Jason Hartman starts this episode by sharing his thoughts on what a Trump presidency may look like for real estate investors, how Trump’s trade policies will affect the markets, and how aligning your interests with the Federal Reserve allows investors to game the system. Then, he interviews Dr. Robert Johnson, President and CEO of the not for profit American College, author of the books: Invest with the Fed: Maximizing Your Portfolio Performance by Following Federal Reserve Policy, Strategic Value Investing and the study What to Expect When You’re Electing. They compare stock market growth, talk about long term perspectives and long-term market strategy, and the cost of small business financing.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:12
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution. Real estate investors.
Jason Hartman 1:03
Welcome to the creating wealth show. This is your host Jason Hartman episode number 762 762. And wow, I will tell you we had a phenomenal venture Alliance weekend another phenomenal venture Alliance weekend here in Phoenix, Arizona. There is just something about the speakers, we are getting a you know, we’ve all been to events and we’ve seen big name speakers and people that are really doing amazing things and we all want to learn from them and, you know, what are their secrets to success? Right and, and what can I learn from them? What can I implement in my own life that will bring me a similar success, but there is something very, very different when that speaker comes to speak to a group of 15 people In an intimate setting, and they sit on a barstool and they just sort of talk to you and you can ask them questions in this intimate environment. And that’s the power of a mastermind group. So we started off our mastermind with our usual Friday evening dinner. And then Saturday morning, we had Charles go yet kick off the meeting. After that we had Tom wheelwright, who wrote the book tax free wealth in the rich dad advisor series with Robert Kiyosaki. We had him talk to us about taxation, and real estate investing and so on and so forth. And you know how we can save money on life’s single largest expense, the largest expense, any of us have taxes, taxes, taxes, and then we did our afternoon activity on Saturday, and this time, it was The Amazing Race, kind of a geocaching scavenger hunt, if you will, I guess sort of a hybrid of those things where he, we walked around town downtown Phoenix and looked at different statues and did different things. We broke up into three different teams and it was a lot of fun and, and then we all had drinks and then we all went to dinner and had more drinks and, you know, just fantastic conversations and a really, really good time. And then Sunday, we kicked off the day we talked about some business. We did some more hot seats on Saturday afternoon, we did hot seats over lunch where we we got it had our lunch at a private room in a restaurant and we did hot seats there and then we did hot seats Sunday morning, and then none other than one of really the biggest names in real estate besides our president elect. Interestingly, I gotta just make a comment on something about the trumpster Okay. It’s funny to me, that I just don’t hear a lot of people talking about how Trump is our first real estate president. You know, I I keep saying that. And I was speaking on a panel yesterday, here at a another conference in Phoenix. I’m at the IMF conference here with several hundred institutional real estate investors and in people from just all different parts of the real estate landscape, meeting with a lot of our local market specialists who are already here at the same conference and just doing that, but but I was speaking on this panel yesterday, in the panel was about financing and a lot about hard money lending and in creative financing of real estate transactions. And I made the remark, I said that Trump is our first real estate president. And everybody looked at me like, oh, wow, that’s an interesting idea. Really. How come I’m the only one talking about that? I think it’s rather significant for us. Real estate investors that we have a real estate president love him or hate him. I think he’s going to be good for real estate. And I gotta tell you, that is the sentiment here at this conference. You know, I just had lunch with a bunch of big institutional players here at this conference and just just people from all over the real estate spectrum, I sat down with a, an investor who owns get this 4000 Yeah, you did hear me right. 4000 single family homes. There are people doing huge things in in the single family home real estate business, which I you know, I never really saw that before in the last couple of cycles in the economy. That is a relatively new thing, or at least to this scale, that our business is becoming more institutionalized than it’s ever been. But still, I am maintaining my prior prediction that institutional investors by and large Don’t love our business, because why? Well, they have a difficult time, embracing the fragmentation, embracing the fragmentation that I’ve talked about so much. Anyway, some interesting stuff there. But lest we go off on another tangent, Jason, what you were going to say is that our Sunday speaker at our venture Alliance meeting was none other than one of the biggest names in in real estate as an individual name, you know, not as an institutional name, obviously, but as an individual. And he authored now, three of the rich dad advisor series books with Robert Kiyosaki, and that is none other than Ken McElroy and a couple of our venture Alliance members, Elizabeth and Patrick set that up and got him to come in and Tom