ANNOUNCER: Welcome to Creating Wealth with Jason Hartman! During this program, Jason is going to tell you some really exciting things that you probably haven’t thought of before, and a new slant on investing: fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self-made multi-millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years, and currently owns property in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it! And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
JASON HARTMAN: Welcome to the Creating Wealth show. This is episode number three hundred and fifty-six, and this is your host, Jason Hartman. I’ve got Naresh Vissa with us today to do the intro portion with me, and then our guest today will be John Stossel, a name you have certainly heard before: one of the great authors and thinkers and news commentators, of course, an investigative journalist who will talk about some good stuff too. So Naresh, how you doing?
NARESH VISSA: I’m doing great, Jason. Happy New Year to you; I’m looking forward to nice 2014.
JASON HARTMAN: Yeah, I think it’ll be a great year actually. A great year, but with mixed disclaimers attached. And so we’ll talk about that a little bit. I didn’t know that our last episode, number 355, was going to be posted, so I may have neglected to wish everyone a Merry Christmas. So, I hope everyone had a great Christmas out there, and certainly wish you the best in 2014. We’ll probably get another episode out—well, not before the New Year, but right after the New Year, of course, and many more next year. And yeah, we’ve just got some great stuff coming up for the show, some good guests, our Meet the Masters event is coming up in just a couple weeks here in Irvine, California, and we do that once a year, so that’ll be great. But you know, Naresh, one of the things I wanted to ask you about, and I appreciate you joining the show today; you haven’t been on before. We did have you on the Speaking of Wealth show, talking about your background in info marketing and so forth. But, yesterday you saw the movie which I have been dying to see, all three hours of it or so, and that is the Wolf of Wall Street. So, tell us a little bit about it, will you? I hear it’s great.
NARESH VISSA: Oh goodness. Well, if I could sum it up in one word, it would be: outrageous. It’s probably one of the top three most shocking films I have ever seen, and to give you an idea of the types of movies, or how many movies I watch—this year alone, 2013, I’ve probably watched more than 200 movies.
JASON HARTMAN: You actually keep track of this? [LAUGHTER]
NARESH VISSA: I don’t know the exact number, but probably more than 200, given that I pretty much watch a movie every day, or one every two days. I have a NetFlix account, and it’s just something I enjoy doing. And I don’t watch garbage movies, but I can actually learn a lot and get some great ideas from films. And this movie, Wolf of Wall Street—it crosses so many boundaries, so many moral boundaries, ethical boundaries, financial, it’s a must-watch. But you have to be able to handle it. There are people who were walking out in the middle of the movie. My guess is they probably couldn’t handle the amount of sex and profanity and drugs that was in it. But, if you can handle it, definitely check it out. You won’t see anything like it.
JASON HARTMAN: It’s basically about the debauchery of these traders, right? And how much money they’re in essence stealing from the public and the investors?
NARESH VISSA: Yeah, it’s not really traders—they’re mostly brokers, so, salespeople. And the beginning of the movie starts with the main character, Leonardo DiCaprio, selling penny stocks, and anyone who has invested money before knows how crappy penny stocks are. They’re literally like the worst of the worst. And DiCaprio makes 50% commissions off of getting people to invest in some terrible, terrible penny stock companies. So that’s how the movie starts. And they work their way from penny stocks to even more crappy securities, and insider—not insider trading, but just pump and dump schemes, securities fraud, things like that.
JASON HARTMAN: Mhmm, yeah. So, what happens? They’re just doing all kinds of bad deeds, and they’re spending their money on drugs and hookers and just this totally debaucherous lifestyle, huh?
NARESH VISSA: So, the main character, DiCaprio plays Jordan Belfort, I believe that’s how you pronounce his name. He starts out at a big brokerage, kind of almost too-big-to-fail type of brokerage. It ends up failing due to the 1987 crash. So after that, DiCaprio kind of goes out on his own, starts his own company, finds a partner, and they build their business up from there. Now, they end up making a lot of—it’s essentially a sales business, so they’re selling stocks, and then they add IPOs a little later. And they’re making so much money that by the time Belfort reaches 26 or 27 years of age, he’s making nearly $15 million a year. This is in the early 90s, at the beginning of the tech boom and the stock market boom, and what do they do with the money? They spend it on lavish parties, hookers—when I say hookers I mean, every day just tons and tons of hookers. They almost had several hookers on staff at the company whose sole job was to spend time in the bathroom for these brokers.
JASON HARTMAN: Oh my God! This is disgusting! I mean, this is unbelievable, the complete debauchery. It’s just ridiculous. Wow. That’s…
NARESH VISSA: Yeah, and then the drugs, that’s another big issue. Everyone almost just snorting cocaine…I mean, some of these drugs I don’t even know much about—they’re now banned; one was called, a lemon—before my time, but it apparently gave you the biggest high in human history. So, it’s a 3 hour movie, and about an hour is just spent on drugs and sex, which I guess keeps the viewer interested for the entire 3 hours. It’s almost, every other scene has something to do with that. And the women are very pretty, and some of them in real life I’m sure are probably pretty as well. But yeah, it’s basically about Belfort, his partners, the people who work for him, them making all this money, and then they started getting into some pump and dump schemes, into some securities fraud, cheating on their spouses, getting hookers into the office, throwing lavish parties in the Hamptons with these hookers, with midgets; it had the whole deal: drugs, sex, hookers, midgets, you name it.
