Jason Hartman introduces today’s Creating Wealth Show with a well-aimed stab at a recently published article alleging that it is now cheaper to buy a residential property than rent, and then opens up the discussion to a wider view on why we simply can’t trust statistics any more.
Later, he invites It’s All About Money presenter, Bill Tatro, to give his opinion on the important issues which affect Americans and their money today, such as oil prices, whether more of our money is going overseas or staying on home soil and why we can expect both inflationary and deflationary patterns in the next 10-15 years.
Key Takeaways
03.35 – Jason Hartman gives a brief explanation of the various types of property management available.
07.44 – Income property is the most leverage-favored asset. Take advantage of this!
12.43 – Keep your wits about you, even when reading news media. Not everything is quite as it seems.
17.50 – Want to be featured on Jason’s show? No problem! Head to www.JasonHartman.com/Jason
19.58 – Jason Hartman introduces today’s guest, Bill Tatro.
25.34 – Bill Tatro explains the reasoning behind Keynesianism in a more modern, comprehensible way.
28.31 – Yes, trillions of dollars have been printed, but how many of those have we actually seen?
31.22 – How can we hope to combat deflation?
36.02 – We can learn a lot from the actions of Greece, but will we learn?
40.42 – Past, current and predicted oil prices can tell us a lot about the state of our economy in terms of inflation or deflation.
43.12 – For more information, head to www.BillTatro.com
47.10 – What does the future look like through the eyes of an economist?
Mentioned in this episode
44th: A Presidential Conspiracy by Bill Tatro
Tweetables
Funds can’t get really high, really favorable leverage ratios; individuals can.
If math were the only contributing factor, the dollar would have collapsed a long time ago.
Does letting the weak fail and the strong survive work? It gave us the Roaring Twenties.
How much longer are the shale oil guys going to want to produce and lose money?
Transcript
Introduction:
This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit www.HartmanMedia.com
Welcome to Creating Wealth with Jason Hartman. During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before, and a new slant on investing. Fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine self-made multi-millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years, and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it, and now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
Jason Hartman:
Welcome to the Creating Wealth Show, this is your host, Jason Hartman and this is episode number 469. Thank you to all of our listeners who are listening on Stitcher Radio, it’s really a growing part of our audience and we welcome you and appreciate you listening on Stitcher Radio.
Our guest today will be Bill Tatro. Bill is a really interesting guy; I used to listen to him on good old terrestrial radio, yes, you know, on the AM dial – if you know what that is! I know that’s quickly starting to fade from our thinking as a lot of attention is really driven toward the podcasting side of the world. Bill actually ended his terrestrial radio career somewhat recently and has gone into podcasting as well, and he’s out with a new book. When I asked him to be on the show, I didn’t know about his new book and I wasn’t thinking about his new book; I just wanted him to come on and talk about some of his fantastic insights into investing and economics, which I really enjoyed listening to on the radio.
But his new book – he wanted to talk about that, so we’re going to spend a little time on that as well – is called 44th: A Presidential Conspiracy, and you can guess what that’s about. It won’t just be about that though, we’re going to talk about economics and some fun stuff there as far as the investment landscape.
On our Members’ call today – by the way, I don’t know when exactly you’ll be listening to us, but those of you who are members of Jason Hartman University (JHU) – you know, we should probably get some cool shirts and hoodies and College-looking wear made up for JHU, huh? That’d be a good idea. Well, we don’t charge enough, it’s only 33 cents a day. College might cost you $100,000 or more! You don’t have to finance this deal. $10 a month is pretty affordable for sure.
We’re going to talk about the four types of property management on today’s call (you know, on the day this is published, which is Wednesday – I’m recording this Tuesday evening). By the way, if I sound a little tired, it’s because my massage therapist just left and I just got a massage, so that’ll mellow you out, for sure. I think that’s really good for you, so take advantage of that. Don’t forget to make sure you get some massages. They stimulate blood flow, lymph fluid – remember: your lymph system doesn’t have a pump. Your blood has a pump to pump it around; your heart. Your lymph system does not have that, so that’s why you need to manipulate and help your lymph system along, and there’s really two ways to do it. One is through exercise and the other is through massage, so I think that’s very valuable.
What was I talking about? Oh yeah, property management. There I go again! So on the Members’ Call today, we’re going to have Fernando on the call and we’re going to talk about something I’ve talked about before many times: self-management, which is one of the four types. First we’ll talk about traditional management, and if you have a good property manager, traditional management can work great, but if you have a not so good property manager, which occasionally everybody runs into at one time or another throughout their investing career, then they might nickle-and-dime you and they might not do a real good job. There are certainly some pitfalls that you have potential for there.
The other type is what I call à la carte property management, where you can pick and choose in a cafeteria-style methodology what property management services you want. Then, of course, there’s self-management, which I have been impressed and amazed just from personal experience as an investor that I could self-manage properties that are 2,000 or 2,500 miles away, properties I’ve never seen, tenants I’ve never met, and have that go pretty darn well.