wheelwright to come in and speak with us. And Ken just sat down and he’s just so giving and sharing and and you know, Ken’s been on the show a couple of times before, and just had Some great stuff to share. And he just talked all about his career and how he basically, you know, have this have this rags to riches story and, and he just sat there with our group and and then afterwards everybody kind of cornered him while standing up after his sort of more. Well, I don’t want to say formal because this presentation wasn’t very formal at all, which was what was so great about it, it was so just intimate and so genuine and just full of gems that you all of us could learn so much from. But after that people kind of cornered him and talked to him and I said, Hey, Ken, why don’t you come to lunch with us? And he said, Sure, I’m hungry. And so Ken McElroy went out to lunch with us. And we sat at a big table at a restaurant in downtown Phoenix and in the Palomar hotel, and, you know, he just learned about everybody. You know, one of our members, Brandon is a fighter pilot. He was sitting next to cannon. Brandon kind of said, I’m kind of giddy sitting there. Next to Ken McElroy, and I thought that was a great remark. And Kevin was talking, talking to him about flying jets and what it’s like to be a fighter pilot. And, you know, we just got to learn more about his incredible real estate career and how he’s really built just an amazing, amazing Empire. So that was great. And Sunday afternoon, we just spent more time doing hot seats and networking and supporting each other and so forth and doing some business and planning our next trips. We are working on some great, great stuff in 2017. We will probably go to either Hawaii or Cuba, if we don’t do it next year, but we might do it next year. I’m not sure yet. Maybe the Ice Hotel in Sweden. Yes, that one that was in the James Bond movie. You know, these are just once in a lifetime experiences. And that’s what we hope to bring everybody at the venture Alliance. So look, I don’t mean to make this some big promotion for venture Alliance because we got a great show lined up for you today, but Since we just came off that meeting, I had to share that with you and, and just how much I absolutely love our members and love what that group is growing into. I just think it will just continue to get better and better and better. So we’re, we’re thinking of the Ice Hotel in Sweden, Hawaii, Cuba, you know, just some fantastic trips. And then you know, of course, some some local stuff. We’ve got Las Vegas, my new hometown, coming up as a as a meeting place for venture Alliance as well. So check out venture Alliance mastermind calm and get involved with that also go to Jason Hartman comm click on the events section. There’s information in two different places about the venture Alliance and our meet the Masters event is coming up and filling up quickly. So hurry up and get your seats. We’ve still got some early bird pricing on that. We’re going to have a new another price increase here pretty quickly. So get your tickets for the meet the masters of income property, our annual event It’s in Irvine, California in January, you do not want to miss that. It is the one everybody asked about and talks about all year long. And we just keep trying to make those better and better for you as well. That’s going to be a phenomenal event. We’ve got several speakers lined up already. We’re working on more and more to come on that. But today, we’re going to our guest today will talk about aligning our interest. Yeah, when we invest. And this is a theme that I’ve had in talking to you for the last 12 years really, right. You know, you’ve heard me talk really the last 13 years, ever since I really started doing seminars almost exclusively on real estate investing. And that theme is luck, it boils down to this, the powers that be are so powerful, that you can you can derive them, complain about them, whine about them, but at the end of Day, you and I do not have the power to change them. They are too big, too powerful, they have too much momentum. So what we need to do is we need to game the system game the system, we need to align our interest with their interests. And when we do that, that’s how we will win the game. And we will actually beat them at their own game. And that’s why I say we will game the system. So we need to do that. We need to align our interests with the Federal Reserve with the powers on Wall Street not in terms of being investors and their terrible investments that are such an epic scam. But in terms of aligning our interests, with how they influence the lending markets, the financing markets on that panel that I spoke on yesterday, here at the IMF conference. In Phoenix, we talked a lot about privatization of Fannie Mae and Freddie Mac and how that possibility might change the market. And I’ve talked about that on the show before here many times and that our prior meet the Masters events, undoubtably, I mean, look, meet the Masters this year in Irvine, right? Next year, technically in 2017, or meet the Masters our annual event. It is the day after the inauguration of the strangest president we have ever had possibly, or at least in modern times, and that is Mr. Trump. President Elect, you know, our first real estate president. I think he’s going to be very bullish for real estate. And that is definitely the sentiment here at this conference. I think Trump is inflationary. I just read an article yesterday about how his trade policies could have this massive effect on his daughter, Ivanka Trump’s Business are issues 100 million dollar business. He wants to institute 35% tariffs. Oh, my God. What does that mean?
