Jason Hartman interviews Bud Conrad, Chief Economist of Casey Research, regarding the geopolitical focal points in our world, funneling these down to how it all affects the United States. Bud mentions the importance of looking at the big picture of what is happening in the world, particularly China becoming the new “mover” in the world, Japan’s apparent desire to destroy its currency, new technology, government overreach, who benefits from inflationary measures and monetary policy, and much more. Listen at: www.JasonHartman.com for more details. Bud also covers a recent article he composed, “Real Estate and the Economic Cycle.”
Author of the new book Profiting from the World’s Economic Crisis, Bud Conrad holds a Bachelor of Engineering degree from Yale and an MBA from Harvard. He has held positions with IBM, CDC, Amdahl, and Tandem. Currently, he serves as a local board member of the National Association of Business Economics and teaches graduate courses in investing at Golden Gate University. Bud, a futures investor for 25 years and a full-time investor for a decade, is also a regular lecturer for American Association of Individual Investors and a frequent contributor on Fox Business News. In addition, he produces original analysis for Casey Research, including unique charts and research on the economy and investment markets.
Female Voice: 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 then 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 twenty years and currently owns properties in eleven states and seventeen 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 301. We’re in the 300s now. Here we go. Today we’re going to have Bud Conrad as our guest and he is the chief economist with Casey Research. We’re going to talk about some interesting topics with him and he’s the author of a new book, Profiting from the World’s Economic Crisis. He’s got a bachelor’s degree in engineering from Yale University and we will get to him in just a few minutes here, but first I’ve got Michael back on the show and he of course, is one of our investment counselors and we wanted to talk about two recent articles that we saw that I think will be of interest to you as real estate investors. And also, I realize we only had him on the show once before and we didn’t really talk about his background, so I thought we should take just a quick moment to do that today. Michael welcome, how are you?
Michael: I’m doing great, Jason. How are you doing?
Jason Hartman: Fine, thanks. Hey, how’s the weather in southern California?
Michael: Absolutely amazing. We got the Santa Ana winds. I think it was about eighty degrees. Down at the beach, it’s almost summer time.
Jason Hartman: Yeah, fantastic. That’s how it feels here in Arizona. You know it feels like the weather in — in Phoenix or in Newport Beach, it’s pretty much about the same thing most of the time, except in the summer. Then it’s just ridiculous out here, but — but yeah, it’s beautiful here. It’s like — I — I have spring fever today. It’s — it’s a gorgeous day out.
But hey, before we get into these two articles that I want to discuss with you, I just thought it would be good and you know I — I meant to ask you to do this last time, just tell us a little bit about your background, because you’ve only been on the show once before, but I — I did talk you into it, but you were with Keller Williams, the real estate firm, doing traditional real estate before this, and just thought I’d ask a little bit about your experience because I have a lot of familiarity coming from traditional real estate myself years ago in the Irvine, Newport Beach markets. You know I wanted to ask you about that, but even before we talk about Keller Williams and so forth and the Newport Beach clientele, give us some of your background. Where did you go to college?
Michael: I went to UC Santa Barbara.
Jason Hartman: All right. And your degree is in engineering, right?
Michael: Correct, electrical engineering, so I guess you got me and Bud today both electrical engineers by degree.
Jason Hartman: There — there you go, yeah. Now, I don’t know if Bud is an electrical engineering?
Michael: Oh, okay
Jason Hartman: But I — I can’t remember what — what type of engineering. But yes, you’ve got the analytical mind. There you go.
Michael: Yeah. And it was actually really nice. You know, I’ve been at a couple of Meet the Masters and most of the people that I talk to end up being engineers which is just a great fit for me. We have similar thought processes and I totally get the way they want to analyze and do their due diligence on properties.
Jason Hartman: And I can see that you’re really getting a lot of use out of your engineering degree, by the way.
Michael: Oh man, my mom is still upset. She said ten years later — eleven years later she’s still upset that I’m not an engineer, but she understands that this is what I want to do with my life and I’ve always wanted to be self employed and get into investing, and that was really why — why I ended up where I am today.
Jason Hartman: Yeah. I cannot tell you — you know, I’ve hired hundreds and hundreds of people and I cannot tell you in my old traditional real estate firm, the one I sold to Colwell Banker back in ’05, how many people I have hired with either engineering degrees or get this one, psychology degrees. That’s a big one. Not too many good jobs there. Philosophy, English degrees — these things don’t really do — do much in the world a lot of times. In — in a country where we’ve outsourced the manufacturing to China, less demands for engineers, which I think is really a sad thing and I’ve commented on that before.
You know, I want to see America be more into the sciences and you know I think engineering is just an incredibly important field, and it’s so unfair because it’s — it’s fairly underpaid and there’s a great commercial about it, and I don’t remember who it was for but you know, I got to find this commercial because it was really good from I don’t know, a few years ago, and it had the inventor of the USB port and he would — he like walked into this room and all the girls were tearing his shirt off like he was a rock star. And then — and then you know, some rock star came along and nobody was paying attention to the rock star. And it’s like a perfect commentary on how our society just doesn’t really review the right things, because everybody loves Apple computer and Apple products, right? Well, most people, and it’s like engineers are just — they’re — they’re not — they don’t get nearly enough credit.
Michael: Yeah, and — well the — you know, actually you mentioned the — the pay actually straight out of college is very good which was my initial attraction, but I graduated in 2002 after the dot com bubble had popped and it was just time to look for something else.
I loved — I still love the technical aspects and am intrigued by technology, but the unlimited income potential is what initially got me into real estate.
Jason Hartman: Well, I mean the pay was good. It’s not — nothing compared to real estate, you know what you — I always say that sales is the lowest paid easy work and the highest paid hard work. Being an entrepreneur, which really is being in sales in one form or another, unlimited income potential of course, but — but yeah, it — it — it just — it just — it kind of doesn’t fair.
I mean, I remember we used to have an engineer working for us that was an investment counselor and he was — I don’t know I think at the time, maybe fifty five years old and the most he had ever earned in his life — now, he wasn’t very good at it and he even said he wasn’t very good at it. But you know it was like sixty five thousand dollars. I mean — it’s — it’s amazing. It’s really — I don’t know. I — I don’t think the pay is that good, but I guess if you move up into the upper echelons of it, it can be — it can be very good, but it is very, very important and it just seems like we have this society that is built largely on marketing and public relations and media.
Like we were commenting like how on Facebook, you know everyone is now their own publicist. It’s a strange world in which we live. These reality shows, it’s — it’s kind of unfair. It’s kind of backwards, if you ask me, but enough of that.
So — and — and then what did you — what were you planning to do with your engineering?
Michael: I was in electrical and it was digital design so I studied how to design ace — applications specific integrated circuits and that was — I thought it would just be fun because there’s a little bit of programming involved and you can do this rapid prototyping using software, create a model of how you wanted these microchips to operate. You could download it into a programmable chip set and then you can do prototyping in the lab. If that worked, you would send it out for fabrication. So, it just was neat to be able to rapidly take something from the computer to the test batch and get physical results out of the product.
