now? Will it become more conservative or is this a vote for conservatism or will it become more liberal?

I mean, in the short run, certainly more conservative. Yeah. We have had most of the cabinet positions for new government announced by now and they are decisively to the right of the former government, so. Absolutely true in the short run. Now, I guess it depends how well this government fares, whether there will be in another election a new trend towards liberalism in the longer run. I think one thing that we have seen in England and we see across Europe, this is not just a vote about immigration. It's also a vote about.

A lot of the working class having had a tough lot since the 1970s, things seem to get a little worse every year and they feel forgotten. And they really wanted to also show that to the establishment with this Brexit vote. Now, at the moment, in most European countries, that's a trend towards the right. In some places like Spain and Greece, it is a move towards the left, but.

It is a strengthening of populist parties that sit on the more extreme spectrums of the political scale.

Yeah. Okay, so when it comes to the issue of immigration, is immigration good for an economy or is it bad for an economy? Of course, this debate rages on everywhere. But what are your thoughts?

It does. Yeah. If you look at various studies that try to see whether they take more or give more, they all overwhelmingly come out with the result that from a pure contribution to government coffers, immigration is a good thing. Now where we need to make a distinction is when you look from an individual perspective, it depends a lot in which type of jobs you are in. If we talking about unqualified blue collar workers who are finding competition from people who come from other countries where they are prepared to take lower salaries, that's, you know, from an individual perspective can be a negative point of view. But overall there is strong evidence now, the reason for that is twofold. On the one hand, it has to do with demographics. Most of the immigrants tend to be younger, and younger people are more likely to contribute rather than take out from the social system. That's one reason why immigration tends to work out positively. The second one is what we would call as economists, that they are self selected groups. Self selected in the sense it takes initiative for you to leave your country. Even if you look at a terrible place like Syria, you can stay there nonetheless, or you can just move to your neighboring country in Libya and see and hope that things go somehow become better. To make that journey, which is difficult and dangerous across the Mediterranean, many die over there. It takes that sort of initiatives and people with initiative tend to be more successful. That is, they tend to then contribute more to an economy.

That's interesting you say that, and that's a good point, and I can definitely see what you're saying. However, I just want to tell you, I was reading an article about that that was really saying like the opposite of what you're saying. It was saying that the people who leave are the traitors. They're the people who bailed out. They're the people who are like the lowest quality because they wouldn't stay and stand with their country. You know, the idea of, you hear this American idea where you see these American flags whenever there's a big troop movement, you know, on the back of a car that says, you know, it's got a picture of the American flag and it says these colors don't run, you know. Right. So, you know, the idea is they're saying that these people are the runners, they're the chickens, they're the people who just bail out when things get tough. Now, granted, listen, this is a war zone, so this is not like a minor problem. Obviously I would probably be leaving too, but I just wanted to point out that counterpoint.

So, I mean, from the perspective, the countries which are losing the immigrants.

That'S true, but from the ones that receive it, it's a positive one. Yeah, this term brain drain, which I guess we haven't heard in a while, but in the 90s, this was something mentioned a lot where you have a lot of the smart people moving to new countries and the countries that receive them, they benefit from that. The ones who lose them for them, yes, it's a negative calculation. And United States has a long history of immigration that has been tremendously positive for the country. You look at the largest companies in the United states, the Fortune 500 companies, companies now 22% of them were founded by children of immigrants, and 18% were founded by immigrants. So that's a considerable proportion of the largest organization in the United States were founded by immigrants. Now, considering that only about 10% of companies.

Right, so you're saying, I mean, you're talking about all of the dry cleaners, the liquor stores.

No, no, I'm talking about the Fortune 500 companies.

Oh, okay.

So, you know, the most successful.

But you know, is it, I mean, it's interesting in this. Is it fair to classify immigrants as though they're one generic thing? Isn't an immigrant who's highly educated from Europe or India or Asia different than an immigrant who's uneducated from Mexico, for example? You know that. I mean, is it fair to say an immigrant's an immigrant the world around? Or, you know, are they all the same? Of course they're not. You know, some come with money, some come with education, and you're welcome to argue which one's better or worse. But I'm just saying they're not the same. Right?

Not true. Yeah, they're not the same. Yeah, absolutely. Yeah.

I mean, you get these really highly educated engineers from India and Asia versus refugees from, you know, a backward country, literally, where everybody's just destroying each other. I mean, that's not the same thing, is it? And now, granted, certainly many of those people, most of them want to leave their. They hate those monsters that are destroying their country, of course, but you know, they certainly haven't been educated in the top schools in the world and they don't have money. And, you know, I mean, you can argue those are the things that an immigrant would contribute to an economy other than just working hard. Right.

So that's true. That, that's a difference. Yeah. But what they all have in common is this early argument about being a self selected group, those who actually decide to leave and start. So also those guys, you know, who come without education, they are more likely to know, start a little corner shop and make a living out of it.

And they're more likely mostly to appreciate what they have than the people who take it for granted. Right. You know, we Americans have all seen this and of course we realize it. You know, where the family, you know, that was the Japanese immigrant that got out in, you know, World War II, for example, came to the U.S. opened a liquor store, started investing in real estate. And then through the generations, each success, successive generation, just upgraded and upgraded and upgraded, and now they're rich and successful and contributing huge tax dollars to the.

