In this Flashback Friday episode of the Creating Wealth podcast, originally published in March 2015, from Episode 493, Jason Hartman and Sarah discussed the benefits of the Memphis TN real estate market. Hartman also covered information regarding an upcoming property tour in the area.
Hartman then spoke with Moneyball Economist Andrew Zatlin about the state of the economy and how Zatlin correctly predicts upcoming economic conditions by talking to escorts, a practice that he dubs “hookernomics”. The pair also discussed how gold is going to drip in price, and problems facing the Chinese and Japanese economies.
Interest in Memphis TN Real Estate Market
Hartman opens Episode 493 by mentioning that his main guest for the show is going to be Andrew Zatlin of Moneyball Economics, but first he and Sarah are going to discuss the Memphis TN real estate market.
Sarah states that business is booming in the Memphis market, with solid inventory and two especially strong providers. It’s a great market where inventory is not hard to come by. She mentions that she’s excited about the upcoming property tour and explains that new properties are coming online for the tour. There are going to be more of the higher end homes for rentals, in nicer neighborhoods with the opportunity to have quality tenants. There will be some of the less expensive properties as well, which makes a good price range for the Memphis TN real estate market.
Hartman mentions that he needs to buy two properties for an exchange and when asked, Sarah states that she advises looking in Chicago to open up that market. Properties are a little more expensive in the area and taxes are higher, but so are the rents. She notes that Texas has a similar situation.
Hartman states that a few months ago, he was wondering where he should initiate the next property tour and Sarah recommended Memphis. Though he mentioned that Memphis TN real estate had already been done, she stated that interest was still there, and that it was a great idea to let the clients choose. It had ben two years since there was a Memphis tour, and clients were very interested.
Sarah explains that when they first got into the market, they wanted to go somewhere that was new, and meet new people. Now, they’ve got two solid managers in the area and the market is working well.
Memphis TN Real Estate Property Tour Dates
Hartman agrees that it’s important to do what the client wants and states that the tour is going to take place on May 2nd and 3rd. For the first time, the format of the tour is going to be different. Hartman explains that the Creating Wealth seminar is going to be split up over a two-day period, which was Sarah’s idea.
On May 2nd, the group is going to have breakfast at the hotel and then participate in the seminar from 9:00 to noon. They’ll have a break, go on a one-hour tour, and then go to lunch. The tour will continue from then until 6:00, followed by dinner. Sunday morning will be dedicated to finishing up the Creating Wealth seminar. It’s never been done this way before, but Hartman states that it might help participants keep up their mental endurance.
Sarah adds that in the past, the tour has taken place on Sunday, but that people were distracted with the fear of making their flights on time.
Andrew Zatlin and Moneyball Economics
Hartman introduces Moneyball Economist Andrew Zatlin to the episode, who is joining out of Northern California.
Zatlin, in reference to the Moneyball film, explains that it’s the same concept as when a situation changes, and people want a fresh perspective from an outsider. Zatlin notes that he comes from Main Street, not Wall Street, and in his pursuits, he rolled up his sleeves and did his business based on data rather than pre-supposing.
He states that he makes data-driven decisions to see who has created wealth and who saw something that nobody else did. He notes that creating wealth means getting somewhere before everybody else. Moneyball economics is a step back, and he explains that we have a different economy now than we did in the last century. Our economy is different from a decade ago as well, when Facebook barely existed.
He notes that most policymakers got their PhDs before the internet existed, so they’re using an old model of economics.
Vice and Hookernomics
Zatlin explains that while studying the state of the economy, he looks at the vice index, which is a compendium of data sets he’d put together to track vices. It’s a twenty-year index, and it doesn’t change. He notes that the Wall Street model is the sort that changes, while his index is straightforward. He has achieved the holy grail of luxury spending.
With his vice index, he forecasts retail and beat the other forecasters in accuracy by basing his research on his vice index. It consistently beats Wall Street’s predictions.
Hartman asks if the vice index suggests that when men spend money on prostitutes or escorts, they’re luxury expenses and if declines mean that the upper-middle class is struggling.
Zatlin explains that from an economic modeling standpoint, his vice index is looking at what’s going to happen today and tomorrow. The key to the index is that one man’s want is another man’s need, and the extra oomph depends on how much money we’ve got burning a hole in our pockets. Finding the places people are spending money spreads broadly, he says.
He states that measuring expenses at Tiffany & Co does not represent spendings from the majority of society but notes that there are 17 million marijuana users in the country. Because of this, he tracks marijuana purchases at a certain price, and that is a decent indicator.
Gambling and drinking offers good visibility, Zatlin mentions. The challenge is getting to the more illicit vices, and he has developed a way to do so. He explains that it’s important to understand that illicit vices are a cash-based economy. When people are gambling, buying time with an escort, or buying drugs, it’s a cash market.
Hartman adds that when you look at a vice, especially the illegal vices, you’re looking at cashbook accounting. There is no adaptation time, and it has to be quick. Normal businesses don’t offer their answers as quickly.
Why Zatlin Surveyed Prostitutes on the Economy
Zatlin explains that escort prices in the San Francisco area are around $300 for an hour, with the median income in the area being $50,000. In purchasing time with an escort, someone is willing to spend a day of their wages for one hour of something with no utility value. These people have to feel like they have cash in their pocket to where it won’t cause financial hardship for the rest of the month.
If the client doesn’t have enough money, the escort has to respond in the way a hotel would, such as the way that hotels offer deals to get people to stay at their establishment.