Jason Hartman: Yeah, very interesting. And when did you get into the real estate business? Did you start with Keller Williams?
Michael: No. I was actually with a regional company in southern California at First Team.
Jason Hartman: Uh huh. Sure
Michael: And I actually didn’t ever want to be a real estate agent. I had just done a lot of reading about investing in real estate and was initially drawn to it, based on the fact that there were people talking about anybody on virtually any income, if they became a real estate investor, would be wealthy by the time they were retired.
I thought — I initially thought I would be an engineer and as time went on in the depressed engineering job market, I was weaning away anyway and I just thought, you know what, if I just sell real estate, I’m just going to be exposed to it and working with it as a daily product, I’ll be that much savvier of an investor.
Jason Hartman: Yeah. Well you know that’s interesting because that’s exactly how I got into the business. That’s exactly the same story. I started reading these real estate books and got my first one at age sixteen years old. Nothing Down by Robert Allen and that kind of inspired the whole thing and — and by the time I was eighteen, I was enrolled in Century 21 real estate school, and by the time I was nineteen, I had my license, and I was in the business.
And I — I — I went to one of these seminars, I probably told the story before on the show, and you know I didn’t know what they were talking about, although I had read some real estate investing books. I was eighteen years old. I was still in high school and I went to this seminar in Anaheim and a bunch of speakers were up there talking about points and things like this, and the due on sales clause. It was all Greek to me, as the saying goes. So I just thought — you know I remember I used to be — well, I still am, but you know I was a big fan of the late Earl Nightingale, and I remember him saying this on one of his old tapes — tapes, we used to have tapes. Not eight track, but cassette tapes, not that long ago, and he said — he said you want to get rich in real estate? Learn the business first. And — and so, I just got into the business because I was so — I — I knew nothing and so I just started selling it and gosh, I did so well selling it, I started working with an investors selling government repo properties in the — mostly in the inland empire of southern California, and Rialto, Fontana. I mean it was pretty disgusting what I used to do. You probably have a much better story and I’m going to ask you that in a moment, but let’s talk about me first. And — and so, you’d go into these houses, they’d all be boarded up. They were HUD and VA repo houses and you’d go into these houses and they’d be no lights. You know, you’d bring a flash light and your — your legs would get all bitten up by fleas, because they were — they were these flea bag houses and as soon as they took the pet out, the fleas had nowhere to go but on the first living thing that walks in the door and that happened to be me a lot of times.
And you know I would how people these properties and they would buy them and bid on them and that’s how I really developed my love for income property and real estate investing. So, that’s great.
So, now — now you started with First Team and how long were you there?
Michael: I was there for six years.
Jason Hartman: Oh, and then how long in Keller Williams?
Michael: For two years.
Jason Hartman: Okay, great. Any take aways that you want to mention from your experience in working with clients? I mean in southern California, investing is gambling basically. It’s — it’s all based on appreciation. Nothing makes sense from a cash flow perspective, at least not in the coastal areas where — where we both worked, but any — any experiences or — or things that you’d like to share with the audience that might be relevant?
Michael: You know, I don’t know if anything in particular stands out, but it just intrigues me when a local investor would be completely happy with — if five percent on his investment and there was a few beach properties in Newport Beach that makes some sense to me. You get the summer rental where you get a full month of rent in a week and you get that for twelve weeks out of the — out of the year and then you do a winter lease for nine months. So, you’re getting significantly more income and those can have a decent profit, but at the end of the day I don’t like California from the turn — from the landlord perspective of tenant law.
Jason Hartman: Yeah.
Michael: So, you know, it’s just —
Jason Hartman: It’s a landlord unfriendly state. But most beach house rentals — I mean you’re talking about Balboa Island and stuff like that. I — I tried to make those pencil and those don’t even pencil you know, because the winter rental is usually pretty hard to pull off, number one. And of course the rates go down a lot and you know, for that four months of summer, you do get the higher rates but you lose a lot of the income in management fees because when the managers managing those weekly rentals, they charge a heck of a lot more. Vacation rentals, the management fees are exorbitant.
Now, they do provide a lot more service. It’s a lot more management intensive, so you can understand it, but I don’t know, I’ve never been able to make those pencil on a one point two million dollar beach cottage. Do you think that works?
Michael: I think one point two is pretty cheap. You know I’ve — I’ve seen a couple from time-to-time. I wouldn’t say they consistently penciled out, so it — you still had to wait for the right property to show up and it just had to be in that right range of getting the premium rent for the purchase price. And some of the houses though, just have — they’ve had people rent them for ten years, twenty years, you know that one family has that week booked every single year for the last ten years. So, you know you’re going to have really good occupancy levels.
Jason Hartman: Um hmm. Yeah, yeah. If you get that sort of a track record like that. Yeah, interesting. And then — but the — do they have success a lot of times, those winter rentals though? I — I — I found a lot of those properties to be just sitting vacant a lot of times. They couldn’t get the winter rentals and make it happen because everybody that wanted to move in wanted a one or two year lease that wanted to stay.
Michael: Yeah, I mean it was mostly targeted at college kids and then do the budget cuts. Just this year, UCI cut off the shuttle that would run down to the Balboa Island.
Jason Hartman: Balboa Island, yeah.
Michael: So, it — that’s going to severely hamper the nine month rentals at this point.
Jason Hartman: Yeah, UCI by the way is the University of California, Irvine. Not all listeners know that.
Michael: Yeah, nationalize.
Jason Hartman: The global audience.
Michael: Yeah. So yeah, a — a nine month rental for the most part, is not very attractive. I am seeing more people take up the — I think some of the rentals have gone to weekly all year, though and I’ve actually run into people recently just at social events that said, oh we were just — you know in January we had a week down at the beach and it was really nice and actually one person said they had — they took the month of January and it’s amazing how many people live locally in Orange county and they just commute the children back and forth and commute to work and just get to live somewhere for one month out of the year down at the beach and then eleven months back at their house.
Jason Hartman: See, I hate to base my investment on wealthy people who could afford to do that. That’s just not — not my kind of thing. I want bread and butter housing that people really need, not that’s optional. Optional luxury housing like that is — I just think that’s highly volatile and risky.
Michael: Well — and the — the maintenance — when you’re on the sand, I’ve seen a house — I think it’s been complete for nine months and it’s already showing wear and tear from the elements.
Jason Hartman: Yeah, yeah. The — the salt water is like a — I had a yacht — I — you may not know that.
Michael: I didn’t.
Jason Hartman: It was a — it was a — it was a yacht and I say because technically the definition, it’s over forty feet. It was a yacht, folks. And — and you know that story of the two happiest days of a boat owner’s live, I —
Michael: [Inaudible], you buy it, the day you sell it.
Jason Hartman: Yeah, because if things — when you are near salt water it is like being in a vat of acid all the time. It just — the — the destruction and corrosion is mind boggling, it really is, it really is. But anything else you want to talk about your experience real quickly, because I want to touch on these two articles and get to our guest.