Jason Hartman 13:13
Wow, that is so significant it is it is literally mind boggling to even think of it if that happens or if even a portion of that happens. That is so inflationary, because and you know, philosophically I hate inflation, you know that. But from a practical perspective, when we align our interests with the powers that be, hey, inflation is a home run for us, isn’t it? Yes, it is. It definitely is. That is something we’re going to be talking a lot more about. You might notice over the past couple of years since inflation tamed bet because of this massive Ponzi scheme and house of cards that our whole global economy and certainly the US economy is built on. I haven’t been talking A lot about it. But that conversation is going to change on upcoming shows because there’s a lot of significance. So protectionism, tariffs, non free trade, that the Trump ideology is going to, I believe be inflationary. So, in what ways is that inflationary? Well, certainly, if China wants to sell products into our market, the largest economy in the world, the US economy, well, if they have to pay a 35% tariff, they either have to figure out how to be massively more efficient, and do things better, cheaper, faster, etc. Then they’re doing them now and they got to give China credit they do a pretty good job of delivering high quality products at very, very low prices. So it’s inflationary there because they they’d have to charge more for their products and also So be more efficient at producing them. But there’s another angle to that. And this is on the positive side that really people don’t talk about. And that is the fact that it will encourage more American companies to onshore their production, their manufacturing. And what happens then? Well, that means wages go up, unemployment goes down. This is all great. I mean, this is exactly what everybody wants, right and why Trump was able to win over so many long term democratic constituencies. I mean, he spoke to them. These these people that are union members and rust belt states. They’re not stupid, okay. They get it. They get it that the Democrats, although they say they’re for them, they’ve sold them down the river with Clinton’s NAFTA. I mean it’s not his exclusively but you know and Ross perot’s giant sucking sound prediction which absolutely positively came true. Ross Perot was absolutely right. That that would happen. And Clinton brought it into into life. I’m talking about Bill Clinton, of course not, not Hillary. And so that all came about, and here we are. All of these people lost out so Trump won them over longtime democrats rustbelt Democrats, it was truly the most amazing election, presidential election probably in American history, or at least modern history, right? So this means that these people are going to be more employed, and they’re going to see higher wages. See, the thing I’ve always said and you’ve heard me say this, when you hear this idiotic socialist agenda from Bernie Sanders and Hillary to a lesser degree because she tried to straddle the fence a little more, but Bernie was just an out and out socialist right. You We got to have higher minimum wage, we got to pass another law, you know, $15 an hour should be the national minimum wage, right? That just doesn’t work. Because the companies and the businesses, they all react to it and they automate and they downsize and then there’s just more unemployment and, and that that democratic idea just hurts everybody they’d say they want to help. It always works out that way. Just, you know, in the short run, it seems like a good quick fix. It’s like drinking caffeine, when you’re tired, you know, you’ll you’ll get a burst of energy, but then the, the hangover from the caffeine, when it wears off is worse, right? You have a crash. And that’s exactly what has been happening for decades now with a largely democratic congress that has basically run the country for the better part of five decades. Okay, I’m not talking about presidents here. I’m talking about Congress, which is arguably more powerful than the president and in many, many ways because where is the Ways and Means Committee? Well, it’s not in the White House. Okay. It’s in Congress. And that’s where the spending happens, right. And so this is the thing. This will just naturally happen as part of a Trump administration, I believe, we will see higher wages, we will see lower unemployment, but the wild card about Trump and the thing that scares me, and I think scares quite a few CEOs right now, is that, you know, like today, he started picking on Boeing. And, you know, he picks on people and he, he’s got his Twitter account, and this is going to be the most interesting presidency