That’s another way, and we’ve really talked about all those three ways, but the one way we haven’t talked about on the show yet, and we’re going to talk about it on tomorrow’s Members’ Call. By the way, if you’re not a Member yet and you go to www.JasonHartman.com and you go to the upper right portion of the website and you see that little area, it’s really small and it says ‘Sign In’ or ‘Join As A Member for $120/year’. If you do that, all of these monthly Member Calls are in there, in the Replay section. They are archived for members and you can get them.
The fourth way we’re going to talk about is what we call the ‘flipped property management system’. In the flipped system, basically the tables are turned. Whereas the typical relationship is where you hire the property manager to do a job, you have the expenses and they do their job, hopefully. If all that goes well, it can be a pretty profitable arrangement. If it doesn’t go too well, it’s not as good. But then the flipped method is offering more of the style of a hedge-fund, but without all of the downfalls of – remember Commandment No. 3.
What is Commandment No. 3? Thou shalt maintain control. When you pool your money with other people and you invest in a fund, you leave yourself susceptible to the three major problems – Np. 1: You might be investing with a crook, No 2. You might be investing with an idiot and No. 3: Assuming they’re honest and competent, they take a huge management fee off the top for managing the deal. In the flipped methodology, what we want to do is provide you all the benefits of a managed investment, without all of the pitfalls. Or at least, if you have some of those pitfalls, they wouldn’t be as bad or as significant or as problematic as they would be in the traditional system, or the à la carte or the self-managed, so there’s a lot less work than that. We’re going to talk about that, and of course, there will be some inklings on it on future podcasts as well if you’re not a member.
Some interesting articles in the It’s An Amazing Time To Be Alive category. Do you know that last week it was in the media, and you may have caught this – scientists have now figured out, I mean, this is amazing and I think it has big, widespread implications for material science, for cryogenics. Do you know what cryogenics is? Well, I’ve done two episodes on my Longevity Show, my new show, which by the way, I’m sure many of you are listening to it, and thank you for listening because it’s now in iTunes. It’s been featured in iTunes’s New & Noteworthy section for two weeks in a row since its launch, and we finally did get around to launching that show. It’s the Longevity and Biohacking Show.
One of the things I firmly believe in, and we talk about this when it comes to real estate investing – think about it: the big – well, there are many benefits – but one of the big benefits to income property investing is leverage. It is the most leverage-favored asset. When I say leverage, you probably think of it in the sense of financing, right? And that’s a great advantage, but there are many other sources of leverage that we’ve talked about on prior episodes and we’ll talk about on future episodes, of leverage offered through income property.
It’s not just the fact, although that’s a part of it, that the bank pays for 75-80% of the deal, and that leverage is fantastic. By the way, speaking of funds, when you’re investing inside a fund, you can’t really take advantage of those great leverage opportunities the way you can when you are an individual investor, that offers you much more leverage. The fund (unless there’s something I don’t know, I mean, I haven’t seen this happen in any funds that I know of) can never get the really high, really favorable leverage ratios that you can get as an individual investor, so keep that in mind.
But the Longevity Show, I was talking about that. Thank you for listening to that one and thank you for reviewing this show. We really appreciate all the reviews in iTunes. Also, please, if you’re listening, go rate, review and listen to the Longevity Show and write a review for that, I’d really appreciate it. My core philosophy of life in general, whether it be your business life, your financial life or your being, your biology, is leverage and the important of leverage. What I teach on all of my shows – because I’m learning about it, too! I learn this by doing interviews with thought leaders and talking to guests all day and in my readings and my listening to audiobooks and so forth. It’s how to gain leverage on the three primary areas of life: work and business (our professional life), our investments and our personal finance – gaining leverage there, and that’s what we cover mainly on this show, and then gaining leverage through the longevity sciences and biohacking opportunities available. It’s gaining leverage on our body and our mind, our psyche and our soma.
Can we learn to increase our brain power? Can we increase brain power through biohacking? I say yes we can, and I believe I’m doing it myself. We talk about that on the Longevity Show, and again, these things are a little bit hard to measure so admittedly, they have a kind of relativistic feeling to them and an anecdotal feeling to them but I tell you, through good old coffee and maybe some additives to coffee, I think I have increased my brain power actually. And there are some other ways that I think you can do that too, so biohacking, and we talk about that.
Why is it important that scientists have actually learned how to unboil – how to reverse – a boiled egg? Well, maybe that will lead to new material sciences that have to do with our real estate and the physical being of the properties that we invest in, but also, what does it have to do for longevity? There’s this whole concept – we’ve seen it in science fiction movies – of people that freeze themselves. This is kind of a crazy idea, but I’ve actually interviewed two companies that do that on the Longevity Show. By the way, I’ll save you the time of even listening to the show – well, there’s more detail on the show, obviously – it costs $29,000 to do this and today, we can’t wake people up out of a frozen sleep. Once water, and our bodies are 70-75% water, right – once that molecule has frozen, it changes the whole dynamic and it can’t be unfrozen, so you can’t be reawakened. At least not yet.