Michael: No, I don’t — you know I’m really happy that — that traditional real estate is over and I’m completely focused into serving the clients that I met at Platinum and that’s — I really just enjoy the conversations and you — you have such an educated client base, it just blows my mind and people bring so many different perspectives being that we have a glo — global client base. So, it’s been — it’s been really fun and really happy that I decided to make that move.
Jason Hartman: Good, good. The interesting thing, and you know I see a lot of our employees and — and staff and investment counselors come out our audience because you were a listener to the podcast. You had attended several of our seminars and you — you were basically doing the client track, and then you said hey, I want to work for these guys. I like this company. So a lot of our — a lot of our people come right out of our audience. So, if anybody listening is interested in opportunities with us, or has proposals with us or — or for us, you know ideas of how — how we could increase our business, we’re always happy to listen to that and I will tell you that we’re always looking for highly skilled web developers and copywriters and video production people who can produce short like YouTube documentary style videos and things like that and take our content and use it in different ways and expose it to different audiences. So — so just keep that in mind, listeners. Good, fantastic.
Hey, so rent increases –in an article that you brought to my attention is about — about rent hike transparencies or how to sell the increase, your thoughts on this one.
Michael: Okay, just a quick attribute to that one. That’s from multi-family executive and you know we just like a broad source — a broad base of sources. So, this is — you know taking in perspective from big institutional multi-family developers and operators and their thoughts on how to keep rent increases going, as most of them are looking for a three to five percent increase and you know the — it basically it just comes down to you need to keep your properties in really good condition. You want to make sure that everything looks good, that they’re very attractive and you know I think one thing that was interesting is some of the operators said, just be transparent about it. Go to your tenants, explain that your costs are going up — you know utilities are going up. There’s new taxes, there’s other fees with owning properties and just let them know that unfortunately, you need to pass it on and instead of trying to kind of warm it into we’re sending out the new lease in a month, and you know trying to sneak in a rent increase there. So what do you think about that, Jason?
Jason Hartman: Right, right. Yeah, no — I think — I think that’s true and don’t be too afraid of — I mean, this is a balance, okay. There’s a — a fine line here in what I’m about to say. Don’t be too terribly afraid of the tenant moving because when they do move, sometimes you can increase the rent a lot more.
I remember I had this one property that always — I was self managing and the tenant moved out and I remember at the time, you know I just kind of didn’t want to have a vacancy. It wasn’t — like business wasn’t booming at the time and I remember being a little bit — I don’t know, a couple of things had hit me in my financial life at that exact time and I — I can’t remember what they were, but you know, I was feeling kind of a little bit weak. I thought, oh God now they’re moving out on top of all this other stuff that’s going on. And it turns out I got a new renter in three weeks. I raised the rent over three hundred dollars. So a — a lot of times having a tenant move can be the best thing. But sometimes it’s not. It depends every situation is different, but don’t be too afraid of them moving number one. Number two is they expect rent increases. Tenants expect this, just like they expect pay increases, cost of living increases. People just — I don’t even think most of the world has any concept of what inflation is or how inflation works, but they just think, oh prices just go up because that’s just what they do. It’s like, people just expect it, so don’t — don’t worry too much about raising your rent. I mean, believe me they’re expecting it.
Michael: I think in the last podcast you mentioned people with a lot of equity tend to be lazy landlords?
Jason Hartman: Right, right. They get lazy money, exactly.
Michael: Yeah, if you’re — if you’re always going to be trying to — I don’t say you want to push the envelope of rent prices, but if you want to keep the mindset that you’re going to keep growing your rent in a reasonable manner, than you’re going to have to make sure that you’re not a lazy landlord. You need to monitor vacancies, see what’s available in inventory. Look at what rents are doing in the market and you want to just stay abreast of what’s going around your rental properties.
Jason Hartman: Yep, absolutely. That’s the thing to do. Okay, good. So now let’s talk about the other end of the spectrum here. Let’s talk about dead beat tenants and what to do when someone doesn’t pay the rent? And I mentioned on the last episode that we’re going to do a piece and it’s coming up pretty soon here, maybe next show. I think next show we’re going to do Steve Forbes and have his interview, but maybe the show after that. We’re going to analyze a — a best case, a medium case and a worse case scenario and really drill down and look at the return on investment you get even when things go poorly.
When you have long vacancies, repairs, maybe an eviction, you know like the worse stuff that can happen, okay. We’re going to take a look at that and — and kind of analyze that. And you’re — I think you’re going to be presently surprised folks. It’s better than you think, even when it looks really bleak and bad. People don’t know how to keep score very well when it comes to real estate and that’s one of the things you’ve got to be better at that so you can keep your head about you and make — make good non-emotional rational decisions. But deadbeats, to evict or not to evict —
Michael: All right. So, this is from all property —
Jason Hartman: — that is the question.
Michael: — allpropertymanagement.com. This article came from — it’s called the deadbeat dilemma and you know basically this is a part of being a landlord. Eventually you’re going to have someone that doesn’t pay rent or is doing some — something else that’s going to cause you to have to evict them. So there’s also a few different ways of going about it, but one of the first things they talked about in this article is don’t — you know go in the house and put all of your tenant’s pos — possessions on the curbs because you know as landlords, we have to really be careful especially in states where tenant law is very strong that we don’t suddenly become the one who’s getting prosecuted financially and legally at the end of the day.
Jason Hartman: I — I just love the things — I mean this would appear to be obvious, right? They have a what not to do section and you mentioned the removing tenant property, but some of the other ones just crack me up. What not to do. Don’t threaten or assault your tenants. Don’t lock them out of their own house by changing the locks and don’t turn off their water, heat or electricity. You really have to tell people this?
Michael: You know I bet it’s — and it’s probably — I can just see people — you know in the heat of the moment, it’s probably the most dangerous time, someone’s having a bad day and they’re just really upset and it got — you know, their common sense may just fly out the window for a moment and — and that’s — would probably lead you to threaten them, potentially, which would be you know, just a bad — a bad call. But I — you know I like the part where they talk about you know what, you might just try to go and negotiate with them, understand, see if there’s something going on. Do they not have you know a job right now? Did something happen? Do they not have enough money to leave? Maybe you can give them two weeks free rent and a couple of hundred dollars to help them move and that will get them to leave on good terms and not damage the property and solve your problem by just getting them out of there as fast as possible. So, honey over vinegar is highly undervalued at times.