JASON HARTMAN: Wow. This is just unbelievable. You know Naresh, I’m always talking on the show, and you listen to pretty much every episode, so I’m always talking about commandment number three, thou shalt maintain control of my ten commandments of successful investing. And the first thing is, you might be investing with a crook. The second thing is you might be investing with an idiot. And assuming they’re honest and competent, they take a huge management fee off the top for managing the investment or selling you the investment. And it sounds like these scumbags were doing all three. I mean, they’re probably crooks, they’re probably idiots, because they’re drugged out all the time, and sexed up all the time, and probably not very rational in that sense, and then of course they’re taking these giant, ridiculous fees that these middle men are just skimming all the profits away from the investors…it’s kind of like, I heard someone say about government, people look at government as this noble entity. Well, not everybody, obviously. I don’t. But some people do. Idealistic people on the left side of the aisle usually do. Government is like this noble, ethical entity. I don’t think that’s true at all. Government always looks out for itself, first. To keep its entrenched power structure. And that’s exactly what Wall Street does. It looks out for number one, itself. That’s who they take care of.
NARESH VISSA: Well, two things. Number one, in this film, government is actually the good guy. At least in the eyes of the viewer. Because, you see Belfort and all his associates and what they do, and you kind of want them to go down. And the government takes them into custody and charges them, all of that. So that’s the first thing, which is just kind of ironic. The second thing is, you talked about these salespeople and the commissions that these brokers are making. The business model was, when they started their company, they would get people to buy blue chip companies at the time, like AT&T, IBM, and then they would funnel them into the penny stocks, and the commissions on the penny stocks were 50%. On the blue chips, I think in the film they were less than 25%. But the goal was to get people to invest large chip sums of money; $40,000 plus, which is a lot of money into the early 90s, into these worthless penny stocks. I mean, these were absolutely worthless. And the other thing is, these sales guys, you can tell, they know absolutely nothing about what they’re talking about. They know nothing about the companies—they don’t even know anything about the blue chip companies. They’re just talking out of their behinds trying to sell them something, and something we can all learn today is, little has changed. I’ve talked to life insurance agents who are probably the biggest scumbags out there, and before you put your money anywhere, whether it’s life insurance or an investment, make sure that the person you’re talking to knows what they’re actually selling. They know the insides and out. And that touches on one of your commandments.
JASON HARTMAN: You know, I think the key—maybe this is just a good rule for the New Year or for life in general—is simplicity. If it’s complex, that’s usually designed to hide something. And scam the unaware person. Investments should be simple. Real estate—being a direct investor in real estate, it’s simple. Everyone can understand the way real estate works. You buy a property, you make sure it’s a good property in the right market, you structure the deal properly of course, and you rent it out to people! This is a simple concept. The people I have had try to sell me life insurance—and I think life insurance is largely a rip-off. Now, granted, if you’re young, usually if you’re young and you have no assets and you have children, you probably should have some simple term life insurance. But these universal life and whole life policies, and whatever new name they made up for one of these things—they’re so complex! I mean, the contracts and the disclaimers are these huge outrageously complex contracts. And they just pull the wool over peoples’ eyes. I mean, do you think all of these financial engineers that work at these big giant insurance companies that are really brilliant mathematicians—they’re people that should be doing something that creates actual value in the world. They should be in engineering. But Wall Street and banking and insurance has sucked up all these people that would be actually inventing things, and they’ve brought them into the financial world where they’re inventing financial products, and they’re engineering the products so that the institution selling them cannot lose. They are like no-lose deals for the institution, and they’re always losing deals for the consumer. The little investor, the middle class investor that buys them. So, it’s unbelievable. I’m no fan of life insurance. I do thing that basic term life insurance is needed for some people, but even better than that is, if you have some assets and you have children and you have dependents that you need to take care of in the event of your passing…well, that’s easy! Just create some wealth, and leave it to them! That’s better. But if you’re young and you haven’t created that wealth yet, then a simple term life insurance policy is what you need. That’s it. Simple, simple.
NARESH VISSA: Yeah, well, like you mentioned, life insurance is so complex, and there are now so many different products out there. So, definitely do your research, whether you’re young, middle-aged, old; do your research and make the best possible decision out there. And make sure you go with an agent who is honest and who knows what they’re talking about, who can walk you through the product and how it works. Because a lot of these guys are just…I don’t even know what they’re saying.
JASON HARTMAN: So Naresh, I think the listeners have probably heard me talk about the scams of Wall Street and life insurance so much by now, they’re probably a little bored with it. But there was kind of one more major theme, or part of the Wolf of Wall Street you wanted to mention before we go to our next subject, right?
NARESH VISSA: Yeah, being that—I know you’re libertarian, Jason, and recently with Steven A. Cohen being charged by the SEC and forced to pay billions of dollars in fines. One thing about Wolf of Wall Street that got me thinking: so yes, Jordan Belfort, he participated—knowingly participated in securities fraud, pump and dump schemes, he took Steve Madden, when he took the Steve Madden idea public—the biggest issue I have is, in 2008, Angelo Mozilo with Countrywide, Franklin Raines with Fannie Mae, right, these are guys who admitted to wrongdoing, and who were successfully charged, and they didn’t spend any time in jail!
JASON HARTMAN: I know! They’re total crooks. Mozilo got—
NARESH VISSA: $60 million, I think?
JASON HARTMAN: Right, he paid $60 million, which is like me giving you a dollar. It means nothing to him. And the problem with these fines that the government levies; usually it’s not really the CEO that actually pays them! It’s the shareholders of the company that pay the fine! While the CEO has already gotten away with all the loot! It’s such a major scam, I cannot believe it.
NARESH VISSA: Right. So, Jordan Belfort in the movie gets three years of jail time, which is, you can say is justified, but Angelo Mozilo, FDR, these guys brought down a global economy. I mean, they threw the world into a depression.
JASON HARTMAN: Oh yeah.