Gosh, if we can take a boiled egg and make it unboiled and make it revert to its original state before we boiled it? Woahh! That is unbelievably, it’s amazing, it’s an amazing time to be alive. Who knows what that will lead to? It’s amazing, it’s an amazing time to be alive. So keep that in mind!
There’s an interesting article – back to the more specific real estate theme – I was just reading, saying that renting is now twice as expensive as buying a house in the US. Now, of course, all real estate is local, obviously, and it depends what market we’re talking about. Again, this article is misleading. Although it’s interesting, it is misleading, and I want to take more time on a future episode to dissect this idea more. What do they not tell us? Well, it depends what city. One of the things it says, and I’ll just read to you from paragraph 4 of this article:
“Even in the cities which have always been famous for high rents, the likes of” [and you know what I’m going to get to, regular listeners, because you get it. You get that personal finance, investing, renting versus buying – that age-old debate – is all about Einstein. Einstein was right; we learn the theory of relativity from Einstein and the theory of relativity applies to income property in so many profound and dramatic ways. When it comes to money, nothing should be about what something costs, the price of things. It’s almost irrelevant. What’s important is ratios, percentages. I’m much more interested in the percentage sign than the dollar sign. Why is that? Because the percentages, the relativity, the ratios are what tell us and help us understand the value of things. In the article here, it says:
“Even in the cities which have always been famous for high rents, the likes of Boston, San Francisco, Los Angeles [my home town], Seattle, New York, renting was more affordable than buying before the US real estate market crashed in 2008. However, since then, rents have been on a steady upward trend across the country while the cost of buying a home has been falling in many parts of the country, to a point where renting is now the less affordable option, sometimes by a huge difference.”
Oh my God. Can these people actually learn to think please? This is not thinking. Just because you can go buy a $600,000 house in Boston – well, you can’t even buy that in San Francisco, probably, but we’ll make it a theoretical $600,000 house. I don’t know, maybe it can – San Francisco, Los Angeles, Seattle, New York. If you can rent that house for $3,000 a month, you are better off renting. Think, people! The news media just don’t get it.
By the way, I also want to talk to you about this article or this chart that was out about serial killers. What do serial killers have to do with this? A lot. Why do they have to do with it? Because it’s all about how to lie with statistics. This stuff is so misleading; people do not get it. I’ll give you a clue. This chart I saw was showing that the United States has the highest number of serial killers and China was way down the list, but no-one bothered to ask what is the ratio, what is the per capita number of serial killers, based on the population?
It’s just stupid! You could take that $600,000 back to real estate now and you could make $6,000 a month on that and you could get the utility (the use) of that house for $3,000 in any of those over-priced cities. Renting is not the dumb choice in an expensive market, it’s the smart choice. If you’re in a low-priced market, it’s better to own than rent. We recommend investing in the lower-priced markets. Haven’t our tenants figured this out? Well, apparently not. They haven’t figured it out so use that to your benefit as an investor. What are the reasons these people don’t buy? Well, I’d say the first reason is financial immaturity, and I’ve talked about that enough on prior episodes so I’m going to save it this time.
Okay, so before we get to our guest, Bill Tatro – it’s a great interview coming right up – there are a couple of things I just want to mention quickly. We would love to have you listeners on the show, and we’ve done a couple of shows lately; we had David on the show, we had Fernando on the show, we’ve had a few others, but we kind of stopped asking you guys to come on the show. If you want to come on the show, if you’ve got a question it can just be for a quick 5 minutes to answer a question, or come on for a longer time and tell your story; we’d love to hear from you investors. It’s not just to tell your story, it’ll be educational, we’ll discuss issues, we can debate issues if you want, I can answer questions for you. It’s like the good old fashioned radio call-in show, so to do that, it’s really, really easy. All you need to do is go and use my quick, convenient appointment scheduler, and that is www.JasonHartman.com/Jason. It’s real easy, you can remember that: www.JasonHartman.com/Jason, and in about 5-10 seconds, you can book yourself an appointment and I’ll have you on the show.
So do that, and a few of you since I announced it on the last episode, have been buying our Best of Meet the Masters Home Study Course, and that’s super cheap now. We’re blowing out the last ones of the physical product, it’ll look awesome on your bookshelf, it’s got a whole bunch of CDs, beautifully packaged and a 500-page book with it, with all sorts of details on what all of these ‘Best of’ professionally-edited speakers say. There’s not a lot of chatter, you won’t waste your time and if nothing else, for what is it, $200, when the digital product is £500, it’ll look great on your bookshelf. Consider it part of your decor! What do you think of that? So take advantage of that, go to www.JasonHartman.com and check it out on the Store while supplies last. We do not have many more of those, so take advantage of that while you can at an extreme final sale discount.
Let’s get to our guest, Bill Tatro.