Jason Hartman: Yep, absolutely. You know you get — you get more bees with honey than vinegar, for sure. But most people listening, if they’re investing through our network, they’re using a property manager. Now of course, we have taught many of our listeners how to self manage their properties and I’m a big believe in this. It’s working for me very well, actually. I never thought I could self manage a property from two thousand miles away and I find that it’s pretty great. And at the last Meet the Masters event that we had in Irvine, you know we discussed this at length, but the reason we’re telling you about these two articles is sometimes you’re really doing this through your property manager. But get your property manager to think a little more creatively. Get them to work with the tenant. And some — you know if you want to, although I don’t necessarily recommend it and your property manager probably won’t recommend it, but you can do it. You know it is your property and you can talk to your tenant directly. So, that may be something you may want to do. But just some — just some thoughts there okay on the practical side. Good stuff. And you can hire an eviction service to do the unlawful detainer and you — you don’t have to go to any fancy attorney that charges by the hour. These are usually flat rate, very inexpensive things to do and just — you’ve got to understand, everything does not go right in business and sometimes things go very well and sometimes things go sideways and they go bad and you’ve got to just roll with the punches and remember that life is a marathon, not a sprint and my mom is just such a great example of this. I got to get her back on the show and talk about more of her experiences. She’s such a do-it-yourselfer, Michael and I know you’ve heard her on the show, but she’s such a do-it-yourselfer that she actually flew to Los Angeles from Mobile, Alabama or Gulf Shores, Alabama where she’s building her southern mansion. She flew there to rent one of her properties. I mean it’s just crazy. It’s like I — I said to her, why don’t you just have — if you’re not willing to have a property manager, mom, just have an agent lease it up for you? And she’s like no, I do it so much better than everybody else, I’m going to do it myself.
Michael: I remember — I remember viewing that on the podcast and I was blown away — blown away by that. So —
Jason Hartman: She does it every time.
Michael: I guess if you have the time and I — maybe it just makes you happy at the end of the day that you — you know you’ve got to manage it and you do it according to your standards, every time.
Jason Hartman: She does and she — she does a good job of it and she’s — she’s made a fortune in it with income property and her properties are spread out now all over the country and she’s managed them herself, so there you go. The ultimate do-it- yourselfer, much more so than I am. So, good stuff. Okay well hey, let’s get to our guest and I want to thank you for joining me today. We’ve got some great episodes coming up, folks. Steve Forbes will probably be the next show, but there’s a bunch of other great interviews already done, already in the can that we will play for you on these next few episodes. So some real good stuff coming up and we will be back with our guest with Casey Research. That’s Doug Casey’s office here in just sixty seconds.
Jason Hartman: Be sure to call into the Creating Wealth show and get your real estate, investing and economics questions answered by me, personally. We’d love to have you call in, share your experiences, ask your questions and a lot of other people listening have those very same questions. So, be a participant in the show at 480-788-7823. That’s 480-788-7823 or anywhere in the world via Skype Jason Hartman ROI. That’s Jason Hartman ROI for return on investment. Be sure to call into the show and we are going to enter all of the callers in a drawing for some nice prizes as well. So be sure to call into the show and I look forward to talking with you soon.
Jason Hartman: It’s my pleasure to welcome Bud Conrad to the show. He is the chief economist with Casey Research and as you know, if you’re a regular listener we had Doug Casey on a couple of months ago and it’s great to have Bud back and we’re going to tailor our conversation a little more specifically to income property and real estate investing today and it’s a pleasure to have him from northern California, right Bud?
Bud Conrad: That’s right. I’m in Silicone Valley here where Apple’s headquarters, HP headquarters, Google headquarters and such are right around the — the corner.
Jason Hartman: Fantastic. Let’s talk about the big picture of the economy, geopolitical situation globally and — and maybe we’ll funnel that down to how it affects individual investors and — and talk about real estate too. I — I know that — I — and I’ve got to mention something about that. Doug is a little outlandish sometimes, I think. I don’t know him very well but he said he was buying a — apartments buildings in Egypt and I couldn’t believe that. I was shocked.
Bud Conrad: Doug is the ultimate contrarian and I think that was what was driving him to look at that. You may also know that he is a large holder of land in Ar — Argentina.
Jason Hartman: I know that, yes. I know that one.
Bud Conrad: Based on the basic idea that Argentina was hitting bottom, prices were low and everybody else said why would invest in such a far off place, and he said it’s turning out and he’s now been at it for a while, things are doing just fine. So, I would not write off what seems like kooky ideas to the more mundane of us. Doug has done very well in this big picture of his.
Jason Hartman: Yeah sure, sure. And I would agree with him on his Argen — you now I’ve been to Argentina and I would agree. The problem with Argentina though is it’s so corrupt. I mean corruption is just like — its part of its charm.
Bud Conrad: I can understand your point of view.
Jason Hartman: Yeah. But — but anyway, let’s not get too distracted with that. I — I love Doug’s research and all — all the stuff he does. He’s — he’s fantastic. He was a fantastic guest here on the show. But yeah, we — we were talking a little bit before we started about kind of a broader geopolitical situation and how China’s going up and snagging — snagging so many of the world’s opportunities, which we should be doing, but what are your thoughts?
Bud Conrad: Well I think that it’s important to look at the big picture geopolitical situation what’s happening in the world, before we get down to details, and I’m sure we will on what’s happening in the U.S. itself. And in the big picture the dominance of the United States is the monopole individual power with full spectrum dominance is clearly not going to continue. Yes, we held that space after the decline of Russia, but boy, the Asians are doing extremely well. Certainly China has done even more than what we remember and the Japanese miracle after world war two with their miracle. And they are the mover of new things in the world.
The west will decline as Asia — many problems of course that are also true there, but does very well. The problems that are coming up more recently are that China and Japan don’t seem to like each other very well. These [inaudible] islands that the Japanese call them have become a focal point of conflict, but I think it’s serious. But I do think that the strange thing is that Japan wants to destroy its currency.
Mr. Abe dengue, prime minister says let’s have a currency war and we don’t care, we want to make our currency even richer than yours. Very strange position. He may get what he’s asking for, which may be three percent inflation at which point his government is bankrupt because he can’t afford to pay the interest on the deficits that are outstanding and they’re way beyond any reasonable thing that a major developed country has normally been able to achieve.
Jason Hartman: Well, I want to — I want to ask you that, before —
Bud Conrad: Sure just jump right in.
Jason Hartman: — before you go in. So many countries intentionally devalue their currency. China of course, is repeatedly accused of suppressing the value of its currency, not letting it float. Why did he do that? Is it just for the short side of gold increasing exports, because all — all in all, I mean that — that isn’t a good thing. Speak to that a little bit. Is — is it just a short sided, quick — quick jolt of caffeine type of mentality?
Bud Conrad: Yes, that definitely is part of it. Politicians tend to be short minded and so forth. But I also think there has to be a little more serious side to this. They’re the ones who print that money. That paid thing is to help us all when in fact they’re the ones that primary beneficiaries first off. If you think about that for a minute, they got to cover like Bernanke seemed to have during the early phase of our own crisis of saying, well here we can’t have deflation, that would be horrific, let’s do a little inflation. And oh yes, that’s good. We need to fight deflation because how horrible that would be because of the mind of the public and a lot of its commentary like CNBC News or something.
In fact, yes we loose inflation, but they gain everything and they gain the differential by being the first to spend the money. So, I think that’s another reason on top of what you just suggested that they’re short term. But I think they’re selfish. But I think that they have a real immediate gain personally for them and their friends the bankers, that are part of the game that causes all this to happen. So I think the incentives are very much there for the potential future inflation to escalate fairly dramatically, which gets back to the U.S. a little bit, let me throw something in.