NARESH VISSA: Knowingly. They lied about what they did. And they did all of this just to make a buck for themselves. So, it really baffles me that the government—you watch this movie, and you say, Wall Street’s bad, this Jordan Belfort is bad, but look at people living in our own government. Franklin Raines is Obama’s buddy. He helped Obama with his campaign for two straight—‘08, and 2012. And that just got me kind of ticked off. And that goes for Steven A. Cohen, who was recently fined what, like $1.5 billion? Steven A. Cohen, he didn’t knowingly participate in the insider trading charges. It was two or three bad apples in his company who did so. He started his own company with his own money back in the early 90s, and created great value for his employees and for his clients, and yet now, the government’s making his firm turn into a family office, so it just kind of shows hypocrisy with the government. You’re going after these little guys like Jordan Belfort—yeah, what he did was wrong, but these big guys who created depressions and recessions get off free, and who knows what they’re doing now.
JASON HARTMAN: Well Naresh, it’s the best justice money can buy [LAUGHTER]. That’s always been the way of the world. And you know, my contention is that it’s really the government—they come in and they always look like the hero, because they come in and nail these guys at the end, maybe like in the case of the Wolf of Wall Street they did, but in the case of Mozilo and Raines of course they gave them a pass, and so many others, of course. But, the government creates the problem by allowing these companies to get so big, and how do they do that? Well, they allow them to get so big, because they allow them, through their lobbyists—their lobbyists pay off the government, or there’s exchanges of favors—so they get this protectionist legislation that makes it hard to compete with the big guys, and so the big guys just get on this road, and they have smooth sailing to just take over and rape the world, basically. And they become so big that they become too-big-to-fail, and of course we saw corporate socialism rear its ugly head in this last crisis. And the government creates the problem! What if the government regulated less? Because, I say all those regulations are just favorable to the big fat cats. They complain about them acting as though they’re against government regulation, but they’re really for it, because it helps them. It allows them to maintain their monopoly. And that’s what the little guy never understands. They never see the bigger picture here. They only see the little picture of, oh God, there’s a crisis, we need more regulations to stop these crooks from ripping the world off. Well, guess what? If you didn’t have Fannie Mae in the first place—because Fannie Mae was invented by the stupid government—you wouldn’t have Fannie Mae corruption! And guess what? If the government was smaller, everybody would agree on both sides of the aisle that the government is corrupt. And inefficient. I think everybody will agree with that, whether you’re Democrat or Republican or somewhere in the middle or somewhere outside of those two opposites, right? Everybody will agree that if the government is inefficient and the government is corrupt, right, well guess what? If it’s smaller, there will be less inefficiency and less corruption. So, it’ll always be there—any human organization will have inefficiencies and will have corruption and will have bad apples. I think we’ve got to resign ourselves to that ugly truth. So, my opinion is, let’s just make it smaller! Because if it’s smaller, the corruption will be smaller, and the inefficiency will be less pronounced. Maybe you disagree with me, because you’re not as much of a libertarian as I am [LAUGHTER].
NARESH VISSA: I think you certainly have a point. When it comes to freedoms like that, I’m all for more freedom, I’m all for more business, more jobs, and everything that you mentioned would help create more business and more jobs, so it makes sense to me.
JASON HARTMAN: Okay, well, so let’s turn our discussion here a little bit before we get to John Stossel, and let’s talk about real estate investing more specifically if we could. And Naresh, you do some work for some precious metals companies. And you know on my show that I’m not much of a gold bug at all, although I think it’s an interesting indicator, and it’s always worth talking about and looking at, because it is a yardstick, it is a measuring stick, it’s a litmus test for things. So, it’s good in that way, but as an investment I think it’s pretty weak. And you’re of course welcome to disagree with me. But there’s this constant debate of, what will the future look like? Will it look like inflation? And admittedly, a lot of my investment strategy is based on inflation. Especially the concept of what I call inflation-induced debt destruction. And the regular listeners of the last 355 episodes have heard me talk about that ad nauseam. But the question is, what if that inflation doesn’t come? How does it work then? And I mean, your thoughts are that we won’t really have that much inflation, right? What do you think?
NARESH VISSA: Yeah, so, I’m probably gonna take a contrarian view on this. I don’t see inflation coming. I was very worried in 2008 with all the bailouts and the stimulus plan, and then the QE1, the QE2; it made sense to think, okay, you’re printing money, you’re stimulating the economy artificially, so inflation’s going to come. But then 5 ½ years later we have not seen it. And now the Fed is going to taper—
JASON HARTMAN: And one, I want you to make one distinction before you go on, please. You say we have not seen it. But you’re talking in very broad, general terms. We had had some inflation, just not the massive inflation that many have predicted.
NARESH VISSA: Right. So, the inflation that I’m talking about is of course, every year the inflation goes up by a little, but the inflation I’m talking about is, the Gerald Celente, Peter Schiff type of inflation—
JASON HARTMAN: Right. They say the world’s going to end with inflation [LAUGHTER].
NARESH VISSA: Right, exactly. So, I actually am a fan of Ben Bernanke, I think he’s done a very good job. I’m not sure—
JASON HARTMAN: Wow! I don’t know if I’m gonna have you on the show again! [LAUGHTER]
NARESH VISSA: I think he’s done a great job at keeping the economy under control. Because we were in dire, dire straits back in 2008. I’m not sure about the new woman who’s taking the spot. I don’t know enough about her. But I think Bernanke’s done a great job. And now the question—or not the question. Inflation is going to come. All this money has been printed, and it’s in the economy. The question now is, okay, the Fed is tapering. Where does that money go? It’s going to go to certain asset classes. I don’t see it being spread out across all asset classes. And who knows, maybe real estate could be the byproduct of this inflation. Maybe it’s a certain commodity. Maybe it’s something else. I don’t know what it is, but we are going to see inflation in certain areas of this economy. I just don’t see it being very widespread.