It’s my pleasure to welcome Bill Tatro to the show. I used to listen to him on the radio quite a bit and really enjoyed his work. He’s host of the ‘It’s All About Money’ podcast, editor of the Macro Profit Newsletter and author of the new book, 44th: A Presidential Conspiracy, as well as The One Hour Survival Guide for the Downsized. Bill, welcome to the show, how are you?
Bill Tatro:
Well, Jason, thank you for having me. So you listened to me on the radio? You were the one! Okay, I tried to figure out who that one was!
Jason:
You know, when you looked at your Arbitron ratings, I was that guy listening to you, yeah.
Bill:
Well, I have to say, our Arbitron ratings were very, very good and I know you’re one that kind of inspired others to listen to us also, so I thank you for that.
Jason:
Yes, I referred a few people to your show. I’m sad to hear you’re not on radio anymore, why did you end your radio career?
Bill:
Well, basically, I’m getting a little older but I was constrained – as most people are not aware, when you are doing a commercial radio show 5 days a week, you have deadlines etc etc. I’m still on the radio, I’m doing my podcast and we have a whole new program which we’re rolling out in January, but I just wanted a little bit more control of my time because with commercial radio, you have to have a show in by a certain date, a certain time, and that’s it. It was 2-3 hours in preparation and everything like that, because it’s all economics, finance, geopolitical etc and I had to be contemporary. It’s just taking a different direction, but I’m still out there and on my www.BillTatro.com, we’ll say more and more about how we’re taking that new direction.
Jason:
Podcasting is so great because it’s asynchronous. You can record when it’s convenient for you, the listener can listen when it’s convenient for them – it’s really a much better format than terrestrial radio. Years ago, I had a terrestrial radio show on KRLA in Los Angeles; I started podcasting right after that and boy, the podcasting has been much better so I think you’re going to like it a lot as your podcasting career develops more and more. It’s a good move.
So we were talking about the Keynesians versus. the Austrians, just for a moment before we started recording for the show today. Your new book is entitled 44th: A Presidential Conspiracy, and that’s obviously Obama, the 44th President. Take us into that a little bit, and let’s talk about how the Keynesians keep trying to push us over the cliff, and I want to add my two cents about how I don’t think that’s happened yet. Tell us about the book.
Bill:
Okay, about a year and a half or two years ago, I started getting a whole lot of questions from people all over the country and all over the world, because I was on the Internet while I was doing the terrestrial, and people were saying ‘How does a guy get to be a President who has this limited background etc? There’s got to be somebody behind him.’
And then when he ran for re-election, there was a question that nobody in the mainstream media really investigated, either the first time or the second time. They went in to the backgrounds of the Republicans going against him and the primary, but I said something in one of my columns for Town Hall. It was interesting because the readership’s about 2-2.5 million and I said “Wouldn’t you have thought that maybe an ex-girlfriend would have come out of the woodwork and simply said ‘Yeah, he’s a great guy’ or ‘He’s a lousy dater’, ‘He’s cheap’, or ‘He’s expensive’, whatever.” So John, who’s the editor there, puts the title of the column and says “Confessions of an ex-Obama girlfriend”. All of a sudden, we had –
Jason:
Was it blank?
Bill:
Yeah, people said ‘Wait a minute, that wasn’t about it..’, but the bottom line was we had almost 4-5 million hits. It was the biggest that Town Hall ever had, and I’m thinking people are interested just from the title. So I started thinking about the different questions, I also wanted to know what his relationship really was with Putin after that theoretical ‘We’re going to World War III with Syria’, and then they had a G20 meeting in St. Petersburg. The Economist reported that there was a 20-minute conversation between Putin and Obama in a side hall – I kind of took that into the book. I took a look at it, and I did it from a novel standpoint, but simply as an economist, I took a look at all the different things that were happening in there and I said how did this happen? What’s his relationship with Bernanke? Where does Hillary play in this whole thing?
All of those people are in there. I take a different name, rather than Obama, just to keep it moving, but it’s a book that I think if you pick it up, it’s only about 180 pages, you can get it on www.Amazon.com and you’re going to look at it and say ‘Huh? Really?’ There’s one thing – I did a lot of research on what I call the assassination of Osama bin Laden. I have to tell you, everything you know about it I will contradict in that book. When you look at it, a lot of that stuff doesn’t make sense. In the book, I kind of lay it out the way I think it really happened and the intriguing part about it is that I really believe we had him all along.
Jason:
Very interesting. I really want to make our focus the economic stuff. We have never seen such insane spending. Just recently, another $1.1 trillion – we don’t even talk in billions anymore, Bill. A billion ain’t what it used to be, a trillion is now the number you talk about. Is this just total insanity or what?
Bill:
Well, we come back to our original conversation about the Keynesian approach and remember: Einstein once said “The height of insanity is doing the same thing over and over again and expecting a different result”. When you get into the depths of Keynesianism, it’s all mired in one thing, and that is in modelling. What does that mean? You and I are walking down the street, we’re young kids, we’re single, a couple of good looking girls come by us, we wink and say ‘Hey, looking for a good time?’, but that’s it, that’s our reaction.