Jason Hartman: Well I just want to — I just want to touch on your deflation comment because I — I could tell you’re — you sound like you’re being a little snarky and I agree with you completely that it is monetary policy coming out of Bernanke is — is a disaster of that proportion okay. I completely agree.
Bud Conrad: And many people consider him a hero.
Jason Hartman: I — I — they said the same thing —
Bud Conrad: [Inaudible] said from the 1920 style depression.
Jason Hartman: Yeah, but — and the same thing about the maestro Alan Greenspan I think was another absolute disaster, but — but like Doug says, you can make money from these idiots. You know what I mean, so I personally — I believe I know how to invest very well for that and I believe our listeners do too. But on the broader whole, I don’t think it’s good for the country. And I’m taken care of well enough that I’m kind of more concerned about the country to tell you the truth than making another couple of bucks for myself. But we got to just talk about deflation for a moment because as I hate to ever agree with Ben Bernanke, deflation is a really, really dangerous force in my opinion, and here’s the biggest reason and there are many. But I think here’s the biggest reason, it causes people to put off buying decisions and when you put off buying decisions, it massively reduces the velocity of money and you — it just becomes this downward death spiral. You — you know, as much as I hate inflation, I think it’s the lesser of the two evils in a way, isn’t it, or am I crazy?
Bud Conrad: Yes, you’re right. I think that also. The — the problem with deflation is not just the slowing of people putting off their transactions. It’s the impression ness of debt. For example, a mortgage holder in a house of a deflating price under water still is in regards to paying the full price of his mortgage. In other words, that’s a big transfer of wealth to the lender in such a situation and a real loss to the debtors. And so I think the deflation is extremely bad. I — I like another comment you made about Bernanke, whether this is good or bad, I think we need stability and in some sense he was trying to achieve that avoiding deflation. I don’t think deflation was that serious as most people feared it would be and I think we are just beyond some of that now. I think we’re going to be moving out towards inflation in the future. And I think that’s an important conclusion, probably the most important one that once you throw away from my opinions about where the U.S. economy is going.
But before we get to all the reasons for why, I would just simply say that we can’t trust the government to not continue to add money into its deficits into the future because that’s their benefit not to do so. They get to spend the money first and then we get to put up with the fact that our savings retired people, whatever, are — are –you’re your mom are going to have less than the bank in terms of purchasing power.
Jason Hartman: Or unless — unless they do the opposite of what you just said. Deflation makes debt more onerous but inflation makes debt a lot less onerous. So, get into debt. Have long [inaudible] mortgages, and — and then have the other assets that always goes up in inflationary times, which is commodities.
Bud Conrad: Exactly, or real estate. Anything that can —
Jason Hartman: You [voice over] commodity, yeah.
Bud Conrad: — physical asset therefore protection against destruction of the currency. My main thing to you is that 2013 will be the start of the new trend in direction of the recognition in the world and ourselves of the non-impotent of the omnipotence of the dollar. In other words, that the dollar’s power will decline and that therefore there will be inflation, and then once it gets going that inflation feeds back on itself in higher interest rates, which then adds to the lack of confidence in the currency which then adds to the future inflation. And that that long term cycle which was going the other way pretty much since 1980 at the peak of our inflationary time, I think hit bottom last fall will go the other way is my view as to how this is happening.
You know you can see it yourself, here in the real estate business you probably know much more about the one the ground business of it than I do. The big fear in the early part of the big term, something we call the greater depression, others give it different words, was the last big recession caused deflation in particular that you have repetitions of debt seeing the people going into foreclosure on houses, and that’s actually extinguishing purchasing power and debt is removed from the system. Therefore, that is deflation and of course that’s what Bernanke was leaning back against.
The point that I’m trying to get to is if you look at default rates and so forth, they’re in pretty good sizable decline in the U.S., particularly here in Silicone Valley. My goodness, we’re in a housing boom again. I mean this is feeling like 2000 again for the housing permit. Housing come on the market, inventories are low in the nice areas. You can’t find a house for under a million dollars in a reasonable neighborhood. You want to buy a garage, you can pay two hundred thousand or something, but you can’t live in it. I mean it’s crazy out here.
Now the point that I’m trying to get out here is it’s not that houses changed, it’s the paper dollars in which they’re denominating them that are loosing the confidence and it’s already happening here and I expect it will happen over the next couple of decades pretty dramatically to being much worse than what happened say through the 1970s into the peak of ’98. That’s my own personal prediction. I even hear that we may have to repudiate our dollar as a currency some time in our life time because of a long term outlook of deficits from our government that — for which there is no answer and I’m — that I can see.
Jason Hartman: The — the only answer if — and it’s almost too good to be true, but the only answer will be in America, centric technology that you know, America really owns like the way it owned the industrial revolution if there’s some great technological breakthrough. I mean technology’s the only thing that can save us and maybe it — it saves the whole world because technology is generally deflationary and it makes the standard of living higher, and so if there’s some new added technology, energy, bio-technology, what — you know whatever it is, that could be the thing. And — and it really is the thing now. I mean it goes — it’s been going on throughout history, of course. And as — as — as the powers that be are destroying the economy and destroying the currency, the inflation keeps getting better. So, the question is, which force is more powerful? Does infla — does — does inflation happen faster than technology improves and makes life better? And then there’s always the struggle, and I —
Bud Conrad: Straight off your proposing [inaudible] —
Jason Hartman: Yeah.
Bud Conrad: — by different topics, yes.
Jason Hartman: Right, right. But — but you can’t eat your iPad, that’s the problem.
Bud Conrad: You can’t eat gold either. Although you can do things that are pretty amazing, and technology has been wonderful. You — I guess you probably don’t know, my under graduate degree from Yale in electrical engineering and I spent a whole career in computer companies starting with IBM and ending up with the tandem which became part of Hewlett Packard eventually. But the point I’m trying to get to is yes I’m a believer in the value of technology. I think my generation with electronics communication, cell phone is one. I think our kids’ generation hopefully will be biological. I think the things they are doing, where bodies can rebuild themselves, that’s a very, very different thing from giving somebody a pill or giving them some surgery by generation and conventional genetics. I — there’s just a lot more things that could be done then we have really done — figured out yet even though we’ve cracked our own “human” we’ve got a lot to do that could be very, very changing. Life changing in a real way of life —
Jason Hartman: Sure, sure, sure it can but let me just mention something because I’ve just did episode number 290 was on longevity, a recent episode I did and I interviewed someone in your neck of the woods, Sonia Arrison who wrote a book called One Hundred Plus and if — if we all start living longer, I think that’s a very inflationary trend for two reasons. Number one, more people consuming more resources, okay so a — a shortage of assets and resources, but number two, and I know that’s a little bit mal fizzy and — and I get it but there’s always new innovations you know and people are a resource in and of themselves. We talked about that on the show. But the other reason is more entitlements. When they set the retirement age at sixty five, people would just live a few years. Now they live thirty — thirty five years sometimes, and that’s a lot of entitlement spending which is very, very inflationary, so interesting stuff. But — but listen, I don’t want to get too much off on — on all these tangents because I know we can talk for hours and that’s my fault, by the way, but talk a little bit if you would about just the — the situation with like Iraq, for example. When — when that whole — when the talk of war started, I remember hearing in the media that we would pay for the cost of — of the war with their oil. I don’t know if the Iraqi people really wanted to agree to that, the all in advanced, but whatever call us nation builders, imperialists, invaders, whatever, but it’s not turning out that way, is it? The Chinese are gobbling everything up.