JASON HARTMAN: Okay, so here’s the thing. The real answer is, we don’t know! You know? Nobody knows. And I agree with you to an extent, because all of these doomsayers, all of the Peter Schiffs and the Gerald Celentes, and really, most economists believe, at least as I look at it anecdotally—I haven’t formalized a survey or done a spreadsheet on this—most believe that inflation is in the future, and that it’s going to be significant inflation, and many believe hyperinflation. And if you just had to do math, like you said when you started doing the math and looking at all the quantitative easing and the bailouts, we should definitely have a lot of inflation by now, but we don’t. We have some, but it’s not this sort of hyper runaway inflation that many doomsayers have been talking about. And by the way, let’s just remind everybody that Peter Schiff predicted gold at $5,000 an ounce before the end of Obama’s first term, although nobody seems to remember that except me, and that’s why I keep saying it! I’ll tell you, I have been wrong too—I predicted higher interest rates by now, and I’ve been very wrong about that, and I’ve been open admitting that. And Gerald Celente is now predicting a total economic collapse in the first quarter of 2014. And he of course predicted that in the first quarter of 2009, 10, 11—
NARESH VISSA: Yeah, he’s been predicting that for the last 30 years.
JASON HARTMAN: I know! And eventually he’s going to be right, I guess. And listen, I’ve had Gerald Celente on this show, and on my holistic survival show as well. And I like listening to Gerald Celente—I think he’s pretty interesting—
NARESH VISSA: He’s convincing.
JASON HARTMAN: He’s very convincing. And I like hearing his rants. And Peter Schiff is also very good, he’s like the master of the sound bite zinger. But the thing none of these guys seem to understand, Naresh, is that when it comes to the United States of America, it’s a vacuum! We don’t have to obey the laws of gravity or the laws of math or the laws of physics when it comes to monetary policy. Guess why? Well, I’ve said it before. We have the world’s reserve currency, number one. Number two, we have the world’s biggest economy. And number three, possibly most importantly, we have the world’s biggest military! So, we can force people—other countries—to buy our debt. The rules do not apply to the United States of America. Do I think that’s fair? No I don’t think it’s fair. Am I glad I’m on the beneficiary end of that? Yes I am. I’m much happier being a lucky American than an unlucky Chinese or Japanese person, okay? Because I think that they, and much of the rest of the world, are getting screwed by our spending and our monetary policy. Because they’re the ones that suffer by buying our debt, and basically being forced into it, whether it be through outright military might, or the more subtle approach of the John Perkins Economic Hit Man concept. And the other thing I didn’t even mention in those three things that America has that allow it to defy the laws of physics, defy the laws of math, defy the laws of gravity, are that America has the biggest brand, and that should not be underestimated. The power of the American brand name. And granted, I think we are going in the wrong direction. I think we are making like every mistake in the book. It upsets me greatly. I don’t like it. But, we can probably kick this can down the road for decades and decades to come. And all these purveyors of collapse and hyperinflation—they’re probably going to be wrong.
NARESH VISSA: Well, there are two things I want to—you talked about kicking the can down the road. And there are two events that I see happening within the next decade. The first one is the JOBS Act. And I know you talked a little bit about—
JASON HARTMAN: Possibly the only thing Obama’s ever done, in my eyes. And you probably even like Obama, don’t you!
NARESH VISSA: I’m actually not an Obama fan.
JASON HARTMAN: Oh thank God. He likes Ben, but not Obama. That’s good. Okay, we got one half of the equation down. Go ahead.
NARESH VISSA: Well, the JOBS Act, for listeners that are not so sure about it: basically, the goal of the act is to spur entrepreneurship and small business. So, it’s going to be easier for small businesses to raise money, and what this can do is essentially create a new Industrial Revolution. It’s going to incentivize people to start businesses, to grow their businesses, and to hire people. So I think that’s a huge, huge plus. 2014 is when it’s going to be fully implemented, and over the course of the next decade, I think we’ll see the fruits of all that work that’s been done. The second thing is, the amount of shale and natural gas we have in this country—there’s so much down there, and we finally have the technology to get it out, through hydrofracking, and all that. Now, there are various political hurdles that the government, and that these companies, are going to have to go through over the next two years. But there’s so much energy down there that the United States could become—or today, could be energy independent, if we just tap all those resources. So, within the next 10 years, I think that’s going to be another huge, huge force that’s going to help the country and our economy, thus mitigating the chance of us kicking this can down the road and borrowing so much and spending so much.
JASON HARTMAN: In other words, that bodes very well for the United States, and allows us to keep spending like a drunken sailor, and get away with it. Which is basically what we’re doing.
NARESH VISSA: Yes, we absolutely are spending like a drunken sailor, and it’s not just this administration. Pretty much—
JASON HARTMAN: Oh, Bush did it too. Democrat George Bush, for sure.