Keynesians will say that now I’m in my 60s, I’m walking down the street with my wife and a good looking girl goes by and I’m going to do the same thing. Or say I’m without my wife, I’m going to do this exact same thing. They don’t take into consideration that I’m 40 years older, I have more experience and if my wife saw me do that, she would kill me and then she’d go to work on me. The Keynesians believe that if you do one thing the same time, you’re going to do it again and again and again, which means then, that this spending money, creating debt, debt, debt, we’re not doing enough of it. The reason it’s not succeeding, the reason the economy is not really turning a corner and we have these fictitious unemployment numbers etc. is because we haven’t done enough of it.
Look at what happened when we had Abe over in Japan, saying ‘There are problems, things aren’t working, we’ve been doing this for three decades, we need to call on somebody to advise us’. Who did they call on? Mr Krugman from the New York Times. He goes over and he tells them ‘You’ve got to do more of it’, and that was the whole thing. That’s why, Jason, you see this continual propensity of doing the same thing again and again. It’s mired in their genes.
Jason:
So here’s the funny thing about it. From a philosophical level, Bill, I definitely do not agree with the Keynesian ideal. I don’t think you should be printing your way out of economic woes. Obviously that causes inflation, we have lots and lots of history to back that up; in fact, that’s pretty much 100% of the lesson. It’s always that way and it always happens. All of these people who talk about the demise of the dollar, how it will just be inflated away into nothingness – they just don’t seem to be right! The dollar is strong, the ruble is collapsing, people keep running to America and its currency as the Brink’s Truck of the world.
Maybe it’s because we’re the best managed country, or the least worst managed country in a world of countries that are even worse than we are? Or maybe it’s because we find ourselves in this really interesting place geographically, historically, from an immigration perspective and from a perspective of hegemony that we’ve got the largest military. We’ve got so many advantages that these other countries don’t have, and with that, Bill, it’s not just about math, is it?
If it were about math, the dollar should have collapsed a long time ago, but there are many other forces, right?
Bill:
Well Jason, here’s one of the things. Now we’re getting into the real depths of the economics, and here’s where I take exception, not with the majority of what you said, but with a little bit of what you said in there. I get this from all economists around the world. The fact is yes, the dollar should have collapsed. The reason it didn’t is because there isn’t a whole lot of dollars out there. I know people come back and say ‘Wait a minute, look at the trillions of dollars that we’ve printed’, well –
Jason:
It hasn’t hit the street yet.
Bill:
Correct, absolutely correct. It is sitting on the balance sheets of the banks. They have been using it to leverage in the oil patch, they have been using it to leverage in the various commodity arenas, they have been using it to re-deposit it back on the books of the Federal Reserve to get a spread, borrowing versus what the Fed is paying. This is not the Twenties where we’re back in Germany where they were walking around with barrowfuls of money and prices are rising dramatically. A dear friend of mine, Peter Schiff, is so for clumped because he keeps saying ‘It’s coming’.
Jason:
And it never comes! He’s been saying that for years. I’ve had Peter on the show and I remember him when Obama was running the first time – candidate Obama – he made the prediction that gold would be $5,000 before the end of Obama’s first term. Just the complete opposite has happened!
Bill:
And when you look at that, when Peter and I had a conversation quite a while ago, I asked him one simple question: ‘You look at this, and the thing you can’t get is the velocity of money’. The velocity of money is the amount of money that turns over if the dollar that’s in circulation keeps moving. We’re at the same level or below where we were in the Depression. The money’s not out there, and all of a sudden, as an example, if it’s not out there, it can disappear very quickly. Look at the money that is put into the oil patch for the fracking and for that particular arena. All of a sudden, it was predicated at $110 oil. You’ve got junk bonds that were selling at part and premium. Now it’s 40, 50, 60 cents on the dollar. You can watch money disappear very quickly in that particular scenario, and that’s what we’re seeing right now.
So therefore, it becomes what the Central Banks of the world are most fearing – not inflation, but deflation. That is what is running rampant, and these guys don’t know how to handle it. But they’ll continue doing the exact same thing, as we’ve seen. Why? Because they’re Keynesian.
Jason:
So there’s a question I have never asked anybody on my show: How do you handle deflation? What is the way to handle that? It seems like Abenomics is the way. As much as people want to say it’s not working, there’s that old thing that you can’t hear the dogs that don’t bark. Maybe the question to ask is how much worse would Japan be if it wasn’t for Abenomics? I don’t know, it’s a question, it’s not a statement.
Bill:
Right, and it’s a question that I get all the time because people will say ‘Well wait a minute, we always talk inflation, we don’t talk deflation, and when we look at the inflation rate in Europe and they’ve gone negative. Switzerland just went to a negative interest rate policy. That’s what we’re looking at; how do you solve the problem? We had an opportunity back in 2008. You have to let the so-called “free market” work. GM should have gone under, Goldman Sachs should have gone under. These entities should go under. Once they go under, it’s kind of like if you have a scratch on your leg and it’s from a nail which is a rusty nail and you don’t treat it and just put a band-aid on it, you’re going to look a couple of days later and that infection’s going to have got worse. So you put another band-aid on it, and another band-aid on it. Eventually you’re going to have to cut off the leg.