Bud Conrad: It’s — it’s amazing how unsuccessful that program has been, and to me sort of predictable. I’ll go back even a stage before that. I was in a meeting at Stamford where George Schultz spoke and this would have been in ’91, I guess it would be the original Gulf war and it was two days before the bombing. And he said, they won’t do it at night time. And I was just like chills up my spine, my goodness what are we doing? That’s the roots of the next war where we didn’t want to finish — didn’t know how to finish it and somehow we think that we’re going to be successful with Libya. I’ll let [inaudible] snide comment from the Brooklyn [inaudible] says, what do you think they were making parsnips in Libya we have invaded them?
Jason Hartman: Yeah, right.
Bud Conrad: The world resource is a very important issue. One little piece of it is that we have discovered a new technology to use your word again namely fracking that’s making us, the United States rich again, at least in natural gas and likely to be better. We are producing more oil which is a shock to people like me who believe that the peak oil kind of concepts have some real limitations. They aren’t making any more dinosaurs, what used to be the title one talk I give. But in fact, we’ve got a nice little tail end from that before we’re — we’re done and — and I don’t know how much of a reprieve it will be for us to develop all of this, but it’s got to be a — a positive thing. So I really — you know in technology and technology may be hard to predict but it’s definitely something we want to build.
Jason Hartman: So, let me — let me just speak to the oil and natural gas issue for a moment, because I agree. I think this country is very rich just in natural resources. The problem is all of the idiots in the White House and — and the tree hugger movement, they won’t let us get at it. Will they still want all the goodies that those things produce? They just want to have — they just want to import them from the biggest polluter, China and act like they’re so holier — holier than thou over here with all these environmental restrictions and it — it’s just like stupidity some of the stuff we do here. We — I don’t know, do we have this like — this kind of like self loathing thing where we don’t want to be successful or something?
Bud Conrad: I — I don’t think it’s that simple of things. Yeah, it’s contentious. I’m — I’m disappointed personally that we didn’t build the pipeline down from Canada.
Jason Hartman: You’re talking about the keystone pipeline, of course?
Bud Conrad: Exactly. But yeah, but the main thing, this is a debate that I have often. I love my country. Born here, I am not moving out, don’t plan to anyway, but there are so many problems that do make it necessary to be an understanding of opportunity of the world ownership living investment, and I don’t have any answers for you because when I say, oh let’s go live in China, communist dictatorial government, it doesn’t sound like the place for me, personally. Of course I don’t fit in comfortably, so it’s not an — it’s not really an option. But the point that I’m trying to get to is, yeah the many things I dislike about many other people’s points of view in our country but I hope that we return to some of the earlier values where we were so oppressively overburdened by our government. I — I didn’t — this — this was the American concept. Doug is very good at talking about this, better than I am. I’m a nerdy economist checks in what the federal reserve is likely to do but I mean, money dollars are going to print college sequential [inaudible] but anyway many of your questions — I think this is very serious problems in our population to understanding I call it acquiescence to government’s over control, using government as the powerful wedge to get things done rather than doing things. I think it’s a bad turn and I — I wish it were better.
It will weaken our dollar and we’ll be part of the late stage empire decay, I suppose. But it’s still a wealthy country and I am planning to support as best I can what we have.
Jason Hartman: Well so, what is your take on real estate? You did an article recently about real estate and the economic cycle. Talk about that if you would.
Bud Conrad: Well, there are many things that could be said. The article’s what twenty five charts showing things like rental rates versus purchasing rates, showing — a more fun one for me is the ratio of housing prices to gold. The point being that, I think we’ve bounced off the bottom by not expecting fast returns. Real estate tends not to be something that moves really rapidly and dramatically, but I think having seen it crash, is a better word for forty percent off from the peak, compared to something like say gold, which is up from two hundred fifty dollars to six hundred fifty dollars — sixteen hundred and fifty dollars over the decade. Housing looks like it might be the better — better, more useful investment. There are different kinds of risks how to take your story away from me, and you know what they are. Taxation, major gov — shut — downturn in economy will affect real estate. But on the other side, people want to come here, people want to live here. Housing is necessary and important. There are tax benefits and the one that — as an economist jumps out at me, is affordability. Housing prices which were going through the roof in the peak — that caused — the bubble that caused the sublime crash from [inaudible] giving money to anybody who could fog a mirror kind of flipped around. They’ve tightened their requirements, but the rates are low. And if you have good income and good credit, you can buy. And right now, frankly there are good opportunities if you can find them. And if the — if you’re a good searcher, you can take an edge on that where you contribute the smarts of knowing that this foreclosed house is really thirty or forty percent below, where it could be turned around, fixed up, new lawn and a few things.
Flipping makes again. I — I think real estate — and what the heck, you know this better than I do, okay. What about these guys, Goldman Sachs sets up a fund to go invest in real — wait a minute — and — and just like the Fed. The — there used to be a phrase, don’t fight the Fed. I love to get back to Mike [inaudible] days and the — but look at it this way, it’s better to front run the Fed right and make an announcement, and they say look we’re going to QE three, we’re going to buy forty billion dollars in mortgaged debt every month. I mean this is something — it could mount up to something like half the government federal deficit and that’s a tailwind to keep interest rates low, make housing attractive for more people, go buy houses. And you’re commented a little while ago, you said maybe you should or shouldn’t be in debt. You go into debt every way you can. Get a mortgage. You don’t need a house, get a mortgage on it anyhow. You’ll pay it off in worthless dollars. Do it.
Jason Hartman: Exactly, exactly. I tell you, during the ‘70s, ‘80s and ‘90s people thought they got rich on real estate. I mean tens of millions of people benefited from this and everybody loves to hate Jimmy Carter and [voice over].
Bud Conrad: Real estate will never got down too, remember that?
Jason Hartman: Yep, yep. Well, it — it — it does but see the thing is it’s not just about it — its price. That’s the most simplistic thing. That’s like a non-dividend paying stock when you just look at the price. Of course, getting a good price is better than not getting a good price, but you look at the income the property generates and just on a — on — you know on a good property, anyone that we would consider, a — a cash-on-cash return of anywhere between twelve and up to over twenty percent annually, occasionally, that’s pretty rare but I mean of course you can get it in slum properties but we don’t like slum properties so — so that’s where you get cash-on-cash. And then you know if you buy it under market, hey that’s great too. I — I like to buy in whole strategy the most.
I’ve made some money flipping here and there but I just find that the people that buy and hold are the ones that ultimately seem to have real wealth over the years, versus the flippers have spending money, and — and then you — you have the — the thing I call inflation induced debt destruction. I know that’s a mouthful. Say it ten times fast, Bud.