ever. And that’s not a value judgment. It’s not saying I’m not promoting him. I’m not saying he’s good, bad or indifferent. Well, he’s certainly not indifferent. Okay, that that we know for sure. And so this is going to be a darn interesting presidency. Because no president has ever used Twitter way Trump uses Twitter. And no president has ever been as blunt as Trump. So we will see, you know, there’s just more to come on all this right I you know, this is certainly not meant to be an exhaustive discussion on on the Trump administration, what it means to us as real estate investors or, or the economy in general. But I tell you, at this conference where there are some very smart, very successful real estate people, the tenor is very positive. And I think, with our first real estate president, we are going to see good things for real estate and of course, it’s a multi dimensional asset class. So when you say good things, what exactly does that mean to the uninformed person, it means well, prices go up, instead of going down. That’s not what I mean. I mean, good things overall, for people who are in the know who are smart, who know how to adjust, who knows that. You’re either in a market where you’re you’re working on your cash flow and you’re raising rents or You’re working on your capital gains as prices are increasing, or you’re lowering your cost of ownership by restructuring debt and refinancing debt using my refi till you die plan, you might be pulling cash out. There are so many dimensions to income property. And that is one of the wonderful things about it. But listen, I am rambling as I always do. So let’s get to our guest today. Because I think you’ll find this to be very interesting as a discussion on many of these things I’ve mentioned here in the intro portion, but be sure you go get your tickets for our upcoming meet the Masters event in January, we’re going to have a price escalation soon so do not wait. Waiting will hurt you. It’s like you know you’re thinking of taking that trip and should I buy my airline ticket now or wait maybe the price will go down, the price will not go down. So you’re much better off buying now the prices will only go up as the room fills. And as we have to make arrangements With our hotel and so forth, and so get your tickets at Jason hartman.com today, and let’s get to our guests.
It’s my pleasure to welcome Dr. Robert Johnson to the show. He is president and CEO of the American College of financial services, author the book invest with the Fed, maximizing your portfolio performance by following Federal Reserve policy, which, by the way, investors, that is a great topic. You know, we talked about aligning our interest with the powers that be quite a bit on the show, so I can’t wait to dive into that one with him. He’s also author of a book that gained a lot of notoriety because Warren Buffett recommended it and that is entitled strategic value investing. And he’s author of the new study what to expect when you’re electing. So I think we’re going to talk about the election and what our new administration means to us, Bob, welcome. How are you? It’s great. To be here, I really appreciate it. Jason. Yeah, it’s good to have you So, boy, a Trump presidency. A lot of us just don’t know what to expect, do we? We certainly
Dr. Robert Johnson 22:09
don’t. And the conventional wisdom, it’s really interesting that conventional wisdom going into the election was that a Clinton victory was impounded into stock prices and that a Trump victory would lead to a lot of volatility and a fall in equity prices. And I think the October surprise was really a November surprise, and we got just the exact opposite. You know, Jason, it’s really interesting. I have a good friend who was one of the few people I know predicted a Trump victory. And he adjusted his portfolio. He sold out of equities the Friday before the election. He was looking pretty good. Early in the morning on Wednesday, when the futures were diving. And we all know what happened since. Yeah, yeah, we should
Jason Hartman 23:00
So this is our first billionaire president. It’s our first real estate president, which a lot of our listeners are real estate investors. I mean, Trump is a total outsider, he doesn’t he doesn’t owe a lot of favors to people. What does that mean to investors? What does it mean to fend policy? You know, certainly on the on the trade angle, I think a lot of us can make some predictions as to what it means I think, there there will be some inflationary pressure. If we have more protectionist trade policy. Certainly, you know, your your next iPhone is going to cost you more money, probably. But what else does it mean? Let’s let’s dive in.