Zatlin states that he conducted his survey, much like when the Fed asks 100 businesses how their work is going. He did the same, he says, but targeted prostitutes. He used the same questions that the Fed asks businesses but targeted them because he felt that they had a better handle on the economy.
He also mentions that people don’t seem to realize that many escorts and prostitutes are college educated. A lot of people are not aware that they’re meeting an escort when they attend cocktail parties. Silicon Valley is full of worldly, intelligent people, and these workers have anywhere from a high school to graduate school education. The women he surveyed are serious business people. His survey tracked the impact that oil prices had on business, consumer spending, discretionary spending, and the intent to spend as well.
He notes that his survey asked where prostitutes see inflation and spending going and if they plan to raise prices. Every escort he spoke to sees several clients a week, so the network of people helped encourage informed decisions.
In his feedback, Zatlin states that there was not an indication of costs going up. At the same time, the escorts were not seeing clients decrease or increase services or demands. Work has been steady. He notes that the reason why business has been steady and not in a decline is due to the recent oil prices. The pick-up in demand is likely to disappear when oil prices go back up.
Zatlin explains that there is not truly more money in the market like the Fed seems to think. There’s temporary deflation occurring that keeps spending going up. The clients are not doing great, but business has been steady.
Jobless Claims Indicator
Zatlin notes that another thing proving itself as an indicator are jobless claims. He looks at the jobless claims from this year and last year and mentions that it should be a #1 gauge. When an economy is growing, look at the growth over years, not seasons. The hiring rates year to year should increase in a growing economy, as well as the number of people who have been fired decreasing.
Hartman asks about the issues of technology and robotics. He explains that technology is deflationary, but when it takes jobs away, there’s an adaptation time where people develop a new skill to get hired elsewhere. He mentions that 47% of jobs are up for grabs to technical innovations. He questions whether we are entering into an era of huge unemployment and recession or a utopia where we can work less and still afford things.
Zatlin explains that change is scary and mentions that there was a time when a huge chunk of jobs were gas lighters, as well as a time when Blockbuster had so many people on their payroll. Netflix, after a decade of competition, beat Blockbuster out of business.
The Data Points That Matter
Zatlin explains that he knows what business operations look like and what information is important to know. He harnessed this information and found that most of what he used wasn’t being used in mainstream economics. The internet has released a lot of information that was available. Zatlin states that he’s coming in from the side door and harnessing data that passes the snip test.
He notes that the Consumer Index Report only covers 400 people, and that a lot of the data that we rely on is modeled and fudged. It’s important not to hold it up as a holy be-all.
Hartman adds that when we look at reports from big government, it’s never from the “boots on the ground” guy. He explains that there’s an innuendo he learned in real estate, stating that we can do all the research we want, but at the end of the day, talking to the guy on the street is what works.
He also mentions that when you get into the world of solo-preneurs and freelancers, there are now a lot of things between jobs and joblessness.
Zatlin mentions that he was on a flight during the summer and sat next to a man called Harvey. Harvey owns several companies in the novelty business, and his company makes the Halloween spiderweb decorations and green Easter basket filling. Harvey explained to him that in his business, he will talk to stores in January about the coming year, a 9-month supply chain. Every industry out there, thanks to the global chain, orders have to be placed in advance. Zatlin states that if he could ask all of the Harveys in the world what Walmart expects to look like, what they say is going to be useful.
China is in Trouble
Zatlin states that the whole world is fundamentally harnessed to China and that they’ve created a super bubble. The tide is rolling out, and there is no soft landing for China. They’re in trouble and the blowback is being felt in the feeder economy. The US is entering its 6th year of recovery, and we can continue for a while as we have leaned out a bit.
Zatlin mentions that the Fed is going to screw things up if they raise rates, as they have missed their opportunity. Everyone has what they need, but China is falling apart.
Japan is Facing Issues
Zatlin explains that Japan is also in trouble, and two years ago when they were at 80 Yen to the dollar, they went up to 110.
He states that Japan doesn’t really make things that people want anymore. In the last 6-7 years, their exports have contracted. Korea and Taiwan are growing their trade and Japan is shrinking. At one point, China was keeping Japan afloat because they didn’t want a cheap Yen.
Over time, Japan has gotten to be so problematic. Their population isn’t growing, they’re in enormous debt, and there are not enough people in the country working.
Hartman mentions that they need to have more children or allow immigration.
Zatlin adds that Japan is a middle weight rather than a heavyweight in the economy. They’re falling off the map and have become the second largest creditor to the US. There’s so much debt in the world, he says, that if we have a global slowdown, we aren’t going to be able to fight it easily. He asks what kind of policy the Fed is going to roll out.
He adds that if there’s a recession, there won’t be a monetary solution. Japan does not have a sustainable advantage as well.
On the Topic of Gold
Zatlin explains that he is not a gold fan and there’s a reason why gold is down right now. For him and his understanding of golf, it is a fear-based economy. There was a period when people were afraid and uninformed, so gold went up.
Bitcoin is much the same way and has not succeeded for the same reason. It’s becoming similar to the dollar, though, with both being pretty digital.
Zatlin mentions that with fear, there is unusual behavior in finance, as fear and momentum trade. He adds that he likes to use Google data to track certain things over a year period. For example, he tracks how often the world “inflation” shows up in searches using Google Trend. The program will triangulate on words, and when he uses hot-button words, he can chart them.
In closing the episode, Zatlin mentions that he has free reports available on his website at www.moneyballeconomics.com. His vice reports are available as well to help listeners understand the economy.