Country what you have sometimes.

With poor immigrants, they might understand markets that others don't even find attractive at that point in time. But then it becomes attractive over time. For example, bank of America was found by a poor Italian immigrant who understood that his fellow countrymen can't get loans the usual way. So I started this bank to that possible and now, I mean, look what became over time of this bank.

Yeah, right, right, yeah, that bank became a really crooked enterprise that.

Caused the banking crisis and the financial meltdown around the world and bought Merrill lynch, another crooked company. But anyway, that's another discussion.

Do you notice how I just want to pick at everything you say?

I do notice.

I guess that's part of this is for entertainment value. Okay. So don't be offended. But yeah, absolutely. Well, what would you like to share with our audience that maybe I haven't asked you yet? Christian, as we're wrapping up, I mean there are some talking points here I've noticed about fuel efficient cars coming to the forefront. There's some talks about ride sharing like Lyft and Uber, things like that. Any, anything you want to share there?

Well, I've had recently an interview which was, I think it was New York Times if I remember correctly, talking about this competition between on the one hand you have Google, you have Apple, and on the other hand you have the OEMs. And a lot of people expect that. Well, you know, who can compete with Google, who can compete with Apple? The established car companies. It's just a question of time until they're out of business. Now I take a very different view on this one because the question here is whether these technologies around self driving cars, around batteries, whether they are a disruptive innovation or they are more sort of continuous step by step innovation in evolution versus Exactly. And I think it's more of the later. There's some real barriers that make it almost impossible to flip overnight. Regulation is usually complicated in the United States. In order for you to have these self driving cars on the road, you need to bring the federal government on board, you need to bring the state government on board and you need to bring the local communities on board. Now this is a regulatory jungle which is not going to be solved overnight. Therefore this complete new solution doesn't work in one go. There's also big technology problems when you come to solutions that like Google or Android, use the web, etc. On the other hand, the established car companies go more step by step. They have these sensors which they build into cars. So my dad for example has a car when he drives on the highway then he can just press a button and the car will drive after the car that is in front of him and will keep the distance that is appropriate and it slows down if he gets slower. But it doesn't drive entirely autonomous. This is something that is possible, that's allowed at the moment. This is also something that most people a bit more comfortable. So I think it's going to be a step by step adoption and that's where the car companies have an advantage. That's why I think really they're going to win this particular battle.

Yeah, it's very interesting and I've talked many times before Krishna about how the self driving car. I purchased a Tesla a few months ago just for this reason. I think it's going to just be such a game changer for the entire world for the real estate business because real estate has always been predicated on three basic rules. Location, location, location and geography is less meaningful than it's ever been in human history. It still matters, but it just doesn't matter like it used to. I mean people travel around the world, around you know, the city, around the state very easily. You know that's, that's a beautiful thing because that, that commute becomes much less impactful if you can get in your car and, and work on your laptop or read or take a nap or you know it's, it's just not that big a deal now. Not quite there yet. But it's right around the corner obviously.

Yeah, but there are also interesting opportunities in here for real estate when you think at the moment you need a parking spot as well. Now in future people might not need parking spots. So a, I have more space where I can develop also I could possibly cut some deals with companies that have a fleet of cars so that actually part of your apartment you also purchase some sort of deal that can give you mobility as well. So you know, there's also opportunities.

I don't even think you need that. I think it'll just be done by the companies like Lyft and Uber because you'll just summon a car when you need it. One estimate I saw from Peter Diamandis was that 40% of the typical city is covered by parking spaces. Can you imagine if we free that up? It's totally incredible. I mean a car doesn't need to sleep, it can just run all the time. I mean if it's electric it's got to charge for a little while. But you know, by and large cars can run a lot more. We the typical driver uses their car 4% of the time. 96% of that. The time the car is just sitting there depreciating. Why should we own one? It's absurd. It's really a crazy idea. Yeah. So very interesting. I always say it's an amazing time to be alive. It really is an amazing time, you know, and I'm.

I do hope though, that they're going to knock down the parking houses and not just refurbish them.

Right. We shall see. We shall see how that's all used. But just know listeners, a lot of that 40% is not developable for anything. I mean, of course you can take a whole parking lot and turn it into an apartment complex or a shopping center or whatever, but you can't take the driveway in your house and do much with it. You know, maybe you can make it a yard. You know, that that won't change that much. So that's part of the 40%. Just understand that, you know, it's not all instantly something you can turn into another development.

You could put an extension though. Yeah. The UK has very strict regulation about buildings. In bas, which is a World Heritage Site, it's virtually impossible to get land converted to the new building. So the only way that space is expanding through extensions. And that you can definitely do with your driveway as well.

Add on. So you could add a bedroom or something like that. And that's certainly an idea. Yeah, good point. Christian, it has been a pleasure speaking with you. Please give out your website and tell our listeners where they can find you.

Well, Christianstata.org so quite easy. Just my.

Fantastic.

Thank you so much for joining us.

Thanks for having me again.

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