Eventually, there will be a collapse. Eventually, there will be businesses that go out of business. It’s like the oil patch right now; you’re looking at the shale oil. There will be those that will go out, the strong will survive. Shale oil is not going away. Fracking is not going away, but there will be those that survive. That’s the problem. We’re mired in this ‘too big to fail’. If we studied our history, in 1920-1922, we had a very severe recession which the farmers never came out of, but everybody else did. Why? Because they let things happen.
When Coolidge was underneath Harding, they let it happen. They had guys who said ‘Look, let the weak fail and we’ll trample the weak’ and they came out of it. What did we have? We had the Roaring Twenties, but we didn’t learn from that. 2008 was an issue because we should have let things happen, but we didn’t. We stepped in and now, as you know from the other day when we passed this budget, who is the biggest lobbyist getting this budget bill passed so that they can continue to play and Dodd Frank wouldn’t be invoked? It was Jamie Diamond. The banksters are in control, and eventually as we get to this $300 trillion and growing in the derivative market, it will tumble. The question becomes how bad does it get?
My fear is that this thing is playing out not only economically, but it’s also playing geopolitically. When you push people into corners like we’re pushing Russia into the corner, whether it’s of their own making or if it’s ours, people or institutions or entities respond. When wounded animals are backed into a corner, I know how they respond. They get desperate, and that’s what’s scary right now.
Jason:
I agree, that does concern me about Russia, no question about it. Just in a brief explanation, other than printing money, I agree with you that there should be no corporate socialism and no ‘too big to fail’; we should take our medicine and in two years, we’d probably be back much better than we were. But Americans like to kick the can down the road, it’s what we do. We want to minimize any initial pain and mortgage the future to do that. How do you deal with deflation? I think the reason these Central Bankers and Governments are so scared of deflation is because it really is quite possibly the worst thing that can happen to an economy.
In a way, as perverse as it may sound, inflation is really a great business plan for Governments, as long as you can control it to some extent, because it allows them to keep throwing money and buying votes, and they can just inflate away the value. They always hurt the people they say they’re helping the most, that’s pretty obvious if you’re paying attention. What other tool do you use to combat deflation, other than the printing press?
Bill:
Well, succinctly put, there isn’t. There isn’t any because when you’re looking at paying debt with cheaper dollars, that’s inflation. When you’re paying debt in a deflationary environment, debt becomes more expensive. Then it will collapse of its own weight. We’re seeing various entities, and what’s scary about it is if you look, sooner or later, people will be picking up the pitchforks in countries around the world. Watch Greece. Watch Greece right now. They’ll have their second election, then they’ll have their third votes. They will not elect a President, which means that they’ll come up for a General Election some time in the next month or two, and Syriza will win and they will more than likely pull Greece out of the European Union. Watch the games begin then.
Things happen, and that’s the way it is. That’s the problem; the Central Banks know they cannot control deflation. Jason, I think you said it very, very well – it is the biggest fear that they have. They can control inflation, they’ll raise those interest rates. That’s why raising interest rates is a joke. They’re not going to raise interest rates – to what point? I write in Town Hall for tomorrow saying ‘Okay, so we’ve got a family sitting around a table saying they’re not going to buy a house now because the mortgage rate is 3-4% – I think we’ll wait until it gets to 5-6%’. Is that logical? I don’t think so. Most corporations are simply supporting their stocks by buying back their shares in the marketplace, on borrowed and leveraged money at low interest rates.
They’re going to look for that and higher rates. Finally, the US Treasury and the refunding is at 2.1 in a 10-year. If it’s back up to 4, our debt and GDP is like Greece, and then we become the Banana Republic.
Jason:
Would we really become the Banana Republic, though? I know the famous last words of everybody is ‘This time it’s different’, right? So I get it, but then I’m going to say, Bill, this time it is different. We have the largest military the world has ever known, and with that, we will use that, as unfair as it may be, to maintain our reserve currency status – I think we will. People want to think that the US is just going to sit by and let the dollar collapse and let bitcoin take over, or let the BRICS trade outside of the dollar. That’s just not going to happen. Why would they do that? Why would the powers that be in the US and with the Federal Reserve let that happen? They’re just not going to, are they?
Bill:
Also, I don’t think it will. I think that the dollar will stay as the reserve currency for quite a while because I think it’s also beneficial to China, who holds a lot of ours to various other countries who hold a lot of ours, but there are side things at the edges that continue to fray – that is the deal between Russia and China in energy, the deal being discussed between Russia and Iran. There are all of these side things. As Eisenhower said, “Beware the military industrial complex.” We are in, what, 165 countries. I think I heard that on the NFL Armed Services thing that they’re bringing the NFL to 165 countries, and I almost fell out of my chair. 165 countries? That’s more than we were before 9/11. You know what it is? It is Rome all over again, and when you have to support those people, it becomes very very costly and I don’t think they wrote the book The Rise and Rise of the Roman Empire; I think it was The Rise and Fall of the Roman Empire. That’s on the horizon.