NARESH VISSA: Yep. So, I’m not as gloomy and pessimistic as a lot of libertarians out there. I think if you look at some of these other countries, you’d be thankful to live in the United States of America, so…
JASON HARTMAN: Yeah, and when you look at it in terms of a competition, the US is just so well positioned. I mean, the whole concept of the JOBS Act, and I talked about all of these incredible new internet-oriented business models, and the sharing economy. Yesterday I used Lyft, which is like Uber, and I talked about Uber on the show before and I wanted to try Lyft out. And Naresh, there is literally no reason for anybody to be unemployed anymore. There is so much capacity in the system that can now be put to productive use. And this is actually an anti-inflation concept here, so I’m going against a lot of my own speech, okay? But it’s a good thing. And the Lyft driver was telling me about another thing called RelayRides, and that’s where basically what you can do is you can rent out your car, and the company that does it, RelayRides, has all the insurance stuff covered I guess. I just downloaded the app on my iPhone. And all these companies now, with the JOBS Act, are going to be able to raise money so much more easily. And the crowdfunding revolution…we are living in an amazing time. And it literally gives me goose bumps when I talk about it. I have goose bumps right now. There are so many incredible opportunities coming our way that just bode well for the economy and for real estate investors and all of that. But, let me not leave this conversation before we get to John Stossel without telling investors what it means to them, okay? So, if we have—say for example we have inflation. And now, it’s not whether we do or not—of course we’re going to have some inflation. That’s just, every central bank, every government, every economist believes that a little bit of inflation is good. Usually around 3%. And this is the whole concept, the Phillips curve, that concept of how inflation creates jobs, and it really does in a way. And inflation philosophically is bad, but in many ways it’s really a great business plan for governments. Deflation is very scary, because it causes people to delay buying, and when you delay buying, you reduce the velocity of money, and the economy just goes into this downward spiral. Nobody wants deflation. One time I was doing a radio show on KABC in Los Angeles, and the host asked me, Jason, what’s so bad about deflation? That just means everybody pays lower prices. Wouldn’t that be good, if everybody paid less for things? No, it would not be good! Because everybody would just wait until they got cheaper. When you know—look, it’s right after Christmas, right, you know there’s going to be a lot of sales right now, and in January, until about late January, they have all these big sales. So you wait. Your buying behavior as a consumer is that you wait for the sale and then you buy. What if you knew that in a month things would be cheaper than they are now, and in 6 months they’d be even less expensive than that? You would just wait wait wait. And that would be terrible, that’s disastrous for an economy. We don’t want people to wait. So there’s always going to be inflation, because it’s just a good business plan. But the question is, will there be one or two or three percent inflation—reasonable inflation—or will there be 10 or 20% inflation, which is still considered relatively low, compared to the historical examples of Hungary, Greece, the Weimar Republic, Russia after the Soviet Union fell—any place, right? That’s still very low. Or Zimbabwe of course, the poster child, I can’t fail to mention them. We have hyperinflation where it’s 1,000% annually. Well, maybe we won’t have that since we can defy the laws of gravity. But, think about it! Here’s what this means for a real estate investor. Or any investor, for that matter, in anything. If you have high inflation, my strategy of financing what I call “packaged commodities,” which are the ingredients of an apartment building—wood, concrete, energy, petroleum products, copper wire, glass, steel—those commodities that are traded and needed globally and not attached to any one currency. Financing those with long term fixed rate cheap debt, below the cost of real inflation now—that’s what you do when you get a mortgage, and inflation basically pays off the debt, and the double inflation arbitrage, as I call it, is that the commodities appreciate at a rate slightly higher than the rate of inflation. And that’s great. That’s what the simpleton thinks is how they benefit. But the sophisticated person understands that the real benefit is the inflation-induced debt destruction. And then you combine those two together to get this double inflation arbitrage. It’s the most wonderful thing ever. Well, what if that doesn’t happen? What if we don’t have very much inflation? Well then, we will live in a world where we probably have fairly low interest rates, and very low, or almost zero, interest rates on savings or on bonds. And the stock market doesn’t do much of anything, because the stock market responds to inflation. Gold and silver really don’t do anything. And then the question becomes, TINA, There Is No Alternative! TINA, the acronym, T-I-N-A, There Is No Alternative. Where are you going to go to get yield? In the interview I had recently with Harry Dent—Naresh, I think you booked Harry on the show actually for me, and you probably listened to that interview—and he first sounded really bearish on real estate, right? But then when you got to really dissecting it and drilling down, he’s really very bullish on real estate. Because it all becomes a question on where are you going to go to get yield. In a low inflation environment, or a deflationary environment, you just can’t get yield anywhere! There’s nothing that performs! All you’ve got is the income property. It’s the only thing that really works. Because you get the cash flow every month from the rent, and you get a little bit of hedge against a little bit of inflation. A tiny bit of 1, 2, 3% inflation. And historically, real estate appreciates a little bit above the consumer price index, which is the “official” indicator of inflation. So either way, you’ll hit a homerun in an inflationary environment. That will just put you so far ahead of all of your friends and neighbors. It’s unbelievable, but, if you don’t hit a homerun, everybody else is going backwards because they have nothing! There’s nothing they can do to get yield in an environment of very low inflation. And you, as a real estate investor in the properties you can find at www.jasonhartman.com, you can get projected cash on cash returns, meaning, no tax benefits, no appreciation, just amount of money in versus amount of money back. And those properties are typically performing at, on the low list probably 8 or 9% annually, up to on the highest, about 15 to 18% annually. So, TINA, There Is No Alternative, what else are you going to do? Where else are you going to get yield in a low inflation environment?
NARESH VISSA: Yeah, and just to add to what you said, you talked about the difference between inflation and deflation—I guess you can put me in that Harry Dent camp—I’m way more worried about deflation. I think it’s easier to get deflation than it is to get inflation. Kind of like, it’s way easier to fail in life, or to fail in business, than it is to succeed. That’s how I see the deflation versus inflation argument.
JASON HARTMAN: Yeah, but see, the government is in control of that question. Now, Japan is not, because they don’t have the biggest brand, the biggest military, the biggest economy, and the world’s reserve currency. They’re not in control. America is. So when you talk about Japan’s lost decades, number one, that came from a ridiculous inflationary cycle, at least in their real estate there, in the 80s, to a huge 18 year long hangover, okay? 18-20 year long hangover. So there is no way a government that can create money out of thin air, that is in massive debt, that has all those great characteristics that America has, putting them in the catbird seat, will allow any real deflation to occur. It’s just, they’re just—it’s a terrible business plan. It’s terrible for the economy, it’s terrible for their debt, because all the debt America owes—mostly to China and Japan—will actually increase in value in a deflationary environment! Why would they let that happen? They want to debase the currency and reduce the debt in real dollars. So, yes, if math and gravity and physics were the things we had to live by, that could happen. But we don’t have to live by those things. We can outdo those things with the “disgusting magic,” I’ll put in snarky quotes, of our monetary policy and our money creation machine. I mean, deflation—you would agree that deflation would be a terrible thing for the economy and a terrible thing for the government, right? The government does not want deflation, and the government’s in control of whether we have inflation or deflation. So, what are they going to do? They’re going to create inflation. Whether it be a nominal amount of 1, 2, 3% annually, or maybe it gets out of control and the genie gets out of the box and it’s 10, 20, 30, 100% annually? I don’t know. Nobody really knows. So, you’ve gotta be in asset classes where you can win either way. And I just can’t think of another asset class that you can really win either way in.