Dr. Robert Johnson 23:40
I don’t think we should just limit it to Trump being elected, either. It’s that the Republican Party controls the House, the Senate and the presidency. And, you know, when there’s political harmony, I think there is a greater likelihood to have policies enacted than that. Are are change agents. And I think what we’re seeing with Trump is certainly a belief that there’s going to be some fiscal stimulus, there is going to be some reduction in taxes. And what that combined what that’s going to mean certainly is an inflationary environment. I think it all but cinched the fact that the Fed will raise rates at their December after their December meeting they meet I believe it’s December 14, there will certainly be a rate rise. And, you know, I think we’re going to see some, you know, significant a significant upward movement inflation. What it means to me is that, you know, interest rates are going to move up, bond yields are going to go up and there will be a point at which bond yields are going to start again, looking attractive to yield investors. And that’s probably going to have a negative impact on the stock market over the next few years. Okay, so
Jason Hartman 25:06
here is the interesting thing and I don’t know if these always move lockstep I’m, I’m only a hacker economist. But, you know, to me, Trump, he’s so kind of like pro America, that it seems like Trump will mean a strong dollar. And maybe not we feel free to disagree. But at the same time, more protectionist trade policy which will bring, you know, the ideas that will bring more jobs back to the US and bring higher wages. Certainly, if you if you build the wall, you’re probably gonna see wages in shop a bit, which is good news for American workers that are here already. and higher prices of goods imported from especially China but other countries too. Can we have that at the same time? Can we have that inflationary pressure in our goods? And higher wages in services, which is also inflationary and have a even stronger dollar at the same time, or is that not even possible?
Dr. Robert Johnson 26:08
Yeah, I think that there’s a lot to be determined. One of the interesting aspects of the recent movements in the markets is I’m convinced that one of the reactions in the markets has been that the US equity markets have been strong at the at the cost of some of the foreign equity markets. In other words, I think that what a lot of international investors have done is that the trade has been from, for instance, some foreign markets into the US, you know, perhaps Trump’s strategy is going to be make America great again by weakening some of the foreign countries but I you know, I think there have been inflows into the US markets, from foreign markets and race in in in in recent days.
Jason Hartman 26:57
Okay. So what is that is going to mean, you know, Whitney in terms of like investment strategy what what should someone do?
Dr. Robert Johnson 27:06
Well, I think what we invest with the Fed what we looked at is we looked at how different asset classes and different equity sectors in particular, how they performed during different interest rate environments. That is, how did they perform during a rising rate environment, how did they perform during a falling rate environment. And we found some had some really interesting findings. First of all, the, the overall market, the s&p 500 had a return of approximately 15.2% from 1966 through 2013, when interest rates were falling, so, robust return when interest rates were falling when interest rates were rising, that the same s&p 500 only return 5.9% So, rising rates are bad is bad news for investors, for equity investors and what I think most people agree on, I think the consensus of the markets is that interest rates are going to rise. Now, that doesn’t mean all sectors are affected equally. In a rising rate environment, the best performing sectors in the past have been energy, food, utilities, and financials. So, those sectors have done reasonably well in in rising rate environments. Some of the sectors that have performed particularly poorly in rising rate environments, autos, durable goods, retail, so and if you think about that, it actually makes a lot of sense, Jason. when money is cheap when money is easy, a lot of the non discretionary or I should say a lot of discretionary spending increases, people buy new cars, people buy expensive suits of clothes, people buy a new washing machine. They delay those purchases when interest rates are rising and money is a little more dear. So I think that you are going to see some of that over the next few years because I think we are going to have a, what I would call more of a normalization of rates, that rates are going to rise, but, you know, they’ve been at such historically low levels, that they just can’t stay at those levels for forever.