Jason:
Many many very bright people have compared present day America to Rome. I’ve been hearing that comparison for a good 15-20 years, and there are a lot of valid points. I just think, though, that it’s different this time because this technology is so scalable. This might be looked at by some, or ignored by some, as the importance of the American brand. My Uber driver the other day had come from Somalia and I was listening to his story. Everybody around the world still wants to come here; even if they hate us, it seems like they still want to come!
Bill:
Well I will remember those words, sir. From Jason Hartman – this time it is different.
Jason:
[Laughs]
Bill:
I’m going to put that right up on my website in the ‘Holistic Survival’, that this time it is different! I’m going to quote it.
Jason:
You might just nail me on that one, Bill. Listen, philosophically, I don’t think it should be different, I just think that there are many reasons it does seem to be different. Famous last words, like I said.
Where do you think oil prices are going? That’s a really good indicator of where we are in terms of the inflation/deflation debate.
Bill:
Well, I’ve listened and I’ve predicted – I say predicted as far as the oil.. A while ago, I listened to one of the Saudi oil ministers and his comment was ‘We can live with $55-60 oil for the next 8 years’. Now, forget the deal made between Saudi Arabia and the United States about bombing Syria and all the rest of that stuff, that’s a side deal. We could talk about that for hours, but just listening to them, in the most recent commentary, where are we with oil? We’re down in the sixties, we get, what $60? We bounce back up a little to $62 and we bounced back up this morning to around $69, but then we had a Kuwaiti gentleman who said ‘No, there’s not going to be any meetings, Altec will be next summer, we’re not going to decrease our production, we’re all going for shale.
But there was another Saudi gentleman who said ‘We’re not going to respond, just because oil might get down to $40 a barrel and do something different. We can live with that.’ I think that oil, ultimately, and the outlier number I’ve heard is somewhere between $25-40.
Jason:
Wow.
Bill:
And it could stay there for a while. That could be a major disruption.
Jason:
Wow, Russia will be ..
Bill:
Yeah, but the disruption will be to us, Jason, to us!
Jason:
How’s that? For deflation?
Bill:
It’s dramatic. No. Here’s the thing. People will say if you look at the amount of jobs that have been created in the patch in the last 5-6 years, it’s dramatic. The average income up north and in Texas and in Pennsylvania is about $97-98,000 per employee – that really works the guys out there. It’s big money, there’s a lot of money going in there. The amount of money that has been borrowed in junk bonds to continue to develop wells and to continue this whole thing – all of this is getting clobbered by this low price. We saw it today – first time unemployment claims came out, but forget that! When you look at Pennsylvania and Texas, they jumped up dramatically. They were up big time and those are two of the oil and fracking areas that are getting hit by these low prices.
That’s dramatic, and it’s going to have an impact on this country. I wrote a piece today, and I suggest to listeners to go to Town Hall, or go to www.BillTatro.com and it’s there. There’s this illusion that because oil prices have declined, there’s all this extra money sloshing around the country and it’s all going to be put into retail sales for Christmas.
75% of the people they interviewed said ‘Well, I’m going to take the money that I saved at the pump and I’m going to pay some debt or I’m going to stick the money away. I’m not going to spend it.’
But my piece says this: I go to the pump and before I would have a 20 gallon tank, $4 – $80 came out of my pocket. If I started with $80, I was at $0. If I’m now only paying $40 ($2 x the 20 gallons), if I got the extra $40 and I go spend it someplace else, I haven’t got any more money than $80, I still have $80. I just bought two different things.
The sidebar of this is if I go and buy a toy which says ‘Made in China’, the bulk of my money gets shipped over to China. According to the Energy Department, approximately 21% of our energy next year will come from overseas imported. That means that 79% is domestic, so if I’m buying oil – this is how perverse this is – 79% of my money is staying domestically, even by buying oil. But if I go and buy some toy at Walmart that says ‘Made in China’, my money’s getting kicked overseas. There’s no way our GDP is going to increase. As a matter of fact, it may get knocked down and the new projection is less than 2% for the 4th quarter and the GDP will get knocked down because money’s going overseas, not staying here. That’s how perverse it is.
Years ago, we didn’t have this problem because everything was coming in. Now, we’ve created our own little conundrum because we have developed a shale oil industry that’s providing a lot of our own energy.
Jason:
So that could be bad?
Bill:
No, from the standpoint of low oil prices, it can be bad because the shale oil industry is getting wrecked. It could very well be the demise of the majority of the shale oil industry, and so for you and I as a consumer, I’m saying that’s fine. I don’t have any more money, but I have less to go into the tank – maybe I save it? I’m not spending it. Remember, retail sales include energy and so when you see the retail sales and high oil prices, retail sales look good. Low oil prices and low gasoline mean that retail sales look bad. It’s more than just ‘Gee, oil prices are down and I’ve got some extra money to spend at Christmastime.’ There is a lot of things hanging on these oil prices.