NARESH VISSA: Agreed. Completely agreed. I think one of the few explanations that ties it into real estate and helps people actually put their money to use, so, I agree.
JASON HARTMAN: Yeah. Well, good stuff. Naresh, thank you for bringing some of this stuff up. And now that you’ve outed yourself as a Ben Bernanke fan, I don’t know, man [LAUGHTER].
NARESH VISSA: [LAUGHTER] Yeah well, just looking at the numbers, looking at where we were in 2008 and where we are today, I think he’s done a good job. I can see why Obama asked him to stay a little longer than whatever his term was. And I know I’m probably not very popular with your listeners right now, or with you, but—
JASON HARTMAN: You’re okay, I’m just giving you a hard time. I appreciate you coming on the show and discussing some of these things, because we really have to get them out there, and keep booking these great guests for me! You’ve just had some great ones. And coming, we’ll have leftist Noam Chomsky coming up, and then we’ll have leftist Bill Ayers, who describes himself as a Communist with a small ‘c.’ Not a capital ‘C.’ Love it. But he was a great interview, I’ve got to give Bill credit. Noam Chomsky, eh. I don’t know. I’ll let the listeners be the judge on that one. We’ve got a lot of great stuff coming up. Listeners, be sure to get your tickets while they last, for Meet the Masters, at www.jasonhartman.com. And check out the properties that are offering some of those great returns at www.jasonhartman.com as well. And Naresh, thank you so much for joining me today. We’ve been talking for a while, let’s get to John Stossel, okay?
NARESH VISSA: Thanks Jason, thanks everyone.
JASON HARTMAN: Alright, we’ll be back with John Stossel in just a moment.
JASON HARTMAN: It’s my pleasure to welcome John Stossel to the show! That’s a name you’ve most definitely heard. I’m a big fan of his work, and of course he’s with the FOX Business Network, and he’s out with a new book, and we will talk about that today as well as some other pressing issues in government. John, welcome, how are you?
JOHN STOSSEL: I’m good, thanks.
JASON HARTMAN: Well good, good, it’s good to have you here. So, tell us about your latest book! How many do you have now?
JOHN STOSSEL: I have three. Give Me A Break, where I talked about how I finally woke up—but this current one, that was the first, and this one is No They Can’t, in response to the big government’s cheer of “yes we can,” which was of course the Obamacare campaign. And frankly, we can. We have done amazing stuff in there. But they took “we” to mean the state—government—but government can’t. Hence the subtitle, Why Individuals Succeed But Governments Fail.
JASON HARTMAN: It’s amazing, John, that they keep trying this big government experiment. It’s failed every time, everywhere, throughout history. What it is about the human psyche that we just want to give up our power and have a nanny state take care of us? Steve Forbes was on recently, and he said that it’s because in peoples’ mind, government occupies the high moral ground, which of course is completely untrue—government doesn’t want anything, it just wants to help us—but all the help seems to end up in disaster!
JOHN STOSSEL: True, and Forbes is right. I would add that we grew up in a family where mommy and daddy made decisions for us, and protected us, and we evolved in a society where if we didn’t follow the leaders of your clan, and harvested the fruit at the wrong time, you probably starved. And you didn’t give birth to you. So we’re trained to want to follow some leader. And central planning makes sense if you—we have lives! I can’t get my brain around how you design a sewage treatment plant. Obama went to Harvard, and he’s got all these experts, and they have all this time to work on it. Instinct is, with this problem, to say that there ought to be a law, these specialists who get elected there, the people who vote on them think they’ll fix it. And the alternative is the invisible hand. And it’s invisible! So, unless you’re economically educated, or you grew up in a part of the country where somehow people just get this, people don’t get it.
JASON HARTMAN: It’s amazing that you get it and you’re in New York City. I mean, talk about a place that doesn’t get it, right?
JOHN STOSSEL: I didn’t used to get it. I used to be a liberal. And I only got it because I was a consumer reporter, and I stayed on the beat, and I kept watching regulations fail. Most people don’t have that opportunity.
JASON HARTMAN: Yeah, that’s certainly true. Well, give us your thoughts on this Obamacare mess. I just can’t believe the left isn’t saying, gosh, they can’t even launch a website for a hundred million dollars and have Michelle Obama’s classmate, of course took the contract, which is ridiculous, but—they can’t even do the website. How are they going to run healthcare for God’s sake? It’s just crazy.
JOHN STOSSEL: Because the website will get fixed. I was already able to register in New York. And I think they just rationalize that, well, there are all these bugs in the layout. The tail truth is a little more boring. The fact that this Michelle Obama Princeton classmate, working for this company CGI—why does CGI get the contract? It’s not expert in software. It’s an expert in getting government contracts. And, to get a government contract, there’s a 2,000 page booklet that tells you the hoops you have to jump through. And then for Obamacare it was another 6,000 pages. And so, working in government, you end up hiring people who are experts at obeying those 8,000 pages. And Google’s now coming in. I bet they’re breaking all the rules in those pages, and nobody will call them on it, and that’s a good thing. But, you have all these rules, and you can’t succeed under that environment. This is central planning. Central planning rarely works. You can say, well, Air France isn’t bad. But Air France has to compete against private airlines. And Obamacare starts to ban private competition. Yet instinct still says oh yes, healthcare’s complicated, and as I’m having a heart attack, I’m in the taxi and I’m going to be shopping for which hospital to go to? There can’t be a market in healthcare. But that’s folly. Because you don’t need to make a decision when you’re in the taxi. When there’s a market, word just gets out about which is the better hospital, and the bad ones decay, and the good ones grow.