Jason Hartman 29:35
Inflation, deflation, you know, just sort of, uh, nothing like a stagnation type of environment. I mean, it seems to me like Trump is going to be good for the economy. I mean, better than Hillary, at least. I don’t know. You know, I’ve never been that’s probably a partisan statement. But you know,
Dr. Robert Johnson 29:56
well, I don’t know. I don’t know necessarily. It’s a partisan statement. I just don’t know. What he we certainly aren’t going to be able to compare it because the Hillary administration never happened. But I think what you’re going but we knew that we knew the gist of it. I mean, you know, it’s a Democrat. It’s a, you know, Democrats traditionally aren’t as high on regulation is a misnomer. If the stock market is any kind of indication as to whether a particular political party is good for the economy, bad for the economy. During republican presidents since 1929. The stock market is advanced about 7% when a republican has been in office when a democrats been in office, it’s 15 and a half percent right. But you also
Jason Hartman 30:48
have to take into account congress of course, because you know, that’s no
Dr. Robert Johnson 30:51
abs. Absolutely. And that’s my point is my point is that political in the funny thing is Jason, there’s this old adage out there that gridlock is good for the markets. I don’t know how many times I’ve heard that. And I always my head wants to explode every time I hear that, because that’s simply not the case. Political harmony historically has been better for the markets, the markets have performed better. The equity markets have performed better and political harmony. The bond markets have performed worse under political harmony. And if you think about it, that makes sense too, because under political harmony, typically a party can get their agenda passed. And in gridlock, it’s more difficult. So when there is consensus, there is an agenda and it typically involves it typically involves some fiscal spending. And markets have performed stock market has performed very well. So if that’s any indication, and by the way, these analyses when You simply look at the party of the president and how the stock market returns. Those are univariate analysis that assumes that’s the only variable that matters. And of course, there are all kinds of variables that matter. All I would take from that statement, though, is, I know in the words elite core, so the football analyst, when you say that Republicans are the party of business, not so fast, my friend. Okay, so these business,
Jason Hartman 32:27
the stock market, that you’re kind of begging for me to ask that question. I mean,
Dr. Robert Johnson 32:34
are those one in the same? I think over the long term, they certainly are.
Dr. Robert Johnson 32:39
I mean, that, you know, I think when you take a long term perspective, there can be certainly times at which the economy and the stock market are moving in different directions, but I’m Warren Buffett is always the person that I’ve looked to for wisdom in investments. I grew up in Omaha, Nebraska. I grew up in the shadow of Berkshire Hathaway and Mr. Buffett, and we do
Jason Hartman 33:03
have to we do have to note that Buffett is a raving Democrat.
Dr. Robert Johnson 33:08
But over the last over the long run,
Dr. Robert Johnson 33:12
you know, I think when you when you look at how markets perform, I think they are a reflection of the underlying economy. And long term market returns have been pretty good when there have been democratic presidents So, you know, I think that kind of and, and, and I think that what’s interesting, Jason is how markets react to elections. Both Obama elections, his initial election and his reelection, the markets reacted very negatively the next day. Well, what happened during the Obama years in the stock market? stock market perform very well. Oh, yeah. Very well, but
Jason Hartman 33:51
But remember, I mean, that’s such an anomaly, though, when you look at the great recession and how the stock market just tanked In Iraq, yeah, we were at it. We were out of the great recession in 2012. Right, right, right. But I’m talking about the first Obama.