Bud Conrad: I understand exactly what you’re saying that you pay it back in worthless dollars, so I think it’s an important tailwind. To the other concept that I think is really fundamental, rental rate income to cost to purchase. Your cap rate or whatever how you calculate it that you get cash-on-cash that’s positive, if you can find that on top of appreciation, then you’re saying significantly on top of, you get zero percent in the bank or twelve percent on your real estate, which is the better deal.
Jason Hartman: It’s pretty — pretty —
Bud Conrad: Then you have to break — you have to manage it and all the rest of that. And then you have those little shows on CNBC of how is Goldman Sachs going to manage it when the disposal backs up? I think they’ll figure it out.
Jason Hartman: I — I ultimately think that the real estate industry is so fragmented especially in the single family home world, that the big institutions are just not going to like it and — and some of that — like I read about one hedge fund, I can’t think of the name of it, forgive me, but they’re selling out now where they don’t think the market has peaked, it’s just — they just — it’s like Warren Buffet’s comment, I — I’d buy a couple of million houses if I could figure out how to manage them. And — and that’s the problem. It — the opportunity really is there mostly for these small individual investors because it’s so fragmented. And I always say to our clients, I say embrace the fragmentation. That’s what makes it hard for Goldman Sachs and the rest of the big institutional investors.
You can — in — in the Wall Street world, you can deploy billions of dollars with a mouse click. That’s a lot easier than dealing with a bunch of sorting, picking, vetting properties, dealing with tenants and managers and you know it’s kind of complicated. But for the small investor that wants to have twenty properties, hey it’s beautiful. They can handle it. They’re not expecting billions of dollars in — in return. They just want a good return. Let me take a brief pause. We’ll be back in just a minute.
Female Voice: Now, you can get Jason’s Creating Wealth in today’s economy home study course, all the knowledge and education revealed in a nine hour day of the Creating Wealth Boot Camp, created in a home study course for you to dive into at your convenience. For more details, go to Jasonhartman.com.
Jason Hartman: Let me ask you, you do have a lot of charts here and I don’t see the one — at least I’m not seeing it, the gold to housing price ratio. I love that one because gold —
Bud Conrad: Toward the end maybe you didn’t get it.
Jason Hartman: Yeah, gold — gold has its flaws in my opinion, but it is a great measuring stick. It’s probably the most consistent measuring stick of all. Can you talk to us a little bit about the gold house price ratio?
Bud Conrad: Oh well, the point there of course is that gold is the one that’s been up so much. The houses look really cheap and that’s sort of a surprise to people who think that well, gold is the measuring stick because gold has been moving quite a bit which I think is a lack of confidence in the currency and a kind of a coming off its own bottom of a decade or so ago when it would seem to be manipulated down by a combination of bank — central bank selling and the kind of a psychology that combines with it and required investment by mining producers to sell forward gold. There’s a lot of things that probably manipulated below the sensible price. I don’t think it’s above a — sensible price now in the sense that I miss — really mistrust dollars still and even more so than I did in the past. But as a measuring stick against what houses are an opportunity for, and I think you brought up the point of a — the edge an individual can bring to it by being there stomping on the property really seeing what’s there, and that’s not the kind of thing a New York banker does with a billion dollars —
Jason Hartman: That’s true.
Bud Conrad: — watching your sensibility about that. But yeah, I think you think about what the long term — what is it, front running the set, believing that you don’t trust the paper dollars that you will pay it off in worthless dollars that along the way you may get paid some tax benefits than significant rental income. There’s a lot of support for the reasons to believe that real estate could be one of the — and the — another comment, despite my complaints about my government, there’s a lot of people who would like to come here willing to pay a million dollars to come buy a house in Silicone Valley and move from Hong Kong or Singapore or wherever it is. I mean there are lots of Asians that have come here and they can do so when they pay money for a real estate. I think there’s just a lot of tailwind here. I think you’re on to something pretty important.
Jason Hartman: Yeah, yeah. Real estate may well be the trade of the decade as — as it were, but looking at this chart I did find it by the way. You say that housing is similar to gold in many ways. Both are real tangible assets with real value. Both can be held outside the financial system. That’s interesting, and both serve as inflation protection.
Housing has some advantages over gold. It can produce rental income and has major tax benefits, including the abilities to deduct yearly depreciation which by the way, depreciation is the world’s best tax write off because it’s non-cash. I love it, and it’s even possible to have positive yearly cash flow from the rental property without having any taxable income. And the gold to house price ratio, I guess in — it looks like on your chart like about 2005, it looks like it took — what does this mean? Just help me read this chart. It’s the first time seeing it, but five hundred ounces of gold to guy a house and now it only takes a hundred ounces of gold to buy a house, is that the way — am I reading —
Bud Conrad: That’s it. Yes.
Jason Hartman: Yeah. That’s amazing, wow. So —
Bud Conrad: Five to one better to buy houses now then it was in 2005 —
Jason Hartman: Incredible.
Bud Conrad: — based on looking at it through gold as a — as a defining window and that’s probably overseeing the situation. But it’s — the — the [inaudible] is one that many people don’t think about especially us people that come from the sort of the style of gold bugs. We just think gold going up forever, why bother with anything else? Well, some of the other things might be just as good or maybe even better if you sit — if you can manage it, do all those things you just talked about, but you get the combative edge not — not just a general big market. Well all that makes sense to me. And — and behind all this is something I think you would agree with with me that we do need to do some active investing, not just be passively letting some broker tell us what to do or give it to some annuity because if we do, there’s some wonderful videos and stuff and it’ll be — that’s — your money’s all gone. He puts his money in a savings account, the guy says oh sorry, your money is all gone.
I mean that’s what’s happening, even if you don’t put it in a risky investment because the government, I think, is going to continue to print. The motive and incentive for them to do so over there, destroying the paper money. So you — we’ve got to do something. I mean this is one of the best — I’ll tell you my best of the decade is probably shorting treasury bonds, but the average investor doesn’t understand and doesn’t want to do that, and frankly I’ve been a little ahead of the game on — on predicting such a thing. But there’s going to be trades in this decade and I think real estate’s one of them.
Jason Hartman: Yep, I — I couldn’t agree with you more and — and what you’re talking about is when you say the government’s going to print, is you’re saying you’re really talking about how people’s savings are just being robbed. Inflation is a liar and a thief. It’s a pick pocket. It is systematically pick pocketing you every moment of every day, even while you sleep because your — your savings, your stocks, your bonds are being devalued. They’re under attack constantly by inflation, the insidious hidden tax.
Now futures vacation or home prices are up. Just touch on that if you would real quickly and then I just want to ask you also about the home builders, that other side of the equation.
Bud Conrad: Well yeah, underneath — the futures market is one potential price predictor in the sense that people are theoretically willing to take a bet in the futures market although the prices will be in the future. That’s what the Case Shower Index was set up for. I wouldn’t over emphasize it in the sense that the market’s not very liquid. There are not a lot of players in it and who knows, they are however — you just take their particular — few of it, it’s one of many, saying that the housing prices are going to go up, which is no surprise to me because I think they’re going to go up for my own [inaudible] but that’s sort of why we call it confirmation.