JASON HARTMAN: Yeah, but you’ve got these entrenched interests. That’s why—you were mentioning the ‘there ought to be a law’ concept. Government just never gets smaller. No congressman comes aboard and repeals laws. They only make more. And you did a fantastic program on all these laws and regulations. I lived in California most of my life until two and a half years ago—I just couldn’t stand it anymore—and every year it’s another 800 laws on January 1st! I mean, I was raised with the idea that ignorance of the law is no excuse, but no one can possibly know the laws. We’re all lawbreakers, especially if we run our own business. We’re just breaking laws left and right, because there’s no way we can know them! And some of them are so nonsensical…
JOHN STOSSEL: And every week they pass another thousand pages.
JASON HARTMAN: What do we, John? What are we ever going to do?
JOHN STOSSEL: It’s not so clear. This could kill us off. It’s very hard to stop. You think about why Germany and Japan succeeded after World War II; because we blew out all their gills! We bombed them to smithereens and they had to start over, and then they prospered. It’s very hard to get rid of this stuff. Thomas Jefferson said it’s the natural progress of things for government to grow and liberty to yield, and that is what tends to happen. On the other hand, there is now a Tea Party movement, and I never thought welfare reform could happen. And the animal spirits of clever young people and capitalists, often can grow the economy as fast as government. Thank goodness for Silicon Valley. I don’t think it’s an accident that the computer revolution happened in the two capitals furthest from Washington, D.C.. And before they had time to regulate them to death, they grew wonderful things, like Google and Facebook. In France, the central planners said, this is a great thing, a computer. We’re going to make sure France is the leader here, and they created Minitel, and they spent a lot of tech money. Gave everyone a computer, replaced the yellow pages and the phone book. And the intellectuals cheered the foresight of the French government. But of course, they couldn’t compete with the spontaneous order of the competition in Silicon Valley, and Minitel is a joke!
JASON HARTMAN: Yeah, very good point, very good comparison too. Well, what are you following mostly nowadays? What is on your agenda?
JOHN STOSSEL: (unintelligible) I’m at FOX, and they assess over taxes, and Kathleen Sebelius, she’ll be fired, and I say, who cares? What really counts is this regulation, the constant increase of the spider web of little rules, which strangles us.
JASON HARTMAN: What do you see the future looking like? This regulation, and all of these problems, it may be our death now. But I think if that happens, people are just going to migrate to places…I mean, people are moving to states that are more in sync with their political beliefs! That’s a somewhat new idea, I think. I mean, usually it was for a job—and of course it’s for jobs, because the place with the most libertarian political ideologies tend to have better business climates, of course, and more jobs—but it might be for jobs, for weather, for family in the past, but now it’s really for political ideology. So that’s not the exact same thing as the job issue, although it parallels a lot. Do you think we’ll see secession movements again? I mean, I don’t know. What can happen? This federal government is so intrusive.
JOHN STOSSEL: I don’t presume to know what’s going to happen. I don’t think many people would move for political reasons. I’m tempted—I live in New York City and I hate the political climate. People do move for jobs, and there’s a cool website now that shows you where people are moving and where the job climate is better. But even in those states, nobody goes to better states—Florida, Texas, North Carolina, some of the west—nobody goes to the state capitals in those states on a class tour and says, Mr. Legislator, what laws did you repeal this year? It’s all about what laws did you pass. And they think that’s their job. And then they appoint these big regulatory commissions, and they think they’re not doing their job unless they add regulations. So, I don’t know where people are going to move. In Europe, growth has stopped, but it’s not that bad, and lots of people just ignore the laws, and unless the politicians want to get you, you don’t get in trouble for it. The guy who wrote the book Three Felonies A Day said someone like me who actually probably commits six, but I don’t know what they are, and I won’t get caught on them unless some obsessive government worker or left-wing hater wants to dig it out and get some prosecutor to go after me for it. And the prosecutors have unlimited time and unlimited money. Once they come after you like they go after the banks, you have to pay up, or your life is wrecked.
JASON HARTMAN: It’s a form of extortion, it really is. And the scary part now is that they can put it all together. With the NSA looking at all of our traffic, all of our communications, it’s not like it’s any mystery, of course for you or me it’s pretty obvious what we think. But for the Average Joe citizen, you post something on your Facebook page and you just worry about 10 years from now if that isn’t going to come back and haunt you in a devastating way.
JOHN STOSSEL: Well, I’ve always been aware that I had enemies maybe because I became someone on a liberal network who was questioning the orthodoxy as people started to take me, and so I’ve always been pretty careful about what I post on Facebook and so on. I think that’s just the world. That’s nothing to do with the NSA, though.
JASON HARTMAN: It’s a scary time, it’s a scary time
JOHN STOSSEL: It’s not a scary time. Let’s not be old codgers who are wishing for the good old days, because the world keeps getting better! We’re living longer. Most people used to die by age 30. We have more pain relievers. We have Facebook and Google. In many ways it’s a better time.
JASON HARTMAN: Well, fair enough. I agree with you, and that’s what I always wonder, if with all of the debt and the unfunded entitlement obligations, and so forth, if technology can’t save us. Maybe technology will save us. Just progress with all of these weights hanging over our head, with the Generation Y situation, and these massive obligations coming our way, that we cannot possibly mathematically at least pay for. And—
JOHN STOSSEL: Well that’s a good point. Entitlement bust, this is really ugly, and I don’t know how that’s going to work out. Because when it comes time to stiff somebody, they say they don’t want to default. But if you’re not going to stiff the Chinese, then you’re going to stiff the old people who vote? I doubt that.