Dr. Robert Johnson 34:08
Okay. Okay. The second Obama it net big negative, what’s happened in the last few years. In other words, the stock market is basically random over short term time period. And and I wouldn’t take too much, I wouldn’t pay too much credence to the Trump what people are calling the Trump rally. I’m not suggesting that the markets won’t do very well. But I’m suggesting that if history is any guide, short term reactions to markets are almost a random, a random variable. There’s a much greater long term element in this and, you know, wait and see I certainly hope things turn out very well under Mr. Trump and that he’s very good for the economy, but a lot after that,
Jason Hartman 35:00
Yeah, right, right. Okay. So what would you be doing now given you know where we are here we here we sit just very shortly after the election, big surprise to many.
Dr. Robert Johnson 35:13
What’s the best strategy? I think the best strategy is that if you had an investment plan, the Monday before the election, that investment plan should not have changed at all as a result of the election. You know, I think that that people need to take a real long term perspective in in in their investment strategy. So many people want to game things in the short run and attempt to time the markets and do things that they think are going to improve their performance. And what we find is that the typical individual investor underperforms the markets because they can’t get out of their own way. The best strategy in my opinion, Jason is to just do dollar cost averaging into a low cost index fund, and enjoy the ride. Nothing better than that
Jason Hartman 36:07
than just good old dollar cost averaging,
Dr. Robert Johnson 36:10
you know, if you can, if you can earn returns to the markets, you’re going to do just fine for the average investor. Now there are folks who will, you know, want to attempt to outperform want to be very active investors. And you might want to do some of these things sector rotation and so forth. But, you know, too many people, too many people are their own worst enemies.
Jason Hartman 36:37
Yeah, well, you know, it’s human nature. We all want instant gratification. That’s not a new phenomenon. And that’s what I do love about. The Warren Buffett philosophy is, you know, buy quality, hold it. As a real estate investor. I basically follow that strategy, you know, as it applies to real estate. And the interesting thing about real estate you mentioned real estate early on in our conversation and what we have found that during rising rate environments, the returns to equity real estate investment trusts are are very robust. In fact, equity real estate investment trusts do very well during rising rate environments. So for your real estate investors, that’s pretty good news. Right? Right. But you’re talking about real estate investors that are doing it through funds and Wall Street type vehicles. What about just real estate in general, I know it’s not your beat, per se, but you know, you, I’m sure have some opinions on
Dr. Robert Johnson 37:28
it. It’s just hard to get data on that I’m an empiricist. I I look at what what has happened, I look at what relationships have been in the past. And it’s very difficult to get any real estate data and real estate investment trust data. So that would just be pure conjecture, but if you think about it, if you own real estate and rates rise, and you can if if there if there’s a way to pass a long you know, rent increases to the the occupants of the rent to the renters, then real estate should have pretty good returns during a rising rate environment.
Jason Hartman 38:07
Yeah, and I agree with you, you know, it’s a it’s a multi dimensional asset class. So you’re either in the booming economy when rates are low and prices are increasing, you hope to be a capital gains investor. And then in the in the higher rate, tighter money, environment, you hope to be a cash flow investor, and you’re just constantly adjusting your strategy as as, as time goes on through those different economic cycles. Also, you know, what are your thoughts about small business about kind of Main Street America, if you will, in a in a Trump administration? I wonder if, I mean, this is all such a wild card we just don’t know. But for example, will small business financing become more plentiful or less plentiful or just the about the same?