I know it’s a long way to get around to the question of where do I see oil prices going? I think they’re going to stay low for a long period of time.
Jason:
You know, I did a show and I’m going to find that show and re-air it. Years ago, I can’t remember the name of the author, but he wrote a book called The Oil Card and I couldn’t believe it. It was probably when oil was $80-95 years ago when it passed through that range. He was predicting $3 a barrel oil. I was just floored, I couldn’t believe it, but I don’t know, maybe!
Bill:
Well, I think we’re closer to the $3 a barrel as opposed to $140 a barrel, but remember this: The production cost of Saudi Arabia to extract oil out of the ground is between $2-3.
Jason:
Wow, and what is it for shale? What about shale?
Bill:
For shale it depends because it runs anywhere from about $65-70 up to about $95. When you’re down here at this level, it can be very painful for the shale guys. The question is how long are they going to want to produce and lose money?
Jason:
Very interesting stuff. So is the future inflationary or deflationary?
Bill:
Deflationary, absolutely. Well, okay, the future. Wait a minute, when you say the future, are we talking about the next 10-15 years or are we talking about the next couple of years?
Jason:
Well, the next 10, we go through that next couple. Distinguish it.
Bill:
Okay. I think it’s deflation and then what we will do is in certain areas, because there will be lack of goods, there will be lack of food, there will be lack of things that will be happening out there, and there will be a very real high price on those things. But you’ll still have a job, there will be 10, 15, 20 people wanting that job, which means that the employer can set a low price and that means it becomes deflationary.
You’ve got students graduating from college and the jobs are going to continue to get less and less and less, and so that’s a whole different discussion we’ll do next time. The fantasy of ‘Gee, I get a degree in philosophy and there’s a job waiting for me out there’ – those days are gone and so the deflationary environment, as we’ll see worldwide, I think is going to sweep into the United States.
Jason:
Very interesting. So you would agree, Bill, and I know we’ve got to wrap up here, but you would agree that deflation is something Central Banks and Governments do not want, right?
Bill:
Absolutely.
Jason:
They want inflation. The Fed targets inflation at about 2-3%. So you don’t think that it’s possible to just print your way out of deflation? I mean, by creating so much new currency that there’s no way you could have deflation – that they could just out-power it.
Bill:
Yes, I would say that if that money could get into the system, but these bankers are not going to let that money get into the system. Nobody’s going to let that money get into the system.
Jason:
Okay, and why aren’t they going to do that?
Bill:
Because it’s in their best interest to take it and put it in areas where they don’t have any risk. They have no risk when they put money into – if they’re borrowing at zero to a half and they turn around and they buy treasuries at 2, they make the spread. And then occasionally, they take a foray into the oil market or the commodity market – not quickly, but they’ll do it leveraged with a carry trade, and there is great profitability. They don’t want to loan money, they can deposit money at the Fed and then spread between what the Fed pays versus what they’re borrowing, which is ludicrous, but they make 1-2%. They make billions of dollars. It’s all about protecting that top 1%.
Jason:
Right, I know, and it’s terrible that it’s come to that where we’re losing our middle class and so forth. Can’t the powers that be at the Fed and the Government end that game? They’ll just pay less on treasuries and then that incentive will go away and that money will start burning a hole in the bankers’ pockets and they’ll let it hit the streets, right?
Bill:
I love you, Jason! I love you! Really, I really do. Look, the Federal Reserve, the New York Fed, which is really the Fed – all the rest of them around the country were just like Christmas baubles hung on a tree. When you look at the way it was designed, it was all about the New York Fed. Who is on the board of the New York Fed? Let’s see. Jamie Diamond, the guy from Citibank, the guy from Bank America – basically they’re regulators who are regulating themselves. So is that going to change? Of course not!
Jason:
Very interesting point. Well, Bill, this has been a fascinating discussion and I really like your work because you dive deep into these issues and so many other people in the financial commentary industry, I’ll call it, just don’t really take deep dives into this stuff. It’s fascinating talking with you.
Give out your website, tell people where they can get the book etc.
Bill:
Well, the website is www.BillTatro.com and I would invite them to look at all the different things because we have our columns, our commentaries, prior radio shows, we have all sorts of things from my company, GPS For Life and the things that we do there.
You can click on the book itself, and there is a 1 minute video that’s kind of like a stay tuned in the movies, like a preview, and you can get the book there or simply go to www.Amazon.com. You can download the eBook or you can get it in a paperback, which can be delivered quickly. This is the shameless commercialism, Jason – it makes a great stocking stuffer, folks!
Jason:
[Laughs]. Awesome. Good stuff. Bill Tatro, thank you so much for joining us today.
Bill:
Well, Jason, thank you for having me, I look forward to coming back again.
Outro A:
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Outro:
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