JASON HARTMAN: Well, you stiff people through inflation. It’s just this progressive—
JOHN STOSSEL: Or that’s the third choice.
JASON HARTMAN: And that seems to be the business plan of governments throughout history. It’s the most politically tolerable thing, to just have the currency devalue. And you mentioned old people, they’re the ones that get hurt the most, because they’ve got savings instead of debt. The people with debt actually fare pretty well. Inflation pays the debt down, if you will. But people with savings and no debt…inflation just destroys them. It’s a really awful thing.
JOHN STOSSEL: On the other hand, we old people have greater assets than the young people, who are gonna be told they have to pay for my healthcare.
JASON HARTMAN: Well yeah, that’s…another way to look at it for sure. You probably, I’m sure you know about this report—I think it came from Darrell Issa—that only 6 people signed up the first day that the website was open? And a very small number after that in the following days? Do you have any thoughts on that, or comments? It just came out last night.
JOHN STOSSEL: It’s ho-hum, and I know people are making a big deal about that. But to me, the greater threat is just the mental concept—I have it on my desk, on my show this week. A two-foot-high law can micromanage healthcare and make it better: people believe that. The government can’t even count votes accurately. We take it for granted in the private sector that you can go to a foreign country and stick a piece of plastic in a wall and cash will come out, and you can give it to a total stranger and he’ll rent you a car for a week. And when you get home, VISA and MasterCard will have the accounting correct to the penny. We don’t complain if they don’t. The government can’t even count votes once every four years without all kinds of SNAFUs. And the instinct of people is to elect politicians who pass Obamacare. The website is the least of it. What happens when it gets to micromanaging the doctors in the hospital?
JASON HARTMAN: Oh, absolutely. And we see doctors who say they’re leaving the business.
JOHN STOSSEL: Well, this may be a good side effect. Well, not leaving the business. But if they’re leaving Obamacare, we have doctors in Oklahoma who are now advertising prices, they’re getting new customers from Texas, people who pay themselves—that’s what makes the market work. In healthcare, for some reason, we’ve counted on other people to pay for us, and that’s socialism, it never works for long, it takes a while to break down—it took the Soviet Union 70 years, but only a market works, and people are becoming more price-conscious now because of this Obamacare debate. Health savings accounts are up.
JASON HARTMAN: Yeah, that is a great side effect, the price consciousness. And I remember John, last year, when I went in for my annual physical, I took my dog in for his annual physical right around the same time. And it was amazing. When I went to the doctor’s office, there was no conversation whatsoever about what anything cost. I had no concept of it. Yet when I took my dog to the vet, I had to make decisions! Do I want to do the bigger blood panel and test for more things, or the more basic ones? There were decisions, and costs attached to it. When I go to repair my car, it’s the same way. Why is it with healthcare that we can’t talk about money? Nobody knows the price of anything when they go in to manage their healthcare. It’s crazy.
JOHN STOSSEL: Because insurance companies pay for it! That directs the market. You need insurance for catastrophes, but it’s the worst part of capitalism. And the tiny bit of medical care that you do pay yourself—LASIK eye surgery, say—prices go down, quality goes up, and the doctors give out their email addresses and phone numbers!
JASON HARTMAN: Right, you can reach them, and they’re reviewed on Yelp and other places! So, you can find out if they’re a quack or they’re good! What’s wrong with any of this? This is great! This is the way it should be!
JOHN STOSSEL: Well, what’s wrong with it is you have to pay with your own money. But it’s not like it’s not your money when the government pays for it. You can say oh it’s fair because the rich people have to pay for the weaker, but it destroys the market.
JASON HARTMAN: We shall see how it all plays out. But I don’t think it will be positive or good. Hey, I just want to ask you real quickly before you go, though. About your career, when did you change your position? You changed your political position along the way at a certain point. Tell us about some of the fallout of that, really quickly, if you would.
JOHN STOSSEL: I won 19 Emmys being a liberal bashing business. Then I watched regulations fail, and I started to criticize government. I stopped winning Emmys. Peter Jennings wouldn’t look at me in the hall of ABC, it was like I’d betrayed the objectivity, and it was ugly there for—I mean, they did grudgingly—partly because of market competition, I got another job offer, and to keep me they agreed to give me primetime specials—but they just didn’t like them. And I shouldn’t complain. Nobody was shooting at me.
JASON HARTMAN: Why is the media so far to the left? Most of the media, it’s just—it’s the monologue media, what I call it, versus the dialogue media. The new media is more center-right, but the old media is so, so liberal. Why is that? Peter Jennings, etc.
JOHN STOSSEL: It’s funny, that the now Peter Jennings, well not Peter Jennings—
JASON HARTMAN: The late Peter Jennings.
JOHN STOSSEL: It’s most of the people who were presented there as down the middle people, they’re on freaking MSNBC! At least now they have to acknowledge they were on the left. Before it was, oh we’re in the middle, and only Stossel’s on the right. Why does it happen? I think it’s some left brain right brain thing. The kind of people who are analytical thinkers tend to go into science, business…the people who want to micromanage your life, and have this feeling that central planning could work—they go into law and journalism.
JASON HARTMAN: Yeah, it’s interesting. Well hey, of course the book is available in all the right places, www.amazon.com, I think you’ve got 5 stars with almost 300 reviews? So, congratulations on another great book. Give out your website, or your Twitter, or whatever you’d like as a resource so people can find out more.
JOHN STOSSEL: www.johnstossel.com works, or No They Can’t is the book.
JASON HARTMAN: Fantastic. Well, John Stossel, thank you so much for joining us today, and keep up the good work.
JOHN STOSSEL: Thank you. Bye bye.
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