Dr. Robert Johnson 38:56
You know what will happen there? Well, I think the cost of financing stuff Gonna go up? Yeah. And what if we, by the way,
Jason Hartman 39:04
you’ve mentioned that a few times, I’m sorry to interrupt, but I just want to ask you why, again, just make sure we drive that point home. Why do you believe rates are going to rise? And I know that a lot of people think that at the moment, but just because they’ve been so low for so long, or,
Dr. Robert Johnson 39:21
or what? Well, I think that’s one element. But a big element is that President Elect Trump has stated that he is going to increase infrastructure spending. So I think there’s going to be a lot more fiscal spending, which is very inflationary. Okay, and just
Jason Hartman 39:37
explain that relationship, if you would, why, why is why is infrastructure spending inflationary because it creates more jobs and there’s more spending and more money cycles through the economy if it’s, you know, this trillion dollar infrastructure,
Dr. Robert Johnson 39:51
it’s kind of economics one on one idea about there’s there is a another big demand for funds and when there’s another big demander of funds The federal government interest rates are going to have to go up to have supply meet demand. So it’s it’s it’s a pretty simple relationship in terms of you’ve got another big borrower in there the US government,
Jason Hartman 40:15
so it’s it’s financing the infrastructure project, obviously, right? Oh, exactly. And, you know, you got a float bonds and you got to sell those bonds at the auctions. And
Dr. Robert Johnson 40:26
if we take him at his word, it’s going to be exacerbated by the fact that the tax rolls are going to decrease that, you know, as tax rates are lowered, at least initially.
Jason Hartman 40:40
You know, the government revenue will decrease initially, right? So you’re not you don’t. In other words, it sounds like you don’t completely buy into the theory that it’s just a zero sum game where you decrease taxes, you decrease revenues. It sounds like you’re open to the supply side or idea that you reduce taxes and ultimately, but it takes some time to trickle Through, you may increase revenue because there’s more economic activities attacks. Right.
Dr. Robert Johnson 41:05
Yeah, I think that’s a tough argument to make. But I think definitely if you couple that with increased infrastructure spending, you know, I just don’t know how that can happen, at least in the short run, how that can happen. Yeah, okay. Okay, good.
Jason Hartman 41:21
What else do you want people to know maybe just anything I haven’t asked you?
Dr. Robert Johnson 41:25
Well, I think that it’s it’s really interesting to focus on the you know, the the election and that a great deal of change is taking place and but there are four words in the English language that I believe are the most detrimental words to investors. And those four words are this time is different.
Jason Hartman 41:50
I love that. I say that all the time.
Dr. Robert Johnson 41:53
I just don’t, don’t it. There’s a man I’m gonna go back to a golf analogy. I always Make. There was a very famous golf pro Harvey penick RVP Nick was Ben Crenshaw, golf pro and RVP. Nick died and Ben Crenshaw was a pallbearer at his funeral and then Crenshaw flew immediately to Augusta had didn’t even play any practice rounds and won the Masters that year, you know, with a famous golf event. But RVP Nick used to say that when you take a golf lesson, take an aspirin don’t take the whole bottle. In other words, don’t change everything. And I don’t know how many of your listeners are golfers but when you’re a golfer, and they say do something you kind of tend to over exaggerate it and then it really damages your swing. I would do that with this this election. It politically it may be a a seismic event, but for the financial markets, assuming this time is different and wanting to make wholesale changes in your portfolio. I don’t believe is a prudent strategy. And one that I’m not advocating and that I’m not doing with my own portfolio. In Bob, I am going to agree with you on that one, you know, stay the course, overall that that wins the game. That’s the Buffett philosophy. And it sounds like it’s yours too. So that that’s fantastic.
Jason Hartman 43:23
give out your website, tell people
Dr. Robert Johnson 43:24
where they can find out more about you. www dot the American college.edu. We are a nonprofit, accredited degree granting organization. We’re based in Bryn Mawr, Pennsylvania, we deal with in financial services, and we have about 26,000 students in our various designation and degree programs. Excellent.
Jason Hartman 43:49
Bob Johnson, thank you for joining us. I really appreciate the chance to talk to you.
Dr. Robert Johnson 43:53
It was great.
Jason Hartman 43:55
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