The other one that’s sort of a surprise for me is how much home builders both crashed and have already recovered. Housing prices haven’t moved up that much. What’s happened is inventory’s been pulled down, their prospects look much better and people are already somewhat short running them. They may not be the best investments but they were a couple of years ago and I don’t think many people were pulling for them at their bottom [inaudible] but now there’s not even a call for them to be up. I’ll say that’s sort of a mixed bag in the prediction. Let me — let me sort of pull for this with something else that sort of in my mind.
I did a little piece which will publish tomorrow in our daily dispatch, cause — Casey Research on the fiscal cliff. And here’s an example of the flip that I don’t think people have interpreted properly. Most people said wow, they saved us. We didn’t go off the cliff. I say no, they just printed up more money. They just — and this is the point I want to make out of that. It’s in the article and I have a couple of charts to support it, they are just kicking the can down the road. They — under the circumstances, most favorably you can possibly imagine the law’s already in place whatever to prove the deficit, decided to change the laws to make sure that we continue on the path to position the destruction of the dollar, higher gold and higher real estate prices, and I suspect that anybody looking at this with a little bit more sensibility than the headline news of mainstream media that how they saved us would say oh my goodness, they’ve admitted they will never save us. We’re going off the other cliff which is the deficit cliff of too much deficit, which can’t be paid back, which leads to a whole lot of other things and implications about what’s going on in the future when you try and figure out how governments manage too much debt. But we have a few [inaudible] that have told us what happened when you look at the pictures of southern Europe and what I think is going to happen to Japan.
I think there’s some world wide inflationary printing everywhere.
Jason Hartman: Yeah, I agree. That’s the only way out. Governments always inflate their way out of a problem and of course it’s not a cure, it’s just a false cure. It allows them to kick the can which that’s what everybody wants to do. The difference is though, when you look at all the examples in history of you know, inflating your way out of the debt and so forth, that so many other prime examples, Argentina, y Mar, etcetera, all — all of them, Zimbabwe – Zimbabwe’s the funniest of all of them. I mean what as joke, what an absolute disaster.
You know, none of them had the reserve currency which we don’t really have any right to maintain. We may lose that status, but we – we do have the biggest military and we can really throw our weight around a lot with that, and it’s not always so — so overt that you know you’re just going to invade a country and start dropping bombs. It’s a — I think it’s a little more subtle that that in a lot of ways, the way we throw our weight around.
So, that may really allow us to kick the can down the road a lot longer, I think, huh?
Bud Conrad: Yes, that’s right. There are dominant both military and economic position in the world. People have trusted the fact that the dollar’s a regional place to — in which to invest, but I don’t think most people realize how dependent we are on those foreigners. Half of our government debt of all those treasuries are held by foreigners.
Should someone of them become fickle and say gosh, you know administer finances some Middle Eastern oil wealthy country says, I’m going to run for the exit and they’re big enough, they can effect the market for enough other people and they were all kind of hands off and held off in a prisoner’s embrace of not wanting to be the — the one that caused this collapse. But we’re in a much riskier position because there are long term trade deficits that have accumulated than most other people realize.
So, I — I think it’s a little much worse — improper to believe this status will last.
Jason Hartman: Here’s — here’s my — here’s my really cynical conspiratorial maybe outlandish comment on that and I just want you to hear it. So, as soon as that Middle Eastern oil rich country runs for the exit and says, I’m not doing it, I’m not honoring the reserve currency status of the dollar anymore, don’t we say, well don’t you have weapons of mass destruction? Aren’t you a terrorist state? Aren’t you harboring terrorists? I think we need to find a reason to go in and invade you and bomb you. You know that’s — it’s really —
Bud Conrad: Actually I had one reaction was when are you going to get to the cynical plot part because the facts do support exactly what you said. Saddam Hussein said he was going off the gold [inaudible]. We have forced a random off — excuse me — off of paying for oil in dollars. China’s setting up bilateral agreements all over the place. It’s one way they — they run their successful African operation because they say, okay you want to buy Chinese goods, we want to build a port for you. Everybody’s happy and by the way, we don’t need to use dollars.
Shanghi cooperation organization, there’s just a lot of what — what I would call sniping at the edges of this supposedly preeminent position that came out of world war two in Brenton Wood and we have attacked countries that have suggested they wanted to allow for other means of payment, including Kadafi, and I don’t really know what to say except that I don’t think they’re as conspiratorial issues suggested. That’s all I can say.
Jason Hartman: Yeah, I know I just wanted to say that for the more level headed people out there that might think I’m crazy.
Bud Conrad: Both of us are nuts, huh?
Jason Hartman: Yeah.
Bud Conrad: Okay.
Jason Hartman: Oh gosh, it’s — it’s something else. Well hey, this has been a great discussion Bud, and you know I appreciate your insights. The article is quite robust. You do have a lot of charts and graphs there that are very telling and interesting. Is — is there anything you want to say in conclusion and — and also give out the Casey Research website, if you would.
Bud Conrad: Oh, sure. This is sort of my life of work, so it becomes really important to me and I like to have people make comments and so forth. I mentioned that I have a small piece on the fiscal cliff and some more — well in the daily dispatch that will publish and can be easily read for free. My other publication that’s fairly regular is the Casey report. You can purchase it, try it for three months. If you don’t like it, get your money back. Highly recommended, both of them are available on the site called caseyresearch.com. c-a-s-e-y-r-e-s-e-a-r-c-h. We hope you have a chance listener to go check it out.
I also have a book available on Amazon published by John Wiley, Profiting from the World’s Economic Crisis that give a more long term, bigger picture view than my usual monthly commentary of how I think about monetary systems. Highly recommended if you are intending to follow me. And I hope that generally that the world understands as it seems like you and I and many of your great guests do, that this is [inaudible] system that will automatically just return to normal. I think we have to protect ourselves because I think the government’s destruction of currencies world wide is something we really all have to be aware of and plan for. And of course as you said, we can front run them and win on the game.
Jason Hartman: Yeah, I think we can and I think we also need to realize that it’s really just a race to the bottom among these currencies and – and I think in a strange way we may be a pretty nice house in a bad neighborhood in terms of countries because it’s just all a complete fiscal and monetary stupidity planet pretty much all over the world, isn’t it.
Bud Conrad: I think so and it’s nice to be talking to somebody like yourself and it’s more invasiveness than actually out there doing it helping people get involved in — in their own futures and doing well with. So, I’m glad you’re actually making things happen than folks just commenting about it.
Jason Hartman: Well you know we all have our roles and without those of you who are doing the research and writing the articles, we wouldn’t know what to do. So, I appreciate your role as well as Bud. Hey, thanks for joining us today and everybody make sure you go check out Bud’s book and the Casey Research website as well. Thanks so much.
Bud Conrad: Take care. Thank you for the call.
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Transcribed by Debra
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